Helm Bank S.A. and Subsidiary Companies

Financial Statements for the Six Months

Ended on December 31 and June 30, 2013

HELM BANK S.A. AND SUBSIDIARY COMPANIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED ON DECEMBER 31 AND JUNE 30, 2013 (All amounts are expressed in million pesos plus one decimal, except for amounts in foreign currency, the exchange rates and the nominal and intrinsic value of the shares)

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1. ECONOMIC ENTITY AND MAIN ACCOUNTING POLICIES AND PRACTICES

Helm Bank S.A. (the Bank) is a private entity, with main domicile in the city of Bogota D.C.,

incorporated by means of Public Deed number 2152 dated July 31, 1963 of Notary 8 of the

Circle of Bogota D.C. By means of Resolution number 3140 of September 24, 1993 the Finance

Superintendence of Colombia granted the renewal of the operating license in a definitive

manner. The term established in the Bylaws is until July 10, 2062; however, it may be dissolved

or extended before said term. The corporate purpose of the Bank is to execute or perform all the

operations and agreements legally permitted for banking establishments of commercial nature,

subject to the requirements and limitations of Colombian law.

As of December 31, 2013 the Bank operated with 2,039 employees (2,150 in June 2013)

through 87 offices (87 in June 2013), of which 46 are located in Bogota D.C. and 41 in different

areas of the country.

By means of public deed No. 1576 dated July 16, 2010, granted in Notary 25 of the Circle of

Bogota, the merge by integration and absorption was formalized, under which Helm Bank S.A.,

absorbed Helm Leasing S.A. Compañia de Financiamiento, a company dissolved without being

liquidated. On July 19, 2010 the registration of the merger’s deed was made in the

corresponding trade registry before the Chamber of Commerce of Bogota.

Relevant events – From July 1, 2013 until the date of issuance of the Financial Statements, the

relevant events detailed below have occurred:

The Finance Superintendency of Colombia by means of Resolution 1370/2013, stated it had no objection to the acquisition by Banco CorpBanca Colombia S.A of 100% of the

outstanding shares as well as of the preferred shares as to dividend of Helm Bank S.A., by

means of three successive operations: The first one performed by Banco Corpbanca on

August 6, the second one performed on August 29 and the third operation, consisting in a

public takeover offer (PTO) up to 100% of the 571,749,928 non-voting preferred shares

issued by Helm Bank S.A., which was performed on December 21, 2013.

Consequently, on August 6, 2013 Banco CorpBanca Colombia S.A. made the payment for

a sum of $1,286,023,381,722.93 Colombian pesos (USD 682,878,115) in favor of several

selling shareholders of Helm Bank S.A., achieving with it a 51.60% interest over the total

of shares issued and outstanding (including common and non-voting preferred shares)

equivalent to 58.89% of the total of common shares of said financial entity, and achieving

through it an indirect interest in Helm Fiduciaria S.A., Helm Comisionista de Bolsa S.A.,

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both financial sector entities incorporated in Colombia; Helm Bank Panama S.A., Helm

Casa de Valores Panama, financial sector entities incorporated in Panama; and Helm Bank

Cayman, resulting in control situation over these companies.

On August 29, the Bank performed a second payment for a sum of $892,356,012,382.24

Colombian pesos (USD 473,840,834) in favor of several selling shareholders of Helm

Bank S.A., achieving in that way an in increase in its interest to 87.42% of the total of

shares issued and outstanding (including common and non-voting preferred shares)

equivalent to an approximate 99.75% of the total of common shares of Helm Bank S.A.

By means of Directors’ meeting minutes dated August 2, 2013, the decision to voluntarily wind-up the company Helm Bank S.A. (Cayman) was made and by means of minutes dated

August 5, 2013, the Shareholders’ Assembly appointed the company KPMG Cayman as

the liquidators of the entity. Currently, the wind-up process is being carried out, which is

expected to conclude during the course of 2014.

The General Shareholders’ Assembly of the bank, in the meeting held on November 1, 2013 (Minutes No. 115), determined the change of the Statutory Auditor of the entity,

being the new appointed firm, the company Deloitte & Touche Ltda.

The performance by Banco Corpbanca Colombia S.A., from December 21, 2013 of a Public Takeover Offer (PTO) for the non-voting preferred shares issued by Helm Bank

S.A.

The receipt in December 2013, of information by the major shareholder CorpBanca, a Chilean financial entity, regarding offers for the consolidation of its business in Chile and

abroad with banking operators with recognized prestige, which offer is currently being

analyzed in order to eventually define counterparty and the structure for the operation.

As of December 31 and June 30, 2013 the Bank operated with 2,039 and 2,150 employees

respectively, through 87 offices, of which 46 are located in Bogota D.C. and 41 in different

parts of the country.

Helm Fiduciaria S.A. is a “sociedad anónima” incorporated under the laws of the Colombia,

company providing financial services, whose corporate purpose consists on the performance of

the trust business entrusted to it and in general the performance or execution of all the

operations legally permitted to trust companies subject to the requirements, restrictions and

limitations imposed by the laws of the Republic of Colombia. Helm Bank S.A. directly owns

99.98072% of this subsidiary company.

The corporate purpose of Helm Bank Cayman is to provide financial services without

restrictions. It may carry out banking business of any kind, except with customers of the

Cayman Islands, pursuant to the rules of said Islands. Helm Bank S.A. directly owns 100% of

this subsidiary company.

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In accordance to the Minutes of the directors’ meeting held on August 2, 2013, the Management

Council approved the voluntary wind-up of Helm Bank Cayman, the delivery of its Class “B”

license, issued pursuant to the Banks and Trust Companies Law of the Cayman Islands.

Helm Bank Cayman was notified by the Monetary Authority of the Cayman Islands of the

acceptance on the assignment of its Class “B” shares and Trust License. In the minutes of

directors’ meeting held on August 5, 2013, KPMG Cayman was approved as liquidator.

Helm Bank Panama S.A. is organized pursuant to the laws of the Republic of Panama and

operates since April 15, 1998 in said place with an international license granted by the Banking

Superintendency by means of Resolution 22-97 dated October 17, 1997, which authorizes it to

carry out the banking business abroad. Helm Bank S.A. directly owns 100% of this subsidiary

company.

Helm Comisionista de Bolsa S.A. pursuant to its corporate purpose, performs the activities

corresponding to a stockbroker firm subject to the legal requirements and particularly to those

established in Resolution No. 400/1995 (Sole Resolution), issued by the Finance

Superintendency (formerly known as the Superintendency of Securities), has an interest of

100% in the company Helm Casa de Valores Panama, an entity dedicated to the purchase and

sale of securities under the laws of the Republic of Panama. Helm Bank S.A. owns both directly

and indirectly, 99.996529% of Helm Comisionista de Bolsa.

As of December 31 and June 30, 2013, the value of the assets, liabilities and income of the

semester of the Parent Company and Subordinated companies included in the consolidation is

the following:

December 31

Asset

Liability

Equity

Semester’s

Income

Helm Bank S.A. (Parent

Company) (1) $ 12,984,913.0 $ 11,476,934.1 $ 1,507,978.9 $ 54,556.7

Helm Fiduciaria S.A. 46,224.6 4,492.5 41,732.1 1,340.2

Helm Comisionista de Bolsa

S.A. 22,681.5 2,398.2 20,283.3 462.6

Helm Bank Cayman S.A. 51,357.1 2,953.3 48,403.8 609.0

Helm Bank Panama S.A. 1,956,374.7 1,814,135.8 142,238.9 2,633.0

Total $ 15,061,550.9 $ 13,300,913.9 $ 1,760,637.0 $ 59,601.5

Consolidated $ 14,804,730.2 $ 13,296,359.0 $ 1,508,371.2 $ 50,608.8

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June 30

Asset

Liability

Equity

Semester’s

Income

Helm Bank S.A. (Parent

Company) (1) $ 12,671,976.4 $ 11,221,216.5 $ 1,450,759.9 $ 109,518.2

Helm Fiduciaria S.A. 45,380.4 5,290.1 40,090.3 4,454.3

Helm Comisionista de Bolsa

S.A. 30,574.3 12,342.5 18,231.9 1,506.4

Helm Bank Cayman S.A. 450,088.8 394,452.9 55,635.8 3,598.9

Helm Bank Panama S.A. 1,587,726.7 1,449,188.4 138,538.3 11,241.6

Total $ 14,785,746.6 $ 13,082,490.4 $ 1,703,256.2 $ 130,319.4

Consolidated $ 14,520,736.8 $ 13,071,548.1 $ 1,449,188.7 $ 92,616.5

(1) The information of the parent company includes its interest in the subsidiaries’ results, after the

corresponding eliminations and not including the minority interest.

