Despite 2Q Slowdown, RIFCO Looks toward Strong Future

November 20, 2009

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RED DEER, Alberta — Although it reported significant declines in its second-quarter income, RIFCO officials said the company is likely to record its fourth straight profitable year, and that it is "well-positioned" to pick up some of its growth trajectory and fund more new loans.

Specifically, RIFCO's quarterly net income was $34,999, down from $321,021 from a year ago. Through the first two fiscal quarters, the company's net income has totaled $199,349, compared with $928,367 in the year-ago period.

Loan originations for the second quarter were $6.34 million, down 38.7 percent year-over-year and off 11.2 percent from the previous quarter.

RIFCO increased its loan pricing to maintain its lending margin, as it faced high securitization pricing in light of the credit crunch.

Due in part to the increase in RIFCO's loan pricing, the number of processed applications in the most recent six-month period fell 28.3 percent from the same period a year ago.

That said, managed financed receivables were $53.18 million, a 28.1-percent year-over-year gain.

With the Canadian economy slumping and unemployment climbing, the company's credit performance dipped but stayed within RIFCO's targets.

The average loan loss rate was 5.68 percent, which is in RIFCO's 5.5 percent to 6.5 percent yearly range.

The company said that delinquent loans now comprise 5.76 percent of managed assets.

"While operating within this challenging environment, RIFCO has continued diligent efforts in both the credit adjudication and payment collections functions in order to maintain targeted credit results," officials explained.

"The higher loan losses and securitized loan prepayment losses seen in the quarter have eroded our net income to the marginally profitable level reported," they added. "We believe that loan losses have peaked and we have indications that improvement will be seen in coming quarters."

Continuing on, the company noted that it has attempted to ensure stable, reasonably priced capital in this credit environment. Officials said the securitization costs during the first half of the fiscal year "were the highest the company had even seen."

"However, in this quarter, and to be reflected in future financial results, RIFCO has seen an improvement in the availability of credit with improved pricing," executives shared. "The company expects to enjoy improved rates for at least the coming 12 months."

RIFCO said it has $60 million per year in authorized securitization facilities, which, combined, have 89 percent authorized capacity left.

Moreover, on Oct. 15, RIFCO's senior credit facility was boosted by $2 million. This pushed the total credit available for the facility to $9.5 million.

The facility, as of Sept. 30, had $3 million in outstanding Letter of Credit against it. However, it was otherwise not drawn.

Officials explained that the credit facility is for granting non-traditional auto loans that are carried on-book before securitization funding.

"It also remains RIFCO's strategy to pursue increased availability of senior credit facilities in order to regrow the company's overall level of on-book loan receivables," they noted. "Senior credit facility is currently the lowest cost funds for the company. Increased on-book receivables will likely lead to increased consistency of revenue and less volatility of earnings. "

Looking forward, executives said the company is "well-positioned" to recover its growth trajectory and furnish more new loans.

"As funding market conditions continue to improve, increasingly profitable growth opportunities will be restored for the company," officials stated. "RIFCO expects to see strong quarter-over-quarter loan origination growth moving forward with greatly improved profitability.

"RIFCO remains steadfast in originating only loans that it believes can achieve acceptable profit margins," they continued. "As margins are affected by funding rates and by expected credit performance, RIFCO adjusts targeted origination levels, credit requirements and lending rates while maintaining market continuity."

AR Canada