Credit Acceptance Corporation (Nasdaq: CACC)
(referred to as the “Company”, “Credit Acceptance”, “we”, “our”, or
“us”) today announced consolidated net income of $70.8 million, or
$5.43 per diluted share, for the three months ended
September 30, 2023 compared to consolidated net income of
$86.8 million, or $6.49 per diluted share, for the same period in
2022. Adjusted net income, a non-GAAP financial measure, for the
three months ended September 30, 2023 was $139.5 million, or
$10.70 per diluted share, compared to $178.5 million, or $13.36 per
diluted share, for the same period in 2022. The following table
summarizes our financial results:
(In millions, except per share
data) |
|
For the Three Months Ended |
|
For the Nine Months Ended September 30, |
|
|
September 30, 2023 |
|
June 30, 2023 |
|
September 30, 2022 |
|
|
2023 |
|
|
2022 |
GAAP net income |
|
$ |
70.8 |
|
$ |
22.2 |
|
$ |
86.8 |
|
$ |
192.5 |
|
$ |
408.5 |
GAAP net income per diluted
share |
|
$ |
5.43 |
|
$ |
1.69 |
|
$ |
6.49 |
|
$ |
14.73 |
|
$ |
29.74 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income (1) |
|
$ |
139.5 |
|
$ |
140.0 |
|
$ |
178.5 |
|
$ |
406.5 |
|
$ |
564.0 |
Adjusted net income per
diluted share (1) |
|
$ |
10.70 |
|
$ |
10.69 |
|
$ |
13.36 |
|
$ |
31.10 |
|
$ |
41.05 |
(1) Represents a non-GAAP
financial measure.
Our results for the third quarter of 2023 in
comparison to the third quarter of 2022 included:
- A decrease in forecasted collection
rates during the third quarter of 2023 that decreased forecasted
net cash flows from our loan portfolio by $69.4 million, or 0.7%,
compared to a decrease in forecasted collection rates during the
third quarter of 2022 that decreased forecasted net cash flows from
our loan portfolio by $85.4 million, or 0.9%.
- Forecasted profitability for
Consumer Loans assigned in 2020 through 2022 that was lower than
our estimates at September 30, 2022, due to a decline in
forecasted collection rates since the third quarter of 2022 and
slower forecasted net cash flow timing during 2023, primarily as a
result of a decrease in Consumer Loan prepayments to below-average
levels.
- Growth in Consumer Loan assignment
volume, as unit and dollar volumes grew 13.0% and 10.5%,
respectively, as compared to the third quarter of 2022. The average
balance of our loan portfolio on a GAAP and adjusted basis for the
third quarter of 2023 increased 5.9% and 10.6%, respectively, as
compared to the third quarter of 2022.
- An increase in the initial spread
on Consumer Loan assignments to 21.4% on Consumer Loans assigned in
the third quarter of 2023 compared to 20.2% on Consumer Loans
assigned in the third quarter of 2022.
- An increase in our average cost of
debt, which was primarily a result of higher interest rates on
recently-completed or extended secured financings and the repayment
of older secured financings with lower interest rates.
Our results for the third quarter of 2023 in
comparison to the second quarter of 2023 included:
- A decrease in forecasted collection
rates during the third quarter of 2023 that decreased forecasted
net cash flows from our loan portfolio by $69.4 million, or 0.7%,
compared to a decrease in forecasted collection rates during the
second quarter of 2023 that decreased forecasted net cash flows
from our loan portfolio by $89.3 million, or 0.9%.
- Forecasted profitability for
Consumer Loans assigned in 2020 through 2022 that was lower than
our estimates at June 30, 2023, due to the decline in forecasted
collection rates during the third quarter of 2023 and the slower
forecasted net cash flow timing discussed above.
- The average balance of our loan
portfolio on a GAAP and adjusted basis for the third quarter of
2023 increased 1.4% and 3.4%, respectively, as compared to the
second quarter of 2023.
- An increase in the initial spread
on Consumer Loan assignments to 21.4% on Consumer Loans assigned in
the third quarter of 2023 compared to 21.2% on Consumer Loans
assigned in the second quarter of 2023.
Consumer Loan Metrics
Dealers assign retail installment contracts
(referred to as “Consumer Loans”) to Credit Acceptance. At the
time a Consumer Loan is submitted to us for assignment, we forecast
future expected cash flows from the Consumer Loan. Based on
the amount and timing of these forecasts and expected expense
levels, an advance or one-time purchase payment is made to the
related dealer at a price designed to maximize economic profit, a
non-GAAP financial measure that considers our return on capital,
our cost of capital, and the amount of capital invested.
We use a statistical model to estimate the
expected collection rate for each Consumer Loan at the time of
assignment. We continue to evaluate the expected collection
rate of each Consumer Loan subsequent to assignment. Our
evaluation becomes more accurate as the Consumer Loans age, as we
use actual performance data in our forecast. By comparing our
current expected collection rate for each Consumer Loan with the
rate we projected at the time of assignment, we are able to assess
the accuracy of our initial forecast. The following table
compares our forecast of Consumer Loan collection rates as of
September 30, 2023, with the forecasts as of June 30, 2023, as
of December 31, 2022, and at the time of assignment, segmented
by year of assignment:
|
|
Forecasted Collection Percentage as of (1) |
|
Current Forecast Variance from |
Consumer Loan Assignment Year |
|
September 30, 2023 |
|
June 30, 2023 |
|
December 31, 2022 |
|
InitialForecast |
|
June 30, 2023 |
|
December 31, 2022 |
|
InitialForecast |
2014 |
|
71.7 |
% |
|
71.7 |
% |
|
71.7 |
% |
|
71.8 |
% |
|
0.0 |
% |
|
0.0 |
% |
|
-0.1 |
% |
2015 |
|
65.2 |
% |
|
65.2 |
% |
|
65.2 |
% |
|
67.7 |
% |
|
0.0 |
% |
|
0.0 |
% |
|
-2.5 |
% |
2016 |
|
63.8 |
% |
|
63.8 |
% |
|
63.8 |
% |
|
65.4 |
% |
|
0.0 |
% |
|
0.0 |
% |
|
-1.6 |
% |
2017 |
|
64.7 |
% |
|
64.7 |
% |
|
64.7 |
% |
|
64.0 |
% |
|
0.0 |
% |
|
0.0 |
% |
|
0.7 |
% |
2018 |
|
65.5 |
% |
|
65.4 |
% |
|
65.2 |
% |
|
63.6 |
% |
|
0.1 |
% |
|
0.3 |
% |
|
1.9 |
% |
2019 |
|
66.8 |
% |
|
66.8 |
% |
|
66.6 |
% |
|
64.0 |
% |
|
0.0 |
% |
|
0.2 |
% |
|
2.8 |
% |
2020 |
|
67.5 |
% |
|
67.8 |
% |
|
67.8 |
% |
|
63.4 |
% |
|
-0.3 |
% |
|
-0.3 |
% |
|
4.1 |
% |
2021 |
|
64.9 |
% |
|
65.5 |
% |
|
66.2 |
% |
|
66.3 |
% |
|
-0.6 |
% |
|
-1.3 |
% |
|
-1.4 |
% |
2022 |
|
63.5 |
% |
|
64.3 |
% |
|
66.3 |
% |
|
67.5 |
% |
|
-0.8 |
% |
|
-2.8 |
% |
|
-4.0 |
% |
2023 (2) |
|
67.6 |
% |
|
67.5 |
% |
|
— |
|
|
67.6 |
% |
|
0.1 |
% |
|
— |
|
|
0.0 |
% |
(1) Represents the total
forecasted collections we expect to collect on the Consumer Loans
as a percentage of the repayments that we were contractually owed
on the Consumer Loans at the time of assignment. Contractual
repayments include both principal and interest. Forecasted
collection rates are negatively impacted by canceled Consumer Loans
as the contractual amount owed is not removed from the denominator
for purposes of computing forecasted collection rates in the
table.(2) The forecasted collection rate for 2023
Consumer Loans as of September 30, 2023 includes both Consumer
Loans that were in our portfolio as of June 30, 2023 and Consumer
Loans assigned during the most recent quarter. The following table
provides forecasted collection rates for each of these
segments.
|
|
Forecasted Collection Percentage as of |
|
Current Forecast Variance from |
2023 Consumer Loan Assignment
Period |
|
September 30, 2023 |
|
June 30, 2023 |
|
Initial Forecast |
|
June 30, 2023 |
|
InitialForecast |
January 1, 2023 through June 30, 2023 |
|
67.6 |
% |
|
67.5 |
% |
|
67.5 |
% |
|
0.1 |
% |
|
0.1 |
% |
July 1, 2023 through September
30, 2023 |
|
67.7 |
% |
|
— |
|
|
67.7 |
% |
|
— |
|
|
0.0 |
% |
Consumer Loans assigned in 2018 through 2020
have yielded forecasted collection results significantly better
than our initial estimates, while Consumer Loans assigned in 2015,
2016, 2021, and 2022 have yielded forecasted collection results
significantly worse than our initial estimates. For all other
assignment years presented, actual results have been close to our
initial estimates. For the three months ended September 30,
2023, forecasted collection rates declined for Consumer Loans
assigned in 2020 through 2022 and were generally consistent with
expectations at the start of the period for all other assignment
years presented. For the nine months ended September 30, 2023,
forecasted collection rates improved for Consumer Loans assigned in
2018 and 2019, declined for Consumer Loans assigned in 2020 through
2022, and were generally consistent with expectations at the start
of the period for all other assignment years presented.
The changes in forecasted collection rates for
the three and nine months ended September 30, 2023 and 2022
impacted forecasted net cash flows (forecasted collections less
forecasted dealer holdback payments) as follows:
(Dollars in millions) |
|
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
Decrease in Forecasted Net Cash Flows |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Dealer loans |
|
$ |
(40.3) |
|
|
$ |
(37.3) |
|
|
$ |
(89.3) |
|
|
$ |
(17.4) |
|
Purchased loans |
|
|
(29.1) |
|
|
|
(48.1) |
|
|
|
(60.0) |
|
|
|
(1.2) |
|
Total |
|
$ |
(69.4) |
|
|
$ |
(85.4) |
|
|
$ |
(149.3) |
|
|
$ |
(18.6) |
|
% change from forecast at
beginning of period |
|
|
-0.7 |
% |
|
|
-0.9 |
% |
|
|
-1.7 |
% |
|
|
-0.2 |
% |
During the second quarter of 2023, we adjusted
our methodology for forecasting the amount and timing of future net
cash flows from our loan portfolio through the utilization of more
recent Consumer Loan performance and Consumer Loan prepayment data.
During the first half of 2023, we experienced a decrease in
Consumer Loan prepayments to below-average levels and, as a result,
slowed our forecasted net cash flow timing. The below-average
levels of Consumer Loan prepayments continued through the third
quarter of 2023. Historically, Consumer Loan prepayments have been
lower in periods with less availability of consumer credit. Changes
in the amount and timing of forecasted net cash flows are
recognized in our GAAP results in the period of change through
provision for credit losses and in our adjusted results
prospectively over the remaining forecast period of the loans
through finance charges. The implementation of the adjustment to
our forecasting methodology during the second quarter of 2023
reduced forecasted net cash flows by $44.5 million, or 0.5%, and
increased provision for credit losses by $71.3 million.
We have experienced increased levels of
uncertainty associated with our estimate of the amount and timing
of future net cash flows from our loan portfolio since the
beginning of 2020, with realized collections underperforming our
expectations during the early stages of the COVID-19 pandemic,
outperforming our expectations following the distribution of
federal stimulus payments and enhanced unemployment benefits, and
underperforming our expectations during the current economic
environment. For the period from January 1, 2020 through September
30, 2023, the cumulative change to our forecast of future net cash
flows from our loan portfolio has been an increase of $70.8
million, or 0.8%. Forecasting collection rates accurately is
challenging, so we have designed our business model to produce
acceptable levels of profitability, even if loan performance is
less than forecasted.
