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 June 30, 2022 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 July 29, 2022, there were 66,778,164 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 June 30, 2022 and December 31, 2021	1
	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2022 and 2021	2
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021	5
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	39
Part II. OTHER INFORMATION		40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity in Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	41
Item 6.	Exhibits	42
SIGNATURES		43

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 differ materially from those in the forward-looking statements as a result of various factors. Among the 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 second amended and restated 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 macroeconomic, market, international, legal, tax, political, or administrative conditions, including inflation or the risk of recession;

•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 the impact of rising interest rates, 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 to 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; and

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

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 factors, including those set forth under “Part 1, Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2022, as updated by Part II, Item 1A. “Risk Factors” in this Report, and 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 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 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 at no charge upon request and make electronic copies of our reports available for download through our website at www.evertecinc.com as soon as reasonably practicable after filing such material with the SEC.

EVERTEC, Inc. Unaudited Condensed Consolidated Balance Sheets

(In thousands, except for share information)

	June 30, 2022		December 31, 2021
Assets
Current Assets:
Cash and cash equivalents	$	288,064	$	266,351
Restricted cash	22,576		19,566
Accounts receivable, net	107,685		113,285
Prepaid expenses and other assets	46,307		37,148
Assets held-for-sale	25,161		—
Total current assets	489,793		436,350
Debt securities available-for-sale, at fair value	2,397		3,041
Investment in equity investee	15,120		12,054
Property and equipment, net	48,122		48,533
Operating lease right-of-use asset	19,330		21,229
Goodwill	385,536		393,318
Other intangible assets, net	189,604		213,288
Deferred tax asset	7,057		6,910
Net investment in leases	—		107
Other long-term assets	12,382		9,926
Total assets	$	1,169,341	$	1,144,756
Liabilities and stockholders’ equity
Current Liabilities:
Accrued liabilities	$	79,039	$	74,540
Accounts payable	34,439		28,484
Contract liability	21,403		17,398
Income tax payable	3,011		7,132
Current portion of long-term debt	22,500		19,750
Current portion of operating lease liability	5,921		5,580
Total current liabilities	166,313		152,884
Long-term debt	432,723		444,785
Deferred tax liability	2,142		2,369
Contract liability - long term	32,743		36,258
Operating lease liability - long-term	14,940		16,456
Derivative liability	—		13,392
Other long-term liabilities	7,879		8,344
Total liabilities	656,740		674,488
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; 71,367,324 shares issued and outstanding as of June 30, 2022 (December 31, 2021 - 71,969,856)	713		719
Additional paid-in capital	1,671		7,565
Accumulated earnings	545,814		506,051
Accumulated other comprehensive loss, net of tax	(39,452)		(48,123)
Total EVERTEC, Inc. stockholders’ equity	508,746		466,212
Non-controlling interest	3,855		4,056
Total equity	512,601		470,268
Total liabilities and equity	$	1,169,341	$	1,144,756

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 June 30,				Six months ended June 30,
	2022		2021		2022		2021
Revenues (affiliates Note 15)	$	160,571	$	149,148	$	310,819	$	288,676
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization	74,313		59,381		138,972		119,185
Selling, general and administrative expenses	20,051		16,752		40,435		32,854
Depreciation and amortization	19,560		18,723		38,720		37,346
Total operating costs and expenses	113,924		94,856		218,127		189,385
Income from operations	46,647		54,292		92,692		99,291
Non-operating income (expenses)
Interest income	805		450		1,472		839
Interest expense	(5,932)		(5,658)		(11,479)		(11,564)
Earnings of equity method investment	862		394		1,432		896
Other (expenses) income	(1,138)		2,245		2,168		2,573
Total non-operating expenses	(5,403)		(2,569)		(6,407)		(7,256)
Income before income taxes	41,244		51,723		86,285		92,035
Income tax expense	7,688		2,632		13,863		7,340
Net income	33,556		49,091		72,422		84,695
Less: Net loss attributable to non-controlling interest	(33)		(106)		(65)		(5)
Net income attributable to EVERTEC, Inc.’s common stockholders	33,589		49,197		72,487		84,700
Other comprehensive income (loss), net of tax of $(18), $11, $405 and $435
Foreign currency translation adjustments	(6,549)		1,732		(4,335)		(881)
Gain on cash flow hedges	3,337		1,088		13,062		5,277
Unrealized (loss) gain on change in fair value of debt securities available-for-sale	$	(29)	$	89	$	(56)	$	89
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders	$	30,348	$	52,106	$	81,158	$	89,185
Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders	$	0.47	$	0.68	$	1.01	$	1.17
Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders	$	0.47	$	0.68	$	1.00	$	1.16

