CPS clocks improved credit performance as originations dip

Consumer Portfolio Services has seen an improvement in credit performance in the second quarter, largely due to unemployment benefits and government stimulus, Chief Financial Officer Jeff Fritz said during the company’s earnings call this week. In fact, 30-plus day delinquencies dropped to 9.6% of outstandings — the lowest level since the first quarter of 2018, Fritz said — down from 14.8% a year ago and 12.4% last quarter. Net charge-offs also declined 43 basis points (bps) on a year-over-year comparison to 7.4%, but increased 40 bps from last quarter. CPS has a total outstanding portfolio of $2.3 billion, with its legacy portfolio comprising $788 million and its fair value portfolio comprising $1.6 billion of total managed assets. Increased payment deferrals as a result of the coronavirus pandemic has skewed many lenders’ credit performance metrics, but CPS saw its deferral rates return to near-normal levels as of June, Fritz said. “We did grant significantly more extensions in the month of April,” Fritz explained. “To cut into some hard numbers, we granted 14,000 extensions on our portfolio in April. In the month of May, it went down to 9,000, and in the month of June we did 4,900 extensions. That compares to 4,500 [extensions] in June last year.” Recoveries, too, held up in the second quarter. The recovery rate at auction for the subprime lender sat at 34%, an improvement from last quarter, and nearly flat YoY, Fritz said without providing specific metrics. Fluctuating auction prices for used vehicles has been a concern since the pandemic took hold in March, but they have since stabilized and are now projected to soar to record highs for a second straight month. In line with improved credit performance, the Irvine, Calif.-based lender reduced its provisions for credit losses to $3.1 million, down 14% from last quarter and 85% YoY. Second-quarter originations, however, took a steep dive to $135.9 million, down 45.7% YoY, but in line with the plan laid out during the company’s first-quarter earnings call to keep originations on par with the amortization of its portfolio. Currently, CPS is utilizing $56.7 million of its $300 million in warehouse capacity. Shares of CPS [Nasdaq: CPSS] were trading at $3.19 as of 3:20 pm ET. The lender has a market capitalization of $72.5 million. Auto Finance Summit, the premier industry event, returns October 20-22, 2020, as a virtual experience. The virtual experience will offer the same quality networking and education as past events, all through an online platform. To learn more about the 2020 event and register, visit www.AutoFinanceSummit.com .

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