Q3 2025 Consumer Portfolio Services Inc Earnings Call

Good day, everyone, and welcome to the Consumer Portfolio Services, Inc. 2025 third quarter operating results conference call.

Today's call is being recorded. Before we begin, 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 considered forward-looking statements.

Statements regarding current or historical valuation of receivables depend on estimates of future events. These are also forward-looking statements, which 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 12th 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 are Mr. Charles Bradley, Chief Executive Officer; Mr. Danny Bharwani, Chief Financial Officer; and Mr. Mike Laven, President and Chief Operating Officer of Consumer Portfolio Services. I will now turn the call over to Mr. Bradley.

Thank you. Good morning everyone. Welcome to our third quarter conference call. I think um, for the most part it's 3 quarters in the books. Um, the year is proceeding kind of pretty much exactly what we would expect with a small exception of we haven't really grown as much as we wanted, we had pretty high hopes for growth this year. Um, we've had some growth but very what we call modest growth as opposed to, uh, more aggressive growth, which is probably okay. Um, generally speaking, if you look back at the last few calls, uh, We've sort of been in, not really a holding pattern, but in a wait and see pattern in 2 ways. Um, we wanted to see, you know, get sort of the 22 and 23 Port. Um, portion of the portfolio to shrink and see if we can get that reform as best. We could, even though it wasn't particularly great paper. And then on the flip side, we wanted the 24 and 25 vintages to really prove out that we in fact have much better credit. And I think as I mentioned in previous calls little by little, the 24 and 25 have all proven to be better from 23c on.

Goes each 1 is improved better than performance wise better than their previous 1. Now it's still early certainly for the 25s but you know it's a trend we wanted. It's a trend. We've been kind of waiting to see before we tried to get overly aggressive and again on the other side, we wanted to keep the 23 and the 22 paper running off because that paper isn't performing great, and, you know, compared to others, it did fine. But compared to what we want, it hasn't done as well as we had hoped, and it's now become a smaller part of the portfolio. It's down below 30% and certainly that as time goes by, that number goes down the number. The percentage of the good paper goes up and the mix will change and probably create a very good forward-looking program as we go.

Um, in terms of the quarter, uh you know we did add a new credit line just after the credit after the quarter so that was a big plus. So we now have tons of funding. Um also we did a series on what could be termed somewhat, the more difficult, um, and more difficult Market due to the tricolor problems. Good news in that front, is we've never. We've always had a third party custodian. We've never had control of our our, um, collateral. We have none of the issues that caused their problems. Um, as much as you know, we can tell everybody that it's still put a little bit of a cloud in the industry, though. I was trying to get a secure done and it's important that even. So we were we were pretty easily able to get this conversation done slightly more expensive than we had hoped. But nonetheless, as I've said, numerous times getting SEC. Done getting them. Done is the most important thing we have

To do this, you have to be able to securitize the paper; otherwise, we have serious problems. But overall, quarters worked fine. I'll get back to some more specifics on that after we go through the rest of the material. I'm going to turn it over to Danny to go through the financials.

Uh, thank you, Brad.

Going over the financials, uh, revenues for the quarter. $108.4 million, is that 8% from the third quarter of last year, which was $100.6 million?

For the 99 months ending September 2025, revenues are worth $325.1 million, which is a 13% increase over the $288.8 million in the 9 months ending September 2024. Two things of note driving revenue are that our fair value of the portfolio is now up to $3.6 billion, which is yielding 11.4%, net of losses.

Um, and the other thing of note for topline revenue is that we do not have a fair value mark this quarter. We did have a $5.5 million mark in the third quarter of last year. Moving to expenses, $101.4 million in the third quarter this year is also up 8% over the $93.7 million in the third quarter of 2024.

For the 9 months ending September 25th, 2025, we reported $304.371 million.

Million last year.

Interest expense is the main driver of the increase in expenses.

Um,

And it's largely due to our increasing securitization debt. As the volume has picked up over the last year, pre-tax earnings are $7 million compared to $6.9 million last year for the first nine months. Pre-tax earnings of $21 million is up 4% from $20.1 million in 2024. Likewise, net income of $4.9 million is also 2% higher than the third quarter of last year.

The nine months ending September 25, net income was $14.3 million, which is a 1% increase from $14.1 million last year.

And finally, diluted earnings per share: $0.20 per share is flat from last year. For the 9-month period, it's $0.59, compared to $0.58 last year.

Moving to the balance sheet, cash and restricted cash is $151.9 million for the third quarter of this year.

um,

Finance receivables, which we see as our fair value portfolio, are up 16%. The fair value portfolio is $3.62 billion as of this quarter, compared to $3.13 billion, largely due to...

Origination volumes, as Brad alluded to earlier, were $391.1 million for the third quarter and $1.275 billion for the nine months ending September 25. This is driving the increase in our fair value portfolio.

This quarter compared to $3.1 billion last year. That is an 11% increase.

So, what's happening is we've got a 16% increase on the asset side in our fair value portfolio and only an 11% increase in the debt. So, that's showing that we're able to manage with less leverage, which is improving our balance sheet. That can be seen in our shareholders' equity number, $307.6 million this quarter, which is up 8% from $285.1 million.

