Bahamas - FirstCaribbean International Bank

Management’s Discussion and Analysis ofOperating Results and Financial ConditionOverview of Audited Financial StatementsOn October 11, 2002 the combination of Barclaysand CIBC’s retail, corporate and offshore bankingoperations in the Bahamas and Turks & Caicos Islandswas completed and CIBC Bahamas Limited wasrenamed FirstCaribbean International Bank(Bahamas) Limited.Although CIBC and Barclays PLC hold identicalvoting share interests of 45% in FirstCaribbeanInternational Bank Limited which is the parentcompany of the Bank, at the initial stage of thecombination transaction, the value of Barclays’interest was larger than CIBC’s. As a result, underInternational Accounting Standards the accountingtreatment for the combination was determined to bethat of a reverse acquisition with Barclays identified asthe deemed acquirer. As a consequence, the publishedincome statement represents ten months results forBarclays Bahamas and Turks & Caicos Islandsoperations and approximately three weeks of CIBCBahamas results (Barclays’ results from January 1, 2002as they previously had a December fiscal year-end andCIBC Bahamas’ results from October 11, 2002 – thedate of the combination).This accounting convention applies to all of thefinancial statements although the balance sheet ismore straightforward, showing combined balances ata point in time i.e. October 31, 2002. The goodwillfigure of $196 million on the balance sheet representsthe excess of the fair value of CIBC Bahamas’ businessover the fair value of the identified assets andliabilities as of October 11, 2002, adjusted foramortization to the balance sheet date. All prior yearcomparatives reflect the fiscal 2001 results of BarclaysBahamas and Turks & Caicos Islands operations.As a result of the combination, the actual total assetsstood at $3.2 billion at October 31, 2002 with a totalloan portfolio of $1.5 billion and capital ratios well inexcess of regulatory requirements. The large increasein all balance sheet categories is due to the fact thatthe 2001 comparatives only include the operations ofBarclays in The Bahamas and Turks & Caicos Islands,whereas 2002 balances are those for the combinedoperations.A restructuring charge of $8.8 million has beenincurred this year to accommodate the funding ofcertain future costs related to the combination.Excluding the restructuring charge, the netincome before goodwill amortisation is $20.9million. Of this figure, $1.7 million relates tothree weeks of ex-CIBC operations and $19.2million relates to ten months of ex-Barclays’operations. Included in the ex-Barclays’ noninterestincome for the period is $8.3 million,representing ten months worth of the $10million annual incentive payment from BarclaysCapital (Barcap) which is further described inNote 19, of the Financial Statements.Performance OverviewIt is emphasized that because of the applicationof reverse acquisition accounting and theincurring of restructuring charges the reportednet profit of $11.5 million does not accuratelyreflect the ongoing operating performance of thecombined entity. To address this issue theremaining discussion and analysis focuses on thepro-forma combined results for Barclays and CIBC.This disclosure essentially allows the reader toview the combined performance of the twoentities as if they were two stand-alone businesses,without any accounting impact from a combination.On a combined basis, the total assets of the Bankgrew by $108 million or 3.6% with total loansincreasing by $53 million or 3.5%. Total customerdeposits also grew by $20 million or 0.7% of thecombined deposits of 2001. Despite this balancesheet growth, net income declined slightly from$53.9 million to $53.7 million.Net Interest IncomeNet interest income for the year fell by 12%from $101 million to $90 million with both theinterest income and the interest expense amountsdropping from the previous year. The decline innet interest income was brought about by thefalling US interest rates on our large US$denominated cash resources rather than decliningbusiness volumes. Net interest margin declinedfrom 3.5% to 3.0%.30