Banco de Crédito e Inversiones, S.A., Miami Agency Financial Statements December 31, 2000 and 1999

Transcription

1 Banco de Crédito e Inversiones, S.A., Miami Agency Financial Statements

2 Statements of Assets, Liabilities and Head Office Equity Assets Cash and due from banks $ 444,074 $ 619,531 Loans Commercial and industrial 52,748,131 3,299,811 Trade related 1,267,591 37,153 Consumer 211,906 65,489 Contingencies 4,689, ,736 Other debtors ,918,292 4,084,189 Allowance for loan losses (726,000) (30,789) Loans, net 58,192,292 4,053,400 Investments Federal funds sold 24,836,230 9,868,231 Time deposits due from banks 59,184,447 34,069,631 Investment securities 21,194,779 21,163, ,215,456 65,101,379 Premises and equipment, net 439, ,163 Other assets 284, ,425 $ 164,575,836 $ 70,457,898 Liabilities and Head Office Equity Deposits and other commitments: Demand deposits $ 7,848,100 $ 5,811,802 Time deposits 130,991,461 54,953,599 Other sight and term obligations 12,405, ,613 Other unfunded commitments 4,689, ,736 Other payables Total deposits and other commitments 155,935,119 61,634,750 Other liabilities 89,378 54,025 Total liabilities 156,024,497 61,688,775 Head Office equity: Assigned capital 11,280,000 10,000,000 Accumulated losses (2,728,661) (1,230,877) Total Head Office equity 8,551,339 8,769,123 $ 164,575,836 $ 70,457,898 # The accompanying notes are an integral part of these financial statements.

3 Statements of Operations (Expressed in U.S. dollars) For the Year Ended December 31, 2000 and for the Period May 17, 1999 (Commencement of Operations) to December 31, Interest income: Loans $ 5,325,418 $ 346,951 Other interest income 2,718,585 1,345,103 Total interest income 8,044,003 1,692,054 Commission income 191,447 35,217 Adjustments to market value of securities 133,917 - Total operating income 8,369,367 1,727,271 Interest expense 6,414,505 1,320,323 Commission expense 9,746 5,671 Adjustments to market value of securities - 80,481 Total operating expenses 6,424,251 1,406,475 Gross margin 1,945, ,796 Salaries and employee benefits 1,462, ,581 Depreciation and amortization 245,486 73,333 Other general and administrative 1,039, ,970 Net margin (802,573) (1,200,088) Provision for loan losses (695,211) (30,789) Net loss $ (1,497,784) $ (1,230,877) The accompanying notes are an integral part of these financial statements.

4 Statements of Cash Flows For the Year Ended December 31, 2000 and for the Period May 17, 1999 (Commencement of Operations) to December 31, Cash flows from operating activities: Net loss $ (1,497,784) $ (1,230,877) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 245,486 73,333 Provision for loan losses 695,211 30,789 Net unrealized (gain) loss on investment securities (133,917) 80,481 Net discount accretion on investment securities (133,214) (55,400) Changes in assets and liabilities: Net change in interest on assets and liabilities (402,883) 215,657 Other assets (185,813) 1,166 Other liabilities 35,353 46,637 Other payables Net cash used in operating activities (1,377,383) (838,214) Cash flows from investing activities: Net increase in federal funds sold (14,956,034) (9,867,109) Net increase in time deposits due from banks (25,000,000) (34,000,000) Net decrease (increase) in investment securities 417,755 (20,906,128) Net increase in loans (49,663,716) (3,365,722) Net assets, primarily premises and equipment, purchased from Bci Management, Inc. - (524,491) Capital expenditures, net (100,099) (226,208) Net cash used in investing activities (89,302,094) (68,889,658) Cash flows from financing activities: Increase in demand deposits 2,035,517 5,811,802 Increase in time deposits 75,376,116 54,347,988 Increase in other sight and term obligations 11,812, ,613 Capital contribution from Head Office 1,280,000 10,000,000 Net cash provided by financing activities 90,504,020 70,347,403 Net (decrease) increase in cash and due from banks (175,457) 619,531 Cash and due from banks, beginning of the period 619,531 - Cash and due from banks, end of the period $ 444,074 $ 619,531 The accompanying notes are an integral part of these financial statements.

