The following table and information sets forth the names of the executive officers of the Bank and their respective positions as of the date hereof and positions held by them with the Bank and other entities in prior years:
Jaime Rivera has served as Chief Executive Officer of the Bank since January 2004. He was Chief Operating Officer of the Bank since March 2002. Previously, Mr. Rivera was employed by the Bank of America in various capacities since 1978, including: Managing Director of the Latin America Financial Institutions Group in Miami and at the Latin America Corporate Finance team in New York, as General Manager in Brazil, Argentina and Uruguay, as Credit and Marketing Manager in Chile and as Manager of Latin America Information Systems in Venezuela. Mr. Rivera has also held Board positions with the Council of the Americas, the Florida International Bankers’ Association and the Latin American Agribusiness Development Corporation.
Rubens V. Amaral Jr. became Chief Commercial Officer of the Bank in March 2004. He worked for Banco do Brasil, New York Branch as General Manager and Managing Director for North America since 2000. Mr. Amaral has been employed by Banco do Brasil in various capacities since 1975, holding the positions of Managing Director, International Division and alternate member of the board of directors in 1998, Executive General Manager of the International Division in Sao Paulo from 1994 to 1998, Deputy General Manager in the New York branch in charge of the Trade Finance & Correspondent Banking Department, Head of Staff of the International Division from 1993 to 1994 and Advisor, Head of Department and General Manager in the Trade Finance Area at the International Division – Head Office, from 1989 to 1993. Mr. Amaral also served as a representative for the Central Bank of Brazil from 1982 to 1988 in banking supervision.
Ernesto A. Bruggia became Chief Operations Officer of the Bank in July 2004. Mr. Bruggia served as Chief Executive Officer of Banco de la Provincia de Buenos Aires (“BPBA”) from 1999 to 2004 and as Chief Executive Officer of Grupo BAPRO (holding company of BPBA) from 1998 to 2004.
Mr. Bruggia has been employed by BPBA in various capacities since 1976, including: as Assistant General Manager from 1993 to 1999, as Finance and International Relations Manager from 1992 to 1993, as International Operations Manager from 1990 to 1992, as Deputy Manager in charge of International Operations from 1989 to 1990, as Deputy Manager in charge of the International Division in 1985 and as Chief of International Audit in 1983. Mr. Bruggia began his career with BPBA in 1976 in its Stock Exchange Department.
Miguel Moreno has served as Senior Vice President, Controller of the Bank since September 2001. He was a partner and Information Technology Consulting Manager for PriceWaterhouse, Bogotá, Colombia from 1988 to 2001 and served as Vice President of Information Technology and Operations for Banco de Credito, Bogotá, Colombia from 1987 to 1988. Mr. Moreno served as Chief Executive Officer, TM Ingeniería, Bogotá, Colombia, from 1983 to 1987 and as Chief Executive Officer, ICDS Ltd., Bogotá, Colombia, from 1982 to 1987. He was the Head of the Industrial Engineering Department, Los Andes University, Colombia, from 1982 to 1984. Mr. Moreno was employed by SENA, Organization and Systems Office and Planning Consulting, Colombia from 1977 to 1981 and worked for the Finance and Public Credit Ministry of Colombia, as Advisor to the Minister from 1976 to 1977.
Gregory Testerman has served as Senior Vice President of Treasury of the Bank since January 2005. Mr. Testerman worked for Banco Santander Central Hispano, S.A. from 1986 to 2003 in various capacities, including: as General Manager, Miami Agency, from 1999 to 2003, as General Manager, Tokyo Branch, and Country Manager in Japan from 1995 to 1999, as Vice President, Head of Financial Control, Benelux & Asia Pacific, from 1991 to 1995, as Second Vice President, Special Credit Valuation Assignment, London Branch, in 1991, as Second Vice President, Treasury Operations Manager, Belgium, from 1989 to 1991 and as Second Vice President, Management Reporting, Belgium, from 1986 to 1989. Mr. Testerman began his career with The Chase Manhattan Bank, N.A. as Assistant Treasurer in Belgium in 1986 and as part of the Corporate Controllers Development Program in New York from 1984 to 1986.
Ana Maria de Arias has served as Senior Vice President of Human Resources and Corporate Operations of the Bank since June 2004. Prior to her employment by the Bank, she served as Vice President of Human Resources of Banco General, S.A., Panama, from 2000 to 2004 and as Assistant Vice President of Human Resources, from 1999 to 2000. Prior to that she was employed by the Panama Canal Commission, Panama, in various capacities from 1990 to 1999.
Carlos Yap S. has served as Senior Vice President, Finance, of the Bank since July 2002. Mr. Yap previously served as Vice President, Finance, of the Bank from 1993 to 2002. Prior to this position, Mr. Yap worked for the Bank in the departments of Institutional Planning, Treasury, Correspondent International Banking and Capital Markets from 1980 to 1993. Prior to his employment by the Bank, Mr. Yap worked for Banco Nacional de Panama in its Credit Department from 1979 to 1980, Azucarera Nacional, S.A. and the Panama Canal Company from 1977 to 1979.
Miguel Kerbes has served as Senior Vice President, Risk Management, of the Bank since July 2002. Mr. Kerbes previously served as Vice President, Risk Management, of the Bank from 2000 to 2002. He was the Assistant Credit Director for the Southern Cone Area of Banco Santander-Chile from 1995 to 2000. Mr. Kerbes also served as the Head of Credit Division at Banco Boston Chile from 1992 to 1995 and was employed by ING Bank in various capacities from 1982 to 1992.
Joaquín Uribe has served as Senior Vice President, Process Engineering and Technology of the Bank since July 2004. Mr. Uribe previously served as Senior Vice President, Processes, Technology and Operations, of the Bank since September 2001. He was previously employed by Citibank Colombia in various capacities from 1997 to 2001, including: Senior Country Operations Officer – Corporate and Consumer Banking from 2000 to 2001, Country Operations Officer – Consumer Banking from 1998 to 2000, and V.P. – Head of Technology – Consumer Banking from 1997 to 1998. Mr. Uribe was employed by UNISYS Corporation, Colombia from 1987 to 1997 and held the position of Information Services Manager for System Integration and Project Quality Office. Mr. Uribe also served as the Director of the Data Processing Center and Professor of the Colombian School of Engineering from 1981 to 1987.
65
6.B Compensation
Cash Compensation
The aggregate amount of cash compensation paid by the Bank during the year ended December 31, 2004 to the executive officers of the Bank as a group for services in all capacities was $3,146,958. During the fiscal year ended December 31, 2004, the Bank accrued, and in February 2005, paid performance-based bonuses to the Bank’s executive officers in the aggregate amount of $861,000. At December 31, 2004, the total amount set aside or accrued by the Bank to provide pension, retirement or similar benefits for executive officers was approximately $600,000.
The Board revised the compensation of the directors on July 19, 2003. As part of the revised compensation plan each non-employee director of the Bank is eligible to receive an annual amount of up to $30,000 for services as a director and an additional amount of $1,500 for each meeting of the Board and each meeting of stockholders attended, and $1,000 for each Board Committee meeting attended. The Chairman of the Board is eligible to receive an additional 50% of the compensation that other directors are eligible to receive. The Chairman of each Committee of the Board is eligible to receive an additional amount of $500 for each Board Committee meeting attended. The aggregate amount of cash compensation paid by the Bank during the year ended December 31, 2004 to the directors of the Bank as a group for their services as directors was $565,000.
Share Compensation and Ownership
On October 13, 1995, the Board adopted a stock option plan (the “1995 Stock Option Plan”) authorizing the Bank to grant to eligible executive officers and employees stock options of up to an aggregate of 300,000 Class E shares. The 1995 Stock Option Plan provides that options may be granted at an exercise price equal to the fair market value of the Class E shares on the date of the grant of the option. On October 1, 1999, the Board adopted an additional stock option plan (the “1999 Stock Option Plan”) authorizing the Bank to grant to eligible executive officers and employees stock options on up to an aggregate of 350,000 Class E shares. The 1999 Stock Option Plan provides that options may be granted at an exercise price equal to the fair market value of the Class E shares on the date of the grant of the option. Participants in the 1999 Stock Option Plan who remain employed will become fully vested in their options four years from the date of grant. Options granted under both the 1995 Stock Option Plan and the 1999 Stock Option Plan remain outstanding for a period of 10 years unless sooner forfeited.
On July 19, 2003, the Board decided to discontinue the 1995 Stock Option Plan and the 1999 Stock Option Plan.
The following table sets forth information regarding the stock options granted under the 1995 Stock Option Plan and the 1999 Stock Option Plan since the inception of these plans. Each exercise price listed below is equal to the fair market value of the Class E shares on the dates on which the options related thereto were granted under the plans.
Date of Grant | Number of shares | Exercise Price |
October 13, 1995 | 90,000 | $41.56 |
January 31, 1997 | 70,000 | $51.19 |
February 6, 1998 | 70,000 | $42.56 |
February 4, 1999 | 70,000 | $23.03 |
February 4, 2000 | 70,000 | $23.16 |
February 6, 2001 | 70,000 | $32.88 |
As of December 31, 2004, 62,766 Class E shares had been purchased through the exercise of stock options granted under the 1995 Stock Option Plan and the 1999 Stock Option Plan.
66
Deferred Equity and Deferred Compensation Plans
In addition, in 1999, the Board approved the adoption of two employee stock programs, the Deferred Equity Unit Plan (the “DEU Plan”) and the Deferred Compensation Plan (the “DC Plan”). Each of these plans were implemented in the year 2001 and subsequently terminated in July 2003. While awards are no longer being granted under these plans, as of December 31, 2004, an aggregate number of 122 and 28,351 deferred equity units, representing the right to acquire the same number of Class E shares or the economic equivalent thereof, had been granted to eligible employees of the Bank and were outstanding under the DEU Plan and the DC Plan, respectively.
Pursuant to the DEU Plan, the vesting period is generally three years from the date of purchase as to 50% of the deferred equity units and five years from the date of purchase as to the remaining 50% of the deferred equity units. In certain circumstances, participants will have the opportunity to continue to vest in deferred equity units after termination of employment. Payments in respect of deferred equity units are made after vesting. Participating employees will receive dividend equivalents with respect to their vested deferred equity units and will receive additional deferred payments (which will vary depending on the performance of the Class E shares) if and after the underlying deferred equity units vest.
Pursuant to the DC Plan, employees will vest in the deferred equity units after three years of service (which includes past service with the Bank). Subject to certain acceleration events, distributions will be made in respect of deferred equity units on the later of (i) the date the vested deferred equity units are credited to an employee’s account and (ii) 10 years after the employee is first credited with deferred equity units under the DC Plan. Participating employees will receive dividend equivalents with respect to their vested deferred equity units and will receive additional deferred payments (which will vary depending on the performance of Class E shares) if and after the underlying deferred equity units vest. The second component of the DC Plan allows employees who are not citizens or residents of the United States to defer a percentage of their compensation, and receive a discretionary, matching cash contribution. In no event shall the value of (i) the discretionary, matching cash contribution made on behalf of an employee and (ii) the grant of deferred equity units made to such employee exceed 6% of the employee’s annual compensation.
Board Plan
In 2000, the Board of Directors adopted a stock option plan (the “Board Plan”) for the non-employee directors of the Bank, which, as of July 2003, has been discontinued. Pursuant to the Board Plan, Directors will fully vest in their options on the one-year anniversary of the date of grant and such options may be exercised at any time thereafter, up to the fifth anniversary of the date of grant. All directors must pay the exercise price in cash, except that the Board of Directors may determine, in its discretion, to allow payment of the exercise price in Class E shares. Except in the case of death or disability, all unvested options of a grantee will be forfeited upon the termination of such grantee’s services as a director of the Bank. As of December 31, 2004, stock options with respect to 2,584 Class E shares had been granted by the Board of Directors under the Board Plan at an exercise price of $32.88 per Class E share. The Board of Directors granted all of these stock options on February 6, 2001. As of the date hereof, none of the stock options granted by the Board of Directors under the Board Plan have been exercised.
Indexed Stock Option Plan
On April 13, 2004, the Board approved an indexed stock option plan (the “Indexed Stock Option Plan”) for officers and directors, which provides indexed options on Class E shares with the exercise price indexed to a customized Latin American general market index. The exercise price under the Indexed Stock Option Plan is adjusted based on the change in the customized index. The option term is seven years, and there is cliff vesting after four years. The number of shares on which options are granted is calculated using the Black-Scholes derived value of the options or other method approved by the Board. Under the terms of the Indexed Stock Option Plan, non-employee directors will be awarded options annually to purchase Class E shares having a Black-Scholes derived value of $10,000 ($15,000 in the case of the Chairman of the Board).
67
Officers will be awarded options under the Indexed Stock Option Plan at the discretion of the Board. It is the intention of the Board to award options to officers on an annual basis. As of December 31, 2004, indexed options with respect to 17,426 and 167,410 Class E shares had been granted to directors and officers, respectively, by the Board under the Indexed Stock Option Plan.
Board Restricted Stock Plan
In 2003, the Board adopted the Board Restricted Stock Plan for the non-employee directors of the Bank. Under the Board Restricted Stock Plan, each non-employee director of the Bank is awarded annually a number of shares of Class E common stock equal to the number that results from dividing $10,000 ($15,000 in the case of the Chairman of the Board) by the market price of a Class E share on the date the award is made. Directors receiving shares of restricted stock under the plan have all the rights of stockholders of the Bank (including voting and dividend rights), except that all such shares are subject to restrictions on transferability. The restrictions placed on the shares awarded under the Board Restricted Stock Plan will lapse on the fifth anniversary of the award date. If a director’s service with the Bank is terminated for cause, the shares that then remain subject to restrictions will be forfeited. However, the restrictions will immediately lapse on all shares granted to a director in the event of the termination of the director’s service with the Bank due to death, disability, or for any other reason other than termination for cause. Dividends on the restricted shares are held by the Bank until the restrictions lapse, and if the restricted shares are forfeited, any dividends relating to those shares are forfeited. During 2003, 9,547 Class E shares were issued to non-employee directors under the Board Restricted Stock Plan and compensation expense charged against income in 2003 relating to such issuance was $94,993. During 2004, 6,242 Class E shares were issued to non-employee directors under the Board Restricted Stock Plan and compensation expense charged against income in 2004 relating to such issuance was $94,878.
Defined Contribution Plan for Expatriate Officers
The Bank sponsors a defined contribution plan for its expatriate officers. The Bank’s contributions are determined as a percentage of the eligible officer’s annual salary, with each officer contributing an additional amount withheld from his salary and deposited in a savings account with the Bank, earning interest at market rates. During the years 2004, 2003 and 2002, the Bank charged to salaries expense $178,626, $139,934 and $118,900, respectively, with respect to this plan. As of December 31, 2004 and 2003, the accumulated liability payable under this contribution plan amounted to $356,369 and $571,755, respectively.
Shares Held by Directors and Officers
As of December 31, 2004, the Bank’s executive officers, directors, and Advisory Council members, as a group, owned an aggregate of 31,390 Class E shares, which was approximately 0.1% of all issued and outstanding Class E shares.
The following tables set forth information regarding the number of shares owned by the Bank’s executive officers and options and rights held under each of the DEU Plan, the DC Plan, the 1995 Stock Option Plan, the 1999 Stock Option Plan and the Indexed Stock Option Plan, as of December 31, 2004.
68
Name and Position of
Executive Officer | Number of
Shares
Beneficially
Owned as of
Dec. 31, 2004 | Number of
Shares that
may be
Acquired
within 60 Days
of Dec. 31, 2004 | Options under
1995 Stock
Option Plan | Options under
1999 Stock
Option Plan | Rights under
DEU Plan | Rights under
DC Plan | Options under
Indexed Stock
Option Plan 1 |
| | | | | | | | | | | | | | |
Jaime Rivera
Chief Executive Officer | 1,400 | | 0 | | 0 | | 0 | | 0 | | 0 | | 102,436 | |
| | | | | | | | | | | | | | |
Rubens V. Amaral Jr. 2
Chief Commercial Officer | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 67,522 | |
| | | | | | | | | | | | | | |
Ernesto A. Bruggia
Chief Operations Officer | 1,400 | | 0 | | 0 | | 0 | | 0 | | 0 | | 102,436 | |
| | | | | | | | | | | | | | |
Miguel Moreno
Senior Vice President
Controller | 0 | | 0 | | 0 | | 0 | | 0 | | 597 | | 20,486 | |
| | | | | | | | | | | | | | |
Christopher E. D. Hesketh 3
Former Senior Vice President
Treasury | 1,630 | | 34,250 | | 25,433 | | 11,150 | | 0 | | 855 | | 0 | |
| | | | | | | | | | | | | | |
Ana Maria de Arias
Senior Vice President
Human Resources and
Corporate Operations | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 13,931 | |
| | | | | | | | | | | | | | |
Carlos Yap S
Senior Vice President
Finance | 0 | | 32,397 | | 21,905 | | 10,492 | | 0 | | 545 | | 17,482 | |
| | | | | | | | | | | | | | |
Miguel A. Kerbes
Senior Vice President
Risk Management | 0 | | 3,750 | | 0 | | 3,750 | | 0 | | 621 | | 17,755 | |
| | | | | | | | | | | | | | |
Joaquín Uribe
Senior Vice President
Process Engineering and Technology | 0 | | 0 | | 0 | | 0 | | 0 | | 464 | | 15,980 | |
|
1 Includes an aggregate number of 118,615 indexed options granted to executive officers on February 1, 2005. On the same date, an aggregate number of 18,415 indexed options were granted to other non-executive officers under the Indexed Stock Option Plan. |
2 Mr. Amaral resigned as a director of the Bank effective February 4, 2004, in connection with becoming an executive officer of the Bank. As a director, Mr. Amaral was granted 304 options under the Board Plan, which he still holds. |
3 13,927 indexed options granted to Mr. Hesketh in 2004 under the Indexed Stock Option Plan were forfeited in January 2005 as a result of Mr. Hesketh’s resignation as Senior Vice President-Treasury of the Bank, effective January 1, 2005. |
In addition, as of the date hereof, there are 2,263 rights outstanding under the DC Plan that were granted to former executive officers of the Bank.
The following table sets forth information regarding ownership of the Bank’s shares by members of its Board, restricted shares held under the Board Restricted Stock Plan and options received under the Board Plan and the Indexed Stock Option Plan, as of December 31, 2004.
69
Name of Director | | Number of Shares
Beneficially Owned
as of December 31,
2004 1 | | Number of Shares
that may be
Acquired within
60 days of
Dec.31, 2004 | | Options under
the Board
Plan | | Options under
Indexed Stock
Option Plan 2 | | Restricted Shares
held under Board
Restricted Stock
Plan |
| | | | | | | | | | |
Maria da Graça França 3 | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Guillermo Güémez García 4 | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Santiago Perdomo Maldonado | | 1,662 | | | 0 | | | 0 | | | 3,821 | | | 1,662 | |
Will C. Wood | | 4,162 | | | 304 | | | 304 | | | 3,821 | | | 1,662 | |
Mario Covo | | 1,662 | | | 304 | | | 304 | | | 3,821 | | | 1,662 | |
Herminio Blanco | | 657 | | | 0 | | | 0 | | | 3,821 | | | 657 | |
William Hayes | | 2,657 | | | 0 | | | 0 | | | 3,821 | | | 657 | |
Alexandre Lodygensky Jr. | | 657 | | | 0 | | | 0 | | | 3,821 | | | 657 | |
Gonzalo Menéndez Duque | | 2,493 | | | 304 | | | 304 | | | 5,733 | | | 2,493 | |
|
1 Includes Class E shares held under the Board Restricted Stock Plan. |
2 Includes an aggregate number of 15,054 indexed options granted to directors on February 1, 2005. |
3 An aggregate of 657 Class E shares corresponding to Mrs. França’s entitlement under the Board Restricted Stock Plan have been issued to her employer, Banco do Brasil. In addition, an aggregate of 3,821 indexed options to which Mrs. França was entitled under the Indexed Stock Option Plan have been granted to Banco do Brasil. |
4 An aggregate of 1,662 Class E shares corresponding to Mr. Güémez’s entitlement under the Board Restricted Stock Plan have been issued to his employer, Banco de Mexico. |
In addition, as of the date hereof, there are 1,368 options outstanding under the Board Plan that were granted to former directors.
For additional information regarding stock options granted to executive officers and directors, see Note 15 to the Consolidated Financial Statements.
Certain directors of the Bank are executive officers of banks and/or other financial institutions located in Latin America, the Caribbean and elsewhere. Some of these banks and/or other financial institutions own shares of the Bank’s common stock and have entered into loan transactions with the Bank in the ordinary course of business. The terms and conditions of such loan transactions, including interest rates and collateral requirements, are substantially the same as the terms and conditions of comparable loan transactions entered into with other persons under similar market conditions. As a matter of policy, directors of the Bank do not participate in the approval process for credit facilities extended to institutions of which they are executive officers or directors nor do they participate with respect to decisions regarding country exposure limits in countries in which such institutions are domiciled.
6.C Board Practices
Corporate Governance
The Bank has included the information regarding its corporate governance practices necessary to comply with Section 303A of the New York Stock Exchange’s Listed Company Manual/Corporate Governance Rules on its website (www.blx.com). In addition, The Bank’s website (under “Corporate Governance”) provides a summary of the significant differences between Corporate Governance practices commonly used by the Bank and other public companies in Panama and the NYSE Standards for U.S. domestic companies.
70
The following table sets forth the names and countries of citizenship of the Bank’s dignatarios, as of the date hereof, their current office or position with other institutions and their current office or position with the Bank. Dignatarios are elected annually by the members of the Board. Dignatarios attend meetings of the Board, participate in discussions and offer advice and counsel to the Board, but do not have the power to vote (unless they are also directors of the Bank).
Name | | Country of
Citizenship | | Position held by Dignatario
with the Bank |
| | | | |
Gonzalo Menéndez Duque 1
Director
Banco de Chile | | Chile | | Chairman of the Board |
| | | | |
Jaime Rivera
Chief Executive Officer
Bladex | | Guatemala | | Chief Executive Officer |
| | | | |
Maria da Graça França 2
Head of North America and General Manager
(New York Office)
Banco do Brasil | | Brazil | | Treasurer |
| | | | |
Ricardo Manuel Arango
Partner
Arias, Fábrega & Fábrega | | Panama | | Secretary |
|
1 Mr. Gonzalo Menéndez Duque was re-elected Chairman in April 2005 by the Board. |
2 Mrs. Maria da Graça França was appointed Treasurer in April 2005 by the Board. |
Committees of the Board of Directors
The Board, pursuant to the powers granted to it under the Bank’s Articles of Incorporation, has established several committees to delegate its oversight duties in respect of the Bank’s operations. These committees are: the Audit Committee, the Credit Policy and Risk Assessment Committee, the Nomination and Compensation Committee and the Assets and Liabilities Committee. The Board has decided not to constitute a corporate governance committee. Given the importance of corporate governance, the Board has decided to address all matters relating thereto in plenary meetings of the Board.
During the fiscal year ended December 31, 2004, the Board held seven meetings. On average, directors attended approximately 97% of the total number of Board meetings held during the fiscal year ended December 31, 2004.
The following table sets forth the four Committees established by the Board, the current number of members of each Committee and the total number of meetings held by each Committee during the fiscal year ended December 31, 2004:
Committee | Number of members | Total number of
meetings held |
| | |
Audit Committee | 4 | 9 |
Credit Policy and Risk Assessment Committee | 5 | 4 |
Assets and Liabilities Committee | 5 | 4 |
Nomination and Compensation Committee | 4 | 4 |
71
Audit Committee
The Audit Committee is a standing Committee of the Board. According to its Charter, the Audit Committee must be comprised of at least three independent directors. At December 31, 2004, the members of the Audit Committee were Will C. Wood (Chairman of the Committee), Alexandre Lodygensky Jr., Gonzalo Menéndez Duque and Santiago Perdomo Maldonado.
As of April 19, 2005, the members of the Audit Committee are Will C. Wood (Chairman of the Committee), Gonzalo Menéndez Duque and Santiago Perdomo Maldonado.
All members of the Audit Committee must be independent directors, as determined by the Board, and at least one director must be a financial expert. No member of the Audit Committee can be an employee of the Bank. The Board has determined that all members of the Audit Committee are independent and that at least one of its members is a financial expert. The Audit Committee’s financial expert is Gonzalo Menéndez Duque.
The Audit Committee is required to meet at least six times a year, pursuant to the requirements of the Superintendency of Banks of Panama, or more often if the circumstances so require. During the fiscal year ended December 31, 2004, the Audit Committee met nine times.
