Carfinco Announces 2014 Second Quarter Results

TSX: CFN

Readers are referred to the cautionary notes regarding Forward-Looking Statements and Non-IFRS Financial Measures at the end of this release.  All figures are expressed in Canadian dollars.

EDMONTON, Aug. 12, 2014 /CNW/ - Carfinco Financial Group Inc. ("Carfinco" or the "Company") announces financial results for the second quarter ended June 30, 2014. 

The second quarter of 2014 produced record loan originations of $54.0 million, increasing 19.6% from the previous quarter's loan originations of $45.2 million. The $54.0 million also represents a year over year increase of 26.9% from the $42.6 million in loan originations for the second quarter of 2013. The significant increase in loan originations are a result of increased focus on customer service for our vehicle dealership partners as well as expanding our financing products available for vehicle dealerships to offer to their customers.  The increase over the prior year comparable period also includes the addition of our US operations.

HIGHLIGHTS FOR THE SECOND QUARTER OF 2014

  • Earnings per share for the quarter of 20 cents;
  • Dividends to shareholders of 12.0 cents per share;
  • Return on shareholders' equity of 30.1%;
  • Return on portfolio assets of 8.7%;
  • Revenue of $24.3 million;
  • Record loan originations of $54.0 million;
  • Record finance receivables of $252.1 million; and
  • 31+ day delinquent accounts for the second quarter of 2014 were 3.5%.

Net earnings of the Company were $5.4 million, which remains consistent with the $5.4 million for the first quarter of 2014. A significant difference to note is the addition of $725,000 to the allowance for credit losses during the second quarter of 2014 versus $150,000 during the first quarter of 2014.  This increased allowance was a direct result of portfolio growth achieved in the current quarter as compared to the first quarter of 2014.

The 2014 year to date dividend of 24.0 cents represents a pay-out ratio of 43.4% of distributable cash versus last year's comparable year to date dividend of 24.0 cents equating to a pay-out ratio of 46.7% of distributable cash.

Revenues of $24.3 million for the second quarter of 2014 represented an increase of $0.3 million from the revenues of $24.0 million for the first quarter of 2014 and an increase of $4.8 million from revenues of $19.5 million earned in the second quarter of 2013.  Revenues have increased at a slower rate than portfolio growth due to an overall shift in portfolio mix to the Company's tiered finance programs which generally cater to higher credit quality consumers and have lower interest rates and lower purchase discounts.  In addition, the Company has had a reduction in servicing fee income from servicing a portfolio of loans of behalf of a third party over the prior year as that portfolio has declined in size.

With record loan originations of $54.0 million, Carfinco was able to achieve finance receivable portfolio growth of $6.9 million in the quarter with finance receivables of $252.1 million. This represents a $57.1 million, or 29.3%, increase from the second quarter of 2013. This increase includes the acquisition of Persian Acceptance Corp. in the third quarter of 2013. 

Carfinco continuously evaluates the competitiveness of our credit policies and programs, as we strive to focus more heavily on the long-term strength of our finance receivable portfolio and future earnings growth potential, rather than short-term gains. We have seen the long-term value of this strategy in the past and expect its continued success going forward. Carfinco also continues to add financing programs that are beneficial to both its dealership group and to its business strategy, such as a loyalty program designed to retain its valued customers who have established a positive payment history with Carfinco.

During the quarter, the annualized loss rate on the finance receivables decreased to 14.6% from 15.2% in the first quarter of 2014, and increased year over year from 13.0% in the second quarter of 2013. Historically, the annualized loss rate has ranged from as low as the 11.2% in the second quarter of fiscal 2012 to as high as 20.7%1 in the second quarter of fiscal 2009, during the height of the economic downturn.  Management estimates the annualized loss rate to range from 13% to 16% on a normalized basis depending on the Company's portfolio mix. The highest annualized loss rates come from our dealer participation program where we retain a minimum 18% reserve on the amount owed to the dealership to offset future losses before the dealership receives any of the reserve amounts.

31+days delinquent accounts for the second quarter of 2014 were 3.5%, a decrease from the 4.0% recorded for both the first quarter of 2014 and fourth quarter of 2013.

Return on shareholders' equity for the second quarter of fiscal 2014 was 30.1% versus 30.8% for the first quarter of 2014 and 41.8% for the second quarter of 2013.  At the end of the second quarter of 2014 the debt-to-equity ratio was 2.41:1, compared to 2.14:1 at the end of the prior quarter and 1.89:1 at the end of the second quarter of 2013. The low debt-to-equity ratio in the second quarter of 2013 was due to an equity issuance in April 2013, the proceeds of which were used to repay indebtedness and seek acquisition opportunities.

Please review the MD&A for further financial comparisons and information.

Thank you to all our shareholders for your continued support.

1Presented under previous Canadian GAAP

For additional information relating to the Company, including the Company's financial statements and management's discussion and analysis as at and for the three and six months ended June 30, 2014 and 2013, please visit www.carfinco.com or SEDAR at www.sedar.com.  

