RIFCO Expects Fourth Consecutive Year of Profitability
RED DEER, Alberta — Though loan originations and net income were down year-over-year in its most recent quarter, RIFCO saw a drop in delinquency rates for the first time in five quarters and said the company is still on pace to show full-year profitability for the fourth straight time.
Specifically, net income for the third quarter ending Dec. 31 was $347,090, down 49.2 percent year-over-year.
Year-to-date net income has reached $546,439, compared with roughly $1.61 million through the first three quarters of the prior-year period.
Meanwhile, loan originations totaled $8.46 million, up 33.4 percent from the prior quarter but down 19.8 percent year-over-year.
Officials explained that with the high securitization pricing RIFCO has seen under the credit crunch, the company boosted its loan pricing so that its lending margin could be maintained in the first half of the year.
"RIFCO has been granting non-traditional loans in the automotive sector since 2002 and has granted over $136 million in loans," executives explained. "The company has always believed that its underwriting and operational systems would hold up under stress.
"The economic environment over the past 18 months has acted as a real life 'stress test' for RIFCO's core assumptions," they added. "While granting and collecting RIFCO's loans in 2010 will remain more challenging than in some previous years, the company has earned its confidence."
The company explained further: "RIFCO's platform, made up of people and systems, leverages reasonably priced capital into above average returns. This platform has become even more valuable as it performs admirably and is validated through these challenging times. The company is optimistic about the future."
With the increase in lending rates, origination volume has dipped. RIFCO did lower lending rates in some key areas during the most recent period — as they anticipated improved funding costs in the third quarter — which helped lead to a rise the loan closing rate.
More specifically, there was a 4.7-percent drop from the previous quarter in processed applications. However, the loan closing rate jumped from 12.8 percent to 16.6 percent in the same time frame.
RIFCO did not cut credit or documentation requirements.
Continuing on, RIFCO's delinquency rate was 4.91 percent. This fell from 5.76 percent in the second quarter, and was the first time in five quarters it has declined.
"Loan credit performance has been stressed in concert with the economy over the last five quarters," the company stated. "It is our belief that delinquency will continue to trend downward."
Next up, RIFCO's 12-month rolling average loan loss rate was 5.86 percent, compared with 5.68 percent in the second quarter.
RIFCO said the average loan loss rate has likely hit its peak. It should begin leveling off and then decline, officials noted. RIFCO contends that it is within its goal of being in the 5.5 percent to 6.5 percent loan loss range for the year.
"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 shared.
Moving on, they added: "The company has endeavored to ensure secure, stable, reasonably priced capital through the crisis of credit availability.
"In the first half of the fiscal year, securitization costs rose to the highest levels the company had ever experienced," executives shared. "However, in this quarter the company has enjoyed more attractive funding costs. The company expects the improved rates to continue."
So, RIFCO said it utilizes borrowings under its senior credit facility ($9.5 million) and subordinated debentures ($6.5 million) to fund the purchase of a rising amount of finance receivable.
The company explained that most of its finance receivables are securitized via $60 million per year in loan securitization facilities. Officials noted that these facilities have 75 percent left in authorized capacity.
"It also remains RIFCO's strategy to pursue increased availability of senior credit facilities in order to grow the company's overall level of on-book loan receivables," officials shared. "The senior credit facility is currently the lowest cost funds for the company. Increased on-book (non-securitized) receivables will likely lead to increased consistency of revenue and less volatility of earnings."
Continuing on, RIFCO said it is "well-positioned" for its growth trajectory to recover. It also said it is in a good position to fund more new loans.
"As funding market conditions continue to improve, increasingly profitable growth opportunities will be restored for the company," executives stated. "RIFCO expects to see quarter-over-quarter loan origination growth moving forward with improved profitability."
They added: "RIFCO remains steadfast in originating only loans that it believes can achieve acceptable profit margins. 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."