By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Although still carrying more than $100 million worth of ‘bad’ loans, FINCO’s almost 10-fold net income increase for 2015 has given shareholders hope that better days lie ahead.
The BISX-listed mortgage lender, which is 75 per cent majority owned by Royal Bank of Canada (RBC), produced much improved results that were driven by its consolidation strategy and a near-$20 million reduction in loan loss provisions year-over-year.
However, there is no sign yet that dividend payments to investors will resume in 2016, despite net and comprehensive income for the 12 months to end-October 2015 surging to $25.606 million.
For FINCO’s performance continues to be weighed down by some $102.51 million worth of impaired loans, a sum equivalent to 11.52 per cent of the total $890.036 million in credit advanced to borrowers.
But those impaired loans, which are 90 days or more past due, declined by $15 million or 12.8 per cent year-over-year.
As a percentage of FINCO’s total loan portfolio, they also fell from 12.75 per cent at end-October 2014 to 11.52 per cent this time around.
“The allowance for impairment losses represents 6.42 per cent (7.61 per cent in 2014) of the total loans and advances portfolio, and 55.75 per cent (59.66 per cent last year) of the total impaired loans,” FINCO’s 2015 financial statements, released late last week, said.
Loan loss provisions fell by 55.1 per cent year-over-year to $15.967 million, compared to $35.595 million the year before.
The near-$20 million reduction drove the majority of FINCO’s $23 million bottom line improvement, as net income jumped from $2.603 million to $25.606 million.
Despite the reduction in loan loss provisions, FINCO’s Board and management appear reluctant to conclude that this is the start of a trend - hence the decision to conserve capital by not paying dividends.
For in addition to the $102.51 million that is non-performing, FINCO had another $56 million-plus worth of credit that was between 31-89 days past due at the October 31, 2015, year-end.
The mortgage lender’s write-offs quadrupled in 2015, going from $8.145 million the year before to $33.739 million. Recoveries, though, rose from $6.591 million to $9.18 million.
With total income flat, at $53.552 million compared to $52.974 million for the year to end-October 2014, the other key driver behind FINCO’s improved financials was a 19 per cent year-over-year drop in operating expenses.
These fell from $14.776 million the year before to $11.979 million, with the decline largely stemming from a drop in ‘other operating expenses’.
These fell from $8.188 million to $5.86 million year-over-year, with FINCO’s operating lease payments also falling by 36.8 per cent - from $1.002 million to $633,085.
These figures suggest that FINCO’s consolidation strategy, involving the integration and merger of its systems/operations with those of its Royal Bank parent, are starting to pay dividends - at least from a financial viewpoint, if not customer service (given the long queues in branches.
The latest move in this strategy was the consolidation of FINCO’s Palmdale branch with its nearby RBC counterpart, which took place on November 2 last year.
The initiative, begun in 2014, to merge FINCO’s operations and physical locations with those of Royal Bank is a bid to cut costs and generate efficiencies in a difficult trading and economic environment.
This has already led to the closure of FINCO’s former main branch in the Bahamas Financial Centre on Shirley & Charlotte Streets, and its consolidation with the main Royal Bank branch on Bay Street.
FINCO’s Prince Charles Drive-based mortgage centre was also merged with the Royal Bank branch there, with services also launched from their shared affiliates on Carmichael Road and in Freeport last year.
Explaining the Palmdale move, Nathaniel Beneby, RBC’s country head, wrote: “Like all businesses, we constantly evaluate our operations to ensure that we match our service capabilities with the needs of customers.
“We believe the co-location of RBC FINCO Palmdale to RBC Royal Bank Palmdale branch, and combined over-the-counter services, will position us to provide more convenient and better service to our clients, and create greater efficiencies within our operations.
“We have regularly made adjustments in our branch network to ensure operational efficiencies and the long-term sustainability of our operations here in the Bahamas.”
And, suggesting that the Palmdale consolidation may be far from the last, FINCO’s 2015 annual financials said: “The company continues to pursue opportunities for outsourcing with related parties to improve operational efficiency.”
The mortgage lender now has just four branches in New Providence and one in Freeport.
On the balance sheet side, net loans and customer deposits both shrank. The latter, though, suffered a greater decline, falling by 10.4 per cent from $786.74 million to $703.164 million year-over-year.
Sums due to FINCO’s RBC affiliates rose by 165 per cent, growing from $40.972 million to $108.632 million, due largely to an increase in its clearing accounts.
The amount paid to RBC (Bahamas) in technical service and license agreements also grew year-over-year, from $2.611 million to $3.758 million.
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