Nicholas Financial Sacrifices Originations for Loan Profitability, CEO Says

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Subprime lender Nicholas Financial is valuing “discipline” and “pricing” over volume in an effort to increase profits by utilizing branch offices to enhance relationships with independent dealerships, Chief Executive Doug Marohn told Auto Finance News.

“The focus is not on the quantity of business, but rather on the quality and profitability of what we originate,” Marohn said. That strategy is reflected in the company’s fiscal year results, released last month, which noted a 14.8% year-over-year drop in receivables — to $284.6 million — and a 33.1% drop in originations. “We will increase originations when and where we can, but we are content to sacrifice growth for profit,” Marohn added. By limiting its portfolio volume, Nicholas is too small to securitize.

“We do not want to be held to an arbitrary volume requirement,” Marohn said. Instead, Nicholas Financial will keep the focus on its 60 branches, which serves more than 20 markets. Marohn noted that competition in the sector is increasing, as near-prime lenders dip into the subprime market. However, if Nicholas Financial’s past is any indication, “history has shown that cannot last,” he said.

Back in 2015, Nicholas Financial started to go after larger dollar deals rather than longer terms and lower yields, with the intent of securing higher credit quality customers. “We were competing with the wrong lenders,” Marohn said. Soon, though, other lenders will “go back to their corner” and start buying within their traditional space, he predicted, adding that the move “should take some of the pressure off of deep-subprime.”

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As Associate Editor of Auto Finance News, Nicole Casperson reports on the latest news, trends, and innovations impacting the auto finance space. Nicole is an experienced business reporter from Texas, and she previously specialized covering the housing and mortgage industry. Nicole received her Master of Arts in Mass Communication and her Bachelor of Arts in Journalism both from the College of Media & Communication, Texas Tech University.