Good day, ladies and gentlemen. Welcome to the second quarter financial results call for 2016. I would now like to turn the meeting over to Mr. David Yielding, Senior Vice President, Finance of goeasy. Please go ahead.
Thank you, operator, and good morning, everyone. Thank you for joining us to discuss goeasy's results for the second quarter of 2016. The news release, which was issued yesterday after the close of market, is available on Marketwire and on the goeasy website. Today, David Ingram, goeasy's President and CEO, will talk about the highlights of the second quarter. Following his remarks, Steve Goertz, the company's Chief Financial Officer, will discuss goeasy's financial results in greater detail. David Ingram will then provide some insights into our strategic initiatives and outlook before we open the line for questions from investors. Jason Mullins, the company's Chief Operating Officer, and Jason Appel, the company's SVP of Risk and Analytics, are also on the call. Before we begin, I remind you that this conference call is open to all investors and is being webcasted to the company's investor website.
All shareholders, analysts, and portfolio managers are welcome to ask questions over the phone after management is finished. The operator will poll for questions and will provide instructions at the appropriate time. Business media are welcome to listen to this call and to use management's comments and responses to questions in your coverage. However, we would ask that they do not quote callers unless that individual has granted their consent. Today's discussion may contain forward-looking statements. I'm not going to read the full statement, but I will direct you to the caution regarding forward-looking statements included in the MD&A. Now, I'll turn the call over to David Ingram.
Good morning, and thank you for participating on our call today. We're delighted to report another record quarter with year-over-year improvements in all key income metrics. For the second quarter of 2016, overall revenue increased 18% to a record of CAD 86.1 million. The company's revenue growth was again driven by easy financial, as it continued to meet strong consumer demand by offering everyday Canadians an alternative between banks and the exorbitant payday lenders. Our loan book reached CAD 326 million by the end of the quarter, growing 41% over the past 12 months and on track within our plan. Net income and diluted earnings per share also reached record levels during the quarter. Net income increased to CAD 10.5 million, and earnings per share increased to CAD 0.75.
On a normalized basis, excluding a gain realized on the sale of an investment, net income increased by 58% to CAD 7.9 million, and diluted earnings per share increased by 58% to CAD 0.57. Included in the results for the quarter was an increase in advertising expenditures of CAD 1.4 million or CAD 0.07 per share when compared to the second quarter of 2015. On a year-over-year comparative basis, the increase in advertising expenditure had more to do with the timing of these expenditures rather than an overall increase in the annual level of expenditure. Approximately CAD 1 million was pulled forward from the second half into the second quarter in the current year. Our overall advertising spend for 2016 will remain at approximately 3.8% of revenue.
The results of this increase in advertising activity has been extremely positive. Our recent TV campaign, coupled with increased and further optimized online marketing, have increased easyfinancial's brand recognition, aided awareness, and most importantly, completed loan applications. The focus of our TV spots was emotional and appealed to our target customers, who have often been denied by banks and are looking for their yes moment. The message is focused on highlighting the accessibility of our loans with a clear call to action for potential borrowers to apply online. The advertising message, together with a streamlined online application process on our transactional website, has increased our total submitted applications by 44% in the current year-to-date period compared with 2015.
Our advertising activities across multiple media forms, TV, online, and direct mail, and our omni-channel strategy, which allows our customers to choose how they communicate and transact with us, is working. We have continued to see the results with a 27% increase in originations and ultimately, a 41% year-over-year growth in our loan book. We believe that a combination of retail branches, a robust online presence, targeted advertising, and the establishment of point-of-sale financing through merchant partners maximizes brand recognition and originations. Our coast-to-coast branch network provides a significant competitive advantage when compared to pure-play online lenders. Further, we have seen that the establishment of direct personal relationships with customers utilizing our national branch network significantly improves customer engagement, reduces charge-offs, and ultimately enhances profitability. Our investments in easyfinancial are also paying off.
The locations we acquired from The Cash Store in March of 2015 were a drag on earnings last year during their startup phase, but are now profitable and continue to grow in line with our expectations. These branches, the growth of our loan book, tight operational cost controls, and managing risk within the consumer loan portfolio have allowed our easyfinancial margins to grow sharply, reaching almost 37% in the quarter. While easyfinancial achieved strong loan book and profitability growth during the quarter, the trading environment for easyhome continued to be soft. The lack of new and exciting products entering the marketplace, continued price declines for electronics, and greater alternatives for consumers from numerous online sources have strained the merchandise leasing industry across North America....
