Bancolombia Cayman (A wholly-owned subsidiary of Bancolombia (Panama), S. A.)

Transcription

1 Report and Financial Statements t:\cliente\bancolombia\fs\2013\fs13-002cayman.doc/zm

2 Index to the Financial Statements Pages Report of Independent Auditors 1 Financial Statements: Balance Sheet 2 Statement of Income 3 Statement of Comprehensive Income 4 Statement of Changes in Shareholder s Equity 5 Statement of Cash Flows

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5 Statement of Income For the year ended Interest Income Interest on bank deposits (Note 6) US$ 2,163,642 US$ 2,385,654 Interest on securities 2,206,675 2,095,624 Interest on loans (include commissions) 1,918,712 2,076,126 6,289,029 6,557,404 Interest Expense Interest on deposits (Note 6) (3,050,452) (3,816,175) Interest on short-term borrowings - (51,495) (3,050,452) (3,867,670) Net interest income 3,238,577 2,689,734 Other Income (Expenses) Fee and commission income (Note 14) 533, ,403 Fee and commission expense (Notes 6 and 16) (1,130,699) (1,005,123) Net gain on sale of securities (Note 15) 248, ,483 Provision for loan losses (Note 9) (296,645) (174,768) Other provisions, net (Note 13) (173,703) (305,962) Other operating income, net (Note 14) 7, ,619 (812,472) (66,348) Administrative Expenses Professional services 280, ,353 Communications 22,378 25,699 Government license fees 86,722 60,976 Other administrative expenses (Note 16) 22,707 28, , ,969 Net income US$ 2,013,906 US$ 2,311,417 The notes on pages 7 to 34 are an integral part of these financial statements

6 (A wholly-owned subsidiary of Bancolombia (Panama), S.A.) Statement of Comprehensive Income For the year ended Net income US$ 2,013,906 US$ 2,311,417 Other comprehensive income: Items that may be subsequently reclassified to profit or loss: Net (loss) gain from changes in fair value (Note 8) (1,664,109) 2,710,515 Net gain transferred to profit/loss on disposal (Note 8) (232,457) (616,181) Total comprehensive income US$ 117,340 US$ 4,405,751 The notes on pages 7 to 34 are an integral part of these financial statements

7 Statement of Changes in Shareholder s Equity For the year ended Unrealized (Loss) Gain on Valuation of Available-for- Share Capital Sale Retained Capital Reserve Securities Earnings Total Balance at December 31, 2011 US$ 20,000,000 US$ 289,073 US$ 232,568 US$ 2,923,517 US$ 23,445,158 Comprehensive income Net income ,311,417 2,311,417 Net gain from changes in fair value (Note 8) - - 2,710,515-2,710,515 Net gain transferred to profit/loss (Note 8) - - (616,181) - (616,181) Total comprehensive income - - 2,094,334 2,311,417 4,405,751 Balance at December 31, ,000, ,073 2,326,902 5,234,934 27,850,909 Comprehensive income Net income ,013,906 2,013,906 Net loss from changes in fair value (Note 8) - - (1,664,109) - (1,664,109) Net gain transferred to profit/loss (Note 8) - - (232,457) - (232,457) Total comprehensive income - - (1,896,566) 2,013, ,340 Transactions with shareholders Dividend paid (5,000,000) (5,000,000) Capital reserve (Note 12) - 234,934 - (234,934) - Total transactions with shareholders - 234,934 - (5,234,934) (5,000,000) Balance at US$ 20,000,000 US$ 524,007 US$ 430,336 US$ 2,013,906 US$ 22,968,249 The notes on pages 7 to 34 are an integral part of these financial statements

8 Statement of Cash Flows For the year ended Cash flows from operating activities Interest received US$ 6,784,139 US$ 7,362,473 Interest paid (2,557,774) (4,466,581) Commission income (Note 14) 533, ,403 Commission expense (Note 16) (1,130,699) (1,005,123) Other operating income (expenses) (Note 14) 7, ,619 Administrative Expenses (412,199) (311,969) Decrease (increase) in operating assets: Loans (284,759) 353,411 Other receivables (56,061) (349,089) Decrease (increase) in operating liabilities: Deposits (35,318,063) (22,204,681) Other liabilities 208,857 (171,384) Net cash used in operating activities (32,226,242) (19,879,921) Cash flows from investing activities Time deposits - 5,000,000 Purchases of investment securities - (9,981,000) Sales of investment securities 16,499,424 27,283,222 Net cash provided by investing activities 16,499,424 22,302,222 Cash flows from financing activities Net cash used in financing activities dividends paid (5,000,000) - (Decrease) increase in cash and cash equivalents (20,726,818) 2,422,301 Cash and cash equivalents at beginning of year (Note 7) 149,002, ,580,528 Cash and cash equivalents at end of year (Note 7) US$ 128,276,011 US$ 149,002,829 The notes on pages 7 to 34 are an integral part of these financial statements

