IRVINE, Calif. -

When Consumer Portfolio Services reported a year-end earnings per share increase of more than 35 percent, chairman and chief executive officer Brad Bradley not only highlighted that performance, but also how the company is preparing to answer questions from the Consumer Financial Protection Bureau and the U.S. Department of Justice.

Bradley reiterated how CPS previously acknowledged that the two federal agencies are investigating the finance company in the same manner as several other operations that specialize in subprime auto financing are being reviewed. CPS already made modifications and paid a penalty after the Federal Trade Commission handed out an enforcement action last year in connection with the company’s collection practices.

“The regulatory market obviously is continuing to be more interesting by the day, and so we have spent an awful lot of time, particularly in the collection front, training everyone in terms of all the different compliance areas,” Bradley said when CPS conducted its most recent conference call with investors.

“I think we are way ahead of the curve, but nonetheless, it is the process of really making sure everything we do is compliant across the board. Because whether regulatory people look around, we want everything where it’s supposed to be,” he continued. “And so we spent a lot of time with retraining and more training and listening to calls to make sure everything is being done the right way.”

Bradley also mentioned how CPS is working to ensure the dealers in its network also are abiding by what federal regulators mandate. CPS is ramping up the effort in light of the CFPB on the lookout for disparate impact happening in auto financing.

The CPS boss explained that the finance company currently has between 8,000 and 10,000 dealers in its network for vehicle installment contract originations. Each quarter, the company calls on dealers to make sure they are compliant, and at last check, the company found less than a dozen showed any signs of disparate impact issues.

Bradley said the check-up is done to see if “there might be some disparate impact in the way they make car loans. If so, we cut them off our program and put them into a rehabilitation program at which point if they can complete that and demonstrate that there have been some changes so they can re-enter our program.

“Those kind of things I think can put us in a very strong position in terms of where we sit with all the CFPB stuff that’s coming down the pike,” Bradley continued.

Meanwhile, the Department of Justice investigation is connected more with what happens to those vehicle installment contracts after they’re originated and packed together in securitizations for the investment community, according to Bradley. Again, the top CPS executive is confident the company can navigate any questions DOJ might have, especially since CPS seems to adhere the protocol set by the industry.

“What’s a little interesting about that is as one can imagine, the investors buying those loans or the bonds, the ABS bonds, are pretty used to buying a very standardized format,” Bradley said. “And so all of the companies, including ourselves, follow those formats, and so we are all doing it basically the same.

“I think given the mortgage comparison — unfair, unkind or untrue that it may be — I think the government wants to make sure that we are not doing what the mortgage folks did, which is putting out a bunch of loans that aren’t going to be able to be paid,” he continued. “I won’t bother anyone with a long list of why the auto industry is nothing like the mortgage industry, with a small exception that all of our bonds are and as everyone else in our industry paid great to a very significant recession unlike the mortgage folks.

“And so we, I, and the rest of our industry would stand on that,” Bradley went on to say. “But even so, we will be participating in the DOJ investigation along with everyone else. And it’s very hard to say more on that subject than we already have.”

Latest Company Performance

Consumer Portfolio Services reported fourth-quarter earnings of $8.0 million, or 25 cents per diluted share. Those figures are up from $6.5 million, or 21 cents per diluted share, in the fourth quarter of last year, representing a 19-percent increase in earnings per diluted share.

The company’s full-year earnings for 2014 came in at $29.5 million, or 92 cents per diluted share, as compared to earnings of $21.0 million, or 67 cents per diluted share, for 2013. The gain represented a 37-percent spike in earnings per diluted share.

Officials indicated Q4 revenue jumped $16.9 million or 25.4 percent to $83.5 million, up from $66.6 million for the fourth quarter of 2013. They acknowledged total Q4 operating expenses rose by $14.0 million or 25.4 percent to $69.1 million, climbing from $55.1 million a year earlier.

Looking at pretax income, CPS posted a 24.4 percent increase year-over-year in the fourth quarter, generating a rise from $11.5 million to $14.3 million.

For the year, CPS’s total revenues came in at $300.3 million, up from $255.8 million in 2013. Officials pointed out that 2013 revenues included $10.9 million from a gain on cancellation of debt.

Excluding that gain, the company calculated 2014 revenues increased $55.4 million or 22.6 percent over the prior year.

CPS’ total 2014 expenses climbed from $218.6 million to $248.0 million. But the company mentioned that in 2013 its operating expenses included a provision for contingent liabilities of $7.8 million.

Excluding the provision for contingent liabilities, the company’s operating expenses for 2014 increased $37.2 million or 17.7 percent compared to the prior year period.

CPS determined its 2014 pretax income came in at $52.2 million, up from $37.2 million.

During the fourth quarter, CPS purchased $264.4 million of new contracts compared to $279.3 million during the third quarter of 2014 and $173.4 million during the fourth quarter of last year.

The company's managed receivables totaled $1.644 billion as of Dec. 31, an increase from $1.519 billion as of Sept. and $1.231 billion as of the close of 2013.

CPS reported that its annualized net charge-offs for Q4 stood at 6.44 percent of the average owned portfolio as compared to 5.57 percent a year earlier.

The company’s delinquencies greater than 30 days (including repossession inventory) were 7.18 percent of the total owned portfolio, up from 6.87 percent as of the end of 2013.

As previously reported during December, CPS closed its fourth term securitization transaction of 2014 and its 15th transaction since April 2011.

In the senior subordinate structure, a special purpose subsidiary sold five tranches of asset-backed notes totaling $267.5 million. The notes are secured by automobile receivables purchased by CPS and have a weighted average effective coupon of approximately 3.07 percent.

That transaction has initial credit enhancement consisting of a cash deposit equal to 1.00 percent of the original receivable pool balance. The final enhancement level requires accelerated payment of principal on the notes to reach overcollateralization of 4.00 percent of the then-outstanding receivable pool balance.

Officials highlighted the transaction was CPS’ third consecutive senior subordinate securitization to receive a triple-A rating on the senior class of notes.

“We are pleased to report another successful year in 2014,” Bradley said. “In addition to record pre-tax earnings, our new contract purchases grew 24 percent compared to 2013 and our total managed portfolio grew 34 percent to over $1.6 billion.

“We recorded our third consecutive year of earnings growth and continued our strategy of deleveraging our balance sheet by repaying over $49 million in residual and corporate debt without refinancing,” he added.