CPSS

Good day everyone, and welcome to the Consumer Portfolio Services 2026 first 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 deemed forward-looking statements. Statements regarding the 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 16th, 2026 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 here is Mr. Charles Bradley, Chief Executive Officer, Mr. Danny Bharwani, Chief Financial Officer, and Mr. Mike Lavin, President and Chief Operating Officer of Consumer Portfolio Services. I will now turn the call over to Mr. Bradley.

Thank you and welcome everyone to our first quarter earnings call. In looking back at the quarter, I think, our securitization program continues to run really well. We did another securitization, $345 million, well received, no problems at all. It's very good that that program remains consistent. You know, we'd like to see the interest rates come down a little more, but overall, being able to buy a lot of paper and sell it all to Wall Street is one of the most important things we can do. Secondly, we did another residual financing, and that program also is running really well. Very well-received. Actually, each time we do a new residual financing, it's probably more well-received each time along.

We're getting a little better pricing as well. That's all very good. Probably the big news is finally, after spending all last year thinking we could grow and trying to grow and not really getting where we wanted to go, the program was to expand our geographic footprint as much as we could, add as many dealers into our network as we could, and also add a lot more marketing people to get more boots on the ground and really focus on that sales. Finally, that has started to pay off. As much as January and February were a bit slow or normal, I should say, March took off.

Being how we're here in May, it's safe to say, you know, all of that hard work we've done over the last year, 18 months, is really beginning to pay off in terms of the growth in our originations platform and our ability to buy paper and penetrate the markets deeper. You know, we really caught a lot of that in March. Next quarter, the second quarter should be, you know, very interesting in that regard. All in all, very good in terms of what we're doing. Across the board, things look very good. I'll get back to that after Danny and Mike go through their pieces. I'll turn it over to Danny to do the financials.

Thank you, Brad. Going over the financials, revenues for the quarter were $112.3 million, which is up 5% from $106.9 million in the 2025 first quarter, driven by interest income of $108.7 million, which is up 6.7% over the prior year period. That increase is driven by, as Brad alluded to, strong new loan originations in the quarter. We did $533 million, which is 18% better than the first quarter of 2025. Our fair value portfolio now sits at $3.8 billion, yielding 11.3%, which is net of losses.

In terms of revenues, the only other item of note is the prior year period included a fair value mark of $3.5 million, where we did not have a mark in the first quarter of 2026. Expenses of $104.3 million is up 4% from $100.1 million in 2025. Interest income is the largest contributor to that increase. $60 million is up from Q4 of 2025 compared to $55 million a year ago, which is a 9% increase. Obviously, that increase is largely due to the higher debt balance from the higher originations, higher loan originations in the quarter. Pre-tax earnings of $8 million is 18% higher than $6.8 million in the first quarter of 2025.

Net income is also 18% higher, $5.5 million compared to $4.7 million in the March quarter of 2025. Diluted earnings per share is $0.24 compared to $0.19 in the first quarter of last year. That is a 22% increase, and those trends follow along with the higher pre-tax and net income. Moving on to the balance sheet. Our cash and restricted cash of $185.4 million is 1% higher than $183.5 million in March of 2025. Our fair value portfolio, like I said, $3.8 billion now, is 11% higher than $3.45 billion in March 31 of 2025. Moving on to shareholders' equity, $314.4 million is 5% higher than the 2025 quarter.

Net interest margin of 48.7% compared to $47 million last year is a 3% increase. Core operating expenses of $44.2 million is actually down 2% from the $45.2 million in 2025. This is a good something we were able to accomplish in the first quarter. We were able to grow the loan portfolio without showing an increase in cost. Because of that, the core operating expense as a percentage of the managed portfolio is 4.6%, down from 5.1% in the first quarter of last year. Finally, our return on managed assets, 0.8%, is flat from 0.8% last year. That's it for the financials. I will turn the call over to Mike.

Thanks, Danny. Just a couple of follow-up comments. As Brad alluded, in the first quarter, we originated $533 million in new contracts. This compares to $363 million in the first quarter prior, which is a 47% increase. That compares to $451 million we did in the first quarter of 2025, an 18% increase. Important to note that March alone accounted for $250 million of originations.

