FHC Annual Report 2012 by TMC Digital

TABLE OF CONTENTS Page

Vision, Mission

Notice of Annual General Meeting and Agenda

Company Profile

Life Charter - Products & Services

Minutes of the Special General Meeting

e Board of Directors

Report of the Board of Directors

Our Leadership Team

Management Report 2012

Our Senior Managers

Merger Pictorial

Our Team

Staﬀ as at December 2012

Report of the Treasurer

FINANCIAL STATEMENTS

Report of the Credit Committee

121

Report of the Supervisory Committee

123

Report of the Nominating Committee

126

Report of the Delegates on JCCUL’s AGM

137

Obituaries

141

Parliamentary Rules of Order

143

Prayer of St. Francis of Assisi

146

Notes

147

NOTICE OF MEETING Notice is hereby given that the 1st Annual General Meeting of the First Heritage Co-operative Credit Union Limited will be held on Tuesday, July 23, 2013 at the Jamaica Pegasus Hotel, 81 Knutsford Boulevard, Kingston 5, beginning at 3:00 p.m. Registration commences at 2:00 p.m. All members are invited to attend.

_________________________ Edmund Jones Secretary, Board of Directors

AGENDA

Ascertainment of Quorum Call to Order and Prayer Chairmanâ&#x20AC;&#x2122;s Opening Remarks and Obituaries REPORTS Board of Directors Management Treasurer and Auditor Credit Committee Supervisory Committee ELECTIONS Nominating Committee Report Elections to: Board of Directors Credit Committee Supervisory Committee Appointment of Auditor Any Other Business Vote of î &#x201C;anks Adjournment

COMPANY PROFILE On August 1, 2012, Churches Co-operative Credit Union Limited (CCCU) and GSB Co-operative Credit Union Limited (GSB) merged to form the new entity, First Heritage Co-operative Credit Union Limited (FHCCU). e decision to merge culminated a series of discussions that began in October 2010, between the two Credit Unions. With a combined heritage of over 100 years, First Heritage Co-operative Credit Union Limited (FHC) now stands as the largest open bond Credit Union in Jamaica. A merger of this magnitude was the first of its kind in the history of the Credit Union movement in Jamaica.

BACKGROUND AND HISTORY CHURCHES CO-OPERATIVE CREDIT UNION LIMITED Born out of a spirit of co-operation between existing church-based Credit Unions at Redeemer Moravian, All Saints Anglican and Lyndhurst Methodist, Churches Co-operative Credit Union Limited (CCCU) was established in 1971 and has been a member of the Jamaica Co-operative Credit Union League since 1977. As the island’s second largest credit union in terms of membership, the organization oﬀered a comprehensive range of financial services including savings and investment accounts, loans, insurance packages and a pension fund. e Credit Union’s bond was open to all church members and their relative’s island wide. Having acquired several smaller credit unions, its members were served through a network of four fullservice branches in Montego Bay, Kingston, Spanish Town and Portmore along with sub-branches and micro and small business loan centres across the island. Churches Co-operative Credit Union Limited had been the recipient of a number of Private Sector awards, including: e Bureau of Standards National Quality Awards for Excellence in Business Results in the Service Sector for 2005, Ministry of Industry & Commerce/Bureau of Standards Jamaica National Quality Awards for Excellence in Process Management in 2007 & Human Resources in 2008. With over 115, 000 members, the strength of the Credit Union continued to be demonstrated by overall growth in key result areas and visionary leadership that was exemplified in strategy geared towards continued growth and unwavering commitment to the well-being of its members.

GSB CO-OPERATIVE CREDIT UNION LIMITED On October 26, 1944, 22 members of staﬀ of the Government Savings Bank met to study the rules of the Co-operative Movement as a positive response to the urging of the Jamaica Co-operative Credit Union League, with the aim of founding a Credit Union.

GSB Clerks Co-operative Credit Union Limited (GSB) was thereafter formed and registered on July 2, 1946 under the Industrial and Provident Societies Law. GSB Clerks became the first credit union to accumulate £1,000 in deposits in Jamaica in 1950 which was a feat to be celebrated in that era. It was the first credit union in Jamaica and the Caribbean, to engage the services of the international body, CUNA Mutual Insurance Society in 1950, to provide the now standard protection for members’ savings and loans. In 1997, in accordance with the various amendments to the bond, the name was changed to omit the word “Clerks” to GSB Co-operative Credit Union Limited (GSB). GSB’s bond was widened to include relatives of Public Sector workers and stood as a solid financial cooperative having acquired Metropolis Co-operative Credit Union and the Kingston & St. Andrew Credit Union. Subsequently, GSB expanded its branch network to New Kingston, May Pen, Clarendon and the Wealth Development Unit. Over the years, GSB Co-operative Credit Union received recognition and awards for its significant contribution to the lives of Public Sector employees and their families whom they have served. With over 28,000 members, the institution proved itself to be a strong and reputable financial entity with solid management and sound financial principles.

FIRST HERITAGE CO-OPERATIVE CREDIT UNION LIMITED MEMBERSHIP BOND FHC’s bond includes all members of any religious body and affiliation and their relatives; all public sector employees and their relatives; all professionals, members of professional associations, and the employees of professional associations; employees of the Credit Union and their relatives; members of staff of Statutory Bodies and Public Corporations, and contractual employees to the Government; past Government Officers, past members of staff of Statutory Bodies and Public Corporations and past Employees of these entities; and all Registered Co-operative Societies. We currently serve over 160,000 members through a wide network of twelve locations islandwide, offering an array of products and services. ese products are specifically designed to meet the needs of those just starting out, as well as the financially savvy and investment-oriented minds. Our commitment remains, to generate continual benefits to our valued members and other stakeholders.

LIFE CHARTER - PRODUCTS & SERVICES

MINUTES OF THE SPECIAL GENERAL MEETING Minutes of the Special General Meeting Held ursday, August 30, 2012 At First Heritage Co-operative Credit Union Limited, 8-10 Eureka Road, Kingston 5 e meeting was called to order at 3:42 p.m. by the Chairman, Mr. Orville Hill. He invited the Secretary of the Board of Directors, Mr. Edmund Jones, to read the Notice of the Special General Meeting. After the reading of the Notice the Chairman invited Balvin Vanriel, member of the Board of Directors, to oﬀer prayer. e Chairman welcomed the members to the Special General Meeting of First Heritage Co-operative Credit Union Limited (FHC). He stated that there were specific issues that needed to be addressed in order to proceed as a new Credit Union. e issues include the establishment of membership with the Jamaica Co-operative Credit Union League Limited (League). He said that being a part of the League’s membership was beneficial to the Credit Union hence the importance of convening the meeting to seek the relevant approval from the membership in order to comply with the stipulated rules. At this point the Chairman introduced the interim members of FHC’s Board of Directors, Credit and Supervisory Committees who were present. He also recognized the special guests from the League and the Registrar of Co-operatives and Friendly Societies who were in attendance. e Chairman invited the Secretary of the Board to the podium to outline the Resolution which, he said, was the main reason for the meeting. Mr. Jones read the following:

“Application by First Heritage Co-operative Credit Union Limited for membership into the Jamaica Co-operative Credit Union League. WHEREAS the members of Churches Co-operative Credit Union Limited (CCCUL) and the GSB Cooperative Credit Union Limited (GSBCCL) in a Special General Meetings held on June 5, 2012 and June 6, 2012 respectively by special resolutions agreed to amalgamate both Credit Unions and that the amalgamated society be named First Heritage Co-operative Credit Union Limited. WHEREAS said resolutions have been duly accepted by the Registrar of Co-operatives and Friendly Societies in compliance with the Co-operative Societies Act. AND WHEREAS First Heritage Co-operative Credit Union Limited commenced operation as a newly

registered Credit Union on August 1st, 2012. AND WHEREAS both Churches Co-operative Credit Union Limited and GSB Co-operative Credit Union Limited were members of Jamaica Co-operative Credit Union League the National Association of Credit Unions. AND WHEREAS the Board of First Heritage Co-operative Credit Union considers continued membership in Jamaica Co-operative Credit Union League to be in the best interest of the members of First Heritage Co- operative Credit Union in particular, and that of the Jamaica Credit Union Movement in general. AND WHEREAS First Heritage Co-operative Credit Union is not currently a member of the Jamaica Cooperative Credit Union League. AND WHEREAS Rule 5 Subsection 1 of the rules of the Jamaica Co-operative Credit Union League stipulates that it is necessary that application for membership is duly passed by the General Meeting of the members of the applicant.

AND WHEREAS Rule 52 sub-section 8, sub-section 4, of the rules of First Heritage Co-operative Credit Union states that the membership has the authority and responsibility to "Authorize both directors to appoint to the directorship management of any registered credit union or entity such representatives as the constitution of that body may require to be represented from the credit union. At least 50% of such representatives shall be appointed from among the serving members of the Board of Directors of the Credit Union. BE IT RESOLVED that this special general meeting of the members of First Heritage Co-operative Credit Union Limited held on August 30, 2012 gives approval to the Board of Directors to (1) apply to Jamaica Cooperative Credit Union League for membership and (2) Nominate delegates and alternate delegates to the Jamaica Co-operative Credit Union League pursuant to rule 52 sub-section 8, subsection 4.," After reading the Resolution, the Secretary opened the floor for discussions on the matter. Rev. orbourne, one of the Credit Union’s stalwart members, stated that either the Chairman or the Secretary should explain the role of the League as he believed that most individuals in attendance might not know the roles and responsibilities of the organization. e Chairman responded and told the meeting that the League was the umbrella organization for all credit unions within Jamaica. He said that, through the League, FHC also extends its involvement in the Credit Union movement throughout the Caribbean via the Caribbean Confederation of Credit Unions (CCCU). is aﬃliation, he said, facilitated FHC’s further involvement in the World Council of Credit Unions (WCCU). He advised that without membership in the League FHC would not be able to participate in that process. He went on to say that the League was the organization that speaks with a united voice for the Credit Union

movement in Jamaica. Mr. Hill stated that FHC had significant amount of investment in the League through the Stabilization Fund and without membership in the League, it would not be able to participate in how these funds are utilized, going forward. Rev. orbourne added that the League was also a service organization for and to the Credit Union movement. He explained that the Stabilization Fund was used to support the Credit Union movement financially, in that, if a credit union was challenged financially, it could be assisted by proceeds from the Stabilization Fund. Rev. orbourne also mentioned that the League has a Bond which protects the funds of the credit unions in case of financial loss through criminal activities committed by persons such as staff and directors. He then stated that he just wanted to outline the importance of the League’s responsibility to Credit Union movement. Ms. Windel Wilson, a member, asked whether the document in hand and the Resolution which was previously read would be the information voted on. e Secretary responded in the affirmative. With that, Ms. Wilson pointed out that the wording should be more specific and consistent and suggested that the word “Limited” should follow Jamaica Co-operative Credit Union League and First Heritage Co-operative Credit Union throughout the Resolution. e Chairman accepted the suggestion and asked the Secretary and the members to note the change on their respective documents. Mr. Hill enquired whether there were any other questions relating to the Resolution. ere being no other questions the amended Resolution was passed on a motion by Director, Edmund Jones, seconded by Rev. orbourne. e audience was also in general agreement with the Resolution. Rev. orbourne expressed his concern regarding the appointment of delegates before the Annual General Meeting. e Chairman responded that the rules state that the Directors will name the delegates to the League. He pointed out that some credit unions select their delegates at their annual general meetings but due to the fact that discussions are held on policies and strategic issues at the League’s general meetings the individual who represents the Credit Union should be aware of these matters and be able to contribute accordingly. He said the delegate-elect would be guided by discussions at Board meetings and so would be better able to represent the Credit Union; hence the decision to have the delegates named by the Board of Directors. Another concern raised by Rev. orbourne was the paucity of attendance at the meeting. He said more effort should be placed on getting the members out to these meetings. He expressed the hope that the Credit Union would endeavour to have better attendance at the annual meetings. He went on to say that efforts should be made to ensure that necessary arrangements are made to have members from as far away as Montego Bay, Old Harbour and Mandeville participate in the voting process at these meetings. He said that the Board of Directors should look into this matter and set targets for attendance at these meetings. e Chairman acknowledged the point raised by Rev. orbourne and said that there was always room for improvement. He stated that a number of methods were used to advise members of the meeting, including,

but not limited to, text messages and traditional advertisements in the newspapers. e Chairman commented that the matter of the attendance of persons in rural Jamaica at these meetings would be explored and promised to consider the best option that would allow them to be a part the meetings. He mentioned the use of technology as an option but Rev. Dawitt had some reservations in this regards as he noted that members could not vote by proxy and so this method would not be conducive under the Cooperative Societies Act. It was suggested that the use of alternate venues at strategic locations across the island would facilitate greater member participation island-wide. It was also suggested that meetings be held close to where the branches are located, such as Portmore and Old Harbour. e Chairman noted the suggestions and told the meeting that the best arrangements to accommodate the maximum number of persons would be made. He pointed out that Town Hall meetings were held during the merger process which assisted with keeping the members informed. At this point the Chairman congratulated the management and staﬀ on the success of the merger and stated that it had certainly made a landmark not only on the Credit Union movement but also on the entire Jamaica. He stated that the marketing eﬀorts were tremendous and had placed FHC in the forefront of the minds of Jamaicans who now considered the Credit Union their financial institution of choice. He said that the transition was a smooth one, as merger project teams comprising of personnel from both Credit Unions were established very early and worked well together to make the transition seamless.

e meeting was adjourned at 4:40 p.m. on a motion by Mr. Johnathan Brown, seconded by Mr. Orville Hill.

_________________________ Edmund Jones Secretary, Board of Directors

THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS REPORT 2012 e year 2012 was a significant one in the history of the Credit Union movement in Jamaica. On August 1st 2012, the movement saw the merger of Churches Co-operative Credit Union Limited and GSB Cooperative Credit Union Limited to form First Heritage Co-operative Credit Union Limited (FHC). ese two well respected, reputable and strong institutions boasted a combined legacy of over 100 years and had both proven themselves to be strong forces in the financial sector and a merger of this magnitude was the first of its kind in the Credit Union movement. In July 2011, members of both Churches Co-operative Credit Union Limited and GSB Co-operative Credit Union Limited voted in favour of the merger. At Special General Meetings held by both Credit Unions on June 5, 2012 and June 6, 2012, respectively, members were asked to consider and vote on a Special Resolution relating to the following: • Name of the new entity • Address of the Head Oﬃce • Eﬀective date of the merger • Rules of the new entity e Resolution was successfully passed having achieved the 75% majority vote needed from the Credit Unions’ members present at those meetings. is marked the culmination of a process that began in October 2010 when the idea of the amalgamation of these two major Credit Unions was first posited.

e merger process was not without its own challenges as the standardization and rationalization of products, services, systems, operational policies and procedures required from us a united and focused effort to accomplish the desired end result. Today, we are pleased to report that we are over the worst in terms of the teething pains and, at present, our retail and branch operations have now been effectively strengthened under the new brand. Amidst the significant changes that occurred within our doors, as a financial entity, we still were affected by the economic strain of the country.

THE FINANCIAL PERFORMANCE e financial performance for the year ended December 31, 2012 recognized the merger at August 1, 2012, and was prepared in compliance with International Financial Reporting Standards (IFRS). Accordingly, the Credit Union’s Net Surplus for the year was $61.92M which was arrived at after expensing one-time merger and related cost of $61.83M. While the current year’s performance was significantly below the previous year’s, the merger strengthened our Institutional Capital to $1.38B which is a major indicator of soundness. Net Interest Income of $783.09M for the Group reflected an increase of $213.5M or 37.5% which was due mainly to the combination of the two loan portfolios and containment of the loan impairment provision.

Total assets increased to $8.48B with a loan portfolio of $6.33B representing 75% of assets. e strength of this merged organization was also represented in the combined deposits and shares from members with accumulated value of $5.95B at balance sheet date. e long-term intent of this merger is to improve the service quality, product oﬀering and financial returns to our members. During these first few months we have established the foundation on which we will build in the future.

OUR SUBSIDIARY FHC Investments Limited (FHCIL), formerly CCU Investments Limited is a wholly owned subsidiary of First Heritage Co-operative Credit Union Limited and it was incorporated under the Companies Act on November 17, 2009. e company provides competitive rates and success-driven portfolio management services to its clients through the knowledge and expertise of the team. e services and products include: • Money Market Investments • Bonds • Stocks • Mutual Funds • Portfolio Management • Pension Fund Management e investment company reported a loss of $10.8M due mainly to an increase in operating costs that moved from $6million (2011) to $31million in this current year. is increase relates to personnel costs required to ensure separation of duties and control systems that are independent of the Credit Union. e Group therefore saw a total Net Surplus of $52.16M.

OUR COMMITMENT In an effort to create benchmark standards for financial services in Jamaica, we now offer an extensive range of products and services created with the changing needs of our members in mind. Our expanded retail arm is designed to offer our members convenience and ease in transacting business with us. We believe that by adopting cutting edge technology, offering a comprehensive suite of financial solutions, increasing retail accessibility and constantly looking for growth opportunities, FHC will demonstrate strength and innovation within the wider Jamaican business arena and beyond. Our corporate social responsibility emphasis was demonstrated through a number of initiatives which saw us donating more than $5M in cash and kind during 2012. In celebration of the country’s 50th year of independence, our commitment to education was demonstrated in our “50/50 Jamaica Campaign”. is project delivered fifty thousand dollars ($50,000) each to fifty (50) basic schools across the island totalling $2.5M. An additional $2.6M was invested in education in the following areas:-

• • • •

Seventeen (17) new GSAT Scholarships worth $620,000 Eighteen (18) existing GSAT awardees received $360,000 Seven (7) final year University students received $1,500,000 Five (5) essay competition winners and two (2) participating schools were awarded $130,000

We also oﬀered financial assistance and supported programmes aimed at promoting entrepreneurial ventures in Jamaica. Our ‘Entrepreneur Awards” programme provided grants to individual students or groups who submit a feasible, innovative and comprehensive business plan, which they intend to execute once they have completed their studies. e 2012/2013 awardees will receive $ $300,000.00 each in prize money. ree awards will be made. Our corporate and social responsibility included several community outreach projects in Jones Town, Mandeville, May Pen and Montego Bay. In the aftermath of Hurricane Sandy, we distributed care packages to the elderly and individuals in the Lawrence Tavern area who were aﬀected by the hurricane. In partnership with “Christ Ministries” in Jones Town, we contributed cash and gift bags to the Jones Town Community Development’s Annual Dinner. Our team renovated the Sick Bay at the Ebenezer Primary School in Manchester, cleaned and donated new GSAT text books to the school library at the May Pen Primary School and conducted a street feeding project in Montego Bay.

e ‘Season of Giving’ initiative is another corporate social responsibility activityof which we are very proud. Recipients of these donations during the year included St. Francis Primary, Redeemer Moravian, National Chest Hospital and All Saints Anglican Church. In addition, through our “One Gift to Grant One Wish” toy drive, we collected new and gently used clothing, toys and books for the Best Care Children’s Home, SOS Children’s Village and the Glen Hope Place of Safety in Kingston. In the months ahead, FHC will continue to participate in a range of programmes, which provide assistance to communities and individuals through the FHC Foundation Limited which is to be launched in 2013. Your Credit Union is proud of its heritage and will continue to embrace its role of being good corporate citizens and remains committed to making FHC the financial institution of choice as we seek to improve our service delivery and anticipate your needs to assist in ensuring the dreams, goals and aspirations of you and your family become a reality.

_________________________ Orville Hill Chairman, Board of Directors

ATTENDANCE OF DIRECTORS AT BOARD MEETINGS 2012 NAME

TIMES POSSIBLE

TIMES ATTENDED

TIMES EXCUSED

TIMES ABSENT

Orville Hill

Christopher Samuda

Michael Roofe

Balvin Vanriel

Michael Parker

Edmund Jones

Angela Ching

Valerie Veira

Johnathan Brown

Sonia McFarlane

Carmen Facey

Yvette Sibble-Brown

Leodis Douglas

Oâ&#x20AC;&#x2122;neil Grant

Mark Gonzales

OUR LEADERSHIP TEAM

MANAGEMENT REPORT 2012 To remain competitive in a continuous evolving marketplace, credit unions have had to transform in order to meet the ever changing needs of their membership base. By adopting new technologies, increasing accessibility and constantly looking for growth opportunities, decisions become necessary to strengthen the capital base as well as the financial standing of the Credit Union. Sometimes, to achieve this, an amalgamation of entities is necessary. On August 1, 2012, Churches Co-operative Credit Union Limited (CCCU) and GSB Co-operative Credit Union Limited (GSB) merged to form the new entity First Heritage Co-operative Credit Union Limited (FHC). is decision culminated the process of discussions that began in October 2010 when the idea of the amalgamation of the two Credit Unions was born. With a combined heritage of over 100 years, FHC now stands as the largest open-bond Credit Union in Jamaica, and has as its bond, all civil servants, staff within Statutory Bodies and Public Corporations, licensed professionals and their employees, their spouses and relatives as well as members of religious bodies and affiliations and their families and relatives. FHC now stands as a leader in creating a standard for business practices in Jamaica by providing improved overall customer service for its expanded membership base of 185,000 members through 13 convenient island wide locations, an interactive website, real time online email communication and a 24 hour member Care Centre. Additionally, through our social media pages, Facebook and Twitter, FHC continues to strengthen the relationship with our members by offering useful financial tips and sharing timely information about our products and services. We offer a comprehensive range of 38 products and services including Fixed Deposits, Micro and Small Business Loans, Pay Day Loans, Mortgages, Pension Plans, Youth Savings Accounts, Cambio Services, Motor Vehicle Loans, and Investment Instruments through our subsidiary, FHC Investments Limited (FHCIL). FHC and its subsidiary FHCIL as a group performed creditably for the period January – December 2012 with a net surplus of $52.16M. is performance was after expending a one-off merger cost of $61.83M. e year ended with members’ savings totaling $5.95B, a loan portfolio of $6.33B ($782.73M financed by external funding) and Group total assets of $8.48B. Our commitment to generate continual benefits to our members and other stakeholders remained and these are just some of the examples that demonstrate that we are doing just that.

STRATEGIC PLANNING & CORPORATE AFFAIRS On August 1, 2012, the Division of Strategic Planning and Corporate Affairs (SP&CA) was created. e functions of this office augments that of the Chief Executive Officer (CEO) and has oversight and responsibility for four major areas; Strategic Planning, Corporate Affairs, Marketing & Communications and Project Management. e Division is responsible for the achievement of FHC’s new business, process re-engineering, major projects and strategic support objectives. It provides an internal management advisory service that will facilitate sound decisions, greater efficiency and cost containment. e division provides project management skills required for planning, designing and execution of projects within FHC. e team members in this Division were responsible for managing the pre-merger activities between GSB and CCCU in 2012. It also managed the post-merger activities of FHC.

e Strategic Planning Division executed the planning retreats and the compilation of the 2013-2015 Strategic Plans using the Balance Scorecard (BSC) methodology. e Credit Union embarked on a the BSC methodology as a performance management tool used to assist the Credit Union’s Management to create and strategically align and measure activities, resources and efforts towards achieving its Vision and Mission, whilst remaining true to its Core Values of Reliability, Teamwork, Mutual Respect, Integrity & Trust, Responsiveness, Professionalism & Technical Competence and Continuous Improvement- all of which represent the foundation principles on which FHC is built. Each team member’s performance objectives are linked to the strategic plan. e Division was also responsible for training the team members in using this methodology and ensuring that all team members understand the strategy of FHC and their individual roles in executing same. In addition, the unit played a significant role in assisting with effective corporate governance through augmenting the functions of the Board Secretariat. e Division also executed all functions relating to Corporate Affairs including but not limited to meeting legal and regulatory requirements of FHC’s operations such as integrating contracts, insurance coverage, titles, licenses and all other legal matters. e Division, in 2013, will be responsible for monitoring and reporting the progress of FHC’s achievement based on the strategic plans. e effective execution of the Marketing, Communications and Public Relations function through the operations of the Credit Union’s Strategic Marketing portfolio is a major focus of the Division. e results of this for the first five months of the merger was the positioning of the FHC brand in the minds of Jamaicans and, based on feedback thus far, it would suggest that the efforts of this Division have been fruitful. e Division has been driving the strategy for building the financial institution of choice as per our mission and vision. It seeks to identify, plan and execute opportunities for alliances and collaborations with other like entities to create synergies that will benefit those involved. e modus operandi of the Strategic Planning and Corporate Affairs Division ensures the activities of all Divisions and Units are aligned to the organization’s strategy, mission and vision.