The following table presents information on the
average Consumer Loan assignment for each of the last 10 years:
|
|
Average |
Consumer Loan Assignment Year |
|
Consumer Loan (1) |
|
Advance (2) |
|
Initial Loan Term (in months) |
2014 |
|
$ |
15,692 |
|
$ |
7,492 |
|
47 |
2015 |
|
|
16,354 |
|
|
7,272 |
|
50 |
2016 |
|
|
18,218 |
|
|
7,976 |
|
53 |
2017 |
|
|
20,230 |
|
|
8,746 |
|
55 |
2018 |
|
|
22,158 |
|
|
9,635 |
|
57 |
2019 |
|
|
23,139 |
|
|
10,174 |
|
57 |
2020 |
|
|
24,262 |
|
|
10,656 |
|
59 |
2021 |
|
|
25,632 |
|
|
11,790 |
|
59 |
2022 |
|
|
27,242 |
|
|
12,924 |
|
60 |
2023 (3) |
|
|
26,991 |
|
|
12,512 |
|
61 |
(1) Represents the repayments
that we were contractually owed on Consumer Loans at the time of
assignment, which include both principal and
interest.(2) Represents advances paid to dealers
on Consumer Loans assigned under our portfolio program and one-time
payments made to dealers to purchase Consumer Loans assigned under
our purchase program. Payments of dealer holdback and
accelerated dealer holdback are not
included.(3) The averages for 2023 Consumer Loans
include both Consumer Loans that were in our portfolio as of June
30, 2023 and Consumer Loans assigned during the most recent
quarter. The following table provides averages for each of these
segments:
|
|
Average |
2023 Consumer Loan Assignment
Period |
|
Consumer Loan |
|
Advance |
|
Initial Loan Term (in months) |
January 1, 2023 through June 30,
2023 |
|
$ |
26,912 |
|
$ |
12,488 |
|
61 |
July 1, 2023 through September 30, 2023 |
|
|
27,157 |
|
|
12,564 |
|
61 |
The profitability of our loans is primarily
driven by the amount and timing of the net cash flows we receive
from the spread between the forecasted collection rate and the
advance rate, less operating expenses and the cost of capital.
Forecasting collection rates accurately at loan inception is
difficult. With this in mind, we establish advance rates that
are intended to allow us to achieve acceptable levels of
profitability, even if collection rates are less than we initially
forecast.
The following table presents forecasted Consumer
Loan collection rates, advance rates, the spread (the forecasted
collection rate less the advance rate), and the percentage of the
forecasted collections that had been realized as of
September 30, 2023, as well as the forecasted collection rates
and spread at the time of assignment. All amounts, unless
otherwise noted, are presented as a percentage of the initial
balance of the Consumer Loan (principal + interest). The table
includes both dealer loans and purchased loans.
|
|
Forecasted Collection % as of |
|
|
|
Spread % as of |
|
|
Consumer Loan Assignment Year |
|
September 30, 2023 |
|
Initial Forecast |
|
Advance % (1) |
|
September 30, 2023 |
|
Initial Forecast |
|
% of ForecastRealized (2) |
2014 |
|
71.7 |
% |
|
71.8 |
% |
|
47.7 |
% |
|
24.0 |
% |
|
24.1 |
% |
|
99.7 |
% |
2015 |
|
65.2 |
% |
|
67.7 |
% |
|
44.5 |
% |
|
20.7 |
% |
|
23.2 |
% |
|
99.4 |
% |
2016 |
|
63.8 |
% |
|
65.4 |
% |
|
43.8 |
% |
|
20.0 |
% |
|
21.6 |
% |
|
99.0 |
% |
2017 |
|
64.7 |
% |
|
64.0 |
% |
|
43.2 |
% |
|
21.5 |
% |
|
20.8 |
% |
|
98.5 |
% |
2018 |
|
65.5 |
% |
|
63.6 |
% |
|
43.5 |
% |
|
22.0 |
% |
|
20.1 |
% |
|
96.1 |
% |
2019 |
|
66.8 |
% |
|
64.0 |
% |
|
44.0 |
% |
|
22.8 |
% |
|
20.0 |
% |
|
90.8 |
% |
2020 |
|
67.5 |
% |
|
63.4 |
% |
|
43.9 |
% |
|
23.6 |
% |
|
19.5 |
% |
|
80.9 |
% |
2021 |
|
64.9 |
% |
|
66.3 |
% |
|
46.0 |
% |
|
18.9 |
% |
|
20.3 |
% |
|
64.7 |
% |
2022 |
|
63.5 |
% |
|
67.5 |
% |
|
47.4 |
% |
|
16.1 |
% |
|
20.1 |
% |
|
37.2 |
% |
2023 (3) |
|
67.6 |
% |
|
67.6 |
% |
|
46.4 |
% |
|
21.2 |
% |
|
21.2 |
% |
|
10.5 |
% |
(1) Represents advances paid to
dealers on Consumer Loans assigned under our portfolio program and
one-time payments made to dealers to purchase Consumer Loans
assigned under our purchase program as a percentage of the initial
balance of the Consumer Loans. Payments of dealer
holdback and accelerated dealer holdback are not
included.(2) Presented as a percentage of total
forecasted collections.(3) The forecasted
collection rate, advance rate and spread for 2023 Consumer Loans as
of September 30, 2023 include both Consumer Loans that were in
our portfolio as of June 30, 2023 and Consumer Loans assigned
during the most recent quarter. The following table provides
forecasted collection rates, advance rates, and spreads for each of
these segments:
|
|
Forecasted Collection % as of |
|
|
|
Spread % as of |
2023 Consumer Loan Assignment
Period |
|
September 30, 2023 |
|
Initial Forecast |
|
Advance % |
|
September 30, 2023 |
|
Initial Forecast |
January 1, 2023 through June 30, 2023 |
|
67.6 |
% |
|
67.5 |
% |
|
46.4 |
% |
|
21.2 |
% |
|
21.1 |
% |
July 1, 2023 through September
30, 2023 |
|
67.7 |
% |
|
67.7 |
% |
|
46.3 |
% |
|
21.4 |
% |
|
21.4 |
% |
The risk of a material change in our forecasted
collection rate declines as the Consumer Loans age. For 2019
and prior Consumer Loan assignments, the risk of a material
forecast variance is modest, as we have currently realized in
excess of 90% of the expected collections. Conversely, the
forecasted collection rates for more recent Consumer Loan
assignments are less certain as a significant portion of our
forecast has not been realized.
The spread between the forecasted collection
rate as of September 30, 2023 and the advance rate ranges from
16.1% to 24.0%, on an annual basis, for Consumer Loans assigned
over the last 10 years. The spreads with respect to 2019 and 2020
Consumer Loans have been positively impacted by Consumer Loan
performance, which has exceeded our initial estimates by a greater
margin than the other years presented. The spread with respect to
2022 Consumer Loans has been negatively impacted by Consumer Loan
performance, which has been lower than our initial estimates by a
greater margin than the other years presented. The higher spread
for 2023 Consumer Loans relative to 2022 Consumer Loans as of
September 30, 2023 is primarily due to the performance of the
2022 Consumer Loans. Additionally, 2023 Consumer Loans had a higher
initial spread primarily due to a decrease in the advance rate.
The following table compares our forecast of Consumer Loan
collection rates as of September 30, 2023 with the forecasts
at the time of assignment, for dealer loans and purchased loans
separately:
|
|
Dealer Loans |
|
Purchased Loans |
|
|
Forecasted Collection Percentage as of (1) |
|
|
|
Forecasted Collection Percentage as of (1) |
|
|
Consumer Loan Assignment Year |
|
September 30,2023 |
|
Initial Forecast |
|
Variance |
|
September 30,2023 |
|
Initial Forecast |
|
Variance |
2014 |
|
71.6 |
% |
|
71.9 |
% |
|
-0.3 |
% |
|
72.5 |
% |
|
70.9 |
% |
|
1.6 |
% |
2015 |
|
64.6 |
% |
|
67.5 |
% |
|
-2.9 |
% |
|
68.9 |
% |
|
68.5 |
% |
|
0.4 |
% |
2016 |
|
63.0 |
% |
|
65.1 |
% |
|
-2.1 |
% |
|
66.1 |
% |
|
66.5 |
% |
|
-0.4 |
% |
2017 |
|
64.0 |
% |
|
63.8 |
% |
|
0.2 |
% |
|
66.3 |
% |
|
64.6 |
% |
|
1.7 |
% |
2018 |
|
64.9 |
% |
|
63.6 |
% |
|
1.3 |
% |
|
66.8 |
% |
|
63.5 |
% |
|
3.3 |
% |
2019 |
|
66.5 |
% |
|
63.9 |
% |
|
2.6 |
% |
|
67.5 |
% |
|
64.2 |
% |
|
3.3 |
% |
2020 |
|
67.4 |
% |
|
63.3 |
% |
|
4.1 |
% |
|
67.8 |
% |
|
63.6 |
% |
|
4.2 |
% |
2021 |
|
64.6 |
% |
|
66.3 |
% |
|
-1.7 |
% |
|
65.4 |
% |
|
66.3 |
% |
|
-0.9 |
% |
2022 |
|
62.9 |
% |
|
67.3 |
% |
|
-4.4 |
% |
|
65.0 |
% |
|
68.0 |
% |
|
-3.0 |
% |
2023 |
|
66.7 |
% |
|
66.9 |
% |
|
-0.2 |
% |
|
69.9 |
% |
|
69.2 |
% |
|
0.7 |
% |
(1) The forecasted collection
rates presented for dealer loans and purchased loans reflect the
Consumer Loan classification at the time of assignment. The
forecasted collection rates represent the total forecasted
collections we expect to collect on the Consumer Loans as a
percentage of the repayments that we were contractually owed on the
Consumer Loans at the time of assignment. Contractual repayments
include both principal and interest. Forecasted collection rates
are negatively impacted by canceled Consumer Loans as the
contractual amount owed is not removed from the denominator for
purposes of computing forecasted collection rates in the table.
The following table presents forecasted Consumer
Loan collection rates, advance rates, and the spread (the
forecasted collection rate less the advance rate) as of
September 30, 2023 for dealer loans and purchased loans
separately. All amounts are presented as a percentage of
the initial balance of the Consumer Loan (principal +
interest).
|
|
Dealer Loans |
|
Purchased Loans |
Consumer Loan Assignment Year |
|
Forecasted Collection % (1) |
|
Advance % (1)(2) |
|
Spread % |
|
Forecasted Collection % (1) |
|
Advance % (1)(2) |
|
Spread % |
2014 |
|
71.6 |
% |
|
47.2 |
% |
|
24.4 |
% |
|
72.5 |
% |
|
51.8 |
% |
|
20.7 |
% |
2015 |
|
64.6 |
% |
|
43.4 |
% |
|
21.2 |
% |
|
68.9 |
% |
|
50.2 |
% |
|
18.7 |
% |
2016 |
|
63.0 |
% |
|
42.1 |
% |
|
20.9 |
% |
|
66.1 |
% |
|
48.6 |
% |
|
17.5 |
% |
2017 |
|
64.0 |
% |
|
42.1 |
% |
|
21.9 |
% |
|
66.3 |
% |
|
45.8 |
% |
|
20.5 |
% |
2018 |
|
64.9 |
% |
|
42.7 |
% |
|
22.2 |
% |
|
66.8 |
% |
|
45.2 |
% |
|
21.6 |
% |
2019 |
|
66.5 |
% |
|
43.1 |
% |
|
23.4 |
% |
|
67.5 |
% |
|
45.6 |
% |
|
21.9 |
% |
2020 |
|
67.4 |
% |
|
43.0 |
% |
|
24.4 |
% |
|
67.8 |
% |
|
45.5 |
% |
|
22.3 |
% |
2021 |
|
64.6 |
% |
|
45.1 |
% |
|
19.5 |
% |
|
65.4 |
% |
|
47.7 |
% |
|
17.7 |
% |
2022 |
|
62.9 |
% |
|
46.4 |
% |
|
16.5 |
% |
|
65.0 |
% |
|
50.1 |
% |
|
14.9 |
% |
2023 |
|
66.7 |
% |
|
45.0 |
% |
|
21.7 |
% |
|
69.9 |
% |
|
49.8 |
% |
|
20.1 |
% |
(1) The forecasted collection
rates and advance rates presented for dealer loans and purchased
loans reflect the Consumer Loan classification at the time of
assignment. (2) Represents advances paid to
dealers on Consumer Loans assigned under our portfolio program and
one-time payments made to dealers to purchase Consumer Loans
assigned under our purchase program as a percentage of the initial
balance of the Consumer Loans. Payments of dealer
holdback and accelerated dealer holdback are not included.
