TORONTO, November 4, 2021 – Chesswood Group Limited (“Chesswood” or the “Company”) (TSX: CHW), a publicly traded North American specialty finance company providing commercial equipment leases & loans, business loans, and home improvement financing, today reported its results for its third quarter ended September 30, 2021.
Q3 2021 Highlights
“The third quarter of 2021 once again demonstrates the momentum at Chesswood Group. Despite what is traditionally a seasonally slower quarter, we experienced net portfolio growth as a result of continued market share gains in Canada as well as continued execution by our vendor finance team in the United States, Tandem Finance,” said Chesswood CEO Ryan Marr. “I am particularly pleased with Chesswood’s shifting portfolio composition, increasing our exposure to high quality prime credits, whereby we can access more competitive financing in the Asset Backed Securitization markets. Subsequent to quarter end, Pawnee completed its third public securitization for US$356 million with strong investor demand and industry leading pricing. The success of our recent ABS results in interest savings of over 100bps versus our current cost of funds,” added Marr.
“In addition, we completed the launch of our newly formed Canadian consumer business, Vault Home. Vault Home is managed by industry leaders John Stout and Kyle Wenn. We view the launch of Vault Home as a further example of Chesswood’s expertise to partner with proven operators in niche lending channels. We continue to look for opportunities to expand into new verticals, further diversifying Chesswood’s asset base,” continued Marr.
Subsequent to quarter end, Chesswood announced the intended acquisition of RIFCO Auto Finance for $28 million, which will be financed using existing balance sheet liquidity. “The proposed acquisition of RIFCO further positions Chesswood as a diversified specialty finance company.” Noted Marr, “We believe that RIFCO’s platform will benefit from Chesswood’s scale in North America and further their market reach across Canada.”
Summary of Third Quarter Results
The Company reported consolidated International Financial Reporting Standards (IFRS) net income of $9.1 million in the three months ended September 30, 2021, compared to net income of $9.8 million in the same period in 2020, a decrease of $0.7 million year-over-year. Excluding the impact of provisions associated with COVID, net income is up $8.5 million year-over-year due to portfolio growth, lower charge-offs offset by higher operating costs.
On a constant currency basis to Q3 2020, net income would have been $2.5 million higher for the quarter (or $0.15 per share).
The U.S. Equipment Finance segment (Pawnee Leasing and Tandem Finance) reported interest revenue on leases and loans of $24.3 million and ancillary and other income of $3.1 million, a total increase of $3.6 million period-over-period. The increase is a result of continued strong originations throughout the period resulting in net portfolio growth.
The Canadian Equipment Finance segment reported interest revenue on leases and loans of $7.9 million and ancillary and other income of $1.7 million, a total increase of $6.0 million period-over-period. The increase is a result of a larger portfolio of receivables in our Canadian operations and a full quarter of results following the merger of Blue Chip and Vault Credit. Net Income for the three months would have been higher by $1 million excluding one-time costs associated with the merger.
Overall operating costs were up $7.1 million year-over-year to $16.8 million. Operating expenses were up primarily due to the previously announced merger as well as infrastructure supporting growth in the U.S. segment, resulting in an increase in average full-time employees for the period.
Free cash flow for the period was $10.2 million, up $5.6 million from Q3 2020. The increase in free cash flow is the result of low charge-offs in the period, compared to Q3 2020 and a larger overall receivables portfolio. In addition to these items, on a constant currency basis to Q3 2020, free cash flow would have been $2.1 million higher for the quarter.
Chesswood is now originating in excess of CAD$100 million per month of diversified, small ticket, commercial equipment leases and loans, and expect these strong origination volumes to continue into the end of the year. As a result of our successful ABS issue subsequent to quarter end, we are able to prefund a significant portion of our Prime volumes into year end at favorable market interest rates.
In addition to our focus on expanding Chesswood’s origination volumes, we are continuously looking for opportunities to enhance our balance sheet and improve the quality of Chesswood’s earnings. In Q4 we will officially launch Chesswood Capital Management (CCM). This new division of Chesswood will be led by Jeff Fields and will focus on providing private credit solutions to investors seeking exposure to loans originated by Chesswood subsidiaries.
Jeff joined the Chesswood Group board as an independent director in September of 2020, and previously spent 22 years at RBC Capital Markets as a senior executive managing businesses across RBC’s equities and fixed income divisions, where Jeff was also a member of RBC’s Global Markets Operating Committee. Jeff will continue to serve on the Chesswood Group board as an executive director.
Chesswood Capital Management will offer exposure to Chesswood’s underlying assets through both CCM investment funds, as well as structured institutional vehicles. “CCM will provide private credit investors with access to Chesswood’s differentiated and diversified loan portfolio in formats designed to offer attractive risk-adjusted returns”, said Jeff Fields.
The CCM business will introduce a new stream of management fee revenue for Chesswood that is recurring in nature and accretive to ROE, thus improving the quality of Chesswood’s earnings over time.
Adjusted Operating Income and Free Cash Flow are not recognized measures under IFRS and do not have a standard meaning. Accordingly, these measures may not be comparable to similar measures presented by other issuers. Please refer to the Company’s Management Discussion and Analysis in Chesswood’s 2021 Third Quarter Report for additional information concerning these measures and a reconciliation of these measures to the Company’s consolidated income before taxes.
About Chesswood Group Limited
Through two wholly-owned subsidiaries in the United States and three subsidiaries in Canada, Chesswood Group Limited is North America’s only publicly traded commercial equipment finance company focused on small and medium-sized businesses. 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 launched in September 2021 and focuses on providing home improvement and other consumer financing solutions in Canada.
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.
This press 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 and the successful integration of Blue Chip Leasing and Vault Credit Corporation and the successful launch of Vault Home). 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.
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