LAS VEGAS -
Consumer Portfolio Services chairman and chief executive officer Brad Bradley described how the subprime finance company is going through what he called a “painful process.” While the company’s originations are down from last year, its delinquencies didn’t spike to alarming levels.
Rather, Bradley is leading CPS with patience even though Q2 originations edged up slightly on a sequential comparison but softened by nearly $100 million compared to a year earlier.
During the second quarter, CPS reported that it purchased $233.9 million of new contracts compared to $229.6 million during Q1 and $319.1 million during the second quarter of last year. The company's managed receivables totaled $2.343 billion as of June 30, an increase from $2.323 billion as of March 31 and $2.254 billion as of the end of last June 30.
“I think people probably at this point understand what we’re trying to do,” Bradley said during closing comments of CPS’ latest conference call. “I mean people who know the company and certainly know me know that we would rather be aggressive. We would rather be actively growing the company and moving forward in the world. So this is a bit of a painful process for us right now.
“But to the extent you go back to 2007 when we had a huge problem, these times that are being a little more conservative might give you a huge home run later,” he continued. “And so what we don't want to do is stick our neck out with the rest of the folks and have a problem. So we've been pretty good at avoiding them. We think we've done a lot of things right now. As we mentioned in the call, it may take a few minutes or little while to prove that out. But we have some time to do it.
“And with any luck, we’ll position ourselves very well for the next couple of years, if we just staying in there patiently for the next few quarters. And that’s what we’ve been trying to do, and certainly we are achieving that goal today. Painful hurt, maybe for some of us, who like to see the company moving surging forward rather sitting in idle. But that’s the course we’ve chosen, and we think it’s a life course, and we’ll see what happens in the next few quarters,” Bradley went on to say.
CPS generated nearly a 5 percent year-over-year increase in revenue as it rose by $5.1 million to $110.1 million. However, the company’s total operating expenses jumped 10.3 percent or $9.5 million to $102.1 million. As a result, CPS watched its Q2 earnings drop to $4.6 million, or $0.17 per diluted share, down from $7.3 million, or $0.25 per diluted share a year earlier.
While all of those metrics shifted, CPS still managed to posts its 24th consecutive quarter of positive earnings.
Overall industry view
As he often does, Bradley shared his candid assessment of how the market is behaving. His view of competition focused a bit on the strides credit unions have made in gaining market share, especially as some finance companies are backing off their origination aggression.
According to the latest information from Experian Automotive, credit unions held 20 percent of the total auto finance market after the first quarter, up from 18 percent a year earlier.
“Credit unions have done a big job of moving into the spaces in the bottom of the spectrum, and been relatively competitive in growing in this sector in the last year or two,” Bradley said. “Some of the companies are pulling back,. Some of the companies are slowing down, and a lot of that gap is being filled by some of these credit unions.”
Another topic Bradley touched on was income verification. He emphasized that CPS’ underwriting department checks consumers’ income sources before finalizing the contract.
“We do verify income in every single deal,” Bradley said. “Job verification or income verification obviously was a hot topic in the news last few quarters. It’s ironic that that isn’t more the norm in the industry, but for us it is. It’s not bad when people ask questions, and we have a really good answer.”
Other company metrics
In other parts of CPS’ latest financial statement, the company reported annualized net charge-offs for the second quarter were 7.62 percent of the average owned portfolio as compared to 6.94 percent a year earlier.
CPS also reported delinquencies greater than 30 days (including repossession inventory) stood at 9.64 percent of the total owned portfolio as of June 30, up from 8.58 percent on the same date in 2016.
And if contracts do not mature, Bradley mentioned the loan-to-value ratios CPS is pushing into its portfolio are improving. After hitting a high of 115 percent, Bradley mentioned the stat dipped to 112.74 percent in Q2.
CPS chief financial officer Jeffrey Fritz also mentioned the company enjoyed a slight year-over-year improvement in its recovery rate through its wholesale endeavors after repossession, watching the rate tick up to 35.6 percent from 35.2 percent.
In the second quarter, the company’s board of directors approved an increase to the aggregate authorization to repurchase outstanding securities by $10 million. In Q2, CPS purchased 540,793 shares of stock in the open market at an average price of $4.54. Through the first six months of the year, CPS purchased 1,102,410 shares at an average price of $4.74.