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Fidelity posts large profit growth

A shift to a loan portfolio less concentrated in mortgages is paying off at Fidelity Bank (Bahamas), as the bank put up $3.18 million in net income for the first nine months of 2011, 666 percent ahead of the same point last year.

The bank has been working to not only grow its loan book, but to change the mix of loans in its portfolio, its Chief Executive Anwer Sunderji told Guardian Business yesterday.  Mortgages have traditionally accounted for about 90 percent the bank’s loan portfolio, he said, adding that their contribution has come down into the 70 percent range with more of the loan book now in higher yielding facilities.

“We have primarily been a mortgage bank, but we are increasing our footprint in the area of higher yielding loans, so we’re going up the yield curve a bit,” Sunderji said.

The higher yielding portfolio, and its 14 percent growth together helped produce a 27 percent increase in the top line – interest income to the September 30, 2011 third quarter end at $19.29 million, up from $15.18 million year-on-year.  Despite the spike, interest expense only grew 2.6 percent for the nine months, resulting in a 61 percent increase in net interest income and setting the income statement up for strong growth in the bottom line.

Total expenses also expanded by 15 percent or $1.48 million over the three months, with about a third or $459K of the increase coming from the provision for loan losses line item.  The provision was $1.14 million for the first nine months.

In a media release from Fidelity, Sunderji noted that non-performing loans were up to 8.4 percent of the loan book.  With loans and advances to customers at $242.7 million, that’s about $20 million in the non-performing classification. Sunderji said he would still like to see better performance in delinquent loans, and that the bank remained focused on reducing them.

Fidelity had $4.67 million in loan loss provisions at the end of its 2010 calender, with $1.14 million in additional provisions accumulated thus far this year.

On a rough calculation, that would bring Fidelity’s ratio of provisions to nonperforming loans to about 28 percent.  For comparison purposes, in its September 2011 Monthly Economic and Financial Developments report, the Central Bank of The Bahamas reported that banks had a ratio of provisions to non-performing loans of around 42.1 percent.

Guardian Business asked Sunderji how the company was managing such low provisions and non-performing loans through still challenging economic times.

“I think it’s a function of several things,” Sunderji said.  “The quality of the loan book will be impacted by how you write the loan when it is originated.” After that it was a matter of identifying and pursuing arrears more quickly, according to Sunderji.  He said how loans were restructured was also key.  Proper restructuring allowed for more achievable payment terms for clients.  He also noted that in the case of mortgages, which still comprise most of Fidelity’s portfolio, collections on delinquent loans were seldom a total loss.

At September 30, Fidelity’s total assets were $326.65 million, with total liabilities at $288.75 million.   Deposits from customer grew 18.7 percent year-on-year to $261.95 million. Total equity came in at $37.9 million.

Return on shareholder equity was 11.7 percent for the first three quarters, with return on assets coming in at 1.4%.

Fidelity is forecasting income will exceeded $4 million by its December 31 year-end.

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