1st National Bank Annual Report 09

For the year ended 31 march 2008

March 24, 2009

Independent audItors’ report

to the shareholders of1st national Bank st. Lucia Limited

report on the Financial statements

We have audited the accompanying financial statements of 1st national Bank st. Lucia Limited (the Bank) which comprise the balance sheet as of December 31, 2008 and the statements of income,

statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

management’s responsibility for the Financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing

and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate

accounting policies; and making accounting estimates that are reasonable in the circumstances.

auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply

with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

PriceWaterhouseCoopersPointe Seraphine

P.O.Box 195

Castries

St. Lucia, West Indies

Telephone (758) 456-2600

Facsimile (758) 452-1061

1st National Bank Annual Report 2008

audItor’s report32Involved, Interested, Invested, In You!


For the year ended 31 march 2008

auditor’s responsibility ...continued

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of

the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation

of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also

includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2008 and the results of its operations and its cash flows for the year

then ended in accordance with International Financial Reporting Standards.

PriceWaterhouseCoopersPointe Seraphine

P.O.Box 195

Castries

St. Lucia, West Indies

Telephone (758) 456-2600

Facsimile (758) 452-1061

Chartered Accountants

PricewaterhouseCoopers refers to the East Caribbean firm of PricewaterhouseCoopers and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. A full listing of the partners of the East

Caribbean firm is available on request at the above address.

1st National Bank Annual Report 2008 Involved, Interested, Invested, In You!

auditor’s report 33


BaLance sheet34

Balance sheetas of december 31, 2008

(expressed in Eastern Caribbean dollars)

assetscash and balances with central Bank (Note 5)due from other banks (Note 6)treasury bills (Note 7)Loans and advances to financial institutions (Note 8)Loans and advances to customers (Note 9)Investment securities: (Note 11)- available-for-sale- held-to-maturityIncome tax recoverableproperty, plant and equipment (Note 12)other assets (Note 13)deferred income tax asset (Note 17)

total assets

Liabilities

due to customers (Note 14)other liabilities (Note 15)retirement benefit obligations (Note 16)

total liabilities

equity

capital and reserves attributable to the Bank’s equity holdersshare capital (Note 18)retained earningsother reserves

total equity

total equity and liabilities

2008$

29,208,5665,088,351

17,910,47038,642,361

248,470,227

12,789,46222,171,7421,018,873

12,474,4552,347,028

30,846

390,152,381

329,404,5883,769,600

739,000

333,913,188

7,971,45437,539,79410,727,945

56,239,193

390,152,381

2007$

23,123,39012,583,17715,477,41132,171,428

223,579,753

10,625,14119,276,037

5,78911,683,1832,777,371

165,691

351,468,371

297,509,7743,892,705

727,000

302,129,479

7,971,45430,421,30810,946,130

49,338,892

351,468,371

approved by the Board of directors on march 24, 2009

Director Director



statement oF Income 35

For the year ended 31 march 2008statement of IncomeFor the year ended december 31, 2008


Interest and similar income (Note 20)

Interest expense and similar charges (Note 20)

net interest income

other operating income (Note 21)

operating income

other operating expenses (Note 22)

Impairment losses on loans and advances (Note 10)

profit before income tax

Income tax expense (Note 25)

net profit for the year

earnings per share for profit attributable to the equityholders of the bank during the year (Note 26)(expressed in ec$ per share)

- basic and diluted

2008

$

29,680,766

(10,762,836)

18,917,930

4,056,350

22,974,280

(10,514,717)

(1,248,031)

11,211,532

(2,115,966)

9,095,566

1.82

2007

$

25,403,401

(9,045,978)

16,357,423

5,645,936

22,003,359

(9,028,123)

(129,339)

12,845,897

(2,306,467)

10,539,430

2.17


statement oF changes In equIty36

statement of changes in equityFor the year ended december 31, 2008


share capital (Note 18)At beginning of yearIssued during the year

At end of year

retained earningsAt beginning of year Net profit for the year Dividends on ordinary shares (Note 27)Transfer to statutory reserve (Note 19)Transfer from revaluation reserve

At end of year

reserves

statutory reserve (Note 19)At beginning of yearTransfer from retained earnings

At end of year

revaluation reserve At beginning of yearTransfer to retained earnings

At end of year

revaluation reserve - Investment securities: available-for-saleAt beginning of year(Decrease)/ increase in fair value

At end of year

total reserves

equity, end of year

2008$

7,971,454–

7,971,454

30,421,3089,095,566

(1,999,986)–

22,906

37,539,794

7,971,454–

7,971,454

2,285,636(22,906)

2,262,730

689,040(195,279)

493,761

10,727,945

56,239,193

2007$

6,877,0881,094,366

7,971,454

22,575,65110,539,430(1,622,312)(1,094,366)

22,905

30,421,308

6,877,0881,094,366

7,971,454

2,308,541(22,905)

2,285,636

438,783250,257

689,040

10,946,130

49,338,892

Involved, Interested, Invested, In You!


statement oF cash FLows 37

For the year ended 31 march 2008statement of cash FlowsFor the year ended december 31, 2008


cash flows from operating activitiesProfit before income taxAdjustments for:Depreciation (Note 12)Gain on disposal of property, plant and equipmentImpairment losses on loans and advancesRetirement benefit obligationsDividend incomeInterest and similar incomeInterest expense and similar charges

Cash flow before changes in operating assets and liabilities

(Increase)/decrease in mandatory reserve deposits with Central BankIncrease in loans and advances to financial institutionsIncrease in loans and advances to customersDecrease/(increase) in other assetsIncrease in due to customers(Decrease)/increase in other liabilities

Cash (used in)/generated from operations

Interest and similar income receivedInterest expense and similar charges paidIncome taxes paid

Net cash from operating activities

cash flows from investing activitiesPurchase of treasury bills, net(Purchase)/sale of investment securities, netDividends receivedPurchase of property, plant and equipmentProceeds from disposal of property, plant and equipment

Net cash used in investing activities

cash flows from financing activitiesProceeds from issuance of ordinary sharesDividends paid on ordinary shares

Net cash used in financing activities

net (decrease)/increase in cash and cash equivalents

cash and cash equivalents, beginning of year

cash and cash equivalents, end of year (Note 28)

2008$

11,211,532

834,094–

1,248,03112,000

(50,810)(29,680,766)

10,762,836

(5,663,083)

(4,770,570)(6,625,331)

(24,653,415)310,337

32,010,267(160,608)

(9,552,403)

28,268,360(10,878,289)(2,874,199)

4,963,469

(2,380,738)(5,225,912)

50,810(1,625,366)

–

(9,181,206)

–(1,962,483)

(1,962,483)

(6,180,220)

21,033,567

14,853,347

2007$

12,845,897

714,068(1,984)

129,339(2,000)

(96,840)(25,403,401)

9,045,978

(2,768,943)

355,000(3,321,736)

(18,178,774)(1,402,851)27,134,923

186,840

2,004,459

25,452,512(8,185,211)(4,010,133)

15,261,627

(6,646,483)5,203,151

113,090(3,698,821)

15,000

(5,014,063)

1,094,366(1,576,083)

(481,717)

9,765,847

11,267,720

21,033,567


notes to FInancIaL statements38

notes to Financial statementsdecember 31, 2008



1 generaL InFormatIon

1st National Bank St. Lucia Limited, (the Bank) was incorporated in Saint Lucia on December 1937 and continued under the Companies Act of 1996. In addition to compliance with the Companies Act 1996, the Bank is also subject to the provisions of the Banking Act of Saint Lucia No. 34 of 2006. The Bank commenced trading in January 1938 and provides retail banking services including the acceptance of deposits, granting of loans, the provision of foreign exchange services and commercial banking services.

