Consumer Portfolio Services, Inc.

Ladies and gentlemen, today's conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Thank you. Thank you. Thank you. Thank you. Good day, everyone, and welcome to the Consumer Portfolio Services 2021 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 valuations of receivables, because dependent on estimates of future events, also are 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, further events, or otherwise. With us here now is Mr. Charles Bradley, Chief Executive Officer, and Mr. Jeff Fritz, Chief Financial Officer of Consumer Portfolio Services. I will now turn the call over to Mr. Bradley. Thank you.

Thank you, and welcome to our third quarter earnings call. I guess the simplest way to say it, we had a very good quarter. It's one of the best quarters we've had. It's about really having everything functioning really well across all points of the company, marketing, originations, collections, everything. So it's nice to see that when you start doing things right, you can get the reward, and so we did. Let me just go through a couple of highlights. Year over year, we had 232% earnings growth. The numbers are really starting to come through. I don't know if we'll continue to do that forever, but that was a real good growth number from year over year. And somewhat just as interesting is during the same period of time, we cut expenses 24%. So to be able to do both those things, like I said, it doesn't get any better than that. Originations, we had 14% quarter-to-quarter, 87% originations growth year-over-year. Third quarter was the highest quarter since second quarter of 2016 and the second highest quarter in our company history of 30 years. So, again, real good numbers there. Not to be outdone, servicing continues very strong. There's a lot of talk about the pandemic and the stimulus. A lot of the stimulus is kind of over at this point, and yet, our collection still remains very, very strong. So there's a lot less stimulus money, yet we still have a very strong DQ. Charge us, we're down 41% year over year. So it's easy enough to say we're doing an awful lot right on that category as well. You know, we owe a lot of it to our, you know, we've added scorecards across the board in collections, so we have a lot of AI, a lot of alternative data that's really helping us direct us to how to get the best performance out of the portfolio. And I'll talk a little bit more about that later. The securitization market is still very strong and another very successful securitization in the third quarter. And also, we noted that we purchased just about 2 million shares out of the market. So, again, we're trying to do what we can to increase our shareholder value. I'll get into more detail on all those subjects after I let Jeff walk through the financials for you.