5 1. Nature of Business and Summary of Significant Accounting Policies Banco de Credito e Inversiones, S.A., Miami Agency (the Agency ), is an agency of Banco de Credito e Inversiones (the Head Office ), a commercial bank incorporated in Santiago, Chile on April 20, The Agency was licensed by the Department of Banking and Finance of the State of Florida on May 10, 1999 to conduct general banking business as an international bank agency and therefore, is not a separately incorporated legal entity. The Agency began operations on May 17, 1999 and provides a full range of banking services to domestic and foreign individual and corporate customers principally from Latin America. The following is a description of the significant accounting policies and practices followed by the Agency, which conform with accounting principles generally accepted in Chile and rules and regulations issued by the Superintendency of Banks and Financial Institutions of Chile (the Banking Superintendency ). Basis of Presentation The financial statements have been prepared from the records of the Agency, which contain evidence that transactions have been entered into and recorded locally. Because the Agency is part of the Head Office, its financial statements do not necessarily reflect all allocations or other financial matters that may be applicable to the Agency. Further, because of the relationship with the Head Office, it is possible that the transactions recorded locally may not be the same as transactions among wholly unrelated parties. Income Recognition Interest income is recognized on the accrual basis. Loans, investments and deposit liabilities include their respective accrued interest receivable and payable at year-end. Investment Securities Investments in securities are shown at their fair market value. Fair value adjustments are included in the determination of income, in accordance with specific instructions from the Banking Superintendency. This adjustment amounted to $133,917 for the year ended December 31, 2000 ($80,481 for the period ended on December 31, 1999), and is included in operating income or expense under Adjustments to Market Value of Securities.

6 Loans and Allowance for Loan Losses Loans are stated at the amount of unpaid principal plus accrued interest, reduced by an allowance for loan losses in accordance with regulations established by the Banking Superintendency. Interest on loans is calculated using the interest method on the daily balances of the outstanding principal amount. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and the results of collection efforts, that the borrower s financial condition is such that collection of interest or principal is doubtful or when a loan becomes contractually past due 90 days or more with respect to interest or principal. The provision for loan losses is the amount which is required to bring the allowance for loan losses to a level which, in management s judgment, will be adequate to absorb possible losses on existing loans which may become uncollectible. If future events result in deterioration of the loan portfolio, additional provisions will be made as the facts become evident. Disclosure of Significant Concentrations of Credit Risk Concentrations of credit risk arise when a number of customers are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Agency provides a full range of banking services to foreign individuals and corporations within the public, private and financial sectors. Generally, Latin American and Caribbean deposits provide most of the Agency s liquidity. Accordingly, the Agency s operations are susceptible to changes in the Latin American countries economies and foreign trade, balance-of-payment status, foreign exchange and other fiscal controls that may be established. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed by the straight-line method over the estimated useful lives of the related assets. Foreign Exchange All operations and financial instruments of the Agency are denominated in U.S. dollars. Income Taxes The Agency is subject to United States and Florida income taxes. The Agency applies the accounting criteria set out in Technical Bulletin No. 60 of the Chilean Institute of Accountants which requires that the effects of deferred taxes are shown on the accrual basis of accounting

7 Interest Rate Risk The Agency s profitability is dependent to a large extent on its net interest income, which is the difference between income on interest-earning assets and interest expense on interest-bearing liabilities. The Agency, like most financial institutions, is affected by changes in general interest rate levels and by other economic factors beyond its control. Interest rate risk arises from mismatches between the dollar amount of repricing or maturing assets and liabilities, and is measured in terms of the ratio of the interest rate sensitivity gap to total assets. More assets repricing or maturing than liabilities over a given time frame is considered asset-sensitive, or a positive gap, and more liabilities repricing or maturing than assets over a given time frame is considered liability-sensitive, or a negative gap. An asset-sensitive position will generally enhance earnings in a rising interest rate environment and will negatively impact earnings in a falling interest rate environment, while a liability-sensitive position will generally enhance earnings in a falling interest rate environment and negatively impact earnings in a rising interest rate environment. Fluctuations in interest rates are not predictable or controllable. The Agency has attempted to structure its asset and liability management strategies to mitigate the impact on net interest income of changes in market interest rates. Reclassifications Certain reclassifications have been made to the 1999 financial statements to conform with current year presentation. 2. Transactions with Head Office, Branches and Affiliates In accordance with the General Banking Law and Banking Superintendency instructions, related parties are those persons or entities directly or indirectly connected with the Agency s management or ownership

