Financials 2006

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PERFORMANCE HIGHLIGHTS

The Group recorded a net profit of $5.5 billion for the financial year ended 30 September 2006, compared to $4.5 billion net profit achieved for the previous financial year; an increase of $1.0 billion or 23%. This record result is driven by the improved operating profit of $6.8 billion, representing an increase of $807 million or 13% when compared to last year, and the turnaround in the share of the associates’ results, which has increased by $287 million, to close the 2005/2006 financial year at $118 million. This operating profit growth was fueled by the continued focus on our core banking business which has resulted in higher net interest income, and increased fee and commission income, detailed as follows:

• The Group’s net interest income (gross interest income less interest expense) for the financial year was higher than the same period last year by $1.1 billion or 10%.
• Interest income from loans has increased by $980 million or 15%.
• Despite the declining interest rate environment, interest income from securities increased by $895 million or 6%, and this was mainly due to an increase in the Group’s total earning assets.
• Net fee and commission income grew by $722 million or 29%.

Operating expenses of $11.1 billion (excluding interest expenses and fee expenses) for the year ended September 30, 2006 increased by 6% or $638 million when compared to the same period last year. Operating expenses includes a provision of $244 million for impairment of the investment in Supreme Ventures Limited (SVL). These SVL shares were acquired in February 2006 by a subsidiary of the Bank under an underwriting commitment, due to the undersubscription of the public offer in January 2006. The results for the comparative prior year period, also includes an impairment loss on the investment in Dyoll Group Limited of $236 million.

Staff costs for the financial year increased by $291 million or 5%, however, the group was able to reduce other operating expenses by $149 million or 4%, when compared to the prior year.

The profit for the quarter ended 30 September 2006 of $1.6 billion was $476.7 million or 23% below the comparative quarter of the prior year due mainly to the loan provision recovery of $609.7 in the previous year and higher reported expenses in the current quarter. Total revenue for the quarter ended 30 September 2006 was higher than the comparative quarter ended 30 September 2005, however:

• interest expenses increased by $459.3 million or 18%
• other operating expenses in the prior year’s quarter was lower due to the effect of the change in valuation of the policy contracts of the life insurance subsidiary totalling $346.7 million
• the impairment loss in Dyoll Group Limited was reduced by $299.4 million as the Group recognised an overall share of loss in associates’ of $326.6 million in the prior year’s quarter.

PERFORMANCE AT A GLANCE

Comparison of Key Ratios

ASSET BASE

The total asset base of the Group increased by $32.8 billion or 17%, up from $190.3 billion as at 30 September 2005, to close at $223.1 billion as at 30 September 2006. The major increases in the Group’s asset base were accounted for by investment securities which grew by $28.8 billion or 30% and loans and advances which grew by $6.2 billion or 17%. Reverse repurchase agreements fell by $5.5 billion or 19%.

LOAN PORTFOLIO

The banking segment continues to grow loans and advances which totaled $42.2 billion (net of provision for credit losses) as at 30 September 2006 compared to $36.1 billion as at 30 September 2005. The aggregate amount of non-performing loans amounted to $1.6 billion and represented 3.7% of the gross loans compared to 4.3% as at 30 September 2005.

As at 30 September 2006 the accumulated provision for credit losses determined under Bank of Jamaica regulatory requirements of $2.3 billion represented an overall coverage of 145% of non-performing loans. Provisions for credit losses that exceed the amounts required by International Financial Reporting Standards (IFRS) are credited to a non-distributable Loan Loss Reserve. As at 30 September 2006 the balance in the Loan Loss Reserve was $253 million. The Bank’s provisioning policy is in compliance with Bank of Jamaica regulations.

FUNDING

The increase in the asset base over the financial year was mainly funded as follows:

Diversified Payment Rights
On 22 March 2006 the Bank raised US$100 million in structured financing backed by the securitisation of existing and future U.S dollar Payment Advice and Payment Orders (MT 100 Series) and U.S dollar Remittance Diversified Payment Rights. Interest is due and payable on a quarterly basis at three month LIBOR plus 180 basis points beginning 15 June 2006. Principal repayments will commence 15 June 2008 on a quarterly basis until maturity 15 March 2013.

Obligations under Credit Card and Cash Advance Securitis ation Arrangement
On 14 September 2006, the captioned arrangement was amended, to extend the scheduled final payment date from October 2009 to October 2013. Additionally, the amount outstanding under this facility was increased from US$132.5 million to US$225 million.

CAPITAL

The Group’s total stockholders’ equity as at 30 September 2006 was $24.6 billion, an increase of $3.4 billion or 16% when compared to 30 September 2005, and this increase can be mainly attributed to the continued increase in the Group’s retained earnings. As at 30 September 2006, the Risk-based Capital Ratio was 17.3% which exceeds the minimum requirement of 10% by the Bank of Jamaica.

DIVIDENDS

The Board of Directors has approved a final interim dividend of 22 cents per share. The dividend is payable on 7 December 2006 for shareholders on record as at 23 November 2006.

BASIS OF PREPARATION

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), and have been prepared under the historical cost convention as modified by the revaluation of available - for-sale investment securities, securities at fair value through profit and loss, derivative contracts and investment property.

As of 1 October 2005, the Group adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and are effective for accounting periods beginning on or after 1 October 2005. The adoption of these new accounting standards and interpretations has resulted in changes to the Group's accounting policies in the following areas and have affected the amounts reported for the current and prior periods:

IAS 39: Originated debt securities traded in an active market, which were previously carried at amortised cost, are now carried at fair value.

