Consumer Portfolio Services, Inc.

Good day everyone and welcome to the Consumer Portfolio Services 2023 First Quarter Operating Results Conference Call. Today's call is being recorded. Before we begin, management had 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 risks that could cause actual results to differ materially from those I 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, further events, or otherwise. With us is Mr. Charles Bradley, Chief Executive Officer, Mr. Danny Barwani, Chief Financial Officer, and Mr. Mike Lavin, 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 first quarter conference call. We definitely spoke a little while ago, but not too long ago, so not that much has changed, but in terms of the first quarter, it's off to a very strong start. We're very happy with the results. I mean, I think the thing to sort of focus on in looking at the first quarter is that we've made a lot of changes in the last two quarters of 2022, mostly as a result of the Fed raising rates and the 2022 vintage is not really coming out of the gates as strongly as we might have hoped. As a result of that, though, we spent those two quarters and a good part of this quarter tightening our credit, raising our rates and fees, and really sort of realigning everything we needed. One might have thought that would have had a negative effect on both growth and our attraction to dealers in the industry. That's not the case at all. We had a very strong quarter. Even with the tightening and the price increases, we've had strong growth in the first quarter, stronger than we would have expected. So all those things are very positive in terms of our first quarter of the year getting off to a good start. I think we also, sort of a good thing, is our DQ and losses have gone up a little bit, but we still are significantly below pre-pandemic levels. many of our friendly competitors probably couldn't say that. So again, we both are beginning to see we've made the changes necessary as we start 2023, but we're also still beginning to see the real results of what we've done in terms of having a strong credit model, strong collection model, and having it all kind of work to actually give us a great start to the year, but also to sort of help take care of any inefficiencies or things that didn't work as well in 2022. So with that, I'm going to turn it over to Danny to do the financial stuff, and then Mike, and then I'll get back on a few comments on the industry and the macro.

Thank you, Brad. We'll go over the numbers. Revenues for the quarter, $83.1 million, which is slightly higher than the $83 million we posted in the December quarter, but it's up 12% over the $74.4 million in Q1 of last year. So what's... Drilling down on some of the details here, the fair value portfolio is now $2.8 billion, and that's yielding about 11.2%, remembering that that yield is net of losses. Last year's number included a larger portion or larger benefit from the legacy portfolio, which was $190 million last year versus $71 this year. And that legacy portfolio last year was yielding 17%. So without that comparison, the revenue increase would have been even greater. Also included in revenues for last year was a fair value markup of 2.4 million. That was in Q1 of 22. We had no markup in Q1 of 2023. Moving down to expenses, the expenses for the quarter, 64.7 million. which is flat from the same 64.7 number from Q4, but it's up 44% from the 45 million in Q1 of last year. These expenses include a negative provision from our legacy portfolio using CECL accounting where we had originally estimated lifetime losses on the legacy portfolio where those losses didn't materialize. Over time, we've been gradually reducing the amount of the excess reserves. And in the current quarter, that amount happened to be $9 million of negative provision. In the December quarter, it was $4.7 million. And in the first quarter of last year, it was $9.4 million. Pre-tax earnings. I'll cover, I guess, interest expense I can cover right now because that's a big component of the change in expenses. that interest expense component has increased from $16.4 million last year to $32.8 million this year. So when we talk about net interest margins later on, we'll see that there's some compression in the margins. Even though we've been raising our APRs on the loan originations for this year, just the way fair value accounting works, it takes a little bit of time for the for the yield to catch up to the change in the interest rates on the debt. So there's some compression in the margins, in net interest margins for the current quarter. Moving down to pre-tax earnings, 18.4 million in the current quarter is comparable to about flat to the 18.3 million in December, but down from 29.3 million in the first quarter of last year. Also, remembering in the first quarter of last year, that period benefited from exceptional credit performance, even benefiting from some of the government stimulus that was occurring during that period. We had very high used car prices and very low interest rates. So those are the reasons why it's a tough comparison from the first quarter of last year to the first quarter of this year. Net income is roughly in line with the trends in pre-tax income. 13.8 million versus 14.1 in the December quarter and 21.1 in the first quarter of last year. That's a 35% decrease. The same trends in earnings per share, 54 cents in the current quarter, 59 cents in the fourth quarter, and 75 cents for the first quarter of last year. Looking at the balance sheet, a couple of things of note. finance receivable portfolio grew by 4% from the December quarter, so it's now $2.575 million versus $2.476 in the fourth quarter, but it's 35% higher than the first quarter of last year when it was $1,903 million. That is driven by the healthy origination levels we continue to have We continue to see from last year and continuing into this year where we originated $415 million in the first quarter compared to $410 million in the prior year first quarter. Moving down to securitization debt, our securitization debt is $2,175 million compared to $2,108 million in the fourth quarter. and $1,813 million last year. So the securitization debt is up 3% over the sequential quarter and up 20% year over year. Relating that to the increase in the fair value portfolio, which saw a 4% sequential increase and a 35% sequential increase from last year, shows that we're able to maintain our liquidity position despite lower leverage on the loan portfolio. Looking at the net interest margin, $50.3 million in the current quarter, $54.1 in December versus $58 million last year. That's a 13% decrease. Like I said, the cost of funds on our debt has increased, in part due to the increase in interest rates and the Fed continuing to raise rates. while the yield on our loan portfolio on fair value accounting will manifest through higher yields in the future. Looking at core operating expenses, $40.9 million is about flat to the $40.6 million in the December quarter, but it's 8% higher than the $38 million in the first quarter of last year. Looking at that number as a percentage of the managed portfolio, however, shows that the core operating expenses is 5.7% in the current quarter is down from the 6.7%, 15% decrease from the 6.7% in the first quarter of last year. And lastly, our return on managed assets, 2.6% in the current quarter is flat from Q4, 2.6. but down from 5.2% in the first quarter of last year, primarily due to the decrease or the compression in the net interest margin. I will turn the call over to Mike.