Consumer Portfolio Services Inc (CPSS) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to the Consumer Portfolio Services first-quarter 2007 earnings release 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 within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements are subject to certain risks that could cause actual results to differ materially from those projected. I refer you to the Company's SEC filings for further clarification. The Company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now turn the call over to your host, Charles E. Bradley, Chief Executive Officer of Consumer Portfolio Services.

Thank you, and thank you all for attending our first-quarter conference call. Today, we're going to do it a little bit differently. I'm going to have Jeff Fritz, the CFO, walk through the financials when we get to that part of the call, and probably handle all the financial questions as well.

Overall, we thought the quarter worked out very well. It has sort of been an interesting quarter, given the other things going on in the industry, particularly subprime mortgage. In terms of how the Company has operated within the environment today, we're very pleased with the results. The overall easy answer is the results were great; the subprime mortgage problems haven't affected our Company at all, other than a little bit of the visibility of, gee, we're subprime, they're subprime. In terms of us running our business, accomplishing what we set out to do, all of that has gone exactly as planned.

In looking at the different areas of the Company, our marketing effort continues to expand and improve. As I have mentioned in previous calls, our main focus in marketing our product is to expand the sales force into more and more geographic regions. Our object is to grow by expanding our footprint nationally, as opposed to either buying deeper or particularly adding different programs.

To that end, at the end of the third quarter, we had around 75 marketing reps across the country. At the end of the fourth quarter, we had just about 90 across the country. And at the end of the first quarter, we had 105, and I think we have as many as 10 or 15 more in the hiring and training phase.

So you can tell by those numbers, we are making a pretty significant push to continue the expansion of our marketing force, which down the road, remembering it takes three to six months to get a marketing rep trained and up to speed, we think those hirings could produce strong results in the middle to the second half of '07.

Having said that, originations during the first quarter was our second-best quarter ever. The March month was the biggest month of originations in the history of the Company at $124 million. So we are very pleased with how that is turning out, and somewhat more importantly, maybe, the controls, the scorecards and how we buy the paper have really manifested itself to work very well over the last three, four quarters, and that progress is very important today as we continue to grow the originations volume on a monthly basis.

So that theory of setting up the scorecards, the controls, the buying guidelines, really has been put to the test as we have grown rather substantially in the last two years, and it is very nice to say that the results have been significantly even better than we expected. So that is a very positive aspect.

In terms of collections, the performance -- a lot of people sort of saw, I guess, in our industry, the '06 vintage of originations for all of our friendly competitors and ourselves wasn't quite as good as '04 and '05. And everybody got a little worried and said, oh, '06 is going to be a terrible year, and that paper is not going to perform. And we, like everyone else, looked at that very carefully, and we thought our paper might be a little bit worse than before.

It's nice to say, after looking at both the fourth quarter and the first quarter, that '06 vintage is beginning to turn around very nicely and perform -- it probably won't be quite as good as '03 and '04 and '05, but it is certainly not going to be even close to a bad vintage at all. It's probably a little more in line with what we might have originally expected, but it is actually performing better than we might have thought at the end of '06. So that is a very positive thing.

In looking at the DQ numbers for the quarter, the quarter came in at 3.5%, which was up slightly from the previous first quarter in '06, which was 2.7%. I think it is probably worth noting that if you look at the first quarter historically, it moves around a little bit -- it was 2.7% in '06, 3.2% in '05, and 3.7% in '04. So coming in at 3.5% in the first quarter of '07 is very much in line with the historical delinquency performance for the Company and the portfolio, so we are very happy with those results.

In terms of the charge-offs, the charge-offs came in at 5.1% for the first quarter. That compares to the first quarter of '06 of 4.8% annualized charge-offs. But again, if you compare that to the previous couple of years, '05 was 6.6% and '04 was 7%. So as much as the 5.1% was up slightly from the first-quarter '06 4.8% number, the overall trend is still significantly better and very good, and what we would expect. So we are, again, very pleased with the results of the collection of the portfolio in the first quarter.

And just as another highlight, the absolute recovery or auction pricing also improved. We got 46.4% at auction in the first quarter. That compares to 44.2% in the fourth quarter. So that area is also improved, and again, all those results help out overall.

