Cayman National Bank and Trust Company (Isle of Man) Limited. Report and financial statements. for the year ended 30 September 2016

Transcription

1 Report and financial statements for the year ended 30 September 2016

2 Contents Page Directors' report 1 Statement of Directors' Responsibilities 2 Independent auditor's report 3 Statement of Financial Position 4 Statement of Comprehensive Income 5 Statement of Changes in Equity 6 Statement of Cash Flows 7 Notes to the Financial Statements 8-31

3 Directors report for the year ended 30 September 2016 Report of the directors The directors present herewith their report and the audited financial statements of the company for the year ended 30 September Principal activities The principal activities of the company are the provision of banking, custodian, and trust and corporate administration services. The company holds a Financial Services Licence issued on 1 January 2009 under section 7 of the Financial Services Act 2008 and is authorised to undertake deposit taking, investment business, services to collective investment schemes, corporate services and trust services. Results and dividends The company made a profit for the year ended 30 September 2016 after taxation of 174,268 (2015 profit: 290,406). No dividend was paid during the year. In the prior year a dividend of 5.38p per ordinary share was paid, amounting to 188,280. Directors The directors who served throughout the year and to date were: S J Dack (Chairman) M B Hartley (Deputy Chairman) I M E Bancroft (Managing) T M Bodden - resigned 18 May 2016 D W Trimble - resigned 30 September 2016 G K Watterson B J Williams L N Ebanks OBE - appointed 30 September 2016 None of the directors held any direct beneficial interests in the company during the year and to date. Registered Office Cayman National House 4-8 Hope Street Douglas Isle of Man IM1 1AQ Auditor PricewaterhouseCoopers LLC, being eligible, has indicated its willingness to continue in office in accordance with Section 12(2) of the Isle of Man Companies Act Approved by the Board of Directors and signed on behalf of the Board I M E Bancroft Director 2 December

4 Statement of Directors Responsibilities in respect of the report and the financial statements The directors are responsible for preparing the Directors' report and the financial statements in accordance with applicable Isle of Man law and regulations. Company law requires the directors to prepare financial statements for each financial year. The directors have elected to prepare the financial statements in accordancee with International Financial Reporting Standards. The financial statements are required by law to give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing those financial statements, the directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent; - - state whether the historical cost convention and applicable International Financial Reporting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors confirm that they have complied with the above requirements in preparing the financial statements. The directors are responsible for keeping proper accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Isle of Man Companies Acts 1931 to They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the Company s website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By Order of the Board I M E Bancroft Director 2 December

5 Independent auditor's report to the member of Cayman National Bank and Trust Company (Isle of Man) Limited Report on the Financial Statements We have audited the accompanying financial statements of Cayman National Bank and Trust Company (Isle of Man) Limited which comprise the Statement of Financial Position as at 30 September 2016 and the Statement of Comprehensive Income, Statement of Changes in Equity, and Statement of Cash Flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Directors Responsibility for the Financial Statements The directors are responsible for the preparation and fair presentation of these financial statements in accordance with applicable Isle of Man law and International Financial Reporting Standards, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. This report, including the opinion, has been prepared for and only for the company s member as a body in accordance with Section 15 of the Isle of Man Companies Act 1982 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion: - the financial statements give a true and fair view of the financial position of the company as at 30 September 2016 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards; and - the financial statements have been properly prepared in accordance with the Isle of Man Companies Acts 1931 to Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Isle of Man Companies Acts 1931 to 2004 require us to report to you if, in our opinion : - proper books of account have not been kept by the company or, proper returns adequate for our audit have not been received from branches not visited by us; or - the company s Statement of Financial Position and Statement of Comprehensive Income are not in agreement with the books of account and returns; or - we have not received all the information and explanations necessary for the purposes of our audit; and - certain disclosures of directors loans and remuneration specified by law have not been complied with. PricewaterhouseCoopers LLC Chartered Accountants Douglas, Isle of Man 2 December

