Auto Credit Express Blog
April 18, 2008
Consumer Portfolio Services reports 1st quarter earnings
On April 15th, CPS reported first quarter earnings for 2008. While they didn’t match 2007 earnings, there were a number of bright spots in the report.
Keeping you up to date
Here at Auto Credit Express, we want to keep you up to date on not only market trends, but also on the status of lenders and what it looks like they’ll be doing at least on a quarter by quarter basis. Today we’ll be discussing Consumer Portfolio Services.
Revenues and expenses
Year to year revenues were up 19.4% to $103.3 million in 2008 as compared to $86.5 million for the first quarter of 2007. Year to year operating expenses were up 22.7% in the first quarter as 2008 expenses were $99.5 million compared with 2007 expenses of $18.4 million.
Pretax Income
Year to year pretax income was down in 2008 to $3.8 million compared to $5.4 million for the first quarter of 2007. Net income, naturally, was also down at $2.1 million in 2008 compared to $3.2 million in 2007.
Contracts Purchased
CPS purchased $265.8 million in the fourth quarter of 2007 and $330.3 million in the first quarter of 2007. During the first quarter of 2008, CPS purchased only $176.1 million from dealers – a reduction of almost 47% from a year ago and a 34% reduction from the previous quarter.
Charge-offs and delinquencies
Annualized net charge-offs for the 1st quarter 2008 were 6.66% compared with 5.12% in 2007. Delinquencies over 30 days were 4.82% of the total portfolio in 2008 compared with 3.55% as of March 31, 2007.
Conference Call
During a conference call following the release of the results that included CEO Charles E. Bradley, Jr., CPS executives outlined their strategy for the year.
An important factor that happened after the end of the quarter was the ability of CPS to obtain securitization of $244.4 million of triple A rated asset-backed notes. While it doesn’t appear on this statement, this will enable them access additional borrowing capacity.
From the earning statement and in their own words, CPS has cut their production (the dollar amount of contracts they purchased from dealers) by about 50% from the fall of 2007. While delinquencies and losses were up over the first quarter of 2007, they were down from the fourth quarter of 2007. While this is a good sign, it should be noted that, in any give year, fourth quarter delinquencies are normally higher than first quarter delinquencies so this does not necessarily mean that this should be taken as a trend.
CPS also plans to tighten their credit policies and raise prices for their loans. This means that they will be buying higher grade paper from dealers and charging higher interest rates on the paper that they buy.
The Bottom Line
Like most lenders – prime and subprime – CPS is weathering the current storm by cutting back on personnel and drastically reducing the total dollar amount of contracts they will be buying. They will also not be buying as deeply and, for a given contract, the interest rate will be higher than last year. While delinquencies and charge-offs are currently on the rise, the higher grade of paper that they are buying should bring these figures into alignment down the line. The fact that they were able to get a securitization done – even though it was more difficult than in the past – means that there is still a market for asset backed securitized subprime car loans, although that market is not nearly as large as it used to be, given the problems associated with the subprime mortgage market.
