17-MAY-18 – Banco Latinoamericano (BLX:BUY) Net income in Q1:18 fell far short of our estimate attributable to lower interest earning assets, skewed towards lower yielding trade finance loans, and a lower margin driven by rapidly growing funding costs. . However, the company will eventually recover, and we maintain our BUY rating while lowering our price target to $33.30.

Q1:18 HIGHLIGHTS

  • BLX reported a 22.8% decline in net interest income to $26.6 million in Q1:18 from $34.4 million in Q1:17, attributable to lower average interest earning assets combined with higher costs of funds. Net interest margin (NIM) declined to 1.68% in Q1:18 versus 1.78% in Q4:17, and down a lot from the 2.00% earned in Q1:17. Partially offsetting this decline, non-interest income rose to $4.2 million vs. $3.9 million.
  • Operating costs were up sharply, to $14.3 million vs. $11.2 million last year. The driver of expense growth was variable compensation which was $4.8 million this quarter vs. $1.3 million in the prior-year quarter.
  • Net profit fell 38.5% to $14.5 million or $0.37 per diluted share in Q1:18 from $23.5 million or $0.60 per diluted share in Q1:17.
  • Net impairment losses were lower YoY at $1.9 vs. $3.7 million, as the company has put its most recent problems behind it.
  • Gross loans outstanding at end of quarter decreased 9.0% YoY to $5.23 billion and decreased 5.1% sequentially. However, average loans for the quarter were up 2.3% sequentially.
  • We’ve lowered our EPS estimate for FY:18 and our price target to $33.50 from $35.60 while maintaining our BUY rating.

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