Consumer Portfolio Services, Inc. (CPSS) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the Consumer Portfolio Services 2026 Second 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 current or historical valuation of receivables because dependent on estimates of future events also are forward-looking statements. All such forward-looking statements are subject to risks and could cause actual results to differ materially from those projected. I refer you to the company's annual report filed March 16, 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. Denesh 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 second quarter earnings call. I think a good way to sort of start things off is last year, we thought we were going to grow a lot. We really did a lot of things we thought would enable us to do that. And we didn't really see as much growth as we had anticipated. As we roll into this year, we continue to work on a bunch of different things, investing in technology, looking at new technologies and new ways to do things along with expanding our marketing so that we can grow. In March of this year, the last month of the first quarter, it actually worked and things took off. The second quarter, we might have thought March is always a very good month for originations. So we kind of were hesitant to call out a big change. But by now, we can certainly say it's been an enormous change in terms of our originations volume quarter-to-quarter, it's up over 40%. It remains very strong. So it's probably the biggest and most important thing that's happened in the second quarter. And if we can keep that rolling along, it means very good things for the future. We also -- the credit for all of that paper continues, at least on the early signs, to show it to be at least as good as before, if not better. So we have not given up anything in terms of credit to achieve that growth objective. Also, we now -- without going through renewals and increases and things, we now stand with warehousing of over $900 million, which is kind of what we need to make things happen. Again, all these things are going the right way. The only thing we could use a little help. It would be nice if interest rates would come down or not go up and other things. But we'll talk about that later. For now, I'll turn it over to Danny to go over the financials.

Thank you, Brad. Going over the financial results, revenues for the second quarter, $121.4 million is up 11% from the $109.8 million in the second quarter of last year. For the 6 months ended June 30, $233.7 million is an 8% increase over $216.6 million in the 6 months of last year. This increase in revenue is driven by a strong increase in new loan originations, $758 million for the quarter, $1.3 billion for the 6 months in 2026 compared to $433 million in the second quarter last year and $884 million for the 6 months of last year. Our fair value portfolio now sits at $4.2 billion, and that is yielding 11.3%. This yield is net of credit losses. Moving down to expenses, $112.4 million for the second quarter, is 9% higher than $102.8 million last year. For the 6 months, expenses were $216.7 million, which is 7% higher than $202.9 million last year. This increase in interest expense is largely as a result of higher interest expense, which can be expected because the new loan originations effectively increases our securitization debt as that is our primary means to finance the portfolio. Interest expense for the second quarter was $64 million, which is 9% higher than the $58 million last year. Pretax earnings, $9 million for the quarter, is 29% higher than $7 million for the second quarter last year. For the 6 months, pretax earnings were $17.1 million compared to $13.8 million in 2025, which is a 24% increase. Likewise, similar trends for net income, $6.2 million of net income for the quarter versus $4.8 million, that's a 30% increase. For the 6 months, net income is up 24% to $11.8 million. Diluted earnings per share, $0.27 compared to $0.20 in the second quarter of last year. For the 6 months, diluted earnings are $0.50 compared to $0.39 in the 6 months of 2025. Our cash of $180.2 million of restricted and unrestricted cash is 12% higher than $160.2 million in June of last year. Like I said, our fair value portfolio now sits at $4.2 billion, which is 18% higher than the $3.56 billion last year. Moving on to shareholders' equity, $319.2 million is a record high for the company. That's up 5% from $303.1 million last year. Looking at other metrics. Net interest margin is $53.9 million, which is 15% higher than $46.7 million last year in 2025. For the 6 months ended June 30, net interest margin was $102.5 million compared to $93.7 million in the 6 months of last year. Core operating expenses, $48.1 million, is 9% higher than the $44.1 million last year. For the 6 months, $92.3 million of core operating expense is 3% higher than the $89.3 million in the 6 months of last year. So what we're seeing is an increase in revenues that are growing faster than our core operating expenses, which is only growing at 3% rate, which is a good sign. Core operating expense as a percentage of the managed portfolio is 4.6% compared to 4.8% in the second quarter of last year. For the 6 months, it's 4.6% versus 4.9% comparing '26 versus '25. And lastly, the return on managed assets, 0.9% for the second quarter, compares to 0.8% in the second quarter of last year. For the 6-month period, $0.8 million (sic) [ 0.8% ] annualizes the same as $0.8 million (sic) [ 0.8% ] in the 6 months of 2025. I will turn the call over to Mike.