Although the advance rate on purchased loans is
higher as compared to the advance rate on dealer loans, purchased
loans do not require us to pay dealer holdback.
The spread as of September 30, 2023 on 2023
dealer loans was 21.7%, as compared to a spread of 16.5% on 2022
dealer loans. The increase was primarily as a result of Consumer
Loan performance, as the performance of 2022 dealer loans has been
significantly lower than our initial estimates. Additionally, 2023
dealer loans had a higher initial spread, due to the advance rate
decreasing by a greater margin than the initial forecast.
The spread as of September 30, 2023 on 2023
purchased loans was 20.1%, as compared to a spread of 14.9% on 2022
purchased loans. The increase was primarily as a result of Consumer
Loan performance, as the performance of 2022 purchased loans has
been significantly lower than our initial estimates while the
performance of 2023 purchased loans has exceeded our initial
estimates. Additionally, 2023 purchased loans had a higher initial
spread, due to a higher initial forecast and a lower advance
rate.
Consumer Loan Volume
The following table summarizes changes in
Consumer Loan assignment volume in each of the last seven quarters
as compared to the same period in the previous year:
|
|
Year over Year Percent Change |
Three Months Ended |
|
Unit Volume |
|
Dollar Volume (1) |
March 31, 2022 |
|
-22.1 |
% |
|
-10.5 |
% |
June 30, 2022 |
|
5.1 |
% |
|
22.0 |
% |
September 30, 2022 |
|
29.3 |
% |
|
32.1 |
% |
December 31, 2022 |
|
25.6 |
% |
|
26.2 |
% |
March 31, 2023 |
|
22.8 |
% |
|
18.6 |
% |
June 30, 2023 |
|
12.8 |
% |
|
8.3 |
% |
September 30, 2023 |
|
13.0 |
% |
|
10.5 |
% |
(1) Represents advances paid to
dealers on Consumer Loans assigned under our portfolio program and
one-time payments made to dealers to purchase Consumer Loans
assigned under our purchase program. Payments of dealer
holdback and accelerated dealer holdback are not included.
Consumer Loan assignment volumes depend on a
number of factors including (1) the overall demand for our
financing programs, (2) the amount of capital available to fund new
loans, and (3) our assessment of the volume that our infrastructure
can support. Our pricing strategy is intended to maximize the
amount of economic profit we generate, within the confines of
capital and infrastructure constraints.
Unit and dollar volumes grew 13.0% and 10.5%,
respectively, during the third quarter of 2023 as the number of
active dealers grew 14.9% and the average unit volume per active
dealer decreased 1.2%. Dollar volume increased less than unit
volume during the third quarter of 2023 due to a decrease in the
average advance paid, due to decreases in the average advance rate
and the average size of Consumer Loans assigned. Unit volume for
the third quarter of 2023 was 5.8% less than unit volume for the
third quarter of 2019, which was the highest third quarter unit
volume in our history. Unit volume for the 28-day period ended
October 28, 2023 grew 27.5% and declined 0.9% compared to the same
periods in 2022 and 2019, respectively. We believe the improvement
in unit volume growth rates from the third quarter of 2023 to
October 2023 was likely due to an improvement in the competitive
environment.
The following table summarizes the changes in Consumer Loan unit
volume and active dealers:
|
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
|
2023 |
|
2022 |
|
% Change |
|
2023 |
|
2022 |
|
% Change |
Consumer Loan unit volume |
81,299 |
|
71,937 |
|
13.0 |
% |
|
253,847 |
|
218,393 |
|
16.2 |
% |
Active dealers (1) |
9,818 |
|
8,547 |
|
14.9 |
% |
|
13,008 |
|
10,880 |
|
19.6 |
% |
Average volume per active dealer |
8.3 |
|
8.4 |
|
-1.2 |
% |
|
19.5 |
|
20.1 |
|
-3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loan unit volume from dealers active both periods |
59,788 |
|
59,592 |
|
0.3 |
% |
|
208,731 |
|
198,910 |
|
4.9 |
% |
Dealers active both periods |
5,920 |
|
5,920 |
|
— |
|
|
8,553 |
|
8,553 |
|
— |
|
Average volume per dealer active both periods |
10.1 |
|
10.1 |
|
0.3 |
% |
|
24.4 |
|
23.3 |
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loan unit volume from dealers not active both periods |
21,511 |
|
12,345 |
|
74.2 |
% |
|
45,116 |
|
19,483 |
|
131.6 |
% |
Dealers not active both periods |
3,898 |
|
2,627 |
|
48.4 |
% |
|
4,455 |
|
2,327 |
|
91.4 |
% |
Average volume per dealer not active both periods |
5.5 |
|
4.7 |
|
17.0 |
% |
|
10.1 |
|
8.4 |
|
20.2 |
% |
(1) Active dealers are dealers
who have received funding for at least one Consumer Loan during the
period.
The following table provides additional information on the
changes in Consumer Loan unit volume and active dealers:
|
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
|
2023 |
|
|
2022 |
|
|
% Change |
|
2023 |
|
|
2022 |
|
|
% Change |
Consumer Loan unit volume from new active dealers |
3,926 |
|
|
2,522 |
|
|
55.7 |
% |
|
29,005 |
|
|
17,653 |
|
|
64.3 |
% |
New active dealers (1) |
983 |
|
|
674 |
|
|
45.8 |
% |
|
3,095 |
|
|
2,044 |
|
|
51.4 |
% |
Average volume per new active dealer |
4.0 |
|
|
3.7 |
|
|
8.1 |
% |
|
9.4 |
|
|
8.6 |
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Attrition (2) |
-17.2 |
% |
|
-13.4 |
% |
|
|
|
-8.9 |
% |
|
-8.2 |
% |
|
|
(1) New active dealers are
dealers who enrolled in our program and have received funding for
their first dealer loan or purchased loan from us during the
period.(2) Attrition is measured according to the
following formula: decrease in Consumer Loan unit volume
from dealers who have received funding for at least one dealer loan
or purchased loan during the comparable period of the prior year
but did not receive funding for any dealer loans or purchased loans
during the current period divided by prior year comparable period
Consumer Loan unit volume.
The following table shows the percentage of
Consumer Loans assigned to us as dealer loans and purchased loans
for each of the last seven quarters:
|
|
Unit Volume |
|
Dollar Volume (1) |
Three Months Ended |
|
Dealer Loans |
|
Purchased Loans |
|
Dealer Loans |
|
Purchased Loans |
March 31, 2022 |
|
72.7 |
% |
|
27.3 |
% |
|
68.6 |
% |
|
31.4 |
% |
June 30, 2022 |
|
74.0 |
% |
|
26.0 |
% |
|
70.4 |
% |
|
29.6 |
% |
September 30, 2022 |
|
74.3 |
% |
|
25.7 |
% |
|
70.5 |
% |
|
29.5 |
% |
December 31, 2022 |
|
73.1 |
% |
|
26.9 |
% |
|
69.6 |
% |
|
30.4 |
% |
March 31, 2023 |
|
72.1 |
% |
|
27.9 |
% |
|
68.1 |
% |
|
31.9 |
% |
June 30, 2023 |
|
72.4 |
% |
|
27.6 |
% |
|
68.6 |
% |
|
31.4 |
% |
September 30, 2023 |
|
74.8 |
% |
|
25.2 |
% |
|
71.7 |
% |
|
28.3 |
% |
(1) Represents advances paid to
dealers on Consumer Loans assigned under our portfolio program and
one-time payments made to dealers to purchase Consumer Loans
assigned under our purchase program. Payments of dealer
holdback and accelerated dealer holdback are not included.
As of September 30, 2023 and
December 31, 2022, the net dealer loans receivable balance was
66.6% and 64.7%, respectively, of the total net loans receivable
balance.
Financial Results
(Dollars in millions, except
per share data) |
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
|
|
2023 |
|
|
2022 |
|
% Change |
|
|
2023 |
|
|
2022 |
|
% Change |
GAAP average debt |
$ |
4,831.4 |
|
$ |
4,705.9 |
|
2.7 |
% |
|
$ |
4,718.7 |
|
$ |
4,689.4 |
|
0.6 |
% |
GAAP average shareholders' equity |
|
1,731.3 |
|
|
1,547.8 |
|
11.9 |
% |
|
|
1,719.1 |
|
|
1,638.2 |
|
4.9 |
% |
Average capital |
$ |
6,562.7 |
|
$ |
6,253.7 |
|
4.9 |
% |
|
$ |
6,437.8 |
|
$ |
6,327.6 |
|
1.7 |
% |
GAAP net income |
$ |
70.8 |
|
$ |
86.8 |
|
-18.4 |
% |
|
$ |
192.5 |
|
$ |
408.5 |
|
-52.9 |
% |
Diluted weighted average shares outstanding |
|
13,039,638 |
|
|
13,364,160 |
|
-2.4 |
% |
|
|
13,068,998 |
|
|
13,737,871 |
|
-4.9 |
% |
GAAP net income per diluted share |
$ |
5.43 |
|
$ |
6.49 |
|
-16.3 |
% |
|
$ |
14.73 |
|
$ |
29.74 |
|
-50.5 |
% |
The decrease in GAAP net income for the three
months ended September 30, 2023, as compared to the same
period in 2022, was primarily a result of the following:
- An increase in interest expense of
68.7% ($28.7 million), primarily due to an increase in our average
cost of debt, which was primarily a result of higher interest rates
on recently-completed or extended secured financings and the
repayment of older secured financings with lower interest
rates.
- An increase in operating expenses
of 7.1% ($7.3 million), primarily due to:
- An increase in general and
administrative expense of 28.3% ($4.7 million), primarily due to an
increase in technology systems expenses.
- An increase in sales and marketing
expense of 14.2% ($2.8 million), primarily due to investments in
our business to enhance our sales and marketing strategy and an
increase in the size of our sales force.
- A decrease in other income of 30.9%
($7.2 million) primarily due to:
- A $5.9 million decrease in
ancillary product profit sharing income primarily due to increases
in average claim rates and volume of claims on Guaranteed Asset
Protection (“GAP”) contracts.
- A $4.6 million decrease in
remarketing fee income for fees charged to dealers related to the
repossession and remarketing of vehicles. Remarketing fee income
for the three months ended September 30, 2022 included $4.5 million
of fees charged to dealers for repossession activity that occurred
in August 2020 through June 2022.
- A $3.4 million increase in interest
income due to increases in benchmark interest rates and the average
restricted cash and cash equivalents balance.