Consolidated and Basic Accounting – The accounting policies and preparation of the financial

statements of the Bank and its local Subsidiary companies, are established by the Finance

Superintendence of Colombia and if there is any matter not provided in them, then the generally

accepted accounting principles in Colombia are applied pursuant to Decree 2649/1993.

Foreign subsidiary companies included in the consolidated financial statements are governed by

the accounting rules in force in the countries where they operate. For the purposes of the

consolidation, adjustments and reclassifications were performed in order to adapt them to the

rules established by the Finance Superintendency. These adjustments are not representative for

the purposes of the financial statements taken as a whole.

The results and balance sheet accounts of the foreign subordinated companies are converted to

Colombian pesos at the market representative rates of $1,926.83 per US$1 as of December 31,

2013 and $1,929.0 per US$1 as of June 30, 2013.

Intercompany accounts and transactions are eliminated in the consolidation of the financial

statements.

Basis of presentation – The financial statements have been prepared from accounting records,

kept under the historical cost method, modified in accordance with the legal standards to

acknowledge the effect of inflation only on certain non-monetary accounts of the general

balance sheet, including equity, until December 31, 2000.

Relative importance criterion – An economic event has a relative importance when, due to its

nature or amount, its awareness or lack of awareness of it, taking into account the circumstances

around it, may significantly alter the economic decisions of the users of the information.

The financial statements detail the specific amounts pursuant to the legal standards or those

representing five percent or more of the asset, liability, the equity and of the income, as the case

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may be. Inferior amounts are described when it is considered that it may contribute to a better

interpretation of the financial information.

Maturity of assets and expiration of liabilities – The maturity of assets of the Bank and its

Subordinated companies, in general, is framed according to the terms granted or agreed, such as

the loan portfolio, accounts receivable, investments and short, medium and long term deposits.

a. Transactions in foreign currency – With the approval of the Finance Superintendency, the banks are authorized to manage bank accounts in foreign currency and other funds necessary

for the development of their operations. Transactions in foreign currency are performed

pursuant to current legal standards and are recorded at the exchange rates applicable on the

date of their occurrence. The balances denominated in foreign currency are expressed in

Colombian pesos at the market representative rates of $1,926.83 per US$1 as of December 31,

2013 and $1,929.0 per US$1 as of June 30, 2013. The differences in the exchange are

attributed to the corresponding asset and reflected in results, as the case may be.

b. Cash and cash equivalents – Cash and cash equivalents include the deposits in checking accounts in Banco de la Republica in compliance with legal provisions on cash reserves,

monetary contraction deposits and deposits in foreign banks.

c. Assets from money market and related transactions - This item records the ordinary interbank funds sold placed by the Parent Company and its Subordinated companies, using

the excesses in liquidity, with or without investment or loan portfolio guaranties, with

terms lower than 30 calendar days. Likewise, it records the so called "over-night"

transactions performed with foreign banks, using the funds of the Bank and its

Subordinated companies, deposited in foreign financial entities.

The operations not paid within the term stated are included in the loan portfolio.

Interbank funds are performed with first-rate entities.

Likewise, this amount records the transfer commitments in repurchase operations by means

of which the Bank and its subordinated companies acquire securities, in exchange for the

payment of an amount of money, assuming the commitment of transferring again the

ownership to the transferor the same day or in a subsequent date, at a determined price,

securities of the same type and features.

An open repurchase is the one by means of which it is established that the securities subject

to the repurchase operation are not immobilized. In this event, the transfer of the ownership

may be performed over securities of the same type and features.

A closed repurchase is the one by means of which the securities subject to the operation are

agreed to be immobilized, reason why the transfer commitment of the ownership must be

performed over the same immobilized securities, unless the replacement of such securities

is expressly established. The repurchase or repo operations are presumed closed unless

otherwise agreed.

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d. Investments – Includes the investments acquired by the Bank and its Subordinated companies in order to maintain a secondary liquidity reserve, to acquire the direct or

indirect control of any company of the finance or technical services industry, to comply

with legal and regulatory provisions, or with the exclusive purpose of eliminating or

significantly reducing the market risk which the assets, liabilities and other items of the

financial statements may be subject to.

The accounting record and the disclosure of the investments is performed individually at

the fair exchange price, by which any security may be traded on a fixed date, pursuant to its

particular features and within the prevailing conditions in the market on such date. The fair

exchange price established corresponds to that by which a purchaser and a seller,

sufficiently informed, are willing to trade the corresponding security. The valuation and the

accounting records of the investments are performed on a daily basis.

The fair exchange price is considered as the one determined by the suppliers of prices or by

means of authorized methodologies by the Finance Superintendency of Colombia. As of

June 30, 2013, the Bank implemented Circular Letters 039 and 050 of 2012 for the

valuation of the investments using the price provided by Infovalmer as official supplier.

Classification and valuation – Investments are classified as explained below and are

represented in securities: 1) of debt and 2) equity securities. The first ones grant the

capacity as creditor of the issuer. The equity securities grant the capacity as co-owner of

the issuer and include mixed securities coming from securitization processes that

simultaneously acknowledge credit and interest rights.

The way in which the different kinds of investment are classified, valued and recorded is

indicated below:

Classification Term Features Valuation Accounting

Trading Short term Securities acquired in

order to obtain profit

from price

fluctuations.

Prices, reference rates

and/or margins calculated

and published on a daily

basis by the Colombian

Stock Exchange and other

price providers authorized

by the Finance

Superintendency are used.

The difference between the current

market value and the immediately

preceding is recorded as a higher

or lower value of the investment

and its counterpart affects the

income/(loss) for the period.

Held to

maturity

Until

maturity

Securities respect of

which the Bank has a

serious purpose and

the legal, contractual,

financial and

operational capacity

to keep them until the

expiration of their

term.

Exponentially from the

internal return rate

calculated at the time of the

purchase.

The present value is recorded as

the greater value of the investment

and its counterpart is recorded in

the income/(loss) for the period.

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Classification Term Features Valuation Accounting

Available for

sale – debt

securities

6 months After the 6 months,

they can be

reclassified in the

previous categories.

Prices, reference rates

and/or margins calculated

and published on a daily

basis by the Colombian

Stock Exchange and other

price providers authorized

by the Finance

Superintendency are used.

The exchanges occurred in these

values are recorded pursuant to the

following procedure:

• The difference between the present value of the valuation

day and the immediately

preceding is recorded as a higher

value of the investment with

credit to income/(loss) accounts.

• The difference between the market value and the present

value is recorded as an

unrealized income or loss

accrued, within the equity

accounts.

Available for

sale – equity

securities

Without Securities with low or

minimum

marketability,

unlisted, kept by the

Bank in its capacity

as controlling or

parent company.

Investments on equity

securities are valued on a

monthly basis and their

income/(loss) are recorded

with the same frequency, as

follows:

Low or minimum

marketability or unlisted

are increased or reduced in

the interest percentage of

the equity variations,

subsequent to the

acquisition of the

investment, calculated

based on the last certified

financial statements.

Low or minimum marketability or

unlisted:

The difference between the market

value or the updated value of the

investment and the value by which

the investment is recorded is

included as follows:

• If superior, in first instance reduces the provision or de-

valorization until it is exhausted,

and the excess is recorded as

surplus for valuation.

• If inferior, it affects the surplus for valorization until exhausting

it, and then the excess is

recorded as de-valuation.

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Classification Term Features Valuation Accounting

The acquisition cost is

increased or reduced in the

interest percentage

corresponding to the Bank

over the subsequent

variations of the issuer’s

corresponding equity.

For said purpose, the

variation in the issuer’s

equity is calculated based

on the certified financial

statements, as of June 30

and December 31 of each

year. However, upon

release of more recent

certified financial

statements, they are used to

establish the variation

mentioned. The Bank has a

maximum term of three (3)

months following the cut-

off date of the financial

statements, in order to

perform the relevant

update.

