HIGHLIGHTS

FCI Q12024

• Earnings: Earnings Per Share 23.8% higher, from TT$0.28 to TT$0.35
• Performance Drivers:
  • Marginal Revenue Growth
  • Higher Interest Income
• Outlook:
  • Interest Rate Normalization
  • Continued Economic Recovery

• Rating: Maintained as OVERWEIGHT

SBTT Q12024

• Earnings: Earnings Per Share 3.0% higher, from $0.91 to $0.93
• Performance Drivers:
  • Increase Revenue Growth
  • Higher Non-Interest Expenses
• Outlook:
  • Post-IFRS 17 Adoption
  • Continued Economic Recovery

• Rating: Maintained at MARKETWEIGHT

This week we at Bourse review the performance of locally listed Canadian banking giants, FirstCaribbean International Bank Limited (FCI) and Scotiabank Trinidad and Tobago Limited (SBTT) for their respective three-months reporting periods ended January 31^st, 2024 (Q12024). SBTT’s revenue growth contributed to an overall increase in earnings, while FCI benefitted from a release of credit loss expense. Can both companies continue their positive momentum in the upcoming months? We discuss below.

FirstCaribbean International Bank Limited (FCI)

FirstCaribbean International Bank Limited (FCI), now rebranded ‘CIBC Caribbean’, reported Earnings Per Share of TT$0.35 for the three-month period ended January 31st, 2024 (Q12024), 23.8% higher compared to TT$0.28 recorded in Q12023.

Total Revenue increased 0.8%, from TT$1.22B in Q12023 to TT$1.23B in Q12024. Operating Expenses fell 1.5% to stand at TT$697.7M. FCI reported a release of Credit Loss Expense on Financial Assets amounting to TT$85.1M in Q12024 versus an expense of TT$6.9M in the prior period, attributable to a non-recurring recovery in the Bahamas and model assumption updates. Income Before Tax (PBT) stood at TT$614.3M, 22.4% higher than TT$501.8M in Q12023. Consequently, FCI reported an Income Tax Expense of TT$38.1M (16.6% higher). Overall, the Group reported Net Income Attributable to Equity Holders of TT$551.8M, up 23.8% from a prior TT$445.7M.

Revenue Stable

FCI’s Total Revenue increased marginally 0.8% to TT$1.23B in Q12024. According to FCI, revenue was supported by stabilization in US benchmark interest rates, which positively impacted FCI’s US dollar lending portfolio. Net Interest Income, the Group’s largest revenue contributor (Q12024: 72.0%) expanded 2.6% TT$883M. The Group’s loan portfolio increased 1.4% YoY to TT$45.0B in Q12024. Operating Income, which includes net fees and commission income, accounted for 28.0% of Total Revenue and decreased 3.7% to TT$344M.

PBT Advance

FCI’s Profit Before Tax (PBT) amounted to TT$614M in Q12024 relative to TT$502M in Q12023, expanding 22.4% Year over Year (YoY). FCI’s Corporate and Investment Banking (CIB) segment accounted for 78.8% of PBT with a reported TT$484M in Q12024, 18.0% higher YoY, owing a release of Credit Loss Expense on Financial Assets of TT$97.5M recorded in the segment. Personal & Business Banking (PBB) recorded a PBT of TT$92M in Q12024 advancing 126.2% compared to TT$41M in the prior comparable period.  Wealth Management recorded a decrease in PBT from TT$19M to TT$17M, down 11.9% in Q12024.

Divestitures and Rebranding

On January 15^th, 2024, FCI received regulatory approval of the sale of its assets in Curacao and St. Maarten to Orco Bank N.V, subject to buyer and other closing conditions. As of January 31^st, 2024 – its Curacao operations were classified as discontinued operations, however the St Maarten operations were excluded given uncertainties regarding the timing and completion of the sale. Additionally, the Bank’s decision to adopt a new legal name, ‘CIBC Caribbean Bank Limited’ aligns with the adoption of its parent CIBC brand, subjected to shareholder and regulatory approval and should occur in the upcoming months.