- A decrease in provision for income
taxes of 27.2% ($9.6 million), primarily due to a decrease in
taxable income.
- An increase in finance charges of
5.0% ($21.1 million), primarily due to an increase in the average
balance of our loan portfolio.
The decrease in GAAP net income for the nine
months ended September 30, 2023, as compared to the same
period in 2022, was primarily a result of the following:
- An increase in provision for credit
losses of 63.1% ($221.4 million), primarily due to an increase in
provision for credit losses on forecast changes of $251.8 million,
primarily due to a greater decline in Consumer Loan performance
during the first nine months of 2023 compared to the first nine
months of 2022. During the first nine months of 2023, we decreased
our estimate of future net cash flows by $149.3 million, or 1.7%,
to reflect a decline in forecasted collection rates during the
period and slowed our forecasted net cash flow timing to reflect a
decrease in Consumer Loan prepayments to below-average levels.
Historically, Consumer Loan prepayments have been lower in periods
with less availability of consumer credit. The $149.3 million
decrease in forecasted net cash flows for the first nine months of
2023 included the impact of an adjustment to our forecasting
methodology during the second quarter of 2023, which, upon
implementation, decreased our estimate of future net cash flows by
$44.5 million, or 0.5%, and increased our provision for credit
losses by $71.3 million. We adjusted our methodology for
forecasting the amount and timing of future net cash flows from our
loan portfolio through the utilization of more recent Consumer Loan
performance and Consumer Loan prepayment data. During the first
nine months of 2022, we decreased our estimate of future net cash
flows by $18.6 million, or 0.2%, to reflect a decline in Consumer
Loan performance during the period. The $18.6 million decrease in
forecasted net cash flows for the first nine months of 2022
included the impact of forecasting methodology changes during the
first quarter of 2022, which, upon implementation, increased our
estimate of future net cash flows by $95.7 million and reduced our
provision for credit losses by $70.6 million. The following table
summarizes each component of provision for credit losses:
(In millions) |
For the Nine Months Ended September 30, |
Provision for Credit Losses |
|
|
2023 |
|
|
2022 |
|
Change |
Forecast changes |
|
$ |
319.4 |
|
$ |
67.6 |
|
$ |
251.8 |
|
New Consumer Loan
assignments |
|
|
253.1 |
|
|
283.5 |
|
|
(30.4) |
|
Total |
|
$ |
572.5 |
|
$ |
351.1 |
|
$ |
221.4 |
|
- An increase in interest expense of
60.2% ($70.5 million), primarily due to an increase in our average
cost of debt, which was primarily a result of higher interest rates
on recently-completed or extended secured financings and the
repayment of older secured financings with lower interest
rates.
- An increase in operating expenses
of 6.9% ($22.4 million), due to:
- An increase in salaries and wages
expense of 8.8% ($17.4 million), primarily due to an increase in
the number of team members in our engineering department as we are
investing in our business to enhance our product and transform our
technology systems to be more dealer- and customer-focused and an
increase in fringe benefits primarily due to higher medical claims.
The impact of the increases in the number of team members and in
fringe benefits was partially offset by a decrease in cash-based
incentive compensation expense primarily due to a decline in
Company performance measures.
- An increase in sales and marketing
expense of 22.5% ($13.0 million), primarily due to investments in
our business to enhance our sales and marketing strategy, an
increase in the size of our sales force, and an increase in sales
commissions related to growth in Consumer Loan assignment
volume.
- A decrease in general and
administrative expense of 11.8% ($8.0 million), primarily due to a
decrease in legal expenses. Legal expenses for the nine months
ended September 30, 2022 included a $12.0 million settlement to
settle and fully resolve a previously-disclosed putative class
action lawsuit.
- An increase in provision for claims
of 59.1% ($20.1 million), due to increases in the size of our
reinsurance portfolio and the average claim paid per reinsured
vehicle service contract.
- An increase in finance charges of
2.6% ($33.5 million), due to an increase in the average balance of
our loan portfolio, partially offset by a decrease in the average
yield on our loan portfolio primarily due to lower contractual
yields on more recent Consumer Loan assignments.
- A decrease in provision for income
taxes of 58.1% ($81.5 million), primarily due to a decrease in
taxable income.
Adjusted financial results are provided to help
shareholders understand our financial performance. The
financial data below is non-GAAP, unless labeled otherwise. We
use adjusted financial information internally to measure financial
performance and to determine certain incentive
compensation. We also use economic profit as a framework to
evaluate business decisions and strategies, with the objective to
maximize economic profit over the long term. In addition, effective
January 1, 2020, certain debt facilities utilize adjusted financial
information for the determination of loan collateral values. The
table below shows our results following adjustments to reflect
non-GAAP accounting methods. Material adjustments are
explained in the table footnotes and the subsequent “Floating Yield
Adjustment” and “Senior Notes Adjustment” sections. Measures
such as adjusted average capital, adjusted net income, adjusted net
income per diluted share, adjusted interest expense (after-tax),
adjusted net income plus interest expense (after-tax), adjusted
return on capital, adjusted revenue, operating expenses, adjusted
loans receivable, economic profit, and economic profit per diluted
share are all non-GAAP financial measures. These non-GAAP
financial measures should be viewed in addition to, and not as an
alternative for, our reported results prepared in accordance with
GAAP.
Adjusted financial results for the three and
nine months ended September 30, 2023, compared to the same
periods in 2022, include the following:
(Dollars in millions, except
per share data) |
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
|
2022 |
|
|
% Change |
Adjusted average capital |
$ |
7,023.9 |
|
|
$ |
6,456.7 |
|
|
8.8 |
% |
|
$ |
6,801.6 |
|
|
$ |
6,458.0 |
|
|
5.3 |
% |
Adjusted net income |
$ |
139.5 |
|
|
$ |
178.5 |
|
|
-21.8 |
% |
|
$ |
406.5 |
|
|
$ |
564.0 |
|
|
-27.9 |
% |
Adjusted interest expense
(after-tax) |
$ |
54.8 |
|
|
$ |
32.7 |
|
|
67.6 |
% |
|
$ |
146.1 |
|
|
$ |
91.8 |
|
|
59.2 |
% |
Adjusted net income plus interest expense (after-tax) |
$ |
194.3 |
|
|
$ |
211.2 |
|
|
-8.0 |
% |
|
$ |
552.6 |
|
|
$ |
655.8 |
|
|
-15.7 |
% |
Adjusted return on
capital |
|
11.1 |
% |
|
|
13.1 |
% |
|
-15.3 |
% |
|
|
10.8 |
% |
|
|
13.5 |
% |
|
-20.0 |
% |
Cost of capital |
|
7.1 |
% |
|
|
5.8 |
% |
|
22.4 |
% |
|
|
6.8 |
% |
|
|
5.5 |
% |
|
23.6 |
% |
Economic profit |
|
69.1 |
|
|
|
116.9 |
|
|
-40.9 |
% |
|
|
204.6 |
|
|
|
388.5 |
|
|
-47.3 |
% |
Diluted weighted average shares outstanding |
|
13,039,638 |
|
|
|
13,364,160 |
|
|
-2.4 |
% |
|
|
13,068,998 |
|
|
|
13,737,871 |
|
|
-4.9 |
% |
Adjusted net income per diluted share |
$ |
10.70 |
|
|
$ |
13.36 |
|
|
-19.9 |
% |
|
$ |
31.10 |
|
|
$ |
41.05 |
|
|
-24.2 |
% |
Economic profit per diluted
share |
$ |
5.30 |
|
|
$ |
8.75 |
|
|
-39.4 |
% |
|
$ |
15.66 |
|
|
$ |
28.28 |
|
|
-44.6 |
% |
Economic profit decreased 40.9% and 47.3% for
the three and nine months ended September 30, 2023, as
compared to the same periods in 2022. Economic profit is a
function of the return on capital in excess of the cost of capital
and the amount of capital invested in the business. The
following table summarizes the impact each of these components had
on the changes in economic profit for the three and nine months
ended September 30, 2023, as compared to the same periods in
2022:
(In millions) |
Year over Year Change in Economic Profit |
|
For the Three Months Ended September 30, 2023 |
|
For the Nine Months Ended September 30, 2023 |
Decrease in adjusted return on
capital |
$ |
(35.6) |
) |
|
$ |
(137.9 |
) |
Increase in cost of
capital |
|
(22.5 |
) |
|
|
(65.8 |
) |
Increase in adjusted average
capital |
|
10.3 |
|
|
|
19.8 |
|
Decrease in economic profit |
$ |
(47.8 |
) |
|
$ |
(183.9 |
) |
The decrease in economic profit for the three
months ended September 30, 2023, as compared to the same
period in 2022, was primarily a result of the following:
- A decrease in our adjusted return
on capital of 200 basis points, primarily due to:
- A decrease in the yield used to
recognize adjusted finance charges on our loan portfolio decreased
our adjusted return on capital by 170 basis points, primarily due
to a decline in forecasted collection rates since the third quarter
of 2022 and slower forecasted net cash flow timing during 2023,
primarily as a result of a decrease in Consumer Loan prepayments to
below-average levels.
- A decrease in other income
decreased our adjusted return on capital by 40 basis points, due
to:
- A $5.9 million decrease in
ancillary product profit sharing income primarily due to increases
in average claim rates and volume of claims on GAP contracts.
- A $4.6 million decrease in
remarketing fee income for fees charged to dealers related to the
repossession and remarketing of vehicles. Remarketing fee income
for the three months ended September 30, 2022 included $4.5 million
of fees charged to dealers for repossession activity that occurred
in August 2020 through June 2022.
- A $3.4 million increase in interest
income due to increases in benchmark interest rates and the average
restricted cash and cash equivalents balance.
- An increase in our cost of capital,
primarily due to increases in our cost of debt and the 30-year
Treasury rate, which is used in the average cost of equity
calculation.
- An increase in adjusted average
capital of 8.8%, primarily due to an increase in the average
balance of our loan portfolio.
The decrease in economic profit for the nine
months ended September 30, 2023, as compared to the same
period in 2022, was primarily a result of the following:
- A decrease in our adjusted return
on capital of 270 basis points, primarily due to a decrease in the
yield used to recognize adjusted finance charges on our loan
portfolio, which decreased our adjusted return on capital by 230
basis points. The decrease was primarily due to a decline in
forecasted collection rates since the third quarter of 2022 and
slower forecasted net cash flow timing during 2023, primarily as a
result of a decrease in Consumer Loan prepayments to below-average
levels.
- An increase in our cost of capital,
primarily due to an increase in our cost of debt.
- An increase in adjusted average
capital of 5.3%, primarily due to an increase in the average
balance of our loan portfolio.
The following table shows adjusted revenue and
operating expenses as a percentage of adjusted average capital, the
adjusted return on capital, and the percentage change in adjusted
average capital for each of the last eight quarters, compared to
the same period in the prior year:
|
|
For the Three Months Ended |
|
|
|
Sept. 30, 2023 |
|
Jun. 30, 2023 |
|
Mar. 31, 2023 |
|
Dec. 31, 2022 |
|
Sept. 30, 2022 |
|
Jun. 30, 2022 |
|
Mar. 31, 2022 |
|
Dec. 31, 2021 |
|
Adjusted revenue as a percentage of adjusted average capital
(1) |
|
20.7 |
% |
|
21.2 |
% |
|
20.6 |
% |
|
22.0 |
% |
|
23.4 |
% |
|
24.9 |
% |
|
24.4 |
% |
|
25.3 |
% |
|
Operating expenses as a percentage of adjusted average capital
(1) |
|
6.3 |
% |
|
6.9 |
% |
|
7.2 |
% |
|
6.4 |
% |
|
6.4 |
% |
|
7.3 |
% |
|
6.3 |
% |
|
6.3 |
% |
|
Adjusted return on capital (1) |
|
11.1 |
% |
|
11.1 |
% |
|
10.3 |
% |
|
12.0 |
% |
|
13.1 |
% |
|
13.6 |
% |
|
13.9 |
% |
|
14.6 |
% |
|
Percentage change in adjusted average capital compared to the same
period in the prior year |
|
8.8 |
% |
|
6.2 |
% |
|
1.0 |
% |
|
-2.4 |
% |
|
-8.2 |
% |
|
-12.8 |
% |
|
-10.7 |
% |
|
-7.3 |
% |
|
(1) Annualized.