While our leasing portfolio generally declines in the first half of the year, the decline over the past six months was more pronounced than in the past, and our offsetting cost reductions have lagged this top line decline. This resulted in lower revenue and operating margins for the easyhome business. Finally, our results for the second quarter of 2016 included a before-tax gain of CAD 3 million, realized on the sale of an investment, which has been excluded in our normalized numbers. In 2013 , we obtained an equity stake in a startup venture that provided credit remediation products. We also entered into a referral arrangement with this company. During the second quarter of 2016 , we sold our minority stake as the investment was non-core and the valuation of our minority stake was attractive.
We continue to have a referral arrangement in place with this company. Ultimately, we're very pleased with the results of the company during the quarter and the progress we made in growing the top and bottom line of easyfinancial. Now I'll turn the call over to Steve to review our financial results for the quarter in greater detail.
Thank you, David. Total revenue for the quarter was CAD 86.1 million, an increase of CAD 13.2 million or 18.1% compared with CAD 72.9 million in the second quarter of 2015. Same-store sales growth, which includes easyfinancial, was 20%. To better understand our financial performance, I'll review each of our business units separately. Within easyfinancial, we continued to experience strong growth of our easyfinancial gross consumer loans receivable portfolio, which finished the quarter at CAD 326 million, up from CAD 231 million at the end of the second quarter of 2015. This represented an increase of CAD 95 million or 41%. The gross consumer loans receivable portfolio grew by CAD 22 million in the quarter.
easyfinancial reported revenue of CAD 50.4 million for the quarter, compared to revenue of CAD 35.3 million for the second quarter of 2015. easyfinancial's revenue growth for the quarter of 43% was consistent with the gross growth of the gross consumer loans receivable portfolio, which grew by 41% over the past 12 months. The yield decline experienced during the recent preceding quarters was halted in the current quarter through the introduction of new ancillary products, improved penetration of existing ancillary products, and a decline in the number of unemployment claims against the company's creditor life insurance product. As previously communicated, we expect the year-over-year yield decline to be approximately 2%-3%, driven primarily by the lower commission rates on ancillary products for our larger dollar value loans.
The operating expenses of easyfinancial, excluding bad debt expense, increased by CAD 2 million or 13.4% in the quarter compared with the second quarter of 2015. Expenses increased due to the expanded branch network, including the additional operating costs of the 45 branches acquired from The Cash Store and opened during the first quarter of 2015. The cost of these acquired locations increased over the past year as their loan book expanded. Cost increases were also driven by higher advertising expenditures to build the brand and support the loan origination growth, as well as higher loan administration and collection costs resulting from the larger loan book.
While the dollar value of the operating costs increased, these expenses, excluding bad debts, declined from 42% of revenue in the second quarter of 2015 to 34% of revenue in the current quarter, as we continue to realize the benefits of increased scale. easyfinancial's bad debt expense increased to CAD 13.3 million for the second quarter of 2016, from CAD 9.4 million during the second quarter of 2015. Net charge-offs as a percentage of the average gross consumer loans receivable on an annualized basis were 15.2% in the quarter, up from 14.3% reported in the second quarter of 2015.
The year-over-year increase was driven by a greater proportion of loans originating online, which tend to have a higher charge-off rate than retail-originated customers, and by an increase in the level of bankruptcies across all provinces. Additionally, the second quarter of 2015 benefited from a relatively larger recovery of previously charged-off accounts. Ultimately, we continue to expect that the net charge-off rate will be in the range of 14%-16% for the balance of 2016. easyfinancial's operating income was CAD 18.5 million in the second quarter of 2016, compared to CAD 9.6 million in the second quarter of 2015, an increase of CAD 9 million or 94%. Operating margin for the quarter was 36.7%, compared with the 27.1% reported in the second quarter of 2015. Now moving to easyhome.
easyhome generated $35.7 million in revenue, a decrease of CAD 1.9 million when compared with the second quarter of 2015. Lease portfolio declines experienced in the first half of 2016 resulted in a decline in revenue across the organic store network of CAD 1.1 million in the quarter when compared to the second quarter of 2015. Additionally, revenue was lower due to store transactions over the past 15 months and the deconsolidation of various U.S. franchisees. The operating income for the leasing business was CAD 4.6 million for the quarter, a decrease of CAD 1 million when compared to the second quarter of 2015. The net- net benefit of store transactions over the past 18 months on the current quarter was more than offset by the impact on operating income of the lower lease portfolio and revenue...
