Q2 2025 Consumer Portfolio Services Inc Earnings Call

Management has asked me to inform you that this conference call may contain forward looking statements 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 are also forward looking statements.

All such forward looking statements are subject to risks that could cause actual results to differ materially from those projected.

I refer you to the company's annual report filed March 12 for further clarification.

The company assumes no obligation to update publicly any forward looking statements, whether as a result of new information future events or otherwise.

With us here is Mr. Charles Bradley Chief Executive Officer.

So Danny <unk> Chief Financial Officer.

And Mr. Mike Levine, President and Chief operating officer of consumer portfolio services.

I will now turn the call over to Mr. Bradley.

Thank you and welcome to our second quarter earnings call.

Looking at the quarter, I think not quite business as usual, but we're continuing we've kind of reached a new level in terms of originations.

More recently, we're slightly flat, but still stronger than last year. So we've had a better first half this year than last year.

The market appears to be a little cautious or flat currently but nonetheless, it's still on we're on pace for a better year in originations this year than last year in the second quarter shows that.

We did just do another securitization, which as much as it was recently, we usually talk about this securitization during the previous quarter call.

It was $418 million with a 543 all in costs, what's good about that is the lowest.

Upon since 2022 so.

Depending on what happens going forward. If there is some rate cuts. This as what would really really help both our NIM in terms of what we're doing going forward a couple of rate cuts down the road will be very very helpful. But nonetheless on the second quarter securitization went off very well. The fact that that market remains very strong is certainly key to our success going forward.

We also continue to have an improvement in our operating expenses Opex is now the lowest has been the issue the company or at least in the last 10 years.

We're pushing to continue that trend and as we continue to grow both with our cost cutting measures and efficiency measures and the fact that we just we're growing we will make that number even better. So again those are real good highlights I think.

Yes, the other thing to talk about in terms of performance as the 22 and 'twenty three portfolio paper.

Isn't the strongest to say the least.

<unk> been kind of waiting for that to run off it is now less than 35% of the overall portfolio still very significant but nonetheless as more new paper gets on the trending of the new paper, both from 2020 five is significantly better so far so as time goes by and we were able to replace the portfolio becomes more sort of frontload.

With $24 25, and 26 paper and the 22% and 20 Threep paper continues to run off Youre going to get a little boost there they really can't see because basically the bad payments going away and the good papers, replacing it so.

So again, a very strong trend in terms of the quarter's production.

A few more comments on the industry, but for now I'll turn it over to Danny for the financials. Thank you Brad going over the financial results for the quarter, starting with topline revenue revenues for the second quarter were $109 8 million.

It is a 14% increase over the 95.

<unk> 9 million in the second quarter of last year.

Net revenues, primarily driven by our interests from the fair value portfolio, which is now $3 6 billion, yielding 11, 4% remembering that that yield is net of losses.

The revenues for the quarter also include a $3 million.

The fair value markup.

Which compares to a $5 5 million fair value Mark up in the prior year quarter.

Fair value Mark up as a result of better than expected performance in our fair value portfolio.

For the six months ended June 30.

Revenues were $216 6 million, which is a 15% increase over the $187 6 million last year moving on to expenses for the quarter $102 8 million.

15% increase over the $89 2 million for the second quarter of last year the.

The primary driver for the increase in expenses R&D increases in interest expense.

Which is up 26% year over year from $58 seven this year from 46, seven last year to 58 seven this year.

Does that increase in interest expense is largely due to increased increases in the volume of our debt, including our securitization debt, but theres also increases and rate increases that are built into that interest expense increase.

Total expense for the six months $202 9 million is a 16% increase over the $174 4 million in the six months of 2024.

Looking at pre tax earnings 7 million for the quarter is a 4% increase over the $6 7 million last year and for the year to date period, $13 8 million this year compared to $13 2 million last year.

Similarly, net income follows the same trends $4 8 million for the quarter $4 $7 million last year and for the six months nine five versus nine three diluted earnings per share <unk> 20, a share for 2024.

2025 second quarter compared to <unk> 19 in.

In the prior year quarter for the six months 39 versus <unk> 38.

Moving on to the balance sheet, a couple of things of note.

Our finance receivables at fair value now stands at $3 6 billion, which is a 20% increase over the $2 $96 billion last year, driven by healthy origination levels $433 million in new auto originations in the current quarter.

And puts us on pace for another strong year in loan originations on.

On the debt side.