The Audit Committee reviewed and recommended to the Board that the Audited Consolidated Financial Statements of the Bank for the year ended December 31, 2004 be included in the Bank’s Annual Report. The Audit Committee also recommended to the Board that it retain KPMG as its external independent auditors for the fiscal year ending December 31, 2005. The aggregate amounts of fees paid by the Bank to its independent auditors in connection with external audit and audit related services for the fiscal year ended December 31, 2004 were approximately $356,225 and for non-audit services was approximately $117,324. For additional information see “Principal Accountant Fees and Services”.
According to its Charter, the Audit Committee’s main oversight responsibilities include the following:
| • | The Audit Committee is directly responsible for the appointment, compensation, supervision and, whenever necessary, make replacements of the Bank’s external independent auditors. |
| | |
| • | Review the scope and plan of the independent audit, approve the type of services (including non-audit services) to be rendered by the independent auditors and the fees to be paid, and monitor the independence of the external auditors. |
| | |
| • | Review the accounting policies used in the preparation of the Bank’s Consolidated Financial Statements, the quality of the accounting principles used and any significant accounting developments and issues and possible impact of any substantial changes. |
| | |
| • | Review, together with management and independent auditors, the Bank’s interim Consolidated Financial Statements, the annual Consolidated Financial Statements, the annual report on Form 20-F and any financial information, which is to be released to the public. |
| | |
| • | Review, together with management, the adequacy of the Bank’s system of internal controls to assure the integrity of financial reporting, safeguarding of assets and compliance with laws and regulations. |
| | |
| • | Review with management to satisfy itself that management has appropriate procedures, practices and processes in place to reasonably assure adherence to policies and limits relating to the assumption of risks, and that the risks assumed by the Bank are appropriately reflected in the books and records. |
| | |
| • | Review the Bank’s compliance with its Code of Ethics. |
72
| • | Review and evaluate the adequacy of the work performed by the Controller, the Chief Auditor and the Compliance Officer. |
The Charter of the Audit Committee requires an annual self-evaluation of the Committee’s performance.
Credit Policy and Risk Assessment Committee
The Credit Policy and Risk Assessment Committee is a standing Committee of the Board. The members of the Credit Policy and Risk Assessment Committee at December 31, 2004 and as of this date are Guillermo Güémez García (Chairman of the Committee), Herminio Blanco, Alexandre Lodygensky Jr., Gonzalo Menéndez Duque and Will C. Wood. No member of the Credit Policy and Risk Assessment Committee can be an employee of the Bank. The Board has determined that all members of the Credit Policy and Risk Assessment Committee are independent.
The Credit Policy and Risk Assessment Committee is in charge of reviewing and recommending to the Board all the credit policies and procedures related to the adequate management of the Bank’s assets. The Committee also reviews the quality and profile of the Bank’s credit assets and the risk levels assumed by the Bank. The Committee’s responsibilities also include, among others, the review and submission to the Board for approval of the country limits and limits exceeding delegated authority and of the adequacy of credit reserves.
The Committee carries out its duties by way of reviewing periodic reports, which it receives from management, and by way of its interaction with risk management and other members of the Bank’s management team. The Committee meets at least four times per year. During the fiscal year ended December 31, 2004, the Committee held four meetings.
Nomination and Compensation Committee
The Nomination and Compensation Committee is a standing Committee of the Board. The members of the Nomination and Compensation Committee at December 31, 2004 and as of this date are Santiago Perdomo Maldonado (Chairman of the Committee), Mario Covo, Maria da Graça França and William Hayes. No member of the Nomination and Compensation Committee can be an employee of the Bank. The Board has determined that all members of the Nomination and Compensation Committee are independent directors other than Maria da Graça França.
The Committee meets at least four times per year. During the fiscal year ended December 31, 2004, the Committee held four meetings.
The Nomination and Compensation Committee’s primary responsibilities are to assist the Board by identifying candidates to become Board members and recommending nominees for annual meetings of stockholders; by making recommendations to the Board concerning candidates for Chief Executive Officer and other senior management and counseling on succession planning for senior management; by recommending compensation for Board members and Committee members, including cash and equity compensation; by recommending compensation for senior management and employees of the Bank, including cash and equity compensation, and policies for senior management and employee benefit programs and plans; by reviewing and recommending changes to the Bank’s Code of Ethics; and by advising senior management on issues related to the Bank’s personnel.
The Charter of the Nomination and Compensation Committee requires an annual self-evaluation of the Committee’s performance.
Assets and Liabilities Committee
The Assets and Liabilities Committee is a standing Committee of the Board. The members of the Assets and Liabilities Committee at December 31, 2004 were Mario Covo (Chairman of the Committee), Herminio Blanco, Maria da Graça França, Guillermo Güémez and William Hayes.
73
As of April 19, 2005, the members of the Assets and Liabilities Committee are Mario Covo (Chairman of the Committee), Herminio Blanco, Guillermo Güémez, William Hayes and Alexandre Lodygensky.
No member of the Assets and Liabilities Committee can be an employee of the Bank. The Board has determined that all members of the Assets and Liabilities Committee are independent directors.
The Assets and Liabilities Committee is responsible for reviewing and recommending to the Board all policies and procedures related to the management of the Bank’s assets and liabilities. The Committee also coordinates disbursement and funding activities to enhance earnings and to reduce risks. As part of its responsibilities, the Committee reviews and recommends to the Board, among others, policies related to the Bank’s liquidity, mismatch between assets and liabilities, investment of liquidity, derivative positions, taxes, and future funding strategies.
The Assets and Liabilities Committee carries out its duties by way of reviewing periodic reports, which it receives from management, and by way of its interaction with the Senior Vice President, Treasury and other members of the Bank’s management team. The Committee meets at least four times per year. During the fiscal year ended December 31, 2004, the Committee held four meetings.
Advisory Council
The Board created the Advisory Council in April 2000 pursuant to the powers granted to the Board under the Bank’s Articles of Incorporation. The duties of Advisory Council members consist primarily of providing advice to the Board with respect to the business of the Bank in their areas of expertise. Each member of the Advisory Council receives $5,000 for each Advisory Council meeting attended. The Advisory Council meets only when the Board convenes it. During the fiscal year ended December 31, 2004, the Advisory Council did not meet. The following table sets forth the names, positions and countries of citizenship of the members of the Advisory Council of the Bank.
Name | Position | Country of
Citizenship |
| | |
Luis Pagani | President
Arcor S.A.I.C. | Argentina |
| | |
Roberto Teixeira da Costa | Board Member
Sul America, S.A. | Brazil |
| | |
Carlos Martabit | General Manager, Finance Division
Banco del Estado de Chile | Chile |
| | |
Eugenio Clariond | Chief Executive Officer
Grupo Imsa, S.A. de C.V. | Mexico |
| | |
| Vice President
Inversiones Bahia Ltd. | Panama |
| | |
Alfredo Riviere | President
Sural, C.A. | Venezuela |
6.D Employees
As of December 31, 2004, the total number of permanent employees was 151, which were geographically distributed as follows: Head Office in Panama: 135; New York Agency: 7; Representative Office in Argentina: 3; Representative Office in Brazil: 4; and Representative Office in Mexico: 2.
74
6.E Share Ownership
As of December 31, 2004, the Bank’s executive officers and directors, as a group, owned an aggregate of 31,390 Class E shares, which was approximately 0.1% of all issued and outstanding Class E shares.
For additional information regarding the Bank’s equity compensation for directors and Senior Management, see “Compensation”.
Item 7. Major Shareholders and Related Party Transactions
7.A Major Shareholders
As of December 31, 2004, the Bank was not directly or indirectly owned or controlled by another corporation or any foreign government, and no person was the registered owner of more than 9% of the total outstanding shares of voting capital stock of the Bank.
The following table sets forth information regarding the Bank’s stockholders that are the beneficial owners of 5% or more of any one class of the total outstanding shares of voting capital stock of the Bank, at December 31, 2004:
| | | | At December 31, 2004 | | | |
Class A | | Number of Shares | | of Class | | % of Total | |
Banco de la Nación Argentina | | | 1,045,348.00 | | | 16.5 | | | | 2.7 | | |
Banco do Brasil 1 | | | 974,551.00 | | | 15.4 | | | | 2.5 | | |
Banco de Comercio Exterior de Colombia, S.A | | | 488,547.00 | | | 7.7 | | | | 1.3 | | |
Banco de la Nación Perú | | | 446,556.00 | | | 7.0 | | | | 1.1 | | |
Banco Central del Paraguay | | | 434,658.00 | | | 6.9 | | | | 1.1 | | |
Banco Central del Ecuador | | | 431,217.00 | | | 6.8 | | | | 1.1 | | |
Banco del Estado de Chile | | | 323,412.75 | | | 5.1 | | | | 0.8 | | |
| | | | | | | | | | | | |
Total Shares of Class A Common Stock | | | 6,342,189.16 | | | 100.0 | % | | | 16.3 | % | |
| | |
| | |
|
| | |
|
| |
| | |
| | |
|
| | |
|
| |
| | | | | | | | | | | | |
Class B | | Number of Shares | | % of Class | | % of Total | |
Banco de la Provincia de Buenos Aires | | | 884,460.98 | | | 27.0 | | | | 2.3 | | |
Banco de la Nación Argentina | | | 295,944.50 | | | 9.0 | | | | 0.8 | | |
Mizuho Corporate Bank Ltd | | | 294,345.00 | | | 9.0 | | | | 0.8 | | |
| | | | | | | | | | | | |
Total Shares of Class B Common Stock | | | 3,271,269.04 | | | 100.0 | % | | | 8.4 | % | |
| | |
| | |
|
| | |
|
| |
| | |
| | |
|
| | |
|
| |
Class E 2 | | Number of Shares | | % of Class | | % of Total | |
Arnhold & S. Bleichroeder Advisers, LLC | | | 3,518,400.00 | | | 12.0 | | | | 9.0 | | |
Artisan Partners LP | | | 2,928,114.00 | | | 10.0 | | | | 7.5 | | |
Mondrian Investment Partners Ltd | | | 1,626,700.00 | | | 5.6 | | | | 4.2 | | |
| | | | | | | | | | | | |
Total Shares of Class E Common Stock | | | 29,283,621.00 | | | 100.0 | % | | | 75.3 | % | |
| | |
| | |
|
| | |
|
| |
| | |
| | |
|
| | |
|
| |
Total Shares of Common Stock | | | 38,897,079.20 | | | | | | | 100.0 | % | |
| | |
| | | | | | |
|
| |
| | |
| | | | | | |
|
| |
|
1 Does not include an aggregate of 657 Class E shares corresponding to Mrs. França’s entitlement under the Board Restricted Stock Plan issued to her employer, Banco do Brasil and an aggregate of 3,821 indexed options to which Mrs. França was entitled under the Indexed Stock Option Plan granted to Banco do Brasil. |
2 Source: Schedule 13G filings with the Securities and Exchange Commission. |
75
All common shares have the same rights and privileges regardless of their class, except that:
| • | The affirmative vote of three-quarters (3/4) of the issued and outstanding Class A shares is required (A) to dissolve and liquidate the Bank, (B) to amend certain material provisions of the Amended and Restated Articles of Incorporation, (C) to merge or consolidate the Bank with another entity and (D) to authorize the Bank to engage in activities other than those described as the purposes of the Bank in its Amended and Restated Articles of Incorporation; |
| | |
| • | The Class E shares and the preferred shares are freely transferable, while the Class A shares and Class B shares can only be transferred to qualified holders; |
| | |
| • | The Class B shares may be converted into Class E shares; |
| | |
| • | The holders of Class A shares and Class B shares benefit from pre-emptive rights, but the holders of Class E common shares do not; and |
| | |
| • | The classes vote separately for their respective Directors. |
As of December 31, 2004, there were no Class A shares held by institutions located in the United States. At December 31, 2004, 0.15% of the total Class B shares outstanding were held by institutions located in the United States, representing 0.01% of the Bank’s total common shares. Because a majority of Class E shares are held by or in the name of the Depository Trust Company, the Bank does not have precise information regarding Class E stockholders in this regard.
7.B Related Party Transactions
Certain directors of the Bank are executive officers of banks and/or other financial institutions located in Latin America, the Caribbean and elsewhere. Some of these banks and/or other financial institutions own shares of the Bank’s common stock and have entered into loan transactions with the Bank in the ordinary course of business. The terms and conditions of such loan transactions, including interest rates and collateral requirements, are substantially the same as the terms and conditions of comparable loan transactions entered into with other persons under similar market conditions. As a matter of policy, Directors of the Bank do not participate in the approval process for credit facilities extended to institutions of which they are executive officers or directors nor do they participate with respect to decisions regarding country exposure limits in countries in which such institutions are domiciled.
At December 31, 2004, the Bank did not have any outstanding credit exposure with related parties as defined by the Panamanian Superintendency of Banks.
7.C Interests of Experts and Counsel
Not required in this Annual Report.
Item 8. Financial Information
8.A Consolidated Statements and Other Financial Information
The information included in Item 18 of this Annual Report is referred to and incorporated by reference into this Item 8.A.
76
Dividends
Common Dividends
During 2002, the Board suspended dividends on common shares, believing that it was in the best interest of stockholders to conserve the Bank’s capital resources until the probable outcome of the Bank’s exposure to Argentina was clearer.
During 2003, no dividends were declared on common shares.
On February 3, 2004, the Board authorized a dividend policy whereby dividends will be declared and paid to stockholders on a quarterly basis. In accordance with this new policy, the Board declared an annual dividend of $0.40 per common share payable on a quarterly basis.
On August 3, 2004, the Board authorized an increase in the quarterly cash dividend from $0.10 per common share to $0.15 per common share and a special dividend of $1.00 per common share reflecting, among other considerations, the amount of provision reversals realized since January 1, 2004 in the Bank’s Argentine portfolio.
On February 1, 2005, the Board declared a special dividend of $2.00 per common share payable on April 11, 2005 to stockholders of record as of March 28, 2005, along with the quarterly common dividend of $0.15 per common share. This special dividend reflected the results obtained in the management of the Bank’s Argentine portfolio.
The following table shows information about common dividends paid on the dates indicated:
Payment date | Record date | Dividend per share |
April 5, 2004 | March 26, 2004 | $0.10 |
July 7, 2004 | June 28, 2004 | $0.10 |
October 7, 2004 | September 27, 2004 | $1.15 |
January 17, 2005 | January 6, 2005 | $0.15 |
April 11, 2005 | March 28, 2005 | $2.15 |
Preferred Dividend
During 2003, the Bank paid cash dividends in the aggregate amount of $852,990 to the holders of its preferred shares representing $0.80 per preferred share. On April 13, 2004 the Board declared a cash dividend of $0.40 per share payable on May 17, 2004 to the registered holders of preferred shares as of April 30, 2004. On November 6, 2004 the Board declared a cash dividend of $1.90 per share payable on November 15, 2004 to the registered holders of preferred shares as of November 8, 2004.
The Board at a meeting held on April 18, 2005 declared a cash dividend of $2.148 per share payable on May 16, 2005 to the registered holders of preferred shares as of April 29, 2005.
8.B Significant Changes
Not applicable
77
Item 9. The Offer and Listing
9.A Offer and Listing Details
On October 1, 1992, the Bank completed a public offering in the United States of 4,000,000 Class E shares with no par value. On December 22, 1994, the Bank completed another offering of 3,200,000 Class E shares. On June 27, 2003 the Bank sold 1,431,004 Class A shares, 652,997 Class B shares and 19,915,999 Class E shares in a rights offering to its existing stockholders. The Class E shares are listed on the New York Stock Exchange under the symbol BLX. The following table shows the high and low sales prices of the Class E shares on the New York Stock Exchange for the periods indicated.
| | Price per Class E Share (in $) | |
| |
| |
| | High | | Low | |
| |
| |
| |
2000 | | | 34.88 | | | 21.25 | |
2001 | | | 37.70 | | | 25.30 | |
2002 | | | 29.70 | | | 2.00 | |
2003 | | | 19.95 | | | 4.01 | |
2004 | | | 20.00 | | | 14.00 | |
| | | | | | | |
2003: | | | | | | | |
First Quarter | | | 6.54 | | | 4.01 | |
Second Quarter | | | 9.95 | | | 5.24 | |
Third Quarter | | | 12.45 | | | 7.90 | |
Fourth Quarter | | | 19.95 | | | 12.00 | |
2004: | | | | | | | |
First Quarter | | | 19.23 | | | 15.20 | |
Second Quarter | | | 18.98 | | | 14.00 | |
Third Quarter | | | 17.00 | | | 14.60 | |
Fourth Quarter | | | 20.00 | | | 15.30 | |
2005: | | | | | | | |
First Quarter | | | 25.50 | | | 18.53 | |
| | Price Class E Share (in $) | |
| |
| |
| | High | | Low | |
| |
| |
| |
2004: | | | | | | | |
December | | | 20.00 | | | 18.00 | |
2005: | | | | | | | |
January | | | 22.04 | | | 18.53 | |
February | | | 25.50 | | | 21.12 | |
March | | | 22.97 | | | 19.63 | |
April | | | 20.95 | | | 18.34 | |
May | | | 19.65 | | | 15.34 | |
9.B Plan of Distribution
Not required in this Annual Report.
9.C Markets
The Bank’s Class A shares and Class B shares were sold in private placements or sold in connection with the Bank’s 2003 rights offering, are not listed on any exchange and are not publicly traded. The Bank’s Class E shares, which constitute the only class of shares publicly traded (in the New York Stock Exchange), represent approximately 75.3% of the total shares of the Bank’s common stock issued and outstanding at December 31, 2004. The Bank’s Class B shares are convertible into Class E shares on a one to one basis.
78
9.D Selling Shareholders
Not required in this Annual Report.
9.E Dilution
Not required in this Annual Report.
9.F Expenses of the Issue
Not required in this Annual Report.
Item 10. Additional Information
10.A Share Capital
Not required in this Annual Report.
10.B Memorandum and Articles of Association
Articles of Incorporation
Bladex is a Bank organized under the laws of the Republic of Panama, registered in the Mercantile Section (Persons) of the Public Registry of the Republic of Panama at file card 021666, roll 1050, image 0002. Article 2 of Bladex’s Articles of Incorporation states that the purpose of the Bank is to promote the economic development of Latin American countries, mainly by promoting foreign trade. For the attainment of this purpose, the Bank may: (1) establish a Latin American credit system for the export of goods and services, which shall include granting direct export loans, including financing the stages prior to and after export; (2) foster a market for bank acceptances extended as a result of operations pertaining to the export of goods of Latin American origin; (3) promote the establishment of a Latin American system of export credit insurance and mechanisms that may supplement existing national systems; (4) collaborate with Latin American countries in conducting market research, with a view to promoting their exports of goods and services; and (5) generally engage in any kind of banking or financial business intended to promote the development of Latin American countries. The Articles of Incorporation provide that Bladex may also engage in activities other than those described above, provided that it has obtained the approval of the stockholders in a resolution adopted by the affirmative vote of one-half (1/2) plus one of the common shares, either present or represented, in a meeting of stockholders called to obtain such authorization, which affirmative vote shall necessarily include the vote of three-fourths (3/4) of Class A shares issued and outstanding.
Bladex’s Articles of Incorporation provide that the Board of Directors shall direct and control the business and assets of the Bank, except for those matters specifically reserved to stockholders by law or the Articles of Incorporation. The Board of Directors may, however, grant general and special powers of attorney, authorizing directors, officers and employees of the Bank or other persons to transact such business and affairs within the competence of the Board of Directors, as the Board of Directors may deem convenient to entrust to each of them.
79
The Articles of Incorporation of Bladex do not contain provisions limiting the ability of the Board of Directors to approve a proposal, arrangement or contract in which a Director is materially interested, or a provision which limits the ability of the Board of Directors to fix the compensation of its members, a provision which requires the mandatory retirement of a Director at any prescribed age or a provision which requires that a certain number of shares be owned by a person to qualify as a Director.
The Board of Directors consists of ten members, as follows: three Directors are elected by the holders of the Class A shares; two Directors are elected by the holders of the Class B shares; three Directors are elected by the holders of the Class E shares; and two Directors are elected by the holders of all of the common shares. Notwithstanding the foregoing, if due to the conversion of Class B shares, the number of outstanding shares of this class falls below certain percentages prescribed in the Articles of Incorporation, holders of Class B shares may lose the right to elect Class B representatives to the Board of Directors. At December 31, 2003, the amount of Class B shares represented 8.8% of the total of all issued and outstanding shares. Consequently, during the stockholder’s meeting held in April 2004, two of the three Class E directors were elected to Class E directorships to represent positions held by representatives of the Bank’s Class B shares which were forfeited to the Class E stockholders as a result of the Class B shares falling below 10% of the Bank’s total outstanding shares of common stock
The Directors are elected by stockholders for periods of three (3) years and they may be re-elected. The holders of the Class A, Class B and Class E shares vote separately as a class for the election of the Directors of the Bank representing such class. For the election of Directors, the stockholders of each class have a number of votes equal to the number of shares of such class held by the shareholder multiplied by the number of Directors to be elected by such class, and the shareholder may cast all of the votes in favor of one candidate or distribute them among all the Directors to be elected or among two or more of them, as the shareholder may decide.
All common shares have the same rights and privileges regardless of their class, except that: (i) the affirmative vote of three-quarters (3/4) of the issued and outstanding Class A shares is required (A) to dissolve and liquidate the Bank, (B) to amend certain material provisions of the Articles of Incorporation, (C) to merge or consolidate the Bank with another entity and (D) to authorize the Bank to engage in activities other than those described as the purposes of the Bank in its Articles of Incorporation; (ii) the Class E shares and the preferred shares are freely transferable, while the Class A shares and Class B shares can only be transferred to qualified holders; (iii) the Class B shares may be converted into Class E shares; and (iv) the holders of Class A shares and Class B shares benefit from pre-emptive rights, but the holde rs of Class E shares do not; and (v) the classes vote separately for their representative directors.
Preferred shares receive a minimum annual preferred dividend of 8% per annum to be declared by the Board of Directors and to be paid, as any other dividend, in semiannual or quarterly installments, as prescribed by the Board of Directors. The Bank may not pay any dividend in cash for common shares in any fiscal year until it has paid the minimum preferred dividend corresponding to preferred stockholders in that year or in any other previous year in which the aggregate total dividend corresponding to preferred shares has not been paid. In the event that the Bank fails to pay the aggregate total amount of the minimum preferred dividend corresponding to preferred shares in a given fiscal year, and during the following two years fails to pay the aggregate total amount of the minimum preferred dividend corresponding to preferred shares in those two following years, as well as the amount which it had failed to pay in respect of such first year, or if the Bank fails to make any payment to the sinking fund or fails to redeem any preferred shares, and provided always that at the time of the occurrence of any of the above such preferred shares represent at least ten percent (10%) of the total paid in capital of the Bank, the holders of preferred shares shall be entitled to elect a member of the Board of Directors, who shall continue in office until the circumstances from which his appointment has arisen cease to exist. As of the date hereof, the Bank is current in its payment of dividends to preferred stockholders. Preferred shares have no voting rights, except for the election of a Director in the event mentioned above. Preferred shares have no preemptive rights under Article 6 of the Articles of Incorporation.
80
The rights of the holders of the common shares may be changed by an amendment to the Articles of Incorporation of the Bank. Amendments to the Articles of Incorporation may be adopted by the affirmative vote of one-half plus one of the common shares represented at the respective meeting, except for the following amendments which require, in addition, the affirmative vote of three-quarters (3/4) of all issued and outstanding Class A shares: (i) any amendment to the Bank’s purposes or powers, (ii) any amendment to the capital structure of the Bank and the qualifications to become a holder of any particular class of shares, (iii) any amendment to the provisions relating to the notice, quorum and voting at stockholders’ meetings, (iv) any amendment to the composition and election of the Board of Directors, as well as notices, quorum and voting at meetings of Directors, (v) any amendments to the powers of the Chief Executive Officer of the Bank and (vi) any amendments to the fundamental financial policies of the Bank.
