Credit Acceptance Corp.‘s net income fell 42 percent to $127.3 million during the fourth quarter, a decline driven primarily by a need to set more money aside for potential credit losses in light of changing cash flows.

The bruised credit auto lender said Tuesday it expected to collect smaller percentages of the indirect loans it obtained from dealerships in 2021 and 2022, resulting in a $41.1 million decline in forecasted net cash flow.

Credit Acceptance predicted its loans from each of the years 2018 to 2020 as of Dec. 31, 2022 were on track to perform more than a percentage point better than it had originally expected. However, its portfolio of loans written in 2022 looked to return 66.3 percent of all the principal and interest theoretically due the company, down 1.2 points from the yield Credit Acceptance originally expected. (However, loans from the fourth quarter were tracking 0.3 points better than expected.)

Chief Treasury Officer Doug Busk told an earnings call Tuesday that his company builds a “significant margin of safety” into its interest rates, so poorly performing loans are still likely profitable for the company.

Credit Acceptance collected 62,074 loans from dealerships during the fourth quarter, up 26 percent from a year earlier. The total dollar volume of those loans also rose 26 percent year-over-year.

Busk also said during the earnings call Credit Acceptance had a “strong fourth quarter” in terms of new loans. He said the first 28 days of 2023 also produced “strong orginations.”

The loan origination results for the last half of 2022 and January meant “the competitive environment has improved,” Busk said.

Credit Acceptance also purchased 208,000 shares of its own stock at what Busk said he thought was $455 per share during the quarter. But Busk told the earnings call his company’s first priority for its money would still be funding loans.

The lender’s stock closed at $462.64, up 3.1 percent. Earnings were released after the market closed.

Other results from Credit Acceptance’s fourth-quarter earnings report include:

  • Q4 revenue: $459 million, down 0.9 percent from a year earlier.
  • Q4 net income: $127.3 million, down 42 percent from a year earlier.
  • Q4 adjusted net income: $156.1 million, down 27 percent from a year earlier.
  • Q4 loans: 62,074 loans, up 26 percent from a year earlier.
  • 2022 revenue: $1.83 billion, down 1.3 percent from a year earlier.
  • 2022 net income: $535.8 million, down 44 percent from a year earlier.
  • 2022 adjusted net income: $720.1 million, down 13 percent from a year earlier.
  • 2022 loans: 280,467 loans, up 4.4 percent from a year earlier.

The subprime auto lender has been under scrutiny over its practices.

In June, it said it had agreed, “in principle,” to pay $12 million to settle a lawsuit brought by shareholders in a federal securities case. Former CEO Brett Roberts and current CEO Ken Booth were named as defendants.

The lawsuit largely stemmed from a 2020 case brought by the attorney general in Massachusetts, which among other things alleged that the auto lender did not inform investors that the company had topped off the pools of loans they packaged and securitized with higher-risk loans, despite claiming otherwise in disclosures to investors.

The shareholder plaintiffs, in their 2021 amended complaint, wrote that Credit Acceptance’s “wrongful acts, omissions, and scheme to defraud, and the precipitous decline in the market value of the Company’s common stock” meant the shareholders had “suffered significant damages.”

Credit Acceptance in September 2021 finalized a $27.2 million settlement with the state of Massachusetts over that lawsuit.

Crain’s Detroit Business contributed to this report.