Carfinco Announces 2013 Third Quarter Results

TSX: CFN

EDMONTON, Nov. 14, 2013 /CNW/ - Carfinco Financial Group Inc. ("Carfinco" or the "Company") announces financial results for the third quarter ended September 30, 2013.

The third quarter of fiscal 2013 has been a busy and productive quarter for Carfinco Financial Group Inc. ("Carfinco") with the acquisition of Wakefield, Massachusetts, based Persian Acceptance Corp. ("PAC"), and shortly after the quarter ended, becoming the "stalking horse bidder" for Las Vegas, Nevada, based Western Funding Inc. ("WFI") and Global Track GPS LLC ("GPS"). This occurred while continuing to grow its Canadian division, Carfinco Inc. ("CAR"). In pursuing the PAC and WFI transactions, Carfinco incurred substantial professional fees during the quarter while only benefiting in a partial month of earnings from PAC during the quarter.

Normalized pre-tax earnings for the third quarter of 2013 are $7.4 million versus $7.1 million for the third quarter of 2012 and $7.1 million for the second quarter of 2013. Normalized pre-tax earnings represents earnings before taxes, excluding loss (gain) on interest rate swaps, amortization of intangibles, professional fees related to acquisitions, amortization of the fair value differential on finance receivables at acquisition, and other non-recurring expenses.

Taking the above into consideration, Carfinco produced net earnings of $4.3 million for the third quarter of fiscal 2013, compared to $5.6 million for the third quarter of 2012 and $5.8 million for the second quarter of 2013. During the quarter, Carfinco distributed 12.0 cents per share to its shareholders versus 10.5 cents in the third quarter of fiscal 2012, an increase of 14.3%.  The dividend of 12.0 cents for the quarter equates to a payout ratio of 51.6% of the Company's distributable cash.

HIGHLIGHTS FOR THE THIRD QUARTER OF 2013

  • Earnings per share for the quarter of 17 cents, 61 cents year to date;
  • Dividends to shareholders of 12.0 cents per share;
  • Record revenue of $21.4 million;
  • Record loan originations of $46.5 million;
  • Record finance receivables of $240.9 million; and
  • 31+ day delinquent accounts for the third quarter of 2013 were 3.3% combined with PAC (2.6% for CAR compared to 2.5% for CAR in the second quarter of 2013).

Return on shareholders' equity for the third quarter of fiscal 2013 was 26.3% versus 41.8% for the second quarter of 2013 and 44.7% for the first quarter of 2013. This decrease is attributable to the additional equity raised by Carfinco in April of 2013. The equity has now been partially deployed in the acquisition of PAC, with the balance targeted for the acquisition of WFI if Carfinco is the successful bidder. While Carfinco has historically targeted to maintain a 3:1 debt-to-equity ratio, at the end of the third quarter the debt-to-equity ratio was 2.30:1. This is in comparison to 1.89:1 for the second quarter of 2013 and 2.87:1 for the first quarter of 2013 (pre-equity issuance).

Revenues of $21.4 million for the third quarter of 2013 represented an increase of 9.7% from the revenues of $19.5 million for the second quarter of 2013 and an increase of 17.7% from the revenues of $18.2 million for the third quarter of 2012.

Loan originations for the quarter were a record $46.5 million, a 9.2% increase from $42.6 million in the second quarter of 2013 and a 15.1% increase from $40.4 million in the third quarter of 2012.

Finance receivables for the third quarter of 2013 were $240.9 million, an increase of 23.5% from $195.0 million in the second quarter of fiscal 2013 and an increase of 38.0% from $174.5 million in the third quarter of 2012. The Canadian segment has achieved a year-over-year organic growth rate in its Canadian finance receivables of 16.5%. Carfinco believes that several opportunities exist to expand our market share and presence both in Canada and the United States.  This includes continued expansion of our finance programs, expanding the base of approved vehicle dealerships, expansion of PAC into additional states and the potential of an additional acquisition.

31+ days delinquent accounts for the third quarter of 2013 were 3.3% (2.6% for CAR) versus 2.5% for the second quarter of 2013, 3.3% for the first quarter of 2013 and 2.7% for the third quarter of 2012.

During the quarter, the annualized loss rate on the finance receivables increased to 13.9% (14.3% for CAR) versus 13.0% in the second quarter of 2013, 13.8% in the first quarter of 2013 and 12.8% in the comparable third quarter of fiscal 2012. 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.