6 Statement of Financial Position 30 September September 30 September Note ASSETS Cash and due from banks 3 86,155,757 79,231,510 Held-to-maturity investments 5 50,573,134 22,204,624 Loans and advances to customers 6 21,416,624 20,141,044 Derivatives - foreign exchange forward contracts 10-30,113 Interest receivable 6,910 7,530 Accounts receivable and other assets 7 614, ,217 Property and equipment 8 124, ,696 Investments in subsidiaries Intangible assets 9 66,353 79,849 TOTAL ASSETS 158,957, ,116,591 LIABILITIES Customer accounts Current 117,441,199 81,138,815 Savings 9,518,154 10,317,657 Fixed deposit 26,381,837 25,236,129 Total customer accounts 153,341, ,692,601 Interest payable 51,456 39,037 Accounts payable and other liabilities , ,009 Current taxation 22 11,491 19,316 Deferred revenue 140, ,616 Deferred taxation 22 7,271 5,241 TOTAL LIABILITIES 153,773, ,106,820 EQUITY Share capital 12 3,500,000 3,500,000 Accumulated retained earnings 1,684,039 1,509,771 TOTAL EQUITY 5,184,039 5,009,771 TOTAL LIABILITIES AND EQUITY 158,957, ,116,591 The financial statements on pages 4 to 31 were approved and authorised for issue by: I M E Bancroft Director M B Hartley Director Date: 2 December 2016 The notes on pages 8 to 31 are an integral part of these financial statements. 4

7 Statement of Comprehensive income Note Interest Interest income 20 1,077, ,105 Interest expense 20 (191,451) (319,300) Net interest income 886, ,805 Other income Banking fees and commissions 706, ,813 Foreign exchange dealing 350, ,133 Foreign exchange revaluation (33,158) 43,466 Trust and company management fees 932,353 1,019,861 Rental income 6,720 6,720 Depositor compensation scheme refund 15 5,736 22,978 Recharges 13 61, ,737 Total income 2,916,677 2,639,513 Expenses Personnel 21 1,436,281 1,383,269 Other operating expenses 817, ,196 Increase in loan impairment provision 6 60,897 19,847 Increase in provision for impairment of accounts receivable 7 54,868 1,205 Premises - rent and other maintenance expenses 223, ,319 Depreciation, amortisation and impairment 8, 9 46,416 50,232 Audit fees 55,743 32,968 Directors fees 33,250 33,088 Total expenses 2,728,552 2,330,124 Net profit before taxation 188, ,389 Income tax expense 22 (13,857) (18,983) Profit for the year 174, ,406 Total comprehensive income for the year 174, ,406 The notes on pages 8 to 31 are an integral part of these financial statements. 5

8 Statement of Changes in Equity Share Capital Retained Total Earnings Balance as at 1 October ,500,000 1,407,645 4,907,645 Net profit for the year - 290, ,406 Other comprehensive income Total comprehensive income for , ,406 Transactions with owners in their capacity as owners: Dividends declared (note 23) - (188,280) (188,280) Balance as at 30 September ,500,000 1,509,771 5,009,771 Net profit for the year - 174, ,268 Other comprehensive income Total comprehensive income for , ,268 Transactions with owners in their capacity as owners: Dividends declared (note 23) Balance as at 30 September ,500,000 1,684,039 5,184,039 The notes on pages 8 to 31 are an integral part of these financial statements. 6

9 Statement of Cash Flows Operating activities Net profit before tax 188, ,389 Adjustments for items not involving cash: Depreciation and amortisation 46,416 50,232 Amortisation of premium/discount on investments held-to-maturity 636, ,324 Loan impairment charges 60,897 19,847 Impairment of accounts receivable 54,868 1,205 Foreign exchange effect 4,580 46, , ,681 Changes in non-cash working capital items: Short term placements - 3,176,913 Interest and accounts receivable (334,236) (67,883) Customer accounts 45,618,406 31,895,104 Interest and other liabilities 16,106 (23,144) Net advances for loans and overdrafts (1,356,569) (2,864,025) Current income tax paid (19,652) - Net cash generated from operating activities: 44,915,415 32,699,646 Investing activities Purchase of additions to property and equipment (47,077) (45,876) Proceeds on maturity of investments held-to-maturity 12,865,178 4,445,955 Purchase of investments held-to-maturity (42,776,749) (23,807,102) Purchase of intangible assets - (21,602) Net cash used in investing activities: (29,958,648) (19,428,625) Financing activities Dividends paid - (188,280) Net cash used in financing activities - (188,280) Effect of exchange rate changes on cash and cash equivalents (8,032,519) 3,697,598 Increase in cash and cash equivalents 6,924,248 16,780,339 Cash and cash equivalents at beginning of year 79,231,510 62,451,171 Cash and cash equivalents at end of year 86,155,758 79,231,510 The notes on pages 8 to 31 are an integral part of these financial statements. 7