A live conference call will be held on Wednesday, August 13, 2014 at 11:00am MT (1:00pm ET) and will include a discussion by management about Carfinco's second quarter results followed by a question and answer period. Participants can access the conference call by phone within Canada and the U.S. by dialing the following numbers:

North America Toll-Free:               

1- 866-233-4585

Internationally:                                 

1- 416-640-5946

Callers should dial in approximately five to ten minutes prior to the scheduled start time.  An audio replay may be accessed through the Investor Relations section of our web site at www.carfinco.com shortly after the conclusion of the conference call.

About Carfinco Financial Group Inc.

Carfinco, through its Canadian and United States subsidiaries (collectively, "Carfinco"), focuses on providing indirect consumer vehicle loans to borrowers unable to obtain financing through traditional lending sources.  A network of select independent and franchise dealerships offer Carfinco's payment plans to their customers who must, along with the vehicle, meet Carfinco's underwriting guidelines. The shares of Carfinco trade on The Toronto Stock Exchange under the symbol "CFN".

Caution Regarding Forward-Looking Statements – This news release contains certain forward-looking statements, including statements regarding the business and anticipated financial performance of the company.  These statements are subject to a number of risks and uncertainties.  Actual results may differ materially from results contemplated by the forward-looking statements.  When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and should not place undue reliance on such forward-looking statements.

Caution Regarding Non-IFRS Financial Measures – Carfinco uses certain measures in this press release which do not have a standardized meaning as prescribed by International Financial Reporting Standards ("IFRS"), and are unlikely to be comparable to similar measures presented by other issues.  These non-IFRS measures have been presented in this press release in order to provide shareholders and potential investors with additional information regarding the Company but should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS.  Please refer to the Company's management's discussion and analysis as at and for the three and six months ended June 30, 2014 and 2013 for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS. 



Selected Quarterly Information and Key Financial Ratios








($000's for stated value, except percentages, shares outstanding and per share amounts)










June 30,
2014


December 31,
2013


June 30,
2013








Total revenue

$

24,319

$

24,850

$

19,535

Net earnings

$

5,421

$

5,078

$

5,791

Normalized earnings before taxes

$

6,866

$

7,656

$

7,125

Earnings per share – basic and diluted

$

0.20

$

0.19

$

0.22








Finance receivables

$

252,142

$

244,194

$

195,047

Loan originations

$

54,044

$

45,997

$

42,583

Annualized loss rate      


14.6%


14.7%


13.0%

Delinquency percentage


3.5%


4.0%


2.5%








Shareholders' equity

$

72,981

$

68,340

$

64,700

Shares outstanding


26,471


26,471


26,416

Book value per share

$

2.76

$

2.58

$

2.45

Cash dividends per share

$

0.120

$

0.120

$

0.120

Payout ratio


64.4%


47.3%


48.4%








Financial leverage ratio


2.41:1


2.25:1


1.89:1

Return on shareholders' equity


30.1%


30.2%


41.8%

Return on portfolio assets


8.7%


8.4%


12.1%

Return on invested capital


14.1%


18.1%


20.9%

Average portfolio yield       


39.1%


41.0%


40.9%

Average cost of borrowing 


4.9%


5.1%


5.1%

Operating and other expense ratio








on portfolio assets


9.0%


10.3%


8.6%

 



Consolidated Statements of Financial Position
















June 30,

2014


December 31,

2013







(unaudited)


(audited)

Assets









Finance receivables 





$

252,142,374

$

244,194,281


Allowance for credit losses






(12,350,000)


(11,475,000)

Finance receivables – net






239,792,374


232,719,281

Cash






1,092,966


1,626,552

Inventories






122,864


314,548

Other assets






1,732,327


2,397,347

Taxes receivable






304,241


-

Equipment






1,064,472


885,217

Goodwill






3,110,103


3,036,169

Intangible assets






1,200,926


1,267,796

Deferred tax assets 






1,078,467


971,320







9,706,366


10,498,949






$

249,498,740

$

243,218,230










Liabilities









Bank credit facilities





$

169,800,134

$

160,511,596

Accounts payable and accrued liabilities 






1,740,312


1,891,534

Subordinated debentures 






-


6,174,198

Taxes payable






363,402


249,288

Deferred tax liability 






451,073


792,302

Deferred dealer obligation 






2,639,112


2,927,085

Interest rate swap 






212,525


410,147

Deferred lease inducement






131,688


130,872

Contingent consideration 






1,179,929


1,791,178







176,518,175


174,878,200

Shareholders' Equity









Share capital 






51,630,280


51,630,280

Retained earnings 






20,997,290


16,571,489

Accumulated other comprehensive income 






352,995


138,261







72,980,565


68,340,030






$

249,498,740

$

243,218,230



Consolidated Statements of Earnings, and Comprehensive Income










Three months ended


Six months ended

(unaudited)



