BAC INTERNATIONAL BANK, INC. AND SUBSIDIARIES

Transcription

BAC INTERNATIONAL BANK, INC.
AND SUBSIDIARIES
(Panama, Republic of Panama)
Consolidated Financial Statements
December 31, 2012 and 2O11
(With lndependent Auditors' Report Thereon)
BAC ¡NTERNATIONAL BANK, INC. AND SUBSIDIARIES
Table of Contents
lndependent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of lncome
Consolidated Statements of Comprehensive income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Teléfono: (507) 208-0700
(507) 263-9852
KPMG
Apartado Postal 81 6-1089
Panamá 5, República de Panamá
Fax:
lnternet: www,kpmg.com
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
BAC lnternational Bank, lnc.
Reporl on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of BAC lnternational Bank,
lnc. and Subsidiaries (the Bank), which comprise the consolidated balance sheets as of December
31,2012 and 2011, and the related consolidated statements of income, comprehensive income,
changes in stockholders' equity, and cash flows for the years then ended, and the related notes to
the consolidated financial statements
M a n ag
e
m enf
's Respo n si b i I ity
fo
r
th
e
Co
n sol i d ate
d F i n a n c i al
St ate m e
nts
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with U.S. generally accepted accounting principles; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
Au d ito rs' Re spon si b il ity
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditors' judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. ln making those risk assessments,
the auditor considers internal control relevant to the entity's preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
basis for our audit opinion.
KPMG, una soc¡edad civ¡l panareña, y lirm de la red de l¡rrus miembro independ¡entes de
KPMG, af¡liadas a KPMG lnternational Cæperative ("KPMG lnternatioml"), una entidad su¡za
a
Opinion
ln our opinion, the consolidated financial statements referred to above present fairly in all material
respects, the financial position of BAC lnternational Bank, lnc. and Subsidiaries as of December
31,2012 and 2011, and the results of their operations and their cash flows for the years then
ended in accordance with U.S. generally accepted accounting principles.
K?MG
February 27,2013
Panama, Republic of Panama
BAC INTERNATIONAL BANK, INC. AND SUBS¡DIARIES
Consolidated Balance Sheets
December 31,2012 and 201 1
(ln U.S. Dollars)
2012
Cash and cash equivalents
nterest-bearing deposits
Trading securities
Securities available for sale
Loans at fair value
$
2,303,712,800
24,228,937
33,547,903
I
713,029,343
25,296,453
Loans
Less:
7,073,381,504
Allowance for loan losses
101 ,093,569
Loans, net
6.972,287.935
Property and equipment, net
Customers' liability under acceptances outstanding
Accrued interest receivable
Other accounts receivable
193,199,763
6,185,229
63,104,661
152,702,314
Goodwill
86,235,911
'1,916,345
lntangible assets
Other assets
Total assets
2011
$
106.490.878
10,681,938,472
1
,994, 1 01 ,81
1
18,929,599
31,997,445
677,822,436
29,830,512
5,957,982,431
85.317.298
5,872,665,133
182,463,887
8,915,766
52,408,550
125,874,406
86,172,93ô
2,526,671
115.149.211
9,198,858,363
Liabilities and Equitv
Liabilities:
Deposits:
Demand non-interest-bearing
Demand interest-bearing
$
Savings
Time deposits
Total deposits
479,720,920
2,511,115,154
1 ,453,1 26,966
2,825,877,328
7,269,840,368
Securities sold under agreements to repurchase
42,727,615
Borrowings
Other borrowed funds
1,498,915,502
187,759,372
Acceptances outstanding
Accrued interest payable
Other liabilities
6,185,229
35,278,410
424,908,515
Total liabilities
9,465,6'15,01
1
413,907,615
2,400,170,646
1,271,520,642
2,186,189,539
6,271,788,442
52,350,793
1,272,043,146
173,863,047
8,915,766
22,142,664
349,171,522
8,150,275,380
Equity:
Controlling stockholder's equity:
Common stock, US$1,000. Authorized 400,000 and 200,000 shares;
279,957 and 183,457 shares issued and outstanding,
(2012 and 201 1 respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
10,681 ,938,472
__iJgq,898,999_
971,059,360
(87,488,31 1)
1 ,216,146,303
Noncontrolling interest
See accompanying notes to consolidated financial sfafemenfs.
1.216.323.461
34,618,254
Total controlling stockholder's equity
Total equity
Total liabilities and equity
183,457,000
34,618,254
919,984,182
(89,718,607)
1,048,340,829
242.154
1,048,582,983
297,957,000
177.158
$
Consolidated Statements of lncome
For the years ended December 31,2012 and 2011
(ln U.S. Dollars)
2012
lnterest income:
Loans
I
nterest-beari ng deposits
Trading securities
Securities available for sale
822,528,315
14,099,701
2,055,548
33.737.921
Total interest income
872,421,485
lnterest expense:
Deposits
Securities sold under agreements to repurchase
Borrowings and other borrowed funds
153,456,802
3,282,990
61,630,189
2011
725,515,606
10,493,500
2,074,937
26,113,753
764,197,796
122,284,405
3,812,148
218,369,98'1
44,558,753
170,655,306
654,051,504
593,542,490
Provision for loan losses
Net loss impairment of foreclosed assets
86,815,619
83,026,981
4,615,179
3,024,740
Total
Net interest income after provision for loan losses
and other impairments
91,430,798
86,051,721
562,620,706
507,490,769
226,233,224
109,851,469
61,197,760
199,687,607
92,636,999
46,482,400
Total interest expense
Net interest income before provision for loan losses
and other impairments
Other income, net:
Service charges
Commissions and other fees, net
Foreign currency gains, net
Net (loss) gain on trading securities
Net (loss) gain on sale of securities available for sale
Other income
Total other income
Operating expenses:
Salaries and employee benefits
Depreciation and amortization
Adm inistrative expenses
Occupancy and related expenses
Other operating expenses
27,739
2,752,609
18,511,747
418,574,548
308,276,898
(1,944)
4,478,395
18,185,579
361,469,025
Total operating expenses
lncome before income tax expense and non controlling interest
360,750,310
280,819,057
43,625,737
21,814,349
43,202,427
190,466,437
569,928,007
299,031,787
lncome tax expense
Net income
95,680,699
265,069,611
215,920,814
43,502,205
27,467,212
46,386,833
194,811,796
620,444,944
Less: net income attributable to noncontrolling interest
44,433
Net income attributable to controlling stockholder
265,025,178
See accompanying notes to consolidated financial statements.
83,1 10,973
46,383
215,874,431
Consolidated Statements of Comprehensive lncome
Forthe years ended December 31,2012y 2011
(ln
U.S. Dollars)
2012
Net income
Other comprehensive income:
Foreign currency translation
Net changes on:
Securities availbale for sale, net of tax
Cash flow hedging derivates
Other comprehensive income
$ 265,069,611
interest
stockholder
Less: net income attributable to noncontrolling
Net income attributable to controlling
See accompanying noúes to consolidated financial statements.
215,920,814
(14,295,735)
(1,010,032)
16,136,569
372,630
2,213,464
267,293,075
Comprehensive income
2011
(9,643,192)
(1,265,145)
(11,919,369)
204,002,445
(27,601) 246,89Z
$ 262,255,474 294,249,342
(Panama, Repuþl¡c of Panama)
Consolidated Statements of Changes in Equity
For the years ended December 31,2012 and 2011
(ln U.S. Dollars)
Controllinq Stockholder's Equitv
Accumulated
Other
Add¡tional
Common
Stock
Balance as of December 31, 2010
$ 78,947,000
Net lncome
Capitalization
0
0
1
D¡vidends
Balance as of December 31 ,2011
Transact¡ons between the Company and the
nonontroìl¡ng interest
Dividends
Balance as of Dêcember 31, 2012
$
34,618,254
893,958,50
04,51 0,000
0
0
0
0
0
1 14,500,000
0
Capitalization
Retaines
Earn¡nqs
0
0
0
183,457,000
Net lncome
Paid"¡n
Capítâl
297.957.000
See accompanying notes to consolidaled f,nanc¡al statements.
34,618,254
I
0
04,51 0,000)
(8s,338,750)
(1
9.984,1 82
34,618,254
265,025j78
14,s00,000)
(99,450,000)
971,059,360
(1
Equitv
Loss
0
0
00
o
Stockholder's Noncontrolling
Comprehensive
(78,0e3,51 8)
215,874,431
91
Total
Controlling
0
(1
I,625,089)
Total Equ¡tv
929,430,237
499,581
929,929,818
215,874,431
(1 1,625,089)
46,383
(293,280)
215,920,814
(11,e18,369)
0
0
0
(8s,338,7s0)
(89,718,607) 1,048,340,829
00
0
265,025,178
2,230,296 2,230,296
00
(99,450,000)
0
_l9Zt!!,311l
lnterest
0
0
(10,530)
(8s,34e,280)
242,154
1,048,582,983
(7e,083)
44,433
(16,832)
0
(79,083)
265,069,611
2,213,464
(13,s14)
_1¿_19¡_19€99_ ______lll_J58_
0
(ee,463,514)
_-121934!91_
BAC INTERNATIONAL BANK,INC. AND SUBSIDIARIES
Consolidated Statements of Gash Flows
Forthe years ended December 31,2012and2011
(ln U.S. Dollars)
2012
2011
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Net loss impairment of foreclosed assets
Provision for unfunded committments
Release of provision for claims receivable for unreturned securities
Depreciation and amortization
Amortization of deferred loan fees and costs
Gain on derivative financial instruments
Net increase in trading securities
(Gain) loss on sale of traiding securities
Net gain on sale of securities available for sale
Loss on sale of property and equipment
Deferred income tax expense
lncrease in accrued interest rece¡vable
lncrease in other accounts receivable
Decrease (increase) in other assets
lncrease (decrease) in accrued interest payable
lncrease in other liabilities
Net cash provided by operating activities
265,069,611
215,920,814
86,815,619
4,615,179
(166,304)
(4e,3s7)
43,502,205
(19,268,920)
(1,217,051)
(1,345,086)
(27,73e)
(2,752,609)
124,664
4,863,561
(11,524,412)
(27,750,000)
83,02ô,981
3,O24,740
(3e,663)
(1e4,e46)
43,625,737
(5,024,7s0)
(723,563)
(15,856,352)
1,944
(4,478,385)
575,655
2,505,085
(4,137,753)
(21,394,697)
(12,360,80s)
(1,587,0e8)
'15,536,891
13,393,406
73,284,526
443,104,184
46,742.368
329,625,312
Cash flows from investing activities;
Net (increase) decrease in deposits placed with original maturity over three months
Proceeds from sale of securities available for sale
Maturities, prepayment and calls of securities available for sale
Purchases of securities available for sale
Advances to unconsolidated entities of dividends received
Net increase in loans
Purchases of property and equipment
Proceeds from sale of property and equipment
Cash paid in purchase of non controlling interest
Net cash used in investing activities
(1,322,016,641)
(46,144,491)
88,639
(7e,083)
(1,4O2,735,141)
(788,388,026)
(2e,923,506)
Cash flows from financing activities:
Net proceeds from deposits received
Proceeds from other borrowings
Repayment of other borrowings
Net (decrease) increase in securities sold under agreements to repurchase
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net cash provided by financing activities
1,086,003,866
244,O14,118
(225,687,717)
(10,05e,414)
1,540,691,288
(1,23e,744,1O2)
(99,463,514)
1.295.754,525
275,984,792
Effect of exchange rate fluctuations on cash held
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying notes to consolidated financial statements.
(10,729,639)
258,478,987
491,002,208
(773,335,121)
11,025,311
312,027,682
705,069,902
(1,042,305,685)
(18,4e4)
0
6,794,206
0
(825,718,610)
64,885,180
(50,972,088)
10,46'1,933
886,795,407
(510,693,823)
(85,349,280)
591,112,121
(26,512,579)
309,610,989
1,994,101,811
$ 2,303,712,800
(22,205,484)
72,813,339
1,921,288,472
1,994,101,81 1
Notes to Consolidated Financial Statements
December 31, 2012 and 201
(1)
1
Organization
BAC lnternational Bank, lnc. was incorporated on August25, 1995 in Panama City, Republic of
Panama, asa bankand bankholding company. BAC lnternational Bank, lnc. is a10O% owned
subsidiary of BAC lnternational Corporation (The Parent Company). BAC lnternational
Corporation is a 100o/o owned subsidiary of Leasing Bogota S.A. - Panama. Leasing Bogota,
S.A. - Panama is wholly owned by Bank of Bogota, S.4., which is an authorized bank in the
Republic of Colombia, which is a subsidiary of Grupo AvalAcciones y Valores, S.A.
BAC lnternational Bank, lnc. provides, directly and through its wholly owned subsidiaries,
Credomatic lnternational Corporation (ClC), BAC lnternational Bank (Grand Cayman) ("BAC
Cayman"), BAC Bahamas Bank Ltd., Rudas Hill Financial, lnc., Premier Asset Management,
lnc. BAC Leasing, lnc., BAC Valores (Panama), S.A. and Credomatic of Panama, S.A. (a direct
subsidiary since January 2011), (collectivelly, The "Bank") a wide variety of financial services to
individuals and institutions, principally in Mexico, Guatemala, Honduras, El Salvador,
Nicaragua, Costa Rica and Panama.
The banking operations in the Republic of Panama are regulated and supervised by the
Superintendency of Banks of the Republic of Pãnama, according to provisions established by
Law Decree No. 52, dated April 30, 2008, that adopts the single text of Law Decree No.9 of
February 26, 1998 as amended by Legislative Decree No.2 of February 22, 2008, which
establishes the banking regime of the Republic of Panama and creates the Superintendency of
Banks and the rules that govern it.
