1st National Bank Annual report 2010 by Earny St Catherine

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 1

DELIVERING EXCELLENCE Excellence...a word many use frequently, they aspire to it, promise it and even claim to achieve it when there is no measurement of it. For your Bank, excellence is a tangible target to be delivered. This annual report shares with all, how excellence is measured and delivered. Delivered through superior service, unique innovation and visionary guidance...a vision not only of the destination but of the path. We celebrate the delivery of excellence, not to self-inflate but to remind all that the indigenous nature of this institution, far from being an encumbrance to excellence, is part and parcel of the path that leads us beyond profit targets. Indeed, we deliver excellence, for you.

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 3

VISION STATEMENT 1st National Bank St. Lucia Limited is the first choice financial services provider and an outstanding corporate citizen, achieving excellent customer satisfaction and sustained financial growth.

MISSION STATEMENT To contribute to national development by creating value for shareholders through the provision of financial services to local, regional and international individuals and corporate clients. This will be achieved by creating value and satisfaction for our customers through excellent service driven by a highly skilled, empowered, visionary and inspired team using appropriate technology, supported by good corporate governance.

CORE VALUES Integrity

Professionalism

Confidentiality

4 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

TABLE OF CONTENTS

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 5

Notice Of Meeting Notice is hereby given that the 73rd Annual Meeting of Shareholders of the 1st National Bank St. Lucia Limited will be held at the National Insurance Corporation Conference Room, Francis Compton Building, Waterfront, Castries, on Tuesday, 24th May 2011 at 5:00 p.m. AGENDA 1. 2. 3. 4. 5. 6. 7. 8.

Tabling of Proxies To confirm the Minutes of the 72nd Annual Meeting of Shareholders of 29th April, 2010 Matters arising out of the Minutes To consider and adopt the 2010 Report of the Board of Directors To consider and adopt the Auditor’s Report to the Shareholders To consider and adopt the Audited Financial Statements for the year ended 31st December, 2010 To sanction a dividend of $0.40 cents per share as recommended by the Board of Directors To elect four Directors.

(i) The Directors retiring by rotation and who are eligible for re-election are:-

• • •

(ii)

Mrs. Brenda Floissac-Fleming Mr. Johnson Cenac Mr. Tedburt Theobalds

To fill the vacancy occasioned by the death of Mr. Lionel James.

Note • Nominations may be made either in writing or on the prescribed forms and must reach the Bank’s registered office at least five (5) days before the day of holding the meeting. NOTE A Shareholder entitled to attend the meeting and vote may appoint a proxy to vote in his/her place. A person appointed by proxy need not be a shareholder. The instrument appointing a proxy shall be in writing under the hand of the appointer or of his/her attorney duly authorized in writing, or if such appointer is a corporation, either under its common seal or under the hand of an officer or authority so authorized. The instrument appointing a proxy and the power of attorney or other authority if any under which it is signed or a notarially certified copy of that power of authority shall be deposited at the registered office of THE COMPANY not less than forty eight hours before the time for holding the meeting at which the person named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid. NOTICE is also hereby given that the Share Transfer Book of the Bank will be closed from 14th May, 2011 to 24th May, 2011 both dates inclusive.

BY ORDER OF THE BOARD Beryl Carasco-Alleyne Corporate Secretary 6 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

NOMINATION OF CANDIDATE FOR ELECTION AS A DIRECTOR OF 1ST NATIONAL BANK ST. LUCIA LIMITED Note Every director shall be the holder in his or her own right of at least one hundred unencumbered shares in the capital of THE COMPANY. No one (other than a retiring director) shall be eligible to be a director unless notice in writing that he or she is a candidate for such office shall have been given to THE COMPANY by two other shareholders of THE COMPANY at least five days before the day of holding the meeting at which the election is to take place. We, the undersigned Shareholders of the above Bank nominate ……………………................………………………… ……of ……………….......... ……………………………………………………… as a candidate for election as a Director of the Bank at the Annual Meeting of Shareholders scheduled for ……………………………………………… Signed:…………………………………..

Signed…………………………………..

………………………………………….. …………………………………………. Print Name Print Name Date:…………………………………….. Date:……………………………………. Please refer overleaf to the Guidelines on minimum requirements for determining fitness for Directorship.

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 7

GUIDELINES ON MINIMUM REQUIREMENTS FOR DETERMINING FITNESS FOR DIRECTORSHIP (As stated in Section 26 of the Banking Act.) Every person who is likely to be a director of the Bank (the person) must be a fit and proper person. In general determination of this status, regard shall be had to the following:(a)

the personâ&#x20AC;&#x2122;s probity, competence and soundness of judgement for fulfilling the responsibility of a Director;

(b)

the diligence with which that person is likely to fulfill the responsibilities of the position; and

(c)

whether the interests of depositors or potential depositors of the Bank are likely to be, in any way, threatened by the person.

In addition to the general provisions above, regard must be had to the previous conduct and activities in business or financial matters of the person, and in particular, to any evidence that the person nominated as a candidate:(a) has committed an offence involving fraud and other dishonesty or violence; (b) has contravened any provision made by or under an enactment designed for protecting members of the public against financial loss due to dishonesty, incompetence or malpractice by persons concerned in the provision of banking, insurance, investment or other financial services or the management of companies or against financial loss due to the conduct of a discharged or un-discharged bankrupt; (c) is not current in his/her financial commitments and other obligations to the Bank and other financial institutions; (d) is not a member of either the Board, Management or Staff of institutions involved in business of a financial nature including banking business;

8 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

APPOINTMENT OF PROXY The instrument appointing a proxy shall be in writing under the hand of the appointer, or of his or her attorney duly authorised in writing, or if such appointer be a corporation either under its common seal or under the hand of an officer or attorney so authorised. A proxy shall have the same rights as the shareholder appointing him or her as defined in Sections 138 and 145 of THE COMPANIES ACT (1996). A proxy is valid only at the meeting in respect of which it is given or any adjournment thereof. The instrument appointing a proxy and the power of attorney or other authority if any under which it is signed or a notarially certified copy of that power of authority shall be deposited at the registered office of THE COMPANY not less than forty-eight hours before the time for holding the meeting at which the person named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid. A person appointed by proxy need not be a shareholder.

I ………………………………………………. of ……………………………………………. being a shareholder of the above company, hereby appoint………………………………………….. of……………..……………………………….or failing him/her……………………………………of ……………………………… my proxy to vote for me and on my behalf at the meeting of shareholders of the above company to be held on …………………............... the …………. day of ………………………, 20…… and at any adjournment or adjournments thereof. Signed this …………………. day of ………………………………, 20…… Signed: ………………………… …………………………………. Print Name

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 9

10 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

CORPORATE DATA Head Office SOLICITORS P. O. Box 168 Floissac, Fleming & Associates Reduit Gros Islet St. Lucia, West Indies AUDITOR Tel : (758) 455 7000 PricewaterhouseCoopers Fax: (758) 453 1630 REGULATOR Castries Branch Eastern Caribbean Central Bank 21 Bridge Street P. O. Box 168 Castries, St. Lucia AFFILIATIONS West Indies Caribbean Association of Indigenous Banks (CAIB) Tel : (758) 455 7000 ECIC Holdings Ltd. Fax: (758) 453 1630 St. Lucia Chamber of Commerce, Industry and Agriculture Eastern Caribbean Institute of Banking (ECIB) Rodney Bay Sub Branch Caribbean Association of Audit Committee J.Qâ&#x20AC;&#x2122;s Mall Members Inc. (CAACM) Rodney Bay, Gros Islet Eastern Caribbean Securities Exchange (ECSE) Tel : (758) 452 8882/3 Eastern Caribbean Home Mortgage Bank (ECHMB) Fax: (758) 452 8884 BOARD OF DIRECTORS Vieux Fort Sub Branch P. O. Box 342 Charmaine Gardner Commercial Street President Vieux Fort Tel : (758) 454 6213 Cyril Matthew Fax: (758) 454 6137 1st Vice President Ferrel V. Charles Marigot Bay Sub Branch 2nd Vice President Marina Village Marigot Bay, Castries Brenda Floissac-Fleming Tel: 758 458 3744 Nigel Fulgence Fax: 758 458 3638 Joseph Maxwell Christian Husbands Lionel James Bureau de Change Johnson Cenac George F.L. Charles Airport Tedburt Theobalds Vigie, Castries Tel : (758) 453 1683 G. Carlton Glasgow Fax: (758) 451 8482 Managing Director Bureau de Change SLASPA Ferry Terminal Faux a Chaux, Castries Tel : (758) 453 0041 Fax: (758) 459 0730

Corporate Secretary Beryl Carasco-Alleyne

SWIFT: LUOBLCLC Email: manager@1stnationalbankslu.com Website : www.1stnationalbankonline.com DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 11

We distinguish ourselves in the financial services industry with the simple core value of service. We are all part of your service team and every member of the Bank family understands that we need you as much as you need to be able to count on us. Our technologically advanced convenience services mean that we can be here for you with a warm smile and the confidence that a trained professional can offer.

12 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 13

Financial Highlights Operating results Interest income Interest expense Net interest income Other income Other operating expenses After tax income Balance sheet data Customer deposits Common shareholder equity Total shareholder equity Total Assets Common shares issued & paid (‘000) Performance Dividends Declared Earnings per share Book Value Return on average assets Return on average equity Net Interest Margin Productivity Average Employees

2010 $ ‘ 000

2009 $ ‘ 000

2008 $ ‘ 000

2007 $ ‘ 000

2006 $ ‘ 000

32,993 12,995 19,998 4,619 13,774 6,552

30,587 11,883 18,704 4,866 11,622 9,114

29,681 10,763 18,918 4,056 10,515 9,096

25,403 9,046 16,357 5,646 9,028 10,539

24,015 7,303 16,712 4,468 8,157 9,291

388,402 7,971

365,377 7,971

329,405 7,971

297,510 7,971

269,514 6,877

70,722 466,470 5,000

66,204 436,072 5,000

56,239 390,152 5,000

49,339 351,468 5,000

39,077 314,392 4,635

$ 0.40 1.31 14.14

$ 0.40 1.82 13.24

$ 0.40 1.82 11.25

$ 0.40 2.17 9.87

$ 0.35 2.10 8.43

1.45% 9.57% 4.43% 55.96% 101

2.21% 14.89% 4.53% 49.3% 95

2.45% 17.23% 5.10% 45.8% 94

3.17% 23.84% 4.91% 41.0% 90

3.23% 27.06% 5.82% 38.5% 82

14 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

+7% +6% +9% Increase over 2009

Increase over 2009

Total Assets, Millions

Customer Deposits

Net Loans, Millions

2010 2009 $466 $436

2010 2009 $388 $365

2010 2009 $305 $281

COST EFFICIENCY

55.96%

Bank

Target 56.41% > Industry Average 60%

Capital Adequacy ratio

Bank

23%

Target 21%

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 15

16 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

Board of Directorsâ&#x20AC;&#x2122; Report In this the 74th year since the founding of the Bank, we are pleased to report on the activities for the financial year ended 2010, which culminated in another year of growth. The Balance Sheet grew by 7%, from $436 million in 2009, to $466 million in 2010. Our strategy and commitment to manage the Bank conservatively was pivotal in avoiding some of the pitfalls associated with the global financial situation, resulting in increased value to shareholders. Consequently, book value of shares increased from $13.24 to $14.14 per share. We anticipated that the global crisis would continue to impact our performance and this manifested itself in the statement of income, in the form of increased provisions and a reduction in some income streams. Nonetheless, the Bankâ&#x20AC;&#x2122;s capital adequacy ratio remained strong at 23%, reflective of our goal to maintain growth of the Bank.

Strategy With St. Luciaâ&#x20AC;&#x2122;s economy vulnerable to global pressures and natural disasters, we continue to refine our strategy in light of these events as well as pursue our objectives to develop our human resource base to drive our service delivery to attain our vision.

constraints will finally bear fruit in 2011. Our plans to transform the building on #18 Bridge Street into a modern facility will significantly progress.

1st National Bank embraces its role as an exemplary corporate citizen. This was made evident in the sizeable donations and contributions totaling $ 0.6 million given to over thirty (30) non profit groups, schools, clubs and associations. Additionally, members of the Board, management and staff serve on Boards of various organizations and/or volunteer their services towards the improvement of the social fabric of our country. We anticipate that our efforts to address our space

You, our shareholders, have elected diverse individuals to serve on the Board of Directors of the Bank, with collective expertise in the fields of law, commerce, engineering, accounting, agriculture, insurance, valuation surveying and management. Board Committees provide oversight of the Bank in the critical areas of audit, finance and planning, credit risk and human resources, each of which comprise an average of four Board members. The number of directors was reduced to ten due to the death

Awards Our Bank was the recipient of three coveted awards at the Annual Business Awards Ceremony for 2010. For We will continue to build on the confidence expressed the second consecutive year, we received the award for in this Bank by maintaining our focus on customer Corporate Social Responsibility, the two other awards satisfaction. We are pleased with the launch of our smart being Business of the Year and Corporate Leadership. banking suite of products (mobile and internet banking, These Awards call for recognition and high commendation Bank branded credit and international debit cards) for the of the Managing Director and his entire staff. discerning and busy customer. Indeed, the positive results of a customer satisfaction survey conducted during 2010 Governance attest to our strategy to provide an expanded range of Corporate governance is critical for any modernservices to our customers. day institution, even more so in the financial services industry, where confidence and trust is paramount. Good The Bank remains committed to using appropriate leading governance extends to all aspects of our business and information technology to deliver excellent service. informs all that we do. The Corporate Governance During the year, we embarked on a major IT project Committee assists in the monitoring and mitigation of that will enhance our internal efficiencies to benefit our risk, particularly reputational and operational risk and customers and the public. sets the framework for policy making for the Bank.

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 17

of Director Lionel James. Director James’ contribution on the Board as well as Corporate Governance, Finance and Planning Committees will be greatly missed. During this year several activities were undertaken to enhance governance efficiencies. The Board undertook to conduct evaluation sessions facilitated by Dr. Valda Henry; all Directors participated in the sessions which were informative and successful. Additionally, an Audit Committee member attended the annual conference of the Caribbean Association of Audit Committee Members (CAACM) held in St. Kitts and was elected to the Board of the CAACM. Two Directors successfully completed the Director Education and Accreditation Program (DEAP), accredited with the Institute of Chartered Secretaries and Administrators of Canada, bringing the total of Accredited Directors on the Bank’s Board to five.

BOARD No. Of Meetings

Names

Charmaine Gardner 13 13 Cyril Matthew 13 9 Ferrel Charles 13 11 Brenda Floissac-Fleming 13 10 Nigel Fulgence 13 13 Joseph Maxwell 13 13 Christian Husbands 13 13 Lionel James 13 10 Johnson Cenac 13 13 Tedburt Theobalds 13 13 G.Carlton Glasgow 13 13 FINANCE INVESTMENT AND PLANNING Names

As you may recall, two shareholder education fora were held during 2010 and were presented by Dr. Valda Henry, a Management and Financial consultant and Dr. Christopher Malcolm, an Attorney at Law with an LLM in Banking and Finance. The seminar was well attended and the topics entitled “Characteristics of an effective Board and Director”, “Understanding Financial Statements”, “Role, Rights and Responsibilities of Shareholders” were well received. The Bank was not represented at the annual conference of the Caribbean Association of Indigenous Banks (CAIB) originally scheduled for St. Lucia. The host country was changed to Trinidad and Tobago at very short notice, due to the devastating effects of Hurricane Tomas one week prior to the original scheduled date. Dividends Profit after tax attributable to shareholders is $6.6 million, out of which a dividend of $0.40 per share is recommended for payment, giving a yield on historical cost per share of 13%. The dividend payout is consistent with our capital preservation plan and equates to a payout of 31% of after tax profits. Meetings As Board and Committee Meetings are necessary for proper governance of the Bank, we have illustrated the relevant data on meetings held this year in the tables which follow.