When dividends or income are

distributed in kind, including those

from capitalization of the equity

re-valuation account; the part

which had been recorded as

surplus for valuation is recorded as

income, with charge to the

investment and the surplus is

reversed. In cases of cash

dividends or profits, the value of

the surplus for valuation is

recorded as income, said surplus is

reversed, and the amount of the

dividends exceeding it will be

recorded as a lower value of the

investment.

Medium marketability

based on the average price

determined and published

by the stock markets, in

which it is listed. Said value

corresponds to the weighted

average price by the

amount traded in the last

five days in which there

have been negotiations.

• High and Medium Marketability

The update of the market value of

the securities with high or medium

marketability listed in

internationally recognized foreign

stock exchanges is recorded as an

unrealized profit or loss accrued,

within the equity accounts, with

credit or charge to the investment.

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Classification Term Features Valuation Accounting

If the shares are traded in

local stock markets; and the

simple average price of the

last five days in which there

have been trades, if the

shares are traded in foreign

stock markets.

High marketability based

on the last daily weighted

average price for the trade

published by the stock

market.

The dividends or income

distributed in kind or in cash,

including those from the

capitalization of the equity

revaluation account, are recorded

as an income up to the amount that

has been recorded as unrealized

accrued profit during the year to

which the profits and revaluation

of the equity paid corresponds,

with charge to the latter. The

collection of the dividends in cash

is recorded as a lower value of the

investment.

The investments listed in foreign stock markets are valued by the closing price or, failing

this, the most recent quotation reported by the stock market in which it is traded, during the

last five days, including the valuation day. In the event that there is no closing price or

quotation during said period, these are valued by the average of the quotes listed during the

last 30 trading days, including the valuation day.

In the events in which the security is traded in several stock markets, the average of the

corresponding closing prices or quotes is taken, subject to those rules established in the

previous section.

The price of the relevant security will be converted to legal currency, using for said

purpose the market representative rate (MRR) calculated on the valuation day.

In cases in which there have been no quotations during the last 30 trading days, the

procedure is that according to the rules provided for the equity securities not listed in the

stock exchange using as purchase price, the last price of valuation recorded.

The stock exchange referred to, must be those that are members of the World Federation of

Exchanges (WFE). Otherwise, the securities will be valued subject to the rules provided for

the equity securities not listed in the stock exchange.

Investment transfer rights – Corresponds to restricted investments that have been disposed

of and represent the collateral security of commitments, as the case may be, delivered in a

simultaneous or temporary transfer repurchase operation.

In the temporary transfer of securities, the delivery of the core values will generate the

payment of the returns by the receiver, which will be caused exponentially during the term

of the operation. Such returns are an income or an expense for each of the parties as

applicable.

In those operations of temporary transfer of securities in which money resources are

delivered as support for the operation, the payment of returns may be performed and in this

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case the same will be accrued exponentially during the term of the operation. Such returns

are recorded in the balance sheets of the parties and will be an expense or income for each

of them, as applicable.

Provisions or allowances for loan losses by credit risk rating -

Category Risk Characteristics Allowances

A Normal

They meet the terms agreed in the security and they have

an appropriate capacity of payment of capital and

interests.

Not

applicable.

B

Acceptable

, greater

than

normal

It corresponds to issues with uncertainty factors that

might affect the capacity to continue meeting properly

the debt services. Likewise, its financial statement and

any other available information have weaknesses that

may affect its financial situation.

The net value

cannot be

greater than

eighty percent

(80%).

C Appreciabl

e

It corresponds to issues with a high or medium

probability of default in the timely payment of capital

and interests. Similarly, its financial statements and any

other available information show deficiencies in its

financial situation that engage the recovery of the

investment.

The net value

cannot be

greater than

sixty percent

(60%).

D Significant

It corresponds to those issues with a breach under the

terms agreed in the security, and also its financial

statements and any other available information show

deficiencies in its financial situation, so that the

probability to recover the investment is highly doubtful.

The net value

cannot be

greater than

forty percent

(40%).

E Uncollectib

le

Issuers that according to their financial statements and

any other available information estimate that the

investment is uncollectible. Moreover, if there are no

financial statements certified from at least six months

from the date of valuation.

The net value

cannot be

greater than

zero percent

(0%).

Loan portfolio and financial leasing operations – It records the loans and leasing

agreements granted by the Parent Company and its Subordinated companies under the

various authorized modalities and the financial leasing operations. The resources used in

granting the loans come from resources owned by the public in the modality of deposits

and other external and internal funding sources.

The loans are recorded for the value of disbursement and the financial leasing operations

are recorded for the value of each of the entity’s assets, prior to the relevant agreement

delivered in lease to the user for its use.

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The value to be funded of the financial leasing operations is amortized with the payment of

the financial leasing rents in the part corresponding to the capital savings.

The structure of the loan portfolio and financial leasing operations are of three types:

Consumer - They are granted to natural persons whose purpose is financing the purchase of

consumer assets or the payment of non-commercial services, regardless of the amount.

Commercial - They are granted to natural or legal persons for the development of

organized economic activities other than activities of micro-businesses; and for housing

purchase by means of the housing leasing transactions.

Mortgage - They are granted to natural persons intended for the new or used housing

purchase, or for the construction of individual housing.

Frequency of assessment - The Bank and its Subordinated companies assess every six

months in May and November, the commercial portfolio; the result of this assessment is

recorded at the end of the following month in which it is made. The behavior of the entire

independent portfolio of its kind is updated and monitored every month.

Criteria for the credit risk assessment – The credit risk is defined as the possibility that an

entity incurs in losses reducing the value of their assets, as a result of the fact that the

debtors fail to timely comply or not comply with the terms agreed in the relevant

agreements.

The Bank and its Subordinated companies evaluate the portfolio based on the following

criteria: debtors’ and co-debtors’ ability to pay; financial situation, review of the main

financial indicators in comparison to the risk acceptance criteria defined by the Bank for

each sector, cash flow of the project pursuant to the updated and recorded financial

information, in addition to the use of historical macroeconomic variables such as growth

rate, exchange rate and inflation rate as support parameters of the projection assumptions;

debt service and fulfillment of the terms agreed; information coming from credit bureaus,

consolidated with financial sector and from other commercial information sources

available; the information related to the economic group is also considered.

Additionally, the Parent Company performs a follow up of the situation of the economic

sectors, in order to report changes in their ratings. In the cases in which deterioration is

detected in any specific sector, the companies in said sector will be analyzed, with the

purpose of evaluating the Global Risk.

Credit ratings with regional entities – Regarding the rating of the loans granted to regional

entities, the Bank and its Subordinated companies review and verify the fulfillment of the

different conditions established in Law 358/1997 and observe the following aspects:

The loans in which the territorial entities pledge income as guaranty are rated in category “D”, when there are no adequate mechanisms to reasonably verify that the

same have not been pledged as guaranty of other obligations, the guaranteed loans with

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pledge of income resulting in insufficiency to cover the amount of the obligation and

when the territorial entity has given to the loaned resources a different purpose to that

established by the Law.

The guaranteed loans with pledge of income that have previously been committed as guaranty of another obligation are rated in category “E”; the loans requiring

indebtedness authorization by the Ministry of Finance and Public Credit or by the

respective Department, without having such authorization and the loans granted to

territorial entities which having adopted performance plans, pursuant to the established

by Law 358/1997, having not obtained compliance. In these cases, provisions for 100%

of the obligations are constituted, without taking into account the guaranty.

Fiscal Mending Law 617/2000 – The Law, seeking to structurally correct the excess of

operating expenses of the territorial entities, established that the Nation would grant

guaranties to contracted obligations by the territorial entities with financial entities

supervised by the Finance Superintendency, when all the established requirements are

fulfilled; among others, that the fiscal adjustment agreements be executed before June 30,

2001. Such guaranty would be up to 40% for the current loans as of December 31, 1999

and up to 100% for the new loans destined to be fiscally adjusted.

Some characteristics of these restructurings are the following: reversal of the provisions

constituted under the obligations subject to restructuring for the portion guaranteed by the

Nation; the portion of the obligations subject to restructuring without a guaranty by the

Nation may maintain the rating they had on June 30, 2001.