Our overarching strategy is our relentless focus on improving service delivery, consistently creating value for our members and improving product and service offerings with the highest level of efficiencies. In short order we will be investing in a new core Information Technology platform that will further increase efficiencies in our service delivery.

MARKETING AND COMMUNICATIONS e August to December 2012 period saw the Marketing and Communications Department embarking on numerous initiatives geared specifically toward educating our members and the wider society about the new FHC brand and its offerings. ese initiatives were aimed at positioning the Credit Union and the new brand as a first choice for meeting all our members’ financial needs at every stage of life. e official launch of FHC on August 2, 2012, took the form of simultaneous launch ceremonies at different Branch locations where the official sign and logo were unveiled to the public for the first time. e Marketing & Communications initiatives for the period included: ▪ A massive re-branding exercise across all branches. ▪ A presence in the press in the form of a Gleaner Wrap and corporate advertisements. ▪ A Media-thon where the brand was significantly highlighted in the Mandela Park using radio stations such as the RJR Communications Group, Nationwide and Power 106. ▪ Creation of a “We’ve merged” television advertisement to highlight the union between CCCU and GSB. Under the new brand, we made several contributions through corporate social responsibility activities. Birthed under the Jamaica 50 celebrations, FHC brought to fruition the 50/50 Campaign, where we donated $50,000.00 to a total of 50 Basic Schools totaling $2.5M, in each parish across Jamaica. In addition, under our Season of Giving and Community Outreach activities, we donated toys as well as over $700,000.00 to children’s homes, schools, churches and other deserving institutions. In addition, we offered GSAT and tertiary scholarships to the tune of $2.5M to well deserving students who not only showed academic promise but who were also in need of financial assistance. e year 2012 was recognized as International Year of Co-operatives and some of the activities hosted by FHC during Credit Union week in October 2012 were as follows: • Micro Loan Bazaar • Lunch Hour Concerts • Members’ Appreciation Day across all branches.

In November 2012, we re-launched our Entrepreneur Awards Programme, this time widening the pool of applicants to include final year students in all registered tertiary institutions across Jamaica. e programme will culminate in June 2013 where the top three awardees will be given a total of $300,000.00 as start-up capital for their business ventures.

HUMAN RESOURCES DEVELOPMENT During the year, we continued our eﬀorts to empower, develop and motivate our most valuable asset, our team members. All team members are knowledgeable and fully understand their role in helping the Credit Union achieve our strategic objectives. e BSC methodology allows team members to identify their individual roles relating to their job functions and how these are connected to the organization’s strategy. It assists team members in recognizing the importance of execution in order to consistently realize our mission on a daily basis. Training & Development In an eﬀort to improve our service delivery to you our valued members, we embarked on the development of our Quality Advantage Program.

Our Quality Advantage Program is a service excellence program that ensures the consistent delivery of worldclass service. is is driven by our Quality Advantage Handbook, which has been developed and issued to each team member and is used in each Department’s daily Credo meetings. ere are currently twenty (20) Internal Trainers, who are responsible for ensuring the transfer of knowledge to team members, with emphasis on our Customer Service Standards delivery. Each non - management team member is expected to complete 20 hours of training per year, while management team members are to complete 15 hours per year. e total amount of scheduled training hours for 2012 was 5,315. Centre for Professional Development (CPD) Our team members and volunteers are given 24hour access to training and learning via our On-line learning and training facility, CPD On-line. CPD On-line is a web-based training facility with a state-of-the-art online environment that combines the ease of on-demand self-study training and learning with expertlydesigned Credit Union courses, and personal assistance whenever it is needed. It offers more than 300 online Credit Union courses. CPD online is geared towards improving performance and service delivery, efficiencies and individual development of all team members and volunteers. Rewards & Recognition Our initiatives to boost team members’ morale and encourage them to achieve and exceed their own expectations are reflected in the implementation of our Rewards and Recognition Programme. Recognition of team members’ efforts is done on a monthly, quarterly and annual basis, where team members are rewarded for their performance over the period. We also have an annual award function where team members who excel are presented with awards for their performance over the past year.

Team Members Welfare & Development Wellness Programme e following initiatives were undertaken during the year to ensure that our team members maintain a healthy lifestyle. Some of these initiatives included: Continuous aerobics classes Participation in the Sigma Corporate 5K Run/Walk Participation in Forest Trek Hike Renovation of Gym to facilitate increased usage Purchasing of Nutritional Supplements and retailing to team members at cost price Sampling of Nutritional Foods Presentations on Health & Wellness Social Responsibility In partnership with the Ministry of National Security & Justice Social Investment youth programme, we provide placements for Interns during the year. Additionally, our support for, and facilitation of the High School Work Experience Programme continues on an ongoing basis. We also assisted the less fortunate by sponsoring feeding days and distributing Easter Packages as part of the St. Stephen’s Feeding Programme. e Management of the Credit Union is committed to continuing initiatives in an eﬀort to foster a healthy, harmonious and sustainable working environment for our team members, which will in turn redound to the benefit of not only our team members but also the entire membership, while ensuring the success of the organization.

OPERATIONS, RISK AND INFORMATION TECHNOLOGY Operations e year saw the merging of the operations of the two Credit Unions with the selection of the best practices from both. Selected teams from both prior organizations spearheaded the overhauling of both sets of policies and procedures ensuring that, despite the change, the operating procedures were not interrupted and when they were, it was with the intention of finding the best fit of both for our members whilst not compromising industry best practices. We are relentless in our aim of achieving excellence in our eﬀorts to continually improve our service delivery to members. Our team collectively worked at finding new and improved ways of operations and to this end, we continued with our re-engineering exercise, whilst ensuring that we operated within industry standards and that the relevant literature as it pertains to operating procedures was made available to the entire network. is greatly assisted in minimizing redundancies from the system as well as identifying any obvious gaps.

Extra focus was concentrated on the retraining of the team members which has made them better able to perform their day-to-day activities in a more professional and efficient manner. Additionally, several frontline operations were removed and placed in its rightful place- in the back- office, giving our frontline staff more time to spend with our members. We continue to consistently monitor our service standards and making necessary adjustments, always with the members’ total satisfaction in mind. We are happy to report that, for the most part, we were successful in addressing most of our initial teething pains relating to operational challenges, some earlier than others. We continue our drive to provide a worldclass member service experience as we find solutions in our daily efforts to satisfy you, our members. Risk and Compliance Given the importance that we have placed on compliance, this Unit was given additional capital resource in order to manage the added responsibility. e Unit operated at full gear in 2012 with a continued consistent Risk Management monitoring program. e program allows for a comprehensive analysis of all possible business risks and facilitates strategies for their elimination or mitigation. e frequent monitoring and feedback of operations by the team assisted in ensuring that the standard organizational procedures were adhered to, thus ensuring that the assets of the Credit Union were protected at all times. is resulted in an overall reduction of exception findings reported by our Internal Auditors and an overall rating for branches and departments of above 4.5 out of a possible 5.

Information Technology Being cognizant of the importance of this critical area that helps to drive the efficiencies of our operations, we continued in our efforts to seek ways which would enhance the members experience in our Credit Union halls as well as through our online services. During the year concentrations in this area included the following: Network Upgrade e Networking infrastructure was upgraded with the implementation of Fiber Optics as the backbone for the Local Area Network (LAN) at Head Office and Eureka/Ripon Road Branch. is project also facilitated the implementation of Virtual Private Network (VPN) technology. Some of the immediate benefits realized were: • Increased performance in the communication systems to both members and staff. • Increased accessibility to documents and reports on the Intranet. • Improved performance of host on the network. e capacity of the Wide Area Data Network was also upgraded to facilitate improved customer service delivery. is resulted in: • Reduced transaction time at the remote branches. • Improvement in the communication systems and document sharing across the branch network. • e ability of the network to accommodate meetings remotely which will assist in reducing travelling and other associated expenses. • Immediate access to members’ data such as signatures from the document management system.

Members’ Experience In an effort to streamline and provide a more efficient service to you our loyal members, we opened our own In-house 24-hour Member Care Centre on August 2nd, 2012. Merger e merger of GSB and CCCU saw the conversion of the Core Banking System, Mercury, used by former GSB to the Smart Solutions System used by former CCCU. is resulted in immediate benefits for the members of the former GSB: • Access to ATM Online facility • Seamless access to Internet Banking • Seamless access the Interactive Voice Recording (IVR) System Website e merger also facilitated a redesign of a new website for First Heritage Cooperative Credit Union to allow former GSB and CCCU members’ online access to do their transactions. ere was a noticeable increase in online transactions during the period being reported on. Plans are afoot to convert to a more efficient Information Technology platform in the near future to increase efficiencies and deliver excellent service to our valued members.

CREDIT ADMINISTRATION & LOAN RISK DIVISION 25 e Credit Administration and Loan Risk Division continued to work with members in a proactive manner in solving the various problems and challenges they faced because of the economic environment in which we operated. Moratoria on loans and the re-writing of current arrangements with lower interest rates and longer terms to better accommodate their lessening cash flow, were some examples of the methods utilized. In addition, we have adjusted policies and applied prudent loan approved conditions where necessary, and these interventions have resulted in the improvement in members’ cash flow, allowing them to be better able to meet their day to day demands. To mitigate risk, the Division continued to improve on the loan underwriting techniques and in this regard has implemented the credit scoring module to the process. Training has also commenced and will continue to be an integral part of improving the quality of credit applications processed. Past due loans are closely monitored and again we had to find ways of working with the members and their particular situations while at the same time ensuring that the loan portfolio was effectively managed to minimize losses and earn an acceptable return for our members. Non-accrual loans are adequately provisioned and every effort was made to recover on non-performing and charge-off loans by maintaining a strong collections system.

RETAIL SALES & SERVICE DELIVERY e historic merger between GSB and CCCU resulted in an increase in the number of service delivery points in our network. We currently have a total of 13 outlets including 9 branches, 4 Micro & Small Business Loans Units, a Micro & Small Business Advisory Centre in Trench Town, a Wealth Development Unit and a Mortgage Unit, along with our 38 products and services to meet and exceed our members’ expectations. It was a year of transition for the network, as we repositioned ourselves in the market place under our new brand, which aptly represented the legacies of both CCCU and GSB. e focus during the earlier part of the merger was to ensure that we covered all the critical points of service delivery and mitigate against any dislocation to our valued members. roughout the merger process, we kept our members informed through, Town Hall meetings, notices, emails and text messages and kept the lines of communication open. Accordingly, the innovation continued as our products and services were integrated to meet and exceed the expectations of our members. In addition, we facilitated earlier opening hours at our Eureka branch to meet the needs of those members who wanted to access our in-branch services prior to going oﬀ to work in the mornings.

During the period, we were able to improve on many areas of our service delivery. A first for the Credit Union movement was our 24-hour Member Care Call Centre, which facilitates our members at their convenience. is we hoped communicated our strong desire to be accessible to our membership any time of day. In addition, our membership can now access their accounts via Internet Banking. ese are just some of the ways we have created opportunities to better serve our members following the merger. Our expanded reach has seen us engaging our members across the island, through collaboration with Bill Express in an effort to facilitate members in communities and towns where we do not have a physical Branch. is collaboration allowed the remittance of funds to FHC accounts through the Bill Express payment centers which has a reach of approximately 300 locations island-wide. RETAIL NETWORK We also recorded improvement in the service delivery through our Micro & Small Business Loan Units. e Mandeville office was relocated during the year and opened its doors on August 1, 2012, at its new location in the commercial hub of Mandeville. e office provides more comfort for our members and is well positioned for future expansion. e overall performance of the Micro & Small Business Loan Unit has been very encouraging. Since its inception in 2006, the Unit has demonstrated strong growth, having impacted over 3000 members with a current portfolio of over $100M. Our expanded branch network affords our valued members greater access to our suite of products and services through full service branches. Our Spanish Town branch has shown very strong performance and an endorsement of our decision to have relocated in 2011.

e Cassava River location was also consolidated into the Lawrence Tavern operations; this area, we believe, has good potential for further growth. We value the business and partnership with our members and remain committed to delivering our products and services to you with the greatest level of eﬃciencies delivered to give you our members the highest levels of member satisfaction. SALES AND WEALTH DEVELOPMENT UNIT is Unit represents a combination of the sales representatives serving the entire island. is team is comprised of a cadre of well-trained and motivated team members who are mobile and ready to visit our members to deliver unparalleled, personalized service at no additional cost. ese team members are focused on anticipating and exceeding the needs of our members at all times. e Retail Division remains committed and driven to deliver on the strategies to strengthen the excellence in-service culture, to anticipate the needs of our members, to innovate and constantly exceed their needs, and to execute above the members’ expectations.

MORTGAGE SERVICES DIVISION Since its establishment on August 1, 2012, the Mortgage Services Division conducted 339 mortgage interviews, approved mortgage loans totaling $156M and disbursed 35 loans totaling $171M. ese funds were made available to members to assist with home purchase and construction, land acquisition and home improvement. At the end of the financial year commitments for mortgages pending disbursement stood at $91M. We are well positioned to approach the future with confidence and we will continue to be vigorous participants in national development by providing our members with aﬀordable mortgage loans for both residential and commercial purposes. is we will achieve through public-private sector partnerships and alliances with other industry players.

CONCLUSION e year ahead has posted signs of being a challenging one for financial institutions and businesses in general. However, our recent merger has given us added force to combat the challenges which places us in a better position to provide support through our many products and services to fulfill the needs of our members and also to attract new members to treat with us. We have strategically positioned ourselves to meet our goals and objectives for the ensuing years and have prepared ourselves to be among the top financial institutions. In short order we will be launching the FHC Foundation through which all our charity work and donations will be channeled. We aim to increasingly find ways to ensure we are meeting and exceeding the needs and expectation of our valued members. As such, we intend to further diversify our product and service oﬀerings to include, Mobile Banking, Estate Planning Services and increase the on-line interactivity with our members. In addition we intend to establish a Venture Capital Fund to assist small entrepreneurs to establish businesses which will increase employment in Jamaica.

We aim to collaborate with other Credit Unions to provide similar services to members, either by oďŹ&#x20AC;ering advice or through alliances that will create synergies which will augur well for the movement. We believe that our sector must be first in the minds of all Jamaicans. We look forward to the future with confidence as we strengthen our resolve and commit to ensuring the progressive realization of our Vision and Mission as a Financial Co-operative.

_________________________ Basil Naar Chief Executive OďŹ&#x192;cer

OUR SENIOR MANAGERS

EXECUTIVE OFFICE Basil Naar - Chief Executive Officer Cavelle Bailey - Executive Secretary Michael Williams Leon Gooden Julie-Ann Gordon Maureen Brown-Hayden STRATEGIC PLANNING & CORPORATE AFFAIRS Maria Morrison - GM, Strategic Planning & Corporate Affairs Tanesha Thompson - Project Officer Marketing and Communications Juven Anderson - AGM - Marketing & Communications

Anthony Williams - Manager Marketing & Promotions Dionne-Sheree Smith - Asst. Manager- Marketing & Communications Diana Allen - Youth Development Officer Alece Hansel Carlene Coley HUMAN RESOURCE DEVELOPMENT Jillian Gayle - General ManagerHuman Resource Development Rosemarie Samuels - Human Resource Manager

Kerryann Williams Sophia Harvey - Human Resource & Learning Officer

Sophia Henry-Rose Janice Stanford Roberto Thompson Fitzroy Hamilton OPERATIONS, RISK & IT SYSTEMS Linda Miller - General ManagerOperations, Risk & IT Systems Karlene Simpson - Assistant General Manager Operations, Compliance & Risk

Barbara Warren Kavia Brown Adika Green Nellene Walker Isaac Brown Ava-Dawn Williams Nadine Dyer - Risk & Compliance Officer

Jewel Morgan - Risk & Compliance Officer

Sasha-Gaye Bonnick Renny Brown Trudy-ann Brown Choy Miller Tajay Edwards Mark Bent Cory Hibbert Nicolas Stewart Kimisha Reid Mario Blake Tafari Bryan Paula Brown Donna Dreckett Camille Bryan IT Systems Isakalu Duffus - Manager-Information Systems

Edward Morgan - Assistant Information Systems Officer

Christina Bell Everton Campbell Beverley Green-Hyatt Nika Duncan-Donaldson Bhagwandeen Lall INTERNAL AUDIT Dennise Edmond-Hastings - Chief Internal Auditor

Dawn Edwards - Snr. Internal Audit Officer

Judith Francis Ronnalee Small

llewelyn Johnson Theodore Francis

Sales and Wealth Development Unit Claud Sawyers - Manager - Sales &

CREDIT ADMINISTRATION & LOAN RISK Janyce Robinson - General Manager-

Services

Credit Administration & Loan Risk

Georgett Angus Tashania Richards Roechelle Buchanan Neeva Nugent - Credit Administration Officer- Loan Recovery

Yvette Bryan Dwayne Taylor Damian Willis Marlene Wong - Manager-Credit Admin & Loan Risk

Susan Hamilton Camille Campbell Sophia Watson Chinnesha Martin Rita Spence Tashuana Brown Michael Barnaby Securities Arlene Blake-McPherson Jodiann Sampson Sanique Dixon Rona Whitelocke Nadine Wilson Shameka Henry Dwight Lewis

FINANCE & FACILITIES Maxine Little-Dixon - General

MORTGAGE SERVICES DIVISION Maxien Davis - GM, Mortgage

Manager- Finance & Facilities Management Emil Williams - AGM - Finance & Facilities Management Garfield Pearson - ManagerAccounting & Treasury

Service Division

Whyon Robinson Rohan Rhoden Andrew Francis Dewayne Mullings - Administrative Officer

O’Neil Blair Sharon Roper Dexter Young Shane Madden Damion Simpson Kisha Agard Keisha Hillary Gary Cooper Rik-Andi McLeary Dennis Jack Jermaine Samuels

Natalee Thomas-Shorter - Asst. Manager-Wealth Development Unit Mendel Thompson - Manager Wealth Development Unit & ISA Sadie Cooper Patrice Doyley Debbie Jones-McGibbon Audrey Hawthorne-Brown Paula Pusey Racquel Long Roxanne Byfield Terry-Ann Phillips-Watson Richard Dunn Andrew Jones Member Care Centre Janet Richards - Manager, Member Care Centre

Russell Downer Ava Gay Tucker Camille Blair Patricia Hemmings Carolyn Brown Deandra Williams Junior Thomas Tassanique Notice Arantes Jackson Charles Taylor Cassandra Rainford Aljay Cole Sean Hunter Kadian McDougall Damone Samuels

La Toya Williams - Manager, Mortgages

Maurine Collins-Smith Allison Smith Gayloy Kennedy-Martin

RETAIL NETWORK Eureka/Ripon Branch Dale Dixon - Senior Manager Jacqueline Lloyd-Carter - Assistant Manager

RETAIL, SALES & SERVICE DELIVERY Quilston Harrison - General Manager - Retail, Sales & Service Delivery Norman Thompson - Assistant General Manager Retail Systems & Customer Service Jacqueline-Pingue-Smith - AGM Wealth Development Unit & Member Care

Winsome Slack

Trudian Stewart Marsha Bennett Veneta Johnson Monique Barrett Andre Sampson Naxian Clarke-Beharie Nastassia Beersingh Keneal Walters Sheryl Meikle Sharon Coombs Racquel Walker Leonard Gooden Maisha Morris Rochelle Thomas Dane Morrison

Atacia Wiggan Dain Dixon Kaydian Mitchell Damion Walters Sherece Doyley Shanna-Kaye Carley Carlton Brown Toni Thomas Vivienne Walker-White Doreen Francis Karen Silvera Kingston Gardens Branch Damion Williams - Manager Almeta Johnson-White Donnett McBean Denise Orridge Alleesa Matherson Latoya Smith Kymme-Iska Williams Sheldon Christian Julian Dawson Ruchelle Dodd Kissandra Dixon Jermaine Gardner Adrian Jackson Jacqueline Williams-Henry Lecia McKoy Lindesia Harding Akeel Bogues Philycia Phillips Kirk Thomas Portmore Branch Phillip Smith - Manager Denise Brown - Asst. Branch Manager

Shanique Shand-Hutchinson Aneacia Neita Calvin McKenzie Kadian Dyke Novelette Chisholm-Mundell Ricardo Smith Sireka Swaby Sean Lewis Nikeisha Plummer Monique Johnson Tason Stephens Spanish Town Branch Rudolph Cox – Manager Rayon Wright Eleanor Grant Eugene Williams Jermaine Campbell Roshane Markes Osharae Harriot Gillian Wisdom

Ayanna Bennett Mauvreen Clarke-Whyte Andre Scarlett Lascelles Watson New Kingston Branch Melissa Miller - Manager Novado Wynter Meegan Morgan-Gordon Norman Williams Asha Bacchas Jennifer McLaughlin Jason Ferguson Candice Mendez Lucian Rowe Sandra Davidson Kemesha Gordon Glenford Brown Montego Bay Branch Marcia Bailey – Manager Joy Parkin Stacian Haughton Everes Coke Dahlia Grant-Smith Kriston Malcolm Donnalee Clarke- Gordon Gail-Ann Wilson Jodi-Ann Henry Keisha Johnson Sashena Rowe Maureen Whyte Dian Hylton

Micro & Small Business Loans Unit - Eureka Sophia Richardson - Manager Althia Hare Shelly-Ann Laing Gillian Williams-Baugh Tamote Thompson-Rhoden Micro & Small Business Loan Centre - Mandeville Fiona Holness Kerry-Ann Alcott Mario Delavante Taneisha Vines Micro & Small Business Loan Centre - May Pen Wendy Chin Cheffine Smith Kristen Brown Micro & Small Business Loans Unit - Montego Bay Theresa Dewar FHC INVESTMENTS LIMITED Caswell Linton - GM- FHC Investments

Patrick Burke - Manager-Trading & Treasury

Denise Davis Anita Chong - Investment Relations Manager

Damion Whitehorne May Pen Branch Keesha Metcalfe - Manager Peta-Gaye Brady Tashell Christie Demar Wright Elaine Smith Old Harbour Branch Judith Hyllam-Ennis Jeromie Douglas Lenice Grant Lorna Thomas Olene King Jhenelle Williams Lawrence Tavern Sub-Branch Tanisha Wright Melissa Ximines Sadian Richardson Trench Town Advisory Centre Chantel Coote Georgia Hyatt

RETIREMENT SCHEME Richard Grant - Manager- Retirement Scheme

Tamara Ricketts Tarsha McKenzie Nicola Blackstock Gavin Francis

REPORT OF THE TREASURER Overview I am pleased to present the Treasurer’s Report to the Annual General Meeting of the First Heritage Cooperative Credit Union Limited (FHCCU), which is the new entity formed by the merger of the Churches Co-operative Credit Union Ltd (CCCU) and GSB Co-operative Credit Union Ltd (GSBCU) on August 1, 2012. is business combination was a historic event for the Credit Union Movement, as this was the first true merger of Cooperatives in the history of Jamaica and the Caribbean under the revised International Financial Reporting Standard (IFRS 3) which became eﬀective in January 2010. In accordance with (IFRS 3) governing business combinations, it was required that the Statement of Comprehensive Income in the Audited Financial Statements of the merged entity (FHCCU) at December 31, 2012 included the seven months position January- July 31, 2012 of the Churches Co-operative Credit Union Limited and the five months position August 1, 2012 - December 31, 2012 of First Heritage Cooperative Credit Union (the merged entity). In addition, the Statement of Financial Position reported a summation of Assets and Liabilities for CCCU, GSB and FHC Credit Unions for the year January December 31, 2012. For the year ended December 31, 2012, the First Heritage Co-operative Credit Union Ltd realized a Net Surplus of $61.92M. It must also be noted that the Credit Union realized a Net Surplus of $123.75M before exceptional merger related expenditure of $61.83M as indicated below:

Merger Related Costs

Direct Merger costs (marketing – branding, etc)

27.96

Additional audit fees arising from Merger activities

9.32

Professional fees ( Fair value exercise)

7.00

Amortization of Intangibles - Customer relationship valuing $94M (to be written oﬀ over 12 years)

3.26

Amortization of Trademark – GSB Brand name valuing $34M (to be written oﬀ over 3 years)

4.72

Initial Project Consultation costs

3.37

Other Administrative costs

6.20

Total Merger Related Costs

61.83

At December 31, 2012, the FHCCU Group realized a Net Surplus of $52.16M net of the results for the subsidiary company (FHC Investments Limited – FHCIL). e FHCIL which is a 100% wholly owned subsidiary of the Credit Union, realized a Net Loss of $10.8M for the year. is was on account of the subsidiary absorbing all its expenses in its infant stage. To date, the subsidiary has now surpassed its breakeven position and is now performing profitably. e year came with many challenges for the economy and consequently the financial sector, with the most significant impact being the continuing eﬀects of the global recession. With the country awaiting the approval of an IMF agreement, there was a lull created in business activities, as there was a wait and see attitude from our members and prospective members in both savings and loan activities. ere were also increases in inflation rates, increases in unemployment rates, the depreciation of the Jamaican dollar relative to the US Dollar and a general contraction in the overall level of spending in the economy. ese factors among others, led to heightened delinquency level for our members as they were unable to maintain their loan obligations as expected. ere was also a general fall oﬀ in savings intake, and loan balances, as many members sought to clear their indebtedness from current savings as there was a general aversion to loans.