To partially offset credit losses, CAR frequently purchases loans from vehicle dealerships at a negotiated price that is less than the principal amount being financed by the debtor.  When contracts are discounted, the discounts range from 4% to 60% of the principal amount being financed which enables CAR to minimize its effective losses arising on consumer defaults as it limits the CAR's own invested capital at risk.  Loans that are anticipated to experience higher annualized losses are purchased at higher discounts with the average purchase discount in the finance receivable portfolio being 9.7% as at September 30, 2013.

To offset credit losses, PAC offers a full recourse program to its vehicle dealerships. As a part of the agreement, PAC may recover contract deficiencies from the dealer after application of customer payments, liquidation proceeds, and dealer reserves.

We are pleased with the seamless integration of PAC into Carfinco Financial Group and look forward to PAC contributing to Carfinco's future performance.

SEGMENTED REPORTING

Three months ended September 30, 2013     Canada        USA        Corporate        Total
                             
Interest revenue     $  19,130,335      $ 1,200,682     $ (91,460)     $ 20,239,557
Fee and servicing income      1,158,074        29,359        -       1,187,433
Total financial revenue     20,288,409       1,203,041        (91,460)        21,426,990
                             
Interest expense      1,619,076        138,460       -       1,757,536
Provision for credit losses      7,637,201       450,057        -       8,087,258
Loss on interest rate swap      155,372        -       -       155,372
Depreciation of equipment      53,052       6,486        -       59,538
Amortization of intangibles      -       5,646       16,529       22,175
General and administrative expenses     3,702,328       323,064        1,549,410        5,574,802
Earnings before taxes     7,121,380        306,328        (1,657,399)        5,770,309
                             
Taxes (recovery)      1,687,231        121,000       (344,328)        1,463,903
Net earnings    $ 5,434,149     $ 185,328     $ (1,313,071)     $ 4,306,406
                             
                             
                             
Three months ended September 30, 2012     Canada        USA        Corporate         Total
                             
Interest revenue     $  16,840,381     $ -     $ -     $ 16,840,381
Fee and servicing income      1,365,780       -       -       1,365,780
Total financial revenue    18,206,161        -       -       18,206,161
                             
Interest expense      1,520,994        -       -       1,520,994
Provision for credit losses      5,961,918        -       -       5,961,918
Gain on interest rate swap      (275,512)       -       -        (275,512)
Depreciation of equipment      36,316       -        -       36,316
General and administrative expenses     3,428,302       -       122,788       3,551,090
Earnings before taxes    7,534,143       -       (122,788)       7,411,355
                             
Taxes (recovery)      1,883,757       -       (30,697)         1,853,060
Net earnings    $ 5,650,386     $ -     $  (92,091)     $  5,558,295

Subsequent to the quarter end, Carfinco was successful in becoming the "stalking horse bidder" and proposed plan sponsor for the acquisition of all of the new equity ownership interests of WFI and GPS. On September 4, 2013, WFI and GPS commenced a chapter 11 bankruptcy case in the United States Bankruptcy Court for the District of Nevada. At this time there are no guarantees that Carfinco will be the successful bidder in this process.

Also subsequent to quarter end, CAR's Banker's Acceptance ("BA") Rate Margin was reduced 50 basis points from 3.25% to 2.75% and the Prime Rate margin was reduced 25 basis points from 1.75% to 1.50%. Substantially all of CAR's senior credit facility is locked in at BA rates and the current all-in BA rate was reduced from 4.47% to 3.97%. Additionally, PAC's LIBOR Rate Margin was reduced 30 basis points from 4.45% to 4.15%. The current all-in rate on PAC's senior credit facility was reduced from 4.75% to 4.45%. The financial impact for Carfinco is significant with CAR's interest expense decreasing approximately $56,500 per month and PAC's interest expense decreasing approximately $5,400 USD per month, based on October 31, 2013 credit facility balances.

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 nine months ended September 30, 2013 and 2012, please visit www.carfinco.com or SEDAR at www.sedar.com.