8 Balances with Head Office and affiliates as of are as follows: Entity Assets: Loans Head Office $ - $ 20,989 Liabilities and Head Office equity: Demand deposits Head Office 514, ,960 Bci Administradora de Fondos Mutuos, S.A. 9,956 9,956 Borrowings Head Office 12,405,616 - Total related party liabilities 12,930, ,916 Head Office equity Head Office 8,551,339 8,769,123 Total liabilities and Head Office equity 21,481,591 9,102,039 Net related party liability position $ (21,481,591) $ (9,081,050) Interest income $ - $ 502 Interest expense $ 671,283 $ 8,087 Non-interest income $ 9,874 $ 2,000 Borrowings with Head Office bear interest at a weighted average rate of 7.11% and mature within one year. The Agency acquired certain net assets (primarily premises and equipment) from Bci Management, Inc., a special purpose entity created to facilitate the preoperative process prior to the Agency obtaining its license to do business in Florida. Bci Management, Inc. was dissolved on June 10, The Head Office absorbed all expenses incurred by Bci Management, Inc., during this period

9 3. Allowance for Possible Losses At, the Agency held provisions for doubtful assets amounting to $726,000 and $30,789, respectively, corresponding to the minimum requirements of the Banking Superintendency for covering potential losses. Changes in these provisions during 2000 and 1999 were as follows: Provisions for Other Loans Assets Total Provision charged to operations (period from May 17, 1999 to December 31, 1999) $ 30,789 $ - $ 30,789 Net charge-offs Balance, December 31, ,789-30,789 Provision charged to operations 695, ,211 Net charge-offs Balance, December 31, 2000 $ 726,000 $ - $ 726,000 Based on the evaluation of available information, it is the opinion of the Agency s management that the above provisions are sufficient to cover possible losses in the loan portfolio and other assets

10 4. Head Office Equity The following summarizes the activity in Head Office equity during the year ended December 31, 2000 and the period ended December 31, 1999: Total Assigned Accumulated Head Office Capital Losses Equity Initial capital contribution $ 10,000,000 $ - $ 10,000,000 Net loss - (1,230,877) (1,230,877) Balance, December 31, ,000,000 (1,230,877) 8,769,123 Capital contribution 1,280,000-1,280,000 Net loss - (1,497,784) (1,497,784) Balance, December 31, 2000 $ 11,280,000 $ (2,728,661) $ 8,551, Investment Securities The amortized cost and estimated fair value of investment securities at are summarized as follows. Net Unrealized Estimated Amortized Gains Fair Cost (Losses) Value December 31, 2000 U.S. Government Agency obligations $ 11,283,863 $ 33,985 $ 11,317,848 Foreign government and private securities 9,857,480 19,451 9,876,931 $ 21,141,343 $ 53,436 $ 21,194,779 December 31, 1999 U.S. Government Agency obligations $ 21,243,998 $ (80,481) $ 21,163,517 Investments totaling $4,000,000 at, are pledged to satisfy the Capital Equivalency Requirements as required by the Department of Banking and Finance of the State of Florida (see Footnote 13)

11 6. Maturities of Assets and Liabilities Maturities of Loans and Financial Investments The following is a summary of loans and financial investments at December 31, 2000, classified by the remaining term to maturity. The amounts include accrued interest to the year-end. Up to Over one year years years 6 years Total Loans Commercial and industrial $ 47,522,278 $ 5,225,853 $ - $ - $ 52,748,131 Trade related 1,267, ,267,591 Consumer 211, ,906 Investments Federal funds sold 24,836, ,836,230 Time deposits due from banks 59,184, ,184,447 Investments Securities 7,978,717 6,007,730 7,208,332-21,194,779 $ 141,001,169 $ 11,233,583 $ 7,208,332 $ - $ 159,443,084 The above schedule includes assets with maturities falling within the periods indicated and consequently does not include contingent assets and other assets. Maturities of Deposits and Other Funding Operations The following is a summary of deposits and other obligations at December 31, 2000, classified by the remaining term to maturity. The amounts include accrued interest to the year-end. Up to Over one year years years 6 years Total Deposits and Other Obligations Time deposits $ 130,691,295 $ 300,166 $ - $ - $ 130,991,461 Other term obligations 12,405, ,405,616 $ 143,096,911 $ 300,166 $ - $ - $ 143,397,077 The above schedule excludes all sight obligations, contingent liabilities and other liabilities