The Bank has four branches and two bureaux de change. The registered office and principal place of business of the Bank is 21 Bridge Street, Castries, Saint Lucia.

2 summary oF sIgnIFIcant accountIng poLIcIesThe principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparationThe financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings and available-for-sale financial assets.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Bank’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4.

(a) Interpretation to existing standard effective in 2008 • IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’, provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. This interpretation does not have any impact on the Bank’s financial statements, as the Bank has a pension deficit and is not subject to any minimum funding requirements.

(b) Interpretations to existing standards effective in 2008 but not relevantThe following interpretations to existing standards are mandatory for accounting periods beginning on or after 1 January, 2008 but they are not relevant to the Bank’s operations:

• IFRIC 11, ‘IFRS 2 – Company and treasury share transactions’; and

• IFRIC 12, ‘Service concession arrangements’.


notes to FInancIaL statements 39

For the year ended 31 march 2008notes to Financial statementsdecember 31, 2008


2 summary oF sIgnIFIcant accountIng poLIcIes …continued

(c) standards and amendment to existing standard not yet effective and relevant to the Bank The following standards and amendment to existing standard have been published and are mandatory for accounting periods beginning on or after 1 January 2009 or later periods, but the Bank has not early adopted:

• IAS 1 (Revised), ‘Presentation of financial statements’ (effective from 1 January 2009). The revised standard will prohibit the presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes in equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). Where entities restate or reclassify comparative information, they will be required to present a restated balance sheet as at the beginning comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. The Bank will apply IAS 1 (Revised) from 1 January 2009.

• IAS 19 (Amendment), ‘Employee benefits’ (effective from 1 January 2009). The amendment clarifies that a plan amendment that results in a change in the extent to which benefit promises are affected by future salary increases is a curtailment, while an amendment that changes benefits attributable to past service gives rise to a negative past service cost if it results in a reduction in the present value of the defined benefit obligation.

- The definition of return on plan assets has been amended to state that plan administration costs are deducted in the calculation of return on plan assets only to the extent that such costs have been excluded from measurement of the defined benefit obligation.

- The distinction between short term and long term employee benefits will be based on whether benefits are due to be settled within or after 12 months of employee service being rendered.

- IAS 37, ‘Provisions, contingent liabilities and contingent assets’, requires contingent liabilities to be disclosed, not recognised. IAS 19 has been amended to be consistent. The Bank will apply the IAS 19 (Amendment) from 1 January 2009.

•IAS36(Amendment),‘Impairmentofassets’(effectivefrom1January2009).Wherefairvaluelesscoststoselliscalculatedonthebasisofdiscountedcashflows,disclosuresequivalenttothosefor value-in-use calculation should be made. The Bank will apply the IAS 36 (Amendment) and provide the required disclosure where applicable for impairment tests from 1 January 2009.

(d) standards, amendments and interpretations to existing standards that are not yet effective and not relevant to the Bank The following standards, amendments and interpretations to existing standards have been published and are mandatory for accounting periods beginning on or after 1 January 2009 or later periods but are not relevant for the Bank’s operations:

•IAS 16 (Amendment), ‘Property, plant and equipment’ (and consequential amendment to IAS 7, ‘Statement of cash flows’) (effective from 1 January 2009);

•IAS 20 (Amendment), ‘Accounting for government grants and disclosure of government assistance’ (effective from 1 January 2009);






(d) standards, amendments and interpretations to existing standards that are not yet effective and not relevant to the Bank …continued

• IAS 23 (Amendment), ‘Borrowing costs’ (effective from 1 January 2009);

• IAS 27 (Revised), ‘Consolidated and separate financial statements’ (effective from 1 July 2009);

• IAS 27 (Amendment), ‘Consolidated and separate financial statements’ (effective from 1 January 2009);

• IAS 28 (Amendment), ‘Investments in associates’ (and consequential amendments to IAS 32, ‘Financial Instruments: Presentation’ and IFRS 7, ‘Financial instruments: Disclosures’) (effective from 1 January 2009);

• IAS 29 (Amendment), ‘Financial reporting in hyperinflationary economies’ (effective from 1 January 2009);

• IAS 31 (Amendment), ‘Interests in joint ventures’ (and consequential amendments to IAS 32 and IFRS 7) (effective from 1 January 2009);

• IAS32(Amendment),‘Financialinstruments:Presentation’, and IAS 1 (Amendment), ‘Presentation of financial statements’ – ‘Puttable financial instruments and obligations arising on liquidation’ (effective from 1 January 2009);

• IAS 38 (Amendment), ‘Intangible assets’, (effective from 1 January 2009);

• IAS39(Amendment),‘Financialinstruments:Recognitionandmeasurement’(effective from 1 January 2009);

• IAS 40 (Amendment), ‘Investment property’ (and consequential amendments to IAS 16) (effective from 1 January 2009);

• IAS 41 (Amendment), ‘Agriculture’ (effective from 1 January 2009);

• IFRS 1 (Amendment) ‘First time adoption of IFRS’ and IAS 27 ‘Consolidated and separate financial statements’(effective from 1 January 2009);

• IFRS 2 (Amendment), ‘Share-based payment’ (effective from 1 January 2009). The amended standard deals with vesting conditions and cancellations;

• IFRS 3 (Revised), ‘Business combinations’ (effective from 1 July 2009);

• IFRS 5 (Amendment), ‘Non-current assets held for sale and discontinued operations’ (and consequential amendment to IFRS 1, ‘First-time adoption’) (effective from 1 July 2009);

• IFRIC 13, ‘Customer loyalty programmes’ (effective from 1 July 2008);

• IFRIC 15, ‘Agreements for construction of real estates’ (effective from 1 January 2009); and

• IFRIC 16, ‘Hedges of a net investment in a foreign operation’ (effective from 1 October 2008).






2.2 cash and cash equivalentsFor the purposes of the statement of cash flows, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition including: cash and non-restricted balances with the Central Bank and deposits with other banks.

2.3 Financial assetsThe Bank classifies its financial assets in the following categories: loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date.

(a) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (a) those that the bank intends to sell immediately or in the short term, which are classified as held for trading, and those that the bank upon initial recognition designates as at fair value through profit or loss; (b) those that the bank upon initial recognition designates as available for sale; or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.

(b) Held-to-maturityHeld-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity. If the Bank were to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available-for-sale.

(c) Available-for-sale financial assetsAvailable-for-sale financial assets are those 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.

Purchases and sales of held-to-maturity and available-for-sale are recognised on trade-date – the date on which the Bank commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Bank has transferred substantially all risks and rewards of ownership.

Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in equity, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in equity should be recognised in profit or loss. However, interest calculated using the effective interest method is recognised in the statement of income. Dividends on available-for-sale equity instruments are recognised in the statement of income when the entity’s right to receive payment is established.

The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a financial asset (and for unlisted securities), the Bank establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, and other valuation techniques commonly used by market participants.







2.4 property, plant and equipmentLand and buildings comprise mainly branches and offices. Land and buildings are shown at fair value, based on valuations by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other assets are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred.

Land is not depreciated. Depreciation is calculated using the straight-line method for buildings and the reducing balance method for all other property, plant and equipment to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of income.

2.5 sale and repurchase agreementsSecurities purchased under agreements to resell (‘reverse repos’) are recorded as loans and advances to financial institutions or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.

