First Investors Generates Record First-Quarter Earnings
HOUSTON — Sparked by strong loan origination growth, First Investors Financial Services Group's 2012 fiscal year got off to a rousing start as the company posted its best-ever quarterly net income level.
The company recently revealed its net income soared to $1,881,107 or 34 cents per fully-diluted share for the three months ended July 31. During the same span a year ago, First Investors generated a net income total of $276,054 or 6 cents per fully-diluted share.
Executives explained the net-income increase was primarily attributable to an increase in interest income as a result of growth in the average portfolio outstanding and lower provision expense. They acknowledged the gain was partially offset by higher interest expense and lower servicing revenue.
Besides its net-income performance, First Investors shared plenty of other positive developments that occurred during the first quarter.
As of July 31, First Investors indicated its portfolio of net receivables held for investment was $352.2 million, compared to $332.8 million at April 30.
During the first quarter, the company reported $56.7 million in new-loan originations, compared to $28.3 million in the year-ago quarter.
As a result of the increase in new loan originations, officials tabulated the average outstanding balance for the portfolio of receivables held for investment increased 3.1 percent during the first quarter, compared the opening quarter of their 2011 fiscal year.
First Investors also highlighted why its first-quarter net-interest income increased 24.9 percent year-over-year. The reasons given included:
—The increase in the average portfolio of receivables held for investment.
—An increase in the effective yield on the portfolio of receivables held for investment.
—The positive impact of the previously announced portfolio purchase in October, which was not present during the three months ending July 31, 2010.
The company noted effective yields increased from 13.38 percent during the 2011 fiscal year first quarter to 14.86 percent. First Investors acknowledged its weighted average cost of funds increased slightly from 2.46 percent to 2.53 percent.
"The increase in effective yields reflects an increase in the weighted average interest rate on the portfolio of receivables held for investment, lower purchase premium amortization and lower interest write-offs related to charged-off accounts," the company explained.
"The slight increase in the cost of funds is primarily the result of the company's decision to lock in interest rates on a portion of the $150 million in asset-backed notes issued in January," the company continued.
"The decrease in revenue from servicing activities for the three months that ended July 31 reflects the amortization of the company's third-party managed receivables, the acquisition of a portfolio in October from a third-party client and the release of servicing rights on a third-party managed portfolio in September in exchange for a termination fee," First Investors went on to state.
The company also announced that it had finalized the sale of its 50-percent residual interest in another third-party portfolio in August in exchange for the release of servicing rights to the portfolio.
Executives said the transaction will result in a net gain of approximately $0.6 million, positively impacting pre-tax income in the company's second fiscal quarter.
Elsewhere within the company's first-quarter report, First Investors pointed out its total operating expenses increased 3.7 percent from a year earlier. The company explained the uptick stemmed from an increase in new-loan origination volume, including printing and postage expense associated with the company's decision to re-enter the direct lending market in August of last year.
However, First Investors stressed the operating expense rise was offset by lower interest expense related to the repayment of the company's working capital credit facility, and lower servicing related fees due to a decline in the managed portfolio.
Beyond the net-income and loan-origination gains, First Investors also watched its dollar delinquency rate decrease from 2.5 percent to 2.4 percent in first quarter. The company's annualized charge-off rate also decreased from 6.0 percent to 3.6 percent due to fewer repossessions and higher vehicle recovery rates.
Moreover, First Investors tabulated that its dollar amount of net charge-offs declined from $5.0 million at the end of the 2011 fiscal year first quarter to $3.1 million for the three months ended July 31.
Not surprisingly, First Investors president and chief executive officer Tommy Moore Jr., gave a glowing assessment of the company's first-quarter performance.
"We are extremely pleased with the results of our first fiscal quarter ended July 31," Moore began.
"From a profitability perspective, it was the highest earning quarter in our history, and we believe it sets the stage for a very successful fiscal year," he continued. "We continue to experience solid growth in both our indirect and direct channels and importantly, have been able to maintain pricing power on our assets despite the low interest rate environment.
"Our credit quality, particularly our net charge-off rate, continues to be strong despite the seasonal issues that we typically see this time of the year," Moore went on to say.
After looking at the first quarter, Moore looked ahead at what could be in store for the remainder of First Investors' fiscal year.
"For the remainder of the year, we will continue to focus on prudently growing our receivables portfolio through both lending channels which will occur through a combination of market expansion, higher mail volumes and the contribution from a third-party affinity relationship we entered into in August with a large insurance company under which we will provide financing solutions to a portion of its customer base," he emphasized. "We look forward to the remainder of fiscal 2012."