10 1 Company and background information Cayman National Bank and Trust Company (Isle of Man) Limited (the Company ) was incorporated on 22 February 1985 and operates subject to the provisions of Companies Law of the Isle of Man. The principal activities of the Company are the provision of banking, custodian, and trust and corporate administration services. The Company holds a Financial Services Licence issued on 1 January 2009 under section 7 of the Financial Services Act 2008 and is authorised to undertake deposit taking, investment business, services to collective investment schemes, corporate services and trust services. The Company is a wholly owned subsidiary of Cayman National Corporation Ltd, a company incorporated in the Cayman Islands. The Company's registered office is Cayman National House, 4-8 Hope Street, Douglas, Isle of Man, IM1 1AQ. 2 Basis of preparation These financial statements have been prepared under the historical cost convention, as modified by the revaluation of derivatives, in accordance with International Financial Reporting Standards ( IFRS ) and interpretations issued by the IFRS interpretations committee applicable to companies reporting under IFRS. The preparation of financial statements in conformity with IFRS requires the use of certain accounting estimates. It also requires management to exercise its judgment in the process of applying the Company s accounting policies. The areas where assumptions and estimates are significant to the financial statements are disclosed below. The significant accounting policies adopted by the Company are as follows: New standards, amendments and interpretations issued but not effective for the financial year beginning 1 October 2015 and not early adopted IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the 'hedged ratio' to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted. The Company is yet to assess IFRS 9's full impact. IFRS 15, 'Revenue from contracts with customers' deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' are related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017, and earlier application is permitted. The Company is assessing the impact of IFRS 15. 8

11 There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Company. Subsidiaries The Company's investments in subsidiaries are stated at cost less accumulated impairment losses. Consolidated accounts have not been prepared as the Company is permitted by the Isle of Man Companies Act 1982 Section 4(2) (a) to not prepare consolidated financial statements as in the directors' opinion it would be of no real value to the member of the Company, it would involve disproportionate expense or undue delay and the subsidiaries are individually and collectively immaterial. The Company is also exempt from the requirement of IAS 27 'Consolidated and separate financial statements' to prepare consolidated financial statements as it is an unlisted wholly owned subsidiary of Cayman National Corporation Ltd, a company incorporated in the Cayman Islands. The consolidated financial statements of Cayman National Corporation Ltd are available to the public and comply with IFRS. Foreign currency translation (a) Functional and Presentation Currency Items included in these financial statements are measured using the currency of the primary economic environment in which the Company operates ( the Functional Currency ). The financial statements are presented in Pounds Sterling (GBP), which is the Company s functional and presentation currency. (b) Transactions and Balances Revenue and expense transactions involving currencies other than the Functional Currency have been translated at exchange rates ruling at the date of those transactions. Monetary assets and monetary liabilities are translated at the closing rate in effect at the statement of financial position date. Non monetary assets and liabilities are translated at historical rates. Gains and losses on exchange are credited or charged in the statement of comprehensive income. Property and equipment Property and equipment are recorded at cost less accumulated depreciation and impairment losses. Property and equipment are depreciated in accordance with the straight line method at the following rates, estimated to write off the cost of the assets over the period of their expected useful lives: Fixtures and fittings Office equipment and software Motor vehicles 7-10 years 3-7 years 4 years Expected useful lives are reviewed annually. Property and equipment are reviewed annually at each statement of financial position date for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment losses, if any, are recorded in the statement of comprehensive income. 9

12 Loans and provision for loan impairment Loans are recognised at fair value when cash is advanced to the borrowers. Loans are carried at amortised cost using the effective interest yield method. An allowance for loan impairment is established if there is objective evidence that the Company will not be able to collect all amounts due according to the original contractual terms of loans. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of loans. Loan impairment provisions are charged and impairment recoveries credited to the provision for loan impairment and are presented as a loss within the statement of comprehensive income. Additions to the provision are charged to expenses in order to maintain the reserve at a level deemed appropriate by management to absorb known and inherent risks in the loan portfolio. See critical accounting estimates and judgments below. When a financial asset is uncollectible, it is written off against the related allowance account. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the statement of comprehensive income. Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial instrument or, where appropriate, a shorter period. The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire. Accounts receivable Accounts receivable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of accounts receivable is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced through use of an allowance account, and the amount of the loss is recognised in the statement of comprehensive income. When an account receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to the statement of comprehensive income. Accounts payable Accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from vendors. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non current liabilities. Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Interest income and expense Interest income and expense for all interest bearing financial instruments are recognised within interest income and interest expense in the statement of comprehensive income using the effective interest method. The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. 10

