Chesswood Announces Second Quarter 2022 Results
TORONTO, August 4, 2022 – Chesswood Group Limited (“Chesswood” or the “Company”) (TSX: CHW), a
publicly traded North American specialty finance company providing commercial equipment leases and loans, automotive loans, home improvement financing, and asset management, today reported its results for the three and six months ended June 30, 2022.
Q2 2022 Highlights
- Successful acquisition on May 25, 2022 of Waypoint Investment Partners Inc., an integrated
platform to structure and distribute private credit solutions to Canadian investors.
- Strong origination volumes of $467.7 million in the equipment finance segment and $35.4 million in
the automotive finance segment, resulting in record gross finance receivables of $2.5 billion as at
June 30, 2022.
- Utilized off balance sheet funding with a third party institutional investor for US$97.4 million of net
investment in finance receivables under the asset management segment’s first forward flow
arrangement, which provides Chesswood with origination, management, and servicing fees.
- Earnings of $9.7 million ($0.46 per fully diluted share) and record free cash flow generation of $15.7 million ($0.75 per fully diluted share).
- Return on equity for the quarter of 19.3%.
“Chesswood generated strong earnings and free cash flow in the second quarter of 2022. On a consolidated
basis, our businesses achieved record levels of free cash flow, driven by our diversified portfolio of more than
$2 billion of commercial and consumer net finance receivables” said Ryan Marr, Chesswood’s President &
CEO. “Origination levels were strong throughout the quarter, driven in particular by growth in our vendor
channel in addition to our unique full credit spectrum underwriting capability” added Mr. Marr.
“The second quarter included results from our first asset management flow agreement with an institutional
investor. Our team delivered approximately US$97.4 million of U.S. Equipment Financing Segment net
investment in finance receivables under this program, with the expectation to continue delivering at a similar
pace into year end,” said Mr. Marr. “It was also the first complete reporting quarter of Rifco following the
acquisition of the business in January 2022 and we are very excited with how this segment has integrated into
our operations,” added Mr. Marr.
“We are adjusting our pricing to adapt to the rising interest rate environment. Our teams are working hard to
help customers face this new reality, while at the same time ensuring we have a well-diversified portfolio. Our
team anticipates volumes will slow as we progress throughout the year, albeit still at levels supporting net
growth. Our focus on growing fee-based earnings streams brings us closer to our goals of enhancing earnings predictability and growth and reducing balance sheet risk,” said Mr. Marr.
Summary of Q2 Results
The Company reported consolidated net income of $9.7 million in the three months ended June 30, 2022
compared to net income of $7.8 million in the same period in 2021, an increase of $1.9 million compared to the same period in the prior year. The increase was primarily the result of the addition of Rifco National Auto Finance Corporation (“Rifco”), which was acquired in January 2022, which contributed $2.6 million in the three months ended June 30, 2022.
The U.S. Equipment Financing Segment reported interest revenue on leases and loans in the quarter of $32.5
million and ancillary and other income of $5.3 million, a total increase of $14.2 million compared to the same
period in the prior year. The increase is the result of the growing finance receivables portfolio.
The Canadian Equipment Financing Segment reported interest revenue on leases and loans in the quarter of
$14.0 million and ancillary and other income of $2.9 million, a total increase of $10.1 million compared to the
same period in the prior 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
receivables growth since then. The Canadian Equipment Financing Segment had record breaking originations
in Q2 2022 of $203.4 million.
The Canadian Auto Financing Segment reported interest revenue on leases and loans in the quarter of $10.6
million and ancillary and other income of $0.4 million.
Overall operating costs were up $14.3 million compared to the same period in the prior year, to $27.6 million. A majority of the increase relates to costs associated with personnel, collections, marketing, and other operating costs.
Other expenses from the equipment financing segments were up $3.8 million compared to the same period in the prior year, mainly consisting of costs attributable to originations as a result of scaling the businesses. In addition, the growth of the equipment financing segments and their originations required a 57% increase in the number of employees from the same period in the prior year, increasing personnel costs by $4.6 million.
Free cash flow for the period was $15.7 million, up $7.6 million from Q2 2021. The increase in free cash flow is
the result of growing revenues and the acquisition of Rifco.
Following quarter end, Pawnee announced another ABS transaction for USD$346.6 million. The transaction is
expected to close in early August. For the second half of 2022, our team is prioritizing balance sheet liquidity.
Economists predict that chances for a recession are building as central banks continue to tighten monetary
policy. We therefore believe a defensive approach is warranted in the current environment.
We will continue to build our managed assets through our Chesswood Capital Management division. Our team continues to see strong investor interest for Chesswood originated finance receivables in addition to entertaining interest from other originators looking for diversified funding away from traditional conduits. Following the acquisition of Waypoint, Chesswood’s Asset Management division is now positioned to distribute and manage investment funds across all asset classes, and we expect to continue leveraging this capability as we progress throughout the remainder of 2022.
Please see full press release at Investor Relations at www.chesswoodgroup.com