FirstCaribbean International Bank (Bahamas) Limited

Notes to Consolidated Financial StatementsFor the year ended October 31, 2009(Expressed in thousands of Bahamian dollars)2. Accounting Policies (Continued)2.4 Summary of Significant Accounting Policies (continued)(3) Financial instruments (continued)Derivatives recorded at fair value through profit or loss (continued)Derivatives embedded in other financial instruments, such as the conversion option in an acquired convertible bond,are treated as separate derivatives and recorded at fair value if their economic characteristics and risks are not closelyrelated to those of the host contract, and the host contract is not itself held for trading or designated at fair valuethrough profit or loss. The embedded derivatives separated from the host are carried at fair value in the tradingportfolio with changes in fair value recognized in the consolidated statement of income.(ii) Loans and advances to customersLoans and advances to customers are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market. They are not entered into with the intention of immediate or short-term resaleand are not classified as ‘financial assets held for trading, designated as ‘financial investment available-for-sale, or‘financial assets designated at fair value through profit or loss’. After initial measurement, loans and advances aremeasured at amortized cost using the effective interest method, less allowance for impairment.(iii) Held-to-maturity investmentsHeld-to-maturity financial investments are those which carry fixed or determinable payments and have fixedmaturities and which the Bank has the intention and ability to hold to maturity. After initial measurement, heldto-maturityfinancial investments are subsequently measured at amortized cost using the effective interest rateyield method, less allowance for impairment. Amortized cost is calculated by taking into account any discount orpremium on acquisition and fees that are an integral part of the effective interest rate. The amortization is includedin ‘Interest and similar income’ in the consolidated statement of income. The losses arising from impairment ofsuch investments are recognized in the consolidated statement of income.(iv) Available-for-sale securitiesare those which are designated as such or do not qualify to be classified as designated as fair value through profitor loss, held-to-maturity or loans and advances. They include equity instruments, investments in mutual funds andmoney market and other debt instruments. After initial measurement, available-for-sale securities are subsequentlymeasured at fair value. Unrealized gains and losses are recognized directly in equity in the ‘available-for-salereserve’. When the security is disposed of, the cumulative gain or loss previously recognized in equity is recognizedin the consolidated statement of income in ‘Other operating income’ or ‘Other operating expenses’. Where theBank holds more than one investment in the same security they are deemed to be disposed of on a first-in first-outbasis. Interest earned on available-for-sale securities is recognized in the consolidated statement of income as ‘Netinterest income’ when the right of the payment has been established. The losses arising from impairment of suchinvestments are recognized in the consolidated statement of income.Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fairvalue through profit or loss.Unquoted equity instruments for which fair values cannot be measured reliably are recognized at cost lessimpairment. Dividend income is recognized when the right to receive payment is established.25