Q1 2025 Consumer Portfolio Services Inc Earnings Call

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Speaker Change: Good day everyone and welcome to the Consumer Portfolio Services 2025 first-quarter operating results conference call. Today's call is being recorded before we begin. Minishment has asked me to inform you that this conference call may contain poor looking statements.

Speaker Change: Any statements made during this call that are not statements of historical facts may be deemed forward looking statements statements regarding current or historical valuation of receivables because dependent on estimates of future events. Also are forward looking statements. All such forward looking statements are subject to risks.

Speaker Change: That could cause actual results to differ materially from those projected I refer you to the company's annual report filed March 12.

Speaker Change: For further clarification the company assumes no obligation to update publicly any forward looking statements whether as a result of new information further events or otherwise with us today are Mr. Charles Bradley Chief Executive Officer, Mr. Danny Bar, wanting Chief Financial Officer, and Mr. Mike Levin.

Mike Levin: And Chief operating officer of consumer portfolio services, I would now turn the call over to Mr. Bradley.

Charles Bradley: Thank you and welcome to our first quarter conference call Alright, easy way to describe it is off to a good start first quarter went well a little late on the call but been busy.

Charles Bradley: We had very strong originations to start the year are up over 100 million.

Charles Bradley: Bodes well for the rest of the year I think our focus this year can be summed up as.

Charles Bradley: Given the uncertainty of the economy and sort of all the noise, we want to grow and we are growing we want to do it in a very credit conscious way, we want to continue to follow our credit by very good paper trying to let the bad paper 22, and 23, you get through the snake and move on as the portfolio becomes.

Charles Bradley: More and more high creditworthy paper and in fact, that's exactly what we're doing you can see you know both delinquencies and charge offs were down nominally for the quarter and we hope that trend will continue but overall so far so good.

Charles Bradley: Yeah, I laid it out to say, we just did our second quarter securitization and we're very happy that's done given that we had some a lot of uncertainty in the market last few weeks and it's good to get that done and it was done well to boot. So very good I'll have a few more comments, but I'm going to turn it over to Dan to go through the financials.

Dan: Thank you Brad going over the results for the first quarter, we had revenues of $106 9 million, which is a 17% increase over the $91 7 million in the first quarter of 2024.

Dan: Revenues are driven by interest on our fair value portfolio, which is now $3 6 billion and that is yielding 11, 4% if you've been on these calls before you'll remember that the 11, 4% yield is net of losses.

Dan: Included in revenues for the first quarter or is that $3 5 million fair value Mark up in the first quarter of this year.

Dan: In the first quarter of last year that same markup was $5 million.

Dan: And are these mark ups are a result of our better than expected performance in our fair value portfolio.

Dan: Looking at expenses $100 1 million in the first quarter of 'twenty five.

Dan: Also a 17% increase over the $85 2 million last year.

Dan: The main driver of the increase in interest expenses is interest expense.

Dan: Which was which is $55 million this year and $42 million last year.

Dan: While some of that rise in interest expense can be attributed to higher rates really most of it it can be attributed to our higher.

Dan: <unk> balance on our servicing a securitization debt.

Dan: Which is attributable to growth in our loan portfolio and our.

Dan: And our total portfolio managed portfolio size average is now up to 3.45 billion on the balance sheet.

Dan: Looking at pretax earnings $6 8 million for the quarter compared to $6 6 million last year with a 3% increase.

Dan: And net income is $4 7 million compared to $4 6 million last year, which is a 2% increase.

Dan: The $4 7 million of net income translates to diluted earnings per share of <unk> 19 cents.

Which is flat from the first quarter of 2024.

Dan: Looking at the balance sheet unrestricted and restricted cash of $1 $83 five is greater than the $151 million last year and our finance receivables at fair value is now 345 billion, which is 24% higher than the $2 79.

Dan: Yeah.

Dan: As of March 31, 2024.

Dan: Looking at our securitization debt the $2 74 billion of securitization debt is 20% higher than the 2.27 billion from March of 2020 for.

Dan: Shareholders' equity $298 four at the end of this first quarter a record high for the company is 7% higher than the $279 1 million last year looking at other metrics.

Dan: Net interest margin is $52 million, 4% higher than the $49 8 million last year core operating expenses $46, one which is 3% higher than the $44 9 million last year.

Dan: As a percentage of the managed portfolio those core operating expenses were five 2%, which is an improvement over the 6% in the first quarter of last year and lastly, the return on managed assets with 048 percent in the first quarter of this year compared to <unk>, 9% in the first.