9 1. General Information Bancolombia Cayman (the Bank ) was incorporated as an exempted company under the Companies Law of the Cayman Islands on August 27, 1987, and is a wholly - owned subsidiary of Bancolombia (Panama), S. A. (the Parent Company ). The ultimate parent company is Bancolombia, S. A., a bank incorporated in Colombia. The Bank operates under an unrestricted category B bank and trust license granted by the Cayman Islands Government and it is principally engaged in providing offshore banking facilities. The Bank enters into transactions with its parent company and affiliates, most of which are conducted under the parent company s instructions. The registered office of the Bank is located at Caledonian House, 69 Dr. Roy s Drive, Grand Cayman, Cayman Islands. The financial statements were approved for issue by the Management on February 25, Summary of Significant Accounting Policies The following is a summary of the major accounting policies used in the preparation of the financial statements. These policies have been consistently applied to all years presented. Basis of Preparation The financial statements of the Bank have been prepared in accordance with the International Financial Reporting Standards (IFRS). The financial statements are prepared under the historical cost convention, modified for the revaluation of availablefor-sale securities. The preparation of the financial statements in conformity with the International Financial Reporting Standards requires some critical accounting estimates. Also, it requires Management to use judgment in the application of the Bank s accounting policies. The areas that involve a high degree of judgment or complexity, or areas where the assumptions and estimates are significant for the financial statements, are disclosed in Note

10 2. Summary of Significant Accounting Policies (Continued) Basis of Preparation (continued) Changes in the accounting policy and disclosures (a) New and amended standards adopted - IFRS 13, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. - Amendment to IAS 1, Financial statement presentation regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. (b) New standards issued and standards amendments, but not effective for the financial year beginning 1 January 2013 and not early adopted IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements

11 2. Summary of Significant Accounting Policies (Continued) Foreign Currencies Translation Transactions in currencies other than the US dollars (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. Assets and liabilities denominated in foreign currencies are translated at the rates prevailing at the balance sheet date. Exchange differences are recognized in profit or loss in the period in which they arise. Financial Assets Classification The Bank classifies its financial assets in the following categories: loans and receivables, held-to-maturity and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition: (a) (b) (c) Loans and receivables Loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the entity has no intention to sell immediately or in the short-term. Loans are stated at their principal amount, net of allowance for loan losses and unearned discounts. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Held-to-maturity financial assets Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that Management has the positive intention and ability to hold to maturity, other than: those that the Bank upon initial recognition designates as at fair value through profit or loss; those that the Bank designates as available for sale; and those that meet the definition of loans and receivables

12 2. Summary of Significant Accounting Policies (Continued) Recognition and Measurement Regular purchases and sales of financial assets are recognized on the trade-date the date on which the Bank commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Bank has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortized cost. Held-to-maturity investments are initially recognized at fair value including direct and incremental transaction costs and measured subsequently at amortized cost. Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analyzed between translation differences resulting from changes in amortized cost of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recognized in profit or loss; translation differences on non-monetary securities are recognized in equity. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognized in the statement of comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the statement of income as net gain on sale of securities. Interest on available-for-sale securities calculated using the effective interest method is recognized in the statement of income as part of interest on securities. Dividends on available-for-sale equity instruments are recognized in the income statement as part of other income when the Bank s right to receive payments is established. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Bank establishes fair value by valuation techniques. Impairment of Financial Assets a. Held to maturity investments The Bank assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated

13 2. Summary of Significant Accounting Policies (Continued) Impairment of Financial Assets (Continued) a. Held to maturity investments (continued) Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. 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 recognized (such as an improvement in the debtor s credit rating), the reversal of the previously recognized impairment loss is recognized in the consolidated income statement. b. Available-for-sale securities The Bank assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Bank uses the criteria referred to in (a) above. If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss is removed from equity and recognized in profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the statement of income. Allowance for Loan Losses The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial assets or group of financial assets that can reliably estimated

14 2. Summary of Significant Accounting Policies (Continued) Allowance for Loan Losses (continued) The allowance for loan losses is established as losses when impairment has occurred, through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when Management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to other income. The allowance for loans losses is performed in relation to possible loan losses of clients whose loans have been reviewed individually and have been identified as non-recoverable, after periodic review in which Management considers the estimated recovery of the debtor, co-debtors or guarantee payment sources and the realization of assets received as collateral. Income and Expenses Interest income expense for all interest-bearing financial instruments, premium and discount are recognized within interest income and interest expense in the statement of income using the effective interest method. Banking fees and commissions are generally recognized when the service has been provided. Portfolio and other management service fee expenses are recognized on an accrual basis based on the applicable service contracts. Income Tax Under the present laws of the Cayman Islands, the Bank is not subject to income taxes. The Bank intends to conduct its operations so as not to be subject to taxation in any other jurisdiction. Cash and Cash Equivalents Cash and cash equivalents include cash and due from banks, on demand and shortterm investments with an original maturity of 90 days or less from the date of acquisition. Borrowings Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. Financial Liabilities The Bank s holding in financial liabilities is in financial liabilities at amortized cost. Financial liabilities are derecognized when extinguished. Financial liabilities measured at amortized cost are deposits from banks or customers, for which the fair value option is not applied