(21
Summary of Significant Accounting Policies
The accounting and reporting policies of the Bank and its subsidiaries are in accordance with
U.S. generally accepted accounting principles (US GAAP). These consolidated financial
statements are expressed in U.S. dollars ($).
The following is a description of significant policies and practices:
(a)
Principles of Consolidation and lnvestments in Unconsolidated Entities
These consolidated financial statements include the accounts of the Bank and all majority
owned subsidiaries. ln consolidation all significant intercompany accounts and
transactions are eliminated. lnvestments in companies where it has significant influence
but not a financial interest of control are accounted for under the equity method and the
pro rata share of their income (loss) is included in other income. The investments in
companies where it has not significant influence are accounted for under the cost method
and income is recognized when dividends are received.
According to the Financial Accounting Standards Board (FASB), Accounting Standards
Codification (ASC) 810 (FASB ASC 810), "Consolidation", the Bank classifies
noncontrolling interest as part of consolidated net income and includes the accumulated
amount of noncontrolling interest as part of stockholder's equity, in addition, the Bank has
no Variable lnterest Entities VlEs in which the Bank is the main beneficiary.
(b)
Use of Estimates
For the preparation of these consolidated financial statçments in conformity with US
GAAP, management has made a number of estimates and assumptions relating to the
reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
Material estimates that are parlicularly susceptible to change include the allowance for
loan losses, the fair values of financial instruments and contingencies and income tax.
(c)
Cash and Cash Equivalents
The Bank considers all highly liquid investments with a maturity of 90 days or less from
their acquisition as cash equivalent. Cash and cash equivalents include cash, due from
banks, cedain securities and term interest-bearing deposits with original maturities of g0
days or less.
(d)
Secunlies Purchased and Sold Agreements
Securities purchased under resale agreements and securities sold under repurchase
agreements are generally accounted for as collateralized financing transactions and are
recorded at the amount at which the securities were acquired or sold plus accrued
interest. lt is the Bank's policy to take possession of securities purchased under resale
agreements. The Bank monitors the market value of securities purchased and sold and
obtains collateral from or returns it to counterparties when appropriate.
(e)
SecurTres
Securities that are held principally for resale in the near term are classified as trading
securities and recorded at fair value with changes in fair value recorded in earnings.
Debt securities that management has the positive intent and ability to hold to maturity are
classified as held io maturity and recorded at amortized cost. All other securities are
classified as available for sale and recorded at fair value. Unrealized holding gains and
losses, net of the related tax effect, if any, on available-for-sale securities are reported as
a component of accumulated other comprehensive income/loss.
Realized gains and losses from the sale of securities are recorded on a trade-date basis
and determined on a specific identification basis. Realized gains and losses are included
in other income as securities gains (losses).
Premiums and discounts are recognized as an adjustment to yield over the contractual
term of the security using a method that approximates the interest method. lf a
prepayment occurs on a security, any related premium or discount is recognized as an
adjustment to yield in the period in which the prepayment occurs. lnterest on securities is
recognized in interest income on an accrual basis.
The Bank makes an assessment to determine whether there have been any events or
economic circumstances to indicate that a security on which there is an unrealized loss is
impaired on an other{han-temporary basis.
lmpairment (that is, the difference between the security's amortized cost basis and fair
value) on debt securities that the Bank intends to sell or would more-likely-than-not be
required to sell before the expected recovery of the amorlized cost is recognized in
earnings. For debt securities that management has not intent to sell and believes that it
more likely{han-not will not be required to sell prior to recovery, only the credit loss
component of the impairment is recognized in earnings, while the rest of the fair value
loss is recognized in accumulated other comprehensive income. The credit loss
component recognized in earnings is identified as the amount of principal cash flows not
expected to be received over the remaining term of the security as projected using the
Bank's cash flow projections using its base assumptions.
A decline in the market value of any security below cost that is deemed to be
other-than-temporary, results in an impairment to reduce the carrying amount to fair
value. To determine whether an impairment is other-than-temporary, the Bank considers
all available information relevant to the collectability of the security, including past events,
current conditions, and reasonable and supportable forecasts when developing estimate
of cash flows expected to be collected. Evidence considered in this assessment includes
the reasons for the impairment, the severity and duration of the impairment, changes in
value subsequent to year-end, forecasted performance of the investee, and the general
market condition in the geographic area or industry the investee operates in.
The Bank has not other-than-temporary declines during the years ended at December 31,
2012 and 2011.
(f)
Loans
Loans are stated at their outstanding unpaid principal balances, adjusted for unearned
income, when applicable, except for those loans for which fair value option was elected.
lnterest income on loans is recognized on an accrual basis. Loan origination fees and
direct costs as well as premiums and discounts are amodized as an adjustment to yield
over the term of the loan. Loans include direct financing leases that are recorded at the
aggregate of future lease payments receivable plus the estimated residual value of the
leased property, if applicable, less unearned income.
ln order to meet the requirements of ASC 310-10, detailed information on the quality of
the Commercial, Consumer, Mortgage and Leasing Loan Portfolio is presented below:
Commercial
The segmentation of customers in this category is based on the total credit exposure that
the client has with the Bank. Categories are as follows:
.
Corporate Business - Legal entities (or other entities using commercial products or
funding assets for commercial purposes) where credit exposure is over $1,000,000.
.
SMB (Small and medium business) - Legal entities (or other entities using commercial
products or funding assets for commercial purposes) where credit exposure is less
than $350,000 and annual sales less than $1,000,000.
10
Consumer Loans
PledgeA/ehicles - The product has an agreed payment schedule contract to pay the
original loan. There are no further disbursements without an additional contract and
its purpose is to provide finance for vehicle purchase, whether new or used.
.
.
.
Personal - The product has an agreed payment schedule contract to pay the original
loan. There are no further disbursements without an additional contract and its
purpose is to provide financing to individuals for various purposes.
Credit Card - The product has a credit limit in which a client may continue to reutilize
without further contracts and the amount due will be calculated at the end of a
monthly cycle.
Mortgage - mortgage product in which the loan purpose is to provide financing for the
purchase of real estate (family housing) and it is secured by a mortgage on residential
real estate that the borrower provides.
Leasing - financing mechanism for the acquisition of assets through a contract. The
Lessor agrees to temporarily transfer the use and enjoyment benefits of an asset to
another party, the lessee. The lessee in return, is obligated to make payment for the use
of the asset.
Troubled Debt Restructurings (TDRs)
ln April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor's
Determination of whether a Restructuring is a Troubled Debt Restructuring, to clarify
guidance for accounting of troubled debt restructurings. The ASU clarified the guidance
on a creditor's evaluation of whether it has granted a concession and whether a debtor is
experiencing financial difficulties, such as:
.
.
.
.
Any shortfall in contractual loan payments.
Creditors cannot assume that debt extensions at or above a borrower's original
contractual rate do not constitute troubled debt restructuring because the new
contractual rate could still be below the market rate.
lf a borrower doesn't have access to funds at a market rate for a debt similar with
characteristics to the restructured debt, which may indicate that the creditor has
granted a concession.
A borrower that is not currently in default may still be considered to be experiencing
financial difficulty when payment default is considered - probable in the foreseeable
future.
The ASU applies retrospectively to restructured loans that occurred on or after January
2011, however, the application of this ASU had no impact on the Bank.
11
1,
Notes to Gonsolidated Financial Statements
ln certain circumstances, the Bank modifies certain of its loans involving non{rouble
borrowers. These modifications are subject to Bank's normal unden¡uriting standards for
new loans and are made in the normal course of business to match customer's needs
with Bank's available products or programs. ln other cases, loan modifications involve a
troubled borrower to whom the Bank may grant a concession (modification). Modifications
involving troubled borrowers may include extension of maturity date, reduction in the
stated interest rate, rescheduling of future cash flows, reduction in the face amount of the
debt or reduction of past accrued interest. ln cases where the Bank grants a concession
to troubled borrower, records the modification as a TDR under ASC 310-40 and the
related allowance under ASC 310-10-35.
A loan is considered to be impaired when based on current information; it is probable the
Bank will not receive all amounts due in accordance with the contractual terms of a loan
agreement or when a loan becomes 90 days or more past due as to principal or interest.
The fair value is measured based on either the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's observable market price or
the fair value of the collateral, if the loan is collateral dependent. A loan is also considered
impaired if its terms were modified in a troubled debt restructuring. When the ultimate
collectability of the principal balance of an impaired loan is in doubt, all cash receipts are
applied to principal. Once the recorded principal balance has been reduced to zero, future
cash receipts are recorded as recoveries of any amounts previously charged off, and
then to interest income to the extent any interest has been forgone.
Restructured loans are loans for which the original contractual terms have been modified
to provide terms that are less than those the Bank would be willing to accept for new
loans with comparable risk because impairment in the borrower's financial condition.
lnterest on these loans is accrued at the renegotiated rates.
The Bank's policy is to discontinue accrual of interest either when reasonabfe doubt
exists as to the full, timely collection of interest or principal, or when a loan becomes 90
days or more past due as to principal or interest. Credit card receivables that become 90
days past due or assigned to legal status are placed on nonaccrual status. The accrued
and unpaid interest is reversed against interest income and, thereafter, the loan is
accounted for on the cash method until it qualifies for return to accrual. When borrowers
demonstrate over an extended period the ability to repay a loan in accordance with the
contractual terms of a loan classified as nonaccrual, the loan is returned to accrual status.
The Bank charges off loans when collectability of principal is not probable. The policy
applies to restructured loans.
This policy is consistent with the requirements of the agreement 6-200 "Classification of
Portfolio and Constitution of Reserve" enacted by the Superintendence of Banks of the
Republic of Panama.
12
BAC INTERNAT¡ONAL BANK, INC. AND SUBSIDIARIES
(g)
Allowance for Loan Losses and Reserve for Unfunded Lending Commitments
The allowance for loan losses and the reserve for off-balance sheet commitments
represent the amounts, which, in management's judgment, will be adequate to absorb
inherent losses of the existing loan portfolio and off-balance sheet commitments,
respectively, at the consolidated balance sheets date. The Bank has developed policies
and procedures that reflect the assessment of credit risk considering all available
information for assessing the adequacy of the allowance for loan losses and the reserve
for off-balance sheet commitments. Where appropriate, this assessment includes
monitoring qualitative and quantitative trends including changes in the levels of past due,
if operations classifies as sub-standard or lower level, or whether is non-accrual status.
ln developing this assessment, the Bank must rely on estimates and exercise judgment in
assessing credit risk. Depending on changes in circumstances, future assessments of
credit risk may yield materially different results from the estimates, which may require an
increase or a decrease in the allowance for loan losses or the reserve for off-balance
sheet commitments. Additions to the allowance for loan losses are based on several
factors which include, but not limited to, analytical review of loan loss experience in
relation to outstanding loans, a continuing review of troubled or non performing loans,
overall portfolio quality and adequacy of collateral, results of regulatory examinations,
evaluation of independent appraisals, and management's judgment with respect to the
impact of current economic conditions on the existing loan portfolio.
The allowance on certain homogeneous loan portfolios is based on aggregated portfolio
segment evaluations generally by product type. Loss forecast models are used for these
segments which consider a variety of factors including, but not limited to, historical loss
experience, estimated defaults or foreclosures based on portfolio trends, delinquencies,
economic conditions and credit scores. The consumer loss forecast models are updated
periodically in order to incorporate information reflective of the current economic
environment. The remaining commercial portfolios are reviewed on an individual loan
basis. Loans subject to individual reviews are analyzed and segregated by risk according
to the Bank's internal risk rating scale. These risk classifications, in conjunction with an
analysis of current economic conditions, industry performance trends, and any other
pertinent information results in the estimation of the allowance for loan losses. The
historical loss experience is updated periodically to incorporate the most recent data
reflective of the current economic environment.
The allowance for loan losses represents the best estimate of probable losses inherent in
the loan portfolio. The method of calculating allowance for loan losses depends on the
size, type and risk characteristics of the loan products.
The assumptions, underlying estimates and evaluations used to quantify the losses are
continuously updated, at least quarterly, to reflect the market conditions.
Reserye Model for Homogeneous Loans (Credit Card, Mortgage, Vehicle, Personal,
Leasing, Small and Medium Business)
Loans that are homogeneous in nature (eg. with risk profile and similar amounts) are
grouped and evaluated collectively for impairment.
13
For homogeneous loans the Bank uses various models to calculate the allowance for
loan losses: the progression rate model (for credit cards, vehicles, leases, personal and
small and medium business loans) and the severity propensity model (for mortgage
loans).
The progression rate model used by the Bank to calculate the allowance is based on the
estimate percentage of the past due balances distributed between different time ranges
or buckets, and the expected monthly progression of those balances (based on historical
performance) until the residual balance is booked as a loss.
The reserve model for residential mortgages is based on two components:
.
.
The probability that a balance results in a loss, which is the probability that a balance
for moves through each range until reach the 180 days in arrears.
The Severity Rate which is the rate of the loan loss once then loan is impairment
default.
Restructured loans classified as impaired are those that when due to financial difficulties
of the client, the Bank provides concessions that othenruise would not consider. Usually
these concessions relieve the debtor's cash flows in the short term, through amendments
to the original terms of the contract or deferring debt payments so that in future the
debtor's condition improve and can meet the obligation.
The allowance for troubled debt restructurings is calculated using the present value of
expected future cash flows discounted at the effective interest rate of the loan before
restructuring.
