Carfinco Announces 2008 Second Quarter Results



    TSX: CFN.UN

    EDMONTON, Aug. 6 /CNW/ - Carfinco Income Fund, Canada's leading
automotive specialty finance income fund, today announced its results for the
second quarter of 2008.
    Carfinco reported a net loss of $721,146 or $0.03 per unit for the second
quarter, versus a net loss of $1,396,047 or $0.06 per unit for the first
quarter, both basic and diluted. Prior to the non-cash expenses for loss on
derivatives and increases in the allowance for credit losses, earnings were
$1.2 million, or $0.05 per unit, for the second quarter, compared to
$1.3 million, or $0.06 per unit, for the first quarter of this year.
    In the second quarter, loan originations were $21.4 million, an increase
of 10.8% from $19.3 million for the same period in 2007, and an increase of
7.0% over the first quarter of 2008. At the midpoint of 2008, finance
receivables were $105.8 million, up 31.6% from $80.3 million one year ago.
    Second quarter revenues were $7.9 million, up 28.1%, compared to
$6.2 million in the second quarter of 2007, and up 4.6% versus the first
quarter of 2008. Revenues for the six months ended June 30 were up 29.4% to
$15.5 million, compared to $12.0 million in 2007.
    During the second quarter, the Fund wrote-off an additional one-time
amount of $500,000 of impaired loans, which also required an increase in the
allowance for credit losses. This brings the total net write-offs to
$4.8 million for the quarter, as compared to $4.1 million for the first
quarter of 2008. In the first half of 2008, the allowance for credit losses
was increased by a non-cash expense of $4.4 million, compared to $35,500 in
the first six months of 2007. The significant increase in the allowance for
credit losses is due to both finance receivables growth in the regular
program, which incurs the lowest losses of all its finance program but
requires the highest allowance contribution, as well as higher loan losses and
delinquency levels in the finance receivable portfolio. Also, during the
second quarter, a gain on derivatives of $292,990 was recorded, which
partially offsets a loss on derivatives from the first quarter of $532,789.
Note that the gain or loss on derivatives is a non-cash expense.
    Carfinco completed an amendment to its Senior Credit Facility in the
second quarter as previously announced via news release. The Fund also raised
$1.8 million in subordinated debentures. These debentures are unsecured and
bear interest at 14% per annum with a maturity date of April 30, 2010. The
debentures may be redeemed, in whole or part, by the Fund during the term of
the debentures at the option of the Fund.
    The Canadian economy continued to weaken in the second quarter with
rising gas prices across the country and increased unemployment in certain
areas. Auction prices for used cars remained below historical norms. Due to
the current environment, Carfinco has implemented changes to its credit
criteria to ensure that its customers are better able to meet their payment
obligations. Carfinco's plan is to maintain the portfolio near current levels
for the next several quarters, as economic conditions warrant.
    At the end of the first quarter, the Fund's Board of Trustees unanimously
approved changing the Fund's distribution policy to maximize the retention of
operating cash flow. The Board believes that it is in the best interests of
the Fund to meet its equity requirements through the retention of operating
cash flow for at least the second and third quarters and issue units in lieu
of cash to distribute all, if any, of the Fund's taxable income to its
unitholders. No units were distributed for the three-month period ending
June 30, 2008, as there was no additional taxable income to distribute for the
year to date.
    "We believe that the changes we are making today, will improve the
quality of Carfinco's finance receivables and, over-time, shall be reflected
in our financial performance," said President, Tracy Graf. "We are committed
to managing today's challenges in ways that ensure optimal value creation for
our unitholders over the long term."

    About Carfinco Income Fund

    A growth-oriented income trust, Carfinco focuses on providing consumer
car loans to borrowers unable to obtain financing through traditional lending
sources. A network of select independent and franchise dealerships offer
Carfinco's payment plan to their customers who must, along with the vehicle,
meet Carfinco's underwriting guidelines.
    The units of the Fund trade on The Toronto Stock Exchange under the
symbol "CFN.UN".