Similarly, operating margin for the second quarter of 2016 was 12.9%, a decline from the 14.9% reported in the second quarter of 2015. Normalizing for the CAD 3 million gain on sale of investment, our overall operating income for the quarter was CAD 15.1 million, up CAD 4.7 million or 45% when compared to the second quarter of 2015. Normalized operating margin was 17.6% for the second quarter of 2016, up from 14.3% reported in the second quarter of 2015. The improvement in operating margin was driven by higher operating margin in the easyfinancial business and a larger percentage of earnings generated from easyfinancial. The effective income tax rate for the second quarter of 2016 was 19.2%.
The effective income tax rate in the quarter was lower due to the lower tax rate on the capital gains from investment and asset sales during the period, as well as certain research and development tax credits realized in the quarter. The improved operating income translated into higher net income and earnings per share for the quarter. Normalized income for the quarter was CAD 7.9 million, and diluted earnings per share increased to CAD 0.57 in the quarter, up from CAD 0.36 in the comparable quarter in 2015, an improvement of 58%. The company has continued to generate a strong normalized return on equity of 17.4% in the quarter, up from 12.4% reported in the second quarter of 2015. Increased earnings and leverage have both contributed to this improvement.
While we have increased our leverage, our overall financial position remains strong at June 30th, 2016. Our debt to total capitalization was 0.56, less than many of our industry peers. CAD 243 million was drawn against our CAD 300 million committed credit facility, leaving sufficient capacity to fund the expected loan growth into 2017. Also, the covenants under our credit facilities are designed to accommodate our future growth plans. Based on our growth plan and forecast, we are confident that we will be in compliance with all of our financial covenants through the life of our lending agreement. Now I'll turn the call back to David.
Thanks, Steve. It continues to be a challenging and uncertain time for the Canadian economy. But despite this, we have maintained our net charge-off rate within our stated guidance of 14%-16%. Our consistent charge-off rate is being driven by our continued focus on credit risk and analytics and our ongoing efforts to improve collections. We will continue to invest in these areas to ensure that we're striking the right balance between growth and managing risk. Our work at enhancing our point-of-sale lending platform continues through our partnership with Sears Canada. We are currently developing the industry's first single source application system for point-of-sale financing across all customers in the credit spectrum that will allow a customer to apply for credit once and be concurrently adjudicated and presented with the best option for either a prime loan financed by Sears or a subprime loan from easyfinancial.
Under this new program, our people, processes, and infrastructure will manage and administer both lending programs. We are moving at pace with Sears and look forward to the launch of this lending program later in the year. easyhome will continue to face a difficult trading environment. Our strategy for this mature business remains unchanged: to maximize its profitability. We are not anticipating growth, but we have taken the necessary steps to ensure that our cost structure is tight and responsive to changes in this business. We will continue to focus on the basics of leasing and collecting. We anticipate that easyhome operating margins in the 14%-15% range for the back half of 2016. We remain confident in our ability to achieve our 2016 and three-year targets.
Loan book growth in the quarter was on track to achieve our year-end target of CAD 360 million-CAD 390 million. Year-to-date revenue growth was 17.4%, and we're confident that our 2016 revenue growth will be within our targeted range of 16%-20%. Given the strong top and bottom line growth of easyfinancial, we have increased our 2016 operating margin guidance to 34%-36% and our 2018 operating margin guidance to 36%-38%. In terms of easyfinancial branch openings, we've opened 15 locations this year against our targeted branch openings of 10-20 for the full year. We will open another store or two in the back half of 2016, but essentially, our branch build out for the year is complete.
We're on track to reach 220 to 240 locations by the end of 2018. We feel very positive about the results of our business in the quarter and our growth trajectory for the balance of 2016 and beyond. We will continue to execute against the same strategic imperatives by expanding the size and scope of easyfinancial, evolving our delivery channels to better meet the needs of our customers, and executing with efficiency and effectiveness. Our success in the quarter gives us confidence in our ability to execute our plan, meet our objectives, and deliver record revenue and profitability for 2016. So with our formal comments complete, we are now open for questions.
