TORONTO, March 9, 2022 /CNW/ - Chesswood Group
Limited ("Chesswood" or the "Company") (TSX: CHW), a publicly
traded North American specialty finance company providing
commercial equipment leases and loans, business loans, home
improvement financing, and (since January
14, 2022) automobile loans, today reported its results for
its year ended December 31,
2021.
Year End Highlights
- Record gross finance receivables at year-end of
$1.7 billion, up 89% from
fiscal year 2020
- Fully diluted earnings per share of $1.59 versus previous fiscal year loss of
$0.48 per share
- 2021 average return on equity of 19%
- Free cash flow generation of $33.6
million, or $1.72 per fully
diluted share, up 56% from fiscal year 2020
- Repurchased 488,040 common shares under the Company's normal
course issuer bid at an average price of $10.06 per share (3% of the outstanding common
shares)
- Increasing dividend to $0.04
per share per month (or $0.48 per
year), a 33% increase, effective March 31,
2022
Fourth Quarter Highlights
- Strong originations totaling $341
million, with Vault Credit Corporation and Tandem Finance
each surpassing $100 million in the
quarter
- Free cash flow of $11.5
million, or $0.56 per fully
diluted share, up 10% from Q3 and up 44% from Q4 2020
- Strong diluted earnings per share of $0.40, even after a one-time, non-cash share
grant impacted diluted per share earnings by $0.12 in the quarter
- Announced the acquisition of Rifco Inc. ("Rifco") for
$28 million (which was completed in
early 2022)
- Pawnee closed its third marketed securitization for
US$356 million, with an effective
interest rate of 2%
"2021 was a transformational year for Chesswood Group. We set
the objective at the beginning of the year to diversify Chesswood's
balance sheet both with regards to underwritten assets and funding
sources. We accomplished our goal through the launch of Vault
Home as well as the acquisition of Rifco. In addition, we
formed a new revolver syndicate, successfully completed our largest
marketed ABS offering through our subsidiary, Pawnee Leasing
Corporation, and formed Chesswood Capital Management to manage off
balance sheet funding relationships. We expect these
initiatives to further enhance shareholder value by growing
profitability across a diverse set of assets, reducing volatility
in our operating results and ultimately increasing returns for
investors."
"The economic environment throughout 2021 was particularly
favorable for specialty finance companies. A combination of
loan demand recovery following declines in 2020 brought on by
COVID-19 and low interest rates produced exceptional opportunities
for growth. Furthermore, government subsidies provided to
individuals and businesses resulted in low charge-off and
delinquency rates throughout the year. Practically speaking,
it is likely we will begin to see the market normalize in 2022 and
would point to rising rates as an indication that this is in fact
occurring. That said, the groundwork our team laid in 2021
has created a platform for continued growth throughout the year as
we leverage Chesswood's scale to the benefit of all of our
operating subsidiaries." said Ryan
Marr, Chesswood's President and CEO.
"I am pleased to announce that Chesswood's Board has approved an
increase in the annual dividend rate from $0.36 per share to $0.48 per share, a 33% increase. This
increase reflects Chesswood's strong free cash flow generation and
outlook for business profitability. We continue to take a
balanced approach between overall portfolio growth and returning
cash to shareholders through dividends and buybacks." said Mr.
Marr.
Summary of Fourth Quarter & Year End Results
2021 Year
The Company reported consolidated net income of $31.2 million in the year ended December 31, 2021, compared to a net loss of
$8.5 million in 2020, an increase of
$39.7 million.
The U.S. Equipment Finance Segment's interest revenue on leases
and loans totaled $94.2 million, an
increase of $2.7 million
year-over-year. The increase was caused by a US$118.0 million increase in the average
portfolio size and continuously growing originations since the last
quarter of 2020. The impact of the portfolio growth was
offset by a 7% decrease in foreign exchange year-over-year and a 1%
decrease in the interest revenue yield during the year. The average
annualized interest revenue yield earned on U.S. based net finance
receivables was 12% in the year ended December 31, 2021, compared to 13% in the prior
year, reflecting an increase in the overall percentage of prime
receivables.
The Canadian Equipment Financing Segment generated revenue of
$32.8 million during the year ended
December 31, 2021, compared to
$15.2 million in the prior year, an
increase of $17.6 million, or 116%.
The Canadian Equipment Financing Segment's average net investment
in finance receivables (before allowance for credit losses ("ACL"))
increased approximately $114.6
million in the year ended December
31, 2021, compared to the prior year, largely due to the
Blue Chip and Vault Credit merger and Vault Credit's continued
expansion in the Canadian equipment leasing market. In addition,
the average number of finance receivable contracts outstanding
increased by 4,979 in the year ended December 31, 2021, compared to the prior year. In
the year ended December 31, 2021, the
interest revenue yield of 10% earned on the Canadian Equipment
Financing Segment 's net finance receivables has increased from 8%
in 2020.
A $3.1 million increase in the
interest expense, year-over-year, is driven primarily by an
increase in average debt outstanding throughout the year. Personnel
expenses increased $13.1 million, to
$32.3 million, due to higher staff
counts arising from the merger with Vault Credit, and for
processing the increase in originations as a result of the growth
in both the U.S. and Canadian Segments.
