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Why These Fundamentals Make First BanCorp’s (NYSE:FBP) More Attractive

As a small-cap finance stock with a market capitalisation of US$1.71b, the risk and profitability of First BanCorp (NYSE:FBP) are largely tied to the underlying economic growth of the region it operates in US. A bank’s cash flow is directly impacted by economic growth as it is the main driver of deposit levels and demand for loans which it profits from. After the Financial Crisis in 2008, a set of reforms called Basel III was created with the purpose of strengthening regulation, risk management and supervision in the banking sector. Basel III target banking regulations to improve the sector’s ability to absorb shocks resulting from economic stress which may expose financial institutions like First BanCorp to vulnerabilities. Its financial position may weaken in an adverse macro event such as political instability which is why it is crucial to understand how well the bank manages its risks. High liquidity and low leverage could position First BanCorp favourably at the face of macro headwinds. A way to measure this risk is to look at three leverage and liquidity metrics which I will take you through today. Check out our latest analysis for First BanCorp

NYSE:FBP Historical Debt June 23rd 18
NYSE:FBP Historical Debt June 23rd 18

Is FBP’s Leverage Level Appropriate?

Banks with low leverage are better positioned to weather adverse headwinds as they have less debt to pay off. A bank’s leverage may be thought of as the level of assets it owns compared to its own shareholders’ equity. While financial companies will always have some leverage for a sufficient capital buffer, First BanCorp’s leverage ratio of 6.5x is very safe and substantially below the maximum limit of 20x. This means the bank has a sensibly high level of equity compared to the level of debt it has taken on to maintain operations which places it in a strong position to pay back its debt in unforeseen circumstances. If the bank needs to firm up its capital cushion, it has ample headroom to increase its debt level without deteriorating its financial position.

How Should We Measure FBP’s Liquidity?

Handing Money Transparent
Handing Money Transparent

As I eluded to above, loans are relatively illiquid. It’s helpful to understand how much of this illiquid asset makes up the bank’s total asset. Normally, they should not exceed 70% of total assets, consistent with First BanCorp’s case with a ratio of 69.42%. At this level of loan, the bank has preserved a sensible level between maintaining liquidity and generating interest income from the loan.

Does FBP Have Liquidity Mismatch?

A way banks make money is by lending out its deposits as loans. Loans are generally fixed term which means they cannot be readily realized, however, customer deposits are liabilities which must be repaid on-demand and in short notice. The disparity between the immediacy of deposits compared to the illiquid nature of loans puts pressure on the bank’s financial position if an adverse event requires the bank to repay its depositors. Since First BanCorp’s loan to deposit ratio of 93.42% is higher than the appropriate level of 90%, this level places the bank in a relatively dangerous territory to go into negative discrepancy in liquidity. Basically, for $1 of deposits with the bank, it lends out over $ 0.9 which is imprudent.

Next Steps:

The bank’s liquidity and leverage ratios suggest its sensible operational risk management. This means it is well-placed to meet its financial obligations in the case of any adverse and unpredictable macro events. Today, we’ve only explored one aspect of First BanCorp. However, as a potential stock investment, there are many more fundamentals you need to consider. Below, I’ve compiled three pertinent factors you should look at:

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  1. Future Outlook: What are well-informed industry analysts predicting for FBP’s future growth? Take a look at our free research report of analyst consensus for FBP’s outlook.

  2. Valuation: What is FBP worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether FBP is currently mispriced by the market.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.