13 The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. Fees and commissions Fees and commissions for services are recognised on an accrual basis over the period that the services are provided. Loan origination fees for loans which are likely to be drawn down are deferred, together with related direct costs, and recognised as an adjustment to the effective interest rate on the loan over the expected life of the related loans and recorded in interest income. Cash and cash equivalents For the purposes of the statement of cash flows, the Company considers all cash at banks, highly liquid money market accounts with original maturities of 90 days or less and short term placements with original maturities of 90 days or less from date of placement as cash or cash equivalents. Short term placements Short term placements principally represent deposits and placements with other banks with original maturities of greater than three months but less than twelve months. Assets under administration Securities, cash and other assets held in a trust, agency or fiduciary capacity for customers are not included in these financial statements as such assets are not the property of the Company. Leases The leases entered into by the Company are primarily operating leases. The total payments made under operating leases are charged to premises expense in the statement of comprehensive income on a straight line basis over the period of the leases. Held-to-maturity investments The Company classifies its investments as held-to-maturity. Management determines the classification of its investments at initial recognition. Purchases and sales of investments held to maturity are recognised on trade date basis, which is the date the Company commits to purchase or sell the investment. Held-to-maturity investments are initially recognised at fair value plus transaction costs. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Held to maturity investments are non derivative financial assets with fixed or determinable payments and fixed maturities that the Company s management has the positive intention and ability to hold to maturity. If the Company were to sell other than an insignificant amount of held to maturity assets, the entire category would be reclassified as available for sale. Held to maturity investments are recorded on a trade date basis and are subsequently carried at amortised cost, using the effective interest method, less any impairment loss recognised to reflect unrecoverable amounts. Premiums and discounts arising on acquisition are amortised over the period remaining to maturity using the effective interest method and are included in the statement of comprehensive income within interest income. 11

14 Customer accounts and other financial liabilities Customer accounts are non-derivative financial liabilities to individuals or corporate customers. Financial liabilities are initially measured at fair value, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial instrument or, where appropriate, a shorter period. The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire. Derivatives - foreign exchange forward contracts Derivatives are categorised as held for trading. The Company does not designate any derivatives as hedges. They are stated at fair value, with any resultant gain or loss recognised in the statement of comprehensive income. Intangible assets Intangible assets with finite useful lives that are acquired are initially recognised at cost and subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimation being accounted for on a prospective basis. See note 9 for details of intangible assets held. Dividends Dividends are recorded in equity in the period in which they are declared. Any dividends declared after the end of the reporting period and before the financial statements are authorised for issue, are disclosed as a subsequent event. Income taxes Income taxes have been provided for in the financial statements in accordance with legislation enacted or substantively enacted by the end of the reporting period. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year, except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity. Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if the financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded within administrative and other operating expenses. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period, which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Critical accounting estimates and judgments The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 12