Actual Attend.

Ferrel Charles Joseph Maxwell Christian Husbands Lionel James G.Carlton Glasgow

No. Of Meetings

Actual Attend.

4 4 4 4 4

3 3 4 3 4

HUMAN RESOURCE Names

Brenda Floissac-Fleming Nigel Fulgence Joseph Maxwell Christian Husbands G.Carlton Glasgow

No. Of Meetings

Actual Attend.

2 2 2 2 2

2 2 1 2 2

No. Of Meetings

Actual Attend.

7 7 7 7 7

4 6 7 4 6

AUDIT Names

Cyril Matthew Nigel Fulgence Joseph Maxwell Johnson Cenac Tedburt Theobalds

CORPORATE GOVERNANCE Names

Brenda Floissac-Fleming Nigel Fulgence Christian Husbands Lionel James G.Carlton Glasgow

18 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

No. Of Meetings

Actual Attend.

2 2 2 2 2

CREDIT RISK Names

Charmaine Gardner Cyril Matthew Brenda Floissac-Fleming Nigel Fulgence Johnson Cenac G.Carlton Glasgow

No. Of Meetings

Actual Attend.

4 4 4 4 4 4

4 2 2 3 4 4

shareholders, we extend our gratitude as your role is pivotal to the Bankâ&#x20AC;&#x2122;s success. The journey ahead is not without its challenges and threats but we plan to confront them with the usual attributes characteristic of 1st National Bank.

Outlook In the aftermath of the global crisis, the Eastern Caribbean Central Bank (ECCB) has increased its oversight on all financial institutions within its purview and we anticipate increased regulation in the future.The program of reform of the global regulatory framework spearheaded by the G20 countries will impact upon our operations as will the response of the OECS Currency Union which is still unfolding. Any new regulations will require a revision in our approach to the management of risk and will certainly have cost implications.

Dr. Charmaine Gardner President, on behalf of the Board of Directors

We continue to manage our strategic relationship with ECIC Holdings Ltd and the Caribbean Association of Indigenous Banks, so that together we can play a critical role in advocacy and leveraging our combined strength for the benefit of all. Discussions on the plan to amalgamate indigenous banks continue and we urge all shareholders to keep abreast of these developments as they evolve. Our plans for ongoing growth of the Bank continue apace. We will focus our efforts to capitalize on any opportunities to benefit the country and ultimately, the Bank. Acknowledgements The Board was saddened by the passing of Director Lionel James who provided a sterling and insightful contribution during the years he served as a Director. Additionally, we note with regret the passing of Sir Vincent Floissac, Director on the Board during the years 1959 to 1991. His advice and guidance during that time was immeasurable. We extend sincere condolences to both their families. We also take this opportunity to offer our sympathies to the families of shareholders who died during 2010 including Stanley French, Francis Tobias and Simon Barthelmy. Conclusion In closing, we wish to convey our profound appreciation to the Management and staff of the Bank for another year of balance sheet growth. To our customers and

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 19

Service, security and the confidence that your Bank will be there for you throughout your life, all hinge on a sustainable and profitable business model and process. Your Bank knows that you count on our strength and stability behind you on every purchase, investment or business venture...we are strong for you. Our shareholders are assured of sound performance through visionary direction and professional and ethical operations at all levels.

20 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 21

harm Preside aine Gard nt ner

Cyril Matthew 1st Vice President

rles Ferrel V. Chaent id es Pr 2nd Vice

-Flemin Brenda Floissac Director

22 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

Nigel Fulgence Director

Joseph Maxwell Director

Christian Husbamds Director

Lionel James Director

Johnson Cenac Director

lds

eoba Tedburt Th Director

ow G. Carlton Glasg or ct Managing Dire

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 23

Delivering excellence is the work of many hands. Winning three top national awards in each of the last two years is huge. It underscores the Bankâ&#x20AC;&#x2122;s commitment to professionalism, integrity, confidentiality and active corporate citizenship. The entire 1st National Bank Team shares this award with our customers and shareholders.

24 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 25

26 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

Managing Director’s Report “The Bank continues to refine and redefine banking, this time through its development of the Smart Banking brand. This combines the existing services, MoBanking, 1st Online Banking, 1st Cashpoint ATMs, Smart Opening Hours and the recently introduced 1st Debit Card. Separately, these services are great offerings and provide customers with banking at their fingertips; combined, they are a powerful tool for financial freedom, hassle-free transactions and a time-saver. Our electronic banking product offering is second to none.” 2010 was a very active year for the Bank as we aligned our resources in a contracting market to increase efficiencies and treat with the many challenges, the most significant being the continued effects of the global economic downturn which negatively affected the Bank’s profitability. Despite the foregoing, our resilience was demonstrated through reasonable balance sheet growth of 7%.

website. The re-branding efforts of the Bank continue to bear fruit in terms of increased awareness and diversity of our customer base. We plan to upgrade our website during the second quarter of 2011 to include more useful information and resources.

The Bank continues to refine and redefine banking, this time through its development of the Smart Banking brand. This combines the existing services, MoBanking, 1st Online Although the world economy has shown modest Banking, 1st Cashpoint ATMs, Smart Opening Hours and recovery this has not yet had sufficient impact to restore the recently introduced 1st Debit Card. Separately, these our economy to its pre-2007 levels. Uncertainty in services are great offerings and provide customers with the price of petrol, a fall in foreign direct investments, banking at their fingertips; combined, they are a powerful the passage of Hurricane Tomas, the weak real estate tool for financial freedom, hassle-free transactions and market, increased unemployment, have all impacted our a time-saver. Our electronic banking product offering is portfolio, with negative effect on our profit performance. second to none. Additionally, our decision to transform the building on #18 Bridge Street further reduced the final result but The success of any institution lies in the commitment of the benefits will be derived from the increased business its staff. After the passage of Hurricane Tomas, the general that the modern, aesthetic premises will attract over the staff body accepted the decision to cancel the usual gala medium to long term. Staff Christmas dinner and in its stead, donate the funds allocated (EC$50,000) to victims of Hurricane Tomas. Our vision to be the Bank of choice is ubiquitous in Additionally, staff donated and delivered relief items to the local market and guides all that we do. We were hurricane victims in Soufriere. We applaud them for therefore pleased to have been awarded Business of the this level of support which is reflective of the community Year at the St. Lucia Business Awards for the financial year banking we espouse. ended 2010. Our management of the Bank’s assets is at par with banking institutions locally and in the OECS In the broader sense we understand the critical role region and, as we executed our strategy, we focused on the Bank plays in bringing choice and economic leverage good governance, capital adequacy, corporate citizenship, to the general public. We contribute to growth of increased product breadth and financial discipline. the economy by providing a safe haven for customers’ funds, financing personal and business endeavours and Efforts to enhance our market visibility were evident generally supporting national economic activity. Despite in our media messages including our successful fifteen the recession, the decision was taken to maintain our staff minute television program, 1st National Banknotes, our levels thereby dispelling insecurity and preparing for the newsletter,The Teller and our interactive and user friendly future. DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 27

The table below illustrates some key indicators of our performance for this financial year.

2010 Performance review KEY PERFORMANCE INDICATORS (KPI’s)

Capital adequacy

Return on average equity

Cost efficiency ratio

Dividends

Return on average assets (ROA)

Net interest income Customer satisfaction survey Corporate Citizenship

DESCRIPTION

This performance indicator was brought into sharper focus after the financial meltdown. It is a measure of financial strength. The Bank was adequately capitalized before the crisis and we have maintained our philosophy of conservatism. The Bank’s capital adequacy ratio (Basle I) is healthy at 23%. This is a key indicator of the Bank’s performance and compares the profit after tax to shareholders’ equity. It fell from 14.89% in 2009 to 9.57% in 2010; profits after tax fell by 28% due largely to increased provisions, operating expenses and depreciation. This ratio shows how well we manage costs compared to net income. An excellent ratio by international standards falls within the range of 50% to 65%. Ours regressed to 55.9% as expected but we plan to monitor this figure carefully in 2011. It is the Bank’s policy to maintain shareholder wealth; a dividend of 40 cents per share is proposed. The Bank has paid a steady dividend of 40 cents per share from 2007. This KPI was 1.45%, falling from 2.21% last year. In addition to the above mentioned reasons for the decline in ROE, priority was given to safety and liquidity needs above profitability. This metric increased by 7% over that for 2009, an indication that our asset portfolio performed fairly well. Over 80% of customers surveyed were either very satisfied or satisfied with our service. This is an important metric for us as we contribute to the development of youth, the arts and country. In 2010, the Bank donated a total of $0.6 million to a multitude of organisations. This comprises 2% of our total revenue.

Financial review Income Statement A profit before tax of $8.3 million was recorded for the financial year ended December 31, 2010.This performance is fair, having regard to current market conditions. Profit after tax was $6.5m, reducing by 28% over 2009. The reduction is due to a number of reasons to include an increase in provisions of approximately $0.8 million or 52%, a tax assessment by the Inland Revenue Department for prior years, an increase in operational expenses (including accelerated depreciation of the building on #18 Bridge Street) of 18% and the increase in interest expense of 9%. The increase in expenses outweighed the increase in revenue, resulting in a reduction in profit performance.

Total interest income grew by a modest 8% and loan interest income increased by 11%, the result of our strategy to expand the loan portfolio as well as the impact of IAS 39 on our interest income stream. The increase in loan interest income was offset by a 4% decline in investment income for two main reasons viz: (1), the decision to maintain higher liquidity levels for operations and (2), lower interest rates on available investment instruments. Net interest income increased reasonably by 7% over the figure for 2009 but did not increase in line with assets. This has resulted in a slight fall in the net interest margin for average earning assets of 10 basis points.

Although commission and fee income increased by 13% and 6% respectively, foreign exchange earnings fell by 14% Income due to the impact of unfavourable foreign exchange rates Notwithstanding the slow economic recovery, total on balances held, causing a decline in total non interest income increased by 6% over the 2009 audited position. income of 5% over that for 2009. 28 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

increase in staff expenses was offset by the reduction in the Bankâ&#x20AC;&#x2122;s pension obligation, as advised by a professional actuary.

Net Interest Income

Operating Expenses

20000 15000 10000

Staff costs 39%

Administrative expenses 44%

5000 0 2006

2007

2008

2009

2010

Operating Lease Rental 6% Depreciation 11%

Composition of Income

Administrative expenses Operating Lease Rental

Investment 15% Forex 6% Commission 6%

Depreciation Staff costs

Balance sheet Total assets At this year end, the Bankâ&#x20AC;&#x2122;s total assets registered growth of 7% over the position at December 31, 2009, from $436 million to $466 million, resulting in a compound annual growth rate of 12% over the last 5 years.

Loans and Advances 73%

Asset Growth

Loans and Advances Forex

Commission Investment 500000

Operating expenses Operating expenses increased by 19% over that for 2009, driven mainly by increases in operating lease rentals, administration costs and depreciation. Operating lease rental increases are pertinent to the necessary expansion of our operations in Rodney Bay and Choc Bay as we plan to enhance the aesthetics for both customer and staff alike. The commissioning of the Choc Bay sub branch is expected early in the second quarter of 2011. Further analysis of administration costs reveals that advertising and equipment costs increased by 40% and 51% respectively. The increase in advertising costs arose following our decision to maintain our visibility in the market and enhance our market position as we increased our product offering (branded credit and debit cards, mobile banking). Most of the increase in equipment expenses (mainly computer related) is relevant to the acquisition of the aforementioned product offerings.

375000 250000 125000 2006

2007

2008

2009

0 2010

Cash on hand, balances at Central Bank and items due from other Banks increased by 19% over the position at December 31, 2009. This was primarily due to increases in deposits held at our correspondent banks. Liquidity needs fluctuated throughout the year but we were able to meet these needs satisfactorily as we accessed funds from our liquidity pool, which increased by 58% over last year.

Loans and advances to financial institutions increased by 18% over 2009 primarily because of funds transferred The increase in staff costs of 3% takes into consideration from the liquidation of two investments in the held- to reasonable annual increments by industry standards, maturity category as well as liquidation of Treasury Bills training in core areas such as lending, debt recovery and that did not meet our minimum bid request. customer service. Training was also undertaken to utilize available and new software to enhance productivity. The A net increase of 9% was recorded in loans and advances DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 29

to customers [$305m in 2010, $281m in 2009], reflecting an increased demand for credit. The largest increase in value was seen in personal credit, followed by professional and other services. This performance is in line with our objective to reduce risk and grow the portfolio. Loans and Advances 0

100000

to $71 million in 2010, deriving mainly from profits. Retained earnings increased by 10% over the figure for 2009. We plan to maintain this level of growth in the future. The ratio of total assets to total shareholdersâ&#x20AC;&#x2122; equity was healthy at 7:1. The book value of the Bankâ&#x20AC;&#x2122;s shares increased year on year to $14.14 per share in 2010. Book value per share

200000

300000

400000

2006 2007

$15.00 $12.00

2008

$9.00

2009 $6.00

2010

$3.00 $0 2006

Available- for- sale investments grew by 11% as part of our overall management of the investment portfolio. Other assets increased significantly due to work in progress on our newest business unit at Choc Bay and work done in readiness for the implementation of the 4sight imaging project. This system is being supplied by our software provider and will handle document imaging, recording and input of MICR encoded cheques. Implementation of an imaging system is a requirement by ECCB which we expect will improve efficiencies. Total Liabilities Deposits increased by 6% or $23 million, from $365 million to $388 million. This growth is moderate having regard to the competition and the prevailing economic conditions in the market. A significant proportion of this derives from households (62%) with 30% being due to private and public institutions.The Bank had no debt securities in issue during the financial year. The chart below illustrates deposit performance for the last five years. Customer Deposits

400000

300000

200000

100000 2006

2007

2008

0 2009

2010

Shareholdersâ&#x20AC;&#x2122; equity increased from $66 million in 2009

2007

2008

2009

2010

Capital management

Based on Basle I guidance, the Tier 1 capital adequacy ratio was stable at 23%. On this basis, capital risk for the Bank is low. We plan to maintain the capital adequacy ratio above 15% to support our growth goals as well as to ensure safety of funds entrusted with us. Should there be a change in the regulatory requirement to maintain an increased capital adequacy ratio, we believe that the Bank is sufficiently capitalized to meet that challenge. Liquidity At year end, the Bank had $21.5 million in cash and cash equivalents to manage its liquidity needs. The liquidity position was considered adequate throughout the year. A continuing challenge for the industry is the lack of breadth and depth of the money and capital markets in sourcing alternative streams to efficiently manage our liquidity needs should a crucial situation arise. Risk Management Due to the very nature of its activities, the Bank is exposed to a variety of risks. Key areas of risk include credit, interest rate, market, operational and liquidity risk. The Heads of Department and Business Units are responsible for the management of risk in accordance with internal policies, reporting to the Managing Director at periodic intervals. Additionally, the Board provides necessary oversight to reduce risk. Further details on how risk is managed are included in the Audited Financial Statements. Outlook/Prospects The forecast for our economy is for slow growth in 2011 and 2012, based on the assumption that the current

30 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

conditions will prevail. As a result of the recent financial crisis and its continuing effects, it is anticipated that more robust regulation will be implemented which will have implications for increased costs for the Bank. Although Basle III guidelines have been issued for implementation in 2017, we plan to employ some of the guidelines in the management of our liquidity where appropriate.

customers through excellent service using appropriate technology. The Credit Card launch was closely followed by the International Debit Card (IDC) Project implementation. Our core card services system was upgraded to prepare for the scheduled launch of our International Debit Card (IDC) Project, and this was successfully achieved in July 2010 with full media coverage.