The decrease in adjusted revenue as a percentage
of adjusted average capital for the three months ended September
30, 2023, as compared to the three months ended June 30, 2023, was
primarily due to a decrease in the yield used to recognize adjusted
finance charges on our loan portfolio. The decrease in the yield
decreased our adjusted return on capital by 50 basis points,
primarily due to a decline in forecasted collection rates in the
second and third quarters of 2023 and slower forecasted net cash
flow timing during 2023, primarily as a result of a decrease in
Consumer Loan prepayments to below-average levels.
The decrease in operating expenses as a
percentage of adjusted average capital for the three months ended
September 30, 2023, as compared to the three months ended June 30,
2023, was due to a decrease in operating expenses of 5.6% ($6.5
million) and an increase in adjusted average capital of 2.9%. The
$6.5 million decrease in operating expenses was primarily due
to:
- A $3.8 million decrease in sales
and marketing expense, primarily due to the timing of investments
in our business to enhance our sales and marketing strategy.
- A $3.5 million decrease in salaries
and wages expense, primarily due to a decrease in fringe benefits
primarily due to lower medical claims.
The following tables provide a reconciliation of
non-GAAP measures to GAAP measures. Certain amounts do
not recalculate due to rounding.
(Dollars in millions, except
per share data) |
|
For the Three Months Ended |
|
|
Sept. 30, 2023 |
|
Jun. 30, 2023 |
|
Mar. 31, 2023 |
|
Dec. 31, 2022 |
|
Sept. 30, 2022 |
|
Jun. 30, 2022 |
|
Mar. 31, 2022 |
|
Dec. 31, 2021 |
Adjusted net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income |
|
$ |
70.8 |
|
|
$ |
22.2 |
|
|
$ |
99.5 |
|
|
$ |
127.3 |
|
|
$ |
86.8 |
|
|
$ |
107.4 |
|
|
$ |
214.3 |
|
|
$ |
217.6 |
|
Floating yield adjustment (after-tax) |
|
|
(76.4 |
) |
|
|
(73.9 |
) |
|
|
(75.9 |
) |
|
|
(69.3 |
) |
|
|
(53.7 |
) |
|
|
(34.3 |
) |
|
|
(39.2 |
) |
|
|
(26.1 |
) |
GAAP provision for credit losses (after-tax) |
|
|
142.1 |
|
|
|
192.9 |
|
|
|
105.8 |
|
|
|
100.4 |
|
|
|
138.7 |
|
|
|
113.6 |
|
|
|
18.0 |
|
|
|
20.0 |
|
Senior notes adjustment (after-tax) |
|
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
Income tax adjustment (1) |
|
|
3.5 |
|
|
|
(0.6 |
) |
|
|
(1.9 |
) |
|
|
(1.8 |
) |
|
|
7.2 |
|
|
|
2.1 |
|
|
|
4.7 |
|
|
|
1.6 |
|
Adjusted net income |
|
$ |
139.5 |
|
|
$ |
140.0 |
|
|
$ |
127.0 |
|
|
$ |
156.1 |
|
|
$ |
178.5 |
|
|
$ |
188.2 |
|
|
$ |
197.3 |
|
|
$ |
212.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income per diluted share (2) |
|
$ |
10.70 |
|
|
$ |
10.69 |
|
|
$ |
9.71 |
|
|
$ |
11.74 |
|
|
$ |
13.36 |
|
|
$ |
13.92 |
|
|
$ |
13.76 |
|
|
$ |
14.26 |
|
Diluted weighted average shares outstanding |
|
|
13,039,638 |
|
|
|
13,099,961 |
|
|
|
13,073,316 |
|
|
|
13,294,506 |
|
|
|
13,364,160 |
|
|
|
13,517,979 |
|
|
|
14,341,523 |
|
|
|
14,904,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP total revenue |
|
$ |
478.6 |
|
|
$ |
477.9 |
|
|
$ |
453.8 |
|
|
$ |
459.0 |
|
|
$ |
460.3 |
|
|
$ |
457.4 |
|
|
$ |
455.7 |
|
|
$ |
463.2 |
|
Floating yield adjustment |
|
|
(99.3 |
) |
|
|
(96.1 |
) |
|
|
(98.4 |
) |
|
|
(90.0 |
) |
|
|
(69.8 |
) |
|
|
(44.5 |
) |
|
|
(50.9 |
) |
|
|
(33.9 |
) |
GAAP provision for claims |
|
|
(16.5 |
) |
|
|
(19.7 |
) |
|
|
(17.9 |
) |
|
|
(12.4 |
) |
|
|
(12.9 |
) |
|
|
(12.2 |
) |
|
|
(8.9 |
) |
|
|
(9.5 |
) |
Adjusted revenue |
|
$ |
362.8 |
|
|
$ |
362.1 |
|
|
$ |
337.5 |
|
|
$ |
356.6 |
|
|
$ |
377.6 |
|
|
$ |
400.7 |
|
|
$ |
395.9 |
|
|
$ |
419.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted average capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP average debt |
|
$ |
4,831.4 |
|
|
$ |
4,730.3 |
|
|
$ |
4,594.7 |
|
|
$ |
4,591.1 |
|
|
$ |
4,705.9 |
|
|
$ |
4,772.9 |
|
|
$ |
4,589.4 |
|
|
$ |
4,671.2 |
|
Deferred debt issuance adjustment |
|
|
24.5 |
|
|
|
24.0 |
|
|
|
21.2 |
|
|
|
21.3 |
|
|
|
22.6 |
|
|
|
22.5 |
|
|
|
24.9 |
|
|
|
27.8 |
|
Senior notes debt
adjustment |
|
|
3.4 |
|
|
|
3.4 |
|
|
|
3.4 |
|
|
|
3.4 |
|
|
|
3.4 |
|
|
|
3.4 |
|
|
|
3.4 |
|
|
|
3.4 |
|
Adjusted average debt |
|
|
4,859.3 |
|
|
|
4,757.7 |
|
|
|
4,619.3 |
|
|
|
4,615.8 |
|
|
|
4,731.9 |
|
|
|
4,798.8 |
|
|
|
4,617.7 |
|
|
|
4,702.4 |
|
GAAP average shareholders' equity |
|
|
1,731.3 |
|
|
|
1,752.6 |
|
|
|
1,673.3 |
|
|
|
1,635.2 |
|
|
|
1,547.8 |
|
|
|
1,538.8 |
|
|
|
1,828.1 |
|
|
|
1,865.7 |
|
Senior notes equity adjustment |
|
|
2.9 |
|
|
|
3.4 |
|
|
|
4.0 |
|
|
|
4.5 |
|
|
|
5.0 |
|
|
|
5.5 |
|
|
|
6.0 |
|
|
|
6.6 |
|
Income tax adjustment (3) |
|
|
(118.5 |
) |
|
|
(118.5 |
) |
|
|
(118.5 |
) |
|
|
(118.5 |
) |
|
|
(118.5 |
) |
|
|
(118.5 |
) |
|
|
(118.5 |
) |
|
|
(118.5 |
) |
Floating yield adjustment |
|
|
548.9 |
|
|
|
433.9 |
|
|
|
373.7 |
|
|
|
353.2 |
|
|
|
290.5 |
|
|
|
204.7 |
|
|
|
154.9 |
|
|
|
192.0 |
|
Adjusted average equity |
|
|
2,164.6 |
|
|
|
2,071.4 |
|
|
|
1,932.5 |
|
|
|
1,874.4 |
|
|
|
1,724.8 |
|
|
|
1,630.5 |
|
|
|
1,870.5 |
|
|
|
1,945.8 |
|
Adjusted average capital |
|
$ |
7,023.9 |
|
|
$ |
6,829.1 |
|
|
$ |
6,551.8 |
|
|
$ |
6,490.2 |
|
|
$ |
6,456.7 |
|
|
$ |
6,429.3 |
|
|
$ |
6,488.2 |
|
|
$ |
6,648.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted revenue as a percentage of adjusted average capital
(4) |
|
|
20.7 |
% |
|
|
21.2 |
% |
|
|
20.6 |
% |
|
|
22.0 |
% |
|
|
23.4 |
% |
|
|
24.9 |
% |
|
|
24.4 |
% |
|
|
25.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted loans receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP loans receivable, net |
|
$ |
6,780.5 |
|
|
$ |
6,610.3 |
|
|
$ |
6,500.3 |
|
|
$ |
6,297.7 |
|
|
$ |
6,311.6 |
|
|
$ |
6,323.7 |
|
|
$ |
6,327.2 |
|
|
$ |
6,336.3 |
|
Floating yield adjustment |
|
|
748.9 |
|
|
|
663.7 |
|
|
|
509.2 |
|
|
|
470.2 |
|
|
|
429.9 |
|
|
|
319.4 |
|
|
|
216.5 |
|
|
|
244.1 |
|
Adjusted loans receivable |
|
$ |
7,529.4 |
|
|
$ |
7,274.0 |
|
|
$ |
7,009.5 |
|
|
$ |
6,767.9 |
|
|
$ |
6,741.5 |
|
|
$ |
6,643.1 |
|
|
$ |
6,543.7 |
|
|
$ |
6,580.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted interest expense (after-tax) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP interest expense |
|
$ |
70.5 |
|
|
$ |
62.8 |
|
|
$ |
54.4 |
|
|
$ |
49.4 |
|
|
$ |
41.8 |
|
|
$ |
38.9 |
|
|
$ |
36.5 |
|
|
$ |
38.6 |
|
Senior notes adjustment |
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.6 |
|
Adjusted interest expense (pre-tax) |
|
|
71.2 |
|
|
|
63.5 |
|
|
|
55.1 |
|
|
|
50.1 |
|
|
|
42.5 |
|
|
|
39.6 |
|
|
|
37.2 |
|
|
|
39.2 |
|
Adjustment to record tax effect (1) |
|
|
(16.4 |
) |
|
|
(14.6 |
) |
|
|
(12.7 |
) |
|
|
(11.5 |
) |
|
|
(9.8 |
) |
|
|
(9.1 |
) |
|
|
(8.6 |
) |
|
|
(9.0 |
) |
Adjusted interest expense (after-tax) |
|
$ |
54.8 |
|
|
$ |
48.9 |
|
|
$ |
42.4 |
|
|
$ |
38.6 |
|
|
$ |
32.7 |
|
|
$ |
30.5 |
|
|
$ |
28.6 |
|
|
$ |
30.2 |
|
(1) Adjustment to record taxes
at our estimated long-term effective income tax rate of
23%. (2) Net income per diluted share is
computed independently for each of the quarters presented.
Therefore, the sum of quarterly net income per diluted share
information may not equal year-to-date net income per diluted
share.(3) The enactment of the Tax Cuts and Jobs
Act in December 2017 resulted in the reversal of $118.5 million of
provision for income taxes to reflect the new federal statutory
income tax rate. This adjustment removes the impact of this
reversal from adjusted average capital. We believe the income tax
adjustment provides a more accurate reflection of the performance
of our business as we are recognizing provision for income taxes at
the applicable long-term effective tax rate for the
period.(4) Annualized.