A live conference call will be held on Friday, November 15, 2013 at 11:00am MT (1:00pm ET) and will include a discussion by management about Carfinco's third 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:   1-888-241-0326 using Conference ID #97962451
Internationally:     1-647-427-3411 using Conference ID #97962451
     

Callers should dial in five to ten minutes prior to the scheduled start time.  An archive of the conference call will be posted in the Investor Relations section of our website (www.carfinco.com), as soon as available from the provider.

About Carfinco Financial Group Inc.

Carfinco, through its Canadian and United States subsidiaries (the "Subsidiaries"), 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 the Subsidiaries payment plans to their customers who must, along with the vehicle, meet the Subsidiaries 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 nine months ended September 30, 2013 and 2012 for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS.

______________________________________________
1 Reported under Canadian GAAP


Selected Quarterly Information and Key Financial Ratios 
 
($000's for stated value, except percentages, shares outstanding and per share amounts)
 
    September 30,      December 31,      September 30,
    2013       2012     2012
                 
Financial revenue $  21,427   $ 19,177   $  18,206
Normalized earnings before taxes  $ 7,355   $  6,463   $  7,136
Earnings before taxes  $ 5,770   $ 6,663   $ 7,411
Net earnings $  4,306   $ 4,992   $  5,558
Earnings per share - basic and diluted $  0.17   $ 0.20   $ 0.23
                 
Total assets  $ 239,103   $ 176,542   $ 167,840
Finance receivables $ 240,887   $ 182,843   $ 174,514
Loan originations $ 46,491   $  40,082    $ 40,387
Cash dividends  $ 3,172   $ 4,190   $ 2,588
                 
Cash dividends per share $  0.120   $  0.170   $  0.105
Annualized loss rate      13.9%     15.1%     12.8%
Delinquency percentage    3.3%     3.2%     2.7%
                 
Financial leverage ratio    2.30:1     2.97:1     2.83:1
Allowance for credit losses as a percentage of finance
Receivables 
  4.5%     5.1%     4.9%
Return on shareholders' equity    26.3%     45.8%     53.3%
Return on portfolio assets       7.9%     11.2%      13.2%
Return on invested capital    17.2%     20.8%     21.8%
Payout ratio    51.6%     76.2%     43.1%
Book value per share $ 2.50   $ 1.78   $ 1.75

 

Consolidated Statements of Financial Position
 
    September 30,   December 31,
    2013   2012
    (unaudited)   (audited)
           
Assets        
Finance receivables       $  240,887,235  $ 182,842,663
  Allowance for credit losses         (10,950,000)   (9,250,000)
Finance receivables - net        229,937,235   173,592,663
         
Cash          1,305,153   459,498
Inventories         226,208    313,014
Other assets         1,451,135   1,172,998
Taxes receivable          156,837    -
Equipment          803,610   550,261
Goodwill          2,941,110    -
Intangible assets         1,270,487    -
Deferred tax assets        1,011,496    453,340
    9,166,036   2,949,111
  $ 239,103,271  $  176,541,774
           
Liabilities        
Bank credit facility       $  157,671,940    $ 126,787,937
Accounts payable and accrued liabilities         2,436,159   697,672
Subordinated debentures         5,980,892    -
Taxes payable          95,500   2,363,670
Deferred tax liability          975,724   -
Deferred dealer obligation         3,092,832    2,076,396
Interest rate swaps         373,157   484,665
Deferred lease inducement        139,052   163,590
Contingent consideration         2,217,078    -
    172,982,334   132,573,930
           
Shareholders' Equity        
Share capital         51,630,280    35,119,425
Retained earnings        14,669,809   8,848,419
Accumulated other comprehensive income        (179,152)   -
    66,120,937    43,967,844
  $ 238,103,271  $ 176,541,774
         

 

Consolidated Statements of Earnings, and Comprehensive Income
 
  Three months ended   Nine months ended
    September 30,   September 30,   September 30,     September 30,
(unaudited)     2013   2012     2013     2012
                 
Financial revenue                
  Interest revenue  $ 20,239,557  $ 16,840,381  $ 56,457,038  $  48,288,742
  Fee and servicing income    1,187,433   1,365,780   3,680,086   4,343,433
  Total financial revenue    21,426,990   18,206,161   60,137,124   52,632,175
                 
Financial expenses                
  Interest expense    1,757,536   1,520,944   4,964,342    4,334,555
  Provision for credit losses    8,087,258   5,961,918   21,863,716   16,143,284
  Loss (gain) on interest rate swaps    155,372   (275,512)   (111,508)   434,720
  Total financial expenses    10,000,166   7,207,400   26,716,550   20,912,559
                   
