Consumer Portfolio Services (CPSS) Q4 2025 earnings call transcript

Thank you, and welcome everyone to the fourth quarter and year-end conference call. 2025 was a very good year. We might have actually expected it to be even better, but we didn't quite get the growth we were looking for. But still, overall, a very strong year. We focused on credit. We focused on keeping our margins. All in all, it was very good. A couple of highlights.

We renewed or actually we signed a new warehouse line with Capital One for $150 million. We also signed a $900 million prime forward flow commitment. Both of those will be very instrumental in how we grow and what we're going to do in 2026. But more highlight than that is the fact that credit is readily available. The company has done well enough to where lots of people, banks and such, not to mention the investors on the securizations, are very eager to either buy our bonds or lend us money. So we're in a very good spot in terms of moving into 26.26, you know, is a quick peak. Already looks like it could be very, very good.

So 25 was really good. Again, we had focused on getting the 22 and 23 paper was not particularly profitable and didn't perform as well as we would have liked. I think at the beginning of 25, that was almost 40% or more of the portfolio. Today, it's 26. We would expect that number to gradually decrease over the year to where it's de minimis by the end of 26.

So getting that kind of piece of bad credit out of the portfolio is very good. The portfolio is nearly $4 billion. We expect that to grow substantially in the coming year. We've now reached a size where we're really at a good size in terms of our industry standing. Overall, we're in a very good position. Credit remains strong. interest rates look good. We'll get back to that more, but for now, I'll turn it over to Danny to go through the financials.

Thank you, Brad. Looking at some of the numbers, revenues for the fourth quarter, 109.4 is a 4% increase over the 105.3 in the fourth quarter of 2024. For the full year 2025, revenues were $434 million, is a 10% increase over the $393 million in 2024. The interest income on our fair value portfolio is the main driver of that, of our total revenues, and that is actually up 16% year over year.

The fair value portfolio now sits at $3.6 billion and is yielding 11.4%, remembering that that yield is net of expected losses.

Outside of interest income, the other component of our revenues are our fair value marks. These are adjustments to our fair value portfolio that we occasionally record to revenues as needed. We had no marks in the fourth quarter of 2025 compared to $5 million in the fourth quarter of the year before.

For the full year, we had fair value marks of $6.5 million compared to $21 million the prior year. In terms of expenses for the fourth quarter, $102.2 million is a 4% increase over the $98 million in the fourth quarter of 2024. For the full year 25, expenses were $406 million, which is 11% higher than the $366 million in 2024. Four. The biggest component of that increase is interest expense. Interest expense is $59 million in the fourth quarter. It's $53 million in the fourth quarter a year ago, and that's a 13% increase.

That increase is largely due to our higher securitization debt balance from our higher loan portfolio. Our loan portfolio, which I'll cover when we look at the balance sheet, but the loan portfolio is actually the securitization debt from that loan portfolio is up 15% year over year. Looking at pre-tax earnings, 7.2 million for the fourth quarter compared to 7.4 million in 2024. For the full year, pre-tax earnings is 28 million compared to 27 million for the full year 2024 If you look deeper into the numbers and exclude the fair value marks pre income would have been million in the fourth quarter compared to million in the fourth quarter of 2024 So there is some significant improvement there if you strip out the marks and focus on interest income.

For the full year, the pre-tax income would have been $21.5 million in 2025 compared to $6.4 million in 2024. So again, there's significant improvement in 2025 if you exclude the non-recurring items.

Net income for the quarter, 5 million compared to 5.1 in the fourth quarter of 24. For the full year, net income, 19.3 million compared to 19.2 million in 2024.

Similar trends for net income as pre-tax income, But again, if you exclude the fair value marks in 2024, which were higher than 25, there is significant improvement there.

Deluded earnings per share, 21 cents, is flat from the 21 cents in the fourth quarter last year. For the full year, 80 cents versus 79 cents in 2024.

Moving now to the balance sheet, our total cash is, cash and restricted cash is finished the year at 172.2 million, which is up from $137.4 million at the end of 2024.

Our fair value portfolio is up 10% to $3.655 billion compared to $3.3 billion at the end of 2024. Looking at our debt, I guess the biggest jump would be from our securitization debt we talked about earlier, 15% higher to $2.986 billion compared to $2.594 billion in the prior year.

Moving to shareholders' equity, the $309.5 million ending balance for equity at the end of December 2025 is a 6% increase, over $292.8 million at the end of 2024.

Equity continues to climb and currently sits on an all-time high for us. This translates to a book value when measured on a fully diluted basis to about $13 a share.