Efforts by the Bankers’ Association to reform foreclosure legislation are ongoing with completion expected in the short to medium term. We anticipate the legislation will be supported by both Government and the Central Bank, in the overall framework for risk management of the Currency Union, particularly as it has implications for the management of our non performing loan portfolio. In 2011, we plan to continue to utilize the results of the customer and staff surveys to enhance our internal processes. We believe we have the right corporate strategy to build on the Bank’s successes. However, our business strategy will be revised to attain stronger financial and operational performance whilst meeting our customers’ and staff needs. Customer Service and Delivery Channels As noted elsewhere in this report, early in 2010, the Bank won three awards at the Annual Business Awards, two of which were in the areas of customer service, namely Service Excellence and Innovation. In April 2010, spurred on by these accolades, the Bank confidently launched the Visa co-branded Credit Card to include the Bank’s logo. Customers expressed their satisfaction with the overall design of the cards which are available in three categories namely, Classic, Gold, and Corporate.

The customer satisfaction survey conducted to gauge whether customers’ needs were indeed being addressed to their satisfaction, revealed that customers had strong confidence in the Bank and are happy with its services and products. Further, the results indicated that the Bank’s reputation was the leading reason for overall customer satisfaction. The Bank’s indigenous character also resonated strongly with respondents. Plans to enhance our customers’ banking experience progressed satisfactorily. Late in the third quarter, work commenced on the retrofitting of leased premises for the commissioning of Choc Bay sub-Branch. This newest business unit will feature a drive-up ATM and night-safe facilities and is expected to be open for business in the second quarter of 2011. During the latter half of 2010, the former Head Office at No. 21 Bridge Street was renovated to provide greater comfort for the Credit Risk Department and ultimately our borrowing customers. Expansion proposals for Rodney Bay sub branch have been approved and we anticipate that works will be completed by the last quarter of 2011. We thank the staff affected by these projects for their forbearance as our plans to make the workplace more comfortable progress.

We proceeded to increase our market presence during this recession year and took on bold initiatives and implementations. True to the mission statement, we continued to create value and satisfaction for our

Customer service excellence drives our business, always. Immediately after the winds of Hurricane Tomàs abated, the Bank ensured that customers had prompt access to their funds and was able to provide banking facilities through its ATM services. The GFL Charles Airport

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 31

Bureau-de-Change was open for business at 6:00 a.m. the next day, declared a holiday by Government for clean-up purposes. We commend our staff who served the public in their time of need on that day, for their commitment to live the core values of the Bank. Corporate Citizenship and Outreach Our Bank truly believes in giving back to community and takes its role as a corporate citizen seriously. In 2010, the Bank contributed approximately $0.6 million in support to the community, in areas of sports, the arts, culture and various philanthropic projects. Our total contribution was an impressive 2% of our revenue. We believe in the development of our youth and community and this was recognized at the 2011 St. Lucia Business Awards where the Bank captured the Corporate Social Responsibility Award for a second consecutive year, the Award for Corporate Leadership and the coveted Award of Business of the Year for the financial year ended 2010. For 1st National Bank, corporate social responsibility is a way of life and in so doing, we partner with approved organizations to provide financial support in educational development, community outreach programmes, competitive and healthy sporting activities, cultural development and preservation, positive social transformation.

to pursue courses ranging from banking and finance, law, engineering, economics, accounting and other priority areas identified by the Government. 3. We were the only financial institution to participate in the Sir Arthur Lewis Community Collegeâ&#x20AC;&#x2122;s Career Guidance Fair. Students of the tertiary level institution were exposed to banking and ethics in the work place as well as practical one-on-one mock job interview sessions.

4. The Bank was recognized by the Mon Repos Combined School at their graduation ceremony for its sterling support and assistance in its various educational and sporting exercises.

Educational development

Educational development continues to be a priority area for the Bank and the highlights for this category were as follows: 1. Our memorial scholarship holder, Dawnavan Foster, successfully completed his second year studies in Law and Economics and entered his final year at the University of the West Indies. 2. Our comprehensive Student Loan Programme continues to attract a number of students wishing

5. The Junior Achievement Programme, in the development of youth. The Bank serves as a member on its Board. 6. The Centre for Adolescent Renewal and Education (CARE) 7. Nobel Laureate Week: The Bank steadfastly supports the Nobel laureate activities in cash and kind, particularly, lectures, exhibitions, concerts, theatrical performances, all of which help inspire our people to achieve. 8. Poets and authors to encourage interest in reading and discussion.

32 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

Community Outreach This category is at the core of the Bank’s corporate social activities. A number of community programs were supported by the Bank this year, to include the following: 1. A donation of EC$100,000.00 to the St. Jude Hospital which was destroyed by fire. The funds will be used to outfit a new dental clinic. 2. After the terrible earthquake in Haiti, our Staff Chorale participated in a fund raising concert organized by the Catholic Church. The Bank contributed EC$4,500.00 in recognition of this effort. An additional EC$25,000.00 was donated to the Holy Seed International Orphanage in Haiti, an organization whose work positively impacts disadvantaged children. 3. Organizations that seek to engage the marginalized within our society, (the elderly, the orphans, the sick and physically challenged) continue to receive funding through established covenants with 1st National Bank. The beneficiaries of this corporate gesture of goodwill are as follows: • Centre for Adolescent Renewal and Education (CARE) • Cluny Foundation • Holy Family Children’s Home • The Early Childhood Development Centre • The Marian Home • St. Lucy’s Home • National Community Foundation (NCF) • St. Lucia Blind Welfare Association • St. Lucia Sickle Cell association

Championship, in collaboration with the St. Lucia Athletics Association, where young athletes are nurtured. We are proud to see the results in athletes like Laverne Spencer who is currently ranked at #3 in the world among female high jumpers. Other contributions and sponsorships include: 1. Support to the St. Lucia Under 23 National Netball Team to participate and gain exposure in the regional tournaments within the O.E.C.S to strengthen their game.

2. The 1st National Bank Secondary Schools Swimming Championship which sets the pace for young swimmers to harness and perfect their skills in preparation for regional and international swimming events. Some of the swimmers participated in the Commonwealth Games held in India. 3. The St. Lucia Special Olympic National Team - to cover travel expenses to Puerto Rico to participate in the World Special Olympic Tournament. We are happy to report that the tournament was a success and the team returned home with several medals including gold.

• National Council of/for persons with disabilities • Adelaide & Frances Memorial Home • Poppy Appeal Fund Sports We believe it is paramount to continue our sponsorship of sports for its overall benefits to health and social development. It is for these reasons that we have sponsored the 13 and Under Track and Field

4. Kouwie Sent Lisi, a fun/run/walk activity, that promotes healthy habits/lifestyles and exercise through sports. 1st National Bank partnered with

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 33

the National Community Foundation in this unique fund raising event, proceeds of which went to the N.C.F. to assist with ongoing outreach programmes.

1. The premier sponsor of Word Alive International Literary Festival which featured the launch and readings by Honourable Derek Walcott from his book entitled White Egrets. The festival also saw the staging of Word Alive 5 “dramatic poetry with music” where young, budding St. Lucian poets showcase their talent in healthy competition. 2. 100% support was given to St. Lucian jazz artiste Ronald “Boo “ Hinkson when he launched his compact disc titled “Shades”, an eclectic blend of smooth jazz rhythms, Caribbean pop ballads, Latin and African music.

5. A variety of schools around the island to assist in hosting their annual sports meets.

3. The presenting sponsor of Fond d’Or Jazz, a community based event which provides for much community involvement with proceeds going towards the preservation of the site.

6. Annual sports camps for youth and the underprivileged.

4. The Royal St. Lucia Police Force and the R.C. Boys Primary School also benefited from the Bank’s corporate generosity in the staging of their calypso competitions dubbed “Kaiso Headquarters” and “R. C. Jam” respectively.

Cultural Development and Preservation This is a significant area for which 1st National Bank continues its support of talent and innovation. Here, the donations and contributions were as follows:

5. A financial contribution was made to the Dame Pearlette Louisy Primary School and the Rituals Kids Carnival Band with their respective portrayals of the 34 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

“Castries Market” and “Redemption Song” during the 2010 carnival season. 6. The Bank was the premier sponsor of two riveting and dramatic theatre plays entitled “For Coloured Girls” and “The Coloured Museum” directed by St. Lucians Alvin Hippolyte and Drenia Frederick respectively, with a full slate of bright, young and talented St. Lucians. 7. The St. Lucia National Youth Choir was afforded the opportunity to engage in two high profile performances in Barbados. The Chorale put on two major performances one of which was in aid of raising funds on behalf of the Optimist Club of Barbados.

Positive social transformation We believe in affording persons an opportunity to positively transform their lives and as such, we have provided financial support to the following: 1. Act Now Generation- founded by a group of judicial officers working within the family court system, the group aims to transform lives of juveniles who commit petty crimes and show signs of deviant behaviour. This year, we funded a summer camp attended by juvenile delinquents from St. Lucia, Barbados and Dominica. The closing activity was a concert featuring drama, song, poetry and dance, staged at the National Cultural Centre. 2. The St. Lucia Crisis Centre, which responds to families in crisis with a focus on abused women and children, also received financial aid from the Bank to further expand its objectives and awareness programmes. 3. Ministry of Gender Relations - to assist with their work in promoting the achievement of women and ending gender based violence. 4. Rise St. Lucia Inc received much needed assistance in celebration of International Year of the Youth. A national youth rally was held in the beautiful town of Soufriere where Engineer and motivational speaker

Dr. Carl Marc from the United States of America addressed the youth. 5. Caribbean Youth Festival was given financial support as they sought to bring about positive change in the lives of many young persons. This initiative combines local and regional talent to spread positive messages through music and song. The proceeds go towards the sustainability of a youth development clinic in Vieux Fort as well as assistance to the National Community Foundation. Environment

Going green was a project pioneered by the Tapion School and supported by 1st National Bank. In addition to a monetary contribution, the Bank purchased the uniforms for their environmental club as well as garbage bins to undertake the composting project. The school also launched its environmental Club “TAPS”. The Bank promotes internal best practices as an evolving drive to continually address the impact on the environment, by reducing the amount of paper used internally and through Online Banking and Electronic Banking. Human Resources

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 35

During 2010, human resources enhancement and management continued to be critical to the Bank’s achievement of its strategic goals. A number of initiatives were therefore planned and executed as part of the Learning and Growth Objective of the Bank’s Corporate Strategy which emphasized:• The cultivation of inspirational leadership at all levels of the institution. • The development and empowerment of staff as key players within the Bank.

operations. In anticipation of the impact of the recession on our financial portfolio, the Bank strengthened the skills and leadership capacity of its staff in critical areas, aimed at mitigating any adverse effects over the medium to long term. These included:• Credit Risk; Credit Management; Debt Recovery; Provision of Card Services; Mortgage Underwriting. • Anti-money laundering; fraud prevention; auditing techniques.

detection

and

• Effective communication; Human Relations; Employee Performance Management; employee coaching; overcoming leadership challenges. • Investment Opportunities; Understanding Financial Statements. • Information Systems Security; Orientation to MoBanking upgrades, Microsoft Excel, and Cheque Imaging processes. • Disaster Preparedness; Business Recovery Planning; First Aid; Fire Safety drills.

• The provision of pertinent skills, resources and information to facilitate employee efficiency. • The creation of a working environment conducive to growth and professionalism. • The alignment of staff around the Bank’s vision and strategy. During the review period, the following accomplishments were noteworthy:I.

Staff Training and Development • Professional Banking Courses. • Loan assistance for degree level courses. II.

Employee Recognition and Motivation

The industrial climate within the Bank remained stable in 2010. This stability was reinforced through the following actions which were undertaken during the review period:-

Employees at all levels were exposed to a range of training activities pertinent to all aspects of the Bank’s

• The promotion of a number of junior employees to supervisory level grades, in keeping with the Bank’s policy of building leaders at all levels through identification of suitable staff from within to fill vacant and new positions.

36 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

• The conducting of a review and revision of the Bank’s existing salary scales and grade structure to ensure alignment with comparable position ranges in the financial sector, and to remain relatively competitive in order to attract and retain quality personnel. • The granting of annual performance-based salary increments as an incentive to all staff for their respective contributions throughout the year. • The payment of a share of the Bank’s profit to all eligible staff having regard to their collective efforts at generating a profit within the year. • Special acknowledgement of deserving personnel and appreciation of all staff at the 2010 annual awards function. Awards were presented in the categories of Perfect Attendance, Junior Officer of the Year, Senior Officer of the Year, Special Recognition, Managing Director’s Award and Branch of the Year.

• The issuing of new uniforms to staff to enhance their professional appearance and underscore the importance of image and team. III. Enhancing Employee Efficiency and Productivity The enhancement of technological and information based resources in 2010 is expected to further facilitate employee efficiency and productivity. Among the highlights of this was the establishment of a more comprehensive, user friendly Human Resource Database which, when fully populated, will serve to improve the processing and reliability of essential Management Information within the Bank. During the year, the Bank’s corporate strategy was cascaded down to the staff to guide service delivery. The process was further cascaded in the redesigned Performance Management System (PMS) which was initiated at the Branch level in 2010. The PMS focuses on job accountability, assesses employee competencies and is expected to result in a more objective appraisal of staff performance. IV Organizational Structure – Review and Planning As an essential component of its forward planning, the Bank keeps its organizational structure under regular review. In 2010, the following expansions in the Bank’s operations and services were approved for implementation:• The establishment of a separate Card Services department based on the outcome of a previously commissioned business feasibility study. The department, expected to be operational as of January 2011, will be initially staffed by an Assistant Manager and two support staff. • Additionally, the outfitting of Choc Bay Sub branch commenced in 2010 and is anticipated to be fully functional early in the second quarter of 2011. The Sub branch will carry an Officer-in-Charge, assisted by five support staff. V.

• Convening of regular general staff meetings and departmental coaching aimed at improving communication and information sharing throughout the institution.

Upgrading of the Working Environment

In 2010, the planned refurbishment of the upper floor of the Bank’s Bridge Street premises came to fruition, with the creation of more spacious, comfortable and better appointed offices for the staff of the Credit Risk Department. The ongoing efforts at improving the working ambiance

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 37

and creating requisite space continued apace, with the commencement of renovation of another wing of the Bridge Street offices and preparations for the extension of the Rodney Bay Sub Branch – both earmarked for completion in 2011. In effect, during the year under review and with the assistance of management, supervisors and other staff, the human resource management portfolio remained focused on the learning & growth perspective of the Bank’s key strategic objectives. Shareholder Information There were no increases in the Bank’s share capital during this financial year, remaining at 4,999,966. A total of 31,286 shares were transferred during the year, with the number of shareholders totaling 1,333. As required by the Banking Act of St. Lucia, No. 34 of 2006, no shareholder held more than 20% of the Bank’s shares. There are however, frequent inquires to purchase the Bank’s shares, an indication of continued interest in the Bank. We continue to entreat shareholders to utilize a deposit account as their preferred method of payment of dividends as it is the most efficient means available at this time.

