Sep 2006 Financial News

FCIB Releases Nine Months Results

Sep 12, 2006

All figures quoted in USD unless otherwise stated

For the Nine Months Ended July 31, 2006 First Caribbean International Bank (FCIB) reported a Diluted Earnings Per Share (EPS) of 8.4 cents. This is the result of a consistent EPS of 2.8 cents in all three quarters for the 2006 financial year. The comparable EPS for the nine months ended July 31, 2005 was 14.5 cents, but included an exceptional gain of $117 million. Excluding the gain, the EPS for the comparable period in 2005 would have been 6.9 cents, which represents an improvement of 21.74 %. Q3 2005 on Q3 2006, there was an increase of 27.27 % in EPS (2.2 cents vs. 2.8 cents).

Although, the Bank’s Interest Expenses continue to rise considerably, the revenue from its Interest Income (driven principally by increases in loan balances) was more than enough to offset this increase. As such, Net Interest Income for the nine month period amounted to $272.99 million an increase of $37.48 million or 15.92%. Where, Interest Income, which continues to be the Bank’s main revenue driver, amounted to $461.74 million, 29.73% higher than the corresponding period. Interest Expense ended the nine months at $188.75 million, up 56.75%. However, it should be noted, that Interest Expenses for the period ended July 31, 2005 only included four and a half months of interest expenses on debt securities which were issued in March 2005 to replace the Bank’s preference shares.

Operating Income for the nine months stood at $99.93 million and if compared to the Operating Income adjusted for the exceptional gain in 2005, increased by 12.73% or $11.29 million. Q3 2005 on Q3 2006, this figure increased by an exceptional 32.56% or $8.33 million. Additionally, the comparative period ended July 31, 2005 includes income based on an agreement whereby FCIB would receive $10 million a year as an incentive to keep deposit placements with Barclays Capital. This agreement expired on December 31, 2005 and is therefore not included in the period under review.

Operating Expenses increased by 7.59% on the nine months and 12.77% for the three months (2005/2006). The Chairman has attributed part of this increase to the acquisition in Curacao. He has also pointed out that the Efficiency Ratio of the Bank, that is, the ratio of Costs to Revenues was 57.44%, which represented a marked improvement over the prior year of 61.42% (excluding one off gain on RBL shares).

Loan Loss Expense increased by a significant 54.71% on the comparable nine month period in 2005, from $4.91 million to $7.60 million. The percentage increase was even higher in the third quarter comparison, which showed a change of 133.59% or $1.54 million.

Income before Tax and Minority Interests for the nine months amounted to $149.62 million an increase of 24.54 % on the comparable period (excluding one off gain). The Effective Tax Rate for the period ended July 31, 2006 was 11.37% while the comparative Tax Rate in 2005 was 9.62%. After deducting taxes and minority interests, the Bank’s Net Income for the period was $128.31 million, which excluding the gain on sale of RBL shares, represents an increase of 22.37%, nine months on nine months.

The Asset Portfolio of FCIB has grown by 12.46% from its year end in 2005 , this is mainly due to the acquisition of ABN AMRO Bank Curacao N.V. and its subsidiary ABN AMRO Asset Management (Curacao) N.V; in addition to the increase in Loans and Advances of $0.8 billion to $5.4 billion.

In accordance with International Financial Reporting Standards (IFRS) 3 (Business Combinations) and International Accounting Standards (IAS) 38 (Intangible Assets), the Bank is required to assess the fair value of any Intangible Assets from acquisitions and their economic lives. As a result, during the quarter, the Group concluded its assessment of the assets of the ABN AMRO Offshore and Wealth Management business in Curacao. This assessment resulted in the identification of specific intangible assets related to customer relationships, with a remaining estimated economic life of six years. This had the effect of a year to date amortization charge on Intangible Assets of $1.48 million.

Intangible Assets for the period therefore included goodwill in the amount of $334 million and customer relationship intangible assets in the amount of $17 million (ABN AMRO).

FCIB continues to maintain a large Cash position, with the nine month balance closing at $2.87 billion. As stated in the previous report, this is a great resource from which the loan book can be enhanced.

On June 28, 2006, Barclays and CIBC executed a purchase and sale agreement with respect to the sale by Barclays of its 43.7% interest in FCIB. FCIB is currently working with Regulatory bodies to obtain all required approvals and it is expected that such approvals will be received in the near term. Additionally, on August 9, 2006, the Special Committee of the Board met to continue its ongoing review of the transaction. The Chairman has advised that shareholders will receive the appropriate documentation in due course in respect of the transaction.

FCIB continues to perform consistently well and should continue to deliver strong earnings in the last quarter of the year. Thus, we maintain our Forecasted EPS of TT$0.70 which at the current price of TT$10.76 translates into a P/E multiple of 15.37 times. The shares of FCIB have traditionally traded at 20+ times (2003-2005, based on core- operational results) and for the current year have traded in the band of 16 to 19 times. Thus, based on this analysis, we would recommend a BUY on this share at the price of $10.76. Although, it should be noted that supply would be very thin at this price.


Gia Singh
WISE Research Team