UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549 

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021 or 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

COMMISSION FILE NUMBER 001-35872

 EVERTEC, Inc.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 

Puerto Rico		66-0783622
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)
Cupey Center Building,	Road 176, Kilometer 1.3,
San Juan,	Puerto Rico	00926
(Address of principal executive offices)		(Zip Code)

(787) 759-9999

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	EVTC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. 

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).    Yes  ☐  No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

At October 20, 2021, there were 71,969,856 outstanding shares of common stock of EVERTEC, Inc.

TABLE OF CONTENTS

		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	1
	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2021 and 2020	2
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	35
Part II. OTHER INFORMATION		36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity in Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
SIGNATURES		38

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various important factors. Among the important factors that significantly impact our business and could impact our business in the future are:

•our reliance on our relationship with Popular, Inc. (“Popular”) for a significant portion of our revenues pursuant to our Master Services Agreement ("MSA") with them, and to grow our merchant acquiring business;

•as a regulated institution, the likelihood we will be required to obtain regulatory approval before engaging in certain new activities or businesses, whether organically or by acquisition, and our potential inability to obtain such approval on a timely basis or at all, which may make transactions more expensive or impossible to complete, or make us less attractive to potential sellers;

•our ability to renew our client contracts on terms favorable to us, including our contract with Popular, and any significant concessions we may grant to Popular with respect to pricing or other key terms arising out of any disputes or in anticipation of the negotiation of the extension of the MSA, both in respect of the current term and any extension of the MSA;

•our dependence on our processing systems, technology infrastructure, security systems and fraudulent payment detection systems, as well as on our personnel and certain third parties with whom we do business, and the risks to our business if our systems are hacked or otherwise compromised;

•our ability to develop, install and adopt new software, technology and computing systems;

•a decreased client base due to consolidations and failures in the financial services industry;

•the credit risk of our merchant clients, for which we may also be liable;

•the continuing market position of the ATH network;

•a reduction in consumer confidence, whether as a result of a global economic downturn or otherwise, which leads to a decrease in consumer spending;

•our dependence on credit card associations, including any adverse changes in credit card association or network rules or fees;

•changes in the regulatory environment and changes in international, legal, tax, political, administrative or economic conditions;

•the geographical concentration of our business in Puerto Rico, including our business with the government of Puerto Rico and its instrumentalities, which are facing severe political and fiscal challenges;

•additional adverse changes in the general economic conditions in Puerto Rico, whether as a result of the government’s debt crisis or otherwise, including the continued migration of Puerto Ricans to the U.S. mainland, which could negatively affect our customer base, general consumer spending, our cost of operations and our ability to hire and retain qualified employees;

•operating an international business in Latin America and the Caribbean, in jurisdictions with potential political and economic instability;

•our ability to protect our intellectual property rights against infringement and to defend ourselves against claims of infringement brought by third parties;

•our ability to comply with U.S. federal, state, local and foreign regulatory requirements;

•evolving industry standards and adverse changes in global economic, political and other conditions;

•our level of indebtedness and restrictions contained in our debt agreements, including the secured credit facilities, as well as debt that could be incurred in the future;

•our ability to prevent a cybersecurity attack or breach in our information security;

•the possibility that we could lose our preferential tax rate in Puerto Rico;

•the possibility of future catastrophic hurricanes, earthquakes and other potential natural disasters affecting our main markets in Latin America and the Caribbean;

•uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate at the end of 2021;

•the continued impact of the COVID-19 pandemic and measures taken in response to the outbreak, on our resources, net income and liquidity due to current and future disruptions in operations as well as the macroeconomic instability caused by the pandemic; and

•the nature, timing and amount of any restatement.

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various important factors, including those set forth under “Item 1A. Risk Factors,” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 1, 2021, as updated in our subsequent filings with the SEC, and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report. These forward-looking statements speak only as of the date of this Report, and, except as required by applicable law, we do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.

