chw results out. pretty much in line with what i thot (higher qoq pcls and some nii compression in near term), but fine nonetheless considering the backdrop. some improvement in can ops profitability.
actually also gave a forecast of where chw wants to take the lending book ($4-6 billion, vs current $2.3 billion) in next few years.
eps of 0.33 and fcf of 0.42 per share. full year almost $2.50 per share in fcf.
in q4, pcls up and totaled $9 million, plus higher cost of funds (higher interest rates) which compressed net interest margin and spending on technology improvements. repricing book to account for higher rates and seeing less competition moving forward, so well positioned for share gains. the book repricing likely to show building impact as move thru 23 and beyond.
us operating income down qoq due to higher pcls, cost of funds adn opex
can operating income up qoq which was positive (after weak profits in last q)
rifco (auto) op income also up qoq about 50%.
non-prime (ex-rifco) about 24% of book, vs 25% at ye2021.
balance sheet and funding in good shape. paid $2.4 million in dividend in q4 vs total allowable of $12.2 million.
commentary from pr and annual report:
"We see a long runway to continue building value across our operational platforms. The medium term objective for our team is to achieve a total portfolio size between $4 billion and $6 billion over the next several years. Current origination levels support this objective, and therefore time is the primary variable for us to achieve success."
"Delinquency trends toward the end of 2022 were on the rise. Across most asset classes that we track; commercial equipment,sub prime auto and unsecured consumer loans were all showing increased delinquency levels and losses. While the absolute level of these metrics remains in line with historical averages, the trend is reason enough to be cautious. We continued to build reserves throughout the year in anticipation of rising delinquency upon normalization of credit conditions. Our teams have tightened standards in certain asset categories where we historically see strain in weak economic environments.
In other areas of our business, we are beginning to see competition decline, leading us to originate better credit at premium rates. This trend is also recent, and we are therefore taking a balanced view of the markets until more definitive data isrevealed.
It is often said that forecasting is a bad business – since predicting the future is impossible. Sticking to business fundamentals, which in our case is focusing on consistent underwriting standards, in addition to strong collection and servicing processes,remains the best way to manage risk. Our team has “been here before” and has strong operating processes that have proven to be effective in challenging environments.
As a result of this experience, we remain focused on a strategic vision – to maintain profitable portfolio growth that is diversified across a variety of asset classes. Our origination volumes continue to support this objective, and our team works hard to ensure we have capital solutions for different credit and asset profiles..."
from md&a:
"The rapid increase in interest rates in the second half of 2022 weighed on operating margins in the final quarter of the year. In our equipment and consumer finance businesses (excluding auto), application approvals are provided 30 – 60 days in advance of funding. Furthermore, an additional 30 days is required to season the loans and prepare them for securitization (fixed rate, matched term financing). Our pricing lagged inrespect to these large rate adjustments and will not settle until Q1 of 2023. According to central banks, policy rates are now approaching levels consistent with achieving their objective of bringing inflation back in-line with policy targets. Today, fixed income markets are pricing modest increases in policy interest rates going forward. Therefore, we expect net interest margins to return to normal as new loans are funded and securitized. While this near-term margin impact is disappointing, our team has made considerable progress strengthening the portfolio and achieving greater scale in our operations. We are confident with the outlook for the profitability and earnings power of the portfolio as the term structure of interest rates returns to more normal levels."