2.6 Impairment of financial assets(a) Assets carried at amortised costThe Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

BuildingsFurniture and fixturesequipmentmotor vehicles

2% 10%

15- 25% 20%






2.6 Impairment of financial assets …continuedThe criteria that the Bank uses to determine that there is objective evidence of an impairment loss include:• Delinquencyincontractualpaymentsofprincipalorinterest;• Cashflowdifficultiesexperiencedbytheborrower(forexample,equityratio,netincomepercentageofsales);• Breachofloancovenantsorconditions;• Initiationofbankruptcyproceedings;• Deteriorationoftheborrower’scompetitiveposition;and• Deteriorationinthevalueofcollateral.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on financial asset has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of income. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the statement of income.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the statement of income.

(b) Assets classified as available for saleThe Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in equity – is removed from equity and recognised in the statement of income. Impairment losses recognised in the statement of income on equity instruments are not reversed through the statement of income. If in subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the statement of income.







2.6 Impairment of financial assets …continued(c) Renegotiated loansLoans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the asset is considered to be past due and disclosed only if renegotiated.

2.7 Impairment of other non-financial assetsAssets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

2.8 offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

2.9 guarantees and letters of creditGuarantees and letters of credit comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most guarantees and letters of credit to be settled simultaneously with the reimbursement from the customers. Guarantees and letters of credit are accounted for as off-balance sheet transactions and are disclosed in the contingent liabilities and commitments note.

2.10 provisionsProvisions are recognised when: the Bank has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

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






2.11 employee benefits (a) Pension obligationThe Bank operates a defined benefit plan for all employees. The assets of the plan are held separately. The pension plan is funded through payments from employees and the Bank, taking account of the recommendations of independent qualified actuaries. A defined benefit plan is a pension plan that defines an amount of pension that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government securities that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over the employees’ expected average remaining working lives. Past-service costs are recognised immediately in the statement of income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period.

(b) Profit-sharing and bonus plans The Bank recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the Bank’s shareholders after certain adjustments. The Bank recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

2.12 deferred income taxDeferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. The principal temporary differences arise from depreciation of property, plant and equipment. If the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting or taxable profit or loss, it is not accounted for.

Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Income tax payable on profits, based on the applicable tax law is recognised as an expense in the period in which profits arise. The tax effects of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be available against which these losses can be utilised.







2.13 share capital(a) Share issue costsIncremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds.

(b) Dividends on ordinary sharesDividends on ordinary shares are recognised in equity in the period in which they are approved.Dividends for the year declared after the balance sheet date are disclosed in the notes to the financial statements.

2.14 Interest income and expenseInterest income and expense for all interest bearing financial instruments are recognised within “interest income” and “interest expense” in the statement of income using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

2.15 Fee and commission incomeFees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Performance linked fees or fee components are recognised when the performance criteria are fulfilled.

2.16 dividend incomeDividends are recognised in the statement of income when the Bank’s right to receive payment is established.

2.17 Leases(a) The Bank is the lesseeLeases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of income on a straight-line basis over the period of the lease.

(b) The Bank is the lessorWhen assets are leased out under an operating lease, the assets are included in the balance sheet based on the nature of the assets. Lease income is recognised over the term of the lease on a straight line basis.






2.18 Foreign currency translation(a) Functional and presentation currencyItems in the financial statements are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The financial statements are presented in Eastern Caribbean dollars, which is the Bank’s functional and presentation currency.

(b) Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of income.

2.19 Financial instrumentsFinancial instruments carried on the balance sheet include cash resources, investment securities, loans and advances to customers, loans and advance to financial institutions, deposits with other banks, deposits from banks and due to customers. The particular recognition methods adopted are disclosed in the individual policy statement associated with each item.

2.20 comparativesWhere necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.

3 FInancIaL rIsk managementThe Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Bank’s financial performance.

The Bank’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice.

Risk management is carried out by the Finance Department under policies approved by the Board of Directors. Management identifies, evaluates and hedges financial risks in close co-operation with the Bank’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk. In addition, internal audit is responsible for the independent review of risk management and the control environment.

The most important types of risk are credit risk, liquidity risk, market risk and other operational risk. Market risk includes currency risk, interest rate and other price risk.






3 FInancIaL rIsk management …continued

3.1 credit riskThe Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Significant changes in the economy, or in the health of a particular industry segment that represents a concentration in the Bank’s portfolio, could result in losses that are different from those provided for at the balance sheet date. Management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in lending activities that lead to loans and advances, and investment activities that bring debt securities and other bills into the Bank’s asset portfolio. There is also credit risk in off-balance sheet financial instruments such as loan commitments. The credit risk management and control are centralised and reports to the Board of Directors.

3.1.1 credit risk measurement(a) Loans and advancesEastern Caribbean Central Bank prudential guidelines are embedded in the Bank’s daily operational management. The operational measurements can be contrasted with impairment allowances required under IAS 39, which are based on losses that have been incurred at the balance sheet date (the ‘incurred loss model’).

The Bank assesses the probability of default of individual counterparties using the Eastern Caribbean Central Bank prudential guidelines. Clients of the Bank are segmented into five rating classes. The Bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The Bank regularly validates the performance of the rating and their predictive power with regard to default events.

(b) Debt securities and other billsFor debt securities and other bills, external rating such as Fitch’s rating, Caricris or their equivalents are used by management for managing of the credit risk exposures.

3.1.2 risk limit control and mitigation policiesTheBankmanages,limitsandcontrolsconcentrationsofcreditriskwherevertheyareidentified−inparticular,toindividualcounterpartiesandgroups,andtoindustries.

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to the industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review by the Board of Directors.

The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on- and off-balance sheet exposures, and daily delivery risk limits in relation to trading items. Actual exposures against limits are monitored daily.

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

Bank’s InternaL ratIngs scaLeBank’s rating description of the grade 1 pass2 special mention3 substandard4 doubtful5 Loss






3.1.2 risk limit control and mitigation policies …continuedSome other specific control and mitigation measures are outlined below.

(a) CollateralThe Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:

• Mortgagesoverresidentialproperties;• Chargesoverbusinessassetssuchaspremises,inventoryandaccountsreceivable;and• Chargesoverfinancialinstrumentssuchasdebtsecuritiesandequities.

Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In addition, in order to minimise the credit loss the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances.

Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured.

(b) Credit-related commitmentsThe primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

3.1.3 Impairment and provisioning policiesThe impairment provision shown in the balance sheet at year-end is derived from each of the five internal rating grades. The table below shows the percentage of the Bank’s on- and off-balance sheet items relating to loans and advances and the associated impairment provision for each of the Bank’s internal rating categories:

Bank’s rating1. pass2. special mention3. sub-standard 4. doubtful5. Loss

2008 2007

Loans and advances (%)

86.5%2.3%5.0%3.8%2.4%

Loans and advances (%)

84.4%2.9%6.9%3.5%2.3%

Impairment provision (%)

26.1%2.4%

20.4%23.0%28.1%

Impairment provision (%)

0.8%7.4%

14.5%33.2%44.1%







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

• Delinquencyincontractualpaymentsofprincipalorinterest;• Cashflowdifficultiesexperiencedbytheborrower(egequityratio,netincomepercentageofsales);• Breachofloancovenantsorconditions;• Initiationofbankruptcyproceedings;• Deteriorationoftheborrower’scompetitiveposition;and• Deteriorationinthevalueofcollateral.

The Bank’s policy requires the review of individual financial assets that are above materiality thresholds at least annually or more regularly when individual circumstances require. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date on a case-by-case basis, and are applied to all individually significant accounts. The assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account.

3.1.4 maximum exposure to credit risk before collateral held or other credit enhancementsCredit risk exposures relating to on-balance sheet assets are as follows:

The above table represents a worse case scenario of credit risk exposure to the Bank at December 31, 2008 and 2007, without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the balance sheet.