Notwithstanding the many challenges faced by the Credit Union in 2012, the Credit Union seized opportunities on account of the merger through economies of scale in a number of areas eg. Marketing expenditure, rationalization of certain operating costs eg. telecommunications, insurance premiums through volume discounts, inventory items through bulk purchasing, tighter levels of cost containment and cost savings.

e Credit Union continues to identify and execute new strategies and measures in achieving its objectives. is was also done in an eﬀort to bolster the institutions aim of striving for excellence in the continuous process of improving customer satisfaction and service delivery. We strive to improve and maintain our strategies to assist our members who experienced diﬃculties in servicing their loan payments, promotion of our on-line banking facility, closer monitoring, rationalization and containment of our Operating Expenditure and closing the liquidity gap.

Economic Overview At the beginning of the fiscal year 2012, inflation rate was 6% closing the year at 8%. Average interest rate on repos invested commenced the year at an average rate of 6.4% and trended down to an average of 6.25% at year end 2012. is was due to the intervention of the Central Bank, as a measure to regulate the economy and to improve Gross Domestic Product (GDP). e United States Dollar traded against the Jamaican dollar at $92.65 at year-end 2012 which was 6.8% depreciation compared to the $86.75 traded at year end 2011. e Net International Reserves at December 2012 was US$1.04B compared to $1.967B at December 2011; this reflected overall decline of $0.927B in the economy for the year.

Regulatory e Central Bank’s position in assuming the role of supervisor of the Credit Union Movement has still not been approved to date. e Bank of Jamaica continues its supervisory role by examining our financial reports and conducting periodic audit reviews to date. It is still anticipated that this will materialize in the very near future. e Credit Union measures its performance against prudential financial standards for safety and soundness through the Credit Union Industry benchmark (PEARL Standards), which is currently monitored by the Jamaica Co-operative Credit Union League Limited, as well as other Bank of Jamaica’s prudential requirements.

e Credit Union continues to formulate strategies to grow its Capital base over the years. One main feature of the merger is to grow its capital base through increased/combined Permanent Capital shareholding and Other Institutional Capital base. A transfer of 20% or $13.02M to Statutory Reserve was made for 2012. e Credit Union’s Institutional Capital to Total Asset ratio was 16.39% at December 31, 2012 compared to the Pearl Standard of 8% and 6% for Bank of Jamaica. At the end of 2011 the ratio was 14.44% and 12.87 % for CCCU and GSB respectively.

FINANCIAL PERFORMANCE e comparative data for 2012 is based on the combined assets of former CCCU and GSB Credit Unions and the Statement of Comprehensive Income position, seven months of CCCU and 5 months of FHCCU. As at December 31, 2012 the following Statement of Financial Position Key Results were: •

Total Assets - $8.44B

•

Net Loans - $6.33B

•

Savings Deposits - $3.14B

•

Voluntary Shares - $2.81B

•

Institutional Capital - $1.38B

Statement of Comprehensive Income - Key Results for the year 2012 were: • Total Interest Income - $953.25M – In the process of synchronizing the business models an assessment of the interest rates on member’s loans was done. e resultant change was to oﬀer the best (lower) interest rates on loans to our members in an attempt to allow them to benefit from the best of both worlds. • Total Interest Expense - $144.58M – Interest rates on deposit products were also assessed to determine the most beneficial rates for our members.

• Non-Interest Income - $169.53M – In order to have our members benefit directly from the merger, certain fees were reduced eg. Account Maintenance fees and other loan related fees. • Loan impairment net of recoveries - $32.7M – Included in this amount is Bad Debt Recoveries of $11.85M, which impacts favourably on the overall loan impairment figure reported for the year. • Operating Expenses - $883.58M – is includes an amount of $482.18M representing staff costs for the combined entity. It should be noted, that this is not comparable with the $332.70M for 2011, as the later represents staff cost for CCCU only (based on IFRS 3 reporting requirements). • Cambio Operations - $8.75M – ere was significant growth for the year which accounted for volume growth and positive effects of devaluation in foreign currency particularly the US Dollar. In the 4th Quarter of 2012, a Cambio licence for the New Kingston/Dominica Branch was approved by the Bank of Jamaica, enabling operations at that Unit.

INSURANCE For the year, the Credit Union maintained Fidelity and Life Saving and Loan Protection coverage with Cuna Mutual Insurance Company Limited at a cost of $2.76M and $27.58M respectively.

CONCLUSION e Credit Union has proven its resilience in performing in challenging times for 2012. With the ever emerging strategies in place we are confident that the Credit Union is well aligned to forge ahead for the future irrespective of the challenges that are ahead. We are confident that we will realize opportunities from the synergies garnered from the merger, and with the continued dedication, hard work and enthusiasm of our staﬀ and volunteers we will be able to accomplish these goals and objectives.

ACKNOWLEDGEMENT I am grateful to be aﬀorded the opportunity to serve as Treasurer for the year 2012. I wish to commend the team members and volunteers for their significant contribution, dedication and hard work throughout the merger activities which began in earnest in 2011. On behalf of the Board of Directors let me convey my sincere appreciation and gratitude to the management and staﬀ in achieving the results of the Credit Union for the year 2012. I must also say thanks to my fellow Directors and Committee members who have sacrificed their unwavering time and expertise. I wish to express appreciation to, the Registrar of Cooperative Societies, our Auditors PricewaterhouseCoopers, the Jamaica Co-operative Credit Union League Limited, for their professional assistance and guidance provided throughout the year.

Finally, let me extend thanks to our loyal membership for the considerable support and patronage given throughout the year. We stand resolute and committed to continue to embark on strategies and objectives aimed at delivering products and services that will meet and exceed the needs of you our valued members.

_________________________ Balvin Vanriel Treasurer

First Heritage Co-operative Credit Union Limited Financial Statements 31 December 2012

First Heritage Co-operative Credit Union Limited Index

31 December 2012

Independent Auditors’ Report to the Registrar of Co-operative Societies

Page

Financial Statements Group Consolidated statement of comprehensive income

Consolidated statement of financial position

482 -–49 3

Consolidated statement of changes in equity

504 -–52 6

Consolidated statement of cash flows

Credit Union statement of comprehensive income

Credit Union statement of financial position

9 –- 156 0 55

Credit Union statement of changes in equit y

157 1 –- 159 3

Credit Union

Credit Union statement of cash flows Notes to the financial statements

60 14 161 5 –- 7120 4

Independent Auditors’ Report To the Registrar of Cooperative Societies Re: First Heritage Co-operative Credit Union Limited

Report on the Consolidated and Credit Union Stand Alone Financial Statements We have audited the accompanying consolidated financial statements of First Heritage Co-operative Credit Union Limited and its subsidiary, set out on pages 147to 74, which comprise the consolidated to 120, statement of financial position as at 31 December 2012 and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and the accompanying financial statements of First Heritage Co-operative Credit Union Limited standing alone, which comprise the statement of financial position as at 31 December 2012 and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated and Credit Union Stand Alone Financial Statements Management is responsible for the preparation of consolidated and credit union stand alone financial statements that give a true and fair view in accordance with International Financial Reporting Standards and with the requirements of the Jamaica Co-operative Credit Union League , and for such internal control as management determines is necessary to enable the preparation of consolidated and credit union stand alone financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated and credit union stand alone 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 consolidated and credit union stand alone financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and credit union stand alone financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated and credit union stand alone financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated and credit union stand alone financial statements that give a true and fair view 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 consolidated and credit union stand alone financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Registrar of Co-operative Societies Re: First Heritage Co-operative Credit Union Limited Independent Auditorsâ&#x20AC;&#x2122; Report Page 2

Opinion In our opinion, the consolidated financial statements of First Heritage Co-operative Credit Union Limited and its subsidiary, and the financial statements of First Heritage Co-operative Credit Union Limited standing alone give a true and fair view of the financial position of First Heritage Co-operative Credit Union Limited and its subsidiary and First Heritage Co-operative Credit Union Limited standing alone as at 31 December 2012, and of their financial performance and cash flows for the year then ended, so far as concerns the members of First Heritage Co-operative Credit Union Limited, in accordance with International Financial Reporting Standards and the requirements of the Jamaica Co-operative Credit Union League. Report on Other Legal and Regulatory Requirements As required by the Co-operative Societies Act, we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. In our opinion, proper accounting records have been kept, so far as appears from our examination of those records, and the accompanying consolidated and credit union stand alone financial statements are in agreement therewith and give the information required by the Act, in the manner so required.

46 Chartered Accountants 31 May 2013 Kingston, Jamaica

Page 1

First Heritage Co-operative Credit Union Limited Consolidated Statement of Comprehensive Income

Year ended 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2012 $’000

2011 $’000

895,886

651,145

66,691

60,446

962,577

711,591

82,936

66,649

41,188

16,706

22,661

26,080

146,785

109,435

815,792

602,156

(32,703)

(32,586)

783,089

569,570

124,991

99,408

Cambio operations

8,749

1,500

Dividend income from League shares

1,546

1,188

5,867

20,137

924,242

691,803

877,085

578,356

47,157

113,447

Note Interest Income Loans and advances Investments Interest Expense Savings deposit External credit

Members’ voluntary shares Net Interest Income Loan impairment provision, net of recoveries

Net Interest Income after Impairment Losses on Loans Non-interest Income Fee and commission income

Other income

47 6

Net Interest and Other Income Operating expenses

Surplus before Taxation Taxation Net Surplus for the Year

5,004 52,161

(181) 113,266

Other Comprehensive Income, net of taxation Unrealised fair value (losses)/gains on available-for-sale investments

(1,762)

Total Comprehensive Income

50,399

1,420 114,686

Page 2

First Heritage Co-operative Credit Union Limited Consolidated Statement of Financial Position

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Note

2012 $’000

2011 $’000

Liquid assets - deposits

217,330

124,795

Liquid assets – short-term investments

352,277

201,565

Reverse repurchase agreements

234,619

145,468

Financial investments

512,258

275,503

Loans to members

6,330,070

3,325,566

Investment property

3,250

7,649,804

4,072,897

47,279

87,564

76,925

54,104

4,773

6,244

14,395

8,750

143,372

156,662

ASSETS Earning Assets

Non-Earning Assets Cash in hand and at bank Accounts receivable

Inventories Withholding tax recoverable Property, plant and equipment

388,177

180,612

Retirement benefit asset

170,918

127,749

Deferred tax assets

5,216

Intangible assets

120,014

827,697

465,023

8,477,501

4,537,920

Page 3

First Heritage Co-operative Credit Union Limited Consolidated Statement of Financial Position (Continued)

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated)

Note

2012 $’000

2011 $’000

Members’ deposits

3,138,089

1,918,988

Voluntary shares

2,810,200

1,419,727

44,993

782,732

248,230

6,776,014

3,586,945

78,673

31,246

2,250

1,956

326

80,923

33,528

6,856,937

3,620,473

LIABILITIES AND EQUITY Interest Bearing Liabilities

Repurchase liabilities External credit

Non-Interest Bearing Liabilities Accounts payable

Withholding tax Deferred tax liability

Equity Institutional capital

1,381,897

655,253

Non-institutional capital

266,383

208,576

(27,716)

53,618

Accumulated (deficit)/surplus

1,620,564

917,447

8,477,501

4,537,920

Approved for issue by the Board of Directors on 31 May 2013 and signed on its behalf by:

Orville Hill

Chairman

Balvin Vanriel

Treasurer

Page 4

First Heritage Co-operative Credit Union Limited Consolidated Statement of Changes in Equity

Year ended 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated)

Note Balance at 1 January 2011 Total comprehensive income

Institutional Capital $’000

NonInstitutional Capital $’000

Accumulated (Deficit)/ Surplus $’000

Total $’000

602,418 1,420

181,244 -

17,564 113,266

801,226 114,686

8,307

Transactions with ownersTransfer of permanent share dividend Issue of permanent shares

(6,772) -

(6,772) 8,307

Appropriations from 2010 surplus Transfer from Accumulated Surplus

758

(758)

8,207

(8,207)

Transfer to statutory reserves

33,643

(33,643)

Transfer to other reserves

27,332

(27,332)

500

(500)

Transfer to reserves Appropriations from 2011 surplus -

Permanent share reserve

Balance at 31 December 2011

655,253 (1,762)

Total comprehensive income

208,576 -

53,618 52,161

917,447 50,399

(60,862)

Transaction with owners Transfer of permanent share dividend

Issue of permanent shares

14,266

Issue of shares on business combination

451,452

Net equity arising on business combination

247,862

1,297

13,029

Transfer from Accumulated Surplus

(1,297)

(13,029)

57,807

(57,807)

500

(500)

1,381,897

266,383

Appropriations from 2012 surplus Transfer to statutory reserves Transfer to other reserves Permanent share reserve Balance at 31 December 2012

(27,716) 1,620,564

Page 5

First Heritage Co-operative Credit Union Limited Consolidated Statement of Changes in Equity

Year ended 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Institutional Capital Retained Earnings Reserve

Permanent Shares

Statutory Reserve

$’000

199,157

Investment Reserve

Capital Reserve

Special Reserve

Total

$’000

Permanent Share Reserve $’000

$’000

74,697

287,243

26,774

14,222

325

602,418

1,420

Issue of permanent shares Appropriations from 2010 surplus -

8,307

Entrance fees Transfer from accumulated surplus Appropriations from 2011 surplus -

758

8,207

33,643

500

207,364

83,004

321,644

500

28,194

14,222

325

655,253

(1,762)

14,266

451,452

247,862

1,297

Note Balance at 1 January 2011 Increase in investment reserve Transactions with owners -

30% statutory reserve Transfer from accumulated surplus Balance at 31 December 2011 Decrease in investment reserve

(1,762)

Transactions with owners Issue of permanent shares Issue of shares on business combination Net equity acquired on business combination Appropriations from 2011 surplus -

Entrance fees Transfer of reserves Appropriation from 2012 surplus 20% statutory reserve Transfer from accumulated surplus Balance at 31 December 2012

1,297

325

13,029

500

455,551

548,722

335,970

1,000

26,432

14,222

1,381,897

(325)

Page 6

First Heritage Co-operative Credit Union Limited Consolidated Statement of Changes in Equity

Year ended 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Non-Institutional Capital

Note Balance at 1 January 2011

Retirement Benefit Asset Reserve $’000

Loan Loss Reserve $’000

Total $’000

112,797

68,447

181,244

14,952

12,380

14,952

12,380

27,332

127,749

80,827

208,576

43,169

14,638

43,169

14,638

57,807

170,918

95,465

266,383

Transfers from Accumulated Surplus – Increase in retirement benefits Increase in loan loss reserve Balance at 31 December 2011

Transfers from Accumulated Surplus – Increase in retirement benefits Increase in loan loss reserve

Balance at 31 December 2012

Page 7

First Heritage Co-operative Credit Union Limited Consolidated Statement of Cash Flows

Year ended 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated)

Cash Flows from Operating Activities Interest received Interest paid Fee and commission income Recoveries on impaired loans Payment to employees and suppliers Other income, net Changes in operating assets and liabilities Loans Other assets Retirement benefit asset Members’ deposits Voluntary shares Repurchase liabilities CuCash deposits Other liabilities Cash used in operating activities Cash Flows from Investing Activities Cash acquired in a business combination Short-term investments Financial investments Purchase of property, plant and equipment Cash provided by/(used in) investing activities Cash Flows from Financing Activities Share capital External credit Cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and Cash Equivalents at the End of the Year Represented by: Cash in hand and at bank Bank savings deposits (Note 11) Deposits (Note 11) Repurchase agreements (less than 3 months)

2012 $’000

2011 $’000

938,445 (147,889) 124,991 11,847 (857,726) (27,252) 42,416

709,926 (113,476) 99,408 7,662 (584,179) (32,125) 87,216

(487,617) (16,742) (15,336) (122,581) 388,922 44,993 18,546 294 (147,105)

(329,682) (9,012) (14,952) 77,173 12,600 38,465 7,425 (130,767)

420,923 (150,712) (118,193) (47,677) 104,341

(5,041) 2,417 (50,509) (53,133)

(46,596) 207,277 160,681 304 118,221 327,304 445,525

2,955 53,065 56,020 3,330 (124,550) 451,854 327,304

47,279 45,635 117,992 234,619 445,525

87,564 1,049 93,456 145,235 327,304

Page 8

First Heritage Co-operative Credit Union Limited Credit Union Statement of Comprehensive Income

Year ended 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated)

Note

2012 $’000

2011 $’000

Interest Income Loans and advances

895,886

651,145

57,359

54,378

953,245

705,523

80,732

66,649

41,188

16,706

22,661

26,080

144,581

109,435

808,664

596,088

(32,703)

(32,586)

775,961

563,502

151,729

101,809

Cambio operations

8,749

1,500

Dividend income from League shares

1,546

1,188

7,507

21,517

945,492

689,516

883,577

576,614

61,915

112,902

Investments Interest Expense Savings deposit External credit

Members’ voluntary shares Net Interest Income Loan impairment provision, net of recoveries

Net Interest Income after Impairment Losses on Loans Non-interest Income Fee and commission income

Other income

Net Interest and Other Income Operating expenses Net Surplus

Other Comprehensive Income, net of taxation Unrealised fair value (losses)/gains on available-for-sale investments Total Comprehensive Income

(686) 61,229

1,399 114,301

Page 9

First Heritage Co-operative Credit Union Limited Credit Union Statement of Financial Position

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated)

Note

2012 $’000

2011 $’000

Liquid assets – deposits

217,330

97,095

Liquid assets – short-term investments

352,277

201,565

Reverse repurchase agreements

157,367

199,269

Financial investments

436,612

231,364

Loans to members

6,330,070

3,325,566

Investment property

3,250

7,496,906

4,054,859

38,442

46,972

112,150

61,383

Inventories

4,682

6,244

Withholding tax recoverable

7,217

7,023

162,491

121,622

388,177

180,612

100,000

50,000

ASSETS Earning Assets

Non-Earning Assets Cash in hand and at bank Accounts receivable

Property, plant and equipment

Investment in subsidiary Retirement benefit asset

170,918

127,749

Intangible assets

120,014

941,600

479,983

8,438,506

4,534,842

Page 10

First Heritage Co-operative Credit Union Limited Credit Union Statement of Financial Position (Continued)

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated)

Note

2012 $’000

2011 $’000

Members’ deposits

3,138,089

1,918,988

Voluntary shares

2,810,200

1,419,727

External credit

782,732

248,230

6,731,021

3,586,945

74,492

29,145

2,250

1,956

76,742

31,101

6,807,763

3,618,046

LIABILITIES AND EQUITY Interest Bearing Liabilities

Non-Interest Bearing Liabilities Accounts payable

W ithholding tax

Equity Institutional capital

1,382,758

655,038

Non-institutional capital

266,383

208,576

Accumulated (deficit)/surplus

(18,398)

53,182

1,630,743

916,796

8,438,506

4,534,842

Approved for issue by the Board of Directors on 31 May 2013 and signed on its behalf by:

Orville Hill

Chairman

Balvin Vanriel

Treasurer

Page 11

First Heritage Co-operative Credit Union Limited Credit Union Statement of Changes in Equity Year ended 31 December 2012

(expressed in Jamaican dollars unless otherwise indicated)

Note Balance at 1 January 2011 Total comprehensive income

Institutional Capital $’000

NonInstitutional Capital $’000

Accumulated (Deficit)/ Surplus $’000

Total $’000

602,224

181,244

17,492

800,960

1,399

112,902

114,301

Transaction with owners Transfer of permanent share dividend

Issue of permanent shares

(6,772)

8,307

Transfer from Accumulated Surplus

758

(758)

8,207

(8,207)

Transfer to statutory reserves

33,643

(33,643)

Transfer to other reserves

27,332

(27,332)

(6,772) 8,307

Appropriations from 2010 surplus Transfer to reserves Appropriations from 2011 surplus -

Permanent share reserve Balance at 31 December 2011 Total comprehensive income

500

655,038

208,576

53,182

916,796

61,915

61,229

(60,862)

(686)

(500)

Transaction with owners Transfer of permanent share dividend

Issue of permanent shares

14,266

Issue of shares on business combination

451,452

Net equity acquired on business combination

247,862

1,297

(1,297)

Transfer to statutory reserves

13,029

(13,029)

Transfer to other reserves

57,807

(57,807)

500

(500)

1,382,758

266,383

(18,398)

1,630,743

Transfer from Accumulated Surplus

247,862

Appropriations from 2012 surplus -

Permanent share reserve Balance at 31 December 2012

Page 12

First Heritage Co-operative Credit Union Limited Credit Union Statement of Changes in Equity Year ended 31 December 2012

(expressed in Jamaican dollars unless otherwise indicated) Institutional Capital

Balance at 1 January 2011 Increase in investment reserve

Note

Transaction with owners Issue of permanent shares Appropriations from 2010 surplus Entrance fees Transfer from accumulated surplus Appropriation from 2011 surplus -

30% statutory reserve Transfer from accumulated surplus Balance at 31 December 2011 Decrease in investment reserve Transaction with owners Issue of permanent shares Issue of shares on business combination Net equity acquired on business combination Appropriation from 2011 surplus -

Entrance fees Transfer of reserves Appropriation from 2012 surplus 20% statutory reserve Transfer from accumulated surplus Balance at 31 December 2012

Retained Earnings Reserve

Permanent Shares

Statutory Reserve

$’000

199,157

Investment Reserve

Capital Reserve

Special Reserve

Total

$’000

Permanent Share Reserve $’000

$’000

74,697

287,243

26,580

14,222

325

602,224

1,399

8,307

758

8,207

33,643

500

207,364

83,004

321,644

500

27,979

14,222

325

655,038

(686)

14,266

451,452

247,862

1,297

325

13,029

500

455,551

548,722

335,970

1,000

27,293

14,222

1,382,758

(325)

(686)

Page 13

First Heritage Co-operative Credit Union Limited Credit Union Statement of Changes in Equity Year ended 31 December 2012

(expressed in Jamaican dollars unless otherwise indicated) Non-Institutional Capital

Note Balance at 1 January 2011

Retirement Benefit Asset Reserve $’000

Loan Loss Reserve $’000

Total $’000

112,797

68,447

181,244

Transfers from Accumulated Surplus – Increase in retirement benefits

14,952

Increase in loan loss reserve

12,380

14,952

12,380

27,332

127,749

80,827

208,576

Balance at 31 December 2011 Transfers from Accumulated Surplus – Increase in retirement benefits

43,169

Increase in loan loss reserve

14,638

43,169

14,638

57,807

170,918

95,465

266,383

Balance at 31 December 2012

Page 14

First Heritage Co-operative Credit Union Limited Credit Union Statement of Cash Flows Year ended 31 December 2012

(expressed in Jamaican dollars unless otherwise indicated) 2012 $’000 Cash Flows from Operating Activities Interest received Interest paid Fee and commission income Recoveries on impaired loans Payment to employees and suppliers Other income, net

Changes in operating assets and liabilities Loans Other assets Retirement benefit asset Members’ deposits Voluntary shares CuCash deposits Other liabilities Cash used in operating activities Cash Flows from Investing Activities Cash acquired in a business combination Short-term investments Financial investments Investment in subsidiary Purchase of property, plant and equipment

2011 $’000

929,544 (145,685) 151,729 11,847 (845,149) (25,611)

704,451 (113,476) 101,809 7,662 (567,492) (30,745)

76,675

102,209

(487,617) (39,147) (15,336) (122,581) 388,922 18,546 (20,549)

(329,682) (14,006) (14,952) 77,173 12,600 38,454 (8,654)

(201,087)

(136,858)

420,923 (150,711) (86,043) (50,000) (47,677)

(5,041) 30,799 (50,509)

Cash provided by/(used in) investing activities Cash Flows from Financing Activities Share capital External credit

86,492

(24,751)

(46,596) 207,277

2,934 53,065

Cash provided by financing activities

160,681

55,999

304

3,330

Effect of exchange rate changes on cash and cash equivalents Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and Cash Equivalents at the End of the Year Represented by: Cash in hand and at bank Bank savings deposits (Note 11) Deposits (Note 11) Repurchase agreements (less than 3 months)

46,390 313,046

(102,280) 415,326

359,436

313,046

38,442 45,635 117,992 157,367

46,972 1,049 65,756 199,269

359,436

313,046

First Heritage Co-operative Credit Union Limited

Page 15

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 1.