Net financial income before operating and
other expenses and taxes    
  11,426,824   10,998,761   33,420,574   31,719,616
                 
Operating and other expenses                
  General and administrative    5,574,802   3,551,090   13,349,112   10,599,235
  Depreciation of equipment     59,538   36,316   157,944    135,147
  Amortization of intangible assets    22,175    -   22,175    -
  Conversion costs     -     -   -   35,789
  Total operating and other expenses    5,656,515   3,587,406   13,529,231      10,770,171
                 
                 
Earnings before taxes     5,770,309    7,411,355    19,891,343    20,949,445
                 
Taxes                
  Current     1,514,888   1,552,013   5,371,254    5,116,325
  Deferred (recovery)    (50,985)   301,047   (600,833)    234,240
  Total taxes     1,463,903   1,853,060   4,770,421   5,350,565
Net earnings  $ 4,306,406 $ 5,558,295 $ 15,120,922 $  15,598,880
                 
Other comprehensive income                
  Foreign currency translation differences                
    on foreign operation     (179,152)    -   (179,152)     -
  Other comprehensive income    (179,152)    -   (179,152)    -
Comprehensive Income  $ 4,127,254 $ 5,558,295 $ 14,941,770 $ 15,598,880
Earnings per share                
  Basic and diluted  $ 0.17  $ 0.23  $ 0.61 $ 0.63
                   

 

Consolidated Statements of Changes in Equity
 
    Fund unit
equity 
    Share
  capital
    Retained
earnings
(deficit)
    Accumulated
other
comprehensive
income
    Total
                                 
Balance, December 31, 2011  $ 35,119,425   $  -   $ (158,942)   $ -   $  34,960,483
  Conversion under plan of
  arrangement  
  (35,119,425)     35,119,425      -       -      -
  Net earnings    -     -     20,590,619     -     20,590,619
  Cash dividends on shares     -      -     (11,583,258)     -     (11,583,258)
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   -     -     15,120,922            15,120,922
    Cash dividends on shares   -     -     (9,299,532)     -     (9,299,532)
  Foreign currency translation
  differences on foreign operation
  -     -         (179,152)      (179,152)
                                 
Balance, September 30, 2013  $  -   $  51,630,280   $ 14,669,809   $ (179,152)   $ 66,120,937
                             

 

Consolidated Statements of Cash Flows
      September 30,       September 30,
For the nine months ended (unaudited)           2013      2012
               
Increase (decrease) in cash            
               
Operating activities            
  Net earnings        $  15,120,922   $ 15,598,880
  Non-cash items included in net earnings     (24,789,948)     (21,890,471)
  Changes in operating assets and liabilities      (23,597,300)     (24,144,721)
  Interest received           40,006,541     33,792,280
  Interest paid            (4,730,134)      (4,210,267)
  Income taxes paid            (7,770,761)     (8,747,689)
Net cash used in operating activities           (5,760,680)     (9,601,988)
               
Investing activities            
  Purchase of equipment            (150,576)      (359,575)
  Purchase of intangible assets          (11,977)      -
  Business combination, net of cash acquired      (8,318,557)     -
Net cash used in investing activities            (8,481,110)     (359,575)
               
Financing activities            
  Advances on bank credit facility           31,738,880     21,631,844
  Repayments on bank credit facility          (23,250,000)     (5,550,000)
  Deferred transaction costs          (163,315)     (25,000)
  Proceeds on treasury share issuance           17,267,250     -
  Share issue costs           (1,244,721)     -
  Cash dividends to shareholders            (9,299,532)     (7,393,569)
Net cash provided by financing activities           15,048,562      8,663,275
               
Net increase (decrease) in cash           806,772     (1,298,288)
Cash, beginning of period           459,498     937,994
Effects of foreign exchange rate changes on cash held in foreign currency       38,883     -
Cash, end of period         $  1,305,153   $   (360,294)
             

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
Web site: www.carfinco.com 

The Howard Group Inc.
Jeff Walker
Investor Relations
Telephone: 1-888-221-0915
E-mail:  jeff@howardgroupinc.com
Web site: www.howardgroupinc.com


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Carfinco Financial Group Inc.

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