Q1 2022 Consumer Portfolio Services Inc Earnings Call
This is the operator todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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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 self receiver.
Bowls, because depending 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 projected I refer you to the company's annual reports filed March 15, so far your clarification the company.
<unk> no obligation to update publicly any forward looking statements, whether as a result of new information future events or otherwise.
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 call and since we know 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.
Just to be able to say that as well.
Finally, after you know 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 and.
Certainly the best quarter ever a couple of highlights we originated $410 million in new contracts versus 328 million last quarter and 205, a year ago. So obviously massive growth in originations, which I'll explain a little bit later, but basically we've expanded our base we've added some programs and our.
Bottling 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 after the races anyway, either finished the quarter with that kind of a number was terrific. I mean those numbers should continue so we're very happy about all that pre tax income of $29 3 million.
So a new milestone in the company.
This is almost like what we should be doing and it's paying off all of their hard work is really working out and then the other side net charge offs were three 3% versus six 3% a year.
So again, even with the growth and everything else are question.
Collection operation is still performing very very well and are 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.
Auction still remain high recoveries at auctions, where 61% that's certainly helps everything but given the state of what's going on in the economy in the car business and we probably think that'll 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 have Jeff run through the financials.
Thank you Brad welcome everybody will begin with the revenues.
For our first quarter just ended were $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 of course, driven by the portfolio. The legacy portfolio has continued to amortize down to a $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 2008.
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Net of losses.
The fair is also little bit interesting.
And uncommon this quarter, we have a markup to the fair value portfolio, a $2.4 million and what we've seen is that some of the losses that we estimated for.
For the Covid event that began about two years ago.
Have not materialized.
Materialized and so we've gone back and re valued the fair value portfolio and effectively taken out a portion of those losses that we previously estimated because as I said, they didnt materialize and so that represents $2 4 million of the revenue for this quarter.
Moving onto expenses $45 million is flat with fourth quarter of last year.
And down 18% from $55 million in expenses in the first quarter of 2021.
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 a reversal in the year ago quarter, So that's $9 4 million.
A negative expense if you will that took place in this quarter, but the other thing thats significant about the operating expenses for the quarter.
As a significant reduction in interest expense compared to one year ago. So our interest expense is down about $4 $5 million compared our first quarter of this year compared to the first quarter of last year.
Pretax earnings for the quarter $29 $3 million, that's a 20% increase over the fourth quarter of 2021 and.
And a whopping, 271% increase compared to 7.9 million pre tax earnings that we posted in the first quarter of 'twenty one.
Net income $21 1 million for the quarter, 11% increase compared to the fourth quarter just previous to this quarter and a 306% increase of $5 2 million in net income a year ago.
Diluted earnings per share 75 cents for the quarter, 6% increase over the fourth quarter of 'twenty, one and a 257% increase compared to the 21 since 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 has helped maintain our strong liquidity position.
And even with the significant volume increases that Brad referred to with our strong liquidity position and our two warehouse facilities.
We're in pretty good shape from a capital liquidity management standpoint.
On the 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.
As a lifetime allowance required by the seasonal accounting for that type of portfolio. The life. The remaining allowance and that portfolio was 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 and full the 2000 <unk>.
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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.
11% increase over the $52 4 million from the fourth quarter of 'twenty, one and a 37% increase over $42 2 million and net interest margin compared to a year ago.
The blended cost of all of our ABS securitization debt for the quarter is about three 5%.
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Yes interest cost a year ago.
Core operating expenses for the quarter, which exclude the interest in 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 of 11% comp.
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 six 7% for the quarter, that's down from 11% that's down 11% from the fourth quarter of last year and up only 5% from a year ago.
Return on managed assets for the quarter of five 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, eight 5% and finishing delinquency at the end of Q1 this year that's.
That's down from 10, 5% at December of 2021, and up just a little compared to the seven 8% that we posted a year ago.
Net losses for the quarter of three 3%.
That's up just a little bit from the fourth quarter of 'twenty, one, but it's down compared to six 3% one year ago, and a significant contributor to that performance low net losses as the activity at the auctions were still running at over 60% recoveries of our balances at the auction.
Appeared to like 43% a year ago.
Quick look at the ABS market as Brad indicated we're in the process of closing our 2020 to be securitization the largest in our company history at just under $400 million and so.
So we're pleased with the continued liquidity in those markets.
And with that I'll turn it back over to Brett.
Thanks, Jeff So I guess the obvious question is okay why are things going so well.
Do my best to try to give you a few highlights of why we think it's doing so well.
Number one as always one of our primary focus is marketing.
The old trade with marketing is to get as many people on the ground in as many dealership signed up as possible and Thats been our focus for a long time.
I think we're almost at a critical mass size, where.
Some of that is easier one of the big things. We did recently is we added a non prime program, which we have in the call, Matt and then Facebook copied us, but nonetheless that is a new program and it's been very successful and it isn't so much that we're buying a lot of it but it does help that we are buying more of the high end spectrum in both helps in terms of our credit performance, but it also helps.
In terms of what we offer the dealers so adding that program, we've been able to sort of be even more of a one stop shop or full service spectrum for our dealers and that helps our marketing folks to be able to sell that or pitch that to the dealers and I think it's been very effective. So of course, we are adding as many new marketing reps and people as we can.
We're also expanding the dealer base as much as we possibly can and that will continue this year to be a big focus in putting lots more people in the field and also just getting.
The dealer network.
Large double digits call, it 10, or 20, or 10, or 12000 dealers, which will give us just that much more ability to go deeper into the dealers as we expand the dealer base itself.
Also in our continuing focus with AI and using our models one of the other things we've been truly focused on is making this easier as easy as possible for our dealers and our margin reps to get deals funded we still have to keep our core ideas and things. We have to have in terms of fund will probably always be known as somewhat of a sticky lender in.