Where You Can Find More Information

All reports we file with the SEC are available for download free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC’s website at www.sec.gov. We also provide copies of our SEC filings free of charge upon request and make electronic copies of our reports available for download, free of charge, through our website at www.evertecinc.com as soon as reasonably practicable after filing such material with the SEC. Information contained on our website is not part of this Report.

EVERTEC, Inc. Unaudited Condensed Consolidated Balance Sheets

(In thousands, except for share information)

	September 30, 2021		December 31, 2020
Assets
Current Assets:
Cash and cash equivalents	$	244,129	$	202,649
Restricted cash	18,664		18,456
Accounts receivable, net	95,548		95,727
Prepaid expenses and other assets	44,733		42,214
Total current assets	403,074		359,046
Debt securities available-for-sale, at fair value	3,060		—
Investment in equity investee	11,248		12,835
Property and equipment, net	42,780		43,538
Operating lease right-of-use asset	22,625		27,538
Goodwill	394,536		397,670
Other intangible assets, net	219,615		219,909
Deferred tax asset	4,993		5,730
Net investment in leases	178		301
Other long-term assets	6,384		6,012
Total assets	$	1,108,493	$	1,072,579
Liabilities and stockholders’ equity
Current Liabilities:
Accrued liabilities	$	68,555	$	58,033
Accounts payable	34,069		43,348
Contract liability	21,304		24,958
Income tax payable	4,597		6,573
Current portion of long-term debt	18,375		14,250
Operating lease payable	5,900		5,830
Total current liabilities	152,800		152,992
Long-term debt	449,435		481,041
Deferred tax liability	1,819		2,748
Contract liability - long term	31,109		31,336
Operating lease liability - long-term	17,511		22,402
Derivative liability	18,104		25,578
Other long-term liabilities	9,785		14,053
Total liabilities	680,563		730,150
Commitments and contingencies (Note 14)
Stockholders’ equity
Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued	—		—
Common stock, par value $0.01; 206,000,000 shares authorized; 71,969,856 shares issued and outstanding as of September 30, 2021 (December 31, 2020 - 72,137,678)	719		721
Additional paid-in capital	3,708		5,340
Accumulated earnings	468,533		379,934
Accumulated other comprehensive loss, net of tax	(49,166)		(48,254)
Total EVERTEC, Inc. stockholders’ equity	423,794		337,741
Non-controlling interest	4,136		4,688
Total equity	427,930		342,429
Total liabilities and equity	$	1,108,493	$	1,072,579

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

EVERTEC, Inc. Unaudited Condensed Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share information)

	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Revenues (affiliates Note 15)	$	145,883	$	136,507	$	434,559	$	376,386
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization	62,995		57,854		182,180		168,900
Selling, general and administrative expenses	17,126		16,682		49,980		51,528
Depreciation and amortization	18,745		18,127		56,091		53,761
Total operating costs and expenses	98,866		92,663		288,251		274,189
Income from operations	47,017		43,844		146,308		102,197
Non-operating income (expenses)
Interest income	504		429		1,343		1,165
Interest expense	(5,684)		(5,867)		(17,248)		(18,829)
Earnings of equity method investment	411		202		1,307		733
Other income, net	146		2,486		2,719		2,766
Total non-operating expenses	(4,623)		(2,750)		(11,879)		(14,165)
Income before income taxes	42,394		41,094		134,429		88,032
Income tax expense	7,134		6,513		14,474		15,551
Net income	35,260		34,581		119,955		72,481
Less: Net (loss) income attributable to non-controlling interest	(54)		118		(59)		323
Net income attributable to EVERTEC, Inc.’s common stockholders	35,314		34,463		120,014		72,158
Other comprehensive income (loss), net of tax of $382, $(2), $817 and $(1,087)
Foreign currency translation adjustments	(6,942)		(3,245)		(7,823)		(10,483)
Gain (loss) on cash flow hedge	1,537		643		6,814		(11,894)
Unrealized gain on change in fair value of debt securities available-for-sale	8		—		97		—
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders	$	29,917	$	31,861	$	119,102	$	49,781
Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders	$	0.49	$	0.48	$	1.66	$	1.00
Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders	$	0.48	$	0.47	$	1.65	$	0.99