Looking at other metrics, the net interest margin was $49.3 million this quarter compared to 50.5% for the 9 months. The net interest margin this year was $152.3 million compared to $149.5 million last year.

Our core operating expenses of $43 million are down 4% from the $44.6 million in the third quarter of last year. For the 9 months, it's flat at $134 million this year compared to last year. However, when measured as a percentage of the managed portfolio, the core operating expenses are down 4.6% this quarter, compared to 5.4% in the third quarter of last year. So, we're starting to see some improving efficiency.

Jesus were able to.

Manage the cost side of the business to allow the portfolio to grow without really seeing increases in cost.

And lastly, the return on managed assets is flat at 0.8%. This quarter compared to 0.8% in the third quarter of last year.

Uh, I will turn the call over to Mike.

Uh, thanks, Danny. In terms of operations, again in the third quarter of 2025, we originated $391 million of new contracts for the first nine months of the year. We purchased $1.275 billion of new contracts compared to $1.224 billion during the first nine months of 2024, which is a 4% increase year-over-year.

And while not the rapid rocket growth that we had hoped, things go right. 2025 will end up being our second best year in our 34-year history. Growth remains somewhat difficult as our focus...

Has been on providing an affordable con, an affordable product uh for subprime consumers, who are facing macroeconomic, headwinds like high interest rates uh um and things like that. With this in mind, we have continued to tighten our credit box in 2025.

Uh, that, combined with dealers reporting low foot traffic and increased competition for less business, has made our growth prospects kind of tough in the first nine months of the year. But again, like I just said, 2025 should be the second-best year in our history. So, keeping things in perspective, it's going to be a really good year. Um, one thing to note is that we continue to originate loans at the upper level of the subprime spectrum, with 90% of our resignations coming from franchise dealers and only 10% coming from the riskier independent dealers.

Uh, our tight credit box has allowed us to originate better paper, uh, within our upper tier programs.

and this is important, important while still holding a 20% APR.

That BS well for our NIM, which Danny just covered, and, almost equally important, our credit performance, which Brad mentioned.

Um, we have had the pivot to our organic growth, uh, given our tight credit to do that. Um, we are adding new dealers to our dealer list to increase applications.

We have improved our capture rate this year from the high force to now over 6%. So, it's more applications and a higher capture rate that's led to more organic originations.

Uh, we have also put a specific focus on large dealer groups.

Which we define as having a dealer that has 10 or more dealerships under their umbrella.

Large dealer groups.

Um, we also continue to rely on our personal relationships with dealers to feed our originations.

Um, the retail Auto industry is uh still surprisingly based on personal relationships, even though the technology has grown and we currently have a 100 reps that are personally visiting and calling on our dealer clients daily. Um, 1 thing that we have been able to do at the end of the third quarter, is we've cut our funding. Uh our funding time. Down to 1 day, we've cut it up about 1 day uh year-over-year dealers, appreciate our personal service and certainly our fast funding. Um, it seems like the little things matter when competing for business, uh, when we have such a tight credit box,

Um, on an operational front, as Danny noted, we've been able to lower our Opex substantially year-over-year. About 18 months ago, it was sitting at 6% of the match portfolio, and as of the end of the third quarter, we're down to 4.5%.

Um, one of the areas of improvement for us has been to lower our employee costs.

Which, besides interest expense accounts, account for a large portion of our expenses.

Uh, we've actually been able to shrink our headcount by 3% from the beginning of this year to the end of the third quarter, all the while growing our portfolio to an all-time high and really heading towards our second-best year in our history. Uh, the percentage of employees of the portfolio balance has dropped from 28% to 24% year-over-year.

Returns the total, DQ greater than 30 days for the third quarter, which also includes repo inventory was 13.96% of the total portfolio as compared to 14.04% as of the third quarter of 2024, that's a slight Improvement year-over-year, and follows a trend that we have seen sequentially a month over month. Uh, the total annualised net charge offs for the third quarter or 8.01% of the average portfolio as compared to 7.32% for the third quarter of 2024. Uh, looking at the Vintage performance, we continue to see significant credit performance, uh, as Brad, alluded to a 2023, C and continuing vintage over vintage through 2024. Um, we believe that the 24th and our early, look at the 25s, is a result of our ongoing credit tightening, which we started at the end of 2022.

And ratcheted it up quite a bit, um, in 2023 and 2024. Um, up note.

Is that the troubled 2022 and 2023 vintages?

Uh, now we are below 30% of our portfolio and running off quite quickly. Um, that and the performance of the 24s, in our initial look at the 25s, is showing us a light at the end of the credit performance tunnel. The other thing we do internally to analyze credit performance is we study the default curves.

which,

Depending on who you ask, maybe a more accurate metric to judge performance is those curves. They don't account for recoveries and other loss mitigation tools, and those curves reveal that there is a significant difference between the early '23s and the better performing '24 floors and '25.

Um, comparing us to our competitors' credit performance, the Intex data shows that we remain among the very best credit performers in the sub-prime space. When looking at apples-to-apples comparisons, finally, uh, turning to recovery is.