Thanks, Danny. Just a few follow-up comments to Brad and Danny. When looking at our second quarter originations of $757 million, that actually compares to $433 million that we did in the second quarter of 2025. So looking at it from a seasonality standpoint, we increased the originations by 75%. In the -- how have we accomplished the growth? Well, we've accomplished the growth by expanding our sales force, which is driving up our dealer base and applications received. At the end of 2025, we had 93 total sales representatives. And at the end of the second quarter of this year, we had a total of 149 sales representatives. That's an increase of 60% since the beginning of the year. And at the end of the second quarter of 2025, we had -- well, that's an increase of 96% from what we had at the end of the second quarter of 2025. So a big expansion of our sales team, mostly inside sales reps calling on territories across the country. In the second quarter, we added 1,345 new and reactivated dealers to our active dealer base for a total of 11,889 active dealers. That's an increase of 13% over the first quarter of 2026 and a large 84% increase over the second quarter of 2025. Our active dealer base is also a record for the company. We look to continue to add new dealers going forward. Currently, 2/3 of our lending comes from franchise dealerships and 1/3 from independent dealerships. With more sales reps and more dealers, obviously, comes more applications. In the second quarter of 2026, we had 1.1 million applications as compared to the second quarter of 2025, where we only had 777,000, which is an increase of 42%. I think it's very, very important to note that despite the second quarter growth, we continue to underwrite with a tight credit box. Our payment-to-income and debt-to-income ratios help mark the ability of the consumer to pay, and those ratios have remained flat through the second quarter and facing any economic headwinds of the last couple of years. Further and equally important, our approval percentage remains roughly at 51% despite our growth, which means we remain picky on the contracts we purchase. We are getting a proportional amount of good applications, and we are growing ultimately without a lot of credit concessions. Turning to credit performance. The total DQ greater than 30 days, including repossession inventory, for the second quarter was 12.16%, a decrease from the second quarter of 2025 total delinquency of 13.14%. So it's trending downward, which is a good sign. Taking into account the 2026 first quarter DQ was down as compared to the first quarter of 2025 total DQ. So both quarters are trending downward sequentially. The total net charge-offs of the second quarter of 2026 was 7.28% of the average portfolio as compared to 7.45% for the second quarter of 2025, again, another downward trend. Further, repossessions were down over the first quarter and the second quarter, and that was the same as the first quarter of last year, which means we're trending down again on repossessions. Extensions as a percentage of the portfolio were slightly up quarter-over-quarter. Turning to recoveries, a critical element of our business, they are on the upswing as the 2022 and 2023 vintages flush out of our portfolio. At the end of the second quarter of 2026, the recovery rates rose to 33.3%, which is up from 30.4% in the second quarter of 2025. While those are not at the historical levels that we seek, there is real upward momentum for the first time in quite a while. For example, in the second quarter, the 2022 vintage had a recovery rate of 22%. The '23 vintage had a recovery rate of 25%. The 2024 vintage then drove up to 37.5% and the '25 vintage was at 47.1%. So as the '22 and '23 vintages flush out, we should see the recoveries trend higher as we get closer to the end of the year. One more comment. The competition remains relatively flat in that the players are in the -- that there's no new entrants into the competition and the differentiation between the competitors remains, kind of, the same to get the deals, which include stipulations required, time to funding, fees and price. And with that, I'll hand the call back to Brad.

Thank you. And kind of taking a quick look at the industry. As Mike just pointed out, there's still really no competitors, new competitors. Really, it's either you have to have a $1 billion-plus portfolio, of which ours is now $4.5 or you're much smaller. There really aren't a lot of people that really can compete. There's really maybe 5 or 6 entrants in the industry that do kind of what we do. So it's good club to be in, and it's good that new people are coming in, keeps people from messing things up, et cetera. Securitization market remains strong. They tend to bounce around a little bit. But overall, most important thing is we get them done every quarter, no problem. We did our largest one ever just recently. Generally speaking, everything is good in the industry standards. Looking at the macro, and this comes back to the securitizations, it kind of nice if Iran war ended and securitization rates could come down a bit or interest rates. But in terms of what we care about, as we said a million times, we care about unemployment, number one, unemployment looks great. So as long as unemployment is doing fine, the rest of it is good. We care about a good economy. Economy seems to be good. You get rid of the war in Iran, you probably get much easing on inflation and it looks even better. Regulation, the CFPB has done little or nothing now. So really, a lot of the big picture items that we would be focused on are all kind of going in our favor. So that's another strong part about where we sit. Like I said, we have no new entrants in the industry and we get to grow and those outside forces look pretty good. Generally speaking, we're in a really good place these days. We finally started to achieve a lot of growth. We want that to continue. It paints a pretty good picture for the rest of 2026. And with that, we just thank you all for being on the call and look forward to speaking to you next quarter.

Thank you. This concludes today's teleconference. A replay will be available beginning 2 hours from now for 12 months via the company's website at www.consumerportfolio.com. Please disconnect your lines at this time, and have a wonderful day.