Rifco Reports Record Fourth Quarter and March 31, 2015 Annual Results

RED DEER, AB / ACCESSWIRE / June 11, 2015 / Rifco Inc. (TSXV:RFC.V - News) is announcing results for its wholly owned subsidiary Rifco National Auto Finance for the fourth quarter and the year ended March 31, 2015.

Annual Results

The Company posted Originations of $145.78M up from $126.22M, a 15% increase from the prior year.

Origination growth resulted in a 24% increase in Finance Receivables to $247.11M from $199.62M in the prior year. As a result, total Financial Revenue has increased by 29% to $39.00M from $30.26M.

The Company is reporting Net Income of $5.93M, a decrease of $0.45M, compared to $6.38M from the prior year. Rifco reported earnings per share (EPS) in the year of $0.281, a decrease from $0.305 in the prior year.

As the result of a continuing competitive environment in Rifco's lending niche, the Company experienced a reduction in Gross Portfolio Yield on new loans granted. In the year, the Gross Portfolio Yield (before amortization of Origination expenses) reduced to 18.24% from 19.01% in the comparable year. The Net Portfolio Yield has decreased to 16.90% from 17.73% over the same period.

The Average Interest Expense decreased to 4.74% from 5.27% in the prior year. Interest Expense improvement can continue to be achieved if benchmark rates reduce further and if additional Bank Borrowing is obtained.

The loan Delinquency Rate increased to 5.11% compared to 3.10% in the prior year, but decreased from 5.21% in the preceding quarter. The Delinquency Rate is currently higher than the Company's typical seasonal ranges of between 3.00% and 4.00%.

In Q4, the Company experienced the negative impact of the rapid decline in energy prices. Specifically, unemployment rates in Alberta have increased. This rapid decline in energy prices and the resulting impact on Alberta borrowers was unforeseen by the Company. As a result, the Company increased its collective Credit Loss provision on loans granted in Alberta before December 31, 2014. Management conducted detailed reviews of its credit underwriting processes and made adjustments to reflect the increased employment risk in Alberta. Loans granted after December 31, 2014 were granted reflecting credit underwriting in the current environment.

In the year, Rifco has increased the total Provision for Impairment from $2.87M to $5.09M. Included in the total is a Collective Provisioning for Impairment which is applied against non-delinquent loans where "there are observable changes to the external economic environment that can meaningfully change the likelihood of scheduled repayment". As discussed above, the collective provision has increased in the period from $0.73M to $1.49M in response to a perceived risk to our Alberta borrowers. It should also be noted that collective provisioning is only intended to reflect impairment on non-delinquent loans.

In the first two quarters for the year, the Delinquency Rate was negatively impacted by high staff turnover and below average tenure in the portfolio services department. Rifco's collection capacity was not sufficient for the initial bulge in delinquent accounts. The Company rapidly hired and trained as it worked to provide sufficient servicing capacity for the growing number of delinquent accounts. Rifco now has sufficient capacity in the portfolio services department. In addition the Company has retained an outsourced collection firm to provide capacity. Additional management leadership has been added to the department and processes have been adjusted for greater efficiency.

In Q3, Rifco went live with its new Loan Management Software (LMS) from Dominion Leasing Software. As it was expected, the conversion resulted in minor initial disruptions to operational processes. The project can now be clearly evaluated as a successful data conversion and implementation. Any operational drag has been resolved, and the Company is seeing increased efficiencies over time. With the vast majority of launch tasks completed, Management is now focused on increasing the utilization of the new LMS system and improving the employee interface, the management information reporting and developing further efficiencies.

The Average (12 month rolling) Credit Loss Rate increased to 3.95% from 3.28% in the prior year and has increased from the prior quarter rate of 3.80%. Early indications lead the Company to believe that Delinquency and Credit Loss Rates may be stabilizing. Further deterioration in the Alberta or National employment situation will put these results at risk.

Operating Expenses increased to $8.93M from $6.65M in the prior year. The Operating Expense Ratio improved to 3.87% compared to 3.90% in the prior year. In the year, the increasing Delinquency Ratio has resulted in an increased FTE count which increased Operating Expenses. Management believes that ongoing infrastructure investments and benefits of increasing scale will ultimately result in improving operating efficiency and will be reflected in continued improvement in Operating and Efficiency Ratios over time.

At year end, the progress of key projects is as follows:

- Loan management software upgrades (95% Complete)

- Electronic document management (paperless file management) (25% complete)

The strategy for the Company remains to grow value by expanding its profitable Loan Origination and Servicing Platform, "Rifco remains steadfast in originating Finance Receivables that it believes can achieve acceptable credit performance levels and profit margins. As margins are affected by funding rates and expected credit performance, the Company adjusts targeted Origination levels, credit requirements, and lending rates while maintaining market continuity. Rifco will not pursue a strategy of seeking to increase its market share at the expense of unsustainable credit performance."

The Company is experiencing unusually aggressive competition in the non-prime auto sector. Rifco's main competitors are loosening documentation requirements, reducing underwriting standards and are pricing risk aggressively. The Company believes that some of the pricing witnessed may be unprofitable and ultimately unsustainable. Rifco management believes that its Credit Model will continue to produce sustainable loan performance results over normal economic cycles.