Rules for the rerating of restructured loans– Any mechanism evidenced by means of the

execution of a legal business, having as purpose the amendment of the agreed-upon

conditions, in order to allow the debtor the adequate attention to its obligation is understood

as a loan restructuring. Novations are considered restructurings. Before restructuring a loan

it must be reasonably established as being recoverable under the new conditions.

The loans may improve the rating after being restructured only when the debtor shows a

regular and effective payment behavior.

Extraordinary restructurings – Loans with extraordinary restructuring are framed, among

others, within the following parameters: restructurings’ deadlines do not exceed seven

years for their full amortization, for the case of territorial entities the deadline is up to ten

years; the agreements are accompanied with a Management Convention in order to

guarantee the fulfillment of the restructuring agreement and the viability of the company; it

is considered as unsafe practice to reserve provisions or improve the rating of the

restructured debtors, when the viability or fulfilment of the restructuring agreement is not

duly demonstrated; when a restructuring agreement is breached it will be rated immediately

to the debtor in the last category before the restructuring or in a higher risk rating.

Restructurings of Law 550/1999 – With Law 550/1999 the business reactivation and

restructurings of companies and territorial bodies was promoted and facilitated. At the

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beginning of the restructuring negotiation, the Bank suspends applying interests on current

loans and maintains the rating they had on the date of the negotiation. However, if the

customer is classified in risk category “A”, it is reclassified at least to category “B” and

100% of the allowance for accounts receivable is constituted.

Restructurings of Law 1116/2006 – With Law 1116/2006 the business reactivation and

restructuring of companies and territorial bodies was promoted and facilitated. At the

beginning of the negotiation of restructuring, the Bank suspends to apply interest on current

loans and maintains the rating they had on the date of the negotiation. However, if the

customer is classified in risk category “A”, it is reclassified to at least category “C”.

Loans’ Write-offs– The Bank authorizes, prior the approval of the Board of Directors, the

write-off of loans for those loans that, according to the Management, are considered as un

collectible or of remote or uncertain recovery, after having exhausted the corresponding

collection actions, in accordance with the opinions issued by the internal and external

attorneys.

Valuation of guaranties – As of June 30, 2012, the regulation established by External

Circular Letter 043/2011 entered into force in relation with the procedure to be applied in

order to determine the guaranties’ value at the moment of their granting and their

subsequent update.

Type of guaranty Granting Follow-up

Properties used for

housing

Technical Appraisal

Validity : 1 year

Bogota: Readjusts the Rural and Urban

Property Valuation Index IVIUR.

Armenia, Barranquilla, Bucaramanga, Cali,

Cartagena, Cucuta, Florencia, Ibague,

Manizales, Medellin, Monteria, Neiva, Pasto,

Pereira, Popayan, Quibdo, Riohacha, Santa

Marta, Sincelejo, Tunja, Valledupar and

Villavicencio: annual readjustment of the

Property Valuation Index (IVP) published by

the National Administrative Department for

Statistics (DANE) for the respective city.

Other cities: national IVP

Property different of

housing

Technical Appraisal

Validity : 3 year

Technical Appraisal

Every 3 years

Machinery and

Equipment

New or under one year of

life: invoice purchase value.

Validity: 3 years

Older than one year of life:

Technical Appraisal

Every 3 years

- 22 -

Type of guaranty Granting Follow-up

Technical Appraisal

Validity : 3 year

Vehicles Classified in fasecolda: the

value of the respective

vehicle will correspond to the

value published in such

guide.

Not classified in fasecolda:

Commercial appraisal

information published by the

Ministry of Transportation or

applying the procedure

previously described for

machinery and/or equipment.

Classified in fasecolda: the value of the

respective vehicle will correspond to the value

published in such guide.

Not classified in fasecolda: Commercial

appraisal information published by the

Ministry of Transportation or applying the

procedure previously described for machinery

and/or equipment.

Securities

Chapter I of External

Circular Letter 100/1995, or

by using the value provided

by a price supplier for

assessment by the Finance

Superintendency of

Colombia.

Chapter I of the External Circular Letter

100/1995, or by using the value provided by a

price supplier for assessment by the Finance

Superintendency of Colombia

Exceptions – Credit establishments may choose not to make such appraisal, as long one of

the following assumptions is fulfilled:

The loan(s) deadline supported with the respective guaranty does not exceed three (3) years and its value exceeds at least twice (2) the total of the outstanding balance of the

guaranteed loan(s).

The deadline to finish the payment of the guaranteed loan(s) is lower or equal to one year.

The appraisal cost exceeds 10% of the value of the guaranteed loan(s) balance.

The guaranteed loan is 100% provisioned.

Allowances for Loan Losses – Reference Models – As of July 1, 2007 the Bank and its

Subordinated companies Helm Bank Cayman y Helm Bank Panama use the reference

model of commercial portfolio – MRC -, established in Annex 3 of the Basic Accounting

and Financial Circular Letter 100/1995 of the Finance Superintendency.

In 2009, the regulatory entity issued the External Circular Letter 035/2009 (amended by

External Circular Letter 054/2009) in which the structure of the current reference model for

- 23 -

commercial and consumer portfolio was amended. The current regulation since April 1,

2010, establishes two different methodologies for the calculation of provisions, the use of

one or the other depends on the periodic assessment of the indicators provided by the

regulation:

Methodology 1: Cumulative Stage

Methodology 2: Non-Cumulative Stage

Based on the regulatory provisions amended by the External Circular Letter 035, the Bank

assesses on a monthly basis the indicators established in the regulation to determine the

calculation methodology depending on which stage it currently is. As of the validity of the

regulation, the Bank is in currently in the Cumulative Stage.

Reference Model of Commercial Portfolio – MRC – Such model is based on segments,

differentiated by the level of the debtors’ assets:

Ranking of the Commercial Portfolio by Level of Assets Company size Level of Assets

Large Companies More than 15,000 current monthly legal

incomes

Medium-sized companies Between 5,000 and 15,000 current monthly

legal incomes

Small companies Less than 5,000 current monthly legal

incomes

The segmentation is performed with the value of the current monthly legal incomes of the

immediately preceding financial year. In 2013 this amount was of $616,000.

A category denominated “natural persons” was created to group all the natural persons who

are debtors of commercial loans.

Commercial portfolio agreements are classified in the following categories of credit risk

according to the default days and subjective conditions, as follows:

Components of the reference model of commercial portfolio – The estimation of the

individual allowance results from applying the following formula:

Individual Provision = CIP+CIC

Category Rank PUC AA Between 0 and 29 days A

A Between 30 and 59 days B

BB Between 60 and 89 days B

B Between 90 and 119 days C

CC Between 120 and 149 days C

Default Higher than 150 days D

E

- 24 -

• Where CIP: PEmatrix_A = PImatrix_A*PDI*E

Individual Allowance: Corresponds to the total value of provisions that must be constituted

according the credit risk of each debtor.

Individual Procyclical Component (hereinafter CIP): Corresponds to the portion of the

individual provision which reflects the credit risk of each debtor, in the present.

Individual Countercyclical Component (hereinafter CIC): Corresponds to the portion of the

individual allowance of the loan portfolios which reflects the possible changes in the credit

risk of debtors in moments in which the deterioration of such assets increases. This portion

is constituted in order to reduce the impact in the income statement when such situation

occurs. The internal reference models must take into account and calculate this component

based on the available information reflecting these changes.

The estimation of the expected loss results from applying the following formula:

Expected Loss = (Probability of Default) x (Asset exposure at the moment of default) x

(Loss due to default)

Where:

Probability of Default: Corresponds to the probability where, in a period of 12 months, the

debtors of a determined commercial portfolio fall into default.

Asset exposure at the moment of default: Corresponds to the current balance of principal,

interests, accounts receivable of interest and other accounts receivable of the commercial

portfolio’s obligations.

Loss due to default: Economic deterioration in which the entity will incur in case that any

of the following events of default occur:

• Commercial loans in default higher or equal to 150 days.

• Loans considered of treasury and in default.

• When consulting the central information systems, it is established that the debtor has obligations that have been written-off, restructured or their deadlines extended in for

the payment of principal and/or interests.

