Consumer Portfolio Services, Inc.

Good day, everyone, and welcome to the Consumer Portfolio Services 2021 Fourth 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 valuation of receivables, because depending 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 for their events or otherwise. With us here 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, and welcome to our fourth quarter and full-year earnings call. It's nice to be able to say for once that the numbers really speak for themselves. We had a great year. Looking at the fourth quarter, we finished very strong. December in particular, normally December, even November and December, tail off somewhat substantially in a year. In 2021, December was a great month. It was the best month of our entire year in terms of originations and the second best originations month in the history of the company. So, whatever we've got going is continuing for sure. Looking at the whole year, as I said, it's the best year in company history. We grew the portfolio 54% originations, 54% year over year, which could be a little expected because of the pandemic. We also grew it 14% over the 2019 numbers. The industry... I think it's – I'm going to talk about this a bit more later, but finally it appears our industry is getting some respect on Wall Street. There's been a lot of M&A activity. So suddenly – or not suddenly, I guess, but certainly during 2021, it appears people are realizing the value of subprime platforms and how resilient the subprime auto industry really is. These are all great things for 2021 and should be great things for the future. Also, of course, the stock market finally has appreciated the company. Our stock has done very well for the year and very well lately. And again, I'll talk more about that in a little bit. So first, I'll let Jeff run through the financials.

Thanks, Brad. Welcome, everybody. We'll begin with the revenues, $69.4 million for the fourth quarter. That's up 1% over our third quarter of 2021 and up 11% over the fourth quarter of last year. full-year revenues 267.8 million is down just 1% from 271.2 million for the full year of 2020 and so we still have you know kind of this bifurcated portfolio a little bit the legacy portfolio which is yielding 18% is now only 237 million or 11% of the total portfolio the fair value portfolio representing everything we've originated since 2018 is 1.9 billion dollars 89% of the total yielding 11.3 percent in the fourth quarter. And remember that that yield is net of losses. And there were no marks to the fair value portfolio in the fourth quarter. Moving on to the expenses for the quarter, 45.45 million, down 8 percent from 49 million in our third quarter of this year, and down 20 percent from 56 million in the fourth quarter of 2020. Full year expenses, 202.1 million, down 19 percent from $251 million in the full year of 2020. Now, we've seen year-over-year and even quarter-to-quarter reductions in many of our expense categories due to efficiencies. We've certainly had lower interest expense because of the way the asset-backed market has evolved over the last couple of years. And this quarter, we had somewhat unusual entry, $13 million credit, if you will, and negative expense for the provision for credit losses. And that obviously was a big favorable component of the results for the quarter. That $13 million compared to zero in provisions for credit losses a year ago, so you can see the difference that that impacts year over year. Pre-tax earnings, $24.4 million for the quarter. That's up 25% from the September quarter this year and up a whopping 275% from $6.5 million in the fourth quarter of 2020. Full year pre-tax earnings, $65.8 million, up 227% compared to $20.1 million for the full year of 2020. Net income for the quarter, $19 million. That's up 39% compared to $13.7 for the third quarter of 21, and up 300 and some percent compared to $4.1 million in net income for the fourth quarter of 2020. Full year net income, $47.5 million. which is 119% increase over the full year of net income of 21.7 million in 2020. Diluted earnings per share for the quarter, 71 cents, 37% increase over the 52 cents we put up in the third quarter this year, and a 318% increase over the 17 cents we posted in the fourth quarter of 2020. Full year diluted earnings per share, $1.84, nearly double a little over double the 90 cents that we posted for the full year of 2020. Moving on to the balance sheet, we have a strong liquidity position due to the really great credit performance, not just in the quarter, but really over the last 24 months or so. That has allowed us to rely somewhat less on the warehouse lines. We do have two $100 million warehouse facilities, but we're able to use a lot of our own cash on hand, further minimizing our interest expense. On the balance sheet, we have that residual financing facility. It's actually two facilities, but the one is down to $3.7 million, and that will be fully repaid very soon, probably sometime here in the first quarter. Moving on to some of the performance metrics. The net interest margin for the quarter was $52.4 million. That's up 10% compared to $47.8 million in the third quarter this year and up 33% compared to $39.5 million in the fourth quarter of 2020. Full year net interest margin $192.6 million, 13% increase over $169.8 million for the full year of 2020. So you've got a couple things going on here. Primarily, the blended cost of all of our ABS for the quarter was 3.4%. compared to 4.4% in the fourth quarter of 2020. So it's been happening as each successive quarter really over the last probably year and a half, almost two years, is the ABS deals that we're putting on are at lower blended costs than the stuff that's retiring in the older pools, and it's driving those rates down almost every quarter. Core operating expenses for the quarter, 41 million. That's a 21 percent increase over the $33.9 million in the third quarter of this year and a 24 percent increase over $33 million for the fourth quarter of 2020. Full-year core operating expenses, $141.4 million, a 4 percent increase over core operating expenses for 2020. Core operating expenses as a percent of the managed portfolio, 7.5 percent for the fourth quarter up slightly from 6.4 in the third quarter of this year and up a little bit from 6 percent in the fourth quarter of last year. Full quarter core operating expenses is a percent of the managed portfolio, 6.6 percent compared to 5.9 percent for all of 2020. Return on managed assets for the quarter, 4.5 percent, which is a 73 percent increase over the 2.6 percent from the third quarter of this year. and a 275% increase over 1.2% for the fourth quarter of 2020. Full year return on managed assets, pre-tax return on managed assets, 3.1% compared to 0.9% for the full year of 2020. Again, for the fourth quarter, significant benefit from the $13 million in reversal of prior provisions for credit losses. I might say also that that Even with the $13 million reduction in the allowance for credit losses on that CECL portfolio, that legacy portfolio, the remaining allowance for loan losses on those loans is something like 24%. So we still have a robust allowance for loan losses on those older receivables. Credit performance metrics, the delinquency at the end of the year was 10.5%. That's up kind of on a seasonal expected basis from 9.4% at the end of September, but down from 12% at the end of last year. Net losses for the quarter, annualized net losses, 2.57%. That's less than the 2.82% for the third quarter of this year and significantly less than 5.18 for the fourth quarter of 2020. Full-year annualized net losses, 4.7%. That's a significant reduction from the full-year annualized net losses of 6.5% in 2020. And what's really been a significant component of the story of credit performance over this full year, the auction liquidation percentages for the fourth quarter, we got 63.3% of our loan balances at the auction compared to 41.9% a year ago in the fourth quarter. So that, as I said, is part of the story for sure. Record high returns at the auctions. Looking to the ABS market, our fourth quarter ABS transaction, 2021D, was completed in October, and we observed somewhat softer demand in some of the bond tranches, but the low benchmarks still resulted in a very low 2.10% blended yield. And then more recently, just last month in January, we did our first quarter transaction, 2022A, and we saw somewhat improved demand across the stack, but with the somewhat higher benchmarks and spreads, still got a very attractive low blended cost of funds of 2.56%. And with that, I'll turn it back over to Brad.