Tuesday, 10 February 2015 05:21 PM
Red Deer, AB / ACCESSWIRE / February 10, 2015 / Rifco Inc. (TSXV: RFC) is announcing results for its wholly owned subsidiary Rifco National Auto Finance for the third quarter ended December 31, 2014.
---------------------------------------------------------------------------------------- | Quarterly |For the | | |Financial Record |three | | | Achievements|months | | | | | | | | period | | | |ended | | |--------------------------------------------------------------------------------------| | |December 31, 2014|December 31, 2013| | |--------------------------------------------------------------------------------------| |($000’s, except ratios) | | | | |--------------------------------------------------------------------------------------| |Finance Receivables |251,217 |179,093 |New record -Increased 40%| |--------------------------------------------------------------------------------------| |Total Financial Revenues|10,303 |7,694 |New record -Increased 34%| |--------------------------------------------------------------------------------------| |Operating Expense Ratio |3.65% |3.92% |New record– | | | | |Improved by | | | | |0.27% | ----------------------------------------------------------------------------------------
Quarterly Results
The Company posted Originations of $38.51M up from $25.28M, a 52% increase from the comparable quarter.
Origination growth has resulted in a 40% increase in Finance Receivables to $251.22M from $179.09 in the comparable quarter. As a result, total Financial Revenue has increased by 34% to $10.30M from $7.69M.
As the result of a continuing competitive environment in Rifco's lending niche the Company has experienced a reduction in Gross Portfolio Yield on new loans granted in recent years. In the quarter, the Gross Portfolio Yield was 18.28%, down from 18.91% in the comparable quarter.
The Average Interest Expense decreased to 4.80% from 5.14% from the same quarter in the prior year. Interest rate improvement can be achieved if benchmark rates reduce further and increased Bank Borrowing limits are obtained.
The loan Delinquency Rate increased to 5.21% compared to 3.63% from the same quarter in the prior year and increased from 4.06% in the preceding quarter. The Delinquency Rate is currently higher than management had internally forecasted and above the Company's typical seasonal ranges of between 3.00% and 4.00%. Delinquency Rate levels are often at the higher end of the seasonal range in Q3.
In the quarter, the Company experienced a seasonal increase in the Delinquency Rate along with the early stage impact of the rapid decline in petroleum prices and the effect this is having on employment as petroleum companies reduce capital budgets. Rifco recognizes that some of its internal efforts to reduce Delinquency Rates may be frustrated, in the short term, by deteriorating economic prospects for Western Canada.
In the two prior quarters it was stated that the Delinquency Rate was negatively impacted by high staff turnover and below average tenure in the account maintenance and customer service department. The Company is rapidly hiring and training as it works to provide sufficient servicing capacity for the growing number of delinquent accounts. Rifco has also retained and trained an outsourced collection firm as additional capacity. Additional management leadership has been added to the department and processes have been adjusted for greater efficiency.
On Oct 9, 2014, Rifco went live with its new Loan Management Software (LMS) from Dominion Leasing Software and while the conversion resulted in many disruptions to operational processes it was considered to be a very successful conversion. In the quarter, the account maintenance and customer service department faced inefficiencies and additional training demands as they transitioned to the new LMS system.
The elevated Delinquency Rate in the quarter has resulted in an elevated Credit Loss Rate. The Credit Loss Rate is currently higher than management had internally forecast. Management recognizes that credit performance, at least in the short term, could be negatively characterized by a higher Delinquency Rate and elevated Credit Loss Rate.
The Average (12 month rolling) Credit Loss Rate increased to 3.80% from 3.17% in the comparable quarter and has increased from the prior quarter rate of 3.56%. The Annualized Credit Loss Rate for the quarter is 4.39% and 3.92% for nine months year to date. These Credit Loss Rates are above the Company's annual target of 3.55%.
Management has conducted detailed reviews of credit underwriting processes and has made adjustments to reflect the anticipated increased employment risk in the petroleum industry.
Operating Expenses increased to $2.22M from $1.72M in the comparable quarter and were up slightly from $2.10M in the prior quarter. The Operating Expense Ratio improved to our best ever ratio of 3.65% compared to 3.92% in the prior year and 3.70% in the prior quarter.
The Company is in the process of completing a number of infrastructure and expansion projects started in the previous fiscal year. The largest, and most important of these projects, is an upgraded loan management software (LMS). An important project milestone was reached in the quarter. The Company successfully converted the data for its active and historic accounts and began "live" use of the replacement LMS on October 9th, 2014. Management is now focused on increasing the utilization of all available functions, improved configuration, and employee training.
Management believes that ongoing infrastructure investments and benefits of increasing scale will ultimately result in improving operating efficiency and will be reflected in continued improvement in Operating and Efficiency Ratios as the Company moves forward.
At quarter end, the progress of key projects is as follows:
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- Loan management software upgrades (90% Complete)
- Internal analytics scorecard implementation/upgrade (90% complete)
- Electronic document management (paperless file management) (25% complete)
The strategy for the Company remains to grow value by expanding its profitable loan origination and servicing platform, but Rifco will maintain its core value that "Rifco remains steadfast in originating Finance Receivables that it believes can achieve acceptable credit performance levels and profit margins. As margins are affected by funding rates and expected credit performance, the Company adjusts targeted Origination levels, credit requirements, and lending rates while maintaining market continuity. Rifco will not pursue a strategy of seeking to increase its market share at the expense of unsustainable credit performance."
The Company is experiencing unusually aggressive competition in the non-prime auto sector. Rifco's main competitors are loosening documentation requirements, reducing underwriting standards and are pricing risk aggressively. The Company believes that the marginal pricing witnessed is unprofitable and unsustainable in the current economic environment. If the marketplace becomes increasingly unfavorable, the Company will choose to restrict underwriting to only sufficiently profitable loan originations until conditions improve.
