CPSS Q3 2026 Earnings Call: Record Originations Drive 42% Net Income Growth

Consumer Portfolio Services (CPSS) reported stronger Q3 2026 revenue and earnings as record auto loan originations expanded its managed portfolio. Management said the growth was achieved without loosening underwriting standards, while delinquency and net charge-off rates improved year over year.

Key Takeaways

• Q3 revenue rose 22% year over year to $131.9 million, while net income increased 42% to $7.0 million.
• Diluted earnings per share increased 50% to $0.30, supported partly by a lower share count following share repurchases.
• Auto loan originations reached a company-record $815 million, up 108.5% from $391 million a year earlier.
• Finance receivables at fair value grew 28% to $4.6 billion and yielded 11.3%, net of credit losses.
• Credit performance improved: delinquencies over 30 days, including repossession inventory, declined to 12.29% from 13.9%, while annualized net charge-offs fell to 7.26% from 8.01%.
• CPSS expanded warehouse capacity above $1 billion after increasing its Citibank facility to $508 million and its Capital One facility to $518 million.

Key Financial Data

For the first nine months of 2026, revenue increased 12% to $365.6 million. Pretax income rose to $27.1 million from $20.8 million, while net income advanced 31% to $18.7 million. Nine-month EPS increased 36% to $0.80.

Business and Operating Performance

Contract purchases totaled $2.11 billion for the nine months ended September 30, 2026, up from $1.28 billion a year earlier. CPSS had already surpassed its previous full-year origination record of $2 billion set in 2022.

Management attributed the expansion primarily to distribution growth rather than looser credit standards. The sales force increased about 60% from 93 representatives at the end of 2025 to approximately 150. The dealership network expanded 90% to nearly 12,900 partners, including roughly 6,100 additions over the past 12 months.

Applications reached 1.3 million during the quarter, compared with 758,000 in the prior quarter. The capture rate increased from the high-5% range to just above 7%. Franchise dealerships remained approximately 65% of the network, with non-franchise dealers accounting for 35%.

CPSS said it maintained the credit tightening trend in place since mid-2023. Payment-to-income and debt-to-income ratios remained stable, while the approval rate declined from the low-50% range to the low-40% range over the past six months. The company also reported continued growth in its prime and refinancing products.

The company is using nearshore collection resources and AI platforms as it adds about 5,500 accounts per month. Core operating expenses represented 4.5% of the managed portfolio in Q3, unchanged year over year. For the first nine months, the ratio improved to 4.6% from 4.8%.

Net recovery rates on repossessed vehicles sold at wholesale auction improved to 32% from 28%. Management expects recoveries to strengthen as weaker 2022 and 2023 vintages, now 14% of the portfolio, continue to run off.

Management Outlook

Management does not plan to double the business next year, but intends to continue growing in a strategic and controlled manner. The expanded warehouse facilities are expected to support that approach.

The company expects future securitizations generally to increase in size. Management also said Q4 is typically lighter and did not provide a specific financial forecast.

Risks and Areas to Watch

Interest rates and inflation remain the main macroeconomic factors monitored by management. Higher rates pressure margins, although CPSS said it has adjusted APRs and fees to preserve a consistent margin.

Fraud remains an industry concern. CPSS currently uses three third-party AI-based fraud prevention products covering identity theft, synthetic fraud, and income and employment fraud, and plans to add a fourth product toward the end of Q4 2026.

Management also highlighted unemployment as an important credit indicator. The unemployment rate ended Q3 at 4.2%, compared with 4.4% in the prior-year period.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good day, everyone, and welcome to the Consumer Portfolio Services 2026 Third 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 that 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. 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.

Charles Bradley

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 has had in a very long time. So I guess on one hand, you can, 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, for 2 years now. We've had really good growth now. And but when you look at the growth, it's very important to look at last year. And if you play back all the phone calls from -- 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.

And 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 in originations a month and it didn't happen. So what did you do? You can't lay everybody off. We just spent all 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.

So even our collections arm of the company is also very well set up to grow. So when the growth came this year, it actually worked out perfectly. We were all set up to handle it both upfront. We set out last year, 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. So all these different things we did last year have actually kicked into motion this year. It's provided the growth, has provided the efficiencies. So now we're making more money. And also, the collections are as strong as they've been, but somewhat interesting there is the paper from '22 and '23 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. So we really have a lot of the -- kind of everything we want is finally falling together in a really good way. So in terms of some of the questions we hear occasionally, is all this growth a problem? And of course, it's not a problem if you set it up correctly. And 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 holes -- or not holes, but 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. So there's lots of different things you can do in the overall picture to establish the growth.

