Home' Trinidad and Tobago Guardian : December 22nd 2015 Contents B17
First Citizens Bank Limited
(A Subsidiary of First Citizens Holdings Limited)
Unconsolidated Financial Statements
30 September 2015
(Expressed in Trinidad and Tobago dollars)
Critical accounting estimates and judgements
The Bank makes estimates and assumptions about the future. The resulting accounting estimates
will, by definition, rarely equal the related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amount of assets and liabilities within
the next financial year are outlined below:
a. Fair value of available-for-sale financial instruments
The Bank uses the discounted cash flow method to determine the fair value of available-for-sale
financial assets not traded in active markets. The discounted cash flow method discounts the
cash-flows of the financial assets at an appropriate yield plus a credit spread where applicable.
The carrying amount of available-for-sale financial assets would decrease by $259.5 million if
the discount rate used in the discounted cash flow analysis is increased by 100 basis points from
management's estimates (2014 - $165.0 million).
b. Estimation of the impairment loss on the loan portfolio
The Bank estimates the impairment loss on its loan portfolio by comparing the present value of
the future cash flows to the carrying amounts in the unconsolidated financial statements. The
Bank makes assumptions about the amount and timing of future cash flows as well as the loss
experience of the portfolio. The loss experience considers both the recovery rate on the portfolio
as well as the probability of default by the customer. Management considers both the market
and economic conditions at the year end and may modify the loss experience on the portfolio if
necessary, to reflect current conditions.
Future cash flows for the individually significant loans and loans in arrears are estimated based
on credit reviews performed by management and management's estimate of the value of the
During the period the Group change from Headline Inflation to Core Inflation in its assessment.
This change resulted in a decrease in provisioning by $3.0 million.
If the bank's estimation of the loss experience on the portfolio of loans not considered individually
impaired were adjusted by 100 basis points upwards, the impairment provision for loans and
receivables would increase by $1.3 million (2014 - $0.9 million), and if the historical period is
adjusted from 5 years to 3 years, the provision will increase by $8.5 million (2014 - $ 8.6 million).
c. Impairment losses of debt securities
The Bank reviews its debt securities portfolios to assess impairment at least on an annual basis.
In determining whether an impairment loss should be recorded in the statement of income, the
Bank makes judgments as to whether there is any observable data indicating that there is a
measurable decrease in the estimated future cash flows from a portfolio of debt securities before
the decrease can be identified with an individual receivable in that portfolio. This evidence may
include observable data indicating that there has been an adverse change in the payment status
of borrowers in a group, or national or local economic conditions that correlate with defaults
on assets in the group. The Bank also makes judgments on the mitigating factors impacting the
probability of impairment losses.
d. Impairment of available-for-sale equity investments
The Group determines that available-for-sale equity investments are impaired when there has
been a significant or prolonged decline in the fair value below its cost. This determination of what
is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among
other factors, the normal volatility in share price.
In addition, impairment may be appropriate when there is evidence of deterioration in the financial
health of the issuer, industry and sector performance, changes in technology, and operational and
financing cash flows.
e. Income taxes
The Bank is subject to income tax in various jurisdictions. Management judgment is required in
determining provisions for income taxes and there are many transactions and calculations for
which the ultimate tax determination is uncertain. Where the final tax outcome of these matters
is different from the amounts that were initially recorded, such differences will impact the current
and deferred income tax assets and liabilities in the period in which such determination is made.
When appropriate, particularly where the ultimate tax determination is uncertain, management
also obtains opinions or advice from leading tax advisors and regularly reassesses its strategy in
relation to such exposures.
f. Retirement benefits
The present value of the retirement benefit obligations depends on a number of factors that
are determined on an actuarial basis using a number of assumptions. Any changes in these
assumptions will impact the carrying amount of pension obligations.
The assumptions used in determining the net cost (income) for pensions include the discount rate,
salary and pension increases. The Bank determines the appropriate discount rate at the end of
each year. This is the interest rate that should be used to determine the present value of estimated
future cash outflows expected to be required to settle the pension obligations. In determining the
appropriate discount rate, the Bank considers the interest rates of high-quality corporate bonds
that are denominated in the currency in which the benefits will be paid and that have terms to
maturity approximating the terms of the related pension liability.
In determining the salary increases, the Bank considered long-term salary inflation, age, merit and
g. Fair valuation of properties
The best evidence of fair value is current prices in an active market for similar lease and other
contracts. In the absence of such information, the Bank determines the amount within a range of
reasonable fair value estimates. In making the judgement, the Bank considers information from a
variety of sources including:
(i) Current prices in an active market for properties of different nature, condition or location (or
subject to different lease or other contracts), adjusted to reflect those differences;
(ii) Recent prices of similar properties in less active market, with adjustments to reflect any
changes in economic conditions since the date of the transactions that occurred at those
(iii) Discounted cash flow projections based on reliable estimates of future cash flows, derived
from the terms of any existing lease and other contracts and (where possible) from external
evidence such as current market rents for similar properties in the same location and
condition, and using discount rates that reflect current market assessments of the uncertainty
in the amount and timing of the cash flows.
The valuations are based on current market conditions and thus may change in the future.
For management purposes, the Bank is organised into five business segments based on products and
services as follows:
• Retail banking: includes loans and mortgages, deposit, foreign exchange transactions, credit and
debit cards and card merchant acquiring business with retail and commercial customers.
• Corporate banking: loans and credit facilities and deposits and current accounts for corporate and
• Treasury management and investment banking: Liquidity management and investment banking
services including corporate finance, and specialised financial trading.
• Bank function: Finance, legal, and other centralised functions.
As the Bank's segment operations are all financial with a majority of revenues deriving from interest
and the Executive Management relies primarily on net interest revenue to assess the performance of
the segment, the total interest income and expense for all reportable segments is presented on a net
basis. There were no changes in the reportable segments during the year.
Transactions between the business segments are carried out at arm's length. The revenue from external
parties reported to the Group Chief Executive Officer is measured in a manner consistent with that
in the unconsolidated income statement. The segmental information is reported gross and therefore
consolidation adjustments have not been eliminated.
Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in inter-
segment net interest income. Interest charged for these funds is based on the Bank's average cost of
funding. There are no other material items of income or expense between the business segments.
Internal charges and transfer pricing adjustments have been reflected in the performance of each
business. Revenue-sharing agreements are used to allocate external customer revenues to a business
segment on a reasonable basis.
The Bank's management reporting is based on a measure of operating profit comprising net interest
income, loan impairment charges, net fee and commission income, other income and non-interest
expenses. The information provided about each segment is based on the internal reports about
segment profit or loss, assets and other information, which are regularly reviewed by the Executive
Segment assets and liabilities comprise operating assets and liabilities, being the majority of the
unconsolidated statement of financial position.
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