In the first quarter of 2026, we grew our portfolio of assets under management from $3.779 billion to $3.942 billion, a 4.5% increase, and from $3.61 billion in the first quarter of 2025, which is a 9% increase. We are meeting these goals by, one, adding new active dealers, two, hiring more sales reps, three, driving up applications, and four, improving our capture rate. In the first quarter, we added 2,335 new and reactivated dealers to our active dealer base for a total of 10,544 dealers, which is an increase of 28% over the fourth quarter of 2025. Currently, 2/3 of our lending comes from franchise dealerships and 1/3 comes from independent dealerships.

In the first quarter, we increased the number of sales representatives from 96 at the end of the fourth quarter of 2025 to 124 sales reps at the end of the first quarter of 2026, which is an increase of 29%. The average applications per month in the first quarter was 334,000 and an increase of 31% over the fourth quarter of 256,000. Our capture rate improved significantly from 5.98%-7.65%, which is an increase of 28% quarter-over-quarter. The increase in applications, combined with the significant increase in capture rate, drove a significant amount of the growth.

Speaking of growth, it's important to note that we did put in our Gen 9 Credit model in October of 2025, so we continue to originate under a tight credit box. The other note on growth is we are pleased that our originations team did not miss a beat in underwriting in the quarter growth. Our funding time remained under two days, and our error rate remained under 8%. Turning to credit performance, the total DQ greater than 30 days for the fourth quarter was 11.58%, a decrease from the first quarter of 2025 of 12.35%.

The total annualized net charge-offs of the first quarter of 2026 was 8.57% of the average portfolios, compared to 7.54% of the first quarter of 2025. Further, repossessions were down over the fourth quarter of last year and down over the first quarter of last year. Extensions as a percent of the portfolio were up slightly quarter-over-quarter, but the first quarter of 2026 was down as compared to the first quarter of 2025. Affordability continues to be at the top of the mind regarding our customers. Our average payment last month was $542, which is below the average used car payment of $562, and actually, lower than the average subprime payment, which is higher.

Looking at the vintage performance, 2024 A started the improvements over the 2022 and 2023 vintages. We saw a significantly improved credit performance starting with 2024 B, C, and D. When you look at the default curve, which is perhaps the best indicator of performance, the 2025s are sitting right on top of the 2024s, so we're continuing to trend well. The good news is that the 2024s and 2025s are much better than the 2022s and 2023s, and those vintages are running off quickly, with the 2022s and 2023s being a nominal part of the portfolio going forward. Turning to recoveries, they are up slightly in the quarter, settling in around 32%. That is up quarter-over-quarter and up over the first quarter of 2025.

I mentioned last quarter that the 22 and 23 vintages were dragging down the overall recoveries. That trend continued, but the increase in recoveries quarter-over-quarter, we're now seeing that relates to the 22 and 23 vintages running off. We expect that trend to continue. One final note, one key metric that we monitor closely here that affects our business is the unemployment rate. That remains historically low. At the beginning of the quarter, it was 4.4%. It actually went down just a touch to 4.3%, with a nice jobs report that added 178,000 jobs. As of the end of March, I noted this morning there was another good jobs report that came out, trending well there too. With that, I'll pass it back to Brad.

Thank you, Mike. In looking at the industry, this has kind of become a little repetitive. It's sort of like all quiet, which is good. No hiccups, no problems, no new entrants. I think the industry is finally sort of consolidated to a level where you really have, you know, a handful of large players and not really too much in the, you know, then it gets really small. It's kind of like either you have multiple billion in your portfolio or you have less than, you know, $500 million or $600 million. Because of that, you know, I think the competition is good. I think there's nobody running off the rails one way or another anymore. It's really kind of settled into a very productive environment for everyone.

I think we're seeing some of the benefits of that in terms of our growth, as some of the smaller people still fall away in the lower end. Also I think, you know, it would be nice if the Iran war ended because that would help our interest rates, we think. Again, it's interesting to see that even with that kind of turbulence in the market, we're not having any problems with securitizations. The portfolio performance seems fine and, you know, moving on to sort of the macro, the rest of the macros, you know, generally it looks like the economy is okay. If we could get rid of the war aspect of it, I think everything would be rather sound and very good.

What's good about that is we're in a very good spot right now in terms of we're really hitting a good growth streak and I think we're gonna be able to take advantage of the market. For the most part, we want everything to just come, you know, quiet down. Have the war end, have the economy settle and do well, and have us be able to grow a lot this year, which is what we've been trying to do now for a couple of years. So far in the first quarter, looks real good. Second quarter looks real good too. With that, we'll look forward to talking to you next quarter and thank you all for attending our call.

