Financials 2012

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The Board of Directors is pleased to release the following unaudited financial results for National Commercial Bank Jamaica Limited (NCBJ) and its subsidiaries for the financial year ended September 30, 2012.

PERFORMANCE HIGHLIGHTS

Year ended September 30, 2012 compared with the year ended September 30, 2011

• Net profit of $10.0 billion, a decline of 27.7%, or $3.8 billion.
• Earnings per stock unit of $4.08, declined by 27.7%, or $1.56.
• Cost to income ratio increased to 56.01%, from 52.36%.
• Total assets of $379.4 billion, increased by 5.5%, or $19.8 billion.
• Return on average total assets decreased to 2.72%, from 4.00%.
• Net loans of $111.9 billion, grew by 22.0%, or $20.2 billion.
• Customer deposits of $162.9 billion, increased by 4.6%, or $7.1 billion.
• Total stockholders' equity of $66.3 billion, increased by 7.0%, or $4.4 billion.
• Return on average stockholders' equity decreased to 15.66%, from 25.07%.

Quarter ended September 30, 2012 compared with the quarter ended June 30, 2012

• Net profit of $2.7 billion, increased by 3.8%, or $98 million.
• Earnings per stock unit of $1.10, increased by 3.8%, or $0.05.
• Cost to income ratio decreased to 52.50%, from 58.46%.
• Return on average total assets increased to 2.83%, from 2.76%.
• Return on average stockholders' equity increased to 16.46%, from 16.36%.

Our strategic initiatives have resulted in growth in our core businesses, and in particular, the significant increase in our loan portfolio. We have been focused on strengthening our sales team during the financial year and are now concentrating on bolstering our infrastructure and streamlining our operating processes and procedures to more effectively and efficiently serve our customers. Despite our considerable sales effort, and other enhancements to our infrastructure and business, we are reporting a decline in net profits when compared with the previous financial year. This decline in performance was driven primarily by a significant reduction in yields, increased operating expenses, loan losses and impairment expenses experienced in the 2011/2012 financial year, as well as the recently amended asset tax, which was introduced as part of the Government of Jamaica's revenue raising programme.

As we journey into the 2012/2013 financial year, we know that we have helped our customers navigate a world of persistent change while managing some major changes of our own. In the new financial year, we will continue to remind ourselves that there can be no compromise when it comes to the importance of customers, as our success is intertwined with their success. We firmly believe that we have an opportunity to establish NCB as more than a great Jamaican financial institution; we can be a great Caribbean and global organisation, and our strategy is aimed at achieving this objective.

FINANCIAL PERFORMANCE

Our operating income decreased by 0.4%, or $125 million, for the financial year ended September 30, 2012, when compared with the financial year ended September 30, 2011, mainly as a result of:

• Premium income, which declined by 42.3%, or $1.2 billion, primarily due to lower sales of annuity products, during the 2012 financial year when compared to the 2011 financial year.
• Gain on foreign currency and investment activities, which decreased by 7.5%, or $304 million, due primarily to reduced spreads on the sale of Jamaican government debt securities.

These reductions were partially offset by a 3.0%, or $633 million, increase in net interest income mainly driven by the loan growth during the year, and increased net fee and commission income of 10.8%, or $694 million, mainly as a result of increased fees linked to the growth in the loan portfolio.

Operating expenses increased by 16.1%, or $3.1 billion, for the financial year ended September 30, 2012, over the financial year ended September 30, 2011, mainly as a result of:

• Provision for credit losses, which increased by 220.3%, or $1.7 billion, due mainly to increased loan losses.
• Staff costs, which increased by 5.6%, or $516 million, mainly due to the negotiated salary increase for the 2011/2012 financial year.
• Impairment losses on securities, which grew by 78.5%, or $206 million, representing impairment losses recorded on securities which have been deemed impaired.

Loans and advances, which totalled $111.9 billion (net of provision for credit losses) as at September 30, 2012, grew by 22.0%, or $20.2 billion, compared to the loan portfolio as at September 30, 2011. Non-performing loans totalled $8.3 billion as at September 30, 2012 ($6.7 billion as at September 30, 2011) and represented 7.1% of the gross loans compared to 7.2% as at September 30, 2011. Our regulatory provision coverage as at September 30, 2012 was 114.0% of non-performing loans compared to 115.9% at September 30, 2011. Our delinquency management processes remain robust and proactive.

Customer deposits, which totalled $162.9 billion as at September 30, 2012, grew by 4.6%, or $7.1 billion, compared to the deposit portfolio as at September 30, 2011.

As reported by the Bank of Jamaica, at 30 June 2012, NCBJ held the largest market share in loans (38.0%) and deposits (39.8%) in the commercial banking industry, and remains the largest commercial bank in Jamaica when measured by assets, branch network and capital base.

SEGMENT PERFORMANCE

The Retail & SME, Payments Services, Corporate Banking, and Treasury & Correspondent Banking segments which comprise the commercial banking activities, reported combined operating profits of $7.2 billion for the financial year ended September 30, 2012; this represents a decrease of 24.4%, or $2.3 billion, from the financial year ended September 30, 2011.

