Edgar Filing: FOREIGN TRADE BANK OF LATIN AMERICA, INC.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

For the month of July, 2012

BANCO LATINOAMERICANO DE COMERCIO EXTERIOR, S.A.

(Exact name of Registrant as specified in its Charter)

FOREIGN TRADE BANK OF LATIN AMERICA, INC.

(Translation of Registrant’s name into English)

Business Park II, Ave. La Rotonda, Costa del Este

P.O. Box 0819-08730

Panama City, Republic of Panama

(Address of Registrant’s Principal Executive Offices)

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F x Form 40-F ¨

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g-3-2(b) under the Securities Exchange Act of 1934.)

Yes ¨ No x

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82__.)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

July 27, 2012.

FOREIGN TRADE BANK OF LATIN AMERICA, INC.

	By:	/s/ Pedro Toll

	Name: Pedro Toll
	Title: General Manager

Banco Latinoamericano

de Comercio Exterior, S. A.

and Subsidiaries

Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011, and Related Consolidated Statements of Income, Stockholders’ Equity, Comprehensive Income (Loss) and Cash Flows (Unaudited) for the Three and Six Months Ended June 30, 2012 and 2011

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Consolidated Financial Statements

Contents		Pages

Consolidated balance sheets – June 30, 2012 (Unaudited) and December 31, 2011		1

Consolidated statements of income (Unaudited) - for the Three and Six Months Ended June 30, 2012 and 2011		2

Consolidated statements of comprehensive income (loss) (Unaudited) - for the Six Months Ended June 30, 2012 and 2011		3

Consolidated statements of changes in stockholders’ equity and redeemable noncontrolling interest (Unaudited) - for the Six Months Ended June 30, 2012 and 2011		4

Consolidated statements of cash flows (Unaudited) - for the Six Months Ended June 30, 2012 and 2011		5

Notes to consolidated financial statements		6 – 51

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Consolidated balance sheets

(in US$ thousand, except share amounts)

	Notes		June 30, 2012			December 31, 2011
			(Unaudited)			(Audited)
Assets
Cash and due from banks		3,17		4,605			12,814
Interest-bearing deposits in banks (including pledged deposits of $28,845 in 2012 and $23,994 in 2011)		3,17		727,783			830,670
Trading assets (including pledged securities to creditors of $574 in 2012 and $18,988 in 2011)		4,17		7,111			20,436
Securities available-for-sale (including pledged securities to creditors of $150,572 in 2012 and $375,492 in 2011)		5,17		176,708			416,300
Securities held-to-maturity (fair value of $25,924 in 2012 and $26,637 in 2011) (including pledged securities to creditors of $17,399 in 2012 and $17,486 in 2011)		5,17		25,949			26,536
Investment fund		6,17		121,518			120,425
Loans		7,17		5,169,758			4,959,573
Less:
Allowance for loan losses		8,17		82,150			88,547
Unearned income and deferred fees				6,966			6,697
Loans, net				5,080,642			4,864,329

Customers' liabilities under acceptances		17		2,765			1,110
Accrued interest receivable		17		36,899			38,168
Premises and equipment (net of accumulated depreciation and amortization of $10,420 in 2012 and $17,881 in 2011)				12,414			6,673
Derivative financial instruments used for hedging - receivable		15,17		12,609			4,159
Other assets				17,658			18,412
Total assets				6,226,661			6,360,032

Liabilities and stockholders' equity
Deposits:		9,17
Noninterest-bearing - Demand				16,873			680
Interest-bearing - Demand				204,110			66,906
Time				2,156,185			2,235,920
Total deposits				2,377,168			2,303,506

Trading liabilities		4,17		87			5,584
Securities sold under repurchase agreement		3,4,5,10,17		154,856			377,002
Short-term borrowings		11,17		723,528			1,323,466
Acceptances outstanding		17		2,765			1,110
Accrued interest payable		17		18,501			11,790
Borrowings and long-term debt		12,17		2,055,923			1,487,548
Derivative financial instruments used for hedging - payable		15,17		53,526			53,742
Reserve for losses on off-balance sheet credit risk		8		9,986			8,887
Other liabilities				19,026			22,568
Total liabilities				5,415,366			5,595,203

Commitments and contingencies		14,15,17,19

Redeemable noncontrolling interest				3,719			5,547

Stockholders' equity:		13,16,20
"Class A" common stock, no par value, assigned value of $6.67 (Authorized 40,000,000; outstanding 6,342,189)				44,407			44,407
"Class B" common stock, no par value, assigned value of $6.67 (Authorized 40,000,000; outstanding 2,531,926 in 2012 and 2011)				20,683			20,683
"Class E" common stock, no par value, assigned value of $6.67 (Authorized 100,000,000; outstanding 29,052,003 in 2012 and 28,257,827 in 2011)				214,890			214,890
Additional paid-in capital in excess of assigned value of common stock				122,279			130,177
Capital reserves				95,210			95,210
Retained earnings				407,407			372,644
Accumulated other comprehensive loss		5,15,16		(624	)		(3,112	)
Treasury stock				(96,676	)		(115,617	)
Total stockholders' equity				807,576			759,282

Total liabilities and stockholders' equity				6,226,661			6,360,032

The accompanying notes are an integral part of these consolidated financial statements.

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Consolidated statements of income (Unaudited)

(in US$ thousand, except per share amounts)

		Three Months Ended					Six Months Ended
		June 30,					June 30,
	Notes		2012		2011			2012		2011
Interest income:	15
Deposits with banks			512		178			1,096		360
Trading assets			-		447			69		1,135
Investment securities:
Available-for-sale			1,133		2,499			3,752		4,082
Held-to-maturity			173		230			348		458
Investment fund			46		594			649		983
Loans			44,963		31,946			89,292		61,734
Total interest income			46,827		35,894			95,206		68,752
Interest expense:	15
Deposits			2,964		1,852			6,036		3,747
Investment fund			22		26			36		46
Short-term borrowings			4,056		3,109			11,075		6,376
Borrowings and long-term debt			13,769		7,423			22,413		13,696
Total interest expense			20,811		12,410			39,560		23,865
Net interest income			26,016		23,484			55,646		44,887

Reversal of provision (provision) for loan losses	8		(2,916	)	2,587			592		(2,225	)

Net interest income, after reversal of provision (provision) for loan losses			23,100		26,071			56,238		42,662

Other income (expense):
Reversal of provision (provision) for losses on off-balance sheet credit risk	8		(2,002	)	(3,075	)		(1,099	)	1,471
Fees and commissions, net			2,374		1,893			4,691		4,098
Derivative financial instruments and hedging	15		1,960		495			2,400		508
Recoveries, net of impairment of assets			-		(57	)		-		(57	)
Net gain from investment fund trading			3,727		13,314			6,536		17,813
Net gain (loss) from trading securities			769		(588	)		9,199		(1,490	)
Net gain on sale of securities available-for-sale	5		1,724		1,118			6,030		1,262
Gain (loss) on foreign currency exchange			(538	)	165			(8,488	)	531
Gain on sale of premises and equipment	18		5,626		-			5,626		-
Other income, net			133		229			930		250
Net other income			13,773		13,494			25,825		24,386

Operating expenses:
Salaries and other employee expenses			8,005		7,554			15,709		14,375
Depreciation and amortization of premises and equipment			506		620			970		1,242
Professional services			1,075		997			2,194		1,885
Maintenance and repairs			449		395			876		805
Expenses from the investment fund			331		1,164			614		1,277
Other operating expenses			3,180		2,674			6,012		4,802
Total operating expenses			13,546		13,404			26,375		24,386

Net income			23,327		26,161			55,688		42,662

Net income attributable to the redeemable noncontrolling interest			104		421			244		618

Net income attributable to Bladex			23,223		25,740			55,444		42,044


Basic earnings per share	13		0.61		0.70			1.48		1.14

Diluted earnings per share	13		0.61		0.69			1.47		1.14

Weighted average basic shares	13		37,833		36,943			37,557		36,838

Weighted average diluted shares	13		38,075		37,201			37,715		37,017

The accompanying notes are an integral part of these consolidated financial statements.

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Consolidated statements of comprehensive income (loss) (Unaudited)
Six Months Ended June 30, 2012 and 2011
(in US$ thousand)


	Notes		2012			2011

Net income				55,688			42,662

Other comprehensive income (loss)

Unrealized gains on securities available-for-sale:
Unrealized gains arising from the period		16		7,099			4,687
Less: reclassification adjustments for net gains included in net income		16		(5,775	)		(1,262	)
Net change in unrealized gains on securities available-for-sale				1,324			3,425

Unrealized gains (losses) on derivative financial instruments:
Unrealized gains (losses) arising from the period		16		512			377
Less: reclassification adjustments for net (gains) losses included in net income		16		739			(757	)
Net change in unrealized losses on derivative financial instruments				1,251			(380	)

Foreign currency translation adjustment, net of hedges:
Current period change				(216	)		-
Change in foreign currency translation adjustment				(216	)		-

Other comprehensive income				2,359			3,045

Comprehensive income				58,047			45,707

Comprehensive income attributable to the redeemable noncontrolling interest				115			618

Comprehensive income attributable to Bladex				57,932			45,089

The accompanying notes are an integral part of these consolidated financial statements.

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Consolidated statements of changes in stockholders' equity and redeemable noncontrolling interest (Unaudited)

Six Months Ended June 30, 2012 and 2011

(in US$ thousand)

	Stockholders' equity
			Additional
			paid-in capital
			in excess of								Accumulated
			assigned value								other						Total			Redeemable
	Common		of common			Capital		Retained			comprehensive			Treasury			stockholders'			noncontrolling
	stock		stock			reserves		earnings			income (loss)			stock			equity			interest

Balances at January 1, 2011		279,980		133,815			95,210		320,153			(6,441	)		(125,667	)		697,050			18,950
Net income		-		-			-		42,044			-			-			42,044			618
Redeemable noncontrolling interest - redemptions		-		-			-		-			-			-			-			(14,321	)
Other comprehensive income		-		-			-		-			3,045			-			3,045			-
Compensation cost - stock options and stock units plans		-		1,237			-		-			-			-			1,237			-
Exercised options and stock units vested		-		(4,388	)		-		-			-			7,491			3,103			-
Dividends declared		-		-			-		(15,864	)		-			-			(15,864	)		-
Balances at June 30, 2011		279,980		130,664			95,210		346,333			(3,396	)		(118,176	)		730,615			5,247

Balances at January 1, 2012		279,980		130,177			95,210		372,644			(3,112	)		(115,617	)		759,282			5,547
Net income		-		-			-		55,444			-			-			55,444			244
Redeemable noncontrolling interest - subscriptions		-		-			-		-			-			-			-			1,714
Redeemable noncontrolling interest - redemptions		-		-			-		-			-			-			-			(3,657	)
Other comprehensive income (loss)		-		-			-		-			2,488			-			2,488			(129	)
Compensation cost - stock options and stock units plans		-		1,199			-		-			-			-			1,199			-
Exercised options and stock units vested		-		(9,097	)		-		-			-			18,941			9,844			-
Dividends declared		-		-			-		(20,681	)		-			-			(20,681	)		-
Balances at June 30, 2012		279,980		122,279			95,210		407,407			(624	)		(96,676	)		807,576			3,719

The accompanying notes are an integral part of these consolidated financial statements.

Banco Latinoamericano de Comercio Exterior, S. A. and Subsidiaries

Consolidated statements of cash flows (Unaudited)

Six Months Ended June 30, 2012 and 2011

(in US$ thousand)

	2012			2011
Cash flows from operating activities:
Net income		55,688			42,662
Adjustments to reconcile net income to net cash provided by operating activities:
Activities of derivative financial instruments and hedging		882			(7,693	)
Depreciation and amortization of premises and equipment		970			1,242
Provision (reversal of provision) for loan losses		(592	)		2,225
Provision (reversal of provision) for losses on off-balance sheet credit risk		1,099			(1,471	)
Net gain on sale of securities available-for-sale		(6,030	)		(1,262	)
Gain on sale of premises and equipment		(5,626	)		-
Compensation cost - compensation plans		1,199			1,237
Amortization of premium and discounts on investments		1,965			3,333
Net decrease (increase) in operating assets:
Trading assets		12,608			27,232
Investment fund		(1,093	)		13,321
Accrued interest receivable		1,269			(1,148	)
Other assets		(1,102	)		23,324
Net increase (decrease) in operating liabilities:
Trading liabilities		(5,497	)		(2,184	)
Accrued interest payable		6,711			60
Other liabilities		(3,321	)		(20,690	)
Net cash provided by operating activities		59,130			80,188

Cash flows from investing activities:
Net (increase) decrease in pledged deposits		(4,851	)		10,485
Net decrease in deposits with original maturities greater than three months		30,000			-
Net increase in loans		(217,901	)		(720,531	)
Proceeds from the sale of loans		2,180			9,261
Acquisition of equipment and leasehold improvements		(9,110	)		(1,291	)
Proceeds from the sale of premises and equipment		8,023			-
Proceeds from the redemption of securities available-for-sale		139			2,229
Proceeds from the sale of securities available-for-sale		254,772			138,814
Proceeds from the redemption of securities held to maturity		500			-
Purchases of securities held-to-maturity		-			(500	)
Purchases of investments available-for-sale		(17,944	)		(291,174	)
Net cash provided by (used in) investing activities		45,808			(852,707	)

Cash flows from financing activities:
Net increase in due to depositors		73,662			263,617
Net decrease in short-term borrowings and securities sold under repurchase agreements		(822,084	)		(8,387	)
Proceeds from borrowings and long-term debt		817,827			499,000
Repayments of borrowings and long-term debt		(249,452	)		(25,736	)
Dividends paid		(18,800	)		(14,700	)
Subscriptions of redeemable noncontrolling interest		1,714			-
Redemptions of redeemable noncontrolling interest		(3,657	)		(14,321	)
Exercised stock options		9,844			3,103
Net cash provided by (used in) financing activities		(190,946	)		702,576

Effect of exchange rate fluctuations on cash and cash equivalents		61			-

Net decrease in cash and cash equivalents		(85,947	)		(69,943	)
Cash and cash equivalents at beginning of the period		789,490			420,639
Cash and cash equivalents at end of the period		703,543			350,696

Supplemental disclosures of cash flow information:
Cash paid during the period for interest		32,849			23,805

The accompanying notes are an integral part of these consolidated financial statements.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Organization

Banco Latinoamericano de Comercio Exterior, S. A. (“Bladex Head Office” and together with its subsidiaries “Bladex” or the “Bank”), headquartered in Panama City, Republic of Panama, is a specialized supranational bank established to finance trade in Latin America and the Caribbean (the “Region”). The Bank was established pursuant to a May 1975 proposal presented to the Assembly of Governors of Central Banks in the Region, which recommended the creation of a multinational organization to increase the foreign trade financing capacity of the Region. The Bank was organized in 1977, incorporated in 1978 as a corporation pursuant to the laws of the Republic of Panama, and officially initiated operations on January 2, 1979. Under a contract signed in 1978 between the Republic of Panama and Bladex, the Bank was granted certain privileges by the Republic of Panama, including an exemption from payment of income taxes in Panama.

