Q4 2024 Consumer Portfolio Services Inc Earnings Call
Thank you. Bye-bye.
Good day, everyone, and welcome to the Consumer Portfolio Services.
2024 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 facts may be deemed forward-looking statements.
statements regarding current or historical evaluation 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.
Speaker Change: With us here is Mr. Charles Bradley, Chief Executive Officer, Mr. Denesh Bharwani, Chief Financial Officer, and Mr. Mike Lavin, President and Chief Operating Officer of Consumer Portfolio Services.
I would now like to turn the call over to Mr. Bradley.
Speaker Change: Thank you and welcome everyone to our fourth quarter and year-end conference call.
Speaker Change: I think in looking back in the fourth quarter and the whole year, 2024 was a year of what we'll loosely call cautious growth, while we waited to prove out the changes in credit. As most people know, and certainly everyone in the industry, 2022 is a very difficult year, and even parts of 2023, in terms of credit performance.
Speaker Change: And so, for the most part, we wanted to grow, but we didn't want to, you know, run away when...
with bad credit.
Speaker Change: Certainly 22 wasn't particularly great, the beginning of 23 wasn't particularly great, but the end of 23 has now proven to be much better and all of 24 is proving out to be much better.
Speaker Change: which sets us up. And part of what we did while we were waiting for the credit to improve was to set ourselves up to be able to grow more aggressively in the coming year. So we actually did all that. We now have a better credit performance. Our originations growth was not quite as strong as the year before but still very good. And again, we've sort of set the stage for what could be a very good year in 2025. But that was really the focus of 24. I'll touch on some more highlights on that a little bit later.
Speaker Change: for the fourth quarter of 2023. For the year, $393.5 million of revenues is a 12% increase over the $352 million revenues in 2023.
Speaker Change: These increase in revenues being driven by strong growth and loan originations, for the quarter we originated $458 million in new auto loans, which is a 52% increase over the $302 million in the fourth quarter of 2023.
Speaker Change: Loan Originations for the year, $1.68 billion is a 24% increase from the $1.36 billion in 2023.
Speaker Change: This is then, in turn, driving an increase in our fair value portfolio, which now sits at $3.5 billion and is yielding 11.3 percent, remembering that this 11.3 percent yield is net of losses.
Bye.
The
Speaker Change: Expenses for the quarter were $98 million, compared to $82.1 million in the fourth quarter of 2023. For the year, expenses were $366.1 million, which is 26% higher than the $290.9 million in 2023.
Speaker Change: The expenses for the year period 24 versus 23 include adjustments to our CECL portfolio for excess loan provisions.
That amounted to $5.3 million in the 2004 period.
Speaker Change: compared to 22.3 million in the 23 period. So there's a big decrease in these loan provision adjustments on our legacy CECL portfolio from 23 to 24.
Speaker Change: The other big driver of expenses is the interest expense, which still continues to be higher than the prior year, both on a quarter and year basis. This can largely be attributed to higher rates, but also in part to
Speaker Change: our portfolio growth which is driving an increase in our securitization debt.
Speaker Change: Pre-tax earnings for the quarter, $7.4 million, is down 24% from $9.8 million in the fourth quarter of last year. For the year, $27.4 million of pre-tax earnings compared to $61.1 million in 2023.
Speaker Change: Same trends in earnings per share, diluted earnings per share for the quarter, $0.21, $0.29 in the fourth quarter of last year.
Speaker Change: For the year, $0.79 diluted earnings per share compared to $1.80 in the prior year.
Speaker Change: Moving on to the balance sheet, our cash, unrestricted and restricted cash is $137.4 million at the end of the year compared to $125.5 million in 2023.
Speaker Change: The biggest other item on our balance sheet is obviously our fair value portfolio. That is $3.314 billion in 2024, at the end of 2024. It's 22% higher than the $2.723 billion at the end of 2023.
Speaker Change: Moving on to the liability section of the balance sheet, our total debt is 3.131 billion, is also 22% higher than the 2.566 billion at the end of 2023.
Speaker Change: Showholders' equity continues to increase. This is one area of strength in our balance sheet.
Speaker Change: We are at the highest level we've ever seen in the history of the company. $293 million in shareholders' equity is 7% higher than the $275 million at the end of 2023.
Speaker Change: Looking at other metrics, net interest margin is $52.8 million for the fourth quarter of 2004, is 2% higher than $51.7 million in the fourth quarter of 2003. For the year, net interest margin is $202 million.
Speaker Change: million compared to 205.4 million. Core operating expenses on a percentage basis for the quarter was 5.4 percent. That's down from the 5.9 percent in the fourth quarter of 23.
on an annualized basis for the year, 5.6%.
Speaker Change: compared to 5.7% in the prior year for core operating expense as a percentage of the managed portfolio.