15 Impairment losses on loans and advances The Company reviews its loan portfolios to assess impairment at least on a quarterly basis or when an indicator of impairment is present. The Company measures the credit risk on loans and advances as set out in note 16 (i). In determining whether an impairment loss should be recorded in the statement of comprehensive income on these loans, the Company makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the discounted collateral and estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a Company or local economic conditions that correlate with defaults on assets in the Company. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net present value of recoverable collateral differs by +/ 10 percent, the provision would change by +/ 72,586 (2015: 77,574). Additionally, the Company periodically reviews its provisions for losses incurred in the performing loan portfolio but not specifically identifiable at year end. In determining the provision for loan losses management makes certain judgements regarding the extent to which historical loss trends and current economic circumstances impact their best estimate of losses that exist in the performing loan portfolio at the consolidated statement of financial position date. 3 Cash and due from banks Cash and due from banks comprise placements and money market accounts with original maturities of 90 days or less and nostro accounts with banks Current accounts 73,880,798 64,336,766 Money market accounts 2,227,694 2,040,944 Deposits with other banks 10,047,265 12,853,800 Total cash due from banks 86,155,757 79,231,510 Deposits with other banks attracted interest rates ranging from 0.28% to 0.43% (2015: 0.35% to 0.43%) during the financial year. 4 Investments in subsidiaries The following subsidiaries provide a range of corporate services, including secretarial, nominee, trustee, and corporate directors services to third parties. None of the subsidiary companies receive any income and all expenses of such subsidiaries are borne by the Company. Assets held in a fiduciary capacity are not included in these financial statements. The subsidiaries of the Company, all of which are non-trading, are: Country of Entity % owned Principal activity incorporation CNB Nominees Limited 100 Corporate services Isle of Man CN Director Limited 100 Corporate services Isle of Man Cayman National Nominees Limited 100 Corporate services Isle of Man Cayman National Secretarial Limited 100 Corporate services Isle of Man Beeston Administration Limited (dissolved 30 June 2016) 100 Corporate services Isle of Man Beeston Management Limited 100 Corporate services Isle of Man 5 Held-to-maturity investments Held-to-maturity investments comprise: Government, Multilateral Development Bank, and Public Sector Entity bonds 48,262,204 5,358,402 Corporate bonds 2,310,930 16,846,222 Total investment securities held to maturity 50,573,134 22,204,624 13

16 Net amortisation of discounts/premiums on purchase of debt securities of 195,163 (2015: 60,373) is included within interest income. 6 Loans and advances to customers Personal 11,012,284 8,102,879 Corporate 10,860,620 12,436,889 Total 21,872,904 20,539,768 Provision for loan impairment (456,280) (398,724) Total loans and advances to customers 21,416,624 20,141,044 Substantially all of the Company's loans and advances are advanced to customers in the Isle of Man and the United Kingdom. Loans to clients in other geographical areas do not exceed 10%. Movements in the provision for loan impairment are as follows: Provision for loan impairment, beginning of year 398, ,682 Impairment reversed during the year - - Increase in impairment charged to profit or loss 60,897 19,847 Loans and advances (written off)/recovered (3,341) 10,195 Provision for loan impairment, end of year 456, ,724 At the balance sheet date each of the amounts quoted below exceeded 10% of the total of the company s adjusted capital base: Commercial loans (2016: 7, 2015: 4) 4,265,321 3,099,552 Retail loans (2016: 1, 2015: 1) 537, ,111 Cash backed loans (2016: 2, 2015: 2) 3,446,081 4,843,119 Money market accounts (2016: 2, 2015: 2) 2,227,694 2,040,944 Held-to-maturity investments (2016: 5, 2015: 6) 20,405,190 11,622,523 Derivatives - foreign exchange forward contracts (2016: 0, 2015: 1) - 651,000 7 Accounts receivable and other assets Accounts receivable and other assets is comprised of: Accounts receivable 212, ,192 Due from related parties 19,875 17,816 Prepayments 78,558 63,729 Other receivables 303, Total accounts receivable and other assets 614, ,217 At the year end, the accounts receivable balance is comprised of: Accounts receivable 246, ,501 Less provision for impairment of accounts receivable (34,399) (37,309) Total accounts receivable 212, ,192 Movements in the provision for impairment of accounts receivable are as follows: Provision, beginning of year 37,309 44,249 Provision charged to profit or loss 54,868 1,205 Accounts receivable written off (57,778) (8,145) Provision, end of year 34,399 37,309 14

17 The table below presents a summary of the accounts receivable by credit status: Neither past due nor impaired 46,319 73,402 Past due, not impaired: 1-3 months 56,887 33, months 10,644 34, months 94,300 14, months 1, ,886 Over 1 year , ,430 Past due and impaired: 1-3 months months months months - - Over 1 year 37,332 8,669 37,332 8,669 Total gross accounts receivable 246, ,501 8 Property and equipment Fixtures and Office Motor fittings equipment vehicles & software Total Cost At 1 October , ,583 35, ,392 Additions 32,855 13,021-45,876 At 30 September , ,604 35, ,268 Additions 33,218 13,859-47,077 At 30 September , ,463 35, ,345 Depreciation At 1 October , ,080 35, ,761 Charge for the year 13,624 20,187-33,811 At 30 September , ,267 35, ,572 Charge for the year 16,007 16,913-32,920 At 30 September , ,180 35, ,492 Net book value At 30 September ,570 29, ,853 At 30 September ,359 32, ,696 15

