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.

Mr. Tracy A. Graf, CEO & Director of Carfinco Financial Group Inc., Telephone: [phone], Facsimile: 1-888-486-7456, E-mail: [email protected]; The Howard Group Inc., Jeff Walker, Investor Relations, Telephone: [phone], E-mail: [email protected]