As shown above, 67% of the total maximum exposure is derived from loans and advances to financial institutions and customers (2007 - 65%); 8% represents investments in debt securities (2007 - 7%).

Due from other banksTreasury billsLoans and advances to financial institutionsLoans and advances to customers:−Overdraft−Demandloans−Promissorynotes−Mortgages−Non-productiveloansandoverdraftsInvestments securities:−availableforsale−heldtomaturityOther assets

Credit risk exposures relating to off-balance sheet items are as follows:Financial GuaranteesLoan commitments and other credit related liabilities

At December 31

maxImum exposure

2008$

5,088,35117,910,47038,642,361

11,454,873101,076,271

7,868,260107,003,79521,067,028

9,431,68222,171,7421,839,745

3,707,21625,371,125

372,632,919

2007$

12,583,17715,477,41132,171,428

9,412,92597,625,8269,937,527

91,436,38815,167,087

5,999,22719,276,0372,387,386

3,692,33426,241,705

341,408,458






3.1.4 maximum exposure to credit risk before collateral held or other credit enhancements…continuedManagement is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio based on the following:

• 89%oftheloansandadvancesportfolioiscategorisedinthetoptwogradesoftheinternalratingsystem(2007-87%);• Mortgageloanswhichrepresentthelargestpercentageoftheportfolio,followedbydemandloans,arebackedbycollateral;• 57%oftheloansandadvancesportfolioareconsideredtobeneitherpastduenorimpaired(2007-55%);• TheBankcontinuestograntloansandadvancesinaccordancewithitslendingpoliciesandguidelines;and• 9%oftheinvestmentsindebtsecuritiesandotherbillshaveatleastatA-creditrating.Manyissuersintheregionarenotgraded,consequently59%ofinvestmentsarenotrated, compared to 91% last year.

3.1.5 Loans and advancesLoans and advances are summarised as follows:

The total impairment provision for loans and advances is $14,231,322 (2007 - $13,062,902). Further information of the impairment allowance for loans and advances to banks and to customers is provided in Notes 9 and 10.

Loans and advances to customersNeither past due nor impaired Past due but not impaired Impaired

gross

Less: allowance for impairment (Notes 9 and 10)

net

Loans and advances to financial institutionsNeither past due nor impaired (Note 8)

2008$

150,515,96279,527,60332,657,984

262,701,549

(14,231,322)

248,470,227

38,642,361

2007$

130,039,41575,435,87131,167,369

236,642,655

(13,062,902)

223,579,753

32,171,428







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

Loans and advances to financial institutionsLoans and advances to financial institutions were graded 1 (Pass) as at December 31, 2008 and December 31, 2007.

december 31, 2008

Loans and advances to customers

grades1. Pass2. Special mention3. Sub-standard 4. Doubtful5. Loss

total

december 31, 2007

Loans and advances to customers

grades1. Pass2. Special mention3. Sub-standard 4. Doubtful5. Loss

total

overdrafts$

9,547,2391,737,367

–––

11,284,606

overdrafts$

9,428,772––––

9,428,772

mortgages$

70,038,9281,147,814

–––

71,186,742

mortgages$

56,897,4792,168,803

–––

59,066,282

promissory notes

$

5,325,447––––

5,325,447

promissory notes

$

5,883,541–

9,674––

5,893,215

total Loans and advances

to customers$

146,392,3684,123,594

–––

150,515,962

total Loans and advances

to customers$

127,405,7282,614,782

18,905––

130,039,415

demandloans

$

61,480,7541,238,413

–––

62,719,167

demandloans

$

55,195,936445,979

9,231––

55,651,146






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

Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding assets. In subsequent periods, the fair value is updated by reference to market price or indexes of similar assets. There were no overdrafts past due but not impaired.

december 31, 2008Past due up to 30 daysPast due 30-60 daysPast due 60-90 daysPast due over 90 days

total

Fair value of collateral

december 31, 2007Past due up to 30 daysPast due 30-60 daysPast due 60-90 daysPast due over 90 days

total


demandloans

$

20,424,1128,850,9582,675,9378,097,336

40,048,343

64,595,029

21,809,9088,721,7232,159,2436,540,057

39,230,931

71,557,750

promissory notes

$

1,107,753458,878317,023731,009

2,614,663

6,948,529

2,326,224466,351391,788836,937

4,021,300

10,400,735

mortgages$

18,557,2053,197,1943,834,521

11,275,677

36,864,597

79,223,069

16,117,6537,886,4701,667,3816,512,136

32,183,640

64,099,375

total Loans and advances to

customers$

40,089,07012,507,0306,827,481

20,104,022

79,527,603

150,766,627

40,253,78517,074,5444,218,412

13,889,130

75,435,871

146,057,860







3.1.5 Loans and advances…continued(c) Loans and advances individually impairedThe table below shows the gross amount of individually impaired loans and advances to customers by grades before taking into consideration the cash flows from collateral held.

(d) Loans and advances renegotiatedRestructuring activities include extended payment arrangements, approved external management plans, modification and deferral of payments. Following restructuring, a previously overdue customer account is reset to a normal status and managed together with other similar accounts. Restructuring policies and practices are based on indicators or criteria which, in the judgment of local management, indicate that payment will most likely continue. These policies are kept under continuous review. Restructuring is most commonly applied to term loans, in particular customer finance loans. There were no renegotiated loans that would otherwise be past due or impaired at December 31, 2008 and 2007.

3.1.6 debt securities, treasury bills and other eligible billsThe table below presents an analysis of debt securities, treasury bills and other eligible bills by rating agency designation at December 31, 2008, based on Fitch, Caricris or their equivalent:

AA- to AA+A- to A+Lower than A-Unrated

total

Investment securItIes

treasury bills$

––

6,255,21711,655,253

17,910,470

available-for-sale$

262,800496,425625,000

11,405,237

12,789,462

held-to-maturity$

4,066,257–

10,067,9758,037,510

22,171,742

total$

4,329,057496,425

16,948,19231,098,000

52,871,674

Individually impaired loans

grades:1. Pass2. Special mention3. Sub-standard 4. Doubtful5. Loss

total


2008$

2,146,463439,447

12,568,0589,943,4397,560,577

32,657,984

58,550,849

2007$

705,799530,661

16,106,6238,400,3265,423,960

31,167,369

49,238,788






3.1.7 repossessed collateralDuring 2008, the Bank obtained assets by taking possession of collateral held as security, as follows:

Repossessed vehicles are sold as soon as practicable with the proceeds used to reduce the outstanding indebtedness. Repossessed vehicles are classified in the balance sheet within other assets.

3.1.8 concentration of risks of financial assets with credit risk exposure(a) Geographical sectorsThe Bank operates primarily in St. Lucia and the exposure to credit risk is concentrated in this area.

nature of assets

Vehicles

carrying amount$

994,850






3 FInancIaL rIsk management…continued

3.1.8 concentration of risks of financial assets with credit risk exposure…continued(b) Industry sectorsThe following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorised by the industry sectors of our counterparties.