15 2. Summary of Significant Accounting Policies (Continued) Reclassification As of December 2012 in the statement of income, the lines of other operating income net, and other provision net, were reclassified an amount of US$17,899 for comparative purposes with Notes 13 and 14. AS of December 2012 in the statement of cash flows, the lines of other operating income and other receivables were reclassified an amount of US$17,899 for comparative purposes with Notes 13 and Financial Risk Management The Bank is exposed to the following financial risks: Credit risk Liquidity risk Market risk (includes interest rate, currency risk and other price risk) The Board of Directors of the Bank has the responsibility to establish and oversee the policies of financial instruments risk administration. Accordingly, it has appointed committees in charge of the periodic administration and oversight of the risks to which the Bank is exposed. The Audit Committee is responsible for verifying the correct functioning of the internal control system and the compliance of the internal and external audit programs by means of internal policies and procedures to detect control and internal administration problems, as well as the corrective measures implemented based on the evaluations carried out by the internal audit function, the external auditors and the Cayman Islands Monetary Authority. The audit committee is assisted in these functions by the Internal Audit Department. This Department carries out regular audits to the Company s processes and controls of risk management; the results are reported to the Audit Committee. Credit Risk It is the risk of financial loss that faces the Bank if a client or counterparty in a financial instrument does not fully comply with his commitments. Credit risk arises mainly from loan granting activities and investments in bonds. Credit risk also exists in off-balance financial instruments, such as guarantees granted and commitments to grant credits, if any

16 3. Financial Risk Management (Continued) Credit Risk (continued) The Board of Directors and the General Management have delegated the responsibility of the identification and risks management to their Risk Committee, which at the same time has delegated the credit risk management to Credit Committee. The main function of the Credit Committee is to do a follow-up on risk, to assist in the design of policies and procedures, verify its compliance and warn the Board of Directors and General Management regarding risks that could require additional controls. The Risk Committee has established some procedures to manage credit risk, such as: 1. Drafting of credit policies 2. Establishment of authorization limits 3. Concentration limits 4. Exposure limits 5. Risk evaluation development and maintenance 6. Review of policy compliance The Internal Audit Department carries out regular audits to the Bank s credit processes. Credit risk measurement In measuring credit risk on loans, the Bank considers three components (i) the probability of default by the client or counterparty on its contractual obligations; (ii) current exposures to the counterparty and its likely future development, from which the Bank derives the exposure at default ; and (iii) the likely recovery ratio on the defaulted obligations (the loss given default ). a) Loans receivable risk For the application of provisions for the consumer loan portfolio (credit cards), the Bank establishes 100% provision for all loans for which the payment of capital and interest has been outstanding for more than 120 days. b) Investments in securities For investments in securities, external ratings or their equivalents are taken into consideration by the Board of Directors at the time of evaluating and approving the authorized counterparts and/or issuers. Collateral The Bank implements guidelines on the acceptability of collateral for credit risk mitigation. Mainly, collateral consists of pledges over deposits placed in the Bank. As of and 2012, the loans of the Bank do not have collateral because the loan portfolio only includes credit cards

17 3. Financial Risk Management (Continued) Credit Risk (continued) Impairment and provisioning policies Impairment on loans is determined considering the amount of principal and interest in accordance to the contractual term. Loans are classified based on the book value at the date of analysis in the following categories, from a lower to higher risk: neither past due nor impaired, past due not impaired and impaired. Once each loan risk is classified, specific provisions are constituted based on the estimated recovery of the principal. Maximum exposure to credit risk before credit guarantees and other credit enhancements: Maximum Exposure Loans Consumer US$ 5,565,869 US$ 5,633,758 Investments in securities Private debt securities US$ 27,739,055 US$ 42,015,418 Government debt securities 1,810,784 5,682,153 29,549,839 47,697,571 Plus: Accrued interest receivable 542, ,012 US$ 30,092,807 US$ 48,511,583 The following table contains the Bank loan portfolio that is exposed to the credit risk and its corresponding assessment: December 31 Neither past due nor impaired US$ 5,347,584 US$ 5,192,723 Past due but not impaired 189, ,858 Impaired 28,522 90,177 5,565,869 5,633,758 Allowance for loan losses (590,064) (646,067) US$ 4,975,805 US$ 4,987,

