Consumer Portfolio Services, Inc.

Good day, everyone, and welcome to the Consumer Portfolio Services 2021 First 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 fact may be deemed forward-looking statements. Statements regarding current historical evaluation of receivables, because dependent on estimates of future events, are also forward-looking statements. All such forward-looking statements are subject to risk that could cause actual results to differ materially from those projected. I refer you to the company's annual report filed March 10th for further clarification. The company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. With us here now is Mr. Charles Bradley, Chief Executive Officer, and Mr. Jeff Ritz, Chief Financial Officer of Consumer Portfolio Services. I would now turn the call over to Mr. Bradley.

Thank you and welcome everyone to our first quarter conference call. I think the easy way to look at it, we had a nice quarter, worked really well. If you compare it to last year's first quarter, we had an excellent quarter. But, you know, again, last year was a different kind of year. We're really more interested in getting back on track, sort of our general growth mode and, you know, sort of forget about last year's pandemic problems. Certainly, given the circumstances at the beginning of this year, it seems to be the case. Obviously, with the government stimulus checks, it's really put in a huge impetus for us to grow. It's also helped performance tremendously. So we sort of have to calculate a little bit about how much of that is an impact from the government, how much of it is us doing things well, and as we go forward. Obviously, we think a lot of that's because we're doing quite well, but we'll see, and time will tell. A bunch of things we have been working on and worked on a lot last year, like automation, improving the processes, all those are having strong effects on how we go forward this quarter and the rest of the year. In terms of ABS, one of the things we did, we did the lowest ABS cost of funds in the history of the company, 1.11%, which is relatively unheard of. But given how the economy was sitting, those are the kind of deals people were able to get done. Certainly helps everyone else, too. But for us, it was sort of remarkable to be able to do a deal with that low cost of funds. That low cost of funds will probably stick around for the foreseeable future. It will probably creep up a little bit as we go forward. But, again, it's going to be an enhancement. It's going to be very helpful for the remainder of this year. The government stimulus checks, you know, not everyone we know gets one, but every one of our customers does. And so having that effect has really helped in terms of the delinquency and our charge-offs. So as you can see by the performance numbers, you know, as long as those checks keep coming, our performance numbers, you know, are going to be very, very strong and should continue that way. So that's also a very good thing. I'll get into some more of the specifics of what we expect for the quarter or the next few quarters after I have Jeff go through the financials.