The meeting has now concluded. Thank you all for joining. You may now disconnect.

Good day, everyone, and welcome to the Consumer Portfolio Services, Inc. 2025 Fourth Quarter and Full Year 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 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 03/12/2025 for further clarification. The company assumes no obligation to update publicly any forward-looking statements as a result of new information, further events, or otherwise. With us here is Mr. Charles Bradley, Chief Executive Officer; Mr. Danny Bharwani, Chief Financial Officer; and Mr. Michael Lavin, President and Chief Operating Officer of Consumer Portfolio Services, Inc. I will now turn the call over to Mr. Bradley.

Thank you, and welcome, everyone, to the fourth quarter and year-end conference call. 2025 was a very good year. We might have expected it to be even better, but we did not 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. 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 are going to do in 2026. But more highlight than that is the fact that, you know, credit is readily available. The company has done well enough to where lots of people, banks, and such, not to mention on the securitizations, are very eager to either buy our bonds or lend us money. So we are in a very good spot in terms of moving into 2026. 2026, you know, is a quick peek, already looks like it could be very, very good. So 2025 was really good. Again, we had focused on getting the 2022 and 2023 paper, which was not particularly profitable and did not perform as well as we would have liked. I think at the beginning of 2025, that was almost 40% or more of the portfolio. Today, it is 2026. We would expect that number to gradually decrease over the year to where it is de minimis by the end of 2026. So getting that kind of piece of bad credit out of the portfolio is very good. Portfolio is nearly $4 billion. We expect that to grow substantially in the coming year. Now reached a size where we are really at a good size in terms of our industry standing. Overall, we are in a very good position. Credit remains strong. Interest rates look good. We will get back to that more, but for now, I will turn it to Danny to go through the financials.

Thank you, Brad. Looking at some of the numbers, revenues for the fourth quarter, $109.44 million, an increase over the $105.3 million in 2024. For the full year 2025, revenues were $434 million, a 10% increase over the $393 million in 2024. The interest income on our fair value portfolio is the main driver 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 fair value marks. These are adjustments to our fair value portfolio that we occasionally record to revenues as needed. We had no marks in 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 2024. For the full year 2025, expenses were $406 million, which is 11% higher than the $366 million in 2024. The biggest component of that increase is interest expense. Interest expense was $59 million in the fourth quarter. It was $53 million in the fourth quarter a year ago, and that is a 13% increase. The increase is largely due to our higher securitization debt balance from our higher loan portfolio. Our loan portfolio, which I will 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 pretax earnings, $7.2 million for the fourth quarter, compared to $7.4 million in 2024. For the full year, pretax earnings were $28 million compared to $27.4 million for the full year 2024. If you look deeper into the numbers and exclude the fair value marks, pretax income would have been $7.2 million in the fourth quarter, compared to $2.4 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 pretax income would have been $21.5 million in 2025, compared to $6.4 million in 2024. Again, there is significant improvement in 2025 if you exclude the nonrecurring items. Net income for the quarter, $5 million compared to $5.1 million in the fourth quarter of 2024. For the full year, net income, $19.3 million compared to $19.2 million in 2024. Similar trends for net income as pretax income, but again, if you exclude the fair value marks in 2024, which were higher than 2025, there is significant improvement there. Diluted earnings per share, $0.21, is flat from the $0.21 in the fourth quarter last year. For the full year, $0.80 versus $0.79 in 2024. Moving now to the balance sheet. Our total cash, cash and restricted cash, 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 $3,655,000,000 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 $2,986,000,000 compared to $2,594,000,000 in the prior year. Moving to shareholders' equity. The $309.5 million ending balance for equity at December 2025 is a 6% increase over $292.8 million at the end of 2024. Equity continues to climb and currently sits at an all-time high for us. This translates to a book value, measured on a fully diluted basis, of about $13 a share. Looking at other important metrics, our 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, flat from $202.3 million in 2024. Again, the fewer marks in 2025 from the fair value portfolio have an impact on that. If you strip that out, the net interest margin would have been $50.1 million versus $47.8 million. 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 million, is a 6% decrease. For the full year, core operating expenses of $177 million are down 2% from $180 million last year. So besides growing our auto loan portfolio and increasing our interest income, we have 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 2025, we originated $363,000,000 of new contracts. For the full year of 2025, we purchased $1,638,000,000 of new contracts compared to $1,682,000,000 during the same period in 2024. So pretty good year, as Brad said, but a little flat. In 2025, it ended up being our third-best origination year in our thirty-five-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, $1,620,000,000 was a pretty good year. In 2025, we grew our portfolio of assets under management from $3,760,000,000 to $3,779,000,000. 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 have been successful doing that. In the fourth quarter, we added about a thousand 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 mix and strategic risk initiatives that we have 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/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 are running in the low fiftieth percentiles. It has kept our cap capture flat, which is good news. And, you know, doing the math, it has increased our total fundings 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 $50,000,000 a month, $600 million annually. Over eighteen months, $900 million. But it is 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 have been a subprime lender for thirty-five years. We are getting good feedback from the dealers. We are growing month over month. But, again, it is going to be a slow build. I kind of compare it to when we started our meta near-prime program years ago. It did not come out of the gates too strong, but eventually, you know, it is now 5% to 6% of our originations, and we are 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 2024 to 2025 by 14%. One note is on the employee cost front, we were able to lower employee cost 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 is a little more evidence that we have properly scaled the business. We are 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 thirty days for the full year 2025 was 14.77%, as compared to 14.85% for the full year 2024. The total annualized net charge-offs for the full year 2025 were 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, you know, some of our customers' cash flow. We found that using the right collection techniques and processes, you know, 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 2023v vintage and continuing vintage over vintage through 2025. Now that it has more time to season, we are 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 is early, but a steep peek at our 2025 vintages shows even better potential for that performance than the 2024s. As Brad alluded to, the trouble of 2022 vintage and 2023 vintages are running off quickly. And as compared to our competitors' credit performance, the Intex 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 us 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 forties. But our analysis suggests that there is a light at the end of the tunnel. Our data revealed that recoveries for vehicles from the 2022 and 2023 vintages, those cars are actually driving down our overall recoveries. So, for example, in Q4 2025, looking at Q4, vehicles from the 2022 vintage were recovering at about 20.5%, and vehicles from the 2023 vintage were recovering 22.9% on the recovery. Compare that to, you know, recoveries on the 2024 vintages are more palatable at 36.3%, and recoveries for the 2025 vintage, at least so far, are hitting 43.4%. So we feel once the 2022 and 2023 vintages sort of flush 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 will throw it back to Brad.

