Nicholas Financial’s Contract Acquisitions Decline Amid Underwriting Change

Car Devaluation

Nicholas Financial Inc. continues to see a drop in auto contracts acquired due to modified underwriting guidelines, according to the company’s third-quarter earnings on Wednesday.

The company began modifying its underwriting guidelines — and started to use alternative credit data through a third-party service company beginning in March 2017 — to improve pricing for proper risk, according to a Securities and Exchange Commission filing. This, along with the impact of Hurricane Irma, has led to a 35% reduction in contracts acquired during the six months ended Sept. 30, as compared to the same period a year prior.

Meanwhile, contracts acquisitions declined in the quarter as well. Nicholas acquired $25.8 million in contracts in 3Q, a 38% decrease year-over-year from $41.5 million. The weighted APR for 3Q was 21.99%, and the average term was 55 months, which was down two months year-over-year but consistent with the quarter prior.

Overall, net charge-offs for the whole portfolio grew to 10.29% in 3Q, a year-over-year increase from 9.36%. The company also makes direct personal loans, but this only accounts for approximately 2% of the company’s total receivable portfolio, according to the filing.

The auto delinquency rate for accounts 31 to 60 days past due was 5.98% as of Sept. 30, a year-over-year decline from 6.05%. For delinquencies 61 to 90 days past due, the rate was 2.85%, up from 2.20% at the same time a year prior.

The company’s automobile finance programs are conducted in 18 states through a total of 65 branch offices, according to its annual report released in March. As of March 31, Nicholas Financial had non-exclusive agreements with approximately 4,200 dealers for the purchase of individual automobile finance installment contracts.

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2 thoughts on “Nicholas Financial’s Contract Acquisitions Decline Amid Underwriting Change

  1. […] ended Dec. 31, but the company anticipates that its numbers will increase following changes made to underwriting guidelines, Chief Executive and President Doug Marohn told Auto Finance […]

  2. […] a change in underwriting guidelines — including the use of alternative data — that were implemented to improve the quality of contracts being purchased, according to a press […]