Consumer Portfolio Services, Inc.

Good day, everyone, and welcome to the Consumer Portfolio Services 2022 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 fact 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 danny barwani chief financial officer and Mr. Mike Levin, President and Chief Operating Officer of Consumer Portfolio Services. I will now turn the call over to Mr. Bradley.

Thank you and welcome everyone to our fourth quarter and year-end conference call. A little bit late this year to getting it out, but better late than never. I think looking back, there's an awful lot of good things to think about what happened in 2022. The fourth quarter probably looks a little bit down relative to the rest of the year. However, 2022 is truly a sort of a tale of two economies, not quite a tale of two cities, but the same idea. We started out 2022 in full growth mode with literally everything clicking perfectly. And then, of course, inflation showed up and the Fed started raising rates. So we went from an all-out growth mode, which we did very successfully using lots of technology, lots of leverage in what we were doing, and just did everything right, perfect storm in the right way. And so we grew dramatically for the first six months. And somewhere around six months, all of a sudden the cost of funds grew, inflation was getting out of hand, and so we literally had to do one of the most abrupt pivots you could ever imagine in terms of slowing the growth down, sort of making sure we were keeping our margins intact, us raising rates as quickly and as aggressively as we could, and of course that had the effect of slowing the business down. So it's kind of ironic that once you get going really, really well in the best possible way, almost immediately, turning on a dime, we had to go the other way. The good news is we think we did that about as expertly as you possibly could within our industry. We were able to tighten credit very dramatically, very quickly. We were able to raise rates thoroughly the entire rest of the year. And so as much as the fourth quarter looks a little bit light, given the sort of headwinds we were facing, the position we were in, we were very pleased with how the fourth quarter ended, and even more so overall. Without being obvious, it's the best earnings year we've ever had in the company's history. It's the best originations year we've ever had in the company's history. So the highlights are long and lengthy and all very good. I think we're now in an interesting time again in 2023, and we'll sort of see how that goes. But more importantly, 2022 showed us both that we could grow very aggressively and do it correctly in the right way. and also, if necessary, and it was, to be able to slow down and still maintain our credit performance and our volume and our margins. Now, it took a minute to sort of make those things even out, but the way we were able to do it, at least in our mind, was very good and something that, you know, to be able to do, at least in our world, is very impressive. So, with that, I'm going to turn it over to Danny to go over the financials, and I'll get back and we'll talk a little more about, you know, what's going on in the industry and where we think we're going in the future. Go ahead, Danny.

All right, thank you, Brad. Going over the numbers in the financial statements, I'll start by going over the quarter-over-quarter comparisons, and then I'll circle back and we'll do the year-over-year comparisons. But revenues in the fourth quarter were $83 million compared to $69.4 million in the fourth quarter of last year. That's a 20% increase. The main driver of that increase is the increase in the size of our fair value portfolio driven by the originations growth that Brad alluded to earlier. The fair value portfolio, as you might recall, we've discussed before, is yielding about 11% currently, and remembering that that yield is net of losses. In terms of the fair value mark, which is also a part of revenues, we did not take any fair value mark in Q4 of this year, and that compares with fair value markup of 8.2 million in the third quarter and no mark in the fourth quarter of last year. In terms of expenses, 64.7 million in the fourth quarter of this year compares to 45 million in the fourth quarter of last year, a 44% increase. Here, the one, the couple of main drivers here is the reversal of the CISO reserves that we booked on our legacy portfolio. That portfolio continues to wind down and Our estimate for the losses that we expected on that portfolio has, the actual losses have been coming in lower, so we've been able to take reversals of those loss provisions, and it works as an addition to income and a reduction to expense for the year. For the quarter, we did take 4.7 million of such loss provision reversals. compared to 13 million in the fourth quarter of last year. All that sort of trickles down to pre-tax earnings, where we reported 18.3 million of pre-tax earnings in the fourth quarter of this year, compared to 24.4 million in the fourth quarter of last year. Net income for the quarter, 14.1 million. is a 26% decrease to the 19 million we posted last year. Again, the main difference in net income and pre-tax earnings, the year-over-year number for the fourth quarter is the reduction in the reversal for the loss provision for the CECL portfolio. Our diluted earnings per share is 59 cents for the quarter compared to 71 cents in the fourth quarter of last year, that's a 17% decrease. And like I said, I'll circle back and go over the same metrics for the year over year comparison. So starting with revenues again, 329.7 million of revenues for 2022 is a 23% increase over the 267.8 million revenues we reported for 2021. Again, the main drivers are the increase in the portfolio, and the fair value marks that we took during the year. We took 15.3 million total markup in the fair value portfolio for 2022, compared to a markdown of 4.4 million in 2021. The expenses were 213.5 million, an increase of 6% over the 202 million we posted last year in 2021. So we're able to increase revenues without a significant increase in expenses. In terms of the loss provision reversals, it was $28.1 million in 2022 compared to $14.6 million in 2021. And that translates to a large increase in pre-tax earnings, a 77% increase from $65.7 million in 2021 to $116.2 million in 2022. The same trends in net income, an 81% increase from $47.5 to $86 million in 2022, and diluted earnings per share, a 76% increase from $1.84 to $3.23 in 2022. Going over the balance sheet, Unrestricted cash balance is $13.5 million at the end of this year, the end of 2022, compared to $29.9 at the end of 2021. Our fair value receivables are up 42% from $1.7 billion in 2021, compared to $2.5 billion in 2022. In terms of our liabilities, our debt, outstanding debt. We talked about our increase in our warehouse lines to a total capacity of 400 million. We did that in 2022 in the second and third quarters. So we have plenty of warehouse capacity while our securitization debt is up commensurately with the increase in our servicing portfolio. Going over some of the metrics of net interest margin is up 26% year over year from 192.6 to 242 million in 2022. Core operating expenses are up 9% from 141 in 2021 compared to 154 in 2022. And core operating expenses as a percentage of the managed portfolio was 6.6% in 2021. We got that down to 6.1% in 2022, mainly because of the holding the line on expenses and trying to keep those from rapidly increasing while at the same time increasing our managed portfolio base. Our return on managed assets increased from 3.1% in 21. It's now up to 4.6% in 2022. And again, the same trends, increasing managed portfolio base and trying to keep the line on expenses from going up. And that covers the financials. I'll turn it over to Mike.