In terms of -- really, it's hard to look at anything we are worried about in terms of the Company performance. We will discuss the market and a little more about subprime mortgage after we go through the financials. Jeff.

Thanks, Brad. Good morning, everybody. Highlighting a couple of the major components, our revenues were $86.5 million for the quarter ended March 31. That is up about 8% from $79.9 million for the December '06 quarter and up almost 50% from the March quarter of last year.

Our revenues are primarily driven off the on-balance-sheet portfolio, the consolidated portfolio. And we have seen significant growth in that portfolio throughout the last 12 months and certainly this quarter, with the originations of the first quarter. Our expenses were $81.1 million compared to $75.4 million in the previous quarter. That is up about 8%, and up about 44% from $56.2 million in the prior-year quarter.

Our provision for credit losses has increased somewhat quarter to quarter, 10%, $29.5 million this quarter compared to $26.7 million in the December quarter and $19.1 million in the previous-year quarter. Our provision is very much tied to not only the outstanding portfolio, but is significantly influenced by the volume and the increases of the volume, the contract purchases from quarter to quarter.

Our pretax income for the quarter, $5.4 million -- that is up about 20% from the December quarter of $4.5 million and up significantly, 200%, from $1.8 million of the March quarter of 2006. Again, almost all of our revenue and performance is generated by the on-balance-sheet portfolio, and we have experienced some -- continue to experience good leverage on our operating expenses and our core expenses, as I think we will cover here in a little bit.

Our net income for the quarter of $3.2 million compared to, in the previous quarter, $30.9 million, and you might recall in the fourth quarter of 2006, we experienced, enjoyed kind of a one-time tax benefit of $26 million, which was a result of removing the valuation allowance against significant deferred tax assets that we had accumulated, primarily from the result of our earlier acquisitions of TFC and MFN.

Diluted earnings per share for the quarter were $ 0.14 compared, really, to -- without the tax benefit of the previous quarter, of $ 0.19 and compared to the prior year's quarter of $0.07.

Looking at the balance sheet, we have unrestricted or free cash on hand of $10.4 million compared to $14.2 million in the previous quarter and $25 million a year ago. Our restricted cash balances have increased significantly, $236 million of restricted cash at March 31. That is up from $193 million in December and $212 million last year.

Our restricted cash is significantly impacted by the credit enhancements and the cash flows going to the securitization trusts, and also by the, in the case of the March 31, 2007, period, $93 million of restricted cash associated with the prefunding account for our 2007 [A] securitization.

Looking at the finance receivables on the balance sheet, the carrying value before the allowance of the finance receivable on the balance sheet is $1.6 billion. That is compared to $1.5 billion at December 31 and $1.1 billion a year ago. So it is a significant and continuing trend and increase. The allowance for credit losses has continued to increase more or less proportionately -- $83.5 million at March 31 compared to $80 million last quarter and $64 million a year ago.

We have had predictably similar increases in our warehouse line balances and our securitization debt. Our warehouse balances at December 31 were $128 million compared to $73 million in December and $75 million a year ago. And our residual interest financing is, for the most part, amortizing -- is reduced to $28 million at December 31 from $31 million last quarter and $38 million a year ago.

Securitization trust debt, which is the bulk of the debt on the balance sheet to support the on-balance-sheet portfolio, up to $1.6 billion at March 31, '07, compared to $1.4 billion last quarter and $1.1 billion a year ago. And our long-term debt, which is a combination of some term debt and our retail notes program, is up to $42.8 million at March 31, up slightly from $38.6 million in December and down net slightly from $46 million a year ago.

So again, the balance sheet largely driven by the receivables that we purchase and hold to generate our interest income and the debt -- the combinations of securitization and warehouse debt that we use to support those portfolios.

We have a couple other components of the portfolio -- the managed portfolio we typically talk about, although those other components continue to shrink relative to the on-balance-sheet portfolio. Our total managed portfolio is now $1.7 billion, up front $1.6 billion at December 31 and $1.2 billion a year ago. The off-balance-sheet components of that portfolio are really dwindling to insignificant amounts, or nearly insignificant amounts.

The service portfolio from the SeaWest acquisition is around $2 million at March 31 and continues to amortize. And our nonconsolidated portfolio, which is the result of the former off-balance-sheet structures, is down to $22 million at March 31 compared to $35 million at December 31 and $83 million a year ago. And that portfolio, again, the nonconsolidated off-balance-sheet portfolio, will just continued to decline as we're not doing those types of asset-backed structures any longer.