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, 2021	71,969,856	$	719	$	7,565	$	506,051	$	(48,123)	$	4,056	$	470,268
Share-based compensation recognized	—	—		4,279		—		—		—		4,279
Repurchase of common stock	(521,643)	(5)		(6,193)		(14,981)		—		—		(21,179)
Restricted stock units delivered	251,085	3		(5,651)		—		—		—		(5,648)
Net income	—	—		—		38,898		—		(32)		38,866
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,598)		—		—		(3,598)
Other comprehensive income	—	—		—		—		11,912		248		12,160
Balance at March 31, 2022	71,699,298	$	717	$	—	$	526,370	$	(36,211)	$	4,272	$	495,148
Share-based compensation recognized	—	—		5,165		—		—		—		5,165
Repurchase of common stock	(357,114)	(4)		(3,466)		(10,566)		—		—		(14,036)
Restricted stock units delivered	25,149	—		(28)		—		—		—		(28)
Net income (loss)	—	—		—		33,589		—		(33)		33,556
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,579)		—		—		(3,579)
Other comprehensive income (loss)	—	—		—		—		(3,241)		(384)		(3,625)
Balance at June 30, 2022	71,367,333	713		1,671		545,814		(39,452)		3,855		512,601

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, 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

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) 

5

	Six months ended June 30,
	2022		2021
Cash flows from operating activities
Net income	$	72,422	$	84,695
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	38,720		37,346
Amortization of debt issue costs and accretion of discount	805		991
Operating lease amortization	3,056		2,938
Provision for expected credit losses and sundry losses	1,795		85
Deferred tax benefit	(1,210)		(947)
Share-based compensation	9,444		7,235
Gain from sale of assets	—		(778)
Loss on disposition of property and equipment and impairment of software	4,370		1,106
Earnings of equity method investment	(1,432)		(896)
Dividend received from equity method investment	—		1,183
Loss on valuation of foreign currency	1,046		—
(Increase) decrease in assets:
Accounts receivable, net	2,759		(48)
Prepaid expenses and other assets	(1,972)		1,407
Other long-term assets	(3,965)		(14)
Increase (decrease) in liabilities:
Accrued liabilities and accounts payable	7,397		(10,899)
Income tax payable	(3,862)		(3,398)
Unearned income	1,025		(1,664)
Operating lease liabilities	(1,605)		(3,438)
Other long-term liabilities	1,109		(2,875)
Total adjustments	57,480		27,334
Net cash provided by operating activities	129,902		112,029
Cash flows from investing activities
Additions to software	(18,918)		(21,317)
Acquisition of customer relationships	(10,607)		(14,750)
Property and equipment acquired	(10,051)		(8,803)
Proceeds from sales of property and equipment	76		802
Purchase of certificates of deposit	(7,264)		—
Proceeds from maturities of available-for-sale debt securities	572		—
Acquisition of available-for-sale debt securities	—		(2,968)
Net cash used in investing activities	(46,192)		(47,036)
Cash flows from financing activities
Statutory withholding taxes paid on share-based compensation	(5,676)		(8,793)
Repayment of short-term borrowings for purchase of equipment and software	(853)		(1,556)
Dividends paid	(7,177)		(7,213)
Repurchase of common stock	(35,215)		(24,388)
Repayment of long-term debt	(9,875)		(24,919)
Net cash used in financing activities	(58,796)		(66,869)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash	(191)		73
Net increase (decrease) in cash, cash equivalents and restricted cash	24,723		(1,803)
Cash, cash equivalents and restricted cash at beginning of the period	285,917		221,105
Cash, cash equivalents and restricted cash at end of the period	$	310,640	$	219,302
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	288,064	$	199,891
Restricted cash	22,576		19,411
Cash, cash equivalents and restricted cash	$	310,640	$	219,302
Supplemental disclosure of cash flow information:
Cash paid for interest	$	6,034	$	10,940
Cash paid for income taxes	12,868		7,835
Supplemental disclosure of non-cash activities:
Payable due to vendor related to equipment and software acquired	$	—	$	721

6

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

7

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 - The Company and Basis of Presentation	9
Note 2 - Held-for-Sale	9
Note 3 - Debt Securities	10
Note 4 - Property and Equipment, net	10
Note 5 - Goodwill and Other Intangible Assets	11
Note 6 - Debt and Short-Term Borrowings	12
Note 7 - Financial Instruments and Fair Value Measurements	13
Note 8 - Equity	14
Note 9 - Share-based Compensation	14
Note 10 - Revenues	15
Note 11 - Current Expected Credit Losses	17
Note 12 - Income Tax	18
Note 13 - Net Income per Common Share	19
Note 14 - Commitments and Contingencies	19
Note 15 - Related Party Transactions	19
Note 16 - Segment Information	20
Note 17 - Subsequent Events	24

8

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 Latin America and the Caribbean. The Company is based in Puerto Rico and provides a broad range of merchant acquiring, payment processing 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 and automated teller machine ("ATM") networks in the Caribbean and Latin America. In addition, EVERTEC provides a comprehensive suite of services for core bank processing and cash processing in Puerto Rico and technology outsourcing in 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.

