Credit Acceptance Corp. net income fell 42 percent in the fourth quarter to $127.3 million. This is primarily due to the need to reserve more funds for potential credit losses in light of changes in cash flows.
The hurt-credit auto lender said Tuesday it expects to recover a smaller percentage of indirect loans it gets from dealers in 2021 and 2022, reducing projected net cash flow by $41.1 million.
As of December 31, 2022, Credit Acceptance expects loans to outperform original expectations by more than 1 percentage point each year from 2018 to 2020. But a portfolio of loans written in 2022 appeared to return 66.3% of all principal and interest theoretically paid to the company, a 1.2 percentage point drop from the yield Credit Acceptance originally expected. . (However, loans from the fourth quarter were 0.3 percentage points higher than expected.)
Chief Financial Officer Doug Bask said on Tuesday’s earnings call that his company has built a “significant safety margin” on interest rates, so even underperforming loans are likely to be profitable for the company. said.
Credit Acceptance attracted 62,074 loans from dealers in the fourth quarter. This was an increase of 26% from the same period last year. The total value of these loans also increased by 26% year-over-year.
Busk also said in its earnings call that Credit Acceptance had a “strong fourth quarter” in terms of new lending. He said the first 28 days of 2023 also produced a “strong organization.”
Loan originations in the second half of 2022 and in January mean an “improved competitive environment,” Busk said.
Credit Acceptance also bought 208,000 shares of its own stock at a price Busk said he thought was $455 per share during the quarter. But Busk said on the earnings call that his company’s top funding priority remains loan financing.
Shares of the lender rose 3.1% to close at $462.64. Earnings were announced after the market closed.
Other results from Credit Acceptance’s fourth quarter earnings report include:
- Fourth Quarter Revenue: $459 million, down 0.9% year-on-year.
- Fourth Quarter Net Income: $127.3 million, down 42% from the year-ago quarter.
- Fourth quarter adjusted net income: $156.1 million, down 27% from the year-ago quarter.
- Q4 Loans: There were 62,074 loans, a 26% year-on-year increase.
- Earnings for 2022: It was $1.83 billion, down 1.3% from the same period last year.
- 2022 Net Income: $535.8 million, down 44% from the same period last year.
- 2022 adjusted net income: $720.1 million, down 13% from the year-ago quarter.
- 2022 loan: There were 280,467 loans, up 4.4% year-on-year.