Thank you, Mike. Switching over, taking a look at our industry. Normally, not a lot going on in the industry. As we have sort of pointed out already, it was a little bit slow. Traffic was down in the dealerships. And that seems to have changed in 2026 so far. But the interesting notes were GLS, one of our friendly competitors, got purchased. I think that is a good, it was a very good valuation, or extremely good valuation. So having that happen was interesting. Also, Flagship, which had kind of been sinking for a while, was purchased also, but, again, more at a discount. I think Flagship, for instance purposes, had ceased originations when they were sold, but that would be, you know, some of the M&A movement in the industry. And lastly, Prestige, more recently, stopped originating loans as well. You do not really see a lot in our industry. More importantly, we have seen almost no new entrants into our industry in, like, five years. So it has gotten to the point where unless you really have some size, we will call a minimum of a billion-dollar portfolio, you are really in a tough competitive standpoint within the industry. So being at $4 billion 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 to say, also GLS puts a valuation on the industry players, all good news across that board. I think, you know, the industry is very solid without having people blow up. The trichloro thing was a bump in the road, but really had nothing to do with the real industry. It did affect the market slightly for us in doing securitization, and that had no impact whatsoever. So moving into the future, what we care about, as we have 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 are not going up, we are 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 to be relatively steady. Unemployment could bounce around a little bit, and we really would not be affected. We really do not want unemployment to skyrocket. Obviously, that could trigger a recession, which is all bad. But we do not 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 look very positive in terms of where we are going with the company. So having said that, I mean, the goal in 2026 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 2022–2023 paper. We believe a good economy is good. We think we are, as I mentioned earlier, in great position to raise money. We did a residual deal recently, which is cheaper by a bunch than the last couple we have done. So again, there are a lot of favorable tailwinds as we move into 2026. So we are really looking forward to see what we can do this year. Got a bunch of stuff going the right way. We raised the money. We have the warehousing. The credit model looks great. We are 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 will speak to you in a month or two. Thank you.

Thank you. This concludes today's teleconference. A replay will be available beginning two hours from now for twelve months via the company's website at www.consumerportfolio.com. Please disconnect your lines at this time, and have a wonderful day.