By Michael Kim
READ THE FULL CPSS RESEARCH REPORT
After the market closed on 11/10/25, Consumer Portfolio Services (NASDAQ:CPSS) reported 3Q25 earnings results. For the quarter, CPSS reported net income of $4.9 million, or $0.20 per share versus our $0.25 EPS estimate. Relative to our model, the EPS miss primarily reflected lower mark-to-finance receivables measured at fair value (as mark-ups related to problematic 2H22/1H23 loans have largely run their course), and higher-than-anticipated interest expense (mostly a function of the prevailing rate backdrop).
Focusing on the top line, total revenues grew 7.8% year-over-year from $100.6 million in 3Q24 to $108.4 million in 3Q25 – shy of our $111.5 million estimate. A step up in interest income reflecting a higher average outstanding balance of finance receivables and enhanced yields, partially offset by the absence of mark-to-finance receivables measured at fair value revenue and lower other income in 3Q25 drove the year-over-year growth.
Total expenses of $101.4 million in 3Q25 were up 8.2% from the year-ago period, but came in 1.4% below our $102.8 million forecast. Lower compensation and other costs more than offset higher-than-forecast interest expense reflecting ongoing growth in securitization trust debt and higher rates.
Putting it all together, CPSS reported net income of $4.9 million for 3Q25 compared to $4.8 million for the third quarter of 2024. As discussed, revenue growth was about offset by higher costs (mostly interest expense). In addition, CPSS booked a lower reduction to provision for credit losses on finance receivables ($0.7 million in 3Q25 vs. $1.0 million in 3Q24).
After updating our model for 3Q25 actuals, we are lowering our 2025 and 2026 EPS estimates from $0.94/$1.85 to $0.82/$1.45. Our revisions primarily reflect: 1) a flatter revenue trajectory given more measured growth in loan originations; and 2) stubbornly high interest expense in light of ongoing growth in securitization debt combined with a stable (near-term) interest rate backdrop. That said, we note our 2026 EPS estimate represents 76% year-over-year growth driven by ongoing revenue growth and building operating leverage. Stepping back, we forecast rising risk-adjusted Net Interest Margins next year, even as the NIM ticked down another 30 bps quarter-over-quarter in 3Q25, based on lower cost of funds (eventually), with our estimates assuming interest expense as a percentage of average portfolio balances (6.3% in 3Q25) tightens by ~30 basis points looking out to 2026. To be conservative, our model incorporates a cost of funds of 6.0% for next year, still well above the company’s historical average of around 4.5%.
Turning to valuation, we are taking down our price target by $1 to $14 in light of our lower earnings outlook. Our model forecasts CPSS’s book value per diluted share to reach $14.54 by the end of next year, with ROE rising to 10.5% for 2026 largely reflecting ongoing growth in loan originations and related finance receivables, as well as lower cost of funds. We still see plenty of upside potential for the shares, particularly as the “Street” increasingly recognizes the company’s growth trajectory and underlying earnings power.
To be sure, Price-to-Tangible Book Value and Price-to-Earnings multiples remain meaningfully higher across the peer group of publicly-traded auto finance companies. While we recognize most peer companies are significantly larger and more diversified, with considerable infrastructure, resource, and financial advantages, CPSS maintains a sizeable lead in terms of projected growth, thereby justifying comparable multiples, in our minds. Our $14 price target assumes the stock trades at just 1.1x current book value of $12.79.
We highlight the following key takeaways from 3Q25 results:
1. Steady loan origination volumes: The company’s total portfolio balance of $3.8 billion as of the end of 3Q25 increased by 12.9% compared to $3.3 billion as of the end of 3Q24. During 3Q25, CPSS purchased $391 million of new auto installment sales contracts, down slightly from $433 million in the prior quarter and $446 million in 3Q24. Looking ahead, our model calls for $1.7 billion of loan originations in 2025, followed by $1.9 billion next year. Sustainable growth drivers include steady demand trends, increasing throughput from pass-through partnerships, and improving funding rates.
2. Ongoing securitizations: On the funding side, CPSS recently completed the company’s 57th securitization by selling $385 million of asset-backed notes following the $418 million offering in July, as the macro backdrop has softened a touch more recently. Demand for CPSS paper remains steady, with $1.34 billion of contracts securitized thus far in 2025, up 6.3% compared to $1.26 billion through the first three quarters of 2024. Our model assumes contracts securitized reaches $1.73 billion in 2025, representing 38% growth compared to $1.26 billion in 2024. Coupons remain generally stable, with the weighted average coupon for the most recent securitization coming in at 5.72%, a bit higher compared to 5.43% for the prior transaction in July (likely a function of the recent Tricolor bankruptcy and stepped-up competition from banks and credit unions). Looking ahead, consensus expectations point to further reductions following the 25 bps cut in October, with the Fed Funds rate troughing around 3.1% in late 2026/early 2027 – boding well for CPSS’s interest expense/NIM.
3. Core operating leverage increasingly shining through: Excluding mark-to-market noise, core revenues came in right in line with our forecast for 3Q25. Furthermore, core operating costs (ex largely uncontrollable interest expenses) of $42.3 million came in 5.7% below our $44.8 million estimate, driving a sizeable core operating income beat ($66.1 million vs. our $64.2 million projection). Put another way, operating expenses (on an annualized basis) as a percentage of the company’s average portfolio balance came in at 4.6% for 3Q25, down from 5.4% in the prior-year quarter, and the lowest level looking back over the last 10+ years, as management remains focused on maximizing existing infrastructure operating efficiencies. Looking ahead, our model assumes operating margins (6.5% in 3Q25) rebuild to 10%+ in 2026, while ROAs trend from 0.8% for the most recent quarter to 1.2% in 2026 (still meaningfully below CPSS’s return on assets in 2022 and 2023).
Interest expense as a percentage of the company’s average portfolio balance came in at 6.3% (on an annualized basis) for the quarter, down a tick from 6.4% in 2Q25, but still ~180 bps above CPSS’s 4.5% long-term average. Over time, we look for interest expenses to trend lower, as the interest-bearing liability mix increasingly skews in favor of newer/lower-cost securitization trust debt and older/higher-rate vintages roll off.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives payments totaling a maximum fee of up to $50,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