A couple of the other performance metrics that we discuss -- our net interest margin increased to $51 million at March for the quarter ended March 31, 2007. This compares favorably and is up about 7% from $48 million for the December quarter and $36.5 million a year ago. The risk-adjusted net interest margin, which is the NIM less the provision for losses, was up to $21.5 million for the quarter just ended compared to $20.9 million for the December quarter and $17.4 million a year ago.

I mentioned that we continue to enjoy what we think is pretty good leverage on our operating expenses. Our core operating expenses were $22.1 million for the quarter just ended, and that is just up slightly from $20.9 million for the December quarter and $19.1 million a year ago. And so as a percent of the average portfolio, the average managed portfolio, which is, of course, growing, our core operating expense ratio has decreased to 5.3% for the March quarter in '07. That is down from 5.4% in December and down from 6.4% a year ago. That brings our return on managed assets, which is our pretax income over our average managed portfolio, to 1.3% for the quarter just ended compared to 1.2% for the December quarter and about 0.5% for the year-ago, March 2006 quarter.

Thanks, Jeff. Looking at some other topics, we are looking -- we have the Levine debt of $25 million due at the end of May. We are currently in negotiations with several folks to replace that debt, and we would fully expected to do that within that timeline. We are also continuing to look at different ways to finance the residuals. We have potentially another residual deal in the hopper to go out sometime in the second quarter, potentially the third quarter. So those things all are working about the way we would expect.

In looking at the overall market, certainly the big news in the first quarter was the somewhat significant and dramatic collapse of a few subprime mortgage players in the industry. And luckily for us here in Irvine, they happened, a lot of them, to be right here in town. So loads of fun. But more importantly is to look at exactly what really happened. And fortunately, since we get to have our industry called subprime auto associated with subprime mortgage, the differences are very important.

And we have talked about them before, but fundamentally, the subprime mortgage industry got in trouble because they were basically betting on rising home values, and that is just something that is a dangerous game to play, particularly in the subprime arena.

Things to remember -- we finance people who need a car to drive to work. They are not just doing it -- they're not looking to take out money. In the mortgage business, a lot of that business is driven on refis, on sort of leveraging up the value of their house. Market values in the housing market can shift a little bit. Interest rates have a big effect on all that. None of that is true in the auto industry. Car values are very stable over time. People aren't refinancing their car based on interest rates. So there's many, many differences between that.

One of the big, fundamental differences, as the subprime mortgage players tried to keep up with the growth, they started doing these no-doc kind of loans, and all these things that had little or no verification up front. And that was probably one of the -- certainly a large component of what caused all their problems. In the auto world, and certainly here at CPS, we verify the job, the income and the residence on every single borrower. We talk to all our borrowers before we ever fund anything. So we don't have any of those kind of issues that caused all the problems for subprime mortgage. Also, less than 20% of our customers even own homes. So again, the overlap between the two should be probably nothing, but certainly not significant.

I think probably more interesting -- so I think we could beat that horse forever in terms of why we're not like subprime mortgage, but the answer is, the list is very long, and I think, as I am about to discuss, most people realize that.

What has been interesting in the first quarter is that Wall Street or the investment community has really realized that subprime auto isn't that much connected to subprime mortgage. We had whatever luck or unfortunate luck of trying to put out our securitization, our first-quarter securitization, right in the midst of the New Century announcement that they were filing for bankruptcy, which you could imagine might have put some pressure on that securitization.

What was interesting was it really didn't. That securitization went off without a hitch -- no problems. And given the atmosphere and the timing, you might have expected, if subprime auto was going to see some kickback, that there might be some pressure on that deal. and there really wasn't. I mean, people sort of complained a little and tried to nitpick the price a bit, but really to no avail, and that deal went off as scheduled, which, again, the timing wasn't perfect and maybe we would have actually done a little better, but to have it go the way it did was very encouraging in terms of the market.

So we haven't seen anything like that. I think the fact that our market continues to grow -- as I mentioned, March was the biggest month we've ever had -- again, I think people can differentiate between the two rather well.