• When the debtor is in an insolvency proceeding, extraordinary restructuring, restructuring agreements pursuant to laws 550/1999, 617/2000 and 1116/2008, or any

type of judicial or administrative procedure that implies the management or forced

liquidation by the debtor.

- 25 -

The probability of default is defined according the following matrices:

Matrix A:

Category

Large

Company

Middle-size

Company

Small

Company

Natural

Person

AA 1.53% 1.51% 4.18% 5.27%

A 2.24% 2.40% 5.30% 6.39%

BB 9.55% 11.65% 18.56% 18.72%

B 12.24% 14.64% 22.73% 22.00%

CC 19.77% 23.09% 32.50% 32.21%

Default 100.00% 100.00% 100.00% 100.00%

Matrix B:

Category

Large

Company

Middle-size

Company

Small

Company

Natural

Person

AA 2.19% 4.19% 7.52% 8.22%

A 3.54% 6.32% 8.64% 9.41%

BB 14.13% 18.49% 20.26% 22.36%

B 15.22% 21.45% 24.15% 25.81%

CC 23.35% 26.70% 33.57% 37.01%

Default 100.00% 100.00% 100.00% 100.00%

The loss due to default (PDI) by type of guaranty is as follows:

Type of guaranty

PDI

Days after the

default

Days after the

default

New

PDI

Inadmissible collateral 55% 270 70% 540 100%

Subordinated credits 75% 270 90% 540 –

Financial collateral 0-12% 100%

Commercial and residential real

estate 40% 540 70% 1,080 100%

Assets given on real-state leasing 35% 540 70% 1,080 100%

Assets given on leasing other than

real-state 45% 360 80% 720 100%

Other collateral 50% 360 80% 720 100%

Collection rights 45% 360 80% 720 100%

Without collateral 55% 210 80% 420 100%

Countercyclical Component – Is the highest value between the CIC in the last period

affected by the exposure and the difference between the PEmatrix_B and the PEmatrix_A

at the moment of the calculation of the provision (t).

ConPEPEExp

ExpCIC tiAB

ti

ti

ti

,

1,

,

1, )(;*max

- 26 -

Is a mechanism (matrix A and B) by which the Finance Superintendency explicitly

provides countercyclical adjustments, so that in the periods of improvement in the credit

quality, higher provisions that necessary are constituted to compensate in part for the

allowance that must be constituted in periods of deterioration in the credit quality.

Once applied the above concepts the value of the allowance for the commercial portfolio is

determined, as follows:

The individual allowance of loan portfolio under the reference models is established as the

sum of the procyclical component plus individual component.

Individual Procyclical Component (hereinafter CIP): Corresponds to the portion of the

individual provision which reflects the credit risk of each debtor, in the present.

Individual Countercyclical Component (hereinafter CIC): Corresponds to the portion of the

individual provision of the loan portfolios which reflects the possible changes in the credit

risk of debtors in moments in which the deterioration of such assets increases. This portion

is constituted in order to reduce the impact in the income statement when such situation

occurs. The internal reference models must take into account and calculate this component

based on the available information reflecting these changes.

Calculation of allowances under Methodology 2 – Non-Cumulative Stage – The use of the

Methodology, non-cumulative stage, will depend on the periodic assessment of the triggers

and their entry or inapplicability and will also be subject to the determination of the bank

prior communication to the Finance Superintendency pursuant to the provisions of the

Basic Accounting and Financial Circular Letter 100/1995 in its Chapter 2, numeral

1.3.4.1.1.3. Special Rules.

In this methodology, the Individual Provision will be again equal to CIP+CIC; the methods

of calculation in the Non-Cumulative Stage are described as follows.

Individual Procyclical Component (CIP): For the portfolio whose ratified rating results in

A, this component will continue being equal to the PE calculated with Matrix A (Recession

Matrix), that is, the result obtained by multiplying the exposure of each obligation, the PI

of the Matrix A and the PDI associated to the debtor’s guaranty, pursuant to that

established in the corresponding reference model.

For the obligations or B, C, D and E rated portfolio, the CIP will be equal to the PE

calculated with Matrix B (Expansion Matrix).

Individual Countercyclical Component (CIC): In the Non-Cumulative Stage, the spirit of

the rule is allowing the accumulated countercyclical provisions during the Accumulation

In case of being higher than 1 it is assumed as 1

- 27 -

Phase to gradually become non-cumulative so as to soften the impact of provisioning the

rated portfolio using Matrix B. The CICi,t will be calculated based on the following

equation:

1,

,

1,,1,, 1*;maxti

ti

titititiExp

ExpCICFDCICCIC

Where tiFD , (Non-cumulative Factor) is given by:

mCIP

mtactive

ti

ti

ti PNRCIC

CICFD

*%40*

)(

1,

1,

,

Where,

mCIPPNR : They are the net provisions of recoveries of the month related to the

individual cyclical component in the relevant portfolio modality (m).

)(

1,

tactive

tiCIC : It is the sum of the active obligations at the time of calculation of the

provision (t) in the relevant modality (m), of the balance of individual countercyclical

component thereof in (t-1).

0, tiFD , if negative, it is assumed as zero.

When 1,

,

tti

ti

Exp

Exp is assumed as 1

Consumer Portfolio Reference Model – MRCO -From July 1, 2008, the Bank and its

Subordinated companies Helm Bank Cayman and Helm Bank Panama use the consumer

portfolio reference model –MRCO-, set forth in Annex V of Chapter II of the Basic

Financial and Accounting Circular Letter of the Finance Superintendency.

Such model is based on segments, differentiated according to the products granted:

Consumer Portfolio Classification by Segments

Segment Destination

General – Automobiles: Loans granted for the acquisition of automobiles.

- 28 -

Consumer Portfolio Classification by Segments

Segment Destination

General – Others: Loans granted for the acquisition of consumer goods other than automobiles.

Credit Cards:

Revolving loan for the acquisition of consumer goods using a plastic card.

The consumer portfolio agreements are classified in the following credit risk categories,

thus:

Category

Attention to

debt

Risk Analysis Objective Conditions

Ability to pay Credit behavior

New Loans Whose

Rating at the time

of Granting is:

Rating Granted by

Applying the Methodology

of the MRCO Rating is

Equal to:

AA Excellent Optimal Excellent AA AA

A Adequate Appropriate Adequate A A

BB Acceptable Weaknesses BB BB

B Deficient Deficiencies Deficient B B

CC Insufficient Serious Deficiencies CC CC

Default

Default higher than 90 days

Obligations written off with the entity or the system

Insolvency proceeding or any type of judicial or

administrative process that involves the management or

compulsory liquidation of the debtor.

Rating Methodology – MRCO – For the debtors that at the time of rating do not belong to

the default category, the entities that use the MRCO must apply the following model

depending on the segment to rate. This model calculates a score, which is the product of the

particular characteristics of each debtor and is given by applying the following equation:

Where, Z varies according to the segment to which the debtor belongs. The ratings are set

out on this score according to the rating ranges described below.

In order to obtain the score of the debtors that belong to the different segments, the

following formulas are applied as follows:

General

Automobiles: 2505.0*5784.1*683.0*

4960.0*4605.5*7234.1*668.1*0205.3*855.1*779.2

CRBCACA

GIMMMMMMAMAMZ

MR

DCBCB

General

others:

1727.0*323.2*443.0*1328.0*

196.0*Pr428.3*450.1*437.1*602.3*023.2*9411.1

CRBCACAHipoteca

endaMMMMMMAMAMZ

MR

DCBCB

zeScore

1

1

- 29 -

Credit Cards:

277.0*470.2*748.0*

6.0*525.3*350.2*469.3*313.1*214.1*824.1

CRBCACA

PRAMAMMMMMMMZ

MR

CBDCB

CF –

Automobiles: 58.1*725.0*

9826.0*337.3*650.1*873.4*164.2*158.2*28.2

MR

CBDCB

CACA

GIAMAMMMMMMMZ

CF – Others:

216.0*418.1*496.0*

420.0*255.3*092.2*577.4*808.1*588.1*92.1

IPCACA

GIAMAMMMMMMMZ

MR

CBDCB

Where:

AMB (Current default between 31-60 days): It takes value 1, if the default height of the

customer at the time of rating for this type of loan in the entity is higher or equal to 31 days

and lower or equal to 60 days and zero if it is not.