(Dollars in millions) |
|
For the Three Months Ended |
|
|
Sept. 30, 2023 |
|
Jun. 30, 2023 |
|
Mar. 31, 2023 |
|
Dec. 31, 2022 |
|
Sept. 30, 2022 |
|
Jun. 30, 2022 |
|
Mar. 31, 2022 |
|
Dec. 31, 2021 |
Adjusted return on capital (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income |
|
$ |
139.5 |
|
|
$ |
140.0 |
|
|
$ |
127.0 |
|
|
$ |
156.1 |
|
|
$ |
178.5 |
|
|
$ |
188.2 |
|
|
$ |
197.3 |
|
|
$ |
212.6 |
|
Adjusted interest expense (after-tax) |
|
|
54.8 |
|
|
|
48.9 |
|
|
|
42.4 |
|
|
|
38.6 |
|
|
|
32.7 |
|
|
|
30.5 |
|
|
|
28.6 |
|
|
|
30.2 |
|
Adjusted net income plus adjusted interest expense (after-tax) |
|
$ |
194.3 |
|
|
$ |
188.9 |
|
|
$ |
169.4 |
|
|
$ |
194.7 |
|
|
$ |
211.2 |
|
|
$ |
218.7 |
|
|
$ |
225.9 |
|
|
$ |
242.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP return on equity to adjusted return
on capital (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP return on equity (2) |
|
|
16.4 |
% |
|
|
5.1 |
% |
|
|
23.8 |
% |
|
|
31.1 |
% |
|
|
22.4 |
% |
|
|
27.9 |
% |
|
|
46.9 |
% |
|
|
46.7 |
% |
Non-GAAP adjustments |
|
|
-5.3 |
% |
|
|
6.0 |
% |
|
|
-13.5 |
% |
|
|
-19.1 |
% |
|
|
-9.3 |
% |
|
|
-14.3 |
% |
|
|
-33.0 |
% |
|
|
-32.1 |
% |
Adjusted return on capital (1) |
|
|
11.1 |
% |
|
|
11.1 |
% |
|
|
10.3 |
% |
|
|
12.0 |
% |
|
|
13.1 |
% |
|
|
13.6 |
% |
|
|
13.9 |
% |
|
|
14.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted return on capital |
|
|
11.1 |
% |
|
|
11.1 |
% |
|
|
10.3 |
% |
|
|
12.0 |
% |
|
|
13.1 |
% |
|
|
13.6 |
% |
|
|
13.9 |
% |
|
|
14.6 |
% |
Cost of capital (3) (4) |
|
|
7.1 |
% |
|
|
6.7 |
% |
|
|
6.6 |
% |
|
|
6.6 |
% |
|
|
5.8 |
% |
|
|
5.5 |
% |
|
|
5.2 |
% |
|
|
5.1 |
% |
Adjusted return on capital in excess of cost of capital |
|
|
4.0 |
% |
|
|
4.4 |
% |
|
|
3.7 |
% |
|
|
5.4 |
% |
|
|
7.3 |
% |
|
|
8.1 |
% |
|
|
8.7 |
% |
|
|
9.5 |
% |
Adjusted average capital |
|
$ |
7,023.9 |
|
|
$ |
6,829.1 |
|
|
$ |
6,551.8 |
|
|
$ |
6,490.2 |
|
|
$ |
6,456.7 |
|
|
$ |
6,429.3 |
|
|
$ |
6,488.2 |
|
|
$ |
6,648.2 |
|
Economic profit |
|
$ |
69.1 |
|
|
$ |
74.1 |
|
|
$ |
61.4 |
|
|
$ |
88.1 |
|
|
$ |
116.9 |
|
|
$ |
130.0 |
|
|
$ |
141.6 |
|
|
$ |
158.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP net income to economic
profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income |
|
$ |
70.8 |
|
|
$ |
22.2 |
|
|
$ |
99.5 |
|
|
$ |
127.3 |
|
|
$ |
86.8 |
|
|
$ |
107.4 |
|
|
$ |
214.3 |
|
|
$ |
217.6 |
|
Non-GAAP adjustments |
|
|
68.7 |
|
|
|
117.8 |
|
|
|
27.5 |
|
|
|
28.8 |
|
|
|
91.7 |
|
|
|
80.8 |
|
|
|
(17.0 |
) |
|
|
(5.0 |
) |
Adjusted net income |
|
|
139.5 |
|
|
|
140.0 |
|
|
|
127.0 |
|
|
|
156.1 |
|
|
|
178.5 |
|
|
|
188.2 |
|
|
|
197.3 |
|
|
|
212.6 |
|
Adjusted interest expense
(after-tax) |
|
|
54.8 |
|
|
|
48.9 |
|
|
|
42.4 |
|
|
|
38.6 |
|
|
|
32.7 |
|
|
|
30.5 |
|
|
|
28.6 |
|
|
|
30.2 |
|
Adjusted net income plus interest expense (after-tax) |
|
|
194.3 |
|
|
|
188.9 |
|
|
|
169.4 |
|
|
|
194.7 |
|
|
|
211.2 |
|
|
|
218.7 |
|
|
|
225.9 |
|
|
|
242.8 |
|
Less: cost of capital |
|
|
125.2 |
|
|
|
114.8 |
|
|
|
108.0 |
|
|
|
106.6 |
|
|
|
94.3 |
|
|
|
88.7 |
|
|
|
84.3 |
|
|
|
84.7 |
|
Economic profit |
|
$ |
69.1 |
|
|
$ |
74.1 |
|
|
$ |
61.4 |
|
|
$ |
88.1 |
|
|
$ |
116.9 |
|
|
$ |
130.0 |
|
|
$ |
141.6 |
|
|
$ |
158.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic profit per diluted
share (5) |
|
$ |
5.30 |
|
|
$ |
5.66 |
|
|
$ |
4.70 |
|
|
$ |
6.63 |
|
|
$ |
8.75 |
|
|
$ |
9.62 |
|
|
$ |
9.87 |
|
|
$ |
10.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP salaries and wages |
|
$ |
66.7 |
|
|
$ |
70.2 |
|
|
$ |
77.2 |
|
|
$ |
65.3 |
|
|
$ |
66.9 |
|
|
$ |
65.4 |
|
|
$ |
64.4 |
|
|
$ |
67.2 |
|
GAAP general and administrative |
|
|
21.3 |
|
|
|
20.5 |
|
|
|
18.0 |
|
|
|
20.9 |
|
|
|
16.6 |
|
|
|
32.3 |
|
|
|
18.9 |
|
|
|
20.4 |
|
GAAP sales and marketing |
|
|
22.5 |
|
|
|
26.3 |
|
|
|
22.1 |
|
|
|
17.7 |
|
|
|
19.7 |
|
|
|
19.0 |
|
|
|
19.2 |
|
|
|
16.9 |
|
Operating expenses |
|
$ |
110.5 |
|
|
$ |
117.0 |
|
|
$ |
117.3 |
|
|
$ |
103.9 |
|
|
$ |
103.2 |
|
|
$ |
116.7 |
|
|
$ |
102.5 |
|
|
$ |
104.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses as a percentage of adjusted average capital
(4) |
|
|
6.3 |
% |
|
|
6.9 |
% |
|
|
7.2 |
% |
|
|
6.4 |
% |
|
|
6.4 |
% |
|
|
7.3 |
% |
|
|
6.3 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in adjusted average capital compared to the same
period in the prior year |
|
|
8.8 |
% |
|
|
6.2 |
% |
|
|
1.0 |
% |
|
|
-2.4 |
% |
|
|
-8.2 |
% |
|
|
-12.8 |
% |
|
|
-10.7 |
% |
|
|
-7.3 |
% |
(1) Adjusted return on capital is defined as
adjusted net income plus adjusted interest expense (after-tax)
divided by adjusted average
capital.(2) Calculated
by dividing GAAP net income by GAAP average shareholders'
equity.
(3) The cost of capital
includes both a cost of equity and a cost of debt. The
cost of equity capital is determined based on a formula that
considers the risk of the business and the risk associated with our
use of debt. The formula utilized for determining the
cost of equity capital is as follows: (the average 30-year Treasury
rate + 5%) + [(1 – tax rate) x (the average 30-year Treasury rate +
5% – pre-tax average cost of debt rate) x average debt/(average
equity + average debt x tax rate)]. For the periods
presented, the average 30-year Treasury rate and the adjusted
pre-tax average cost of debt were as follows:
|
|
For the Three Months Ended |
|
|
Sept. 30, 2023 |
|
Jun. 30, 2023 |
|
Mar. 31, 2023 |
|
Dec. 31, 2022 |
|
Sept. 30, 2022 |
|
Jun. 30, 2022 |
|
Mar. 31, 2022 |
|
Dec. 31, 2021 |
Average 30-year Treasury rate |
|
4.2 |
% |
|
3.8 |
% |
|
3.8 |
% |
|
4.0 |
% |
|
3.3 |
% |
|
2.9 |
% |
|
2.2 |
% |
|
1.9 |
% |
Adjusted pre-tax average cost of debt (4) |
|
5.9 |
% |
|
5.3 |
% |
|
4.8 |
% |
|
4.3 |
% |
|
3.6 |
% |
|
3.3 |
% |
|
3.2 |
% |
|
3.3 |
% |
(4) Annualized.(5) Economic
profit per diluted share is computed independently for each of the
quarters presented. Therefore, the sum of quarterly economic profit
per diluted share information may not equal year-to-date economic
profit per diluted share.