Looking at other important metrics are net interest margin, 50.1 million in the fourth quarter compared to 52.8 million in the fourth quarter of 2024.

Full year, net interest margin, 202.5 million, splat from 202.3 million in 2024. Again, the marks, less marks in 2025 from the fair value portfolio. has an impact on that. If you strip that out, the net interest margin would have been 50.1 million versus 47.8. And for the full year, 196 million versus 181 million, which is an 8% increase year over year. Our core operating expenses, 43.4 million in the fourth quarter, compared to 46.2 is a 6% decrease. For the full year, core operating expenses of $177 million is down 2% from $180 million last year.

So besides growing our auto loan portfolio and increasing our interest income, we've also put a lot of focus on improving operating efficiencies, which you can see in the decline in our core operating expenses as a percentage of the managed portfolio, which is now down to 4.8% from 5.6% a year ago. I will turn the call over to Mike.

Thanks, Danny. A few operational notes today. In the fourth quarter of 2025, we originated $363 million of new contracts. For the full year of 2025, we purchased $1.638 billion of new contracts compared to $1.682 billion during the same period in 2024. So pretty good year, as Brad said, but a little flat. And 2025 ended up being our third best origination year in our 35-year history. This, despite our continued practice of originating with the tight credit box, which we did in 2025, we heard from the trenches that dealers were reporting lower foot traffic, and we saw at times increased and in some cases irrational competition for less business. So overall, when you consider all the factors that were against us, $1.62 billion was a pretty good year.

In the fourth quarter of 2025, we grew our portfolio of assets under management from $3.76 billion to $3.779 billion. And for the full year, we grew the portfolio from $3.4 billion to $3.7 billion, which is an increase of 8.24%. Our focus in Q4 and as we turn to the new year is to grow via one, hiring new sales reps and adding new territories I think the second one is adding more active dealers to our funding dealer pool We been successful doing that in the fourth quarter We added about 1 in December alone Three, we have a goal to drive our applications from $250,000 a month to $325,000 a month.

And four, we started doing this in the fourth quarter and into this year so far as mixing some strategic risk initiatives that we've seen be successful so far. Also in the fourth quarter, we implemented our Generation 9 credit scoring model that, as with our previous generation models, utilizes AI and machine learning in its development. We have found that, at least so far, the new model has increased our approvals 11%. So they were running in the low 40 percentiles, and now they're running in the low 50th percentiles. It's kept our capture flat, which is good news. And doing the math, it's increased our total funding to about 8.4% just by implementing that new model. Also in the fourth quarter, as Brad alluded to a little more detail on the partnership regarding the Prime program, we partnered with a large credit union to source, originate, and service Prime Auto Loans.

As part of that deal, we get an origination fee and a servicing fee to sell that credit union prime auto loans that we source.

Interestingly, the credit union has committed to buying up to $50 million a month, $600 annually, over 18 months, $900 million commitment. But it's important to note that we think that the growth will be a slow buildup as we kind of have to rebrand ourselves to our dealer base as more of a full spectrum lender, considering we've been a subprime lender for 35 years. We're getting good feedback from the dealers.

We're growing month over month. But again, it's going to be a slow build. I kind of compare it to when we started our meta near prime program years ago. It didn't come out of the gates too strong, but eventually, you know, it's now five to six percent of our originations. And we're kind of hoping the prime program gets to be about the same.

Just sort of following up on what Danny said on our OPEX, we were able to decrease it year over year from 24 to 25 by 14 percent. One note is on the employee cost front, we were able to lower our employee costs as a percent of the portfolio from 2.6% in 2024 to 2.4% in 2025.

And, you know, we did this despite growing the portfolio 8.24%. That's a little more evidence that we've properly scaled the business. We're at the right size. And, you know, as we continue to grow in 2026, we look for that OpEx to continue to trend downward.

Turning to credit performance, the total DQ greater than 30 days for the full year 2025 was 14.77 percent as compared to 14.85 percent for the full year 2024. the total annualized net charge-offs for the full year 2025 was 7.76% as compared to 7.62% for the full year 2024. Further, repossessions were down a little bit year over year. Potential DQs, which we call POTS, were down year over year, and extensions remain at our historical average as a percent of the portfolio. Our extensions are also about the same as benchmarked against our competitors in the subprime space. So taken together, our improved portfolio performance in 2025 was quite an accomplishment considering the macroeconomic headwinds we faced in servicing with affordability, stubborn inflation, increased interest rates, some stagnant wage growth affecting some of our customers' cash flow.