Dan: Quarter of last year.

I will turn the call over to Mike Thanks, Danny.

Dan: In sales and in originations.

Dan: Following that Brad said in the first quarter of 2025, we originated $451 million of new contracts as compared to $457 million of new contracts in the fourth quarter.

Dan: And more significantly compared to $346 million over the first quarter in 2024 that is year over year increase of 31 31, 5%.

Dan: One important note.

Dan: Is that growth follows our year over year growth for the year end 2024 of 23, 8%. So some good growth numbers there at.

Dan: At the end of the first quarter, our portfolio of assets under management stands at 345 billion, that's up from $3 billion year over year and as Jamie said is a 24% increase in the growth of our portfolio. So as you can see from our originations growth and our portfolio of growth the business certainly has.

Dan: Sort of as a hockey stick trajectory, which we are working hard to maintain and improve on a few operational notes on sales and originations.

Dan: Our growth is partially a result of the maturation.

Dan: Slew of experienced sales reps, we hired in late 2023 and throughout 2024 that allowed us to enter new territories and expand our dealer base.

Dan: We expect further maturation of that group going forward here in 2025.

Dan: Our growth is also partially a result of strategic.

Dan: Strategic credit moves that we made throughout 2024 and even into the first quarter of 2025.

Dan: I'll still maintaining our sort of brand our 34 year history brand as a responsible lender we were able to surgically both tightened our credit and.

Dan: And improve our credit terms at the same time that was depending on what state the customer within and we even dug deeper and looked at the regions that those customers related.

Dan: We're residing in those states, so sort of a double whammy tightening and improving credit at the same time.

Dan: Despite that.

Dan: We're also.

Dan: Of note, we are still hiring experienced reps in new territories, we deem fruitful.

Dan: And we see a path to more growth through our relationships with large dealer groups.

Dan: And our other strategic partners like.

Our strong relationship with ally and our growing relationship with with Hyundai.

Dan: Despite our growth our credit profile has remained strong as we have been able to hold our average APR to 23, 2%.

Dan: We've been able to push our LTV is down to around 117, and 118% and up note. In this time of uncertainty inflation, we've been able to drive our average payment down to $535, which is which is lower than the average used car payment.

Dan: Turning to credit performance.

Dan: Total <unk> for the first quarter, including repo inventory was $12 three 5% of the total portfolio as compared to $12 three 9% as of the first quarter of 2024, that's a slight improvement year over year.

Dan: One note I'd like to make about the first quarter. In 2025 is that we saw sequential improvement month over month from January to February to March we saw improvement in DQ every month.

Dan: The total annualized net charge offs for the first quarter were seven 5% of the average portfolio as compared to 784% of the first quarter of 2024 again like the Q that is a slight improvement year over year.

Dan: The DQ and charge off improvements that we talked about are evident.

Dan: When you actually look at our sequential credit performance of the origination pools, starting in the fourth quarter of 2023 marching through 2024, and we think into the first pool of 2025 each.

Dan: <unk> Bye pool has improved quarter over quarter pretty much without fail for the last 16 to 18 months.

Dan: The trend the <unk> trend is further supported by our analysis of defaults, which is an account in the 90, plus bucket, which is a good indication.

Dan: As with our CML analysis.

Parts have improved significantly when looking at the more mature pools of 2023 C 2023, D and especially 2024.

Dan: We expect that trend to continue with the core throughout 2024.

Dan: Another interesting note benchmarking our credit performance against the industry third party data revealed that.

Dan: When looking at our 2024, even edge, which is really the sweet spot of making analysis like that.

Dan: We are outperforming our closest competitors that sit right on top of us in the market and in some cases by quite a bit so we're happy about that.

Dan: A few operational notes on credit performance.

Dan: In the first quarter, we launched our AI voice agent with Great success right now we only have the voice agents working on our auto dialer.

Dan: But we have started phase II of that implementation.

Dan: To have the AI voice agents on inbound calls chats and text messages. This will allow us to reallocate our human collectors to work the hardest accounts.

Dan: Which to AI voice AJ.

Dan: Is generally less reliant to deal.

Dan: We continue.

Dan: Sort of a unique servicing strategy to have our best collectors work the hardest accounts surgically assigning them to the more challenging villages.

Dan: These collectors are now organized in special teams led by our best members our Middle management.

Dan: To your other notes, we continue to employ a base of around 950 employees.

Despite the growth in Brad and I spoke about earlier, that's led to our managed portfolio relative to head count to be at an all time best So we're certainly doing more with less these days that has helped us drive down our opex quarter over quarter and year over year.