18 9 Intangible assets Total Cost At 1 October ,912 Additions 21,602 At 30 September 2015 and 30 September ,514 Amortisation and impairment At 1 October ,244 Charge for the year 16,421 At 30 September ,665 Charge for the year 13,496 At 30 September ,161 Carrying amount At 30 September ,353 At 30 September ,849 On 31 August 2013 the Company entered into an agreement with Harding Lewis Fiduciaries Limited ("HLF") for the acquisition of certain HLF fiduciary clients. The consideration payable to HLF for the acquisition of such clients was payable in three instalments over a period of twenty four months. The total amount payable was based on the level of retention of HLF clients by the Company during the consideration period, and on the gross revenues earned by the Company from such clients during that period. The amount provided in the financial statements as cost of 118,514 represents the total amount payable under the purchase and sale agreement. Intangible assets relate to customer client lists which are amortised to the statement of comprehensive income over their useful economic life of 8 years. At the year end the remaining amortisation period is 59 months (2015: 71 months). 10 Derivatives - foreign exchange forward contracts The table below sets out fair values, at the end of the reporting period, of currencies receivable or payable under foreign exchange forward and swap contracts entered into by the Company. The table reflects gross positions before the netting of any counterparty positions (and payments) and covers the contracts with settlement dates after the end of the respective reporting period. The contracts are short term in nature: Contracts Contracts fair value fair value Foreign exchange forwards fair values at the end of the reporting period GBP payable on settlement - (9,496,652) EUR payable on settlement - (1,111,852) USD receivable on settlement - 10,638,617 Net fair value of foreign exchange forwards - 30,113 Foreign exchange derivative financial instruments entered into by the Company are traded with customers on standardised contractual terms and conditions. Derivatives have potentially favourable (assets) or unfavourable (liabilities) conditions as a result of fluctuations in market interest rates, foreign exchange rates or other variables relative to their terms. The aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time. 16

19 11 Accounts payable and other liabilities Due to customers 5,412 5,204 Accounts payable & accrued expenses 216, ,805 Accounts payable and other liabilities 221, , Share capital Authorised share capital - 1 ordinary shares 3,500,000 3,500,000 Issued and fully paid - 1 ordinary shares 3,500,000 3,500, Related party balances and transactions The Company enters into various transactions with related parties in the normal course of business. Related parties are entities that are controlled by or may be significantly influenced by the Company either directly or indirectly through its subsidiaries, the Board of Directors and key employees of the Company. Directors include individual directors of the Company and its subsidiaries and also companies, partnerships, trusts or other entities in which a director or directors collectively, have direct or indirect significant shares or interest in such entities. The following related party balances are with the Company's parent company, fellow subsidiaries, affiliates, or other related parties: 2016 Immediate Entities Key Other parent under management related company common personnel parties control Due from related parties: Cash and cash equivalents - 127, Investment in subsidiaries Loans and advances to customers ,557 Accounts receivable and other assets - 64, Due to related parties: Customers' accounts - 141, , , Immediate Entities Key Other parent under management related company common personnel parties control Due from related parties: Cash and cash equivalents - 25, Investment in subsidiaries Loans and advances to customers - - 1,191,137 Accounts receivable and other assets - 67, Due to related parties: Customers' accounts - 82, , ,642 17

20 The following related party transactions were with the Company's parent company, fellow subsidiaries, affiliates, or other related parties: 2016 Immediate Entities Key Other parent under management related company common personnel parties control Interest income ,039 - Interest expense Recharges - 61, Management charges Immediate Entities Key Other parent under management related company common personnel parties control Interest income ,594 - Interest expense Recharges - 132, Management charges 25, Other related parties are entities over which a director of the Company exercises significant influence. Key management compensation is presented below: Expense Accrued Expense Accrued liability liability Short term benefits 551,626 22, ,829 21,154 The accrued liability relates to short-term benefits which fall due wholly within twelve months after the end of the period in which management rendered the related services. 14 Commitments In the normal course of business there are various commitments on behalf of customers to extend credit. Commitments to extend credit totalled 305,000 at 30 September 2016 (2015: 247,000). No material losses are anticipated by management as a result of these transactions. The Company entered into an operating lease agreement on Cayman National House, 4-8 Hope Street, Douglas, Isle of Man on 16 May The operating lease expires on 23 February 2022 and the annual commitment is 156,660 which is included in the statement of comprehensive income within premises expense. The future aggregate minimum lease payments under non cancellable operating leases are as follows: Due in one year 156, ,660 Due within two to five years 626, ,640 After five years 65, , ,575 1,005,235 18

