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Overview of Consumer Portfolio Services, Inc. (CPSS)
Consumer Portfolio Services, Inc. (CPSS) is a leading independent specialty finance company headquartered in Irvine, California. Operating within the niche subprime auto finance sector, CPSS focuses on providing indirect automobile financing solutions to customers with limited credit histories, low incomes, or past credit challenges. By addressing a market underserved by traditional financial institutions, CPSS plays a critical role in facilitating vehicle ownership for individuals who might otherwise struggle to secure financing.
Business Model and Revenue Generation
At its core, CPSS purchases retail installment sales contracts from franchised and select independent automobile dealerships across the United States. These contracts are predominantly secured by late-model used vehicles, with a smaller portion tied to new vehicles. The company generates revenue through two primary channels:
- Contract Purchases: CPSS acquires contracts from dealers, providing them with an alternative financing option for subprime customers. This enables dealers to expand their customer base and complete sales that might otherwise be unfeasible.
- Servicing and Securitization: CPSS funds its contract purchases through securitization markets, bundling contracts into asset-backed securities sold to investors. The company retains servicing responsibilities, collecting payments, and managing the contracts over their lifespans.
Operational Footprint and Scale
Since its inception in 1991, CPSS has established a robust operational presence. The company maintains dealer relationships in 48 states, ensuring broad geographic coverage and access to a diverse customer base. Its operational headquarters in Irvine is complemented by four strategically located servicing branches in Florida, Illinois, Nevada, and Virginia, enabling efficient contract servicing and customer support. CPSS currently manages a significant portfolio of contracts, reflecting its scale and expertise in the specialty finance market.
Market Position and Competitive Landscape
CPSS operates in a highly specialized segment of the finance industry, targeting subprime borrowers who represent a unique risk profile. Its ability to underwrite, securitize, and service these loans effectively sets it apart from competitors. Key competitors include other specialty finance companies and traditional lenders entering the subprime space. CPSS differentiates itself through its long-standing dealer relationships, extensive operational infrastructure, and deep expertise in securitization and loan servicing.
Industry Significance
The subprime auto finance market plays a vital role in the broader automotive and financial sectors by enabling vehicle purchases for underserved customer segments. CPSS's operations not only support dealerships in closing sales but also contribute to economic mobility for individuals. Its securitization activities provide a mechanism for institutional investors to gain exposure to the subprime auto finance market, further underscoring its industry importance.
Key Value Proposition
CPSS’s primary value proposition lies in its ability to bridge the gap between dealerships and subprime borrowers. By offering tailored financing solutions and leveraging its securitization expertise, the company facilitates sales for dealers while providing customers with access to reliable transportation. This dual focus enhances its relevance and resilience within the specialty finance industry.
Consumer Portfolio Services (Nasdaq: CPSS) announced the closing of its third term securitization in 2022, marking the company's 44th senior subordinate securitization since 2011. The transaction involved the sale of $391.6 million in asset-backed notes backed by $440.0 million in automobile receivables. This securitization received a triple 'A' rating from two agencies, Standard & Poor's and DBRS Morningstar. The weighted average coupon on the notes is approximately 6.02%. Additionally, initial credit enhancements include a cash deposit of 1.00% and overcollateralization of 11.00%.
Consumer Portfolio Services (CPSS) reported significant growth in its second-quarter results for 2022, achieving a net income of $25.3 million, or $0.91 per diluted share, up from $9.7 million, or $0.39 per diluted share, in the same period last year. Pretax income surged to $34.2 million, a 147% increase year-over-year. Revenues hit $82.0 million, compared to $66.8 million in 2021, while new contract purchases increased by 33.7% to $548.1 million. Operating expenses fell to $47.8 million from $52.9 million in 2021, enhancing overall profitability.
Consumer Portfolio Services (Nasdaq: CPSS) will hold a conference call on July 26, 2022, at 1:00 p.m. ET to discuss second quarter 2022 operating results. Participants can pre-register for the call via a provided link. The company, focused on providing indirect automobile financing to individuals with credit issues, purchases retail installment sales contracts primarily from franchised dealerships. The financing is mainly funded through the securitization market, supporting the growth of its portfolio.
On July 15, 2022, Consumer Portfolio Services (Nasdaq: CPSS) announced the renewal of its revolving credit agreement with Citibank, increasing its borrowing capacity from $100 million to $200 million. This agreement allows CPS to secure loans against automobile receivables until July 2024, with options for repayment or amortization thereafter. CPS specializes in providing auto financing to individuals with challenging credit histories, and this funding will support their operations and growth.
Consumer Portfolio Services (Nasdaq: CPSS) announced an increase in its credit agreement with Ares Agent Services, raising its capacity from $100 million to $200 million. This amended agreement allows CPS to secure loans against automobile receivables that it holds or will originate in the future. CPS can borrow on a revolving basis until January 31, 2024, with the option for repayment or amortization until January 31, 2028. The company specializes in indirect automobile financing for individuals with credit challenges.
Consumer Portfolio Services (Nasdaq: CPSS) announced the successful closing of its second term securitization in 2022, marking its 43rd overall since 2011. The securitization involved $395.6 million in asset-backed notes backed by $430 million in automobile receivables. This transaction received a triple ‘A’ rating from major agencies and features a weighted average coupon of approximately 4.83%. Additionally, the initial credit enhancement includes a cash deposit and overcollateralization. CPS aims to sell an additional $144.2 million of receivables in May 2022.
Consumer Portfolio Services, Inc. (CPSS) reported its best quarterly results since inception, with a net income of $21.1 million, or $0.75 per diluted share, for Q1 2022, up from $5.2 million in Q1 2021. Revenues increased by 17.8% to $74.4 million, while operating expenses decreased by 18.4% to $45.0 million. Notably, the company purchased $410 million in new contracts, a record high. Despite a rise in delinquencies to 8.52%, annualized net charge-offs improved to 3.3%. The strong metrics in credit performance boost the company's outlook for 2022.
Consumer Portfolio Services (Nasdaq: CPSS) announced a conference call scheduled for April 19, 2022, at 1:00 p.m. ET to discuss its Q1 2022 operating results. Participants can join by calling 877-312-5502 (international: 253-237-1131), with a replay available until April 26, 2022. The company specializes in indirect auto financing for individuals with credit challenges, purchasing retail installment sales contracts from dealerships, primarily funded through securitization markets.
Consumer Portfolio Services, Inc. (Nasdaq: CPSS) announced the nomination of Stephen H. Deckoff and James E. Walker III for election to its Board of Directors. This recommendation follows discussions with Black Diamond Capital Management, which owns approximately 22% of CPSS's outstanding shares. CEO Charles E. Bradley, Jr. endorsed the nominees, citing his long-standing acquaintance with them. The annual shareholders' meeting is anticipated in July 2022, with further details to be disclosed in the upcoming proxy materials.
Consumer Portfolio Services (CPSS) reported strong financial results for Q4 2021, with net income of $19.0 million ($0.71 per diluted share), up from $4.1 million ($0.17) in Q4 2020. Q4 revenues increased 11.1% to $69.4 million. Total operating expenses dropped 19.5% to $202.1 million for the year, leading to a pretax income of $65.7 million. New contract purchases reached $1.146 billion for 2021, a 54% increase year-over-year. The company also noted improved credit performance, with annualized net charge-offs at 2.57% compared to 5.18% in Q4 2020.
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