Thank you. We will now take questions from the telephone lines. If you have a question and are using a speakerphone, please pick up your handset before making your selection. If you have a question, please press star one on your telephone keypad. You may, at all times, cancel your question by pressing the pound key. P lease press star one now, if you have a question. Our first question is from Jeff Fenwick from Cormark Securities. Please go ahead.
Hello, good morning, everybody.
Hi, Jeff.
Just wanted to start with easyfinancial there. We saw a nice, I guess, recovery quarter over quarter on the revenue yield. You gave us a little bit of color there. You did mention that there were some new ancillary products launched. Can you maybe just comment on what those were and how meaningful they were to the picture in the second quarter?
Hey, Jeff, it's Jason Mullins. So we had launched a product called Credit Monitoring in, I think we launched in Q4 of 2015. It's a subscription-based product, so the customer subscribes to receive access to their credit score and their credit report on an immediate real-time basis. And then we sell that subscription as a bundle with our loan product, optionally to customers that wish to actively participate in monitoring their credit. So it's really just been the accumulation of the success of that product that has allowed that revenue stream to accumulate and help contribute to the yield. That was, of course, coupled with, as Steve mentioned, a lower claims rate in the quarter, which combined, helped rebound some of the yield.
Okay, great. And then you mentioned some advertising pulled forward into the quarter here, and that it was, from your standpoint, having an impact. Does that impact sort of become a little more meaningful heading into Q3, or do you think it is largely felt in the second quarter here?
I mean, anything you can do with a portfolio-based business to grow earlier in the year, you obviously get the residual benefit for the ensuing period. So for us, the fact that it created more originations and it led to a higher loan book than we might have planned, we have that benefit that will ride through Q3, Q4. I think the secondary benefit will be more awareness for the brand. So aided awareness and unaided awareness for recognizing easyfinancial has gone up quarter on quarter. So that should give us some benefit for new customers in the doors in Q3. And you'll see us back on TV towards the end of Q3, Q4, so it will give continued awareness for the brand as it's focused on TV and on digital properties.
Yes, there will be benefit, and yes, it will help awareness that continues to drive traffic.
Great. And then, just wanted to touch on corporate costs. It's an item we didn't, I don't think you spoke on in your comments. I mean, that's one area where we've certainly seen quite a significant amount of growth over the last year, and just trying to understand the dynamics at play there and how we should be thinking about that over the course of the year.
Yeah, on a year-over-year basis, the big driver for the increase was the short-term compensation, our annual bonus program. We had very strong results versus budget in the second quarter, resulting in a significant bonus catch-up. The opposite was true in 2015 . Our performance lagged budget, and we actually released some of our bonus provision at that time. So that was the largest swing in the corporate costs.
Okay, so we're not talking about a lot of headcount adds here necessarily, or other sort of corporate spending that we might not be thinking about?
You know, I think we, we've shown our corporate costs on a true run rate basis, removing the compensation, is increasing year over year, somewhere in the area of 5% to 10%. Most of that's coming from additional staff, particularly in IT and risk management, and that trend continues. But the bigger expense this quarter was obviously the short-term comp.
I think you'll see most of that normalize in the second half, Jeff, because we accrue as we perform. And Q1, we perform broadly in line with budget. Q2, we were ahead of budget, so that needed some higher accruing. As Steve said, there was a bit of a timing exchange versus last year on the difference. But in Q3, Q4, I think you'll see it a bit more normalized, so less of a swing year over year.
Okay. And then I just wanted to speak about capital a little bit here. Maybe, Steve, you can offer some color. And I look at your facility, you've been drawing around CAD 12 million-CAD 13 million a quarter on that over the last several quarters. I'm just thinking with the margin guidance moving higher here, seems like you're gonna be producing a lot more cash flow, perhaps, relative to growth of the loan book. So do you think that pace of drawdown may ease off a little bit if we continue on this sort of growth trend in the portfolio?
No, it's a, it's a set drawdown schedule, CAD 12.5 million at the end of each quarter, until we get to the total term facility of CAD 280 million. So we'll continue to draw CAD 12.5 million to, the first quarter of 2017, I believe.
