The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas International’s shareholders have seen a 60.7 per cent decline in net income available to them from the 2012 financial year, largely due to increases in preference share dividends and loan loss provisions.

Paul McWeeney, the bank’s managing director, was not in office yesterday and did not return Tribune Business’s calls, but the financial statements for the year to end-June 2012 indicated that the institution was continuing to weather the anemic economy reasonably well.

Net income was down 17.4 per cent year-over-year, dropping from $4.452 million to $3.677 million, while total comprehensive income (which includes gains from the sale of financial assets), was off 15.2 per cent at $3.826 million.

However, preference share dividends paid out by Bank of the Bahamas International increased by 80.7 per cent or $1 million year-over-year, growing from $1.363 million to $2.462 million.

As a result, ordinary (equity) shareholders’ share of Bank of the Bahamas’ International’s 2012 net income dropped from $3.09 million last year to $1.215 million this time around. Earnings per share (EPS) fell from $0.20 per share to $0.08 per share.

Elsewhere, apart from loan loss provisions, Bank of the Bahamas International’s income statement remained relatively flat in comparison with 2011.

The impact from the Central Bank of the Bahamas’ May 2011 decision to cut the Prime rate by 75 basis points evened itself out through the bank’s financial year.

While top-line interest income declined by just over $1 million, interest expense (paid on deposits) fell by more than $2 million. The end result was actually a modest 4 per cent rise in Bank of the Bahamas International’s net interest income to $37.482 million.

Net fee and commission income, and other operating income, essentially cancelled each other out in terms of increases/decreases. Bank of the Bahamas International’s total operating income rose by 3.5 per cent to $43.614 million, compared to $42.152 million in 2011.

However, credit (loan loss) expense increased year-over-year by 6.6 per cent, from $9.585 million to $10.215 million, as Bank of the Bahamas International continued to provide for the inability of borrowing clients to remain current - and the lengthy time taken to sell distressed assets, particularly properties.

By year-end, Bank of the Bahamas International had some $85.449 million worth of non-accrual loans on its books, accounting for 12.43 per cent of its total loan portfolio.

That represented an increase upon the previous year’s 11.26 per cent, or $75.292 million. As a percentage of total assets, non-accrual loans remained relatively stable, standing at 9.92 per cent - a slight rise from last year’s 9.14 per cent.

All told, Bank of the Bahamas International has made some $26.118 million in loan loss provisions, more than half of these - some $13.601 million - being placed against commercial/business loans.

The BISX-listed institution wrote-off some $2.974 million worth of loans against its “specific provision”, although it is still trying to recover these via collection efforts.

With those $26 million-plus in provisions, minus more than $10.5 million in accrued interest receivables, Bank of the Bahamas International’s $703.202 million in gross loans were shown as a net $687.623 million on the balance sheet.

Of its $493.304 million worth of loans neither past due or impaired, some $75.84 million have been classified as sub-standard and another $86.063 million placed on a ‘watch list’. The remaining $331.4 million were described as being a ‘satisfactory risk’.

Ernst & Young, the bank’s auditors, also flagged up an accounting treatment issue, noting that it had “understated its credit loss expense and overstated other operating income from [its] mortgage indemnity product” in its 2011 financial statements.

These errors, the accounts said, had been corrected this time around. Instead of treating the mortgage indemnity product as another liability, and recognising it as ‘other operating income’, Bank of the Bahamas International is now treating it as a loan commitment fee and amortising it over the related loan’s life.

As a result, its deferred loan fees rose by $328,544 for the 2011 financial year, while net income fell by $115,811.

And, while previously treating the mortgage indemnity as collateral when assessing shortfalls between outstanding loan amounts and security, Bank of the Bahamas International had understated credit loss expenses by $453,715 in 2011. The change meant net loans and advances to customers decreased by this same amount.

Elsewhere, Bank of the Bahamas International’s accounts also revealed that it redeemed some $9.5 million worth of its $20 million in mortgage-backed bonds after the June 30, 2012, year-end.

And, in a bid to bolster its stock price and deliver increased shareholder value, Bank of the Bahamas International repurchased 8,810 of its own shares - as part of a share buyback programme - for $58,356 between July 2011 and end-June 2012. Under the plan, it can buy back up to $750,000 worth of its ordinary shares.