I thought I'd put together an introductory summary for those who are unfamiliar with CCRT (the ranks of which include me). Become a Complete Fool
CCRT is a financial services firm that specializes in sub-prime lending market and debt collection. While CCRT was brought to my attention on the Hidden Gems PRAA board, they are not a simple debt buying and collection operation (not that such operations could ever be called 'simple'). They operate in five specific segments - credit cards, charged-off receivables (collections), retail micro loans, auto financing and 'other', which includes stored-value debit cards. In each of the lending segments they focus on sub-prime markets where risk is higher, but so are interest rates, fees and other charges. Below is an overview of each segment, with the percentage of revenue and operating income provided by each segment in the first nine months of 2006 (op income numbers include allocated corporate expenses).
Credit Card Segment
Operating income: 108.8% (other segments reported losses)
CCRT markets unsecured Visa, Mastercard and Discover cards which are owned by third-party financial institutions, as well as fee-based credit cards to low FICO score consumers. CCRT purchases the receivables underlying these cards, as well as receivables portfolios from other issuers, then securitizes these at a discount to trusts. They retain an interest in the receivables that is equal to the difference between the cash received and the face value of the receivables sold to the trust. As customers make payments, which include principal, interest, fees and late charges, CCRT receives all excess cash after the trust deducts payments to investors, servicing fees, credit losses and amortization.
Retail Micro-Loans Segment
Operating income: -9.5% (loss)
These are retail store front operations that make so-called payday loans, though the services offered extend beyond such loans. This segment operates as a subsidiary company which acts as a holding company for the separate subsidiaries which operate in each of the states they serve. They had 470 total store fronts in seventeen states as of 3Q 2006 that, depending on the location, provide some or all of the following products or services: (a) small-denomination, short-term, unsecured cash advances that are typically due on the customer's next payday; (b) installment loan and other credit products; and (c) money transfer and other financial services. State laws vary and in most, CCRT makes direct-to-consumer loans. But four states in which CCRT operated in 2005, state laws required that loans be made by state-chartered, FDIC-insured banks. In these states, CCRT acted solely as a processing and servicing agent for the lending bank.
In February of 2006, the FDIC indicated they would prohibit the use of servicing agents such as CCRT by FDIC-insured banks. CCRT has thus ceased these servicing operations in the four affected states, though they are in the process of converting at least one or two states' operations to a lower-revenue direct lending model. This change resulted in a reduction in servicing income of $12 million in the first nine months of 2006 versus the first nine months of 2005, along with a goodwill impairment of $10.5 million. The segment did generate $3.2M in operating income in 3Q '06, representing an 11% increase over 3Q '05.
Investments in Previously Charged-Off Receivables Segment
Operating income: 13.6%
This is the debt collection segment, operating as Jefferson Capital Systems, whereby CCRT acquires previously written-off debt and applies their expertise in collecting what they can. As you can see, this is a relatively small part of their business, unlike PRAA and AACC. But like PRAA and AACC, they face increased competition as new debt buyers enter the market. They see opportunities remaining, however in narrow areas, including Chapter 13 bankruptcy purchases and collections and balance transfer programs. Jefferson Capital's balance transfer program involves a credit card offering as an incentive to debtors to repay their previously charged-off debts (I need to think about the rationale behind this).
Auto Finance Segment
Operating income: 4.3%
This segment was added in April of 2005 when they acquired Wells Fargo Financial's "Consumer Auto Receivables" business. This business consists of a network of 1,300 pre-qualified "Buy Here/Pay Here" auto dealers from which auto loans are purchased at a discount or serviced for a fee. At the end of 2005 they had approximately 42,000 active accounts.
Operating income: -17.2% (loss)
That's the name CCRT gives this segment - Other. It is made up essentially of the their stored-value (or debit) card operations and their associated fee income and servicing expenses and other start-up product offerings (including merchant credit and Internet-based micro-loan offerings and third-party consumer finance receivables servicing activities) that do not individually meet the reportable business segment disclosure criteria. To quote from CCRT's 2005 10-K: "The activities within our Other segment are generally start-up in nature, and we expect to continue our testing and investments in these areas in keeping with our diversification strategy throughout 2006 and beyond."
That's it for the summary. In reading through the SEC filings, it is apparent that CCRT operates in a fluid regulatory environment. But it also appears that CCRT is highly adaptable to change and diligent in meeting regulatory requirements. Like many financial services firms, I find the numbers challenging to sort through, but this one certainly seems to merit further investigation. I look forward to seeing what others might have to say.
Thanks for reading,
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I thought I'd put together an introductory summary for those who are unfamiliar with CCRT (the ranks of which include me).
Become a Complete Fool