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, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. 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 – Held-for-Sale

On February 24, 2022, the Company entered into a definitive agreement with Banco Popular de Puerto Rico and its parent, Popular, to sell software and prepaid assets and transfer certain employees in connection with those assets (the "Disposal group"). As consideration for the sale of the Disposal Group, Popular will deliver 4.6 million shares of Evertec stock held by Popular (the "Popular Transaction"). The Popular Transaction closed on July 1, 2022, refer to Note 17, Subsequent Events of the unaudited condensed consolidated financial statements for further details.

Accounting Policy

An asset or a disposal group is classified as held for sale in the period in which the following criteria are met: (a) management commits to a plan to sell; (b) the asset or disposal group is available for sale in its present condition; (c) an active program to locate a buyer and other actions to complete the plan to sell have been initiated; (d) the sale of the asset or disposal group is probable within one year; (e) the asset or disposal group is being be actively marketed; and (f) it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

A disposal group is a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. The group includes goodwill acquired in a business combination if the group is a cash-generating unit to which goodwill has been allocated, or if it is an operation within such a cash-generating unit.

Assets and disposal groups classified as held for sale are measured at the lower of carrying amount or fair value less costs to sell. Any excess of the carrying amount over the fair value less costs to sell is recognized as an impairment loss. Depreciation of assets that have been classified as held for sale is discontinued upon classification.

Given that the Disposal Group pertains to the Business Solutions segment and that the Company concluded that it constitutes a business, goodwill from this segment was allocated to the Popular Transaction and is reflected as part of the Held-for-Sale balance.

9

The following table details the carrying amount of the major classes of assets classified as held-for-sale as of June 30, 2022:

	June 30, 2022
(In thousands)
Prepaid expenses and other assets	$	513
Other intangible assets, net	18,835
Goodwill	5,813
Assets held-for-sale	$	25,161

Note 3 – Debt Securities

The amortized cost, gross unrealized gains and losses recorded in OCI and estimated fair value of debt securities available-for-sale by contractual maturity as of June 30, 2022 and December 31, 2021 were as follows:

	June 30, 2022
(In thousands)			Gross unrealized
	Amortized cost		Gains	Losses	Fair Value
Costa Rica Government Obligations
After 1 to 5 years	$	2,426	—	(29)	$	2,397

	December 31, 2021
(In thousands)			Gross unrealized
	Amortized cost		Gains		Losses		Fair Value
Costa Rica Government Obligations
After 1 to 5 years	$	2,963	$	78	$	—	$	3,041

Debt securities 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.

No debt securities were sold during the six months ended June 30, 2022. Debt securities amounting to $0.6 million matured during the six months ended June 30, 2022. A provision for credit losses was not required for the periods 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	June 30, 2022		December 31, 2021
Buildings	30	$	1,269	$	1,359
Data processing equipment	3 - 5	146,811		141,359
Furniture and equipment	3 - 20	8,234		7,718
Leasehold improvements	5 -10	3,259		3,277
		159,573		153,713
Less - accumulated depreciation and amortization		(112,558)		(106,365)
Depreciable assets, net		47,015		47,348
Land		1,107		1,185
Property and equipment, net		$	48,122	$	48,533

Depreciation and amortization expense related to property and equipment for three and six months ended June 30, 2022 amounted to $4.6 million and $9.3 million, respectively, compared to $4.4 million and $8.8 million for the corresponding periods in 2021.

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During the six months ended June 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, 2021	$	160,972	$	48,402	$	138,121	$	45,823	$	393,318
Foreign currency translation adjustments	—		(1,969)		—		—		(1,969)
Goodwill reclassified to held-for-sale	—		—		—		(5,813)		(5,813)
Balance at June 30, 2022	$	160,972	$	46,433	$	138,121	$	40,010	$	385,536

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 a qualitative analysis, the Company assesses whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount. In the quantitative analysis, the Company compares the estimated fair value of the reporting units to their carrying values, including goodwill. No impairment losses were recognized for the periods ended June 30, 2022 or 2021.

As of June 30, 2022, Goodwill of $5.8 million is classified as held-for-sale as the Company entered into a commitment to sell certain assets and transfer certain employees under the Popular Transaction, this commitment constitutes the sale of a business under ASC 805, refer to Note 2 – Held-for-Sale for further details.