Uh, they do remain relatively light, settling in the low 30s. We have seen a little bit of an uptick in the third quarter, uh, but we typically want to be in the low to mid 40s. Our analysis suggests that improvement is definitely on the way. Our data revealed that the recovery from the 2022 and 2023 vintages is dragging down the overall performance.

Recoveries and the third quarter vehicles from the 22 vintage is we're getting 19% recovery and vehicles. From the 23 vintages, we're at a 23% recovery. However, on a positive note, recoveries from the 24th, we're at a more palatable 36% and recoveries from the 25 vintage so far. We're at the Historical average of 42%, so once the 22 and 23 is flush out of the system, we we see the recoveries increasing back to historical Norms, uh, 1 more last bid,

5% in 2026. This compares to the long-run national average unemployment rate of 5.5%, with a rate over 6% being considered elevated in our risk assessment. So, we're still in a good spot with unemployment risk. With that, I'll send it back to Brad.

Thanks, Mike. In terms of looking at the industry, the big news in our industry is basically the tri chloro collapse. Um, as I mentioned earlier, uh, that was really, you know, God knows what they were doing, but they shouldn't have been doing it. Um, and it really comes down to, they did not, they were custodian for their own contracts, um, and double pledged them all sorts of stupid stuff. Um, we don't have, you know, we've never in that position. We and many of the companies like us in our industry have custodians who take care of all the contracts, but not having a custodian in place was a mistake for tricolor and you know, that should have been taken care of. But anyway, we don't have those issues. It did have an effect on the industry scared, a bunch of people, um, particularly if bunch of investors. Um, and certainly those involved with tricolor, um, good news is even with those kind of problems, we were able to get our security done. Um, the market remains stable, I think, you know, this will pass. Uh, I think it was good that people will check on a bunch of stuff. Make sure everyone else has custodians and these kind of things can't happen in the future. Uh,

Beyond that it is kind of slow across the industry. It's a little interesting that we're sort of a little disappointed in our growth and you have will probably as everybody mentioned previously, the second strongest year we've had in our history but um, you know, we want more we want better. Um, we've also noticed the banks moving in a little bit, Capital 1 is making a little more of a presence and tendera is being a little more aggressive and the credit unions are back a little bit. So all those things probably put a slight amount of pressure in terms of growth and as I've mentioned

We're really, um, I think everyone on the call is repeated. We're still trying to get, you know, we want the 2022 and 2023 paper gone. We want the 2024-2025 paper to show us how good the credit is. As Mike pointed out, if you look at the defaults, the paper's even better than it looks. All those things are very positive in terms of where we're going to go going forward. I think, um, you know, lower interest rates—I mean, there's a bunch of things going our way, and all we need to know is to try to go by the wayside soon enough. Interest rates have come down twice already. You know, the rumor is they'll keep coming down; those go straight to the bottom line for the most part. We're going to try and maintain our APRs and put most of that into margin improvement. We continue to cut expenses at every possible corner, so we're doing, you know, all the things we're supposed to be doing. As Mike mentioned, that employment— you know, I tell people that our company is, you know, we see the tip of the spear in terms of recession. You know, in terms of recession, our customers are literally right out in front, and you know, when we hear from them, it's not.

So much, you know, gee I can't pay. We kind of expect that occasionally from some customers. It's when they say, "I don't have a job, I can't pay. Come pick up the car," that you have a problem. We are not hearing any of that; you know, the same old things: times are tough. Um, you know, the economy's kind of loose right now, so some of our customers are having difficulty, but none of them are saying, "Hey, I'm out, come get the car." That's when you know there's problems. You know, unemployment going up is the real killer for us. It's not—we're not overly worried about it going up a little bit. Um, so we think that's a very strong indicator. So if you take the interest rates, you take down employment position, you take, you know, they're just ready to shoot for their economy a little bit. You take the fact that we're moving the non-performing or non-earning paying part of the portfolio off the balance sheet and putting on more and more good paper. You know, what really kind of sets us up in a real good spot in terms of going forward. Um, not only that, but in 2022-2023, we had to post a lot of cash in our securitizations, and that cash will start rolling back.

Back out of those securities, and as they run off, um, you know, mostly towards the beginning of next year. So, not only should we have sort of an earnings boost from lower interest rates, hopefully get some more growth, better credit performance overall in the portfolio as the old stuff runs off, but we actually should be getting to improve our cash position as well. So, you know, of course it all sets up for what could be a very good year next year, and we'll see. We need the economy to hang in and start improving. We need all the things I just said to come true, and then I think.

We're in a very good position to really start growing with our Better Credit. Knowing the credits performed in 24 and 25 and again 23 23 22, 23 going away. So, you know, it's a very, you know, it's it's positive and Outlook, as we probably could have going into the fourth quarter, fourth quarter is tend to be a little bit slow, but then, you bounced into the first 2 quarters and those are always good.

anyway, we appreciate everyone's attention and the call and we'll look forward to speaking again in February,

Thank you.

From 12 months via the company's website at www.consumerportfolio.com, please disconnect your lines at this time and have a wonderful day.