Thanks, Brad. Welcome, everybody. We'll begin with the revenues, which were $68.6 million for the quarter. That's up 3% from our second quarter of this year and down 3% compared to our third quarter of last year. The nine-month number is $198.4 million. It's down about 5% compared to $208.7 million in the nine months of 2020. And a pretty simple breakdown of components of revenue. The legacy portfolio is significant. yielding about 20%, but that's only about 13% of our managed portfolio right now. $287 million continues to decline pretty rapidly as we move along. The fair value portfolio continues to grow. It's 1.9 billion, 87% of our total, yielding a predictable 11.1% this quarter. And as you know, that yield is net of losses. And so it's, as I said, it's got the losses baked in. So we don't have the offsetting provisions for credit losses that we've had in the past with the legacy portfolio. No fair value marks in the third quarter, so it's pretty straightforward from sort of breaking down the revenue standpoint. The expenses, $49 million for the quarter. That's a 7% decrease from our second quarter of this year of 52.9 and a 24% decrease over the third quarter of 2020. Nine-month numbers, $157.1 million. It's a 19% decrease in expenses compared to the nine months of 2020. And across the board, we've had significant reductions in all these expense categories. Significantly lower interest expense as the securitizations we're putting on are coming in at lower yields than the ones running off. No provisions for credit losses this year. In fact, we're going to talk about a reversal of provision in a minute here, which contributed to the earnings this quarter. We have lower head counts and better all-around efficiencies, which has really contributed to the lower expense profile. provisions for credit losses with a negative 1.6 million. So this is pretty sure first time in the history of the company, we've actually rolled back a portion of the allowance. And as I've said, this legacy portfolio, the Cecil portfolio is winding down. It has a significant allowance for loan losses. First, because we established a lifetime loss allowance for this portfolio back in January of 2020. And then we made some additions to that allowance during 2020 for the pandemic. And the reality is that portfolio is performing pretty well. And its remaining life suggests that the allowance is more than adequate, which is why we shaved off $1.6 million of that allowance this quarter. Pre-tax earnings were $19.5 million. That's a 40% increase over just the last quarter of $13.9 million and a 232% increase over the third quarter of last year. Nine-month numbers, $41.4 million in pre-tax earnings is a 204% increase over the nine months of 2020. Net income for the quarter, $13.7 million, 41% increase over the second quarter this year, and a 261% increase over the third quarter of 2020. And year-to-date net income, $28.6 million is a 63% increase over the nine months of 2020. And when we look at these net income numbers, as I've said before, we do have last year in the first quarter we booked a tax benefit of almost $9 million, which came as a result of the CARES Act. And so that's kind of baked into those numbers from last year. Diluted earnings per share, $0.52 is a 33% increase over the $0.39 from our second quarter this year, and a 225% increase over the $0.16 we posted in the third quarter of 2020. Year-to-date numbers, $1.12 for the nine months ended September of this year, compared to 74 cents, a 51% increase over the first nine months of last year. Looking at the balance sheet, the better than expected credit performance continues to contribute to a strong liquidity position. We're getting significant releases of cash out of the trusts as those wind down. That's allowed us to rely somewhat less on the warehouse financing, which also helps the the P&L from a lower interest expense. And then you recall back in the second quarter of this year, in June 21, we did raise $50 million in residual financing at a very attractive rate. So the balance sheet and liquidity position is very strong. The legacy portfolio, as I mentioned, continues to wind down. And the remaining allowance on that is about 24%, which is why, as I said, we were able to shave off about $1.6 million of that this quarter. Moving on to some of the other performance metrics, the net interest margin for the quarter was $47.8 million. That's about flat with our second quarter of this year, but a 4% increase compared to the third quarter of last year. And the nine-month net interest margin of $90 million is a decrease of 31% compared to the nine months of last year. But you'll recall that last year we booked paying significantly higher blended interest rates on the securitization trust debt compared to what that has come down to. For instance, this quarter, the ABS cost was 3.4% compared to 4.4% in the third quarter of 2020. Core operating expenses for the quarter, $33.9 million is flat with our Q2 this year. and up just a little bit compared to $32.5 million in the third quarter of last year. And nine-month numbers, however, $68.1 million in core operating expenses this year is a 34 percent decrease compared to the same period of last year, the same nine-month period. And this is where we've had significant improvements in operating leverage. Some of the technology and efficiencies that we've incorporated have really improved that particular metric. As a percent of the outstanding portfolio, those core operating expenses were 6.4% for the quarter. That's flat with our second quarter this year and up just a little bit compared to 5.7% for the third quarter of last year. And one thing to point out is although we've kept our operating expenses relatively flat year over year, our portfolio has actually shrunk, even though we had a very good originations quarter during this last quarter. and originations this year have been steadily increased. We had low originations throughout 2020, and that has contributed to a year-over-year smaller portfolio, which makes this particular metric go up year-over-year, even though the costs have come down or stayed about the same. Return on managed assets for the quarter pre-tax, 2.6%. That's flat compared to our second quarter of this year, but 160% increase over the 1% that we posted in the third quarter of last year. And the nine-month numbers of return on pre-tax, pre-tax return on the managed portfolio is 2.1% compared to just 0.8% last year. And so, you know, this incorporates everything, of course, and you've got, you know, gains, improvement in the spreads from the lower cost of funds. And, of course, last year we also took, you know, marks on the On the fair value portfolio, we added increased credit protection on the legacy portfolio and really had none of that this year. Looking at some of the key credit performance metrics, delinquency was 9.36% at the end of this quarter. That's up seasonally from 8.28% in the second quarter, but down significantly from 10.3% in September of 2020. The net loss picture is really positive, 2.8% for the third quarter. That's just up a little bit compared to 2.79% in the second quarter of this year, but down significantly from 6.39% for the third quarter of 2020. The nine-month number is also very positive, 3.85% for the nine months so far this year. That's down significantly for the nine months of 2020, where it was 6.93%. We continue to do very well on liquidating vehicles at the auction. 57.8% of our loan balances are being recovered at the auction. That's up from 45.1% last year, and last year's numbers were great, and so these numbers continue to be very good. It's well known that there's sort of a vehicle shortage, and it's driving up these values at the auctions. Quick look at the ABS market. Our third quarter securitization was completed in July of 21. Continued strong demand pretty much across the stacks of the layers of tranches that we securitize resulted in a blended yield of 1.55%, which is the second lowest in our history. So we continue to see good demand for our bonds and expect that to continue here in the near future. With that, I'll turn it back over to Brad.