And of course, with all the growth, we get more efficiencies, better earnings, all the things we would expect. So 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. And more recently, we upsized our Capital One line from $390 million to $518 million. And 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.

And we want to double the business in growth next year? No. Do we want to continue to grow in a strategic organized fashion? Yes. So 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 our prior more expensive residual financing. And it's kind of good we did it at that point because the rates have gone up. So it was pretty clever that we did it then rather than waiting until now. So that's also improved our cost of funds going forward.

So generally speaking, we also did another securitization, one of -- that would have been our largest ever. We've done recently one just in the fourth quarter that's bigger, but you'll get the -- the theme will be each of those securitizations going forward should probably be a little bigger than the last. But overall, those are all the positive. Interest rates are up. We've been able to adjust our margins accordingly by improving -- 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.

So I'll turn it over to Danny.

Denesh Bharwani

Thank you, Brad. Revenues for the quarter, $131.9 million is up 22% from $108.4 million last year. For the 9-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, $121.8 million is up 20% from $101.4 million last year. For the 9-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. And because revenues are rising faster than expenses, our pretax 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 9-month period, pretax income is up 29% (sic) [ 30.3% ] 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 9 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 30% (sic) [ $0.30 ] in the third quarter this year. And for the 9 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 (sic) [ 4.4 billion ] . That's total debt, including warehouse, residual securitization and other long-term debt. That's 28% (sic) [ 25.7% ] 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% from $324 million -- 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 9 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. And core operating expenses as a percentage of the managed portfolio is flat at 4.5% for the quarter and down to -- from 4.8% to 4.6% in the year-to-date period, which is a 5% improvement. And finally, our return on managed assets is 0.9% this year compared to 0.8% in the third quarter of last year, and it's the same 0.9% and 0.8% for the 3 months (sic) [ 9-month ] year-to-date period as well.

I will turn the call over to Mike.

Michael Lavin

Thank you, Danny. Just one other little bit note on our originations. The originations of $815 million versus $391 million is a 108.5% increase. And as Danny noted, that is our biggest quarter in our 35-year history. Contract purchases for the 9 months ended September 30, 2026, was $2.11 billion compared to $1.28 billion for the 9 months ended September 30, 2025. In just 9 months, we have already surpassed our previous origination record of $2 billion in 2022.

As I noted in our last call, we have accomplished our growth by expanding our sales force, driving up our dealer base and applications received. One other key metric that we drove up is our capture rate, which has slowly grown from the high 5s to just over 7%. So the math says more reps equals more dealers, equals more applications. And when you mix in a higher capture rate, you've got your record-setting growth. A little more specifics on the sales growth. At the end of last year, we had 93 total sales reps.

And now we have approximately 150 total sales reps, an increase of 60% since the beginning of the year. That has translated to adding nearly 6,100 dealership partners in the last 12 months, increasing the dealership base by 90% from approximately 6,800 dealers that we had at the end of the third quarter of last year to nearly 12,900 dealers now. With that, we've received 1.3 million applications in the quarter, up from 758,000 in the prior quarter. Most of the new dealership partners are franchise dealerships as we continue to range from a split of 65% franchise dealers versus 35% non-franchise dealers after the growth. That's key as most of our deals remain in the upper tier programs. And of course, we experienced less fraud with those franchise dealership paper.

Typically, there's a few ways to grow: one, lower the APR and fees; two, loosen the credit box; and three, hire more sales reps, new territories, new dealer partners. For us, we chose the third method. It's a little bit more expensive, but we did this consciously so we could grow without altering the credit tightening trend that we've continued since mid-2023. Thus, it is important to note that we continue to underwrite a tight credit box despite our growth.

Our payment to income and our debt-to-income ratios, which mark the ability of the consumer to pay remain flat through the economic headwinds and over our growth for the last 6 to 9 months. And further and notably, we have grown while experiencing an approval rate that has dropped from the low 50s to the low 40s in the last 6 months. This means that we remain somewhat picky on the contracts we purchase. We're getting a proportionate amount of good applications. And most important, we're growing without making credit concessions.