The Bank operates under a general banking license issued by the National Banking Commission of Panama, predecessor of the Superintendency of Banks of Panama (the “SBP”).

In the Republic of Panama, banks are regulated by the SBP through Executive Decree No. 52 of April 30, 2008, which adopts the text of the Law Decree No. 9 of February 26, 1998, modified by the Law Decree No. 2 of February 22, 2008. Banks are also regulated by resolutions and agreements issued by this entity. The main aspects of this law and its regulations include: the authorization of banking licenses, minimum capital and liquidity requirements, consolidated supervision, procedures for management of credit and market risks, measures to prevent money laundering, the financing of terrorism and related illicit activities, and procedures for banking intervention and liquidation, among others.

Bladex Head Office’s subsidiaries are the following:

Bladex Holdings Inc., is a wholly owned subsidiary, incorporated under the laws of the State of Delaware, United States of America (USA), on May 30, 2000. Bladex Holdings Inc. exercises control over Bladex Asset Management Inc., incorporated on May 24, 2006, under the laws of the State of Delaware, USA, serves as investment manager for Bladex Offshore Feeder Fund (the “Feeder”) and Bladex Capital Growth Fund (the “Fund”). In February 2012, Bladex Asset Management Inc., was registered with the Securities and Exchange Commission (“SEC”) as an investment adviser. On September 8, 2009, Bladex Asset Management Inc. was registered as a foreign entity in the Republic of Panama, to establish a branch in Panama, which is mainly engaged in providing administrative and operating services to Bladex Asset Management Inc. in USA.

The Feeder is an entity in which Bladex Head office owns 98.30% as of June 30, 2012, and 95.84% as of December 31, 2011. The Feeder was incorporated on February 21, 2006 under the laws of the Cayman Islands, and invests substantially all its assets in the Fund, which is also incorporated under the laws of the Cayman Islands. The Feeder and the Fund are registered with the Cayman Island Monetary Authority (“CIMA”), under the Mutual Funds Law of the Cayman Islands. The objective of the Fund is to achieve capital appreciation by investing in Latin American debt securities, stock indexes, currencies, and trading derivative instruments.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Bladex Representacao Ltda., incorporated under the laws of Brazil on January 7, 2000, acts as the Bank’s representative office in Brazil. Bladex Representacao Ltda. is 99.999% owned by Bladex Head Office and the remaining 0.001% owned by Bladex Holdings Inc.

Bladex Investimentos Ltda. was incorporated under the laws of Brazil on May 3, 2011. Bladex Head Office owns 99% of Bladex Investimentos Ltda. and Bladex Holdings Inc. owns the remaining 1%. This company has invested substantially all its assets in Bladex Latam Fundo de Investimento Multimercado, which was also incorporated under the laws of Brazil on July 26, 2011.

The objective of Bladex Latam Fundo de Investimento Multimercado (the “Brazilian Fund”) is to achieve capital gains by dealing in the interest, currency, securities, commodities and debt markets, and by trading instruments available in the spot and derivative markets. Bladex Latam Fundo de Investimento Multimercado is registered with the Brazilian Securities Commission (“CVM”). This fund is a variable interest entity (“VIE”), and has been consolidated in these consolidated financial statements. As of June 30, 2012 and December 31, 2011, Bladex Investimentos Ltda. held 79.33% and 91.99%, respectively, of the Brazilian Fund’s net asset value.

BLX Brazil Ltd., was incorporated under the laws of the Cayman Islands on October 5, 2010. Bladex Head Office owns 99.80% of BLX Brazil Ltd. In turn, BLX Brazil Ltd. owns 99% of Bladex Asset Management Brazil – Gestora de Recursos Ltda. and Bladex Asset Management Inc. owns the remaining 1%. Bladex Asset Management Brazil – Gestora de Recursos Ltda. was incorporated under the laws of Brazil on January 6, 2011, and provides investment advisory services to Bladex Latam Fundo de Investimento Multimercado.

Bladex Head Office has an agency in New York City, USA (the “New York Agency”), which began operations on March 27, 1989. The New York Agency is principally engaged in financing transactions related to international trade, mostly the confirmation and financing of letters of credit for customers of the Region. The New York Agency is also licensed by the State of New York Banking Department, USA, to operate an International Banking Facility (“IBF”).

The Bank has representative offices in Buenos Aires, Argentina, in Mexico City, D.F. and Monterrey, Mexico, in Porto Alegre, Brazil, in Lima, Peru, in Bogota, Colombia, and an international administrative office in Miami, Florida, USA.

Bladex Head Office owns 50% of the equity shares of BCG PA LLC, a company incorporated under the laws of the State of Delaware, USA. This company owns “Class C” shares of the Fund that entitle it to receive a performance allocation on third-party investments in the Feeder and in the Fund.

Clavex LLC, a former subsidiary of Bladex Holdings, was dissolved on April 7, 2011, and its net assets were transferred to its controlling entity. Clavex S.A., a former subsidiary of Bladex Head Office, was dissolved on August 30, 2011, and its net assets were transferred to its Head Office.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Summary of significant accounting policies

Basis of presentation

These unaudited consolidated financial statements have been prepared under accounting principles generally accepted in the United States of America (“U.S. GAAP”). All amounts presented in the consolidated financial statements and notes are expressed in dollars of the United Stated of America (“US$”), which is the Bank’s functional currency. The accompanying consolidated financial statements have been translated from Spanish to English for users outside of the Republic of Panama.

The Accounting Standards Codification (the “ASC”) issued by the Financial Accounting Standards Board (the “FASB”) constitute the single official source of authoritative, non-governmental GAAP, other than guidance issued by the SEC. All other literature is considered non-authoritative.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the fiscal year ended December 31, 2011. Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. GAAP, but not required for interim reporting purposes, has been condensed or omitted.

As noted above, the notes to consolidated financial statements are unaudited.

Principles of consolidation

The consolidated financial statements include the accounts of Bladex Head Office and its subsidiaries. Bladex Head Office consolidates its subsidiaries in which it holds a controlling financial interest. The usual condition for a controlling financial interest is ownership of a majority voting interest. All intercompany balances and transactions have been eliminated for consolidation purposes.

When Bladex holds an interest in investment companies under the “Feeder-Master” structure where the Feeder’s shareholding is diluted and such entity is registered as a mutual fund with a regulatory body, it is considered an investment company. In those cases, the Feeder, and thereby Bladex indirectly, consolidates its participation in the Fund in one line item in the balance sheet, as required by the specialized accounting in the ASC Topic 946 - Financial Services – Investment Companies.

Variable interest entities

Variable interest entities (“VIE”) are entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. Investors that finance the VIE through debt or equity interests or other counterparties that provide other forms of support, such as guarantees, or certain types of derivative contracts, are variable interest holders in the entity.

The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. The Bank would be deemed to have a controlling financial interest and be the primary beneficiary if it has both of the following characteristics:

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

power to direct the activities of a VIE that most significantly impact the entity’s economic performance; and

obligation to absorb losses of the entity that could potentially be significant to the VIE or right to receive benefits from the entity that could potentially be significant to the VIE.

Equity method

Investments in companies in which Bladex Head Office exercises significant influence, but not control over its financial and operating policies, and holds an equity participation of at least 20% but not more than 50%, are initially accounted for at cost, which is subsequently adjusted to record the participation of the investment in gains (losses) of the investee after the acquisition date.

Specialized accounting for investment companies

The Feeder and the Fund are organized under a “Feeder-Master” structure. Under this structure, the Feeder invests all its assets in the Fund which in turn invests in various assets on behalf of its investor. Specialized accounting for investment companies requires the Feeder to reflect its investment in the Fund in a single line item equal to its proportionate share of the net assets of the Fund, regardless of the level of Feeder’s interest in the Fund. The Feeder records the Fund’s results by accounting for its participation in the net interest income and expenses of the Fund, as well as its participation in the realized and unrealized gains or losses of the Fund.

As permitted by ASC Topic 810-10-25-15 – Consolidation, when Bladex consolidates its investment in the Feeder, it retains the specialized accounting for investment companies applied by the Feeder in the Fund, reporting it within the “Investment fund” line item in the consolidated balance sheet, and presenting the third party investments in the Feeder in the “Redeemable noncontrolling interest” line item between liabilities and stockholders’ equity. The Bank reports interest income and expense from the Fund in the Investment fund line item within interest income and expense, realized and unrealized gains and losses in the “Net gain (loss) from investment fund trading” line item, and expenses from the Fund are reported in “Expenses from the investment fund” line item in the consolidated statements of income.

Use of estimates

The preparation of the consolidated financial statements requires management to make estimates and use assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Material estimates that are particularly susceptible to significant changes relate to the determination of the allowances for credit losses, impairment of securities available-for-sale and held-to-maturity, and the fair value of financial instruments. Actual results could differ from those estimates. Management believes these estimates are adequate.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Cash equivalents

Cash equivalents include demand deposits in banks and interest-bearing deposits in banks with original maturities of three months or less, excluding pledged deposits.

Repurchase agreements

Repurchase agreements are generally treated as collateralized financing transactions. When the criteria set forth in the following paragraph are met to account for the transaction as secured financing, the transaction is recorded at the amounts at which the securities will be subsequently reacquired including interest paid, as specified in the respective agreements. Interest is recognized in the statement of income over the life of the transaction. The fair value of securities to be repurchased is continuously monitored, and additional collateral is obtained or provided where appropriate, to protect against credit exposure.

The Bank’s policy is to relinquish possession of the securities sold under agreements to repurchase. Despite such relinquishment of possession, repurchase agreements qualify as secured financings if and only if all of the following conditions are met: the repurchase agreement must grant the transferor the right and obligation to repurchase or redeem the transferred financial assets; the assets to be repurchased are the same or substantially the same as those transferred; the agreement is to repurchase or redeem them before maturity, at a fixed and determinable price; and the agreement is entered into concurrently at the transfer date.

When repurchase agreements do not meet the above-noted conditions, they qualify as sales of securities, for which the related security is removed from the balance sheet and a forward purchase agreement is recognized for the obligation to repurchase the security. Changes in fair value of the forward purchase agreement as well as any gain or loss resulting from the sale of securities under repurchase agreements are reported in earnings of the period within net gain (loss) from trading securities.

Trading assets and liabilities

Trading assets and liabilities include bonds acquired for trading purposes, and receivables (unrealized gains) and payables (unrealized losses) related to derivative financial instruments which are not designated as hedges or which do not qualify for hedge accounting. These amounts include the derivative assets and liabilities net of cash received or paid, respectively, under legally enforceable master netting agreements. Trading assets and liabilities are carried at fair value, which is based upon quoted prices when available, or if quoted market prices are not available, on discounted expected cash flows using market rates commensurate with the credit quality and maturity of the security.

Unrealized and realized gains and losses on trading assets and liabilities are recorded in earnings as net gain (loss) from trading securities.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Investment securities

Securities are classified at the date of purchase based on the ability and intent to sell or hold them as investments. These securities consist of debt securities such as: negotiable commercial paper, bonds and floating rate notes.

Interest on securities is recognized based on the interest method. Amortization of premiums and discounts are included in interest income as an adjustment to the yield.

Securities available-for-sale

These securities consist of debt instruments that the Bank buys with the intention of selling them prior to maturity and are subject to the same approval criteria as the rest of the credit portfolio. These securities are carried at fair value, based on quoted market prices when available, or if quoted market prices are not available, based on discounted expected cash flows using market rates commensurate with the credit quality and maturity of the security. Unrealized gains and losses are reported as net increases or decreases to other comprehensive income (loss) (OCI) in stockholders’ equity until they are realized. Realized gains and losses from the sale of securities which are included in net gain on sale of securities are determined using the specific identification method.

Securities held-to-maturity

Securities classified as held-to-maturity represent securities that the Bank has the ability and the intent to hold until maturity. These securities are carried at amortized cost and are subject to the same approval criteria as the rest of the credit portfolio.

Impairment of securities

The Bank conducts periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other-than-temporary. Impairment of securities is evaluated considering numerous factors, and their relative significance varies case by case. Factors considered in determining whether unrealized losses are temporary include: the length of time and extent to which the market value has been less than cost, the severity of the impairment, the cause of the impairment and the financial condition of the issuer, activity in the market of the issuer which may indicate adverse credit conditions, the intent and ability of the Bank to retain the security for a sufficient period of time to allow of an anticipated recovery in the market value (with respect to equity securities) and the intent and probability of the Bank to sell the security before the recovery of its amortized cost (with respect to debt securities). If, based on the analysis, it is determined that the impairment is other-than-temporary, the security is written down to its fair value, and a loss is recognized through earnings as impairment loss on assets.