Identification and Activities First Heritage Co-operative Credit Union (the Credit Union) is incorporated under the laws of Jamaica and is registered under the Co-operative Societies Act. The Credit Union’s registered office is located at 8 Eureka Road, Kingston, Jamaica. The Credit Union was formed following the merger of Churches Co-operative Credit Union Limited (Churches) and GSB Co-operative Credit Union Limited (GSB), on 1 August 2012. Membership in the Credit Union is obtained by the holding of members’ shares, which should be at least one voluntary share and one permanent share. Voluntary shares are deposits available for withdrawal on demand, while permanent shares are paid in cash and invested in risk capital, and are transferrable only to another member. Individual membership may not exceed 20% of the total of the members’ shares of the Credit Union. The main activities of the Credit Union are to promote thrift amongst its members by affording them an opportunity to accumulate their savings and to create for them a source of credit, for provident or productive purpose at reasonable rates of interest. The Co-operative Societies Act requires, amongst other provisions, that at least 20% of the net surplus made each year by the Credit Union be transferred annually to a reserve fund. Section 59 of the Act provides for the exemption from income tax and stamp duty for the Credit Union. The Credit Union’s operations are located in the parishes of Kingston, St. Andrew, Clarendon, St. Catherine, St. James and Manchester. The Credit Union has a wholly-owned subsidiary, FHC Investments Limited which is incorporated and domiciled in Jamaica. Its principal activities include investment management services. The Credit Union and its subsidiary, are collectively referred to as “the Group”.

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. (a)

Basis of preparation These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as modified by the requirements of the Jamaica Co-operative Credit Union League, which is under the historical cost convention as modified by the revaluation of certain financial assets and investment property. The loan loss provisioning requirements of the Jamaica Co-operative Credit Union League (the League) may result in a provision which differs from the IFRS provision. When the League provision exceeds the IFRS provision, the excess is dealt with in a non-distributable loan loss reserve as an appropriation of accumulated surplus. When the IFRS impairment provision exceeds the provision stipulated by the League, any previously existing loan loss reserve is reversed and no appropriation is made from accumulated surplus. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Credit Union’s accounting policies. Although these estimates are based on managements’ best knowledge of current events and action, actual results could differ from those estimates. 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 3.

First Heritage Co-operative Credit Union Limited

Page 16

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (a)

Basis of preparation (continued) Standards, interpretations and amendments to published standards effective in the current year Certain interpretations and amendments to existing standards have been published that became effective during the current financial year. The Group has assessed the relevance of all such interpretations and amendments and has concluded that they have not had a material impact on its operations. Standards, interpretations and amendments to published standards that are not yet effective and have not been early adopted The Group has concluded that the following standards which are published but not yet effective, are relevant to its operations, and will impact the Group’s accounting policies and financial disclosures as discussed below. These pronouncements are effective for annual periods beginning on or after the dates noted, and will be applied by the Group as of those dates, unless otherwise noted. IAS 1 (Amendment), ‘Presentation of financial statements’ (effective 1 July 2012). This amendment changes the disclosure of items presented in other comprehensive income (OCI) in the statement of comprehensive income. The amendment requires entities to separate items presented in OCI into two groups, based on whether or not they may be recycled to net surplus in the future. The Group will adopt the amendments from 1 January 2013.

IAS 19 (Amendment), ‘Employee benefits’ (effective for annual periods beginning on or after 1 January 2013). The impact on the Group will be as follows: to eliminate the corridor approach and recognise all actuarial gains and losses in OCI as they occur; to immediately recognise all past service costs; and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). The Group intends to adopt the amendments to IAS 19 no later than the accounting period beginning on or after 1 January 2013. It is expected that this will impact the carrying amounts of the Group’s defined benefit asset, and the amounts recognised in net surplus and OCI. The financial statements for the prior period will be restated. IAS 32 (Amendment) - Financial instruments: Presentation (effective for annual periods beginning on or after January 1, 2014). This amendment updates the application guidance in IAS 32, ‘Financial instruments: Presentation’, to clarify some of the requirements for offsetting financial assets and financial liabilities on the statement of financial position. The Group will apply the amendment from 1 January 2013 but it is not expected to have a significant impact on the financial statements. IFRS 9, ‘Financial instruments’ (effective on or after 1 January 2015). IFRS 9, Financial instruments Part 1: Classification and Measurement was issued in November 2011 and replaces those parts of IAS 39 relating to the classification and measurement of financial assets. Key features are as follows: Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. An instrument is subsequently measured at amortised cost only if it is a debt instrument and both the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and the asset’s contractual cash flows represent only payments of principal and interest (that is, it has only ‘basic loan features’). All other debt instruments are to be measured at fair value through profit or loss.

First Heritage Co-operative Credit Union Limited

Page 17

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2.

Summary of Significant Accounting Policies (Continued) (a)

Basis of preparation (continued) IFRS 9, ‘Financial instruments’ (continued) All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than net surplus. There is to be no recycling of fair value gains and losses to net surplus. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in net surplus, as long as they represent a return on investment. While adoption of IFRS 9 is mandatory from 1 January 2015, earlier adoption is permitted. The next phase of IFRS 9 deals with financial liabilities. Amortised cost accounting for most financial liabilities is retained, with bifurcation of embedded derivatives. The main change is that in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than net surplus, unless this creates an accounting mismatch. The Group is considering the implications of the standard, the impact on the financial statements and the timing of its adoption. IFRS 10, ‘Consolidated financial statements’ (effective for annual periods beginning on or after (1 January 2013). The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entity (an entity that controls one or more other entities) to present consolidated financial statements. The standard defines the principle of control, and establishes control as the basis for consolidation. It also sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee, and it sets out the accounting requirements for the preparation of consolidated financial statements. The adoption of this standard is not expected to have a significant impact on the Group. IFRS 12, 'Disclosures of interests in other entities' (effective 1 January 2013). This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Management is currently assessing the impact this may have on the Group. IFRS 13, ‘Fair Value Measurement’, (effective 1 January 2013). This standard, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The Group will adopt the standard from 1 January 2013.

First Heritage Co-operative Credit Union Limited

Page 18

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (b)

Basis of consolidation Consolidation of subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of the subsidiary have been changed where necessary to ensure consistency with the policies adopted by the Group.

(c)

Business combinations The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interestâ&#x20AC;&#x2122;s proportionate share of the acquireeâ&#x20AC;&#x2122;s net assets In business combinations involving more than two parties, including a newly formed entity, one of the previously existing entities is normally deemed to be the acquirer for accounting purposes. In these situations, referred to as reverse acquisitions, the deemed acquirer uses principles in IFRS 3, to account for the net assets of the deemed acquire and the newly formed entity. In reverse acquisitions, no goodwill or negative goodwill arises, and any difference between the fair value of net assets acquired and the deemed purchase consideration, is dealt with as an adjustment to equity.

(d)

Interest income and expense Interest income and expense are recognised in the statement of comprehensive income for all interestbearing instruments on an accrual basis, using the effective yield method, based on the actual purchase price. Interest income includes coupons earned on fixed income investments and accrued discounts or premiums on treasury bills and other discounted instruments. Where collection of interest income is considered doubtful, the related financial instruments are written down to their recoverable amounts and interest income is thereafter recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the recoverable amount.

(e)

Fee and commission income Fee and commission income are recognised on an accrual basis. Loan origination fees are deferred and are recognised over the life of the loan, as an adjustment to the effective yield on the loans and shown with interest income earned on loans.

First Heritage Co-operative Credit Union Limited

Page 19

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (f)

Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group entities are measured using the currency of the primary economic environment in which the entities operate. The Groupâ&#x20AC;&#x2122;s primary economic environment is Jamaica, and as such, its functional currency which is also its presentation currency, is the Jamaican dollar. 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 net surplus or deficit in the statement of comprehensive income.

(g)

Taxation Taxation expense in the statement of comprehensive income comprises current and deferred tax for the Groupâ&#x20AC;&#x2122;s subsidiary, CCU Investments Limited. Section 59 of the Co-operative Societies Act, which governs the operations of the Credit Union, provides for the exemption from income tax and stamp duty for the Credit Union. Current and deferred taxes are recognised as income tax expense or benefit in net surplus except, where they relate to items recorded in other comprehensive income or directly in equity, in which case they are also charged or credited to other comprehensive income or equity. Taxation is based on profit for the year adjusted for taxation purposes at 33 1/3%. (i) Current taxation Current tax is the expected taxation payable on the taxable income for the year, using tax rates enacted at the year-end date, and any adjustment to tax payable and tax losses in respect of the previous years. (ii) Deferred income taxes Deferred tax liabilities are recognised for temporary differences between the carrying amounts of assets and liabilities and their amounts as measured for tax purposes, which will result in taxable amounts in future periods. Deferred tax is provided on temporary differences arising from investments in subsidiaries, except where the timing of reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax assets are recognised for temporary differences which will result in deductible amounts in future periods, but only to the extent it is probable that sufficient taxable profits will be available against which these differences can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the asset will be realised or the liability will be settled based on enacted rates. Deferred tax assets and liabilities are offset when they arise from the same taxable entity, relate to the same tax authority and when the legal right of offset exists.

First Heritage Co-operative Credit Union Limited

Page 20

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (h)

Financial instruments The Group allocates financial assets to the following IAS 39 categories: loans and receivables and available-for-sale..Management determines the classification of its financial instruments at initial recognition and re-evaluates this designation at every reporting date. (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 those that the Group: (i) intends to sell immediately or in the short term , which are classified as held for trading, and those that the Group upon initial recognition designates as at fair value through profit or loss; (ii) upon initial recognition, designates as available-for-sale; or (iii) may not recover substantially other than because of credit deterioration. Loans and receivables are initially recognised at fair value â&#x20AC;&#x201C; which is the cash consideration to originate or purchase the loan including any transaction costs â&#x20AC;&#x201C; and measured subsequently at amortised cost using the effective interest rate method.

Interest on loans is included in the net surplus and is reported as interest 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 net surplus as loan impairment provision. At the year end date, the following items were allocated to loans and receivables: loans, reverse repurchase agreements, cash at bank and on hand and accounts receivable. (b)

Available-for-sale financial assets Available-for-sale investments are non-derivative 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. Available-for-sale financial assets are initially recognised at fair value plus transaction costs, and measured subsequently at fair value with gains and losses being recognised in other comprehensive income (except for impairment losses and foreign exchange gains and losses which are recognised in net surplus) until the financial asset is derecognised. They are derecognised when the right to receive cash flows has expired or has been transferred, and the Group has transferred substantially all the risk and rewards of ownership. If an available-for-sale financial asset is determined to be impaired, the cumulative gain or loss, less any impairment losses previously recognised in profit or loss, is recycled from other comprehensive income and is recognised in net surplus. 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 profit or loss. Foreign currency gains or losses on non-monetary financial assets classified as available-for-sale are recognised in other comprehensive income. At the year end date, the following items were as allocated to available-for-sale: deposits, short-term investments and financial investments. Fair value determination of financial investments is discussed in Note 4.

First Heritage Co-operative Credit Union Limited

Page 21

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2.

Summary of Significant Accounting Policies (Continued) (h) Financial instruments (continued) Financial liabilities The Group’s financial liabilities are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost using the effective interest method. At the year-end date, the following items were classified as financial liabilities: bank overdraft, members’ deposits, members’ voluntary shares, external credit and accounts payable. (i) Investment in subsidiary Investment in subsidiary is stated at cost. (j) Investments and deposits The Group classifies its investments and deposits as available-for-sale financial assets. Purchases and sales of investments are recognised at trade date, which is the date that the Group commits to purchase or sell the asset. Changes in the fair value of monetary available-for-sale financial assets are analysed between translation differences resulting in changes in amortised cost of the security and other changes. The translation differences are recognised in the net surplus in the statement of comprehensive income and other changes in the carrying amount are recognised in other comprehensive income in the statement of comprehensive income. Changes in the fair value of non-monetary available-for-sale investments are recognised in other comprehensive income in the statement of comprehensive income. When financial assets classified as available-for-sale are sold or impaired, the accumulated fair value adjustments previously recognised in other comprehensive income are recycled to net surplus as gains and losses from investment securities. Interest on available-for-sale financial assets, calculated using the effective interest method, is recognised in net surplus. Dividends on available-for-sale financial assets are recognised in net surplus when the Group’s right to receive payments is established. At year end, the Group assesses whether there is objective evidence that an investment or group of investments is impaired. If any such evidence exists, the cumulative loss, measured as the difference between the acquisition cost and the current fair value less any impairment loss previously recognised in other comprehensive income, is removed from equity and recognised in net surplus. Impairment losses on equity instruments recognised in the statement of comprehensive income are not reversed through the net surplus or deficit in the statement of comprehensive income. (k) Reverse repurchase agreements Securities purchased under agreements to resell are recorded as collaterised financing transactions, and are classified as loans and receivables financial assets. The difference between the sale/purchase and repurchase/resale price is treated as interest and accrued over the life of the agreements using the effective yield method.

First Heritage Co-operative Credit Union Limited

Page 22

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2.

Summary of Significant Accounting Policies (Continued) (l) Loans Loans are recognised when cash is advanced to borrowers and are classified as loans and receivables financial assets. An allowance for impairment is established if there is objective evidence that the Group will not be able to collect all amounts outstanding according to the original contractual terms of the loan. The amount of the allowance is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of the loans. A loan is classified as impaired when, in managementâ&#x20AC;&#x2122;s opinion, there has been deterioration in credit quality to the extent that there is no longer reasonable assurance of timely collection of the full amount of principal and interest. If a payment on a loan is contractually two months in arrears, the loan will be classified as impaired, if not already classified as such. For impaired loans, the accrual of interest income based on the original terms of the loan is discontinued. IFRS requires the increase in the present value of impaired loans due to the passage of time to be reported as interest income.

Write-offs are made when all or part of a loan is deemed uncollectible or in the case of debt-forgiveness. Write-offs are charged against previously established provisions for impairment losses and reduce the principal amount of the loan. Recoveries, in part or in full, of amounts previously written-off are credited to recoveries bad debt in net surplus. The Groupâ&#x20AC;&#x2122;s impairment loss provision requirements as stipulated by the Jamaica Co-operative Credit Union League (JCCUL/the League), that exceed the IFRS impairment provision are dealt with in a nondistributable Loan Loss Reserve as an appropriation of Accumulated Surplus. (m) Cash and cash equivalents Cash and cash equivalents are carried in the statement of financial position at amortised cost, and comprise cash in hand and in bank, and deposits not held to satisfy requirements of the League, net of bank overdraft, which is carried at amortised cost. (n) Accounts receivable Receivables are carried at amortised cost less impairment. An estimate is made for doubtful receivables based on all outstanding amounts at year-end. Bad debts are written off in the year in which they are identified. (o) Inventories Inventories are stated at the lower of cost and net realisable value, cost being determined on the first-in-first-out basis.

First Heritage Co-operative Credit Union Limited

Page 23

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2.

Summary of Significant Accounting Policies (Continued) (p) Intangible assets (i) Customer relationships Customer relationships are shown at historical cost less impairment and are deemed to have a finite useful life. Customer relationships are the estimated economic benefits derived from the incremental revenues and related cash flows as a direct result of relationships in place versus having to try and replicate them. Amortisation is calculated using the straight-line method to allocate the cost of the intangible assets over their estimated useful lives of 12 years. (ii) Trademarks Trademarks are shown at historical cost less impairment and are deemed to have a finite useful life. Amortisation is calculated using the straight-line method to allocate the cost of the intangible assets over their estimated useful lives of 3 years. (q) Investment property Property held for capital appreciation, and not occupied by the Group, is classified as investment property. Investment property comprises land and building held for capital appreciation. Recognition of investment property takes place only when it is probable that the future economic benefits that are associated with the investment property will flow to the Group and the cost can be measured reliably. This is usually the day when all risks are transferred. Investment property is measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing parts of an existing investment property at the time the cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment property is stated at fair value, which reflects market conditions at the date of the statement of financial position. Gains or losses arising from changes in the fair value of investment property are included in the statement of comprehensive income, as part of net surplus in the year in which they arise. Subsequent expenditure is included in the assetâ&#x20AC;&#x2122;s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the net surplus during the financial period in which they are incurred. The fair value of investment property held for capital appreciation is determined by a valuation done by independent, qualified property appraisers and valuators on the basis of current open market values. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure.

Page 24

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (r) Property, plant and equipment Freehold land is stated at historical cost. All other property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Depreciation is calculated on the straight-line basis at rates estimated to write off the cost of the assets over their expected useful lives. Land is not depreciated. The expected useful lives of the other property, plant and equipment are as follows:

Buildings Computer equipment Furniture, fixtures and equipment Motor vehicles

40 years 5 years 10 years 8 years

Property, plant and equipment are periodically reviewed for impairment. Where the carrying amount of the asset is greater than the estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by reference to carrying amounts and are taken into account in determining net surplus. Repairs and renewals expenses are charged to net surplus or deficit in the statement of comprehensive income when the expenditure is incurred.

First Heritage Co-operative Credit Union Limited

Page 25

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (s)

Employee benefits Retirement benefits The Group participates in a multi-employer defined benefit pension scheme. The pension scheme is generally funded by payments from employees and by the Group, taking into account the recommendation of independent qualified actuaries. Defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The asset or liability in respect of defined benefit plans is the difference between the present value of the defined benefit obligation at the date of the statement of financial position and the fair value of plan assets, adjusted for unrecognised actuarial gains/losses and past service costs. Where a pension asset arises, the amount recognised is limited to the net total of any cumulative unrecognised net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or future reduction in future contributions to the plan. The pension plan costs are assessed using the projected unit credit method. Under this method, the cost of providing pensions is charged to net surplus as to spread the regular cost of service over the service lives of the employees in accordance with the advice of the actuaries, who carry out a full valuation of the plan every year. The pension obligation is measured at the present value of the estimated future cash outflows using discount rates based on market yields on government securities which have terms to maturity approximating the terms of the related liability. The pension plan assets are allocated based on the Group’s obligation as a proportion of the total obligations of the plan. 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 net surplus over the employees’ expected average remaining working lives. Leave accrual The Group’s vacation leave policy allows a maximum of six weeks unused vacation leave to be carried forward for all managerial staff and four weeks for non-managerial staff. The charge for all outstanding leave is recognised in the statement of comprehensive income in the period to which it relates.

(t) Members’ shares Permanent shares Permanent shares may be transferred by members to another member but are not available for withdrawal. Permanent shares are classified as equity. Voluntary shares Members’ voluntary shares represent deposit holdings of the Credit Union’s members, to satisfy membership requirements and to facilitate eligibility for loans and other benefits. These shares are classified as financial liabilities, as they are available for withdrawal. The amount of the dividends payable on these shares is determined at the discretion of the Credit Union and reported as interest expense in the statement of comprehensive income in the period in which they are approved.

First Heritage Co-operative Credit Union Limited

Page 26

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2.

Summary of Significant Accounting Policies (Continued) (u) Institutional capital Institutional capital includes the statutory reserve fund, as well as various other reserves established from time to time which, in the opinion of the Directors, are necessary to support the operations of the Credit Union and, thereby, protect the interest of the members. These reserves are not available for distribution.

Critical Accounting Estimates and Judgements in Applying Accounting Policies Judgements and estimates 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. In the process of applying the Groupâ&#x20AC;&#x2122;s accounting policies, management has made the following critical accounting estimates or judgements which it believes has a significant risk of causing a material misstatement in these financial statements. Critical judgements in applying accounting policies In the process of applying the Groupâ&#x20AC;&#x2122;s accounting policies, management has exercised its judgement in determining that acquisition accounting, under IFRS 3 was applicable to the merger between Churches and GSB. Management also used judgement, applying principles articulated in IFRS 3, that Churches was the acquirer, and that GSB was the acquiree.

Key source of estimation uncertainty Impairment losses on loans to members The Credit Union reviews its loan portfolio to assess impairment on a monthly basis. In determining whether an impairment loss should be recorded in the statement of comprehensive income, the Credit Union makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated cash flow from the loans. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers, or national or economic conditions that correlate with defaults on assets in the Credit Union. 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 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. Retirement benefit obligations The cost of these benefits and the present value of the future obligations depend on a number of factors that are determined by actuaries using a number of assumptions. The assumptions used in determining the net periodic cost or income for retirement benefits include the expected long-term rate of return on the relevant plan assets, the discount rate. Any changes in these assumptions will impact the net periodic cost or income recorded for retirement benefits and may affect planned funding of the pension plan. The expected return on plan assets assumption is determined on a uniform basis, considering long-term historical returns, asset allocation and future estimates of long-term investment returns. The Group determines the appropriate discount rate at the end of each year, which represents the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the retirement benefit obligations. In determining the appropriate discount rate, the Group considered interest rate of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and have terms to maturity approximating the terms of the related obligations. Other key assumptions for the retirement benefits are based on current market conditions.

First Heritage Co-operative Credit Union Limited

Page 27

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 3.

Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued) Fair values of intangible assets In determining the fair values of certain intangible assets arising on the acquisition of GSB, management has made certain assumptions in respect of growth in earning assets and interest income, interest expenses, operating expenses, terminal value and lack of marketability, all of which are critical to the amounts recognised in these financial statements. Management has made these determinations, using the best information currently available, which they believe is reflective of the credit union’s circumstances, all from the perspective of a market participant.

4. Financial Risk Management Financial risk factors The Group has exposure to credit, liquidity and market risk (including currency, fair value interest rate, cash flow interest rate and price risk) arising from its use of financial instruments throughout its operations. Taking risk is core to the financial business, and these risks are an inevitable consequence of being in business. The Group’s aims are, therefore, to achieve an appropriate balance between risk and return, and to minimise potential adverse effects on the Group’s financial performance. The Group’s overall risk management programme involves the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. The Group has established risk management policies 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 regularly generated reports. Risk management procedures are closely integrated into all key business processes. The Group regularly reviews its risk management policies, procedures and systems to reflect recommendations and best practice, as well as changes in markets and products. The Board of Directors is ultimately responsible for the establishment and oversight of the Group’s risk management framework. It defines the overall risk profile of the Group by approving its financial policies and guidelines, as well as maximum limits for exposure and individual loans. The Board has established committees/functions for managing and monitoring risks as follows: (i)

Supervisory and Conduct Committee The Supervisory and Conduct Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Supervisory and Conduct Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Supervisory and Conduct Committee.

(ii)

Credit Committee The Credit Committee oversees the approval and disbursements of credit facilities to members. It is also primarily responsible for monitoring the quality of the loan portfolio.

(iii) Treasury Committee The Treasury Committee is responsible for monitoring the management of the Group’s assets and liabilities and the overall financial structure. It is also primarily responsible for managing the funding and liquidity risks of the Group.

First Heritage Co-operative Credit Union Limited

Page 28

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (iv) Finance Committee The Finance Committee is responsible for monitoring and formulating investment portfolios and investment strategies for the Group which include the formulation of appropriate trading limits and reports and compliance controls to ensure that their mandate is properly followed. The Finance Committee has two sub-committees in that of Treasury and Delinquency. Treasury is responsible for monitoring the management of the Group’s assets and liabilities and, by extension, the management of funding and liquidity risks. The Delinquency committee assesses the adequacy of provisions for non-performing loan facilities. These committees comprise persons independent of management and report to the Board on a monthly basis. The business functions, Lending and Treasury, are responsible for managing risks assumed through their operations and for ensuring that an adequate return for the risks taken is achieved. Operations Risk & Compliance, Credit Administration and Internal Audit are independent from the departments carrying out the Group’s business activities. Operations Risk & Compliance has the overall responsibility for identifying, assessing, monitoring and reporting all types of risk inherent in the Group’s operations. Credit Administration is responsible for assessing and monitoring credit risk in the Group’s lending operations and seek to ensure that credit proposals are in compliance with established limits and policies. Internal Audit provides an independent evaluation of the control and risk management processes. Based on regular reporting from these departments, the aforementioned committees supervise the Group’s aggregate risk-taking.

