earnings report and commentary upbeatthis looks good. included ceo commentary below, but highlights are:
- growing loan book materially, with march month at $50M in originations (and $130M for quarter), and think at least $650M for full year is achievable. when layer on vault assets, this is a company in growth phase after years of no growth. portfolio continuing to become more prime credits, which leads to lower credit losses.
- funding sources becoming more diversified and removes restrictions that had in past, not allowed chw to grow its book. in past, it had been no growth, high payout company which hurt investor appeal. as a growth company, changing of shareholder base expected to continue.
- company returned $3.7M to shareholders in frist quarter, $1.0M in dividends and $2.7M in buybacks. annualized this is $14.9M. by leaning more on buybacks, and with stronger earnings coming, will see book value per share grow in future quarters. financials typically valued on p/b.
- importantly, ceo states that average port yield is almost 12%, cost of funding has been falling adn now at 3.5%, loss rate at three year lows (2.6% annualized) so as book grows materially under these assumptions, implications for earnings continue to be exciting on a $1.3B lending book by end of 21. math is pretty straightforward. likely why they want to reinvest earnings into growth, since the return from current lending model looks +++. this implied by ceo when talking about improved operating leverage (revenue growing faster than costs) thru rest of 2021.
- financial companies that are growing base business materially and generating good return deserve higher price/book value, which hope to see from chw in 2021 and 2022. still think cud be +$20 stock by mid-2022. GLTA
from ceo commentary:
"For the first quarter of 2021 we continued to see business momentum at Chesswood Group. Following the events of 2020, business lending has re-emerged strong both in terms of loan demand as well as quality. Originations for Q1 grew consecutively month over month, reaching $130 million in total for the quarter and continuing to grow as we move into Q2. Based on this early trend, we are confident that our team can achieve the goal of $650 million for the year. Total revenue for the quarter increased sequentially reflecting net growth in our loan portfolio balance during this period. Chesswood’s revenues are driven by average loan balances in each period, creating a lag effect from one quarter’s origination to the next. As we continue to progress throughout the year, we expect revenues to follow the growth in our equipment lease and loan portfolio.
Average portfolio yield for the period was 11.9%, which reflects the continued growth in our prime portfolio over our nonprime portfolio. Prime leases have a lower overall yield than our non-prime portfolio but also have lower loss rates. This improvement in portfolio quality is evident in our low net charge-off rate for the period of 0.6%. Annualized this result reflects a 2.5% loss rate which is lower than we have seen at any time in the past three years.
We are encouraged by this result and believe we will see this strong performance continue throughout 2021 (consistent with previous cycles). Our cost of funds declined to 3.5% reflecting the improving mix of prime loans, the changes made to our funding structure in 2020 and a general decline in North American interest rates. We are always looking for ways to improve our funding structure, seeking out the lowest cost and most flexible funding conduits to aid our growth and compete in the marketplace. We continue to see opportunities to improve this aspect of our business both for our prime and non-prime portfolios.
Operating costs held steady both sequentially and year over year. We should continue to see improved operating leverage throughout the year as we better utilize our infrastructure to support our large origination pipeline. As a result, earnings and free cash flow were strong for the quarter."
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