In cases where the Bank does not intend to sell a debt security and estimates that it will not be required to sell the security before the recovery of its amortized cost basis, the Bank periodically estimates if it will recover the amortized cost of the security through the present value of expected cash flows. If the present value of expected cash flows is less than the amortized cost of the security, it is determined that an other-than-temporary impairment has occurred. The amount of this impairment representing credit loss is recognized through earnings and the residual of the other-than-temporary impairment related to non-credit factors is recognized in other comprehensive income (loss).

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

In periods subsequent to the recognition of the other-than-temporary impairment, the difference between the new amortized cost and the expected cash flows to be collected is accreted as interest income. The present value of the expected cash flows is estimated over the life of the debt security.

The other-than-temporary impairment of securities held-to-maturity that has been recognized in other comprehensive income is accreted to the amortized cost of the debt security prospectively over its remaining life.

Interest accrual is suspended on securities that are in default, or on which it is likely that future interest payments will not be received as scheduled.

Investment Fund

The Feeder records its investment in the Fund at fair value, which is the Feeder’s proportionate interest in the net assets of the Fund.

The Fund invests in trading assets and liabilities that are carried at fair value, which is based upon quoted market prices when available. For financial instruments for which quoted prices are not available, the Fund uses independent valuations from pricing providers that use their own proprietary valuation models that take into consideration discounted expected cash flows, using market rates commensurate with the credit quality and maturity of the security. These prices are compared to independent valuations from counterparties. The Fund reports trading gains and losses from negotiation of these instruments as realized and unrealized gains and losses on investments.

Other investments

Other investments that mainly consist of unlisted stock are recorded at cost and are included in other assets. The Bank determined that it is not practicable to obtain the market value of these investments, as these shares are not traded in a secondary market. Performance of these investments is evaluated periodically and declines that are determined to be other-than-temporary are charged to earnings as impairment on assets.

Loans

Loans are reported at their amortized cost considering the principal outstanding amounts net of unearned income, deferred fees and allowance for loan losses. Interest income is recognized using the interest method. The amortization of net unearned income and deferred fees are recognized as an adjustment to the related loan yield using the effective interest method.

Purchased loans are recorded at acquisition cost. The difference between the principal and the acquisition cost of loans, the premiums and discounts, is amortized over the life of the loan as an adjustment to the yield. All other costs related to acquisition of loans are expensed when incurred.

The Bank identifies loans as delinquent when no debt service and/or interest payment has been received for 30 days after such payments were due. The outstanding balance of a loan is considered past due when the total principal balance with one single balloon payment has not been received within 30 days after such payment was due, or when no agreed-upon periodical payment has been received for a period of 90 days after the agreed-upon date.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Loans are placed in a non-accrual status when interest or principal is overdue for 90 days or more, or before if the Bank’s management believes there is an uncertainty with respect to the ultimate collection of principal or interest. Any interest receivable on non-accruing loans is reversed and charged-off against earnings. Interest on these loans is only recorded as earned when collected. Non-accruing loans are returned to an accrual status when (1) all contractual principal and interest amounts are current; (2) there is a sustained period of repayment performance in accordance with the contractual terms of at least six months; and (3) if in the Bank management’s opinion the loan is fully collectible.

A modified loan is considered a troubled debt restructuring when the debtor is experiencing financial difficulties and if the restructuring constitutes a concession to the debtor. A concession may include modification of terms such as an extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, and reduction in the face amount of the debt or reduction of accrued interest, among others. Marketable securities received in exchange for loans under troubled debt restructurings are initially recorded at fair value, with any gain or loss recorded as a recovery or charge to the allowance, and are subsequently accounted for as securities available-for-sale.

A loan is considered impaired, and also placed on a non-accrual basis, when based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to original contractual terms of the loan agreement. Factors considered by the Bank’s management in determining impairment include collection status, collateral value, and economic conditions in the borrower’s country of residence. Impaired loans also include those modified loans considered troubled debt restructurings. When current events or available information confirm that specific impaired loans or portions thereof are uncollectible, such impaired loans are charged-off against the allowance for loan losses.

The reserve for losses on impaired loans is determined considering all available evidence, including the present value of expected future cash flows discounted at the loan's original contractual interest rate and/or the fair value of the collateral, if applicable. If the loan’s repayment is dependent on the sale of the collateral, the fair value considers costs to sell.

The Bank maintains a system of internal credit quality indicators. These indicators are assigned depending on several factors which include: profitability, quality of assets, liquidity and cash flows, capitalization and indebtedness, economic environment and positioning, regulatory framework and/or industry, sensitivity scenarios and the quality of debtor’s management and shareholders. A description of these indicators is as follows:

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Rating	Classification	Description
1 to 6	Normal	Clients with payment ability to satisfy their financial commitments.

7	Special Mention	Clients exposed to systemic risks specific to the country or the industry in which they are located, facing adverse situations in their operation or financial condition. At this level, access to new funding is uncertain.

8	Substandard	Clients whose primary source of payment (operating cash flow) is inadequate and who show evidence of deterioration in their working capital that does not allow them to satisfy payments on the agreed terms, endangering recovery of unpaid balances.

9	Doubtful	Clients whose operating cash flow continuously shows insufficiency to service the debt on the originally agreed terms. Due to the fact that the debtor presents an impaired financial and economic situation, the likelihood of recovery is low.

10	Unrecoverable	Clients with operating cash flow that does not cover their costs, are in suspension of payments, presumably they will also have difficulties to fulfill possible restructuring agreements, are in a state of insolvency, or have filed for bankruptcy, among others.

In order to maintain a periodical monitoring of the quality of the portfolio, loans with ratings between 1 and 5 are reviewed annually, ratings 6 are reviewed semi-annually, and those with ratings above 6 are reviewed quarterly.

The Bank's lending portfolio is summarized in the following segments: corporations, sovereign, middle-market companies and banking and financial institutions. The distinction between corporations and middle-market companies depends on the client’s level of annual sales in relation to the country risk, among other criteria. Except for the sovereign segment, segments are broken down into state-owned and private.

The Bank's lending policy is applicable to all classes of loans.

Transfer of financial assets

Transfers of financial assets, primarily loans, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Bank even in bankruptcy or other receivership; (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or does not have the right to cause the assets to be returned. Upon completion of a transfer of assets that satisfies the conditions described above to be accounted for as a sale, the Bank recognizes the assets as sold and records in earnings any gain or loss on the sale. The Bank may retain interest in loans sold in the form of servicing rights. Gains or losses on sale of loans depend in part on the carrying amount of the financial assets involved in the transfer, and its fair value at the date of transfer. The fair value of instruments is determined based upon quoted market prices when available, or are based on the present value of future expected cash flows using information related to credit losses, prepayment speeds, forward yield curves, and discounted rates commensurate with the risk involved.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Allowance for credit losses

The allowance for credit losses is provided for losses derived from the credit extension process, inherent in the loan portfolio and off-balance sheet financial instruments, using the reserve method of providing for credit losses. Additions to the allowance for credit losses are made by accreting earnings. Credit losses are deducted from the allowance, and subsequent recoveries are added. The allowance is also decreased by reversals of the allowance back to earnings. The allowance attributable to loans is reported as a deduction of loans and the allowance for off-balance sheet credit risk, such as, letters of credit and guarantees, is reported as a liability.

The allowance for possible credit losses includes an asset-specific component and a formula-based component. The asset-specific component relates to the provision for losses on credits considered impaired and measured on a case-by-case basis. A specific allowance is established when the discounted cash flows (or observable market price of collateral) of the credit is lower than the carrying value of that credit. The formula-based component covers the Bank’s performing credit portfolio and is established based in a process that estimates the probable loss inherent in the portfolio, based on statistical analysis and management’s qualitative judgment. The statistical calculation is a product of internal risk classifications, probabilities of default and loss given default. The probability of default is supported by Bladex’s historical portfolio performance complemented by probabilities of default provided by external sources, in view of the greater robustness of this external data for some cases. The loss given default is based on Bladex’s historical losses experience and best practices. The reserve balances, for both on and off-balance sheet credit exposures, are calculated applying the following formula:

Reserves = ∑(E x PD x LGD); where:

Exposure (E) = the total accounting balance (on and off-balance sheet) at the end of the period under review.

Probabilities of Default (PD) = one-year probability of default applied to the portfolio. Default rates are based on Bladex’s historical portfolio performance per rating category, complemented by Standard & Poor’s (“S&P”) probabilities of default for categories 6, 7 and 8, in view of the greater robustness of S&P data for such cases.

Loss Given Default (LGD) = a factor is utilized, based on historical information, same as based on best practices in the banking industry. Management applies judgment and historical loss experience.

Management can also apply complementary judgment to capture elements of prospective nature or loss expectations based on risks identified in the environment that are not necessarily reflected in the historical data.

The allowance policy is applicable to all classes of loans and off-balance sheet financial instruments of the Bank.

Fair value of guarantees including indirect indebtedness of others

The Bank recognizes at inception a liability for the fair value of obligations undertaken such as stand-by letters of credit and guarantees. Fair value is calculated based on the present value of the premium to be received or a specific allowance for off-balance sheet credit contingencies, whichever is greater.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Fees and commissions

Loan origination fees, net of direct loan origination costs, are deferred, and the net amount is recognized as revenue over the contractual term of the loans as an adjustment to the yield. These net fees are not recognized as revenue during periods in which interest income on loans is suspended because of concerns about the realization of loan principal or interest. Underwriting fees are recognized as revenue when the Bank has rendered all services to the issuer and is entitled to collect the fee from the issuer, when there are no contingencies related to the fee. Underwriting fees are recognized net of syndicate expenses. In addition, the Bank recognizes credit arrangement and syndication fees as revenue after satisfying certain retention, timing and yield criteria. Fees received in connection with a modification of terms of a troubled debt restructuring are applied as a reduction of the recorded investment in the loan. Fees earned on letters of credit, guarantees and other commitments are amortized using the straight-line method over the life of such instruments.

Premises and equipment

Premises and equipment, including the electronic data processing equipment, are carried at cost less accumulated depreciation and amortization, except land, which is carried at cost. Depreciation and amortization are charged to operations using the straight-line method, over the estimated useful life of the related asset. The estimated original useful life for building is 40 years and for furniture and equipment is three to five years.

The Bank defers the cost of internal-use software that has a useful life in excess of one year in accordance with ASC Topic 350-40 - Intangibles – Goodwill and Other – Internal-Use Software. These costs consist of payments made to third parties related to the use of licenses and installation of both, software and hardware. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred. Capitalized internal use software costs are amortized using the straight-line method over their estimated useful lives, generally consisting of 5 years.

Borrowings and debt

Short and long-term borrowings and debt are accounted for at amortized cost.

Capital reserves

Capital reserves are established as a segregation of retained earnings and are, as such, a form of retained earnings. Even though the constitution of capital reserves is not required by the SBP, their reductions require the approval of the Bank’s Board of Directors and the SBP.

Stock-based compensation and stock options plans

The Bank applies ASC Topic 718 – Compensation - Stock Compensation to account for compensation costs on restricted stock and stock option plans. Compensation cost is based on the grant date fair value of both stock and options and is recognized over the requisite service period of the employee. The fair value of each option is estimated at the grant date using a binomial option-pricing model.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

When options and stock are exercised, the Bank’s policy is to reissue shares from treasury stock.

Derivative financial instruments and hedge accounting

The Bank uses derivative financial instruments for its management of interest rate and foreign exchange risks. Interest rate swap contracts and cross-currency swap contracts have been used to manage interest rate and foreign exchange risks associated with debt securities and borrowings with fixed rates, and loans and borrowings in foreign currency. These contracts can be classified as fair value and cash flow hedges. In addition, forward foreign exchange contracts are used to hedge exposures to changes in foreign currency in subsidiary companies with functional currencies other than US dollar. These contracts are classified as net investment hedges.

The accounting for changes in value of a derivative depends on whether the contract is for trading purposes or has been designated and qualifies for hedge accounting.

Derivatives held for trading purposes include interest rate swap, cross-currency swap, forward foreign exchange and future contracts used for risk management purposes that do not qualify for hedge accounting. The fair value of trading derivatives is reported as trading assets or trading liabilities, as applicable. Changes in realized and unrealized gains and losses and interest from these trading instruments are included in net gain (loss) from trading securities.

Derivatives for hedging purposes primarily include forward foreign exchange contracts and interest rate swap contracts in US dollars and cross-currency swaps. Derivative contracts designated and qualifying for hedge accounting are reported in the balance sheet as derivative financial instruments used for hedging - receivable and payable, as applicable, and hedge accounting is applied. In order to qualify for hedge accounting, a derivative must be considered highly effective at reducing the risk associated with the exposure being hedged. Each derivative must be designated as a hedge, with documentation of the risk management objective and strategy, including identification of the hedging instrument, the hedged item and the risk exposure, as well as how effectiveness will be assessed prospectively and retrospectively. The extent to which a hedging instrument is effective at achieving offsetting changes in fair value or cash flows must be assessed at least quarterly. Any ineffectiveness must be reported in current-period earnings. The Bank discontinues hedge accounting prospectively in the following situations:

It is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item.

The derivative expires or is sold, terminated or exercised.

The Bank otherwise determines that designation of the derivative as a hedging instrument is no longer appropriate.

The Bank carries all derivative financial instruments in the consolidated balance sheet at fair value. For qualifying fair value hedges, all changes in the fair value of the derivative and the fair value of the item for the risk being hedged are recognized in earnings. If the hedge relationship is terminated, then the fair value adjustment to the hedged item continues to be reported as part of the basis of the item and is amortized to earnings as a yield adjustment. For qualifying cash flow hedges and net investment hedges, the effective portion of the change in the fair value of the derivative is recorded in OCI and recognized in the income statement when the hedged cash flows affect earnings. The ineffective portion is recognized in the consolidated statement of income as activities of derivative financial instruments and hedging. If the cash flow hedge relationship is terminated, related amounts in OCI are reclassified into earnings when hedged cash flows occur.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Foreign currency translation

Assets and liabilities of foreign subsidiaries whose local currency is considered their functional currency are translated into the reporting currency, US dollars, using period-end spot foreign exchange rates. The Bank uses monthly-averaged exchange rates to translate revenues and expenses from local functional currency into US dollars. The effects of those translations adjustments are reported as a component of the Other comprehensive income (loss) in the stockholders’ equity.

