CARFINCO FINANCIAL GROUP INC For Immediate Release - August 12, 2014
Carfinco Financial Group Inc. TSX: CFN Carfinco Announces 2014 Second Quarter Results
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, ALBERTA /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.
Carfinco Financial Group Inc.
300, 4245 - 97 Street, Edmonton, Alberta, T6E 5Y7
Phone: (780) 413-7549 • Toll Free: 1-888-486-4356
Fax: (780) 450-1134 • Toll Free: 1-888-486-7456
E-mail: carfinco@carfinco.com • Web site: www.carfinco.com
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.
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.
1 Presented under previous Canadian GAAP
Carfinco Financial Group Inc.
300, 4245 - 97 Street, Edmonton, Alberta, T6E 5Y7
Phone: (780) 413-7549 • Toll Free: 1-888-486-4356
Fax: (780) 450-1134 • Toll Free: 1-888-486-7456
E-mail: carfinco@carfinco.com • Web site: www.carfinco.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.
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. For further information, please contact:
Mr. Tracy A. Graf The Howard Group Inc. CEO & Director of Carfinco Financial Group Inc. Jeff Walker
Telephone: 1-888-486-4356 Investor Relations
Facsimile: 1-888-486-7456 Telephone: 1-888-221-0915
E-mail: tracy.graf@carfinco.com E-mail: info@howardgroupinc.com
Web site: www.carfinco.com Web site: www.howardgroupinc.com
Carfinco Financial Group Inc.
300, 4245 - 97 Street, Edmonton, Alberta, T6E 5Y7
Phone: (780) 413-7549 • Toll Free: 1-888-486-4356
Fax: (780) 450-1134 • Toll Free: 1-888-486-7456
E-mail: carfinco@carfinco.com • Web site: www.carfinco.com
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 Return on shareholders' equity | 2.41:1 30.1% | 2.25:1 30.2% | 1.89:1 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 Operating and other expense ratio on portfolio assets | 4.9% 9.0% | 5.1% 10.3% | 5.1% 8.6% |
Carfinco Financial Group Inc.
300, 4245 - 97 Street, Edmonton, Alberta, T6E 5Y7
Phone: (780) 413-7549 • Toll Free: 1-888-486-4356
Fax: (780) 450-1134 • Toll Free: 1-888-486-7456
E-mail: carfinco@carfinco.com • Web site: www.carfinco.com
Consolidated Statements of Financial Position
Assets
June 30, December 31,
2014 2013 (unaudited) (audited)
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
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
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
Carfinco Financial Group Inc.
300, 4245 - 97 Street, Edmonton, Alberta, T6E 5Y7
Phone: (780) 413-7549 • Toll Free: 1-888-486-4356
Fax: (780) 450-1134 • Toll Free: 1-888-486-7456
E-mail: carfinco@carfinco.com • Web site: www.carfinco.com
Consolidated Statements of Earnings, and Comprehensive Income
Three months ended Six months ended
June 30, June 30, June 30, June 30, (unaudited) 2014 2013 2014 2013
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
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
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
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
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
Carfinco Financial Group Inc.
300, 4245 - 97 Street, Edmonton, Alberta, T6E 5Y7
Phone: (780) 413-7549 • Toll Free: 1-888-486-4356
Fax: (780) 450-1134 • Toll Free: 1-888-486-7456
E-mail: carfinco@carfinco.com • Web site: www.carfinco.com
Consolidated Statements of Changes in Equity
Accumulated other
(unaudited)
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
Bala
Carfinco Financial Group Inc.
300, 4245 - 97 Street, Edmonton, Alberta, T6E 5Y7
Phone: (780) 413-7549 • Toll Free: 1-888-486-4356
Fax: (780) 450-1134 • Toll Free: 1-888-486-7456
E-mail: carfinco@carfinco.com • Web site: www.carfinco.com
Consolidated Statements of Cash Flows
June 30, June 30, For the six months ended (unaudited) 2014 2013
Increase (decrease) in cash
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)
Purchase of equipment (312,913) (113,670) Purchase of intangible assets (65,814) -
Net cash used in investing activities (378,727) (113,670)
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
Carfinco Financial Group Inc.
300, 4245 - 97 Street, Edmonton, Alberta, T6E 5Y7
Phone: (780) 413-7549 • Toll Free: 1-888-486-4356
Fax: (780) 450-1134 • Toll Free: 1-888-486-7456
E-mail: carfinco@carfinco.com • Web site: www.carfinco.com
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