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

EVERTEC, Inc. Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share information)

	Number of Shares of Common Stock	Common Stock		Additional Paid-in Capital		Accumulated Earnings		Accumulated  Other Comprehensive Loss		Non-Controlling Interest		Total Stockholders’ Equity
Balance at December 31, 2020	72,137,678	$	721	$	5,340	$	379,934	$	(48,254)	$	4,688	$	342,429
Share-based compensation recognized	—	—		3,380		—		—		—		3,380
Repurchase of common stock	(382,974)	(4)		(1,290)		(12,974)		—		—		(14,268)
Restricted stock units delivered	411,739	4		(7,430)		(1,302)		—		—		(8,728)
Net income	—	—		—		35,503		—		101		35,604
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,605)		—		—		(3,605)
Other comprehensive income (loss)	—	—		—		—		1,576		(381)		1,195
Balance at March 31, 2021	72,166,443	$	721	$	—	$	397,556	$	(46,678)	$	4,408	$	356,007
Share-based compensation recognized	—	—		3,855		—		—		—		3,855
Repurchase of common stock	(231,314)	(2)		(3,790)		(6,328)		—		—		(10,120)
Restricted stock units delivered	34,727	—		(65)		—		—		—		(65)
Net income	—	—		—		49,197		—		(106)		49,091
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,608)		—		—		(3,608)
Other comprehensive income (loss)	—	—		—		—		2,909		(25)		2,884
Balance at June 30, 2021	71,969,856	$	719	$	—	$	436,817	$	(43,769)	$	4,277	$	398,044
Share-based compensation recognized	—	—		3,708		—		—		—		3,708
Net income	—	—		—		35,314		—		(54)		35,260
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,598)		—		—		(3,598)
Other comprehensive loss	—	—		—		—		(5,397)		(87)		(5,484)
Balance at September 30, 2021	71,969,856	$	719	$	3,708	$	468,533	$	(49,166)	$	4,136	$	427,930

3

	Number of Shares of Common Stock	Common Stock		Additional Paid-in Capital		Accumulated Earnings		Accumulated  Other Comprehensive Loss		Non-Controlling Interest		Total Stockholders’ Equity
Balance at December 31, 2019	72,000,261	$	720	$	—	$	296,476	$	(30,009)	$	4,436	$	271,623
Share-based compensation recognized	—	—		3,483		—		—		—		3,483
Repurchase of common stock	(336,022)	(3)		(775)		(6,522)		—		—		(7,300)
Restricted stock units delivered	201,066	2		(2,708)		—		—		—		(2,706)
Net income	—	—		—		22,211		—		64		22,275
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,600)		—		—		(3,600)
Other comprehensive loss	—	—		—		—		(20,164)		(853)		(21,017)
Cumulative adjustment from the implementation of Current Expected Credit Loss model	—	—		—		(74)		—		—		(74)
Balance at March 31, 2020	71,865,305	$	719	$	—	$	308,491	$	(50,173)	$	3,647	$	262,684
Share-based compensation recognized	—	—		3,639		—		—		—		3,639
Restricted stock units delivered	(2,445)	—		(71)		—		—		—		(71)
Net income	—	—		—		15,484		—		141		15,625
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,593)		—		—		(3,593)
Other comprehensive loss	—	—		—		—		389		295		684
Balance at June 30, 2020	71,862,860	$	719	$	3,568	$	320,382	$	(49,784)	$	4,083	$	278,968
Share-based compensation recognized	—	—		3,663		—		—		—		3,663
Repurchase of common stock	—	—		(679)		—		—		—		(679)
Restricted stock units delivered	43,385	—		—		—		—		—		—
Net income	—	—		—		34,463		—		118		34,581
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,593)		—		—		(3,593)
Other comprehensive loss	—	—		—		—		(2,602)		(130)		(2,732)
Balance at September 30, 2020	71,906,245	$	719	$	6,552	$	351,252	$	(52,386)	$	4,071	$	310,208