The Articles of Incorporation of Bladex provide that there will be a general meeting of holders of the common shares every year, on such date and in such place as may be determined by resolution of the Board of Directors, to elect Directors and transact any other business duly submitted to the meeting by the Board of Directors. In addition, holders of the common shares shall hold extraordinary meetings when called by the Board of Directors, as it may deem necessary. The Board of Directors or the President of the Bank must call an extraordinary meeting of holders of the common shares when requested in writing by one or more holders of common shares representing at least one-twentieth (1/20) of the issued and outstanding capital. Notice of meetings of stockholders, whether ordinary or extraordinary, are personally delivered to each registered shareholder or sent by fax, telex, courier, air mail or any other means authorized by the Board of the Directors, at least 30 days before the date of the meeting, counted from the date that the notice is sent. The notice of the meeting must include the agenda of the meeting. At any meeting of stockholders, stockholders may be represented by a proxy who need not be a shareholder, and who may be appointed by public or private document, with or without power of substitution. Whenever the holders of the preferred shares are entitled to vote pursuant to the Articles of Incorporation, a meeting of the holders of the preferred shares shall be called by the President of the Bank as soon as possible. Upon request to the Board of Directors or the President of the Bank, stockholders representing at least one-twentieth (1/20) of the issued and outstanding shares of any given class may hold a meeting separately as a class for the purpose of considering any matter which, in accordance with the provisions of the Articles of Incorporation and the By-laws, is within their competence. In order to have a quorum at any meeting of stockholders, it is required that one-half plus one of the common shares issued and outstanding be represented at the meeting. Whenever a quorum is not obtained at a meeting of stockholders, the meeting shall be held on the second meeting date set forth in the notice of the meeting with the common shares represented on such second meeting date. All resolutions of stockholders shall be adopted by the affirmative vote of one-half plus one of the common shares represented at the meeting where the resolution was adopted, except for those cases mentioned above that require a super-majority vote.
Class A shares may only be issued as registered shares in the name of any of the following entities in Latin American countries: (i) central banks, (ii) banks in which the State is the majority shareholder or (iii) other government agencies. Class B shares may only be issued in the name of banks or financial institutions. Class E shares and preferred shares may be issued in the name of any person, whether a natural person or a legal entity.
Article 11 of the Articles of Incorporation of Bladex establishes that the adoption of resolutions approving the merger or consolidation of Bladex with another entity requires the affirmative vote of one-half plus one of the common shares represented at the meeting plus three-quarters (3/4) of all issued and outstanding Class A common shares.
Neither Bladex’s Articles of Incorporation nor its By-laws contains any provision requiring that any disclosure be made with respect to the ownership of any shareholder above an ownership threshold.
There are no conditions imposed by the Articles of Incorporation governing changes in capital, which are more stringent than required by Panamanian law.
81
The Board has scheduled an extraordinary stockholders meeting for November 14, 2005 in Panama City, Panama, to amend the Bank’s Article of Incorporation.
10.C Material Contracts
The Bank has not entered into any material contract outside the ordinary course of business during the two-year period immediately preceding the date of this Annual Report.
10.D Exchange Controls
There are currently no Panamanian restrictions on the export or import of capital, including foreign exchange controls, and no restrictions on the payment of dividends or interest, nor are there limitations on the rights of foreign stockholders to hold or vote stock.
10.E Taxation
The following is a summary of certain U.S. federal and Panamanian tax matters that may be relevant with respect to the acquisition, ownership and disposition of Class E shares. Prospective purchasers of Class E shares should consult their own tax advisors as to the United States, Panamanian or other tax consequences of the acquisition, ownership and disposition of Class E shares.
This summary does not address the consequences of the acquisition, ownership or disposition of the Bank’s Class A shares or Class B shares.
United States Taxes
This summary describes the principal U.S. federal income tax consequences of the ownership and disposition of the Class E shares, but does not purport to be a comprehensive description of all of the tax considerations that may be relevant to holders of Class E shares. This summary applies only to current holders that hold Class E shares as capital assets and does not address classes of holders that are subject to special treatment under the United States Internal Revenue Code of 1986, as amended (the “Code”), such as dealers in securities or currencies, financial institutions, tax-exempt entities, regulated investment companies, insurance companies, securities traders that elect mark to market tax accounting, persons subject to the alternative minimum tax, certain U.S. expatriates, persons holding Class E shares as part of a hedging, constructive ownership or conversion transaction or a straddle, holders whose functional currency is not the U.S. dollar, or a holder that owns 10% or more (directly, indirectly or constructively) of the voting shares of the Bank.
This summary is based upon the Code, existing, temporary and proposed regulations promulgated thereunder, judicial decisions and administrative pronouncements, as all in effect on the date of this Annual Report and which are subject to change (possibly on a retroactive basis) and to differing interpretations. Purchasers or holders of Class E shares should consult their own tax advisors as to the U.S. federal, state and local, and foreign tax consequences of the ownership and disposition of Class E shares in their particular circumstances.
As used herein, a “U.S. Holder” refers to a beneficial holder of Class E shares that is, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation, or an entity treated as a corporation, organized or created in or under the laws of the U.S. or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation without regard to the source of its income, (iv) a trust, if both (A) a court within the United States is able to exercise primary supervision over the administration of the trust and (B) one or more U.S. persons (as defined in the Code) have the authority to control all substantial decisions of the trust, or a trust that has made a valid election under U.S. Treasury Regulations to be treated as a domestic trust, and (v) any holder otherwise subject to U.S. federal income taxation on a net income basis with respect to Class E shares (including a non-resident alien individual or foreign corporation that holds, or is deemed to hold, any Class E share in connection with the conduct of a U.S. trade or business).
82
In the case of a holder of Class E shares that is a partnership for U.S. federal income tax purposes, each partner will take into account its allocable share of income, gain or loss from the Class E shares, and will take such income, gain or loss into account under the rules of taxation applicable to such partner, taking into account the activities of the partnership and the partner.
Taxation of Distributions
Subject to the “Passive Foreign Investment Company Status” discussion below, to the extent paid out of current or accumulated earnings and profits of the Bank as determined under U.S. federal income tax principles (“earnings and profits”), distributions made with respect to Class E shares (other than certain pro rata distributions of capital stock of the Bank or rights to subscribe for shares of capital stock of the Bank) will be includable in income of a U.S. Holder as ordinary dividend income in accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes whether paid in cash or Class E shares. To the extent that a distribution exceeds the Bank’s earnings and profits, such distribution will be treated, first, as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis in the Class E shares and will reduce the U.S. Holder’s tax basis in such shares, and thereafter as a capital gain from the sale or disposition of Class E shares. See “—Taxation—United States Taxes—Taxation of Capital Gains.” The amount of the distribution will equal the gross amount of the distribution received by the U.S. Holder, including any Panamanian taxes withheld from such distribution.
Distributions made with respect to Class E shares out of earnings and profits generally will be treated as dividend income from sources outside the United States. U.S. Holders that are corporations will not be entitled to the “dividends received deduction” under Section 243 of the Code with respect to such dividends. Dividends will not be eligible for the special 15% rate applicable to “qualified dividend income” received by an individual. Subject to certain conditions and limitations, Panamanian tax withheld from dividends will be treated as a foreign income tax eligible for deduction from taxable income or as a credit against a U.S. Holder’s U.S. federal income tax liability. Distributions of dividend income made with respect to Class E shares generally will be treated as “passive” income or, in the case of certain U.S. Holders, “financial services income,” for purposes of computing a U.S. Holder’s U.S. foreign tax credit.
Less than 25 percent of the Bank’s gross income is effectively connected with the conduct of a trade or business in the United States, and the Bank expects this to remain true. If this remains the case, a holder of Class E shares that is not a U.S. Holder (a “non-U.S. Holder”) generally will not be subject to U.S. federal income tax or withholding tax on distributions received on Class E shares that are treated as dividend income for U.S. federal income tax purposes. Special rules may apply in the case of non-U.S. Holders (i) that are engaged in a U.S. trade or business, (ii) that are former citizens or long-term residents of the United States, “controlled foreign corporations,” “foreign personal holding companies,” corporations that accumulate earnings to avoid U.S. federal income tax, and certain foreign charitable organizations, each within the meaning of the Code, or (iii) certain non-resident alien individuals who are present in the United States for 183 days or more during a taxable year. Such persons should consult their own tax advisors as to the U.S. federal income or other tax consequences of the ownership and disposition of Class E shares.
Taxation of Capital Gains
Gain or loss realized by a U.S. Holder on the sale or other disposition of Class E shares will be subject to U.S. federal income tax as capital gain or loss in an amount equal to the difference between the U.S. Holder’s tax basis in the Class E shares and the amount realized on the disposition. Such gain will be treated as long-term capital gain if the Class E shares are held by the U.S. Holder for more than one year at the time of the sale or other disposition.
83
Otherwise, the gain will be treated as a short-term capital gain. Gain realized by a U.S. Holder on the sale or other disposition of Class E shares generally will be treated as U.S. source income for U.S. foreign tax credit purposes, unless the gain is attributable to an office or fixed place of business maintained by the U.S. Holder outside the United States or is recognized by an individual whose tax home is outside the United States, and certain other conditions are met. For U.S. federal income tax purposes, capital losses are subject to limitations on deductibility. As a general rule, U.S. Holders that are corporations can use capital losses for a taxable year only to offset capital gains in that year. A corporation may be entitled to carry back unused capital losses to the three preceding tax years and to carry over losses to the five following tax years. In the case of noncorporate U.S. Holders, capital losses in a taxable year are deductible to the extent of any capital gains plus ordinary income of up to $3,000. Unused capital losses of noncorporate U.S. Holders may be carried over indefinitely.
A non-U.S. Holder of Class E shares will generally not be subject to U.S. federal income tax or withholding tax on gain realized on the sale or other disposition of Class E shares. Special rules may apply in the case of non-U.S. Holders (i) that are engaged in a U.S. trade or business, (ii) that are former citizens or long-term residents of the United States, “controlled foreign corporations,” “foreign personal holding companies,” corporations which accumulate earnings to avoid U.S. federal income tax, and certain foreign charitable organizations, each within the meaning of the Code, or (iii) certain non-resident alien individuals who are present in the United States for 183 days or more during a taxable year. Such persons should consult their own tax advisors as to the United States or other tax consequences of the purchase, ownership and disposition of the Class E shares.
Passive Foreign Investment Company Status
Under the Code, certain rules apply to an entity classified as a “passive foreign investment company” (“PFIC”). A PFIC is defined as any foreign (i.e., non-U.S.) corporation if either (i) 75% or more of its gross income for the taxable year is passive income (generally including, among other types of income, dividends, interest and gains from the sale of stock and securities) or (ii) 50% or more of its assets (by value) produce, or are held for the production of, passive income. The Code provides an exception for foreign institutions in the active conduct of a banking business, provided the institution is licensed to do business in the United States. Under Proposed Regulations, the exception is for active banks licensed by federal or state regulatory authorities to do business as a bank in the United States, provided the foreign bank is not prohibited from taking deposits or making loans. Based on its current and intended method of operations as described herein, the Bank believes that it is not a PFIC under current U.S. federal income tax law because it is eligible for the exception available to U.S. licensed banks in the Code and the proposed regulations. The Bank intends to continue to operate in a manner that will entitle the Bank to rely upon that exception to avoid classification as a PFIC.
If the Bank were to become a PFIC for purposes of the Code, unless a U.S. Holder makes the election described below, a U.S. Holder generally will be subject to a special tax charge with respect to (a) any gain realized on the sale or other disposition of Class E shares and (b) any “excess distribution” by the Bank to the U.S. Holder (generally, any distributions including return of capital distributions, received by the U.S. Holder on the Class E shares in a taxable year that are greater than 125 percent of the average annual distributions received by the U.S. Holder in the three preceding taxable years, or, if shorter, the U.S. Holder’s holding period). Under these rules (i) the gain or excess distribution would be allocated ratably over the U.S. Holder’s holding period for the Class E shares, (ii) the amount allocated to the current taxable year would be treated as ordinary income, (iii) the amount allocated to each prior year would be subject to tax at the highest rate in effect for that year; and (iv) on interest charge at the rate generally applicable to underpayments of tax would be imposed with respect to the resulting tax attributable to each such prior year. For purposes of the foregoing rules, a U.S. Holder of Class E shares that uses such stock as security for a loan will be treated as having disposed of such stock.
If the Bank were a PFIC, U.S. Holders of interests in a holder of Class E shares may be treated as indirect holders of their proportionate share of the Class E shares and may be taxed on their proportionate share of any excess distributions or gain attributable to the Class E shares.
84
An indirect holder also must treat an appropriate portion of its gain on the sale or disposition of its interest in the actual holder as gain on the sale of Class E shares.
If the Bank were to become a PFIC, a U.S. Holder could make an election, provided the Bank complies with certain reporting requirements, to have the Bank treated, with respect to such U.S. Holder, as a “qualified electing fund” (hereinafter referred to as a “QEF election”), in which case, the electing U.S. Holder would be required to include annually in gross income the U.S. Holder’s proportionate share of the Bank’s ordinary earnings and net capital gains, whether or not such amounts are actually distributed. If the Bank were to become a PFIC, the Bank intends to so notify each U.S. Holder and to comply with all reporting requirements necessary for a U.S. Holder to make a QEF election and will provide to record U.S. Holders of Class E shares such information as may be required to make such QEF election.
If the Bank is a PFIC in any year, a U.S. Holder that beneficially owns Class E shares during such year must make an annual return on Internal Revenue Service Form 8621, which describes the income received (or deemed to be received if a QEF election is in effect) from the Bank. The Bank will, if applicable, provide all information necessary for a U.S. Holder of record to make an annual return on Form 8621.
A U.S. Holder that owns certain “marketable stock” in a PFIC may elect to mark-to-market such stock and, subject to certain exceptions, include in income any gain (increases in market value) or loss (decreases in market value to the extent of prior gains recognized) realized as ordinary income or loss to avoid the adverse consequences described above. U.S. Holders of Class E shares are urged to consult their own tax advisors as to the consequences of owning stock in a PFIC and whether such U.S. Holder would be eligible to make either of the aforementioned elections to mitigate the adverse effects of such consequences.
Information Reporting and Backup Withholding
Each U.S. payor making payments in respect of Class E shares will generally be required to provide the Internal Revenue Service (the “IRS”) with certain information, including the name, address and taxpayer identification number of the beneficial owner of Class E shares, and the aggregate amount of dividends paid to such beneficial owner during the calendar year. Under the backup withholding rules, a holder may be subject to backup withholding at a current rate of 28% with respect to proceeds received on the sale or exchange of Class E shares within the United States by non-corporate U.S. Holders and to dividends paid, unless such holder (i) is a corporation or comes within certain other exempt categories (including securities broker-dealers, other financial institutions, tax-exempt organizations, qualified pension and profit sharing trusts and individual retirement accounts), and, when required, demonstrates this fact or (ii) provides a taxpayer identification number, certifies as to no loss of exemption and otherwise complies with the applicable requirements of the backup withholding rules. Non-U.S. Holders are generally exempt from information reporting and backup withholding, but may be required to provide a properly completed Form W-8BEN (or other similar form) or otherwise comply with applicable certification and identification procedures in order to prove their exemption. This backup withholding tax is not an additional tax and any amounts withheld from a payment to a holder of Class E shares will be refunded (or credited against such holder’s U.S. federal income tax liability, if any) provided that the required information is furnished to the IRS.
There is no income tax treaty between Panama and the United States.
Panamanian Taxes
The following summary of certain Panamanian tax matters is based upon the tax laws of Panama and regulations thereunder in effect as of the date of this Annual Report and is subject to any subsequent change in Panamanian laws and regulations that may come into effect after such date. The principal Panamanian tax consequences of ownership of Class E shares are as follows:
85
Generally
Panama’s income tax is exclusively territorial. Only income actually derived from sources within Panama is subject to taxation. Income derived by Panamanian or foreign corporations or individuals from offshore operations are not taxable. The territorial principle of taxation has been in force throughout the history of the country and is supported by legislation, administrative regulations and court decisions.
The Bank is not subject to income taxes in Panama pursuant to a special exemption granted by the government of Panama under Law 38 enacted on July 25, 1978. In addition, even in the absence of such special legislation, under Panamanian law banks are not subject to income tax on their offshore income. Since the Bank’s loans are primarily made outside Panama, the Bank would have limited tax liability even in the absence of special legislation.
Taxation of Distributions
Dividends and distributions paid by the Bank in respect of its shares are also exempt from withholding tax under the aforementioned special legislation. If such special legislation did not exist, Panama would impose a 10% withholding tax on dividends or distributions paid in respect of the Bank’s registered shares (20% in respect of the Bank’s bearer shares), to the extent such dividends are paid from income derived by the Bank from Panamanian sources.
Taxation of Capital Gains
Inasmuch as almost all of the Bank’s income derives from non-Panamanian sources, capital gains realized by an individual or corporation, regardless of its nationality or residency, on the sale or other disposition outside of Panama of Class E shares should not be subject to taxes in Panama. However, there are no rules of allocation with respect to derivation of income currently in effect in Panama and it cannot be determined with certainty when the tax authorities would consider that a significant amount of the Bank’s income derives from Panamanian sources, thus resulting in the taxation of capital gains realized on the sale or disposition of the Bank’s Class E shares.
10.F Dividends and Paying Agents
Not required in this Annual Report.
10.G Statement by Experts
Not required in this Annual Report.
10.H Documents on Display
Upon written or oral request, the Bank will provide without charge to each person to whom this Annual Report is delivered, a copy of any or all of the documents listed as exhibits to this Annual Report (other than exhibits to those documents, unless the exhibits are specifically incorporated by reference in the documents). Written requests for copies should be directed to the attention of Carlos Yap, Senior Vice President - Finance, Bladex, as follows: (i) if by regular mail, to Apartado 6-1497, El Dorado, Panama City, Republic of Panama, and (ii) if by courier, to Calle 50 y Aquilino de la Guardia, Panama City, Republic of Panama. Telephone requests may be directed to Mr. Yap at 011-507-210-8581. Written requests may also be faxed to Mr. Yap at 011-507-269-6333 or sent via e-mail to cyap@blx.com. Information is also available on the Bank’s website at: www.blx.com.
86
10.I Subsidiary Information
Not applicable
Item 11. Quantitative and Qualitative Disclosure About Market Risk
The Bank’s risk management policies, as approved by the Board from time to time, are designed to identify and control the Bank’s credit and market risks by establishing and monitoring appropriate limits on the Bank’s credit and market exposures. Certain members of the Board constitute the Assets and Liabilities Committee, which meet on a regular basis and monitor and control the risks in each specific area. At the management level, the Bank has a Risk Management Department that measures and controls the credit and market exposure of the Bank.
The Bank’s primary market risks are comprised of liquidity risk and interest rate risk and, to a lesser extent, currency exchange risk and price risk.
The Bank’s liquidity risk is the risk of not being able to maintain an adequate cash flow to fund operations and meet obligations and other commitments on a timely basis. The Bank manages short-term liquidity risk by investing in overnight deposits a minimum of 50% of the liquidity funds generated by demand, call accounts and time deposits with maturities of less than one week, and by investing the remaining balance in short-term time deposits with maturities of up to six months and investment funds or negotiable money market instruments, such as certificates of deposits, commercial paper, bankers’ acceptances and other liquid instruments, with maturities of up to 180 days. See “Information on the Company—Investment Securities.” These instruments must be of investment grade (carrying two of the following ratings: A-1, P-1 or F-1 from Standard & Poor’s, Moody’s or Fitch, respectively) and must have a liquid secondary market. Interbank deposits are placed with reputable international banks located outside of the Region that usually carry ratings of A-1, P-1 or F-1 by two of the major rating agencies. These banks must have a correspondent relationship with Bladex and be approved by the Board on an annual basis. The primary objectives for these investments are security and liquidity. In order to manage its liquidity needs, the Bank’s liquidity position is reviewed and monitored on a daily basis by management.
At December 31, 2004, the Bank’s interest rate risk derived from the Bank’s asset-sensitive position in the short-term, which means that the Bank’s interest-bearing assets repriced more quickly than the Bank’s interest-earning liabilities. Consequently, failure to adequately manage this interest rate risk could adversely affect the Bank’s net interest income during periods of increasing interest rates. The Bank’s interest rate risk is managed by attempting to match the term and repricing characteristics of the Bank’s interest rate sensitive assets and liabilities. The Bank’s policy with respect to interest rate gaps provides that the gap between short-term interest-earning assets and interest-bearing liabilities on a cumulative basis cannot exceed 100% of the Bank’s total capital. The Bank’s policy with respect to intere st rate gaps also provides that it match fund interest-earning assets over 365 days.
The Bank uses interest rate swaps on a limited basis as part of its interest rate risk management. These interest rate swaps are made either in a single currency or cross-currency for a prescribed period to exchange a series of interest rate flows, which involve fixed for floating rate interest payments. For quantitative information relating to the Bank’s interest rate risk and information relating to the Bank’s management of interest rate risk, see “Liquidity and Capital Resources.” and Note 18 and Note 2(o) of the Notes to Consolidated Financial Statements.
Whenever possible, foreign-currency-denominated assets are funded with liability instruments denominated in the same currency. In cases where these assets are funded in different currencies, forward foreign exchange or cross-currency swap contracts are used to fully hedge the risk due to this cross-currency funding.
87
Derivative Financial Instruments
The Bank utilizes derivative financial instruments, primarily cross currency swaps, foreign exchange forward contracts and interest rate swaps to hedge foreign currency risks arising from the Bank’s lending activity and the issuance of non-dollar short-term Euro commercial paper and Euro medium-term notes. The Bank does not engage in derivatives trading. The Bank also engages in foreign exchange trades to serve customers’ transaction needs and all positions are hedged with an offsetting contract in the same currency. The Bank manages and controls the risks on these buy and sell foreign currency contracts by establishing limits on amounts of such contracts and terms by clients, and by having adopted policies that do not allow it to maintain open positions. Interest rate swaps are made either in a single currency or cross-currency for a prescribed period to exch ange a series of interest rate flows, which involve fixed for floating interest payments or vice versa. The Bank’s policy is not to engage in derivative positions other than routine swaps to hedge existing normal currency and interest rate positions.
Types of Derivative and Foreign Exchange Instruments
Derivative and foreign exchange instruments negotiated by the Bank are mainly executed over-the-counter (“OTC”). These contracts are executed between two counterparts that negotiate specific agreement terms, including notional amount, exercise price and maturity. The following instruments are used by the Bank for purposes of asset/liability activities:
Interest rate swaps are contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period. For accounting purposes, the Bank has designated these derivative instruments as fair value hedges, cash flow hedges and freestanding derivatives.
Cross-currency swaps are contracts that generally involve the exchange of both interest and principal amounts in two different currencies. For accounting purposes, the Bank has designated these derivative instruments as fair value hedges.
Forward foreign exchange contracts represent agreements to transact on a future date at agreed-upon terms. For accounting purposes, the Bank has not designated a hedging relationship to these derivative instruments.
There were no derivative financial instruments outstanding at December 31, 2004. Quantitative information on derivative financial instruments outstanding at December 31, 2003 is set forth below:
| | At December 31, 2003 | |
| |
| |
| | | | | Fair Value | |
| | | | |
| |
| | Nominal Amount | | Asset | | Liability | |
Fair Value Hedges: | | | | | | | | | | |
Interest rate swaps | | | $0 | | | $0 | | | $0 | |
Cross-currency swap | | | 61,426 | | | 1,684 | | | 7,051 | |
| | | | | | | | | | |
Cash Flow Hedges: | | | | | | | | | | |
Interest rate swaps | | | 60,000 | | | 0 | | | 792 | |
| | | | | | | | | | |
Freestanding: | | | | | | | | | | |
Interest rate swaps | | | 0 | | | 0 | | | 0 | |
Cross-currency swap | | | 50,130 | | | 572 | | | 5,178 | |
Foreign exchange forward contracts | | | 0 | | | 0 | | | 0 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Total | | | $171,556 | | | $2,256 | | | $13,021 | |
| |
|
| |
|
| |
|
| |
| |
|
| |
|
| |
|
| |
88
Interest rate swap agreements, foreign exchange forward contracts and options are presented in the Bank’s balance sheet under the line items entitled “derivative financial instruments-assets” and “derivative financial instruments-liabilities.”
Fair Value Disclosure of Financial Instruments
For information regarding fair value disclosure of financial instruments, see Note 21 to the Consolidated Financial Statements.