    Caution Regarding Forward-Looking Statements - This news release contains
certain forward-looking statements, including statements regarding the
business and anticipated financial performance of the Fund. 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.


    
    -------------------------------------------------------------------------
    Carfinco Income Fund
    Consolidated Balance Sheets
    -------------------------------------------------------------------------

                                                       June 30,  December 31,
                                                          2008          2007
                                                  ------------- -------------
                                                    (unaudited)     (audited)
    Assets
      Finance receivables                         $105,757,162  $ 94,383,395
        Allowance for credit losses                (10,825,000)   (6,470,000)
        Dealer reserve                              (1,816,968)   (2,405,864)
                                                  ------------- -------------
          Finance receivables - net                 93,115,194    85,507,531
                                                  ------------- -------------

      Cash                                              95,878             -
      Other assets                                     598,165       637,569
      Capital assets                                   389,442       366,952
      Future income taxes                               51,393        51,393
                                                  ------------- -------------
                                                     1,134,878     1,055,914
                                                  ------------- -------------

                                                  $ 94,250,072  $ 86,563,445
                                                  ------------- -------------
                                                  ------------- -------------

    -------------------------------------------------------------------------

    Liabilities
      Bank credit facility                        $ 69,396,604  $ 58,213,096
      Bank overdraft                                         -       165,886
      Accounts payable and accrued liabilities         448,245     1,454,430
      Deferred dealer obligation                     1,781,211     2,190,247
      Derivatives                                      680,093       440,294
      Long term debt                                 1,800,000             -
                                                  ------------- -------------
                                                    74,106,153    62,463,953
                                                  ------------- -------------

    Unitholders' Equity
      Unitholders' capital                          29,634,856    29,583,190
      Deficit                                       (9,490,937)   (5,483,698)
                                                  ------------- -------------
                                                    20,143,919    24,099,492
                                                  ------------- -------------
                                                  $ 94,250,072  $ 86,563,445
                                                  ------------- -------------
                                                  ------------- -------------

    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
    Carfinco Income Fund
    Consolidated Statements of Loss, Comprehensive Loss and Deficit
    -------------------------------------------------------------------------

                      Three months ended June 30    Six months ended June 30
                      --------------------------- ---------------------------
                            2008          2007          2008          2007
                      ------------- ------------- ------------- -------------
                        (unaudited)   (unaudited)   (unaudited)   (unaudited)
    Financial revenue
      Interest        $  7,448,636  $  5,844,515  $ 14,523,762  $ 11,282,218
      Administration
       fees                479,200       344,263       980,038       701,242
                      ------------- ------------- ------------- -------------
                         7,927,836     6,188,778    15,503,800    11,983,460

    Financial expense
      Interest           1,178,544       868,317     2,255,650     1,682,575
                      ------------- ------------- ------------- -------------
    Net financial
     income before
     provision for
     credit losses       6,749,292     5,320,461    13,248,150    10,300,885

      Provision for
       credit losses     5,353,889     1,859,657    10,336,692     3,470,446
                      ------------- ------------- ------------- -------------
    Net financial
     income before
     operating expenses  1,395,403     3,460,804     2,911,458     6,830,439
                      ------------- ------------- ------------- -------------

    Operating expenses
      General and
       administrative    2,379,356     1,927,944     4,730,448     3,647,826
      (Gain) loss on
       derivatives        (292,990)            -       239,799             -
      Amortization of
       capital assets       30,183        26,479        58,404        52,641
                      ------------- ------------- ------------- -------------
                         2,116,549     1,954,423     5,028,651     3,700,467
                      ------------- ------------- ------------- -------------

    Net (loss) earnings
     and comprehensive
     (loss) income    $   (721,146) $  1,506,381  $ (2,117,193) $  3,129,972
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    -------------------------------------------------------------------------

    Deficit, beginning
     of period        $ (8,769,791) $ (2,260,285) $ (5,483,698) $ (2,218,776)
      Net (loss)
       earnings           (721,146)    1,506,381    (2,117,193)    3,129,972
      Cash distribution
       of fund unit
       equity                    -    (1,665,465)   (1,890,046)   (3,330,565)
                      ------------- ------------- ------------- -------------
    Deficit, end
     of period        $ (9,490,937) $ (2,419,369) $ (9,490,937) $ (2,419,369)
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    -------------------------------------------------------------------------