Dan: We continue to drive the Opex lower between two things obviously the growth of the portfolio and we continue to look for better expense efficiencies.

Dan: More big picture thought is.

Dan: We always look at unemployment is one of the barometers of the health of our business and our customer.

Dan: And as of our last reading its down to four 2%, which is still historically low.

Dan: I note that the department of Labor is predicting an increased nothing more than four 6% unemployment at the year end of 2026.

Dan: At least that barometer, given the uncertainty tariffs.

Dan: Things that are going on in macro economic headwinds and our economy.

Dan: We're looking at the animals and unemployment rate is a healthy barometer of our business so with that I'll kick it back to Brad.

Thank you, Mike and then looking sort of again following up on all the comments you've already heard.

Speaker Change: We're trying to do if you sort of take a step back and look at our environment.

Speaker Change: Right now the interest rates are and they were we don't expect them to go up but we probably arent sure theyre going to go down.

Speaker Change: We can't control interest rates, what we can do is control how big the portfolio can get.

Speaker Change: How much money, we can make just sitting still we can control the losses and so what we focused on is both growth and good credit and so maintaining our margins. The way we can maintain our margins continue to be very frugal in terms of our expenses.

Speaker Change: And then try and make sure we're buying the best credit. It appears we're doing all those things today.

Speaker Change: We wanted to do that I always get in a position where the portfolio continues to grow which it is and then when you go down the road interest rates hopefully come down some and then the sort of benefits of our loss is one of the things that happens currently and as much as we are buying a lot of good paper you don't really see the performance and get the sort of pushed through.

Speaker Change: In terms of earnings right away using.

Speaker Change: Using fair value accounting and kind of what I have to wait and see how the portfolio performs the early signs are quite good. So what can you do we grow the portfolio as much as we can with as much credit worthy paper as we can and then wait for the rates to come down to we're in a position where we can grow even more take advantage of rates, but even if the rates don't come down take advantage.

Speaker Change: Each of our creditworthiness as it comes through and push it through the P&L. The other part of this quarter, because we still sort of trying to get through this thing scenarios of the paper originated in 'twenty, two and very early 'twenty three the good news is that portion of the portfolio is now less than 30%.

Speaker Change: <unk> continues to write off the good part of the portfolio is now in excess of 50%. So it's kind of making the move we want in terms of getting through the bad paper, that's as much as our paper and good much better than most is still isn't the greatest paper in the world and we be just assuming that runs off so that's really what we're trying to do and so far so good.

Speaker Change: As 2025 starts off we've done all those things in a very good way in the first quarter in terms of looking at the industry.

Speaker Change: Everybody is a little bit the same position as has been mentioned we might be in a better spot in terms of credit and what we've done and how.

Speaker Change: Panned out.

Speaker Change: The recovery rates are down that hasnt helped in terms of recoveries and therefore affecting our losses.

Speaker Change: February rates appear to be peaking up a little bit and that again will help down the road. So no new entrants into the industry, we've been saying that now for probably a couple of years.

Speaker Change: That's real good strong players say no new players <unk> players are gone so the industry look solid overall.

Speaker Change: Very sort of uncertain markets I think the interesting part is we did our first quarter deal in 2025 in early January and we did our second quarter deal in early may so in those four months the rate we earned on both those deals almost identical within 10 basis points of each other so as much as there's been tons of uncertainty since the beginning of <unk>.

Speaker Change: Yes.

Speaker Change: We've been still able the securitization market has remained strong enough for us to get our deals done.

Assessable rate, we would like to be better and in time. It may be at the moment. It's good remember the lifeboat two of the most important things we need to do we need to be able securitized and we like the economy to be strong and most importantly, though.

Speaker Change: Unemployment rates.

Speaker Change: So we think the situation is good for us.

We like the industry, we like the economy, we think if anything rates will go down not up that'll be good for US we'll take advantage. So what are we going to do we're going to continue to grow we're going to try and be very conservative in terms of our credit performance.

Speaker Change: Can you continue to put all efforts into collection, both the old paper in the new and push forward.

Speaker Change: So with that thank you all for joining us today, and we will be back in another quarter.

Speaker Change: Thank you. This concludes today's teleconference. A replay will be available beginning two hours from now for 12 months via the Companys website at Www Dot consumer portfolio Dot Com. Please disconnect. Your lines at this time and have a wonderful day.

Speaker Change: Yes.

Speaker Change: Okay.