IFRS 3: Negative goodwill arising from the acquisition of an associate was derecognised as at 1 October 2004, by crediting retained earnings at that date. Under the previous accounting policy, negative goodwill would have been amortised over its expected economic life. Positive goodwill is no longer amortised but assessed annually for impairment.

IFRS 4: Certain policy contracts issued by the Bank's life insurance subsidiary in 2004 which were previously accounted for as insurance contracts did not meet the definition of insurance contracts under IFRS 4 (Insurance Contracts), as they transferred primarily financial risk and did not contain significant insurance risk. In 2004 these contracts were treated as financial instruments in accordance with IAS 39 (Financial Instruments: Recognition and Measurement). The contracts were revised during 2005 and are now treated as insurance contracts under IFRS 4.

Where necessary, comparative figures have been reclassified to conform with changes in presentation in the current period.

All amounts are stated in Jamaican dollars unless otherwise indicated.

COMMUNITY RELATIONS

Throughout the 2005/6 financial year, NCB remained committed to its nation building efforts by continuing to undertake init iatives that involve working with communities and various organizations on matters of social and economic development within the country. In this regard, NCB continued to embrace projects that help to enrich the lives of Jamaicans.

Education
Under Phase 1 of the Jamaican Education Initiative (JEI), the Bank paid over $17M in Caribbean Examinations Council (CXC) fees for the island’s students who sat Principles of Accounts and Principles of Business. The sponsorship, to which NCB was committed for the last three years, ended in December 2005. In Phase 2 of the JEI, consideration is being given to how funding may continue to be provided for CXC fees. Other programmes under the JEI promoted educational advancement for young people throughout the year. These included the award of scholarships valued at $20M to tertiary students and the hosting of Student Reading Workshops and Teacher Examination Preparation Seminars across the island. NCB sought to foster awareness of Arts & Culture in Education, primarily with the sponsorship of the Mona Academic Conference and ‘Tit Bits of Jamaican History and Things Jamaican’, a publication by the JAMAL Foundation. The UWI Literary Symposium also received significant support from NCB. The Bank thanks all Keycard holders w hose purchases allow us to fund the Jamaican Education Initiative.

Arising from our relentless support for Education, we also focused on helping to alleviate some of the difficulties faced by schools throughout the year. This included addressing transportation challenges by contributing funds to bolster the efforts of Ferncourt High School and the St. Hugh’s High School for Girls to obtain school buses.

Through our donation to St. Patrick’s Foundation Education Fund we participated in funding a multi-schoolfeeding programme, assisted with the payment of school fees and the purchasing of books and school materials for inner-city children. For a second year, NCB supported Operation Hope’s summer camp held in July, for the children of the Jones Town inner-city community.

Community Development
Thousands of vulnerable Jamaicans rely on the Jamaica Red Cross for the self-less and invaluable humanitarian services that they provide. In light of this, the Jamaica Red Cross received funding from NCB to aid disaster relief preparation for the agency’s state of readiness during the 2006 hurricane season.

Additionally, the Bank strengthened its ties with local service clubs such as the Lions Club of Mona, Kiwanis Club of Kingston, and the Rotary Club of Mandeville by supporting their fundraising efforts to help in carrying out various community projects.

Sports
As part of NCB’s consistent drive to sustain the development of sports locally, the Jamaica Paralympic Team, a delegation of physically challenged athletes, benefited from financial support that allowed them to attend the International Paralympic Committee World Athletics Championships held in the Netherlands in September. NCB also renewed its sponsorship of the High School Relays at the Jamaica International Invitational Meet, held at the National Stadium in April. Our sponsorship of US$20,000 provided tremendous exposure for young athletes who were showcased amongst top international track stars. The Jamaica Amateur Athletic Association (JAAA) received financial assistance from the Organization to the tune of $1.5 million, which assisted the Jamaican athletes who participated at the Caribbean Free Trade Association (CARIFTA) Games held in April.

In an effort to reach out to the Jamaican Dias pora in the United Kingdom and to support our national football team, NCB, through its International Business Division, contributed $5.5million to the Jamaica Football Federation (JFF). This funding covered critical expenses which allowed The Reggae Boyz, to travel to London for the historic England vs. Jamaica friendly match held in June at the Old Trafford Stadium.

Community sports development received a boost as well, as the Bank sponsored the Reno Football Club and provided funds to the Portmore Football League, which facilitated the purchase of footballs. The NCB Knockout Cricket Competition, held in St. Elizabeth and the NCB Youth Cricket Camp held in St. Thomas were some of the rural sporting initiatives endorsed by the Group.

Entrepreneurship
Our sponsorship of the Jamaica Observer’s Business Leader Awards earlier this year, highlighted the organisation’s endorsement of entrepreneurship by participating in the honor given to the most outstanding business leaders. For this event, the Group decided to forgo the distribution of customary tokens at the Awards Banquet and instead invited each Business Leader Nominee to select a charity of their choice to receive a donation. On behalf of the nominees, NCB later donated over $350,000 to the Committee for Helping the Indigent, The Jamaica Foundation for Children, The Salvation Army – Eastern Jamaica, Denham Town Comprehensive High, West Haven Children’s Home, Missionaries of the Poor and The Jamaica Association on Mental Retardation.

In order to lend support to economic activity and demonstrate support of our customers, NCB also participated in a number of events including: JMA/JEA Expo, The Jamaican Diaspora Conference, Children’s Expo, The Jamaica Employers’ Federation Conference, Moses Encore and the N ational Spelling Bee competition, among others.

At the close of another successful financial year, we reflect proudly on our commitment to not only do well, but to do good. NCB thanks its employees and customers for their support as we strive to fulfill this purpose, which will help to build a better Jamaica for us all.

See the full statements.