Reserye Modelfor Corporate Loans
Each corporate client is assessed individually on a regular basis (at least annually) and it
is assigned a risk category from 1 to 9, which is associated with a loss reserve level. The
reserve level is calculated based on historical information of default probabilities for each
risk level multiplied by the rate of loss once it is falls default.
lf it is determined that a corporate loan is impaired, the Bank has to determine the
impaired amount individually based on any of the following methodologies: present value
of expected future cash flows discounted at the effective rate of interest at inception; loan
market value, or fair value of the collateral.
ln addition to the allowance for loan losses, the Bank also estimates probable losses
related to off-balance sheet commitments, such as letters of credit and financial
guarantees, and binding unfunded loan commitments. Off-balance sheet commitments
are subject to individual reviews and are analyzed and segregated by risk according to
the Bank's internal risk rating scale. These risk classifications, in conjunction with an
analysis of current economic conditions, performance trends and any other pertinent
information, result in the estimation of the allowance for off-balance sheet commitments.
14
The allowance for loan losses relating to the loan portfolio, and the allowance for offbalance sheet commitments are reported in the consolidated balance sheets in the
allowance for loan losses, and other liabilities, respectively. Allowance for loan losses
related to the loan portfolio and off-balance sheet commitments are reported in the
consolidated statements of income in the provision for loan losses and other operating
expenses, respectively.
(h)
Foreclosed Assefs
Assets acquired through, or in lieu of, loan foreclosures are held for sale and are initially
recorded at the lower of its cost or fair value less costs to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower of carrying amount or
fair value less cost to sell. Revenue and expenses from operations and changes in the
valuation allowance of those assets are included in other operating expenses. Costs
related to maintenance of those assets are expensed as incurred.
(i)
Transfer of Financial Assefs
Transfers of financial assets (totally or partially of a financial asset) are accounted for as
sales, to the extent that the control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been isolated
from the Bank, (2) the transferee obtains the right to pledge or exchange the transferred
assets, and (3) the Bank, its subsidiaries or agents do not maintain effective control over
the transferred assets.
(j)
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation ís computed using the straighþline method over the estimated
useful lives of the respective assets or based on use, as follows:
Years/Base
Buildings and improvements
Aircraft
Equipment and furniture
Computers
Vehicles
20-50
Based on hours flown
5-10
3-5
5
Leasehold improvements are amortized between three to ten years or the lease term,
whichever is lesser.
Expenditures for major renewals and improvements are capitalized. Repairs and
maintenance expenditures are charged to expense as incurred. The cost and
accumulated depreciation and amortization relating to premises and equipment retired or
otherwise disposed of are eliminated from the accounts and any resulting gains or losses
are credited or charged to income.
15
(k)
Goodwill and lntangrble Assefs
Goodwill is an asset representing the future economic benefits arising from other assets
acquired in a business combination that are not individually identified and separately
recognized. Goodwill and acquired intangible assets with indefinite useful lives are not
amortized. Acquired intangible assets with definite useful life are amorlized over useful
lives in a form that approximates the estimated decline in the economic value of the
intangible asset.
(t)
lmpairment
The Bank evaluates the long{erm assets recoverability, such as property and equipment,
and acquired intangible assets when there are events or changes in the circumstances
that indicate that the book value of an asset may not be recovered. These circumstances
include, but are not limited to (1) a significant decrease in the asset market value; (2) a
significant adverse change in the use of the asset; and (3) a significant accumulated cost
in excess of the amounts originally estimated at the acquisition date of the asset. The
Bank compares the book value of the asset against the undiscounted estimated cash
flows associated to such asset or group of assets. lf the sum of the expected net cash
flows is less than the book value of the asset or group of assets that are being evaluated,
an impairment loss is recognized. An impairment loss is calculated as the amount for
which the book value of the asset exceeds its fair value. The fair value is established
using valuation techniques, including the expected discounted cash flows values.
Goodwill is reviewed for impairment at least annually. ln September 2011, the FASB
issued ASU 201 1-08, Iesfítg Goodwill for lmpairmenf, which provides an entity the option
to perform a qualitative assessment to determine whether it is more-likely-than-not that
the fair value of a reporting unit is less than its carrying amount prior to performing the
two-step goodwill impairment test. lf this is the case, the two-step goodwill impairment
test is required. lf it is more-likely{han-not that the fair value of a reporting is greater than
its carrying amount, the two-step goodwill impairment test is not required. The Bank
adopted this guidance in 2012.
lf the two-step goodwill impairment test is required, first, the fair value of the reporling unit
is compared with its carrying amount (including goodwill). lf the fair value of the reporting
unit is less than its carrying amount, an indication of goodwill impairment exists for the
reporting unit and the entity must perform step two of the impairment test (measurement).
Under step two, an impairment loss is recognized for any excess of the carrying amount
of the reporting unit's goodwill over the implied fair value of that goodwill. The implied fair
value of goodwill is determined by allocating the fair value of the reporling unit in a
manner similar to a purchase price allocation and the residual fair value after this
allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting
unit is determined using a discounted cash flow analysis. lf the fair value of the reporting
unit exceeds its carrying amount, step two does not need to be per-formed.
16
BAC INTERNATIONAL BANK, INC. AND SUBS¡DIARIES
(m)
Revenue Recognition
Revenue is recognized when the earnings process is complete and collectability is
assured. Specifically, brokerage commission fees are recognized in income on a trade
date basis. Asset management fees, measured by assets at a particular date, are
accrued as earned. Advisory fees are recognized when the transaction is complete.
Commission expenses are recorded when the related revenue is recognized.
Transaction-related expenses are recognized as incurred.
Credit card annual fees, net of direct lending costs, are deferred and amortized on a
straight-line basis over a one-year term. Merchant's commission income is determined
based on the amount and type of purchase by the cardholder and is recognized at the
time the charges are billed.
The Bank offers rewards programs that allow its cardholders to earn points that can be
redeemed for a broad range of rewards including cash, travel and discounted products.
The Bank establishes a rewards liability based upon the points earned which are
expected to be redeemed and the average cost per point redemption. The points to be
redeemed are estimated based on past redemption behavior, card product type, account
transaction activity and other historical card peformance. The liability is reduced as the
points are redeemed. The estimated cost of the rewards programs is recorded as contrarevenue against credit card commissions.
(n)
Fair Value
The Bank determines fair value for financial instruments and non-financial instruments on
a recurring and non-recurring basis according to FASB ASC 820 "Fair Value
Measurements and DÌsclosures" that establishes a new framework for measuring fair
value and includes specific disclosures. Depending on the nature of the asset or liability,
the Bank uses various valuation techniques and assumptions when estimating fair value.
The three levels of the fair value hierarchy are described below:
a
a
Level 1 - Assets or liabilities for which the identical item is traded on an active market.
Level 2 * Assets and liabilities valued based on observable market data for similar
instruments, quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level 3 - Assets or liabilities for which significant valuation assumptions are not
readily observable in the market; instruments valued based on the best available data,
some of which is internally-developed, and considers risk premiums that a market
participant would require.
17
When determining the fair value measurements for assets and liabilities required or
permitted to be recorded at fair value, the Bank considers the principal or most
advantageous market in which it would transact and considers assumptions that market
participants would use when pricing the asset or liability. When possible, the Bank looks
to active and observable markets to price identical assets or liabilities. When identical
assets and liabilities are not traded in active markets, the Bank looks to market
observable data for similar assets and liabilities. Nevertheless, certain assets and
liabilities are not actively traded in observable markets and the Bank must use alternative
valuation techniques to derive a fair value measurement. A financial instrument's level
within the fair value hierarchy is based on the lowest level of any input that is significant to
the fair value measurement,
ln May 2011, the FASB issued ASU 2011-04, Fair Value Measurements (ASC 820):
Modifications to achieve a common measure of fair value disclosure requirements
according US GAAP and lnternational Financial Reporting Standards (IFRS). The ASU
2O11-04 created a common definition of fair value, measurement and disclosure
requirements for US GAAP and IFRS. Significant additional disclosures are required,
both qualitative and quantitative, in particular for measuring instruments at fair value that
are classified at Level 3 of the fair value hierarchy.
This ASU 2011-04 began to be effective for the Bank on January 1,2012.
(o)
Derivative Financial lnstruments
The Bank makes use of derivative financial instruments, primarily as part of
its
management of interest rate risks.
Derivative financial instruments such as interest rate swaps and interest rate caps are
used to manage interest rate risk through the exchange of interest payments based on a
predetermined notional principal amount. The underlying principal balances are not
affected. Net settlement amounts are reported in other income.
The Bank recognizes all derivative instruments as either assets or liabilities in the
consolidated balance sheets at their respective fair values. The accounting for changes
in fair value (i.e. gains or losses) of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and, if so, the type of
hedge. That is, the derivative is designated by the Bank as (1) a hedge of the fair value
of a recognized asset or liability or of an unrecognized firm commitment (fair value
hedge); or (2) a hedge of the variability of cash flows of a forecasted transaction to be
received or paid related to a recognized asset or liability (cash flow hedge); or (3) as a
freestanding.
Changes in the faír value of a derivative that has been designated and qualifies as a fair
value hedge, along with the changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk, are included in other income (expense) and recorded
as derivative and hedging activities. Changes in the fair value of a derivative that has
been designated and qualifies as a cash flow hedge are recorded in other comprehensive
income (loss) to the extent of its effectiveness, until earnings are impacted by the
variability of cash flows from the hedged item. Changes in the fair value of derivatives
held for trading purposes or those that do not qualify as hedges (freestanding) are
included in other income (expense) and recorded as derivative and hedging activities.
1B
At the inception of each hedge, when applicable, the Bank documents the relationship
between hedging instruments and hedged items, as well as its risk management objective
and strategy for undertaking the hedge transactions. This process includes linking all
derivatives that are designated as fair value or cash flow hedges to specific assets and
liabilities on the consolidated balance sheets, or to specific firm commitments or
forecasted transactions.
The Bank discontinues hedge accounting prospectively when it determines that the
derivate is no longer effective in offsetting cash flows attributable to the hedged risk; the
derivative expires or is sold, terminated, or exercised; the cash flow hedge is
de-designated because a forecasted transaction is not probable of occurring, or
management determines to remove the designation of the cash flow hedge.
(p)
lncome Tax
The Bank uses the asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax carryfon,rards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to be applied to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the enactment date period.
Management evaluates the realizability of the deferred tax assets on a regular basis and
assesses the need for a valuation allowance. Management assess, whether it is more
likely than not, that a portion or all of the deferred tax asset will not be realizable. A
valuation allowance is established when management believes that it is more likely than
not that some portion of its deferred tax assets will not be realized. Changes in valuation
allowance from period to period are included in the Bank's tax provision in the period of
change.
ln
addition to valuation allowances, the Bank recognizes estimates and discloses
uncertain tax positions when, despite having considered that the tax positions taken by
the Bank relating to tax benefits are consistent with current practices and application of
regulations, the Bank considers that such positions are likely to be challenged.
The uncertain tax positions are adjusted in light of changing facts and circumstances,
such as the progress of tax audits, case law and emerging legislation. Uncertain tax
positions are recorded as income tax payable as a component of accrued expenses and
other liabilities. These accruals are reduced upon expiration of statute of limitations. The
Bank's policy is to include interest and penalties related to unrecognized tax benefits
within the provision for income taxes in the consolidated statements of income.
19
BAC INTERNATIONAL BANK, INC. AND SUBSIDIAR¡ES
(q)
Employee Benefits
The Bank is subject to the labor law of each country in which it operates. The Bank
provides for employee benefits when such benefit relates to services already rendered by
the employee, the employee is currently entitled to receive the benefit, the payment of the
benefit is probable and the amount of the benefit can be estimated.
Ø
Foreign Currency
Assets, liabilities and operations of foreign subsidiaries are recorded based on the
functional currency of each entity. For foreign operations, the functional currency is the
local currency, in which case the assets and liabilities are translated, for consolidation
purposes, at period-end rates from the local currency to the reporting currency, the U.S.
dollar. For income and expenses, the Bank uses the period average exchange rate for
translation from local currency to the reporting currency. Resulting unrealized gains or
losses are reported as a component of accumulated other comprehensive income (loss).
When the foreign entity's functional currency is determined to be the U.S. dollar, foreign
currency transactions are recorded at the exchange rate prevailing at the date of the
transaction. Assets and liabilities denominated in foreign currency are re-measured into
the functional currency at the exchange rate prevailing at balance sheet date. Resulting
gains and losses on foreign currency transactions are included within other income in the
consolidated statements of income.
(s)
(t)
Fair Value Option
Under the Fair Value Option Subsections of FASB ASC Subtopic 825-10, Financial
lnstruments-Overall, the Bank has the irrevocable option to report most financial assets
and financial liabilities at fair value on an instrument-by-instrument basis, with changes in
fair value reported in earnings.
Offsetting
Financial assets and liabilities are offset and the net amount presented in the
consolidated balance sheets when, and only when, the Bank has a legal right to offset the
amounts and intends either to settle them on a net basis or to realize the asset and settle
the liability simultaneously.
The income and expenses are offset only when is allowed by USGAAP.
(u)
Contingencíes
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and
penalties and other sources, are recorded when it is probable that a liability has been
incurred and the amount of the assessment and/or remediation can be reasonably
estimated. Legal costs incurred in connection with loss contingencies are expensed as
incurred.
(v)
Rec/assrïications
Certain amounts in the consolidated financial statements of 2011 have been reclassified
to conform to the consolidated financial statements of 2012 presentation.
20
(3)
Cash and Due from Banks, and Pledged lnterest-Bearing Deposits
At December 31, 2012 and2011, cash and due from banks aggregating $1,262,805,034 and
$1
,123,649,784, respectively, are pledged to cover legal liquidity reserve requirements.
