Interim Report

Commentary on the unaudited results for the period ended 30 June 2011

Following an offer made to shareholders on 31 January 2011 to increase the bank’s qualifying capital by means of a non-renounceable rights issue, the bank’s share capital and share premium account was increased by R105,0 million on 31 March 2011. The effect of the rights issue was to increase the bank’s capital adequacy ratio which, at 30 June 2011, stood at 14,0%.

The intensification in the demand for credit which was experienced in the third and fourth quarters of 2010 did not manifest itself in the current year. Consequently, the bank’s advances book grew by a moderate 4,6% (R88,0 million) for the six months ended 30 June 2011. Nonetheless, the bank achieved an overall advances growth of 23,8% for the 12 months since June 2010. As a result of the foregoing, combined with the generally lower level of mark-ups that prevailed during the period under review, the bank’s income earned from advances grew by 16,9% when compared against that earned in the previous year’s corresponding period.

Even though the growth in the deposit book was relatively slow at 4,0%, or R102,4 million for the six months ended 30 June 2011, it exceeded, albeit marginally, the advances growth in monetary terms. This, taken together with the increased funding generated from the rights issue, enabled the bank to maintain a higher average equity finance book for the six months ended 30 June 2011 when compared against the previous year’s corresponding period. However, the lower yields generated by the equity finance book led to a net decrease of R5,4 million in income earned from that source.

As a result of the aforesaid and after allowing for profits shared with and paid to depositors, the bank’s net income before impairment for credit losses increased by 13,4% to R51,1 million. The improvement in impairment for credit losses and in fee and commission income contributed to increase the bank’s net income from operations by R9,8 million, or 19,5%, to R60,2 million.

The increase in operating expenditure was caused mainly by the higher computer operating costs and depreciation charge associated with the commissioning of a new banking system in August 2010.

Interim Report - 6 Months Ending 30 June 2011

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