Related party transactions

6 Months Ended

Jun. 30, 2017

Note 23 – Related party transactions

The Corporation considers its equity method investees as related parties. The following provides information on transactions with equity method investees considered related parties.

EVERTEC

The Corporation has an investment in EVERTEC, Inc. (“EVERTEC”), which provides various processing and information technology services to the Corporation and its subsidiaries and gives BPPR access to the ATH network owned and operated by EVERTEC. As of June 30, 2017, the Corporation’s stake in EVERTEC was 16.10%.The Corporation continues to have significant influence over EVERTEC. Accordingly, the investment in EVERTEC is accounted for under the equity method and is evaluated for impairment if events or circumstances indicate that a decrease in value of the investment has occurred that is other than temporary.

The Corporation received $ 2.3 million in dividend distributions during the six months ended June 30, 2017 from its investments in EVERTEC’s holding company (June 30, 2016 - $ 2.3 million). The Corporation’s equity in EVERTEC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

(In thousands)		June 30, 2017			December 31, 2016
Equity investment in EVERTEC	$	45,176		$	38,904

The Corporation had the following financial condition balances outstanding with EVERTEC at June 30, 2017 and December 31, 2016. Items that represent liabilities to the Corporation are presented with parenthesis.

(In thousands)	June 30, 2017		December 31, 2016
Accounts receivable (Other assets)	$	6,198	$	6,394
Deposits		(24,564)		(14,899)
Accounts payable (Other liabilities)		(2,583)		(20,372)
Net total	$	(20,949)	$	(28,877)

The Corporation’s proportionate share of income or loss from EVERTEC is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of EVERTEC’s income (loss) and changes in stockholders’ equity for the quarters and six months ended June 30, 2017 and 2016.

		Quarter ended		Six months ended
(In thousands)		June 30, 2017		June 30, 2017
Share of income from the investment in EVERTEC	$	3,243	$	6,943
Share of other changes in EVERTEC's stockholders' equity		1,049		1,668
Share of EVERTEC's changes in equity recognized in income	$	4,292	$	8,611

		Quarter ended		Six months ended
(In thousands)		June 30, 2016		June 30, 2016
Share of income from the investment in EVERTEC	$	3,185	$	6,199
Share of other changes in EVERTEC's stockholders' equity		(1,537)		(1,325)
Share of EVERTEC's changes in equity recognized in income	$	1,648	$	4,874

The following tables present the transactions and service payments between the Corporation and EVERTEC (as an affiliate) and their impact on the results of operations for the quarters and six months ended June 30, 2017 and 2016. Items that represent expenses to the Corporation are presented with parenthesis.


		Quarter ended		Six months ended
(In thousands)	June 30, 2017			June 30, 2017			Category
Interest expense on deposits		$	(12)		$	(21)	Interest expense
ATH and credit cards interchange income from services to EVERTEC			7,929			15,595	Other service fees
Rental income charged to EVERTEC			1,623			3,382	Net occupancy
Processing fees on services provided by EVERTEC			(46,064)			(88,434)	Professional fees
Other services provided to EVERTEC			343			609	Other operating expenses
Total		$	(36,181)		$	(68,869)


	Quarter ended		Six months ended
(In thousands)	June 30, 2016		June 30, 2016			Category
Interest expense on deposits	$	(17)		$	(36)	Interest expense
ATH and credit cards interchange income from services to EVERTEC		7,497			14,415	Other service fees
Rental income charged to EVERTEC		1,736			3,472	Net occupancy
Processing fees on services provided by EVERTEC		(43,262)			(86,778)	Professional fees
Other services provided to EVERTEC		258			514	Other operating expenses
Total	$	(33,788)		$	(68,413)

PRLP 2011 Holdings LLC

As indicated in Note 22 to the consolidated financial statements, the Corporation holds a 24.9% equity interest in PRLP 2011 Holdings LLC and currently holds certain deposits from the entity.

The Corporation’s equity in PRLP 2011 Holdings, LLC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

(In thousands)		June 30, 2017			December 31, 2016
Equity investment in PRLP 2011 Holdings, LLC	$	8,258		$	9,167

The Corporation had the following financial condition balances outstanding with PRLP 2011 Holdings, LLC at June 30, 2017 and December 31, 2016.

(In thousands)	June 30, 2017		December 31, 2016
Deposits (non-interest bearing)	$	(3,674)	$	(1,127)

The Corporation’s proportionate share of income or loss from PRLP 2011 Holdings, LLC is included in other operating income in the Consolidated Statements of Operations. The following table presents the Corporation’s proportionate share of loss from PRLP 2011 Holdings, LLC for the quarters and six months ended June 30, 2017 and 2016.

		Quarter ended	Six months ended
(In thousands)		June 30, 2017		June 30, 2017
Share of loss from the equity investment in PRLP 2011 Holdings, LLC	$	(398)	$	(909)


		Quarter ended	Six months ended
(In thousands)		June 30, 2016		June 30, 2016
Share of loss from the equity investment in PRLP 2011 Holdings, LLC	$	(52)	$	(594)

During the six months ended June 30, 2016, the Corporation received $3.4 million in capital distributions from its investment in PRLP 2011 Holdings, LLC. No capital distribution was received by the Corporation during the six months ended June 30, 2017. The following table presents transactions between the Corporation and PRLP 2011 Holdings, LLC and their impact on the Corporation’s results of operations for the quarter and six months ended June 30, 2016.

		Quarter ended	Six months ended
(In thousands)	June 30, 2016		June 30, 2016		Category
Interest income on loan to PRLP 2011 Holdings, LLC	$	-	$	11	Interest income

PR Asset Portfolio 2013-1 International, LLC

As indicated in Note 22 to the Consolidated Financial Statements, effective March 2013 the Corporation holds a 24.9% equity interest in PR Asset Portfolio 2013-1 International, LLC and currently provides certain financing to the joint venture as well as holds certain deposits from the entity.