Our Retail & SME segment recorded operating profits of $1.6 billion, for the financial year ended September 30, 2012, an increase of 14.1%, or $194 million, over the financial year ended September 30, 2011. The increase in the operating profits was driven mainly by the strong growth in consumer loans.

Our Payment Services segment recorded operating profits of $1.9 billion, for the financial year ended September 30, 2012, up by 14.0%, or $233 million, over the financial year ended September 30, 2011. The improvement in the operating profits was driven mainly by increased net interest income and net fee and commission income, due to the growth in the credit card portfolio over the financial year ended September 30, 2011.

Our Corporate Banking segment recorded operating profits of $95 million, for the financial year ended September 30, 2012, a decline of 95.5%, or $2.0 billion in its segment result when compared to the financial year ended September 30, 2011. This reduction is mainly attributed to loan losses on a large non-performing loan.

Our Treasury & Correspondent Banking segment recorded operating profits of $3.6 billion, for the financial year ended September 30, 2012, a decline of 17.1%, or $746 million, when compared to the financial year ended September 30, 2011, which was mainly due to lower yields earned on our investment portfolio.

Our Wealth Management segment contributed operating profits of $4.0 billion, for the financial year ended September 30, 2012, representing a decrease of 15.1%, or $705 million, from the financial year ended September 30, 2011; the reduction is primarily attributed to impairment losses on investment securities and a decrease in interest income due to the decline in the yields earned on investment securities.

Our Insurance and Pension Fund Management segment reported operating profits of $2.4 billion, for the financial year ended September 30, 2012; this result reflects a decrease of 0.3%, or $8 million, from the financial year ended September 30, 2011, and the reduction is primarily driven by lower insurance premium income as a result of lower sales of annuity products.

CAPITAL

The Group's stockholders' equity of $66.3 billion as at September 30, 2012, increased by 7.0%, or $4.4 billion, when compared to September 30, 2011.

• The risk-based capital adequacy ratio (risk assessed assets as a percentage of qualifying capital) for NCBJ was 12.9% (September 30, 2011 – 15.1%).
• The capital to risk weighted assets ratio (risk assessed assets as a percentage of qualifying capital) for NCBCM was 26.2% (September 30, 2011 – 35.7%).
• The solvency ratio (stockholders' equity as a percentage of total liabilities) for NCBIC was 34.6% (September 30, 2011 – 34.7%).

DIVIDENDS

On November 15, 2012, the Board declared an interim dividend of $0.64 per ordinary stock unit. The dividend is payable on December 13, 2012 for stockholders on record as at November 30, 2012.

AWARDS

In 2012, our Bank, for the third consecutive year, was named as Best Bank in Jamaica by LatinFinance. The LatinFinance Bank of the Year Awards is among the region's most prestigious, valued, and certainly most rigorously judged awards for excellence in retail, commercial and local investment banking. The Board of Directors sees this achievement as recognition of our effective management and prudent risk approach, and an indicator that we are on the right path.

COMMUNITY RELATIONS

In pursuit of our mantra "Building a Better Jamaica", we contributed over $31 million to a number of initiatives during the quarter. Our main areas of focus were Education and School Infrastructure - $19 million, Community Development - $3 million, Sport Development, Youth Leadership and Entrepreneurship - $9 million. For the financial year ended September 30, 2012, we donated $75 million in support of our commitment to our corporate social responsibility.

Education & School Infrastructure

We invested in the educational development of our nation's youth by assisting 210 students with scholarships and grants during the quarter. Among the total number of students, 175 awards were disbursed to tertiary level students in recognition of our celebrations of 175 years of service to Jamaica. In addition, we continued to assist schools by donating computers and providing assistance for academic infrastructure initiatives.

Community Development

Our Community development activities are delivered through our branch network islandwide. The activities during the quarter included the donation of computer equipment to the paedriatic ward of the Spanish Town Hospital, funding and support to Angels of Love Jamaica, St. Patrick's Foundation and the Wortley Home for Girls.

Sports Development & Youth Leadership & Entrepreneurship

We continue to support programmes that encourage our nation's youth to becoming change agents in their schools and communities. During the quarter, we supported the Youth Upliftment Through Employment (YUTE) programme, which is designed to provide employment opportunities for at-risk youth from inner-city communities, and a number of summer camps which included Camp to the World in Portland, Rise Life Management Summer Camp, UWI's Mary Seacole Summer Camp for girls, Jamaica Child Evangelism Summer Camp and the New Haven Seventh Day Adventist Church Summer Camp.

This year, as we celebrate 175 years of service, we are thankful for the opportunity to meet the needs of our customers, shareholders, employees and other key stakeholders through the provision of financial services, while building a better Jamaica. We are proud to have served and supported Jamaicans for over 175 years and remain steadfast in our commitment to nation building and meeting the needs of all our stakeholders. We thank all our customers and employees for the support to enable us to deliver on our commitment of Building a better Jamaica.

To our customers, we say thank you for your continued loyalty, confidence and support; together, We Make It Happen.

See the full statements.