There have been no significant changes to the Group’s exposure to financial risks or the manner in which it manages and measures these risks. (a)

Credit risk Credit risk is the most important risk for the Group’s business. Credit risk is the risk that borrowers or other counterparties will cause a financial loss for the Group by failing to discharge their contractual obligations, and that any collateral provided does not cover the Group’s claims. As a consequence of the Group’s mandate and resulting financial structure, this risk arises principally from the Group’s lending activities. For loans, credit decisions are primarily made by the Board of Directors, with some delegation of credit approval authority to the Credit Committee and certain members of executive management. The Group’s credit policy forms the basis for all its lending operations. The policy aims at maintaining a high quality loan portfolio, as well as enhancing the Group’s mission and strategy. The policy sets the basic criteria for acceptable risk and identifies risk areas that require special attention. Additionally, the Group is exposed to credit risk in its treasury activities, arising from financial assets that the Group uses for investing its liquidity and managing currency and interest rate risks, as well as other market risks. There is also credit risk in financial instruments not carried on the statement of financial position, such as loan commitments.

First Heritage Co-operative Credit Union Limited

Page 29

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (a) Credit risk (continued) Credit review process The Group has established a credit quality review process involving regular analysis of the ability of borrowers and other counterparties to meet interest and capital repayment obligations. Loans The Group assesses the probability of default of individual borrowers using internal ratings. The Group assesses each borrower on four critical factors. These factors are the member’s credit history, ability to pay linked to the industry benchmarked debt service ratio of 40% to 45%, character profile and the member’s economic stability, based on employment and place of abode. Borrowers of the Credit Union are segmented into two rating classes. The Group’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. Group’s internal rating scale: Group’s rating

Description of the grade

Performing

Non –performing

The credit quality review process allows the Group to assess the potential loss as a result of the risk to which it is exposed and take corrective action. Exposure to credit risk is managed, in part, by obtaining collateral, and corporate and personal guarantees. Credit risk ratings also determine credit limits and collateral, and are systematically reassessed on an annual basis. Reassessment is based on the borrower’s credit worthiness, and on any new information and events that may have an impact on the level of credit risk, whether these arise from the borrower’s own circumstances or from the financial environment, in general. Investments The Group limits its exposure to credit risk by investing mainly in liquid securities, with counterparties that have high credit quality and Government of Jamaica securities. Accordingly, management does not expect any counterparty to fail to meet its obligations. Credit limits The Group manages concentrations of credit risk by placing limits on the amount of risk accepted in relation to a single borrower or groups of related borrowers, and to product segments. Borrowing limits are established by the use of the system described above, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. Limits on the level of credit risk by product categories, and for investment categories, are reviewed and approved bi-annually by the Board of Directors.

First Heritage Co-operative Credit Union Limited

Page 30

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (a) Credit risk (continued) Collateral The most widely used practice for mitigating credit risk is the taking of security in the form of physical assets, netting agreements and guarantees. The amount and type of collateral required depends on an assessment of the credit risk of the borrower. Guidelines are implemented regarding the acceptability of different types of collateral. The principal collateral types provided for loans and advances are charges over member balances, real property and motor vehicles. Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and monitors the market value of collateral obtained during its review of the adequacy of the provision for credit losses. Impairment

The Group assesses on a monthly basis whether there is evidence of impairment in accordance with the general principles and methodology set out in IAS 39 and the relevant implementation guidance. These procedures include the following steps: •

Identification of events that provide objective evidence that a loan is impaired.

•

Establishment of criteria for assessment on an individual or collective basis.

•

Establishment of groups of assets with similar characteristics.

•

Establishing methodology to be used in determining cash flows from impaired loans

•

Determining interest income recognition.

•

Recoveries

The main considerations for the loan impairment assessment include whether any payments of principal or interest are overdue by more than 30 days based on the established PEARLS grid recommended by the League or based on any known difficulties in the cash flows of counterparties, credit rating downgrades or infringement of the original terms of the contract. The Group addresses impairment assessment in two areas: individually assessed allowances and collectively assessed allowances. The assessment applied to individually significant accounts normally encompasses collateral held and the anticipated receipts for that individual account. Collectively assessed allowances are determined through the application of PEARLS prescribed percentages to the aging profiles of the loan portfolio. The internal rating system described above focuses more on credit-quality mapping from the inception of lending activities. In contrast, impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the date of the statement of financial position based on objective evidence of impairment. Due to the different methodologies applied, the amount of incurred credit losses provided for in the financial statements are usually lower than the amount determined from the expected loss model that is used for internal operational management and regulatory purposes.

Page 31

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (a)

Credit risk (continued) Impairment (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 Credit Union: •

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 impairment provision shown in the statement of financial position at year-end is derived from the two internal rating grades. However, the majority of the impairment provision comes from the non-performing rating class. The table below shows the Credit Union’s loans and the associated impairment provision for each internal rating class: The Group & The Group & The Credit Union

The Credit Union

2012

Performing Non-performing Interest accrued

2011

Loans

Impairment provision

Loans

Impairment provision

$’000

5,798,381

2,949,950

526,114

58,495

358,843

27,987

6,324,495

58,495

3,308,793

27,987

64,070

44,760

6,388,565

58,495

3,353,553

27,987

Page 32

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (a)

Credit risk (continued) Credit risk exposure Maximum exposure to credit risk before collateral held or other credit enhancements: For items on statement of financial position, the exposures are based on net carrying amounts as reported in the statement of financial position. For items not on the statement of financial position, see table below representing a worst case scenario of credit risk exposure to the Group at 31 December 2012 and 2011, without taking account of any collateral held or other credit enhancements. The Group

The Credit Union

2012 $’000

2011 $’000

2012 $’000

2011 $’000

77,026

79,870

77,026

79,870

Item not on statement of financial position -

Loan commitments Loans Credit quality of loans Credit quality of loans is summarised as follows:

The Group & The Credit Union 2012 $’000

2011 $’000

5,798,381

2,949,950

433,047

304,289

93,067

54,554

526,114

358,843

6,324,495

3,308,793

Performing – Neither past due nor impaired Non-performing – Past due but not impaired Impaired

Less: Provision for credit losses Add: Interest accrued

(58,495)

(27,987)

6,266,000

3,280,806

64,070

44,760

6,330,070

3,325,566

Page 33

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

The Group & The Credit Union 2012 $â&#x20AC;&#x2122;000

2011 $â&#x20AC;&#x2122;000

3,724

31 to 60 days

164,232

154,132

61 to 90 days

107,037

34,143

More than 90 days

161,778

112,290

433,047

304,289

Less than 30 days

There are no financial assets other than loans that are past due. Of the aggregate amount of gross past due but not impaired loans, the fair value of collateral that the Group held was $664,625,000 (2011 - $576,564,000).

Page 34

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (a) Credit risk (continued) Renegotiated loans 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 normal status and managed together with other similar accounts. Restructuring policies and practices are based on indicators or criteria which, in the judgment of management, indicate that payment will most likely continue. These policies are kept under continuous review. Restructuring is most commonly applied to term loans. The Group’s renegotiated loans that would otherwise be past due or impaired totalled $14,793,600 (2011 - $37,046,000). There were no renegotiated loans which were deemed impaired. Repossessed collateral The Group is in the process of negotiating the sale of property which was used as collateral for loans as follows: Carrying Amount

Motor vehicles and properties

2012

2011

$’000

80 , 29 9

72,422

Title to the above items has not been transferred to the Group. Consequently the Group has not recognised the assets on the statement of financial position. Debt securities Debt securities are summarised as follows: The Group

The Credit Union

2012 $’000

2011 $’000

2012 $’000

2011 $’000

Certificates of deposit

397,912

202,614

397,912

202,614

Benchmark investment notes

320,747

181,407

245,338

137,563

Securities purchased under agreements to resell

234,619

145,468

157,367

199,269

Other

299,298

176,292

299,298

148,592

1,252,576

705,781

1,099,915

688,038

Page 35

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (a) Credit risk (continued) Concentration of risk Loans The following table summarises the Group’s credit exposure for loans at their carrying amounts, as categorised by industry sector: The Group & The Credit Union 2012 $’000

2011 $’000

2,322

2,836

1,573,177

632,420

649,457

445,759

77,430

27,138

2,540

112,318

76,078

3,731,144

1,797,610

Professional and other services

82,448

68,145

Other

96,199

256,267

6,324,495

3,308,793

Agriculture, fishing and mining Construction and real estate Debt financing Distribution Manufacturing Micro loans Personal

Less: Provision for credit losses

(58,495)

Interest receivable

(27,987)

6,266,000

3,280,806

64,070

44,760

6,330,070

3,325,566

Debt securities The following table summarises the Group and the Credit Union’s credit exposure for debt securities at their carrying amounts, as categorised by issuer: The Group

The Credit Union

2012 $’000

2011 $’000

2012 $’000

2011 $’000

Government of Jamaica

320,747

181,407

245,338

137,563

Jamaica Co-operative Credit Union League

523,972

297,611

523,972

297,611

Financial institutions

108,559

174,217

203,002

200,318

953,278

653,235

972,312

635,492

First Heritage Co-operative Credit Union Limited

Page 36

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (b) Liquidity risk Liquidity risk is the risk that the Group 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 consequences may be the failure to meet obligations to repay depositors and fulfil commitments to lend. Liquidity risk management process Liquidity risk management safeguards the ability of the Group to meet payment obligations as they fall due. The Group’s policy is to maintain liquidity corresponding to its estimated net liquidity requirements for 12 months. The Group’s liquidity management process, as carried out within the Group by the Treasury Committee and monitored by the Finance Committee, includes: (i) Monitoring future cash flows and liquidity on a daily basis. This incorporates an assessment of the Group’s source of funds which includes cash balances, bank balances, investment maturities in order to determine their ability to make supplier payments and commitments for loans; (ii) Maintaining a portfolio of highly marketable and diverse assets that can easily be liquidated as protection against any unforeseen interruption to cash flow;

(iii) Maintaining committed lines of credit with the League; (iv) Optimising cash returns on investment; (v) Monitoring the statement of financial position liquidity ratios against internal and regulatory requirements. The most important of these is to maintain limits on the ratio of net liquid assets to customer liabilities; and (vi) Managing the concentration and profile of debt maturities. Monitoring and reporting takes the form of an analysis of the cash balances and expected investment maturity profiles for the next day, week and month, respectively, as these are key periods for liquidity management. The starting point for these projections is the generation of analyses of loan commitments and the examination of expired credit periods in comparison to the expected collection date of the financial assets. The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for financial entities ever to be completely matched since business transacted is often of uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of loss. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange rates. Financial liabilities and assets held for managing liquidity risk The tables below present the undiscounted cash flows payable (both interest and principal cash flows) of the Group and the Credit Union’s financial liabilities based on contractual repayment obligations. The tables also reflect the expected maturities of the Group and Credit Union’s financial assets and liabilities at the year end date. The Group expects that many members will not request repayment on the earliest date the Group could be required to pay. The expected maturity dates of financial assets and liabilities are based on estimates made by management as determined by retention history.

Page 37

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (b) Liquidity risk (continued) The Group & The Credit Union Within 1 Month

2 to 3 Months

4 to 12 Months

2 to 5 Years

Over 5 Years

Total

$’000

198,688 2,164,122

185,431

3,208,388

2012 Members’ deposits

639,151

20,996

2,154,227

5,439

64,587

577,347

262,030

3,063,630

24,011

48,024

216,108

214,720

453,401

956,264

Total financial liabilities (contractual maturity dates)

2,817,389

74,459

479,383 2,956,189

900,862

7,228,282

Total financial liabilities (expected maturity dates)

3,089,320

81,645

525,652 3,241,515

987,811

7,925,943

Total financial assets (expected maturity dates)

873,008

518,149 1,667,687 5,061,325 3,712,897

11,833,066

Members’ voluntary shares External credit

83 2011

Members’ deposits

787,693

767,923

389,905

6,590

1,952,111

Members’ voluntary shares

573,169

510,273

386,569

73,758

3,992

1,547,761

20,700

44,472

151,158

19,807

25,457

261,594

Total financial liabilities (contractual maturity dates)

1,381,562 1,322,668

927,632

100,155

29,449

3,761,466

Total financial liabilities (expected maturity dates)

1,071,062 1,509,259

941,290

261,698

28,719

3,812,029

Total financial assets (expected maturity dates)

1,228,879 1,682,877 1,024,639

747,936

863,536

5,547,867

External credit

Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, deposits, short-term investments, reverse repurchase agreements and advances to customers. In the normal course of business, a proportion of customer loans contractually repayable within one year will be extended. The members’ voluntary shares are contractually on call except in cases where these balances are held as security for loan facilities. Items not carried on the statement of financial position At 31 December 2012, the Credit Union’s commitment to extend credit to its members, in respect of loans approved but not yet disbursed, amounted to $79,870,000 (2011 - $39,000,000).

First Heritage Co-operative Credit Union Limited

Page 38

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (c) Market risk The Group 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 mainly arise from changes in foreign currency exchange rates and interest rates. Market risk is monitored by the Finance Committee which carries out extensive research and monitors the price movement of financial assets on the local and international markets. Market risk exposures are measured using sensitivity analysis. Currency risk Currency or foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates, and arises mainly from the Credit Union’s cambio operations. The Group has no significant exposure to currency risk as less than half of a percent of net financial assets is maintained in foreign currencies at any given time during the year. The Treasury Committee has approved limits on the level of exposure by currency and in aggregate. These limits may vary from time to time as determined by the Treasury Committee. Interest rate risk

Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates, and arises mainly from investments, loans and deposits. Floating rate instruments expose the Group to cash flow interest risk, whereas fixed interest rate instruments expose the Credit Union to fair value interest risk. The Group’s interest rate risk policy requires it to manage interest rate risk by maintaining an appropriate mix of fixed and variable rate instruments as determined by the Finance committee. The policy also requires it to manage the maturities of interest bearing financial assets and interest bearing financial liabilities. The Board sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored daily by the Treasury department. The following tables summarise the Group and Credit Union’s exposure to interest rate risk. They include the Group and Credit Union’s financial instruments at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.

Page 39

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

1 to 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

NonInterest Bearing

Total

$’000

Deposits

217,330

Short-term investments

254,713

97,564

352,277

94,752

138,826

1,041

234,619

309,380

37,462

108,211

65,442

520,495

42,764

31,217

405,324

2,898,425

2,952,340

6,330,070

107,704

609,559

267,607

714,704

2,935,887

3,060,551

174,187

7,762,495

Members’ deposits

2,100,147

613,771

178,594

133,533

112,044

3,138,089

Members’ voluntary shares

2,120,961

4,297

55,087

436,231

161,776

31,848

2,810,200

External credit

4,941

411,130

366,661

782,732

Non-interest bearing liabilities

30,345

4,221,108

618,068

237,164

980,894

528,437

174,237

6,759,908

Total Interest Rate Sensitivity Gap

(3,611,549)

(350,461)

477,540

1,954,993

2,532,114

Cumulative Gap

(3,611,549) (3,962,010) (3,484,470) (1,529,477) 1,002,637

Financial Assets Earning assets –

Reverse repurchase agreements Financial investments Loans, after provision for loan impairment Non-earning assets Total financial assets Financial Liabilities Interest bearing liabilities –

Total financial liabilities

(50) 1,002,587

1,002,587

Page 40

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

1 to 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

NonInterest Bearing

Total

$’000

97,095

27,700

124,795 201,565

Financial Assets Earning assets – Deposits Short-term investments Reverse repurchase agreements

Financial investments Loans, after provision for loan impairment Non-earning assets Total financial assets

126,725

74,840

69,546

74,044

145,468

167,454

61,295

1,878 46,754

35,136

29,341

233,831

1,736,120 1,246,378

44,760

3,325,566

124,136

1,903,574 1,307,673

217,528

4,197,033

1,918,988

275,503

328,502

205,925

233,831

Members’ deposits

767,597

757,202

380,127

5,720

Members’ voluntary shares

515,798

459,616

348,193

66,436

3,604

8,342 26,080

248,230

Financial Liabilities Interest bearing liabilities – 1,419,727

External credit

1,567

246,663

Non-interest bearing liabilities

22,762

1,283,395

1,216,818

729,887

318,819

3,604

57,184

3,609,707

1,584,755

1,304,069

160,344

587,326

426,982

587,326

Total financial liabilities Total Interest Rate Sensitivity Gap

(954,893) (1,010,893)

Cumulative Gap

(954,893) (1,965,786) (2,461,842)

(496,056)

(877,087)

Page 41

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

1 to 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

NonInterest Bearing

Total

$’000

Financial Assets Earning assets – Deposits

217,330

Short-term investments Reverse repurchase agreements

254,713

97,564

352,277

94,752

61,574

1,041

157,367

284,080

96,904

63,865

444,849

42,764

31,217

405,324

2,898,425

2,952,340

134,092

609,559

190,355

689,404

2,898,425

3,049,244

198,998

7,635,985

Members’ deposits

2,100,147

613,771

178,594

133,533

112,044

3,138,089

Members’ voluntary shares

2,120,961

4,297

55,087

436,231

161,776

31,848

2,810,200

External credit

4,941

411,130

366,661

782,732

Non-interest bearing liabilities

36,882

Financial investments Loans, after provision for loan impairment Non-earning assets Total financial assets

6,330,070

Financial Liabilities Interest bearing liabilities –

Total financial liabilities Total Interest Rate Sensitivity Gap

4,221,108

618,068

237,164

980,894

528,437

180,774

6,766,445

(3,611,549)

(427,713)

452,240

1,917,531

2,520,807

18,224

869,540

Cumulative Gap

(3,611,549) (4,039,232) (3,587,022) (1,669,491)

851,316

869,540

Page 42

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

1 to 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

NonInterest Bearing

Total

$’000

97,095

126,725

74,840

201,565

72,102

125,439

1,728

199,269

139,768

45,751

45,845

231,364

35,136

29,341

233,831

1,736,120 1,246,378

44,760

3,325,566

90,823

331,058

229,620

233,831

1,875,888

1,292,129

183,156

4,145,682

Members’ deposits

767,597

757,202

380,127

5,720

8,342

1,918,988

Members’ voluntary shares

515,798

459,616

348,193

66,436

3,604

26,080

1,419,727

External credit

1,567

246,663

248,230

Non-interest bearing liabilities

20,846

1,283,395

1,216,818

729,887

318,819

3,604

55,268

3,607,791

(496,056) 1,557,069 1,288,525

127,888

537,891

Financial Assets Earning assets – Deposits Short-term investments

Reverse repurchase agreements Financial investments Loans, after provision for loan impairment Non-earning assets Total financial assets Financial Liabilities Interest bearing liabilities –

Total financial liabilities Total Interest Rate Sensitivity Gap

(952,337)

Cumulative Gap

(952,337) (1,939,535) (2,435,591)

(987,198)

(878,522)

410,003

537,891

Page 43

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (c) Market risk (continued) Interest rate risk (continued) Interest rate sensitivity The following table indicates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, on the Group’s net surplus and other components of equity. The sensitivity of the net surplus is the effect of the assumed changes in interest rates on net surplus based on the floating rate financial assets and financial liabilities. The sensitivity of other components of equity is calculated by revaluing fixed rate available-for-sale financial assets for the effects of the assumed changes in interest rates. The correlation of variables will have a significant effect in determining the ultimate impact on market risk, but to demonstrate the impact due to changes in each variable, variables had to be tested on an individual basis. It should be noted that movements in these variables are non-linear. The Group

Effect on Net Surplus

Effect on Other Components of Equity

2012 $’000

2011 $’000

-100 basis points (2011 – +200 basis points)

(378)

(2,148)

1,128

+400 basis points (2011 – -100 basis points)

1,514

Effect on Net Surplus

Effect on Other Components of Equity

2011 $’000

Change in basis points: 7,895

(564)

5,236 (7,683)

The Credit Union

Effect on Net Surplus

Effect on Other Components of Equity

2012 $’000

2011 $’000

-100 basis points (2011 – +200 basis points)

(378)

(1,715)

1,128

+400 basis points (2011 – -100 basis points)

1,514

Effect on Net Surplus

Effect on Other Components of Equity

2011 $’000

Change in basis points: 6,356

(564)

1,751 (3,334)

Page 44

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (c) Market risk (continued) Interest rate risk (continued) Interest rate risk Average effective yields by earlier of the contractual re-pricing or maturity dates: The Group Immediately rate sensitive

Within 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Weighted Average

2012 Earning assets –

Liquid assets

Deposits

Short-term investments

Reverse repurchase agreements

Loans

(1)

Financial investments Interest bearing liabilities – Members’ deposits External credit

(2)

The Group Immediately rate sensitive

Within 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Weighted Average

2011 Earning assets – Liquid assets

Deposits

Short-term investments

Reverse repurchase agreements

Loans

(1)

Financial investments Interest bearing liabilities – Members’ deposits External credit

(2)

Page 45

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

Within 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Weighted Average

2012 Earning assets – Liquid assets

Deposits

Short-term investments

Reverse repurchase agreements

Loans

(1)

Financial investments

Interest bearing liabilities – Members’ deposits External credit

(2)

The Credit Union Immediately rate sensitive

Within 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Weighted Average

2011 Earning assets – Liquid assets

Deposits

Short-term investments

Reverse repurchase agreements

Loans

(1)

Financial investments Interest bearing liabilities – Members’ deposits External credit

(2)

(1)

Yields are based on book values, net of allowances for credit losses and contractual interest rates.

(2)

Yields are based on contractual interest rates.

First Heritage Co-operative Credit Union Limited

Page 46

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (c) Market risk (continued) Other price risk Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. The Group has no significant exposure to other price risk. (d) Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Credit Union’s processes, personnel, technology and infrastructure, and from external factors other than financial risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. The Credit Union’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to its reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to identify operational risk is assigned to senior management. This responsibility is supported by overall Credit Union standards for the management of operational risk in the following areas: •

Requirements for the periodic assessment of the operational risk faced, and the adequacy of the controls and procedures to address the risks identified.

•

Requirements for the appropriate segregation of duties, including the independent authorisation of transactions.

•

Requirements for the reconciliation and monitoring of transactions.

•

Compliance with regulatory and other legal requirements.

•

Documentation of controls and procedures.

•

Requirements for the reporting of operational losses and proposed remedial action.

•

Development of contingency plans.

•

Training and professional development.

•

Ethical and business standards.

•

Risk mitigation, including insurance where this is effective

Compliance with Credit Union policies is supported by a programme of periodic reviews undertaken by internal audit. The results of internal audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Supervisory Committee, senior management and the Board of Directors.

First Heritage Co-operative Credit Union Limited

Page 47

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (e) Capital management The Group’s objectives when managing institutional capital, which is a broader concept than the ‘equity’ on the face of the statement of financial position, are: Credit Union (i)

To comply with the capital requirements set by the Jamaica Co-operative Credit Union League and the Bank of Jamaica for the financial sector in which the Credit Union operates;

(ii)

To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns and benefits for members.

(iii)

To maintain an 8% ratio of permanent capital to total assets;

(iv)

To increase the permanent share capital as the main focus of building institutional capital; and

(v)

To maintain a strong capital base to support the development of its business through the allocation of 30% of net surplus to institutional capital.

FHC Investments Limited (i)

To comply with the capital requirements set by the Financial Services Commission;

(ii)

To maintain a capital to total assets ratio of 6% or greater;

(iii)

To maintain a capital base to risk weighted assets ratio of 14% or greater.

Capital adequacy and the use of regulatory capital are monitored by the Group’s management, based on the guidelines in its Capital Asset Management Policy. The League currently requires member credit unions to maintain a minimum level of institutional capital at 8% of total assets. The proposed Bank of Jamaica regulations require the League to ensure that member companies: (i)

Hold a minimum level of the regulatory capital of 6% of total assets; and

(ii)

Maintain a ratio of total regulatory capital to risk-weighted assets at or above 10%.