12 7. Foreign Currency Balances All of the balances of the Agency are denominated in United States dollars. 8. Derivative Products The Agency had no derivative products at December 31, Memorandum Accounts The Agency has recorded in its memorandum accounts the following commitments or obligations in the ordinary course of business Securities in custody $ 3,317,627 $ 2,943,458 Unconfirmed letters of credit $ 330,094 $ 65,770 The above includes only the most significant balances. Contingent assets and liabilities are shown in the Statement of Assets, Liabilities and Head Office Equity. The Agency leases its office space and other property under various operating leases. The total future minimum annual lease payments under operating lease agreements are as follows: Years ending December 31, Minimum Rental Payments 2001 $ 190, , , $ 172, ,200 Rent expense was approximately $188,000 for the year ended December 31, 2000 and $114,000 from commencement of operations to December 31,

13 10. Commissions The amounts of commission income and expense as shown in the Statement of Operations, relate to the following: Income Expense Income Expense Letters of credit, guarantees and $ 98,766 $ - $ 6,342 $ - other contingent operations Securities held for customers 18,347-9,623 - Account service charges 19,069-5,594 5,671 Checks and funds transfers 19,753-7,306 - Loan processing fees and commissions 5, Other 29,629 9,746 6,352 - Total $ 191,447 $ 9,746 $ 35,217 $ 5, Directors Expenses There were no Director expenses paid by the Agency. 12. Income Taxes For purposes of determining U.S. taxable income, income not effectively connected with United States trade or business is not taxable and interest expense is calculated based on the cost of U.S. dollar denominated obligations. At December 31, 2000, the Agency had federal tax loss carryforwards available to reduce future taxable income, if any, prior to certain Head Office allocations, of approximately $1,930,000, $1,183,000 expiring in 2019 and $747,000 expiring in If certain substantial changes in the Agency s ownership should occur, there would be an annual limitation in the amount of tax operating loss carryforwards which could be utilized. At, the Agency had no deferred tax asset or liability reflected on its financial statements since the deferred tax asset is completely offset by a valuation allowance, due to the uncertainty regarding the ability of the Agency to generate future taxable income

14 13. Regulatory Matters The State of Florida s Department of Banking and Finance requires international banking agencies to maintain assets, excluding accrued income and amounts due from affiliates, equal to 107% of liabilities, excluding accrued expenses and amounts due to affiliates. As an alternative, the Department may, by rule, permit an international banking agency to maintain dollar deposits or investment securities ( Capital Equivalency ), in an amount specified by the Department, in a state bank. The amount of such dollar deposits or investment securities shall equal, at a minimum, the greater of $4,000,000 or 7% of the international banking agency s total liabilities, excluding accrued expenses and amounts due to affiliates. At, the Agency was in compliance with the Capital Equivalency requirement. 14. Employee Benefit Plan Effective June 1, 1999, the Agency implemented a 401(k) profit sharing and retirement plan. Employees who are 21 years of age and who have completed three months of service are eligible to participate as of the entry date (January 1 and July 1 of each calendar year). The Agency made total contributions of $21,000 and $11,000 during 2000 and 1999, respectively. * * * * *

15 Report of Independent Certified Public Accountants To the Board of Directors of Banco de Credito e Inversiones, S.A. In our opinion, the accompanying statements of assets, liabilities and Head Office equity and the related statements of operations and of cash flows present fairly, in all material respects, the financial position of Banco de Credito e Inversiones, S.A., Miami Agency (the Agency ) at, and the results of its operations and its cash flows for the year ended December 31, 2000 and for the period from May 17, 1999 (commencement of operations) to December 31, 1999, in conformity with accounting principles which, as described in Note 1, are generally accepted in Chile. These financial statements are the responsibility of the Agency s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. January 8,