(In millions, except share and
per share data) |
|
For the Nine Months Ended September 30, |
|
|
|
2023 |
|
|
|
2022 |
|
Adjusted net income |
|
|
|
|
GAAP net income |
|
$ |
192.5 |
|
|
$ |
408.5 |
|
Floating yield adjustment
(after-tax) |
|
|
(226.2 |
) |
|
|
(127.2 |
) |
GAAP provision for credit losses (after-tax) |
|
|
440.8 |
|
|
|
270.3 |
|
Senior notes adjustment (after-tax) |
|
|
(1.6 |
) |
|
|
(1.6 |
) |
Income tax adjustment (1) |
|
|
1.0 |
|
|
|
14.0 |
|
Adjusted net income |
|
$ |
406.5 |
|
|
$ |
564.0 |
|
|
|
|
|
|
Adjusted net income per
diluted share |
|
$ |
31.10 |
|
|
$ |
41.05 |
|
Diluted weighted average
shares outstanding |
|
|
13,068,998 |
|
|
|
13,737,871 |
|
|
|
|
|
|
Adjusted average capital |
|
|
|
|
GAAP average debt |
|
$ |
4,718.7 |
|
|
$ |
4,689.4 |
|
Deferred debt issuance
adjustment |
|
|
23.3 |
|
|
|
23.3 |
|
Senior notes debt
adjustment |
|
|
3.4 |
|
|
|
3.4 |
|
Adjusted average debt |
|
|
4,745.4 |
|
|
|
4,716.1 |
|
GAAP average shareholders'
equity |
|
|
1,719.1 |
|
|
|
1,638.2 |
|
Senior notes equity
adjustment |
|
|
3.4 |
|
|
|
5.5 |
|
Income tax adjustment (2) |
|
|
(118.5 |
) |
|
|
(118.5 |
) |
Floating yield adjustment |
|
|
452.2 |
|
|
|
216.7 |
|
Adjusted average equity |
|
|
2,056.2 |
|
|
|
1,741.9 |
|
Adjusted average capital |
|
$ |
6,801.6 |
|
|
$ |
6,458.0 |
|
|
|
|
|
|
Adjusted interest expense (after-tax) |
|
|
|
|
GAAP interest expense |
|
$ |
187.7 |
|
|
$ |
117.2 |
|
Senior notes adjustment |
|
|
2.1 |
|
|
|
2.1 |
|
Adjusted interest expense
(pre-tax) |
|
|
189.8 |
|
|
|
119.3 |
|
Adjustment to record tax
effect (1) |
|
|
(43.7 |
) |
|
|
(27.5 |
) |
Adjusted interest expense (after-tax) |
|
$ |
146.1 |
|
|
$ |
91.8 |
|
|
|
|
|
|
Adjusted return on capital (4) |
|
|
|
|
Adjusted net income |
|
$ |
406.5 |
|
|
$ |
564.0 |
|
Adjusted interest expense
(after-tax) |
|
|
146.1 |
|
|
|
91.8 |
|
Adjusted net income plus adjusted interest
expense (after-tax) |
|
$ |
552.6 |
|
|
$ |
655.8 |
|
|
|
|
|
|
Reconciliation of GAAP return on equity to adjusted return
on capital (6) |
|
|
|
|
GAAP return on equity (3) |
|
|
14.9 |
% |
|
|
33.2 |
% |
Non-GAAP adjustments |
|
|
-4.1 |
% |
|
|
-19.7 |
% |
Adjusted return on capital
(4) |
|
|
10.8 |
% |
|
|
13.5 |
% |
|
|
|
|
|
Economic profit |
|
|
|
|
Adjusted return on capital |
|
|
10.8 |
% |
|
|
13.5 |
% |
Cost of capital (5) (6) |
|
|
6.8 |
% |
|
|
5.5 |
% |
Adjusted return on capital in
excess of cost of capital |
|
|
4.0 |
% |
|
|
8.0 |
% |
Adjusted average capital |
|
$ |
6,801.6 |
|
|
$ |
6,458.0 |
|
Economic profit |
|
$ |
204.6 |
|
|
$ |
388.5 |
|
|
|
|
|
|
Reconciliation of GAAP net income to economic
profit |
|
|
|
|
GAAP net income |
|
$ |
192.5 |
|
|
$ |
408.5 |
|
Non-GAAP adjustments |
|
|
214.0 |
|
|
|
155.5 |
|
Adjusted net income |
|
|
406.5 |
|
|
|
564.0 |
|
Adjusted interest expense
(after-tax) |
|
|
146.1 |
|
|
|
91.8 |
|
Adjusted net income plus interest expense (after-tax) |
|
|
552.6 |
|
|
|
655.8 |
|
Less: cost of capital |
|
|
348.0 |
|
|
|
267.3 |
|
Economic profit |
|
$ |
204.6 |
|
|
$ |
388.5 |
|
|
|
|
|
|
Economic profit per diluted
share (7) |
|
$ |
15.66 |
|
|
$ |
28.28 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
GAAP salaries and wages |
|
$ |
214.1 |
|
|
$ |
196.7 |
|
GAAP general and administrative |
|
|
59.8 |
|
|
|
67.8 |
|
GAAP sales and marketing |
|
|
70.9 |
|
|
|
57.9 |
|
Operating expenses |
|
$ |
344.8 |
|
|
$ |
322.4 |
|
(1) Adjustment to record taxes
at our estimated long-term effective income tax rate of
23%.(2) The enactment of the Tax Cuts and Jobs Act
in December 2017 resulted in the reversal of $118.5 million of
provision for income taxes to reflect the new federal statutory
income tax rate. This adjustment removes the impact of this
reversal from adjusted average capital. We believe the income tax
adjustment provides a more accurate reflection of the performance
of our business as we are recognizing provision for income taxes at
the applicable long-term effective tax rate for the
period.(3) Calculated by dividing GAAP net income
by GAAP average shareholders' equity.(4) Adjusted
return on capital is defined as adjusted net income plus adjusted
interest expense after-tax divided by adjusted average
capital.(5) The cost of capital includes both a
cost of equity and a cost of debt. The cost of equity
capital is determined based on a formula that considers the risk of
the business and the risk associated with our use of
debt. The formula utilized for determining the cost of
equity capital is as follows: (the average 30-year Treasury rate +
5%) + [(1 - tax rate) x (the average 30-year Treasury rate + 5% -
pre-tax average cost of debt rate) x average debt/(average equity +
average debt x tax rate)]. For the periods presented,
the average 30-year Treasury rate and the adjusted pre-tax average
cost of debt were as follows:
|
|
For the Nine Months Ended September 30, |
|
|
2023 |
|
|
2022 |
|
Average 30-year Treasury
rate |
|
3.9 |
% |
|
2.8 |
% |
Adjusted pre-tax average cost
of debt (6) |
|
5.3 |
% |
|
3.4 |
% |
(6) Annualized.(7) Economic
profit per diluted share is computed independently for each of the
quarters presented. Therefore, the sum of quarterly economic profit
per diluted share information may not equal year-to-date economic
profit per diluted share.
Floating Yield Adjustment
The net loan income (finance charge revenue less
provision for credit losses expense) that we recognize over the
life of a loan equals the cash we collect from the underlying
Consumer Loan less the cash we pay to the dealer. We believe the
economics of our business are best exhibited by recognizing loan
revenue on a level-yield basis over the life of the loan based on
expected future net cash flows. The purpose of this non-GAAP
adjustment is to provide insight into our business by showing this
level yield measure of income. Under GAAP, contractual amounts due
in excess of the loan receivable balance at the time of assignment
will be reflected as interest income, while contractual amounts due
that are not expected to be collected are reflected in the
provision for credit losses. Our non-GAAP floating yield adjustment
recognizes the net effects of contractual interest income and
expected credit losses in a single measure of finance charge
revenue, consistent with how we manage our business. The floating
yield adjustment recognizes revenue on a level-yield basis based
upon expected future net cash flows, with any changes in expected
future net cash flows, which are recognized immediately under GAAP
as provision for credit losses, recognized over the remaining
forecast period (up to 120 months after the origination date of the
underlying Consumer Loans) for each individual dealer loan and
purchased loan. The floating yield adjustment does not accelerate
revenue recognition. Rather, it reduces revenue by taking amounts
that are reported under GAAP as provision for credit losses and
instead treating them as reductions of revenue over time.
On January 1, 2020, we adopted the current
expected credit loss model, or CECL, which changed our GAAP
methodology. Under the GAAP methodology we employed prior to
January 1, 2020, net loan income was based on expected future net
cash flows and was recognized on a level-yield basis over the
estimated life of the loan. Favorable changes in expected future
net cash flows were treated as increases to the yield and were
recognized over time, while unfavorable changes were recorded as
current period provision for credit losses expense. We do not
believe the GAAP methodology we employed prior to January 1, 2020
provided sufficient transparency into the economics of our business
due to its asymmetrical treatment of favorable and unfavorable
changes to expected future net cash flows. While CECL eliminated
that asymmetrical treatment of changes in expected future net cash
flows from the GAAP methodology we employ by requiring both
favorable and unfavorable changes to expected future net cash flows
to be immediately recognized as current period provision for credit
losses expense, it introduced a different asymmetry by requiring us
to recognize at the time of the loan’s assignment to us a
significant provision for credit losses expense for amounts we
never expect to realize and to recognize in subsequent periods
finance charge revenue that is significantly in excess of our
expected yields. Our floating yield adjustment enables us to
provide measures of income that are not impacted by GAAP’s
asymmetrical treatments of estimates.
We believe the floating yield adjustment is
presented in a manner which reflects both the economic reality of
our business and how the business is managed and provides valuable
supplemental information to help investors better understand our
business, executive compensation, liquidity, and capital
resources.
Senior Notes Adjustment
The purpose of this non-GAAP adjustment is to
modify our GAAP financial results to treat the issuance of certain
senior notes as a refinancing of certain previously-issued senior
notes.
On December 18, 2019, we issued $400.0 million
of 5.125% senior notes due 2024 (the “2024 senior notes”). We used
a portion of the net proceeds from the 2024 senior notes to
repurchase or redeem all of the $300.0 million outstanding
principal amount of our 6.125% senior notes due 2021 (the “2021
senior notes”), of which $148.2 million was repurchased on December
18, 2019 and the remaining $151.8 million was redeemed on January
17, 2020. We used the remaining net proceeds from the 2024 senior
notes, together with borrowings under our revolving credit
facility, to redeem in full the $250.0 million outstanding
principal amount of our 7.375% senior notes due 2023 (the “2023
senior notes”) on March 15, 2020. Under GAAP, the fourth quarter of
2019 included (i) a pre-tax loss on extinguishment of debt of $1.8
million related to the repurchase of 2021 senior notes in the
fourth quarter of 2019 and the redemption of the remaining 2021
senior notes in the first quarter of 2020 and (ii) additional
interest expense of $0.3 million on $160.0 million of additional
outstanding debt caused by the one month lag from the issuance of
the 2024 senior notes and repurchase of 2021 senior notes in the
fourth quarter of 2019 to the redemption of the remaining 2021
senior notes in the first quarter of 2020. Under GAAP, the first
quarter of 2020 included (i) a pre-tax loss on extinguishment of
debt of $7.4 million related to the redemption of 2023 senior notes
in the first quarter of 2020 and (ii) additional interest expense
of $0.4 million on $160.0 million of additional outstanding debt
caused by the one month lag from the issuance of the 2024 senior
notes and repurchase of 2021 senior notes in the fourth quarter of
2019 to the redemption of the remaining 2021 senior notes in the
first quarter of 2020.
On January 22, 2014, we issued the 2021 senior
notes. On February 21, 2014, we used the net proceeds from the 2021
senior notes, together with borrowings under our revolving credit
facilities, to redeem in full the $350.0 million outstanding
principal amount of our 9.125% senior notes due 2017 (the “2017
senior notes”). Under GAAP, the first quarter of 2014 included (i)
a pre-tax loss on extinguishment of debt of $21.8 million related
to the redemption of the 2017 senior notes in the first quarter of
2014 and (ii) additional interest expense of $1.4 million on $276.0
million of additional outstanding debt caused by the one month lag
from the issuance of the 2021 senior notes to the redemption of the
2017 senior notes.
Under our non-GAAP approach, the loss on
extinguishment of debt and additional interest expense that were
recognized for GAAP purposes were in each case deferred as debt
issuance costs and are being recognized ratably as interest expense
over the term of the newly issued notes. In addition, for adjusted
average capital purposes, the impact of additional outstanding debt
related to the lag from the issuance of the new notes to the
redemption of the previously issued notes was in each case deferred
and is being recognized ratably over the term of the newly issued
notes. Upon the issuance of the 2024 senior notes in the fourth
quarter of 2019, the outstanding unamortized balances of the
non-GAAP adjustments related to the 2021 senior notes were deferred
and are being recognized ratably over the term of the 2024 senior
notes.
We believe the senior notes adjustment provides
a more accurate reflection of the performance of our business,
since we are recognizing the costs incurred with these transactions
in a manner consistent with how we recognize the costs incurred
when we periodically refinance our other debt facilities.
Cautionary Statement Regarding Forward-Looking
Information
We claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 for all of our forward-looking
statements. Statements in this release that are not historical
facts, such as those using terms like “may,” “will,” “should,”
“believe,” “expect,” “anticipate,” “assume,” “forecast,”
“estimate,” “intend,” “plan,” “target,” or similar expressions, and
those regarding our future results, plans, and objectives, are
“forward-looking statements” within the meaning of the federal
securities laws. These forward-looking statements represent
our outlook only as of the date of this release. Actual
results could differ materially from these forward-looking
statements since the statements are based on our current
expectations, which are subject to risks and
uncertainties. Factors that might cause such a difference
include, but are not limited to, the factors set forth in Item 1A
of our Annual Report on Form 10-K for the year ended December 31,
2022, filed with the Securities and Exchange Commission (the “SEC”)
on February 10, 2023, and Item 1A in Part II of our Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
2023, filed with the SEC on October 30, 2023, and other risk
factors discussed herein or listed from time to time in our reports
filed with the SEC and the following:
Industry, Operational, and Macroeconomic
Risks
- Our inability to accurately
forecast and estimate the amount and timing of future collections
could have a material adverse effect on results of operations.
