By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

BANK of the Bahamas (BOB) “amazed” its shareholders yesterday by declaring its first quarterly profit in almost five years, following its $162 million summer ‘bail-out’.

The stricken BISX-listed institution produced $838,261 in total comprehensive income for the three months to end-September 2017, indicating that the shedding of many toxic commercial loans is already paying off.

A 63.7 per cent year-over-year reduction in loan loss provisions, from $4.387 million to $1.59 million, was largely responsible for BOB’s first quarter ‘in the black’ since the three months to end-December 2012.

The near-$3 million provisioning decline, produced by the ‘toxic’ credit transfer to the Bahamas Resolve ‘bail-out’ vehicle, helped drive a $4.217 million turnaround from the $3.379 million loss that BOB endured for the three months to end-September 2016 

Some of BOB’s minority investors, unaware of the bank’s latest results release, were left stunned yesterday when Tribune Business informed them that the first quarter for its 2018 financial year had been a profitable one. Treating it as a modest bit of good news, they expressed hope this signalled the start of a long road to recovery and consistent net income performances.

“That’s incredible if you say it is,” Mike Lightbourn, Coldwell Banker Lightbourn Realty’s president, replied when informed of the first quarter profit. “I’m amazed and I’m delighted. They’re getting rid of the bad loans.”

Mr Lightbourn, who had written-off his BOB investment in common with many of the other 3,000 minority shareholders, said investors are now watching to see whether the first quarter performance can be sustained.

“We have to wait and see, but they’re trying to run the bank like it should be run,” he told Tribune Business. “I’m hoping it’s headed in the right direction. We’re in a tough economy, but getting all the commercial loans off their books will help enormously.”

Mr Lightbourn, though, conceded that minority shareholders will have to be in it for the long haul if their investments are to regain previous value. “It’s possible down the road,” he said, “but I don’t know what will happen in the meantime.

“It’s a disgrace, and I’m very disappointed, that nobody has been held accountable for what has happened to Bank of the Bahamas. That’s a polite way of putting it.”

Another BOB shareholder, speaking on condition of anonymity, said the BISX-listed institution’s return to profitability suggested that the new Board, headed by former PricewaterhouseCoopers (PwC) accountant and partner, Wayne Aranha, was already having an impact.

“I think they are obviously on the right track and have a good set of directors there right now,” the shareholder said. “Wayne Aranha is a very smart guy, and he’s going to take whatever steps are needed to turn the bank around.

“All the shareholders, especially those that turned up for the annual general meeting (AGM), have faith in his approach. He’s a very no-nonsense and methodical guy, and we have confidence he’s going to do everything in his power to turn the bank around.

“Once people see things are beginning to turn around, confidence will increase, depositors will start going there, and all-around faith in the bank will improve.”

BOB’s end-September 2017 balance sheet shows the summer bail-out’s full impact, with some $113 million written back in as ‘special retained earnings’ as a result of the toxic asset transfer to Bahamas Resolve.

That sum represents the difference between the $162 million gross value assigned to the transferred loans, and their much smaller ‘net book value’ of $49 million. The ‘write back’s’ end result was that BOB’s ‘special retained earnings’ jumped from $54.623 million to $167.26 million, the former figure representing what was ‘gained’ from the first Bahamas Resolve bail-out in October 2014.

The ‘special retained earnings’ now exceed BOB’s $139.841 million in accumulated losses at end-September 2017, and were almost entirely responsible for the bank’s net equity increasing from $63.908 million to $177.384 million within three months.

The Bahamas Resolve transaction also brought BOB’s regulatory capital ratios immediately into line with the Central Bank’s requirements, with some now triple the latter’s minimum stipulations. 

The balance sheet, though, also reminds how BOB would be insolvent without the $211.825 million in government bonds that were injected to fill its financial holes. Stripping this out would leave BOB with assets of $641 million compared to total liabilities of $674.71 million.

Some $50 million of the total $261.825 million in bonds injected to BOB have already been redeemed, a move likely responsible for the bank’s cash balances growing from $97.97 million to $148.337 million quarter-over-quarter.

BOB’s unaudited financial statements for the quarter to end-September 2017 also disclose how its total commercial loan book has decreased by 54 per cent year-over-year as a result of the Bahamas Resolve transfer.

Outstanding commercial mortgage credit fell by 75.8 per cent, or more than three-quarters, from $64.791 million to $15.667 million, while other commercial loans dropped from $178.237 million to $96.316 million - a fall of 46 per cent.

The figures show how BOB’s consistently heavily losses since 2014 have stemmed largely from ‘toxic’ commercial loans, and raise fresh questions as to why the Christie administration did not shift more non-performing credit to Bahamas Resolve during its term in office.

BOB’s push into consumer lending, following the likes of Commonwealth Bank and Fidelity Bank (Bahamas), is also evident from the portfolio’s 16.9 per cent year-over-year growth - from $53.673 million to $62.745 million.

The bank’s gross interest income for the first quarter was essentially flat year-over-year at $9.105 million, but margins and net interest income jumped 7.5 per cent to $6.686 million due to lower deposit rates.

Higher net fee and commission income, which rose 19.9 per cent to $1.847 million, and growth in other income saw operating rise by just over $1 million to $9.439 million. The decline in loan loss provisions resulted in net operating income growing by 96 per cent - from $3.998 million to $7.849 million.

The near-doubling in operating income ensured BOB was able to more than cover its expenses, which dropped by 4.3 per cent, for the first time in almost five years.