Treasury billsLoans and advances to financial institutionsLoans and advances to customers:- Overdraft - Demand loans- Promissory notes- Mortgages- Non-productive loans and overdraftsInvestment securities:- available-for-sale - held-to-maturity Other assets

as at december 31, 2008


Financial institutions$

–38,642,361

–––––

7,656,6958,609,583

799,538

55,708,177

47,999,113

manufacturing$

––

684,6072,866,251

5,146538,530157,445

–––

4,251,979

2,168,094

tourism$

––

47,0951,702,885

2,145,327251,033

–––

4,146,340

3,258,082

government$

17,910,470–

–––––

–13,458,992

–

31,369,462

25,655,305

professional and other services

$

––

3,407,22716,174,781

87,0747,764,0412,858,178

–––

30,291,301

26,259,907

personal$

––

2,884,09744,351,0206,732,523

83,642,38116,117,067

–––

153,727,088

139,086,556

other industries$

––

4,543,58737,672,4171,084,181

13,966,98613,017,670

5,132,767103,167

1,040,207

76,560,982

72,153,001

total$

17,910,47038,642,361

11,566,613102,767,354

7,908,924108,057,26532,401,393

12,789,46222,171,7421,839,745

356,055,329

316,580,058






3.2 market riskThe Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices. The Bank exposures to market risks arise from its non-trading portfolios.

Non-trading portfolios primarily arise from the interest rate management of the Bank’s retail and commercial banking assets and liabilities. Non-trading portfolios also consist of equity risks arising from the Bank’s held-to-maturity and available-for-sale investments.

3.2.1 price riskThe Bank is exposed to equity securities price risk because of investments held by the Bank and classified on the balance sheet as available for sale. To manage its price risk arising from investments in equity securities, the Bank diversifies its portfolio.

At December 31, 2008 if equity securities prices had been 5% higher/lower with all variable held constant equity for the year would have been $46,875 higher/lower as a result of the increase/decrease in fair value of available for sale equity securities.

3.2.2 Foreign exchange riskThe Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board of Directors sets limits on the level of exposure by currency and in total which are monitored daily. The Bank’s exposure to currency risk is minimal since most of its assets and liabilities in foreign currencies are held in United States dollars. The exchange rate of the Eastern Caribbean dollar (EC$) to the United States dollar (US$) has been formally pegged at EC$2.70 = US$1.00 since 1976. The following table summarises the Bank’s exposure to foreign currency exchange rate risk at December 31, 2008. Included in the table are the Bank’s financial instruments at carrying amount, categorised by currency.







3.2.2 Foreign exchange risk…continued

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


assetsCash and balances with Central BankDue from other banksTreasury billsLoans and advances to financial institutionsLoans and advances to customersInvestment securities- available-for-sale - held-to-maturity Other assets

Total financial assets

LiabilitiesDue to customersOther liabilities

Total financial liabilities

net on-balance sheet positions

credit commitments

as at december 31, 2007Total financial assetsTotal financial liabilities

net on-balance sheet positions

credit commitments

ecd

26,271,3081,609,084

17,910,47038,642,361

248,470,227

8,238,75322,171,7421,839,745

365,153,690

328,087,3793,769,600

331,856,979

33,296,711

29,078,341

325,230,777300,405,911

24,824,866

29,934,039

cad

63,488102,005

–––

–––

165,493

––

–

165,493

–

239,716–

239,716

–

euro

695,083560,269

–––

–––

1,255,352

2,516–

2,516

1,252,836

–

1,073,2512,633

1,070,618

–

usd

1,644,4701,951,670

–––

4,550,709

8,146,849

1,314,693–

1,314,693

6,832,156

–

9,748,750993,935

8,754,815

–

gBp

158,367806,315

–––

–––

964,682

––

–

964,682

–

2,718,397–

2,718,397

–

ttd

187,92510,692

–––

–––

198,617

––

–

198,617

–

13,387–

13,387

–

Bd

187,92548,316

–––

–––

236,241

––

–

236,241

–

199,445–

199,445

–

totaL

29,208,5665,088,351

17,910,47038,642,361

248,470,227

12,789,46222,171,7421,839,745

376,120,924

329,404,5883,769,600

333,174,188

42,946,736

29,078,341

339,223,723301,402,479

37,821,244

29,934,039






3.2.3 Interest rate riskCash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate repricing that may be undertaken.







3.2.3 Interest rate risk

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

as at december 31, 2008assetsCash and balances with Central BankDue from other banksTreasury billsLoans and advances to financial institutionsLoans and advances to customersInvestment securities:- available-for-sale - held-to-maturity Other assets

Total financial assets


Total financial liabilities

total interest repricing gap

as at december 31, 2007Total financial assetsTotal financial liabilities

total interest repricing gap

up to1 month

$

–4,113,4321,307,2324,575,878

14,710,552

9,431,682579,274

–

34,718,050

197,959,963–

197,959,963

(163,241,913)

47,165,269170,358,792

(123,193,523)

1-3months

$

––

13,706,97125,931,6501,142,268

–2,003,068

–

42,783,957

35,962,807–

35,962,807

6,821,150

23,940,77036,722,204

(12,781,434)

3-12months

$

–––

8,134,8337,666,349

–11,468,474

–

27,269,656

68,750,388–

68,750,388

(41,480,732)

16,084,51358,106,410

(42,021,897)

1-5years

$

––––

54,568,904

–5,072,844

–

59,641,748

2,077,130–

2,077,130

57,564,618

68,399,4081,731,181

66,668,227

over 5years

$

––

2,896,267–

170,382,154

–3,048,082

–

176,326,503

––

–

176,326,503

151,701,507–

151,701,507

non-interestbearing

$

29,208,566974,919

–––

3,357,780–

1,839,745

35,381,010

24,654,3003,769,600

28,423,900

31,932,25634,483,892

total$

29,208,5665,088,351

17,910,47038,642,361

248,470,227

12,789,46222,171,7421,839,745

376,120,924

329,404,5883,769,600

333,174,188

339,223,723301,402,479






3.2.3 Interest rate risk…continuedThe Bank’s fair value interest rate risk arises from debt securities classified as available for sale. At December 31, 2008 if market interest rates had been 100 basis points higher/lower with all variables held constant, equity for the year would have been $64,479 lower/$126,552 higher as a result of the decrease/increase in fair value of available for sale debt securities.

Cash flow interest rate risk arises from loans and advances to customers at variable rates. At December 31, 2008 if variable interest rates had been 100 basis points higher/lower with all other variables held constant, post-tax profit for the year would have been $1,552,262 higher/lower, mainly as a result of higher/lower interest income on variable rate loans.

3.3 Liquidity riskLiquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfill commitments to lend.

3.3.1 Liquidity risk management processThe Bank’s liquidity is managed and monitored by the Finance Department. This includes:

• Dailytoweeklymonitoringtoensurethatrequirementscanbemet.Thisincludesthereplenishmentoffundsastheymatureorareborrowedbycustomers.TheBankensuresthat sufficient funds are held in the one to thirty day maturity bucket to satisfy liquidity requirements.

• Maintainingaportfolioofmarketableassetsthatcaneasilybeliquidatedasprotectionagainstanyunforeseenliquidityproblems.Additionally,theinvestmentportfolioisdiversified by currency, geography, provider, product and term.

• Weeklymonitoringofthebalancesheetliquidityratiosagainstinternalandregulatoryrequirements.

• Managingtheconcentrationandprofileofdebtmaturities.

The Bank is looking to formalize arrangements with indigenous Banks in the Eastern Caribbean, to fund any liquidity needs that may arise

3.3.2 Funding approachSources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, provider, product and term.







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

Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, central bank balances, items in the course of collection and treasury and other eligible bills; loans and advances to financial institutions; and loans and advances to customers. In the normal course of business, a proportion of customer loans contractually repayable within one year will be extended. The Bank would also be able to meet unexpected net cash outflows by selling securities and accessing additional funding sources.



total liabilities(Contractual maturity dates)



total liabilities (Contractual maturity dates)

up to1 month$

222,635,9873,769,600

226,405,587

200,949,9793,892,705

204,842,684

1-3 months$

36,206,105–

36,206,105

36,722,204–

36,722,204

3-12 months$

70,534,136–

70,534,136

58,106,410–

58,106,410

1-5 years$

2,293,200–

2,293,200

1,843,587–

1,843,587

total$

331,669,4283,769,600

335,439,028

297,622,1803,892,705

301,514,885






3.3.4 off-balance sheet items(a) Loan commitmentsThe dates of the contractual amounts of the Bank’s off-balance sheet financial instruments that commit it to extend credit to customers and other facilities (Note 30), are summarised in the table below.

