Chesswood Group Limited, a publicly traded North American specialty finance company providing commercial equipment leases and loans, automotive loans, and home improvement financing, reported its results for the quarter ended March 31, 2022.

Q1 2022 Highlights

• Strong origination volumes of $383.4 million in the equipment finance segment and $28.1 million in the automotive finance segment, resulting in record gross finance receivables of $2.2 billion at March 31.
• Renewal of corporate revolving credit facility allowing borrowings of up to US$300 million, with a further US$100 million accordion feature.
• Successful acquisition of Rifco Inc. (thereby indirectly acquiring Rifco National Auto Finance Corporation) on Jan. 14, providing Chesswood with a platform to enter the Canadian auto financing sector.
• Adjusted earnings of $8.8 million and record free cash flow generation of $15.22 million.
• Adjusted return on equity of 18.3 percent.

"Chesswood achieved record first quarter free cash flow generation of $15.22 million or $0.732 per fully diluted share" said Ryan Marr, Chesswood's President & CEO. "Our teams' efforts across all operating divisions are delivering exceptionally strong results as evidenced by their portfolio performance and operating results."

In the quarter, Chesswood announced its first off-balance sheet investment collaboration with a third-party institutional investor. In exchange for delivering receivables originated by Chesswood's U.S. Equipment Financing Segment, Chesswood will earn origination fees, as well as, recurring management fees and servicing fees. "We are pleased to have successfully launched our first forward flow agreement that provides Chesswood with additional funding to maintain the rapid growth experienced by our vendor programs in the U.S. while also providing another source of revenues without the associated balance sheet risk," said Marr.

Summary of Q1 Results

The company reported consolidated net income of $1.7 million in the first quarter ended March 31 compared to a net income of $6.3 million in the first quarter of 2021. The Q1 2022 net income was significantly impacted by an accounting requirement to immediately recognize the full loss provision ($9.3 million) for Rifco's portfolio on the date of the acquisition through the consolidated statements of income. The adjusted net income1 excluding that one-time non-recurring item was $8.8 million, an increase of $2.5 million year-over-year.

The U.S. Equipment Financing Segment reported interest revenue on leases and loans of $30.6 million and ancillary and other income of $3.6 million, a total increase of $11.0 million year over year. The increase is the result of the growing finance receivables portfolio, offset by an increasing mix of prime receivables.

The Canadian Equipment Financing Segment reported interest revenue on leases and loans of $11.0 million and ancillary and other income of $3.4 million, a total increase of $11.2 million year over year. The increase reflects the expansion of the Canadian Equipment Financing Segment as a result of the merger with Vault Credit Corporation in Q2 2021 and the tremendous portfolio receivable growth since then.

The Canadian Auto Financing Segment reported interest revenue on leases and loans of $8.3 million and ancillary and other income of $0.3 million. Excluding the $9.3 million initial provision for the purchased portfolio ($7.21 million tax adjusted), the segment would have contribution a total of $0.7 million of net income to the Company's consolidated net income after tax.

Overall operating costs were up $14.7 million period over period to $25.8 million. The acquisition of Rifco increased operating expenses by $2.8 million, with a majority related to costs associated with personnel, collections, marketing, and other operating costs.

Other expenses from the equipment financing segments mainly consisting of costs directly attributable to originations were up $3.5 million as a result of scaling the businesses. In addition, the growth of the equipment financing segments and their originations required a 94 percent increase in the number of employees from the same period in the prior year, increasing personnel costs by $5.5 million.

Free cash flow for the period was $15.2 million, up $11.5 million from Q1 2021. The increase in free cash flow is the result of growing revenues, lower net charge-offs due to strong collections, and the acquisition of Rifco.

Chesswood’s operating businesses include Pawnee Leasing, Tandem Finance, Blue Chip Leasing Corporation, Vault Credit Corporation and Rifco National Auto Finance.

For more details see the full release here.