CPSS Reports Earnings
CPSS Reports Earnings
Motley Fool Transcribing, The Motley FoolWed, March 11, 2026 at 6:03 PM UTC
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March 11, 2026, 1 p.m. ET
CALL PARTICIPANTS -
Chief Executive Officer — Charles Bradley
Chief Financial Officer — Danny Bharwani
Chief Operating Officer — Michael Lavin
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TAKEAWAYS -
Total Revenues -- $109.44 million in the fourth quarter, up from $105.3 million, with annual revenue of $434 million reflecting a 10% increase.
Fair Value Portfolio -- $3.6 billion at a yield of 11.4%, up 10% from $3.3 billion.
Interest Income Growth -- Interest income on the fair value portfolio increased 16% year over year.
Fair Value Marks -- No marks recorded in the fourth quarter versus $5 million the prior year; full-year 2025 marks were $6.5 million compared to $21 million.
Operating Expenses -- $43.4 million for the quarter, a 6% decrease; full-year core operating expenses were $177 million, down 2%.
Interest Expense -- $59 million for the fourth quarter, up 13% from $53 million, driven by a 15% increase in securitization debt.
Pretax Earnings (Adjusted) -- Excluding fair value marks, pretax income was $7.2 million for the quarter ($2.4 million previous year); annual pretax income would have been $21.5 million ($6.4 million previous year).
Net Income -- $5 million for the quarter, compared to $5.1 million, and $19.3 million for the year, up slightly from $19.2 million.
Diluted EPS -- $0.21 for the quarter (unchanged), and $0.80 annually versus $0.79 last year.
Shareholders' Equity -- $309.5 million at year end, up 6%, translating to a fully diluted book value of approximately $13 per share.
Asset Growth -- Portfolio under management increased from $3.4 billion to $3.7 billion, up 8.24% for the year.
Warehouse Line & Prime Flow -- New $150 million warehouse line with Capital One (NYSE:COF) and a $900 million prime forward flow commitment executed.
Prime Lending Initiative -- New partnership with a large credit union to source and service up to $900 million in prime auto loans over eighteen months.
AI Credit Model -- Generation 9 credit model implemented, raising approvals by 11%, with total fundings up 8.4% since its launch.
Dealer Network Expansion -- Increased active dealers by about 1,000 in December; targeted monthly application volume increased from 250,000 to 325,000.
Delinquency Rate (DQ & Charge-Offs) -- DQs greater than thirty days were 14.77%, slightly improved from 14.85%; annualized net charge-offs at 7.76% versus 7.62%.
Recoveries by Vintage -- Recoveries for 2025 vintages at 43.4%, 2024 at 36.3%, 2023 at 22.9%, and 2022 at 20.5%, with total portfolio recoveries in a 28%-30% range.
Industry Position -- Portfolio size now near $4 billion, described as advantageous for industry standing as smaller competitors exit or consolidate.
Consumer Portfolio Services (NASDAQ:CPSS) highlighted a 10% annual revenue increase and asset growth supported by new funding lines and expansion into prime lending. Implementation of an AI-driven credit model led to substantial efficiency gains and higher approval rates. Recoveries on legacy vintages weighed on results, but management expects normalization as those run off. Cost reductions and increased dealer activity contributed to improved operating metrics without sacrificing credit performance.
Management described the credit environment as "very good," with access to capital and positive interest rate outlooks supporting further portfolio growth.
CEO Bradley emphasized, "expect that number to gradually decrease over the year to where it is de minimis by the end of 2026," outlining a strategic shift away from less profitable legacy vintages.
The company is rebranding efforts to "full-spectrum lender" status, aiming for prime lending to eventually reach 5%-6% of originations, though initial growth is anticipated to be gradual.
Core operating expense as a percentage of the managed portfolio declined to 4.8% from 5.6%, reflecting scaling benefits cited by management.
Operational focus for 2026 centers on portfolio growth, margin expansion, and continued reduction in exposure to underperforming vintages.
INDUSTRY GLOSSARY -
Fair Value Marks: Adjustments in the carrying amount of assets (such as auto loan portfolios) reflecting estimated market value fluctuations, recognized in revenue when recorded.
Forward Flow Commitment: A contractual agreement to sell a specified volume of originated loans to a buyer (e.g., a credit union) over a defined period.
Generation 9 Credit Model: The firm's most advanced proprietary credit-scoring system, incorporating AI and machine learning tools to assess borrower risk and optimize approval rates.
Full Conference Call Transcript
Charles 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.
Danny Bharwani: 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 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.
Michael Lavin: 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.
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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.
Charles Bradley: 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.
Operator: 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.
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