18 3. Financial Risk Management (Continued) Credit Risk (continued) Past due but not impaired loans Loans are considered as past due not impaired when the payments of capital and agreed contractual interest due are not received and/or within 120 days after the maturity of such payments. These loans are not considered impaired, unless other information is available to indicate the contrary. Gross amount of loans that were past due but not impaired is as follows: Past due not impaired: Up to 30 days US$ 114,881 US$ 197,146 Up to 60 days 55, ,768 Up to 120 days 19,643 33,944 US$ 189,763 US$ 350,858 To manage the financial risk exposures of the investment portfolio, the Bank uses the assessment of the external qualifiers (Moodys), as detailed as follows: Degree of qualification External qualification Investment grade AAA to BBB- Moderate risk BB+ to BB- High risk B+ to C The following detail analyzes the investment portfolio that is exposed to credit risk and its corresponding evaluation based on the degree of qualification: Private Government Debt Securities Debt Securities Total Investment grade US$ 27,739,055 US$ 1,810,784 US$ 29,549,839 December 31, 2012 Investment grade US$ 42,015,418 US$ 5,682,153 US$ 47,697,

19 3. Financial Risk Management (Continued) Credit Risk (continued) Past due but not impaired loans (continued) To manage the financial risk exposures of the cash in banks, the Bank uses the assessment of the external qualifiers, as detailed as follows: Investment grade US$ 208,276,011 US$ 229,002,829 Concentration of risk of financial assets with credit risk exposure The Bank monitors the credit risk concentration by economic sector and geographical location. This exposure has been classified according to the geographical location based on the country where the cash flows were generated to obtain the recovery of the liability and/or from which the return of the invested resources were obtained. The credit risk concentration analysis at the date of the financial statements is the following: Held to Available-for- Maturity Country Cash in Banks Sale Securities Investments Loans Brazil US$ 25,000,000 US$ 8,690,012 US$ 5,039,907 US$ 9,946 Canada ,027 Colombia - 1,810,784-4,742,703 Costa Rica ,184 Chile - - 8,943,146 3,003 El Salvador ,807 Mexico - - 2,990,520 2,111 Panama 174,740, ,112 Peru ,007 Puerto Rico ,505 Spain ,384 United States of America 8,535, ,943 Venezuela - 2,075,470-6,167 Others ,906 US$ 208,276,011 US$ 12,576,266 US$ 16,973,573 US$ 4,975,

20 3. Financial Risk Management (Continued) Credit Risk (continued) Concentration of risk of financial assets with credit risk exposure (continued) December 31, 2012 Held to Available-for- Maturity Country Cash in Banks Sale Securities Investments Loans Argentina US$ - US$ - US$ - US$ 2,726 Brazil - 18,085,353 5,069,819 10,152 Colombia - 1,959,596-4,763,761 Costa Rica ,749 Chile - 5,202,033 8,971,827 - El Salvador ,662 Mexico - - 2,986,425 13,425 Panama 184,816, ,427 Peru - 3,327,802-1,390 Puerto Rico ,803 Spain ,546 United States of America 44,186, ,394 Venezuela - 2,094,716-2,026 Others ,630 US$ 229,002,829 US$ 30,669,500 US$ 17,028,071 US$ 4,987,691 Liquidity Risk Liquidity risk is defined as the risk that the entity finds difficulties in obtaining the necessary funds to comply with commitments associated with its financial instruments. The liquidity risk can be the result of the inability to sell an asset rapidly for an amount close to its reasonable value. This risk is managed by keeping adequate liquidity levels in liquidity assets and with international banks, in addition to a system for managing liquidity risk. The Board of Directors has delegated some of its attributions in the Liquidity Committee, who, in accordance with the General Management, establishes policies and procedures for the adequate management of this risk, such as minimum liquidity levels, follow-up to the composition of the liabilities and concentration of the same, among others

21 3. Financial Risk Management (Continued) Liquidity Risk (continued) The methodology for measuring the liquidity risk of the different positions of the balance sheet, both assets and liabilities, involves projecting contractual future flows both of capital and of interest; some positions such as time deposits, are affected by the rollover indicator. The flows are located in defined bands of time and are calculated in relation to the difference between the assets and liabilities flows, obtaining the liquidity GAP for different time horizons, besides the liquidity accumulated GAP. The following table illustrates the liquidity GAP analysis: Under 1 1 to 3 3 to 12 More than Month Months Months 1 to 5 Years 5 Years Total (Expressed in US$) Assets Cash in banks 38,278,195 90,278,460 80,539, ,095,949 Available-for-sale-securities 121, , ,136 7,643,470 5,706,250 14,001,340 Held-to-maturity investments 118,750 67,500 4,626,250 14,146,250-18,958,750 Loans 536, ,530 2,693,033 2,255,471 12,148 6,439,613 39,054,876 91,490,474 88,186,713 24,045,191 5,718, ,495,652 Liabilities Deposits 154,392,126 20,381,261 42,764,168 2,893, ,431,355 Net Liquidity (115,337,250) 7,109,213 45,422,545 21,151,391 5,718,398 28,064,297 Under 1 1 to 3 3 to 12 More than Month Months Months 1 to 5 Years 5 Years Total (Expressed in US$) December 31, 2012 Assets Cash in banks 79,007,090 70,579,700 81,040, ,627,619 Available-for-sale-securities 263, , ,761 19,098,215 14,668,125 35,135,210 Held-to-maturity investments 118,750 67, ,250 18,958,750-19,771,250 Loans 548, ,147 2,751,941 2,304,807 12,510 6,580,570 79,937,380 72,056,081 85,078,781 40,361,772 14,680, ,114,649 Liabilities Deposits 164,496,218 5,554,414 36,987,201 48,618, ,656,174 Net Liquidity (84,558,838) 66,501,667 48,091,580 (8,256,569) 14,680,635 36,458,

