Nicholas Financial grows direct business to 8% of portfolio

Nicholas Financial ’s direct loan portfolio continues to grow as a result of the company's increased focus on direct-to-consumer lending in the past two years. In the third quarter of fiscal year 2021 ended Dec. 31, 2020, direct loan originations increased by 2.6% year over year to $4.6 million in principal balances, according to the lender’s recent earnings release. This follows consecutive increases in the first and second quarters, when direct originations rose 18% YoY to $2.4 million , and 28.3% YoY to $3.8 million, respectively. While direct loan originations grew, indirect loans have been steadily declining in 2020: 14% YoY to $15.3 million in the third quarter, 12.4% YoY in the second quarter to $17.3 million, and by 11.9% YoY in the first quarter to $16.8 million. Direct loans make up about 8% of Nicholas’ portfolio, up from 3% before the expanded focus, Chief Executive Doug Marohn told Auto Finance News , adding that direct lending complements the lender’s core indirect product. “It provides a service to consumers who could not get [financing] through traditional finance sources; we're able to give them an affordable solution to their short-term credit needs,” he said. Nicholas Financial is also looking at expanding the direct product offering, possibly including point-of-purchase loans for consumers needing to buy a car from a person or a place where financing is not available, Marohn noted. Amid the success of its direct loans, Nicholas Financial announced in summer 2020 that the company would be adding new branches as part of a years-long plan to increase direct consumer originations , Marohn said. Nicholas now offers direct loans in all markets where the lender is already established, mainly in Southeast and Midwest U.S. states, and is working to secure licensing in markets such as Las Vegas and Milwaukee, where branches recently opened, he added. Direct loan outstandings increased 24.6% YoY to $14.2 million in the third quarter. Meanwhile, delinquencies for direct consumer loans 30 to 59 days past due ticked up in the third quarter to 3.11%, an increase of 37 basis points from the previous quarter, but 21 bps below last year’s level. The rate of loans 60 to 89 days delinquent increased 7 bps quarter over quarter, and 24 bps YoY, to 1.32%. The net charge-off rate also increased 70 bps from last quarter to 6.3%, but remained 254 bps lower than during the same period in 2019, even as COVID-19 assistance programs and deferment requests have fallen off, Marohn noted. Still, Nicholas added $650,000 for provision for credit losses in the third quarter, which accounted for 1.35% of the lender’s outstanding portfolio, down from 6% last quarter and 8.37% a year ago. To put this in perspective, Nicholas added about $3 million in credit loss provision in both the first and second quarters due to pandemic uncertainty. Allowance for credit losses accounted for 4.81% of the portfolio in the third quarter, a decrease of 98 bps from last quarter. “We are cautiously optimistic in the sense that we have been very conservative with our loan loss reserve and the amount we provision each month, to make sure we're not caught by surprise,” Marohn said. Shares of Nicholas Financial [Nasdaq: NICK] were trading at $10.74 as of market close today, up 0.66% since market open. Nicholas Financial has a market capitalization of $83.8 million. Auto Finance Innovation Summit, the premier event for technology in auto finance, returns March 16-17, 2021, as a virtual experience. The virtual experience will offer the quality networking and education of past events, all through an online platform. To learn more about the 2021 event and register, visit www.AutoFinanceInnovation.com .

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Nicholas Financial grows direct business to 8% of portfolio

The lender expanded its direct focus two years ago

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Bruce Jackson joins Santander Consumer USA as head of Santander auto finance

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