I think what is a little bit interesting, the one part that does hurt a little bit is I think our equity value in terms of stock price has been hit a little bit, just as people get a little worried about subprime. As you can well imagine, there is nothing we can do as a company about that, but I think over time, that will certainly take care of itself.

In terms of looking at our competitors in the industry in the general subprime auto industry, that market remains very stable. I think there's really very little, if any, irrational competition at this moment. Many of the big players, the banks and some of the very large institutions that sort of bought down the credit spectrum a little bit to grow or to keep growing, have really backed off a little bit, or have not significantly -- and thus the marketplace is very, very good right now in terms of what we're doing.

In terms of our credit niche, it is probably as good as it has ever been. So if you put together the overall picture, there's no real irrational competition, the big players have pulled back, some significantly, some somewhat, and really it's kind of created an open field for us. Also, the interest rates still remain favorable. Our economies of scale are continuing to really help out in terms of how we do things. And as you have heard in all the numbers, the results continue to back up our overall game plan.

So we think the opportunities are really still there. We think the first quarter has worked out really well. It was a little bit interesting, given the subprime mortgage issues. But you are going to get tested once in a while, and as I said, with the rebound of the '06 portfolio performance and everything else, we really think it was a great quarter, particularly given the instances.

So with that, we will open it up for questions.

(OPERATOR INSTRUCTIONS). Michael [Cohen], Sunova Capital.

Wondering if you could -- you talked about sort of growing the salesforce and you expect that to show dividends in the back half of the year. But clearly, you are already seeing some of that now. Is that an opportunity to sort of maybe batten down the hatches a little bit on credit, even though as good as it has been, we don't really know what things are going to look like when mortgage credit battens down its hatches, if that made any sense?

Sure. I think I read somewhere that some other company actually did sort of pull back. I think it was actually Prestige, decided to tighten their credit a little while ago in anticipation of whatever the economy might do.

We probably, generally speaking, wouldn't make just an overall, we should tighten credit. What we do on a very regular and consistent basis is we analyze the portfolio -- as most people know, we run six or seven, I think seven programs in, whatever -- 42 states. But what we do on a very regular basis is we look at the performance in all the different programs and all the difference states, and we go in and pick anything where -- again, and it varies, not dramatically, but it varies significantly from state to state. Our high-end program might perform much better in one state than another. Our lower programs might perform much better in one state than another.

And so what we will do on a very consistent basis is go in and take, even if it is the high-end program, if the performance isn't very good in North Carolina, we will tighten the high-end program, but at the same time, leave the low-end programs alone in North Carolina. I'm just picking on North Carolina. But we also might tighten the low-end programs in Ohio if we think the low-end paper isn't performing as well in that state.

So as much as we probably aren't anticipating a broad-based program tightening, and again, we might look at that a little bit as a -- I don't want to say knee-jerk reaction, but I think what we really look at is trying to be conservative and always improving our mousetrap, for lack of a better term, in terms of how we buy paper.

And I think what you see from that is, overall, over time, the overall performance does improve without us just making an across-the-board change. And what is good about doing it that way is that, in concurrence with us adding reps in other fields, you still get to grow and actually your paper performance can improve. '06 I think was a little bit of a weaker year. But again, everybody immediately said, oh, '06 is going to be bad. But '06 is coming around real quick. So it will be really interesting to see how that really plays out over time.

But we are always looking. I think if there is some big economic change in the economy and something like that, everything I said could change substantially in terms of how we grow and how we tighten. But currently, that is our general method of how we do it.

That is helpful. Essentially, what you are saying is you don't like take a view on the economy per se or like to make underwriting decisions based on a view of broad-based customer or consumer health. Rather, you like to make those decisions based on your realized experience in the portfolio. Is that a good way of summarizing it?

That is a very good way of summarizing -- I mean, we are certainly not going to say we're smart enough to call the economy in any given moment. But we're certainly good enough to know exactly what we are buying on a regular basis. And I think it has been very effective in terms of how we do it.

Understood. That's helpful. One sort of housekeeping item -- what was your 90-plus delinquent dollars? Did you guys disclose that?

Let's see. March of '07, delinquent dollars was $6.5 million -- 91-plus.

So that was quite an improvement as well.

Right. For those that are following around, that is down from $10.4 million in the fourth quarter.

