CPS Announces First Quarter 2020 Earnings

Pretax income of $3.1 million

Net income of $10.8 million, or $0.45 per diluted share, including $8.8 million tax benefit

New contract purchases of $266 million

Early adoption of CECL accounting standard effective January 2020

Pretax charges of $14.0 million related to potential losses from the pandemic

LAS VEGAS, NV, April 15, 2020 (GLOBE NEWSWIRE) — Consumer Portfolio Services, Inc. (Nasdaq: CPSS) (“CPS” or the “Company”) today announced earnings of $10.8 million, or $0.45 per diluted share, for its first quarter ended March 31, 2020. For the prior year, in the first quarter of 2019, net income was $1.7 million, or $.07 per diluted share.

Revenues for the first quarter of 2020 were $70.8 million, a decrease of $17.5 million, or 19.8%, compared to $88.2 million for the first quarter of 2019. Total operating expenses for the first quarter of 2020 were $67.7 million compared to $85.6 million for the 2019 period for a decrease of $17.9 million, or 20.9%. Pretax income for the first quarter of 2020 was $3.1 million compared to pretax income of $2.7 million in the first quarter of 2019, an increase of 16.3%.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed into law, providing wide ranging economic relief for individuals and businesses. One component of the CARES Act provides the Company with an opportunity to carry back net operating losses (“NOLs”) arising from 2018, 2019 and 2020 to the prior five tax years. The Company has such NOLs reflected on its balance sheet as a portion of deferred tax assets. The Company has previously valued its NOLs at the federal corporate income tax rate of 21%. However, the provisions of the CARES Act provide for NOL carryback claims to be calculated based on a rate of 35%, which was the federal corporate tax rate in effect for the carryback years. Consequently, effective March 31, 2020, the Company has revalued the benefit from its NOLs to reflect a 35% tax rate. The result of the revaluation of NOLs and other tax adjustments is a net tax benefit of $8.8 million, which is reflected in income taxes for the quarter ended March 31, 2020. Without this tax benefit, net income and net income per diluted share for the first quarter of 2020 would have been $2.0 million and $0.08 per share, respectively.

Effective January 1, 2020, the Company adopted Accounting Standards Update 2016-13 – Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The amendment introduces a new credit reserving model known as the Current Expected Credit Loss model, generally referred to as CECL. Adoption of CECL required the establishment of an allowance for the remaining expected lifetime credit losses on the portion of the Company’s receivable portfolio that was originated prior to January 2018 (the “legacy portfolio”). To comply with CECL, the Company recorded an addition to its allowance for finance credit losses of $127.0 million. In accordance with the rules for adopting CECL, the offset to the addition to the allowance for finance credit losses was a tax affected reduction to retained earnings using the modified retrospective method.

Results for the first quarter include two specific charges related to estimated potential impact on credit performance resulting from the pandemic. The Company recorded a $10.4 million mark down to the carrying value of the portion of the receivables portfolio accounted for at fair value. The mark down is reflected as a reduction in revenue for the quarter. The Company also recorded a $3.6 million charge to the provision for credit losses for the legacy portfolio accounted for under CECL. Without the charges related to the pandemic, revenues, total operating expenses and pretax income for the first quarter of 2020 would have been $81.1 million, $64.0 million and $17.1 million respectively.

During the first quarter of 2020, CPS purchased $266.0 million of new contracts compared to $247.5 million during the fourth quarter of 2019 and $243.0 million during the first quarter of 2019. The Company’s receivables totaled $2.435 billion as of March 31, 2020, an increase from $2.416 billion as of December 31, 2019 and $2.393 billion as of March 31, 2019.

Annualized net charge-offs for the first quarter of 2020 were 6.99% of the average portfolio as compared to 7.98% for the first quarter of 2019. Delinquencies greater than 30 days (including repossession inventory) were 12.41% of the total portfolio as of March 31, 2020, as compared to 12.12% as of March 31, 2019.

“Our first quarter of 2020 began with optimism which carried through the quarter as we reached our highest volume of new receivables originated since the second quarter of 2016 and improved year over year quarterly pretax earnings for the first time since the fourth quarter of 2015,” reported Charles E. Bradley, Jr., Chairman and Chief Executive officer. “Unfortunately, as the quarter closed the world began to realize the impact and potential harm from the pandemic. We shifted our focus to the safety and well being of our employees while ensuring that we can service our customers and dealers during the challenging times to come.”

Conference Call