Transactions whose terms are denominated in a currency other than the functional currency, including transactions denominated in local currency of the foreign entity with the US dollar as their functional currency, are recorded at the exchange rate prevailing at the date of the transaction. Assets and liabilities in foreign currency are translated into US dollars using period-end spot foreign exchange rates. The effects of translation of monetary assets and liabilities into US dollars are included in current period’s earnings in the Gain on foreign currency exchange item.

Income taxes

Bladex Head Office is exempted from payment of income taxes in Panama in accordance with the contract signed between the Republic of Panama and Bladex.

The Feeder, the Fund, and BLX Brazil Ltd. are not subject to income taxes in accordance with the laws of the Cayman Islands. These companies received an undertaking exempting them from taxation of all future profits until March 7, 2026 for the Feeder and the Fund, and until November 23, 2030 for BLX Brazil Ltd.

Bladex Representacao Ltda., Bladex Investimentos Ltda., and Bladex Asset Management Brazil – Gestora de Recursos Ltda. are subject to income taxes in Brazil.

The New York Agency and Bladex’s subsidiaries incorporated in USA are subject to federal and local taxation in USA based on the portion of income that is effectively connected with its operations in that country.

Such amounts of income taxes have been immaterial to date.

Redeemable noncontrolling interest

ASC Topic 810 - Consolidation requires that a noncontrolling interest, previously referred to as a minority interest, in a consolidated subsidiary be reported as a separate component of equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be presented separately, below net income in the consolidated statement of income.

Furthermore, in accordance with ASC 480-10-S99, equity securities that are redeemable at the option of the holder and not solely within the control of the issuer must be classified outside of equity. The terms of third party investments in the consolidated funds contain a redemption clause which allows the holders the option to redeem their investment at fair value. Accordingly, the Bank presents the noncontrolling interest between liabilities and stockholders’ equity in the consolidated balance sheets.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Net assets of the Feeder and the Brazilian Fund are measured and presented at fair value, given the nature of their net assets (i.e. represented mainly by cash and investments in securities). Therefore, when calculating the value of the redeemable noncontrolling interest under ASC Topic 810, such amount is already recorded at its fair value and no further adjustments under ASC 480-10-S99 are necessary.

Earnings per share

Basic earnings per share is computed by dividing the net income attributable to Bladex (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Diluted earnings per share measure performance incorporating the effect that potential common shares, such as stock options and restricted stock units outstanding during the same period, would have on net earnings per share. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except for the denominator, which is increased to include the number of additional common shares that would have been issued if the beneficiaries of stock purchase options and other stock plans could exercise their options. The number of potential common shares that would be issued is determined using the treasury stock method.

aa)

Recently issued accounting standards

During 2011, the following update to standard (“ASU”), applicable to the Bank, was issued and not in effect, at the date of these financial statements.

ASU 2011-11 – Balance Sheet (Topic 210)

This update requires an entity to disclose information about financial instruments and derivative instruments that are either offset in the balance sheet or subject to enforceable master netting arrangements or similar agreements, irrespective of whether they are offset. Entities are required to disclose both gross and net information about instruments and transactions eligible for offset and instruments and transactions subject to an agreement similar to a master netting arrangement.

This update is effective for interim and annual periods beginning on or after January 1, 2013. Entities should provide the disclosures required by this update retrospectively for all comparative periods presented. The Bank is evaluating the potential impact of those disclosures.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Cash and cash equivalents

Cash and cash equivalents are as follows:

	June 30,		December 31,
(In thousands of US$)	2012		2011

Cash and due from banks		4,605		12,814
Interest-bearing deposits in banks		727,783		830,670
Total		732,388		843,484
Less:
Interest-bearing deposits with original maturities of more than three months		-		30,000
Pledged deposits		28,845		23,994
		703,543		789,490

On June 30, 2012 and December 31, 2011, the New York Agency had a pledged deposit with a carrying value of $3.0 million with the New York State Banking Department, as required by law since March 1994. As of June 30, 2012 and December 31, 2011, the Bank had pledged deposits with a carrying value of $25.8 million and $21.0 million, respectively, to secure derivative financial instruments transactions and repurchase agreements.

Trading assets and liabilities

The fair value of trading assets and liabilities is as follows:

	June 30,		December 31,
(In thousands of US$)	2012		2011

Trading assets:
Sovereign bonds		6,766		20,415
Interest rate swaps		55		-
Cross-currency interest rate swaps		-		21
Forward foreign exchange		290		-
Total		7,111		20,436

Trading liabilities:
Interest rate swaps		-		748
Cross-currency interest rate swaps		1		4,836
Forward foreign exchange		15		-
Future contracts		71		-
Total		87		5,584

Sovereign bonds outstanding as of June 30, 2012 and December 31, 2011, generated losses of $4 thousand and $418 thousand during 2012 and 2011, respectively, which have been recorded in earnings.

As of June 30, 2012 and December 31, 2011, bonds with a carrying value of $0.6 million and $19.0 million, respectively, secured repurchase agreements accounted for as secured borrowings and derivative financial instruments transactions.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

During the three and six months ended June 30, 2012 and 2011, the Bank recognized the following gains and losses related to trading derivative financial instruments:

	Three months ended June 30,					Six months ended June 30,
(In thousands of US$)	2012		2011			2012			2011

Interest rate swaps		46		(224	)		(105	)		(311	)
Cross-currency interest rate swaps		432		(162	)		8,784			(533	)
Forward foreign exchange		515		-			481			-
Future contracts		149		-			394			-
Total		1,142		(386	)		9,554			(844	)

These losses are reported in the Net gain (loss) from trading securities and Net gain (loss) from the investment fund trading lines in the consolidated statements of income.

In addition to the trading derivative financial instruments, the Bank has hedging derivative financial instruments that are disclosed in Note 15.

As of June 30, 2012 and December 31, 2011, trading derivative liabilities include interest rate swap and cross-currency interest rate swap contracts that were previously designated as fair value hedges of securities available-for-sale and foreign-currency loans, respectively, that no longer qualify for hedge accounting.

As of June 30, 2012 and December 31, 2011, information on the nominal amounts of derivative financial instruments held for trading purposes is as follows:

	June 30, 2012						December 31, 2011
	Nominal		Fair Value				Nominal		Fair Value
(In thousands of US$)	Amount		Asset		Liability		Amount		Asset		Liability

Interest rate swaps		41,269		55		-		17,000		-		748
Cross-currency interest rate swaps		29		-		1		85,163		21		4,836
Forward foreign exchange		3,741		290		15		-		-		-
Future contracts		5,957		-		71		139		-		-
Total		50,996		345		87		102,302		21		5,584

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Investment securities

Securities available-for-sale

The amortized cost, related unrealized gross gain (loss) and fair value of securities available-for-sale by country risk and type of debt, are as follows:

	June 30, 2012
(In thousands of US$)	Amortized Cost		Unrealized Gross Gain		Unrealized Gross Loss		Fair Value
Corporate debt:
Brazil		13,664		29		33		13,660
Colombia		983		52		-		1,035
		14,647		81		33		14,695

Sovereign debt:
Brazil		28,103		2,141		46		30,198
Colombia		15,669		-		363		15,306
Honduras		16,185		-		200		15,985
Mexico		35,641		1,948		30		37,559
Panama		38,077		2,119		-		40,196
Venezuela		22,121		648		-		22,769
		155,796		6,856		639		162,013

Total		170,443		6,937		672		176,708

	December 31, 2011
(In thousands of US$)	Amortized Cost		Unrealized Gross Gain		Unrealized Gross Loss		Fair Value
Corporate debt:
Brazil		45,937		152		2,094		43,995
Colombia		28,169		89		-		28,258
Peru		14,916		29		-		14,945
		89,022		270		2,094		87,198

Sovereign debt:
Brazil		44,541		2,401		376		46,566
Colombia		59,204		1,682		230		60,656
Guatemala		5,469		-		19		5,450
Honduras		16,384		-		166		16,218
Mexico		63,094		2,456		62		65,488
Panama		46,796		2,227		61		48,962
Peru		25,487		602		-		26,089
Venezuela		59,291		577		195		59,673
		320,266		9,945		1,109		329,102

Total		409,288		10,215		3,203		416,300

As of June 30, 2012 and December 31, 2011, securities available-for-sale with a carrying value of $150.6 million and $375.5 million, respectively, were pledged to secure repurchase transactions accounted for as secured financings.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

The following table discloses those securities that have had unrealized losses for less than 12 months and for 12 months or longer:

	June 30, 2012
(In thousands of US$)	Less than 12 months				12 months or longer				Total
			Unrealized				Unrealized				Unrealized
	Fair		Gross		Fair		Gross		Fair		Gross
	Value		Losses		Value		Losses		Value		Losses

Corporate debt		10,000		33		-		-		10,000		33
Sovereign debt		41,304		342		12,312		296		53,616		638
		51,304		375		12,312		296		63,616		671

	December 31, 2011
(In thousands of US$)	Less than 12 months				12 months or longer				Total
			Unrealized				Unrealized				Unrealized
	Fair		Gross		Fair		Gross		Fair		Gross
	Value		Losses		Value		Losses		Value		Losses

Corporate debt		33,366		2,094		-		-		33,366		2,094
Sovereign debt		110,589		1,109		-		-		110,589		1,109
		143,955		3,203		-		-		143,955		3,203

Gross unrealized losses are related mainly to changes in market interest rates and other market factors and not due to underlying credit concerns by the Bank about the issuers. The sovereign debt that shows an unrealized gross loss for more than twelve months relates to a counterparty whose payment performance is and continues to be strong. The price of the bond in question has seen a recovery during 2012. Historically, this counterparty has not failed to perform on its obligations. As of June 30, 2012 the Bank does not intent to sell and will not be required to sell this security available-for-sale showing gross unrealized losses before the recovery of its amortized cost. As a result, the Bank does not consider this exposure to be other-than temporary impaired.

The following table presents the realized gains and losses on sale of securities available-for-sale:

(In thousands of US$)	Three months ended					Six months ended
	June 30,					June 30,
	2012		2011			2012			2011

Gains		1,724		1,124			6,141			1,268
Losses		-		(6	)		(111	)		(6	)
Net		1,724		1,118			6,030			1,262

The amortized cost and fair value of securities available-for-sale by contractual maturity as of June 30, 2012, are shown in the following table:

	Amortized		Fair
(In thousands of US$)	Cost		Value

Due within 1 year		42,518		42,980
After 1 year but within 5 years		127,925		133,728
		170,443		176,708

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Securities held-to-maturity

The amortized cost, related unrealized gross gain (loss) and fair value of securities held-to-maturity by country risk and type of debt are as follows:

	June 30, 2012
	Amortized		Unrealized		Unrealized		Fair
(In thousands of US$)	Cost		Gross Gain		Gross Loss		Value

Corporate debt:
Panama		6,550		3		-		6,553

Sovereign debt:
Colombia		13,013		-		97		12,916
Honduras		4,386		19		-		4,405
Panama		2,000		50		-		2,050
		19,399		69		97		19,371

Total		25,949		72		97		25,924

	December 31, 2011
	Amortized		Unrealized		Unrealized		Fair
(In thousands of US$)	Cost		Gross Gain		Gross Loss		Value

Corporate debt:
Panama		7,050		-		-		7,050

Sovereign debt:
Colombia		13,015		40		-		13,055
Honduras		4,471		1		-		4,472
Panama		2,000		60		-		2,060
		19,486		101		-		19,587

Total		26,536		101		-		26,637

Securities that show gross unrealized losses have had losses for less than 12 months; and therefore, such losses are considered temporary.

The amortized cost of securities held-to-maturity by contractual maturity as of June 30, 2012, are shown in the following table:

	Amortized
(In thousands of US$)	Cost

Due within 1 year		10,936
After 1 year but within 5 years		15,013
		25,949

As of June 30, 2012 and December 31, 2011, securities held-to-maturity with a carrying value of $17.4 million and $17.5 million, respectively, were pledged to secure repurchase agreements accounted for as secured financings.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Investment fund

The balance in the investment fund for $121.5 million as of June 30, 2012 and $120.4 million as of December 31, 2011 represents the participation of the Feeder in the net asset value (NAV) of the Fund.

The Fund’s net assets are mainly composed by cash, investments in equity and debt instruments, and derivative financial instruments that are quoted and traded in active markets.

As of June 30, 2012, the Feeder owns 97.72% of the Fund with a total of 90,724.4 shares issued, divided in 839.0 “Class A” shares, 846.3 “Class A1” shares and 89,039.1 “Class B”.

As of December 31, 2011, the Feeder owns 98.03% of the Fund with a total of 93,094.3 shares issued, divided in 2,948.0 “Class A” shares, 397.9 “Class A1” shares, 89,040.3 “Class B” shares and 708.1 “Class E1” shares.

The Fund has issued “Class A”, “Class A1”, “Class B”, “Class C”, “Class D”, “Class E” and “Class E1” shares and administrative shares. “Class A”, “Class A1” and “Class B” shares are participating shares in the net gains (losses) of the Fund, and only differ in relation to certain administrative fees. “Class C” and “Class D” shares do not participate in the net gains (losses) of the Fund; they are only entitled to the performance allocation from “Class A”, “Class A1” and “Class B” shares. The “Class E” and “Class E1” shares are not subject to either administrative fees or performance allocation. The Bank owns the Feeder’s and the Fund’s administrative shares.