At December 31 ,2012 and 2011, interest-bearing deposits amounting to $10,036,290 and
$6,240,631, respectively, are pledged as legal liquidity or to guarantee borrowings and other
credit facilities.
(4)
Supplemental lnformation to the Consolidated Statements of Cash Flows
Certain supplemental information relating to the consolidated statements of cash flows is
shown below:
2012
Cash paid for interest during the year
Cash paid for income taxes during the year
$
$
2011
n5_234,95 12L269É36
83.686,403 67.707.629
Additional information on non cash ¡nvesting and financing activities is as follows:
2012
Changes in unrealized gain (loss) on securities
available for sale, net of tax
Change in cash flow hedging derivatives
Properties acquired in settlement of loans
(5)
$
2011
_l_6J13€*569 _19ß43.192)
-11Æ5.145)
$ ----u2-63e
_15,486.51_0 _l€J25p50
Trading Securities
At December 31, 2012 and 2011, trading securities consist of government bonds amounting to
$33,547,903 and $31,997,445, respectively.
Net gains (loss) on security trading activities included in earnings for the years ended
December 31, 2012 and 2011 amount to $27,739 and $(1 ,944), respectively, including
unrealized net gains (loss) on trading securities for $45,838 and $(102,209), respectively.
At December 31, 2012 and2011, securities with a fair value of $25,354,187 and $9,721,859,
respectively, were pledged to secure repurchase agreements.
21
(6)
Securities Available for Sale
The amortized cost, gross unrealized gains, gross unrealized losses and fair value of securities
available for sale as of December 31, 2012 and 2011 is as follows:
Amortized
Cost
Government bonds
United States of America
Other governments
Corporate debentures
Mutualfunds
2012
Gross
Gross
Unrealized
Unrealized
Losses
Gains
228,473
508,346,659
508,575,132
4.097.214
705.973 610
0
228,910
(3.054,703) 510,533,210
(3,054,703) 510,762,020
337
5,241,254
5,241.591
(27,643) 198,121 ,3gg
0
4,145,934
G*082J40) Zl3p29-343
4,847,768
48,720
193,301 ,264
Fair
Value
l_0J1_3€.029
20'11
Amortized
Cost
Government bonds
Other governments
Mutual funds
Gross
Unrealized
Gains
3,220,001
399,549,538
402,769,539
281,737,997
2.800,000
68L302é30
22
0
1,339,754
1,339,754
509,205
5,448
_1*854Al¿_
Gross
Unrealized
Losses
Fair
Value
(74)
3,219,927
(1.e21.717) 398,967.575
(1.921.791) 402,187.502
(9,417,716) 272,829,486
0
2,805,448
11I 339.507\ 677 822.436
A summary of securities available for sale as of December 31 ,2012 by contractual maturity is
presented below. Expected maturities will differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized
Cost
Government bonds United States of America:
Due within one year
Due after one year but within five years
Due after ten years
Other government bonds:
Due within one year
Due after five years but within ten years
Due after ten years
Corporate debentures:
Due within one year
Mutualfunds:
Without maturity
Fair Value
219,683
5,262
3,528
219,710
5,434
3,666
294,087,734
169,404,728
44,407,879
446,318
508,575,132
294,492,966
169,471,207
46,120,751
448,286
510,762,020
43,392,062
149,909,202
193,301 ,264
43,515,519
154,605,870
198,121 ,389
4,097,214_ 4,145,934
$ _l9g,ezEglg JJ3,o2e 343
December 31 , 2012 and 2011, securities with a carrying value of $83,775,564 and
$87,974,964; respectively, were pledged to secure borrowings and repurchase agreements.
At
For the years ended December 31, 2012 and 2011, proceeds from sale of securities available
for sale amounted to $258,478,987 and $312,027,682, respectively. Net realized gains
amounted to $2,752,609 and $4,478,385 for 2012 and 2011, respectively.
Gross unrealized losses on securities available for sale and the fair value of the related
securities, aggregated by category and length of time the individual security has been in a
continuous unrealized loss position at December
Government bonds
Total
Fair
Value
Losses
100,228,455
18,299,341
118.527.796
, 2012 and 2011 , were as follows:
2012
More than 12 Months
Fair
Unrealized
Value
Losses
12 Months or Less
Unrealized
31
(1,203,587) 71,245,636
(27.643)
n.n1.230\
o
71.245.636
23
Fair
Value
Total
Unrealized
Losses
(1,851,116) 171,474,091 (3,054,703)
o 18,29e.341
[x8ãLr1-o)
1æ-1ß*4n
Q7,643)
ßJ82J4O)
2011
12 Months or Less
Fair
Value
More than 12 Months
Unrealized
Fair
Value
Losses
Unrealized
Losses
bonds $ 201,044,256 (1,299,703) 8,042,802
Corporate debentures 214.466€05 (9.417.716)
0
Total
$ 415.511.161 (10.717.419\ 8.042.802
Government
Fair
Value
Total
Unrealized
Losses
(622,088) 209,087,058 (1,921,791)
0 214.466,905 (9.417.716)
(622.088) 423.553.963 (11.339.507)
The Bank primarily invests in local government debt securities and corporate debentures. The
major¡ty of corporate debentures are rated ¡nvestment grade by the major rating agencies. The
Bank evaluates corporate debt securities based on a variety of factors such as the financial
health of the issuer, including whether the issuer is in compliance with the terms and covenants
of the security. Most of these investments are primarily liquid securities and have a large and
efficient secondary market.
At December 31, 2012, management does not have the intent to sell any of the securities
classified as available for sale in the table above, and believes that it is more likely than not
that the Bank will not have to sell any securities before a recovery of cost. The unrealized
losses are largely due to changes in market interest rates over the yields available at the time
the underlying securities were purchased. The fair value is expected to recover as the
securities approach their maturity date. Management does not believe any of the securities are
impaired due to reasons of credit quality. Accordingly, as of December 31,2012, management
believes the impairments detailed in the table above are temporary and no impairment loss has
been realized in the Bank's consolidated statements of income.
24
(71
Loans
The following table presents the composition of the loan portfolio by type at December 31,
2012 and 2011, respectively:
2012
Commercial Loans
Corporate business
Small and medium business
Total commercial loans
2011
$ 2,095,796,860 1,660,949,655
333,970.298
283.035,928
2,429,767.158 1,943,985,583
Consumer Loans
504,943,386
441,099,446
440,971,511
353,527,651
1,735,479,025 1.397.770,920
2,681,393,922 2192.398,017
Vehicles
Personal
Credit cards
Total consumer loans
1,826,902,586
153,791,880
7,091,855.546
Mortgage
Lease financing, net of interest
Total loan portfolio
Unearned income and deferred loan fees and
costs
(18,474.042) (17,375.821)
Total loans, net of unearned income deferred
loans fees and costs
Net loan portfolio
1,712,270,921
126,703,731
5,975,358.252
7,073,381,504
5,957,982,431
(101 ,093,569)
$ 0.922282*935
At December 31, 2012 and 2011, the Bank had loans for $391,932,735
(85,317,298)
5-BZ2-065-133
and $408,582,248,
respectively, to guarantee obligations and other credit facilities.
Other real estate owned asset included in other assets amounted
to
$16,817,453 and
$25,998,540 at December 31 ,2012 and 201 1, respectively.
The following table presents the net value of leases receivable at December 31,2012 and
2011:
Total minimum payments on lease financing
Less: unearned interest
Sub{otal
Less: allowance for uncollectible leasings
Less: net deferred fees
Net lease financing
25
2012
2011
176,222,873
22,430,993
153,791,880
1,005,785
753,462
152*032*033
142,703,302
15,999,571
126,703,731
1,378,288
610,830
124J1Aß13
The following table summarizes the minimum lease financing payments at December 31:
2013
2014
2015
2016
$
47,263,761
41,807,792
39,769,202
16,055,106
2017 andthereafter 8,896,019
$ 153J91-8SO
The following tables present the past due analysis of the loan portfolio and loans on nonaccrual interest at December 31, 2Q12 and 2011, respectively:
20'|.2
Current and
less than 30
davs past due
Commercial loans
Corporate business
$
Past due over
31 days and
still accruinq
2,080,965,270
Total
16.735,198
2,095,796,860
333,970,298
2,429.767,158
2,707,438
1,702,270
504,943,386
4,435,721
27.095,009
34,238,168
2,047,230
6,130,895
2,987,714
9,1 1 8.609
322,948.081
2.403,913.351
(')
Non-accrual
8,700,695
8,034.503
Consumer loans
Vehicles
Personal
Credit card
500,533,678
434,488,560
1
,665,520.1 35
2,600,542,373
Mortgage
Lease financing, net
1,776,968,898
152,991 .037
6*934/115*659
Loan portfolio
(')lnclude
$
19,920,426
528,400
___63ú05.603
440,971,511
42.863,881
46.613,381
1,735.479.025
2,681,393,922
30,013,262
272.443
1,826,902,586
153,791 ,880
__9.3"63_4284
zo9l-855.546
operations that are current, however according Management's policies are presented in this category until they
accumulated three consecut¡ve payments.
2011
Current and Past due over
less than 30
31 days and
davs past due still accruinq
Commercial loans
Corporate business
Consumer loans
Vehicles
Personal
Credit card
Mortgage
Loan portfolio
Non-accrual
('l
Total
$ 1,646,877,963
271,357.190
1.918,235.153
2,279,671
11,792,021
1,660,949,655
3.210.276
5,489.947
20.260.483
1.943.985,583
435,890,182
349,786,349
2,722,875
2,172,573
8.468.462
2,486,389
1,568,729
283,035,928
441,099,446
353,527 ,651
1,324.395.082
2.110.071.613
39,009,776
43,905.224
34.366,062 1,397.770.920
38.421,180 2192.398,017
1,656,678,634
20,946,363
34,645,924
1,245,365
__71-586-899
1,712,270,921
126.703.731
_94;ß1588
5p25.358252
124.604.365
$ 5-809-589-765
(')lnclude
operations that are current, however according Management
accumulated three consecutive payments.
26
854,001
's policies are presented in this category until
they
Credit Quality indicators
Following definitions of the risk ratings used for the corporate business portfolio:
.
.
.
o
.
Satisfactory:
Loans considered satisfactory are divided into additional categories, primarily based on the
borrower's financial strength and ability to service the debt.
Special mention:
These are loans included on a watch list in which the Bank have certain concerns due to
current or future events that if not reverted, can negatively impact the borrower ability to
service the debt.
Substandard:
These are loans with some credit weaknesses that have been present for certain time and
represent a higher level of credit risk for the Bank. These weaknesses if not timely
corrected, can negatively impact the borrower ability to service the debt.
Doubtful:
These are loans with well defined credit weaknesses that based on current information and
conditions there is doubt of collecting the total loan principal and interest, even if there are
certain factors that can result in an improvement of the borrower ability of complying with all
payments.
Loss:
Loans classified as loss are considered uncollectible
continuance efforts for collection are not justified.
and of such value that the
This classification does not mean that credit has no recovery or salvage value at all, but it is not
practical or desirable to defer settlement of the asset, basically worthless, even if it can achieve
a partial recovery in the future.
The Bank monitors credit quality within it portfolio based on primary credit quality indicators
such as. past due, client distribution by risk level, percentage of impaired portfolio composition
and level of LTV (the LTV measures the carrying value of the loan as a percentage of the value
of property securing the loan, and is updated monthly).
Within the mortgage loans segment, the primary credit quality indicators are the historical
default behavior and LTV levels.
The default behavior of historical payments and credit card usage are the factors used to
monitor the quality of consumer products segment in which credit card is the most important
product and which has a risk score that is updated monthly.
Commercial loans are evaluated quarterly based on quantitative elements (financial
statements) and qualitative (industry, management, market share, etc.) to give a risk rating
which allows portfolio classification into Satisfactory, Special Mention and lmpaired
(Substandard, Doubtful, Loss). The latter have a high level of risk and may have a high
probability of default or total loss, for which a reserve is individually quantified as described in
the ASC 310-10-35.
27
Primary credit quality indicators for small and medium businesses are the historical default
behavior and LTV levels for those mortgages.
The following tables present the receivable balances from the corporate business loan portfolio
according to risk categories at December 31:
2012
Corporate business:
2011
2,037,702,036 1,608,941,027
36,174,844 19,949,446
Satisfactory
Special Mention
Sub-standard
Doubtful
Loss
9,977,179
10,726,918
7,659,515
13.672,749
3,873,904
2.095,796,860 1.660,949,655
9,068,897
Total
The following tables present the receivable balances from the small and medium business loan
portfolio based on the loan default at December 31:
2011
2012
Small and medium business:
30 days
31 - 89 days
90 - 120 days
121 - 180 days
181 - 365 days
More than 365 days
324,081,708 272,514,513
Total
333*920298
0
-
3,386,528
441,913
882,352
2,811,252
1,327 ,637
1,208,185
1,721,341
3,453,000
283*035p28
1,987,607
3,190,290
The credit quality of consumer loans and leases is evaluated based on the past due balances.