Acknowledgements Much was accomplished for 2010 and I wish to thank the management and staff who committed to providing the enabling environment that resulted in the Bank winning another three awards. Additionally, I want to commend our staff for their patience and endurance as we seek to improve the physical environment within which they operate. I must express sincere appreciation to our customers for their unfailing confidence, loyalty and support for yet another year. We give the assurance that we will continue to execute strategies that will add value always. To those institutions that have chosen to collaborate with us as Good Corporate Citizens, we thank you for actively sharing our foresight in enhancing the lives of those we serve. I also want to thank all stakeholders who have taken an interest in our business through their constructive criticism, reinforcement or comment as these assist in enhancing our service delivery. As always, on behalf of the management and staff, I thank the Board of Directors for their ongoing support.

The chart below illustrates the current status of dates of election and re-election of non executive Directors on the Board. ROTATION OF DIRECTORS IN ACCORDANCE WITH SECTION 4 OF BY-LAW NO. 1 NAME

Charmaine Gardner Cyril Matthew Ferrel Charles Brenda FloissacFleming Nigel Fulgence Joseph Maxwell Christian Husbands Lionel James Johnson Cenac Thedburt Theobalds

YEAR OF ELECTION

YEAR OF RE-ELECTION

1990 1998 1980 1993

2010 2010 2009 2007

2000 2001 2003 2007 2008 2008

2009 2008 2009 2010

G. Carlton Glasgow Managing Director

38 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

Assistant Manager, Recoveries

Manager, Lendings

Assistant Manager, Lendings

Operations Manager

Assistant Manager, Operations

Management Organization Chart BOARD OF DIRECTORS

Human Resource Manager/ Corporate Secretary

MANAGING DIRECTOR

Manager, Projects and Services

Sub Branch Managers, Rodney Bay, Vieux Fort and Officer in Charge, Marigot Bay Sub Branch

Assistant Manager, Accounting

Finance Manager

Assistant Manager, Finance

Manager Internal Audit

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 39

ow G. Carlton Glasg or ct ire D g in ag Man

Aurea Lafeuillee Finance Manager

Denise Manage Holden-Pier r, Intern al Audit re

Robert Fevrier Manager, Projects & Services 4040 | 1st | 1st National National Bank Bank Annual Annual Report Report 2010 2010 | DELIVERING | DELIVERING EXCELLENCE EXCELLENCE

Joseph Fedee Operations Manager

Beryl Carasco-Alleyne Human Resource Manager/ Corporate Secretary

Clarette Auguste-Taylor Manager Lendings

Valery Marshall-St. Omer Assistant Manager, Operations

Sylvia Alcee y Sub Branch Manager, Rodney Ba

Patricia Howell Assistant Manager, Lendings Peter Floissac Assistant Manager, Recoveries

Naomi Promesse-Edward Manager,Vieux Fort Sub Branch

Beverley Ann Greene Assistant Manager, Finance

lius Mansley Ju ager, Accounting an Assistant M DELIVERING DELIVERING EXCELLENCE EXCELLENCE | 1st | 1st National National Bank Bank Annual Annual Report Report 2010 2010 | 41 | 41

We donâ&#x20AC;&#x2122;t tell you what your dreams should be, we show you how to achieve them! Like a true friend, we are there with advice and guidance. We have helped so many reach further than even they could have imagined, we can surely help you reach every goal on the way to a fulfilled and maximised life.

42 42 || 1st 1st National National Bank Bank Annual Annual Report Report 2010 2010 || DELIVERING DELIVERING EXCELLENCE EXCELLENCE

DELIVERING DELIVERING EXCELLENCE EXCELLENCE || 1st 1st National National Bank Bank Annual Annual Report Report 2010 2010 || 43 43

44 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

PriceWaterhouseCoopers Pointe Seraphine P.O.Box 195 Castries St. Lucia, West Indies Telephone (758) 456-2600 Facsimile (758) 452-1061

May 6th, 2011

Independent Auditor’s Report To the Shareholders of 1st National Bank St. Lucia Limited

Report on the Financial Statements We have audited the accompanying financial statements of 1st National Bank St. Lucia Limited (the Bank) which comprise the balance sheet as of December 31, 2010 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 45

Independent Auditor’s Report…continued Auditor’s Responsibility…continued We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2010, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Chartered Accountants “PricewaterhouseCoopers” refers to the East Caribbean firm of PricewaterhouseCoopers or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. A full listing of partners of the East Caribbean Firm is available on request at the above address.

n al B a

imited

tio

s • 1 t Na

St. Luci

46 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

1st National Bank St. Lucia Limited Balance Sheet

As of December 31, 2010 (expressed in Eastern Caribbean dollars) Note

2010 $

2009 $

5 6 7 8 9

26,786,364 15,171,047 9,235,477 56,395,260 305,328,634

29,307,645 5,976,620 16,832,105 47,965,561 280,947,796

11 11

13,611,702 16,264,813 1,844,257 14,450,128 7,024,006 358,544

12,285,162 22,556,356 1,731,068 15,331,161 2,920,830 218,194

466,470,232

436,072,498

388,402,319 6,819,199 527,000

365,377,016 3,832,385 659,000

395,748,518

369,868,401

7,971,454 49,299,114 13,451,146

7,971,454 44,700,869 13,531,774

70,721,714

66,204,097

466,470,232

436,072,498

Assets Cash and balances with Central Bank Due from other banks Treasury bills Loans and advances to financial institutions Loans and advances to customers Investment securities: - available-for-sale - held-to-maturity Income tax recoverable Property, plant and equipment Other assets Deferred income tax asset

12 13 17

Total assets

Liabilities Due to customers Other liabilities Retirement benefit obligations

14 15 16

Total liabilities

Equity Capital and reserves Share capital Retained earnings Reserves

Total equity Total liabilities and equity The accompanying notes form an integral part of these financial statements.

Approved by the Board of Directors on March 31, 2011 ___________________________________ Director

_______________________________ Director

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 47

1st National Bank St. Lucia Limited Statement of Income

For the year ended December 31, 2010 (expressed in Eastern Caribbean dollars) Note

2010

2009 $

Interest and similar income

32,992,686

30,587,169

Interest expense and similar charges

(12,994,882)

(11,883,032)

19,997,804

18,704,137

4,618,687

4,866,109

24,616,491

23,570,246

Net interest income Other operating income

Operating income Other operating expenses

(13,774,172)

(11,621,901)

Impairment losses

(2,538,373)

(1,577,771)

8,303,946

10,370,574

(1,752,303)

(1,256,102)

6,551,643

9,114,472

1.31

1.82

Profit before income tax Income tax expense

Profit for the year Earnings per share (expressed in EC$ per share) - basic and diluted

The accompanying notes form an integral part of these financial statements.

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

48 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

1st National Bank St. Lucia Limited Statement of Comprehensive Income For the year ended December 31, 2010 (expressed in Eastern Caribbean dollars)

Profit for the year

2010 $

2009 $

6,551,643

9,114,472

â&#x20AC;&#x201C;

2,723,259

Other comprehensive income Gains on revaluation of land and buildings Fair value (losses)/gains on available-for-sale financial assets Unrealised net (losses)/gains arising during the year Net reclassification adjustments for realised net gains

(34,040) â&#x20AC;&#x201C;

56,812 70,347

Net fair value (losses)/gains on available-for-sale financial assets

(34,040)

127,159

Total other comprehensive (loss)/income for the year

(34,040)

2,850,418

Total comprehensive income for the year

6,517,603

11,964,890

The accompanying notes form an integral part of these financial statements.

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 49

1st National Bank St. Lucia Limited Statement of Changes in Equity

For the year ended December 31, 2010 (expressed in Eastern Caribbean dollars)

Share Capital $ Balance at January 1, 2009

Revaluation Reserve – Statutory Revaluation availableReserve Reserve for-sale $ $ $

Retained Earnings $

Total Equity $

7,971,454

2,262,730

493,761

37,539,794

56,239,193

Profit for the year

–

9,114,472

Gains on revaluation of land and buildings

–

2,723,259

–

2,723,259

Fair value gains on available-for sale financial assets

–

127,159

–

127,159

Total comprehensive income

–

2,723,259

127,159

9,114,472

11,964,890

Dividends relating to 2008

–

(1,999,986)

Transfer to retained earnings

–

(46,589)

–

46,589

–

Balance at December 31, 2009

7,971,454

4,939,400

620,920

44,700,869

66,204,097

Balance at January 1, 2010

7,971,454

4,939,400

620,920

44,700,869

66,204,097

Profit for the year

–

6,551,643

Fair value loss on available-forsale financial assets

–

(34,040)

–

Total comprehensive income

–

(34,040)

6,551,643

6,517,603

Dividends relating to 2009

–

(1,999,986)

Transfer to retained earnings

–

(46,588)

–

46,588

–

7,971,454

4,892,812

586,880

49,299,114

70,721,714

Comprehensive income

–

Comprehensive income

Balance at December 31, 2010

The accompanying notes form an integral part of these financial statements.

n al B a

imited

tio

s • 1 t Na

St. Luci

50 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(34,040)

1st National Bank St. Lucia Limited Statement of Cash Flows

For the year ended December 31, 2010 (expressed in Eastern Caribbean dollars) Note

2010 $

2009 $

8,303,946

10,370,574

1,570,931 2,689 2,538,373 55,000 (88,660) (32,992,686) 12,994,882

1,068,207 â&#x20AC;&#x201C; 1,577,771 53,000 (81,630) (30,587,169) 11,883,032

Cash flow before changes in operating assets and liabilities

(7,615,525)

(5,716,215)

Increase in mandatory reserve deposits with Central Bank Increase in loans and advances to financial institutions Increase in loans and advances to customers (Increase)/decrease in other assets Increase in due to customers Increase/(decrease) in other liabilities

1,206,214 (8,209,029) (24,243,674) (4,103,176) 23,082,480 2,973,790

(2,248,860) (9,181,709) (33,161,734) (573,802) 35,577,951 11,143

(16,908,920)

(15,293,226)

29,959,881 (13,052,059) (2,005,842)

29,578,936 (11,488,555) (2,155,645)

Cash flows from operating activities

Profit before income tax Adjustments for: Depreciation Gain on disposal of property, plant and equipment Impairment losses Retirement benefit obligations Dividend income Interest and similar income Interest expense and similar charges

12 25 16 21 20 20

Cash used in operations Interest and similar income received Interest expense and similar charges paid Income taxes paid

(2,006,940)

Net cash (used in)/generated from operating activities

Cash flows from investing activities

Proceeds from sale of treasury bills, net Purchase of investment securities Proceeds from sale of investment securities Dividends received Purchase of property, plant and equipment

7,630,270 (8,649,675) 13,683,594 88,660 (692,587)

641,510 1,058,366 (24,610,805) 24,850,785 81,630 (1,201,654)

12,060,262

178,322

Dividends paid on ordinary shares Retirement benefit contributions paid

(1,986,962) (187,000)

(1,948,344) (133,000)

Net cash used in financing activities

(2,173,962)

(2,111,344)

7,879,360

(1,291,512)

13,591,835

14,853,347

21,471,195

13,591,835

Net cash generated from investing activities

Cash flows from financing activities

Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year 29

The accompanying notes form an integral part of these financial statements.

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

Cash and cash equivalents, end of year

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 51

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

General information 1 st National Bank St. Lucia Limited, (the Bank) was incorporated in Saint Lucia in December 1937 and continued under the Companies Act of 1996. In addition to compliance with the Companies Act of 1996, the Bank is also subject to the provisions of the Banking Act of Saint Lucia No. 34 of 2006. The Bank commenced trading in January 1938 and provides retail banking services including the acceptance of deposits, granting of loans, the provision of foreign exchange services, commercial banking services and electronic banking services. The Bank has four branches and two bureaux de change. The registered office and principal place of business of the Bank is #21 Bridge Street, Castries, Saint Lucia.

Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Bas is of prep arat ion The financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings and available-for-sale financial assets. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Bank’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4. New and amended standards and interpretations mandatory for the first time for the financial year beginning January 1, 2010 but not currently relevant to the Bank (although they may affect the accounting for future transactions and events)

The following standards and amendments to existing standards have been published and are mandatory for the Bank’s accounting periods beginning on or after January 1, 2010 or later periods.  IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement’, effective July 1, 2009. This amendment to IFRIC 9 requires an entity to assess whether an embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial asset out of the ‘fair value through profit or loss’ category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remain classified as at fair value through profit or loss in its entirety.

n al B a

imited

tio

s • 1 t Na

St. Luci

52 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(1)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Summary of significant accounting policies…continued New and amended standards and interpretations mandatory for the first time for the financial year beginning January 1, 2010 but not currently relevant to the Bank (although they may affect the accounting for future transactions and events) …continued

 IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’. The amendment clarifies that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. New standard issued but not effective for the financial year beginning 1 January 2010 and not early adopted

 IFRS 9, ‘Financial instruments’, issued in November 2009. This standard is the first step in the process to replace IAS 39, ‘Financial instruments: recognition and measurement’. IFRS 9 introduces new requirements for classifying and measuring financial assets and is likely to affect the Bank’s accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Bank is yet to assess IFRS 9’s full impact. However, initial indications are that it may affect the Bank’s accounting for its debt available-for-sale financial assets, as IFRS 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in profit or loss. 2.2 Foreign currency translation (a) Functional and presentation currency Items in the financial statements are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The financial statements are presented in Eastern Caribbean dollars, which is the Bank’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of income. 2.3 Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition, including cash and non-restricted balances with the Central Bank and deposits with other banks. 2.4 Sale and repurchase agreements Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans and advances to financial institutions or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.

n al B a

imited

tio

s • 1 t Na

St. Luci

(2)

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 53

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Summary of significant accounting policies…continued 2.5 Financial assets and liabilities The Bank classifies its financial assets in the following categories: loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date. 2.5.1 Financial assets (a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (a) those that the Bank intends to sell immediately or in the short term, which are classified as held for trading, and those that the Bank upon initial recognition designates as at fair value through profit or loss; (b) those that the Bank upon initial recognition designates as available for sale; or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration. Loans and receivables are initially recognised at fair value – which is the cash consideration to originate or purchase the loan including any transaction costs – and measured subsequently at amortised cost using the effective interest rate method. Loans and receivables are reported in the balance sheet as loans and advances to financial institutions or customers. Interest on loans is included in the statement of income and is reported as ‘Interest and similar income’. In the case of an impairment, the impairment loss is reported as a deduction from the carrying value of the loan and recognised in the statement of income as ‘Impairment losses on loans and advances’. (b) Held-to-maturity Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity, other than: (a) those that the Bank upon initial recognition designates as at fair value through profit or loss; (b) those that the Bank designates as available for sale; and (c) those that meet the definition of loans and receivables. These are initially recognised at fair value including direct and incremental transaction costs and measured subsequently at amortised cost, using the effective interest method. Interest on held-to-maturity investments is included in the statement of income and reported as ‘Interest and similar income’. In the case of an impairment, the impairment loss is reported as a deduction from the carrying value of the investment and recognised in the statement of income. (c)Available-for-sale financial assets Available-for-sale investments are financial assets that are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices or that are not classified as loans and receivables, held to- maturity investments or financial assets at fair value through profit or loss.

