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First Investors Reports Second Quarter Earnings
The Houston-based subprime lender recently announced its quarterly results.
Keeping our dealers informed
Here at Auto Credit Express, we want to keep our dealers informed of the performance of various subprime lenders in regards to today’s volatile subprime lending atmosphere. Here is the most recent information from First Investors Financial Service:
HOUSTON, — First Investors Financial Services today reported net income of $176,745, or $0.04 per fully-diluted share, for the three months ended October 31, 2008, and $1,234,730, or $0.27 per fully-diluted share, for the six months ended October 31, 2008. This compares to $136,493, or $0.03 per fully-diluted share, for the three months ended October 31, 2007, and $499,872, or $0.10 per fully-diluted share, reported for the six months ended October 31, 2007. Net income for the three and six months ended October 31, 2008 was positively affected by an increase in interest revenue and wider net interest spreads which were partially offset by a higher provision for loan losses and lower other income.
As of October 31, 2008, First Investors’ portfolio of receivables held for investment, net decreased 5.5% to $494.1 million, as compared to April 30, 2008. For the six months ended October 31, 2008, the Company reported new origination volume of $61.4 million, which represents a decrease of 45.9% over the $113.4 million originated during the prior year period. Net interest income increased 40.8% and 43.4% during the three months and six months ended October 31, 2008, respectively, when compared to the prior year period. The increase is due to a higher average portfolio outstanding and wider net interest spreads. The net interest spread was 8.4% and 8.6% for the three and six month periods ended October 31, 2008 as compared to 6.4% and 6.5% for the prior year periods, respectively. The increase in net interest spreads reflects higher effective yields on the Company’s receivables portfolio and a lower cost of debt. Effective yields increased as a result of a higher interest rate charged on the Company’s loan originations over the past twelve months as the Company responded to increases in borrowing spreads and an improved competitive environment. The cost of debt decreased as a result of reductions in the Fed Funds rate by the Federal Reserve, which offset higher credit spreads associated with turmoil in the capital market, particularly the commercial paper conduit and LIBOR markets. Total operating expenses increased 3.0% during the three month period, primarily due to higher loan collection costs, and the capitalization of certain expenses associated with the implementation of a new loan origination system and credit scoring models in the 2007 period which were not present in the 2008 period. Operating expenses were flat during the six month period due to lower variable costs associated with the decline in loan origination volume which offset higher loan collection costs. The delinquency rate, based on the outstanding dollar balance of delinquent accounts, increased from 0.7% at October 31, 2007, compared to 1.7% at October 31, 2008. The annualized charge-off rate increased from 3.1% for the six months ended October 31, 2007, compared to 4.2% for the six months ended October 31, 2008, reflecting an increase in repossessions and defaults and lower recovery rates on repossessed vehicles, particularly large trucks and sport utility vehicles.
The Company also announced that it has entered into two loan servicing agreements with unrelated third parties. The first contract, dated October 31, 2008, covers a portfolio of approximately $129 million in automobile receivables and the second contract, dated November 19, 2008, covers a portfolio of approximately $125 million in automobile receivables. Under the terms of both agreements, the Company will receive a servicing fee plus certain incentives related to underlying portfolio performance.
Tommy A. Moore, Jr., President and CEO, stated, “The results for the period reflect slower growth in our receivables portfolio and higher provision expense. As we have discussed for several quarters now, the slower growth reflects our decision in 2007 to tighten underwriting guidelines due to concerns about the financial state of the consumer and the overall economy and lower car sales. This continues to have a positive impact on the performance of our most recent origination vintages, despite the recent increase in the unemployment rate, but has negatively impacted revenue growth. We have been able to partially offset this over the past several quarters by increasing interest rates on our loan originations and reducing the premiums paid to our dealers. We have benefited from a decline in market interest rates and narrowing market spreads, particularly in the commercial paper and LIBOR markets, upon which warehouse financing is based. The widening of LIBOR spreads in September and October adversely affected the current quarter. Our provision for credit losses also increased during the period due to a combination of an increase in our repossessions and declining recovery rates, particularly for large trucks and sport utility vehicles. The increase in repossessions and non-performing assets is a result of a softening in the economy, though our delinquency and net charge-off rates continue to be in line with historical averages and were not unexpected given the increase in the unemployment rate. Our credit quality continues to outperform the industry which we believe provides additional protection in the event of further softening in the economy.
“We are also very excited about the two servicing relationships that we have recently entered into. These relationship
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