Credit Acceptance Corp. Files Q3 2024 10-Q

Ticker: CACC · Form: 10-Q · Filed: 2024-10-30T00:00:00.000Z

Sentiment: neutral

Topics: 10-Q, financials, credit

TL;DR

CACC Q3 10-Q is in. Financials are out, check the numbers.

AI Summary

Credit Acceptance Corp. filed its 10-Q for the period ending September 30, 2024. The company, operating in personal credit institutions, reported its financial performance for the third quarter and the first nine months of the year. Key financial data and operational segments were disclosed as part of its regular SEC reporting.

Why It Matters

This filing provides investors and analysts with the latest financial performance data for Credit Acceptance Corp., crucial for understanding the company's current health and future prospects in the personal credit sector.

Risk Assessment

Risk Level: medium — As a personal credit institution, Credit Acceptance Corp. is subject to economic downturns and regulatory changes that can impact its loan portfolio and profitability.

Key Numbers

Key Players & Entities

FAQ

What is the primary business of Credit Acceptance Corp.?

Credit Acceptance Corp. operates in the Personal Credit Institutions sector, as indicated by its SIC code [6141].

What is the filing date of this 10-Q report?

This 10-Q report was filed on 20241030.

For which fiscal period is this 10-Q report?

This 10-Q report is for the period ending 20240930.

Where is Credit Acceptance Corp. headquartered?

Credit Acceptance Corp.'s business and mailing address is 25505 WEST TWELVE MILE ROAD, SOUTHFIELD, MI 48034-8334.

What is the SEC file number for Credit Acceptance Corp.?

The SEC file number for Credit Acceptance Corp. is 000-20202.

Filing Stats: 4,713 words · 19 min read · ~16 pages · Grade level 8.2 · Accepted 2024-10-30 16:27:48

Filing Documents

— FINANCIAL INFORMATION

PART I. — FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets - As of September 30, 2024 and December 31, 2023 1 Consolidated Statements of Income - Three and nine months ended September 30, 2024 and 2023 2 Consolidated Statements of Comprehensive Income - Three and nine months ended September 30, 2024 and 2023 3 Consolidated Statements of Shareholders' Equity - Three and nine months ended September 30, 2024 and 2023 4 Consolidated Statements of Cash Flows - Nine months ended September 30, 2024 and 2023 5

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 6

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 46

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 65

CONTROLS AND PROCEDURES

ITEM 4. CONTROLS AND PROCEDURES 65

— OTHER INFORMATION

PART II. — OTHER INFORMATION

LEGAL PROCEEDINGS 66

ITEM 1. LEGAL PROCEEDINGS 66

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 67

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 67

OTHER INFORMATION 67

ITEM 5. OTHER INFORMATION 67

EXHIBITS 68

ITEM 6. EXHIBITS 68 SIGNATURES 70 Table of Contents

- FINANCIAL INFORMATION

PART I. - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS CREDIT ACCEPTANCE CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in millions, except per share data) As of September 30, 2024 December 31, 2023 ASSETS: Cash and cash equivalents $ 159.7 $ 13.2 Restricted cash and cash equivalents 556.6 457.7 Restricted securities available for sale 113.9 93.2 Loans receivable 11,197.6 10,020.1 Allowance for credit losses ( 3,416.1 ) ( 3,064.8 ) Loans receivable, net 7,781.5 6,955.3 Property and equipment, net 15.2 46.5 Income taxes receivable 26.4 4.3 Other assets 29.9 40.0 Total assets $ 8,683.2 $ 7,610.2 LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Accounts payable and accrued liabilities $ 364.4 $ 318.8 Revolving secured lines of credit 1.0 79.2 Secured financing 5,257.1 3,990.9 Senior notes 990.8 989.0 Mortgage note — 8.4 Deferred income taxes, net 423.2 389.2 Income taxes payable 0.2 81.0 Total liabilities 7,036.7 5,856.5 Commitments and Contingencies - See Note 16 Shareholders' Equity: Preferred stock, $ .01 par value, 1,000,000 shares authorized, none issued — — Common stock, $ .01 par value, 80,000,000 shares authorized, 12,111,600 and 12,522,397 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively 0.1 0.1 Paid-in capital 324.5 279.0 Retained earnings 1,321.0 1,475.6 Accumulated other comprehensive income (loss) 0.9 ( 1.0 ) Total shareholders' equity 1,646.5 1,753.7 Total liabilities and shareholders' equity $ 8,683.2 $ 7,610.2 See accompanying notes to consolidated financial statements. 1 Table of Contents CREDIT ACCEPTANCE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in millions, except per share data) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 Revenue: Finance charges $ 507.6 $ 441.7 $ 1,474.5 $ 1,303.8 Premiums earned 25.1 20.8 71.3 58.0 Other income 17.6 16.1 50.7 48.5 Total revenue 550.3 478.6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles" or "GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of actual results achieved for full fiscal years. The consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023 for Credit Acceptance Corporation (the "Company", "Credit Acceptance", "we", "our" or "us"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2024 for items that could potentially be recognized or disclosed in these financial statements. We did not identify any items that would require disclosure in or adjustment to the consolidated financial statements. Reclassification Certain amounts for prior periods have been reclassified to conform to