n al B a

imited

tio

s • 1 t Na

St. Luci

54 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(3)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Summary of significant accounting policies …continued 2.5.1 Financial assets…continued (c)Available-for-sale financial assets…continued Available-for-sale financial assets are initially recognised at fair value, which is the cash consideration including any transaction costs, and measured subsequently at fair value with gains and losses being recognised in the statement of comprehensive income, except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognised. If an available-for-sale financial asset is determined to be impaired, the cumulative gain or loss previously recognised in the statement of comprehensive income is recognised in the statement of income. However, interest is calculated using the effective interest method, and foreign currency gains and losses on monetary assets classified as available for sale are recognised in the statement of income. Dividends on available-for-sale equity instruments are recognised in the statement of income in ‘Dividend income’ when the Bank’s right to receive payment is established. Available-for-sale equity securities that are not listed are carried at cost less impairment since the Bank is not able to reliably measure the fair value of the equity securities and the future cash flows relating to the securities cannot be reliably estimated. (d) Recognition The Bank uses trade date accounting for regular way contracts when recording financial asset transactions. Financial assets that are transferred to a third party but do not qualify for derecognition are presented in the balance sheet as ‘Assets pledged as collateral’, if the transferee has the right to sell or repledge them. 2.5.2 Financial liabilities The Bank’s holding in financial liabilities is at amortised cost. Financial liabilities are derecognised when extinguished. (a) Liabilities measured at amortised cost Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are measured at amortised cost. Financial liabilities measured at amortised cost are deposits from customers. 2.5.3 Determination of fair value The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a financial asset (and for unlisted securities), the Bank establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, and other valuation techniques commonly used by market participants. 2.5.4 Derecognition Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the Bank tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent derecognition). Financial liabilities are derecognised when they have been redeemed or otherwise extinguished. 2.6 Property, plant and equipment Land and buildings comprise mainly branches and offices. Land and buildings are shown at fair value, based on valuations by external independent valuers done every 5 years, less subsequent depreciation for buildings. Any accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other assets are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

n al B a

imited

tio

s • 1 t Na

St. Luci

(4)

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 55

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Summary of significant accounting policies…continued 2.6 Property, plant and equipment…continued Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred. Land is not depreciated. Depreciation is calculated using the straight-line method for buildings and the reducing balance method for all other property, plant and equipment to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows: Buildings Furniture and fixtures Equipment Motor vehicles

2% 10% 15- 25% 20%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of income. 2.7 Impairment of financial assets (a) Assets carried at amortised cost The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include:  Delinquency in contractual payments of principal or interest;  Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales);  Breach of loan covenants or conditions;  Initiation of bankruptcy proceedings;  Deterioration of the borrower’s competitive position; and  Deterioration in the value of collateral.

n al B a

imited

tio

s • 1 t Na

St. Luci

56 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(5)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Summary of significant accounting policies…continued 2.7 Impairment of financial assets…continued (a) Assets carried at amortised cost…continued The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on financial asset has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of income. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the statement of income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the statement of income. (b) Assets classified as available for sale The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in comprehensive income – is removed from comprehensive income and recognised in the statement of income. Impairment losses recognised in the statement of income on equity instruments are not reversed through the statement of income. If in subsequent periods, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the statement of income.

n al B a

imited

tio

s • 1 t Na

St. Luci

(6)

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 57

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Summary of significant accounting policies…continued 2.7 Impairment of financial assets…continued (c) Renegotiated loans Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the asset is considered to be past due and disclosed only if renegotiated. 2.8 Impairment of other non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). 2.9 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 2.10 Guarantees and letters of credit Guarantees and letters of credit comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most guarantees and letters of credit to be settled simultaneously with the reimbursement from the customers. Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given. The fair value of a financial guarantee at the time of signature is zero because all guarantees are agreed on arm’s length terms and the value of the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised. Subsequent to initial recognition, the bank’s liabilities under such guarantees are measured at the higher of the initial amount, less amortisation of fees recognised in accordance with IAS 18, and the best estimate of the amount required to settle the guarantee. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgement of management. The fee income earned is recognised on a straight-line basis over the life of the guarantee. Any increase in the liability relating to guarantees is reported in the statement of income within other operating expenses. 2.11 Provisions Provisions are recognised when: the Bank has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

n al B a

tio

imited

s • 1 t Na

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

St. Luci

58 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(7)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Summary of significant accounting policies…continued 2.12 Employee benefits (a) Pension obligation The Bank operates a defined benefit plan for all employees. The assets of the plan are held separately. The pension plan is funded through payments from employees and the Bank, taking account of the recommendations of independent qualified actuaries. A defined benefit plan is a pension plan that defines an amount of pension that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government securities that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over the employees’ expected average remaining working lives. Past-service costs are recognized immediately in the statement of income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis over the vesting period. (b) Profit-sharing and bonus plans The Bank recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the Bank’s shareholders after certain adjustments. The Bank recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. 2.13 Income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. The principal temporary differences arise from depreciation of property, plant and equipment. If the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differences can be utilised. Income tax payable on profits, based on the applicable tax law is recognised as an expense in the period in which profits arise. The tax effects of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be available against which these losses can be utilised.

n al B a

imited

tio

s • 1 t Na

St. Luci

(8)

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 59

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Summary of significant accounting policies…continued 2.14 Share capital (a) Share issue costs Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds. (b) Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the shareholders. Dividends for the year declared after the balance sheet date are disclosed in the notes to the financial statements. 2.15 Interest income and expense Interest income and expense for all interest bearing financial instruments are recognised within “interest income” and “interest expense” in the statement of income using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. 2.16 Fee and commission income Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Performance linked fees or fee components are recognised when the performance criteria are fulfilled. 2.17 Dividend income Dividends are recognised in the statement of income when the Bank’s right to receive payment is established. 2.18 Leases (a) The Bank is the lessee Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of income on a straight-line basis over the period of the lease. (b) The Bank is the lessor When assets are leased out under an operating lease, the assets are included in the balance sheet based on the nature of the assets. Lease income is recognised over the term of the lease on a straight line basis.

n al B a

imited

tio

s • 1 t Na

St. Luci

60 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(9)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Summary of significant accounting policies…continued 2.19 Financial instruments Financial instruments carried on the balance sheet include cash resources, investment securities, loans and advances to customers, loans and advance to financial institutions, deposits with other banks, deposits from banks and due to customers. The particular recognition methods adopted are disclosed in the individual policy statement associated with each item. 2.20 Comparatives Except when a standard or an interpretation permits or requires otherwise, all amounts are reported or disclosed with comparative information.

Financial risk management The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Bank’s financial performance. The Bank’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. Risk management is mainly carried out by the Finance Department under policies approved by the Board of Directors. Management identifies, evaluates and hedges financial risks in close co-operation with the Bank’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk. In addition, internal audit is responsible for the independent review of risk management and the control environment. The most important types of risk are credit risk, liquidity risk, market risk and other operational risk. Market risk includes currency risk, interest rate and other price risk.

n al B a

imited

tio

s • 1 t Na

St. Luci

(10)

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 61

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.1 Credit risk The Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss for the Bank by failing to discharge their contractual obligation to the Bank. Significant changes in the economy, or in the health of a particular industry segment that represents a concentration in the Bank’s portfolio, could result in losses that are different from those provided for at the balance sheet date. Management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in lending activities that lead to loans and advances, and investment activities that bring debt securities and other bills into the Bank’s asset portfolio. There is also credit risk in off-balance sheet financial instruments such as loan commitments. The credit risk is managed and controlled by management who reports to the Board of Directors. 3.1.1 Credit risk measurement (a) Loans and advances Eastern Caribbean Central Bank prudential guidelines are embedded in the Bank’s daily operational management. The operational measurements can be contrasted with impairment allowances required under IAS 39, which are based on losses that have been incurred at the balance sheet date (the ‘incurred loss model’). The Bank assesses the probability of default of individual counterparties using the Eastern Caribbean Central Bank prudential guidelines. Clients of the Bank are segmented into five rating classes. The Bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The Bank regularly validates the performance of the rating and their predictive power with regard to default events. Bank’s internal ratings scale Bank’s rating Description of the grade 1 2 3 4 5

Pass Special Mention Substandard Doubtful Loss

(b) Debt securities and other bills For debt securities and other bills, external rating such as Caricris or their equivalents are used by management for management of the credit risk exposures. 3.1.2 Risk limit control and mitigation policies The Bank manages, limits and controls concentrations of credit risk wherever they are identified − in particular, to individual counterparties and groups, and to industries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to the industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review by the Board of Directors. The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering onand off-balance sheet exposures, and daily delivery risk limits in relation to trading items. Actual exposures against limits are monitored daily.

n al B a

tio

imited

s • 1 t Na

Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate.

St. Luci

62 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(11)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.1.2 Risk limit control and mitigation policies …continued Some other specific control and mitigation measures are outlined below. (a) Collateral The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:   

Mortgages over residential properties; Charges over business assets such as premises, inventory and accounts receivable; and Charges over financial instruments such as debt securities and equities.

Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In addition, in order to minimize the credit loss the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured. (b) Credit-related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. 3.1.3 Impairment and provisioning policies The impairment provision shown in the balance sheet at year-end is derived from each of the five internal rating grades. The table below shows the percentage of the Bank’s on-balance sheet items relating to loans and advances and the associated impairment provision for each of the Bank’s internal rating categories: 2010 Loans and Impairment advances provision (%) (%) 20.7% 0.1% 24.3% 24.5% 30.4%

87.0 1.7 5.6 3.3 2.4

s • 1 t Na

imited

n al B a

85.7% 1.4% 7.6% 3.4% 1.9%

tio

St. Luci

Bank’s rating 1. Pass 2. Special mention 3. Sub-standard 4. Doubtful 5. Loss

2009 Loans and Impairment advances provision (%) (%)

9.1 – 12.6 37.0 41.3

(12)

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 63

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.1.3 Impairment and provisioning policies…continued The internal rating tool assists management to determine whether objective evidence of impairment exists under IAS 39, based on the following criteria set out by the Bank:      

Delinquency in contractual payments of principal or interest; Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of sales); Breach of loan covenants or conditions; Initiation of bankruptcy proceedings; Deterioration of the borrower’s competitive position; and Deterioration in the value of collateral.

The Bank’s policy requires the review of individual financial assets that are above materiality thresholds at least annually or more regularly when individual circumstances require. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date on a case-by-case basis, and are applied to all individually significant accounts. The assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account. 3.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements Credit risk exposures relating to on-balance sheet assets are as follows: Maximum exposure 2010 2009 $ $ Due from other banks Treasury bills Loans and advances to financial institutions Loans and advances to customers: − Overdraft − Demand loans − Promissory notes − Mortgages Investments securities: − available for sale – debt securities − held to maturity Other assets Credit risk exposures relating to off-balance sheet items are as follows: Financial guarantees Loan commitments and other credit related facilities At December 31

15,171,047 9,235,477 56,395,260

5,976,620 16,832,105 47,965,561

18,715,623 132,225,281 10,694,261 143,693,469

13,918,905 126,920,339 11,254,777 128,853,775

9,960,812 16,264,813 4,697,327

8,607,692 22,556,356 1,909,761

4,042,664 30,048,273

4,199,510 24,695,113

451,144,307

413,690,514

The above table represents a worse case scenario of credit risk exposure to the Bank at December 31, 2010 and 2009, without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the balance sheet.

n al B a

tio

imited

s • 1 t Na

As shown above, 80% of the total maximum exposure is derived from loans and advances to financial institutions and customers (2009 - 80%); 6% represents investments in debt securities (2009 - 7%).

St. Luci

64 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(13)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements …continued Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio based on the following:  87% of the loans and advances portfolio is categorised in the top two grades of the internal rating system (2009 - 89%);  Mortgage loans which represent the largest percentage of the portfolio, followed by demand loans, are backed by collateral;  58% of the loans and advances portfolio are considered to be neither past due nor impaired (2009 - 62%);  The Bank continues to grant loans and advances in accordance with its lending policies and guidelines; and  16% (2009 - 16%) of the investments in debt securities and other bills have at least an A- credit rating. Many issuers in the region are not graded, consequently 56% of investments are not rated, compared to 84% last year. 3.1.5 Loans and advances Loans and advances are summarised as follows: 2010 $

2009 $

Loans and advances to customers Neither past due nor impaired Past due but not impaired Impaired

177,166,054 92,169,506 51,088,178

174,530,840 85,436,909 34,142,461

Gross

320,423,738

294,110,210

Less: allowance for impairment (Notes 9 and 10)

(15,095,104)

(13,162,414)

Net

305,328,634

280,947,796

Loans and advances to financial institutions Neither past due nor impaired (Note 8)

56,395,260

47,965,561

n al B a

imited

tio

s • 1 t Na

St. Luci

(14)

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 65

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.1.5 Loans and advances…continued (a) Loans and advances neither past due or impaired The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the Bank.

Overdrafts $

Demand loans $

Promissory notes $

Mortgages $

Total Loans and advances to customers $

December 31, 2010 Loans and advances to customers Grades 1. Pass 2. Special mention 3. Sub-standard 4. Doubtful 5. Loss

17,306,843 927,791 555,202 – –

71,387,428 253,037 – – –

3,419,791 – – – –

82,011,120 1,304,842 – – –

174,125,182 2,485,670 555,202 – –

Total

18,789,836

71,640,465

3,419,791

83,315,962

177,166,054

December 31, 2009 Loans and advances to customers Grades 1. Pass 2. Special mention 3. Sub-standard 4. Doubtful 5. Loss

11,943,628 1,194,480 – – –

72,543,430 502,893 – – –

4,839,336 – – – –

82,329,564 1,177,509 – – –

171,655,958 2,874,882 – – –

Total

13,138,108

73,046,323

4,839,336

83,507,073

174,530,840

Loans and advances to financial institutions Loans and advances to financial institutions were graded 1 (Pass) as at December 31, 2010 and December 31, 2009.

n al B a

imited

tio

s • 1 t Na

St. Luci

66 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(15)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.1.5 Loans and advances…continued (b) Loans and advances past due but not impaired Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. Gross amount of loans and advances by class to customers net of unearned interest that were past due but not impaired were as follows:

December 31, 2010 Past due up to 30 days Past due 30-60 days Past due 60-90 days Past due over 90 days

Demand loans $

Promissory notes $

Mortgages $

Total Loans and advances to customers $

22,559,061 10,572,894 3,048,712 8,596,939

1,015,135 262,539 263,606 347,032

29,846,915 2,873,492 3,089,069 9,694,112

53,421,111 13,708,925 6,401,387 18,638,083

Total

44,777,606

1,888,312

45,503,588

92,169,506

Fair value of collateral

92,624,317

6,641,563

88,139,814

187,405,694

December 31, 2009 Past due up to 30 days Past due 30-60 days Past due 60-90 days Past due over 90 days

19,285,778 5,647,423 6,693,489 10,780,431

1,262,506 276,873 156,288 691,268

18,673,121 5,650,967 3,615,381 12,703,384

39,221,405 11,575,263 10,465,158 24,175,083

Total

42,407,121

2,386,935

40,642,853

85,436,909

Fair value of collateral

71,023,322

8,458,726

100,217,108

179,699,156

Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding assets. In subsequent periods, the fair value is updated by reference to market price or indexes of similar assets. There were no overdrafts past due but not impaired. (c) Loans and advances individually impaired The table below shows the gross amount of individually impaired loans and advances to customers by grades before taking into consideration the cash flows from collateral held.