AMC (Current default between 61-90 days): It takes value 1, if the default height of the

customer at the time of rating for this type of loan in the entity is higher or equal to 61 days

and lower or equal to 90 days and zero if it is not.

MMB (Maximum default between 31-60 days): It takes value 1, if the maximum default

height of the customer in the last 3 years in the entity and for this type of loan is higher or

equal to 31 days and lower or equal to 60 days and zero if it is not.

MMC (Maximum default between 61-90 days): It takes value 1, if the maximum default

height of the customer in the last 3 years in the entity and for this type of loan is higher or

equal to 61 days and lower or equal to 90 days and zero if it is not.

MMD (Maximum default higher than 90 days): It takes value 1, if the maximum default

height of the customer in the last 3 years in the entity and for this type of loan is higher 90

days and zero if it is not.

CRB (Active loans): It takes value 1, if the customer at the time of rating has other

consumer loans other than the segment active with the entity.

GI (Suitable guaranty): It takes value 1, if the customer does not have a suitable guaranty

associated with its loan.

Pledge (Pledged Guaranty): It takes value 1, if the customer has a pledge as a guaranty

supporting the operation and zero if it does not.

Mortgage (Mortgage guaranty): It takes value 1, if the customer has a mortgage as a

guaranty supporting the operation and zero if it does not.

- 30 -

PR (Prepayment): It takes value 1, if the customer at the time of rating does not have a

default higher than 30 days and if the installments received is significantly higher than

expected. It significantly implies that it is higher than 10% of the installments, as

applicable.

Variables of the annual behavior – For the construction of these variables, the default

heights reached by the customer within the relevant segment in the last previous three

quarter cut-off dates at the time of rating must be considered. A quarter cut-off date means

the months of March, June, September and December.

In order to make this calculation, each default weight must be assigned with the values

shown in the following table and, once assigned they must amount to:

Default Height Group Value

Default > = 0 days and < = 30 days 10

Default > = 31 days and < = 60 days 20

Default > = 61 days and < = 90 days 30

Default > = 91 days and < = 120 days 40

Default days > = 121 days 50

a. If the customer has the default information for the three quarters required, the variable takes the following values:

CAR (Regular annual behavior): It takes value 1, if the sum of the values for the three

quarters is equal to 50 or 60 and zero if it is not.

CAM (Bad annual behavior): It takes value 1, if the sum of the values for the three

quarters is higher than 60 and zero if it is not.

b. If the customer has the default information for only two quarters required, the variable takes the following values:

CAR (Regular annual behavior): It takes value 1, if the sum of the values for both

quarters is equal to 30 or 40 and zero if it is not.

CAM (Bad annual behavior): It takes value 1, if the sum of the values for both quarters

is higher than 40 and zero if it is not.

c. If the customer has the default information for only one quarters required, the variable takes the following values:

CAR (Regular annual behavior): It takes value 1, if the value assigned to the quarter is

equal to 20 and zero if it is not.

CAM (Bad annual behavior): takes value 1, if the value assigned to the quarter is higher

than 20 and zero if it is not.

- 31 -

d. If the customer does not have the default information for any of the quarters required, the variables CAR (Regular annual behavior) and CAM (Bad annual behavior), take

value zero.

Rating ranges – Based on the scores obtained by each of the models for each customer, it is

pursued to determine a rating in the new scale established. The cut-off points of each rating

in the score produced are as follows:

Rating General

automobiles General Others

Credit cards

AA 0.24840 0.3767 0.3735

A 0.68420 0.8205 0.6703

BB 0.81507 0.8900 0.9382

B 0.94941 0.9971 0.9902

CC 1 1 1

Components of the reference model – The estimate of the individual allowance results from

the application of the following formula:

Individual Allowance = CIP+CIC

Where CIP: PEmatrix_A = PImatrix_A*PDI*E

Individual allowance: It corresponds to the total value of the allowances that must be

formed according to the credit risk of each debtor.

Individual procyclical component (hereinafter CIP): It corresponds to the part of the

individual allowance that reflects the credit risk of each in the present.

Individual countercyclical component (hereinafter CIC): It corresponds to the part of the

individual allowance of the loan portfolio that reflects the possible changes in the credit

risk of the debtors when the impairment of said assets increases. This part is formed in

order to reduce the impact in the income statement when such situation arises. The internal

or reference models must take into account and calculate this component based on the

available information that reflects those changes.

The estimate of the expected loss results from applying the following formula:

Expected loss = (Probability of default) x (Exposure of the asset at the time of default)

x (Loss due to default)

Where:

Probability of default. It corresponds to the probability that, in a period of 12 months, the

debtors of a specified segment and rating of the consumer portfolio incur in default.

- 32 -

The probability of default is defined according to the following matrices:

Matrix A:

Category

General -

Automobiles

General –

Others

Credit

Cards

AA 0.97% 2.10% 1.58%

A 3.12% 3.88% 5.35%

BB 7.48% 12.68% 9.53%

B 15.76% 14.16% 14.17%

CC 31.01% 22.57% 17.06%

Default 100.00% 100.00% 100.00%

Matrix B:

AA 2.75% 3.88% 3.36%

A 4.91% 5.67% 7.13%

BB 16.53% 21.72% 18.57%

B 24.80% 23.20% 23.21%

CC 44.84% 36.40% 30.89%

Default 100.00% 100.00% 100.00%

Since December 31, 2011, the Bank adjusted the PDI of the type without guaranty, as

provided by the External Circular Letter 043/2011.

The loss given default (PDI) by type of guaranty is as follows:

Type of Guaranty

PDI

Days After

Default

New

PDI

Days After

Default

New

PDI

Inadmissible collateral 60% 210 70% 420 100%

Admissible financial collateral 0-12%

Commercial and residential real estate 40% 360 70% 720 100%

Assets given on real estate leasing 35% 360 70% 720 100%

Assets given on non- real estate leasing 45% 270 70% 540 100%

Other collateral 50% 270 70% 540 100%

Collection rights 45% 360 80% 720 100%

No collateral 75% 30 85% 90 100%

The exposed value of assets corresponds to the current balance of principal, interest and

other items.

Countercyclical component – It is the maximum value between the CIC in the previous

period affected by the exposure, and the difference between the PEmatrix_B and the PEmatrix_A

at the time of calculation of the allowance (t).

WithPEPEExp

ExpCIC tiAB

ti

ti

ti

,

1,

,

1, )(;*max

- 33 -

It is a mechanism (matrix A and B) by means of which the Finance Superintendency

explicitly considers countercyclical adjustments, so that in the periods of improvement in

the credit quality, higher allowances than necessary are formed to compensate in part those

that must be formed in periods of impairment in the credit quality.

Once the previous concepts are applied, the value of the allowance is determined for the

commercial portfolio, thus:

The individual loan portfolio allowance under the reference models is established as the

sum of the individual procyclical component plus the individual countercyclical

component.

Individual procyclical component (hereinafter CIP): It corresponds to the part of the

individual allowance of the loan portfolio that reflects the credit risk of each debtor herein.

Individual countercyclical component (hereinafter CIC): It corresponds to the part of the

individual allowance of the loan portfolio that reflects the possible changes in the credit

risk of the debtors at the time in which the impairment of said assets increases. This part is

formed in order to reduce the impact in the income statement when such situation arises.

The internal or reference models must take this into account and calculate this component

based on the available information that reflects those changes.

Calculation of allowances under methodology No. 2 non-cumulative phase – The use of the

non-cumulative phase Methodology will depend on the periodic evaluation of the triggers

and its entry or not into service will also be subject to the determination of the bank with

prior notice to the Finance Superintendency according to allowances of the Basic Financial

and Accounting Circular Letter 100/1995 in its Chapter 2 numeral 1.3.4.1.1.3. Special

rules.

In this methodology, the Individual Allowance again will be equal to CIP + CIC, the

methods of calculation for them in the Non-cumulative Phase are described below.

Individual Procyclical Component (CIP): For the portfolio whose approved rating is A, this

component will continue being equal to the PE calculated with the Matrix A (Recession

Matrix), that is, the result obtained when multiplying the exposure of each obligation, the

PI of Matrix A and the PDI related to the debtor guarantee, as provided in the relevant

reference model.