We found that using the right collection techniques and processes, along with our customers still prioritizing their car payments, sort of fought off those trends. I mean, to lower delinquency year over year in this environment is quite a tip of the hat to our servicing department. Looking more closely at the vintage performance, We continue to see significant positive credit performance, sort of starting with our 2023D vintage and continuing vintage over vintage through 2025.

Now that it has more time to season, we're sort of looking at the 2024 vintage performance as being a positive result, probably due to our credit tightening that we took in early 2023 and we continue to do today. It's early, but a sneak peek at our 25 vintages shows even better potential for that performance than the 24s.

As Brad alluded to, the troubled 2022 vintage and 2023 vintages are running off quickly. And as compared to our competitors credit performance the in data that our bond investors use to evaluate the space reveals that we remain among the very best credit performers in the subprime space when you compare apples to apples to our competitors.

Finally, turning to recoveries, they remain somewhat relatively light, settling into the 28% to 30% range. We typically want them to be in the low 40s but our analysis suggests that there is a light at the end of the tunnel our data revealed that recoveries for for vehicles from the 2022 and 2023 vintages those those cars are actually dragging down our overall recoveries so for example in q2 in q4 2025 looking at q4 vehicles from the 2022 vintage were at were recovering at about 20.5 percent and and vehicles from the 2023 vintage were recovering 22.9% on the recovery.

Compare that to, you know, recoveries on the 24 vintages are more palatable at 36.3%, and recoveries for the 25 vintage, at least so far, are hitting 43.4%. So we feel once the 2022 and 2023 vintages sort of flesh out, as Brad said, by the end of this year, our recoveries will get back to normal. And as everybody knows, recoveries are a critical part of reducing our losses and increasing our net income. And with that, I'll throw it back to Brad.

Thank you, Mike. Switching over, taking a look at our industry. Normally, there's not a lot going on in the industry. As we've sort of pointed out already, that it was a little bit slow. Traffic was down in the dealerships. That seems to have changed in 26 so far. but the interesting notes were GLS, one of our friendly competitors got purchased I think that's a good, it was a very good valuation or extremely good valuation so having that happen was interesting also Flagship, which kind of had been sinking for a while, was purchased also but again, more to discount, I think Flagship for all intents and purposes had ceased origination when they were sold, but that would be some M&A movement in the industry And lastly, Prestige, more recently, stopped originating loans as well.

And you don't really see a lot in our industry. More importantly, we've seen almost no new entrants into our industry in like five years. So it's gotten to the point where unless you really have some size, which we'll call a minimum of a billion-dollar portfolio, you're really in a tough competitive standpoint within the industry. So being at four and on our way growing puts us in a very good spot. Having a couple of our competitors go away and maybe try and reinvent themselves is fine. Certainly Prestige is not.

And then having a sale for GLS puts a valuation on some of the industry players. All good news across that board.

I think the industry is very solid without having people blow up. The trichlor thing was a bump in the road, but really had nothing to do with the real industry. It did affect the markets slightly for us in doing a scuritization. Other than that, it had no impact whatsoever.

So moving into the future, what we care about, as we've mentioned many times, are the interest rates and unemployment. We believe the interest rate environment is very positive. If anything, the interest rates may come down as opposed to go up. Down is obviously way better. As long as they're not going up, we're kind of fine with where they are, but it would be nice if they came down a little bit more because those pretty much go straight to the bottom line, those improvements. unemployment seems pretty steadily steady unemployment could bounce around a little bit and we really wouldn't be affected we really don't want employment to skyrocket obviously that could trigger sort of a recession which is all bad but we don't really see any of that we see unemployment holding steady we see interest rates steady or coming down it really sets us up for a very good environment right now generally other than the Iran war which hopefully will go away pretty soon the economy seems very stable and very strong Again, we would think 2026 and beyond looks very positive in terms of where we're going with the company.

You know, so having said that, I mean, our goal in 26 is to focus on growth. We want those margins to improve through better interest rates. We want the overall portfolio performance to improve by getting rid of that 22 and 23 paper. We believe a good economy is good.

We think we're, as I mentioned earlier, in a great position to raise money. We did a residual deal recently. which is cheaper by a bunch than the last couple we've done. So again, there's a lot of favorable headwinds, or excuse me, tailwinds, as we move into 26. So we're really looking forward to see what we can do this year. We've got a bunch of stuff going the right way. We've raised the money. We have the warehousing. The credit model looks great. We're very positive in terms of where things go from here.

With that, thank you all for attending the conference and the conference call, and we'll speak to you in a month or two.