Consumer Portfolio Services 2026 Q3 Earnings Call

Thank you, and welcome, everyone, to our third quarter earnings call. As you can see, if you read the press release and the information we've released, it was a very good quarter, probably one of the best quarters all around that the company's had in a very long time. On one hand, you could sort of say, "This is good," but this is from our point of view, at least internally. This is kind of what we've been working for two years now. We've had really good growth now. But when you look at the growth, it's very important to look at last year. If you play back all the phone conference calls from last year, last year in 2025, we were supposed to grow. We built for growth, we set up for growth, and we didn't get very much growth.

I think as I pointed out, it was a very disappointing year in 2025 in terms of actual growth. But what's important about looking at what we did this year versus last year is we hired the people necessary for that growth. We were set up towards the end of last year so that we could do $200 million to $250 million originations a month. It didn't happen. What did you do? You can't lay everybody off. We just spent all this time training them that they were ready to go. In terms of collectors, we've been adding efficiencies in collections, whether it's using more nearshore or using more bot-related AI kind of things. Even our collections arm of the company is also very well set up to grow. When the growth came this year, it actually worked out perfectly.

We were all set up to handle it both upfront. One of our goals at the end of last year was to hire a lot more marketing reps in the field. We increased that by 50% or 60% during the first part of this year. All these different things we did last year have actually kicked into motion this year. It's provided the growth. It's provided the efficiencies, so now we're making more money. Also, the collections are as strong as they've been. Interesting there is the paper from 2022 and 2023 that wasn't very good paper is now almost run off completely, so that we now have a much stronger portfolio in terms of both cost efficiencies, collection efficiencies, and the credit models are performing really well. Everything we want is finally falling together in a really good way.

Some of the questions we hear occasionally are, "Is all this growth a problem?" Of course, it's not a problem if you set it up correctly. Being in the business for as long as we have, we've been able to put the right controls in place in terms of what we buy. We're not buying any more aggressively today than we were last year. The difference is we have a much wider net in terms of the dealership base, in terms of the people we use in the marketplace. We've been able to find some spots in our model where we can actually buy a little bit deeper but get a better result, and a couple of places where we cut the price to get more paper we really like. There's lots of different things you can do in the overall picture to establish the growth.

Now, of course, with all the growth, we get more efficiencies, better earnings, all the things we would expect. It's been really good across the board that way. In terms of sort of the Wall Street end of things, we've also had a very good quarter there. We upsized our Citibank warehouse line from $335 million to $508 million. More recently, we upsized our Capital One line from $390 million to $518 million. Thus, we now have over $1 billion of warehousing for the first time in the history of the company, which will provide us a very good spot to start from as we move forward and hopefully grow a little bit more next year. Do we want to double the business in growth next year? No. Do we want to continue to grow in a strategic, organized fashion? Yes. We now have the warehousing to do that.

We also did another residual financing for $80 million in the third quarter, and we used a bunch of that money to pay back $60 million of a prior, more expensive residual financing. It's kind of good we did it at that point because the rates have gone up. It was pretty clever that we did it then rather than waiting till now. That's also improved our cost of funds going forward. Generally speaking, we also did another securitization. That would've been our largest ever. We've done a recent one in the fourth quarter that's bigger. The theme will be each of those securitizations going forward should probably be a little bigger than the last. Overall, those were all the positives. Interest rates are up. We've been able to adjust our margins accordingly by increasing some of the APRs and fees so that we're not really giving up just straight margin by having the rates go up.

But overall, we're able to keep pace and keep a consistent margin even with rising interest rates. I'll talk a little bit more about the industry and the overall picture after they do the financials and the operations. I'll turn it over to Danny.

Thank you, Brad. Revenues for the quarter, $131.9 million, is up 22% from $108.4 million last year. For the nine-month period, $365.6 million, is up 12% from $325 million last year. These increases in revenues are primarily driven by the increase in our loan portfolio, which we account for using the fair value method. Our fair value loan portfolio has now grown to $4.6 billion and is yielding 11.3%, remembering that this yield is net of credit losses. Expenses for the quarter are $121.8 million, is up 20% from $101.4 million last year. For the nine-month period, $338 million of expenses is up 11% from $304 million last year. This increase in expenses is primarily due to the increase in interest expense and an increase in the variable expenses that is required for the growth in our loan portfolio.

Interest expense, for example, was $70 million in Q3, compared to $59 million last year, which is a 19% increase. Because revenues are rising faster than expenses, our pre-tax income grew from $7 million in the third quarter of last year to $10.1 million this year, which is a 44% increase. For the nine-month period, pre-tax income is up 29% from last year, $27.1 million this year versus $20.8 million last year. Net income, likewise, is up this year. Net income for the third quarter was $7 million, which is up 42% from the $4.9 million last year, and $18.7 million for the nine months, compared to $14.3 million for the same period last year, which is an increase of 31%. Earnings per share is up 50% from $0.20 last year in the third quarter to $0.30 in the third quarter this year.

For the nine months, it's up 36% from $0.59 last year to $0.80 this year. The percentage increase in EPS is higher than the increase in the after-tax income, mostly because fewer shares are now outstanding because of our share buybacks during the quarter. Moving to the balance sheet, cash of $180.1 million is up 19% from $151.9 million last year. Our finance receivables at fair value is $4.6 billion in September 2026, compared to $3.6 billion last year, which is a 28% increase. This increase in our fair value portfolio is due to strong origination volumes in the third quarter and really since the start of the year. The $815 million of new auto loans we originated during the third quarter is our highest ever, and that compares to $391 million in the third quarter of last year. Debt is now $4.4 million.

That's total debt, including warehouse, residual securitization, and other long-term debt. That's 28% higher than the $3.5 billion last year, and this increase is in line with the increase in assets on our balance sheet. Shareholders' equity is up 5% to $324 million this year from $308 million last year. Looking at other metrics, net interest margin, $58.6 million for the quarter, is up 22% from $48.1 million last year. For the nine months, $161 million compared to $141.7 million, which is a 14% increase. Core operating expenses of $51.3 million is up 21% from $42.3 million last year. For the year-to-date period, $143.7 million is up 9% from $131.6 million last year. Core operating expenses as a percentage of managed portfolio is flat at 4.5% for the quarter and down from 4.8% to 4.6% in the year-to-date period, which is a 5% improvement.

Finally, our return on managed assets is 0.9% this year compared to 0.8% in the third quarter of last year. It's the same 0.9% and 0.8% for the three months year-to-date period as well. I will turn the call over to Mike.