Page 48

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Financial risk factors (continued) (f) Capital management The table below summarises the composition of regulatory capital and the ratios of the Credit Union as at the statement of financial position dates. During the year, the Group complied with all externally imposed capital requirements to which they are subject. The Credit Union

Total regulatory capital

Actual 2012 $’000

Required 2012 $’000

Actual 2011 $’000

Required 2011 $’000

1,336,856

585,298

612,413

416,046

Risk-weighted assets: Total risk-weighted assets

Risk based capital adequacy ratio

4,541,161 29%

2,472,312 10%

25%

10%

Permanent capital to total assets

16%

13%

Regulatory capital to total assets

16%

14%

FHC Investments Limited

Total regulatory capital

Actual 2012 $’000

Required 2012 $’000

Actual 2011 $’000

Required 2011 $’000

89,821

8,984

50,651

5,917

Risk-weighted assets: Total risk-weighted assets Capital to total assets Capital base to risk weighted assets

69,620

44,714

38%

28%

129%

14%

113%

14%

Page 49

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Fair values of financial instruments Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The following table provides an analysis of financial instruments held as at 31 December 2012 that, subsequent to initial recognition, are measured at fair value. The financial instruments are grouped into levels 1 to 3 based on the degree to which the fair value is observable, as follows: •

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical instruments. The fair value of financial instruments traded in active markets is based on quoted market prices at the date of the statement of financial position. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets is the current bid price. These instruments are grouped in Level 1;

•

Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the instrument, either directly (i.e., as prices) or indirectly (i.e., derived from prices) The fair value of financial instruments not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.; and

•

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the instrument that are not based on observable market data (unobservable inputs). If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

There were no transfers between levels during the year. The Group Level 1

Level 2

Total

$’000

2012 Available-for-sale investments Quoted equities

21,863

Financial institutions

127,603

Issued by Government of Jamaica

320,747

21,863

448,350

470,213

2011 Available-for-sale investments Quoted equities

10,652

Financial institutions

52,546

Issued by Government of Jamaica

181,407

10,652

233,953

244,605

Page 50

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Fair values of financial instruments (continued) The Credit Union Level 1

Level 2

Total

$’000

21,626

Financial institutions

127,603

Issued by Government of Jamaica

245,338

21,626

372,941

394,567

2012 Available-for-sale investments Quoted equities

2011 Available-for-sale investments -

Quoted equities

10,357

Financial institutions

52,546

Issued by Government of Jamaica

137,563

10,357

190,109

200,466

Reconciliation of level 3 items -

Balance at beginning of year

The Group & The Credit Union 2012 2011 $’000 $’000 52,546 53,207

Additions on business combinations

82,459

Total (loss)/gain – statement of comprehensive income

(9,402)

Balance at end of year

127,603

(661) 52,546

Page 51

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) Fair values of financial instruments (continued) The following methods and assumptions have been used in determining fair values for financial instruments: (i)

The fair value of liquid assets and other assets maturing within one year is assumed to approximate their carrying amount. This assumption is applied to liquid assets and the short-term elements of all other financial assets and liabilities;

(ii)

The fair value of demand deposits with no specific maturity is assumed to be the amount payable on demand at the date of the statement of financial position;

(iii)

The fair value of variable rate financial instruments is assumed to approximate their carrying amounts;

(iv)

The carrying value of external credit approximates its fair values, as these loans are carried at amortised cost reflecting their contractual obligations and the interest rates are reflective of current market rates for similar transactions;

(v)

The fair value of fixed rate loans is estimated by discounting the expected future cash flows on these loans using current market rates for similar loans;

(vi)

Unquoted equities classified as available-for-sale are measured at historical cost less impairment, as their fair values cannot be reliably determined; and

(vii)

The fair values of quoted investments are based on current bid prices. If there is no active market for investments, the Credit Union establishes fair value by using valuation techniques, such as reference to recent armâ&#x20AC;&#x2122;s length transactions, reference to other instruments that are substantially the same or amounts derived from discounted cash flow models, making maximum use of market inputs.

5. External Credit Interest Expense

Development Bank of Jamaica Limited

The Group & The Credit Union 2012 2011 $â&#x20AC;&#x2122;000 $â&#x20AC;&#x2122;000 12,690 3,404

Jamaica Co-operative Credit Union League Limited

16,618

3,801

151

171

109

11,729

1,735

2,411

41,188

16,706

National Housing Trust Sagicor Investments Limited Jamaica Mortgage Bank Other

Page 52

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 6. Fee and Commission Income

Accounts maintenance

The Credit Union 2012 2011 $’000 $’000 32,671 23,194

Dormant accounts

2,541

2,073

2,541

2,073

Family indemnity plan

6,634

3,276

6,634

3,276

10,208

12,226

10,208

12,226

4,118

7,324

4,118

7,324

Late payment

44,274

33,017

44,274

33,017

Management

10,296

7,122

37,034

9,523

Standing orders

4,959

4,298

4,959

4,298

Statements and credit information

4,551

993

4,551

993

Other

4,739

5,885

4,739

5,885

124,991

99,408

151,729

101,809

Loan processing Life savings and loan protection

The Group 2012 2011 $’000 $’000 32,671 23,194

7. Other Income

Gain on foreign exchange trading Gain on sale of non-current assets held for sale Rental

The Group 2012 2011 $’000 $’000 132 336

The Credit Union 2012 2011 $’000 $’000 132 336

8,932

2, 49 9

2,183

2,499

2,183

GCT claims

3,805

Qnet dividend

2,507

3,236

2,374

4,876

3,754

5,867

20,137

7,507

21,517

Other

Page 53

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 8. Expenses by Nature

Interest Provision for loan impairment, net of recoveries (Note 15c)) Operating expenses – Acquisition related expenses

The Group 2012 2011 $’000 $’000 146,785 109,435 45,981

The Credit Union 2012 2011 $’000 $’000 144,581 10 9, 43 5

32,586

45,981

32,586

23 , 1 5 9

23,159

Amortisation of intangible assets (Note 17)

7,986

Audit fees

5,464

3,766

4,800

3,120

Data processing Depreciation (Note 19) Fair value losses on investment property (Note 16)

7,986

6,700

7,986

6,700

32,095

23,328

32,095

23,328

1,000

Insurance

35,280

27,982

35,280

27,982

Legal and professional fees

17,287

1,784

17,287

1,784

Marketing and promotion

61,427

35,530

61,427

35,530

Operation of premises and equipment

50,768

41,384

50,768

40,883

Other administration Repairs and maintenance

35,835 16,688

8,299 15,330

42,995 16,688

7,889 15,330

Representation and affiliation

39,062

37,377

39,062

37,192

Security

24,184

19,774

24,184

19,774

Stationery and printing supplies

16,892

8,957

16,892

8,957

482,175

332,699

482,175

332,699

19,797

15,446

19,793

15,446

877,085

578,356

883,577

576,614

1,069,851

720,377

1,074,139

718,635

Staff costs (Note 9) Telecommunication and postage

9. Staff Costs (a)

Staff costs comprise:

Salaries and wages

The Group & The Credit Union 2012 2011 $’000 $’000 321,282 247,451

Statutory contributions

39,284

Termination costs

11,475

Pension (Note 20)

3,455

Other staff benefits

29,931 (1,289)

106,679

56,606

482,175

332,699

Page 54

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 10. Taxation T axation is bas ed on profit for the year adjusted for taxation purpos es and compris es income tax at 33 1/3 %. The Group

Current income tax Deferred taxation (Note 25)

The Credit Union

2012 $’000

2011 $’000

2012 $’000

2011 $’000

(5,004)

181

(5,004)

181

Reconciliation of applicable tax charge to effective tax charge: The Group

100

Surplus before taxation Tax calculated at a tax rate of 331/3 % Surplus of credit union and other income not subject to tax Expenses not deductible for tax purposes Deferred tax asset not recognised in the prior year

The Credit Union

2012 $’000 47,157

2011 $’000 113,447

2012 $’000 61,915

2011 $’000 112,902

15,719

37,815

20,638

37,634

(20,638) 25 (110)

(37,634) -

(20,638) -

(37,634) -

(5,004)

181

A charge for income tax arises on the income of the subsidiary. The Credit Union is exempt from tax under Section 59 (1) of the Co-operative Societies Act. Subject to agreement with the Commissioner of the Taxpayer Administration Jamaica, losses available to be carried forward indefinitely for offset against future taxable profits of the subsidiary amount to approximately $15,234,000 (2011 – $402,000).

Page 55

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 11. Deposits

Bank savings deposits Fixed deposits Cucash

The Group 2012 2011 $’000 $’000 45,635 1,049

The Credit Union 2012 2011 $’000 $’000 45,635 1,049

27,700

171,695

96,046

171,695

96,046

217,330

124,795

217,330

97,095

Cucash deposits are cash management call accounts which are maintained with the League. The rules of the League stipulate that the Credit Union must invest a minimum of 2% of members’ savings deposits in Cucash deposits. All deposits are expected to mature within 12 months of the end of the financial year. 12. Short-term Investments Short-term investments comprise term deposits held with Jamaica Co-operative Credit Union League Limited, and are classified as available-for-sale. The rules of the Jamaica Co-operative Credit Union League Limited stipulate that the Credit Union must invest a minimum of 10% of members’ savings deposits in short-term deposit instruments. A minimum of 8% is required to be invested with the League, and a maximum of 2% with any other financial institution. Of the 8% requirement, a minimum of 4% must be held in fixed deposits and 2% in Cucash deposits (Note 11). All short-term investments are expected to mature within 12 months of the end of the financial year. 13. Reverse Repurchase Agreements The Group enters into reverse repurchase agreements collateralised by Government of Jamaica securities. These agreements may result in credit exposure in the event that the counterparty to the transaction is unable to fulfil its collateral obligations. At 31 December 2012, the Group and Credit Union respectively, held securities totalling $234,619,000 and $157,367,000 (2011 - $145,468,000 and $199,269,000) representing Government of Jamaica debt securities, as collateral for reverse repurchase agreements. The balance for reverse repurchase agreements at 31 December 2012 includes interest accrued totalling $1,557,000 and $1,297,000 (2011 - $1,878,000 and $1,728,000) for the Group and the Credit Union respectively. All reverse repurchase agreements are expected to mature within 12 months of the end of the financial year.

101

Page 56

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 14. Financial Investments The Group 2012 2011 $’000 $’000 Available-for-sale, at fair value – Jamaica Co-operative Credit Union League Limited mortgage funds Victoria Mutual Building Society and National Housing Trust deposits

The Credit Union 2012 2011 $’000 $’000

105,522

37,751

105,522

37,751

15,305

14,795

15,305

14,795

21,863

10,652

21,626

10,357

320,747

181,407

245,338

137,563

Jamaica Co-operative Credit Union League

29,081

17,934

29,081

17,934

Credit Union Fund Management Company

6,776

499,294

262,539

423,648

218,400

12,964

512,258

275,503

436,612

231,364

Quoted equities Government of Jamaica securities Unquoted equities -

Available-for-sale, at historical cost –

102

QNET equities Less: Current portion

(309,380) 211,115

275,503

(284,080) 160,769

231,364

(a)

The rules of the League stipulate that the Credit Union must invest 5% of the net increase in the members’ share accounts in the League’s Mortgage Fund instruments. These investments are used to secure joint mortgage facilities, which are extended to the members of the Credit Union.

(b)

Victoria Mutual Building Society and National Housing Trust deposits represent funds held with these institutions to secure joint mortgage facilities, which are extended to the members of the Credit Union.

(c)

Government of Jamaica securities include interest receivable amounting to $10,320,000 and $8,980,000 (2011 – $5,497,000 and $4,590,000) for the Group and Credit Union respectively.

(d)

The rules of the league stipulate that a minimum of 1,000,000 shares must be held with the League for the Credit Union to retain membership status. The equivalent of amounts held in the statutory reserve (Note 24(d)) must either be used to purchase League shares or placed in League term deposits (Note 12).

(e)

This represents unquoted equities held with Credit Union Fund Management Company.

(f)

The QNET deposit represents a 17.4% ownership investment by the Credit Union, which will provide information services to participating credit unions. In total, the participating credit unions will account for 80% of the cost of the project and the remaining 20% will be funded by the League.

Page 57

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 15. Loans (a) Movement in loans during the year:

Balance at beginning of year

The Group & The Credit Union 2012 2011 $’000 $’000 3,325,566 2,979,309

Acquired on business combination

2,499,016

Add: Disbursements

2,756,761

2,056,759

Less: Repayments

8,581,343

5,036,068

(2,256,848)

(1,727,275)

6,324,495

3,308,793

Less: Allowance for loan impairment

( 5 8 , 49 5 ) 6,266,000

3,280,806

6 4 , 07 0

44,760

6,330,070

3,325,566

Add: Interest accrued Less: Current portion

(27,987)

(466,027) 5,864,043

(298,308) 3,027,258

(b) Delinquent loans At 31 December 2012, there were 1,094 (2011 - 356) delinquent loans aged two months and over. The total loan loss provision derived below is consistent with the loan loss provisioning rules of the League. The total provision for 2012 is in excess of the provision required under IFRS provisioning rules. The excess of the League’s provision over the IFRS provision is dealt with through a transfer from Accumulated Surplus to a Loan Loss Reserve as indicated in Note 15 (c). Delinquent loans are summarised as follows: 2012

Months in Arrears

Number of Loans

Total Loan Balance $’000

2 - 2.9

548

264,921

37,526

227,395

10,893

3 – 5.9

246

106,153

6,927

99,226

31,846

6 – 11.9

247

73,068

1,525

71,543

43,841

>12

67,380

270

67,110

67,380

100

1,094

511,522

46,248

465,274

153,960

Savings Held $’000

Exposure $’000

Provision $’000

103

Page 58

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 15. Loans (Continued) (b) Delinquent loans (continued) Delinquent loans are summarised as follows: 2011

Months in Arrears

Number of Loans

Total Loan Balance $’000

2 - 2.9

117

55,576

4,704

50,872

5,558

3 – 5.9

144

54,526

1,531

53,432

16,358

6 – 11.9

36,444

2,148

33,860

21,866

>12

65,032

226

64,806

65,032

100

356

211,578

8,609

202,970

108,814

Savings Held $’000

Exposure $’000

Provision $’000

The exposure disclosed above is before taking account of any collateral held in respect of these loans.

104

Provision for impairment at beginning of year (IFRS)

The Group & The Credit Union 2012 2011 $’000 $’000 27,987 39,359

Additional amounts provided during the year

44,550

40,248

Acquired as a result of business combination

27,611

Bad debts written off

(41,653)

(51,620)

Provision for impairment at end of year (IFRS)

58,495

27,987

Additional provision through transfer from Accumulated Surplus to the loan loss reserve in non-institutional capital

95,465

80,827

153,960

108,814

The Group & The Credit Union 2012 2011 $’000 $’000 Additional amounts provided during the year Bad debts recovered Charged to income during the year

44,550

40,248

(11,847)

(7,662)

32,703

32,586

Page 59

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 16. Investment Property

Acquired on business combination

The Group & The Credit Union 2012 2011 $’000 $’000 4,250 -

Fair value losses

(1,000)

3,250

At end of year

Investment property comprises land and building at 25 Sutton Street, Kingston and is held for capital appreciation. The properties were valued at current market value as at 27 February 2013 by D.C. Tavares & Finson Realty Limited, independent qualified property appraisers and valuators. There was no rental income nor maintenance expense relating to this property. 17. Intangible Assets The Group & The Credit Union

105

Trademark

Customer Relationships

Total

$’000

Acquired on business combinations

34,000

94,000

128,000

Amortisation charge (Note 8)

(4,722)

(3,264)

Closing net book value

29,278

90,736

120,014

Cost

34,000

94,000

128,000

Accumulated amortisation and impairment

(4,722)

(3,264)

Closing net book value

29,278

90,736

Year ended 31 December 2012

(7,986)

At 31 December 2012 (7,986) 120,014

Amortisation charges have been included in operating expenses in the statement of comprehensive income.

Page 60

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 18. Accounts Receivable

Collectors’ fees

The Group 2012 2011 $’000 $’000 8,213 11,681

CUETS security deposit

7,430

3,768

7,430

3,768

Account maintenance and dormant fees

18,168

Prepayments

15,676

17,532

15,676

17,532

3,454

Rent receivable

3,453

3,328

3,453

3,328

Management fee - Pension

8,896

2,825

8,896

2,825

35,922

8,034

15,089

11,516

14,392

10,761

76,925

54,104

112,150

61,383

Remittance settlement

Management fee – the subsidiary Other

106

The Credit Union 2012 2011 $’000 $’000 8,213 11,681

All accounts receivables are expected to be settled within 12 months of the end of the financial year.

Page 61

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 19. Property, Plant and Equipment The Group & The Credit Union Freehold Land and Buildings $’000

Computer Equipment $’000

Furniture, Fixtures & Equipment $’000

Motor Vehicles $’000

Capital Work in Progress $’000

Total $’000

At 1 January 2011

61,357

78,407

106,026

1,939

34,621

282,350

Additions

14,329

10,436

17,783

7,961

50,509

Transfers

22,096

172

1,737

24,005

At 31 December 2011

97,782

89,015

125,546

1,939

18,577

332,859

At Cost -

Additions Arising on business combination

17,304

27,455

2,918

47,677

178,935

52,992

34,673

266,600

At 31 December 2012

276,717

159,311

187,674

1,939

21,495

647,136

Depreciation -

107

At 1 January 2011

12,811

51,215

64,438

455

128,919

Charge for the year

2,304

10,365

10,303

356

23,328

15,115

61,580

74,741

811

152,247

3,114

17,111

11,636

234

32,095

9,604

42,411

22,601

74,616

27,833

121,102

108,978

1,045

258,958

31 December 2012

248,884

38,209

78,696

894

21,495

388,177

31 December 2011

82,667

27,435

50,805

1,128

18,577

180,612

At 31 December 2011 Charge for the year Arising on business combination At 31 December 2012 Net Book Value -

Page 62

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 20. Retirement Benefits The Group participates in a joint contributory pension scheme, which is open to all permanent employees of the Credit Union and operated by the Jamaica Co-operative Credit Union League Limited. The plan provides benefits to members based on average earnings for their final 3 years of service, with the Credit Union and employees each contributing 5 – 10 % of pensionable salaries. The plan is valued by independent actuaries annually using the projected unit credit method; the latest such valuation being as at 31 December 2012. Additionally, the plan is valued by independent actuaries triennially to determine the adequacy of funding; the latest such valuation being as at 31 December 2011 revealed that the scheme was adequately funded as at that date. The defined benefit asset recognised in the statement of financial position was determined as follows: The Group & The Credit Union

Fair value of plan assets Present value of funded obligations

108

Unrecognised actuarial (gains)/losses

2012 $’000

2011 $’000

547,434

360,203

(363,288)

(258,803)

184,146

101,400

(13,228)

26,349

170,918

127,749

The amounts recognised in the statement of comprehensive income are as follows: The Group & The Credit Union 2012 $’000

2011 $’000

Current service cost

(28,244)

(20,031)

Interest cost

(31,948)

(24,272)

Employee contributions

17,697

13,712

Expected return on plan assets

39,040

31,880

Total included in staff costs (Note 9)

(3,455)

1,289

The actual return on plan assets was $54,686,000 (2011 – $31,055,000).

Page 63

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 20. Retirement Benefits (Continued) The movement in the fair value of plan assets during the year was as follows:

The Group & The Credit Union 2012 $’000

2011 $’000

360,203

308,443

Expected return on plan assets

39,040

31,880

Actuarial gain/(loss) on plan assets

15,647

At beginning of year

(826)

Contributions – Employer

18,790

13,663

Employee

17,697

13,712

Transfer of plan assets due to business combination

99,883

Benefits paid

(3,826)

At end of year

547,434

(6,669) 360,203

The movement in the present value of the defined benefit obligation during the year was as follows: The Group & The Credit Union 2012 $’000

2011 $’000

At beginning of year

258,803

203,962

Current service cost

28,244

20,031

Interest cost

31,948

24,272

Actuarial losses on obligations Transfer of plan obligation due to business combination Benefits paid

(23,930)

17,207

At end of year

363,288

72,049 (3,826)

(6,669) 258,803

Expected contributions to the plan for the year ended 31 December 2012 amount to $13,190,000. The expected return on plan assets was determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the date of the statement of financial position. Expected returns on equity and property investments reflect long-term real rates of return experienced in the respective markets.

109

Page 64

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 20. Retirement Benefits (Continued) The pension plan assets are allocated based on the Group’s obligation as a proportion of the total obligation of the plan. The distribution of plan assets was as follows: The Group & The Credit Union 2012 %

Real estate

Government of Jamaica securities

Repurchase agreements

US$ Bonds

Other

100

Quoted equities

110

2011

The five-year trend for the fair value of plan assets, the defined benefit obligation, the surplus in the plan, and experience adjustments for plan assets and liabilities is as follows: 2012 $’000

2011 $’000

2010 $’000

2009 $’000

2008 $’000

Fair value of plan assets

547,434

360,203

308,443

256,547

205,034

Defined benefit obligation

(363,288)

(258,803)

(203,962)

(144,478)

(67,340)

184,146

101,400

104,481

112,069

137,694

Surplus Experience adjustments – Fair value of plan assets

15,646

(826)

Defined benefit obligation

13,979

(2,867)

The principal actuarial assumptions used were as follows:

(5,611)

(2,142)

(20,695)

7,976

27,183

13,080

The Group & The Credit Union 2012 2011 10.50%

10.00%

Expected return on plan assets

9.00%

Future salary increases

8.00%

27.5

27.9

Discount rate

Expected average remaining working lives of employees (years)

Page 65

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 21. Members’ Deposits Movement on deposit balances during the year:

The Group & The Credit Union 2012 2011 $’000 $’000

Balance at beginning of the year

772,042

673,997

Arising on business combination

1,005,030

Add: Deposits and transfers

2,641,308

2,606,148

4,418,380

3,280,145

(3,083,882)

(2,508,103)

Less: Withdrawals and transfers Special fixed deposit accounts Interest accrued Less: Current portion

1,334,498

772,042

1,793,775

1,139,506

3,128,273

1,911,548

9,816

7,440

3,138,089

1,918,988

(2,892,512)

(1,904,926)

245,577

14,062

22. Voluntary Shares

Balance at the beginning of the year

The Group & The Credit Union 2012 2011 $’000 $’000 1,419,727 1,407,376

Arising on business combinations

1,339,306

Shares deposited

1,876,970

1,339,119

Shares withdrawn

(1,848,403)

(1,352,848)

2,787,600

1,393,647

22,600

26,080

2,810,200

1,419,727

(2,180,345)

(1,323,607)

Add: Interest accrued Less: Current portion

629,855

96,120

111

Page 66

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 23. External Credit

(a) Development Bank of Jamaica Limited

The Group & The Credit Union 2012 2011 $’000 $’000 162,856 104,817

(b) Jamaica Co-operative Credit Union League Limited

297,913

100,832

1,962

2,264

317

320,000

40,000

782,732

248,230

(4,941) 777,791

112

(1,567) 246,663

(a) These funds are for on-lending to small and medium enterprises to promote entrepreneurship and also for lending to qualified sub-borrowers in the micro-finance sector. The payments for the funding to promote entrepreneurship are made on a monthly basis at rates ranging from 8% to 11%, and are secured by a hypothecated cash investment of $21,500,000 held at the Jamaica Co-operative Credit Union League (Note 14). The funds that are on-lent to qualified sub-borrowers in the micro-finance sector are paid on a quarterly basis at a rate of 10%, this facility is unsecured. (b) This is comprised of a line of credit, a joint mortgage facility and a quick access bursary loan. The line of credit is for liquidity support and interest is charged at 10%; the joint mortgage and bursary facilities are for on-lending for home repairs, mortgages and educational purposes respectively and the interest rate charged for each facility is 8%. The quick access bursary is an unsecured facility whereas the line of credit is hypothecated by GOJ investments of $144,700,000. Payments on all facilities are made on a monthly basis. (c) This represents an on-lending mortgage facility obtained from the National Housing Trust. The amounts accessed by members’ are repayable over 162 months at an interest rate of 7%. This facility is secured by the loan recipient’s property. (d) These funds are for on-lending to small and medium enterprises to promote entrepreneurship. Repayments are made on a quarterly basis and interest is charged at 4%. These facilities are primarily unsecured. There were no loans for this category for the period under review. (e) This represents funds for on-lending to fund residential mortgage loans for the Group’s members. The rate of interest payable on the loan is the weighted average yield of Bank of Jamaica 6 month Treasury Bill issued immediately prior to the disbursement of any tranche of the loan. 24. Accounts Payable The Group

The Credit Union 2012 2011 $’000 $’000 37,610 8,299

Accruals

2012 $’000 48,328

2011 $’000 8,484

Other

30,345

22,762

36,882

20,846

78,673

31,246

74,492

29,145

Amounts payable are contractually due within 12 months of the end of the financial year.

