Consumer Portfolio Services, Inc.

This is the operator. Today's conference is scheduled to begin shortly. Please continue to stand by. And thank you for your patience. Thank you. Thank you. Thank you. Good day everyone and welcome to the Consumer Portfolio Services 2022 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 facts may be deemed forward-looking statements. Statements regarding current or historical valuations of receivables because depending on estimates or 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 15 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 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, everyone, to our first quarter earnings call. I guess it's nice to be able to look forward to a call, and since we've known the numbers for a little bit, I certainly was, since this was, in fact, the best quarter we've ever had in the history of the company, and it's nice to be able to say that as well. Finally, after working on all these different things for a few years and working through some problems during previous years, we can easily say we're now functioning on all cylinders and doing very, very well. Certainly the best quarter ever. A couple of highlights. We originated $410 million in new contracts versus $328 million last quarter and $205 million a year ago. Obviously, massive growth in our originations. which I'll explain a little bit later, but basically we've expanded our base, we've added some programs, and our modeling and AI is working brilliantly. Also, we had a, and that included in that quarter, a record all-time month of $171 million in the month of March. So we were kind of, you know, off to the races anyway. To finish the quarter with that kind of a number was terrific. And those numbers, you know, should continue. So we're very happy about all that. Pre-tax income of $29.3 million, also a new milestone in the company. This is almost like what we should be doing, and it's paying off. All the hard work is really working out. And on the other side, net charge-offs were 3.3% versus 6.3% a year ago. So, again, even with the growth and everything else, our collection operation is still performing very, very well. And all the things we've done in that area of the company are really coming home and really making the mark in terms of how we make things work. Auctions still remain high. Our recoveries at auctions were 61%. That certainly helps everything, but given the state of what's going on in the economy and the car business, we probably think that will continue for a while. Lastly, we did a securitization just recently, which was $395.6 million, which would also represent the largest securitization we've ever done. So lots of highlights. I'll go into a little more detail, but first I'll let Jeff run through the financials.

Thank you, Brad. Welcome, everybody. We'll begin with the revenues for our first quarter just ended. We're $74.4 million. That's a 7% increase over our fourth quarter of last year. and an 18% increase over the first quarter of 2021. Our revenue score is driven by the portfolio. The legacy portfolio has continued to amortize down to 190 million, or about 8% of our total portfolio, and is currently yielding 17%. The fair value portfolio, which is everything we've originated since January of 2018, is $2.1 billion, 92% of the total portfolio, yielding this quarter about 11.7%, which, as you know from hearing this before, is net of losses. Also, a little bit interesting and uncommon, this quarter we have a markup to the fair value portfolio of $2.4 million. And what we've seen is that some of the losses that we estimated for the COVID event that began about two years ago have not materialized. And so we've gone back and revalued the fair value portfolio and effectively taken out a portion of those losses that we previously estimated because, as I said, they didn't materialize. And so that represents $2.4 million of the revenue for this quarter. Moving on to expenses, $45 million is is flat with our fourth quarter of last year and down 18% from $55 million in expenses in the first quarter of 2021. The expenses have a couple of things going on. First of all, we have a significant reduction in our allowance for loan losses, so we have a reversal of previous provisions for credit losses on the legacy portfolio. That's $9.4 million this quarter. We had a $13 million similar reversal of credit losses on the legacy portfolio in the fourth quarter of last year, but there was no such similar adjustment or reversal in the year-ago quarter. So that's $9.4 million of a negative expense, if you will, that took place in this quarter. But the other thing that's significant about the operating expenses for the quarter is a significant reduction in interest expense compared to one year ago. So our interest expense is down about $4.5 million in our first quarter of this year compared to the first quarter of last year. Pre-tax earnings for the quarter, $29.3 million. That's a 20% increase over the fourth quarter of 2021 and a whopping 271% increase compared to 7.9 million pre-tax earnings that we posted in the first quarter of 21. Net income, $21.1 million for the quarter, 11% increase compared to the fourth quarter just previous to this quarter. and a 306 percent increase of 5.2 million in net income a year ago. Diluted earnings per share, 75 cents for the quarter, 6 percent increase over the fourth quarter of 21, and a 257 percent increase compared to the 21 cents we posted in diluted earnings per share a year ago. Moving on to the balance sheet, continued strong performance, credit performance of the portfolio. has helped maintain our strong liquidity position. And even with the significant volume increases that Brad referred to, with our strong liquidity position in our two warehouse facilities, we're in pretty good shape from a capital liquidity management standpoint. On the finance receivables portion of the balance sheet, as I said, the legacy portfolio is down to 8% of the total portfolio. And the allowance for the legacy portfolio, which, as you know, is a lifetime allowance required by the CECL accounting for that type of portfolio. The remaining allowance in that portfolio is still 24% of that remaining balance, even though we reversed $9.4 million of it this quarter. Looking at the liabilities, we did repay during the quarter in full the 2018 balance. residual facility that had been outstanding for almost four years. And so we have still remaining the 2021 residual facility of $50 million that we put on about a year ago. Looking at some of the performance metrics, the net interest margin for the quarter was 58 million. That's an 11% increase over the 52.4 million from the fourth quarter of 21. and a 37% increase over $42.2 million in net interest margin compared to a year ago. The blended cost of all of our ABS securitization debt for the quarter is about 3.5% compared to 3.9% in ABS interest cost a year ago. Core operating expenses for the quarter which exclude the interest and the provisions for credit losses were $38 million That's down a little bit, 7% from the December quarter, fourth quarter of last year, and up just a little bit, 11%, compared to the first quarter of 2021. So it's kind of interesting. Even though our portfolio has grown 12% year over year and our quarterly originations volume are nearly really double what they were a year ago, we have just a nominal increase in those operating core operating expenses. Those operating expenses as a percentage of the managed portfolio were 6.7% for the quarter. That's down 11% from the fourth quarter of last year and up only 5% from a year ago. Returned on managed assets for the quarter, 5.2%. That's a 16% increase over the fourth quarter of last year and a 247% increase compared to the first quarter of 2021. Looking at the credit performance metrics, Brad mentioned we really had a very good delinquency quarter, 8.5% in finishing delinquency at the end of Q1 this year. That's down from 10.5% at December of 2021 and up just a little compared to the 7.8% that we posted a year ago. Net losses for the quarter, 3.3%. that's up just a little bit from the fourth quarter of 21, but it's down compared to 6.3% one year ago. And a significant contributor to that credit performance low net losses is the activity at the auctions. We're still running at over 60% recoveries of our balances at the auction compared to like 43% a year ago. Quick look at the ABS market. As Brad indicated, we're in the process of closing our 2022B securitization, the largest in our company history, at just under $400 million. And so, you know, we're pleased with the continued liquidity in those markets. And with that, I'll turn it back over to Brad.