Credit Acceptance Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this is an annual report, not a fourth-quarter-only filing. The company provides auto financing through dealers, primarily to consumers with impaired or limited credit histories. Its audited financial statements received an unqualified opinion.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $1,832.4 million | $1,856.0 million |
| Finance charges | $1,686.3 million | $1,742.6 million |
| Provision for credit losses | $481.4 million | $8.4 million |
| Income before taxes | $711.7 million | $1,260.9 million |
| Net income | $535.8 million | $958.3 million |
| Diluted EPS | $39.32 | $59.52 |
| Approx. net margin | 29.2% | 51.6% |
| Operating cash flow | $1,238.7 million | $1,069.4 million |
- Revenue declined 1.3% and net income fell 44.1%. Finance charges decreased 3.2%, mainly because the average net loan balance declined; higher portfolio yield partly offset the decline.
- Credit-loss provision rose sharply as loan performance weakened: forecast changes added $137.7 million of provision in 2022, versus a $356.7 million reversal in 2021. New-loan provision was $343.7 million.
- Consumer loan assignments increased: unit volume rose 4.4% to 280,467 and dollar volume rose 14.5% to $3.63 billion. The average net loan portfolio balance was $6.31 billion, down from $6.69 billion.
- At year-end, net loans receivable were $6.30 billion; the allowance for credit losses was $2.87 billion. Cash and cash equivalents were $7.7 million, alongside $410.0 million of restricted cash. Available, unused credit lines were $1.55 billion.
- Balance-sheet debt carrying value was $4.59 billion, compared with $4.62 billion a year earlier; funded debt-to-equity was 2.8:1. The company reported compliance with debt covenants. Forecast principal maturities were $1.51 billion in 2023, excluding future interest.
- Investing cash flow was an outflow of $460.6 million and financing cash flow an outflow of $794.6 million. The company repurchased 1.49 million shares for $784.5 million.
Material changes, outlook, risks and unusual items
- Management attributed lower earnings primarily to weaker loan performance, lower finance charges, and higher operating expenses. Operating expenses rose 11.1%, including increased engineering-related staffing costs.
- During Q1 2022, the company removed its COVID-related forecast adjustment and enhanced its cash-flow forecasting methodology. These changes increased forecast net cash flows by $95.7 million and reduced credit-loss provision by $70.6 million. For the full year, forecast net cash flows declined by $59.7 million, or 0.7%.
- 2022 assignments had a forecast collection rate of 66.3%, below the 67.5% initial estimate; management said profitability per 2022 assignment was significantly below its initial estimate. A 1% decline in forecast future net cash flows on loans at year-end would have reduced 2022 net income by approximately $45.9 million.
- Management believes operating cash flows and financing alternatives will fund debt maturities and future operations, but cautions that restricted access to financing could materially harm liquidity and operations. No specific earnings or volume guidance is provided.
- Interest-rate exposure remains relevant: variable-rate borrowings and higher funding costs may pressure results. The company uses interest-rate caps; it also disclosed one remaining LIBOR-based warehouse facility planned for transition to an alternative benchmark.
- On January 4, 2023, the New York Attorney General and the Consumer Financial Protection Bureau filed suit alleging deceptive, abusive, and other unlawful practices relating to auto lending, collections, and securitizations. The company intends to defend the case; it said it cannot estimate a reasonably possible loss or range. Other ongoing inquiries include California GAP-product matters and multistate origination, collection, and repossession investigations.
- A $12.0 million shareholder class-action settlement was paid and finalized in 2022; the company denied liability. Management also noted that owned Southfield office properties may be worth less than their carrying value of $38.2 million combined, potentially requiring impairment if classified as held for sale.
Most important facts for investors to verify
- Subsequent loan-collection performance and any revisions to forecasts, especially for 2021–2022 assignments.
- Credit-loss provision trends and the effects of CECL accounting and forecast-model changes on reported earnings.
- Developments, potential remedies, and financial exposure in the joint New York Attorney General/CFPB lawsuit and other regulatory inquiries.
- Debt refinancing capacity, upcoming maturities, borrowing costs, covenant headroom, and availability of the stated unused credit lines.
- Whether excess office space results in a sale, lease, or impairment charge.