Rifco will originate profitable loan business and continue to develop new initiatives that it expects to positively affect loan Originations while maintaining the Company's core value of credit quality.
Credit markets in Canada are currently stable but many financial institutions are struggling to deploy capital. Rifco is in regular contact with all of its funders and remains optimistic regarding the availability of increasing amounts of Bank Borrowing and Securitized Facilities through the current fiscal period and beyond.
To fund the Origination of a growing level of Finance Receivables, the Company uses a Bank Borrowing facility of $100M and three Securitization Facilities totaling $160M. The Company's combined credit facilities total $260M of which there was $77M remaining capacity at quarter end.
The Company's management is focused on stabilizing and then returning credit performance to within expected result ranges. Predictable credit performance is imperative to achieving the Company's vision of $500M in annual loan Originations.
The Company has surpassed $250M in Finance Receivables. While the Return on Earning Assets is significantly below expectations, profitability margins will eventually return to very attractive levels. When they do, the large amount of revenue producing assets would again result in significantly higher Return on Equity.
Rifco Third Quarter Comparative Results
-------------------------------------------------------------------------------------------------- |Statements of income |Three | | | |months |Nine | | |ended |months | | |December |ended | | |31 |December | | | |31 | |------------------------------------------------------------------------------------------------| | |2014 |2013 |2014 |2013 | |------------------------------------------------------------------------------------------------| |($, 000’s, except per share and share count) | | | | | |------------------------------------------------------------------------------------------------| | | | | | | |------------------------------------------------------------------------------------------------| |Financial revenue | | | | | |------------------------------------------------------------------------------------------------| |Interest and fee income |10,303 |7,694 |28,904 |22,227 | |------------------------------------------------------------------------------------------------| | | | | | | |Financial expenses | | | | | |------------------------------------------------------------------------------------------------| |Interest expenses |2,761 |2,152 |7,723 |6,421 | |------------------------------------------------------------------------------------------------| | | | | | | |------------------------------------------------------------------------------------------------| |Net financial income before provision for impairment|7,542 |5,542 |21,181 |15,806 | |------------------------------------------------------------------------------------------------| | | | | | | |------------------------------------------------------------------------------------------------| |Provision for impairment and credit losses |3,948 |1,513 |9,427 |4,619 | |------------------------------------------------------------------------------------------------| |Net financial income before operating expenses |3,594 |4,029 |11,754 |11,187 | |------------------------------------------------------------------------------------------------| | | | | | | |------------------------------------------------------------------------------------------------| |Operating expenses |2,222 |1,716 |6,378 |4,830 | |------------------------------------------------------------------------------------------------| | | | | | | |------------------------------------------------------------------------------------------------| |Income before taxes |1,372 |2,313 |5,376 |6,357 | |------------------------------------------------------------------------------------------------| |Income tax expense |560 |641 |1,619 |1,711 | |------------------------------------------------------------------------------------------------| |Net income |812 |1,407 |3,757 |4,646 | |------------------------------------------------------------------------------------------------| |Weighted average number | |20,950,817| | | |of outstanding shares at |21,167,483| |21,106,901|20,878,426| |period end | | | | | |------------------------------------------------------------------------------------------------| |Fully Diluted Basis |21,680,770|21,697,034|21,690,284|21,593,420| |------------------------------------------------------------------------------------------------| |Net earnings per common share basic |$0.038 |$0.080 |$0.178 |$0.223 | |diluted |$0.037 |$0.077 |$0.173 |$0.215 | | | | | | | --------------------------------------------------------------------------------------------------
Key Period-to-Date Performance Measurement
Please note the Company results as reported against the specific objectives press released on June 11, 2014.
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1.Achieve record Loan Originations of over $170 million
Loan Originations for the first nine months reached $124.02M, a new record. Progress to target 73%.
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2.Achieve record Finance Receivables of over $278 million
Finance Receivables for the first nine months grew to $251.22M from $199.62M, a new record. Progress to target 66%.
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3.Achieve record revenue of over $39.5 million
Revenue for the first nine months totalled $28.90M, a new record. Progress to target 73%.
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4.Achieve an annualized write off rate below 3.55%
Year to date Annualized Credit Loss Rate of 3.92%. Off Target.
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5.Achieve record earnings per share of $0.430.
Earnings per share for the first nine months are $0.178. Progress to target 41%.
Rifco today filed its quarterly financial statements and management discussion and analysis for the period ended December 31, 2014. The previously released financial statements and the related management's discussion and analysis can be viewed at www.sedar.com or at www.rifco.net.
Rifco Inc. operates through its wholly owned subsidiary Rifco National Auto Finance Corporation in order to provide automobile loans through its dealership network across Canada.
Rifco National Auto Finance provides consumers with financing options on new and used vehicles. Rifco specializes in building long-term partnerships with dealers by investing time in personalized services through dedicated account representatives. Rifco's quick credit decisions, common sense lending, and expedited funding processes give its dealers better financing options and more closed deals. Rifco's most successful partnerships result in Fast Forward 500 Club status for its loyal dealerships.
Rifco is committed to continuing growth. Key strategies for achieving this growth include the expansion of its automobile dealer base and excellence in credit and collections processes.
The common shares of Rifco Inc. are traded on the TSX Venture Exchange under the symbol "RFC". There are 21.17 million shares (basic) outstanding and 22.70 million (fully diluted) shares.
CONTACT:
Rifco Inc.
Lance A. Kadatz
Vice President and Chief Financial Officer
Telephone: 1-403-314-1288 Ext 7007
Fax: 1-403-314-1132
Email: [email protected]
Website: www.rifco.net
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
SOURCE: Rifco Inc.