The Company recognized a provision for credit losses of
$0.2 million, a $25.5 million decrease compared to the prior
year. The decrease is primarily related to provision releases as a
result of a consistently better performing portfolio, especially as
COVID-19 uncertainties lessen, as well as continued strong
collection efforts.
Q4 2021
The Company reported consolidated net income of $7.9 million for the three months ended
December 31, 2021, compared to
$0.1 million in the same period of
2020, an increase of $7.8 million in
the same quarter year-over-year. Net income was impacted by a
one-time restricted share unit grant which reduced net income by
$2.3 million in the quarter.
The U.S. Equipment Financing Segment's interest revenue on
leases and loans totaled $27.7
million, an increase of $7.8
million year-over-year in the three-month period, as a
result of a 55% increase in average net investment in finance
receivables (before ACL), an increase of US$270.4 million to US$759.4 million in the three months ended
December 31, 2021 compared to the
same period in the prior year. This was partially offset by the
decrease in the average yield earned during the period (11.7%
compared to 12.2% in the prior year). The decrease in overall yield
percentage is due to the continuing growth in the prime segment of
the portfolio.
The Canadian Equipment Financing Segment generated revenue of
$13.1 million during the three months
ended December 31, 2021, an increase
of $9.6 million from the same period
in the prior year. The Canadian Equipment Financing Segment's
average net investment in finance receivables (before ACL)
increased approximately $245.5
million in the three months ended December 31, 2021 compared to the same period in
the prior year. The average annualized interest revenue yield
earned on the Canadian Equipment Financing Segment's net finance
receivables increased by 3% (to 11%), during the period compared to
the same period in the prior year.
The Company recognized a provision for credit losses of
$0.4 million, a $1.5 million decrease compared to the same period
in prior year. The decrease is primarily related to provision
releases as a result of a better performing portfolio, one year
further away from COVID-19 uncertainties, as well as continued
strong collection efforts. This was partially offset by the growing
loan portfolio book.
Outlook
Chesswood exited 2021 with record originations and the largest
receivables portfolio in the Company's history. We expect this
momentum to continue throughout 2022 with the added benefit of
contributions from our newly acquired automobile finance entity,
Rifco.
The equipment finance subsidiaries continue to see strong
origination volumes in both Canada
and the United States. Changes in
the general interest rate environment are expected to impact
pricing for prime credits as the industry passes through increases
in funding cost. Historically, we have been successful in
maintaining credit spreads in a rising rate environment. Any
negative impact from rising rates will likely be seen in weaker
industry wide origination volumes.
Portfolio losses and recoveries throughout 2021 were the
strongest in Chesswood's history due to several economic factors.
For 2022, we expect these metrics to begin normalizing towards
levels more consistent with our underwriting expectations.
Furthermore, the addition of near-prime receivables from our Rifco
acquisition will increase overall portfolio provisioning and
losses. On a net basis, we expect to maintain strong credit
margins, consistent with Chesswood's historical
performance.
Our acquisition of Rifco will begin to contribute to overall
results in Q1 of 2022. As a reminder, the accounting
treatment for acquisitions of loan portfolios requires that the
allowance for doubtful accounts be taken as a provision in the
quarter for which the portfolio is acquired. Therefore, Q1 results
will be impacted by this one-time charge, flowing through the
income statement. RIFCO is expected to build on the results
achieved in 2021 after adjusting for this one-time provision.
Chesswood's funding sources for the year will be augmented with
off-balance sheet investments arranged by Chesswood Capital
Management. In addition to managing Chesswood's on balance
sheet facilities and access to the ABS markets, Chesswood Capital
Management will structure off-balance sheet funding partnerships as
well as manage investor capital seeking direct exposure to the
underlying originations of Chesswood's operating subsidiaries.
Chesswood and its subsidiaries will earn management fees, servicing
fees and origination fees associated with these programs. We
are excited about these new funding relationships and expect them
to be accretive to Chesswood's profitability and return on
equity.