Okay. And then I'm assuming then in the background, you're obviously working on plans for the next phase beyond that, because that's really, I guess, not that far away now.
Yeah. You know, given the income generating, we're generating more retained earnings, so we're building up a bit of a cushion there, which is good. Yeah, but we're beginning to turn our sights on the next phase of our capital plan to make sure that we've got capital to fund the growth from, you know, the middle of 2017 onwards.
Okay. Okay, that's all I had for now. I'll requeue. Thanks.
Thank you. The following question is from Stephen MacLeod, from BMO Capital Markets. Please go ahead.
Thank you. Good morning.
Good morning, Steven.
Just wanted to talk a little bit about the yield decline being less pronounced in the second quarter. You know, is that something that you would expect to continue, like, in terms of the new ancillary products and lower claims rates? I mean, is there anything to indicate that yield decline will begin to accelerate anytime going forward, similar to the way it's been over the last few quarters?
The yield decline came back a little bit in the second quarter. A lot of it was because of the, you know, the sale of ancillary products, as well as decreased claims against the creditor insurance. A portion of it, though, was due to timing of cash flows from customers. For the sale of those ancillary products, we recognize our commission on a cash received basis. At the end of the quarter, based on the way the dates fell, we actually pulled one more day's worth of cash received from the customer in, so it helped increase the yield to get it flat over year-over-year. We continue to believe that on an annualized basis, we'll see the yield decline somewhere 200-300 basis points.
Okay. Okay, that's helpful. Thank you, and then when we look at the leasing business, you know, Dave, I know, I know you talked a little bit about the weakness in the quarter, but I just wanted to kind of circle around on what your outlook was for the rest of the year. You know, it sounded as though you're looking for kind of flattish top line growth and, and margin. It sounds like you're now expecting kind of that 14%-15%, compared to 15%-16% previously. You know, is there, is there any risk that... Or I guess maybe ask another way, you know, are you comfortable with that 14%-15%, or do you think it could even come in potentially lower than that for the full year?
Yeah, I mean, it's a good question because we look at Rent-A-Center and Aaron's as benchmarks, and they just reported in the last week. Our performance has been relatively consistent with their performance. They saw declines on their core business of around 5% in revenue for the quarter and some margin erosion that came with that decline, and we saw something similar. We have put some different activities in place for the summer months that we think will shore up the performance, and we did in fact see a very solid July performance, much stronger than a year ago. We have seen some things start to change for us. Our collection rates look pretty good. Our potential charge-offs look lower than a year ago.
So when we combine all of those factors together, we think we'll finish the year in that 14%-15% range. I don't think there's a huge risk around coming much away from that number. So part of the challenge, as you've seen in the other players, is there are alternatives today that didn't exist three, four, five years ago. So some of those alternatives are the growth business that we create with easyfinancial. There are other ways for people to access cash to buy merchandise. But from where we sit, we've got a good position in Canada, and the recent trends in the last month or so were quite positive for us. So I think 14%-15% is quite safe for us for the second half.
Oh, okay. Oh, that's great. And, you know, in terms of the top line, deflation or negative impact from the impact of store closures, do you begin to cycle those, or is it pretty consistent? I mean, I guess you've sort of closed stores pretty consistently over the last few quarters, but is there a point in time where there y ou see some relief on that?
Sorry, Steven, can you just repeat that question?
Yeah, I was just talking about the cycling, the impact from store closures, and if there's a point in time where you begin to see some relief from that.
In normal circumstance, the answer is yes, but in our number, we've got the acquisition of the Rent-A-Center stores. So we did the two tranches, one back in 2012, and then the most recent tranche a year ago. So typically, what happens when they get folded into an existing store, there is some erosion on the portfolio. Even though it's combined and you've removed a competitor in the marketplace, there is still continued erosion on that portfolio. So we see some of that will continue over the next six to 12 months. So you have to work a little bit harder on the existing stores to make up for some of that difference. As there's no more Rent-A-Centers left in the marketplace, you don't have the same opportunity to buy some add-ons or bolt-ons.
