National Commercial Bank Jamaica Limited (NCBJ) recorded an EPS of J$1.22 for the quarter ended December 31st, 2010 (Q1 FY2011), representing an eight per cent increase in earnings when compared to the J$1.13 reported in Q1 FY2010.

The Board of Directors has declared an interim dividend of J$0.45 per ordinary stock unit, payable on February 24, 2011 to stockholders on record as at February 11, 2011.

Interest Income was down 16.5 per cent year-on-year from J$9.4 billion to J$7.8 billion, while Interest Expense fell 38.7 per cent to J$2.4 billion. The Group’s overall Net Interest Income remained relatively flat for the year.

On a quarterly basis, NCBJ experienced growth in Net Interest Income as reflected by the improvement in its Net Interest Income margin from 65 per cent to 69 per cent. Year-on-Year this margin also improved from 58 per cent in 2009 to 69 per cent.

Higher income in areas of pension management, credit-related and card-related activities resulted in improved net fee and commission income, which grew 13.4 per cent year-on-year to J$1.6 billion.

This combined with improvement in Gains on Foreign Currency and Investment activities, Insurance Premium and Other Operating Income contributed to the 13.7 per cent growth in total Operating Income of the Group.

The Group’s Staff Costs, the largest component of expenses, was down five per cent for the year to J$2.3 billion. Provision for Credit Losses grew 9.2 per cent to $J260 million, while Depreciation and Amortisation expenses declined 1.5 per cent to J$139 million for the year.

NCBJ’s other operating expense was the main contributor to the Group’s growth in Total Expense. This component of expense grew 63.3 per cent to J$2.1 billion. “Increased benefits and changes in actuarial reserves as a result of the momentous amount of annuity business written in the period contributed to this increase.” Total Operating Expense increased 17.7 per cent to J$4.8 billion for the period.

Total Assets for the same period was up nine per cent to J$341.4 billion.

This increase was mainly attributable to the 24 per cent growth in Investment Securities to J$203.7 billion. NCBJ’s Loan Portfolio grew one per cent to J$88.6 billion as a result of loan growth in the Retail Banking Unit.

On the liabilities side, Total Liabilities grew 6.9 per cent for the period and this increase was primarily as a result of higher customer deposits. For the period Customer Deposits was 7.5 per cent higher.

The Risk-Based Capital ratio for NCBJ was 15.5 per cent as at December 31, 2010 (December 31, 2009-15.3 per cent) which exceeds the minimum requirement of 10 per cent stipulated by the Financial Services Commission.

In the wake of a lower interest rate environment NCBJ managed growth in Net Interest Income as well as in its non-interest income. Going forward, if the Group can maintain this momentum, Operating Revenue could remain stable or even grow in the following quarters.

It is particularly important that the Group maintain this growth in the non-interest income portion of Operating Revenue in a steadily declining interest rate environment.

Staff Cost increased by 15.81 per cent in 2010. For the period, the Group managed to reduce this cost by five per cent, an indication that the Group is focused on building growth if challenges may arise in growing its top line. However, this same effort can be put into reducing Other operating expenses, the second largest component of total expenses, as to ensure that cost is contained going forward.

Last year, the Group Loan portfolio declined and according to the group, the decline was due to a reduction in the rate of loan growth in its corporate unit.

For the first quarter of 2011, the reverse occurred as NCBJ managed marginal growth in its loan portfolio due to loan growth for the Retail Banking Unit. Continued loan growth can be beneficial to the group. The continued increase in customer deposits is an indication of Jamaican investors’ confidence in the bank.

A significant part of a company’s success depends on this confidence and NCBJ has this covered. In a nutshell, it’s important that the group focus on maintaining its growth performance using all its resources possible in this challenging economic environment.

From a valuation perspective, at the current price of TT$1.70, the stock is trading at a trailing P/E of five times. The stock has traded at an average P/E of 5.9 times over the last five years.

Traditionally NCBJ has had a high dividend payout ratio of around 30 per cent contributing to a healthy dividend yield of around six to seven per cent. Given the fair valuation of the stock, dividend yield and the continued commendable performance in a challenging environment, 2011 may well be another good year for Michael Lee Chin’s NCB.