“Class A”, “Class A1” and “Class E” shares can be redeemed monthly by investors with 30 day’s notice. $100 million of the “Class B” shares can be redeemed starting in 2012.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Loans

The following table set forth details of the Bank’s loan portfolio:

(In thousands of US$)	June 30,		December 31,
	2012		2011

Corporations:
Private		2,190,143		2,089,520
State-owned		467,964		232,893
Banking and financial institutions:
Private		1,628,019		1,716,406
State-owned		331,188		447,757
Middle-market companies:
Private		517,778		445,731
Sovereign		34,666		27,266
Total		5,169,758		4,959,573

The composition of the loan portfolio by industry is as follows:

(In thousands of US$)	June 30,		December 31,
	2012		2011

Banking and financial institutions		1,959,207		2,164,163
Industrial		991,955		967,929
Oil and petroleum derived products		945,033		645,875
Agricultural		816,955		730,119
Services		186,180		264,895
Mining		53,715		37,723
Sovereign		34,666		27,266
Others		182,047		121,603
Total		5,169,758		4,959,573

Loans classified by debtor’s credit quality indicators are as follows:

(In thousands of US$)	June 30, 2012
					Banking and financial				Middle-market
	Corporations				institutions				companies		Sovereign
Rating ⁽¹⁾	Private		State-owned		Private		State-owned		Private				Total
1-6		2,166,143		467,964		1,628,019		331,188		517,778		34,666		5,145,758
7		-		-		-		-		-		-		-
8		24,000		-		-		-		-		-		24,000
9		-		-		-		-		-		-		-
10		-		-		-		-		-		-		-
Total		2,190,143		467,964		1,628,019		331,188		517,778		34,666		5,169,758

(In thousands of US$)	December 31, 2011
					Banking and financial				Middle-market
	Corporations				institutions				companies		Sovereign
Rating ⁽¹⁾	Private		State-owned		Private		State-owned		Private				Total
1-6		2,057,520		232,893		1,716,406		447,757		445,731		27,266		4,927,573
7		-		-		-		-		-		-		-
8		24,000		-		-		-		-		-		24,000
9		8,000		-		-		-		-		-		8,000
10		-		-		-		-		-		-		-
Total		2,089,520		232,893		1,716,406		447,757		445,731		27,266		4,959,573

⁽¹⁾

Current ratings as of June 30, 2012 and December 31, 2011, respectively.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

The remaining loan maturities are summarized as follows:

(In thousands of US$)	June 30,		December 31,
	2012		2011
Current:
Up to 1 month		918,017		395,091
From 1 month to 3 months		1,123,214		1,110,307
From 3 months to 6 months		912,832		1,095,632
From 6 months to 1 year		909,496		767,526
From 1 year to 2 years		613,890		539,077
From 2 years to 5 years		651,243		1,000,486
More than 5 years		16,704		18,654
		5,145,396		4,926,773

Delinquent		362		800

Restructured and impaired:
Current balances with impairment		24,000		32,000
Past due balances with impairment		-		-
		24,000		32,000

Total		5,169,758		4,959,573

The following table provides a breakdown of loans by country risk:

(In thousands of US$)	June 30,		December 31,
	2012		2011
Country:
Argentina		372,128		389,591
Brazil		1,811,488		1,852,152
Chile		345,543		376,297
Colombia		354,512		734,213
Costa Rica		281,600		109,263
Dominican Republic		83,334		118,275
Ecuador		78,511		21,676
El Salvador		20,531		21,098
France		39,656		-
Germany		5,000		5,000
Guatemala		176,128		161,107
Honduras		47,615		45,509
Jamaica		41,798		1,768
Mexico		433,694		416,353
Netherlands		61,520		20,000
Nicaragua		4,846		9,995
Panama		154,939		118,526
Paraguay		19,487		30,286
Peru		617,012		341,784
Spain		5,945		340
Trinidad and Tobago		114,471		76,340
Uruguay		100,000		110,000
		5,169,758		4,959,573

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

The fixed and floating interest rate distribution of the loan portfolio is as follows:

(In thousands of US$)	June 30,		December 31,
	2012		2011

Fixed interest rates		2,838,216		2,360,115
Floating interest rates		2,331,542		2,599,458
		5,169,758		4,959,573

As of June 30, 2012 and December 31, 2011, 87% and 84%, respectively, of the loan portfolio at fixed interest rates has remaining maturities of less than 180 days.

The following is a summary of information in non-accruing loans, and interest amounts on non-accruing loans:

(In thousands of US$)	June 30,		December 31,
	2012		2011
Loans in non-accrual status
Private corporations		24,000		32,000
Private middle-market companies		-		-
Total loans in non-accrual status		24,000		32,000

	Six months			Six months
	ended			ended
	June 30, 2012			June 30, 2011

Foregone interest revenue at beginning of the period		946			996
Interest which would have been recorded if the loans had not been in a non-accrual status		1,077			1,219
Interest income collected on non-accruing loans		(1,057	)		(1,174	)
Foregone interest revenue at end of the period		966			1,041

An analysis of non-accruing loans with impaired balances as of June 30, 2012 and December 31, 2011 is detailed as follows:

Three months
ended

Six months
ended

(In thousands of US$)

June 30, 2012

Unpaid

Average

Interest

Recorded

principal

income

investment

balance

allowance

loan balance

recognized

With an allowance recorded

Private corporations

24,000

9,600

24,000

540

1,057

Total

24,000

9,600

24,000

540

1,057

Three months
ended

Six months
ended

(In thousands of US$)

December 31, 2011

June 30, 2011

Unpaid

Average

Interest

Recorded

principal

income

investment

balance

allowance

loan balance

recognized

With an allowance recorded

Private corporations

32,000

14,800

26,860

568

1,174

Total

32,000

14,800

26,860

568

1,174

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

As of June 30, 2012 and December 31, 2011, there were no impaired loans without related allowance.

As of June 30, 2012 and December 31, 2011, the Bank did not have any troubled debt restructurings.

The following table presents an aging analysis of the loan portfolio:

(In thousands of US$)	June 30, 2012
							Greater
	91-120		121-150		151-180		than 180		Total						Total
	days		days		days		days		Past Due		Delinquent		Current		Loans
Corporations		-		-		-		-		-		-		2,658,107		2,658,107
Banking and financial institutions		-		-		-		-		-		-		1,959,207		1,959,207
Middle-market companies		-		-		-		-		-		-		517,778		517,778
Sovereign		-		-		-		-		-		362		34,304		34,666
Total		-		-		-		-		-		362		5,169,396		5,169,758

(In thousands of US$)	December 31, 2011
							Greater
	91-120		121-150		151-180		than 180		Total						Total
	days		days		days		days		Past Due		Delinquent		Current		Loans
Corporations		-		-		-		-		-		-		2,322,413		2,322,413
Banking and financial institutions		-		-		-		-		-		-		2,164,163		2,164,163
Middle-market companies		-		-		-		-		-		800		444,931		445,731
Sovereign		-		-		-		-		-		-		27,266		27,266
Total		-		-		-		-		-		800		4,958,773		4,959,573

As of June 30, 2012 and December 31, 2011, the Bank has credit transactions in the normal course of business with 25% and 29%, respectively, of its Class “A” and “B” stockholders. All transactions are made based on arm’s-length terms and subject to prevailing commercial criteria and market rates and are subject to all of the Bank’s corporate governance and control procedures. As of June 30, 2012 and December 31, 2011, approximately 15% and 19%, respectively, of the outstanding loan portfolio is placed with the Bank’s Class “A” and “B” stockholders and their related parties. As of June 301, 2012, the Bank was not directly or indirectly owned or controlled by another corporation or any foreign government, and no Class “A” or “B” shareholder was the registered owner of more than 3.5% of the total outstanding shares of the voting capital stock of the Bank.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Allowance for credit losses

The Bank classifies the allowance for credit losses into two components:

Allowance for loan losses:

(In thousands of US$)	Three Months Ended June 30, 2012
	Corporations			Banking and financial institutions		Middle- market companies			Sovereign			Total
Balance at beginning of the period		45,576			24,610		8,854			170			79,210
Provision (reversal of provision) for loan losses		2,267			1,317		(595	)		(73	)		2,916
Loan recoveries and other		(2	)		26		-			-			24
Loans written-off against the allowance for loan losses		-			-		-			-			-
Balance at end of the period		47,841			25,953		8,259			97			82,150

Components:
Generic allowance		38,241			25,953		8,259			97			72,550
Specific allowance		9,600			-		-			-			9,600
Total allowance for loan losses		47,841			25,953		8,259			97			82,150

(In thousands of US$)	Three Months Ended June 30, 2011
	Corporations			Banking and financial institutions		Middle- market companies		Sovereign			Total
Balance at beginning of the period		56,696			20,610		5,794		326			83,426
Provision (reversal of provision) for loan losses		(6,877	)		2,502		1,879		(91	)		(2,587	)
Loan recoveries and other		-			-		-		-			-
Loans written-off against the allowance for loan losses		-			-		-		-			-
Balance at end of the period		49,819			23,112		7,673		235			80,839

Components:
Generic allowance		38,619			23,112		7,373		235			69,339
Specific allowance		11,200			-		300		-			11,500
Total allowance for loan losses		49,819			23,112		7,673		235			80,839

(In thousands of US$)	Six Months Ended June 30, 2012
	Corporations			Banking and financial institutions			Middle- market companies			Sovereign			Total
Balance at beginning of the period		48,865			30,523			8,952			207			88,547
Provision (reversal of provision) for loan losses		4,798			(4,587	)		(693	)		(110	)		(592	)
Loan recoveries and other		(2	)		17			-			-			15
Loans written-off against the allowance for loan losses		(5,820	)		-			-			-			(5,820	)
Balance at end of the period		47,841			25,953			8,259			97			82,150

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

(In thousands of US$)	Six Months Ended June 30, 2011
	Corporations			Banking and financial institutions			Middle- market companies		Sovereign			Total
Balance at beginning of the period		54,160			18,790			5,265		400			78,615
Provision (reversal of provision) for loan losses		(4,341	)		4,323			2,408		(165	)		2,225
Loan recoveries and other		-			-			-		-			-
Loans written-off against the allowance for loan losses		-			(1	)		-		-			(1	)
Balance at end of the period		49,819			23,112			7,673		235			80,839

Provision (reversal of provision) of generic allowance for credit losses are mostly related to changes in volume and composition of the credit portfolio. The decrease in the generic allowance for loan losses in 2012 was primarily due to an increased exposure in countries, customers and type of transactions with better ratings and a decreased exposure in those with lower ratings.

Following is a summary of loan balances and reserves for loan losses:

(In thousands of US$)	June 30, 2012
	Corporations		Banking and financial institutions		Middle- market companies		Sovereign		Total
Allowance for loan losses
Specific allowance		9,600		-		-		-		9,600
Generic allowance		38,241		25,953		8,259		97		72,550
Total of allowance for loan losses		47,841		25,953		8,259		97		82,150
Loans
Loans with specific allowance		24,000		-		-		-		24,000
Loans with generic allowance		2,634,107		1,959,207		517,778		34,666		5,145,758
Total loans		2,658,107		1,959,207		517,778		34,666		5,169,758

(In thousands of US$)	December 31, 2011
	Corporations		Banking and financial institutions		Middle- market companies		Sovereign		Total
Allowance for loan losses
Specific allowance		14,800		-		-		-		14,800
Generic allowance		34,065		30,523		8,952		207		73,747
Total of allowance for loan losses		48,865		30,523		8,952		207		88,547
Loans
Loans with specific allowance		32,000		-		-		-		32,000
Loans with generic allowance		2,290,413		2,164,163		445,731		27,266		4,927,573
Total loans		2,322,413		2,164,163		445,731		27,266		4,959,573

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Reserve for losses on off-balance sheet credit risk:

(In thousands of US$)	Three Months Ended June 30,
	2012		2011
Balance at beginning of the period		7,984		8,789
Provision for losses on off-balance sheet credit risk		2,002		3,075
Balance at end of the period		9,986		11,864

(In thousands of US$)	Six Months Ended June 30,
	2012		2011
Balance at beginning of the period		8,887		13,335
Provision (reversal of provision) for losses on off-balance sheet credit risk		1,099		(1,471	)
Balance at end of the period		9,986		11,864

The reserve for losses on off-balance sheet credit risk reflects the Bank’s management estimate of probable losses on off-balance sheet credit risk items such as: confirmed letters of credit, stand-by letters of credit, guarantees and credit commitments (see Note 14). The 2012’s increase in the reserve for losses on off-balance sheet credit risk was primarily due to changes in volume, composition, and risk profile of the portfolio.

Deposits

The remaining maturity profile of the Bank’s deposits is as follows:

(In thousands of US$)	June 30,		December 31,
	2012		2011
Demand		220,983		67,586
Up to 1 month		1,101,800		1,474,088
From 1 month to 3 months		486,572		402,472
From 3 months to 6 months		301,269		196,016
From 6 months to 1 year		249,000		151,800
From 1 years to 2 years		7,000		-
From 2 years to 5 years		10,544		11,544
		2,377,168		2,303,506

The following table presents additional information about deposits:

(In thousands of US$)	June 30,		December 31,
	2012		2011
Aggregate amounts of time deposits of $100,000 or more		2,105,717		2,233,044
Aggregate amounts of deposits in offices outside Panama		228,625		220,340
Interest expense paid to deposits in offices outside Panama		621		983

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

10.

Securities sold under repurchase agreements

The Bank’s financing transactions under repurchase agreements amounted to $154.9 million and $377.0 million as of June 30, 2012 and December 31, 2011, respectively.

During the period of three months ended June 30, 2012 and 2011, interest expense related to financing transactions under repurchase agreements totaled $0.4 million and $0.3 million, respectively, were recorded.

During the period of six months ended June 30, 2012 and 2011, interest expense related to financing transactions under repurchase agreements totaled $1.2 million and $0.7 million, respectively, were recorded. These expenses are presented in the consolidated statements of income as interest expense –borrowings.