Individually impaired loans Grades: 1. Pass 2. Special mention 3. Sub-standard 4. Doubtful 5. Loss

2010 $

2009 $

10,056,689 3,576 24,334,367 10,632,823 6,060,723

663,964 2,576 16,397,033 9,907,686 7,171,202

Total

51,088,178

34,142,461

st Na • 180,309,016

n al B a

imited

tio

St. Luci

Fair value of collateral

62,708,004 (16)

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 67

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.1.5 Loans and advances…continued (d) Loans and advances renegotiated Restructuring activities include extended payment arrangements, approved external management plans, modification and deferral of payments. Following restructuring, a previously overdue customer account is reset to a normal status and managed together with other similar accounts. Restructuring policies and practices are based on indicators or criteria which, in the judgment of local management, indicate that payment will most likely continue. These policies are kept under continuous review. Restructuring is most commonly applied to term loans, in particular customer finance loans. Renegotiated loans that would otherwise be past due or impaired as at December 31, 2010 amounted to $2,590,164 (2009- $131,788). 3.1.6 Debt securities, treasury bills and other eligible bills The table below presents an analysis of debt securities, treasury bills and other eligible bills by rating agency designation at December 31, 2010, based on Caricris or their equivalent: Treasury bills $

Investment securities Held-toAvailable-formaturity sale $ $

AA- to AA+ A- to A+ CariBBB+ Unrated

– – 2,009,301 7,226,176

4,097,595 – 8,151,115 4,016,103

1,531,808 – – 8,429,004

5,629,403 – 10,160,416 19,671,283

Total

9,235,477

16,264,813

9,960,812

35,461,102

Total $

3.1.7 Repossessed collateral During 2010, the Bank obtained assets by taking possession of collateral held as security, as follows: Nature of assets

Vehicles

Carrying amount $ 1,136,965

Repossessed vehicles are sold as soon as practicable with the proceeds used to reduce the outstanding indebtedness. 3.1.8 Concentration of risks of financial assets with credit risk exposure (a) Geographical sectors The Bank operates primarily in St. Lucia and the exposure to credit risk is concentrated in this area.

n al B a

imited

tio

s • 1 t Na

St. Luci

68 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(17)

As at December 31, 2010

imited

Due from other banks Treasury bills Loans and advances to financial institutions Loans and advances to customers: - Overdraft - Demand loans - Promissory notes - Mortgages Investment securities: - available-for-sale - held-to-maturity Other assets – – –

1,784,268 8,010,143 2,665,547 4,551,545

39,146 4,044,029 – 468,370

– – – –

84,026,265

– – –

Manufacturing $

15,171,047 – 56,395,260

Financial institutions $

– – –

–

– –

Personal $

– – –

Other industries $

15,171,047 9,235,477 56,395,260

Total $

– – –

4,690,688 19,780,807 28,825,258 191,884,192

– – –

9,960,812 16,264,813 4,697,327

(18)

98,389,819 432,148,574

5,782,329 103,555 2,031,780

– 3,064,792 11,814,572 2,442,993 18,789,836 – 20,694,457 59,292,113 57,807,278 142,992,610 – 9,592 7,596,749 4,490,383 12,144,129 – 5,056,417 113,180,758 25,731,501 146,497,263

– 2,394,215 – 8,151,115 – –

1,428,333 1,154,733 47,405 2,060,217

– – – 9,235,477 – –

Professional and other services Tourism Government $ $ $

The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorised by the industry sectors of our counterparties.

(b) Industry sectors

3.1.8 Concentration of risks of financial assets with credit risk exposure …continued

Financial risk management…continued

n al B a

(expressed in Eastern Caribbean dollars)

December 31, 2010

Notes to Financial Statements

tio

St. Luci

1st National Bank St. Lucia Limited

s • 1 t Na

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 69

te2010 Li 31, December d

Notes to Financial Statements

1st National Bank St. Lucia Limited

St. Luci

70 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

479,981 4,111,118 10,845 296,278 – – –

– – – – 7,628,258 10,902,788 958,267 73,431,494

As at December 31, 2009 4,898,222

– – –

Manufacturing $

5,976,620 – 47,965,561

Financial institutions $

(b) Industry sectors…continued

– – –

Personal $

– – –

5,976,620 16,832,105 47,965,561

Total $

4,656,904 103,488 951,494

12,285,162 22,556,356 1,909,761

4,846,630 13,927,413 56,613,735 135,608,324 3,422,921 12,585,046 19,879,534 131,989,427

– – –

Other industries $

(19)

5,465,024 29,954,906 24,605,426 172,805,997 90,474,706 401,635,775

– – – 11,550,080 – –

1,084 – 4,333,498 4,266,220 3,287,270 1,572,721 13,247,585 56,775,895 61,299 – 35,820 9,054,161 2,115,371 – 6,988,523 102,709,721

– – – 16,832,105 – –

Professional and other Tourism Government services $ $ $

3.1.8 Concentration of risks of financial assets with credit risk exposure …continued

n al B a

Financial risk management…continued

tio

(expressed in Eastern Caribbean dollars)

s • 1 t Na

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.2 Market risk The Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices. The Bank’s exposures to market risks primarily arise from the interest rate management of the Bank’s retail and commercial banking assets and liabilities and equity risks arising from the Bank’s available-for-sale investments. 3.2.1 Price risk The Bank is exposed to equity securities price risk because of investments held by the Bank and classified on the balance sheet as available for sale. To manage its price risk arising from investments in equity securities, the Bank diversifies its portfolio. At December 31, 2010, if equity securities prices had been 5% higher/lower with all variable held constant comprehensive income for the year would have been $46,763 higher/lower (2009 - $48,465 higher/lower) as a result of the increase/decrease in fair value of available for sale equity securities. 3.2.2 Foreign exchange risk The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board of Directors sets limits on the level of exposure by currency and in total which are monitored daily. The Bank’s exposure to currency risk is minimal since most of its assets and liabilities in foreign currencies are held in United States dollars. The exchange rate of the Eastern Caribbean dollar (EC$) to the United States dollar (US$) has been formally pegged at EC$2.70 = US$1.00 since 1976. The following table summarises the Bank’s exposure to foreign currency exchange rate risk at December 31, 2010. Included in the table are the Bank’s financial instruments at carrying amount, categorised by currency.

(20)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 71

te2010 Li 31, December d

Notes to Financial Statements

1st National Bank St. Lucia Limited

St. Luci

3.2.2 Foreign exchange risk…continued

Financial risk management…continued

n al B a ECD

11,336,756 16,264,813 4,697,327 432,068,638 387,499,889 6,819,199 394,319,088 37,749,550 34,090,937

Investment securities - available-for-sale - held-to-maturity Other assets

Total financial assets

Liabilities Due to customers Other liabilities

Total financial liabilities

Net on-balance sheet positions

Credit commitments

Assets Cash and balances with Central Bank 26,358,837 Due from other banks 2,451,534 Treasury bills 9,235,477 Loans and advances to financial institutions 56,395,260 Loans and advances to customers 305,328,634

As at December 31, 2010

EURO

USD

GBP

– 2,274,946 – – – –

– – –

72 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

2,391

2,391 – 900,039

900,039 –

– – – –

–

211,437 2,107,38210,590,491 1,477,643

–

– –

211,437 2,109,77311,490,530 1,477,642

– – –

32,517 67,525 246,128 16,830 178,920 2,042,248 8,969,456 1,460,812 – – – – – – – – – – – –

CAD

Concentration of currency risk – on and off balance sheet financial instruments

tio

(expressed in Eastern Caribbean dollars)

s • 1 t Na –

46,140

– – – –

46,140

– – –

– 46,140 – – –

TTD

TOTAL

13,611,702 16,264,813 4,697,327

–

86,463

34,090,937

52,269,106

– 388,402,319 – 6,819,199 – – 395,221,518

86,463 447,490,624

– – –

64,527 26,786,364 21,936 15,171,047 – 9,235,477 – 56,395,260 – 305,328,634

(21)

Assets Cash and balances with Central Bank Due from other banks Treasury bills Loans and advances to financial institutions Loans and advances to customers Investment securities - available-for-sale - held-to-maturity Other assets

As at December 31, 2009

363,920,948 3,832,385 367,753,333

Liabilities Due to customers Other liabilities

Total financial liabilities 42,667,615 28,894,623

Net on-balance sheet positions

Credit commitments

–

215,885

–

– –

215,885

– – –

9,685,224 22,556,356 1,909,761 410,420,948

59,487 156,398 – – –

CAD

28,420,137 2,104,008 16,832,105 47,965,561 280,947,796

ECD

–

447,783

2,577

2,577 –

450,360

– – –

236,457 213,903 – – –

EURO

GBP

– – –

–

– –

–

3,866,633 1,247,530

1,453,491

1,453,491 –

5,320,124 1,247,530

2,599,938 – –

458,930 64,940 2,261,256 1,182,590 – – – – – –

USD

Concentration of currency risk – on and off balance sheet financial instruments…continued

3.2.2 Foreign exchange risk…continued

Financial risk management…continued

(expressed in Eastern Caribbean dollars)

December 31, 2010

Notes to Financial Statements

n al B a

itedfinancial assets imTotal L a

St. Luci

1st National Bank St. Lucia Limited

tio

s • 1 t Na

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 73

–

15,734

–

– –

15,734

– – –

– 15,734 – – –

TTD

TOTAL

12,285,162 22,556,356 1,909,761

–

110,425

(22)

28,894,623

48,571,605

– 369,209,401

– 365,377,016 – 3,832,385

110,425 417,781,006

– – –

67,694 29,307,645 42,731 5,976,620 – 16,832,105 – 47,965,561 – 280,947,796

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk managementâ&#x20AC;Ścontinued 3.2.3 Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise.

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

74 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(23)

As at December 31, 2010 Assets Cash and balances with Central Bank Due from other banks Treasury bills Loans and advances to financial institutions Loans and advances to customers Investment securities: - available-for-sale - held-to-maturity Other assets

3,611,258

–

– –

(169,156,340) (12,395,083) (48,595,195) 66,063,008 209,847,070

95,239,333

3,611,258 –

Total interest repricing gap

45,528,482

95,239,333 –

220,106,990

45,528,482 –

Total financial liabilities

– – – 69,674,266 209,847,070

– 8,151,115 –

220,106,990 –

46,644,138

– 7,587,147 –

– – – – – – – – 61,523,151 209,847,070

Over 5 years $

Liabilities Due to customers Other liabilities

33,133,399

– – –

9,960,812 526,551 –

– – 9,235,477 18,751,262 11,070,252

1-5 years $

50,950,650

– – – 29,187,532 3,945,867

– 13,064,527 – 8,456,466 18,942,294

3-12 months $

Total financial assets

1-3 months $

Up to 1 month $

30,735,430

23,916,231 6,819,199

37,241,101

3,650,890 – 4,697,327

26,786,364 2,106,520 – – –

Non-interest bearing $

395,221,493

388,402,294 6,819,199

447,490,624

13,611,702 16,264,813 4,697,327

26,786,364 15,171,047 9,235,477 56,395,260 305,328,634

Total $

(24)

The table below summarizes the Bank’s exposure to interest rate risks. It includes the Bank’s financial instruments at carrying amounts, categorized by the earlier of contractual repricing or maturity dates.

3.2.3 Interest rate risk

Financial risk management…continued

imited

(expressed in Eastern Caribbean dollars)

December 31, 2010

Notes to Financial Statements

n al B a

St. Luci

1st National Bank St. Lucia Limited

tio

s • 1 t Na

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 75

December 31, 2010

i ited Statements Notes a Lto Financial

St. Luci

Financial risk management…continued

n al B a

76 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

3,051,538

(25)

–

– –

(179,487,252) (3,093,144) (51,390,747) 64,225,693 210,589,734

82,526,042

3,051,538 –

Total interest repricing gap

43,212,184

82,526,042 –

210,991,275

43,212,184 –

Total financial liabilities

– 3,051,041 –

67,277,231 210,589,734

– 14,037,048 –

– – – – – – – – 53,240,183 207,538,693

Over 5 years $

210,991,275 –

31,135,295

– 1,539,699 –

– – 4,354,847 15,946,816 9,293,933

1-5 years $

Liabilities Due to customers Other liabilities

– 1,357,656 –

8,607,692 2,570,912 – 40,119,040

– – 12,477,258 23,632,480 2,651,646

– 3,715,813 – 8,386,265 8,223,341

3-12 months $

31,504,023

1-3 months $

Total financial assets

As at December 31, 2009 Assets Cash and balances with Central Bank Due from other banks Treasury bills Loans and advances to financial institutions Loans and advances to customers Investment securities: - available-for-sale - held-to-maturity Other assets

3.2.3 Interest rate risk…continued

tio

(expressed in Eastern Caribbean dollars)

Up to 1 month $

1st National Bank St. Lucia Limited

s • 1 t Na 29,428,362

25,595,977 3,832,385

37,155,683

3,677,470 – 1,909,761

29,307,645 2,260,807 – – –

Non-interest bearing $

369,209,401

365,377,016 3,832,385

417,781,006

12,285,162 22,556,356 1,909,761

29,307,645 5,976,620 16,832,105 47,965,561 280,947,796

Total $

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.2.3 Interest rate risk…continued The Bank’s fair value interest rate risk arises from debt securities classified as available for sale. At December 31, 2010 if market interest rates had been 100 basis points higher/lower with all variables held constant, comprehensive income for the year would have been $69,015 lower/$160,392 higher (2009 - $81,693 lower/$117,147 higher) as a result of the decrease/increase in fair value of available for sale debt securities. Cash flow interest rate risk arises from loans and advances to customers at variable rates. At December 31, 2010 if variable interest rates had been 100 basis points higher/lower with all other variables held constant, post-tax profit for the year would have been $1,918,273 higher/lower (2009 - $1,865,770 higher/lower), mainly as a result of higher/lower interest income on variable rate loans. 3.3 Liquidity risk Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfill commitments to lend. 3.3.1 Liquidity risk management process The Bank's liquidity is managed and monitored by the Finance Department. This includes:  Daily to weekly monitoring to ensure that requirements can be met. This includes the replenishment of funds as they mature or as borrowed by customers. The Bank ensures that sufficient funds are held in the one to thirty day maturity bucket to satisfy liquidity requirements.  Maintaining a portfolio of marketable assets that can easily be liquidated as protection against any unforeseen liquidity problems. Additionally, the investment portfolio is diversified by currency, geography, provider, product and term.  Weekly monitoring of the balance sheet liquidity ratios against internal and regulatory requirements.  Managing the concentration and profile of debt maturities. The Bank is looking to formalize arrangements with indigenous Banks in the Eastern Caribbean, to fund any liquidity needs that may arise. 3.3.2 Funding approach Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, provider, product and term.

(26)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 77

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.3.3 Non-derivative cash flows The table below presents the cash flows payable by the Bank under non-derivative financial liabilities and assets held for managing liquidity risk by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Bank manages the inherent liquidity risk based on expected undiscounted cash inflows.

