Consumer Portfolio Services, Inc.

Good day, everyone, and welcome to the Consumer Portfolio Services 2022 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 valuation 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 15th 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 is Mr. Charles Bradley, Chief Executive Officer, Mr. Mike Lavin, Chief Operating Officer, and Mr. Danny Barwani, Chief Financial Officer of Consumer Portfolio Services. I will now turn the call over to Mr. Bradley.

Thank you and welcome to our third quarter conference call. It's nice to be able to say we had another extremely strong quarter. It's what we expected and certainly what we want to continue to do. I'll give you a few highlights and I'll turn it over to the guys. But one of the things we did and a lot of things we did, you know, timing is everything. And we renewed, I think we had mentioned in our last conference call that we renewed one of our lines, our ARIES facility in June. And we renewed that line and increased it from $100 million to $200 million. And we did the same thing in July with Citibank. We renewed and increased that line from $100 million to $200 million. So now we have $400 million in warehousing, and it's very nice to not be in the market right now looking for warehousing or trying to increase warehousing. So we're quite happy we accomplished that and got it done before the market started to change. Another interesting thing is the portfolio has been growing enough this year so that our core operating expenses have dropped below 6%. That's always been a target for us. We think we can do even better than that. I think our target now is to get them below 5%. But given the increasing size of the portfolio and the size of the company, a strong focus on those core operating expenses is very important, and it's nice to be able to say we're doing quite well at achieving those goals. Also, another highlight would be we did the July securitization or a securitization during July. As everyone should know, the cost of funds in the market have been going up. So we're pretty happy with that deal at about 6% all in cost. It was up a bit from the deal before. But nonetheless, the most important thing for us is to be able to sell our bonds in the marketplace, and there was strong demand, and we got the deal done easily. And thinking of the marketplace today, as everyone knows, everyone's worried about the economy. We're in some sort of potential recession. We have the Fed raising rates hand over fist. So we're trying to combat that as well, and we think we're doing the appropriate thing. By raising rates, we've raised our rates over 200 basis points in the third quarter. We've also cut the fees we paid the dealers across all deals too. The interesting part about that, and we've also tightened credit, and the interesting part is the business isn't particularly slowing down. So the demand for financing for these cars, remember that our number one customer is a person who has to have a car, not a person who's just lightly shopping for a car. So we would expect business to continue, but if it does and the Fed keeps raising rates, we're going to walk along and raise our rates just as quickly so that we can continue to try and maintain our margins. There's always a problem. Maybe the credit isn't as good, but our credit is performing quite well. Many of our competitors are still citing that they've gone back to pre-pandemic levels in terms of delinquencies and losses, and we're still well ahead of those levels. So we're very happy with where we sit in that circumstance as well. There's some more things to talk about, but I'm going to turn it over to Danny to go over the financials, and then Mike will go over the operations.

Thank you, Brad. Going over the financial results for the third quarter, our revenues for the third quarter were $90.3 million. That's up 10% over the $82 million we posted last June in our second quarter, and it's up 32% from the $68.6 million in our third quarter of last year. The main driver for the increase in revenue is the increase in our servicing portfolio, which is really now driven by the fair value portfolio. If you've been listening to these calls in the past, you'll remember that we switched over to fair value accounting five years ago, beginning in 2018, and that fair value component is now 96% of our total portfolio. That has grown. We'll talk about that more when we cover the balance sheet, but that has grown. 8% quarter over quarter and 41% year over year. And that is yielding 11.4%. You might recall, too, if you've been on these calls in the past, that the yield on our fair value portfolio is net of losses. So the 11.4% is after our expected loss assumptions. The legacy portfolio is now down to only 4% of our total. That's yielding 24%. Included in these numbers for the third quarter is a fair value mark of 8.2 million. That represents some losses, COVID reserves we posted back in the last year or two, where we are now realizing that these losses are not materializing. So we have 8.2 million of these reversals in our fair value portfolio that we didn't have last year. last year in the third quarter. Going over expenses, it's 56 million expenses in the third quarter compared to 47.8 in the June quarter and 49 million in the third quarter last year. That is up 17% over the sequential quarter and 14% year over year. Those results include a similar reversal for losses on our legacy portfolio that did not materialize In this case, it's $6 million of reversals of loss provisions in the current quarter compared to $1.6 million in the third quarter of last year. Looking at pre-tax earnings for the quarter, $34.3 million. That's up slightly from $34.2 million in our June quarter and up significantly from $19.5 million in the third quarter of 2021. For the nine-month period ending September, our pre-tax earnings were $97.9 million compared to $41.4 million. That's up 136% year over year. Similarly, our net income is $25.4 million for the current quarter compared to $25.3 million in the June quarter. That's up 85% from the $13.7 million we posted last last year. For the nine-month period, we're seeing a 151% increase in net income to $71.8 million compared to $28.6 million a year ago. Similarly, following these trends, our earnings per share is up to $0.95 for the current quarter. It was $0.52 in the third quarter of last year. That's up 83%. For the year-to-date period, $2.61 compared to $1.12 last year, which is 133% increase. Looking at the balance sheet, a couple of things of note. Our fair value portfolio, like I mentioned, driven by our originations rate for this year, which is at record-breaking territories. We're originating a large number of loans. We'll cover that later. But the fair value portfolio is up 8% over the June quarter and up 41% year over year. Brad discussed the increase in our warehouse capacity to $200 million, which we announced earlier this year. So our debt levels are up if you look at the balance sheet, but that's commensurate with the rise in our loan portfolio originations this year compared to last year. Looking at other metrics, our net interest margin is 66.8 million compared to 63.3 in June compared to 50.2 a year ago. That's a 6% increase over the sequential quarter and a 33% increase year-over-year. On a year-to-date basis, our net interest margin is 188 million compared to 140.2 million last year. That's a 34% increase. Our core operating expenses are $38.5 million in the current quarter compared to $37 million in June and $32 million last year. That's a 4% increase quarter over quarter and a 19% increase year over year. On a year-to-date basis, our core operating expenses are $113.6 compared to $100.4. That's a 13% increase. taking those core operating expenses as a percentage of the average managed portfolio. For the quarter, it's 5.8%. In June, it was 6%, so it's come down a little bit. It was also 6% in the third quarter of last year. On an annualized basis, it's 6.1% this year compared to 6.3% for the first nine months of last year. And finally, return on managed assets, For the quarter, 5.2%. That's down from 5.5% in June, and it's up significantly from 3.6% in September of last year. For the nine-month period, our return on managed assets were 5.3% this year compared to 2.6% last year. I'll turn the call over to Mike.