31 , 2012 and 2011, and based on the most recent analysis, the credit risk
classification of consumer foans by type is as follows:
At December
2012
0-30
days
Consumer loans
days
500,233,078 3,045,358
432,559,922 4,390,159
Vehicles
Personal
Credit cards
Q
ö
(')Loans
31-90
1,626.451,902 37,620.448
2559.244ß92 -45j55-965
l52J91J3f
_128-400
over 90 days past due and trouble debt restructurings
28
lmpaired
(')
Total
4,021,430
71.406,675
504,943,386
440,971,511
1.735.479.O25
17-093*055
2.6ß1*393ß?2
_272A43
_153J91-B€O
1,664,950
2011
0-30
days
Consumer loans
g
Vehicles
Personal
Credit cards
$
s
31-90
lmpaired
davs
436,219,171
349,872,334
1.278.073.591
{')
Total
1,699,203 441,099,446
1,414,146 353,527,651
3,181 ,072
2,241,171
34.405.490
85,291,839 1.397.770.920
88105-188
2*064;l_65*096 39*822J33
124J27*954 1]31'3BB
(')Loans
over 90 days past due and trouble debt restructurings
2J92,398-911_
___688J89 _J26J-93J31
The Bank evaluates the mortgage quality portfolio based on the past due balances. At
December 31, 2012 and 201 1 , the credit risk classification of mortgage loan is as follows:
2012
Mortqaqe
- 30 days
31 - 89 days
90 - 120 days
121 - 180 days
181 - 365 days
More than 365 days
,554,899
2011
0
1
Total
26,202,065
4,219,974 3,866,163
5,103,937 4,216,780
6,397,045 6,844,709
6,669.836 9,798,093
1 .826,902.586 1,7 12,270,921
,791
1
,661 ,343,1
1
1
22,956,895
The following tables summarize the information of impaired loans, including restructured loans
at December 31:
2012
Average
Recorded
investment
Outstanding
balance of
(')
impaired loans balance
lnterest
recognized
during
the vear
Allowance
individually
assessed
Allowance
collectively
assessed
Commercíal loans
Corporate business
20,513,'130
14,036,785
23,256,787
9,331,458
28,312J36
1,558,116
5,742,963
1,835,210
14,986,997
1
,066.1 92
0
34,549,915
32.588.245
43,299,133
2.624.308
5.742.963
5,013,788
6,848,998
138,594
0
1,275,747
9,889,1 82
0
0
0
21,260,085
2.243.959
24.779,791
Consumer loans
1,664,950
1,602,561
71,406,675
4.021,430
77,093,055
74,759,786
2,399,986
78.762.333
1,677,086
71,406,675
4,021.430
77.105.191
382.708
20,410.484
Mortgage
35,361
61
32,658.090
38,961,663
2.829.O79
0
4,905,703
272.443
362.752
272,443
22,679
0
188.192
14721_6-174
14A3tL4n
159-63tur30
25*886"550
Vehicles
Credit cards
Personal
Lease flnancing, net
Total impaired Ioans
$
,1
(')Unpaid principal
balance gross of write-downs
29
1
5J42-9ç3
3ßf,2*ø84
2011
Average
balance of
Recorded
investment
impaired
Outstanding
loans
balance
(')
lnterest
recognized
during
the vear
Allowance
collectively
assessed
Allowance
individually
assessed
Commercial loans
Corporate business
Consumer loans
41,678,952
4.787,466
46.466,418
31,645,116
10.754.384
42,399,500
1,572,686 1,593,703
,839 95,666,919
1.278.164 1.471,681
Vehicles
Credit cards
85,291
Personal
38,170,492
12.645.815
3,130,385
8,075,011
1,467,274
1,037,091
0
50,816.307
4.167.476
8,075,011
4,991.758
6.459.032
1,699,203
155,682
85,291,839
1,414,146
23,768,818
0
0
0
88,142,689
98,732,303
88.405,188
Mortgage
25,533,338
26,156,359
29.574.483
688.389
412.633
688,389
$ 156J63.E10 1f1Jß7J13
16tut&1.302
Lease fìnancing, net
Total impaired loans
129,536
24.O54.036
0
0
0
2.423.800
63,071
3OJ08JS3 -&'07-5*0an
929,864
21,705,333
995,983
23,631,180
3,485,644
531,838
34;107$el
(')Unpaid principal
balance gross of write-downs
During the years ended on December 31, 2012 and 2011, the Bank made the following
restructurings:
2012
lnterest
Balance
before
Restructured loans
Corporate business
Vehicles
Credit cards
Personal
Mortgage
chanqe
Quantitv
75$
Current
balance
114
1,037,399
5,971,557
5,781,834
484,552
4,882
15,904,644
14,O44,338
1,807,570
10.317,803
1,704,546
9,716.767
4L9342æ
u-793.594
6,112,841
6,754,002
103
155
146
Total
Recognized
5jz5
$
during the
Allowance vear
5,345,276 344,030
599,386 333,100
19,682 30,584
1,716,122 3,181,599
600,674 122,332
406.527 586,430
BJß4,çß7 4.598,075
1
Last 12 months
outstandinq balance
2012
Restructured loans reclassified as uncollectables
Corporate business
Vehicles
Credit cards
$
2,477,948
500,414
62,681
Personal
Mortgage
$
30
2,437,732
51,405
1.512,793
7-042-97i
2011
lnterest
Restructured loans
Quantitv
Corporate business
Vehicles
Credit cards
Total
Current
chanqe
balance
21
3,791,309
78
4,362,077
432,144
34
7,581
86
Personal
Mortgage
Balance
before
142
19,100,151
915,031
8,903,662
_J9A2
?7-Æ4-94
Recognized
during the
Allowance vear
3,343,778 1,749,753 546,619
3,822,443 511,238 313,481
21,396
233,532 47,574
16,560,464 2,461,240 4,065,030
731,405 278,262
66,997
8,799.001 509,438 721.129
33_490*623 -5-552"505 5JU.ç52
Last 12 months
outstandinq balance
2011
Restructured loans reclassified as uncollectables
Corporate business
Vehicles
Credit cards
Personal
Mortgage
$
$
3,235,1
1
3
152,497
12,269
3,806,801
24,691
399.120
z-630ést
At December 31, the Bank had no impaired loans without allowance for loan losses.
(8)
Allowance for Loan Losses
The following tables show the balance of the allowance for loans and gross loans balances
segmented by product according to the methods for evaluation of impairment at December 31,
2012 and 2011, respectively:
2012
Small and
medium
business
Corporate
business
Consumer
Residential
Mortoaqe
Lease f¡nancinq
Total
Allowance for loan losses:
Balance, beginning of the year
Charge-offs
Recoveries
I
6,658,528
(2,81e,926)
824,833
4,900,063
3,784,794
9,079,014
(3,986,086)
1
967,21
Translation adjustment
489.988
(633,81 9)
(233.030)
10,522,196
(5,236,411)
2,158,293
2,309,021
(206,373)
1,378,288
(851 ,1 40)
I 11 ,962
365,748
927
85,317,298
(1
18,485,014)
48,027,973
86,81 5,619
(582.s07)
___6!*BZ5j62
____9546J26
l0!5.28¡
lql093"ãô9
_,___,__0
-,___________0
_____-__,,0
___60-825.662
----9545f,25
l*0!5.785
___lJA2.9ß3
_95*350.6!6
333*970¿98
2.68L39iß22
l-826_902J80
ß3.79r-e8A
¿091*855J46
algJz!¿gq
2,â91,E9A922
Balance, end of the year
$
__21459J9t
Allowance ind¡vídually assessed
Allowance collectively assessed
$
$
___J742.963
___ls*791-234
__i.21,1199
Loan portfol¡o
$
zç95.296*e60
Balance individually assessed
Balance collectively assessed
$
$
___l_5-611-4ÊZ
2J8OJZ9J93
47,679,272
(105,591,451)
43,965,6ô7
75,455,993
__å215J99
___15-617-4ß7-
____-__,_,____o
31
L826_9_02é86
153.29r-88!
7*O7S23B.An
2011
Corporate
business
Allowance for loan losses:
Balance, beg¡nning of the year
Charge-offs
Recoveries
Prov¡sion for loan losses
Translation adjustment
Small and
medium
bus¡ness
22,3s6,948
(1 1 ,21
8,1 34)
682,642
7,186,475
71.083
Res¡dential
Consumer
5s,360,871
5,979,548
,911,257)
67,990
(111,127 ,0471
(1
42,955,904
60,910,550
(421.006)
2,487,750
34.497
__6-058-528
Mortqaqe
Lease f¡nanc¡nq
3,137,233
(4,972,320)
780,712
I 1,562,663
13,908
_-t_0-522.19â
_-J-37ß2ß8
__a5jlz298
___________o
___i.0z5Ja1
__1J78.288
733,680
(540,402)
308,172
879,543
Q.705\
$
__19-az9*014
$
$
____8-075-011
Allowance collect¡vely assessed
_lL00Lo03
--6Sé!éæ
___47-a79.272
__l_0.522*196
Loan portfolio
$
l*660.E19*655
283*035-928
2J92.39&o1f
Balance ¡ndividually assessed
Balance collectively assessed
s
:_Æ,1na92
J-622,Jl9lsi
28XO3.1928
¿J9¿!99Sü
L712279ß27 126J!t231
_________a __0
1J12279ß 12SJ_O3.731
Allowance individually assessed
(9)
==41.9792J2
_______o
Total
(1
87,568,280
29,769,1 60)
44,795,420
83,026,981
(304.223\
_-_1L2422ßZ
5.975_358252
*___48J70J92
Á947J_87J60
Property and Equ¡pment
Property and equipment as of December 31, 2012 and 2011 are detailed as follows:
2012
Land
$
Buildings and improvements
Equipment, furniture and vehicles
Constructions in progress
Less: accumulated depreciation and amortization
$
23,054,726
121,694,260
261,543,834
5,213,884
411,506,704
(218.306,941)
_t_93J_99J63
2011
21,913,655
107,171,757
249,319,764
1.293,245
379,698,421
(197.234,534)
182Aþ3ß87
(10) Goodwill and lntangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 2012 and
2011, are as follows:
2012
Goodwill:
Balance, beginning of the year
Foreign currency translation
2011
$ 86,172,936 96,125,493
62,975 47,453
$
86235*9_rt 86J_72930
At December 31, 2012, the Bank performed the qualitative assessment and determined that is
not more-likelythan-not that the fair value of the report¡ng unit is less than its carrying amount,
therefore the two-step goodwill impairment test were not performed.
32
The gross carrying amount and accumulated amortization for each of the Bank's identified
intangible assets subject to amortization at December 31,2012 and 2011, is presented below:
2012
Gross
Carrying
Amount
Purchased credit card
relationships
Merchant relationships
$
2011
Gross
Accumulated Carrying Accumulated
Amortization Amount
Amortization
7,992,127 6,220,179 7,992,127
739,999 595,602 739,999
$ 8J_UJ26 0Él5J8L 8J3¿J26
5,647,083
558,372
6205t55
None of the intangible assets listed in the table above have residual value. The weighted
average lives of credit card relationships and merchant relationships are 9 and 12 years,
respectively. None of these intangibles is deductible for tax purposes.
The aggregate amortization expense related to intangible assets for the years ended
December 31, 2012 and 2011, amounted to $610,326 and $841,028, respectively.
Amortization expense related to identified intangible assets in each of the five years
subsequent to December 31 ,2012, is as follows: 2013: $466,501 ,2014: $392,738, 2015:
$339,61
1
, 2016: $300,369, 2017: $183,795 and thereafter: $233,331
.
During the year ended December 31, 2012, the Bank had no impairment loss.
(11) Deposits
As of December 31,2012 and 2011, the Bank held $2,433,525,160 and $1,807,939,313,
respectively, of time deposits with principal balances of $100,000 and over.
Scheduled maturities of time deposits at December 31, 2012 are as follows:
Year endinq December 31.
$
2013
2014
2015
2016
2017
Thereafter
33
s
2,290,461,692
363,073,732
113,400,671
21 ,333,168
35,209,499
2,398,566
2.825.877.328
({2) Securities Sold under Agreements to Repurchase
The following table summarizes certain information on securities sold under agreements to
repurchase at or for the years ended December 31, 2012 and 2011'.
2012
Pavable in
Colones
Carrying amount at end of year
Maximum amount outstanding at any month end
$
$
$
37*054*800
2011
Pavable in
US Dollars
_5-012ß1_5
Colones
US Dollars
48Sù1028 _3f,45J55
65-601-892 aLgLLlrlS
79'/,45292
44*050.216 _4-64431i
19*Ê16*940
Weighted average interest rate for the year
______6-63% _-__2.Aa%
51É61JA2 -9A51279
___-ç31.% __9J6%
Weighted average interest rate at end of year
*__J-73% ___3,91%
_____ßtß% -__2ß9%.
Average amount outstanding during the year
Januaty]-O7?