As at December 31, 2010

Up to 1 month $

1-3 months 3-12 months $ $

1-5 years $

Over 5 years $

Total $

Liabilities Due to customers Other liabilities

244,046,506 6,819,199

45,849,226 –

97,938,079 –

3,902,632 –

– 391,736,442 – 6,819,199

Total liabilities (Contractual maturity dates)

250,865,705

45,849,226

97,938,079

3,902,632

– 398,555,641

68,035,767

38,489,545

70,746,796

Liabilities Due to customers Other liabilities

234,017,911 3,832,385

43,514,407 –

84,622,554 –

5,885,395 –

– 368,040,267 – 3,832,385

Total liabilities (Contractual maturity dates)

237,850,296

43,514,407

84,622,554

5,885,395

– 371,872,652

49,757,710

45,699,912

56,249,216

Assets held for managing liquidity risk (Contractual maturity dates)

69,674,267 209,847,070 456,793,445

As at December 31, 2009

Assets held for managing liquidity risk (Contractual maturity dates)

67,280,190 210,586,870 429,573,898

n al B a

imited

tio

s • 1 t Na

St. Luci

78 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(27)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.3.4 Assets held for managing liquidity risk Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, central bank balances, items in the course of collection and treasury and other eligible bills; loans and advances to financial institutions; and loans and advances to customers. In the normal course of business, a proportion of customer loans contractually repayable within one year will be extended. The Bank would also be able to meet unexpected net cash outflows by selling securities and accessing additional funding sources. 3.3.5 Off-balance sheet items (a) Loan commitments The dates of the contractual amounts of the Bank’s off-balance sheet financial instruments that commit it to extend credit to customers and other facilities (Note 30), are summarised in the table below. (b) Financial guarantees and other financial facilities Financial guarantees (Note 30), are also included below based on the earliest contractual maturity date.

As at December 31, 2010 Loan commitments Guarantees, acceptances and other financial facilities Total As at December 31, 2009 Loan commitments Guarantees, acceptances and other financial facilities Total

1 year $

1-5 years $

Over 5 years $

Total $

23,455,149

6,488,765

104,359

30,048,273

–

3,930,006

112,658

4,042,664

23,455,149

10,418,771

217,017

34,090,937

22,638,843

2,048,273

7,997

24,695,113

207,262

3,879,590

112,658

4,199,510

22,846,105

5,927,863

120,655

28,894,623

3.4 Fair values of financial assets and liabilities (a) Financial instruments not measured at fair value Fair value amounts represent estimates of the consideration that would currently be agreed upon between knowledgeable willing parties who are under no compulsion to act and is best evidenced by a quoted market value, if one exists. The following methods and assumptions were used to estimate the fair value of financial instruments. The fair values of cash resources, other assets and liabilities, cheques and other items in transit and due to other banks are assumed to approximate their carrying values due to their short term nature. The fair value of off balance sheet commitments are also assumed to approximate the amounts disclosed in Note 30 due to their short term nature. (i) Loans and advances to customers Loans and advances are net of provisions for impairment. The estimated fair values of loans and advances represent the discounted amount of estimated future cash flow expected to be received. Expected cash flows are discounted at current market rate to determine fair value.

(28)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 79

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.4 Fair values of financial assets and liabilities…continued (ii) Investment securities Investment securities include only interest bearing assets held to maturity; assets classified as available-forsale are measured at fair value except for available-for-sale equity securities – unlisted which are carried at cost less impairment. The fair value of equity securities carried at cost less impairment is not disclosed as it can not be reliably estimated (Note 11). The fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit maturity and yield characteristics. (iii) Due to customers The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is the amount repayable on demand. Deposits payable on a fixed date are at rates, which reflect market conditions and are assumed to have fair values which approximate carrying values. The table below summarises the carrying amounts and fair values of those financial assets and liabilities not presented on the Bank’s balance sheet at their fair value.

Financial assets Loans and advances to financial institutions Loans and advances to customers: − Overdraft − Demand loans − Promissory notes − Mortgages Investment securities − Held to maturity

Carrying value 2010 2009 $ $ 56,395,260 47,965,561 305,327,634 280,947,796 18,715,623 13,918,905 132,225,282 126,920,339 10,694,261 11,254,777 143,693,469 128,853,775

Fair value 2010 $

2009 $

56,395,260 357,662,684 18,715,623 172,106,624 10,977,734 155,862,703

47,965,561 286,801,939 13,872,273 130,848,499 8,288,869 133,792,298

16,264,713

22,556,356

15,176,080

22,247,917

388,402,319 162,176,015 194,992,697 31,233,607

365,377,016 143,041,123 187,915,027 34,420,866

385,939,680 159,713,376 194,992,697 31,233,607

363,421,316 141,085,423 187,915,027 34,420,866

Financial liabilities Due to customers: − Time deposits − Savings accounts − Demand accounts

n al B a

imited

tio

s • 1 t Na

St. Luci

80 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(29)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.4 Fair values of financial assets and liabilities…continued (b) Fair value hierarchy IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Bank’s market assumptions. These two types of inputs have created the following fair value hierarchy:  Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on exchanges.  Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).  Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components. This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valuations where possible. 3.4.1 Assets measured at fair value December 31, 2009

Level 1 $

Level 2 $

Level 3 $

Total $

- Investment securities - debt - Investment securities - equity

– –

5,538,959 969,310

3,068,733 –

8,607,692 969,310

Total assets

–

6,508,269

3,068,733

9,577,002

Level 1 $

Level 2 $

Level 3 $

Total $

- Investment securities - debt - Investment securities - equity

– –

5,039,192 935,270

4,921,621 –

9,960,813 935,270

Total assets

–

5,974,462

4,921,621

10,896,083

Available-for-sale financial assets

December 31, 2010 Available-for-sale financial assets

(30)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 81

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars) Reconciliation of Level 3 Items Available-for-sale financial assets Debt securities $ At January 1, 2010

3,068,733

Additions Interest accrued Settlements

2,215,000 174,250 (536,362)

At December 31, 2010

4,921,621

At January 1, 2009

4,427,490

Settlements Transfer into or out of Level 3 At December 31, 2009

(1,358,757) â&#x20AC;&#x201C; 3,068,733

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

82 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(31)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management …continued 3.4.1 Assets measured at fair value…continued The following table shows the sensitivity of level 3 measurements to reasonably possible alternative assumptions: Reflected in equity Favourable Unfavourable changes changes $ $

At December 31, 2010

28,875

Available-for-sale financial assets

385,164

The above favourable and unfavourable changes are calculated independently from each other. 3.5 Capital management The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of balance sheets, are:  To comply with the capital requirements set by the Eastern Caribbean Central Bank;  to safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and  to maintain a strong capital base to support the development of its business. Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management, employing techniques based on the guidelines developed by the East Caribbean Central Bank (‘the Authority’) for supervisory purposes. The required information is filed with the Authority on a quarterly basis. The Authority requires each bank or banking group to: (a) hold the minimum level of the regulatory capital of $5,000,000 and (b) maintain a ratio of total regulatory capital to the risk-weighted asset (the ‘Basel ratio’) at or above the internationally agreed minimum of 8%. The Bank’s regulatory capital as managed by management is divided into two tiers:  Tier 1 capital: share capital, retained earnings and reserves created by appropriations of retained earnings.  Tier 2 capital: qualifying subordinated loan capital, collective impairment allowances and unrealised gains arising on the fair valuation of equity instruments held as available for sale. The risk-weighted assets are measured by means of a hierarchy of five risk weights classified according to the nature of − and reflecting an estimate of credit, market and other risks associated with − each asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment is adopted for offbalance sheet exposure, with some adjustments to reflect the more contingent nature of the potential losses.

(32)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 83

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Financial risk management…continued 3.5 Capital management…continued The table below summarises the composition of regulatory capital and the ratios of the Bank for the years ended December 31, 2010 and 2009. During those two years, the Bank complied with all of the externally imposed capital requirements to which they are subject.

Tier 1 capital Share capital Statutory reserve Retained earnings

2010 $

2009 $

7,971,454 7,971,454 49,299,114

7,971,454 7,971,454 44,700,869

Total qualifying Tier 1 capital

65,242,022

60,643,777

Tier 2 capital Revaluation reserve – available-for-sale investments Revaluation reserve – property, plant and equipment

586,880 4,892,812

620,920 4,939,400

Total qualifying Tier 2 capital

5,479,692

5,560,320

70,721,714

66,204,097

Risk-weighted assets: On-balance sheet Off-balance sheet

302,582,508 6,798,422

279,719,643 5,778,925

Total risk-weighted assets

309,380,930

285,498,568

Capital adequacy ratio

21%

Basel ratio

23%

Total regulatory capital

The capital adequacy ratio is calculated as total qualifying Tier 1 capital divided by total risk-weighted assets. The Basel ratio is calculated as total regulatory capital divided by total risk-weighted assets.

n al B a

imited

tio

s • 1 t Na

St. Luci

84 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(33)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Critical accounting estimates, and judgements in applying accounting policies The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Impairment losses on loans and advances The Bank reviews its loan portfolio to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the statement of income, the Bank makes judgement as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net present value of estimated cash flows differs by +/-5%, the portfolio provision would be estimated $33,037 lower/higher (2009 - $38,499 lower/higher). (b) Impairment of available-for-sale equity investments The Bank determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. In making this judgment, the Bank evaluates among other factors, when there is evidence of deterioration in the financial health of the investee industry and sector performance, changes in technology and operational and financing cash flows. There were no declines in fair value below cost considered significant or prolonged as at December 31, 2010. (c) Held-to-maturity investments The Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than for the specific circumstances â&#x20AC;&#x201C; for example, selling an insignificant amount close to maturity â&#x20AC;&#x201C; it will reclassify the entire class as available-for-sale. The investments would therefore be measured at fair value not amortised cost. If the entire held-to-maturity investments are tainted, the carrying value would decrease by $1,088,733 (2009- $308,439) with a corresponding entry in the fair value reserve in comprehensive income. (d) Income taxes Significant judgment is required in determining the provision for income taxes including any lia bilities for tax audit issues. There are some transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded by +/-5%, tax expenses will be $28,750 higher/lower.

(34)

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 85

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Critical accounting estimates, and judgements in applying accounting policies…continued (e) Useful life of property and equipment The Bank’s management determines the estimated useful life and related depreciation charges for its property and equipment. This estimate is based on the expected life that these properties and equipment are to be used by the Bank. It could change significantly as a result of changes in the management’s intention on whether to extend the asset’s use or to hold it for disposal as a response to competition or severe economic challenges. Management will increase the depreciation charge where useful lives are less than previously estimated lives. As of December 31, 2010, management has changed the useful life of one of its buildings. If the actual useful life of this property were to differ by 50% higher or 50% lower from management’s estimates, the carrying amount of the building would be estimated to be $183,234 lower or $549,701 lower, respectively.

n al B a

imited

tio

s • 1 t Na

St. Luci

86 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(35)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Cash and balances with Central Bank 2010 $

2009 $

Cash in hand Balances with Central Bank other than mandatory reserve deposits

6,300,148

6,659,391

–

955,824

Included in cash and cash equivalents (Note 29)

6,300,148

7,615,215

20,486,216

21,692,430

26,786,364

29,307,645

Mandatory reserve deposits with Central Bank

Pursuant to Section 17 of the Banking Act of St. Lucia No. 34 of 2006, the Bank is required to maintain in cash and deposits with the Central Bank reserve balances in relation to the deposit liabilities of the institution. Mandatory reserve deposits are not available for use in the Bank’s day-to-day operations. The balances with the Central Bank are non-interest bearing. As at December 31, 2010, the required mandatory reserve deposit is $22,834,155. Cash in hand includes an amount of $2,347,939 which is restricted to cover the increase in mandatory reserve deposits with Central Bank.

Due from other banks 2010 $

2009 $

Items in the course of collection from other banks Placements with other banks

1,494,866 13,676,181

1,411,193 4,565,427

Included in cash and cash equivalents (Note 29)

15,171,047

5,976,620

The weighted average effective interest rate in respect of interest bearing deposits at December 31, 2010 was 0.58% (2009 – 0.76%).

Treasury bills

2010 $

2009 $

9,235,477

16,832,105

The Bank has invested in treasury bills in the Governments of Saint Lucia, Saint Vincent, Grenada and Antigua. The weighted average effective interest rate of treasury bills in 2010 was 6.23% (2009 – 5.91%). All treasury bills have fixed interest rates.

(36)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 87

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

Loans and advances to financial institutions

Reverse repos

2010 $

2009 $

56,395,260

47,965,561

Reverse repos are securities purchased under agreements to resell. The weighted average effective interest rate of the reverse repos in 2010 was 5.55% (2009 - 5.81%). The Bank accepted securities at fair value of $56,395,260 (2009 - $45,846,020) as collateral for the loans and advances to financial institutions. Allowance account for losses on loans and advances to financial institutions as at December 31, 2010 and 2009 was nil.

Loans and advances to customers

Overdraft Demand loans Promissory notes Mortgages

Less provision for impairment of loans and advances (Note 10)

Current Non-current

2010 $

2009 $

18,789,836 142,992,610 12,144,129 146,497,163

13,927,413 135,608,324 12,585,046 131,989,427

320,423,738

294,110,210

(15,095,104)

(13,162,414)

305,328,634

280,947,796

33,950,089 271,378,545

20,168,920 260,778,876

305,328,634

280,947,796

The weighted average effective interest rate on productive loans stated at amortised cost at December 31, 2010 was 9.37% (2009 â&#x20AC;&#x201C; 9.59%) and productive overdraft stated at amortised cost was 12.27% (2009 - 12.39%).

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

88 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(37)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

10 Provision for impairment of loans and advances Reconciliation of allowance account for losses on loans and advances by class is as follows: Overdraft $ Balance at January 1, 2010 Provision for loan impairment (Note 25) Loans written off during the year At December 31, 2010

8,508 83,924 (18,219) 74,213

Promissory notes $

Demand loans $ 8,687,985 2,433,924 (277,443)

Mortgage $

Total $

1,330,269 286,405 (153,727)

3,135,652 (400,880) (21,294)

13,162,414 2,403,373 (470,683)

10,844,466

1,462,947

2,713,478

15,095,104

Balance at January 1, 2009 Provision for loan impairment Loans written off during the year

9,189 (681) â&#x20AC;&#x201C;

9,705,385 879,742 (1,897,142)

1,459,512 (44,535) (84,708)

3,057,236 743,245 (664,829)

14,231,322 1,577,771 (2,646,679)

At December 31, 200 9

8,508

8,687,985

1,330,269

3,135,652

13,162,414

The total impairment provision for loans and advances to customers is $15,095,104 (2009 - $13,162,414) of which $14,044,457 (2009 - $12,392,434) represents the individually impaired loans and the remaining amount of $1,050,647 (2009 - $769,980) represents the portfolio provision.