The Corporation’s equity in PR Asset Portfolio 2013-1 International, LLC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

(In thousands)		June 30, 2017			December 31, 2016
Equity investment in PR Asset Portfolio 2013-1 International, LLC	$	19,165		$	22,378

The Corporation had the following financial condition balances outstanding with PR Asset Portfolio 2013-1 International, LLC, at June 30, 2017 and December 31, 2016.

(In thousands)	June 30, 2017		December 31, 2016
Loans	$	-	$	3,866
Accrued interest receivable		-		19
Deposits		(12,210)		(9,692)
Net total	$	(12,210)	$	(5,807)

The Corporation’s proportionate share of income or loss from PR Asset Portfolio 2013-1 International, LLC is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of income (loss) from PR Asset Portfolio 2013-1 International, LLC for the quarters and six months ended June 30, 2017 and 2016.

		Quarter ended		Six months ended
(In thousands)		June 30, 2017		June 30, 2017
Share of income from the equity investment in PR Asset Portfolio 2013-1 International, LLC	$	302	$	149


		Quarter ended		Six months ended
(In thousands)		June 30, 2016		June 30, 2016
Share of income (loss) from the equity investment in PR Asset Portfolio 2013-1 International, LLC	$	199	$	(323)

During the six months ended June 30, 2017, the Corporation received $3.4 million in capital distribution from its investment in PR Asset Portfolio 2013-1 International, LLC. No capital distribution was received by the Corporation during the six months ended June 30, 2016. The following table presents transactions between the Corporation and PR Asset Portfolio 2013-1 International, LLC and their impact on the Corporation’s results of operations for the quarters and six months ended June 30, 2017 and 2016.

		Quarter ended	Six months ended
(In thousands)		June 30, 2017	June 30, 2017		Category
Interest income on loan to PR Asset Portfolio 2013-1 International, LLC	$	-	$	9	Interest income
Interest expense on deposits		(11)		(15)	Interest expense
Total	$	(11)	$	(6)

		Quarter ended	Six months ended
(In thousands)		June 30, 2016	June 30, 2016		Category
Interest income on loan to PR Asset Portfolio 2013-1 International, LLC	$	289	$	734	Interest income
Interest expense on deposits		(1)		(2)	Interest expense
Total	$	288	$	732

Centro Financiero BHD León

At June 30, 2017, the Corporation had a 15.84% stake in Centro Financiero BHD Leon, S.A. (“BHD Leon”), one of the largest banking and financial services groups in the Dominican Republic. During the six months ended June 30, 2017, the Corporation recorded $11.8 million in earnings from its investment in BHD Leon (2016 - $ 12.5 million), which had a carrying amount of $124.2 million at June 30, 2017 (December 31, 2016 - $ 125.5 million). As of December 31, 2016 BPPR had extended a credit facility of $ 50 million to BHD León, with an outstanding balance of $ 25 million. This credit facility expired during March 2017. The Corporation received $ 11.8 million in dividend distributions during the six months ended June 30, 2017 from its investment in BHD Leon (June 30, 2016 - $ 12.1 million).

On June 30, 2017, BPPR extended an $8 million credit facility to Grupo Financiero Leon, S.A. Panamá (“GFL”), a shareholder of BHD Leon. The sources of repayment for this loan are the dividends to be received by GFL from its investment in BHD Leon. BPPR’s credit facility ranks pari passu with another $8 million credit facility extended to GFL by BHD International Panama, an affiliate of BHD Leon.

Puerto Rico Investment Companies

The Corporation provides advisory services to several Puerto Rico investment companies in exchange for a fee. The Corporation also provides administrative, custody and transfer agency services to these investment companies. These fees are calculated at an annual rate of the average net assets of the investment company, as defined in each agreement. Due to its advisory role, the Corporation considers these investment companies as related parties.

For the six months ended June 30, 2017 administrative fees charged to these investment companies amounted to $ 3.9 million (2016- $ 4.0 million) and waived fees amounted to $ 1.1 million (2016 - $ 1.4 million), for a net fee of $ 2.8 million (2016 - $ 2.6 million).

The Corporation, through its subsidiary Banco Popular de Puerto Rico, has also entered into lines of credit facilities with these companies. As of June 30, 2017, the available lines of credit facilities amounted to $357 million (December 31 2016 - $357 million). The aggregate sum of all outstanding balances under all credit facilities that may be made available by BPPR, from time to time, to those Puerto Rico investment companies for which BPPR acts as investment advisor or co-investment advisor, shall never exceed the lesser of $200 million or 10% of BPPR’s capital.

Other Related Party Transactions

In April 2010, in connection with the acquisition of the Westernbank assets from the FDIC, as receiver, BPPR acquired a term loan to a corporate borrower partially owned by an investment corporation in which the Corporation’s Executive Chairman, at that time the Chief Executive Officer, as well as certain of his family members, hold an ownership interest. At the time the loan was acquired by BPPR, it had an unpaid principal balance of $40.2 million.

In May 2017, this loan was sold by BPPR to Popular, Inc., its bank holding company (“BHC”). At the time of sale, the loan had an unpaid principal balance of $37.9 million. Immediately upon being acquired by BHC, the loan’s maturity was extended by 90 days (under the same terms as originally contracted) to provide the BHC additional time to evaluate a refinancing or long-term extension of the loan. The total consideration of $37.9 million paid by the BHC to BPPR for the loan equaled the unpaid principal balance of the loan. Of the total amount paid, $6.0 million was recognized by BPPR as a capital contribution representing the difference between the fair value and the book value of the loan at the time of transfer.

Other Related Party Transactions