(b) Financial guarantees and other financial facilitiesFinancial guarantees (Note 30), are also included below based on the earliest contractual maturity date.

3.4 Fair values of financial assets and liabilitiesFair value amounts represent estimates of the consideration that would currently be agreed upon between knowledgeable willing parties who are under no compulsion to act and is best evidenced by a quoted market value, if one exists. The following methods and assumptions were used to estimate the fair value of financial instruments.

The fair values of cash resources, other assets and liabilities, cheques and other items in transit and due to other banks are assumed to approximate their carrying values due to their short term nature. The fair value of off balance sheet commitments are also assumed to approximate the amounts disclosed in Note 30 due to their short term nature.

(a) Loans and advances to customersLoans and advances are net of provisions for impairment. The estimated fair values of loans and advances represent the discounted amount of estimated future cash flow expected to be received. Expected cash flows are discounted at current market rate to determine fair value.

(b) Investment securitiesInvestment securities include only interest bearing assets held to maturity; assets classified as available for sale are measured at fair value. The fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit maturity and yield characteristics.

as at december 31, 2008Loan commitmentsGuarantees, acceptances and other financial facilities

total

as at december 31, 2007Loan commitments Guarantees, acceptances and other financial facilities

total

1 year$

15,965,251

3,707,216

19,672,467

24,551,521

3,692,334

28,243,855

1-5 years$

9,400,678

–

9,400,678

1,690,184

–

1,690,184

over 5 years$

5,196

–

5,196

–

–

–

total$

25,371,125

3,707,216

29,078,341

26,241,705

3,692,334

29,934,039







3.4 Fair values of financial assets and liabilities…continued(c) Due to customersThe estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is the amount repayable on demand. Deposits payable on a fixed date are at rates, which reflect market conditions and are assumed to have fair values which approximate carrying values.The table below summarises the carrying amounts and fair values of those financial assets and liabilities not presented on the Bank’s balance sheet at their fair value.

3.5 capital managementThe Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of balance sheets, are:• TocomplywiththecapitalrequirementssetbytheEasternCaribbeanCentralBank;• TosafeguardtheBank’sabilitytocontinueasagoingconcernsothatitcancontinuetoprovidereturnsforshareholdersandbenefitsforotherstakeholders;and• Tomaintainastrongcapitalbasetosupportthedevelopmentofitsbusiness.

Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management, employing techniques based on the guidelines developed by the East Caribbean Central Bank (‘the Authority’) for supervisory purposes. The required information is filed with the Authority on a quarterly basis.

The Authority requires each bank or banking group to: (a) hold the minimum level of the regulatory capital of $5,000,000 and (b) maintain a ratio of total regulatory capital to the risk-weighted asset (the ‘Basel ratio’) at or above the internationally agreed minimum of 8%.

Financial assets

Loans and advances to financial institutionsLoans and advances to customers:−Overdraft−Demandloans−Promissorynotes−Mortgages−Non-productiveloansandoverdraftsInvestment securities−Heldtomaturity

Financial liabilities

Due to customers:−Timedeposits−Savingsaccounts−Demandaccounts

2008$

38,642,361248,470,22711,454,873

101,076,2717,868,260

107,003,79521,067,028

22,171,742

329,404,588120,722,596173,451,58935,230,403

2008$

38,642,361250,853,26811,454,873

104,741,5558,445,030

107,215,74418,996,066

21,863,698

329,404,588120,722,596173,451,58935,230,403

2007$

32,171,428223,579,753

9,412,92597,625,8269,937,527

91,436,38815,167,087

19,276,037

297,509,774107,016,083158,846,64131,647,050

2007$

32,171,428232,843,067

9,412,925102,878,85210,595,06495,168,64714,787,579

18,170,791

297,509,774107,016,083158,846,64131,647,050

carryIng vaLue FaIr vaLue






3.5 capital management…continuedThe Bank’s regulatory capital as managed by management is divided into two tiers:

•Tier1capital:sharecapital,retainedearningsandreservescreatedbyappropriationsofretainedearnings.

•Tier2capital:qualifyingsubordinatedloancapital,collectiveimpairmentallowancesandunrealisedgainsarisingonthefairvaluationofequityinstrumentsheldasavailableforsale.

Therisk-weightedassetsaremeasuredbymeansofahierarchyof fiveriskweightsclassifiedaccordingto thenatureof−andreflectinganestimateofcredit,marketandotherrisksassociatedwith−eachassetandcounterparty,takingintoaccountanyeligiblecollateralorguarantees.Asimilartreatmentisadoptedforoff-balancesheetexposure,withsomeadjustmentsto reflect the more contingent nature of the potential losses.

The table below summarises the composition of regulatory capital and the ratios of the Bank for the years ended December 31, 2008 and 2007. During those two years, the Bank complied with all of the externally imposed capital requirements to which they are subject.

tier 1 capitalShare capitalStatutory reserveRetained earnings

total qualifying tier 1 capital

tier 2 capitalRevaluation reserve – available-for-sale investmentsRevaluation reserve – property, plant and equipment

total qualifying tier 2 capital

total regulatory capital

risk-weighted assets:On-balance sheetOff-balance sheet

total risk-weighted assets

Basel ratio

2008$

7,971,4547,971,454

37,539,794

53,482,702

493,7612,262,730

2,756,491

56,239,193

279,562,2925,815,668

285,377,960

19%

2007$

7,971,4547,971,454

30,255,220

46,198,128

689,0402,285,636

2,974,676

49,172,804

213,921,0005,987,000

219,908,000

21%






4 crItIcaL accountIng estImates, and judgements In appLyIng accountIng poLIcIes

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Impairment losses on loans and advancesThe Bank reviews its loan portfolio to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the statement of income, the Bank makes judgement as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net present value of estimated cash flows differs by +/-5%, the provision would be estimated $618,745 lower or $642,842 higher.

(b) Impairment of available-for-sale equity investmentsThe Bank determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. In making this judgment, the Bank evaluates among other factors, when there is evidence of deterioration in the financial health of the investee industry and sector performance, changes in technology and operational and financing cash flows. There were no declines in fair value below cost considered significant or prolonged as at December 31, 2008.

(c) Held-to-maturity investmentsThe Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than for the specific circumstances – for example, selling an insignificant amount close to maturity – it will reclassify the entire class as available-for-sale. The investments would therefore be measured at fair value not amortised cost. If the entire held-to-maturity investments are tainted, the fair value would decrease by $308,044 with a corresponding entry in the fair value reserve in equity.





5 cash and BaLances wIth centraL Bank

6 due From other Banks

7 treasury BILLs

Pursuant to Section 17 of the Banking Act of St. Lucia No.34 of 2006, the Bank is required to maintain in cash and deposits with the Central Bank reserve balances in relation to the deposit liabilities of the institution.

Mandatory reserve deposits are not available for use in the Bank’s day-to-day operations. The balances with the Central Bank are non-interest bearing.

The weighted average effective interest rate in respect of interest bearing deposits at December 31, 2008 was 1.47% (2007 – 2.49%).

Treasury bills are debt securities issued by the Government of Saint Lucia, Saint Vincent, Grenada and Antigua. The weighted average effective interest rate of bills in 2008 was 6.15% (2007 – 6.10%). All treasury bills have fixed interest rates.