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

EVERTEC, Inc. Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

	Nine months ended September 30,
	2021		2020
Cash flows from operating activities
Net income	$	119,955	$	72,481
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	56,091		53,761
Amortization of debt issue costs and accretion of discount	1,423		1,530
Operating lease amortization	4,443		4,377
Provision for expected credit losses and sundry losses	1,428		1,732
Deferred tax benefit	(1,119)		(2,082)
Share-based compensation	10,943		10,785
Gain from sale of assets	(778)		—
Loss on disposition of property and equipment and impairment of intangible	1,168		753
Earnings of equity method investment	(1,307)		(733)
Dividend received from equity method investment	1,183		—
(Increase) decrease in assets:
Accounts receivable, net	(593)		(7,096)
Prepaid expenses and other assets	(3,070)		(7,138)
Other long-term assets	(339)		284
(Decrease) increase in liabilities:
Accrued liabilities and accounts payable	(1,425)		(7,969)
Income tax payable	(2,685)		1,548
Contract liability	(2,654)		2,350
Operating lease liabilities	(4,107)		(5,720)
Other long-term liabilities	(2,702)		2,296
Total adjustments	55,900		48,678
Net cash provided by operating activities	175,855		121,159
Cash flows from investing activities
Additions to software	(31,004)		(23,521)
Acquisition of customer relationship	(14,750)		—
Property and equipment acquired	(12,388)		(13,402)
Proceeds from sales of property and equipment	805		3
Acquisition of available-for-sale debt securities	(2,968)		—
Net cash used in investing activities	(60,305)		(36,920)
Cash flows from financing activities
Statutory withholding taxes paid on share-based compensation	(8,793)		(3,456)
Repayment of short-term borrowings for purchase of equipment and software	(1,603)		(1,553)
Dividends paid	(10,811)		(10,786)
Repurchase of common stock	(24,388)		(7,300)
Repayment of long-term debt	(28,482)		(27,685)
Net cash used in financing activities	(74,077)		(50,780)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash	215		(2,384)
Net increase in cash, cash equivalents and restricted cash	41,688		31,075
Cash, cash equivalents and restricted cash at beginning of the period	221,105		131,121
Cash, cash equivalents and restricted cash at end of the period	$	262,793	$	162,196
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	244,129	$	144,147
Restricted cash	18,664		18,049
Cash, cash equivalents and restricted cash	$	262,793	$	162,196
Supplemental disclosure of cash flow information:
Cash paid for interest	$	16,289	$	18,081
Cash paid for income taxes	19,468		15,257
Supplemental disclosure of non-cash activities:
Payable due to vendor related to equipment and software acquired	$	739	$	1,486

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 - The Company and Basis of Presentation	7
Note 2 - Recent Accounting Pronouncements	7
Note 3 - Debt Securities	8
Note 4 - Property and Equipment, net	8
Note 5 - Goodwill and Other Intangible Assets	8
Note 6 - Debt and Short-Term Borrowings	9
Note 7 - Financial Instruments and Fair Value Measurements	11
Note 8 - Equity	11
Note 9 - Share-based Compensation	12
Note 10 - Revenues	12
Note 11 - Current Expected Credit Losses	14
Note 12 - Income Tax	15
Note 13 - Net Income per Common Share	16
Note 14 - Commitments and Contingencies	16
Note 15 - Related Party Transactions	16
Note 16 - Segment Information	17
Note 17 - Subsequent Events	21

6

Note 1 – The Company and Basis of Presentation

The Company

EVERTEC, Inc. and its subsidiaries (collectively the “Company,” or “EVERTEC”) is a leading full-service transaction-processing business in Puerto Rico, the Caribbean and Latin America. The Company is based in Puerto Rico and provides a broad range of merchant acquiring, payment services and business process management services. The Company provides services across 26 countries in the region. EVERTEC owns and operates the ATH network, one of the leading personal identification number ("PIN") debit networks in Latin America. EVERTEC manages a system of electronic payment networks and offers a comprehensive suite of services for core bank, cash processing and fulfillment in Puerto Rico. In addition, EVERTEC offers technology outsourcing in all the regions the Company serves. EVERTEC serves a broad and diversified customer base of leading financial institutions, merchants, corporations and government agencies with solutions that are essential to their operations, enabling them to issue, process and accept transactions securely.