For the obligations or B, C, D and E rated portfolio, the CIP will be equal to the PE

calculated with Matrix B (Expansion Matrix).

1 as assumed isit 1,n higher tha if

101,

,

ti

ti

Exp

Exp

- 34 -

Individual Countercyclical Component (CIC): In the Non-cumulative Phase, the spirit of

the rule is allowing the accumulated countercyclical allowances during the Accumulation

Phase are gradually applied as non-cumulative so as to soften the impact to allowance the

rated portfolio using the Matrix B. The CICi,t will be calculated based on the following

equation:

1,

,

1,,1,, 1*;maxti

ti

titititiExp

ExpCICFDCICCIC

Where tiFD , (Non-Cumulative Factor) is given by:

mCIP

mtactivas

ti

ti

ti PNRCIC

CICFD

*%40*

)(

1,

1,

,

Where,

mCIPPNR : Are the net allowances of recoveries of the month related to the individual

procyclical component in the relevant portfolio modality (m).

)(

1,

tactivas

tiCIC : It is the sum of the active obligations at the time of calculation of the

allowance (t) in the relevant modality (m), of the balance of individual countercyclical

component thereof in (t-1).

0, tiFD , if negative, it is assumed as zero.

When 1,

,

tti

ti

Exp

Exp is assumed as 1.

Additional individual consumer portfolio allowance - From the second half of 2012, the

allowances in the External Circular 026 regarding the establishment of an additional

temporary individual allowance entered into force, where its application is reflected in the

financial statements with cut-off date on June 30, 2013.

Applies

Entities whose balances have reported balances of gross consumer portfolio at least the last

twenty-five (25) months and whose parameter “α” is higher than zero (α > 0).

The additional individual allowance will not be calculated when the parameter “α” is lower

than or equal to zero (α ≤ 0) for a period of six (6) consecutive months.

- 35 -

Additional allowance establishment - The additional individual allowance will not be

calculated with the individual procyclical component as provided in numeral 1.3.4.1.

Chapter II of the Basic Financial and Accounting Circular Letter, and 0.5% is added on the

balance of capital of each consumer loan of the reference month, multiplied by the relevant

PDI.

The individual allowance (including the additional individual allowance) may not exceed

the value of exposure of the debtor. Where this occurs, the additional individual allowance

will be adjusted.

Allowance for housing loans (mortgage portfolio) - Helm Bank maintains allowances not

lower than the percentages indicated, calculated on the outstanding payment balance:

Credit Rating

Allowance percentage

over the secured party

Allowance percentage

over the unsecured

party

A 1% 1%

B 3.2% 100%

C 10% 100%

D 20% 100%

E 30% 100%

If during 2 consecutive years, the loan has remained in category “E”, the allowance

percentage on the secured party will be increased to sixty percent (60%). If an additional

year elapses under these conditions, the allowance percentage on the secured party will be

increased to one hundred percent (100%), unless sufficient evidence can be produced on

the existence of objective factors evidencing the loan recovery and the actions performed

by the collection thereof, identifying in this case the use of judicial or extrajudicial

remedies, and indicating the status of the relevant process.

Foreign affiliates – The treatment for the portfolio allowances for foreign affiliates is as

follows:

Helm Bank Panama uses the allowance method to provide for losses in the loans. The

increases in the allowance are charged as an expense in the income statement and the

penalties for uncollectible loans are charges against the allowance. The allowance is

calculated based on a portfolio analysis and other factors that, in the opinion of the

Management, need a current consideration in the estimate of possible losses on loans,

including the classification of loan by risks required by agreement 6-2000 of the Banking

Superintendency of Panama and the impairment in the recoverable value of the loans.

The mentioned agreement 6-2000 sets out that all loans must be classified in one of the

following five categories, according to their default risk and conditions of the loan, and sets

out a minimum reserve for each classification, which is calculated on the balance of the net

loan after guarantee.

- 36 -

Rating

Minimum allowance

demanded

Normal 0%

Special mention 2%

Subnormal 15%

Doubtful 50%

Irrecoverable 100%

Additionally, the Management maintains a generic allowance that recognizes the inherent

risks related to the loan portfolio.

Helm Bank Cayman bases its portfolio allowance on an assessment to the total of the loan

portfolio conducted by the Management. The Management’s assessment is made on the

review of loans individually, the experience of recent losses, the assessment of the

guarantee, the current economic conditions and other factors

Alignment rules – The Parent Company and its Subordinated companies Helm Bank

Cayman and Helm Bank Panama carry out the internal alignment process every month and

for each debtor, for which they take the loans of the same modality granted to it to the

higher risk category, unless there is sufficient existence of reasons for their rating in a

lower risk category is shown to the Finance Superintendence.

Since the Parent Company consolidates financial statements, it grants the same rating to all

the loans that are part of the group, unless sufficient evidence can be produced for its rating

in a different risk category.

Acceptances, cash transactions and derivatives -

Acceptances – The acceptances are letters accepted by financial entities, they have a

maturity term up to one year and they may only be originated in import and export

transactions of goods or purchase-sale of movables in Colombia.

At the time of acceptance of bills of exchange, their value is recorded simultaneously with

assets and liabilities, as “acceptances on term” and if not submitted at their maturity for

collection, they are rated under the heading “acceptances after the term”. If when payment

is made they have not been covered by the purchaser of the merchandise, they are re-rated

at the loan account “covered bank acceptances”.

The values recorded with assets are assessed by the credit risk according to the general

assessment procedures of the loan portfolio.

After maturity, bank acceptances are subject to the cash reserve established for current

liabilities at sight and before thirty (30) days.

Derivatives and cash transactions –The Parent Company and its Subordinated companies

record the value of the agreements entered into between two or more parties in order to

purchase and sell assets in a future, such as foreign exchange or securities, or financial

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futures on rates of exchange, interest rates or stock market indexes, previously defining the

amount, the price and the date of performance of the transaction, in order to provide or

obtain coverage under the terms defined by the competent authorities. Therefore, reciprocal

and unconditional rights and obligations arise. The cases, whose compliance is convened

within the three business days immediately following the day on which they are convened,

are recorded as cash transactions.

The transactions by means of which securities are acquired in primary issues conducted

abroad, whose date of execution is prior to the date of issue of securities subject thereto,

will be understood as cash operations, provided that the term for their clearing and

settlement is equal to the date of their execution or registration, that is, today (t+0) or up to

three (3) business days counted from the day following the issue of the relevant securities.

In any case, so that these operations can be reported as cash operations, it will be necessary

that they are settled and cleared by means of the delivery versus payment mechanism.

The financial assets acquired in cash operations are recorded on the date of compliance or

settlement thereof and not on the date of negotiation, unless these two coincide. Thus it is

achieved that the records in the balance are in compliance with the records of the same

transactional and registration systems. Notwithstanding the foregoing, the changes in the

market value of the alienated instruments are reflected in the income statement as from the

date of negotiation, as applicable.

Under the method of the date of settlement, the financial asset is recorded in the sale in its

balance until the delivery thereof and, additionally, it records a right to receive the money

from the transaction and an obligation to deliver the negotiated asset with the asset

accounts enabled for this type of transactions. The latter has to be valued at market prices,

in accordance with the rules set forth in Chapter I of the External Circular Letter 031/2008

applicable as from January 1, 2009, by means of which the variations of the assessment of

this obligation are recorded in the income statement.

When the purchase of the asset is carried out, it does not record the financial asset in its

balance until the delivery thereof but it records a right to receive the asset, which is valued

at market prices, and an obligation to deliver the money agreed in the operation in the asset

account enabled for this type of transactions.

When the transaction is effectively enforced, both the rights and the obligation recorded

from the time of negotiation are reversed.

In the purchase operations of securities, the right is calculated by valuing the security at

market prices and the obligation, by obtaining the present value of the purchase amount

accreted. In case of the forward sale transactions on securities, the right is calculated by

obtaining the present value of the sale amount accreted and the obligation, by valuing the

security at market prices.