The Bourse View

FCI currently trades at a price of $7.04 at a trailing P/E ratio of 6.0 times, below the Banking Sector average of 13.9 times. The stock offers investors a trailing dividend yield of 4.7%, above the sector average of 3.8%. The Group announced an interim dividend of US$0.0125 (TT$0.08) per share payable to shareholders on April 25^th, 2024.

Projected lower benchmark USD rates possibly in the second half of the year could weigh on FCI’s Net Interest Income generation. On the basis of marginal revenue growth, attractive P/E multiples and USD dividends, Bourse maintains an OVERWEIGHT rating on FCI.

Scotiabank Trinidad and Tobago Limited (SBTT)

Scotiabank Trinidad and Tobago Limited (SBTT) reported Earnings per Share (EPS) of $0.93 for the three months ended January 31st, 2024 (Q12024), up 3.0%, relative to $0.91 reported in the prior comparable period (Q12023).

Net Interest Income improved 5.9% year on year to $346.4M.  Similarly, Other Income expanded 0.6% from $133.9M in Q12023 to $134.8M in Q12024, resulting in a 4.4% increase in Total Net Revenue, from a previous $461.0M to $481.2M. Non-Interest Expenses rose 10.8%, from $180.5M in Q12023 to $200M in Q12024.  Net Impairment Loss on Financial Assets amounted to $30.5M (Q12023: $22.9M), leading to a marginal decrease in Profit Before Taxation by 2.7%, from $257.6M in Q12023 to $250.7M in the current review period.  As a result, the Group’s operating efficiency ratio (expenses relative to revenue generation) increased from 44.1% to 47.9%. Income Tax Expense declined by 11.8% in the current fiscal quarter Q1, from $98M to $86.4M in Q12024. Overall, SBTT’s Profit After Taxation amounted to $164.3M, up 2.9% compared to $159.6M in Q12023.

Revenue Improves

SBTT’s Total Revenue has fluctuated during the first quarter over the past five reporting periods, with the company has recorded improved results in the current fiscal quarter. Net Interest Income, the Group’s largest revenue contributor (Q12024: 72.0%) rose by 5.9% year on year to $346.4M, driven by higher loan volumes on retail and commercial portfolios combined with increased yields on the Group’s investment portfolio.   Declines in trading revenues were offset by the bank’s insurance and asset management segment growth, leading to an increase in Other Income (28.0% of Total Revenue) by a modest 1% to settle at $135M.

Loans, Impairment Expenses Increase

SBTT’s Total Loan Portfolio stood at $19.9B or 5.7% higher in the current period, from a previous $18.8B in Q12024, reflecting consistent growth across the past five (5) year reporting periods.  Loans to Customers climbed 7.9% year on year to $19.2B, supported by improved credit quality of the banks’ portfolio.   Loans and advances to banks and related companies, meanwhile, decreased 47.8%, from $1.02B to $691.6M in Q12024. Net Impairment Losses to Total Loans was fairly stable at 0.15% in Q12024 relative to 0.12% in Q12022, benefitting from favorable lending practices and prudent management of the Groups loan portfolio.

The Bourse View

SBTT is currently priced at $72.89 and trades at a P/E ratio of 19.5 times, above the Banking Sector average of 13.9 times.  SBTT declared an interim dividend of $0.75 per share payable on April 18^th, 2024, to shareholders on record by March 28^th, 2024. The stock offers a dividend yield of 3.9%, in-line with the sector average of 3.8%.

With a dividend pay-out ratio of 76.1% and relatively resilient earnings, SBTT may represent a reasonably good opportunity for income-oriented investors. This is tempered, however, by above-average sector valuations. Accordingly, Bourse maintains a MARKETWEIGHT rating on SBTT. 

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