BAC BAHAMAS BANK LIMITED Financial Statements Year ended December 31, 2019 Page Independent Auditors’ Report 1 - 2 Statement of Financial Position 3 Statement of Comprehensive Income 4 Statement of Changes in Equity 5 Statement of Cash Flows 6 Notes to Financial Statements 7 - 47 BAC BAHAMAS BANK LIMITED Statement of Comprehensive Income Year ended December 31, 2019, with corresponding figures for 2018 (Expressed in United States dollars) 2019 2018 Net interest income: Interest income calculated using the effective interest method on cash and cash equivalents (note 7) $ 2,694,218 2,870,986 Interest income calculated using the effective interest method on loans to customers (note 7) 119,562 173,354 Interest income on investments 374,250 0 Interest expense (note 7) (958,710) (796,871) Net interest income 2,229,320 2,247,469 Net commission income: Commission income 11,172 16,263 Commission expense (29,162) (18,945) Net commision expense (17,990) (2,682) Other operating (expense) income: Other income (note 7) 35,123 39,201 General and administrative expenses (notes 7 and 15) (699,668) (877,817) Reversal of impairment losses on loan (note 5) 25,328 20,434 (639,217) (818,182) Net income 1,572,113 1,426,605 Other comprehensive income: Net change in fair value of investments 7,389 0 Net income and total comprehensive income for the year $ 1,579,502 1,426,605 The accompanying notes are an integral part of these financial statements. 4 BAC BAHAMAS BANK LIMITED Statement of Changes in Equity Year ended December 31, 2019, with corresponding figures for 2018 (Expressed in United States dollars) Number Share Regulatory Retained Fair value of shares capital reserve earnings reserve Total Balance at December 31, 2017 18,000,000 $ 18,000,000 308,812 6,043,360 0 24,352,172 Impact of adopting IFRS 9 at 1 January, 2018 0 0 0 (37,004) 0 (37,004) Restated balance at 1 January, 2018 18,000,000 18,000,000 308,812 6,006,356 0 24,315,168 Net income and total comprehensive income for the year 0 0 0 1,426,605 0 1,426,605 Balance at December 31, 2018 18,000,000 18,000,000 308,812 7,432,961 0 25,741,773 Net income 0 0 0 1,572,113 0 1,572,113 Other comprehensive income: Net change in fair value of investments 0 0 0 0 7,389 7,389 Total comprehensive income 0 0 0 1,572,113 7,389 1,579,502 Balance at December 31, 2019 18,000,000 $ 18,000,000 308,812 9,005,074 7,389 27,321,275 The accompanying notes are an integral part of these financial statements. 5 BAC BAHAMAS BANK LIMITED Statement of Cash Flows Year ended December 31, 2019 with corresponding figures for 2018 (Expressed in United States dollars) 2019 2018 Cash flows from operating activities: Net income $ 1,572,113 1,426,605 Adjustments for: Reversal of impairment losses on loan (25,328) (20,434) Depreciation 46,013 2,575 Net interest income (2,229,320) (2,247,469) (636,522) (838,723) Changes in operating assets and liabilities: Loans to customers 1,859,448 308,963 Other receivables and assets (8,738) (82,510) Demand deposits (3,963,970) 9,506,213 Time deposits 3,335,365 1,347,880 Other liabilities 48,655 (12,235) 634,238 10,229,588 Interest received 2,821,601 3,045,530 Interest paid (854,651) (820,510) Net cash provided by operating activities 2,601,188 12,454,608 Cash flows from investing activities Adquisition of investments (79,584,081) 0 Maturities and prepayment of investments 50,000,000 0 Net cash used in investing activities (29,584,081) 0 Cash flows from financing activities Payment of lease liability (36,299) 0 Net cash used in financial activities (36,299) 0 (Decrease)/ increase in cash and cash equivalents during the year (27,019,192) 12,454,608 Cash and cash equivalents at beginning of year 86,503,178 74,048,570 Cash and cash equivalents at end of year $ 59,483,986 86,503,178 The accompanying notes are an integral part of these financial statements. 6 BAC BAHAMAS BANK, LIMITED Notes to Financial Statements Year ended December 31, 2019 (Expressed in United States dollars) 1. Reporting entity BAC Bahamas Bank Limited (“the Bank”) was incorporated under the laws of The Commonwealth of The Bahamas on August 13, 1992 and was granted a banking license on March 16, 1992 by The Central Bank of The Bahamas. The Bank’s registered office is located at Caves Village, West Bay Street, Nassau, Bahamas. The Bank is a wholly-owned subsidiary of BAC International Bank, Inc. (the Parent Company), a bank incorporated in the Republic of Panama. The Parent Company is ultimately owned by Grupo Aval Acciones y Valores S.A., a company incorporated in Colombia. The Bank is primarily involved in corporate banking. A substantial portion of the Bank´s business is with the related parties. A significant amount of the Bank´s cash and cash equivalents are held with related parties and the Bank´s revenue is primarily from the interest income on such cash and cash equivalents (see note 7). Accordingly, the Bank is economically dependent on these related parties and is exposed to a significant credit risk in respect of the related parties’ balances at the reporting date. 2. Basis of preparation (a) Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). (b) Basis of measurement The financial statements have been prepared on the historical cost basis. The Bank initially recognizes loans, accounts receivable and deposits on the date on which they are originated. All other financial instruments are recognized on the trade date, which is the date on which the Bank becomes a party to the contractual provisions of the instrument. (c) Functional and presentation currency These financial statements are presented in United States dollars ($), which is also the Bank’s functional currency. (d) Use of estimates and judgments Preparation of financial statements requires the Bank’s management to make judgments, estimates and assumptions affecting the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Final results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively. 7 BAC BAHAMAS BANK, LIMITED Notes to Financial Statements, Continued Year ended December 31, 2019 (Expressed in United States dollars) 2. Basis of preparation, continued Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are disclosed in the following notes: • Fair value measurement (note 17) • Impairment (notes 4(b) and (6) • Impairment losses on loan (notes 4 (b) and 6) 3. Changes in Accounting Policies Except for the changes below, the Bank has consistently applied the accounting policies as set out in Note 4 to all periods presented in these financial statements. a) IFRS 16 Leases The Bank applied IFRS 16 with a date of initial application of January 1, 2019. As a result, the Bank has changed its accounting policy for lease contracts as detailed below: The Bank applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognized in retained earnings as of January 1, 2019. The details of the changes in accounting policies are disclosed below: A. Definition of a lease Previously, the Bank determined at contract inception whether an arrangement is or contains a lease under IFRIC 4. Under IFRS 16, the Bank assesses whether a contract is or contains a lease based on the definition of a lease, as explained in Note 4(h). On transition to IFRS 16, the Bank elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after January 1, 2019. B. As a lessee As a lessee, the Bank previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Bank. Under IFRS 16, the Bank recognizes right-of-use assets and lease liabilities for most leases – i.e. these leases are on-balance sheet. 8 BAC BAHAMAS BANK, LIMITED Notes to Financial Statements, Continued Year ended December 31, 2019 (Expressed in United States dollars) 3. Changes in Accounting Policies, continued Short-term leases and leases of low-value assets The Bank has elected not to recognize right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less and leases of low-value assets, including IT equipment. The Bank recognizes the lease payments associated with these leases as an expense on straight-line basis over the lease term. The Bank decided to apply recognition exemptions to short-term leases (see Note 4(h)). For leases of other assets, which were classified as operating under IAS 17, the Bank recognized right-of-use assets and lease liabilities. i. Leases classified as operating leases under IAS 17 At transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Bank’s incremental borrowing rate as of January 1, 2019.