So there are still other independents that we could look to purchase, but we've been quite selective over the years in terms of what price we're willing to pay to do that type of acquisition. So I think the answer is, we will still see some erosion, which is why we'll still see revenue declines in the range of 3%-5% over the next twelve months. But we'll shore it up with some profit enhancement as we protect the assets.
Mm-hmm. Okay. That's great. Thank you. And then just finally, could you talk a little bit about, on the easyfinancial side, you know, what you're seeing in terms of online origination, performance, and, and then the indirect lending channel?
Yeah, sorry, I can speak to that, Steven, so it wasn't too dissimilar to what we shared in Q1. We also followed Q1 up with a supplemental investor deck that you probably saw, that showed a bit more detail of the breakdown of application volume and originations by channel. Q2 was fairly similar to that, so we would've seen, on the application side, about 40% coming from online, sorry, 45% from online, 45% from retail, and about 10% from our indirect merchant channel. And then the origination mix was similar to what we reported in that deck from Q1 as well.
Okay. That's great. Thank you.
Thank you. The following question is from Doug Cooper from Beacon Securities. Please go ahead.
Hi, good morning, guys. Excuse me. Most of my stuff's been answered, but you gave us a breakdown of the easyfinancial by province. Can you talk a little bit about, I guess, the bad debt provisions in each of those regions and how they're trending?
You mean the charge-offs or the provision?
I guess the bad debt as a percentage of revenue, let's just start there. That CAD 13 million that was, you know, provided for in the quarter, how, y ou know, was that basically equivalent to the revenue in province, or was there some, like Alberta, in particular, I'm sure people were interested in about how that is trending.
Yeah, it's roughly the same as by the province distribution. You know, we said in the past that Alberta performed slightly better than the rest of Canada. In the first quarter, that had slipped. It was now trailing the average. Alberta has improved somewhat. It's still slightly ahead of the Canadian average, but getting closer to it once again.
Okay. And the-
Sorry, Doug, just to finish that comment out.
Yeah.
I think the positive for us was that, Alberta, as we had seen claims crest in Q1, we have seen the same trend in terms of charge-offs in Q2, so claims crest in Q1, Alberta seemed to have reached its high in Q1, and Q2 is showing very stable performance now from each of the provinces.
What we did see in Q2 on charge-offs was an elevation of consumer bankruptcies and consumer proposals, and that wasn't isolated to one particular region. It was consistently ahead of our historical rates coast to coast.
Okay. When you give your the loan book guidance of CAD 500 million by 2018, versus the current 325, so 175. Out of that incremental 175, how much would that be consumer, you think, and how much would be third party, like Brick, Sears, et cetera?
Yeah, so we've not really given guidance on the breakdown of that loan growth by those three channels, largely because we still, there's still a lot of unknowns about that indirect merchant channel and what some of the volumes will look like from the retailers we're partnering with. Also, the time that it takes to identify these partnerships, establish the connections and the relationship, and then build and launch them can be like asking how long a piece of string is. It really varies, one partner to the next. A good portion of our assumptions for our growth are embedded within the channels that we know and understand the best, which are retail and e-commerce, so we haven't been overly aggressive with what we've assumed for the growth from that channel.
So, we feel pretty good that the number is quite solid for that reason.
Right. And I guess, maybe to follow on from one of the questions earlier, what point do you, you know, do you almost become self-funding for the, for the loan book?
You know, it's gonna depend on the growth. Hopefully, it's several years out, because that means we continue at an elevated growth path. You know, we will need to continue to access capital for at least the next couple of years, based on our current product mix. Going further out from that, we really haven't provided any guidance yet.
Okay. Okay, thank you, gentlemen.
Thank you. The following question is from Michael Overvelde from Raymond James. Please go ahead. Mr. Overvelde, your line is now open. You may proceed. Hearing no response, we will move to the next questioner. The following question is from a participant. Please state your name and company, followed by your question.
Roland Keiper, Clearwater Capital.
Thank you. Please go ahead.
Hey, good morning, guys. I was wondering if you could just comment about when you grant additional credit on easyfinancial to an existing customer, and you seem to do that once, if not more times, what your experience is with regard to credit performance when you grant additional credit and the profitability of those second or third iterations loans compared to the first iteration. What goes into the determination and what conditions have to be in place to allow you the opportunity to offer the opportunity to grant credit a second or third time to an existing customer?