Information about Derivative Financial Instruments
The table below lists for each of the years 2004 to 2009 the notional amounts and weighted interest rates, as of December 31, 2004, for the Bank’s investments, borrowings and placements. There were no cross currency swaps and interest rate swaps outstanding on this date.
| | Maturities | |
| |
| |
| | 2005 | | 2006 | | 2007 | | 2008 | | 2009 | | There-
after | | Total
2004 | | Fair Value
2004 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | (in thousands) | |
Investments | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed Rate | | | | | | | | | | | | | | | | | | | | | | | | | |
US Dollars | | | 26,387 | | | 0 | | | 51,540 | | | 0 | | | 40,528 | | | 74,400 | | | 192,856 | | | 192,989 | |
Fixed Rate | | | 7.32% | | | 0% | | | 8.85% | | | 0% | | | 7.38% | | | 7.90% | | | 7.96% | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Borrowings and Placements | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed Rate | | | | | | | | | | | | | | | | | | | | | | | | | |
US Dollars | | | 725,718 | | | 20,000 | | | | | | | | | 20,000 | | | | | | 765,718 | | | 764,943 | |
Fixed Rate | | | 2.98% | | | 3.54% | | | | | | | | | 3.81% | | | | | | 3.02% | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Variable Rate | | | | | | | | | | | | | | | | | | | | | | | | | |
US Dollars | | | 132,402 | | | 124,359 | | | 67,859 | | | 18,000 | | | | | | | | | 342,621 | | | 338,429 | |
Variable Rate | | | 2.70% | | | 2.98% | | | 2.92% | | | 3.56% | | | | | | | | | 2.89% | | | | |
Foreign Exchange Risk Management and Sensitivity
The Bank accepts deposits and raises funds principally in United States dollars, and makes loans mostly in United States dollars. At December 31, 2004, the Bank did not have non-dollar financial liabilities. Currency exchange risk arises when the Bank accepts deposits or raises funds in one currency and lends or invests the proceeds in another. Failure to adequately manage this risk could adversely affect the Bank’s results of operations if the value of the currency in which the Bank borrows declines compared to the value of the currency in which it lends or invests. The Bank manages this risk by not holding open foreign exchange positions. The Bank uses foreign exchange forward contracts as part of its management of currency risks. Most of the Bank’s forward exchange contracts are made by the Bank as end-user to hedge foreign exchange risks arising from the issuance of non-dollar denominated short-term Euro commercial paper and medium and long-term Euro medium-term notes, and from making non-dollar denominated short and medium-term loans. Whenever possible, foreign currency-denominated assets are funded with liability instruments denominated in the same currency. In the cases where these assets were funded in different currencies, forward foreign currency exchange or cross-currency swap contracts were used to fully hedge the risk resulting from this cross-currency funding.
The Bank also engages in some foreign exchange trades to serve customer transaction needs, and all positions are hedged with an offsetting contract in the same currency. The Bank manages the risks on these buy and sell foreign currency contracts under approved limits of amounts and terms for each counterparty, and by having adopted policies that do not allow it to maintain open positions. Interest rate swaps are made either in a single currency or cross-currency for a prescribed period to exchange a series of interest rate flows, either fixed for floating rate or vice versa.
89
Item 12. Description of Securities Other than Equity Securities
Not required in this Annual Report.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Bank maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports it files under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Such controls include those designed to ensure that information for disclosure is communicated to the members of the Board and management, including the Chief Executive Officer (the “CEO”), as appropriate to allow timely decisions regarding required disclosure.
The CEO and Chief Financial Officer (the “CFO”), with the participation of management, have evaluated the effectiveness of the Bank’s disclosure controls and procedures as of December 31, 2004. Based on such evaluation, the CEO and the CFO have concluded that, as of the end of such period, the Bank’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Bank in the reports that it files or submits under the Exchange Act.
Changes in Internal Controls
There have not been any changes in the Bank’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Bank’s fiscal year ended as of December 31, 2004, that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
Item 16. Reserved
Item 16A. Audit Committee Financial Expert
The Bank’s Board has determined that the Bank has at least one audit committee financial expert serving on its Audit Committee. The Audit Committee financial expert is Mr. Gonzalo Menéndez Duque.
90
Item 16B. Code of Ethics
The Bank has adopted a code of ethics that applies to the Bank’s principal executive officer and principal financial and accounting officers. The Bank has included the information regarding its corporate governance practices necessary to comply with Section 303A of the New York Stock Exchange’s Listed Company Manual/Corporate Governance Rules on its website (www.blx.com). This information includes the Bank’s code of ethics.
Item 16C. Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed for each of the fiscal years ended December 31, 2003 and 2004 for professional services rendered by KPMG for the audit of the Bank’s annual financial statements or services that are normally provided by KPMG in connection with statutory and regulatory filings or engagements for those fiscal years were $467,217 and $356,225, respectively.
Audit-Related Fees
There were no aggregate fees billed in each of the fiscal years ended December 31, 2003 and 2004 for assurance and related services by KPMG to the Bank that are reasonably related to the performance of the audit or review of the Bank’s financial statements and are not reported under “Audit Fees” above (consisting of other regulatory filing fees).
Tax Fees
The aggregate fees billed in each of the fiscal years ended December 31, 2003 and 2004 for professional services rendered by KPMG to the Bank for tax compliance, tax advice and tax planning were $49,150 and $37,583, respectively.
All Other Fees
The aggregate fees billed in each of the fiscal years ended December 31, 2003 and 2004 for products and services provided by KPMG to the Bank, other than the services reported in the three preceding paragraphs were $37,053 and $79,741, respectively.
Audit Committee Pre-Approval Policies
The Audit Committee pre-approves all audit and non-audit services to be provided to the Bank by the Bank’s independent auditors.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On August 5, 2004, the Bank announced a $50.0 million three-year open market stock repurchase program under which Bladex, may from time to time, repurchase its Class E shares of common stock, on the open market at the then prevailing market price. Such purchases under the program will be made in accordance with applicable law, and subject to all required regulatory approvals.
91
The repurchases will be made using Bladex’s cash resources, and the program may be suspended or discounted at any time without prior notice.
At December 31, 2004 the Bank has paid $7.5 million for 461,900 shares repurchased. The following table shows information about shares repurchased by the Bank in the open market:
Period 1 | | | Total Number of
Shares Purchased | | Average Price Paid
per Share | | Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs | | Maximum Number of
Shares That May Yet
Be Purchased Under
the Plans or Programs |
| | |
| |
| |
| |
|
September 2004 (9.10.04 – 9.22.04) | | | 231,200 | | | $16.41 | | | 231,200 | | | 2,814,811 | |
October 2004 (10.5.04 – 10.20.04) | | | 230,700 | | | $16.18 | | | 230,700 | | | 2,625,136 | |
March 2005 (03.17.05) | | | 10,000 | | | $21.93 | | | 10,000 | | | 1,926,724 | |
May 2005 (05.13.05 – 05.26.05) | | | 297,500 | | | $17.08 | | | 297,500 | | | 2,175,838 | |
| | |
| | | | | |
| | | | |
Total | | | 769,400 | | | | | | 769,400 | | | | |
| | |
| | | | | |
| | | | |
| | |
| | | | | |
| | | | |
|
1 The Bank did not repurchase any shares from November 2004 to February 2005. |
PART III
Item 17. Financial Statements
The Bank is providing the financial statements and related information specified in Item 18.
Item 18. Financial Statements
List of Consolidated Financial Statements | |
| |
| Independent Auditors’ Report | F-1 |
| | |
| Consolidated Balance Sheets at December 31, 2004 and 2003 | F-2 |
| | |
| Consolidated Statements of Operations for each of the Years in the | |
| Three-Year Period Ended December 31, 2004 | F-3 |
| | |
| Consolidated Statements of Changes in Stockholders’ Equity for each | |
| of the Years in the Three-Year Period Ended December 31, 2004 | F-4 |
| | |
| Consolidated Statements of Comprehensive Income for each of the | |
| Years in the Three-Year Period Ended December 31, 2004 | F-5 |
| | |
| Consolidated Statements of Cash Flows for each of the Years in the | |
| Three-Year Period Ended December 31, 2004 | F-6 |
| | |
| Notes to Consolidated Financial Statements | F-7 |
92
Item 19. Exhibits
List of Exhibits
| Exhibit 1.1. | | Amended and Restated Articles of Incorporation* |
| Exhibit 1.2. | | By-Laws* |
| Exhibit 4.1. | | Mandate Letter* |
| Exhibit 12.1. | | Rule 13a-14(a) Certification of Principal Executive Officer |
| Exhibit 12.2. | | Rule 13a-14(a) Certification of Principal Financial Officer |
| Exhibit 13.1. | | Rule 13a-14(b) Certification of Principal Executive Officer |
| Exhibit 13.2. | | Rule 13a-14(b) Certification of Principal Financial Officer |
* | Filed as an exhibit to the Form 20-F for the fiscal year ended December 31, 2002 filed with the Commission on February 24, 2003. |
93
BANCO LATINOAMERICANO
DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2004 and 2003
(With Independent Auditors’ Report Thereon)
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Banco Latinoamericano de Exportaciones, S. A.
We have audited the accompanying consolidated balance sheets of Banco Latinoamericano de Exportaciones, S. A. and subsidiaries at December 31, 2004 and 2003, and the related consolidated statements of operations, changes in stockholders’ equity, comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2004. These consolidated financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Banco Latinoamericano de Exportaciones, S. A. and subsidiaries at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
As further disclosed in Note 2 (n) and 12, the Bank changed its method of accounting for certain financial instruments with characteristics of both liabilities and equity effective July 1, 2003.
| |
| |
KPMG | |
| |
February 1, 2005 | |
Panama, Republic of Panama | |
| |
|
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2004 and 2003
Assets | | Note | | | 2004 | | 2003 | |
| | | | | | | | | | |
Cash and due from banks | | | 3,20 | | US$ | 687,248 | | | 868,018 | |
Interest-bearing deposits with banks (including pledged certificate of deposit of US$4,200,000 and US$2,200,000 for 2004 and 2003, respectively) | | | 3,20 | | | 154,099,108 | | | 253,945,857 | |
Securities purchased under agreements to resell | | | 3,4,6,20 | | | 0 | | | 132,022,050 | |
Securities available for sale | | | 5,6,20 | | | 164,871,623 | | | 48,340,618 | |
Securities held to maturity (market value of US$28,117,000 in 2004 and US$29,790,000 in 2003) | | | 5,20 | | | 27,984,068 | | | 29,452,040 | |
Loans | | | 6,20 | | | 2,441,685,854 | | | 2,275,031,138 | |
Less: | | | | | | | | | | |
Allowance for loan losses | | | 7 | | | 106,352,107 | | | 224,347,459 | |
Unearned income | | | | | | 3,845,358 | | | 4,282,083 | |
| | | | | |
| |
|
| |
Loans, net | | | | | | 2,331,488,389 | | | 2,046,401,596 | |
| | | | | |
| |
|
| |
Customers’ liabilities under acceptances | | | 6,20 | | | 32,529,977 | | | 29,006,054 | |
Premises and equipment | | | 8 | | | 3,508,404 | | | 4,118,848 | |
Accrued interest receivable | | | 20 | | | 15,448,061 | | | 10,930,756 | |
Derivative financial instruments-assets | | | 18,20 | | | 0 | | | 2,256,084 | |
Other assets | | | 17 | | | 5,490,612 | | | 6,213,612 | |
| | | | | |
| |
|
| |
Total assets | | | | | US$ | 2,736,107,490 | | | 2,563,555,533 | |
| | | | | |
| |
|
| |
Liabilities and Stockholders’ Equity | | | | | | | | | | |
Deposits: | | | 9,20 | | | | | | | |
Noninterest-bearing - Demand | | | | | US$ | 22,619,188 | | | 19,370,257 | |
Interest-bearing - Time | | | | | | 841,540,399 | | | 683,584,579 | |
| | | | | |
| |
|
| |
Total deposits | | | | | | 864,159,587 | | | 702,954,836 | |
| | | | | |
| |
|
| |
Short-term borrowings | | | 5,10,20 | | | 704,718,013 | | | 687,214,017 | |
Medium and long-term borrowings and placements | | | 11,20 | | | 403,620,966 | | | 485,516,431 | |
Acceptances outstanding | | | | | | 32,529,977 | | | 29,006,054 | |
Accrued interest payable | | | | | | 6,477,399 | | | 5,431,818 | |
Derivative financial instruments-liabilities | | | 18,20 | | | 0 | | | 13,021,310 | |
Reserve for losses on off-balance sheet credit risk | | | 7 | | | 33,101,436 | | | 33,972,581 | |
Redeemable preferred stock (US$10 par value) | | | 12 | | | 7,860,386 | | | 10,946,434 | |
Other liabilities | | | | | | 27,509,396 | | | 11,163,367 | |
| | | | | |
| |
|
| |
Total liabilities | | | | | | 2,079,977,160 | | | 1,979,226,848 | |
| | | | | |
| |
|
| |
Stockholders’ equity: | | | 13,14,15 | | | | | | | |
Class “A” common stock, no par value, assigned value of US$6.67 (Authorized 40,000,000; outstanding 6,342,189) | | | | | | 44,407,100 | | | 44,407,100 | |
Class “B” common stock, no par value, assigned value of US$6.67 (Authorized 40,000,000; outstanding 3,271,269 in 2004 and 3,466,702 in 2003) | | | | | | 25,598,199 | | | 26,901,149 | |
Class “E” common stock, no par value, assigned value of US$6.67 (Authorized 100,000,000; outstanding 29,283,621 in 2004 and 29,543,847 in 2003) | | | | | | 209,973,177 | | | 208,669,649 | |
Additional paid-in capital in excess of assigned value | | | | | | 133,785,441 | | | 133,786,028 | |
Capital reserves | | | 25 | | | 95,210,154 | | | 95,210,154 | |
Retained earnings | | | | | | 233,700,536 | | | 150,788,831 | |
Treasury stock | | | 13 | | | (92,626,751 | ) | | (85,310,452 | ) |
Accumulated other comprehensive income | | | 5, 19 | | | 6,082,474 | | | 9,876,226 | |
| | | | | |
| |
|
| |
Total stockholders’ equity | | | | | | 656,130,330 | | | 584,328,685 | |
| | | | | |
| |
|
| |
Commitments and contingent liabilities | | | 6,17,20 | | | | | | | |
Total liabilities and stockholders’ equity | | | | | US$ | 2,736,107,490 | | | 2,563,555,533 | |
| | | | | |
| |
|
| |
See accompanying notes to consolidated financial statements.
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Consolidated Statements of Operations
For Each of the Years in the Three - Year Period Ended December 31, 2004
| | Note | | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | |
Interest income: | | | | | | | | | | | | | |
Deposits with banks | | | | | US$ | 2,729,348 | | | 4,620,632 | | | 9,716,709 | |
Investment securities: | | | | | | | | | | | | | |
Investment available for sale | | | | | | 3,688,302 | | | 6,515,781 | | | 6,986,015 | |
Investment held to maturity | | | | | | 2,218,141 | | | 1,275,553 | | | 10,379,207 | |
Loans | | | | | | 67,480,314 | | | 85,944,679 | | | 138,681,758 | |
Other | | | | | | 35,664 | | | 38,534 | | | 36,660 | |
| | | | | |
| |
|
| |
|
| |
Total interest income | | | | | | 76,151,769 | | | 98,395,179 | | | 165,800,349 | |
| | | | | |
| |
|
| |
|
| |
Interest expense: | | | | | | | | | | | | | |
Deposits | | | | | | 11,938,675 | | | 7,348,428 | | | 15,283,449 | |
Short-term borrowings | | | | | | 9,388,323 | | | 12,050,472 | | | 33,555,221 | |
Medium and long-term borrowings and placements | | | | | | 12,799,615 | | | 25,009,240 | | | 52,182,769 | |
| | | | | |
| |
|
| |
|
| |
Total interest expense | | | | | | 34,126,613 | | | 44,408,140 | | | 101,021,439 | |
| | | | | |
| |
|
| |
|
| |
Net interest income | | | | | | 42,025,156 | | | 53,987,039 | | | 64,778,910 | |
(Reversal) provision for loan losses | | | 7 | | | (111,399,762 | ) | | (69,507,810 | ) | | 272,586,082 | |
| | | | | |
| |
|
| |
|
| |
Net interest income (loss) after (reversal) provision for loan losses | | | | | | 153,424,918 | | | 123,494,849 | | | (207,807,172 | ) |
| | | | | |
| |
|
| |
|
| |
Other income (expense): | | | | | | | | | | | | | |
Commission income, net | | | | | | 5,927,778 | | | 7,445,581 | | | 8,886,260 | |
Reversal (provision) for losses on off-balance sheet credit risk | | | 7 | | | 871,145 | | | (10,602,890 | ) | | (6,169,691 | ) |
Derivatives and hedging activities | | | | | | 47,713 | | | (7,987,844 | ) | | (340,743 | ) |
Impairment loss on securities | | | 5 | | | 0 | | | (953,477 | ) | | (44,268,201 | ) |
Gain on sale of securities available for sale | | | 5 | | | 2,921,688 | | | 22,210,998 | | | 183,586 | |
Gain on early extinguishment of debt | | | 11 | | | 6,250 | | | 788,907 | | | 1,430,000 | |
Gain (loss) on foreign currency exchange | | | | | | (193,663 | ) | | (381,814 | ) | | 300,589 | |
Other income (expense) | | | | | | 76,774 | | | 42,385 | | | 552,727 | |
| | | | | |
| |
|
| |
|
| |
Net other income (expense) | | | | | | 9,657,685 | | | 10,561,846 | | | (39,425,473 | ) |
| | | | | |
| |
|
| |
|
| |
Operating expenses: | | | | | | | | | | | | | |
Salaries and other employee expenses | | | | | | 10,334,744 | | | 11,390,409 | | | 9,873,652 | |
Depreciation of premises and equipment | | | | | | 1,298,489 | | | 1,511,981 | | | 1,418,251 | |
Professional services | | | | | | 2,571,544 | | | 3,146,994 | | | 2,395,277 | |
Maintenance and repairs | | | | | | 1,206,780 | | | 1,165,864 | | | 915,902 | |
Other operating expenses | | | | | | 5,940,806 | | | 5,345,635 | | | 4,655,988 | |
| | | | | |
| |
|
| |
|
| |
Total operating expenses | | | | | | 21,352,363 | | | 22,560,883 | | | 19,259,070 | |
| | | | | |
| |
|
| |
|
| |
Income (loss) from continuing operations | | | | | | 141,730,240 | | | 111,495,812 | | | (266,491,715 | ) |
Discontinued operations: | | | | | | | | | | | | | |
Loss from operations and disposal of business segment | | | 16, 24 | | | 0 | | | 0 | | | (2,346,094 | ) |
| | | | | |
| |
|
| |
|
| |
Net income (loss) | | | | | US$ | 141,730,240 | | | 111,495,812 | | | (268,837,809 | ) |
| | | | | |
| |
|
| |
|
| |
Basic earnings (loss) per share: | | | 16 | | | | | | | | | | |
Income (loss) from continuing operations | | | | | US$ | 3.61 | | | 3.88 | | | (15.42 | ) |
Loss from discontinued operations | | | | | | 0.00 | | | 0.00 | | | (0.14 | ) |
| | | | | |
| |
|
| |
|
| |
Net income (loss) per share | | | | | US$ | 3.61 | | | 3.88 | | | (15.56 | ) |
| | | | | |
| |
|
| |
|
| |
Diluted earnings (loss) per share: | | | 16 | | | | | | | | | | |
Income (loss) from continuing operations | | | | | US$ | 3.60 | | | 3.88 | | | (15.42 | ) |
Loss from discontinued operations | | | | | | 0.00 | | | 0.00 | | | (0.14 | ) |
| | | | | |
| |
|
| |
|
| |
Net income (loss) per share | | | | | US$ | 3.60 | | | 3.88 | | | (15.56 | ) |
| | | | | |
| |
|
| |
|
| |
See accompanying notes to consolidated financial statements.
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For Each of the Years in the Three - Year Period Ended December 31, 2004
| | | 2004 | | 2003 | | 2002 | |
| | | | | | | | |
Common stock: | | | | | | | | | | |
Balance at beginning of the year | | US$ | 279,977,898 | | | 133,234,806 | | | 133,217,418 | |
Issuance of common stock | | | 0 | | | 146,740,000 | | | 15,734 | |
Difference in fractional shares in conversion of common stock | | | 578 | | | 3,092 | | | 1,654 | |
| | |
| |
|
| |
|
| |
Balance at end of the year | | US$ | 279,978,476 | | | 279,977,898 | | | 133,234,806 | |
| | |
| |
|
| |
|
| |
Additional paid-in capital in excess of assigned value: | | | | | | | | | | |
Balance at beginning of the year | | US$ | 133,786,028 | | | 145,490,027 | | | 145,456,320 | |
Issuance of common stock | | | 0 | | | 220,000 | | | 35,361 | |
Difference in fractional shares in conversion of common stock | | | (587 | ) | | (3,092 | ) | | (1,654 | ) |
Stock offering costs | | | 0 | | | (11,920,907 | ) | | 0 | |
| | |
| |
|
| |
|
| |
Balance at end of the year | | US$ | 133,785,441 | | | 133,786,028 | | | 145,490,027 | |
| | |
| |
|
| |
|
| |
Capital reserves: | | | | | | | | | | |
Balance at beginning of the year | | US$ | 95,210,154 | | | 95,210,154 | | | 305,210,154 | |
Transfer to retained earnings | | | 0 | | | 0 | | | (210,000,000 | ) |
| | |
| |
|
| |
|
| |
Balance at end of the year | | US$ | 95,210,154 | | | 95,210,154 | | | 95,210,154 | |
| | |
| |
|
| |
|
| |
Retained earnings: | | | | | | | | | | |
Balance at beginning of the year | | US$ | 150,788,831 | | | 40,739,863 | | | 100,674,373 | |
Net income (loss) | | | 141,730,240 | | | 111,495,812 | | | (268,837,809 | ) |
Dividends - common stock | | | (58,702,056 | ) | | 0 | | | 0 | |
Dividends - redeemable preferred stock | | | 0 | | | (1,218,557 | ) | | (1,096,701 | ) |
Earnings transferred from capital reserves | | | 0 | | | 0 | | | 210,000,000 | |
Issuance of restricted stock | | | (116,471 | ) | | (228,262 | ) | | 0 | |
Difference on fractional shares in conversion of common stock | | | (8 | ) | | (25 | ) | | 0 | |
| | |
| |
|
| |
|
| |
Balance at end of the year | | US$ | 233,700,536 | | | 150,788,831 | | | 40,739,863 | |
| | |
| |
|
| |
|
| |
Treasury stock: | | | | | | | | | | |
Balance at beginning of the year | | US$ | (85,310,452 | ) | | (85,633,707 | ) | | (85,633,707 | ) |
Issuance of restricted stock | | | 211,349 | | | 323,255 | | | 0 | |
Repurchase of Class “E” common stock | | | (7,527,648 | ) | | 0 | | | 0 | |
| | |
| |
|
| |
|
| |
Balance at end of the year | | US$ | (92,626,751 | ) | | (85,310,452 | ) | | (85,633,707 | ) |
| | |
| |
|
| |
|
| |
Accumulated other comprehensive income (loss): | | | | | | | | | | |
Balance at beginning of the year | | US$ | 9,876,226 | | | (117,717 | ) | | (506,280 | ) |
Net change in unrealized gains (losses) on securities available for sale | | | (4,178,041 | ) | | 7,258,933 | | | 2,967,166 | |
Net change in unrealized gains (losses) on derivatives | | | 384,289 | | | 2,735,010 | | | (2,578,603 | ) |
| | |
| |
|
| |
|
| |
Balance at end of the year | | US$ | 6,082,474 | | | 9,876,226 | | | (117,717 | ) |
| | |
| |
|
| |
|
| |
Balance at beginning of the year | | US$ | 584,328,685 | | | 328,923,426 | | | 598,418,278 | |
Changes during the year, net | | | 71,801,645 | | | 255,405,259 | | | (269,494,852 | ) |
| | |
| |
|
| |
|
| |
Balance at end of the year | | US$ | 656,130,330 | | | 584,328,685 | | | 328,923,426 | |
| | |
| |
|
| |
|
| |
See accompanying notes to consolidated financial statements.
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
For Each of the Years in the Three - Year Period Ended December 31, 2004
| | Note | | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | |
Net income (loss) | | | | | US$ | 141,730,240 | | | 111,495,812 | | | (268,837,809 | ) |
Other comprehensive income (loss): | | | | | | | | | | | | | |
Unrealized gains (losses) on securities: | | | | | | | | | | | | | |
Unrealized gains (losses) arising from the year (including adjustments related to transfers from securities held to maturity to available for sale) | | | | | | (1,256,353 | ) | | 29,469,931 | | | (38,916,035 | ) |
Less: Reclassification adjustments for (gains) losses included in net income (loss) | | | | | | (2,921,688 | ) | | (22,210,998 | ) | | 41,883,201 | |
| | | | | |
| |
|
| |
|
| |
Net change in unrealized gains (losses) on securities available for sale | | | 5,19 | | | (4,178,041 | ) | | 7,258,933 | | | 2,967,166 | |
| | | | | |
| |
|
| |
|
| |
Unrealized gains (losses) on derivatives arising from the year | | | 19 | | | 384,289 | | | 2,735,010 | | | (2,578,603 | ) |
| | | | | |
| |
|
| |
|
| |
Other comprehensive income (loss) | | | | | | (3,793,752 | ) | | 9,993,943 | | | 388,563 | |
| | | | | |
| |
|
| |
|
| |
Comprehensive income (loss) | | | | | US$ | 137,936,488 | | | 121,489,755 | | | (268,449,246 | ) |
| | | | | |
| |
|
| |
|
| |
See accompanying notes to consolidated financial statements.
