Nicholas Financial’s Tight Underwriting Decreases Portfolio, Lowers Delinquency Rates

Nicholas Financial Inc. is making headway towards its lending goals as it has worked to modify its underwriting guidelines to improve the quality of contracts it purchases throughout 2018 — reflected by an 18.4% drop in originations, the company announced in its earnings report for the three months ended June 30, 2018.

“If you are going to be a subprime lender – which Nicholas is – then you have to price the risk accordingly,” Doug Marohn, president and chief executive, told Auto Finance News. “We are not shying away from risk. We are simply trying to be more disciplined in how we underwrite that risk and how we price for it.”

The company’s average finance receivables are $296.5 million — a 14.3% decrease from $346.2 million the year prior. The lender’s average loan term also came down to 49 months, from 55 months last year. “Our focus on financing primary transportation to and from work for the subprime borrower continues to contribute to improved metrics in terms of increased yield, smaller amounts financed, and shorter terms,” Marohn said in its earnings report.

Though, with tighter underwriting guidelines and a decreasing portfolio, the lender’s provision for credit losses saw a 44.4% improvement for the three months ended June 30. Credit losses totaled $5.42 million compared with $9.75 million in the three months ended June 30, 2017.

Nicholas Financial still has a “long way to go” and “much more to accomplish,” Marohn said. But the strategy seems to have improved the company’s delinquency rate. Indirect loan delinquencies 30 or more days past due totaled $17.3 million, down from the $21.4 million it recorded as delinquent during the same period last year. Total delinquencies accounted for 9.95% of its indirect portfolio, down from 12.04% the year prior.

Direct auto loans outstanding declined to $7.5 million, from $8.2 million at the same time a year prior. Delinquencies for its direct loans performed better than the indirect portfolio but were still on the rise to 5.33% of the portfolio, up from 5.29% the year prior. However, direct loans only account for approximately 5% of the company’s total receivable portfolio, according to the earnings report.