Bladex Reports Profit Growth, Lower Expenses in Second Quarter

By Jason HallMarketsFool.com

Bladex, which focuses on lending to banks and major corporations, took a step forward in the second quarter. Image source: Getty Images.

Latin American bankBanco Latinoamericano de Comercio Exterior(NYSE: BLX), or Bladex, announced second-quarter financial results on July 26, reporting higher revenue, a big jump in profits versus the year-ago quarter, and improvements in its expenses and efficiency ratios. Here's a closer look at the multinational Latin American bank's results.

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The numbers

Metric Q2 2016 Q2 2015 Change
Net income $22.3 million $13.5million 65.2%
Earnings per share $0.60 $0.40 62.9%
Operating expenses $10.1million $12.7million -20.5%

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Data source: Bladex.

Keys to the quarter

They key drivers behind Bladex's financial results were as follows:

  • Net interest income of $38.2 million was up $3.4 million, or 9.8%, from last year.
  • Net "other income," which includes fees, commissions, foreign currency exchange, and gains or losses on financial instruments, was $6.2 million, up $4.9 million, or 377%, from last year.
  • Total expenses were slightly down from last year, largely due to a 34% decline in salary and other employee expenses. The company took $2 million more in impairments from expected credit losses this quarter than in the year-ago period.
  • Bladex's bread-and-butter commercial business reported strong results in the quarter, with segment profit up 30%, to $20.4 million.
  • Average lending balances were down in the quarter, but net interest income was up, offsetting the impact of lower balances.
  • Operating expenses were down 26% in the segment, mainly due to lower performance-based compensation expense.
  • The treasury segment -- a mechanism to generate funding and provide liquidity for the bank -- produced a $1.9 million profit, versus a $2.2 million loss one year ago.
  • Deposit balances stood at $3.2 billion at quarter-end, the same as one year ago and slightly up from $3.1 billion at the beginning of the quarter.

What management said

CEO Rubens Amaral commented on Bladex's sequential earnings decline and the underlying strength of the bank's core business:

Amaral also addressed the cause of higher impairment-related expenses in the quarter, specifying that they were not part of a bigger trend, but isolated in nature:

CFO Christopher Schech highlighted Brazil's importance as a huge part of Latin America's economy, but he also cautioned about the risk it represents and explained why Bladex has actively "de-risked" there:

Schech elaborated on how the de-risking in Brazil should allow Bladex to ramp up its growth efforts in the second half of the year and achieve its full-year stated growth goals:

Looking ahead

Bladex had a few speed bumps in the quarter with the loan loss provisions, though it sounds like those are specific to individual companies and not indicative of a trend related to a particular region or business segment. Furthermore, the year-over-year profit increase was a product of falling costs and larger income generation, while the sequential decline was related to the aforementioned loan loss provisions.

Factor in the company's steps to reduce its exposure to Brazil, and Bladex seems poised to take advantage of growth opportunities outside of that country for now. Eventually Brazil will get back on its feet, but for now, Bladex management is looking at lower-risk lending in more stable markets. Considering how critically important risk management is in the banking world, that strategy probably bodes well for both the short- and long-term prospects for Bladex investors.

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Jason Hall has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Bladex. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.