Total debt, which includes our warehouse credit lines residual interest financing securitization avs debt and corporate long term debt $3 4 billion at the end of June this year compared to $2 9 billion last year at the same time, which is a 15% increase so youll see that our financials.

<unk> are 20% higher year over year, but our debt is only 15% higher so that shows that our leverages improving.

Moving on to shareholders' equity for the second quarter, we finished the quarter at $303, one which is an 8% increase over the $283 million last year and it's the first time, our equity has eclipsed the 300 million Mark.

Other metrics looking at our net interest margin $51 1 million in the second quarter, it's 4% better than $49 $2 million last year for the year to date period $103 million is also 4% better than $99 million last year.

As Brad said core operating expenses is now below 5% four 9% in the second quarter is a 14% improvement over the five 7%.

Last year and our return on managed assets 048 percent compared to <unk>, 9% last year for the year to date period same members <unk> eight versus <unk> nine.

I'll turn the call over to Mike.

Thanks Danny.

Looking at our sales and originations.

As Brad said fairly flat in the second quarter of 2025, we originated $433 million of new contracts as compared to $431 million of new contracts in the second quarter of 2024.

I will note however that the second quarter of 25 is our second best Q2 in our 34 34 year history. So good work there.

Our second quarter of 'twenty five.

That growth follows our year over year growth.

24 over 23 or 23, 8% so.

The first half of 'twenty five.

Produced the growth that we intend to do.

At the end of the second quarter, our portfolio of assets under management stands at 370 8 billion, which is an increase from 3.1 dollars 73 billion at the end of the second quarter of 2025.

Year over year increase of 16, 8% in the portfolio.

I think it's important to note that our growth in the second quarter came at a time when our foot traffic was reported to be down at our dealership partners.

My read of macroeconomic reasons and competition also heated up quite a bit in the second quarter to scoop up less of that demand for our product.

But despite these these growth roadblocks, we did hold strong to our tight credit box in the second quarter.

Instead of relying on our strong brand of superior customer service and personal relationships with our dealer base to grow.

To that extent.

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A few.

A few accomplishments our originations department set records to help us become one of the fastest funding finance companies in the market.

By setting a same day funding rate of 29%.

That is the best in our 34 year history.

We set a second day funding rate of 57%, which is the best in our 34 year history.

And we got our deal turn time down to 108 days, which is the best in our 34 year history and.

To kind of put some finishing touches on our second quarter we were.

<unk> finished putting the finishing touches on implementing an AI agent bought in certain processing task that should improve some of those metrics moving forward for the rest of the year.

Not to be outdone, our sales Department also contributed in the second quarter by increasing our capture rate to $6, 71% up from five.

596% and that is extremely helpful to our growth because we're facing fewer applications in the second quarter.

So that kind of offsets the demand by increasing our capture rate.

Sales management was also able to backfill all of our open territories and we promoted it we promoted several inside sales reps to enhance our coverage.

Across the country, while we do have a list between.

Five to 10, new territories to open in the near future. We are currently running at full capacity and sales to cover the country.

Turning to credit performance, the total DQ greater than 30 days for the second quarter, including repo inventory was $13 one 4% of the total portfolio as compared to $13 two 9% as of the second quarter of 2024 that is a slight improvement year over year.

And that data is certainly a larger part of the trend of us lowering our DQ on a year over year basis.

Of particular note sort of looking at the first half of the year, we have seen improvement <unk> sequentially month over month.

For five of those six months so far in 2025, so a good trend there.

Total annualized net charge offs for the second quarter were seven 4%, 5% of the average portfolio as compared to 726% for the second quarter of 2024 sort of looking at the bigger picture of that vintage performance, we continue to see significant credit performance.

Improvements starting with 2023 D.

And kind of continuing vintage over vintage through 2024.

The 2024 vintage performance improvements is a direct result of our credit tightening that we did in early 2023 and continued throughout 2024.

It's kind of early but a sneak peek at the curves.

Our early 2025 vintages show.

Heightened chance have even better potential performance than the 24, so good trend there as well.

Another positive note, we saw an uptick in auction recoveries in the quarter, which we hope is a sign of things to come as lower recoveries over the last year has been a bit of a burden on our losses.

We are encouraged that in addition to our responsible credit policy, which we've always done our unique collection practices also contributed to the credit performance improvements.

So kind of looking back in 2024, we had our supervisors collecting the tougher toughest vintages.

In 2025, we kind of switch that up to form specialized team of our best staff collectors.

Headed by the best.

