Carfinco Announces 2013 Second Quarter Results

TSX: CFN

EDMONTON, Aug. 7, 2013 /CNW/ - Carfinco Financial Group Inc. ("Carfinco" or the "Company") announces financial results for the second quarter ended June 30, 2013.

Carfinco produced record net earnings for the second quarter of fiscal 2013 of $5.8 million, surpassing the prior record of $5.6 million set in the third quarter of 2012. The $5.8 million net earnings represents an increase of 15.3% from $5.0 million for the first quarter of 2013, and an increase of 7.0% from $5.4 million for the second quarter of 2012.  During the quarter, Carfinco distributed 12.0 cents per share to its shareholders versus 10.5 cents in the second quarter of fiscal 2012, an increase of 14.3%.  The dividend of 12.0 cents equates to a payout ratio of 48.4% of the Company's distributable cash.

Return on shareholders' equity for the second quarter of fiscal 2013 was 41.8% versus 44.7% for the first quarter of 2013 and 55.8% for the second quarter of 2012.

HIGHLIGHTS

• Earnings per share of 22 cents, up 10% from the first quarter of 2013;
• Dividends to shareholders of 12.0 cents per share;
• Return on shareholders' equity of 41.8%;
• Record loan originations of $42.6 million;
• Record finance receivables of $195.0 million;
• 31+ day delinquent accounts for the second quarter of 2013 were 2.5%, down from 3.3% for the first quarter of 2013; and
• Equity issuance of 1,771,000 common shares for net proceeds of $16,045,515.

Revenues of $19.5 million for the second quarter of 2013 represented an increase of 1.9% from the revenues of $19.2 million for the first quarter of 2013, and an increase of 10.6% from the revenues of $17.7 million for the second quarter of 2012.

Loan originations for the quarter were a record $42.6 million, a 16.5% increase from $36.6 million in the first quarter of 2013, and a 15.8% increase from $36.8 million in the second quarter of 2012.  Management continues to target finance receivable growth of approximately 15% to 20% for fiscal 2013 while focusing on maintaining acceptable levels of delinquencies and credit losses.

Finance receivables at the end of the second quarter were $195.0 million, an increase of 4.3% from $187.1 million in the first quarter of fiscal 2013, and an increase of 19.5% from $163.3 million in the second quarter of 2012.  With year over year growth of 19.5%, Carfinco is meeting its objective of 15% to 20% organic growth of its finance receivables portfolio.  The Company believes that several opportunities exist to expand our market share and presence and continues to evaluate future opportunities for growth.  This includes continued expansion of our tiered finance programs which remain a minimal portion of our loan portfolio, and the evaluation of potential acquisition opportunities.

31+ days delinquent accounts for the second quarter of 2013 were 2.5% versus 3.3% for the first quarter of 2013, and 2.2% for the second quarter of 2012.  The low 31+ days delinquent rates of the second quarter of 2013 and 2012 are the lowest achieved in the Company since December 2009.

The annualized loss rate on the finance receivables decreased to 13.0% during the second quarter of 2013 from 13.8% in the first quarter of 2013, and 15.1% in the fourth quarter of fiscal 2012. The annualized loss rate for the second quarter of 2012 was 11.2%.   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, the Company 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 the Company to minimize its effective losses arising on consumer defaults as it limits the Company'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 10.0% as at June 30, 2013 (March 31, 2013 - 10.3%).

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, 2013 and 2012, please visit www.carfinco.com or SEDAR at www.sedar.com.

The Company has scheduled a live conference call to discuss the second quarter results to be held, Thursday, August 8, 2013 at 2:00 pm Mountain Standard Time (4:00 pm Eastern, 1:00 pm Pacific).  The conference call will include a discussion by management about Carfinco's second quarter results followed by a question and answer period.  To access the conference call by phone within Canada and the U.S. the toll-free number is 1-888-241-0326, or internationally at 1-647-427-3411.  In order to join this conference call, all participants will be required to provide the Conference ID #28674139.   Callers should dial in five to ten minutes prior to the scheduled start time.  An archive of the conference call will be posted on the Investor Relations section of our website as soon as available from the provider.

About Carfinco Financial Group Inc.

Carfinco focuses on providing 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 plan to their customers who must, along with the vehicle, meet Carfinco's underwriting guidelines. The shares of the company 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, 2013 and 2012 for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS.

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¹

Selected Quarterly Information and Key Financial Ratios
($000's for stated value, except percentages, shares outstanding and per share amounts)
	June 30, 2013			December 31, 2012			June 30, 2012
Total revenue	$	19,535		$	19,177		$	17,660
Normalized earnings before taxes	$	7,125		$	6,463		$	7,669
Net earnings and comprehensive income	$	5,791		$	4,992		$	5,410
Earnings per share - basic and diluted	$	0.22		$	0.20		$	0.22
Finance receivables	$	195,047		$	182,843		$	163,284
Loan originations	$	42,583		$	40,082		$	36,774
Annualized loss rate		13.0%			15.1%			11.2%
Delinquency percentage		2.5%			3.2%			2.2%
Shareholders' equity	$	64,701		$	43,968		$	40,195
Shares outstanding		26,416,230			24,645,230			24,645,230
Book value per share	$	2.45		$	1.78		$	1.63
Cash dividends per share	$	0.120		$	0.170		$	0.105
Payout ratio		48.4%			76.2%			45.1%
Financial leverage ratio		1.89:1			2.97:1			2.84:1
Return on shareholders' equity		41.8%			45.8%			55.8%
Return on portfolio assets		12.1%			11.2%			13.6%
Return on invested capital		20.9%			20.8%			23.0%
Average portfolio yield		40.9%			42.9%			44.4%
Average cost of borrowing		5.1%			5.2%			5.3%
Operating and other expense ratio on portfolio assets		8.6%			8.1%			9.0%