11 Investment securities 2010 $

2009 $

935,270 2,715,620

969,310 2,708,160

5,039,192 4,921,620

5,538,959 3,068,733

Total securities: available-for-sale

13,611,702

12,285,162

Held-to-maturity Debt securities - at amortised cost: - Listed - Unlisted

10,193,711 6,071,102

10,253,291 12,303,065

Total securities: held-to-maturity

16,264,813

22,556,356

Current Non-current

21,725,400 8,151,115

12,678,642 22,162,876

29,876,515

34,841,518

Available-for-sale Equity securities - Listed - Unlisted Debt securities: - Listed - Unlisted

(38)

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 89

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

11 Investment securities…continued Available-for-sale equity securities – unlisted totalling $2,715,620 (2009 - $2,708,160) are carried at cost less impairment. The Bank is not able to reliably measure the fair value of the equity securities since the shares are not traded in an active market and the future cash flows relating to the securities cannot be reliably estimated. All debt securities have fixed interest rates. The weighted average effective interest rate on securities held-to-maturity stated at amortised cost at December 31, 2010 was 6.6% (2009 – 6.9%) The movement in available-for-sale and held-to-maturity financial asset during the year is as follows: Available for sale $

Held to maturity $

At January 1, 2010 Additions Reclassification from HTM to AFS Disposals (sale and redemption) Gains from changes in fair value Allowance for non-performance (Note 25)

12,285,162 7,225,679 1,350,000 (7,148,179) 34,040 (135,000)

22,556,356 3,571,504 (1,350,000) (8,513,047) – –

At December 31, 2010

13,611,702

16,264,813

At January 1, 2009 Additions Disposals (sale and redemption) Gains from changes in fair value

12,789,462 2,009,708 (2,570,820) 56,812

22,171,742 23,160,649 (22,776,035) –

At December 31, 2009

12,285,162

22,556,356

n al B a

imited

tio

s • 1 t Na

St. Luci

90 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(39)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

12 Property, plant and equipment

December 31, 2008 Cost or valuation Accumulated depreciation

Land and Building $

Furniture and Fixtures $

Equipment $

Motor Vehicles $

186,920 22,456,389 (89,589) (9,981,934)

10,795,721 (2,038,423)

1,288,791 (886,205)

10,184,957 (6,967,717)

8,757,298

402,586

3,217,240

8,757,298 2,723,259 398,934 (242,112)

402,586 – 55,475 (43,418)

3,217,240 – 747,245 (763,211)

11,637,379

414,643

3,201,274

Cost or valuation Accumulated depreciation

12,083,652 (446,273)

1,344,266 (929,623)

10,932,202 (7,730,928)

Net book amount

11,637,379

414,643

3,201,274

Opening net book amount Additions in the year Disposals in the year Depreciation on disposals Depreciation charge (Note 22)

11,637,379 219,380 – – (826,650)

414,643 67,860 – – (43,105)

3,201,274 405,347 (3,398) 709 (685,603)

Closing net book amount

11,030,109

439,398

2,918,329

1,412,126 (972,728)

11,334,151 (8,415,822)

439,398

2,918,329

Net book amount

97,331

Total $

12,474,455

Year ended December 31, 2009 Opening net book amount Revaluation Additions in the year Depreciation charge (Note 22) Closing net book amount

97,331 12,474,455 – 2,723,259 – 1,201,654 (19,466) (1,068,207) 77,865

15,331,161

At December 31, 2009 186,920 24,547,040 (109,055) (9,215,879) 77,865

15,331,161

Year ended December 31, 2010 77,865 15,331,161 – 692,587 – (3,398) – 709 (15,573) (1,570,931) 62,292

14,450,128

At December 31, 2010 Cost or valuation Accumulated depreciation

12,303,032 1 (1,272,923)

Net book amount

11,030,109

186,920 25,236,229 (124,628) (10,786,101) 62,292

14,450,128

In 2009, land and buildings were revalued by an independent valuer based on open market value. The valuation indicated that the market value was above the carrying amount of the respective assets in the books of the Bank. As a result, the carrying amounts were increased by $2,723,259, with a corresponding increase in the revaluation reserves in equity.

(40)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 91

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

12 Property, plant and equipment …continued During the year, the Bank changed the useful economic life of the building on #18 Bridge Street, Castries, to 2 years. The change resulted in a $549,701 increase in annual depreciation charge for this building. The historical cost of land and buildings are: 2010 $

2009 $

Cost Accumulated depreciation based on historical cost

8,263,778 (2,364,286)

8,044,398 (1,709,253)

Depreciated historical cost

5,899,492

6,335,145

2010 $

2009 $

4,697,327 223,586 2,103,093

1,909,761 174,051 837,018

7,024,006

2,920,830

2010 $

2009 $

162,176,015 194,992,697 31,233,607

143,041,123 187,915,027 34,420,866

388,402,319

365,377,016

384,791,061 3,611,258

362,325,478 3,051,538

388,402,319

365,377,016

13 Other assets

Accounts receivable Inventories of stationery and supplies Prepayments

14 Due to customers

Time deposits Savings accounts Demand amounts

Current Non-current

All deposits carry fixed interest rates.

n al B a

tio

imited

s • 1 t Na

The weighted average effective interest rate of customers’ deposits at December 31, 2010 was 3.64% (2009 - 3.54%).

St. Luci

92 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(41)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

15 Other liabilities

Manager’s cheques outstanding Accounts payable and accrued expenses Dividends payable on ordinary shares

2010 $

2009 $

1,512,825 4,914,239 392,135

773,237 2,680,038 379,110

6,819,199

3,832,385

16 Retirement benefit obligations Pension benefits The amount recognised in the balance sheet at December 31, 2010 is determined as follows: 2010 $

2009 $

3,027,000 (3,410,000)

2,704,000 (2,961,000)

Unrecognised actuarial loss

(383,000) 910,000

(257,000) 916,000

Liability in the balance sheet

527,000

659,000

2010 $

2009 $

Present value of funded obligations Fair value of plan assets

The movement in defined benefit obligations is as follows:

At beginning of year Current service cost Interest cost Members’ contributions Actuarial (gain)/loss Benefits paid

2,704,000 122,000 189,000 45,000 (14,000) (19,000)

2,378,000 123,000 166,000 41,000 13,000 (17,000)

At end of year

3,027,000

2,704,000

(42)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 93

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

16 Retirement benefit obligations ...continued The movement in fair value of plan assets for the year is as follows: 2010 $

2009 $

At beginning of year Expected return on plan assets Actuarial gain Bank’s contributions Members’ contributions Benefits paid

2,961,000 215,000 21,000 187,000 45,000 (19,000)

2,613,000 188,000 3,000 133,000 41,000 (17,000)

At end of year

3,410,000

2,961,000

2010 $

2009 $

The amounts recognised in the statement of income are as follows:

Current service cost Interest cost Net actuarial gains recognised in the year Expected return on plan assets Total included in staff costs (Note 24)

122,000 189,000 (41,000) (215,000)

123,000 166,000 (48,000) (188,000)

55,000

53,000

2010 $

2009 $

The actual return on plan assets was $236,000 (2009 - $191,000). Movement in the liability recognised in the balance sheet:

At beginning of year Pension expense Contributions paid

659,000 55,000 (187,000)

739,000 53,000 (133,000)

At end of year

527,000

659,000

The principal actuarial assumptions used were as follows:

Discount rate Expected return on plan assets Future salary increases

2009 %

7 7 5.5

n al B a

imited

tio

s • 1 t Na

2010 %

St. Luci

94 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(43)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

16 Retirement benefit obligations …continued Plan assets allocation is as follows:

Debt securities Others

2010 %

2009 %

87 13

86 14

100

The expected rate of return on plan assets set by reference to estimated long-term returns on the plan’s strategic asset allocation. Allowance is made for some performance from the plan’s portfolio. The Bank’s expected contributions for the year 2010 is estimated at $162,000 (2009 - $149,000). The amount in the pension plan for the year is as follows: 2010 $ Defined benefit obligation Fair value of plan assets (Surplus)/deficit in the plan Experience adjustment on plan liabilities Experience adjustment on plan assets

3,027,000 (3,410,000)

2009 $

2008 $

2007 $

2006 $

2,704,000 2,378,000 2,536,000 2,219,000 (2,961,000) (2,613,000) (2,253,000) (1,993,000)

(383,000)

(257,000)

(235,000)

283,000

226,000

(14,000) 21,000

13,000 3,000

(43,000) 75,000

29,000 (11,000)

(87,000) (21,000)

17 Deferred income tax Deferred income taxes are calculated in full on temporary differences under the liability method using a principal tax rate of 30% . 2010 $

2009 $

At beginning of year Statement of income recovery for the year (Note 26)

218,194 140,350

30,846 187,348

Deferred tax asset at end of year

358,544

218,194

(44)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 95

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

17 Deferred income tax ...continued The deferred tax asset comprises of the following temporary differences:

Accelerated capital allowances Retirement benefit obligation

Deferred tax asset at income tax rate of 30%

2010 $

2009 $

668,147 527,000

68,312 659,000

1,195,147

727,312

358,544

218,194

18 Share capital No. of Shares

2010 $

No. of Shares

2009 $

4,999,966

7,971,454

4,999,966

7,971,454

Authorized: 5,000,000 ordinary shares At beginning and end of year

19 Statutory reserve Pursuant to Section 14(1) of the Banking Act of St. Lucia No. 34 of 2006, the Bank shall, out of its net profits of each year transfer to that reserve a sum equal to not less than twenty percent of such profits whenever the amount of the fund is less than one hundred percent of the paid-up capital of the Bank.

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

96 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(45)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

20 Net interest income

Interest and similar income Loans and advances Deposits with banks Investment securities

Interest expense and similar charges Time deposits Savings deposits Demand deposits

Net interest income

2010 $

2009 $

27,450,605 15,333 5,526,748

24,805,756 10,429 5,770,984

32,992,686

30,587,169

6,547,193 6,381,914 65,775

5,841,078 6,003,044 38,910

12,994,882

11,883,032

19,997,804

18,704,137

2010 $

2009 $

2,204,592 1,897,121 378,314 88,660 50,000 –

2,552,754 1,678,946 356,705 81,630 56,074 140,000

4,618,687

4,866,109

2010 $

2009 $

5,313,632 6,011,846 1,570,931 875,074 2,689

5,172,593 4,930,604 1,068,207 450,497 –

13,774,172

11,621,901

21 Other operating income

Foreign exchange Commission income Fees income Dividend income Gain on investment securities Rental income

22 Other operating expenses

Staff costs (Note 24) Administrative expenses (Note 23) Depreciation (Note 12) Operating lease rental Loss on disposal of property, plant and equipment

(46)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 97

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

23 Administrative expenses 2010 $

2009 $

Advertising Other operating expenses Postage, telephone and telexes Audit and professional fees Equipment expenses Utilities Security expenses Directors’ fees and expenses Insurance Repairs and maintenance Stationery Bank licence Rates and taxes Legal fees

1,328,572 1,053,541 684,421 408,149 644,230 458,009 347,988 245,296 198,078 308,558 173,509 120,000 22,125 19,370

947,426 702,357 693,762 553,559 426,701 369,748 306,795 269,408 214,437 143,772 139,744 120,000 35,125 7,770

Total administrative expenses

6,011,846

4,930,604

2010 $

2009 $

4,406,172 415,061 260,001 177,398 55,000

4,020,234 570,378 363,266 165,715 53,000

5,313,632

5,172,593

2010 $

2009 $

2,403,373 135,000

1,577,771 –

2,538,373

1,577,771

24 Staff costs

Salaries and wages Other employee benefits Profit sharing Social security costs Pension costs (Note 16)

The average number of employees during the year was 101 (2009 - 95).

25 Impairment losses

Impairment losses from loans and advances (Note 10) Impairment losses on investments (Note 11)

n al B a

imited

tio

s • 1 t Na

St. Luci

98 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(47)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

26 Income tax expense 2010 $ Current tax Tax under accrued in prior years Deferred tax (Note 17)

2009 $

1,292,653 600,000 (140,350)

1,443,450 – (187,348)

1,752,303

1,256,102

Tax on the Bank’s income before income tax differs from the theoretical amount that would arise using the statutory tax rate of 30% as follows:

Profit before income tax Tax calculated at the statutory tax rate of 30% Tax effect of exempt income Tax effect of expenses not deductible for tax purposes Tax under accrued in prior years Deferred tax under accrued in the prior year

2010 $

2009 $

8,303,946

10,370,574

2,491,184 (2,502,087) 1,163,206 600,000 –

3,111,172 (1,727,011) 69,641 – (197,700)

1,752,303

1,256,102

Tax Assessments for income years 2002 to 2009 have been issued and agreed by the Inland Revenue Department. The basis for allocating expenses relating to exempt income of the Bank for year ended December 31, 2010 has not been finalised with the Inland Revenue Department at the reporting date. Adjustments arising if any, will be reflected in the period in which agreement has been reached. There was no income tax effect relating to components of other comprehensive income.

(48)

n al B a

imited

tio

s • 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 99

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

27 Earnings per share Basic and diluted The calculation of basic and diluted earnings per share is based on the net profit attributable to shareholders of $6,551,643 (2009 - $9,114,472) divided by the weighted average number of shares in issue ranking for dividend during the year of 4,999,966 (2009 - 4,999,966).

28 Dividends In the financial statements for the year ended December 31, 2010 a total of $1,999,986, (2009 - $1,999,986) was appropriated from retained earnings relating to the 2009 dividend. At a meeting on March 31, 2011, the Board of Directors declared a dividend of $0.40 per share in respect of 2010 amounting to a total of $1,999,986 (2009 - $1,999,986). This dividend will be accounted for in equity as an appropriation of retained earnings in the year ended December 31, 2011.

29 Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents comprise the following balances with less than 3 months maturity:

Cash and balances with Central Bank (Note 5) Due from other banks (Note 6)

2010 $

2009 $

6,300,148 15,171,047

7,615,215 5,976,620

21,471,195

13,591,835

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

100 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(49)

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

30 Related party transactions Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. A number of banking transactions are entered into with related parties in the normal course of business. These transactions were carried out on commercial terms and conditions, at market rates. The volume of related-party transactions, outstanding balances at the year-end and related expenses and income for the year are as follows: Loan and advances to Directors and other key management personnel 2010 $

2009 $

Loans outstanding at beginning of year Net loans issued for the year

3,037,824 1,188,539

2,992,329 45,496

Loans outstanding at end of year

4,226,363

3,037,825

460,065

252,829

2010 $

2009 $

Interest income earned Deposits from Directors and other key management personnel

Deposits at beginning of year Net deposits (repaid)/received during the year

2,224,629 (458,972)

709,978 1,514,651

Deposits outstanding at end of year

1,765,657

2,224,629

88,068

30,753

2010 $

2009 $

900,809 160,692

837,268 146,573

1,061,502

983,841

Interest expense on deposits Key management compensation and Directorsâ&#x20AC;&#x2122; fees

Salaries and other short-term benefits Post and other employment benefits `

(50)

n al B a

imited

tio

s â&#x20AC;˘ 1 t Na

St. Luci

DELIVERING EXCELLENCE | 1st National Bank Annual Report 2010 | 101

1st National Bank St. Lucia Limited Notes to Financial Statements December 31, 2010

(expressed in Eastern Caribbean dollars)

31 Contingent liabilities and commitments (a) Loans commitment, guarantee and other financial facilities At December 31, 2010, the Bank had the contractual amounts of the Bank’s off-balance sheet financial instruments that commit it to extend credit to customers, guarantee and other facilities as follows:

Loan commitments Guarantees and standby letters of credit Acceptances Documentary and commercial letters of credit

2010 $

2009 $

30,048,273 4,042,664 – –

24,695,113 3,992,248 11,832 195,430

34,090,937

28,894,623

n al B a

imited

tio

s • 1 t Na

St. Luci

102 | 1st National Bank Annual Report 2010 | DELIVERING EXCELLENCE

(51)

1st National Bank St. Lucia Limited P.O. Box 168 #21 Bridge Street Castries St. Lucia Tel: +758 455 7000 Fax: + 758 453 1630 Email: manager@1st nationalbankslu.com Website: www.1stnationalbankonline.com

Produced by Orange Media Group