Speaker Change: And lastly, the return on managed assets, 0.9% for the fourth quarter is down slightly from 1.3% in the fourth quarter of last year. For the year 2024 is also 0.9 is down from 2.1% in 2023.
I will turn over the call to Mike.
Mike Lavin: Thanks, Danny. I'll run through some operational notes here. As Danny mentioned, we had a really good fourth quarter in Originations and that was a 41% increase over the fourth quarter of Originations in 2023.
Speaker Change: As Denny also mentioned, we had a great Originations year in 2024, which was actually a 24% increase in growth from our Originations in 2023, so a 24% increase in growth was quite good.
Speaker Change: We ended the year 2024 with a portfolio balance of $3.41 billion, which is a company record, which is up from $3.32 billion at the end of 2020.
Speaker Change: First, as Brad mentioned, we sort of set the growth up in 2024 and 2023 as we hired approximately 25 new sales reps in 2023 and opened some new territories.
typically takes about nine months for those reps to season.
Speaker Change: and get their pipeline full and develop the territory. And we started to see the impact of those hires at the tail end.
Speaker Change: at the tail end of 2023 and mostly through the year of 2024. Of note, in 2024, we hired 42 new sales reps in open new territories in anticipation of our growth goals for 2025.
Speaker Change: So we're cycling up, or we're ramping up our market share and our sales reps.
Speaker Change: a year in advance of our growth anticipation. Second, we were able to grow our large dealer group base, which we define as 10 car lots per dealer, 10 car lots plus per dealer. We took it from 20% of our originations to 28% of our originations.
Speaker Change: We were able to land several large dealer groups with over 100 car lots per dealer, and also increased our business with our existing large dealer group base. We look forward to continued growth in this area in 2025.
Third,
Speaker Change: We were able to grow organically with our existing sales rep force by increasing our funding dealers per rep We want to get them close to 40 funding dealers per rep
Speaker Change: and we increased the number of reps that achieved that goal in 2024. We also increased our capture rate to 6% and it was roughly 4.5% in 2022. That's a good area of organic growth.
Speaker Change: And we doubled the amount of reps on our sales force that are doing more than 80 contracts per month.
Speaker Change: Fourth, we were able to rely on our data analytics team to identify our top performing 22 states in 2024 and offer better pricing to our top grade A and B dealers.
Speaker Change: We look to do this to the rest of the country in 2025. Finally, we were able to strengthen our origination flow from our partnerships, particularly with our best partner, Ally.
Speaker Change: We were able to also bolster our customer service with our dealers, which also certainly helps with our organic growth by lowering our funding time to less than two days.
Speaker Change: which is a dramatic change from 2022, which was hovering near four days.
Speaker Change: We were also able to increase our same day funding to 13% in 2024 as compared to 7% in 2023.
Speaker Change: We similarly increased our second day funding to 37% in 2024 as compared to 20% in 2023.
These metrics strengthen our brand with our dealers.
Speaker Change: as offering one of the fastest funding lenders that gives superior customer service. And this certainly helps the dealers click on CPS to get the first look at the applications.
Speaker Change: Turning to our risk profile, in 2024 we were able to hold a strong APR despite strong demand in the subprime, hovering just above 20%.
Critically, our payment-to-income and debt-to-income ratios were flat.
Our average FICO score is 571.
Speaker Change: Our amount of finance actually crept up $1,000 a deal to $22,300. And again, critically, just like our PTI and DTI, we were able to hammer down our LTVs to $119.
Speaker Change: Switching to credit performance, our annual net charge-offs for Q4 2024 were 8.02% of the average portfolio as compared to 7.74% for the fourth quarter of 2023.
Speaker Change: We are still seeing the remnants of which Brad referred to as the second half of 2022 and first half of 2023 vintages.
Speaker Change: flowing through the portfolio, and we definitely expect these numbers to improve as the 2024 vintages flow through the portfolio.
Speaker Change: DQ, greater than 30 days, which also includes repo inventory, were 14.85% of the total portfolio as compared to 14.55% of the total portfolio.
Speaker Change: Actually looking back at 2024, we were able to reduce the DQ month over month in seven of the twelve months of the year. Again, we expect the DQs to improve as the 2024 vintages begin to flow through the portfolio.
Speaker Change: We are moving in the right direction as Brad said with our 2024 vintages as the first half of the year is performing significantly better than 2023 with each vintage performing vintage over vintage over vintage.
Speaker Change: This reflects our continued journey of responsible lending and that we continue to tighten our credit model even in the face of our efforts to grow.
Speaker Change: We continue to tighten into 2025, like I said, looking for those better performing geographic pockets.
Speaker Change: within the remaining 28 states that we're looking at and looking to give better pricing to our better performing dealers on the one hand and looking to tighten LTVs, PTI, DTI in the non-performing pockets of the country.
Speaker Change: Another good trend we are seeing in the credit performance arena is in our POTS collection bucket. The POTS collection bucket is defined as our 1-29 day non-reportable bucket.
