SOUTHFIELD, Mich. — A continued stretch of stable returns propelled Credit Acceptance Corp. to more positive gains in consolidated and adjusted net income during the third quarter.

The company revealed earlier this week that its consolidated net income totaled $42.0 million or $1.48 per diluted share for the quarter that ended Sept. 30. In the year-ago time period, Credit Acceptance posted a consolidated net income level of $40.7 million or $1.29 per diluted share.

Looking at the same income category but for the nine-month span that ended on the same date, Credit Acceptance generated $123.1 million or $4.03 per diluted share. It marked a strong rise from the 2009 performance during those nine months when the company accumulated $105.9 million or $3.38 per diluted share in consolidated net income.

A glimpse at adjusted net income — a non-GAAP financial measure — showed Credit Acceptance posted $39.6 million or $1.39 per diluted share during the third quarter. In the year-ago quarter, those figures were $34.7 million or $1.10 per diluted share.

The company's adjusted net income through the first nine months of the year came in at $116.8 million or $3.83 per diluted share. During that same span in 2009, Credit Acceptance reported $89.5 million or $2.85 per diluted share in adjusted net income.

Management believes the increases in economic profit for the three- and nine-month spans that ended Sept. 30 were primarily the result of improvements in adjusted returns on capital. Executives pinpointed these increases to 140 basis points for the three-month period and 370 basis points for the nine-month span.

The company went on to highlight the reasons for those gains.

First, officials said finance charges increased adjusted returns on capital by 210 basis points for the three-month span and 310 basis points for the nine-month period as compared to the same periods in 2009. They indicated this was primarily due to higher yields on more recent consumer loan assignments.

Next, the company found operating expenses grew adjusted returns on capital by just 60 basis points for the three-month period and 70 basis points for the nine-month span. Executives determined these mild increases came about because of reduced expenses related to information technology, stock compensation and legal costs.

Furthermore, Credit Acceptance learned a decline in premiums earned negatively impacted adjusted return on capital by 100 basis points for the three-month span. Officials determined primarily it was as a result of $2.1 million (after-tax) of income recognized during the third quarter of 2009 related to a revision in revenue recognition timing.

However, the company also indicated an increase in adjusted return on capital for the nine-month period was partially offset by a 90 basis point increase in cost of capital. Credit Acceptance attributed the increase in cost of capital primarily to an increase in average cost of debt because of the issuance of senior notes during the first quarter of 2010.

Delving deeper into analysis of its consumer loan performance, Credit Acceptance reiterated that the company forecasts future expected cash flows from the consumer loans. Based on the forecast, an advance or one-time payment is made to the related dealer-partner at a price designed to achieve an acceptable return on capital.

If consumer loan performance equals or exceeds the original expectation, management stressed that the target return on capital can be achieved.

As a result, Credit Acceptance determined consumer loans assigned in 2002, 2003, 2008, 2009 and 2010 have performed better than initial expectations while consumer loans assigned in 2001, 2005, 2006 and 2007 have performed worse.

"During the third quarter of 2010, forecasted collection rates increased for consumer loans assigned during 2009 and 2010 and were consistent with expectations at the start of the period for other assignment years," company officials explained.

"During the first nine months of 2010, forecasted collection rates increased for consumer loans assigned in 2009 and 2010, and decreased for 2007 consumer loan assignments," they continued.

"Forecasting collection rates precisely at loan inception is difficult," Credit Acceptance interjected. "With this in mind, we have established advance rates that are intended to allow us to achieve acceptable levels of profitability, even if collection rates are less than we currently forecast."

Finally touching on loan and dollar volume, Credit Acceptance indicated both increased by large margins in the third quarter. Loan volume jumped 26.9 percent while dollar volume climbed 51.5 percent.

The company emphasized loan assignment volumes depend on a number of factors including the overall demand, the amount of capital available to fund new loans and assessment of the assignment volume that current infrastructure can support.

"Our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of capital and infrastructure constraints," Credit Acceptance officials pointed out.

"During the last four months of 2009 and the first quarter of 2010, we increased advance rates, which had a positive impact on unit volumes," they went on to say. "While the advance increases also reduced the return on capital we expect to earn on new assignments, we believe it is very likely the advance increases had a positive impact on economic profit. During October 2010, unit volume increased by 36.1 percent as compared to October 2009."