|
Consolidated
Operating and Financial Results
|
|
Average FX
rate
|
1.2535
|
1.3415
|
|
|
Year ended December
31,
|
($
thousands)
|
2021
|
2020
|
Change
|
|
|
|
|
Revenue
|
$
|
138,083
|
$
|
117,056
|
$
|
21,027
|
Interest
expense
|
(31,671)
|
(28,521)
|
(3,150)
|
Net
charge-offs
|
(2,028)
|
(31,374)
|
29,346
|
|
104,384
|
57,161
|
47,223
|
Expenses:
|
|
|
|
Personnel
expenses
|
(32,269)
|
(19,203)
|
(13,066)
|
Share-based
compensation expense
|
(3,544)
|
(920)
|
(2,624)
|
Other
expenses
|
(26,450)
|
(18,618)
|
(7,832)
|
Depreciation
|
(1,111)
|
(1,216)
|
105
|
Adjusted operating
income(1)
|
41,010
|
17,204
|
23,806
|
Decrease in allowance
for credit losses ("ACL')
|
1,840
|
5,730
|
(3,890)
|
Amortization of
intangible assets
|
(1,789)
|
(1,333)
|
(456)
|
Operating
Income
|
41,061
|
21,601
|
19,460
|
Restructuring and
other transaction costs
|
—
|
(9,250)
|
9,250
|
Goodwill and
intangible asset impairment
|
—
|
(20,828)
|
20,828
|
Mark-to-market gain
(loss) on interest rate derivative
|
344
|
(118)
|
462
|
Other non-cash FMV
charges and unrealized FX
|
666
|
477
|
189
|
Income (loss) before
taxes
|
42,071
|
(8,118)
|
50,189
|
Tax
expense
|
(10,902)
|
(407)
|
(10,495)
|
|
|
|
|
Net Income
(Loss)
|
$
|
31,169
|
$
|
(8,525)
|
$
|
39,694
|
|
|
|
|
Earnings Per Share
– Basic
|
$
|
1.75
|
$
|
(0.48)
|
$
|
2.23
|
Earnings Per Share
– Diluted
|
$
|
1.59
|
$
|
(0.48)
|
$
|
2.07
|
|
|
|
|
Free Cash
Flow
|
$
|
33,573
|
$
|
19,606
|
$
|
13,967
|
Free Cash Flow Per
Share - Diluted
|
$
|
1.72
|
$
|
1.10
|
$
|
0.62
|
|
|
|
|
(1) See "Non-GAAP
Measures" below
|
|
|
|
NON-GAAP MEASURES
Adjusted Operating Income and Free
Cash Flow are not recognized measures under International Financial
Reporting Standards and do not have a standard meaning.
Accordingly, these measures may not be comparable to similar
measures presented by other issuers. The calculation of these
measures are based on the requirements of certain significant
banking and lending agreements with Company for the purposes of
calculation of permitted dividends and cash required for purchases
of shares under the Company's normal course issuer bid. For further
information, reference should be made to the Non-GAAP Measures in
the Company's Management Discussion & Analysis section of its
2021 Annual Report.
ABOUT CHESSWOOD GROUP LIMITED
Through three wholly
owned subsidiaries in the United
States and five subsidiaries in Canada, two of which are wholly owned,
Chesswood Group Limited is a North American specialty finance
company publicly traded on the Toronto Stock Exchange. Colorado-based Pawnee Leasing Corporation,
founded in 1982, finances a highly diversified portfolio of
commercial equipment leases and loans through relationships with
over 600 brokers in the United
States. Tandem Finance Inc. provides financing in the U.S.
through the equipment vendor channel. In Canada, Blue Chip Leasing Corporation has been
originating and servicing commercial equipment leases and loans
since 1996, and today operates through a nationwide network of more
than 50 brokers. Vault Credit Corporation specializes in equipment
leases and commercial loans across Canada, allowing for customizable financing
solutions while catering to a wide spectrum of credit tiers,
equipment types and sectors by offering industry-leading service
levels, experienced underwriters, and account administrators. Vault
Home was acquired in September 2021
and focuses on providing home improvement and other consumer
financing solutions in Canada.
Rifco Inc. is focused on being the best alternative auto finance
company, with the mission to help Canadians own automobiles. Rifco
seeks to create sustainable long-term competitive advantages
through personalized partnerships with dealers, innovative
products, the use of industry-leading data and analytics, and
leading collections practices. Chesswood Capital Management will
provide private credit alternatives to investors seeking exposure
to loan receivables, including those originated by Chesswood
subsidiaries.
Based in Toronto, Canada,
Chesswood Group Limited's shares trade on the TSX under the symbol
CHW.
To learn more about Chesswood Group Limited, visit
www.ChesswoodGroup.com.
The websites of Chesswood Group Limited's operating businesses
are:
www.PawneeLeasing.com
www.BlueChipLeasing.com
www.TandemFinance.com
www.VaultCredit.com
www.VaultPay.com
www.Rifco.net
This news release contains forward-looking statements that
involve a number of risks and uncertainties because they relate to
events and depend on circumstances that will occur in the future.
Many factors could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking
statements (including the ultimate duration and severity of the
COVID-19 pandemic, the successful growth of Vault Home, the
successful integration of Rifco Inc., and the successful launch of
Chesswood Capital Management). By its nature, this information is
subject to inherent risks and uncertainties that may be general or
specific and which give rise to the possibility that expectations,
forecasts, predictions, projections, or conclusions will not prove
to be accurate, that assumptions may not be correct, and that
objectives, strategic goals and priorities will not be achieved.
Additional information about the risks and uncertainties of the
Company's businesses and material factors or assumptions on which
information contained in forward-looking statements is based is
provided in its publicly filed documents, including the Company's
annual information form and management's discussion and analysis of
the financial condition and performance, which are available
electronically through the System for Electronic Document Analysis
and Retrieval at www.sedar.com.
NO STOCK EXCHANGE, SECURITIES COMMISSION OR OTHER REGULATORY
AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED
HEREIN.
SOURCE Chesswood Group Limited