Yep. Roland, it's Jason Appel here. I'll speak to some of the comments around credit, and if there are any supplementary comments, I'll turn it over to Jason Mullins to talk about profitability. But we employ some fairly rigorous standards when it comes to extending credit to existing customers. I think we have disclosed on numerous occasions that every time we extend additional credit, a full underwriting and credit evaluation is done on the customer. And there are a number of conditions that they have to meet in order to be considered eligible for credit. Chief among them being that their current loan that they have with us must be paid and current up to date, as at the time their application comes in the door.
We use a series of proprietary custom credit models that we built that takes into consideration both the customer's payment, repayment history with creditors outside of easyfinancial and any existing borrowings that they do with easyfinancial, as we find that we are much better equipped to understand a customer's likelihood of performing over the life of their loans, as they continue to build expertise and experience with us. So it is by virtue of those models, which we continue to refine, that allows us to be much more confident in our ability to extend credit to existing customers, which is why we do it, obviously, from time to time, either proactively or in response to customer demand when they come to us for more credit. As it relates to the overall profitability of those multiple loans that we do, I'll turn that to Jason.
But the last thing I will mention is we have certainly released in previous materials that by virtue of using that behavioral modeling approach, that we're able to generate lower loss rates on balance for customers who have not yet borrowed with easyfinancial in the past. And again, it's that positive cycle that gives us the comfort and the confidence to be able to extend credit over time. Jason, I don't know if you want to add anything.
Yeah, I can add to that. So yeah, Roland, when we in the number we disclosed at just after Q1 tried to help provide a bit more color around the borrowings to or lendings to existing customers. And we highlighted then that in 2015 , the net charge-off rate for loans that were given to existing customers was 11.5%, versus the overall portfolio average of 14.8%. So you can see the customers who we lend to second and tertiary times definitely perform much better, because we can look at not only their credit at the time of the application, but their borrowing payment behavior on our books, which we find to be very indicative.
And then, of course, because once you have that, you can be more accurate with the line assignments and how much you lend to the customer. When you couple that with lower loss rates, the profitability on those secondary borrowings for the customer increases as well. So, it's definitely more profitable and generates a better loss profile. A positive for us has been that we've been able to, in the second quarter, continue to maintain a steady rate of borrowings to new customers or lendings to new customers, which year on year remains close to half of all of our originations.
So while the opportunity to lend to existing customers is attractive from a loss profile and a profitability perspective, it's also very important for us to continue to keep the amount of new growth from new customers, moving at a healthy pace.
Just a couple more on that. If you could speak to just the origination cost of offering an opportunity to lend more money to an existing customer versus the first interaction, and how that impacts your profitability. The last thing is, there's been some commentary from some folks that you're lending good money after bad to prevent, to avoid a default of the lender, and that otherwise would occur had you not granted additional credit, so you're protecting your loan book. Can you just speak to that as well?
Yeah. So on your first question around cost of origination, so it's very inexpensive, fraction of the cost to originate a loan to a new customer. We obviously don't have the advertising expense or the traditional cost of acquisition, because once we've established that relationship, we're able to communicate to that customer freely during their life with us. So there'd be some operational costs in processing the credit application and doing the underwriting, but that's quite minimal. As Jason Appel mentioned earlier, we only lend to customers that are in good standing, and we only lend to customers that meet the same level of rigorous credit evaluation we would conduct on a new borrower.
And for that matter, have more information about them than a new borrower, because we're able to look at the change in their credit profile from the time they first applied to the time that they're applying for credit, on their subsequent applications. So, you know, when a customer is delinquent or in bad standing, they don't get issued any new credit whatsoever at any point. That act for us is only, based on giving customers credit that have improved credit and qualify.
Great. Thank you. Bye.
Thank you. The following question is from Michael Overvelde from Raymond James. Please go ahead. Mr. Overvelde, your line is now open. If you are using a speakerphone, please pick up your handset or unmute your line. I'm sorry. Hearing no response, we will have to move on. There are no further questions registered at this time. I would like to return the meeting to Mr. Ingram.
Since there's no more questions, I'd like to thank everyone for their participation in the conference call today and their continued support for goeasy, and we look forward to updating you on Q3 in November, later in the year. So thank you.
Thank you. That concludes today's conference call. Please disconnect your lines at this time, and we thank you for your participation.