Consolidated Statements of Financial Position
				June 30, 2013			December 31, 2012
				(unaudited)			(audited)
Assets
Finance receivables			$	195,047,024		$	182,842,663
	Allowance for credit losses			(10,450,000)			(9,250,000)
Finance receivables - net				184,597,024			173,592,663
Cash				137,199			459,498
Inventories				194,641			313,014
Other assets				1,111,575			1,172,998
Equipment				565,525			550,261
Deferred tax assets				1,003,188			453,340
				3,012,128			2,949,111
			$	187,609,152		$	176,541,774
Liabilities
Bank credit facility			$	119,316,026		$	126,787,937
Accounts payable and accrued liabilities				893,937			697,672
Taxes payable				251,888			2,363,670
Deferred dealer obligation				2,081,785			2,076,396
Interest rate swaps				217,785			484,665
Deferred lease inducement				147,231			163,590
				122,908,652			132,573,930
Shareholders' Equity
Share capital				51,164,940			35,119,425
Retained earnings				13,535,560			8,848,419
				64,700,500			43,967,844
			$	187,609,152		$	176,541,774

Consolidated Statements of Earnings, and Comprehensive Income
			Three months ended						Six months ended
			June 30,			June 30,			June 30,			June 30,
(unaudited)			2013			2012			2013			2012
Financial revenue
	Interest revenue		$	18,320,411		$	16,179,672		$	36,217,481		$	31,448,361
	Fee and servicing income			1,214,869			1,480,099			2,492,653			2,977,653
	Total revenue			19,535,280			17,659,771			38,710,134			34,426,014
Financial expenses
	Interest expense			1,579,476			1,465,347			3,206,806			2,813,561
	Provision for credit losses			6,949,827			4,923,313			13,776,458			10,181,366
	(Gain) loss on interest rate swaps			(439,896)			450,038			(266,880)			710,232
	Total financial expenses			8,089,407			6,838,698			16,716,384			13,705,159
Net financial income before operating and
	other expenses and taxes			11,445,873			10,821,073			21,993,750			20,720,855
Operating and other expenses
	General and administrative			4,046,272			3,549,681			7,774,310			7,048,145
	Depreciation of equipment			53,764			52,350			98,406			98,831
	Conversion costs			-			(1,780)			-			35,789
	Total operating and other expenses			4,100,036			3,600,251			7,872,716			7,182,765
Earnings before taxes				7,345,837			7,220,822			14,121,034			13,538,090
Taxes
	Current			1,875,467			1,844,236			3,856,366			3,564,312
	Deferred (recovery)			(320,516)			(33,830)			(549,848)			(66,807)
	Total taxes			1,554,951			1,810,406			3,306,518			3,497,505
Net earnings and comprehensive income			$	5,790,886		$	5,410,416		$	10,814,516		$	10,040,585
Earnings per share
	Basic and diluted		$	0.22		$	0.22		$	0.43		$	0.41

Consolidated Statements of Changes in Equity
				Fund unit equity			Share capital			Retained earnings (deficit)			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			-			16,045,515			-			16,045,515
	Net earnings			-			-			10,814,516			10,814,516
	Cash dividends on shares			-			-			(6,127,375)			(6,127,375)
Balance, June 30, 2013			$	-		$	51,164,940		$	13,535,560		$	64,700,500

Consolidated Statements of Cash Flows
For the six months ended (unaudited)				June 30, 2013			June 30, 2012
Increase (decrease) in cash
Operating activities
	Net earnings		$	10,814,516		$	10,040,585
	Non-cash items included in net earnings			(16,096,173)			(14,146,866)
	Changes in operating assets and liabilities			(14,081,027)			(12,498,641)
	Interest received			25,882,779			21,971,844
	Interest paid			(3,062,728)			(2,729,994)
	Income taxes paid			(5,968,148)			(7,541,957)
Net cash used in operating activities				(2,510,781)			(4,905,029)
Investing activities
	Purchase of equipment			(113,670)			(222,371)
Net cash used in investing activities				(113,670)			(222,371)
Financing activities
	Advances on bank credit facility			11,944,889			12,753,300
	Repayments on bank credit facility			(19,500,000)			(2,800,000)
	Deferred transaction costs			(60,877)			-
	Proceeds on treasury share issuance			16,045,515			-
	Cash dividends to shareholders			(6,127,375)			(4,805,820)
Net cash provided by financing activities				2,302,152			5,147,480
Net (decrease) increase in cash				(322,299)			20,080
Cash, beginning of period				459,498			937,994
Cash, end of period			$	137,199		$	958,074

SOURCE: Carfinco Financial Group Inc.

Mr. Tracy A. Graf
CEO & Director of Carfinco Financial Group Inc.
Telephone: [phone]
Facsimile: 1-888-486-7456
E-mail: [email protected]
Web site: www.carfinco.com

The Howard Group Inc.
Jeff Walker
Investor Relations
Telephone: [phone]
E-mail: [email protected]
Web site:  www.howardgroupinc.com