11.

Short-term borrowings

The breakdown of short-term borrowings due to financial institutions, together with contractual interest rates, is as follows:

	June 30,			December 31,
(In thousands of US$)	2012			2011
Advances from financial institutions:
At fixed interest rates		578,468			1,005,357
At floating interest rates		145,060			318,109
Total short-term borrowings		723,528			1,323,466

Average outstanding balance during the period		1,013,638			1,100,059

Maximum balance at any month-end		1,300,641			1,323,466

Range of fixed interest rates on borrowings in U.S. dollars		0.95% to 2.64	%		0.84% to 2.64	%

Range of floating interest rates on borrowings in U.S. dollars		1.57% to 2.04	%		1.11% to 2.01	%

Fixed interest rate on borrowings in Euros		2.98	%		2.98	%

Fixed interest rate on borrowings in Renminbis		-			6.65	%

Floating interest rate on borrowings in Mexican pesos		-			5.70	%

Weighted average interest rate at end of the period		1.72	%		1.84	%

Weighted average interest rate during the period		1.87	%		1.22	%

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

12.

Borrowings and long-term debt

Borrowings consist of long-term and syndicated loans obtained from international banks. Debt instruments consist of Euro-Notes and other issuances in Latin America. The breakdown of borrowings and long-term debt (original maturity of more than one year), together with contractual interest rates, is as follows:

	June 30,			December 31,
(In thousands of US$)	2012			2011

Borrowings:
At fixed interest rates with due dates from September 2012 to June 2014		15,585			15,696
At floating interest rates with due dates from July 2012 to September 2014		1,443,460			1,426,237
Total borrowings		1,459,045			1,441,933

Debt:
At fixed interest rates with due dates from November 2014 to April 2017		447,364			45,615
At floating interest rates with due dates in March 2015		149,514			-
Total debt		596,878			45,615

Total borrowings and long-term debt outstanding		2,055,923			1,487,548

Average outstanding balance during the period		1,787,995			1,391,440

Maximum outstanding balance at any month-end		2,152,584			1,548,404

Range of fixed interest rates on borrowings and debt in U.S. dollars		0.91% to 3.75	%		1.50	%

Range of floating interest rates on borrowings and debt in U.S. dollars		0.67% to 2.58	%		0.62% to 2.30	%

Range of fixed interest rates on borrowings and debt in Mexican pesos		7.60% to 9.90	%		7.50% to 9.90	%

Range of floating interest rates on borrowings and debt in Mexican pesos		5.42% to 6.26	%		5.66% to 6.30	%

Fixed interest rate on debt in Peruvian nuevos soles		6.50	%		6.50	%

Weighted average interest rate at the end of the period		2.86	%		2.16	%

Weighted average interest rate during the period		2.56	%		1.94	%

The Bank's funding activities include: (i) Euro Medium Term Note Program (“EMTN”), which may be used to issue notes for up to $2.3 billion, with maturities from 7 days up to a maximum of 30 years, at fixed or floating interest rates, or at discount, and in various currencies. The notes are generally issued in bearer or registered form through one or more authorized financial institutions; (ii) Short-and Long-Term Notes “Certificados Bursatiles” Program (the “Mexico Program”) in the Mexican local market, registered with the Mexican National Registry of Securities maintained by the National Banking and Securities Commission in Mexico (“CNBV”, for its initials in Spanish), for an authorized aggregate principal amount of 10 billion Mexican pesos with maturities from one day to 30 years; (iii) a Program in Peru to issue corporate bonds under a private offer in Peruvian nuevos soles (“PEN”), offered exclusively to institutional investors domiciled in the Republic of Peru, for an maximum aggregate limit of the equivalent of $300 million, with different maturities and interest rate structures.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Some borrowing agreements include various events of default and covenants related to minimum capital adequacy ratios, incurrence of additional liens, and asset sales, as well as other customary covenants, representations and warranties. As of June 30, 2012, the Bank was in compliance with all covenants.

The future remaining maturities of long-term debt and borrowings outstanding as of June 30, 2012, are as follows:

(In thousands of US$)
Due in:	Outstanding

2012		171,084
2013		404,527
2014		929,580
2015		149,514
2017		401,218
		2,055,923

13.

Earnings per share

The following table presents a reconciliation of the income and share data used in the basic and diluted earnings per share (“EPS”) computations for the dates indicated:

	Three Months Ended				Six Months Ended
(In thousands of US$, except per share amounts)	June 30,				June 30,
	2012		2011		2012		2011

Net income attributable to Bladex for both basic and diluted EPS		23,223		25,740		55,444		42,044

Weighted average common shares outstanding applicable to basic EPS		37,833		36,943		37,557		36,838
Basic earnings per share		0.61		0.70		1.48		1.14

Weighted average common shares outstanding applicable to diluted EPS		37,833		36,943		37,557		36,838
Effect of dilutive securities ⁽¹⁾:
Stock options and restricted stock units plans		242		258		158		179
Adjusted weighted average common shares outstanding applicable to diluted EPS		38,075		37,201		37,715		37,017
Diluted earnings per share		0.61		0.69		1.47		1.14

⁽¹⁾ As of June 30, 2011, weighted average options of 72,053 were excluded from the computation of diluted earnings per share because the option’s exercise price was greater than the average quoted market price of the Bank’s common stock. As of June 30, 2012, the computation of earnings per share did not exclude any weighted average options.

14.

Financial instruments with off-balance sheet credit risk

In the normal course of business, to meet the financing needs of its customers, the Bank is party to financial instruments with off-balance sheet credit risk. These financial instruments involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the consolidated balance sheet. Credit risk represents the possibility of loss resulting from the failure of a customer to perform in accordance with the terms of a contract.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

The Bank’s outstanding financial instruments with off-balance sheet credit risk were as follows:

(In thousands of US$)	June 30,		December 31,
	2012		2011
Confirmed letters of credit		265,436		266,547
Stand-by letters of credit and guarantees - Commercial risk		72,507		18,899
Credit commitments		113,318		75,962
		451,261		361,408

As of June 30, 2012, the remaining maturity profile of the Bank’s outstanding financial instruments with off-balance sheet credit risk is as follows:

(In thousands of US$)
Maturities	Amount
Within 1 year		449,964
From 2 to 5 years		606
After 5 years		691
		451,261

As of June 30, 2012 and December 31, 2011 the breakdown of the Bank’s off-balance sheet exposure by country risk is as follows:

(In thousands of US$)	June 30,		December 31,
Country:	2012		2011
Argentina		36,222		92
Bolivia		2,511		944
Brazil		106,777		41,116
Chile		15,920		12,367
Colombia		-		2,396
Costa Rica		-		11,661
Dominican Republic		2,496		1,603
Ecuador		159,608		215,272
El Salvador		25		2,025
Guatemala		290		501
Honduras		425		400
Jamaica		150		295
Mexico		1,724		14,677
Panama		56,781		1,801
Paraguay		-		81
Peru		1,092		2,467
Spain		4,054		9,660
Switzerland		-		500
United States of America		-		21,780
Venezuela		63,186		21,770
		451,261		361,408

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Letters of credit and guarantees

The Bank, on behalf of its client base, advises and confirms letters of credit to facilitate foreign trade transactions. When confirming letters of credit, the Bank adds its own unqualified assurance that the issuing bank will pay and that if the issuing bank does not honor drafts drawn on the credit, the Bank will. The Bank provides stand-by letters of credit and guarantees, which are issued on behalf of institutional customers in connection with financing between its customers and third parties. The Bank applies the same credit policies used in its lending process, and once issued the commitment is irrevocable and remains valid until its expiration. Credit risk arises from the Bank's obligation to make payment in the event of a customer’s contractual default to a third party. Risks associated with stand-by letters of credit and guarantees are included in the evaluation of the Bank’s overall credit risk.

Credit commitments

Commitments to extend credit are binding legal agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and require payment of a fee to the Bank. As some commitments expire without being drawn down, the total commitment amounts do not necessarily represent future cash requirements.

15.

Derivative financial instruments for hedging purposes

As of June 30, 2012 and December 31, 2011, quantitative information on derivative financial instruments held for hedging purposes is as follows:

	June 30, 2012						December 31, 2011
(In thousands of US$)	Nominal		Fair Value ⁽¹⁾				Nominal		Fair Value ⁽¹⁾
	Amount		Asset		Liability		Amount		Asset		Liability
Fair value hedges:
Interest rate swaps		480,000		4,614		7,498		125,000		16		10,317
Cross-currency interest rate swaps		379,866		2,332		42,609		215,107		56		40,574
Cash flow hedges:
Interest rate swaps		-		-		-		20,000		-		512
Cross-currency interest rate swaps		42,173		4,975		5		42,336		3,549		-
Forward foreign exchange		68,604		203		3,414		53,264		249		2,339
Net investment hedges:
Forward foreign exchange		6,036		485		-		6,036		289		-
Total		976,679		12,609		53,526		461,743		4,159		53,742

Net gain (loss) on the ineffective portion of hedging activities as of June 30, 2012 and 2011 ⁽²⁾		2,400						434

⁽¹⁾ The fair value of assets and liabilities is reported within the derivative financial instruments used for hedging - receivable and payable lines in the consolidated balance sheets, respectively.

⁽²⁾ Gains and losses resulting from ineffectiveness and credit risk in hedging activities are reported within the derivative financial instruments and hedging line in the consolidated statements of income.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

The gains and losses resulting from activities of derivative financial instruments and hedging recognized in the consolidated statements of income are presented below:

Three Months Ended June 30, 2012
(In thousands of US$)	Gain (loss) recognized in OCI (effective portion)			Classification of gain (loss)	Gain (loss) reclassified from accumulated OCI to the statements of income (effective portion)			Gain (loss) recognized on derivatives (ineffective portion)
Derivatives – cash flow hedge
Cross-currency interest rate swaps		437		Gain (loss) on foreign currency exchange		72			-
Forward foreign exchange		(65	)	Interest income – loans		(54	)		-
				Interest expense - borrowings		256			-
				Gain (loss) on foreign currency exchange		(1,939	)		-
Total		372				(1,665	)		-
Derivatives – net investment hedge
Forward foreign exchange		401		Gain (loss) on foreign currency exchange		-

Three Months Ended June 30, 2011
(In thousands of US$)	Gain (loss) recognized in OCI (effective portion)			Classification of gain (loss)	Gain (loss) reclassified from accumulated OCI to the statements of income (effective portion)			Gain (loss) recognized on derivatives (ineffective portion)
Derivatives – cash flow hedge
Interest rate swaps		231				-			-
Cross-currency interest rate swaps		829		Gain (loss) on foreign currency exchange		875			-
Forward foreign exchange		(59	)	Interest income – loans		(46	)		-
				Gain (loss) on foreign currency exchange		45			-
Total		1,001				874			-

Six Months Ended June 30, 2012
(In thousands of US$)	Gain (loss) recognized in OCI (effective portion)			Classification of gain (loss)	Gain (loss) reclassified from accumulated OCI to the statements of income (effective portion)			Gain (loss) recognized on derivatives (ineffective portion)
Derivatives – cash flow hedge
Interest rate swaps		217				-			-
Cross-currency interest rate swaps		1,416		Gain (loss) on foreign currency exchange		470			-
Forward foreign exchange		(1,121	)	Interest income – loans		(125	)		-
				Interest expense - borrowings		512			-
				Gain (loss) on foreign currency exchange		(1,596	)		-
Total		512				(739	)		-

Derivatives – net investment hedge
Forward foreign exchange		195		Gain (loss) on foreign currency exchange		-

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Six Months Ended June 30, 2011
(In thousands of US$)	Gain (loss) recognized in OCI (effective portion)			Classification of gain (loss)	Gain (loss) reclassified from accumulated OCI to the statements of income (effective portion)			Gain (loss) recognized on derivatives (ineffective portion)
Derivatives – cash flow hedge
Interest rate swaps		460				-			-
Cross-currency interest rate swaps		63		Gain (loss) on foreign currency exchange		829			-
Forward foreign exchange		(147	)	Interest income – loans		(86	)		-
				Gain (loss) on foreign currency exchange		14			-
Total		376				757			-

The Bank recognized in earnings the gain (loss) on derivative financial instruments and the gain (loss) of the hedged asset or liability related to qualifying fair value hedges, as follows:

Three Months Ended June 30, 2012
(In thousands of US$)	Classification in statements of income	Gain (loss) on derivatives			Gain (loss) on hedged item			Net gain (loss)
Derivatives - fair value hedge
Interest rate swaps	Interest income – available-for-sale		(720	)		1,161			441
	Interest expense – borrowings and debt		445			(3,913	)		(3,468	)
	Derivative financial instruments and hedging (ineffectiveness)		176			-			176
Cross-currency interest rate swaps	Interest income – loans		(64	)		168			104
	Interest expense – borrowings and debt		2,358			(4,749	)		(2,391	)
	Derivative financial instruments and hedging (ineffectiveness)		1,784			-			1,784
	Gain (loss) on foreign currency exchange		(15,393	)		15,450			57
			(11,414	)		8,117			(3,297	)

Three Months Ended June 30, 2011
(In thousands of US$)	Classification in statements of income	Gain (loss) on derivatives			Gain (loss) on hedged item			Net gain (loss)
Derivatives - fair value hedge
Interest rate swaps	Interest income – available-for-sale		(1,774	)		2,680			906
Cross-currency interest rate swaps	Interest income – loans		(10	)		17			7
	Interest expense – borrowings and debt		1,073			(1,858	)		(785	)
	Derivative financial instruments and hedging (ineffectiveness)		421			-			421
	Gain (loss) on foreign currency exchange		1,483			(1,515	)		(32	)
			1,193			(676	)		(517	)