Speaker Change: The theory is the better we collect in these buckets, the more we reduce our roll rate of accounts that roll to the 30 plus and the 60 plus.
Speaker Change: We beat our pots goal most months in 2024 and I would be remiss if I did not note that January of 2025 was our best pot collection month on record.
Speaker Change: Looking at our extensions, they picked up a bit in 2024, numerically, as compared to 2023, but are historically in line with our extensions as a percentage of our portfolio, and certainly in line with our competitors.
Speaker Change: Our extensions are granted with the assistance of a proprietary AI model. We get more bang for our buck on our extensions than we ever have.
Speaker Change: Auction recoveries remain tough as we are running around 30% which is quite a bit off our historical norm of 40 to 45 percent.
This is mostly caused by macro issues.
Speaker Change: traveled 2022 and 2023 vintages working themselves through the auction. We also found that the vehicles have more damage at the time of sale, probably due to the
Speaker Change: The year, the higher car years, but we always make it in a higher miles.
Speaker Change: And we're still facing these sort of post-COVID scarcity of repo agents where we're not getting our cars repossessed on time and they're not getting to the auction on time, which is delaying the sales and lessening the recoveries.
Speaker Change: We are seeing trends that should pick up the recoveries this year. On a more positive note, looking at the all-important unemployment rate, our recent rating agency report
before our January ABS deal.
Speaker Change: cited a Department of Labor report that the unemployment remains in our favor at 4.4%, and more eye-opening, projected only a nominal increase of that unemployment rate to 4.6%, running all the way through 2026.
Speaker Change: That strong guidance is probably the most important macro trend we can point to as to the strength of our customer and health of our business.
Speaker Change: And last but not least, I'd like to highlight that our credit performance as benchmarked against our competition reveals that we are continuing to outperform our competition by between 200 and 400 basis points on CNLs and lower DQs.
Speaker Change: Finally, turning to our continued journey to advance the technology in the front end and back end of our business, we continued to utilize AI-driven fraud scores.
Speaker Change: in 2024, which eliminated applications with synthetic fraud at the outset of the application process, and we saved $4.6 million in 2024 in fraud savings.
Speaker Change: We're looking to layer in another fraud score by one of the big three credit bureaus.
Speaker Change: that actually has no overlap with our current fraud score, which we think will save us another six to seven million in 2025, in addition to the roughly five million from the other score.
Speaker Change: At the tail end of 2024, we piloted a new AI voice bot that had incredible success matching human results with promises to pay receive and to hang up rate.
Speaker Change: I'll note that two of our competitors have been using this AI VoiceBot for about a year, so the machine has learned how to collect
subprime collections on someone else's dime, and we expect to...
implement that AI VoiceBot next week.
Speaker Change: This will allow us to implement our strategy of not necessarily replacing human collectors, but we think the better use of the AI technology is to reallocate our human collectors from working in easier accounts.
Speaker Change: and putting the human collectors on the harder accounts, which certainly needs human interaction working. And we believe this will ultimately help our credit performance as we move through 2025. So with that, I'll kick the call back to Brad.
Brad: Thanks Mike. So looking back you can tell we did a lot in 24 in terms of setting ourselves up for future growth, even though we did grow quite substantially in 24. Again, probably the primary focus in 24 was to make sure that the credit performance
was going to be what we expected.
Brad: Almost 60% is from 24 forward, all better credit than before. The 22 vintages, which are probably the weakest, is around 20%. As that peels off, both that paper didn't perform as well, but also it's expensive in terms of the capital markets.
Brad: So, we're in a good trend in terms of that disappearing as the new, better paper, performing paper, lower cost of funds paper occupies more and more of the portfolio.
Brad: You know, that was really an important part. It seems to have worked really well for us. As I also mentioned, we spent a lot of time gearing up for growth this year. That should work out just fine.
Thank you.
Brad: So, in terms of the capital markets, securitization is doing very well. We continue to have very good success with all the securitizations. Capital markets remain very strong. It appears there is very good access to money in terms of growth capital, which is necessary for us to keep going.
Brad: So, in many different fronts, we're in a very good spot as we ended 2024 and move into 2025.
Brad: I think going forward, you know, we should hopefully put the 22 vintages and their performance behind us. Almost, you know, by the end of 25, certainly they'll be gone and not important. To the extent we layer in another very good growth year in 25, the NIM is going to continue to improve. We're going to benefit from this structure we've already put in place so that as the portfolio grows, expenses should be even a less percentage as we go forward. So again, across all fronts, we're in very good shape.
Brad: and Dan Strong. As Mike pointed out, the unemployment rate looks very favorable going forward, something we care about almost more than anything else.
Brad: So, all good, all steam ahead. And with that, we look forward to having the next call in April, which isn't too far away. Thank you all for attending today, and have a wonderful day.
Speaker Change: Please disconnect your lines at this time and have a wonderful day.