CHESSWOOD ANNOUNCES FIRST QUARTER 2024 RESULTS

TORONTO, May 8, 2024 /CNW/ - Chesswood Group Limited ("Chesswood" or the "Company") (TSX:CHW), a publicly traded North American specialty finance company providing commercial equipment leases and loans, automotive loans, home improvement financing, legal financing and asset management, today reported its results for the three months ended March 31, 2024.

First Quarter Highlights

• The Company continued entering into new agreements with mutual funds or partnerships managed by its affiliates for the non-recourse sale of leases and loans in exchange for fees. During the three months ended March 31, 2024, $341.9 million of U.S. and Canadian finance receivables were sold under such arrangements (three months ended March 31, 2023 - $106.0 million).
• On January 31, 2024, the U.S. Financing Segment closed the first sale of finance receivables to Bishop Holdings LLC, an entity owned by certain funds managed by Wafra Inc. ("Wafra Funds") and the Company's subsidiary, Pawnee Leasing Corporation.
  

"Chesswood reported an adjusted net loss⁽¹⁾ of $5.2 million in the first quarter of 2024, reflecting the ongoing challenges associated with our lease and loan portfolios performance. Expense management remained a priority in the quarter.  General and administrative expenses were higher than expected due to rising collection costs associated with charged off leases and loans.  Although we expect these costs to remain elevated, it is these costs which allow our collections teams to utilize the many tools at their disposal to recover on delinquent or impaired loans," said Ryan Marr, Chesswood's President and CEO.

"The highlight of the quarter was certainly the initial success of our joint venture with Wafra through Bishop Holdings LLC.  We successfully sold $196.8 million of assets to this joint venture, in which Chesswood has 10% ownership," said Mr. Marr. "This joint venture provides us with strong visibility on capital to support origination levels, grow our recurring fee streams as well as participate in portfolio performance.  While it is paramount that we strike a balance between on and off balance sheet sources of earnings, we remain committed to our asset management model to augment volatility associated with credit performance."

"Our team continues to make progress in resizing our U.S. equipment leasing business to match the realities of capital availability, loan demand and portfolio performance.  We have made good progress adjusting our lending mix, targeting a 14-16% average yield on new originations. At quarter end, the average life of the U.S. receivables portfolio was approximately 33 months.  Therefore, we roll off approximately one third of the portfolio each year, freeing up equity for new originations," added Mr. Marr.

A larger volume of off balance sheet sales occurred in Q1 2024, further progressing Chesswood's alternative asset management business. For the three months ended March 31, 2024, the Company sold $341.9 million of finance receivables to mutual funds or partnerships managed by its affiliates (Q1 2023 - $106.0 million). As a result, the average finance receivables (after allowance for expected credit losses ("ECL")) decreased by $476.5 million period over period, decreasing interest revenue by $12.8 million. Lower interest revenues were slightly offset by a $0.4 million increase in ancillary finance and other fee income due to greater reoccurring fee revenue streams. In addition, a non-cash unrealized loss of $1.7 million was recorded on the mark to market value of the warrants issued to an affiliate of Wafra Funds as part of the joint venture arrangement with Wafra Inc.; however, this was offset by lower interest expenses and personnel expenses.

Average debt outstanding decreased by $425.7 million, resulting in a decrease in interest expense of $2.0 million compared to the same period in the prior year. The change in allowance for ECL compared to the same period in the prior year decreased by $18.4 million, offset by an increase in net charge-offs of $16.0 million when compared to the same period of the prior year. Lower ECL provisions in the quarter resulted from lower average finance receivable balances and a reduction in stage one loss reserves associated with expected improvements in portfolio performance going forward. General and administrative expenses were $1.3 million higher compared to the same period in prior year, driven by expenses associated with lease and loan recovery costs, offset by reductions in personnel expenses of $3.2 million.

The U.S. Equipment Financing Segment generated revenue of $31.1 million ($26.6 million interest revenue and $4.5 million ancillary finance and other fee income) for the three months ended March 31, 2024, compared to revenue of $41.3 million ($35.4 million interest revenue and $5.9 million ancillary finance and other fee income) during the same period of the prior year, a decrease of $10.2 million. Interest revenue decreased by $8.8 million when compared to the same period in the prior year due to a 26.2% decrease in average net investment in finance receivables (before allowance for ECL) to $1.0 billion as a result of continued off-balance sheet sales and lower on balance sheet originations. The average yield earned during the three months ended March 31, 2024 increased by 0.1% (to 10.6%) compared with the same period in the prior year. The overall yield increased as the segment adjusted its products for increased costs of funding,  partially offset by the sale of current year higher yielding originations to mutual funds and partnerships managed by Chesswood Capital Management USA Inc. to generate recurring fee-based revenue.

During the three months ended March 31, 2024, the Canadian Equipment Financing Segment generated revenue of $20.4 million ($14.4 million interest revenue and $6.0 million ancillary finance and other fee income), a decrease of $4.0 million ($5.6 million decrease in interest revenue offset by a $1.6 million increase ...

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