Right. And then last question -- any prospects or any updates on the potential liquidity event for your large shareholder?

I actually failed -- I somewhat missed that little point. So I am glad you asked the question. As people probably noticed, Levine Leichtman, who also owns a significant stock position with that debt position, sold their maximum amount under 144 in this quarter. And we would probably expect that might continue. And they're still looking for an opportunity to become liquid on that stock, and we are certainly looking for ways to do that with them.

I would expect that still probably to happen this year. I think it is unlucky for them, unlucky for everyone, that subprime mortgage has had a little bit of a spillover effect on our stock price. But I think that will continue, and we're looking at ways to put that liquidity back into the marketplace and remove that slight overhang on the stock price.

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(technical difficulty) growth. Is there any regions that you're focusing on for expansion or in terms of -- I guess we would call it product concentration -- is there any change between the alphas and super-alphas of the world, or has that concentration been pretty similar to historical origination growth?

We will do it in two parts. In terms of the expansion, the way we are expanding -- and when we had a smaller market force, it was simple enough to give one of our marketing reps an entire state. They could have had the entire state of Mississippi or Alabama or any of those. And so -- but it was very difficult for one person to service all the dealers in that big of a region.

So we have done two things. One is we have gone into those regions where we have had a very large territory and we have carved that territory up and added more power to that area. Second, the other phase is we've still continued to go in and pick new areas where we just didn't have any representation whatsoever. So that is really the two-pronged attack in terms of how we are expanding our footprint or our marketing presence in the States.

In terms of doing the different programs, the programs in terms of mix have remained very consistent time to time. There is occasionally little bumps up here and there, but overall they remain very consistent in their percentages. And we're not anticipating targeting one or the other. We have a variety of other little growth incentives we're working on, but none of them currently involve either focusing on alpha or super-alpha or even anything else, for that manner.

Someone will ask the question -- a few things we are doing is we are looking at customer direct, which is an area that Triad was very successful in. It's just another way to access the market, given the Internet and such. That is still just getting underway. So we probably wouldn't expect to see much in the way of results from that for the next few quarters.

We continue to look at the independent market a little bit. Again, we have got 10% of our business coming from that market today. We may generally explore that market a little bit more. But at the moment, none of those are big numbers coming through, or not expected to be big numbers coming through in the next quarter or so -- or next couple quarters.

And what can you tell me in terms of the marketplace? Was there any changing in pricing during the quarter, or have yields been just very steady across the product lines?

We haven't changed our pricing. Given the different people moving in and out of the market and the interest rates staying, give or take, where they are, they were coming up and now they have leveled off. We haven't changed our pricing at all. Maybe that has helped us a little bit with market share, but for the most part, nothing has changed in those areas.

One point I might add, to go back to the previous caller's question, one of the things we don't want to do -- if you make a broad change in how you buy paper, for instance, if you tighten across the board, that sends a bad message to the dealer base. And so one of the things we get around that -- because if you immediately go across all your dealers and say, we're going to tighten up the programs a little bit, they all think you are having a real problem. By doing it individually and somewhat selectively, as I described a few minutes ago, that is a far more effective way to improve quality. But in terms of pricing, the pricing has remained very consistent for the last couple of quarters.

And the last question is related to the scaling against the costs. Your balance sheet has grown very nicely. You are approaching $2 billion now. I guess the question is what, given the current servicing infrastructure, at what balance sheet level would you have to make some additional investments to manage the additional servicing requirements?

We have enough infrastructure in place to still grow rather significantly. I probably don't have a ballpark number, but certainly we could grow the rest of this year rather easily. Having said that, in some of the branches where we have had some space come available, we have picked up some additional space. So it's much more of an opportune kind of situation where, for instance, our Florida branch, some space became available, and we expect, as we continue to expect to grow over the next few years, we decided to take that space down, even though we might not need it.

And so ironically, what you will probably see is you probably won't notice that we are picking up space and expanding our infrastructure ever so slightly as we continue to grow into it. And so that may sound a little odd, because you might say, well, we should just continue in the infrastructure until we max it out and then expand, which is I think the question. But what we are doing instead is we are adding it as it becomes prudently available or we get a good deal. And that way, you probably won't see that big of a shift once we hit what would be much more saturation of the current infrastructure.