22 3. Financial Risk Management (Continued) Market Risk Market risk is the risk that the Bank may suffer losses arising from fluctuations in interest rate risk, price risk and currency risk. The Board of Directors has determined that the definition, follow-up and control of general policies on management of assets and liabilities, and the assumption of market risk is verified by Assets and Liabilities Committee and Investments Committee, directly, which are composed for members of the Board of Directors and executive personnel of the Bank, these committees are responsible for the development of policies for market risks management, and also for checking and approving the adequate implementation of such policies. The main objective to manage market risk is to manage and monitor the investment portfolio and the different positions in the balance sheet exposed to market risks, and also to analyze the impact of new business strategies that the Bank wants to develop. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The exposure to interest rate risk is reviewed by Assets and Liabilities Committee. The table below summarizes the Bank s exposure to interest rate risks. Included in the table are the Bank s assets and liabilities at carrying amounts, categorized by the earlier of contractual reprising or maturity dates: 1 to 3 3 to 6 6 Months to 1 Year to More than Non-interest Months Months 1 Year 3 Years 3 Years Bearing Total (Expressed in US$) Assets Cash in banks 38,276,011 90,000,000 80,000, ,276,011 Available-for-sale securities ,576,266-12,576,266 Held-to-maturity investments ,090,542 7,883,031-16,973,573 Loans 108, , ,232 2,132,182 2,003,121-4,975,805 38,384,196 90,196,085 80,536,232 11,222,724 22,462, ,801,655 Liabilities Deposits 155,682,970 18,619,491 39,360,327 3,751,367-1,571, ,985,355 Total interest reprising gap (117,298,774) 71,576,594 41,175,905 7,471,357 22,462,

23 3. Financial Risk Management (Continued) Market Risk (continued) Interest rate risk (continued) 1 to 3 3 to 6 6 Months to 1 Year to More than Non-interest Months Months 1 Year 3 Years 3 Years Bearing Total (Expressed in US$) December 31, 2012 Assets Cash in banks 149,002,829 40,000,000 40,000, ,002,829 Available-for-sale securities ,669,500-30,669,500 Held-to-maturity investments ,028,071-17,028,071 Loans ,544,508 2,443,182-4,987, ,002,829 40,000,000 40,000,000 2,544,508 50,140, ,688,090 Liabilities Deposits 190,342,049 19,575,912 17,716,237 24,872,644-1,796, ,303,418 Total interest reprising gap (41,339,220) 20,424,088 22,283,763 (22,328,136) 50,140,753 The table below illustrates the sensitivity of the Bank s net income of reasonably possible changes in interest rates for the cash and cash equivalents and time deposits, loans, and deposits existing at the balance sheet dates: Interest income On bank deposits +1% US$ 1,950,000 US$ 1,800,000-1% (1,950,000) (1,800,000) On loans +1% 55,659 56,338-1% (55,659) (56,338) Interest expense On deposits +1% 2,189,854 2,545,841-1% (2,189,854) (2,545,841) Price risk It is the risk that the value of a financial instrument may fluctuate as a consequence of changes on the market prices, regardless if they are caused by specific factors related to the instrument in particular, or its issuer, or due to factors that affect all securities negotiated in the market

24 3. Financial Risk Management (Continued) Market Risk (continued) Price risk (continued) Price risk also includes covers the transfer and convertibility risks. There exists in every transaction where, due to legal provisions, the debtor or counterpart cannot transfer funds in the currency and place of payment stipulated in the operation regardless of the particular financial condition of the debtor. Currency Risk Currency risk is the risk which the fair value or future cash flows of a financial instrument fluctuates as a consequence of variations in the foreign currency exchange rates. The Bank uses several techniques for management of the risk exposure to currency risk, including investments in securities in other currencies, and others. The table below summarizes the Bank s exposure to foreign currency exchange risk at December 31. Included in the table are the Bank s financial instruments at carrying amounts, categorized by currency: Euros US$ Total Assets Cash in banks US$ 573,183 US$ 207,702,828 US$ 208,276,011 Available-for-sale securities 5,940,139 6,636,127 12,576,266 Held-to-maturity investments - 16,973,573 16,973,573 Loans, net - 4,975,805 4,975,805 Accrued interest receivable 221, , ,548 Other receivables and fixed assets , ,906 Total assets US$ 6,735,431 US$ 236,927,678 US$ 243,663,109 Liabilities Deposits US$ 6,137,321 US$ 212,848,034 US$ 218,985,355 Accrued interest payable 2,293 1,443,973 1,446,266 Other payables - 263, ,239 Total liabilities US$ 6,139,614 US$ 214,555,246 US$ 220,694,860 Net exposure to foreign currency exchange risk US$ 595,817 US$ 22,372,432 US$ 22,968,