On a separate note, we have a prime product that we introduced at the beginning of this year. It's grown quarter-over-quarter. And along the same lines, we launched a new refinance product that is experiencing pretty nice growth since its inception. And finally, in terms of fraud, which has been a big ticket industry issue, we do have 3 top-of-the-line AI-based fraud prevention products from third-party vendors, including 2 of the top 3 credit bureaus that fight all types of fraud, including ID theft and synthetic fraud and income and employment fraud.

And actually, we're set to add a fourth towards the end of the fourth quarter of this year. So we're pretty well equipped to fight fraud here at the company. As Danny noted, our OpEx is flat to down a little bit prior year over prior year. We're always looking to take steps to further lower our OpEx. For example, with our growth, we're adding 5,500 new accounts per month, of which we are leveraging our nearshore and AI platforms to lower our servicing costs as we scale. It's important to note that when benchmarked against our competitors, our level of nearshore collections is quite low. So there's a lot of room to grow that upwards and still remain a domestic collection company.

Turning to credit performance. Our total DQ greater than 30 days, including repossession inventory for the third quarter decreased to 12.26% (sic) [ 12.29% ] compared to 13.9% in the prior -- in the year period. Each quarter this year has decreased as compared to the prior year, evidencing a trend of DQ contraction. And another good sign that total annualized net charge-offs for the third quarter decreased to 7.26% compared to 8.01% in the year prior period. Like our DQ, each quarter this year has seen a decrease in charge-offs as compared to the prior year, another good performance trend in contraction.

Further, repossessions and extensions were both down as compared to the prior years. In terms of extensions, we did a data dive and found good results in that 3 out of every 4 extensions did not result in repossessions and 2 out of every 3 extensions did not result in a charge-off. We've been using an extension model for years that we hired a big consulting firm to help us develop, and that makes the extension decision more scientific and less subjective for the collector, and we're getting a lot of bang for our buck in our extensions now and going forward.

Turning to recoveries. The net recovery rates on repossessed collateral sold at wholesale auction increased to 32% in the third quarter compared to 28% in the prior year period. Now that's not at our historical average of the low 40s, but we expect recovery rates to increase as the '22 and '23 portfolio flushes out of the portfolio. And as Brad noted, currently, the '22 and '23 only make up 14% of our portfolio. So good times ahead on recoveries.

My final note, which I always note is the ever-important unemployment rate ended the third quarter at 4.2% as compared to 4.4% for the prior year period. That signals a relatively strong labor market. I also looked and the Department of Labor estimates that the unemployment rate will slightly bump up to 4.4%, which is still historically low. So with those comments, I'll kick it back to Brad.

Charles Bradley

Thanks, Mike. Looking at the industry, I think the best way to describe the industry is fairly unchanged. You have now 5 or 6 large players, not counting banks. And I think because of the size of those players, including us, that the barriers to entry now are becoming larger and larger for any new company to come in, they would need a significant amount of equity capital. They would need to be able to get their portfolio. Without a $1 billion portfolio, you're not really in the running at all. And there really aren't a lot of players that even fall into that category to now.

Now there's a few maybe a handful that are probably $1 billion or less. But when you start getting to $2 billion or more, you really thin out who's there at all. So I think that's a very strong part of the industry. It's good because the large players are all doing well. It should keep out other players for the foreseeable future. As Mike pointed out, -- excuse me, unemployment is one of the main things we watch. Unemployment appears to be relatively strong. No problems there. Inflation and interest rates are the 2 kind of bogeys we're keeping a real close eye on.

Having interest rates go up, it hurts our margins. We can adapt to that rather easily and continue to. So we're not overly concerned. And more importantly, as we get bigger and interest rates eventually someday come down, then that will be very good for the company in terms of profitability. So overall, I think we're not too worried. I think we've made real strides this year in terms of growth. We've been able to handle the growth very efficiently and effectively. I think we'll go ahead and finish out the year.

Fourth quarter is a little bit lighter, so we'll see how it goes. But overall, the year is going very, very well. Third quarter following the second quarter. Second quarter, as you recall, was when we started to grow. We've now had a full 6 or 7 months of very strong growth, but very efficient and very controlled. So we're very happy with where we sit and look forward to the future. Thank you all for joining us on the call. We look forward to talking to you next year.

Operator

Ladies and gentlemen, 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.