OREANDA-NEWS. Nicholas Financial, Inc. (NASDAQ:NICK) announced that for the three months ended June 30, 2016, diluted earnings per share decreased 21% to $0.37 as compared to $0.47 for the three months ended June 30, 2015. Net earnings were $2,903,000 and $3,670,000 for the three months ended June 30, 2016 and 2015, respectively. Revenue increased 4% to $22,915,000 for the three months ended June 30, 2016 as compared to $22,025,000 for the three months ended June 30, 2015.

Our net earnings for the three months ended June 30, 2016 were adversely affected primarily by an increase in the provision for credit losses due to higher charge-offs and a reduction in the gross portfolio yield due to a decrease in the weighted average APR of purchases. Our net earnings were positively affected by a reduction in operating expenses as a percentage of average net receivables from 10.92% to 10.40%, for the three months ended June 30, 2015 and 2016, respectively.

“During our first quarter, new loan originations were below Company expectations. We experienced a greater number of potential loans, which did not translate into acquired loans because they did not meet the Company’s risk pricing criteria. The market continues to be highly competitive and we have seen some large competitors reduce their originations as a result of tightening underwriting guidelines; however, other large competitors have increased their appetite for new loan acquisitions,” stated Ralph T. Finkenbrink, the Company’s President and CEO.

Nicholas Financial, Inc. is one of the largest publicly traded specialty consumer finance companies in North America. The Company operates branch locations in both the Southeastern and the Midwestern states. The Company has approximately 7,753,000 shares of common stock outstanding.

 
 
Nicholas Financial, Inc.
Condensed Consolidated Statements of Income
(Unaudited, Dollars in Thousands, Except Share and Per Share Amounts)
   
   
  Three months ended
June 30,
    2016     2015  
Revenue:    
Interest and fee income on finance receivables $ 22,915   $ 22,025  
     
 Expenses:    
Operating   8,674     8,423  
Professional fees   247     448  
Provision for credit losses   7,026     4,989  
Interest expense   2,244     2,166  
Change in fair value of interest rate swaps   18     44  
    18,209     16,070  
     
Operating income before income taxes   4,706     5,955  
Income tax expense   1,803     2,285  
Net income $   2,903   $   3,670  
     
Earnings per share:    
Basic $   0.37   $   0.48  
Diluted $   0.37   $   0.47  
     
Weighted average shares   7,672,000     7,616,000  
     
Weighted average shares and assumed dilution   7,732,000     7,744,000  
     
 
Condensed Consolidated Balance Sheets
(Unaudited, In Thousands)
     
  June 30, March 31,
    2016     2016  
Cash $   4,520   $   1,849  
Finance receivables, net   312,655     311,837  
Other assets   11,742     11,623  
     
Total assets $ 328,917   $ 325,309  
     
Line of credit $ 209,000   $ 211,000  
Other liabilities   14,053     11,460  
     
Total liabilities   223,053     222,460  
     
Shareholders' equity   105,864     102,849  
     
Total liabilities and    
shareholders’ equity $ 328,917   $ 325,309  
   
  Three months ended
 June 30,
(In thousands) 
Portfolio Summary   2016     2015  
             
Average finance receivables, net of unearned interest (1) $ 343,185   $ 324,951  
             
Average indebtedness (2) $ 210,407   $ 201,086  
             
Interest and fee income on finance receivables $   22,915   $   22,025  
             
Interest expense   2,244     2,166  
             
Net interest and fee income on finance receivables $   20,671   $   19,859  
             
Weighted average contractual rate (3)   22.67 %   22.88 %
             
Average cost of borrowed funds (2)   4.27 %   4.31 %
             
Gross portfolio yield (4)   26.71 %   27.11 %
             
Interest expense as a percentage of average finance receivables, net of unearned interest   2.62 %   2.67 %
             
Provision for credit losses as a percentage of average finance receivables, net of unearned interest    8.19 %   6.14 %
             
Net portfolio yield (4)   15.90 %   18.30 %
             
Marketing, salaries, employee benefits, depreciation, administrative, and professional fees as a percentage of average finance receivables, net of unearned interest   10.40 %   10.92 %
             
Pre-tax yield as a percentage of average finance receivables, net of unearned interest (5)   5.50 %   7.38 %
             
Write-off to liquidation (6)   9.41 %   6.99 %
             
Net charge-off percentage (7)   7.51 %   5.83 %
             

Note: All three-month key performance indicators expressed as percentages have been annualized.

(1) Average finance receivables, net of unearned interest, represents the average of gross finance receivables, less unearned interest throughout the period.

(2) Average indebtedness represents the average outstanding borrowings under the Line. Average cost of borrowed funds represents interest expense as a percentage of average indebtedness.

(3) Weighted average contractual rate represents the weighted average annual percentage rate (“APR”) of all Contracts and Direct Loans as of the period ending date.                                                                                                               

(4) Gross portfolio yield represents interest and fee income on finance receivables as a percentage of average finance receivables, net of unearned interest. Net portfolio yield represents interest and fee income on finance receivables minus (a) interest expense and (b) the provision for credit losses as a percentage of average finance receivables, net of unearned interest. 

(5) Pre-tax yield represents net portfolio yield minus administrative expenses (marketing, salaries, employee benefits, depreciation, administrative, and professional fees) as a percentage of average finance receivables, net of unearned interest.

(6) Write-off to liquidation percentage is defined as net charge-offs divided by liquidation. Liquidation is defined as beginning receivable balance plus current period purchases minus voids and refinances minus ending receivable balance.

(7) Net charge-off percentage represents net charge-offs divided by average finance receivables, net of unearned interest, outstanding during the period.

The following tables present certain information regarding the delinquency rates experienced by the Company with respect to automobile finance installment contracts (“Contracts”) and direct consumer loans (“Direct Loans”), excluding any Chapter 13 bankruptcy accounts:  

(In thousands, except percentages)
           
Contracts Gross Balance
Outstanding
31 – 60 days 
61 – 90 days
Over 90
Total
June 30, 2016 $ 484,027   $ 25,445   $ 8,027   $ 3,576   $ 37,048  
      5.26 %   1.66 %   0.74 %     7.66 %
June 30, 2015 $ 463,396   $ 18,879   $ 4,799   $ 1,899   $ 25,577  
      4.07 %   1.04 %   0.41 %   5.52 %
           
Direct Loans Gross Balance
Outstanding
31 – 60 days 
61 – 90 days
Over 90
Total
June 30, 2016 $ 11,062   $   178   $   55   $   42   $   275  
      1.61 %   0.50 %   0.38 %   2.49 %
June 30, 2015 $ 11,372   $   156   $   35   $   24   $   215  
      1.37 %   0.31 %   0.21 %   1.89 %
                           

The following table presents selected information on Contracts purchased by the Company, net of unearned interest:    

  Three months ended
June 30,
(Purchases in thousands)
Contracts   2016     2015  
Purchases $ 40,830   $ 52,375  
Weighted APR   22.39 %   22.67 %
Average discount   7.15 %   7.54 %
Weighted average term (months)   57     56  
Average loan $   11,609   $   11,381  
Number of contracts   3,517     4,602