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.

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