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Finco’S $2.7m New Year Present For Investors

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Finance Corporation of the Bahamas (RBC FINCO) is giving its shareholders a New Year’s present by paying out a total $2.7 million dividend - the first such capital return to investors for three years.

Confirming that the total payout from the $0.10 per ordinary share dividend would be $2.7 million, a spokesperson for the BISX-listed mortgage provider’s 78 per cent majority shareholder, Royal Bank of Canada (RBC), said the last such payment was made in 2009.

The recession, and sharp increase in non-performing loans, saw FINCO’s Board of Directors decide not to pay a dividend for the past three years, in an effort to conserve capital.

This was despite the mortgage lender remaining in the black, although profits were reduced. The 2012 full year net income also implies that FINCO suffered a minor loss of around $200,000 during the fourth quarter.

For the financial year that ended on October 31, 2012, FINCO revealed that its net income had dropped 42 per cent year-over-year, down from $18.766 million in 2011 to $10.982 million.

Total assets remained flat at $974 million, compared to $973 million the year before.

RBC’s spokesperson declined to provide further details on FINCO’s 2012 financial performance despite Tribune Business submitting a list of detailed questions, saying merely that these would be disclosed in the annual report when it was published.

The only rationale for the January 3, 2013, ‘special dividend’ payment came in a newspaper notice, in which FINCO said its Board had taken note of both the financial performance for 2012 and its “strong capital ratios”.

There was no indication of whether FINCO will resume its previously-regular dividend payments to shareholders in 2013.

In an August 27 interview this year to discuss FINCO’s third quarter and first nine months results, Tanya McCartney, its managing director, said the mortgage provider was relying on existing borrowers to “carry us through” to the end of its 2013 financial year, having suffered a “bit of a spike” in accounts over 90 days past due.

She added that non-performing loans accounted for 11 per cent, or $98 million, of FINCO’s then-total $848 million loan portfolio.

“It’s going to be organic growth that’s going to carry us through this financial year and next, I believe,” Ms McCartney told Tribune Business, indicating that new borrowers were going to be few and far between.

As a result, FINCO is continuing to “leverage” its relationship with Royal Bank and other group entities, such as RoyalFidelity, in the search for new credit opportunities.

Ms McCartney also said then that the mortgage provider was aiming to close 2012 having generated 4 per cent loan growth for the year.

Pointing out that this would exceed the 2.5-2.7 per cent growth rate projected for the overall Bahamian economy, Ms McCartney added that the back office efficiencies generated by the Royal Bank ties had propelled FINCO’s efficiency ratio to a “very good” 26 per cent.

While FINCO’s non-performing loans, as a percentage of the total portfolio, were below the 15 per cent industry average, they continue to act as a drag on the BISX-listed mortgage lender’s results.

For the 2012 financial year’s third quarter, which closed at end-July, FINCO suffered a 41.8 per cent net income drop, the bottom line declining from $10.624 million to $6.18 million year-over-year.

This was entirely due to a more than $6.9 million reversal on loan loss impairments, FINCO having enjoyed a $4.118 million write-back in the 2011 third quarter compared to a $2.795 million provision taken this year.

The picture was the same for the nine months to end-July 2012, with FINCO’s net income down 28 per cent at $11.177 million compared to $15.533 million the year-before.

Again, a dramatic increase in loan loss provisioning - from $1.692 million in 2011 to $15.318 million for the first nine months this year - nullified improvements in all other lines on FINCO’s income statement.

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