CPS sees decline in Q4 originations amid low-interest competition

Consumer Portfolio Services prioritized credit quality over loan volume during the COVID-19 pandemic, leading to decreased origination volume in the fourth quarter and improved credit performance. Fourth-quarter originations decreased 32.6% YoY to $166 million. Year-to-date originations totaled $743 million, a decrease of 26% year over year. Increasing volume is a challenge for CPS amid the pandemic, as low interest rates have allowed "bigger players, banks in particular,” to aggressively focus on growing their portfolios, which drives up competition, Chief Executive Charles Bradley said during today’s earnings call. Subprime market share has fallen to near-record lows during the pandemic . “We're not in that position. We would love to grow, but we're not going to buy super deep to do it,” Bradley said. “At some point in 2021, the cost of funds will go back up toward normalized levels. We’re trying to grow but keep our credit quality where it is today.” CPS’ total fourth-quarter outstandings of $2.2 billion are comprised of a fair value portfolio of $1.5 billion and a legacy portfolio of $651.2 million. Delinquencies 30-plus days past due came in at 10.43%, an increase from 8.85% in the third quarter, but still down from 13.55% during the same reporting period in 2019. Net charge-offs declined to 5.18% of the total portfolio, a decrease of 121 basis points from last quarter and 274 bps YoY. “Credit performance has been much better than we would have expected a year ago,” Jeffrey Fritz, chief financial officer, said on the call. Consumers and businesses were propped up during the pandemic by stimulus payments and federal assistance, Bradley added. As a result, the Irvine, Calif.-based lender did not add to its provision for credit losses in the fourth quarter, a move that followed a sequential increase of 138% to $7.4 million in provisions during the third quarter , according to the earnings release. For perspective, CPS added $21.5 billion in provisions for credit losses during the fourth quarter of 2019. CPS was well-positioned prior to the COVID-19 economic crisis, allowing the lender to minimize how much it added to its loss provisions in 2020, Fritz said. The lender had added additional provision in the first three quarters due to the pandemic, he added. At yearend 2020, the total allowance for credit losses clocked in at $80.8 million, an increase of 594% YoY. Meanwhile, recovery rates declined to 41.9% in the fourth quarter from 45.1% last quarter, but increased 8.8% YoY, according to the earnings release. In November, the CPS board of directors unanimously rejected an unsolicited bid by Auto Experience, a Texas-based auto finance fintech, to acquire Consumer Portfolio Services in a $135 million all-cash transaction, according to a CPS company statement. "After careful review and consideration, the CPS board concluded that AEI’s indicated price of $135 million grossly undervalues the company," read the statement. "Taking into account the company’s long-term prospects, the board determined that pursuing such a transaction would not be in the best interests of the company’s shareholders." Shares of Consumer Portfolio Services [Nasdaq: CPSS] were trading at $4.30 as of market close today, up 1.18% since market open. CPS has a market capitalization of $97 million. Auto Finance Innovation Summit, the premier event for technology in auto finance, returns March 16-17, 2021, as a virtual experience. The virtual experience will offer the quality networking and education of past events, all through an online platform. To learn more about the 2021 event and register, visit www.AutoFinanceInnovation.com .

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