Thanks, Brad. Welcome, everybody. We'll begin with the revenues, $63.1 million for the quarter. That's up 1% from our fourth quarter of 2020 and down 11% from $70.8 million in the first quarter of 2020 last year. When you look at the revenue breakdown, we're really in the home stretch of our transition to fair value accounting on the portfolio. The legacy portfolio is only $421 million, or 20% of the total portfolio. and is yielding about 19% in this quarter. The fair value portfolio is $1.7 billion, or 80% of the total portfolio, yielding this quarter 10.4%. And as you know from our discussions, that yield, of course, is a net of losses which are baked into that fair value calculation. The other significant component this quarter in the revenue is the markdown of the fair value portfolio of $4.4 million. This is related to adjusting the yield on some older segments of the fair value portfolio to match the yield of the paper we bought in the first quarter. So essentially we raised the yield on some older components of the fair value portfolio, and that results in a markdown of that portfolio. And now all the segments of the fair value portfolio are yielding at about the same percentage. Moving on to expenses, $55.2 million. is a 1% decrease compared to the fourth quarter of 56 million and an 18% decrease compared to the first quarter last year of 67.7 million. Especially year over year, significant reductions in categories such as interest expense and employee costs and other captions are lower due to somewhat lower volumes but also due to efficiencies that we've incorporated over the course of the year in the last couple of years. Provisions for credit losses, well, they're zero for this quarter. A year ago in the first quarter, we took a provision on their legacy portfolio, $3.6 million that was related to, at the time, expectations of higher losses due to the pandemic. And I'll talk a little bit more about the CECL allowance as we move down the schedule here. Pre-tax earnings for the quarter, $7.9 million. a 22% increase over the $6.5 million from the fourth quarter of 2020, and a 155% increase over the $3.1 million pre-tax earnings in the first quarter of 2020. Net income was $5.2 million, a 27% increase over the fourth quarter of 2020, and a decrease of $10.8 million, a decrease compared to $10.8 million in the first quarter of last year. You'll recall that in the first quarter of last year, We recorded a tax benefit of $8.8 million, which resulted from the CARES Act, the first sort of pandemic-related government action that resulted in this kind of one-time tax benefit, which flows through those net income numbers. Earnings per share, 21 cents for the quarter, 24% increase compared to the fourth quarter of last year, and a decrease of 53%. Again, the first quarter of 2020 included a 37th cent earnings per share benefit from that one-time tax benefit. Moving on to the balance sheet, our liquidity situation is very good right now. Brad's alluded to the strong credit performance, and that has this kind of whole trickle-down effect when the delinquencies are less, the losses are less. When the losses are less, more cash is distributed out of the trusts back into our coffers, and it assists us in running the company. We can use the warehouse lines less frequently, and there's just a lot of benefits that occur from better credit performance, and we're realizing those now. The finance receivables I mentioned, now 20% of the total portfolio. The allowance on the finance receivables, what we call the CECL allowance, is now 19% of that portfolio, so it's a very robust allowance for credit losses. Looking at the liabilities, lower warehouse usage due to somewhat lower volumes, but also our strong liquidity position. And the residual financing transaction is in sort of full pay down amortization mode down to $20 million compared to $37.9 million a year ago. Looking at some of the other performance metrics, net interest margin was $42.2 million for the quarter. That's a 7% increase. compared to the fourth quarter of 2020 and a 4% decrease compared to the first quarter of last year. The risk-adjusted NIM, which takes into account the provisions for credit losses on the legacy portfolio, also 42.2 million for the quarter and the same increase compared to the fourth quarter of 2020, but it's a 5% increase compared to 40.2 million in the first quarter of last year, because, as I indicated, we had that pandemic-related provision for credit losses in the first quarter of last year. Core operating expenses were $34.2 million for the quarter. That's a 4% increase over the fourth quarter of 2020, but an 8% decrease compared to $37.1 million a year ago. So we've had significant decreases in our core operating expenses. As I mentioned, employee costs are down in several other of those categories. The core operating expenses as a percentage of the managed portfolio, 6.4% for the quarter. That's up a little bit compared to 6% in the December quarter, the fourth quarter of 2020, and up slightly from the first quarter of last year also when it was 6.1%. And even though our costs are down, our portfolio year over year has shrunk considerably, and so we're looking forward to getting the portfolio growing again, and we'll see improvement in that particular metric. Return on managed assets for the quarter, 1.5%. That's an increase of 25% compared to 1.2% in the fourth quarter of 2020, and a huge increase compared to 0.5% in the first quarter of 2020, last year. The credit performance metrics and these numbers are just eye-popping in many regards. The delinquency was 7.8% at the end of the first quarter. That's down considerably from 12% in the fourth quarter of 2020 and also down considerably from 12.4% a year ago. In fact, this delinquency number is the lowest such number we've reported since the second quarter of 2015. Net losses for the quarter, very strong numbers, 6.3% compared to 6.9% in the first quarter of last year. Again, this is one of the lowest net loss numbers, quarterly net loss numbers we've seen since the fourth quarter of 2014. Part of what's contributing to these loss numbers in particular is the recoveries at the auction. 43% of our loan balance was recovered at the auctions for vehicles we sold in the first quarter of 21. And that compares a significant improvement compared to 36% in the first quarter of 2020 before the squeeze of the inventory, vehicle inventories have really impacted these numbers. Brad alluded to our 21A securitization we completed in January, 1.11%, the lowest blended cost of funds in CPS history. Again, it has such a positive impact. Putting those bonds on the balance sheet for a four-year life is very good for the company. It's really a second quarter event, but we also did our 21B securitization, just closed that a week or so ago. And that also had great execution for a blended yield of 1.94%. And with that, I'll turn it over to Brad.