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Each of the Years in the Three - Year Period Ended December 31, 2004
| | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | |
Net income (loss) | | US$ | 141,730,240 | | | 111,495,812 | | | (268,837,809 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | |
Derivatives and hedging activities | | | (47,713 | ) | | 1,274,094 | | | 340,743 | |
Depreciation of premises and equipment | | | 1,298,489 | | | 1,511,981 | | | 1,434,217 | |
Reversal (provision) for loan losses | | | (111,399,762 | ) | | (69,507,810 | ) | | 272,586,082 | |
Impairment loss on securities | | | 0 | | | 953,477 | | | 44,268,201 | |
(Reversal) provision for losses on off-balance sheet credit risk | | | (871,145 | ) | | 10,602,890 | | | 6,169,691 | |
Provision for fair value of guarantees | | | 0 | | | 5,260 | | | 0 | |
Gain on sale of securities available for sale | | | (2,921,688 | ) | | (22,210,998 | ) | | (183,586 | ) |
Issuance of restricted stock | | | 94,878 | | | 94,993 | | | 0 | |
Amortization of premiums and discounts on investments | | | 1,175,166 | | | (262,576 | ) | | (833,151 | ) |
Net (increase) decrease in accrued interest receivable | | | (4,517,305 | ) | | 4,481,097 | | | 58,988,253 | |
Net (decrease) increase in derivatives financial instruments | | | (10,333,224 | ) | | (1,223,177 | ) | | 38,104,883 | |
Net decrease (increase) in other assets | | | 723,000 | | | 2,756,416 | | | (1,273,916 | ) |
Net increase (decrease) in accrued interest payable | | | 384,853 | | | (6,074,500 | ) | | (28,021,652 | ) |
Net increase (decrease) in other liabilities | | | 10,511,467 | | | (1,796,950 | ) | | (6,793,106 | ) |
| | |
| |
|
| |
|
| |
Net cash provided by operating activities | | | 25,827,256 | | | 32,100,009 | | | 115,948,850 | |
| | |
| |
|
| |
|
| |
Cash flows from investing activities: | | | | | | | | | | |
(Increase) decrease in pledged certificates of deposit | | | (2,000,000 | ) | | 2,800,000 | | | 1,000,000 | |
Net (increase) decrease increase in loans | | | (173,687,031 | ) | | 102,804,456 | | | 2,188,689,639 | |
Net acquisition of premises and equipment | | | (688,045 | ) | | (543,940 | ) | | (1,043,325 | ) |
Proceeds from the redemption of securities available for sale | | | 19,273,758 | | | 56,815,259 | | | 4,300,000 | |
Proceeds from the redemption of securities held to maturity | | | 0 | | | 11,817,973 | | | 143,337,714 | |
Proceeds from the sale of securities available for sale | | | 7,656,903 | | | 40,675,803 | | | 64,555,240 | |
Acquisition of securities available for sale | | | (144,425,213 | ) | | 0 | | | (51,128,723 | ) |
| | |
| |
|
| |
|
| |
Net cash (used in) provided by investing activities | | | (293,869,628 | ) | | 214,369,551 | | | 2,349,710,545 | |
| | |
| |
|
| |
|
| |
Cash flows from financing activities: | | | | | | | | | | |
Net increase (decrease) in due to depositors | | | 161,204,751 | | | 150,982,224 | | | (1,019,386,627 | ) |
Net decrease in short-term borrowings and placements with original maturity of less than 90 days | | | (183,023,712 | ) | | (25,574,014 | ) | | (249,198,695 | ) |
Proceeds from short-term borrowings and placements with original maturity greater than 90 days | | | 936,355,458 | | | 870,583,548 | | | 398,145,749 | |
Repayments of short-term borrowings and placements with original maturity greater than 90 days | | | (735,827,750 | ) | | (805,140,006 | ) | | (1,324,926,193 | ) |
Proceeds from medium and long-term borrowings and placements with original maturity greater than 90 days | | | 256,727,846 | | | 100,098,511 | | | 225,386,872 | |
Repayments of medium and long-term borrowings and placements with original maturity greater than 90 days | | | (338,623,311 | ) | | (900,075,345 | ) | | (727,054,926 | ) |
Dividends paid | | | (52,867,494 | ) | | (852,990 | ) | | (1,096,701 | ) |
Proceeds from issuance of common stock | | | 0 | | | 146,960,000 | | | 51,095 | |
Stock offering costs | | | 0 | | | (7,841,128 | ) | | (4,079,779 | ) |
Redemption of redeemable preferred stock | | | (2,425,320 | ) | | (2,260,299 | ) | | (2,756,360 | ) |
Repurchase of common stock | | | (7,527,648 | ) | | 0 | | | 0 | |
Conversion of common stock | | | (17 | ) | | (25 | ) | | 0 | |
| | |
| |
|
| |
|
| |
Net cash provided by (used in) financing activities | | | 33,992,803 | | | (473,119,524 | ) | | (2,704,915,565 | ) |
| | |
| |
|
| |
|
| |
Net decrease in cash and cash equivalents | | | (234,049,569 | ) | | (226,649,964 | ) | | (239,256,170 | ) |
Cash and cash equivalents at beginning of the year | | | 384,635,925 | | | 611,285,889 | | | 850,542,059 | |
| | |
| |
|
| |
|
| |
Cash and cash equivalents at end of the year | | US$ | 150,586,356 | | | 384,635,925 | | | 611,285,889 | |
| | |
| |
|
| |
|
| |
Supplemental disclosures of cash flow information: | | | | | | | | | | |
Cash paid during the year for interest | | US$ | 33,741,760 | | | 50,482,640 | | | 127,166,695 | |
| | |
| |
|
| |
|
| |
Non-cash investing and financing activities: | | | | | | | | | | |
Loan restructured as investment | | US$ | 0 | | | 933,374 | | | 3,023,100 | |
| | |
| |
|
| |
|
| |
Investment restructured as loan | | US$ | 0 | | | 3,325,000 | | | 5,500,000 | |
| | |
| |
|
| |
|
| |
Transfer from securities held to maturity to available for sale | | US$ | 0 | | | 0 | | | 173,974,293 | |
| | |
| |
|
| |
|
| |
Transfer from securities available for sale to held to maturity | | US$ | 0 | | | 29,821,038 | | | 0 | |
| | |
| |
|
| |
|
| |
Transfer from capital reserves to retained earnings | | US$ | 0 | | | 0 | | | 210,000,000 | |
| | |
| |
|
| |
|
| |
| See accompanying notes to consolidated financial statements. |
|
|
|
F-6 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
December 31, 2004 and 2003 |
|
|
(1) | Organization |
| Banco Latinoamericano de Exportaciones, S. A. (“Bladex Panama” or “Head Office” and together with its subsidiaries “Bladex” or the “Bank”), headquartered in Panama City, Republic of Panama (“Panama”), is a specialized supranational bank established to finance trade in Latin America and the Caribbean (the “Region”). The Bank was established pursuant to a May 1975 proposal presented to the XX Assembly of Governors of Central Banks in the Region, which recommended the creation of a multinational organization to increase the foreign trade financing capacity of the Region. The Bank was organized in 1977, constituted in 1978 as a corporation pursuant to the laws of the Republic of Panama and initiated official operations on January 2, 1979, with its corporate headquarters located in Panama. |
| |
| The Bank operates under a general banking license issued by the national Banking Commission, predecessor of the Superintendency of Banks of Panama, and is subject to its supervision and inspection. |
| |
| Bladex’s subsidiaries are the following: |
| |
| • | Banco Latinoamericano de Exportaciones Limited, (“Bladex Cayman”) a wholly owned subsidiary, incorporated under the laws of the Cayman Islands (B.W.I.) on September 8, 1987. On November 30, 2004, Bladex Cayman ceased its banking operations. All financial assets and liabilities were transferred to Bladex Panama (its parent company) and were recorded at predecessor basis. On December 2004, Bladex Cayman obtained authorization to surrender its banking license from the Cayman Island Monetary Authority and the Superintendency of Banks of Panama. |
| | |
| • | Bladex Representacao Ltda., which was incorporated under the laws of Brazil on January 7, 2000 and continues to exist there under, was established to act as the Bank’s representative office in Brazil. Bladex Representacao Ltda. is 99.999% owned by Bladex Panama and 0.001% owned by Bladex Cayman. |
| | |
| • | Bladex Holdings Inc., which is a wholly owned subsidiary, was incorporated under the laws of the State of Delaware on May 30, 2000 and continues to exist there under. Bladex Holdings Inc.’s wholly owned subsidiary, Bladex Financial Services, LLC, incorporated under the laws of the State of New York on October 20, 2000, was closed on June 30, 2002 together with its wholly owned subsidiary, Bladex Securities, LLC, incorporated under the laws of the State of New York on October 20, 2000. Bladex Financial Services, LLC and its wholly owned subsidiary Bladex Securities, LLC, had no operations subsequent to June 30, 2002. |
| | |
| The Bank established an agency in the State of New York (the “New York Agency”), which began operations on March 27, 1989. The New York Agency is principally engaged in obtaining inter-bank deposits and short-term borrowings to finance the Bank’s short-term investments and foreign trade loans. The Bank also has representative offices in Buenos Aires, Argentina, and in Mexico City, Mexico. |
| |
|
|
F-7 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
(2) | Summary of Significant Accounting Policies |
| The consolidated financial statements have been prepared under generally accepted accounting principles in the United States of America (“U.S. GAAP”). All amounts presented in the consolidated financial statements and notes are expressed in U.S. dollars. |
| |
| (a) | Principle of Consolidation |
| | The consolidated financial statements include the accounts of Bladex (Head Office), its New York Agency and its subsidiaries, Bladex Cayman, Bladex Holdings Inc. and Bladex Representacao Ltda. All significant inter-company balances and transactions have been eliminated for consolidation purposes. |
| | |
| (b) | Use of Estimates |
| | The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Bank to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowances for credit losses and impairment losses on securities and off-balance sheet credit losses. |
| | |
| (c) | Cash Equivalents |
| | For purposes of the consolidated statements of cash flows, cash equivalents consist of due from banks, interest-bearing deposits with banks, securities purchased under agreements to resell with original maturities of three months or less, except certificates of deposit and banker’s acceptances pledged. |
| | |
| (d) | Repurchase and Resale Agreements |
| | Repurchase and resale agreements are treated as collateralized financing transactions and are carried at the amounts at which the securities will be subsequently reacquired or resold, including accrued interest, as specified in the respective agreements. The Bank’s policy is to take possession of securities purchased under agreements to resell and to relinquish possession of the securities sold under agreements to repurchase. The market value of securities to be repurchased and resold is monitored, and additional collateral is obtained where appropriate, to protect against credit exposure under resale agreements. |
| | |
| (e) | Investment Securities |
| | Securities are classified at the date of purchase based on the ability and intent to sell or hold them as investments. These securities consist of debt securities such as negotiable commercial paper, banker’s acceptances, bonds and floating rate notes and equity securities. |
| | |
| | 1) | Trading Securities |
| | | Securities that have been bought and held principally for the purpose of selling them in the near term are classified as trading securities. Changes in fair value are recorded in earnings. |
|
|
|
F-8 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| | 2) | Securities Available for Sale |
| | | These securities consist of mostly debt instruments that the Bank buys with the intention of selling them prior to maturity, and are subject to the same approval criteria as the rest of the credit portfolio. These securities are carried at fair value, based on quoted market prices, and interest earned is recognized as income. Changes in fair values are recorded as a component of other comprehensive income (loss) in shareholders’ equity until realized. |
| | | |
| | | Realized gains and losses on sales of securities are computed on a specific identified cost basis, and are reported within other income (expense) in the consolidated statements of operation. |
| | | |
| | 3) | Securities Held to Maturity |
| | | Securities classified as held to maturity are securities that the Bank has the positive intent and ability to hold them to maturity. These securities are carried at amortized cost and are subject to the same approval criteria as the rest of the credit portfolio. |
| | | |
| | Any security that experiences a decline in value, which is deemed other than temporary, is written down to its estimated fair value through a charge to current period income, as impairment loss on securities. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using a method that approximates the interest method. |
. | | |
| | Accrual of income is suspended on fixed income securities that are in default, or on which it is likely that future interest payments will not be collected as scheduled. |
| | |
| (f) | Investment Fund |
| | Investment fund is reported at cost and is included in other assets. |
| | |
| (g) | Loans |
| | Loans are reported at their principal amounts outstanding net of unearned income, reduced by the allowance for loan losses. The amortization of net unearned income is recognized as an adjustment to the related loan yield by using a method that approximates the interest method, based on the estimated lives of the loans. |
| | |
| | Loans are identified as impaired and placed on non-accrual status (cash basis) when any payment of principal or interest is over 90 days due, or before if the Bank’s management determines that the ultimate collection of principal or interest is doubtful. Any interest receivable that was accrued during the current period is reversed and any interest accrued in prior periods is charged-off against earnings. Interest on non-accrual loans is only recorded as earned when collected. Non-accrual loans are returned to an accrual status when both principal and interest are current and the loan is determined to be performing in accordance with the applicable contractual loan terms and conditions for a sustained period of time and not less than six months, which is the minimum required by the Superintendency of Banks of Panama, and if in the Bank’s management’s opinion the loan is fully collectible. When current events or available information confirms that specific impaired loans or portions thereof are uncollectible, these credit losses are deducted from the allowance for loan losses. |
| | |
|
|
F-9 |
| | Factors considered by the Bank’s management in determining impairment include collection status, collateral value, the probability of collecting scheduled principal and interest payment when due, and economic conditions in the borrowing country. |
| | |
| | A loan is classified as a troubled debt restructuring if a significant concession is granted to the borrower due to the deterioration in the borrower’s financial condition. |
| | |
| | Transfers of financial assets, primarily loans, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Bank; (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. |
| | |
| | Upon completion of a transfer of assets that satisfies the conditions described above to be accounted for as a sale, the Bank derecognizes all assets sold; and recognizes in earnings any gain or loss on the sale. |
| | |
| (h) | Allowance for Credit Losses |
| | The allowance for credit losses is provided for risk on losses, derived from the credit extension process, inherent in the loan portfolio and off-balance sheet financial instruments, using the reserve method of providing for credit losses. Additions to the allowance for credit losses are made by charges to earnings. Credit losses are deducted from the allowance, and subsequent recoveries are added. The allowance is also decreased by reversals of the allowance back to earnings. The allowance for credit losses is based on the evaluation of risks in the credit portfolio, and additionally, the Bank’s management takes into consideration the growth, nature and composition of the credit portfolio, including concentration, prior credit loan losses experience, and the conditions and general tendencies of the economy in each borrower’s country. |
| | |
| | Securities received in exchange for loan claims in debt restructurings are initially recorded at fair value, with any gain or loss recorded as recovery to the allowance, and are subsequently accounted for as securities available for sale. |
| | |
| | The Bank’s management estimates losses on impaired credits on a loan-by-loan basis, and considers all available evidence including, as appropriate, the present value of expected future cash flows discounted at the loan’s contractual effective rate, the secondary market value of the loan, if available, the fair value of the collateral, and other factors. |
| | |
| | The Bank’s management estimates probable credit losses on the balance of its credit portfolio using a provision matrix model, which classifies and aggregates risk into three categories: country risk, borrower risk and transaction type risk. To determine the probability of default due to country and borrower risk, the Bank uses sovereign and counter-party ratings of well-known independent rating agencies. The Bank evaluates the transaction risk mainly by taking into account whether the risk is a foreign trade related transaction or otherwise. |
|
|
|
F-10 |
| | | |
| | This model is a tool to estimate and validate the levels of required reserves, but does not take into account all variables affecting asset quality. Therefore, on a quarterly basis, the Bank also reviews the adequacy of reserves taking into account regional political, financial and economic trends affecting the portfolio, delinquency trends, volatility and significant concentrations that are not fully reflected in the model, and then adjust the level of required reserves, accordingly. |
| | |
| | The allowance attributable to loans is reported as a deduction of loans and the allowance for off-balance sheet credit risk, such as letters of credit and guarantees, is reported as liabilities. |
| | |
| (i) | Fair Value of Guarantees Including Indirect Indebtedness of Others |
| | FIN 45 requires that upon issuance of a guarantee the Bank recognize a liability for the fair value of all the obligations undertaken such as stand by letters of credit and guarantees. Fair value is calculated based on the present value of the premium to be received. The Bank’s policy is to record reserves for off-balance sheet credit risk, which usually is greater than the fair value of the guarantees, accordingly, no additional adjustments have been required to present stand by letter of credit and guarantees at fair value. |
| | |
| (j) | Commission Income |
| | Loan origination fees, net of direct loan origination costs are deferred; the net amount is recognized over the contract life of the loans as an adjustment to the yield. During periods in which interest income on loans is suspended because of concerns about the realization of loan principal or interest, these fees, net of direct loan origination costs are not recognized. |
| | |
| | Fees received in connection with a modification of terms of a troubled debt restructuring are applied as a reduction of the recorded investment in the loan. All related costs, including direct loan origination costs, are charged to expense as incurred. |
| | |
| | Fees earned on letters of credit, guarantees and commitments are amortized over the life of such instruments. |
| | |
| (k) | Premises and Equipment |
| | Premises and equipment are carried at cost less accumulated depreciation, except land, which is carried at cost. Depreciation is charged to operations using the straight-line method, and is provided over the estimated original useful life of the related assets. The estimated original useful life for building is 40 years and for furniture and equipment is 3 to 5 years. |
| | |
| (l) | Capital Reserves |
| | According to Panamanian banking regulations, capital reserves are established by the Bank as a carve-out of retained earnings and are as such a form of retained earnings. Reductions of these capital reserves require the approval of the Bank’s Board of Directors and the Superintendency of Banks of Panama. |
| | |
|
|
F-11 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| (m) | Cash and Stock Based Compensation Plan |
| | On December 16, 2004, the FASB issued the SFAS 123, Share-Based Payment (revised 2004), which required to account as an expense all employee services received in share-based payment transactions, using a fair-value-based method. For public companies, the effective date is the first interim period beginning after June 15, 2005. The accompanying consolidated financial statements have been prepared applying the intrinsic value based method to account for stock-based compensation plans prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees”, accordingly. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date, over the amount an employee must pay to acquire the stock. |
| | |
| | Had the Bank applied the fair value based method (SFAS 123) in accounting for the Bank’s Stock Option Plans, net income and net income per share would have been the pro forma amounts indicated below: |
| | | | | December 31, | |
| | | | |
| |
(In US$ thousands, except per share data) | | | | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | | | | |
Net income (loss), as reported | | | US$ | | | 141,730 | | | 111,496 | | | (268,838 | ) |
Adjust: Total stock-based employee compensation expense determined under the fair value based method for all grants. | | | US$ | | | (295 | ) | | (385 | ) | | (320 | ) |
| | | | |
|
| |
|
| |
|
| |
Pro-forma net income (loss) | | | US$ | | | 141,435 | | | 111,111 | | | (269,158 | ) |
| | | | |
|
| |
|
| |
|
| |
Earnings (loss) per share: | | | | | | | | | | | | | |
Basic - as reported | | | US$ | | | 3.61 | | | 3.88 | | | (15.56 | ) |
Basic - pro forma | | | US$ | | | 3.60 | | | 3.87 | | | (15.58 | ) |
| | | | | | | | | | | | | | |
Diluted - as reported | | | US$ | | | 3.60 | | | 3.88 | | | (15.56 | ) |
Diluted - pro forma | | | US$ | | | 3.59 | | | 3.87 | | | (15.58 | ) |
| (n) | Redeemable Preferred Stock |
| | Since 2003, the Bank adopted the Statement of Financial Accounting Standard No.150 (SFAS 150) “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, which required classifying as liabilities all financial instruments that embodied an obligation to the issuer. Adoption of SFAS 150 brought about the reclassification of redeemable preferred stock as liabilities in the consolidated balance sheets and recognition as interest expense, the dividend payable on redeemable preferred stock. In this case, SFAS 150 did not require restatement of prior years. |
| | |
| (o) | Derivative Financial Instruments |
| | The Bank makes use of derivative financial instruments, primarily foreign exchange forward contracts and interest rate swaps, as part of its management of foreign exchange and interest rate risks. |
| | |
|
|
F-12 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| | Foreign exchange forward contracts are commitments to purchase non-US dollar currencies at a specified price on an agreed-upon future date, and are used mainly to hedge non-US dollar hard-currency interest paying liabilities and interest earning assets. |
| | |
| | Interest rate swaps are contracts that represent an exchange of US dollar interest payment streams based on an agreed-upon notional principal amount, with one stream based on a specified floating rate or fixed rate. These financial instruments are used to manage interest rate risk through the exchange of interest payments based on a predetermined notional principal amount. The underlying principal balances are not affected. Net settlement amounts are reported as adjustments to interest. |
| | |
| | The Bank carries all derivatives in the balance sheets at fair value. The accounting for changes in fair value (i.e. gains or losses) of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the type of hedge. That is, the derivative is designated by the Bank as (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value” hedge); or (2) a hedge of the variability of cash flows of a forecasted transaction to be received or paid related to a recognized asset or liability (“cash flow” hedge); or (3) as a trading position. |
| | |
| | Changes in the fair value of a derivative that has been designated and qualifies as a fair value hedge, along with the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are included in other income (expense) and recorded as derivative and hedging activities. Changes in the fair value of a derivative that has been designated and qualifies as a cash flow hedge are recorded in other comprehensive income (loss) to the extent of its effectiveness, until earnings are impacted by the variability of cash flows from the hedged item. Changes in the fair value of derivatives held for trading purposes or those that do not qualify as hedges (freestanding) are included in other income (expense) and recorded as derivative and hedging activities. Ineffectiveness relating to fair value and cash flow hedges, if any, is recorded within interest expense. The impact of hedge ineffectiveness on the Bank’s consolidated statement of operations was not material for all periods presented. |
| | |
| | At the inception of each hedge, the Bank documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transactions. This process includes linking all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the consolidated balance sheets, or to specific firm commitments or forecasted transactions. |
| | |
| | Hedge discontinuation |
| | On an on-going basis the Bank formally assesses whether the derivatives used in hedging transactions will continue to be “Highly Effective” in offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative is not “highly effective” as a hedge, or that it has ceased to be a “highly effective hedge”, the Bank discontinues hedge accounting prospectively. |
| | |
|
|
F-13 |
|
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| | The Bank discontinues hedge accounting prospectively when (1) the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; (3) it is unlikely that a forecasted transaction will occur; (4) the hedged firm commitment no longer meets the definition of a firm commitment; or (5) the designation of the derivative as a hedging instrument is no longer appropriate. |