    Earnings (loss)
     per fund unit
      Basic and
       diluted        $      (0.03) $       0.07  $      (0.09) $       0.15
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
    Carfinco Income Fund
    Consolidated Statements of Cash Flows
    -------------------------------------------------------------------------

                      Three months ended June 30    Six months ended June 30
                      --------------------------- ---------------------------
                           2008          2007          2008          2007
                      ------------- ------------- ------------- -------------
                        (unaudited)   (unaudited)   (unaudited)   (unaudited)
    Increase (decrease)
     in cash and cash
     equivalents

    Operating
      Net (loss)
       earnings       $   (721,146) $  1,506,381  $ (2,117,193) $  3,129,972

      Adjustments to
       reconcile net
       earnings to net
       cash from
       operations:
        Provision for
         credit losses   5,353,889     1,859,657    10,336,692     3,470,446
        Amortization of
         capital assets     30,183        26,479        58,404        52,641
        Accrued interest   (57,019)      (46,048)     (118,454)      134,914
        Deferred dealer
         obligation        300,000        75,000       525,000       150,000
        Derivatives       (292,990)            -       239,799             -
        Accounts payable
         and accrued
         liabilities        44,392       139,540    (1,006,185)      355,337
        Other assets       (41,171)     (164,583)       39,404      (542,821)
        Future income
         taxes                   -       (51,393)            -       (51,393)
                      ------------- ------------- ------------- -------------
                         4,616,138     3,345,033     7,957,467     6,699,096
                      ------------- ------------- ------------- -------------

    Investing
      Funds advanced
       on finance
       receivables     (19,225,466)  (17,942,982)  (37,114,246)  (29,462,938)
      Principal
       collections on
       finance
       receivables      11,168,105     9,858,904    21,349,619    18,874,745
      Change in finance
       receivable
       reserves and
       transaction
       costs            (1,456,908)     (532,123)   (2,995,310)     (632,346)
      Purchase of
       capital assets      (22,126)       (5,651)      (80,894)     (103,553)
                      ------------- ------------- ------------- -------------
                        (9,536,395)   (8,621,852)  (18,840,831)  (11,324,092)
                      ------------- ------------- ------------- -------------

    Financing
      Advances on bank
       credit facility   6,380,651     5,440,127    15,383,508     9,160,938
      Repayments on
       bank credit
       facility         (3,400,000)   (9,200,000)   (4,200,000)  (12,000,000)
      Issuance of long
       term debt         1,800,000             -     1,800,000             -
      Repayments on
       unit purchase
       financing                 -        20,666        51,666        82,666
      Fund units issued
       on public offering        -    11,500,065             -    11,500,065
      Fund unit issue costs      -      (852,407)            -      (852,407)
      Fund unit cash
       distribution              -    (1,665,465)   (1,890,046)   (3,330,565)
                      ------------- ------------- ------------- -------------
                         4,780,651     5,242,986    11,145,128     4,560,697
                      ------------- ------------- ------------- -------------

    Net (decrease)
     increase in cash
     and cash
     equivalents          (139,606)      (33,833)      261,764       (64,299)

    Cash and cash
     equivalents
      Beginning of
       period              235,484       111,080      (165,886)      141,546
                      ------------- ------------- ------------- -------------

      End of period   $     95,878  $     77,247  $     95,878  $     77,247
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    -------------------------------------------------------------------------

    Supplemental cash
     flow information:
      Interest paid   $  1,101,250  $    839,462  $  2,147,271  $  1,624,794
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    -------------------------------------------------------------------------
    

    %SEDAR: 00019164E




For further information:

For further information: Mr. Tracy A. Graf, CEO & Trustee of Carfinco
Income Fund, Telephone: 1-888-486-4356, Facsimile: 1-888-486-7456, E-mail:
tgraf@carfinco.com

Organization Profile

Carfinco Financial Group Inc.

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