Rifco will continue to develop new initiatives that it expects to positively affect loan Originations while maintaining the Company's focus on loan credit quality.

Rifco is in regular contact with all of its funders and remains optimistic regarding the availability of increasing amounts of Bank Borrowing and Securitized Facilities as needed. Credit markets in Canada are currently stable as many financial institutions are struggling to deploy capital. Predictable credit performance is imperative to achieving the Company's long term vision of $500M in annual loan Originations.

Rifco Annual Comparative Results

Key Period-to-Date Performance Measurement

Please note the Company results as reported against the specific objectives press released on June 11, 2014.

1.Achieve record Loan Originations of over $170 million

Loan Originations for the year reached $145.78M, a new record. Achieved 86% of the target. Target missed.

2.Achieve record Finance Receivables of over $278 million

Finance Receivables for the year grew to $247.11M from $199.62M. Achieved 61% of the target growth. Target missed.

3.Achieve record revenue of over $39.5 million

Revenue for the year totalled $39.00M, a new record. Achieved 99% of the target. Target missed.

4.Achieve an annualized write off rate below 3.55%

Annualized Credit Loss Rate of 3.95%. Target missed.

5.Achieve record earnings per share of $0.430.

Earnings per share for the year were $0.281. Achieved 65% of the target. Target missed.

Fourth Quarter Results

Rifco had Loan Originations in the quarter of $21.76M, compared to $40.03M in the prior year, a 46% decrease and $38.51M in the prior quarter, a 43% decrease.

Financial Revenue in the quarter was $10.10M, a 26% increase over $8.03M in the comparable period. Financial Revenue decreased by 2% compared to the prior quarter due to a reduction in Finance Receivables from $251.22M in the prior quarter to $247.11M in the quarter.

Net Income in the quarter increased by 168% over the prior quarters reported Net Income of $0.81M. Net Income in the quarter increased to $2.17M compared to $1.73M in the prior year, a 25% increase. EPS improved to $0.103 from $0.038 in the prior quarter and $0.083 in the prior year.

Interest Expense in the quarter was $2.69M compared to $2.20M in the prior year and $2.76M in the prior quarter. Interest Expense as a percentage of average Finance Receivable is continuing to decline. The annual Interest Expense decreased to 4.51% from 5.05% in the prior year.

The Average Interest Expense as a percentage of average debt is also continuing to decline. The Average Interest Expense decreased in the quarter to 4.65% from 5.11% in the prior year.

Credit Losses, including costs and net of recoveries, are $2.50M in the quarter, an increase from $1.61M over the comparable quarter but a reduction from $2.72M in the prior quarter. Credit Losses are currently higher than the Company's target loss range.

The Loan Delinquency Rate decreased to 5.11% from 5.21% in the preceding quarter. The Average (12 month rolling) Credit Loss Rate increased to 3.95% from 3.80% in the prior quarter. The Annualized Credit Loss Rate in the quarter was 4.02%, a reduction from 4.39% in the prior quarter.

Operating expenses increased to $2.55M from $2.22M in the prior quarter. The increase is primarily related to staff increases, training and recruitment costs and increased IT costs related to infrastructure and system upgrades.

The Company has undergone many infrastructure, system upgrades and staffing increases in anticipation of the Origination growth and an environment of increasing Delinquency during the year. These investments contributed in part to the increase in Operating Expenses over the comparable quarter but are expected to provide for capacity and efficiency improvements in future quarters.

The Company added 10 new full time equivalent employees from the prior quarter. Also in the quarter the outsourced collection firm became full engaged and these expenses are reflected as wages and benefits.

Rifco Fourth Quarter Comparative Results

Rifco today filed its quarterly financial statements and management discussion and analysis for the year ended March 31, 2015. The previously released financial statements and the related management's discussion and analysis can be viewed at www.sedar.com or at www.rifco.net.

Rifco's Annual Shareholders meeting will be held on September 3, 2015 at 3:00PM at the Radisson Hotel, 6500 - 67th Street, Red Deer, Alberta. We look forward to meeting with our shareholders and interested parties to detail the 2015 results and share our vision for the future.

About Rifco

Rifco Inc. operates through its wholly owned subsidiary Rifco National Auto Finance Corporation in order to provide automobile loans through its dealership network across Canada.

Rifco National Auto Finance provides consumers with financing options on new and used vehicles. Rifco specializes in building long-term partnerships with dealers by investing time in personalized services through dedicated account representatives. Rifco's quick credit decisions, common sense lending, and expedited funding processes give its dealers better financing options and more closed deals. Rifco's most successful partnerships result in Fast Forward 500 Club status for its loyal dealerships.

Rifco is committed to continuing growth. Key strategies for achieving this growth include the expansion of its automobile dealer base and excellence in credit and collections processes.

The common shares of Rifco Inc. are traded on the TSX Venture Exchange under the symbol "RFC". There are 21.30 million shares (basic) outstanding and 22.70 million (fully diluted) shares.

CONTACT:

Rifco Inc.
Lance A. Kadatz
Vice President and Chief Financial Officer
Telephone: 1-403-314-1288 Ext 7007
Fax: 1-403-314-1132
Email: kadatz@rifco.net
Website: www.rifco.net

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE: Rifco Inc.