SCHEDULE: Black Diamond Opposes CPS Equity Plan Amid Underperformance

Black Diamond Capital Management, a major shareholder, announces intent to vote against Consumer Portfolio Services' 2025 Equity Incentive Plan, citing underperformance and excessive dilution.

Summary

• Black Diamond Capital Management I, LLLP and Stephen H. Deckoff beneficially own 5,127,165 shares of Consumer Portfolio Services, Inc. (CPS), representing approximately 23.2% of the outstanding shares.
• The reporting persons intend to vote AGAINST the Company's proposal to approve its 2025 Equity Incentive Plan (Proposal #4) at the annual meeting scheduled for November 19, 2025.
• The opposition stems from concerns over CPS's stock underperformance, which declined approximately 20% year-to-date as of November 10, 2025, while the S&P 500 gained about 16%.
• CPS's stock is trading at approximately 65% of its book value, reflecting shareholder concerns about return on capital.
• Existing stock options under the 2006 Equity Plan cover 6,227,631 common shares, representing approximately 28.2% of outstanding shares, which is considered excessive and materially higher than the Company's peer group.
• The proposed 2025 Equity Incentive Plan is viewed as potentially increasing dilution and entrenching management.
• A leading proxy advisory firm, Institutional Shareholder Services (ISS), has also recommended shareholders vote AGAINST this proposal due to excessive dilution.
• The CEO of Consumer Portfolio Services owns approximately 17.8% of common shares and held options to acquire an additional 2.19 million shares (9.9% of common shares) as of the end of 2024, and has historically been the largest recipient of option awards.

Sentiment

Score: 3

Explanation: The sentiment is negative due to strong shareholder opposition to a key management proposal, citing significant underperformance, excessive dilution, and concerns about corporate governance and management entrenchment. The activist stance and critical commentary from a board member indicate deep dissatisfaction.

Negatives

• Consumer Portfolio Services' stock declined approximately 20% year-to-date as of November 10, 2025, significantly underperforming the S&P 500's gain of approximately 16%.
• The Company's stock is trading at approximately 65% of book value, indicating shareholder concerns about its ability to generate attractive returns on capital.
• Existing stock options under the 2006 Equity Plan represent an 'excessive' 28.2% of outstanding common shares (6,227,631 shares), which is materially higher than the Company's peer group.
• The proposed 2025 Equity Incentive Plan is expected to further increase potential dilution for shareholders.
• The plan is seen as risking the entrenchment of management, particularly given the CEO's substantial existing shareholdings (17.8%) and option holdings (9.9%).
• Management's compensation practices are not aligned with similarly situated companies, and the Company is believed to have not used previous plans responsibly.
• The number of shares available under the proposed plan is considered unreasonable.

Risks

• Potential for significant shareholder dilution from the proposed 2025 Equity Incentive Plan.
• Risk of management entrenchment due to the CEO's substantial existing equity and option holdings, potentially exacerbated by the new plan.
• Continued underperformance of the Company's stock relative to the broader market (S&P 500).
• Inability to earn an attractive return on capital, as reflected by the stock trading at a discount to book value.
• Concerns regarding corporate governance and compensation practices not being aligned with best practices or peer groups.

Future Outlook

The future outlook for Consumer Portfolio Services is clouded by significant shareholder dissent regarding its proposed 2025 Equity Incentive Plan, which is perceived to exacerbate dilution and entrench management amidst a period of underperformance. The outcome of the November 19, 2025 annual meeting vote on this proposal will be a key indicator of future corporate governance and strategic direction.

Management Comments

• "Consumer Portfolio Services has not been performing well."
• "As of November 10, 2025, CPSs stock has declined approximately 20% year to date, while the S&P 500 has gained approximately 16% according to Bloomberg."
• "The stock was trading at approximately 65% of book value, reflecting shareholder concerns regarding the Companys ability to earn an attractive return on capital."
• "In our view, now is not the time to adopt a new equity plan that would further increase potential dilution and risk entrenching management."
• "The number of outstanding options is, in our view, excessive for any company and materially higher than the Companys peer group."
• "We do not agree with the Companys reasons for supporting the 2025 Equity Incentive Plan as stated in its proxy."
• "In our view, the Company has not used the plan responsibly, the number of shares available under the proposed plan is not reasonable, and the Companys compensation practices are not aligned with similarly situated companies."
• "We believe allowing the CEO to further increase his shareholdings through this plan would have the effect of entrenching management at a time of continued underperformance. This is not appropriate in our view."
• "For these reasons, we believe the Board of Directors should not have approved this proposal, and we intend to vote AGAINST it."

Industry Context

The announcement highlights a growing trend of activist investor engagement in companies perceived to be underperforming, particularly concerning executive compensation and equity dilution. The comparison to the S&P 500's performance underscores a significant divergence from broader market trends, suggesting company-specific issues rather than industry-wide headwinds. The reference to a leading proxy advisory firm (ISS) recommending against the proposal indicates that the concerns raised by Black Diamond are shared by independent governance experts, placing additional pressure on the company's board.

Comparison to Industry Standards

• CPS's year-to-date stock decline of approximately 20% as of November 10, 2025, significantly underperforms the S&P 500's gain of approximately 16% over the same period, indicating a substantial gap in shareholder returns compared to the broader market.
• The existing stock options representing 28.2% of outstanding common shares are deemed 'materially higher than the Company's peer group,' suggesting CPS's dilution levels are out of line with industry norms.
• Institutional Shareholder Services (ISS), a leading proxy advisory firm, recommended voting AGAINST the 2025 Equity Incentive Plan, citing 'excessive dilution' as the overriding factor, aligning with Black Diamond's assessment and indicating a deviation from best-practice corporate governance standards.
• The Company's compensation practices are stated to be 'not aligned with similarly situated companies,' implying a disconnect from competitive and responsible executive compensation benchmarks within its industry.

Management Changes

Corporate Governance

Related Party Transactions

• The CEO of Consumer Portfolio Services owns approximately 17.8% of the company's common shares and held options to acquire an additional 2.19 million shares (9.9% of common shares) as of the end of 2024. The CEO has historically been the largest recipient of Option Awards under the previous Equity Incentive Plan.

Stakeholder Impact

• Shareholders: Potential for further dilution if the 2025 Equity Incentive Plan is approved, and concerns about depressed stock value and poor return on capital.
• Management: Increased scrutiny on compensation practices and strategic decisions, potential for reduced autonomy if activist pressure continues.
• Board of Directors: Pressure to address shareholder concerns regarding governance, dilution, and performance, particularly given a board member's public opposition.

Next Steps

• Stockholders will vote on the 2025 Equity Incentive Plan (Proposal #4) at the Company's annual meeting on November 19, 2025.

Key Dates

Recommendation

The filing reveals significant governance issues and strong activist shareholder opposition to a key management proposal, citing substantial stock underperformance, excessive dilution, and misaligned compensation. The stock trading at a discount to book value, coupled with a leading proxy advisor's negative recommendation, suggests fundamental problems that could continue to depress share price and create uncertainty. An investor should consider selling to avoid further potential downside and governance-related risks.

Keywords

Consumer Portfolio Services, CPS, Black Diamond Capital Management, Schedule 13D, Equity Incentive Plan, Shareholder Vote, Corporate Governance, Stock Dilution, Activist Investor, Underperformance, SEC Filing