The Tribune

• BISX-listed bank moves on pre-COVID pledge

• Targeting over $17m dividend for 2022 full year

• Eyes ‘very aggressive’ merchant services move

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fidelity Bank (Bahamas) will unveil plans for its long-awaited stock split at next month’s shareholder meeting, its chief executive revealed yesterday, as it eyes a total $17.5m dividend payout to investors in 2022

Gowon Bowe told Tribune Business the BISX-listed commercial bank is “comfortable” it can hit that target after a 19 percent year-over-year increase in first quarter profits left it “on track” to strike its $25m net income goal for the full year.

Speaking after Fidelity on Monday declared a 26 cents per share dividend, representing around $7.5m of the full year’s $17.5m target, Mr Bowe said the stock split - initially eyed for early 2020 prior to the pandemic - is “on the agenda” for the upcoming annual general meeting (AGM).

COVID-19’s arrival forced the institution to postpone its plans but, with Fidelity having now “stabilised operations” and proven its value, it plans to deliver on this promise for a stock that, on Monday, was trading at $15.80 per share.

While not confirming any details prior to their unveiling to minority shareholders, who collectively own a 25 percent equity stake in the bank, Mr Bowe indicated to this newspaper it was eyeing a split that would bring Fidelity’s share price down to the $3-$6 range - meaning it is looking at either a three-for-one or four-for-one split. This would involve issuing either two or three new shares for each existing one held by current shareholders.

Quick to point out that the planned stock split will not increase the value of shareholders’ existing investments, the Fidelity chief said: “Bear in mind a stick split does not create value. I know the sentiment is one of the perception that it makes the stock cheaper to acquire, meaning more affordable, but I try to stress that the value of the shares is based on cash flow, profitability and whatever the dividend is.

“The share price appreciation is going to be what the company achieves afterwards. With respect to the share split, COVID-19 interrupted the plan and we focused on creating stable operations so that shareholders could see the value, and now there is stability we will proceed to do what we committed to do.

“I caution that it will not create value. It puts the price per share in a range that market sentiment-wise is deemed to be more affordable... What we are looking at, and I am comfortable sharing, is that we’re looking at a price split that puts us in a median price range for the shares. Our analysis has shown that between the $3-$6 range is where the majority of [BISX-listed share prices- are, and so from that perspective we’re looking to do something very similar.”

Fidelity Bank (Bahamas) first revealed it was considering a stock split at its 2019 AGM, with Mr Bowe saying then it was eyeing a ‘three-to-one’ ratio meaning that shareholders would receive an additional two shares for each one they currently held. The timing, though, was delayed to early 2020 as the bank sought to complete the sale of its 50 percent interest in then-affiliate, Royal Fidelity Merchant Bank & Trust, resulting in the split running headlong into COVID-19.

Stock splits are nothing new to the Bahamian capital markets, with Commonwealth Bank, Cable Bahamas and FOCOL Holdings all BISX-listed companies that previously implemented this strategy. They are typically done to make a stock in demand more affordable to investors, as well as broadening liquidity, boosting trading volumes and expanding the shareholder base by attracting new investors.

Mr Bowe’s stock split confirmation follows Fidelity’s confirmation that it is paying out a 26 cents per share dividend, worth a collective $7.5m to shareholders, via the June or half-year declaration. The dividend announcement was made after the BISX-listed commercial bank enjoyed an almost-$1m profit increase for the three months to end-March 2022, with the bottom line expanding to $5.713m from $4.799m in the year-before period.

“It’s one that is actually about 13 percent above what we did last year in June,” the Fidelity chief added of the latest capital return to shareholders. “It’s almost in line with what we did last November, when we did 28 cents. We are comfortable, based on the results to-date, that we will exceed last year’s $22m in profits and are on track to achieve $25m.

“We know there are ups and downs. Our target this year was always $25m, with a stretch to $26m. We are progressing towards $25m. The $26m might be a stretch, but that is why we call it that. We try to maintain a 70 percent dividend distribution ratio, so where we’re aiming at $25m in profit, we’re looking at a $17.5m dividend. We’re doing $7.5m now and will then hold back to make sure we achieve that target, so it allows for expansion and an equitable return to investors.”

Fidelity Bank (Bahamas) improved 2022 first quarter profitability largely resulted from a reduction in non-performing loan provisions, which fell by 58.4 percent or more than $1.6m year-over-year, reducing to $1.157m compared to $2.779m in the prior year.

This more than compensated for the fall in net interest income, which measures by how much loan repayment interest exceeds what the bank pays on deposits (interest expense). This decreased narrowly in the 2022 first quarter, falling by 5.2 percent year-over-year to $12.596m, further highlighting the continued struggle Bahamian commercial banks face in growing their top-line amid a tough economic climate.

Mr Bowe, though, told Tribune Business that Fidelity Bank (Bahamas) is focused on growing loan book quality as opposed to simply expanding the size of its portfolio by extending credit to dubious borrowers. “We believe that last year’s provisioning numbers we will be able to clearly demonstrate are pandemic provisioning numbers,” he explained.

“We were effectively shedding the non-performing portfolio as part of an expansion exercise last year. The quality of the book increased, but the size of the book decreased. We are not growing for the sake of growing. We are growing where it makes sense. If it means some curtailment, and the overall numbers do shrink, so be it.” This trend was highlighted in the 2022 first quarter, when Fidelity Bank (Bahamas) loan book size dropped to $395.479m from $401.585m.

However, Mr Bowe said the commercial lender is focused on “very aggressively” growing its fee and commission income by targeting a segment of the market it has traditionally not concentrated on - the business community - via its ‘Click and Pay’ merchant services and card services.

Fidelity’s heritage lies in mortgage lending, but the majority of its loan portfolio now comprises consumer loans following a strategic switch implemented more than a decade ago. “We are looking at very aggressively entering the business merchant terminal and e-commerce segment, providing solutions, and the card business,” Mr Bowe said.

“We are looking at value-added fees and commissions, not for typical banking services that are the brunt of frustration in the country. We are not looking at traditional commissions and fees. They are value-added services to a different clientele. Traditionally, we have been more retail focused. We are looking at business customers and how to service them.”

Fidelity Bank (Bahamas) saw fee and commission income jump by 63.7 percent year-over-year in the 2022 first quarter, hitting $1.303m compared to just $795,793 in the same period last year.