25 3. Financial Risk Management (Continued) Currency Risk (continued) December 31, 2012 Euros US$ Total Assets Cash in banks US$ 500,092 US$ 228,502,737 US$ 229,002,829 Available-for-sale securities 5,888,566 24,780,934 30,669,500 Held-to-maturity investments - 17,028,071 17,028,071 Loans, net - 4,987,691 4,987,691 Accrued interest receivable 211,743 1,035,915 1,247,658 Other receivables and fixed assets , ,548 Total assets US$ 6,600,500 US$ 276,561,797 US$ 283,162,297 Liabilities Deposits US$ 6,548,729 US$ 247,754,689 US$ 254,303,418 Accrued interest payable 4, , ,588 Other payables - 54,382 54,382 Total liabilities US$ 6,553,085 US$ 248,758,303 US$ 255,311,388 Net exposure to foreign currency exchange risk US$ 47,415 US$ 27,803,494 US$ 27,850,909 At the net exposure to Euro is US$595,817 (2012: US$47,415), therefore, the risk is considered not significant for both years. The table below illustrates the sensitivity of the Bank s net income of a reasonably possible +/-0.47% (2012: +/-0.51%) change in foreign currency exchange rates: % Value % Value (3,843) (781) , The change in the sensitivity is regarding to the decrease in the volatility of the Euro. Capital Management The Bank s objectives when managing capital are: To continue as a going concern while maximizing the returns to shareholders through the optimization of the debt and equity balance. To maintain a strong capital base to support the development of its business. To ensure compliance with statutory and regulatory capital requirements to which the Bank is subject

26 3. Financial Risk Management (Continued) Capital Management (continued) The Bank is subject to various regulatory capital requirements administered by the Cayman Island Monetary Authority (CIMA). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank s 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, liabilities, and certain offbalance-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 components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain the higher of US$500,000 or a risk asset ratio of 12% (2012: 10%). The risk asset ratio and capital of the Bank as of are 27.45% (2012: 40.97%) or US$22,968,249 (2012: US$27,687,884). Management believes, as of and 2012, that the Bank meets all regulatory capital adequacy requirements established by CIMA. 4. Fair Value of the Financial Instruments The following methods and assumptions were used by the Bank in estimating fair value disclosures for financial statements: Financial instruments not measured at fair value in the balance sheet: a. Deposits Placed with Banks - The carrying value approximates fair value due to their short-term nature. Fair values are within level 2 of the fair value hierarchy. b. Held to maturity investments - Fair value for investments in securities classified as held-to-maturity investment are substantially based on quoted market prices or quotations of broker agents and financial institutions that are active in the market of the referenced values. Fair values are within level 1 of the fair value hierarchy

27 4. Fair Value of the Financial Instruments (Continued) Financial instruments not measured at fair value in the balance sheet: (continued) c. Loans Receivable - The fair value of loans is based on the present value of the future cash flows estimated to be collected. Those cash flows are discounted to the current rates for similar groups of loans. The fair values are within level 2 of the fair value hierarchy. d. Deposits (Liability) - The fair values for time deposits is estimated as the present value of the granted future cash flows using a discounted interest rate for deposits of similar maturities. The fair values are within level 2 of the fair value hierarchy. Carrying Fair Carrying Fair Value Value Value Value Assets Cash in banks US$ 208,276,011 US$ 208,276,011 US$ 229,002,829 US$ 229,002,829 Available-for-sale securities 12,576,266 12,576,266 30,669,500 30,669,500 Held-to-maturity investments 16,973,573 17,757,310 17,028,071 18,066,385 Loans, net 4,975,805 5,624,931 4,987,691 5,813,685 US$ 242,801,655 US$ 244,234,518 US$ 281,688,091 US$ 283,552,399 Liabilities Deposits Demand US$ 139,058,142 US$ 139,058,142 US$ 158,013,277 US$ 158,013,277 Savings 87,230 87, , ,490 Time 79,839,983 81,161,925 96,188,651 98,793,601 US$ 218,985,355 US$ 220,307,297 US$ 254,303,418 US$ 256,908,368 Financial instruments measured at fair value in the balance sheet: The Bank establishes a fair value hierarchy that categorizes into three levels of input data valuation techniques used to measure fair value: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities to which the Bank can access at the measurement date. Level 2: At this level the valuation techniques maximize the use of observable market data where it is available and specific estimates of the entity is used as little as possible. If the required inputs are observable this title is classified as Level 2 in the fair value hierarchy. Level 3: The classification in the fair value hierarchy is performed on 3 levels, taking into account the inputs used and giving the highest priority to the prices used in the market. The level at which each instrument is located is determined based on the lowest level input that is significant used for valuation. It is considered as Level 3 in the fair value hierarchy of instruments that use unobservable inputs in the market