June 30,

2014


June 30,

2013


June 30,

2014


June 30,

2013











Financial revenue











Interest revenue


$

23,099,978

$

18,320,411

$

45,873,092

$

36,217,481


Fee and servicing income



1,219,257


1,214,869


2,424,321


2,492,653


Total revenue



24,319,235


19,535,280


48,297,413


38,710,134











Financial expenses











Interest expense



2,050,077


1,579,476


4,050,847


3,206,806


Provision for credit losses



9,771,748


6,949,827


19,240,531


13,776,458


Gain on interest rate swap



(110,863)


(439,896)


(197,623)


(266,880)


Total financial expense



11,710,962


8,089,407


23,093,755


16,716,384











Net financial income before operating 










   and other expenses and taxes



12,608,273


11,445,873


25,203,658


21,993,750











Operating and other expenses











General and administrative 



5,921,977


4,046,272


11,457,899


7,774,310


Depreciation of equipment



80,377


53,764


141,122


98,406


Amortization of intangible assets



82,448


-


164,228


-


Gain on contingent consideration



(463,223)


-


(660,290)


-


Total operating and other expenses



5,621,579


4,100,036


11,102,959


7,872,716











Earnings before taxes



6,986,694


7,345,837


14,100,699


14,121,034











Taxes 











Current



1,872,494


1,875,467


3,791,872


3,856,366


Deferred (recovery)



(306,362)


(320,516)


(470,122)


(549,848)


Total taxes



1,566,132


1,554,951


3,321,750


3,306,518











Net earnings


$

5,420,562

$

5,790,886

$

10,778,949

$

10,814,516











Other comprehensive income











Foreign currency translation differences












on foreign operation



(139,964)


-


214,734


-

Comprehensive income


$

5,280,598

$

5,790,886

$

10,993,683

$

10,814,516

Earnings per share 











Basic and diluted


$

0.20

$

0.22

$

0.41

$

0.43

 



Consolidated Statements of Changes in Equity




















Accumulated











other







Share


Retained


  comprehensive



(unaudited)




 capital


earnings


income


Total

Balance, December 31, 2012



$

35,119,425

$

8,848,419

$

-

$

43,967,844


Share issuance, net of













costs




16,029,594


-


-


16,029,594


Share issuance on business













acquisition, net of costs




481,261


-


-


481,261


Net earnings




-


20,199,176


-


20,199,176


Cash dividends on shares




-


(12,476,106)


-


 

(12,476,106)


Foreign currency translation













differences on foreign operation




-


-


138,261


138,261

Balance, December 31, 2013



$

51,630,280

$

16,571,489

$

138,261

$

68,340,030


Net earnings




 

-


10,778,949


-


10,778,949


Cash dividends on shares




-


(6,353,148)


-


(6,353,148)


Foreign currency translation













differences on foreign operation




-


-


214,734


214,734

Balance, June 30, 2014



$

51,630,280

$

20,997,290

$

352,995

$

72,980,565



Consolidated Statements of Cash Flows




























June 30,


June 30,

For the six months ended (unaudited)







2014


2013











Increase (decrease) in cash




















Operating activities











Net earnings






$

10,778,949

$

10,814,516


Non-cash items included in net earnings







(19,812,527)


(16,096,173)


Changes in operating assets and liabilities







(11,659,734)


(14,081,027)


Interest received







32,483,101


25,882,779


Interest paid







(3,934,487)


(3,062,728)


Income taxes paid







(3,982,312)


(5,968,148)

Net cash provided by (used in) operating activities







3,872,990


(2,510,781)











Investing activities











Purchase of equipment







(312,913)


(113,670)


Purchase of intangible assets







(65,814)


-

Net cash used in investing activities







(378,727)


(113,670)











Financing activities











Advances on bank credit facilities







17,706,139


11,944,889


Repayments on bank credit facilities







(9,079,777)


(19,500,000)


Repayments on subordinated debentures







(6,367,505)


-


Deferred transaction costs







-


(60,877)


Proceeds on treasury share issuance







-


16,045,515


Cash dividends to shareholders







(6,353,148)


(6,127,375)

Net cash (used in) provided by financing activities







(4,094,291)


2,302,152











Net decrease in cash







(600,028)


(322,299)

Cash, beginning of period







1,626,552


459,498

Effects of foreign exchange rate changes on cash held in foreign currency







66,442


-

Cash, end of period






$

1,092,966

$

137,199

SOURCE Carfinco Financial Group Inc.

For further information: Mr. Tracy A. Graf, CEO & Director of Carfinco Financial Group Inc., Telephone: 1-888-486-4356, Facsimile: 1-888-486-7456, E-mail: tracy.graf@carfinco.com; The Howard Group Inc., Jeff Walker, Investor Relations, Telephone: 1-888-221-0915, E-mail: info@howardgroupinc.com