Cash in handBalances with Central Bank other than mandatory reserve deposits

Included in cash and cash equivalents (Note 28)

Mandatory reserve deposits with Central Bank

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

Included in cash and cash equivalents (Note 28)

Treasury bills

2008$

7,991,8391,773,157

9,764,996

19,443,570

29,208,566

2008$

566,8384,521,513

5,088,351

2008$

17,910,470

2007$

8,081,378369,012

8,450,390

14,673,000

23,123,390

2007$

1,632,83210,950,345

12,583,177

2007$

15,477,411






8 Loans and advances to FInancIaL InstItutIons

9 Loans and advances to customers

Reverse repos

OverdraftDemand loansPromissory notesMortgagesNon-productive loans and overdrafts

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

CurrentNon-current

Total

2008$

38,642,361

2008$

11,566,613102,767,354

7,908,924108,057,26532,401,393

262,701,549

(14,231,322)

248,470,227

23,519,169224,951,058

248,470,227

2007$

32,171,428

2007$

9,428,77297,749,9909,954,171

91,454,63328,055,089

236,642,655

(13,062,902)

223,579,753

18,672,256204,907,497

223,579,753

Reverse repos are securities purchased under agreements to resell. The weighted average effective interest rate of the reverse repos in 2008 was 5.78% (2007 – 5.75%).

Allowance account for losses on loans and advances to financial institutions as at December 31, 2008 and 2007 was nil.

Loans and advances with fixed rates are $40,310,317 (2007 - $38,009,260) and those with variable rates are $222,391,232 (2007 - $198,633,395).

The weighted average effective interest rate on productive loans stated at amortised cost at December 31, 2008 was 9.8% (2007 - 10.14%) and productive overdraft stated at amortised cost was 12.25% (2007 - 12.37%).





10 provIsIon For ImpaIrment oF Loans and advances

11 Investment securItIes

Reconciliation of allowance account for losses on loans and advances by class is as follows:

Balance at january 1, 2008Provision for loan impairmentLoans written off during the year

at december 31, 2008

Balance at january 1, 2007Provision for loan impairmentLoans written off during the yearAmounts recovered during the year


available-for-saleEquity securities - at fair value:- Listed- UnlistedDebt securities:- Listed- Unlisted

Total securities: available-for-sale

held-to-maturityDebt securities - at amortised cost:- Listed- Unlisted

Total securities: held-to-maturity

CurrentNon-current

Total

2008$

912,5002,445,280

5,004,1924,427,490

12,789,462

10,078,08612,093,656

22,171,742

23,482,4988,120,926

31,603,424

2007$

2,180,6342,445,280

5,013,537985,690

10,625,141

10,093,3489,182,689

19,276,037

10,081,84615,193,418

25,275,264

overdraft$

15,847102,551

(6,658)

111,740

15,847–––

15,847

demand loans

$

124,1631,584,466

(17,546)

1,691,083

149,622–

(25,459)–

124,163

promissory notes

$

16,64445,582

(21,562)

40,664

24,386–

(7,742)–

16,644

mortgage$

18,2451,069,070

(33,845)

1,053,470

21,050–

(2,805)–

18,245

non-produc-tive loans

$

12,888,003(1,553,638)

–

11,334,365

12,722,658129,339

–36,006

12,888,003

total$

13,062,9021,248,031

(79,611)

14,231,322

12,933,563129,339(36,006)36,006

13,062,902






at january 1, 2008AdditionsDisposals (sale and redemption)Losses from changes in fair value


at january 1, 2007AdditionsDisposals (sale and redemption)Gains from changes in fair value


available for sale

$

10,625,1417,490,432

(5,130,832)(195,279)

12,789,462

6,082,51510,296,152(6,003,783)

250,257

10,625,141

held to maturity

$

19,276,03737,546,945

(34,651,240)–

22,171,742

29,379,39311,677,146

(21,780,502)–

19,276,037

11 Investment securItIes…continued

All debt securities have fixed interest rates.

The weighted average effective interest rate on securities held-to-maturity stated at amortised cost at December 31, 2008 was 6.91% (2007 - 6.55%).

The movement in available-for-sale and held-to-maturity financial asset during the year is as follows:





12 property, pLant and equIpment

In 2003, land and buildings were revalued by an independent valuer based on open market value. The valuation indicated that the market value was below the carrying amount of the respective assets in the books of the Bank. As a result, the carrying amounts were reduced by $309,290, with a corresponding reduction in the revaluation reserves in equity.

december 31, 2006

Cost or valuationAccumulated depreciation

Net book amount

year ended december 31, 2007

Opening net book amountAdditions in the yearDisposals in the yearDepreciation charge (Note 22)

Closing net book amount



Net book amount

year ended december 31, 2008

Opening net book amountAdditions in the yearDepreciation charge (Note 22)

Closing net book amount



net book amount

Land and Building$

7,844,355(1,731,051)

6,113,304

6,113,3042,939,356

(12,500)(151,128)

8,889,032

10,771,211(1,882,179)

8,889,032

8,889,03224,510

(156,244)

8,757,298

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

8,757,298

Furnitureand Fixtures

$

1,203,602(800,252)

403,350

403,35044,931

–(42,590)

405,691

1,248,533(842,842)

405,691

405,69140,258

(43,363)

402,586

1,288,791(886,205)

402,586

equipment$

7,910,375(5,867,663)

2,042,712

2,042,712714,534

(516)(489,933)

2,266,797

8,624,359(6,357,562)

2,266,797

2,266,7971,560,598(610,155)

3,217,240

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

3,217,240

motorvehicles

$

186,920(34,840)

152,080

152,080––

(30,417)

121,663

186,920(65,257)

121,663

121,663–

(24,332)

97,331

186,920(89,589)

97,331

total$

17,145,252(8,433,806)

8,711,446

8,711,4463,698,821

(13,016)(714,068)

11,683,183

20,831,023(9,147,840)

11,683,183

11,683,1831,625,366(834,094)

12,474,455

22,456,389(9,981,934)

12,474,455






CostAccumulated depreciation based on historical cost

Depreciated historical cost

Accounts receivableInventories of stationery and suppliesPrepayments

Time depositsSavings accountsDemand amounts

2008$

8,044,398(1,608,309)

6,436,089

2008$

1,839,745156,800350,483

2,347,028

2008$

120,722,596173,451,58935,230,403

329,404,588

2007$

8,019,878(1,507,610)

6,512,268

2007$

2,387,386113,266276,719

2,777,371

2007$

107,016,083158,846,64131,647,050

297,509,774

12 property, pLant and equIpment …continued

The historical cost of land and buildings are:

All deposits carry fixed interest rates.

The weighted average effective interest rate of customers’ deposits at December 31, 2008 was 3.56% (2007 - 3.58%).