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) (UNAUDITED) We have two programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, we advance money to Dealers (referred to as a "Dealer Loan") in exchange for the right to service the underlying Consumer Loans. Under the Purchase Program, we buy the Consumer Loans from the Dealers (referred to as a "Purchased Loan") and keep all amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as "Loans." The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last seven quarters: Unit Volume Dollar Volume (1) Three Months Ended Dealer Loans Purchased Loans Dealer Loans Purchased Loans March 31, 2023 72.1 % 27.9 % 68.1 % 31.9 % June 30, 2023 72.4 % 27.6 % 68.6 % 31.4 % September 30, 2023 74.8 % 25.2 % 71.7 % 28.3 % December 31, 2023 77.2 % 22.8 % 75.0 % 25.0 % March 31, 2024 78.2 % 21.8 % 76.6 % 23.4 % June 30, 2024 78.5 % 21.5 % 77.3 % 22.7 % September 30, 2024 79.5 % 20.5 % 78.4 % 21.6 % (1) Represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program. Payments of Dealer Holdback (as defined below) and accelerated Dealer Holdback are not included. Portfolio Program As payment for the vehicle, the Dealer generally receives the following: a down payment from the consumer; a non-recourse cash payment ("advance") from us; and after the advance balance (cash advance and related Dealer Loan fees and costs) has been recovered by us, the cash from payments made on the Consumer Loan, net of certain collection costs and our servicing fee ("Dealer Holdback"). We record the amount advanced to the Dealer as a Dealer Loan, which is classified within Loans receivable in our consolidated balance sheets. Cash advanced to the Dealer is automati

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) (UNAUDITED) Since typically the combination of the advance and the consumer's down payment provides the Dealer with a cash profit at the time of sale, the Dealer's risk in the Consumer Loan is limited. We cannot demand repayment of the advance from the Dealer except in the event the Dealer is in default of the Dealer servicing agreement. Advances are made only after the consumer and Dealer have signed a Consumer Loan contract, we have received the executed Consumer Loan contract and supporting documentation in either physical or electronic form, and we have approved all of the related stipulations for funding. For accounting purposes, the transactions described under the Portfolio Program are not considered to be loans to consumers. Instead, our accounting reflects that of a lender to the Dealer. The classification as a Dealer Loan for accounting purposes is primarily a result of (1) the Dealer's financial interest in the Consumer Loan and (2) certain elements of our legal relationship with the Dealer. Purchase Program The Purchase Program differs from our Portfolio Program in that the Dealer receives a one-time payment from us at the time of assignment to purchase the Consumer Loan instead of a cash advance at the time of assignment and future Dealer Holdback payments. For accounting purposes, the transactions described under the Purchase Program are considered to be originated by the Dealer and then purchased by us. Program Enrollment Dealers are granted access to our Portfolio Program upon enrollment. Access to the Purchase Program is typically only granted to Dealers that meet one of the following: assigned at least 50 Consumer Loans under the Portfolio Program; franchise dealership; or independent dealership that meets certain criteria upon enrollment. Seasonality Our business is seasonal with peak Consumer Loan assignments and collections occurring during the first quarter of the yea

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) (UNAUDITED) The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents reported in our consolidated balance sheets to the total shown in our consolidated statements of cash flows: (In millions) As of September 30, 2024 December 31, 2023 September 30, 2023 December 31, 2022 Cash and cash equivalents $ 159.7 $ 13.2 $ 3.1 $ 7.7 Restricted cash and cash equivalents 556.6 457.7 435.1 410.0 Total cash and cash equivalents and restricted cash and cash equivalents $ 716.3 $ 470.9 $ 438.2 $ 417.7 Restricted Securities Available for Sale Restricted securities available for sale consist of amounts held in a trust for future vehicle service contract claims. We determine the appropriate classification of our investments in debt securities at the time of purchase and reevaluate such determinations at each balance sheet date. Debt securities for which we do not have the intent or ability to hold to maturity are classified as available for sale, and stated at fair value with unrealized gains and losses, net of income taxes included in the determination of comprehensive income and reported as a component of shareholders' equity. Loans Receivable and Allowance for Credit Losses Consumer Loan Assignment. For legal purposes, a Consumer Loan is considered to have been assigned to us after the following has occurred: the consumer and Dealer have signed a Consumer Loan contract; and we have received the executed Consumer Loan contract and supporting documentation in either physical or electronic form. For accounting and financial reporting purposes, a Consumer Loan is considered to have been assigned to us after the following has occurred: the Consumer Loan has been legally assigned to us; and we have made a funding decision and generally have provided funding to the Dealer in the form of either an advance under the Portfolio Program or one-time purchas

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) (UNAUDITED) Recognition and Measurement Policy. On January 1, 2020, we adopted Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, which is known as the current expected credit loss model, or CECL. Loans outstanding prior to the adoption date are no longer material to our consolidated financial statements. Consumer Loans assigned to us on or subsequent to January 1, 2020 are accounted for as originated financial assets ("Originated Method"). Under the Originated Method, at the time of assignment, we: calculate the effective interest rate based on contractual future net cash flows; record a Loan receivable equal to the advance paid to the Dealer under the Portfolio Program or purchase price paid to the Dealer under the Purchase Program; and record an allowance for credit losses equal to the difference between the initial Loan receivable balance and the present value of expected future net cash flows discounted at the effective interest rate. The initial allowance for credit losses is recognized as provision for credit losses expense. The effective interest rate and initial allowance for credit losses are significantly higher for Consumer Loans assigned under the Purchase Program than for Consumer Loans assigned under the Portfolio Program, as contractual net cash flows exceed expected net cash flows by a significantly greater margin under the Purchase Program. Under the Purchase Program, we retain all contractual collections that exceed our initial expectations. Under the Portfolio Program, contractual collections that exceed our initial expectations are substantially offset by additional Dealer Holdback payments. Under the Originated Method, for each repor

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