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Six Months Ended June 30, 2012
(In thousands of US$)	Classification in statements of income	Gain (loss) on derivatives			Gain (loss) on hedged item			Net gain (loss)
Derivatives - fair value hedge
Interest rate swaps	Interest income – available-for-sale		(1,544	)		2,396			852
	Interest expense – borrowings and debt		445			(3,913	)		(3,468	)
	Derivative financial instruments and hedging (ineffectiveness)		176			-			176
Cross-currency interest rate swaps	Interest income – loans		(73	)		182			109
	Interest expense – borrowings and debt		3,924			(7,741	)		(3,817	)
	Derivative financial instruments and hedging (ineffectiveness)		2,224			-			2,224
	Gain (loss) on foreign currency exchange		604			(837	)		(233	)
			5,756			(9,913	)		(4,157	)

Six Months Ended June 30, 2011
(In thousands of US$)	Classification in statements of income	Gain (loss) on derivatives			Gain (loss) on hedged item			Net gain (loss)
Derivatives - fair value hedge
Interest rate swaps	Interest income – available-for-sale		(4,419	)		6,635			2,216
Cross-currency interest rate swaps	Interest income – loans		(20	)		29			9
	Interest expense – borrowings and debt		2,064			(3,651	)		(1,587	)
	Derivative financial instruments and hedging (ineffectiveness)		434			-			434
	Gain (loss) on foreign currency exchange		6,033			(6,119	)		(86	)
			4,092			(3,106	)		986

For control purposes, derivative instruments are recorded at their nominal amount (“notional amount”) in memorandum accounts. Interest rate swaps are made either in a single currency or cross currency for a prescribed period to exchange a series of interest rate flows, which involve fixed for floating interest payments. The Bank also engages in certain foreign exchange trades to serve customers’ transaction needs and to manage the foreign currency risk. All such positions are hedged with an offsetting contract for the same currency. The Bank manages and controls the risks on these foreign exchange trades by establishing counterparty credit limits by customer and by adopting policies that do not allow for open positions in the credit and investment portfolio. The Bank also uses foreign currency exchange contracts to hedge the foreign exchange risk associated with the Bank’s equity investment in a non-U.S. dollar functional currency foreign subsidiary. Derivative and foreign exchange instruments negotiated by the Bank are executed mainly over-the-counter (OTC). These contracts are executed between two counterparties that negotiate specific agreement terms, including notional amount, exercise price and maturity.

The maximum length of time over which the Bank has hedged its exposure to the variability in future cash flows on forecasted transactions is 2.39 years.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

The Bank estimates that approximately $329 thousand of gains reported in OCI as of June 30, 2012 related to forward foreign exchange contracts are expected to be reclassified into interest expense as an adjustment to yield of hedged liabilities during the remaining of 2012.

The Bank estimates that approximately $441 thousand of losses reported in OCI as of June 30, 2012 related to forward foreign exchange contracts are expected to be reclassified into interest income as an adjustment to yield of hedged loans during the remaining of 2012.

Types of Derivatives and Foreign Exchange Instruments

Interest rate swaps are contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period. The Bank has designated a portion of these derivative instruments as fair value hedges and a portion as cash flow hedges. Cross currency swaps are contracts that generally involve the exchange of both interest and principal amounts in two different currencies. The Bank has designated a portion of these derivative instruments as fair value hedges and a portion as cash flow hedges. Forward foreign exchange contracts represent an agreement to purchase or sell foreign currency at a future date at agreed-upon terms. The Bank has designated these derivative instruments as cash flow hedges and net investment hedges.

In addition to hedging derivative financial instruments, the Bank has derivative financial instruments held for trading purposes that have been disclosed in Note 4.

16.

Accumulated other comprehensive income (loss)

As of June 30, 2012 and 2011 the breakdown of accumulated other comprehensive income (loss) related to investment securities available-for-sale and derivative financial instruments, and foreign currency translation is as follows:

Six Months Ended June 30, 2012

(In thousands of US$)	Securities available- for-sale			Derivative financial instruments			Foreign currency translation adjustment, net of hedges			Total
Balance as of January 1, 2012		(1,728	)		(640	)		(744	)		(3,112	)
Net unrealized gains arising from the period		7,710			140			-			7,850
Reclassification adjustment for gains included in net income ⁽¹⁾		(3,841	)		(926	)		-			(4,767	)
Foreign currency translation adjustment, net		-			-			(92	)		(92	)
Balance as of March 31, 2012		2,141			(1,426	)		(836	)		(121	)
Net unrealized gains (losses) arising from the period		(611	)		372			-			(239	)
Reclassification adjustment for (gains) losses included in net income ⁽¹⁾		(1,934	)		1,665			-			(269	)
Foreign currency translation adjustment, net		-			-			5			5
Balance as of June 30, 2012		(404	)		611			(831	)		(624	)

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Six Months Ended June 30, 2011

(In thousands of US$)	Securities available- for-sale			Derivative financial instruments			Foreign currency translation adjustment, net of hedges		Total
Balance as of January 1, 2011		(3,744	)		(2,697	)		-		(6,441	)
Net unrealized gains (losses) arising from the period		3,328			(624	)		-		2,704
Reclassification adjustment for (gains) losses included in net income ⁽¹⁾		(144	)		117			-		(27	)
Balance as of March 31, 2011		(560	)		(3,204	)		-		(3,764	)
Net unrealized gains (losses) arising from the period		1,359			1,001			-		2,360
Reclassification adjustment for (gains) losses included in net income ⁽¹⁾		(1,118	)		(874	)		-		(1,992	)
Balance as of June 30, 2011		(319	)		(3,077	)		-		(3,396	)

⁽¹⁾ Reclassification adjustments include amounts recognized in net income during the current period that had been part of other comprehensive income (loss) in this and previous periods.

17.

Fair value of financial instruments

The Bank determines the fair value of its financial instruments using the fair value hierarchy established in ASC Topic 820 - Fair Value Measurements and Disclosure, which requires the Bank to maximize the use of observable inputs (those that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market information obtained from sources independent of the reporting entity) and to minimize the use of unobservable inputs (those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances) when measuring fair value. Fair value is used on a recurring basis to measure assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate assets and liabilities for impairment or for disclosure purposes. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Bank uses some valuation techniques and assumptions when estimating fair value. The Bank applied the following fair value hierarchy:

Level 1 – Assets or liabilities for which an identical instrument is traded in an active market, such as publicly-traded instruments or futures contracts.

Level 2 – Assets or liabilities valued based on observable market data for similar instruments, quoted prices in markets that are not active; or other observable inputs that can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments measured based on the best available information, which might include some internally-developed data, and considers risk premiums that a market participant would require.

When determining the fair value measurements for assets and liabilities that are required or permitted to be recorded at fair value, the Bank considers the principal or most advantageous market in which it would transact and considers the assumptions that market participants would use when pricing the asset or liability. When possible, the Bank uses active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Bank uses observable market information for similar assets and liabilities. However, certain assets and liabilities are not actively traded in observable markets and the Bank must use alternative valuation techniques to determine the fair value measurement. The frequency of transactions, the size of the bid-ask spread and the size of the investment are factors considered in determining the liquidity of markets and the relevance of observed prices in those markets.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

When there has been a significant decrease in the volume or level of activity for a financial asset or liability, the Bank uses the present value technique which considers market information to determine a representative fair value in usual market conditions.

A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, including the general classification of such assets and liabilities under the fair value hierarchy is presented below:

Trading assets and liabilities and securities available-for-sale

When quoted prices are available in an active market, available-for-sale securities and trading assets and liabilities are classified in level 1 of the fair value hierarchy. If quoted market prices are not available or they are available in markets that are not active, then fair values are estimated based upon quoted prices of similar instruments, or where these are not available, by using internal valuation techniques, principally discounted cash flows models. Such securities are classified within level 2 of the fair value hierarchy.

Investment fund

The Fund is not traded in an active market and, therefore, representative market quotes are not readily available. Its fair value is adjusted on a monthly basis based on its financial results, its operating performance, its liquidity and the fair value of its long and short investment portfolio that are quoted and traded in active markets. Such investment is classified within level 2 of the fair value hierarchy.

Derivative financial instruments

The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instrument. Exchange-traded derivatives that are valued using quoted prices are classified within level 1 of the fair value hierarchy.

For those derivative contracts without quoted market prices, fair value is based on internal valuation techniques using inputs that are readily observable and that can be validated by information available in the market. The principal technique used to value these instruments is the discounted cash flows model and the key inputs considered in this technique include interest rate yield curves and foreign exchange rates. These derivatives are classified within level 2 of the fair value hierarchy.

The fair value adjustments applied by the Bank to its derivative carrying values include credit valuation adjustments (“CVA”), which are applied to over-the-counter derivative instruments, in which the base valuation generally discounts expected cash flows using the London Interbank Offered Rate (“LIBOR”) interest rate curves. Because not all counterparties have the same credit risk as that implied by the relevant LIBOR curve, a CVA is necessary to incorporate the market view of both, counterparty credit risk and the Bank’s own credit risk, in the valuation.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Own-credit and counterparty CVA is determined using a fair value curve consistent with the Bank’s or counterparty credit rating. The CVA is designed to incorporate a market view of the credit risk inherent in the derivative portfolio. However, most of the Bank’s derivative instruments are negotiated bilateral contracts and are not commonly transferred to third parties. Derivative instruments are normally settled contractually, or if terminated early, are terminated at a value negotiated bilaterally between the counterparties. Therefore, the CVA (both counterparty and own-credit) may not be realized upon a settlement or termination in the normal course of business. In addition, all or a portion of the CVA may be reversed or otherwise adjusted in future periods in the event of changes in the credit risk of the Bank or its counterparties or due to the anticipated termination of the transactions.

Financial instruments measured at fair value on a recurring basis by caption on the consolidated balance sheets using the fair value hierarchy are described below:

	June 30, 2012
(In thousands of US$)	Quoted market prices in an active market (Level 1)		Internally developed models with significant observable market information (Level 2)		Internally developed models with significant unobservable market information (Level 3)		Total carrying value in the consolidated balance sheets
Assets
Trading assets
Sovereign bonds		6,766		-		-		6,766
Interest rate swaps		-		55		-		55
Forward foreign exchange		-		290		-		290
Total trading assets		6,766		345		-		7,111
Securities available –for-sale
Corporate debt		25,409		-		-		25,409
Sovereign debt		150,895		404		-		151,299
Total securities available-for-sale		176,304		404		-		176,708
Investment fund		-		121,518		-		121,518
Derivative financial instruments - receivable
Interest rate swaps		-		4,614		-		4,614
Cross-currency interest rate swaps		-		7,307		-		7,307
Forward foreign exchange		-		688		-		688
Total derivative financial instruments - receivable		-		12,609		-		12,609
Total assets at fair value		183,070		134,876		-		317,946

Liabilities
Trading liabilities
Cross-currency interest rate swaps		-		1		-		1
Forward foreign exchange		-		15		-		15
Futures		-		71		-		71
Total trading liabilities		-		87		-		87
Derivative financial instruments - payable
Interest rate swaps		-		7,498		-		7,498
Cross-currency interest rate swaps		-		42,614		-		42,614
Forward foreign exchange		-		3,414		-		3,414
Total derivative financial instruments - payable		-		53,526		-		53,526
Total liabilities at fair value		-		53,613		-		53,613

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

	December 31, 2011
(In thousands of US$)	Quoted market prices in an active market (Level 1)		Internally developed models with significant observable market information (Level 2)		Internally developed models with significant unobservable market information (Level 3)		Total carrying value in the consolidated balance sheets
Assets
Trading assets
Sovereign bonds		20,415		-		-		20,415
Cross-currency interest rate swaps		-		21		-		21
Total trading assets		20,415		21		-		20,436
Securities available –for-sale
Corporate debt		87,198		-		-		87,198
Sovereign debt		328,544		558		-		329,102
Total securities available-for-sale		415,742		558		-		416,300
Investment fund		-		120,425		-		120,425
Derivative financial instruments - receivable
Interest rate swaps		-		16		-		16
Cross-currency interest rate swaps		-		3,605		-		3,605
Forward foreign exchange		-		538		-		538
Total derivative financial instruments - receivable		-		4,159		-		4,159
Total assets at fair value		436,157		125,163		-		561,320

Liabilities
Trading liabilities
Interest rate swaps		-		748		-		748
Cross-currency interest rate swaps		-		4,836		-		4,836
Total trading liabilities		-		5,584		-		5,584
Derivative financial instruments - payable
Interest rate swaps		-		10,829		-		10,829
Cross-currency interest rate swaps		-		40,574		-		40,574
Forward foreign exchange		-		2,339		-		2,339
Total derivative financial instruments - payable		-		53,742		-		53,742
Total liabilities at fair value		-		59,326		-		59,326

ASC Topic 825 - Financial Instruments requires disclosure of fair value of financial instruments including those assets and liabilities for which the Bank did not elect the fair value option. Bank’s management uses its best judgment in estimating the fair value of the Bank’s financial instruments; however, there are limitations in any estimation technique. The estimated fair value amounts have been measured as of their respective period-ends, and have not been re-expressed or updated subsequent to the dates of these consolidated financial statements. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The following information should not be interpreted as an estimate of the fair value of the Bank. Fair value calculations are only provided for a limited portion of the Bank’s financial assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparison of fair value information of the Bank and other companies may not be meaningful for comparative analysis.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

The following methods and assumptions were used by the Bank’s management in estimating the fair values of financial instruments whose fair value are not measured on a recurring basis:

Financial instruments with carrying value that approximates fair value

The carrying value of certain financial assets, including cash and due from banks, interest-bearing deposits in banks, customers’ liabilities under acceptances, accrued interest receivable and certain financial liabilities including customer’s demand and time deposits, securities sold under repurchase agreements, accrued interest payable, and acceptances outstanding, as a result of their short-term nature, are considered to approximate fair value.