28 4. Fair Value of the Financial Instruments (Continued) Financial instruments measured at fair value in the balance sheet: (continued) This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valuations where possible: Level 1 Level 2 Level 3 Total Available-for-sale securities Public debt US$ 73,718 US$ 1,737,066 US$ - US$ 1,810,784 Other institution 8,690,012 2,075,470-10,765,482 US$ 8,763,730 US$ 3,812,536 US$ - US$ 12,576,266 Level 1 Level 2 Level 3 Total December 31, 2012 Available-for-sale securities Public debt US$ 5,682,154 US$ - US$ - US$ 5,682,154 Other institution 22,892,630 2,094,716-24,987,346 US$ 28,574,784 US$ 2,094,716 US$ - US$ 30,669,500 In 2013, the Bank transferred public debt from level 1 into level 2. This is because market conditions changed for investment value, quoted prices in active markets were no longer available. Fair value measurement Level 1 The fair value of financial instruments trade in active markets is based on third party, Infovalmer, provider prices. Infovalmer get the current bid price of the securities using primary data sources, such as Reuters, Bloomberg, Market, and Telekurse. These sources determine these prices based on the quality and frequency of each contributor at the balance sheet date. Fair value measurement Level 2 The fair value of financial instruments that are not traded in active market is determined by quoted prices for similar assets or liabilities in active markets, quotes for identical or similar assets or liabilities in markets that are not active or other valuation techniques where all significant inputs data are directly or indirectly observable market prices

29 5. Critical Accounting Estimates and Judgments in Applying Accounting Policies The Bank s financial statements include estimates performed by the Bank s management to quantify some of the assets, liabilities, revenues, expenses and commitments included in the balance sheet. The main estimates and assumptions made in preparing the financial statements are the following: Impairment Losses on Loans and Advances The Bank reviews its loan portfolio to assess impairments on a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes estimates as to whether there is any observable information indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. Evidence may include observable information indicating that there has been an adverse change in the payment status of borrowers in a bank, or national or local economic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. 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. Fair value of financial instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Bank uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. 6. Related Party Transactions The balances and transactions performed with related parties for the years ended December 31, are as follows: a. Parent Company Balance sheet Cash in banks US$ 174,764,543 US$ 154,806,

30 6. Related Party Transactions (Continued) a. Parent Company (continued) Balance sheet (continued) Loans US$ 8,612 US$ 9,600 Accrued interest receivable US$ 207,524 US$ 430,504 Other receivables US - US$ 225,699 Other payables US$ 1,436 US$ - Statement of income Interest income US$ 1,953,738 US$ 2,091,826 Interest expense US$ - US$ 51,495 b. Key management compensation Key management compensation US$ 56,739 US$ 32,265 c. Related Parties Others Group Companies Balance Sheet Cash in banks US$ - US$ 1,491,708 Loans US$ 10,104 US$ 5,648 Deposits US$ 14,565,368 US$ 24,902,714 Statement of Income Interest income US$ 20,303 US$ 174,943 Interest expense US$ 91,470 US$ 91,909 Commissions expense US$ 57,716 US$ 59,

31 6. Related Party Transactions (Continued) On a monthly basis, the Bank pays a management fee to Sistema de Inversiones y Negocios, S. A. (subsidiary of the parent company) based on a 0.01% (2012: 0.01%) of treasury funds and the loan portfolio based on 0.4% (2012: 0.4%). (See Note 16). 7. Cash in Banks Cash in banks comprises the following balances: Demand deposits US$ 13,276,011 US$ 49,002,829 Time deposits 195,000, ,000, ,276, ,002,829 Less: Time deposit with original maturities greater than 90 days (80,000,000) (80,000,000) Cash and cash equivalents for the purpose of statement of cash flows US$ 128,276,011 US$ 149,002,829 Time deposits are agreed at fixed interest rate ranging from 0.19% to 1.34% (2012: from 0.25% to 1.85%). 8. Investment Securities Available-for-sale Securities The available-for-sale securities are detailed as follows: Net Interest Amortized Unrealized Fair Rate Maturity Cost Gain Value Government debt 8.25% to various until US$ 1,627,609 US$ 183,175 US$ 1,810, % to January 2016 Private debt 4.50% to various until 5.65% to March ,518, ,161 10,765,482 US$ 12,145,930 US$ 430,336 US$ 12,576,