Page 67

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 25. Deferred Taxation Deferred income taxes are calculated in full on temporary differences under the liability method using a principal tax rate of 331/3 % . Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities. The movement in the deferred income tax account is as follows: The Group 2012 $’000 At the beginning of the year (Credited)/charged to the net surplus or deficit in the statement of comprehensive income (Note 10) (Credited)/charged to other comprehensive income

326

The Credit Union 2012 2011 $’000 $’000

2011 $’000 134

(5,004)

181

(538)

(5,216)

326

The deferred tax charged to other comprehensive income during the year arises on unrealised gains on availablefor-sale investments. Deferred tax assets and liabilities are attributable to the following items: The Group 2012 $’000

2011 $’000

The Credit Union 2011 2012 $’000 $’000

Deferred tax assets Tax losses

(5,078)

(134)

Interest payable

(241)

(205)

Fair value losses

(431)

(5,750)

(339)

Total deferred tax assets Deferred tax liabilities Fair value gains Interest receivable Total deferred tax liabilities Net deferred tax liabilities

107

534

558

534

665 -

(5,216)

326

113

Page 68

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 26. Institutional Capital

Retained earnings reserve

The Group 2012 2011 $’000 $’000 455,551 207,364

The Credit Union 2012 2011 $’000 $’000 455,551 207,364

Permanent shares

548,722

83,004

548,722

83,004

Statutory reserve

335,970

321,644

335,970

321,644

1,000

500

1,000

500

Investment reserve

26,432

28,194

27,293

27,979

Capital reserve

14,222

Special reserve

325

1,381,897

655,253

1,382,758

655,038

Permanent share reserve

114

(a) Retained earnings reserve This reserve represents amounts transferred annually from Net Surplus and other appropriations are agreed upon by the members at the Annual General Meeting, in order to increase the institutional capital of the Credit Union. During the year, the net equity acquired on business combinations totalling $236,862,000 (Note 31) was recognised in this reserve. (b) Permanent shares Permanent shares are paid in cash and are not redeemable, but may be transferred or sold to another member. During the year, shares valuing $451,452,000 were created as a result of the acquisition of GSB. (Note 31). The attribution of the permanent shares at 31 December is as follows: 2012 $’000

2011 $’000

Legacy Churches Co-operative Credit Union Limited

83,004

Legacy GSB Co-operative Credit Union Limited

56,664

First Heritage Co-operative Credit Union Limited

14,266

394,788

548,722

83,004

Increase in permanent shares as a result of business combinations

(c) Permanent share reserve This reserve represents a fund that can facilitate the transfer of members permanent share capital. An amount is set aside from the surplus each year to build this fund. (d) Statutory reserve As required by the Co-operative Societies Act and the rules of First Heritage Co-operative Credit Union Limited, a minimum of twenty percent (20%) of the annual surplus, and amounts collected for entrance fees must be transferred to this reserve. This minimum was increased to 30% by resolution of the Board in 1998. In the current year, the minimum was reduced to 20% with the approval of the Registrar of Co-operative Societies. (e) Investment reserve This reserve represents realised and unrealised gains on investments.

Page 69

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 26. Institutional Capital (Continued) (f) Capital reserve This reserve represents realised gains arising on the disposal of property, plant and equipment. (g) Special reserve The sum of members’ dormant account balances with share capital less than one share of $20.00 is maintained in this reserve. 27. Non-Institutional Capital The Group & The Credit Union 2012 2011 $’000 $’000 Retirement benefit asset reserve Loan loss reserve

170,918

127,749

95,465

80,827

266,383

208,576

(a) Retirement benefit asset reserve This reserve was created to match the value of retirement benefit asset of the Credit Union. Movement on this reserve passes through Accumulated Surplus. (b) Loan loss reserve This represents the excess of the Credit Union’s internally assessed provision for loan impairment, over that which is required under IFRS. This amount is an appropriation from the Accumulated Surplus. 28. Related Party Transactions and Balances (a)

At 31 December, Directors, Board Committee Members and Staff Members maintained the following balances with the Credit Union: The Group & The Credit Union 2012 2011 $’000 $’000 Directors and Committee Members Shares and savings

18,688

12,778

Loans, including interest

75,808

22,890

55,319

31,236

239,606

148,631

Staff Members Shares and savings Loans, including interest

At 31 December 2012, all loans owing by Directors, Board Committee Members and Staff were being paid in accordance with their loan agreements.

115

Page 70

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 28. Related Party Transactions and Balances (Continued) (b)

The statement of financial position includes the following balances with related parties:

The Credit Union 2012 2011 $’000 $’000 FHC Investments Limited -

(c)

Accounts receivable

35,922

8,034

Repurchase agreements

61,996

124,013

The statement of comprehensive income includes the following transactions with related parties:

The Credit Union 2012 2011 $’000 $’000 FHC Investments Limited Income Interest

116

4,547

841

26,738

2,401

493

501

Commission

(1,399)

Management fees

(8,056)

Management fees Rental and maintenance Expenses -

(d)

Key management remuneration for the year was as follows: The Group & The Credit Union 2012 2011 $’000 $’000 Salaries and wages

44,470

34,149

Statutory contributions

16,138

13,247

8,181

8,261

Other staff benefits

Key management comprises the Chief Executive Officer, Deputy Chief Executive Officer, General Manager - Strategic Planning & Corporate Affairs, General Manager - Finance & Facilities Management, General Manager - Credit Administration & Loan Risk, General Manager – Retail, Sales & Service Delivery, General Manager – Operations, Risk and IT, General Manager – FHC Investments Limited, General Manager – Human Resource Development and the General Manager – Mortgage Services Division. Directors are appointed on a voluntary basis and are not remunerated.

Page 71

First Heritage Co-operative Credit Union Limited Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 29. Comparison of Ledger Balances The Group & The Credit Union

Balance as per General Ledger Balance as per Members’ Ledger

Shares $’000 2,810,200 2,810,200

Deposits $’000 1,334,498 1,334,498

Loans $’000 6,324,495 6,324,495

30. Insurance (a) Fidelity Insurance Coverage During the year, the Credit Union had fidelity insurance coverage with CMFG Life Insurance Company Limited. The total premium for the year was $2,755,000 (2011 - $2,462,000). (b) Life Savings and Loan Protection Coverage During the year, the Credit Union had life savings and loan protection coverage with CMFG Life Insurance Company Limited. The total premium for the year was $27,584,000 (2011 - $21,603,000).

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First Heritage Co-operative Credit Union Limited

Page 72

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 31. Business Combinations Effective 1 August 2012, Churches Co-operative Credit Union Limited (Churches) and GSB Co-operative Credit Union Limited (GSB) merged to form First Heritage Co-operative Credit Union Limited. In accordance with IFRS 3, Business Combinations, the transaction was deemed to be a reverse acquisition. In reverse acquisitions, the legal acquirer (FHC) is not deemed to be the acquirer for accounting purposes, and one of the previously existing entities being deemed the acquirer. Churches Co-operative Credit Union Limited was identified as the acquirer as prescribed by IFRS 3 qualifying factors.The then members of both Churches and GSB became members of FHC, through the issue of shares by FHC. As Churches was deemed to be the acquirer, the value ascribed to the shares issued to the legacy GSB members was determined by reference to the fair value of the equity in Churches at acquisition date that was given up by the then members of Churches, to obtain the net assets of GSB. The value ascribed was determined by reference to the fair value of equity given up by the legacy Churches members, to obtain the equity received in GSB. The value so determined was $451,452,000. There was no goodwill or negative goodwill arising on the acquisition, and any difference between the fair value of the net assets acquired and the deemed value for the shares issued, was credited to the retained earnings reserve in equity. Details of net assets acquired and net cash outlay on acquisition are as follows:

Net assets arising on the acquisition

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Liquid assets - deposits Reverse repurchase agreements Financial investments Loans to members Cash in hand and at bank Accounts receivable Property, plant and equipment Intangible assets Investment property Retirement benefit asset External credit Membersâ&#x20AC;&#x2122; deposits Voluntary shares Accounts payable Withholding tax

Fair Value $â&#x20AC;&#x2122;000 41,959 134,730 115,502 2,499,016 286,193 10,253 191,984 128,000 4,250 27,834 (327,225) (1,005,030) (1,339,306) (67,830) (1,016) 699,314

Deemed value for shares issued Adjustment to retained earnings reserve Net cash outlay on acquisition Purchase consideration paid in cash Net cash and cash equivalents acquired

451,452 247,862

420,923 420,923

First Heritage Co-operative Credit Union Limited

Page 73

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 31. Business Combinations (Continued) Acquisition costs of $23,159,000 have been charged to operating expenses in the consolidated statement of comprehensive income for the year ended 31 December 2012. The group recognised a gain of $247,862,000 as a result of the business combination. This gain is included the retained earnings reserve in the statement of changes in equity for the year ended 31 December 2012. The revenue included in the consolidated statement of comprehensive income since 1 August 2012 was $522,429,000, and profit for the same period totalled $27,558,000. Had the business combination happened from 1 January 2012, the consolidated statement of comprehensive income would show revenue of $1,218,966,000 and profit of $68,903,000. 32. Litigation and Contingent Liabilities The Credit Union and its subsidiary are subject to various claims, disputes and legal proceedings, as part of the normal course of business. Provision is made for such matters, when, in the opinion of management, it is probable that a payment will be made by the group, and the amount can be reasonably estimated. A provision has been made in the financial statements for a claim brought against the credit union by a member. An estimate of $6,000,000 has been made based on the advice of our legal representatives. In respect of claims asserted against the group which have not been provided for, management is of the opinion that such claims are either without merit, can be successfully defended or will result in exposure to the group which is immaterial to both financial position and results of operations. 33. Subsequent Event In February 2013, the Company participated in the National Debt Exchange (NDX) transaction under which it exchanged its holdings of domestic debt instruments issued by the Government of Jamaica for new, longer-dated debt instruments with lower coupon interest rates. The key features of the NDX are as follows: Jamaican-resident holders of certain domestic debt instruments (collectively referred to as the “Old Notes”) were invited to exchange those Old Notes for new, longer-dated debt instruments (collectively referred to as the “New Notes”). Participation in the NDX was voluntary. The New Notes offered have a variety of payment terms, including but not limited to fixed and variable rates in J$, CPI-indexed in J$, and fixed rates in USD. Eligible investors had the option to choose New Notes based on the type and maturity of the Old Notes which are offered for exchange based on certain election options. The election options only allow investors to choose New Notes of longer tenor relative to Old Notes. Most New Notes have lower coupon interest rates than Old Notes. Introduction of new Fixed Rate Accreting Notes (“FRANs”) which were issued with J$80 of principal value for every J$100 of principal value of Old Notes, whereby such principal will accrete to J$100 of principal value by the maturity date in 2028. The Company elected not to receive any FRANs. Eligible investors who made offers to the Government of Jamaica to exchange Old Notes received an equivalent principal value (par-for-par value) of New Notes and the payment in cash of accrued interest, net of applicable withholding taxes, on the Old Notes up to but excluding 22 February 2013 (the Settlement Date).

119

First Heritage Co-operative Credit Union Limited

Page 74

Notes to the Financial Statements

31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 33. Subsequent Event (Continued) The NDX has had a significant impact on the expected future cash flows from the Credit Union's investment portfolio. The table below summarises the impact on coupon rates and maturities of the instruments that were exchanged. The Credit Union Pre NDX Post NDX Jamaican dollar denominated instruments: Total face value exchanged J$218 million W eighted average coupon rate W eighted average tenor to maturity

11.44% 1.8 years

7.56% 5.2 years

FHC Investments Limited Pre NDX Post NDX

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Jamaican dollar denominated instruments: Total face value exchanged J$72 million W eighted average coupon rate W eighted average tenor to maturity

8.89% 3.58 years

7.90% 7.79 years

REPORT OF THE CREDIT COMMITTEE e Credit Committee is pleased to present to the membership the report for the period January – December 2012. Following the merger of GSB and Churches Co-operative Credit Unions, a thorough analysis of the credit facilities was carried out and we were satisfied that the loan products were carefully crafted to meet the needs of the combined membership. Aggregate disbursement for the two entities for the period January – July 2012 totaled $2,349,810,490; while disbursement for the new entity, First Heritage Co-operative Credit Union Ltd. ( FHCCU), for the period August – December 2012 totaled $1,402,192,243 (see breakdown in the table on next page). Unsecured, personal and motor vehicle loans were the main contributors to the growth in the loan portfolio. is was due, primarily, to the adjustments made to some of the features and approval conditions of these loan products. e Micro Loan Unit continued to be a strong contender in the micro and small business loan segment of the loans market and this resulted in an appreciable improvement over last year’s performance. e Unit has been operating profitably and we are looking forward to its imminent expansion island-wide. Micro loans are largely funded by the Development Bank of Jamaica(DBJ). Committee Meetings An interim committee was appointed in August 2012. Eighteen (18) meetings were held during the period August – December 2012. Attendance at these committee meetings was as tabled below. Members Kevin Forbes Noel Francis Quinton Masters Louella Maloney Marilyn Dunbar

Times Possible 18 18 18 18 18

Times Attended 13 17 16 12 14

Times Excused 5 1 2 6 4

Times Absent 5 1 2 6 4

e Committee wishes to express its sincere appreciation to the Management and Staﬀ of the Credit Union for their hard work and dedication and to you our valued members whom we are committed to serve. We take this opportunity to make this apology : “e GSB Co-operative Credit Union published in error in its 54th Annual Report the name of Ms. Carol Vassall under the List of Delinquent Accounts Six Months & Over as at December 31, 1999. At the time of the publication Ms. Vassall’s account was not in fact six (6) months in arrears and as such First Heritage Co-operative Union Limited hereby apologizes to Ms. Vassall on behalf of the GSB Co-operative Credit Union Limited for this error and regrets any embarrassment or inconvenience that it may have caused.”

Credit Committee L-R: Kevin Forbes, Louella Maloney, Noel Francis and Quinton Masters Missing: Marilyn Dunbar

121

ANALYSIS OF LOAN DISBURSEMENT BY PURPOSE AUGUST - DECEMBER 2012 TYPE PRODUCTIVE

2012 AMOUNT $

% of TOTAL

Agriculture Business Loans (Easi Biz) Micro-Individual (Secured) Micro-Individual (Unsecured)

92,766 18,399.310 72,755,043 4,553,152

0.01% 1.31% 5.19% 0.32%

TOTAL

95,800,271

6.83%

8,197,836 30,258,216 43,924,291 76,385,935 14,093,325 133,995,746 284,563,631 93,955,884 5,197,313 8,073,034 4,129,727 293,258,384 310,235,148 123,500

0.58% 2.16% 3.13% 5.45% 1.01% 9.56% 20.29% 6.70% 0.37% 0.58% 0.29% 20.91% 22.13% 0.01%

TOTAL

1,306,391,974

93.17%

GRAND TOTAL

1,402,192,243

100.00%

PROVIDENT

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Heritage Professional (Unsecured) Debt Refinancing Home Choice Loans Easi Line (Unsecured) Real Estate Deveolpment Real Estate Acquisition Motor Vehicle Purchase Pay Day Loans (Unsecured) Supreme Educator (Unsecured) Supreme Educator JACCUL Special (Unsecured) Easi Pay (Unsecured) Personal Expenses Insurance Premium Financing (Unsecured)

Kevin Forbes Chairman, Credit Committee

REPORT OF THE SUPERVISORY COMMITTEE CHAIRMAN’S REMARKS e Committee is pleased to welcome all to the 1st Annual General Meeting of First Heritage Co-operative Credit Union. We would like to commend the Board of Directors, Management and Staﬀ of both Churches and GSB Co-operative Credit Unions for working assiduously to make the merger a reality. anks is also extended to our members for their continued support by choosing to save, borrow and invest in the many products and services the Credit Union oﬀers. e merger is now behind us, so let us continue our drive towards excellence and the blending of the human and cultural dimensions of the two entities into one seamless, growth-oriented organization.

e Committee e Credit Union’s governance model requires that the Supervisory Committee provides oversight responsibility for the aﬀairs of the Credit Union which includes, but not limited to, the activities of the Board of Directors, Management and Staﬀ. In order to fulfill this mandate, reviews were undertaken of the policies and procedures, internal controls and risk management functions, among other areas. ese reviews were facilitated through the work undertaken by the Internal Audit Department. In addition to reliance being placed on the work of the Internal Audit Department, the Committee also conducted independent examinations of some risk areas inherent in the operations of the Credit Union. Members of the Committee also participated in Joint Board meeting, the Jamaica Co-operative Credit Union League’s Annual General Meeting and the Credit Union’s Annual Strategic Retreat. Additionally, members participated in various other seminars held by professional entities. During the period January – June 2012 the Supervisory Committees of Churches and GSB Co-operative Credit Union Limited continued their meetings independent of each other. At the Special General Meetings of Churches and GSB Co-operative Credit Union Limited held on July 18 &, 19, 2012 respectively, the following persons were elected to serve on an Interim Supervisory Committee: Miss Valrie Cyrus Mrs. Sonia Campbell Mrs. Asre Stewart –Blake Mr. Dwight Sibblies Mr. Bandoley McLeod is interim committee held meetings on the second ursday of each month to review the operations of the Credit Union under the Chairmanship of Miss Valrie Cyrus with Mr. Bandoley McLeod as Secretary. Ten (10) meetings were held during the year and the attendance is set out in the table below.

123

Specific Review of Operations Audit: Audits were undertaken by both institutions for the period January - July 2012. In addition an audit was undertaken for the merged entity for the period August - December 2012. Bank Reconciliations: e Internal Audit Department continues to review the bank reconciliations on a monthly basis and report on same to the Committee. Cash Counts: Various cash counts took place at branch locations during the course of the five months and also at year end. ese were conducted in conjunction with the Internal Audit Department. No exceptions were noted. Internal Controls: Based on the Audits conducted, the systems of internal controls were adhered to in general. ere were, however, areas for improvement and these were normally addressed by the management. Loan and past due accounts Adherence to the Credit Policy ensured that, among other things, loans were adequately collateralised. e constant and close monitoring of loan receivables resulted in the past due rate remaining fairly constant during the year.

124

Insurance and Dues As at December 31, 2012 the asset of the Credit Union were adequately insured. All Stabilization Dues and League Fees have been paid up to date. Volunteer and Staﬀ Accounts ese accounts were reviewed on a monthly basis. ere were no outstanding issues at year end. Attendance Record Five (5) regular meetings were held since August 1, 2012. Members Times Possible Ms. Valrie Cyrus 5 Mr. Bandoley McLeod 5 Mrs. Sonia Campbell 5 Ms. Asre Stewart 5 Mr. Dwight Sibblies 5

Times Attended 5 5 4 3 2

Times Excused 0 0 1 2 3

Times Absent 0 0 1 2 3

As First Heritage Co-operative Credit Union moves into the future we are foreseeing an improvement in productivity and surplus resulting from the pooling of technology and other resources.

We continue to urge our members to place any queries and suggestions in the Supervisory Committee Box located at the Eureka/Ripon Branch or members who so desire may write to the Chairman of the Supervisory Committee under confidential cover. Expression of thanks is extended to the members for their vote of confidence placed in us, to the Board of Directors, Management and the StaďŹ&#x20AC; who facilitated the functioning of this Committee.

Valrie Cyrus Chairman, Supervisory Committee

125

Supervisory Committee L-R Valrie Cyrus, Sonia Campbell, Asre Stewart. Missing : Dwight Sibbles and Bandoley McLeod

REPORT OF THE NOMINATING COMMITTEE In accordance with Article XIV, Rule #59 of the Rules of First Heritage Co-operative Credit Union Limited, the Nominating Committee was established. e members of the committee were: • Mr. Christopher Samuda, Director; • Ms. Patricia Ramsaran, Member; and • Mr. Basil Naar, Staﬀ Representative e committee developed criteria to govern its deliberation and selection and these were informed by the principles of co-operative and corporate governance and the inspired vision which has emerged with the birth of the credit union. e criteria were as follows: 1. 2. 3.

126

4. 5. 6. 7. 8. 9. 10.

Co-operative governance and corporate governance profile and attitude. Understanding policy making and its relationship with managerial decision making. e Registrar of Cooperatives and Friendly Societies directives as to term limits for members of the Board and Committees Years of service as a volunteer Succession not only of human resources but critically of ideas and philosophy in our continual quest to renew, refine and inspirit leadership. e complement of skills and expertise in ensuring the right mix and preventing a preponderance of a particular competence. Record of attendance and availability. Public profile and repute and the value of network. e team that would best advance the new mission and vision of the credit union beyond the mere articulation of same. Fit and Proper Principles

BOARD OF DIRECTORS Cognizant of the view and position of the oﬃce of the Registrar of Co-operatives and Friendly Societies respecting a reduction of the members of Boards and pursuant to the decision of the Board of Directors minuted in its meeting of February 2, 2013, the number of Directors has been reduced from fifteen (15) to eleven (11). e sitting directors who have indicated an interest in continuing to serve are indicated below: 1. 2.

Mr. Johnathan Brown Mrs. Leodis Douglas

3. 4. 5. 6. 7. 8.

Mr. Mark Gonzales Mr. O’Neil Grant Mr. Orville Hill Mr. Edmund Jones Mr. Michael Roofe Mr. Balvin Vanriel

e committee considered applications from the membership and short-listed the following persons who have confirmed their interest to serve: 1. 2. 3.

Mr. Kevin Forbes Mr. Robin Levy Dr. Leo Paul Powell

4. 5.

Mrs. Tamara Francis Riley-Dunn Mrs. Beverly Stewart

e Profiles of the New Candidates 1. Mr. Kevin Forbes Mr. Kevin Forbes is currently employed to Allied Insurance Brokers Limited, a subsidiary of the Grace Kennedy Company Limited, as the Financial Controller since 2012. He has extensive experience in the field of Audit and Accounts having worked in various management capacities within the Grace Kennedy Group of Companies and with Ernst & Young Caribbean. He holds a Masters of Business Administration in Finance from the Manchester Business School, United Kingdom, and is a Fellow of the Chartered Association of Certified Accountants as well as a Member of the Institute of Chartered Accountants of Jamaica. He previously served on the Credit Committee. 2. Mr. Robin Levy Mr. Robin Levy is currently employed as the Deputy General Manager for the Jamaica Stock Exchange since 2005. He is an innovative business manager, specializing in financial services, risk management and project management. He has over 25 years of experience in management consulting, financial analysis and business development. Prior to joining the Jamaica Stock Exchange, he served as Manager – Consulting Services at the Jamaica Co-operative Credit Union League Limited. He is a Certified Fraud Examiner and holds a Masters of Business Administration Degree in Finance from the Marist Business School, Poughkeepsie, New York.

127

3. Dr. Leo-Paul Powell Dr. Leo-Powell is currently a Consultant General Surgeon at the University Hospital of the West Indies as well as an Associate Lecturer in Surgery. A strong policy maker and implementer, he currently serves on the Board of Directors of the Medical Associates Hospital and also as Secretary for the Association of Surgeons in Jamaica. Dr. Powell is a committed social volunteer and critical thinker and previously served for approximately two years on the Board of GSB Co-Operative Credit Union Limited.

128

4. Mrs. Tamara Francis Riley-Dunn Mrs. Tamara Francis Riley-Dunn has over 13 years of experience of practicing law in Jamaica and is currently a Partner in the firm NelsonBrown, Guy & Francis. She is an Attorney at Law specializing in commercial law (with an emphasis on debt consolidation) land and family law. She is an honours graduate of the University of the West Indies and also of the Norman Manley Law School, Mona where she received her Certificate of Legal Education.

5. Mrs. Beverly Stewart Mrs. Beverly Stewart is the founder and Chief Executive OďŹ&#x192;cer of Jamaica Soul Vacations. Her key competences are marketing and business development, mediation and corporate governance and financial management. She worked with both the Wyndham Kingston Hotel and Air Jamaica Limited in senior management positions and holds a Masters of Business Administration from Barry University, Miami, Florida. She has strong decision making skills, marketing experience and business acumen. She previously served on the Board of Directors of Churches Co-operative Credit Union Limited.

e Committee then proceeded to deliberate having regard to the criteria developed. In so far as criteria four (4) and six (6), to wit: 4. 6.

Years of Service as a Volunteer and e complement of skills and expertise in ensuring the right mix and preventing a preponderance of a particular competence

the Committee was guided by the following information: Years of Service as a Volunteer

1. 2. 3. 4. 5. 6. 7. 8.

Sitting Directors Mr. Johnathan Brown Mrs. Leodis Douglas Mr. Mark Gonzales Mr. O’Neil Grant Mr. Orville Hill Mr. Edmund Jones Mr. Michael Roofe Mr. Balvin Vanriel

Serving Since 1998 2009 2011 2009 2000 2000-2009 & 2010-2012 1996 2001

New members who are recommended and have previously served

1. 2. 3. 4. 5.

