Credit Acceptance(CACC) - 2025 Q4 - Annual Report

Consumer Loans and Financing Programs - 79.5% of Consumer Loans assigned in 2025 had FICO scores below 650 or no FICO scores, compared to 80.6% in 2024 and 80.9% in 2023[15] - In 2023, 74.0% of Consumer Loans were assigned under the Portfolio Program, while 26.0% were under the Purchase Program[18] - The Portfolio Program allows Dealers to receive advances against future collections, while the Purchase Program involves a one-time payment for Consumer Loans[26] - The Company’s financing programs enable consumers with impaired credit histories to purchase vehicles, improving their credit scores over time[12] - The company provides innovative financing solutions that enable automobile dealers to sell vehicles to consumers, regardless of their credit history, through a nationwide network of automobile dealers[149] Financial Performance - For the year ended December 31, 2025, consolidated net income was $423.9 million, or $36.38 per diluted share, compared to $247.9 million, or $19.88 per diluted share, for the same period in 2024, indicating a significant increase in profitability[150] - The increase in consolidated net income for 2025 was primarily due to a decrease in provision for credit losses and an increase in finance charges, partially offset by an increase in operating expenses[150] - Total revenue for the year ended December 31, 2025, was $2,317.2 million, an increase of $154.8 million or 7.2% compared to $2,162.4 million in 2024[188] - Finance charge revenue increased by $149.1 million, or 7.5%, driven by a rise in the average net Loans receivable balance to $7,956.3 million from $7,530.7 million[190] - Operating expenses rose by $98.4 million, or 19.6%, largely due to a $63.5 million increase in general and administrative expenses[192] Dealer Network and Operations - The number of Dealer enrollments in 2025 was 5,752, with 15,745 active Dealers, an increase from 15,463 active Dealers in 2024[29] - The Company provides financing solutions through a network of approximately 60,000 independent and franchised automobile dealers in the U.S.[29] - The company’s business model aligns the interests of Dealers, consumers, and the company by sharing the risk and reward of collecting on Consumer Loans, particularly through the Portfolio Program[42] - The number of active Dealers in 2025 was 15,745, with Texas having the highest number at 1,377 (8.7%) and Michigan at 854 (5.4%)[53] Regulatory and Legal Risks - The company is subject to various regulations, including the Truth in Lending Act and the Equal Credit Opportunity Act, which could materially affect its operations if not complied with[56] - The company received a subpoena from the New York State Attorney General on May 7, 2019, regarding its origination and collection policies, followed by additional subpoenas until April 30, 2021[59] - On January 4, 2023, a joint complaint was filed by the New York State Attorney General and the Bureau, alleging deceptive practices and seeking various forms of relief, including restitution and civil penalties[61] - The company intends to vigorously defend itself against the allegations and has filed a motion to dismiss the complaint, which is currently under review[61] Economic and Market Conditions - Economic downturns could lead to increased delinquencies and defaults on consumer loans, adversely impacting financial results and liquidity[75] - The company faces intense competition in the automobile finance market, which may affect its ability to maintain and expand dealer relationships[74] - Economic conditions, including public health emergencies, could lead to decreased collections and consumer loan assignments, adversely affecting financial results[81] Debt and Liquidity - The funded debt to equity ratio was 4.2 to 1 as of December 31, 2025, indicating the company's financial leverage[175] - A substantial amount of debt could negatively impact the company's financial condition and ability to meet obligations[96] - Interest rate fluctuations may adversely affect the company's borrowing costs, profitability, and liquidity, particularly during periods of higher interest rates[97] - A reduction in the company's credit rating could increase funding costs and restrict access to capital markets, adversely affecting liquidity and financial condition[98] Cybersecurity and Technology - The company has adopted NIST SP 800-37 Rev. 2 and the NIST Cybersecurity Framework to manage cybersecurity risks effectively[122] - The company conducts periodic cybersecurity assessments and preparedness analyses, supervised by the Chief Information Security Officer (CISO) with over twenty years of experience in information security[126] - The company has established a comprehensive information security incident management plan to respond quickly and effectively to cybersecurity threats[129] - Cybersecurity threats have not materially affected the company to date, but future incidents could have a significant adverse impact on business and financial condition[103] Collection and Forecasting - The company monitors Consumer Loan performance monthly, comparing current forecasted collection rates to initial expectations[208] - A statistical model is used to estimate expected collection rates based on various credit quality indicators[208] - Adjustments to the statistical pricing model are made periodically to reflect new trends identified through performance evaluations[208] - The company forecasts future collections on each Consumer Loan for a 120-month period after the origination date[207]