32 8. Investment Securities (Continued) Available-for-sale Securities (continued) Net Interest Amortized Unrealized Fair Rate Maturity Cost Gain Value December 31, 2012 Government debt 5.88% to various until US$ 5,037,517 US$ 644,637 US$ 5,682, % to January 2019 Private debt 3.75% to various until 5.65% to March ,305,081 1,682,265 24,987,346 US$ 28,342,598 US$ 2,326,902 US$ 30,669,500 Held-to-maturity Investments Amortized Cost Other institutions US$ 16,973,573 US$ 17,028,071 Annual interest rates for held-to-maturity investments range from 4.50% to 5.37% (2012: 4.50% to 5.37%), and the latest maturity date is January 2018 (2012: January 2018). The movement of investment securities for the year ended December 31 is summarized below: Available- Held to Available- Held to for-sale Maturity for-sale Maturity Balance at January 1 US$ 30,669,500 US$ 17,028,071 US$ 41,785,592 US$ 20,613,384 Additions - - 9,981,000 - Sales and redemptions (16,196,668) (54,498) (23,191,426) (3,585,313) Net change in fair value (1,896,566) - 2,094,334 - Balance at December 31 US$ 12,576,266 US$ 16,973,573 US$ 30,669,500 US$ 17,028,071 The fair values are obtained from a recognized pricing source and quotations obtained from financial institutions active in the referenced values

33 8. Investment Securities (Continued) Unrealized gain (loss) on valuation of available-for-sale securities: Balance at January 1 US$ 2,326,902 US$ 232,568 Net (loss) gain from changes in fair value (1,664,109) 2,710,515 Net gain transferred to profit/loss on disposal (232,457) (616,181) Net movement during the year (1,896,566) 2,094,334 Balance at December 31 US$ 430,336 US$ 2,326, Loans Loans classification is as follows: Consumer US$ 5,565,869 US$ 5,633,758 Less allowance for loan losses (590,064) (646,067) Loans, net US$ 4,975,805 US$ 4,987,691 Loans consist of credit card loans. Repayments should be made in the month following the charges generated by the cardholder, based on a required minimum payment ranging from 5% to 10% of the outstanding balance of the cardholder. All loans have fixed rates. Nominal interest rate on the loans is 16.8% (2012: 16.8%). A summary of the transactions in the allowance for loan losses is as follows: Balance at January 1 US$ 646,067 US$ 780,917 Provision charged to operations 296, ,768 Loans written-off (352,648) (309,618) Balance at December 31 US$ 590,064 US$ 646,

34 10. Deposits Deposits from customers are detailed as follows: Demand US$ 139,058,142 US$ 158,013,277 Savings 87, ,490 Time deposits 79,839,983 96,188,651 US$ 218,985,355 US$ 254,303,418 All time deposits have fixed interest rates ranging from 0.05% to 4.25% (2012: from 0.05% to 4.9%). 11. Share Capital Share capital is comprised as follows: Face Value Shares Amount Shares Amount Authorized, issued and fully paid US$1.00 each 20,000,000 US$ 20,000,000 20,000,000 US$ 20,000,000 General Shareholders Meeting on May 31 st, 2013 approved to pay dividends for an amount of US$5,000,000 (US$0.25 per share). 12. Capital Reserve General Shareholders Meeting on May 31st, 2013 approved to transfers to an account named Capital Reserve the amount of US$234,934 based on the issue by the Treasury Office in Colombia of Decree 1771 of 2012, which rules the matter of credit establishment s solvency in the Country and applicable to Bancolombia, S. A. parent company of Bancolombia (Panama), S. A. and Bancolombia Cayman

35 13. Other Recoveries (Provisions), Net Other recoveries (provision) US$ 6,408 US$ (6,408) Recoveries of Provision 60,884 98,945 Sundry provision - Claims (240,995) (398,499) US$ (173,703) US$ (305,962) During 2013, the Bank had a recovery of provision for claims related to the worldwide fraud with credit card issue for US$60,884 (2012: US$98,945). 14. Commissions and Other Income A detail of commissions and other income are as follows: Fees and commission income: Wire transfer US$ 502,694 US$ 484,084 Others 30,465 47,319 US$ 533,159 US$ 531,403 Other operating (expense) income, net: (Loss) gain on currency exchange US$ (60,241) US$ 409,909 Other income (loss) 67,399 (28,290) US$ 7,158 US$ 381, Net Gain on Sale of Securities The following table details net gain on sale of securities available-for-sale: Net realized gain (loss) on instruments US$ 15,801 US$ (109,698) Realized gain on sale of securities available-for-sale (Note 8) 232, ,181 US$ 248,258 US$ 506,