Basis of Presentation

The unaudited condensed consolidated financial statements of EVERTEC have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the accompanying unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements. Actual results could differ from these estimates.

Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted from these statements pursuant to the rules and regulations of the Securities and Exchange Commission and, accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements of the Company for the year ended December 31, 2020, included in the Company’s 2020 Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited condensed consolidated financial statements, prepared in accordance with GAAP, contain all adjustments necessary for a fair presentation. Intercompany accounts and transactions are eliminated in consolidation.

Note 2 – Recent Accounting Pronouncements

Accounting Pronouncements Issued Prior to 2021 and Not Yet Adopted

In March 2020, the FASB issued updated guidance for ASC Topic 848, Reference Rate Reform, to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met for a limited period of time in order to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update are elective and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments to this update are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of this guidance will not have an impact on the Company's unaudited condensed consolidated financial statements.

Note 3 – Debt Securities

Accounting policy

Debt securities available-for-sale are accounted for under the provisions of ASC 320 Investments – Debt and Equity Securities, which requires that debt securities available-for-sale ("AFS") be carried at fair value on the Company’s unaudited condensed consolidated balance sheets with unrealized gains (losses) recorded through other comprehensive income (“OCI”). Debt securities in an unrealized loss position which the Company intends to sell or for which it is more likely than not that the Company will be required to sell before recovery of the amortized cost basis, are written down to fair value through income.

Quarterly, for debt securities in an unrealized loss position that the Company does not intend or will, more likely than not, not be required to sell, the Company evaluates if the decline in fair value has resulted from credit losses or other factors. If it is determined that the decline in fair value is related to credit losses, the Company records an allowance for credit losses, limited

7

to the amount by which the fair value is less than the amortized cost basis. If the Company determines that the decline in value is related to factors other than credit, the Company recognizes the impairment through OCI.

Debt securities were purchased close to the final trading day of the quarter ended March 31, 2021 and are held by a trust in the Costa Rica National Bank as a collateral requirement for settlement activities. The Company may substitute securities as needed but must maintain certain levels of collateral based on transaction volumes.

The amortized cost, gross unrealized gains and losses recorded in OCI, and estimated fair value as of September 30, 2021 were as follows:

	September 30, 2021
(In thousands)			Gross unrealized
	Amortized cost		Gains	Losses	Fair Value
Costa Rica Government Obligations
After 1 to 5 years	$	2,963	97	—	$	3,060

No debt securities were sold during the quarter ended September 30, 2021. A provision for credit losses was not required for the period presented above. Refer to Note 7 for disclosure requirements related to the fair value hierarchy.

Note 4 – Property and Equipment, net

Property and equipment, net consists of the following:

(In thousands)	Useful life in years	September 30, 2021		December 31, 2020
Buildings	30	$	1,394	$	1,437
Data processing equipment	3 - 5	132,832		124,897
Furniture and equipment	3 - 20	7,372		6,691
Leasehold improvements	5 -10	3,126		3,098
		144,724		136,123
Less - accumulated depreciation and amortization		(103,160)		(93,826)
Depreciable assets, net		41,564		42,297
Land		1,216		1,241
Property and equipment, net		$	42,780	$	43,538

Depreciation and amortization expense related to property and equipment for the three and nine months ended September 30, 2021 amounted to $4.2 million and $13.0 million, respectively, compared to $4.4 million and $12.9 million for the corresponding periods in 2020.

During the nine months ended September 30, 2021, the Company recorded a loss on the disposition of damaged POS devices amounting to $0.5 million through cost of revenues.