So that is probably more of what you will see, is more of a gradual trend up as opposed to an abrupt change as we need to expand. And having said that, with technology changing as quickly as it does, we are still always going to be upgrading the computer systems and such. And again, so you are going to see more of a layered effect as we grow. And even today, we are already planning for the end of '08 and even '09 in terms of the infrastructure needs.

K.C. Ambrecht, Millennium Partners.

I'm kind of surprised by the recent stock reactions, especially considering [you said] stock was going down last quarter, so just want to get that out there.

But my first question is on, Brad, you kind of talked about some of the securitization trust [adda] that you alluded to in your comments. I was just wondering, the industry, the subprime auto industry has seen about 20% deterioration '06 versus '05 vintages. How are your vintages tracking on the same comps?

Yes, we agree that the number for most of the industry is around 20%. Ours are tracking more in the 5% to 10% range. So as I sort of alluded to a couple times during the call, we are real pleased. Considering that a lot of people looked at the industry performance on the '06 vintages as severe or troublesome or a precursor of troubles to come, our paper at this point is only 5% to 10% up. It is coming down.

So as much as -- I think it is interesting that the market is so quick to react. I think our numbers are going to be very good. And I think everyone else's will probably come around, too. If you look at some of the other players, America, for example, their paper is also improving. So as much as everybody was quick to sound the alarm on the '06 vintages, I think it was a little bit -- certainly early, at the very least, and I'm not so sure in the end it is not going to be as good a year as most, and maybe just slightly up. But to answer your question, our numbers are up 5% to 10%. The industry as a whole is up 20%.

And your lagged delinquencies are tracking the same type of way, right?

Yes. I think the question on our 90 days and such, you can see that the portfolio is really performing quite nicely.

I guess my point is that you guys are growing -- '06, you had a huge growth in the year for your portfolio, and you're still tracking better than the industry and growing down 5% or 10% versus '05 on top of the huge growth. I think it bodes well.

Yes, we think so, too.

And then maybe -- I was just wondering if I have the math right, but if this quarter, year over year you doubled your revenues while you held your expenses -- you almost tripled your revenues while you held your expenses flat, you saw the ROA going from 50 basis points to 130. If you were to do the same type of thing, just back of the envelope, double revenues and keep expenses without any further operating synergies, are we talking about -- it seems like if the Company did $0.14 this year or first quarter '08, you are kind of penciling out in the high 20s next year.

That is certainly a very enticing carrot you are hanging out there. Unfortunately, given the nature of the industry and the SEC, we are not going to jump at it. I think what we will say is everything you have seen to date is certainly -- the results have been very good. We have built the infrastructure the way we thought we should. And now, the results are in fact making it all work. I think if the markets continue, we probably won't continue growing 50% year over year. We think that will slow down starting this year. But I think over time, all those nice numbers are there.

We think the core operating expenses will continue to come down. We have targeted -- [America is] in the 3.5% range. We have come down to 5%. We think that will continue as we grow. The leverage of that portfolio will absolutely come down to the bottom line over time. It is not really here for me to say what those numbers are going to be. But if everything continues, those numbers will certainly be possible and good.

Richard Eckert, Roth Capital Partners.

Can you go over what is in the other income line again? That has bounced around a bit here in the last several quarters.

Sure, we will cover the components. There was a couple of more or less recurring items. And then there are a couple things that are a little unusual in the last two quarters. The recurring items are smaller things. For instance, we continue to get recoveries on the portfolio -- the charge-offs that were in the Mercury portfolio prior to the acquisition. And that is in the neighborhood of hundreds of thousands of dollars a month and generally declining. We earn fees from our customers through their electronic payment transactions, convenience fees that customers pay for electronic transactions. That is, again, a couple hundred thousand dollars a month and generally increasing as our volumes increase.

What you have seen -- and there's one other recurring item, which is direct mail revenue. We sell some direct mail products to some of our dealers to assist them in driving traffic into their stores for our types of customers. Those are the recurring items, and generally they are going to fluctuate a little bit as the Company's business continues to evolve.

Last quarter, we had a $1.2 million other revenue item which was attributable or directly related to an adjustment in the carrying value of our residual interest and securitizations. The residual interest and securitizations is a receivable on our balance sheet that is associated exclusively with the off-balance-sheet portfolios, and it represents the net present value of the future cash flows that will come back to us --

So these are the fair value adjustments.