Recommended Members Mr. Kevin Forbes Mr. Robin Levy Dr. Leo-Paul Powell Mrs. Tamara Francis Riley-Dunn Mrs. Beverly Stewart

Serving Since 0 0 2010-2012 0 1999-2012

Profession, Expertise and Skills

Sitting Directors Mr. Johnathan Brown

Profession, Expertise and Skills Retired Civil Servant (Fiscal Policy Monitoring and Public Debt Management). Finance and Accounts

Mrs. Leodis Douglas

Human Resource Director and Lecturer at GC Foster College of Physical Education and Sport. Human Resources

Mr. Mark Gonzales

Businessman, Director and General Manager of Mail Pac Services Limited and Lecturer in Ethics and Values in Business and Organizational Behaviour. Business Operations and Logistics

129

Mr. O'Neil Grant

Accountant & Financial Analyst (Senior Director, Finance & Accounts at Rural Agriculture Development Authority (RADA)). Finance and Accounts

Mr. Orville Hill

Chartered Accountant and Finance Manager. Finance, Accounts and Banking

Mr. Edmund Jones

Technical Support Manager (Ministry of Finance, Planning & the Public Service). Information Technology

Mr. Michael Roofe

Lecturer in Finance and Accounts in the Faculty of Social Sciences (UWI). Finance and Accounts

Mr. Balvin Vanriel

Chartered Accountant and Audit Manager (BDO Chartered Accountants). Finance, Accounts and Audit

New Candidates Recommended Members for the Board of Directors

Profession, Expertise and Skills

Mr. Kevin Forbes

Chartered Accountant and Financial Controller (Allied Insurance Brokers Limited). Finance, Accounts and Audit

Mr. Robin Levy

Deputy General Manager (Jamaica Stock Exchange). Management Consulting, Financial Analysis and Business Development

Dr. Leo-Paul Powell

Medical Doctor. Policy Maker and Implementer

Mrs. Tamara Riley-Dunn

Attorney-at-Law. Legal and Regulatory

Mrs. Beverly Stewart

Chief Executive OďŹ&#x192;cer (Jamaica Soul Vacations). Marketing and Business Development, Mediation and Corporate Governance

130

Applying the criteria developed, the Committee recommends to the Annual General Meeting of the Credit Union, the following persons to serve on the Board of Directors for the periods indicated.

1. 2. 3. 4. 5. 6. 7.

Recommended Members for the Board of Directors

Term

Mrs. Leodis Douglas Mr. Kevin Forbes Mr. Oâ&#x20AC;&#x2122;Neil Grant Mr. Robin Levy Mrs. Tamara Riley-Dunn Mrs. Beverly Stewart Mr. Mark Gonzales

2 2 2 2 2 2 1

8. 9. 10. 11.

Mr. Orville Hill Mr. Edmund Jones Dr. Leo-Paul Powell Mr. Balvin Vanriel

1 1 1 1

SUPERVISORY COMMITTEE e following sitting members have indicated a desire to serve. 1. 2. 3. 4. 5.

Ms. Sonia Campbell Mrs. Valerie Cyrus Mr. Bandoley McLeod Mr. Dwight Sibbles Mrs. Asre Stewart-Blake

e Committee considered applications from the membership and short-listed the following persons who have confirmed their interest to serve. 1. 2. 3.

Mrs. Sharon Crooks Mrs. Hope Ramsay-Stewart Mrs. Beverly Williamson

e Profiles of the New Candidates Mrs. Sharon Crooks Mrs. Sharon Crooks is currently the Director General at the Ministry of Water, Land, Environment and Climate Change. An experienced organizational leader, she is recognized for competence in achieving organizational effectiveness and efficiency through the application of technical, negotiation and conceptual skills. She has a proven track record of sustainable success in managing public sector operations for the Government of Jamaica. Mrs. Crooks also has private sector experience having worked in an international corporation in the fields of auditing, accounting and management services. She has served as a board official for the Central Bank of Jamaica (Fiscal Responsibility Monitoring Unit) and as a Board Advisor on Caribbean issues at e World Bank, Washington D.C., USA. She holds a MBA from the Nova Southeastern University and is currently pursuing Doctorial Studies in Organizational Leadership at the same institution.

131

Mrs. Hope Ramsay-Stewart Mrs. Hope Ramsay-Stewart is currently a Partner with Ramsay Stimpson, Attorneys-at-Law, where she specializes in Conveyancing, Estate Planning, Divorce and Matrimonial matters, a position she has held since 2008. Prior to that she was an Associate Partner of Tenn Russell Chin Sang Hamilton & Ramsay, Attorneys-at-Law. She received her Bachelor of Laws (LLB Hons.) from the University of the West Indies, Cave Hill campus in 1998, and obtained her Certificate of Legal Education from the Norman Manley Law School in 2000.

Mrs. Beverley Williamson Mrs. Beverley Williamson is currently the Senior Vice President, Business Management & Special Projects, at the Port Authority of Jamaica (PAJ) Kingston a position she has held since 1998. Prior to that, she served as the Senior Vice President, Finance & Information Services. She has also worked at the National Ex-Im Bank of Jamaica and Peat Marwick & Partners (now KPMG Peat Marwick). She holds an Executive Masters of Business Administration from the Florida International University, Masters of Science in Accounting from the University of the West Indies.

132 î &#x201C;e Committee then proceeded to deliberate having regard to the criteria developed. In so far as criteria four (4) and six (6) to wit: 4. 6.

Years of Service as a Volunteer and î &#x201C;e complement of skills and expertise in ensuring the right mix and preventing a preponderance of a particular competence

the committee was guided by the following information: Years of Service as a Volunteer

1. 2. 3. 4. 5.

Sitting Members Ms. Sonia Campbell Mrs. Valrie Cyrus Mr. Bandoley McLeod Mr. Dwight Sibbles Mrs. Asre Stewart-Blake

Serving Since 1993 1992 1997 2010 2010

New members who are recommended and have previously served 1. 2. 3.

Recommended Members Mrs. Sharon Crooks Mrs. Hope Ramsay-Stewart Mrs. Beverly Williamson

Serving Since 0 0 0

Profession, Expertise and Skills 1.

Sitting Members Ms. Sonia Campbell

Profession, Expertise and Skills Deputy Commissioner of Finance and Administration (Tax Administration Department). Finance and Accounts

Mrs. Valrie Cyrus

Finance and Contract OďŹ&#x192;cer, UWI (Department of Community Health and Psychiatry). Finance and Accounts

Mr. Bandoley McLeod

Chief Internal Auditor (Child Development Agency). Audit and Accounts

Mr. Dwight Sibbles

Attorney-at-Law and Chartered Accountant (University of Technology). Legal, Audit and Regulatory

Mrs. Asre Stewart-Blake

Chartered Accountant (Evans Safety Limited). Finance and Accounts

Sitting Members Mrs. Sharon Crooks

Profession, Expertise and Skills Director General (Ministry of Water, Land, Environment and Climate Change). Audit, Accounting and Management

Mrs. Hope Ramsay-Stewart

Attorney at Law (Ramsay Stimpson, Attorney-at-Law) Conveyancing and Estate Planning.

Mrs. Beverly Williamson

Senior Vice President (Business Management and Special Projects, Port Authority of Jamaica). Finance, Management and Business

Applying the criteria developed, the Committee recommends to the Annual General Meeting of the credit union, the following persons to serve on the Supervisory Committee for the periods indicated below.

1. 2. 3. 4. 5.

Recommended Members for the Supervisory Committee

Term

Mrs. Sharon Crooks Mrs. Hope Ramsay-Stewart Mr. Dwight Sibbles Mrs. Asre Stewart-Blake Mrs. Beverley Williamson

1 1 1 1 1

133

CREDIT COMMITTEE e following sitting members have indicated a desire to serve:1. 2. 3. 4. 5.

Mrs. Marilyn Dunbar Mr. Kevin Forbes * Mr. Noel Francis Mrs. Louella Maloney Mr. Quinton Masters

e Committee considered applications from the membership and short-listed the following person who has confirmed an interest to serve.

e Profile of e New Candidate 1.

Mr. Richard Ranger

Mr. Richard Ranger is a Chartered Accountant and member of e Association of Chartered Certified Accountants in the United Kingdom and a member of the Institute of Chartered Accountants of Jamaica. He has over nine (9) years of experience in external and internal auditing, accounting and business operations. Mr. Ranger has worked with PricewaterhouseCoopers, Boldeck Jamaica Limited and Neal and Massy Group specializing in audit and assurance, accounting and income tax services. While at Boldeck Jamaica Limited, he was involved in business assessment of entrepreneurs seeking loan financing. Currently he is the Principal of Ranger and Associates a local audit and accounting firm.

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e Committee then proceeded to deliberate having regard to the criteria developed. In so far as criteria four (4) and six (6) to wit: 4 6

Years of Service as a Volunteer; and e complement of skills and expertise in ensuring the right mix and preventing a preponderance of a particular competence"

the committee was guided by the following information: Years of Service as a Volunteer

1. 2. 3. 4. 5.

Sitting Members Mrs. Marilyn Dunbar Mr. Kevin Forbes* Mr. Noel Francis Mrs. Louella Maloney Mr. Quinton Masters

Serving Since 2007 2007 2004 2001 2006

* Mr. Kevin Forbes is being recommended to serve on the Board of Directors New member who is recommended and has previously served: Recommended Member Time Served 1. Mr. Richard Ranger 0 Profession Expertise and Skills 1.

Sitting Member Mrs. Marilyn Dunbar

2. 3. 4.

Mr. Noel Francis Mrs. Louella Maloney Mr. Quinton Masters

New Candidate Mr. Richard Ranger

Profession, Expertise and Skills Retired Civil Servant (Ministry of Justice). Business Operator and Manager Businessman and Land Surveyor Retired Civil Servant. General Management & Public Administration Engineer and Assistant General Manager for Project Appraisal and Management (NHT). Project Management and Business Profession, Expertise and Skills Chartered Accountant. Finance Accounts and Credit Assessment

Applying the criteria developed, the Committee will recommend to the Annual General Meeting of the credit union, the following persons to serve on the Credit Committee for the periods indicated below:

1. 2. 3. 4. 5.

Recommended Members for the Credit Committee

Term

Mrs. Marilyn Dunbar Mr. Quinton Masters Mr. Richard Ranger Mr. Noel Francis Mrs. Louella Maloney

2 2 2 1 1

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e members of the Committee record their profound appreciation of the service of all volunteers and gratitude to those members of staﬀ who facilitated their deliberations Signed By:

………………………………………......... Christopher Samuda Director

………………………………………......... Patricia Ramsaran Member

13 - 06 - 2013 ……………………………… Date

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………………………………………......... Basil Naar Staﬀ Representative

13 - 06 - 2013 ……………………………… Date

REPORT OF THE DELEGATES ON THE 71st ANNUAL GENERAL MEETING OF THE JAMAICA CO-OPERATIVE CREDIT UNION LEAGUE LTD. e League’s Convention and Annual General Meeting took place at the Ritz Carlton Hotel from May 2427, 2012. e four-day event was held under the theme “Shared Eﬃciencies through Transformation and Innovation” and had as its features: • • • • • •

70th Anniversary Strategic Conference Trade Show Workshops 70th Anniversary Awards Banquet JCCUL’s Annual General Meeting Ecumenical Service

PLENARY SESSION e conference started with the opening of the trade show which ran simultaneously with two workshops: • ‘Your Diet, Your Health’ presented by Dr. Heather Little-White. • ‘How to make Credit Unions member–centric’ presented by Mr. Alex Stirling, CEO of Gresham Consulting. e strategic conference was one of the activities to mark JCCUL’s 70th anniversary and was the highlight of the Convention. Mr. Lincoln Bailey, an Energy Economist, who is a Jamaican now residing in the African Country of Malawi opened the conference. He was the League’s guest, invited to Jamaica to speak on the topical issue of alternative energy sources. ere were three panel discussions: Well known broadcast Journalist, Mr. Cliﬀ Hughes moderated the first session. e panellists debating the issue of alternative energy sources were the Honourable Phillip Paulwell, Minister of Science, Technology, Energy and Mining; Mr. Christopher Levy, President & CEO, Jamaica Broilers Group; Mr. Anthony Haynes, CEO, Caribbean Cement Company Limited; and Mr. David Barrett, Energy Consultant, Private Sector Organisation of Jamaica. e second session sought to answer the question whether there are investment and growth opportunities within the Caribbean Region which Jamaica cannot readily access, due to inherent weaknesses within our current socio-political and economic systems. Broadcaster Mrs. Marlene Stephenson Dalley moderated this session and the panellists included former Minister of Industry, Investments and Commerce, Dr. Christopher

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Tufton; Dr. David McBean, Chairman, Supreme Ventures Foundation; Mrs. Yvonne Ridguard Harris, President of the Caribbean Confederation of Credit Unions, who brought the Caribbean perspective and Mr. Andre Goindoo, CEO, CUNA Mutual Financial Group. e final session moderated again by Mr. Cliﬀ Hughes looked at the contribution of the Jamaican Diaspora to the development and transformation of the Jamaican economy. e panellists included Mr. Richard Powell, Chairman, e RMP Group; Mr. David Mullings, member of the Jamaican Diaspora Advisory Board, USA; Mr. Andrew Pairman, CEO, Anbell Agencies; and Mrs. Viralee Lattibudiere, former Commissioner, TAJ who made an insightful contribution to the debate. ANNUAL AWARDS BANQUET Credit Union of the Year Awards JTA Co-operative Credit Union won the Mega Credit Union of the Year Award while NCB Employees Cooperative Credit Union won the Large Credit Union of the Year Award. JDF and BJ Staﬀ Co-operative Credit Unions won the Medium and Small Credit Union of the Year Awards respectively.

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Sectional Awards Manchester Co-operative Credit Union took home the trophy for being the Most Outstanding Parish Credit Union. St. Catherine Co-operative Credit Union received the award for the highest loan growth and First Regional Co-operative Credit Union won the award for the most improved solvency in 2011. AGM REPORTS Board Report e President Johnathan Brown in his summary of the Board report highlighted the achievements of JCCUL during the year. Among the achievements were: • Upgrading of the electronic transaction switch. • Establishment of the Centralized Strategic Services Company. • e managed merger of two credit unions. • Rebranding of the Movement and continuation of the lobbying eﬀorts. League’s Performance 2011 • e League recorded a decline of 7.3% in assets for 2011. is was the first decline in assets experienced by the League in over two decades. At year-end assets stood at $9.9B compared to $10.7B recorded in the previous year. • Net institutional capital to assets ratio improved to 11.34% in 2011 from 9.26% in 2010. • A surplus of $144.53M and total comprehensive income of $172.80M were recorded for the year 2011, which includes the surplus and unrealised gains on financial assets available for sale of $28.3M.

Treasurer’s Report Mr. Ian McNaughton, Board Treasurer gave the report of JCCUL’s stewardship which the meeting discussed. As a follow up to the Treasurer’s report the meeting recommended the establishment of 70th anniversary scholarships valued at $70,000 each from the League’s surplus. Forty-two (42) scholarships will be awarded to tertiary level students, via each Credit Union. e maximum liability remained at $12 billion. Distribution of Surplus e League’s surplus was distributed as indicated below: $Million Cash dividend on permanent shares 10% 6.75 Cash interest on voluntary shares 5% 6.13 Honoraria 2.74 Emergency Fund 2.00 CODEFCO 2.00 Gifts, Charities 1.00 Milestone events 4.00 Institutional capital 52.08 70th Anniversary Bursaries 2.94 Total 79.64

RESOLUTIONS Four congratulatory resolutions were passed on behalf of: • Portland and St. Elizabeth Co-operative Credit Unions both celebrating their 40th anniversaries. • Dr. Desreen Marquis, Manager of NAJ Co-operative Credit Union, on her achievement of the Doctor of Management in Organisational Leadership from the University of Phoenix and also being admitted as a member of the International Honour Society in Business Administration- Lambda Sigma Chapter and awarded the Delta Mu Delta Honour Award. • Mrs. Aloun N’Dombet Assamba (former Manager of COK Sodality Credit Union, for being appointed Jamaica’s High Commissioner to London. Four condolence resolutions were passed on behalf of the late: • • • •

Mr. Kurt Sheldon Tomlinson, son of the manager of Trelawny Co-operative Credit Union Audley Stubb, past volunteer on the Supervisory Committee of Trelawny Co-operative Credit Union Mrs. Enid Gonsalves- founder of Hanover Co-operative Credit Union Mrs. Vilma Armond –Founding member of JPS & Partners Co-operative Credit Union

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Two general proposals were brought to the AGM. • e first from GSB Co-operative Credit Union related to the appointment/election of Delegates and alternates to the Board of JCCUL. It was however withdrawn by the proposing Credit Union. • e Delegates unanimously agreed to the League’s support of the Caribbean Confederation of Credit Unions (CCCU) to host WOCCU’s 2016 conference in Jamaica. Rule changes e League brought two proposals for rule changes to the meeting. ese were amendments to Rule 55 (2) Board Executives and Rule 69 (1) Supervisory Committee. Both rules proposed term limits for persons serving on the executive of the Board and on the supervisory committee, respectively. e amendment to Rule 55 (2) was withdrawn after much debate. e motion to amend Rule 69(1) was approved. JCCUL BOARD OF DIRECTORS (2012-2013)

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JOHNATHAN BROWN DERRICK TULLOCH CAROL ANGLIN IAN MCNAUGHTON FAY DAVIS RODCLIFFE ROBERTSON DOROTHY RAYMOND WINSTON FLETCHER TALBERT GOLDING PATRICK HAYWOOD PAUL GARDENER WILBURN POTTINGER CLIFTON LUMSDEN WRAY PALMER JERRY HAMILTON CLIDE NESBETH COURTNEY WHITE YVONNE RIDGUARD HARRIS BARRINGTON WHYTE LAMBERT JOHNSON

PRESIDENT 1ST VICE PRESIDENT 2ND VICE PRESIDENT TREASURER ASSISTANT TREASURER SECRETARY ASSISTANT SECRETARY DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR

__________________ Basil Naar Delegate

__________________ Orville Hill Delegate

OBITUARIES FOR 2012 Derron Salmon Charlotte Wright-Heywood Norman Adams John Moodie Dahlia Hamilton Marcus Lalval Lloyd Allen Althea Gilzene Delfer Bailey Ian Ellis Donavan Smith Eileen Beckford Felix Robotham Lloyd Davey Ceta Ennis Jassett Smith Esmenda Pottinger Fern Lewis-Hue Imogene Lawrence Fay Cordwell Erselina Bernard Taneta James Opal Byfield Patricia ompson Mavis Jarrett Francisco Jarrett Meria Smith Vyotte Gonzales-McConnell Clinton Lydna Beverley Walker Diana Nation Jacqueline Carey Isaac Vassell Samuel Cheddar Ruby Christian George Stewart Webster Spencer

Kerrian Carty Monique Montaque Elaine Chambers Alrick Sutherland Myrtle Anderson Milton Douglas Jean Douse Errol Allen Kimberley Silvera Christine Bell Mavis Donald Serena Spencer Boysie Campbell Lillian Lindsay Aaron McDermott Devon Gabbidon Howard Evans Errol Brown Bryan Kiﬃn Anthony Bennett Evett Morris Noel Williams Errol Hamilton Joan Small Muriel Runcie-Atkins Delroy Morgan Pearline Salmon Oscar Taylor Laureen Hird Joyce ompson Norman Simpson Harold Nembhard Dawn Clarke Eileen Graham Robert Jackson David Comrie Marlene Sawyers

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PARLIAMENTARY RULES OF ORDER 1. ORDER OF BUSINESS An agenda shall be prepared by the Chairman and Secretary, and all items, thereon shall take precedence over all other business. Any member desirous of introducing business for the consideration of the meeting may do so after the business on the agenda is completed, or may give notice of motion to be discussed at a further meeting. 2. SUSPENSION OF STANDING ORDER In the event of any matter of urgency, however, the Chairman may accept a suspension of the Standing Orders. e member moving such suspension must clearly state the nature and urgency of his business, the numbers of the standing orders aﬀected, and the length of time he desires such suspension to last. At the option of the meeting, a further extension may be allowed, but no suspension shall take place except by majority vote of the members present. 3. MINUTES No motion or discussion shall be allowed on the Minutes except in regard to their accuracy. After the confirmation of the Minutes, they shall be signed by the Chairman, and the members shall then be at liberty to ask any questions in regard to matters arising out of them. Such questions shall be allowed for purposes of information only, and no debate on the policy outlined in the Minutes shall take place. 4. All persons desiring the floor shall rise and address themselves to the chair. ey shall state their name and the Credit Union which they represent. If recognized by the chair, they shall have the privilege of the floor and all the rights thereof. 5. All speakers are to make use of the floor microphones when addressing the meeting in order that it be recorded and made a permanent record in the meeting proceedings. 6. Should two or more persons rise at the same time, the chair shall decide, without debate, who is entitled to the floor. 7. SPEECHES No member shall be allowed to speak more than once on any motion before the meeting, unless in Committee, or on a point of order, or explanation, except the mover of the Original Motion. But on an amendment being moved, any member even though he has spoken on an Original Motion, may speak again on the amendment. No member shall speak for more than five minutes at a time. Members wishing to raise points of order or explanation must first obtain the permission of the Chairman and must raise immediately the alleged breach has occurred. Any member may formally second any motion or amendment and reserve his speech until a later period in the debate. 8. No person shall interrupt another who is speaking except on a point of order, a parliamentary inquiry, or a point of information.

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9. If it should come to pass that a speaker is called to order while speaking, the speaker should take his seat until the question of order is determined. 10. CHAIRMAN'S RULING e ruling of the Chairman on any question under the Standing Orders, or on points of order or explanation, shall be final, unless challenged by not less than four members, and unless two-thirds of the members present vote to the contrary. 11. INTERRUPTION If any member interrupts another while addressing the meeting, or uses abusive or profane language or causes disturbance at any of the meetings, and refuses to obey the Chairman when called to order, he shall be named by the Chairman. He shall thereupon be expelled from the room and shall not be allowed to enter again until an apology satisfactory to the meeting be given. 12. A question shall not be subject to debate until it has been duly moved and seconded and is stated from the chair.

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13. MOTIONS AND AMENDMENTS e first proposition on any particular subject shall be known as the Original Motion, and all succeeding propositions on that subject shall be called amendments. Every motion or amendment must be moved and seconded by members actually present at the meeting before they can be discussed, and, wherever possible, should be set forth in writing. It is permissible for a member to make his speech first and conclude with a motion. When an amendment is moved to an Original Motion, no further amendment shall be discussed until the first amendment is disposed of (Notice of any further amendment must be given before the first amendment is put to the vote). 14. SUBSTANTIVE MOTIONS If an amendment be carried, it displaces the Original Motion and itself becomes the substantive motion, whereupon any further amendment relating to any portion of the substantive motion may be moved, provided it is consistent with the business and has not been covered by an amendment or motion which has been previously rejected. After the vote on each succeeding amendment has been taken, the surviving proposition shall be put to the vote as the main question, and if carried shall then become a resolution of the meeting. 15. RIGHT OF REPLY e mover of the Original Motion shall if no amendment be moved, have the right of reply at the close of the debate upon such motion. When an amendment is moved he shall be entitled to speak thereon in accordance with Standing Order No. 8 and at the close of the debate on such amendment shall reply to the discussion, but shall introduce no new matter. e question shall then be put to the vote immediately, and under no circumstances shall any further discussion be allowed once the question has been put from the Chair. e mover of an amendment shall not be entitled to reply.

16. WITHDRAWALS OR ADDITIONS No motion or amendment which has been accepted by the Chair shall be withdrawn without the majority vote of the meeting. Neither shall any addendum or rider be added to a motion which has once been accepted by the Chair without majority vote. Should any member dissent, the addendum must be proposed and seconded, and treated as an ordinary amendment. 17. CLOSING DEBATE î &#x201C;e motions for the previous question, next business, or the closure, may be moved and seconded only by members who have not previously spoken at any time during the debate. No speeches shall be allowed on such motions. In the event of the closure being carried, the mover of the Original Motion shall have the right to reply in accordance with Standing Order No.16 before the question is put. Should any one of the motions mentioned in this Standing Order be defeated, thirty minutes shall elapse before it can be accepted again by the Chairman, unless he is of the opinion that the circumstances have materially altered in the meantime. 18. ADJOURNMENT Any member who has not already spoken during the debate may move the adjournment of the question under discussion, or of the meeting, but must confine his remarks to that question and must not discuss any other matter. î &#x201C;e mover of the motion upon which the adjournment has been moved, shall be allowed the right to reply on the question of the adjournment, but such reply shall not prejudice his right of reply on his own motion. In the event of such motion being lost, it shall not be moved again, except in accordance with Standing Order 18. 19. Any member may call for a division of the House (that is, for a roll call vote) when there appears to be a reasonable doubt as to the accuracy of the vote as announced by the Chair. 20. A motion to lay on the table shall be put without debate. 21. Whispering, loud talking, or other disturbances calculated to disturb anyone while speaking will not be tolerated.

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PRAYER OF ST. FRANCIS OF ASSISI Lord, make me an instrument of thy peace. Where there is hatred, let me sow love; Where there is injury, pardon; Where there is doubt, faith; Where there is despair, hope; Where there is darkness, light; and Where there is sadness, joy.

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O Divine Master, grant that I may not So much seek to be consoled as to console; To be understood as to understand; To be loved as to love. For it is in giving that we receive; It is in pardoning that we are pardoned; And it is in dying that we are born to eternal life. Amen

NOTES

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