| | |
| | When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value or cash flow hedge, the derivative continues to be carried on the consolidated balance sheets at its fair value, with changes in fair value reported in current period earnings. The hedged item will no longer be adjusted for changes in fair value. If the hedged item was a firm commitment or a forecasted transaction that is not expected to occur, any amounts recorded on the consolidated balance sheets related to the hedged item, including any amounts recorded in accumulated other comprehensive income (loss) are reversed against earnings. In all other situations, the accumulated fair value adjustment recorded on the consolidated balance sheets for the hedged asset or liability (including amounts recorded in other comprehensive income (loss)) will be accreted/amortized to earnings over the remaining term of the hedged asset or liability. |
| | |
| (p) | Foreign Currency Transactions |
| | Assets and liabilities denominated in foreign currencies are re-measured into U.S. dollar equivalents using period-end spot foreign exchange rates. The effects of re-measuring assets and liabilities into the U.S. dollar as the functional currency are included in other income (expense) and recorded as gains (losses) on foreign currency exchange. |
| | |
| (q) | Income Taxes |
| | Bladex Panama and Bladex Cayman are exempt from the payment of income taxes. Bladex Representacao Ltda., in Brazil, is subject to income taxes. The New York Agency and Bladex’s subsidiaries incorporated in the United States of America are subject to United States of America federal and local taxation based on the portion of income that is effectively connected with its operations in that country. Such amounts have been immaterial to date. |
| | |
| (r) | Discontinued Operations |
| | On January 1, 2002, the Bank adopted the Statement of Financial Accounting Standard No.144 (SFAS 144) “Accounting for the Impairment or Disposal of Long-Lived Assets”, which established additional criteria to determine when a long-lived asset is held for sale and the definition of “discontinued operations”, and does not allow the accrual of future operating losses, as was previously permitted. The Bank’s management determined that the closure of Bladex Financial Services, LLC and its wholly owned subsidiary Bladex Securities, LLC in 2002, qualified for discontinued operations presentation and, accordingly, a loss from the operations and closure of this business segment was presented as discontinued operations in the consolidated statements of operations for the year ended December 31, 2002. |
| | |
|
|
F-14 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| (s) | Earnings Per Share |
| | Earnings per share (EPS) is computed by dividing income available to common stockholders (the numerator) by the average number of common shares outstanding (the denominator) during the year. |
| | |
| | Diluted EPS measures performance incorporating the effect that potential common shares, such as stock options outstanding during the same period, would have on EPS. The computation is similar to the computation of EPS, except that the denominator is increased to include the number of additional common shares using the treasury stock method that would have been outstanding if the diluted potential common shares had been issued. |
| | |
| (t) | Reclassifications |
| | Certain amounts reported in previous years have been reclassified to conform to the 2004 presentation. |
| | |
(3) | Cash and Cash equivalents |
| As of December 31, 2004 and 2003, cash and cash equivalents are as follows: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | |
| | | | | | | | | | |
Cash and due from banks | | | US$ | | | 687,248 | | | 868,018 | |
Interest bearing deposits with banks | | | | | | 154,099,108 | | | 253,945,857 | |
Securities purchased under agreements to resell | | | | | | 0 | | | 132,022,050 | |
| | | | |
|
| |
|
| |
Total | | | | | | 154,786,356 | | | 386,835,925 | |
Less – Pledged certificate of deposit | | | | | | 4,200,000 | | | 2,200,000 | |
| | | | |
|
| |
|
| |
| | | US$ | | | 150,586,356 | | | 384,635,925 | |
| | | | |
|
| |
|
| |
(4) | Securities Purchased under Agreements to Resell |
| The Bank enters into purchases of securities under agreements to resell the same or substantially identical securities. These agreements are considered secured loans. At December 31, 2003, securities purchased under agreements to resell had a carrying value of US$132,022,050 and were all with an Argentine counter-party, fully collateralized with U.S. Treasury securities. Consequently, the Bank classified these instruments as U.S. country risk. At December 31, 2003, the maturity of these agreements did not exceed 90 days, and they were all current with regard to principal and interest. Those resale agreements were settled during 2004, therefore, at December 31, 2004, the Bank does not have any securities purchased under agreements to resell. |
| |
|
|
F-15 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
(5) | Investment Securities |
| a) | Securities Available for Sale |
| | The amortized cost, fair value and related unrealized gross gain (loss) of securities available for sale, are as follows: |
| | | | | December 31, 2004 | |
| | | | |
| |
| | | | | Amortized
Cost | | Unrealized
Gross Gain | | Unrealized
Gross Loss | | Fair Value | |
Bonds - Government | | | US$ | | | 160,599,220 | | | 3,924,310 | | | 583,670 | | | 163,939,860 | |
Impaired bonds - Argentine issuers | | | | | | 664,558 | | | 267,205 | | | 0 | | | 931,763 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
| | | US$ | | | 161,263,778 | | | 4,191,515 | | | 583,670 | | | 164,871,623 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
| | | | | December 31, 2003 | |
| | | | |
| |
| | | | | | Amortized
Cost | | | Unrealized
Gross Gain | | | Unrealized
Gross Loss | | | Fair Value | |
Bonds: | | | | | | | | | | | | | | | | |
Corporate | | | US$ | | | 1,001,585 | | | 18,492 | | | 0 | | | 1,020,077 | |
Government | | | | | | 37,910,614 | | | 4,131,074 | | | 0 | | | 42,041,688 | |
Impaired bonds - Argentine issuers | | | | | | 2,859,895 | | | 2,418,958 | | | 0 | | | 5,278,853 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
| | | US$ | | | 41,772,094 | | | 6,568,524 | | | 0 | | | 48,340,618 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
| | The majority of securities available for sale with gross unrealized losses have been individually in unrealized loss position for 12 months or less. The impairment on these securities is not considered other-than-temporary. |
| | |
| | At December 31, 2004 and 2003, all Argentine securities were classified as available for sale. During 2003, investments with a fair value of US$933,374 were received in lieu of payment of an impaired Argentine loan. In addition, the terms of an impaired Argentine security with a fair value of US$4,269,479 were modified as a result of a restructuring agreement. During 2003, an impaired security with a net value of US$3,325,000 was restructured and converted into loans. |
| | |
| | At December 31, 2004 and 2003, securities available for sale with a carrying value of US$62,405,220 and US$43,061,765, respectively, were pledged to secure borrowings for securities sold under repurchase agreements. |
| | |
| | As of December 31, 2004, 2003 and 2002, the realized gain on securities available for sale was US$2,921,688, US$22,210,998 and US$183,586, respectively. There were no losses on these transactions. |
| | |
|
|
F-16 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| | The amortized cost and fair value of securities available for sale distributed by contractual maturity at December 31, 2004, are shown in the following table: |
| | | | | Amortized
Cost | | Fair
Value | |
| | | | | | | | | | |
Due within 1 year | | | US$ | | | 26,035,846 | | | 26,387,200 | |
After 1 but within 5 years | | | | | | 61,125,710 | | | 64,084,500 | |
After 5 years | | | | | | 74,102,222 | | | 74,399,923 | |
| | | | |
|
| |
|
| |
| | | US$ | | | 161,263,778 | | | 164,871,623 | |
| | | | |
|
| |
|
| |
| | On June 30, 2002, the Bank’s management determined that the decline in fair value of Argentine investment securities classified at that time, as available for sale, was other than temporary. Consequently, as of December 31, 2002 an impairment loss on securities of US$44,268,201 was recorded. During 2003, the decline in fair value of these investments considered other than temporary was US$953,477; 2004 (nil). |
| | |
| b) | Securities Held to Maturity |
| | The Bank’s treasury investment policy is to acquire securities with maturities up to three years, as long as they have a short-term rating of “A1/P1” or long-term rating of “A” or better, issued by at least two of the following agencies: Standard & Poor’s, Moody’s Investors Service, or Fitch Ratings, and as long as they are negotiable in the secondary markets. Securities rated one level or more below investment grade ratings are classified as available for sale. |
| | |
| | As of December 31, 2004 and 2003, the outstanding balances of securities held to maturity were US$27,984,068 and US$29,452,040, respectively. At December 31, 2004 and 2003, there were no securities held to maturity outstanding for purposes of treasury investments. |
| | |
| | The amortized cost, quoted market value, and related unrealized gross gain of securities held to maturity are as follows: |
| | | | | December 31, 2004 | |
| | | | |
| |
| | | | | Amortized
Cost | | Unrealized
Gross Gain | | Fair Value | |
| | | | | | | | | | | | | |
Bonds-Government | | | US$ | | | 27,984,068 | | | 132,932 | | | 28,117,000 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | December 31, 2003 | |
| | | | |
| |
| | | | | Amortized
Cost | | Unrealized
Gross Gain | | Fair Value | |
| | | | | | | | | | | | | |
Bonds-Government | | | US$ | | | 29,452,040 | | | 337,960 | | | 29,790,000 | |
| | | | |
|
| |
|
| |
|
| |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| | During August 2003, the Bank transferred Mexican government securities classified as available for sale for US$29,821,038, to the held to maturity category. At the date of the transfer, the estimated unrealized gains on these securities were US$4,107,753, which are being amortized until their respective maturities in January 2007. As of December 31, 2004 and 2003, the balance of the estimated unrealized gross gain, net of amortization, was US$2,474,629 and 3,691,991, respectively. |
| | |
| | At December 31, 2004 and 2003, securities held to maturity with a carrying value of US$27,984,068 and US$29,452,040, respectively, were pledged to secure borrowings for securities sold under repurchase agreements. |
| | |
(6) | Loans | |
| The remaining loan maturities are summarized as follows: |
| | |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | |
| | | | | | | | | | |
Current: | | | | | | | | | | |
Up to 1 month | | | US$ | | | 255,891,335 | | | 240,111,995 | |
From 1 month to 3 months | | | | | | 356,776,753 | | | 463,387,032 | |
From 3 months to 6 months | | | | | | 617,428,125 | | | 629,434,403 | |
From 6 months to 1 year | | | | | | 614,782,625 | | | 435,279,440 | |
Over 1 year | | | | | | 341,254,799 | | | 61,942,139 | |
Impaired - Argentina | | | | | | 7,500,000 | | | 39,653,128 | |
Impaired - Brazil | | | | | | 5,000,000 | | | 0 | |
| | | | |
|
| |
|
| |
| | | | | | 2,198,633,637 | | | 1,869,808,137 | |
Restructured and impaired: | | | | | | | | | | |
Argentine borrowers | | | | | | 196,006,509 | | | 336,411,853 | |
Brazilian borrower | | | | | | 42,770,190 | | | 46,986,148 | |
| | | | |
|
| |
|
| |
| | | | | | 238,776,699 | | | 383,398,001 | |
Past due: | | | | | | | | | | |
Impaired Argentine borrowers | | | | | | 3,275,518 | | | 21,825,000 | |
Brazilian borrower | | | | | | 1,000,000 | | | 0 | |
| | | | |
|
| |
|
| |
| | | | | | 4,275,518 | | | 21,825,000 | |
| | | | |
|
| |
|
| |
| | | US$ | | | 2,441,685,854 | | | 2,275,031,138 | |
| | | | |
|
| |
|
| |
| The fixed and floating interest rates distribution of the loan portfolio is as follows: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | |
| | | | | | | | | | |
Fixed interest rates | | | US$ | | | 1,480,456,735 | | | 1,281,556,042 | |
Floating interest rates | | | | | | 961,229,119 | | | 993,475,096 | |
| | | | |
|
| |
|
| |
| | | US$ | | | 2,441,685,854 | | | 2,275,031,138 | |
| | | | |
|
| |
|
| |
| The 81% of loans at fixed interest rates have maturities of less than 180 days. |
| |
|
|
F-18 |
|
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
| |
|
| |
| The following table provides a breakdown of loans by country risk: |
| | | | | December 31, | |
| | | | |
| |
Country | | | | | 2004 | | 2003 | |
| | | | | | | | | | |
Argentina | | | US$ | | | 206,782,027 | | | 397,889,981 | |
Brazil | | | | | | 1,054,073,486 | | | 1,011,165,805 | |
Chile | | | | | | 321,500,000 | | | 131,010,000 | |
Colombia | | | | | | 148,261,929 | | | 96,479,616 | |
Costa Rica | | | | | | 37,507,106 | | | 58,927,685 | |
Dominican Republic | | | | | | 242,267 | | | 24,169,884 | |
Ecuador | | | | | | 51,046,834 | | | 21,644,929 | |
El Salvador | | | | | | 44,473,350 | | | 25,646,616 | |
Guatemala | | | | | | 38,040,435 | | | 33,831,065 | |
Honduras | | | | | | 5,956,725 | | | 0 | |
Jamaica | | | | | | 26,123,150 | | | 13,551,989 | |
Mexico | | | | | | 262,155,669 | | | 183,051,940 | |
Nicaragua | | | | | | 4,807,500 | | | 8,609,442 | |
Panama | | | | | | 89,297,993 | | | 43,600,000 | |
Peru | | | | | | 54,691,530 | | | 64,664,849 | |
Trinidad and Tobago | | | | | | 92,120,487 | | | 99,874,837 | |
Venezuela | | | | | | 4,605,366 | | | 60,912,500 | |
| | | | |
|
| |
|
| |
| | | US$ | | | 2,441,685,854 | | | 2,275,031,138 | |
| | | | |
|
| |
|
| |
| In the normal course of business, at December 31, 2004 and 2003, the Bank has transactions with 23% and 39% of its Class “A” and “B” stockholders, respectively (See Note 13). All transactions are made based on arm’s-length terms and subject to prevailing commercial criteria and market rates and are subject to all of the Bank’s corporate governance and control procedures. At December 31, 2004 and 2003, approximately 49% and 51%, respectively, of the outstanding loan portfolio is placed with the Bank’s Class “A” and “B” stockholders and their related parties. At December 31, 2004, the Bank was not directly or indirectly owned or controlled by another corporation or any foreign government, and no Class “A” or “B” shareholder was the registered owner of more than 3.5% of the total outstanding shares of the voting capital stock of the Bank. |
| |
|
|
F-19 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
| |
|
| |
| The following is a summary of information on non-accruing loans, and interest amounts on non-accruing loans: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | |
Loans on non-accrual status | | | US$ | | | 255,552,217 | | | 444,876,129 | | | 691,471,518 | |
| | | | |
|
| |
|
| |
|
| |
Interest which would had been recorded if the loans had not been on a non-accrual status | | | US$ | | | 18,716,370 | | | 28,888,663 | | | 26,835,677 | |
Interest income collected on non-accruing loans | | | | | | 18,692,148 | | | 24,086,389 | | | 16,572,439 | |
| | | | |
|
| |
|
| |
|
| |
Foregone interest revenue | | | US$ | | | 24,222 | | | 4,802,274 | | | 10,263,238 | |
| | | | |
|
| |
|
| |
|
| |
| The following is a summary of information pertaining to impaired loans: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | |
Impaired loans with specific allowance for credit losses | | | US$ | | | 255,552,217 | | | 444,876,129 | | | 691,471,518 | |
| | | | |
|
| |
|
| |
|
| |
Specific allowance for impaired loans (under SFAS 114) | | | US$ | | | 81,725,067 | | | 191,293,077 | | | 365,345,703 | |
| | | | |
|
| |
|
| |
|
| |
Average balance of impaired loans during the year | | | US$ | | | 356,277,617 | | | 572,811,928 | | | 422,412,361 | |
| | | | |
|
| |
|
| |
|
| |
Interest income collected on impaired loans | | | US$ | | | 18,692,148 | | | 24,086,389 | | | 16,572,439 | |
| | | | |
|
| |
|
| |
|
| |
| |
| At December 31, 2004 the Bank’s Brazilian portfolio had two impaired loans in non-accrual status for US$43 million to a corporation and US$6 million to a financial institution, compared to US$47 million to a corporation at December 31, 2003. The impaired loan to a Brazilian corporation was restructured in March 2004, and it is current in interest and principal payments. During 2004 and 2003, the Bank collected interest from these clients for US$2.2 million and US$1.6 million, respectively. |
| |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
| |
|
| |
| Exposure in Argentina |
| As December 31, 2004 and 2003, the Bank’s exposure in Argentina is the following: |
| | | | | December 31, 2004 | |
| | | | |
| |
(In US$ million) | | | | | Loans | | Investment
Securities | | Contingencies
and
Acceptances | | Total | | Reverse
Repurchase
Agreements | |
| | | | | | | | | | | | | | |
Nominal value | | | US$ | | | 207 | | | 5 | | | 32 | | | 244 | | | 0 | |
Impairment losses | | | | | | 0 | | | (4 | ) | | 0 | | | (4 | ) | | 0 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
Credit portfolio | | | | | | 207 | | | 1 | | | 32 | | | 240 | | | 0 | |
Specific allowance for credit losses | | | | | | (63 | ) | | 0 | | | (21 | ) | | (84 | ) | | 0 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
Net exposure | | | US$ | | | 144 | | | 1 | | | 11 | | | 156 | | | 0 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | December 31, 2003 | |
| | | | |
| |
(In US$ million) | | | | | Loans | | Investment
Securities | | Contingencies
and
Acceptances | | Total | | Reverse
Repurchase
Agreements | |
| | | | | | | | | | | | | | |
Nominal value | | | US$ | | | 398 | | | 10 | | | 32 | | | 440 | | | 132 | |
Impairment losses | | | | | | 0 | | | (5 | ) | | 0 | | | (5 | ) | | 0 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
Credit portfolio | | | | | | 398 | | | 5 | | | 32 | | | 435 | | | 132 | |
Specific allowance for credit losses | | | | | | (175 | ) | | 0 | | | (20 | ) | | (195 | ) | | 0 | |
Collateral (U.S. Treasury Strips) | | | | | | 0 | | | 0 | | | 0 | | | 0 | | | (132 | ) |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
Net exposure | | | US$ | | | 223 | | | 5 | | | 12 | | | 240 | | | 0 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
| At December 31, 2004 and 2003, the Bank’s net exposure in Argentina represented 24% and 41%, respectively, of the total equity capital of the Bank. The Bank has established specific reserves for possible credit losses from the loans not collected as scheduled. |
| |
| At December 31, 2004 and 2003, the Bank’s Argentine credit portfolio of US$240 million and US$435 million, respectively, presented a reduction of US$195 million or 45% for 2004 and US$339 million, or 44% for 2003. This reduction was mainly due to payments and prepayments for US$167 million during 2004, the sale of Argentine credit portfolio with a nominal value of US$28 million during 2004 and US$308 million during 2003. |
| |
| At December 31, 2004, the Bank’s exposure in Argentina is 89% denominated in US dollars and 11% in Euros, compared to 94% and 6%, respectively, at December 31, 2003. |
| |
|
| |
F-21 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
| |
|
| |
| At December 31, 2004 and 2003, the Bank’s gross Argentine credit portfolio distribution by type of client is as follows: |
| | December 31, | |
| |
| |
| | 2004 | | 2003 | |
| | | | | |
Corporations | | | 33% | | | 35% | |
Financial institutions: | | | | | | | |
State owned banks | | | 50% | | | 51% | |
U.S. and European banks | | | 17% | | | 14% | |
| In accordance with the Bank’s policy, all interest income on Argentine credits is recorded on a cash basis. Although significant amounts of interest have been received on a consistent basis from most of the Bank’s clients in the country, the ultimate collection of principal on these loans is evaluated separately. During 2004 and 2003, the Bank collected interest from Argentine borrowers of approximately US$17 million and US$24 million, respectively. The ratio of interest collected from Argentine borrowers to total interest payments due and payable from these borrowers was 99% during the 2004 and 86% in 2003. |
| |
| At December 31, 2004 and 2003 the status of the Bank’s Argentine’s credit portfolio is as follows: |
| | December 31, | |
| |
| |
| | 2004 | | 2003 | |
| | | | | |
Restructured and performing under renegotiated terms | | | 84% | | | 80% | |
Performing under original terms | | | 11% | | | 8% | |
Under negotiation (current) | | | 0% | | | 4% | |
Neither restructured nor paying interest | | | 5% | | | 8% | |
| As of December 31, 2004 and 2003, the Bank had suspended unamortized commissions on the impaired loans for the amount of US$3,492,222 and US$3,204,546, respectively. |
| |
|
| |
F-22 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
| |
|
| |
(7) | Allowance for Credit Losses |
| The allowance for credit losses is available to absorb future estimated probable credit losses existing in the credit portfolio at the date of the consolidated balance sheets. The Bank classifies the allowance for credit losses into two components: |
| |
| a) Allowance for Loan Losses: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | |
Balance at beginning of the year | | | US$ | | | 224,347,459 | | | 429,720,362 | | | 177,483,648 | |
(Reversal) provision charged to income | | | | | | (111,399,762 | ) | | (69,507,810 | ) | | 272,586,082 | |
Loan recoveries | | | | | | 6,395,625 | | | 1,971,400 | | | 291,616 | |
Loans written-off against the allowance for loan losses | | | | | | (12,991,215 | ) | | (137,836,493 | ) | | (20,640,984 | ) |
| | | | |
|
| |
|
| |
|
| |
Balance at end of the year | | | US$ | | | 106,352,107 | | | 224,347,459 | | | 429,720,362 | |
| | | | |
|
| |
|
| |
|
| |
| b) Reserve for Losses on Off-Balance Sheet Credit Risk: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | |
Balance at beginning of the year | | | US$ | | | 33,972,581 | | | 23,369,691 | | | 17,200,000 | |
(Reversal) provision charged to income | | | | | | (871,145 | ) | | 10,602,890 | | | 6,169,691 | |
| | | | |
|
| |
|
| |
|
| |
Balance at end of the year | | | US$ | | | 33,101,436 | | | 33,972,581 | | | 23,369,691 | |
| | | | |
|
| |
|
| |
|
| |
| The reserve for losses on off-balance sheet credit risk reflects the Bank’s management estimate of probable losses on off-balance sheet credit risk items, such as: confirmed letters of credit, stand-by letters of credit, guarantees and credit commitments. (See Note 17). |
| |
(8) | Premises and Equipment |
| The table below provides information on premises and equipment: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | |
| | | | | | | | |
Land | | | US$ | | | 462,176 | | | 462,176 | |
Building and improvements | | | | | | 4,148,144 | | | 4,092,982 | |
Furniture and equipment | | | | | | 8,079,278 | | | 8,017,960 | |
| | | | |
|
| |
|
| |
| | | | | | 12,689,598 | | | 12,573,118 | |
Less: accumulated depreciation | | | | | | 9,181,194 | | | 8,454,270 | |
| | | | |
|
| |
|
| |
| | | US$ | | | 3,508,404 | | | 4,118,848 | |
| | | | |
|
| |
|
| |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
| |
|
| |
(9) | Deposits |
| The maturity profile of the Bank’s deposits is as follows: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | |
| | | | | | | | |
Demand | | | US$ | | | 22,619,188 | | | 19,370,257 | |
Up to 1 month | | | | | | 475,821,114 | | | 497,740,333 | |
From 1 month to 3 months | | | | | | 261,290,294 | | | 161,379,961 | |
From 3 months to 6 months | | | | | | 103,000,419 | | | 10,000,000 | |
From 6 months to 1 year | | | | | | 1,428,572 | | | 5,000,000 | |
Over 1 year | | | | | | 0 | | | 9,464,285 | |
| | | | |
|
| |
|
| |
| | | US$ | | | 864,159,587 | | | 702,954,836 | |
| | | | |
|
| |
|
| |
Aggregate amounts of time deposits of US$100,000 or more | | | US$ | | | 841,540,399 | | | 683,486,038 | |
| | | | |
|
| |
|
| |
Aggregate amounts of deposits in offices outside of Panama | | | US$ | | | 301,494,655 | | | 285,167,933 | |
| | | | |
|
| |
|
| |
Interest expense | | | US$ | | | 4,484,628 | | | 3,505,529 | |
| | | | |
|
| |
|
| |
(10) | Short-term Borrowings |
| The breakdown of short-term borrowings due to banks and other investors is as follows: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | |
| | | | | | | | |
Borrowings: | | | | | | | | | | |
At fixed interest rates: | | | | | | | | | | |
Advances from banks | | | US$ | | | 622,350,000 | | | 448,800,000 | |
Discounted acceptances | | | | | | 0 | | | 14,600,000 | |
Securities sold under repurchase agreements | | | | | | 82,368,013 | | | 223,814,017 | |
| | | | |
|
| |
|
| |
Total short-term borrowings outstanding at the end of the year | | | US$ | | | 704,718,013 | | | 687,214,017 | |
| | | | |
|
| |
|
| |
Average outstanding during the year | | | US$ | | | 532,575,280 | | | 602,496,299 | |
| | | | |
|
| |
|
| |
Maximum outstanding at any month-end | | | US$ | | | 704,718,013 | | | 704,240,216 | |
| | | | |
|
| |
|
| |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| | December 31, | |
| |
| |
| | 2004 | | 2003 | |
| | | | | |
At fixed interest rates: | | | | | | | |
Weighted average interest rate at the end of the year | | | 2.83% | | | 1.50% | |
Weighted average interest rate during the year | | | 1.74% | | | 1.93% | |
At floating interest rates: | | | nil | | | nil | |
| The Bank’s activities to secure funds include a US$750 million program for issuance of Euro-Commercial Paper. This program may be used by the Bank to issue commercial paper with maturities between 7 and 365 days, bearing interest or at discount, in denomination of US$10,000 and in various currencies. The securities are generally sold in bearer form through one or more authorized financial institutions. |
| |
(11) | Medium and Long-term Borrowings and Placements |
| Borrowings consist of medium term and syndicated borrowings from international banks. Placements consist of Euro medium-term notes. The breakdown of medium and long-term borrowings and placements (original maturity of more than one year) is as follows: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | |
| | | | | | | | |
Borrowings: | | | | | | | | | | |
At fixed interest rates settled during 2004 | | | US$ | | | 0 | | | 10,000,000 | |