21 15 Contingent liabilities On 8 October 2008, the banking license granted to Kaupthing Singer and Friedlander (Isle of Man) Limited ( Kaupthing S&F ) was suspended and on 27 May 2009 Kaupthing S&F was placed into liquidation, thus triggering the provisions of the Scheme. At that time, the majority of licensed deposit-taking institutions in the Isle of Man were participants of the statutory Isle of Man Depositors' Compensation Scheme under the Compensation of Depositors Regulations 2008 as amended by the Compensation of Depositors (Amendment) Regulations 2008 ( the Scheme ). That Scheme provided compensation to a maximum of 100% of the first 50,000 or currency equivalent of individual depositors and 20,000 in any other case, subject to a maximum of 200,000,000 for all participants, in the event of the failure of a participant institution to meet its obligations to depositors. The failure of Kaupthing S&F triggered the payment of a levy by each participant calculated at 0.125% of average deposit liabilities over such period preceding the levying of the contribution as was deemed appropriate by the Scheme Manager, with a minimum annual contribution of 35,000 and a maximum annual contribution of 350,000. On 23 October 2010, the Depositors' Compensation Scheme Regulations 2010 ("the 2010 Scheme") were introduced. The 2010 Scheme replaces the Scheme in relation to any subsequent events, but does not change the liability of the Company under the Scheme in relation to Kaupthing S&F. During the three years to 30 September 2011 the Company made total contributions of 147,945 to the Scheme, and these levies were expensed in the statement of comprehensive income. The Company received an interim distribution from the Scheme of 89,115 in 2012, 21,852 in 2013, 22, 978 in 2015 and a further distribution of 5,736 in Distributions received to date represent 94% of the Company's contributions to the Scheme. 16 Financial risk management The Company s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial services business, and operational risks are an inevitable consequence of being in business. The Company s aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Company s financial performance. The Company s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up to date information systems. The Company regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practices. Financial risk management is carried out by various operating units under policies approved by the Board of Directors. The Board provides written policies for overall risk management as well as specific policies covering credit risk, interest rate risk, foreign exchange risk, use of derivative and non derivative financial instruments, liquidity risk and investment of excess liquidity. The most important types of risk are credit risk, liquidity risk and market risk. Market risk includes currency risk, interest rate risk and other price risk. Market risk The Company takes on exposure to market risk which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rates and currency, both of which are exposed to general and specific market movements and changes in the volatility of market prices or prices such as interest rates, credit spreads and foreign exchange rates. 19

22 (i) Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Company takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its cash flow risks. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored daily by the Banking Director. The table below summarises the Company s exposure to interest rate risks. It includes the Company s financial instruments at carrying amounts categorised by when management expects interest rates to reset. At 30 September Over 5 Non interest months months months Years Years bearing Total Assets Cash and due from banks 86,155, ,155,757 Investments 3,190,772 10,416,422 14,528,199 22,437, ,573,134 Loans and advances 21,416, ,416,624 Other financial assets , ,542 Total financial assets 110,763,153 10,416,422 14,528,199 22,437, , ,688,057 Liabilities Customer accounts 148,050,001 2,112, ,870 2,201, ,341,190 Other financial liabilities , ,414 Total financial liabilities 148,050,001 2,112, ,870 2,201, , ,517,604 Total interest sensitivity Gap (37,286,848) 8,303,997 13,551,329 20,235, ,128 5,170,453 At 30 September Over 5 Non interest months months months Years Years bearing Total Assets Cash and due from banks 79,231, ,231,510 Investments 4,039,437 3,244,163 5,968,311 8,952, ,204,624 Loans and advances 20,141, ,141,044 Derivatives - foreign exchange forward contracts 30, ,112 Other financial assets , ,018 Total financial assets 103,442,103 3,244,163 5,968,311 8,952, , ,832,308 20