Note 5 – Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill, allocated by operating segments, were as follows (see Note 16):

(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total
Balance at December 31, 2020	$	160,972	$	52,754	$	138,121	$	45,823	$	397,670
Foreign currency translation adjustments	—		(3,134)		—		—		(3,134)
Balance at September 30, 2021	$	160,972	$	49,620	$	138,121	$	45,823	$	394,536

8

Goodwill is tested for impairment on an annual basis as of August 31, or more often if events or changes in circumstances indicate there may be impairment. The Company may test for goodwill impairment using a qualitative or a quantitative analysis. In the quantitative analysis, the Company compares the estimated fair value of the reporting units to their carrying values, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the fair value does not exceed the carrying value, an impairment loss is recorded for the excess of the carrying value over the fair value, limited to the recorded balance of goodwill. No impairment losses were recognized for the periods ended September 30, 2021 or 2020.

The carrying amount of other intangible assets at September 30, 2021 and December 31, 2020 was as follows:

		September 30, 2021
(In thousands)	Useful life in years	Gross amount		Accumulated amortization		Net carrying amount
Customer relationships	8 - 14	$	358,191	$	(266,047)	$	92,144
Trademarks	2 - 15	41,926		(36,385)		5,541
Software packages	3 - 10	317,799		(210,946)		106,853
Non-compete agreement	15	56,539		(41,462)		15,077
Other intangible assets, net		$	774,455	$	(554,840)	$	219,615

		December 31, 2020
(Dollar amounts in thousands)	Useful life in years	Gross amount		Accumulated amortization		Net carrying amount
Customer relationships	8 - 14	$	343,981	$	(246,088)	$	97,893
Trademarks	2 - 15	42,036		(35,467)		6,569
Software packages	3 - 10	289,205		(191,662)		97,543
Non-compete agreement	15	56,539		(38,635)		17,904
Other intangible assets, net		$	731,761	$	(511,852)	$	219,909

During the first quarter of 2021, the Company acquired a customer relationship in Puerto Rico amounting to $14.8 million that will be amortized over ten years. Revenue and expenses in connection with this customer relationship are included as part of the Merchant Acquiring segment.

Amortization expense related to other intangibles for the three and nine months ended September 30, 2021 amounted to $14.5 million and $43.0 million, respectively, compared to $13.7 million and $40.8 million for the corresponding periods in 2020. During the nine months period ended September 30, 2021, the Company recorded an impairment charge through cost of revenues amounting to $0.6 million for a software solution that will no longer be used. The impairment charge affected the Company’s Payment Services – Puerto Rico & Caribbean segment.

The estimated amortization expense of the balances outstanding at September 30, 2021 for the next five years is as follows:

(Dollar amounts in thousands)
Remaining 2021	$	14,146
2022	51,237
2023	45,918
2024	34,154
2025	11,731

9

Note 6 – Debt and Short-Term Borrowings

Total debt at September 30, 2021 and December 31, 2020 follows:

(In thousands)	September 30, 2021		December 31, 2020
2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(2))	$	173,519	$	188,788
2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(3))	294,291		306,503
Notes payable due January 1, 2022(1)	739		1,443
Total debt	$	468,549	$	496,734

(1)Net of unaccreted discount and unamortized debt issue costs, as applicable.

(2)Applicable margin of 1.75% at September 30, 2021 and December 31, 2020.

(3)Subject to a minimum rate ("LIBOR floor") of 0% plus applicable margin of 3.50% at September 30, 2021 and December 31, 2020.

Secured Credit Facilities

On November 27, 2018, EVERTEC and EVERTEC Group, LLC ("EVERTEC Group") (collectively, the “Borrower”) entered into a credit agreement providing for the secured credit facilities, consisting of a $220.0 million term loan A facility that matures on November 27, 2023 (the “2023 Term A Loan"), a $325.0 million term loan B facility that matures on November 27, 2024 (the “2024 Term B Loan”), and a $125.0 million revolving credit facility (the “Revolving Facility”) that matures on November 27, 2023, with a syndicate of lenders and Bank of America, N.A. (“Bank of America”), as administrative agent, collateral agent, swingline lender and line of credit issuer (collectively the “2018 Credit Agreement”).