At floating interest rates with due dates from January 2005 until December 2009 | | | | | | 333,620,966 | | | 357,642,058 | |
| | | | |
|
| |
|
| |
Total borrowings | | | | | | 333,620,966 | | | 367,642,058 | |
| | | | |
|
| |
|
| |
Placements: | | | | | | | | | | |
At fixed interest rates with due dates from January 2005 until September 2005 | | | | | | 21,000,000 | | | 39,661,939 | |
At floating interest rates with due dates from September 2005 until January 2008 | | | | | | 49,000,000 | | | 78,212,434 | |
| | | | |
|
| |
|
| |
Total placements | | | | | | 70,000,000 | | | 117,874,373 | |
| | | | |
|
| |
|
| |
Total medium and long-term borrowings and placements outstanding | | | US$ | | | 403,620,966 | | | 485,516,431 | |
| | | | |
|
| |
|
| |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | |
| | | | | | | | |
Average outstanding during the year | | | US$ | | | 392,058,601 | | | 867,598,550 | |
| | | | |
|
| |
|
| |
Maximum outstanding at any month-end | | | US$ | | | 488,362,552 | | | 1,251,316,393 | |
| | | | |
|
| |
|
| |
| | December 31, | |
| |
| |
| | 2004 | | 2003 | |
| | | | | |
At fixed interest rates: | | | | | | | |
Weighted average interest rate at the end of the year | | | 8.05% | | | 6.24% | |
Weighted average interest rate during the year | | | 7.24% | | | 6.27% | |
| | | | | | | | |
At floating interest rates: | | | | | | | |
Weighted average interest rate at the end of the year | | | 2.97% | | | 1.84% | |
Weighted average interest rate during the year | | | 2.03% | | | 2.01% | |
| The future maturities of medium and long-term borrowings and placements outstanding at December 31, 2004, are as follows: |
2005 | | | US$ | | | 153,402,422 | |
2006 | | | | | | 144,359,095 | |
2007 | | | | | | 67,859,449 | |
2008 | | | | | | 18,000,000 | |
2009 | | | | | | 20,000,000 | |
| | | | |
|
| |
| | | US$ | | | 403,620,966 | |
| | | | |
|
| |
| The Bank’s funding activities include an Euro-Medium-Term Note program (“EMTN Program”), which, in October 1997, was increased to a maximum of US$2,250 million. The program may be used to issue notes with maturities from 90 days up to a maximum of 30 years, at fixed, floating interest rates, or at discount, and in various currencies. The notes are generally sold in bearer or registered form through one or more authorized financial institutions. During 2004, the Bank issued notes for $10 million under this program. |
| |
| One of the Bank’s borrowing agreement has covenants related to the following ratios: risk weighted capital adequacy ratio, open credit exposure ratio, maturity gap ratio, single country exposure ratio, single group exposure ratio. As of December 31, 2004 the Bank was in compliance with these covenants. |
| |
|
| |
F-26 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
| |
|
| |
| Early Extinguishment of Debt |
| During the first quarter of 2004 and second quarter of 2003, the Bank repurchased in the market at discount, notes issued under its EMTN program, with a face value of US$5,000,000 and US$14,098,000, respectively, and original maturity dates of October 10, 2004 and September 20, 2005, respectively. The Bank’s total disbursements were US$4,993,750 and US$13,309,093, respectively, which resulted in realized gains of US$6,250 and US$788,907, respectively. |
(12) | Redeemable Preferred Stock |
| The redeemable preferred stock is non-voting. If the Bank fails to pay the minimum dividend of 8% for three years, and certain other conditions were not complied with, the preferred stockholders have the right to elect a Director. In case of a liquidation of the Bank, the preferred stockholders are entitled to receive a liquidation preference of US$10 per share, plus accrued and unpaid dividends. The Bank is required to redeem preferred stock at its par value by means of a sinking fund designed to retire 20% of the aggregate par value of the preferred stock outstanding as of March 15, 2002, and on May 15 of each of the subsequent years up to 2006. Accordingly, on May 17, 2004, the Bank redeemed 304,639 outstanding shares, chosen by lot on May 3, 2004. At December 31, 2004 and 2003, the Bank had 169,719 and 107,612 preferred stocks, respectively, redeemed but not executed by preferred shareholders. |
| |
| Preferred stockholders have the right to receive an interest in their preferred stock equivalent to the same percentage as the common stockholders (excluding in the calculation of common stock issued as stock dividend). (See Note 26). |
| |
| On July 1, 2003, the Bank adopted SFAS 150. Consequently, the Bank’s redeemable preferred stock was reclassified as liability and the accrual of interest payable was charged to interest expense. |
| |
(13) | Common Stock |
| The Bank’s common stock is divided into three categories: |
| 1) | Class “A” shares may only be issued to Latin American Central Banks or banks in which the state or other government agencies is the majority shareholder. |
| 2) | Class “B” shares may only be issued to banks or financial institutions. |
| 3) | Class “E” shares may be issued to any person whether a natural person or a legal entity. |
| | |
| The holders of Class “B” shares have the right to convert or exchange their Class “B” shares, at any time, and without restriction, for Class “E” shares, at a rate of one. Class “E” shares so issued, will not be freely tradable on the New York Stock Exchange until the end of a two-year holding period, which will include the holding period of the respective Class “B” shares exchanged. |
| |
| On November 18, 2002, the Bank’s shareholders approved an amendment to the Articles of Incorporation of the Bank to increase its authorized common capital from 70,000,000 to 180,000,000 shares for the purpose of allowing the Bank to raise needed additional equity capital through a rights offering to the Bank’s common stockholders. (See Note 14). |
| |
|
| |
F-27 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| |
| The following table provides detailed information on the Bank’s common stock activity per class for each of the years in the three-year period ended December 31, 2004: |
| | Class “A” | | Class “B” | | Class “E” | | Total | |
| | | | | | | | | |
Authorized | | | 40,000,000 | | | 40,000,000 | | | 100,000,000 | | | 180,000,000 | |
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at December 31, 2001 | | | 4,911,185 | | | 4,247,213 | | | 8,182,440 | | | 17,340,838 | |
Conversions | | | 0 | | | (502,850 | ) | | 502,847 | | | (3 | ) |
Issuance of new stock | | | 0 | | | 2,358 | | | 0 | | | 2,358 | |
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at December 31, 2002 | | | 4,911,185 | | | 3,746,721 | | | 8,685,287 | | | 17,343,193 | |
Conversions | | | 0 | | | (933,016 | ) | | 933,014 | | | (2 | ) |
Issuance of new stock | | | 1,431,004 | | | 652,997 | | | 19,915,999 | | | 22,000,000 | |
Restricted stock granted | | | 0 | | | 0 | | | 9,547 | | | 9,547 | |
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at December 31, 2003 | | | 6,342,189 | | | 3,466,702 | | | 29,543,847 | | | 39,352,738 | |
Conversions | | | 0 | | | (195,433 | ) | | 195,432 | | | (1 | ) |
Restricted stock granted | | | 0 | | | 0 | | | 6,242 | | | 6,242 | |
Repurchased stock | | | 0 | | | 0 | | | (461,900 | ) | | (461,900 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at December 31, 2004 | | | 6,342,189 | | | 3,271,269 | | | 29,283,621 | | | 38,897,079 | |
| |
|
| |
|
| |
|
| |
|
| |
| On August 3, 2004, the Board of Directors authorized a three-year stock repurchase program under which Bladex may, from time to time, repurchase up to an aggregate of US$50 million of its Class E shares of common stock, in the open market at the then prevailing market price. The following table presents information regarding shares repurchased not retired by the Bank classified as treasury stock, accordingly: |
| | Class “A” | | Class “B” | | Class “E” | | Total | |
| | Shares | | Amount
(in US dollar) | | Shares | | Amount
(in US dollar) | | Shares | | Amount
(in US dollar) | | Shares | | Amount
(in US dollar) | |
| | | | | | | | | | | | | | | | | |
Outstanding at
December 31, 2002 | | | 318,140 | | | 10,707,719 | | | 568,010 | | | 15,655,232 | | | 1,750,505 | | | 59,270,756 | | | 2,636,655 | | | 85,633,707 | |
Restricted stocks granted | | | 0 | | | 0 | | | 0 | | | 0 | | | (9,547 | ) | | (323,255 | ) | | (9,547 | ) | | (323,255 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at
December 31, 2003 | | | 318,140 | | | 10,707,719 | | | 568,010 | | | 15,655,232 | | | 1,740,958 | | | 58,947,501 | | | 2,627,108 | | | 85,310,452 | |
Repurchased during 2004 | | | 0 | | | 0 | | | 0 | | | 0 | | | 461,900 | | | 7,527,648 | | | 461,900 | | | 7,527,648 | |
Restricted stocks granted | | | 0 | | | 0 | | | 0 | | | 0 | | | (6,242 | ) | | (211,349 | ) | | (6,242 | ) | | (211,349 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at
December 31, 2004 | | | 318,140 | | | 10,707,719 | | | 568,010 | | | 15,655,232 | | | 2,196,616 | | | 66,263,800 | | | 3,082,766 | | | 92,626,751 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| During 2002, there were no movements of treasury stock. |
| |
| The Board of Directors at a meeting held on August 3, 2004, authorized an increase in the quarterly cash dividend from US$0.10 per share to US$0.15 per share of common stock, starting with the dividend paid on October 7, 2004. Also, at the same meeting, the Board of Directors approved a special dividend of US$1.00 per share of common stock, to be payable in October 7, 2004. Accordingly, during 2004, the Bank declared dividends in an aggregate amount of US$58,702,056 to the holders of common shares. |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
(14) | Capital Issuance |
| As of June 27, 2003, the Bank completed a capital rising process through a stock rights offering raising US$147 million at US$6.68 per share. The capitalization had an important and positive connotation on the credit risk ratings of the Bank. At December 31, 2004, the Bank had investment grade ratings from the three more important rating agencies. |
| | |
| Capital issuance related costs |
| On June 28, 2002, the Bank hired BNP Paribas Securities Corp. and Deutsche Bank Securities Inc. to provide financial advice with respect to the capital raising plans and ratings-related issues. At December 31, 2003, the accumulated direct costs related to the advisory services provided by the financial advisors as well as legal and others were US$11,920,907, which was recorded as a deduction from additional paid-in capital. |
| |
(15) | Cash and Stock Based Compensation Plans |
| The Bank has established equity compensation plans under which it administers restricted stock and stock options plans to attract, retain and motivate Directors, and top executive employees to compensate them for their contributions to the growth and profits of the Bank. |
| | |
| a) | Restricted Stock – Directors |
| | During the Annual Meeting of Stockholders held on April 14, 2004, Bladex informed the stockholders that the Board of Directors approved a restricted stock award program for non-employee Directors of the Bank. |
| | |
| | Restricted stock delivered under this award program may be sourced from treasury stock, or authorized un-issued shares. In accordance with this program, on a yearly basis, the Bank’s Board of Directors may grant Class “E” shares for each Director worth US$10,000, except in the case of the Chairman of the Board, who is granted an amount of US$15,000, all based on Bladex’s closing price in the New York Stock Exchange at the last trading date preceding the grant. The restricted stock will have a cliff vesting after five years. During 2004 and 2003, the Bank issued under this plan 6,242 and 9,547 Class “E” common shares, respectively, and related compensation costs charged against income was US$94,878 and US$94,993, respectively. |
| | |
| b) | Stock Option Plan - Directors |
| | During 2000, the Bank’s Board of Directors approved a stock option plan for non-employee Directors of the Bank. The exercise price of each option must equal 100% of the fair market value of the stock covered by such option at the date the option is granted. The options granted become 100% exercisable one year after the date granted and expire on the fifth year after the date granted. On July 19, 2003, the Bank’s Board of Directors approved to discontinue this plan; consequently, no options were granted during 2004. |
| | |
|
| | |
F-29 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| c) | Indexed Stock Option Plan 2003 - Directors |
| | During the Annual Meeting of Stockholders held on April 14, 2004, Bladex informed the stockholders that the Board of Directors approved an indexed stock option plan for non-employee Directors of the Bank. The plan allows Directors to receive options to purchase Class “E” shares for an equivalent amount of US$10,000, and for the Chairman of the Board, an equivalent amount of US$15,000, on an annual basis. |
| | |
| | This indexed stock option plan has the following features: |
| | a. | Indexed options are based on a customized Latin America general market index (Optimized Equity Index – Merval, Ibovespa, IndMex, IPSA, IGBVL, IGBC, IBC). |
| | b. | The exercise price is adjusted based on the change in a relevant market index. |
| | c. | The option term is seven years, and there is a cliff-vesting period of four years. |
| | d. | Grants are calculated based on the Black-Scholes derived expected value of the award. |
| | | |
| d) | Indexed Stock Option Plan 2003 - Top Executives |
| | On July 19, 2003, the Bank’s Board of Directors approved a new indexed stock option plan for top executives of the Bank with the same features as the Indexed Stock Option Plan 2003-Directors described previously. |
| | |
| | A summary of the status of the options granted under the indexed stock option plans to the Directors and top executives is presented below: |
| | | December 31, 2004 | |
| | |
| |
| | | Shares | | | Wtd. Avg.
Exercise
Price | |
| | | | | | | |
Outstanding at beginning of the year | | | 0 | | US$ | 0 | |
Granted | | | 186,886 | | | 18.53 | |
Exercised | | | 0 | | | 0 | |
Forfeited | | | (2,050 | ) | | 18.53 | |
| | |
| | |
| |
Outstanding at end of the year | | | 184,836 | | | 18.53 | |
| | |
| | |
| |
Options exercisable at end of the year | | | 0 | | | 0 | |
| | |
| | |
| |
Weighted average fair value of options granted during the year | | | | | US$ | 4.88 | |
| | | | | |
| |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| | | December 31, 2004 | |
| | |
| |
| | | Options Outstanding | |
Range of Exercise Prices | | | Number
Outstanding | | | Wtd. Avg.
Exercise
Price | | | Wtd. Avg.
Remaining
Contractual
Life
(In years) | |
| | | | | | | | | | |
US$10.00 - 20.00 | | | 184,836 | | US$ | 18.53 | | | 6.29 | |
| | |
| | |
| | |
| |
| There are no stock options exercisable due to the vesting period has not been fulfilled. |
| |
| The fair value of each option grant under the indexed plan is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 2004: |
| | | Stock Option
Plans | |
| | |
| |
Weighted average fair value option | | US$ | 4.11 | |
Weighted average expected life | | | 7 years | |
Expected volatility | | | 0.5 | |
Risk-free interest rate | | | 3.00 | % |
Expected annual dividends per share | | US$ | 1.00 | |
Expected annual forfeitures | | | 0 | |
| e) | Stock Option Plans - Employees |
| | During 1995, the Board of Directors approved a stock option plan for employees (the “1995 Stock Option Plan”) under which, options were granted from time-to-time at a purchase price equal to the average fair market value of the common stock covered by each option on the date that the option was granted. One third of the options may be exercised on each successive year after the grant date and expire on the tenth year after the grant date. |
| | |
| | During 1999, the Board of Directors approved a stock option plan for employees (the “1999 Stock Option Plan”). The terms of the plan are the same as the 1995 Stock Option Plan with the exception that one third of the options become exercisable two years after grant and become exercisable in full after the fourth year with expiration on the tenth anniversary after the grant day. |
| | |
| | On July 19, 2003, the Bank’s Board of Directors approved to discontinue the 1995 and 1999 Stock Option Plans – Employees. |
| | |
| | A summary of the status of the options granted to the Directors and employees is presented below: |
| | |
|
|
F-31 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements |
|
|
| | December 31, | |
| |
| |
| | 2004 | | 2003 | | 2002 | |
| | Shares | | | Wtd. Avg.
Exercise
Price | | Shares | | | Wtd. Avg.
Exercise
Price | | Shares | | | Wtd. Avg.
Exercise
Price | |
| | | | | | | | | | | | | | | | |
Outstanding at beginning of the year | | | 228,625 | | US$ | 36.86 | | | 247,642 | | US$ | 37.23 | | | 291,596 | | US$ | 36.65 | |
Granted | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Exercised | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Forfeited | | | (126,613 | ) | US$ | 37.46 | | | (19,017 | ) | US$ | 41.66 | | | (43,954 | ) | US$ | 33.39 | |
| |
|
| | |
| |
|
| | |
| |
|
| | |
| |
Outstanding at end of the year | | | 102,012 | | US$ | 36.12 | | | 228,625 | | US$ | 36.86 | | | 247,642 | | US$ | 37.23 | |
| |
|
| | |
| |
|
| | |
| |
|
| | |
| |
Options exercisable at end of the year | | | 93,989 | | US$ | 36.40 | | | 191,210 | | US$ | 38.00 | | | 176,891 | | US$ | 40.21 | |
| |
|
| | |
| |
|
| | |
| |
|
| | |
| |
| | December 31, | |
| |
| |
| | Options Outstanding | | Options Exercisable | |
Range of Exercise Prices | | Number
Outstanding | | | Wtd. Avg.
Exercise
Price | | Wtd. Avg.
Remaining
Contractual
Life
(In years) | | Number
Exercisable | | | Wtd. Avg.
Exercise
Price | |
| | | | | | | | | | | | | |
US$20.00 - 30.00 | | | 26,726 | | US$ | 23.12 | | | 4.77 | | | 26,726 | | US$ | 23.12 | |
US$30.01 - 40.00 | | | 26,350 | | | 32.88 | | | 6.09 | | | 18,327 | | | 32.88 | |
US$40.01 - 50.00 | | | 33,436 | | | 42.06 | | | 1.98 | | | 33,436 | | | 42.06 | |
Greater than US$50.00 | | | 15,500 | | | 51.19 | | | 2.09 | | | 15,500 | | | 51.19 | |
| |
|
| | |
| |
|
| |
|
| | |
| |
Total | | | 102,012 | | US$ | 36.12 | | | 3.79 | | | 93,989 | | US$ | 36.40 | |
| |
|
| | |
| |
|
| |
|
| | |
| |
| f) | Other employee Plans |
| | Expatriate officers plan: |
| | The Bank sponsors a defined contribution plans for its expatriate top executives and employees. The Bank’s contributions are determined as a percentage of the eligible officers’ annual salary, with each officer contributing an additional amount withheld from his salary and deposited in a savings account with the Bank, earning interest at market rates. During the years 2004, 2003, and 2002, the Bank charged to salaries expense in connection to this plan, the amount of US$178,626, US$139,934, and US$118,900, respectively. As of December 31, 2004, 2003 and 2002, the accumulated liability payable under this contribution plan amounted to US$356,369, US$571,755 and US$431,821, respectively. |
| | |
| | Deferred equity unit plan (the “DEU plan”): |
| | The DEU Plan allowed eligible employees to invest up to 25% of their annual profit sharing in Class “E” shares (the “Participation Shares”). The employee received a grant of one DEU for every two participating shares. Every DEU represented the right to receive a Class “E” share. On July 19, 2003, the Bank’s Board of Directors approved to discontinue this plan and consequently, no additional options were granted under this plan. |
| | |
|
|
F-32 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
| During December 2004, 2003, and 2002, the Bank recorded as expense the market value of the related Class “E” shares of US$177, US$1,863, and US$(3,011), respectively, corresponding to 122 deferred equity units to be exercisable in February 2006. |
| |
| Deferred compensation plan (the “DC plan”): |
| The DC Plan has two separate features. Under the first component of the DC Plan, the Bank may grant to each eligible employee a number of deferred equity units equal to the product of (x) an amount equal to a percentage, not to exceed 3%, of the employee’s compensation, divided by (y) the fair market value of a Class “E” share. Each deferred equity unit represents the right to receive a Class “E” share (or the economic equivalent thereof). Employees will vest the deferred equity units after three years of service (which may be either before or after the deferred equity unit award). Distributions are made in respect of deferred equity units on the later of (i) the date the vested deferred equity units are credited to an employee’s account and (ii) ten years after the employee is first credited with deferred equity units under the DC Plan. Participating employees receive dividends with respect to their vested deferred equity units, and receive additional deferred equity units in lieu of a dividend with respect to their unvested deferred equity units. The second component allows employees who are not citizens or residents of the United States to defer a percentage of their compensation, and receive discretionary matching cash contribution. In no event shall the value of (i) the discretionary matching cash contribution made on behalf of an employee and (ii) the grant of deferred equity units made to such employees exceed 6% of the employee’s annual base compensation. Under the DC Plan, 30,000 Class “E” shares were reserved. |
| |
| On July 19, 2003, the Bank’s Board of Directors approved to discontinue this plan. No additional options were granted under this plan. |
| |
| The following presents a detail of changes in the deferred equity units under the DC Plan, as of December 31, 2004, 2003, and 2002: |
| | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | |
Outstanding at the beginning of the year | | | 28,890 | | | 9,114 | | | 4,308 | |
Granted | | | 0 | | | 20,140 | | | 6,248 | |
Forfeited | | | (82 | ) | | (281 | ) | | (1,442 | ) |
Exercised | | | (457 | ) | | (83 | ) | | 0 | |
| |
|
| |
|
| |
|
| |
Outstanding at end of the year | | | 28,351 | | | 28,890 | | | 9,114 | |
| |
|
| |
|
| |
|
| |
| As of December 31, 2004, 2003, and 2002, expenses recorded under this plan the were US$31,506, US$58,573, and US$49,122, respectively. |
| |
|
|
F-33 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
(16) | Earnings (Loss) Per Share |
| The following is a reconciliation of the income and share data used in the basic and diluted earnings (loss) per share computations for the dates indicated: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | | | | |
Income (loss) from continuing operations | | | US$ | | | 141,730,240 | | | 111,495,812 | | | (266,491,715 | ) |
Discontinued operations | | | | | | 0 | | | 0 | | | (2,346,094 | ) |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 141,730,240 | | | 111,495,812 | | | (268,837,809 | ) |
Less: | | | | | | | | | | | | | |
Preferred stock dividends | | | | | | 0 | | | 365,567 | | | 1,011,910 | |
| | | | |
|
| |
|
| |
|
| |
Income (loss) available to common stockholders for both, basic and diluted EPS | | | | | | 141,730,240 | | | 111,130,245 | | | (269,849,719 | ) |
Weighted average common shares outstanding applicable to basic EPS | | | | | | 39,232,118 | | | 28,674,725 | | | 17,342,689 | |
Basic earnings (loss) per share: | | | | | | | | | | | | | |
Income (loss) from continuing operations | | | | | | 3.61 | | | 3.88 | | | (15.42 | ) |
Loss from discontinued operations | | | | | | 0 | | | 0 | | | (0.14 | ) |
| | | | |
|
| |
|
| |
|
| |
Net income (loss) per share | | | US$ | | | 3.61 | | | 3.88 | | | (15.56 | ) |
| | | | |
|
| |
|
| |
|
| |
Weighted average common shares outstanding applicable to diluted EPS | | | | | | 39,232,118 | | | 28,674,725 | | | 17,342,689 | |
Effect of dilutive securities: | | | | | | | | | | | | | |
Indexed Stock Option Plans | | | | | | 139,384 | | | 0 | | | 0 | |
| | | | |
|
| |
|
| |
|
| |
Adjusted weighted average common shares outstanding applicable to diluted EPS | | | | | | 39,371,502 | | | 28,674,725 | | | 17,342,689 | |
Diluted earnings (loss) per share: | | | | | | | | | | | | | |
Income (loss) from continuing operations | | | | | | 3.60 | | | 3.88 | | | (15.42 | ) |
Loss from discontinued operations | | | | | | 0 | | | 0 | | | (0.14 | ) |
| | | | |
|
| |
|
| |
|
| |
Net income (loss) per share | | | US$ | | | 3.60 | | | 3.88 | | | (15.56 | ) |
| | | | |
|
| |
|
| |
|
| |
| At December 31, 2004 and 2003, weighted average options for 145,460 and 145,537, respectively, were excluded from the computation of diluted EPS because the option’s exercise price was greater than the average quoted market price of the Bank’s common stock. |
| |
|
|
F-34 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
(17) | Financial Instruments with Off-Balance Sheet Credit Risk |
| In the normal course of business, to meet the financing needs of its customers, the Bank is party to financial instruments with off-balance sheet credit risk. These financial instruments involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the consolidated balance sheets. Credit risk represents the possibility of loss resulting from the failure of a customer to perform in accordance with the terms of a contract. |
| |
| The Bank’s outstanding financial instruments with off-balance sheet credit risk, at the dates indicated, were as follows: |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2004 | | 2003 | |
| | | | | | | | | | |
Confirmed letters of credit | | | US$ | | | 51,323,078 | | | 76,333,440 | |
Stand-by letters of credit and guarantees: | | | | | | | | | | |
Country risk | | | | | | 83,059,521 | | | 79,343,348 | |
Commercial risk | | | | | | 120,994,500 | | | 121,541,123 | |
Credit commitments: | | | | | | | | | | |
At fixed interest rates | | | | | | 4,769,807 | | | 23,518,019 | |
At floating interest rates | | | | | | 15,631,603 | | | 32,122,756 | |
| | | | |
|
| |
|
| |
| | | US$ | | | 275,778,509 | | | 332,858,686 | |
| | | | |
|
| |
|
| |
| As of December 31, 2004, the maturity profile of the Bank’s outstanding financial instruments with off-balance sheet credit risk is as follows: |
Within 1 year | | | US$ | | | 181,243,935 | |
From 1 to 2 years | | | | | | 40,142,857 | |
From 3 to 4 years | | | | | | 50,631,603 | |
Without maturity | | | | | | 3,760,114 | |
| | | | |
|
| |
| | | US$ | | | 275,778,509 | |
| | | | |
|
