Chesswood Group, a publicly-traded North American specialty finance company providing commercial equipment leases and loans, business loans and home improvement financing, reported consolidated net income of $31.2 million in the year ended Dec. 31, 2021, marking an increase of $39.7 million compared with the net loss of $8.5 million the company sustained in 2020.

Chesswood’s U.S. equipment finance segment’s interest revenue on leases and loans totaled $94.2 million in 2021, marking a year-over-year increase of $2.7 million. The increase was caused by a $118 million increase in the segment’s average portfolio size and continuously growing originations since the last quarter of 2020. The impact of the portfolio growth was offset by a 7% year-over-year decrease in foreign exchange year and a 1% decrease in the interest revenue yield during the year. The average annualized interest revenue yield earned on U.S.-based net finance receivables was 12% in the year ended Dec. 31, 2021, compared with 13% in 2020, reflecting an increase in the overall percentage of prime receivables.

Chesswood’s Canadian equipment financing segment generated revenue of $32.8 million during the year ended Dec. 31, 2021, compared with $15.2 million in 2020, marking an increase of $17.6 million, or 116%. The Canadian equipment financing segment’s average net investment in finance receivables (before allowance for credit losses) increased approximately $114.6 million in the year ended Dec. 31, 2021, compared with 2020, largely due to the merger of Blue Chip Leasing (a Chesswood subsidiary) and Vault Credit and Vault Credit’s continued expansion in the Canadian equipment leasing market. In addition, the average number of finance receivable contracts outstanding for the segment increased by 4,979 in the year ended Dec. 31, 2021, compared with 2020. In the year ended Dec. 31, 2021, the segment’s interest revenue yield of 10% earned on its net finance receivables increased from 8% in 2020.

Overall, Chesswood’s $3.1 million year-over-year increase in interest expense was driven primarily by an increase in average debt outstanding throughout the year. Personnel expenses increased $13.1 million to $32.3 million due to higher staff counts arising from the merger with Vault Credit and the processing of the increase in originations as a result of the growth in both the U.S. and Canadian segments.

Chesswood recognized a provision for credit losses of $0.2 million in 2021, a $25.5 million decrease compared with 2020. The decrease was primarily related to provision releases as a result of a consistently better performing portfolio, especially as COVID-19 uncertainties lessened and collection efforts strengthened.

Other 2021 Highlights

• Company-record gross finance receivables at year-end of $1.7 billion, up 89% from fiscal year 2020
• Fully diluted earnings per share of $1.59 vs. a previous fiscal year loss of $0.48 per share
• 2021 average return on equity of 19%
• Free cash flow generation of $33.6 million, or $1.72 per fully diluted share, up 56% from fiscal year 2020
• Repurchase of 488,040 common shares under Chesswood’s normal course issuer bid at an average price of $10.06 per share (3% of the outstanding common shares)
• Increased dividend of $0.04 per share per month (or $0.48 per year), a 33% increase, effective March 31, 2022

Q4/21 Results

When just looking at Q4/21, Chesswood Group reported consolidated net income of $7.9 million for the three months ended Dec. 31, 2021, compared with $0.1 million in the same period of 2020, marking a year-over-year increase of $7.8 million. The company said net income was impacted by a one-time restricted share unit grant which reduced net income by $2.3 million in the quarter.

Chesswood’s U.S. equipment financing segment’s interest revenue on leases and loans totaled $27.7 million in Q4/21, marking a year-over-year increase of $7.8 million as a result of an increase of $270.4 million (or 55%) to $759.4 million in average net investment in finance receivables (before ACL) in the three months ended Dec. 31, 2021 compared with the same period in 2020. This was partially offset by a decrease in the average yield earned during the period (11.7% compared with 12.2% in 2020). The decrease in overall yield percentage was due to the continuing growth in the prime segment of Chesswood’s portfolio.

Chesswood’s Canadian equipment financing segment generated revenue of $13.1 million during the three months ended Dec. 31, 2021, marking an increase of $9.6 million from the same period in 2020. The Canadian equipment financing segment’s average net investment in finance receivables (before ACL) increased approximately $245.5 million in the three months ended Dec. 31, 2021, compared with the same period in 2020. The average annualized interest revenue yield earned on the Canadian equipment financing segment’s net finance receivables increased by 3% (to 11%) during the period compared with the same period in 2020.

Chesswood recognized a provision for credit losses of $0.4 million in Q4/21, marking a $1.5 million decrease compared with the same period in 2020. The decrease was primarily related to provision releases as a result of a better performing portfolio one year further away from COVID-19 uncertainties, as well as strong collection efforts. This was partially offset by the segment’s growing loan portfolio book.

Other Q4/21 Highlights

• Originations totaling $341 million, with subsidiaries Vault Credit and Tandem Finance each surpassing $100 million in the quarter
• Free cash flow of $11.5 million, or $0.56 per fully diluted share, up 10% from Q3/21 and up 44% from Q4/20
• Diluted earnings per share of $0.40, even after a one-time, non-cash share grant impacted diluted per share earnings by $0.12 in the quarter
• The acquisition of Rifco for $28 million, which was completed in early 2022
• Pawnee Leasing closed its third marketed securitization for $356 million, with an effective interest rate of 2%

“The economic environment throughout 2021 was particularly favorable for specialty finance companies. A combination of loan demand recovery following declines in 2020 brought on by COVID-19 and low interest rates produced exceptional opportunities for growth,” Ryan Marr, president and CEO of Chesswood Group, said. “Furthermore, government subsidies provided to individuals and businesses resulted in low charge-off and delinquency rates throughout the year. Practically speaking, it is likely we will begin to see the market normalize in 2022 and would point to rising rates as an indication that this is in fact occurring. That said, the groundwork our team laid in 2021 has created a platform for continued growth throughout the year as we leverage Chesswood’s scale to the benefit of all of our operating subsidiaries.

“I am pleased to announce that Chesswood’s board has approved an increase in the annual dividend rate from $0.36 per share to $0.48 per share, a 33% increase. This increase reflects Chesswood’s strong free cash flow generation and outlook for business profitability. We continue to take a balanced approach between overall portfolio growth and returning cash to shareholders through dividends and buybacks.”