Securities held-to-maturity

The fair value has been based upon current market quotations, where available. If quoted market prices are not available, fair value has been estimated based upon quoted price of similar instruments, or where these are not available, on discounted expected cash flows using market rates commensurate with the credit quality and maturity of the security.

Loans

The fair value of the loan portfolio, including impaired loans, is estimated by discounting future cash flows using the current rates at which loans would be made to borrowers with similar credit ratings and for the same remaining maturities, considering the contractual terms in effect at the end of the relevant period.

Borrowings and short and long-term debt

The fair value of short-term and long-term debt and borrowings is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements, taking into account the changes in the Bank’s credit margin.

Commitments to extend credit, stand-by letters of credit, and financial guarantees written

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements which consider the counterparty risks.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

The following table provides information on the carrying value and estimated fair value of the Bank’s financial instruments that are not measured on a recurring basis:

(In thousands of US$)	June 30, 2012
	Carrying Value		Fair Value		Quoted market prices in an active market (Level 1)		Internally developed models with significant observable market information (Level 2)		Internally developed models with significant unobservable market information (Level 3)
Financial assets:
Instruments with carrying value that approximates fair value		772,052		772,052		-		772,052		-
Securities held-to-maturity		25,949		25,924		17,320		8,604		-
Loans, net of allowance ⁽¹⁾		5,080,642		5,174,194		-		5,174,194		-

Financial liabilities:
Instruments with carrying value that approximates fair value		2,553,290		2,552,796		-		2,552,796		-
Short-term borrowings		723,528		699,653		-		699,653		-
Borrowings and long-term debt		2,055,923		2,506,561		-		2,506,561		-
Commitments to extend credit, standby letters of credit, and financial guarantees written		10,394		9,596		-		9,596		-

⁽¹⁾ The carrying value of loans is net of the Allowance for loan losses of $82.2 million for June 30, 2012.

	December 31, 2011
	Carrying Value		Fair Value
Financial assets:
Instruments with carrying value that approximates fair value		882,762		882,762
Securities held-to-maturity		26,536		26,637
Loans, net of allowance ⁽¹⁾		4,864,329		4,913,473

Financial liabilities:
Instruments with carrying value that approximates fair value		2,693,408		2,692,832
Short-term borrowings		1,323,466		1,319,350
Borrowings and long-term debt		1,487,548		1,441,919
Commitments to extend credit, standby letters of credit, and financial guarantees written		10,497		9,807

⁽¹⁾ The carrying value of loans is net of the Allowance for loan losses of $88.5 million for December 31, 2011.

18.

Gain on sale of premises and equipment

In June 2012, the Bank recorded a gain on sale of premises and equipment of $5.6 million due to the sale of its former head office’s premises. Bank’s new head office is on a leased property in Business Park Tower V, in Panama City.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

19.

Litigation

Bladex is not engaged in any litigation that is material to the Bank’s business or, to the best of the knowledge of the Bank’s management that is likely to have an adverse effect on its business, financial condition or results of operations.

20.

Capital adequacy

The Banking Law in the Republic of Panama requires banks with general banking license to maintain a total capital adequacy index that shall not be lower than 8% of total assets and off-balance sheet irrevocable contingency transactions, weighted according to their risk; and primary capital equivalent that shall not be less than 4% of its assets and off-balance sheet irrevocable contingency transactions, weighted according to their risk. As of June 30, 2012, the Bank’s capital adequacy ratio is 17% which is in compliance with the capital adequacy ratios required by the Banking Law in the Republic of Panama.

21.

Business segment information

The Bank’s activities are operated and managed in three segments, Commercial, Treasury and Asset Management. The segment information reflects this operational and management structure, in a manner consistent with the requirements outlined in ASC Topic 280 - Segment Reporting. The segment results are determined based on the Bank’s managerial accounting process, which assigns consolidated balance sheets, revenue and expense items to each reportable division on a systematic basis.

In 2011, the Bank made the following changes in the measurement methods used to determine segment profit or loss. Current period´s interest expenses allocation methodology reflects allocated funding on a matched-funded basis, net of risk adjusted capital by business segment. Current period´s operating expenses allocation methodology allocates overhead expenses based on resource consumption by business segment. Prior periods’ presentation allocated interest expenses and overhead operating expenses based on the segments average portfolio.

The Bank incorporates net operating income⁽³⁾ by business segment in order to disclose the revenue and expense items related to its normal course of business, segregating from the net income, the impact of reversals of reserves for loan losses and off-balance sheet credit risk, and recoveries on assets. In addition, the Bank’s net interest income represents the main driver of net operating income; therefore, the Bank presents its interest-earning assets by business segment, to give an indication of the size of business generating net interest income. Interest-earning assets also generate gains and losses on sales, such as for securities available-for-sale and trading assets and liabilities, which are included in net other income, in the Treasury and Asset Management segments. The Bank also discloses its other assets and contingencies by business segment, to give an indication of the size of business that generates net fees and commissions, also included in net other income, in the Commercial Segment.

The Bank believes that the presentation of net operating income provides important supplementary information to investors regarding financial and business trends relating to the Bank’s financial condition and results of operations. These measures exclude the impact of reversals (provisions) for loan losses and reversals (provisions) for losses on off-balance sheet credit risk (together referred to as “reversal (provision) for credit losses”) which Bank’s management considers distort trend analysis.

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Net operating income disclosed by the Bank should not be considered a substitute for, or superior to, financial measures calculated differently from similar measures used by other companies. These measures, therefore, may not be comparable to similar measurements used by other companies.

Commercial incorporates all of the Bank’s financial intermediation and fees generated by the commercial portfolio. The commercial portfolio includes book value of loans, selected deposits placed, acceptances and contingencies. Operating income from the Commercial Segment includes net interest income from loans, fee income and allocated operating expenses.

Treasury incorporates deposits in banks and all of the Bank’s trading assets, securities available-for-sale and held-to-maturity. Operating income from the Treasury Segment includes net interest income from deposits with banks, trading securities and securities available-for-sale and held-to-maturity, derivative and hedging activities, gains and losses from trading securities, gains and losses on sale of securities available-for-sale, gain and losses on foreign currency exchange, and allocated income and operating expenses.

Asset Management incorporates the balance of the Investment Fund and the assets of the Brazilian Fund. Operating income from the Asset Management Segment includes net interest margin related to the Feeder’s participation in the net interest margin of the Fund, net gains from investment fund trading, fee income, and allocated operating expenses. Operating income from this segment also includes the net interest margin from the Brazilian Fund, as well as net gain (loss) from trading securities, fee income, and allocated operating expenses from the Brazilian Fund.

The following table provides certain information regarding the Bank’s continuing operations by segment:

Business Segment Analysis ⁽¹⁾

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions of US$)	2012			2011			2012			2011
COMMERCIAL
Interest income		45.0			31.9			89.5			61.8
Interest expense		(17.9	)		(13.7	)		(35.6	)		(27.1	)
Net interest income		27.1			18.2			53.9			34.7
Net other income ⁽²⁾		2.4			2.1			5.4			4.3
Operating expenses		(8.9	)		(9.0	)		(17.3	)		(16.9	)
Net operating income ⁽³⁾		20.6			11.3			42.0			22.1
(Provision) reversal of provision for loan and off-balance sheet credit losses		(4.9	)		(0.5	)		(0.5	)		(0.8	)
Recoveries, net of impairment of assets		-			(0.1	)		-			(0.1	)
Net income attributable to Bladex		15.7			10.7			41.5			21.2

Commercial assets and contingencies (end of period balances):
Interest-earning assets ⁽⁴⁾								5,162.8			4,771.2
Other assets and contingencies ⁽⁵⁾								455.1			437.1
Total interest-earning assets, other assets and contingencies								5,617.9			5,208.3
TREASURY
Interest income		1.8			3.4			5.1			6.0
Interest expense		(2.3	)		1.7			(3.0	)		4.1
Net interest income		(0.5	)		5.1			2.1			10.1
Net other income ⁽²⁾		3.9			1.2			9.3			0.8
Operating expenses		(3.2	)		(2.5	)		(6.3	)		(4.8	)
Net operating income ⁽³⁾		0.2			3.8			5.1			6.1
Net income (loss) attributable to Bladex		0.2			3.8			5.1			6.1

Treasury assets and contingencies (end of period balances):
Interest-earning assets ⁽⁶⁾								934.0			907.7
Other assets and contingencies ⁽⁵⁾								-			-
Total interest-earning assets, other assets and contingencies								934.0			907.7

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions of US$)	2012			2011			2012			2011
ASSET MANAGEMENT
Interest income		-			0.6			0.6			1.0
Interest expense		(0.6	)		(0.4	)		(1.0	)		(0.9	)
Net interest income		(0.6	)		0.2			(0.4	)		0.1
Net other income ⁽²⁾		3.8			13.3			6.6			17.9
Operating expenses		(1.4	)		(1.9	)		(2.8	)		(2.7	)
Net operating income ⁽³⁾		1.8			11.6			3.4			15.3
Net income (loss)		1.8			11.6			3.4			15.3
Net income (loss) attributable to the redeemable noncontrolling interest		0.1			0.4			0.2			0.6
Net income (loss) attributable to Bladex		1.7			11.2			3.2			14.7

Funds’ assets and contingencies (end of period balances):
Interest-earning assets ⁽⁶⁾								129.6			154.0
Other assets								-			-
Total interest-earning assets, other assets and contingencies								129.6			154.0
TOTAL
Interest income		46.8			35.9			95.2			68.8
Interest expense		(20.8	)		(12.4	)		(39.6	)		(23.9	)
Net interest income		26.0			23.5			55.6			44.9
Net other income ⁽²⁾		10.1			16.6			21.3			23.0
Operating expenses		(13.5	)		(13.4	)		(26.4	)		(24.4	)
Net operating income ⁽³⁾		22.6			26.7			50.5			43.5
(Provision) reversal of provision for loans and off-balance sheet credit losses		(4.9	)		(0.5	)		(0.5	)		(0.8	)
Recoveries, net of impairment of assets		-			(0.1	)		-			(0.1	)
Net income – business segment		17.7			26.1			50.0			42.6
Net income (loss) attributable to the redeemable noncontrolling interest		0.1			0.4			0.2			0.6
Net income attributable to Bladex – business segment		17.6			25.7			49.8			42.0
Other income unallocated - Gain on sale of premises and equipment		5.6			-			5.6			-
Net income attributable to Bladex		23.2			25.7			55.4			42.0

Total assets and contingencies (end of period balances):
Interest-earning assets ^{(4 & 6)}								6,226.4			5,832.9
Other assets and contingencies ⁽⁵⁾								455.1			437.1
Total interest-earning assets, other assets and contingencies								6,681.5			6,270.0

⁽¹⁾

The numbers set out in these tables have been rounded and accordingly may not total exactly.

⁽²⁾

Net other income excludes reversals (provisions) for loans and off-balance sheet credit losses, recoveries on assets, and gain on sale of premises and equipment.

Reconciliation of Net other income:
Net other income – business segment	10.1		16.6		21.3		23.0
Reversal of provision for losses on off-balance sheet credit risk	(4.9	)	(0.5	)	(0.5	)	(0.8	)
Recoveries, net of impairment of assets	-		(0.1	)	-		(0.1	)
Gain on sale of premises and equipment	5.6		-		5.6		-
Net other income – consolidated financial statements	10.8		16.0		26.4		22.1

⁽³⁾

Net operating income refers to net income excluding reversals (provisions) for loans and off-balance sheet credit losses and recoveries on assets.

⁽⁴⁾

Includes selected deposits placed, and loans, net of unearned income and deferred loan fees.

⁽⁵⁾

Includes customers’ liabilities under acceptances, letters of credit and guarantees covering commercial and country risk, and credit commitments.

⁽⁶⁾

Includes cash and due from banks, interest-bearing deposits with banks, securities available for sale and held to maturity, trading securities and the balance of the Investment Fund.

Reconciliation of Total assets:
Interest-earning assets – business segment	6,226.4		5,832.9
Allowance for loan losses	(82.1	)	(80.8	)
Customers’ liabilities under acceptances	2.8		2.2
Premises and equipment	12.4		6.6
Accrued interest receivable	36.9		32.3
Derivative financial instruments used for hedging - receivable	12.6		1.5
Other assets	17.7		12.6
Total assets – consolidated financial statements	6,226.7		5,807.3

Banco Latinoamericano de Comercio Exterior, S. A.

and Subsidiaries

Notes to consolidated financial statements

Geographic information is as follows:

	Three Months Ended June 30, 2012
(In thousands of US$)	Panama			Brazil		United States of America			Cayman Islands			Total
Interest income		42,460			28		4,321			18			46,827
Interest expense		(20,479	)		-		(310	)		(22	)		(20,811	)
Net interest income		21,981			28		4,011			(4	)		26,016

	Six Months Ended June 30, 2012
(In thousands of US$)	Panama			Brazil		United States of America			Cayman Islands			Total
Interest income		86,352			94		8,206			554			95,206
Interest expense		(38,903	)		-		(621	)		(36	)		(39,560	)
Net interest income		47,449			94		7,585			518			55,646

Long-lived assets:
Premises and equipment, net		11,938			8		468			-			12,414

	Three Months Ended June 30, 2011
(In thousands of US$)	Panama			Brazil		United States of America			Cayman Islands			Total
Interest income		33,102			-		2,198			594			35,894
Interest expense		(12,167	)		-		(215	)		(28	)		(12,410	)
Net interest income		20,935			-		1,983			566			23,484

	Six Months Ended June 30, 2011
(In thousands of US$)	Panama			Brazil		United States of America			Cayman Islands			Total
Interest income		63,658			-		4,111			983			68,752
Interest expense		(23,379	)		-		(439	)		(47	)		(23,865	)
Net interest income		40,279			-		3,672			936			44,887

December 31, 2011

(In thousands of US$)

Panama

Brazil

United States
of America

Cayman
Islands

Total

Long-lived assets:

Premises and equipment, net

6,125

538

6,673