The methodology of valuation for the forward and cash operations on foreign exchange

used by the Bank and its Subordinated companies is based on the estimate of the valuation

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rate according to the market information and the maturity term of the operation. The value

of future flows of the operation is calculated based on it and on the rate contractually

agreed (obligation and right).

The valuation and its relevant accounting are made according to the regulation provided in

Chapter XVIII of the Basic Financial and Accounting Circular Letter of the Finance

Superintendence. As long as the derivative position is open, the cumulative valuation is

recorded in the income or expense accounts by valuation of derivatives, as applicable. Once

the position is settled upon maturity, the resulting profit or loss is recorded in the income or

expense accounts for sales of derivatives, as applicable, paying the balances recorded in the

results by valuation.

e. Accounts receivable – The Bank makes an allowance on its accounts receivable not related to the loan portfolio from the thirty days applying the percentages of 1%, 20%, 50% and

100% for the accounts receivable rated in categories “B”, “C”, “D” and “E”, respectively.

The Bank accrues the interests and other portfolio items to 100% with a “C” rating and

higher.

f. Assets available for sale, foreclosed assets and returned assets from Leasing– It registers the value of the assets received by the Parent company in payment of outstanding balances

from loans at its favor and the goods restituted of leasing operations, and which were used

no more during the performance of its corporate purpose.

The assets received in lieu of payment represented in properties are received based on the

commercial appraisal technically determined and the personal property, shares and

interests, based on the market value.

The following conditions are taken into account for the record of the assets received in lieu

of payment:

The initial registration is carried out in accordance with the value determined in the legal awarding or the agreed upon with the debtors.

The Bank accepts assets in lieu of payment having adequate characteristics to be transferred and obtain the best possible recovery of the exposed resources.

When the asset given in lieu of payment is not in conditions of transfer, its cost increases with the necessary expenses incurred for sale.

If between the value by which the asset is received and the loan value to pay, there is a resultant balance in favor of the debtor, this difference is counted as an account

payable; in case that the good’s value does not cover the entirety of the obligations, an

equivalent allowance of the discrepancy is constituted.

The assets received in payment corresponding to investment securities are valued with the application of the criteria established in Note 1 for investments.

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For the purposes of the realization of appraisals, supervised entities must observe the minimum criteria and contents established in articles 1 and 2 of Decree 422/2000 and

subsequent allowances that modify or supersede them. In all cases, the technical

appraisal used by supervised entities may not have more than three (3) years of life

(elaboration date) counted from the accounting cut-off date on which is intended to be

used.

g. Allowance on assets available for sale, foreclosed assets and returned assets from Leasing– In compliance with External Circular Letter 034/2003 issued by the Finance

Superintendency of Colombia and taking into account that the Bank and its local

Subordinated companies do not have a calculation model of individual allowances of assets

received in lieu of payment approved by the same, the individual allowances of these assets

are calculated as follows:

For the property received in lieu of payment and restituted whose receipt at the moment of

the issuance of the External Circular Letter 034/2003 of the Finance Superintendency of

Colombia is less than two years or more will be set up an allowance in monthly aliquots

until it reaches the 80% of the acquisition value of the property within a deadline expired

on December 31, 2005.

The property received in lieu of payment and restituted whose receipt at the moment of the

issuance of the External Circular Letter 034/2003 of the Finance Superintendency of

Colombia is less than two years and the received as of October 1, 2003 will be set up in

monthly aliquots within the following year to receipt of the asset, an allowance equivalent

to 30% of the acquisition cost, which increases in monthly aliquots within the second year

in an additional 30% until it reaches 60% of the acquisition cost.

Once the legal term for sale has expired without the extension is authorized, the allowance

will be 80% of the acquisition cost. In case of an extension, the remaining 20% of the

allowance is constituted within its term.

When the acquisition cost of the property is lower than the debt value registered in the

balance, the difference is immediately recognized in the income statement.

When the commercial value of the property is lower than the value in the books of the

goods received in lieu of payment, an allowance by the difference is counted.

For furniture received in lieu of payment and restituted whose receipt at the moment of the

issuance of the External Circular Letter 034/2003 of the Finance Superintendence of

Colombia is less than two years and the received as of October 1, 2003 will be set up in

monthly aliquots within the following year of receiving the good, a provision equivalent to

35% of the acquisition cost, which increases in monthly aliquots within the second year in

an additional 35% until it reaches 70% of the acquisition. Once the legal term for sale has

expired without the extension being authorized, the provision will be 100% of the

acquisition cost. In case of an extension, the remaining 30% of the allowance is constituted

within its term.

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When the acquisition cost of the movable asset is lower than the debt value registered in

the balance, the difference is immediately recognized in the income statement.

When the commercial value of the movable good is lower than the value in the books of the

goods received in lieu of payment, an allowance for the difference is counted.

The allowances that have been constituted on assets received in payment or assets restituted

of leasing operations, may be reversed when these are completely sold. If such assets are

put in portfolio or in leasing operations, the income generated as consequence of the asset

transfer to the accounts of group 14, must be deferred until the deadline in which the

transaction was agreed.

h. Property and equipment – It registers the acquired, built or in process of import, building or assembly tangible assets permanently used in the development of the business course and

whose useful life exceeds one year. It includes the direct and indirect costs and expenses

caused until the asset is under operating conditions.

In accordance with Circular Letter 014/2001, regarding the elimination of integral

adjustments due to inflation for accounting purposes, the value of the adjustments

performed until December 31, 2000, is part of the balances of non-monetary assets and

make up its value in the books for all purposes.

Extraordinary additions, improvements and repairs that significantly increase the useful life

of assets, are registered as a higher value and the disbursements for maintenance and

repairs performed for the conservation of the assets are charged to expenses, when accrued.

Depreciation is registered using the straight line method and in accordance with the number

of years of estimated useful life of assets over 100% of the cost of acquisition.

Annual depreciation rates for each item of assets in both the Parent Company and

Subordinated local companies are:

Buildings 5%

Equipment, furniture and office supplies 10%

Computer equipment 20%

Vehicles 20%

Helm Bank Panama depreciates its assets in accordance with the useful life as follows:

Property 20 years

Furniture and equipment 3 to 10 years

Enhancements to property 10 years

Rolling equipment 5 years

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Property and equipment acquired during the first semester of 2013 and whose cost of

acquisition is equal or less than $1,342 are depreciated in the same accounting period, in

accordance with Decree 4344/2004.

The income or loss in the sale or retirement of property and equipment is recognized in the

semester’s operations in which the transaction is performed. The adjusted cost and

accumulated depreciation are eliminated from the respective accounts.

i. Assets under operating leasing – This item records the cost of the assets given on operating leasing that the Parent Company, after the execution of the corresponding agreement,

delivers on lease to the user.

For the case of assets given on operating leasing, depreciation is performed over the lesser

of the useful life of the asset and the term of the leasing agreement; the methodology is that

of financial depreciation (minus the residual value) so that the depreciation of the assets on

lease keeps an adequate relation with the generated profits.

The system of financial depreciation requires that in all the months or fraction of months

the depreciation expense is recorded, and therefore, methods of depreciation with grace

periods are inadmissible, or, that use discount rates outside the market for the value

estimate of the depreciation.

In all cases, the value of non-amortized goods in lease payments (residual value) is not

subject to depreciation. However, when the entity does not have the residual value

guaranteed by a third party, the depreciation is performed for one hundred percent of the

value of the assets in leasing.

j. Branches and agencies – This item records the movement of the operations performed between the General Directorate of the Parent Company and the subordinated companies,

their branches and agencies, as well as the operations performed between the offices of the

country.

Balances are reconciled in a daily manner and the items pending are regulated in a term no

longer than 30 calendar days.

The Parent Company and its Subordinated companies, at the closing of the accounting

period reclassify net balances reflected by the branches and agencies, to asset or liability

accounts, and the corresponding income and expenses are recognized.

k. Expenses paid in advance and deferred charges – The expenses paid in advance correspond to expenditures incurred by the Parent Company and its Subordinated

companies during the performance of their activities, whose benefit is received in various

periods, may be recoverable and suppose the successive execution of the services to be

received.

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Deferred charges correspond to costs and expenses that benefit future periods and are

susceptible of recovery. Amortization is recognized from the date that such charges

contribute to the generation of income, taking into account the following:

Item Am