The industry, but nonetheless, because we need to make sure. Our credit remains however, we are doing everything we can to speed up funding to make the steps as easy as possible to really do everything so that when a deal comes in the dealer knows we're going to buy it knows we're going to find it and we can get the proper documentation done as quickly as possible. All those efforts are really.
Paying off in terms of our reputation in the dealerships that we backup what we buy and we buy it quickly.
So again, that's one of the big reasons that deeper penetration in more full service.
And move on originations and risk again, it's the same thing we're trying to make sure that the dealerships have quick access to our people they need to talk to and that we can make some exceptions that are credit worthy and get deals funded and do more and more using the models.
And again I think that's really starting to pay off in a big way and I think the future in that aspect of where the company is doing is quite bright and I think we're pretty far ahead of the curve in a lot of folks in terms of how we process deals what kind of deals we can buy and what <unk>.
And also in some big way being able to work with the dealers to structure deals that work, both the dealers and work for us and the customers.
Moving on to collections, we mentioned a few quarters ago that we really focus on putting in new AI and collection models on that side of the business and those are really doing really well too.
I will readily admit this is kind of a good market with the auction values and it certainly was a good market with all the money and the government was handing out mostly to our customers well. We thought that was you know one thing, but that stop there really hasn't been any new money hand, it out to the folks in everything in a long time and yet our collections is still performing extremely well that leaves.
Wanted to believe that what we've done with AI and the modeling and the Martin and all those kind of aspects of the business is really paying off. So we continue to have very strong collections, which you can see by the charge off rates and delinquencies went up a little bit, but we've been operating with extremely low delinquencies for a very long time, so we really always expected them to normalize and as.
As much as ours have normalized a little bit.
Around the industry, a little bit some other folks.
Eqs, if not normalized probably to the extent they would wish they more ran away a little bit. So we're very happy that as much as our <unk> used up some its really more of a normalization rather than a problem we have to deal with and it's something to keep an eye on for other folks in the industry, whereas some of those delinquencies seem to be quite high but ours are doing very very well.
In terms of looking at the industry. The industry is still competitive but it seems to be a sign that maybe it's not quite as competitive it has been in the past.
So there are no new entrants there hasn't been any new entrants in a long long time, and so I think maybe that's part of the reasons, we've been able to establish ourselves as one of the better lenders one of the foundation lenders somebody the dealerships can count on when maybe other lenders or it may be changing what they're doing a little bit here and there. So again, we can't prove it.
It out perfect, but the fact the matter is what we do know is we're growing we're doing very well, we're adding dealerships very quickly, we're adding lots of marketing people very quickly and putting us in a very strong position to add dealers to grow the business.
Continue to deep deeper penetration of the dealership base and also expanding it so with the products, we're adding in the use of motion. We're trying to put in it's really really helpful.
Yeah.
In terms of everything else you know, what's the card industry going to do it's anyone's guess, but we would certainly think that the car industry is going to remain very tight for the future and people wonder what that does for us well on the one hand, it does help us with the auction values and recoveries and the other hand, though all of our customers almost always buy a new car or getting.
New car user knew when they have to they're not out there shopping.
I need this car to drive to work every day. That's the primary reason theyre getting a car. That's the primary reason, we want to finance them.
So as much as the market can move a little bit we continue to focus on that kind of borrower and that borrower doesn't really have a choice. They biochar when they need to buy a car and almost particularly in this market with inflation everything else. We don't really expect that to change certainly the casual buyer in the casual shopper is going to slow down.
But our person isn't that have debit card the drive to work every day when the car breaks down they need a new one and so we make our market will remain strong. The other thing of course is interest rates are going to go up.
Lightly at first but depending on what the fed does we'll have to see but being the size that we are and sort of the efficiencies. We have we think actually that doesn't hurt us certainly tightens, our margins a little bit, but our margins have been quite wide for a long time and we thank the <unk>.
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Our cost of funds, we securitize everything as Jeff pointed out the securitization market remains very strong and we've been in it for a long long time, we don't really have any problems with the way that market works and even having a slightly higher cost of funds, we used to sell a deeper bond when we did the ABS and now we don't we don't really need to given our cash position and everything else.
It'll be interesting to see with the higher interest rates.
And also the other dimension is a lot of companies were using flow programs forward flow purchase programs, which we have not done now one of the reasons those happen as hedge funds insurance companies whoever it was needed higher interest rates and so that was one of the ways. They obtain them by buying bulk purchases or car loans from.
Like competitors like us.
Never done that but now with interest rates going up we think certainly quite possible a lot of those forward flow programs disappear, which means more and more cash we needed for those companies to securitize <unk> hold paper or find out ways to get rid of paper. So again since we've securitized everything in a very strong cash position we're not over.
Concerned with that aspect at all we're very curious to see how that affects the rest of the industry and certainly we will be standing there eagerly waiting to benefit from it. So I think you know.
You kind of put all that together and as nice as the first quarter, because we had the whole rest of the year to see what we can do in this environment, but certainly if the first quarter's an indication.
We put all the things in place to be very successful hopefully this continues hopefully the markets will stay the same and the economy doesn't fall apart and rates don't change too much but either way. We think we're very well positioned to succeed in this market first quarter is very representative of that and we will look to continue that for the rest of the year.
So again, thank you all for attending this call and we look forward to the next call in July .
And thank you. This does concludes today's teleconference. A replay will be available beginning two hours from now until April 26 2022.
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With conference identification number 3771614, a broadcast of the conference call will also be available lives.
90 days after the call via the company's website at Www Dot consumer portfolio Dot Com. Please disconnect. Your lines at this time and have a wonderful day.
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