Supervisors on sort of.

Specialized teams to tackle those toughest vintages.

As we saw in the 'twenty four performance that strategy worked and what we're seeing so far in the early 20 fives.

The team the team idea is working as well.

In addition in the second quarter also saw our use of AI agents.

Becoming full blossom.

With AI agents handling.

The outbound dialer calls this has freed up our experienced human collection collectors to make more intensive manual efforts to collect the tougher accounts. So.

For example, our human collectors were able to have more time to make text message communications with our customers nearly doubling the amount of those communications.

Which is kind of key to collecting the subprime debt because as we've learned over time text messaging it turned out to be one of the best debt collection tactics and.

In the space.

A few early performance notes on our AI agent.

They have helped to reduce our potential DQ percentage hitting a payment rate at 31% to escalation to live agent transfer rate is low, indicating an increasing comfort with our bot with our customers.

The right party conversion rate is strong at 48% and the right party connection rate is only less than a percent below our human right party connection rate at RPC data is important to note because all of those metrics typically result in a payment a promise to pay or future data payment.

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And finally, as I mentioned, the slight uptick in recoveries, even though sort of <unk>.

Most of that performance is out of our control we are working hard to improve a few things that we think we can control to improve those recoveries such as improving the timing of repossession and sale of the vehicle to improve the recovery amount another factor to improve sale timing is the dearth of available repossessing agents in the market that.

We faced are getting those cars repossessed later and sold later.

We are fighting this dearth by forming direct relationships with smaller regional agents and trying to bypass the three or four major forwarding agents.

In the space.

Kind of a few more notes before I hand, it back to Brad as he mentioned our opex as a percentage of the portfolio was four 8% for the second quarter.

I was scratching my head to think that we had a better quarter than that from an opex percentage and I don't think we have.

We do expect the Opex to continue downward as our portfolio grows and we're also continuing to strategically look for scale in our operations.

As we grow.

Management remains mindful of the macroeconomic headwinds facing our business because as we know it's not always what we buy but the environment that we're buying in.

Noted the recent job reports an ever so slight uptick in the unemployment rate.

We're keeping our eye on the tariffs and the future rate cuts for example, the CPI report came out this morning.

Which is pushing the odds of three or four rate cuts maybe for the rest of the year to be in our favor which would help our business.

We're also reflecting on what we're hearing from our dealership partners about foot traffic and from our collection staff on what Theyre hearing in the trenches from our customers.

Taken together.

We're still continuing to be.

Putting floor tactics of being one of the more responsible lenders in the space.

As we grow the portfolio continually so with that I'll kick it back to Brad.

Thanks, Mike in terms of the industry as noted.

There is kind of a light foot traffic in the dealerships few days probably people are waiting to see.

Both interest rates are going to do when the economy is going to do.

We seem to be handling that rather well.

I think in terms of the industry itself, we keep reading about some potential M&A activity that would be helpful for our comps in helping what we look for.

So we'll see a better returns than anything and as mentioned the interest rates are supremely important we'll see what happens. The good news is we don't particularly think interest rates are going to go up we hope they go down how much we will see but anything any movement downward it helps us.

Equally as important as the unemployment rate, which at the moment seems high and as much as job hiring was down and re revise a bit a bunch.

Unemployment is what we really care about so hopefully it doesn't get to the point, where unemployment begins to go up but as long as those kind of trends hold we should be fine and as mentioned numerous times for everyone.

Focus going forward will be on the efficiencies continued growth and collecting the AG portfolio to the best we can have an impact going forward as small as possible, but generally speaking overall I think.

The economy, everybody just kind of curious what's going to happen, both with interest rates and whether we.

Where the economy is actually installing or whether it's going to be fine. My feeling is if they cut interest rates, even a little bit of the economy will do just fine.

All of those are good things for us is kind of like the way to look at it kind of the overall picture you care. What we've always said is we care most about unemployment unemployment appears fine at least for now we don't like higher interest rates no one's mentioned interest rates coming up.

Terms of our collection and our efficiencies are all doing good and improving along with our growth. So again, we're kind of in a position where in the second quarter. The first two quarters has gone very well, but the future looks bright in terms of mostly positive things should happen rather than negative things in those pilot has been the old portfolio runs off artificial or efficiencies.

To improve our hopeful in the economy continues to do well the interest rates come down and we get to grow a lot.

So we'll see but again, thank you all for joining us.

We'll talk to you next quarter.

Thank you. This concludes today's teleconference.

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