13 other assets

14 due to customers




(expressed in Eastern Caribbean dollars)15 other LIaBILItIes

16 retIrement BeneFIt oBLIgatIons

pension benefitsThe amount recognised in the balance sheet at December 31, 2008 is determined as follows:

The movement in defined benefit obligations is as follows:

Manager’s cheques outstandingAccounts payable and accrued expensesDividends payable on ordinary shares

Present value of funded obligationsFair value of plan assets

Unrecognised actuarial loss

Liability in the balance sheet

At beginning of yearCurrent service costInterest costMembers’ contributionsActuarial (gain)/lossBenefits paid

At end of year

2008$

1,242,6542,199,478

327,468

3,769,600

2008$

2,378,000(2,613,000)

(235,000)974,000

739,000

2008$

2,536,000139,000152,00036,000

(468,000)(17,000)

2,378,000

2007$

1,820,5701,782,170

289,965

3,892,705

2007$

2,536,000(2,253,000)

283,000444,000

727,000

2007$

2,219,000141,000133,00031,00029,000

(17,000)

2,536,000






16 retIrement BeneFIt oBLIgatIons…continued

At beginning of yearExpected return on plan assetsActuarial gain/(loss)Bank’s contributionsMembers’ contributionsBenefits paid

At end of year

Current service costInterest costNet actuarial gains recognised in the yearExpected return on plan assets

Total included in staff costs (Note 24)

At beginning of yearPension expenseContributions paid

At end of year

Discount rateExpected return on plan assetsFuture salary increasesFuture pension increases

2008$

2,253,000139,00075,000

127,00036,000

(17,000)

2,613,000

2008$

139,000152,000(13,000)

(139,000)

139,000

2008$

727,000139,000

(127,000)

739,000

2008%

77

5.5–

2007$

1,993,000124,000(11,000)133,00031,000

(17,000)

2,253,000

2007$

141,000133,000(19,000)

(124,000)

131,000

2007$

729,000131,000

(133,000)

727,000

2007%

66

5.5–

The movement in fair value of plan assets for the year is as follows:

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

The actual return on plan assets was $214,000 (2007 - $113,000).

Movement in the liability recognised in the balance sheet:

The principal actuarial assumptions used were as follows:




(expressed in Eastern Caribbean dollars)16 retIrement BeneFIt oBLIgatIons…continued

17 deFerred Income tax

Plan assets allocation is as follows:

The expected rate of return on plan assets set by reference to estimated long-term returns on the plan’s strategic asset allocation. Allowance is made for some performance from the plan’s portfolio.

The Bank’s expected contributions for the year 2009 is estimated at $149,000.

The amount of pension plan for the year is as follows:

The deferred tax asset comprises of the following temporary differences:

Debt securitiesOthers

At beginning of yearStatement of income charge/(recovery) for the year (Note 25)

Deferred tax asset at end of year

Accelerated capital allowances

Defined benefit obligationFair value of plan assets

(Surplus)/deficit

Experience adjustment on plan liabilitiesExperience adjustment on plan assets

2008%

8614

100

2008$

(165,691)134,845

(30,846)

2008$

(102,820)

2008$

2,378,000(2,613,000)

(235,000)

(43,000)75,000

2007%

7525

100

2007$

272,553(438,244)

(165,691)

2007$

(552,304)

2007$

2,536,000(2,253,000)

283,000

29,000(11,000)






18 share capItaL

19 statutory reserve

20 net Interest Income

Authorized:5,000,000 ordinary shares

Issued and fully paid: At beginning of yearIssued during the year

At end of year

Interest and similar incomeLoans and advancesDeposits with banksInvestment securities

Interest expense and similar chargesTime depositsSavings depositsDemand deposits

Net interest income

no. of shares

4,999,966–

4,999,966

no. of shares

4,635,177364,789

4,999,966

2008$

24,427,04875,398

5,178,320

29,680,766

5,229,0805,487,550

46,206

10,762,836

18,917,930

2008$

7,971,454–

7,971,454

2007$

6,877,0881,094,366

7,971,454

2007$

21,415,093276,483

3,711,825

25,403,401

3,933,6195,064,629

47,730

9,045,978

16,357,423

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




(expressed in Eastern Caribbean dollars)21 other operatIng Income

22 other operatIng expenses

23 admInIstratIve expenses

Foreign exchangeCommission incomeFees incomeRental incomeDividend income

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

Other operating expensesPostage, telephone and telexesAudit and professional feesUtilitiesSecurity expensesEquipment expensesRepairs and maintenanceInsuranceDirectors’ fees and expensesStationeryBank licenceLegal feesRates and taxes

Total

2008$

1,747,4471,531,602

306,491420,00050,810

4,056,350

2008$

5,220,7354,245,162

834,094214,726

–

10,514,717

2008$

1,101,378634,408546,506438,276348,847291,304261,589192,143138,712137,484120,00018,89015,625

4,245,162

2007$

2,495,8282,039,334

698,934315,00096,840

5,645,936

2007$

4,637,4723,507,517

714,068171,050

(1,984)

9,028,123

2007$

915,305454,582334,256347,102231,163303,908197,409196,998187,290147,879120,00056,00015,625

3,507,517






24 staFF costs

25 Income tax expense

26 earnIngs per share

Salaries and wagesProfit sharing Other employee benefitsSocial security costsPension costs (Note 16)

CurrentTax under accrued in prior yearsDeferred (Note 17)

Profit before income tax

Tax calculated at the statutory tax rate of 30% (2007 - 30%)Tax effect of exempt incomeTax effect of expenses not deductible for tax purposesTax under accrued in prior yearTax effect of timing differences in existing buildings

2008$

3,774,844511,717637,465157,709139,000

5,220,735

2008$

1,861,115120,006134,845

2,115,966

2008$

11,211,532

3,363,460(1,411,583)

44,083120,006

–

2,115,966

2007$

3,456,935501,560400,037147,940131,000

4,637,472

2007$

2,744,711–

(438,244)

2,306,467

2007$

12,845,897

3,853,769(1,097,619)

27,701–

(477,384)

2,306,467

The average number of employees during the year was 94 (2007 - 90).

Tax on the Bank’s income before income tax differs from the theoretical amount that would arise using the statutory tax rate of 30% (2007 - 30%) as follows:

Basic and dilutedThe calculation of basic and diluted earnings per share is based on the net profit attributable to shareholders of $9,095,566 (2007 - $10,539,430) divided by the weighted average number of shares in issue ranking for dividend during the year of 4,999,966 (2007 - 4,852,385). notes to FInancIaL statements78




27 dIvIdends

29 reLated party transactIons

28 cash and cash equIvaLents

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

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

Loans outstanding at end of year

Interest income earned

2008$

9,764,9965,088,351

14,853,347

2008$

3,112,842(120,513)

2,992,329

237,312

2007$

8,450,39012,583,177

21,033,567

2007$

3,242,979(130,137)

3,112,842

241,484

In the financial statements for the year ended December 31, 2008, $1,999,986 was appropriated from retained earnings relating to the 2007 dividend. At a meeting on March 24, 2009, the Board of Directors declared a dividend of $0.40 per share in respect of 2008 amounting to a total of $1,999,986. This dividend will be accounted for in equity as an appropriation of retained earnings in the year ended December 31, 2009.

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. A number of banking transactions are entered into with related parties in the normal course of business. These transactions were carried out on commercial terms and conditions, at market rates.

The volume of related-party transactions, outstanding balances at the year-end and related expenses and income for the year are as follows:

Loan and advances to directors and other key management personnel

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






29 reLated party transactIons…continued

30 contIngent LIaBILItIes and commItments

Deposits at beginning of year Net deposits received during the year

Deposits outstanding at end of year

Interest expense on deposits

Salaries and other short-term benefitsPost and other employment benefits

Loan commitmentsGuarantees and standby letters of creditAcceptancesDocumentary and commercial letters of credit

2008$

920,046(210,068)

709,978

23,201

2008$

832,03664,885

896,921

2008$

25,371,1253,707,216

––

29,078,341

2007$

1,085,938(165,892)

920,046

31,882

2007$

791,664140,800

932,464

2007$

26,241,7053,358,086

30,230304,018

29,934,039

(a) Loans commitment, guarantee and other financial facilitiesAt December 31, 2008, the bank had the contractual amounts of the Bank’s off-balance sheet financial instruments that commit it to extend credit to customers, guarantee and other facilities as follow:

deposits from directors and other key management personnel

key management compensation and directors’ fees


Documents

1st National Bank Annual Report 09