January-2013
Maturities through
(13) Borrowings
Borrowings at December 31 , 2012 and 2011, borrowings consist of the following:
lnterest
Rates
Payable in U. S. dollars:
Fixed rate
Floating rate
2012
Maturity
Various Throuqh
2025
6.35%
0.66%a4.31o/o 2024
0.84 % a
Carrying
Amount
$
541,639,487
673,874,928
Payable in Mexican Pesos (Mexico)
Floating rate
6.29%
2013
43,618,179
a 9.00%
9.23%
2013
2021
35,074,360
5,813,166
a 15.O0o/o
9.65%
2038
2021
135,250,749
5,679,235
5.650/o
2014
129,698
2013
21,909,296
Payable in Quetzales (Guatemala):
Fixed rate
Floating rate
6.50%
Payable in Lempiras (Honduras):
Fixed rate
Floating rate
O.O1o/o
Payable in Cordobas (Nicaragua):
Fìxed rate
Payable in Colones (Costa Rica):
Fixed rate
Floating rate
12.750/o
11.OO%
34
a 13.25%
2027
35,926,404
1-498915-502
2011
lnterest
Rate
Payable in U. S. dollars:
Fixed rate
Floating rate
0.94o/o a 6.35%
O.61 o/o a 4.55Vo
Payable in Mexican Pesos (Mexico)
Fixed rate
Payable in Quetzales (Guatemala):
Fixed rate
Floating rate
Maturity
Various Throuqh
6.22%
a 9.00%
9.09%
6.50%
2025
2024
Garrying
Amount
$
366,338,690
674,793,106
2012
46,744,631
2012
2021
18,195,562
6,534,713
2038
122,699,308
Payable in Lempiras (Honduras):
Fixed rate
0.01%
Payable in Cordobas (Nicaragua):
Fixed rate
5.50% a 6.53%
2014
238,570
Payable in Colones (Costa Rica):
Fixed rate
Floating rate
8.93%
8.50% a 9.00%
2012
19,798,266
16,710,300
a 15.00%
2021
$
1
.272.043.146
As of December 31,2012 and 2011, the amount outstanding under the CIC Receivables
Master Trust, a consolidated special purpose vehicle, aggregated $277,202,630 and
$318,493,376, respectively. The cedificates issued under such vehicle are secured by future
cash flows from merchant vouchers originating in Guatemala, Honduras, El Salvador,
Nicaragua and Costa Rica. The merchant vouchers are those to be generated by holders of
credit cards issued by third-party international financial institutions, under Visa and MasterCard
Credit Card Programs which are processed by the Bank. The cedificates pay interest quarterly
each January, April, July and October at a rate of three-month U. S. dollar LIBOR plus a
margin (1.760/o, including surety premiums, at December 31 , 2012 and 2011). Principal
amortization amounts started to be paid to certificate holders beginning in July 2010. The
certificates had an original duration of 4.68 years. At December 31, 2012, the certificates
currently have a weighted - average duration of 2.3 years.
At December 31, 2012 and 2011,
secured borrowings amounted
to
$671
,355,417 and
$728,483,541, respectively.
At December 31, 2012 and 2011, the Bank had approximately
$537,330,682 and
$400,913,583, respectively, available in unused lines of credit that expire through 2017.
35
Scheduled amortizations of borrowings at December 31, 2012, are as follows:
Year ending December 31.
2013
2014
2015
2016
937,143,591
183,652,752
134,586,907
120,236,258
76,418,751
146,877,243
2017
Thereafter
1.499*915j02
(14) Other Borrowed Funds
Carrying amount of other borrowed funds at December 31, 2012 and 2011 consist of debt
instruments registered at and negotiable through the corresponding local stock exchanges in
Guatemala, El Salvador and Honduras, at fixed and variable interest rates, and are detailed as
follows:
lnterest Rates
Pavable in:
U.S. dollars
Quetzales
Lempiras
2012
2011
2012
2.33o/o to 5.00% 2.84o/o to 4.25 $
4.65% to 8.50% 4.650/o to 8.69%
14.00%
14.49o/o
$
69,122,418
112,650,570
5,986.384
187.759.372
2011
75,926,865
84,814,200
13,121,982
113,9æp4¿
Scheduled amortizations of other borrowed funds at December 31, 2012 are as follows:
Year endinq December 31.
2013
$
2014
2015
2016
2017
$
145,975,334
19,950,654
5,986,384
4,000,000
11,847,000
187-7_59*U2
December 31 , 2012 and 2011, the Bank had loans receivable for $76,890,786 and
$82,516,643, respectively, pledged to secure these other borrowed funds.
At
36
(15) Other Operating Expenses
The following table sets forth the components of other operating expenses for the years ended
December 31, 2012 and 201 1'.
Advertising
Communications
Office supplies
Maintenance and equipment rental
Credit card franchise and authorization fees
Taxes other than income tax
Processing fees
Deposit insurance
Security
Armored services
Travel expenses
Banking licenses
Other
2012
2011
28,427,072
21,483,543
8,455,233
30,747,002
32,416,274
16,945,199
4,401,347
4,970,427
8,041,848
8,587,360
6,903,450
6,519,647
16,913,394
194.811.796
24,095,399
21,920,463
8,576,011
27,404,827
25,831,496
14,731,823
3,569,158
4,648,486
7,330,780
9,183,717
5,449,554
6,015,878
21,708.845
180,466,432
(16) lncome Taxes
lncome tax expense consists of:
2012
2011
$ 90,817,138 80,605,888
Current
Deferred
4,863,561 2,505.085
$ 95*680*099 83Í!.923
lncome tax expense was $95,680,699 and $83,110,973 for the years ended December 31,
2012and2011, respectively, and differed from the amounts computed by applying the current
statutory income tax rate to pretax consolidated earnings as a result of the following:
2012
Computed "expected" tax expense
lncrease (decrease) in income taxes resulting
from:
Exempt and foreign source income
Tax incentives
Change in allowance
Nondeductible expenses
lnvestments in foreign subsidiaries
Changes in uncertain tax positions
Foreign income taxes rate differential
lncome tax expense
37
2011
99,206,335
89,710,453
(27,387,410)
(846,016)
2,622,647
19,543,946
6,306,147
6,092,406
(e,857,356)
95.680.699
(23,341,3O7)
(800,972)
4,276,674
14,913,298
8,598,519
5,215,944
(15,461 ,636)
_83Í!,923
Temporary differences between financial statement carrying amounts and tax basis of assets
and liabilities that give rise to the deferred tax assets and liabilities as of December 31,2012
and 2011 are as follows:
2012
Deferred tax assets:
Net operating tax loss carry fonruards
Deferred loan origination fees and costs
Accrued expenses
Swaps mark to market
Foreclosed assets valuation
Net premises and equipment depreciation
difference
2011
$ 20,278,189 14,198,043
8,455,519 6,917,994
258,222 (252,490)
6,840,002 5,606,371
437,092 802,209
364,633 521,201
397,925
327,285
837,380
316,312
28,507,564
(22.796.177) (16,224,856)
15.002j45 12,282.708
Unrealized loss on securities available for sale
Gross deferred tax assets
Less-valuation allowance
Total deferred tax asset
37,798,322
Deferred tax liabilities:
Net premises and
equipment depreciation
(2,346,262)
difference
Deferred expenses
Deferred commissions
Foreclosed assets valuation
Accrued expenses
Accrued interest receivable
Fair value acquisition adjustments
lnvestments
in foreign
(2,281,361)
(1,583,435)
(1,764,144)
(3,714,305)
(2,268,639)
subsidiaries, for
undistributed earnings
Unrealized gains on securities available for sale
Total deferred tax liabilities
Net deferred tax liabilities
(1,738,482)
(984,917)
(1,092,943)
(1,500,388)
(1,1O1,122)
(2,738,844)
(2,304,168)
(1,059,833)
(12,206,969)
(3,646,912)
(9,180,643)
(3,426,796)
(1 ,101
(166,016)
(31,973,854) (24.234.319)
t16.971.709) t11.951 611)
,e94)
$
The valuation allowance for deferred tax assets as of December 31, 2012 and 2011 was
$22,796,177 and 916,224,858, respectively. The valuation allowance at December 31,2012
and 2011 was primarily related to net operating loss carryfonryards and the allowance for loan
losses in two subsidiaries operating in Mexico and United States that, in the judgment of
management, are not more likely than not to be realized.
The net change in the total valuation allowance, including Foreign Exchange Effect, for the
years ended December 31, 2012 and 2011 was an increase of $2,622,647 y $4,276,674,
respectively. ln assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become
deductible.
38
Management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the periods in which the deferred
tax assets are deductible, management believes it is more likely than not that the Bank will
realize the benefits of these deductible differences, net of the existing valuation allowances at
December 31, 2012.
At December 31, 2012, the Bank have incurred in net operating tax loss carryforwards of
$70,114,484, which are available to offset future taxable income of the applicable subsidiaries
through 2019.
At December 31 , 2012, the Bank has not recognized a deferred income tax liability of
approximately $76,800,672 for undistributed earnings from foreign subsidiary operations,
because the Bank believes that $639,290,262 of these profits will be reinvested for an
indefinite period.
The Bank is subject to income taxation in various jurisdictions. At December 31, 2012 and
2011, the Bank's kept unrecognized tax benefits, excluding related interest expense and
penalties, amounting to $16,176,567 and $11,627,374, respectively. lnterest expenses and
penalties related to income tax liabilities recognized in income tax expense were $1,561,865
and $954,868 in 2012 and 2011, respectively. Total interests and penalties expenses accrued
amount to $3,359,471 and $1,797,606, at December 31 ,2012 and 2011, respectively. This
amount is also included in other liabilities, at December 31, 2Q12 and 2011, in addition to the
Bank's liability for unrecognized tax benefits.
The following are the major tax jurisdictions in which the Bank and its affiliates operate and the
earliest tax year subject to examination: United States: 2009, Mexico: 2007, Guatemala:
2008, El Salvador'. 2010, Honduras: 2007, Nicaragua: 2008, Costa Rica: 2008 and Panama:
2009.
During 2010 in Panama income tax rates applicable to legal entities for future years are as
follows: 2011, 3O%; 2012 and 2013, 27.5o/o, and beyond 25%. During 201 1 applicable income
tax rates for legal entities in El Salvador were revised; rates for future years are as follows:
2012 and beyond 30%.
39
(17) Accumulated Other Comprehensive Loss, Net
The following table presents the components
of and changes in
accumulated other
comprehensive loss for the years ended December 31,2012 and 2011:
Accumulated
Other
Flow
Hedging Comprehensive
Derivatives Loss
Foreign Unrealízed Net
Gurrency Gain (Loss) on
Translation Securities
Attributable to controlling
stockholder's equity:
Balances as of December 31, 2010
Current year changes
Balances as of December 31, 201 1
$
(74,263,042) 321,111 (4,151,587) (78,093,518)
(717.045\ (9,642,899) (.265,145\ (11,625,089)
(74,980,087) (9,321,788) (5,416,732) (89,718,ô07)
(4.279.200\ 16,136.866 372,630 2,230.296
(89,259,287) 6,815,078 (5.044j02\ (87.488.311)
Attributable to noncontrolling
interest:
(10e,0e1)
Balances as of December 31, 201 1
Balances as of December31,2012
Total accumulated other
comprehensive loss, net
Cash
(292.987)
(402,078)
(16,535)
(418,613)
0
0
0
o
0
71
(2e3)
(222)
Q97\
(519)
(10e,020)
(293,280)
(402,300)
(16,832)
(419.132\
G9*077-9 _6.814559 J5&44J92\ {BZ9AZ443)
The following table presents details of other comprehens¡ve loss for the years ended
December 31, 2012 and 2011:
December 31,2012
lncome tax
Pre-Tax
Amount
(Expense)
Benefit
After-tax
Amount
Foreign currency translation adjustment:
Controlling interest
Net current year change
(14,279,2OO)
0
(16,535)
0
0
(14.295.735)
(14,279,200)
(16,535)
(14.295,735)
Unrealized gain on securities:
Unrealized net holding gains on securities:
19,293,093
(204)
19,292,889
Less: reclassification adjustment to earnings for
realized net gains, controlling interest
Cash flow hedging derivatives:
Net current year change, controlling interest
Other comprehensive loss, for the year
40
(2.752,609)
(413,257)
(e3)
(413,350)
9,639
18,879,836
(2e7)
18,879,539
(2.742,970)
16,540,280
(403.711\
372.630
2.617,175
0
372.630
J4A3J1_1)
___22134Ê4
16,136,569
December 3'|..2011
lncome tax
Pre-Tax
Amount
Foreígn currency translation adjustment:
$
(Expense)
Benefit
(717,045)
Amount
(717,O45)
0
0
(292.987)
(1
After-tax
0
,010.032)
(292,987\
(1
,010,032)
Unrealized gain on securities:
Unrealized net holding gains on securities:
(5,451,060) (10,412)
(395)
102
(10,310)
(5,451 ,455)
(4,478,385) 296,958
(9,929.840) 286,648
Less: reclassifìcation adjustment to earnings for
realized net gains, controlling interest
Cash flow hedging derivatives:
Net current year change, controlling interest
Other comprehensive loss, for the year
(f
$
(.265j45)
fi¿205*0r¿
(s,461,472)
(293)
(5,461 ,765)
(4,181,427)
(9,643,192)
(1,265.145)
0
_286.048 ftLerrlJ69)
8) Off-Balance Sheet Financial lnstruments
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial instruments include,
principally, commitments to extend credit, financial guarantees and letters of credit, the
balances of which are not reflected in the accompanying consolidated balance sheets.
Letters of credit are conditional commitments issued by the Bank to guarantee performance of
a customer to a third party. Those letters of credit are primarily used to support trade
transactions and borrowing arrangements. Generally, all letters of credit issued have
expirat¡on dates within one year. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. The
commitments may expire without being drawn upon, therefore, the total commitment amounts
do not necessar¡ly represent future cash requirements. The amount of collateral obtained, if it
is deemed necessary by the Bank, is based on management's credit evaluation of the
customer.
As of December 31,2012 the Bank had outstanding revolving lines of credit available to its
credit card customers in each of the various countries of operation that ranged from
approximately $202 million to $1,702 million ($2OZ million to $1,728 million in 2011). The
unused portion of the total amount available in each country, aggregated approximately from
$135 million to $1,140 million ($141 million to $1,240 million in 2011). While these amounts
represented the available lines of credit to customers per country, the Bank has not
experienced, and does not anticipate, that all of its customers will exercise their entire available
lines at any given point in time. The Bank generally has the right to increase, reduce, cancel,
alter or amend the terms of these available lines of credit at any time.
41
Financial guarantees are used in various transactions to enhance the credit standing of the
Bank's customers. They represent irrevocable assurances that the Bank will make payment in
the event that the customer fails to fulfill its obligations to third parties.