| |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
| As of December 31, 2004 and 2003 the breakdown of the Bank’s off-balance sheet exposure by country risk is as follows: |
| | | | | December 31, | |
| | | | |
| |
Country | | | | | | 2004 | | | 2003 | |
| | | | | | | | | | |
Argentina | | | US$ | | | 5,000,000 | | | 5,000,000 | |
Bolivia | | | | | | 0 | | | 55,743 | |
Brazil | | | | | | 114,831,938 | | | 126,466,105 | |
Chile | | | | | | 518,484 | | | 1,333,647 | |
Colombia | | | | | | 409,851 | | | 40,000 | |
Costa Rica | | | | | | 133,355 | | | 15,883,240 | |
Dominican Republic | | | | | | 27,189,036 | | | 12,126,168 | |
Ecuador | | | | | | 49,585,701 | | | 65,532,104 | |
El Salvador | | | | | | 11,851,228 | | | 5,101,978 | |
Guatemala | | | | | | 2,200,000 | | | 2,000,000 | |
Jamaica | | | | | | 0 | | | 11,250,000 | |
Mexico | | | | | | 14,958,930 | | | 33,738,019 | |
Nicaragua | | | | | | 0 | | | 5,798,000 | |
Panama | | | | | | 10,124,982 | | | 162,123 | |
Peru | | | | | | 30,530,034 | | | 41,371,559 | |
Other | | | | | | 8,444,970 | | | 7,000,000 | |
| | | | |
|
| |
|
| |
| | | US$ | | | 275,778,509 | | | 332,858,686 | |
| | | | |
|
| |
|
| |
| Letters of Credit and Guarantees |
| The Bank, on behalf of its institutional client base, advises and confirms letters of credit to facilitate foreign trade transactions. When confirming letters of credit, the Bank adds its own unqualified assurance that the issuing bank will pay and that if the issuing bank does not honor drafts drawn on the credit, the Bank will. |
| |
| The Bank provides stand-by letters of credit and guarantees (including country risk coverage), which are issued on behalf of institutional customers in connection with financing between the customers and third parties. The Bank applies the same credit policies used in its lending process and, once issued, the commitment is irrevocable and remains valid until its expiration. Credit risk arises from the Bank’s obligation to make payment in the event of a customer’s contractual default to a third party. Risks associated with such stand-by letters of credit and guarantees are included in the evaluation of overall credit risk. |
| |
|
|
F-36 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
| The Bank issues stand-by letters of credit and guarantees to provide coverage for country risk arising from the risk of convertibility and transferability of local currency of countries in the Region into hard currency. However, the Bank also issues stand-by letters of credit and guarantees to provide coverage for country risk arising from political risks, such as expropriation, nationalization, war and/or civil disturbances. Nevertheless, the Bank has the option to choose between four alternatives that allow the Bank to recover the amounts paid under these guarantees in case of being executed. |
| |
| Credit Commitments |
| Commitments to extend credit are a combination of either non-binding or legal agreements to lend to a customer. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee to the Bank. As some commitments expire without being drawn down, the total commitment amounts do not necessarily represent future cash requirements. |
| |
| Other commitments |
| During November 2003, the Bank made a commitment to invest US$5,000,000 in an investment fund whose main objective is to invest in the Mexican export industry and its supply chain. As of December 31, 2004, the total disbursement related with this investment fund was US$1,351,008, recorded as other assets. On January 2005, the Bank made an additional disbursement of US$52,572. |
| |
| Unused commitments available to the Bank |
| During 2004, the Bank cancelled a borrowing agreement with a financial institution for US$125,000,000 granted in 2003. |
| |
(18) | Derivative Financial Instruments |
| Effective January 1, 2001, the Bank adopted the Statement of Financial Accounting Standard No.133 (SFAS 133) related to the accounting of financial instruments that are considered to be derivatives, which requires that these financial instruments be recorded on the consolidated balance sheets at their fair value. For control purposes, these financial instruments are recorded at their nominal amount (“notional amount”) on the memorandum accounts. |
| |
| In the normal course of business, the Bank uses interest rate and foreign exchange derivatives primarily for hedging purposes in its consolidated balance sheets management activities. The entire interest rate swaps and foreign exchange forward contracts entered during 2003 were made by the Bank to hedge interest rate and foreign exchange risks arising from the Bank’s lending activity and the issuance of non-US dollar denominated Euro Medium-Term Notes. Interest rate swaps are made either in a single currency or cross-currency for a prescribed period to exchange a series of interest rate flows, which involve fixed for floating interest payment or vice-versa. The Bank also engages in some foreign exchange trades to serve customers’ transaction needs. All positions are hedged with an offsetting contract for the same currency. The Bank manages and controls the risks on these foreign exchange trades by establishing counter party credit limits by client, and policies that do not allow for open positions. |
| |
|
|
F-37 |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
| Types of Derivative and Foreign Exchange Instruments |
| Derivative and foreign exchange instruments negotiated by the Bank are executed mainly over-the-counter (OTC). These contracts are executed between two counter parties that negotiate specific agreement terms, including notional amount, exercise price and maturity. |
| |
| For purposes of asset/liability activities, the Bank uses the following instruments: |
| |
| Interest rate swaps are contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period. The Bank has designated these derivative instruments as fair value hedges, cash flow hedges and freestanding derivatives. |
| |
| Cross-currency swaps are contracts that generally involve the exchange of both interest and principal amounts in two different currencies. The Bank has designated these derivative instruments as fair value hedges. |
| |
| Forward foreign exchange contract represents an agreement to purchase or sell foreign currency on a future date at agreed-upon terms. The Bank has not designated a hedging relationship to these derivative instruments. |
| |
| There were no derivative financial instruments outstanding at December 31, 2004. The following table provides quantitative information on derivative financial instruments outstanding at December 31, 2003: |
| | | | Fair Value | |
| | | |
| |
(In US Dollar) | | Nominal
Amount | | Asset | | Liability | |
| | | | | | | | | | |
Fair Value Hedges: | | | | | | | | | | |
Cross-currency swaps | | | 61,425,806 | | | 1,684,209 | | | 7,051,049 | |
Cash Flow Hedges: | | | | | | | | | | |
Interest rate swaps | | | 60,000,000 | | | 0 | | | 792,537 | |
Freestanding: | | | | | | | | | | |
Cross-currency swaps | | | 50,129,509 | | | 571,875 | | | 5,177,724 | |
| |
|
| |
|
| |
|
| |
Total | | | 171,555,315 | | | 2,256,084 | | | 13,021,310 | |
| |
|
| |
|
| |
|
| |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
(19) | Accumulated Other Comprehensive Income (Loss) |
| As of December 31, 2004, 2003 and 2002 the breakdown of accumulated other comprehensive income (loss) related to investment securities and derivatives was as follows: |
| | | | |
| |
| | | | | Investment
Securities | | Derivatives
Financial
Instruments | | Total | |
| | | | |
| |
Balance as of December 31, 2001 | | | US$ | | | 34,416 | | | (540,696 | ) | | (506,280 | ) |
Unrealized losses arising from the year (including adjustments related to transfers from securities held to maturity to available for sale) | | | | | | (38,916,035 | ) | | (2,578,603 | ) | | (41,494,638 | ) |
Reclassification adjustment for losses included in net loss (1) | | | | | | 41,883,201 | | | 0 | | | 41,883,201 | |
| | | | |
|
| |
|
| |
|
| |
Balance as of December 31, 2002 | | | | | | 3,001,582 | | | (3,119,299 | ) | | (117,717 | ) |
Unrealized gains arising from the year | | | | | | 29,469,931 | | | 2,735,010 | | | 32,204,941 | |
Reclassification adjustment for gains included in net income (1) | | | | | | (22,210,998 | ) | | 0 | | | (22,210,998 | ) |
| | | | |
|
| |
|
| |
|
| |
Balance as of December 31, 2003 | | | | | | 10,260,515 | | | (384,289 | ) | | 9,876,226 | |
Unrealized gains (losses) arising from the year | | | | | | (1,256,353 | ) | | 384,289 | | | (872,064 | ) |
Reclassification adjustment for gains included in net income (1) | | | | | | (2,921,688 | ) | | 0 | | | (2,921,688 | ) |
| | | | |
|
| |
|
| |
|
| |
Balance as of December 31, 2004 | | | US$ | | | 6,082,474 | | | 0 | | | 6,082,474 | |
| | | | |
|
| |
|
| |
|
| |
| (1) | Reclassification adjustments include amounts recognized in net income during the current year that had been part of other comprehensive income in previous years. |
(20) | Fair Value Disclosure of Financial Instruments |
| The following disclosures represent the Bank’s best estimate of the fair value of on-and-off-balance financial instruments. The following assumptions were used by management in estimating the fair values of each type of financial instruments: |
| | |
| (a) | Financial instruments with carrying value equal to fair value |
| | The carrying value of certain financial assets, including cash and due from banks, interest-bearing deposits with banks, securities purchased under agreements to resell, accrued interest receivable, customers’ liabilities under acceptances and certain financial liabilities including, interest, other liabilities and acceptances outstanding, as a result of their short-term nature, is considered to be equal to fair value. |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
| (b) | Investment securities |
| | The fair value of investment securities has been based upon current market quotations, where available. If quoted market prices are not available, fair value has been estimated based upon quoted price of similar instruments. |
| | |
| (c) | Loans |
| | The fair value of the performing loan portfolio has been determined principally based upon a discounted analysis of anticipated cash flows adjusted for expected credit losses. The loans have been grouped to the extent possible, into homogeneous pools, segregated by maturity and the weighted average maturity of the loans within each pool. Depending upon the type of loan involved, maturity assumptions have been based on either contractual or expected maturity. |
| | |
| | Credit risk has been factored into the present value analysis of cash flows associated with each loan type, by allocating allowances for loan losses. The allocated portion of the allowance, adjusted by a present value factor based upon the timing of expected losses, has been deducted from the gross cash flows prior to calculating the present value. The fair value of the non-performing loans has been determined net of related allowance for loan losses. |
| | |
| (d) | Deposits |
| | The fair value of demand deposits is equal to the amount payable on demand at the reporting date. For time deposits, fair value has been estimated based upon interest rates currently being offered on deposits with similar characteristics and maturities. |
| | |
| (e) | Short-term borrowings |
| | The fair value of short-term borrowings is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements. |
| | |
| (f) | Medium and long-term borrowings and placements |
| | The fair value of medium and long-term borrowings and placements is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements. |
| | |
| (g) | Derivative financial instruments |
| | The fair value of derivatives financial instruments and options is based upon quoted market prices. |
| | |
| (h) | Commitments to extend credit, stand-by letters of credit, and financial guarantees written |
| | The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparts at the reporting date. |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
| | Fair values have been determined based on applicable requirements and do not necessarily represent the amount that would be realized upon liquidation. The following table provides information on the carrying value and fair value of the Bank’s financial instruments: |
| | December 31, | |
| |
| |
| | 2004 | | 2003 | |
(In US Dollar) | | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value | |
Financial assets: | | | | | | | | | | | | | |
Instruments with carrying value equal to fair value | | | 202,764,394 | | | 202,764,394 | | | 426,772,735 | | | 426,772,735 | |
Securities available for sale | | | 164,871,623 | | | 164,871,623 | | | 48,340,618 | | | 48,340,618 | |
Securities held to maturity | | | 27,984,068 | | | 28,117,000 | | | 29,452,040 | | | 29,790,000 | |
Loans, net of allowance | | | 2,331,488,389 | | | 2,349,326,818 | | | 2,046,401,596 | | | 2,077,225,191 | |
Derivatives financial instruments - assets | | | 0 | | | 0 | | | 2,256,084 | | | 2,256,084 | |
Financial liabilities: | | | | | | | | | | | | | |
Instruments with carrying value equal to fair value | | | 69,486,950 | | | 69,486,950 | | | 64,754,563 | | | 64,754,563 | |
Time deposits | | | 841,540,399 | | | 841,378,826 | | | 683,584,579 | | | 681,738,412 | |
Short-term borrowings | | | 704,718,013 | | | 704,503,811 | | | 687,214,017 | | | 687,343,803 | |
Medium and long-term borrowings and placements | | | 403,620,966 | | | 398,868,861 | | | 485,516,431 | | | 485,317,237 | |
Derivatives financial instruments - liabilities | | | 0 | | | 0 | | | 13,021,310 | | | 13,021,310 | |
Commitments to extend credit, stand-by letters of credits and guarantees | | | 275,778,509 | | | 1,136,084 | | | 332,858,686 | | | 1,604,595 | |
(21) | Business Segment Information |
| The Bank’s businesses are grouped into three segments for management reporting and analysis purposes: Short-term loans, medium-term loans and selected securities, and contingencies (letters of credit, guarantees and other fee generating businesses). These segments are based upon products and services offered and are identified in a manner consistent with the requirements outlined on Statement of Financial Accounting Standard No. 131 (SFAS 131), “Disclosures about Segments of an Enterprise and Related Information”. The segment results show the financial performance of the major lines of business. These results are determined based on the Bank’s management accounting process, which assigns consolidated balance sheets, revenue and expense items to each reportable line of business on a systematic basis. |
| |
| The short-term loans (original term of up to 365 days) represent the Bank’s principal activity, and constitute mostly short-term trade related financing to its stockholders banks and other selected commercial banks in the Region, including stockholder banks which then on-lend to businesses engaged in foreign trade, to state owned export institutions, and to a lesser extent to private entities. |
| |
| Medium-term loans (original term of over one to five years, and exceptionally more than five years) were mainly granted to selected commercial banks in the Region, to support the medium-term financing needs of the Bank’s clients. |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
| The contingencies constitute mainly guarantees and stand-by or commercial letters of credit covering commercial and country risk. This business segment is the primary component of fee income generation. Additional components of other income are commissions earned on loan origination. The following table presents certain information regarding the Bank’s continuing operations by segment: |
Business Segment Analysis (1)
(In US$ million) | |
| |
2004 | | Average
Assets | | Net
Interest
Income | | Net Commissions
and Other
Income | | Net
Revenues | | Operating
Expenses | | Net
Operating
Income (2) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loans and selected securities (3) | | | | | | | | | | | | | | | | | | | |
Short-term | | | 1,884 | | | 31.5 | | | 2.4 | | | 33.9 | | | (15.0 | ) | | 19.0 | |
Medium-term | | | 448 | | | 10.5 | | | 0.6 | | | 11.1 | | | (3.6 | ) | | 7.5 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total loans selected securities | | | 2,332 | | | 42.0 | | | 3.0 | | | 45.0 | | | (18.5 | ) | | 26.5 | |
Acceptances and contingencies (4) | | | 373 | | | 0 | | | 5.8 | | | 5.8 | | | (2.8 | ) | | 2.9 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Credit portfolio (5) | | | 2,705 | | | 42.0 | | | 8.8 | | | 50.8 | | | (21.3 | ) | | 29.4 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(In US$ million) | |
| |
2003 | | Average
Assets | | Net
Interest
Income | | Net Commissions
and Other
Income | | Net
Revenues | | Operating
Expenses | | Net
Operating
Income (2) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loans and selected securities (3) | | | | | | | | | | | | | | | | | | | |
Short-term | | | 1,763 | | | 37.9 | | | 17.1 | | | 55.0 | | | (14.1 | ) | | 40.9 | |
Medium-term | | | 720 | | | 16.1 | | | 7.0 | | | 23.1 | | | (5.7 | ) | | 17.4 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total loans and selected securities | | | 2,483 | | | 54.0 | | | 24.1 | | | 78.1 | | | (19.8 | ) | | 58.3 | |
Acceptances and contingencies (4) | | | 369 | | | 0 | | | 6.1 | | | 6.1 | | | (2.8 | ) | | 3.3 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Credit portfolio (5) | | | 2,852 | | | 54.0 | | | 30.2 | | | 84.2 | | | (22.6 | ) | | 61.6 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(In US$ million) | |
| |
2002 | | Average
Assets | | Net
Interest
Income | | Net Commissions
and Other
Income | | Net
Revenues | | Operating
Expenses | | Net
Operating
Income (2) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loans and selected securities (3) | | | | | | | | | | | | | | | | | | | |
Short-term | | | 2,101 | | | 32.5 | | | 1.4 | | | 33.9 | | | (9.2 | ) | | 24.7 | |
Medium-term | | | 1,701 | | | 32.3 | | | 1.2 | | | 33.5 | | | (7.5 | ) | | 26.0 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total loans and selected securities | | | 3,802 | | | 64.8 | | | 2.6 | | | 67.4 | | | (16.7 | ) | | 50.7 | |
Acceptances and contingencies (4) | | | 665 | | | 0 | | | 8.8 | | | 8.8 | | | (2.6 | ) | | 6.2 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Credit portfolio (5) | | | 4,467 | | | 64.8 | | | 11.4 | | | 76.2 | | | (19.3 | ) | | 56.8 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| (1) | The numbers set out in these tables have been rounded and accordingly may not total exactly. |
| (2) | To reconcile the net operating income reported on the preceding table with the net income reported on the consolidated statement of operations for the years ended December 31, 2004, 2003, and 2002, the following items should be included: (a) reversal (provisions) for credit losses for US$112.3 million, US$58.9 million and US$(278.8) million, respectively; (b) impairment loss on securities of US$(1.0) million and US$(44.3) million for the years ended December 31, 2003 and 2002, respectively; (c) derivatives and hedging activities from market valuation for US$(8.0) million and US$(0.3) million for the years ended December 31, 2003 and 2002, respectively; and (d) loss on operations and disposal of segment for US$(2.3) million for the year ended December 31, 2002. |
| (3) | Includes loans, selected investment securities and securities purchased under agreements to resell. |
| (4) | Includes customers’ liabilities under acceptances, letters of credit and guarantees covering commercial and country risk and credit commitments. |
| (5) | Includes loans and selected investment securities plus acceptances and contingencies. |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES |
|
Notes to Consolidated Financial Statements |
|
|
(22) | Leasehold Commitments |
| At December 31, 2004, a summary of leasehold commitments is as follows: |
Expiration
Year | | | | | Future Rental
Commitments | |
| | | | | | |
2005 | | | US$ | | | 450,925 | |
2006 | | | | | | 165,080 | |
2007 | | | | | | 169,207 | |
2008 | | | | | | 84,626 | |
| | | | |
|
| |
| | | US$ | | | 869,838 | |
| | | | |
|
| |
| Occupancy expense for years ended December 31, 2004, 2003 and 2002 amounted to US$311,349, US$293,289 and US$408,993, respectively. |
| |
(23) | Litigation |
| Bladex is not engaged in any litigation that is material to the Bank’s business, and to the best knowledge of the Bank’s management, which is likely to have a material adverse effect on its business, financial condition or results of operations. |
| |
(24) | Discontinued Operations |
| At June 30, 2002, the Bank’s Board of Directors approved the closing of its structured transactions finance unit (Bladex Financial Services, LLC and Bladex Securities, LLC) in New York, as part of its restructuring program. As of December 31, 2002, the loss from operations and disposal of segment, totaled US$2,346,094 (including US$1,531,789 of loss from disposal). |
| |
(25) | Capital Reserves |
| Effective on June 30, 2002, the Bank transferred US$210,000,000 from the Capital Reserves account to the Retained Earnings account. This reclassification was approved by the Bank’s Board of Directors, and was previously authorized by the Superintendency of Banks of Panama. |
| |
(26) | Subsequent Events |
| On February 1, 2005, Board of Directors authorized the payment of a special cash dividend of US$2.00 per common share, or $77.8 million, payable on April 11, 2005 to shareholders of record as of March 28, 2005, along with the quarterly common dividend. |
BANCO LATINOAMERICANO DE EXPORTACIONES, S. A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
| |
(27) | Summary of Unaudited Quarterly Financial Information |
| | | | 2004 |
| | | |
|
| (In US$ thousands, except per share data) | | | Fourth | | | Third | | | Second | | | First | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest income | | US$ | 20,422 | | | 18,535 | | | 17,687 | | | 19,508 | |
| Interest expense | | | (11,358 | ) | | (7,950 | ) | | (6,632 | ) | | (8,186 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest income | | | 9,064 | | | 10,585 | | | 11,054 | | | 11,322 | |
| Reversal of provision for loan losses | | | 45,010 | | | 27,413 | | | 20,638 | | | 18,338 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest income after reversal of provision for loan losses | | | 54,074 | | | 37,998 | | | 31,692 | | | 29,660 | |
| Commission income, net | | | 1,201 | | | 1,569 | | | 1,471 | | | 1,686 | |
| Reversal (provision) for loan losses on off-balance sheet credit risk | | | 4,715 | | | (3,683 | ) | | (3,212 | ) | | 3,051 | |
| Derivatives and hedging activities | | | 0 | | | 24 | | | (89 | ) | | 113 | |
| Gain on early extinguishment of debt | | | 0 | | | 0 | | | 0 | | | 6 | |
| Gain on sale of securities available for sale | | | 0 | | | 2,589 | | | 332 | | | 0 | |
| Gain (loss) on foreign currency exchange | | | 7 | | | 5 | | | (205 | ) | | (1 | ) |
| Other income (expense) | | | 60 | | | 14 | | | 1 | | | 2 | |
| Operating expenses | | | (6,145 | ) | | (4,792 | ) | | (5,727 | ) | | (4,689 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income | | US$ | 53,913 | | | 33,724 | | | 24,263 | | | 29,830 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income available to common stockholders | | US$ | 53,913 | | | 33,724 | | | 24,263 | | | 29,830 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share | | US$ | 1.39 | | | 0.86 | | | 0.62 | | | 0.76 | |
| Diluted earnings per share | | US$ | 1.39 | | | 0.86 | | | 0.62 | | | 0.76 | |
| Average number of common shares outstanding (thousands) | | | 38,916 | | | 39,297 | | | 39,353 | | | 39,353 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
| | | | 2003 |
| | | |
|
|
|
|
|
|
|
|
|
|
|
| (In US$ thousands, except per share data) | | | Fourth | | | Third | | | Second | | | First | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest income | | US$ | 21,522 | | | 22,769 | | | 26,265 | | | 27,840 | |
| Interest expense | | | (8,253 | ) | | (9,339 | ) | | (12,748 | ) | | (14,069 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest income | | | 13,270 | | | 13,430 | | | 13,517 | | | 13,770 | |
| Reversal of provision for loan losses | | | 14,661 | | | 10,093 | | | 37,429 | | | 7,325 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest income after provision for loan losses | | | 27,930 | | | 23,523 | | | 50,946 | | | 21,096 | |
| Commission income, net | | | 1,400 | | | 1,782 | | | 1,835 | | | 2,429 | |
| (Provision) reversal for loan losses on off-balance sheet credit risk | | | (5,127 | ) | | (5,043 | ) | | 7,209 | | | (7,642 | ) |
| Derivatives and hedging activities | | | (199 | ) | | (6,667 | ) | | (320 | ) | | (802 | ) |
| Impairment loss on securities | | | 0 | | | (75 | ) | | (875 | ) | | (3 | ) |
| Gain on early extinguishment of debt | | | 0 | | | 0 | | | 789 | | | 0 | |
| Gain on sale of securities available for sale | | | 0 | | | 8,860 | | | 13,351 | | | 0 | |
| Gain (loss) on foreign currency exchange | | | 3 | | | 176 | | | (534 | ) | | (27 | ) |
| Other income (expense) | | | 38 | | | 2 | | | 93 | | | (91 | ) |
| Operating expenses | | | (7,812 | ) | | (4,755 | ) | | (5,409 | ) | | (4,585 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income | | US$ | 16,233 | | | 17,803 | | | 67,084 | | | 10,376 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income available to common stockholders | | US$ | 16,233 | | | 17,803 | | | 66,899 | | | 10,127 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share (after dividends on preferred stock) | | US$ | 0.41 | | | 0.45 | | | 3.65 | | | 0.58 | |
| Diluted earnings per share | | US$ | 0.41 | | | 0.45 | | | 3.65 | | | 0.58 | |
| Average number of common shares outstanding (thousands) | | | 39,343 | | | 39,343 | | | 18,310 | | | 17,343 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
BANCO LATINOAMERICANO DE EXPORTACIONES, S.A.
/s/ JAIME RIVERA | |
| |
Jaime Rivera | |
Chief Executive Officer
June 22, 2005
EXHIBIT INDEX
Exhibit
Exhibit 12.1. | Rule 13a-14(a) Certification of Principal Executive Officer |
Exhibit 12.2. | Rule 13a-14(a) Certification of Principal Financial Officer |
Exhibit 13.1. | Rule 13a-14(b) Certification of Principal Executive Officer |
Exhibit 13.2. | Rule 13a-14(b) Certification of Principal Financial Officer |