That is correct.

So they will bounce around from quarter to quarter.

They will bounce around a little bit, but those portfolios are coming to an end. So that adjustment was $1.2 million in the fourth quarter. It was $2.4 million in this quarter just ended. We expect that that, while there may continue to be some adjustments, they are generally going to decrease in the coming quarters for that component -- for the adjustment to the residual interest and securitizations.

(OPERATOR INSTRUCTIONS). Matthew Hines, Jefferies & Company.

This is Dan. I apologize if you addressed this because I hopped on a little bit late here. But can you address portfolio growth? You mentioned briefly that portfolio growth should slow sometime this year. Obviously, you're at a pretty high rate down. But can you talk about the magnitude of that slowdown and what we should be thinking about as we look beyond '07 and into '08 potentially for what you look at as potential growth rates?

Unfortunately, that is a tough question, because if you think about the way we've positioned the Company and what we do, we basically are in a position to take as much growth as we can have or can get, but what we don't do is we don't go out and work for it, for lack of a better phrase.

In other words, we don't cut pricing; we don't go out and try and take market share. It is more like if the overall market grows, we sort of service that growth. And the problem with trying to predict that -- a variety of things happen, whether it is competitors pulling back -- a couple of big competitors pulled out of the market in '06, and we benefited greatly from their exiting our area. And so we grew in the middle of last summer for no real good reason.

And so different things can happen. I think the big constant in our industry is that in the first quarter of the year, right after the New Year and the tax refund season, there's always significant growth, and just like there was this year and last year and so forth. So we always can anticipate that.

Generally speaking, our kind of growth idea is that you grow in the first quarter and part of the second quarter, and then you try and hang on to those levels through the rest of the year, and those levels generally taper off towards the fourth quarter. Having said that, like I mentioned, different things happen where maybe you can grow during the summer. And I think one of the things we are doing internally is try and either offset that or continue the growth, since we can handle it, is by expanding our footprint by increasing the marketing reps on a national basis.

So having prefaced how we do things with that, the answer to your question -- I mean, we have grown 50% annually two years running. And I think our targeted growth this year is between 25% and 50%. Having said that, I think as much as the first quarter was very strong, the overall car market is very weak. And so I think it will be interesting and maybe a stretch to really grow that much this year. And I think probably the low end of that range is probably the better idea currently.

But again, given everything I said earlier, don't hold me to that, to too much of a thing, because you just don't know what the market is going to do. If some of our competitors back out a little further, we may benefit. If all of these marketing reps really kick it up and do a great job in the summer and the third quarter or so, we may again benefit from that.

But at the moment, if you asked me today, which you are, I think the 25% range is probably more realistic then the 50%. But again, it's very tough to predict, because we don't have a game plan or business plan of going out with a predetermined way to increase the market share.

Thank you. There are no further questions at this time. I will now turn the floor back over to Mr. Charles Bradley for any additional closing remarks.

Well, overall, as we've mentioned, we think the results just about across the board are pretty darn good for the first quarter. We are very pleased with the results. We are very pleased with how the business plan and the infrastructure and everything else really continues to do what it is supposed to do.

As I mentioned, it was an interesting quarter with subprime mortgage having all their issues, but also, in both the Company's performance and our industry's performance, we have really held up very well, given that we are associated with a significant fallout in that market.

I think the only negative, of course, is our stock price, which, of course, is what everybody cares about, us too. And I think over time, that will recover, and since it's baseball season, we will use our Field of Dreams analogy and say, hey, we are going to build this thing, and if we do, people will come and the stock price will go up. But there is nothing we can do other than wait and have it work. And the good news is, it is working. We think it will continue to work. And we think the prospects are very good for the rest of this year.

Thank you for attending the call, and we'll talk to you next quarter.

Thank you. This does conclude today's teleconference. A replay will be available beginning an hour from now until Wednesday, April 25, by dialing 877-519-4471 or 973-341-3080 with pin number 8691099. A broadcast of the conference call will also be available live and for 30 days after the call via the Company's website at www.consumerportfolio.com and at www.streetevents.com.

Please disconnect your lines at this time, and have a wonderful day.