The Bank uses the same credit policies in making commitments and conditional obligations as
it does for on-balance sheet instruments. At December 31 ,2012 and 2011, outstanding letters
of credit and financial guarantees are as follows:
2012
Standby letters of credit
Commercial letters of credit
Financial guarantees
Loan commitments, (promissory disbursement
letter)
$
$
2011
47,960,606
22,075,045
50,624,505
29,571,539
223,357,112 203,61 9,197
#ffirr*t ã####
The nature, terms and maximum potential amount of future payments the Bank could be
required to make under the standby letters of credit and guarantees as of December 31, 2012
and 2011, are detailed as follows:
2012
Up to 1 year
Over 1 year
2011
59 201,829,477
$
232,735,7
$
reß87-448
56.651,689 74,062,621
225å91-098
Generally, the Bank has resources to recover from clients the amounts paid under these
guarantees; additionally, the Bank can hold cash or other collateral to cover for these
guarantees. The assets held as collateral, that the Bank can obtain and liquidate to recover
totally or partially the amounts paid under guarantees as of December 31, 2012 and 2011,
amounted to $19,994,611 and $94,375,047, respectively.
The fair value of the letters of credit and guarantees as of December 31, 2012 and 2011 are of
ç1,707 ,421 and $1,580,487, respectively.
Other Commitments
During 2008, the Bank entered into a sale and leaseback of $23,400,000 of an aircraft, which
has been classified as an operating lease. Rental expense of this operating lease was
$1,180,691 and $1,155,667 in 2012 and 2011, respectively.
The Bank also has several non-cancelable operating leases, primarily for branches and office
spaces that expire over the next ten years. These leases generally contain renewal options for
periods ranging from three to five years and require the Bank to pay all executory costs such
as maintenance and insurance. Rental payments include minimum rentals plus contingent
rentals.
42
Minimum rental payments under operating leases are recognized on a straight-line basis over
the term of the lease including any periods of free rent. Rental expense for operating leases
during 2O12 and 2011 amounted to $24,465,860 and $23,201,711, respectively.
Minimum lease payments under operating leases due in each of the five years subsequent to
December 31, 2012, are as follows:
2013
$
(f
9)
2014
2015
1p.122J,36 1Eß11_Æ9 14ß91Jw_
2016
_1_3-380J80
2017
Thereafter
l3é9ZpZ8 ii!._958.003
Total
90.28¿093
Derivative Financial lnstruments
ln the normal course of business, the Bank uses interest rate and exchange rate derivatives
primarily for economic hedging purposes in its balance sheet management activities. The fair
value of derivative positions outstanding is included ín other assets and other liabilities in the
accompanying consolidated balance sheets and the net change in each of these consolidated
financial statements line items in the accompanying consolidated statements of income. ln the
case of transactions with hedge accounting, the fair value of the instruments is included in
equity and other assets or other liabilities, as appropriate.
The Bank utilizes foreign exchange and interest rate swaps, caps and floors to mitigate
exposure to foreign exchange and interest rates. The Bank's objectives for utilizing these
derivative instruments are described below:
.
During 2009, the Bank entered into an interest rate swap contract on a variable-rate
borrowing with a total notional amount of $130,000,000. The interest rate swap contract
was designated as hedging instrument in a cash flow hedge with the objective of protecting
the overall cash flows from the Bank's interest payments on a $130,000,000 variable-rate
borrowing outstanding throughout the 32 quarterly period beginning in September 2007 and
ending in March 2017 from the risk of variability of those cash flows. Under the swap, the
Bank pays a fixed interest rate of 2.87o/o and receives a variable interest rate equal to 3month LIBOR with 32 settlements, starting on December 31, 2009. No cash flow hedges
were discontinued during 2012 or 2011. As of December 31, 2012 and 2011, the notional
amount was $81 ,970,445 and $99,868,932 respectively.
.
The Bank has entered into certain interest rate swap, cap and floor contracts that have not
been designated as hedging instruments, but economic hedges on fixed-rate residential
loans from customers. The transactions allow the Bank to effectively convert a fixed rate
loan to a variable rate and manage its consolidated balance sheets.
.
The Bank has entered into an interest rate swap contract on a variable-rate borrowing to
protect cash flows associated with interest rate changes on such debt.
43
The foreign exchange fonruard contracts are negotiated over-the-counter ("OTC"). These
contracts are carried out between two counterparties that negotiate specific terms in the
agreement, including face amount, exercise price, and maturity date. The Bank's objectives for
utilizing these derivative instruments are described below:
.
ln September 2012, the Bank made a contract for a total notional amount of $25,000,000
with a maturity date in October 2013. This contract has been designated as a hedge
instrument of a loan denominated in foreign currency, but recorded in local currency, to
minimize the impact of exchange rate variations over the principal. According the maturity
date of the loan, the Bank agrees to buy dollars in the future to the counterparty at the
agreed exchange rate on the day of the negotiations, in order to acquire the currency
required to pay down the principal owed.
The notional amounts and estimated fair values of foreign exchange and interest rate
derivative contracts outstanding at December 31, 2012 and 2011 are presented in the following
table. The fair values of derivative contracts are estimated utilizing internal valuation models
with observable market data inputs.
2012
2011
Fair Value
Fair Value
Notional
Amount
Freestanding:
lnterest rate swaps
Foreign exchange
forward contracts
Cash flow hedges:
Foreign exchange fonvard
contracts
lnterest rate swaps
Notional Other
Amount Assets
Other
Liabilities
Other
Assets
80,000,000
0
1,456,975
80,000,000
0
0
0
80,000,000
1,456.975
8,500.000
88,500,000
0
0
561,451
4.482.651
99.868,932
25,000,000
81.970.445
$ $epzaJ45
6-501-072
0
183368.932
0
0
0
0
0
0
Other
Liabilities
2,674,026
17.400
2.691,426
0
5.416,732
8J0B"L1B
For cash flow hedges, the effective portion of the gain or loss due to changes in the fair value
of the derivative hedging instrument is included in other comprehensive income (loss), while
the ineffective portion (indicated by the excess of the cumulative change in the fair value of the
derivative over that which is necessary to offset the cumulative change in expected future cash
flows on the hedge transaction) is included in other income. For non-hedging derivative
instruments, gains and losses due to changes in fair value are included in other income
(expense).
No ineffectiveness related to interest rate derivatives designated as cash flows hedges was
recognized in the consolidated statements of income during the reported years. The
accumulated net loss related to effective cash flow hedges included in accumulated other
comprehensive income totaled $5.0 million and $5.4 million at December 31, 2012 and2O11,
respectively. The Bank does not expect any net after-tax loss related to effective cash flow
hedges. This amount represents management's best estimate given current expectations
about market interest rates. Because actual market interest rates may differ from
management's expectations, there can be no assurance as to the ultimate amount that will be
reclassified into earnings during future periods.
44
Unrealized gains from non-hedging derivatives reported in other income amounted to
$1,217,051 and $723,563 for the years ended December 31,2012 and 2011, respectively.
lnterest expense related to non-hedging derivatives for the years ended December 31,2012
and 201 1 amount to $1,620,310 and $1 ,926,358 respectively.
Derivative contracts involve the risk of dealing with institutional derivative counterparties and
their ability to meet contractual terms. lnstitutional counterparties must have an investment
grade credit rating and be approved by the Bank's Assetiliability Committee. The Bank's credit
exposure on interest rate swaps is limited to the net favorable value and interest payments of
all swaps by each counterparty. There are no credit-risk-related contingent features associated
with any of the Bank's derivative contracts. The Bank did not pledge or receive collateral
related to derivative contracts at December 31, 2012.
(20) Concentration of Credit Risk
Concentrations of credit risk arise when changes in economic, industry or geographic factors
similarly affect groups of counterparties whose aggregate credit exposure is material in relation
to the Bank's total credit exposure. Through the operation of subsidiaries companies in Central
American countries, the Bank has widened its lending activities, diversifying into other
consumer and commercial products. The loan portfolio is well diversified by economic sector
and by individual exposures. By country the largest loan exposures are held in Costa Rica,
Honduras and El Salvador.
(2U Disclosures about Fair Value of Financial lnstruments
The Bank established a process to determine fair value. Fair value is based upon quoted
market prices, where available. lf listed prices or quotations are not available, fair value is
based upon internally-developed models that primarily use, as inputs, market-based or
independently sourced market parameters, including but not limited to yield curves, interest
rates, debt prices, foreign exchange rates and credit curves. However, in situations where
there is little or no activity in the market for the asset or liability at the measurement date, the
fair value measurement reflects the Bank's own judgments about assumptions that market
participants would use in setting the price of the asset or liability. The judgments are developed
by the Bank based on the best information available in the circumstances, including expected
cash flows, discount rates appropriately adjusted for risk and the availability of observable and
unobservable inputs.
The methods described above may produce a fair value calculation that may not be indicative
of net realizable value or reflective of future fair values. Furthermore, while the Bank believes
its valuation methods are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different estimate of fair value at the reporting date.
45
BAG INTERNATIONAL BANK, INC. AND SUBSIDIARIES
Financial lnstruments Measured at Fair Value
Recurring Fair Value Measurements
Following is a description of the valuation methodologies used for instruments measured at fair
value, including the general classification of such instruments pursuant to the valuation
hierarchy.
Secunïles
Where quoted prices are available in an active market, securities are classified as Level 1 of
the valuation hierarchy. Level 1 securities include highly liquid government and agency bonds,
and exchange{raded equities. lf quoted market prices are not available for ihe specific
security, then fair values are estimated by using quoted prices of securities with similar
characteristics or discounted cash flows (Level 2). ln certain cases where there is limited
activity or less transparency around inputs to the valuation, securities are classified within Level
3 of the valuation hierarchy.
For instance, in the valuation of certain debt obligations the determination of fair value may
require benchmarking to similar instruments or analyzing default and recovery rates.
Loans
Where pricing information is not available for the specific loan, the valuation is generally based
upon using discounted cash flow models with market-based credit spreads of comparable debt
instruments. ln addition, general market conditions, including prevailing market spreads for
credit and liquidity risk, assumptions about prepayment speeds, default rates and loss severity
rates are also considered in the valuation process.
The Bank elected to report mortgage loans at fair value and in this way apply the same basis of
accounting (measurement at fair value through earnings) as the derivatives economically
hedging these loans. lnterest income over these loans is recorded as interest on loans and net
gains and losses from changes in fair value are reported as other income in the consolidated
statements of income. At December 31, 2011,loans amounting to $498,248, were 90 days or
more past due and were not accruing interest. During the years ended December 31, 2012
and 2011, the Bank recognized $1 ,827,487 and $2,372,226, respectively, related to interest
income on such loans and $261,530 and $1 ,852,587, respectively, for the net loss resulting
from changes in their fair value. Gains and losses were primarily attributable to changes in
interest rates.
Derivatives
The majority of derivatives entered into by the Bank are executed over the counter and so are
valued using internal valuation techniques as no quoted market prices exist for such
instruments. The valuation technique and inputs depend on the type of derivative and the
nature of the underlying. The key inputs to the models depend upon the type of derivative and
the nature of the underlying instrument and include period to maturity and market-based
parameters such as interest rate yield curves, the spot price of the underlying, volatility, the
credit quality of the counterparty and correlation. Fudher, many of the models do not contain a
high level of subjectivity as the methodologies used in the models do not require significant
judgment, and inputs to the model are readily observable from actively quoted markets, as is
the case for "plain vanilla" interest rate swaps. Such instruments are generally classified within
Level 2 of the valuation hierarchy.
46
Assets and liabilities measured at fair value on a recurring basis, including financial instruments
for which the Bank has elected the fair value option, are summarized below:
Quoted prices
in
At December 31,
2012
active Significant
Significant
markets for observable unobservabl
e inputs
identical assets inputs
(') (Level
(Level 1)
(Level 2)
3)
Net balance
Assets
Trading securities
Government bonds
Corporate bonds
0
0
0
Securities available for sale:
Government bonds:
219,710
Loans:
Mortgage
Mortgage
Total loans
-
2,500.924
33,547,903
228,810
165,737,241
32,384,148
4,145.934
0
0
198,121,389
641,831
713.O29.343
25,296,453
25,296,453
205.1 1 3,895
9,1
507.273.617
0
0
0
0
0
0
2o5fi3-895
540ß21-529
non - performing
$
0
31,046,979
0
641,831
641,831
0
Total assets
00
0
470.734,435
470,743,535
Mutual funds
Total securities available for sale
0
39,156,944
39,376,654
Other government
31,046,979
2.500.924
33,547,903
510,533,210
510,762,020
4.145,934
0
0
25.296,453
25,296.453
25 38Æ4
7_7J*87L699
Liabilities:
Derivates:
lnterest rate swaps
Foreign exchange forward contracts
Total liabilities
$ _j
(')
0
0
(5,93e,626)
(561 ,451)
__(6.50r-07ð
0
o
(5,939,626)
(561,451)
___________0 _Jsþ01.o7f)
For the year ended December 31 , 2012 the Bank transferred assets around of $320.7 millions from Level 1 to Level 2, primarily
related to other government bonds due to decrease in market activity for these secur¡ties.
47
Quoted prices
in active
Significant Significant
marketsfor observable unobservable
At
identical assets inputs
(Level 1)
(Level 2)
December3l.2011
Assets
Trading securities
Government bonds
$ 31.794,408
Securities available for sale:
Government bonds:
Other government
3,219,927
199,096.239
202,316,166
Mutual funds
Total securities available for sale
Loans:
Mortgage
Mortgage
-
$
0
198,556,274
198,556,274
206.507.272
0
0
0
0
0
0
50çst51_0
Net balance
31.997,445
203.037
264,878,488
2,805,448
470,000,102
non - performing
Total loans
Total assets
inputs
(Level 3)
0
.315,062
1 ,315,062
1
,315,062
272,829,486
2,805.448
677.822.436
29,332,264
498.248
29,830,512
29,332,264
498.248
29.830,512
7,950,998
206,71_0-309
3,219,927
398,967,575
402,187,502
0
0
1
37JA5Ã74
739S50.393
Liabilities:
Derivates:
Interest rate swaps
Foreign exchange forward contracts
o
0
---*---O
Total liabilities
(8,090,758)
(8,0e0,758)
0
(17.4OO)
(7,400)
o
@)
-=ßJ0B;r53) --------0
The accounting policies of the Bank include the recognition of transfers between fair value
hierarchy levels on the date of the event or change in the circumstances that caused the
transfer.