The carrying amount of other intangible assets at June 30, 2022 and December 31, 2021 was as follows:

		June 30, 2022
(In thousands)	Useful life in years	Gross amount		Accumulated amortization		Assets reclassified to Held-for-Sale		Net carrying amount
Customer relationships	5 - 14	$	368,223	$	(286,562)	$	—	$	81,661
Trademarks	2 - 15	41,834		(37,281)		—		$	4,553
Software packages	3 - 10	340,651		(230,677)		(18,835)		$	91,139
Non-compete agreement	15	56,539		(44,288)		—		$	12,251
Other intangible assets, net		$	807,247	$	(598,808)	$	(18,835)	$	189,604

		December 31, 2021
(Dollar amounts in thousands)	Useful life in years	Gross amount		Accumulated amortization		Net carrying amount
Customer relationships	5 - 14	$	357,991	$	(272,732)	$	85,259
Trademarks	2 - 15	41,901		(36,684)		5,217
Software packages	3 - 10	326,320		(217,643)		108,677
Non-compete agreement	15	56,539		(42,404)		14,135
Other intangible assets, net		$	782,751	$	(569,463)	$	213,288

During the quarter ended June 30, 2022, the Company acquired a customer relationship in Puerto Rico amounting to $10.6 million that will be amortized over five years. Revenues and expenses in connection with this customer relationship are included as part of the Payment Services - Puerto Rico & Caribbean segment.

Amortization expense related to other intangibles for the three and six months ended June 30, 2022 amounted to $14.8 million and $29.3 million, respectively, compared to $14.3 million and $28.5 million for the corresponding periods in 2021, respectively. During the six months ended June 30, 2022, the Company recorded an impairment loss through cost of revenues of $4.1 million for a multi-year software development for which cash flows used in the internal model will be impacted due to a

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decrease in the forecasted revenues to be generated by the software. During the six months ended June 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. Both impairment charges affected the Company’s Payment Services – Puerto Rico & Caribbean segment.

At June 30, 2022, Software amounting to $18.8 million is classified as to held-for-sale as part of the Popular Transaction, refer to Note 2 – Held-for-Sale for further details.

The estimated amortization expense of the other intangible balances outstanding at June 30, 2022 for the next five years is as follows:

(Dollar amounts in thousands)
Remaining 2022	$	28,868
2023	53,340
2024	42,181
2025	15,494
2026	8,467

Note 6 – Debt and Short-Term Borrowings

Total debt at June 30, 2022 and December 31, 2021 follows:

(In thousands)	June 30, 2022		December 31, 2021
2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(2))	$	162,830	$	170,875
2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(3))	292,393		293,660
Note payable due January 1, 2022(1)	—		758
Total debt	$	455,223	$	465,293

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

(2)Applicable margin of 1.75% at June 30, 2022 and December 31, 2021.

(3)Subject to a minimum rate ("LIBOR floor") of 0% plus applicable margin of 3.50% at June 30, 2022 and December 31, 2021.

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 leverage ratio is below 1.75x or the resulting amount of the excess cash flow multiplied by the applicable percentage is less than $10 million. On March 8, 2021, in connection with this mandatory repayment clause, the Company repaid $17.8 million, as a result of excess cash flow calculation performed for the year ended December 31, 2020. No mandatory repayment was required in 2022 in connection with the excess cash flow calculation performed for the year ended December 31, 2021 as the leverage ratio was below 1.75x.

The unpaid principal balance at June 30, 2022 of the 2023 Term A Loan and the 2024 Term B Loan was $163.4 million and $294.2 million, respectively. The additional borrowing capacity under our Revolving Facility at June 30, 2022 was $119.1 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.

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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, which were fully repaid in January 2022. As of December 31, 2021, the outstanding principal balance of the notes payable was $0.8 million. These notes were included in accounts payable in the Company's unaudited condensed consolidated balance sheets.

Interest Rate Swap

As of June 30, 2022, 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 June 30, 2022 and December 31, 2021, the carrying amount of the derivative included on the Company's unaudited condensed consolidated balance sheets was an asset of $0.8 million, recorded in other long term assets and $13.4 million in liabilities, 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.

During the three and six months ended June 30, 2022, the Company reclassified losses of $1.4 million and $3.1 million, respectively, from accumulated other comprehensive loss into interest expense compared to $1.8 million and $3.5 million for the corresponding periods in 2021. Based on current LIBOR rates, the Company expects to reclassify gains of $0.8 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 was $2.4 million and $3.0 million as of June 30, 2022 and December 31, 2021 respectively.

Derivative 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 an asset position with a balance of $0.8 million as of June 30, 2022 and in a liability position with a balance of $13.4 million as of December 31, 2021.

The following table presents the carrying value, as applicable, and estimated fair value for financial instruments at June 30, 2022 and December 31, 2021:

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	June 30, 2022		December 31, 2021
(In thousands)	Carrying Amount	Fair Value	Carrying Amount	Fair Value
Financial assets:
Costa Rica government obligations	2,397	2,397	3,041	3,041
Interest rate swap	766	766	—	—
Certificates of deposits	7,264	7,264	—	—
Financial liabilities:
2023 Term A Loan	162,830	162,139