- Due to competition from traditional
financing sources and non-traditional lenders, we may not be able
to compete successfully.
- An outbreak of contagious disease,
such as the COVID-19 pandemic, or other public health emergency
could materially and adversely affect our business, financial
condition, liquidity, and results of operations.
- Reliance on third parties to
administer our ancillary product offerings could adversely affect
our business and financial results.
- We are dependent on our senior
management and the loss of any of these individuals or an inability
to hire additional team members could adversely affect our ability
to operate profitably.
- Our reputation is a key asset to
our business, and our business may be affected by how we are
perceived in the marketplace.
- The concentration of our dealers in
several states could adversely affect us.
- Reliance on our outsourced business
functions could adversely affect our business.
- Our ability to hire and retain
foreign engineering personnel could be hindered by immigration
restrictions.
- We may be unable to execute our
business strategy due to current economic conditions.
- Adverse changes in economic
conditions, the automobile or finance industries, or the non-prime
consumer market could adversely affect our financial position,
liquidity, and results of operations, the ability of key vendors
that we depend on to supply us with services, and our ability to
enter into future financing transactions.
- Natural disasters, climate change,
military conflicts, acts of war, terrorist attacks and threats, or
the escalation of military activity in response to terrorist
attacks or otherwise may negatively affect our business, financial
condition, and results of operations.
- Governmental or market responses to
climate change and related environmental issues could have a
material adverse effect on our business.
- A small number of our shareholders
have the ability to significantly influence matters requiring
shareholder approval and such shareholders have interests which may
conflict with the interests of our other security holders.
Capital and Liquidity Risks
- We may be unable to continue to
access or renew funding sources and obtain capital needed to
maintain and grow our business.
- The terms of our debt limit how we
conduct our business.
- A violation of the terms of our
asset-backed secured financings or revolving secured warehouse
facilities could have a material adverse impact on our
operations.
- Our substantial debt could
negatively impact our business, prevent us from satisfying our debt
obligations, and adversely affect our financial condition.
- We may not be able to generate
sufficient cash flows to service our outstanding debt and fund
operations and may be forced to take other actions to satisfy our
obligations under such debt.
- Interest rate fluctuations may
adversely affect our borrowing costs, profitability, and
liquidity.
- The phaseout of the London Interbank Offered Rate (“LIBOR”), or
the replacement of LIBOR with a different reference rate, could
result in a material adverse effect on our business.
- Reduction in our credit rating
could increase the cost of our funding from, and restrict our
access to, the capital markets and adversely affect our liquidity,
financial condition, and results of operations.
- We may incur substantially more
debt and other liabilities. This could exacerbate further the
risks associated with our current debt levels.
- The conditions of the U.S. and
international capital markets may adversely affect lenders with
which we have relationships, causing us to incur additional costs
and reducing our sources of liquidity, which may adversely affect
our financial position, liquidity, and results of operations.
Technology and Cybersecurity
Risks
- Our dependence on technology could
have a material adverse effect on our business.
- Our use of electronic contracts
could impact our ability to perfect our ownership or security
interest in Consumer Loans.
- Failure to properly safeguard
confidential consumer and team member information could subject us
to liability, decrease our profitability, and damage our
reputation.
Legal and Regulatory Risks
- Litigation we are involved in from
time to time may adversely affect our financial condition, results
of operations, and cash flows.
- Changes in tax laws and the
resolution of uncertain income tax matters could have a material
adverse effect on our results of operations and cash flows from
operations.
- The regulations to which we are or
may become subject could result in a material adverse effect on our
business.
Other factors not currently anticipated by
management may also materially and adversely affect our business,
financial condition, and results of operations. We do not
undertake, and expressly disclaim any obligation, to update or
alter our statements whether as a result of new information, future
events, or otherwise, except as required by applicable law.
Webcast Details
We will host a webcast on October 30, 2023
at 5:00 p.m. Eastern Time to discuss our third quarter results. The
webcast can be accessed live by visiting the “Investor Relations”
section of our website at ir.creditacceptance.com or by telephone
as described below. Only persons accessing the webcast by telephone
will be able to pose questions to the presenters during the
webcast. A replay and transcript of the webcast will be archived in
the “Investor Relations” section of our website.
To participate in the webcast by telephone, you
must pre-register at
https://register.vevent.com/register/BIb9ef0ff6034f454d9fbe0e028bfbb98d,
or through the link posted on the “Investor Relations” section of
our website at ir.creditacceptance.com. Upon registration you will
be provided with the dial-in number and a unique PIN to access the
webcast by telephone.
Description of Credit Acceptance
Corporation
Since 1972, Credit Acceptance has offered
financing programs that enable automobile dealers to sell vehicles
to consumers, regardless of their credit history. Our
financing programs are offered through a nationwide network of
automobile dealers who benefit from sales of vehicles to consumers
who otherwise could not obtain financing; from repeat and referral
sales generated by these same customers; and from sales to
customers responding to advertisements for our financing programs,
but who actually end up qualifying for traditional financing.
Without our financing programs, consumers are
often unable to purchase vehicles or they purchase unreliable
ones. Further, as we report to the three national credit
reporting agencies, an important ancillary benefit of our programs
is that we provide consumers with an opportunity to improve their
lives by improving their credit score and move on to more
traditional sources of financing. Credit Acceptance is publicly
traded on the Nasdaq Stock Market under the symbol CACC. For
more information, visit creditacceptance.com.
CREDIT ACCEPTANCE
CORPORATIONCONSOLIDATED STATEMENTS OF
INCOME(UNAUDITED)
(Dollars in millions, except
per share data) |
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
Revenue: |
|
|
|
|
|
|
|
Finance charges |
$ |
441.7 |
|
$ |
420.6 |
|
$ |
1,303.8 |
|
$ |
1,270.3 |
Premiums earned |
|
20.8 |
|
|
16.4 |
|
|
58.0 |
|
|
45.6 |
Other income |
|
16.1 |
|
|
23.3 |
|
|
48.5 |
|
|
57.5 |
Total revenue |
|
478.6 |
|
|
460.3 |
|
|
1,410.3 |
|
|
1,373.4 |
Costs and
expenses: |
|
|
|
|
|
|
|
Salaries and wages |
|
66.7 |
|
|
66.9 |
|
|
214.1 |
|
|
196.7 |
General and administrative |
|
21.3 |
|
|
16.6 |
|
|
59.8 |
|
|
67.8 |
Sales and marketing |
|
22.5 |
|
|
19.7 |
|
|
70.9 |
|
|
57.9 |
Total operating expenses |
|
110.5 |
|
|
103.2 |
|
|
344.8 |
|
|
322.4 |
|
|
|
|
|
|
|
|
Provision for credit losses on forecast changes |
|
106.3 |
|
|
96.9 |
|
|
319.4 |
|
|
67.6 |
Provision for credit losses on new Consumer Loan assignments |
|
78.3 |
|
|
83.4 |
|
|
253.1 |
|
|
283.5 |
Total provision for credit losses |
|
184.6 |
|
|
180.3 |
|
|
572.5 |
|
|
351.1 |
|
|
|
|
|
|
|
|
Interest |
|
70.5 |
|
|
41.8 |
|
|
187.7 |
|
|
117.2 |
Provision for claims |
|
16.5 |
|
|
12.9 |
|
|
54.1 |
|
|
34.0 |
Total costs and expenses |
|
382.1 |
|
|
338.2 |
|
|
1,159.1 |
|
|
824.7 |
Income before provision for
income taxes |
|
96.5 |
|
|
122.1 |
|
|
251.2 |
|
|
548.7 |
Provision for income taxes |
|
25.7 |
|
|
35.3 |
|
|
58.7 |
|
|
140.2 |
Net income |
$ |
70.8 |
|
$ |
86.8 |
|
$ |
192.5 |
|
$ |
408.5 |
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
Basic |
$ |
5.47 |
|
$ |
6.53 |
|
$ |
14.79 |
|
$ |
29.90 |
Diluted |
$ |
5.43 |
|
$ |
6.49 |
|
$ |
14.73 |
|
$ |
29.74 |
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
|
12,933,377 |
|
|
13,293,224 |
|
|
13,013,344 |
|
|
13,662,178 |
Diluted |
|
13,039,638 |
|
|
13,364,160 |
|
|
13,068,998 |
|
|
13,737,871 |
CREDIT ACCEPTANCE
CORPORATIONCONSOLIDATED BALANCE
SHEETS(UNAUDITED)
(Dollars in millions, except per share data) |
As of |
|
September 30, 2023 |
|
December 31, 2022 |
ASSETS: |
|
|
|
Cash and cash equivalents |
$ |
3.1 |
|
|
$ |
7.7 |
|
Restricted cash and cash equivalents |
|
435.1 |
|
|
|
410.0 |
|
Restricted securities available for sale |
|
86.2 |
|
|
|
72.3 |
|
|
|
|
|
Loans receivable |
|
9,812.2 |
|
|
|
9,165.5 |
|
Allowance for credit losses |
|
(3,031.7 |
) |
|
|
(2,867.8 |
) |
Loans receivable, net |
|
6,780.5 |
|
|
|
6,297.7 |
|
|
|
|
|
Property and equipment, net |
|
47.1 |
|
|
|
51.4 |
|
Income taxes receivable |
|
14.2 |
|
|
|
8.7 |
|
Other assets |
|
30.9 |
|
|
|
56.9 |
|
Total assets |
$ |
7,397.1 |
|
|
$ |
6,904.7 |
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY: |
|
|
|
Liabilities: |
|
|
|
Accounts payable and accrued liabilities |
$ |
284.1 |
|
|
$ |
260.8 |
|
Revolving secured lines of credit |
|
102.1 |
|
|
|
30.9 |
|
Secured financing |
|
4,034.2 |
|
|
|
3,756.4 |
|
Senior notes |
|
796.0 |
|
|
|
794.5 |
|
Mortgage note |
|
8.5 |
|
|
|
8.9 |
|
Deferred income taxes, net |
|
461.8 |
|
|
|
426.7 |
|
Income taxes payable |
|
9.5 |
|
|
|
2.5 |
|
Total liabilities |
|
5,696.2 |
|
|
|
5,280.7 |
|
|
|
|
|
Shareholders’
Equity: |
|
|
|
Preferred stock, $.01 par value, 1,000,000 shares authorized, none
issued |
|
— |
|
|
|
— |
|
Common stock, $.01 par value, 80,000,000 shares authorized,
12,566,219 and 12,756,885 shares issued and outstanding as of
September 30, 2023 and December 31, 2022, respectively |
|
0.1 |
|
|
|
0.1 |
|
Paid-in capital |
|
271.3 |
|
|
|
245.7 |
|
Retained earnings |
|
1,432.4 |
|
|
|
1,381.1 |
|
Accumulated other
comprehensive loss |
|
(2.9 |
) |
|
|
(2.9 |
) |
Total shareholders’ equity |
|
1,700.9 |
|
|
|
1,624.0 |
|
Total liabilities and shareholders’ equity |
$ |
7,397.1 |
|
|
$ |
6,904.7 |
|
Investor Relations: Douglas W. Busk
Chief Treasury Officer
(248) 353-2700 Ext. 4432
IR@creditacceptance.com
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