The table below includes a roll forward of the balance sheet amounts for the years ended
December 31, 2012 and 2011 (including changes in fair value), for financial instruments
classified by the Bank within Level 3 of the valuation hierarchy. When a determination is made
to classify a financial instrument within Level 3, the determination is based upon the
significance of the unobservable parameters to the overall fair value measurement.
However, Level 3 financial instruments typically include, in addition to the unobservable or
Level 3 components, observable components (that is, components that are actively quoted and
can be validated to external sources); accordingly, the gains and losses in the table below
include changes in fair value due in part to observable factors that are part of the valuation
methodology.
48
At December
lnvestments
available for
sale
Other
Government
31,2012
Fair value as of January 1,2012
Total realized/unrealized gains and losses
lncluded in earnings
lncluded in other comprehensive income
Settlements
Originations
Maturities
Other - exchange rate differential
Fair value as of December 31,2012
Total unrealized gains and losses included in
earnings
$
Mortgage non
Bonds
Mortgage performing Total
1,315,062
29,332,264 498,248
0
(160,854)
0
0
(512,377)
0
s
Loans
641.831
__a
(261,530)
o
o
0
(3,774,281) (498,248)
000
0
0
000
(4,272,529)
25.296.453
?5ß38Æ4
lncluded in earnings
lncluded in other comprehensive income
Settlements
Originations
Maturities
Other - exchange rate differential
Fair value as of December 31 ,2011
Total unrealized gains and losses included in
earnings
(261,530)
(160,854)
(512,377)
J20_1S30)
Loans
Mortgage non
Government
Bonds Mortgage performing
2011
Fairvalue as ofJanuary 1,2011
Total realized/unrealized gains and losses
____o
__j
__1201,530)
lnvestments
available for
sale
Other
At December 31,
31,145,574
$
11,492,508
35,087,193
377,786
Total
46,957,487
0 (1,846,995) (5,592) (1,852,587)
58,985
0
0
58,985
0 (3,907,934) (153,784) (4,061,718)
279,838 279,838
0
0
o
0 (10,171,418)
(10,171,418)
(65.013)
o
o
165,013)
s 1 315 062 29.332.264 498.248 31.145.574
_=o
Í*erc.995)
_J5É92) :ß*q52.égz)
Non-Recurring Fair Value Measurement
The Bank has non-financial assets measured at fair value. Certain non-financial assets are not
measured at fair value on a recurring basis but are subject to fair value adjustments only in
certain circumstances. These assets include assets held for sale (upon initial recognition or
subsequent impairment), certain loans that are written down to the fair value of the underlying
collateral when deemed impaired, and intangible assets and other non-financial long-lived
assets when determined to be impaired.
49
BAC INTERNATIONAL BANK, INC, AND SUBSIDIARIES
The following table presents fair value measurements of assets that are measured at fair value
on a non-recurring basis and the gain (loss) on the fair value of those assets at December 31,
2012 and2011, which are recognized at fair value on a non-recurring basis, for which the fair
value has been included in the consolidated statements of income, as follows:
Significant
unobservable inputs
(Level 3l
2012
Loans
Foreclosed assets
2011
Losses
2012
20'11
,467 17,336,059 1,124,239 7 ,793,024
3.024,740
15p39JZr 1ßJ1_3-545 1J39*4-18 19ß1t_J64
15,617
321.857 837,486 4,615,179
Fair Value of Financial lnstruments, Additional Disclosures
The fair values of such instruments have been derived, in part, by management's assumptions,
the estimated amount and timing of future cash flows and estimated discount rates. Different
assumptions could significantly affect these estimated fair values. Accordingly, the net
realizable values could be materially different from the estimates presented below. ln addition,
the estimates are only indicative of the value of individual financial instruments and should not
be considered an indication of the fair value of the Bank. The provisions of FASB ASC 825 do
not require the disclosure of the fair value of lease financing arrangements and nonfinancial
instruments.
The following disclosures represent financial instruments in which the ending balance at
December 31,2012 and 2011 is not carried at fair value in its entirety on the Bank's
consolidated balance sheets.
The following is a description of the methods and assumptions used to estimate fair value of
the most significant financial instruments held by the Bank:
(a)
Financial lnstruments with Carrying Value Approximating Fair Value: lncluding cash and
cash equivalents, interest-bearing deposits, customers' liability under acceptances
outstanding and acceptances outstanding, are valued at their carrying amounts reported
in the consolidated balance sheets, which are reasonable estimates of fair value due to
the relatively short period to maturity of the instruments.
50
(b)
Loans'. The majority of the Bank's loans are not carried at fair value on a recurring basis
nor are they actively traded. Fair values were estimated for certain groups of similar
loans based upon type of loan and maturity. The fair value of these loans was determined
by discounting estimated cash flows using interest rates approximating the market
participants' current origination rates for similar loans and adjusted to reflect the inherent
credit risk; this fair value does not represent a current indicator of an exit price. Fair
values for consumer installment loans (including automobile and consumer real estate
loans), for which market rates for comparable loans are readily available, are based upon
discounted cash flows adjusted for prepayments. The discount rate used for consumer
installment loans are based on the current market rates adjusted for credit, and other
risks that are applicable to a particular asset class. Fair value for credit card receivables
is based upon discounted expected cash flows. The discount rates used for credit card
receivables incorporate only the effects of interest rate changes, because the expected
cash flows already reflect an adjustment for credit risk. For loans with doubt as to
collectability, expected cash flows are discounted using an appropriate rate considering
the time of collection and the premium for the uncertainty of the flows. The value of
collateral is also considered. Loan prepayments are used to adjust future cash flows
based on historical patterns. The assumptions used are expected to approximate those
that market participants would use in valuing loans.
(c)
Deposit liabilities: With no defined maturity such as demand deposits, NOWmoney
market accounts, and savings accounts have a fair value equivalent to the amount
payable on demand at the reporting date, i.e., their carrying amounts. Fair values for
time deposits are estimated using a discounted cash flow calculation that applies current
interest rates to a schedule of aggregated expected maturities. The assumptions used in
the discounted cash flow analysis are expected to approximate those that market
participants would use in valuing such deposits.
(d)
Securifles sold under agreemenfs fo repurchase: No quoted prices exist for such
instruments and so fair value is determined using a discounted cash-flow technique, Cash
flows are estimated based on the terms of the contract, taking into account any
embedded derivative or other features. Expected cash flows are discounted using market
rates appropriate to the maturity of the instrument as well as the nature and amount of
collateral taken or received.
(e)
(f)
Borrowings: The fair value is estimated based on current market interest rates for debt
with similar maturities and is adjusted for the Bank's credit quality and collateral.
Other borrowed funds: The fair value is estimated based on the quoted market prices for
the same or similar issues or on the current rates offered to the Bank for debt with similar
terms, adjusted for credit quality.
51
The following table presents the valuation techniques and significant unobservable inputs used
in Level 3 fair value measurements as of December 31, 2012 and 2011:
2012
Valuation techniques and inputs for level 3 Fair Value Meâsurements
Fair Value
as of December.
641,831
Other government bonds
Loans measured on a
basis
recurring
Loans measured on
recurr¡ng
basis
2012
25,296,453
a non
15,617,467
technique
Valuation
Discounted cash
value
Discount rate according
recommendat¡on included
into "Norma de Riesgo de
Liquidez de la Com¡sión
Nacional de Bancos y
Seguros Honduras"
flow
Prepayment
collateral
2. Estimated year term
1.
321,857
1oo/o - 20oÂ
5% - 15% (1O%)
Marketacceptancerate
sale
for
costs
Acceptance ßle: o% -ToVo
(42.7%)
Term: 1 - 4 years (2.25 years)
Cost of sale: O.2Vo - 22.2% (2.4o/o)
Real estate:
from 0 to 29 months, 20%
from 30 to 47 months, 30%-80%
after 47 months, 1 00%
Personal properties:
From 0 to 5 months, 20%
From 6 to 11 months, 40%
From 1 2 to 23 months, 60%
After 23 months. 100%
Aging range
lnternal model
Ranqe (weiqhted averaqeì
rate
3. Sale and legal
Foreclosed assets
lnput
flow
Discounted cash
(collateral avallable)
Present value of
market
Unobservable
2011
Valuation techniques and inputs for level 3 Fair Value Measurements
Fa¡r Value
as of December.
Other government bonds
Loans measured on a
basis
recufr¡ng
Loans measured on
recurr¡ng
basis
a non
2011
1,315,062
Valuat¡on
technique
Discounted cash
flow
29,830,512
D¡scounted cash flow
(collateral
17,336,059
Present value of
market
available)
value
collaleral
Unobservable
assets
837,486
Specialist
criteria
52
Ranqe {weiohted averaqe}
Discount rate according
recommendation included
¡nto the "Norma de Rlesgo de
Liquidez de la Comisión
Nacional de Bancos y
Seguros Honduras"
Prepayment
rate
1. Market acceptance
sale
râte
for
costs
rate
assessment
sale
1. Market acceptance
2. Term
3, Cost of
10% - 20%
5% - 15o/" (10%,
2. Estimated year lerm
3. Sale and legal
Foreclosed
lnput
Acceptance rale: oyo -7OVo
(42.7%)
Term: 1 - 4 years (2.25 years)
Cost of sale: o.2% - 22.2% (2.4%)
Acceptance: 60% for personal
properties - 80% for real estate
Term: every two years
Cost of sale: 3% - 5o/" (4.0%)
lnformation about the fair value of on-balance sheet financial instruments at December 31,
2012and 2011 is presented below:
2011
2012
Carrying
Amount
FinancialAssets
Cash and cash equivalents
I nterest-bearin g deposits
Loans, excluding financial leases
Customers' liability under
acceptances
$
Deposits
Securities sold under agreements
to repurchase
Borrowings
Other borrowed funds
Acceptances outstanding
2,303,712,800 2,303,712,800
24,228,937
24,228,937
6,820,075,302 6,827,092,708
outstanding
Financial Liabilities
6,185,229
$
42,727,615
1
42,727,615
1,498,915,502 1,506,723,234
188,593,766
6,185,229
6,185,229
,994,101 ,81
Estimated
Fair Value
1
1
,994,101 ,81
1
18,929,599
18,929,599
5,7 47,950,520 5,746,563,798
8,915,766
6,185,229
7,269,840,368 7 ,280,941,724
187,759,372
Carrying
Amount
Estimated
Fair Value
8,915,766
6,271,788,442
6,277,386,576
52,350,793
1,272,043,146
173,863,047
8,915,766
52,350,793
1,274,521,156
176,362,809
8,915,766
(22) Administration of Trust Gontracts and Asset Management
As of December 31,2012 and 2011, several of the Bank's subsidiaries administer and are
custodian of assets which amounted to approximately $1,159,518,167 and $1 ,362,067,334,
respectively.
(23) Related Party Transactions
The Bank in the normal course of business enters into transactions with related parties,
including principal officers and directors. The following table sets forth balances and
transactions with related parties as of December 31,2012 and 2011 and for the years then
ended:
2012
Assets:
Loans receivable
Accrued interest and other receivables
Liabilities:
Demand deposits
Time deposits
Accrued interest and other liabilities
lnterest and other operating income
lnterest and other operating expenses
53
2011
$ 29,266,633 24,090,291
94,196 5.245.861
$ 29360.8æ æ.ß6ln
$ 17,387,088 24,668,823
s
s
s
14,536,346
9,031.410
40.954.844
14,412,551
11.857,084
50.938.458
3.326.036
1.165.068
2.700.335
2.293.799
l24l Litigation
,
To the best knowledge of Bank's management, there is currently no litigation or assessment
that may result in a material adverse effect on its business, its consolidated financial position or
consolidated results of operations.
(25) Regulatory Matters
Banking operations of the Bank are subject to various regulatory requirements administered by
governmental agencies in the countries they operate or are licensed. Failure to meet these
regulatory requirements can initiate certain mandatory, and possibly additional discretionary,
actions by the regulators that, if undertaken, could have a material effect on the Bank's
consolidated financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets and certain off balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about their
components, risk weightings and other factors.
Quantitative measures established by regulation to help ensure capital adequacy require the
Bank to maintain minimum amounts and ratios of Total and Tier I Capital (as defined in the
regulations) to risk-weighted assets (as defined). Management believes that, as of December
31,2012 and 2011, the Bank meets all capital-adequacy requirements to which it is subject.
The Bank's capital ratios are presented in the following table:
Bank's Ratio
2012
Total Capital to risk weighted
assets
Tier 1 Capital to risk weighted
assets
2011
Minimum Capital
Adequacv Required
2012
2011
12.84o/o
13.15%
8o/o
Bo/o
13 87%
14.14%
4o/o
4o/o
(26) Subsequent Events
The Bank has evaluated subsequent events from the consolidated balance sheet date through
February 27,2013, the date at which the consolidated financial statements were available to be
issued, and determined there are no other items to disclose.
54

BAC INTERNATIONAL BANK, INC. AND SUBSIDIARIES

Transcription

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