The 2018 Credit Agreement requires mandatory repayment of outstanding principal balances based on a percentage of excess cash flow, provided that no such payment shall be due if the resulting amount of the excess cash flow multiplied by the applicable percentage is less than $10 million. On March 8, 2021 and March 5, 2020, in connection with this mandatory repayment clause, the Company repaid $17.8 million and $17.0 million, respectively, as a result of excess cash flow calculation performed for the years ended December 31, 2020 and 2019, respectively.

The unpaid principal balance at September 30, 2021 of the 2023 Term A Loan and the 2024 Term B Loan was $174.4 million and $296.7 million, respectively. The additional borrowing capacity under our Revolving Facility at September 30, 2021 was $119.1 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.

Notes Payable

In December 2019, EVERTEC Group entered into two non-interest bearing financing agreements amounting to $2.4 million to purchase software and maintenance. As of September 30, 2021 and December 31, 2020, the outstanding principal balance of the notes payable was $0.8 million and $1.5 million, respectively. These notes are included in accounts payable in the Company's unaudited condensed consolidated balance sheets.

Interest Rate Swaps

As of September 30, 2021, the Company has an interest rate swap agreement, entered into in December 2018, which converts a portion of the interest rate payments on the Company's 2024 Term B Loan from variable to fixed: 

Swap Agreement	Effective date	Maturity Date	Notional Amount	Variable Rate	Fixed Rate
2018 Swap	April 2020	November 2024	$250 million	1-month LIBOR	2.89%

The Company has accounted for this agreement as a cash flow hedge.

As of September 30, 2021 and December 31, 2020, the carrying amount of the derivative included on the Company's unaudited condensed consolidated balance sheets was $18.1 million and $25.6 million, respectively. The fair value of this derivative is estimated using Level 2 inputs in the fair value hierarchy on a recurring basis. Refer to Note 8 for disclosure of losses recorded on cash flow hedging activities.

10

During the three and nine months ended September 30, 2021, the Company reclassified losses of $1.8 million and $5.3 million, respectively, from accumulated other comprehensive loss into interest expense compared to $1.7 million and $3.3 million for the corresponding periods in 2020. Based on current LIBOR rates, the Company expects to reclassify losses of $7.0 million from accumulated other comprehensive loss into interest expense over the next 12 months.

The cash flow hedge is considered highly effective.

Note 7 – Financial Instruments and Fair Value Measurements

Recurring Fair Value Measurements

Debt Securities Available for Sale

The fair value of debt securities is estimated based on observable inputs, therefore classified as a Level 2 asset within the fair value hierarchy. The fair value of debt securities at September 30, 2021 was $3.1 million.

Derivatives Instruments

The fair value of the Company's interest rate swap is estimated using Level 2 inputs under the fair value hierarchy. This derivative was in a liability position with a balance of $18.1 million and $25.6 million as of September 30, 2021 and December 31, 2020, respectively.

The following table presents the carrying value, as applicable, and estimated fair value for financial instruments at September 30, 2021 and December 31, 2020:

	September 30, 2021				December 31, 2020
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Costa Rica government obligations	$	3,060	$	3,060	$	—	$	—
Financial liabilities:
Interest rate swap	18,104		18,104		25,578		25,578
2023 Term A Loan	173,519		172,402		188,788		186,678
2024 Term B Loan	294,291		296,657		306,503		308,339

The fair values of the term loans at September 30, 2021 and December 31, 2020 were obtained using prices provided by third party service providers. Their pricing is based on various inputs such as market quotes, recent trading activity in a non-active market or imputed prices. These inputs are considered Level 3 inputs under the fair value hierarchy. Also, the pricing may include the use of an algorithm that could take into account movements in the general high yield market, among other variants. The secured term loans are not measured at fair value on the balance sheets.

Note 8 – Equity

Accumulated Other Comprehensive Loss

The following table provides a summary of the changes in the balances of accumulated other comprehensive loss for the nine months ended September 30, 2021: 

(In thousands)	Foreign Currency Translation Adjustments		Cash Flow Hedges		Unrealized Gains on Debt Securities AFS	Total
Balance - December 31, 2020, net of tax	$	(24,842)	$	(