Consumer Portfolio Services Inc (CPSS) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to the Consumer Portfolio Services first quarter 2008 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 filing 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.

With us here now 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. Welcome, everyone, to our conference call for the first quarter. I think to begin, we would say that we're pleased with the first quarter results. I think everyone knows that '08 is going to be a challenging year, given the environment and everything wells, which we'll talk about. But given all of that, I think we're happy with the first quarter. It's not as good as with we did before, but it is in line with our expectations and I think in this environment, that's what we should expect and can hope for in the future. Given that, the big news certainly is that we got our securitization done. That is probably the biggest accomplishment we've had in a while. It was certainly an interesting process, way more difficult than normal. We haven't had a securitization done in our industry since November of last year. It was a little daunting to have to go first, but having done it, I think it says, speaks volumes about the company and our abilities in this environment and this industry. I think because of our strong credit history, our strong background and performance, we were able to get a deal done when no one else has even tried to do a deal to date. I think now that we've done a deal, a lot of other folks may in fact enter the market and with any kind of luck, what we'll see is a return of the strength of the capital markets and that's what everyone is waiting for and much more particularly, we are waiting for.

We'll talk about that a little bit more, but the highlights of getting the securitization done, we were waiting basically for the capital markets to do a deal. That put us very much not in control. By getting the deal done, it gives us control back. We now have liquidity under our lines. All of our lending agreements are all fine. We have borrowing ability. We have the ability to pledge new loans. So now we control our destiny. We control our liquidity. We control our growth. We're not dependent on getting a deal done. I can sympathize with the people out there that still need to get a deal done because it's not a good spot. So we're in way better shape today as a result of that. We'll get back to that in a minute. I think for now, we'll turn it over and go through the quarterly numbers.

Thanks, Brad. A look at some of the income statement components first. Revenues for the quarter were 103.3 million. That's down 6% from the December '07 quarter of 109.5 million and up 19% from the March '07 quarter of 86.5 million. Revenues are almost entirely generated by interest income and reflect a 23% increase in our portfolio from last year at this time and a 2% reduction in our portfolio from the December quarter. And we're entering some somewhat unusual territory in that our portfolio actually reduced from the fourth quarter of '07 to the first quarter of '08 the first time we've seen such a reduction since early in 2004. And Brad will talk a little bit about the volumes and expectations later on.

Operating expenses for the quarter, 99.5 million compared to 103.5 million in the previous quarter, 81.1 million in the quarter a year ago. That's a 4% reduction quarter to quarter and 23% increase year-over-year. In the first quarter, we had a slight reduction in expenses for marketing, interest expense, and our provision due to the lower originations volumes in the first quarter and also due to reduced marketing expenses and some other expenses tied to those originations volume and the slight decrease in the portfolio itself. Our loss provision for the quarter 34.9 million. That's down 10% from 38.8 million in the previous quarter and up 18% from 29.5 million in the year-ago quarter. Our provision is influenced by two things, primarily significantly influenced by volumes, which were lower in this quarter compared to the previous quarter, and also influenced by the actual credit performance of the portfolio, which has fluctuated in the last couple of quarters and has impacted our estimate of our allowance and how much provision we put in.

Pretax income for the quarter, $3.8 million. That's down 37% from 6 million in the December quarter, 30% from 5.4 million in the year-ago quarter. You may recall that in the 2007 first quarter we had a $2.5 million residual interest write-up on our residual interest asset which is the remnants from our off-balance sheet portfolios. In fact, throughout 2007 we had significant and before then unexpected increases in write-ups of that asset which we no longer expect to take place as those old off-balance sheet portfolios continue to wind down. Net income for the quarter, $2.1 million. That's a 40% decrease from 3.5 million in the previous quarter and a 34% decrease from $3.2 million a year ago, again influenced by all these things that we talked about, the slight reduction in the portfolio quarter to quarter and the residual write-up that we had in the first quarter of the previous year. Diluted earnings per share, $0.11 this quarter, down 35% from $0.17 in the previous quarter, down 21% from $0.14 in the first quarter of 2007.

Moving to the balance sheet, our cash, free cash balances as of March 31 of '08, $18.5 million. That's down just a little bit from 20.9 in the previous quarter and up from $10 million in the quarter a year ago. Restricted cash balances haven't changed very much, almost flat quarter to quarter, but down significantly from the year-ago quarter. A year ago we had about $94 million of restricted cash that was related to the pre-funding of the 2007 A transaction. And our securitization, well, we didn't do a securitization in the first quarter, only just recently completed one last week, and so in any case, that securitization wasn't prefunded. So we don't expect to have these big quarterly prefunding restricted cash amounts probably any time soon.

Finance receivables balances on the balance sheet, just a little over $2 billion at the end of the quarter. That's down about 2%, or $40 million from the December quarter but up 23% from $1.7 billion a year ago. The allowance for loan losses, $95 million at the end of this quarter, again down a little bit from $100 million the previous quarter and up from $83.5 million a year ago. Again, the allowance shrinking a little bit and, of course, the portfolio shrinking on a quarter to quarter basis. On the debt side of the balance sheet, the warehouse lines at the end of the quarter were 368 million compared to 236 at the end of the year and 128 million last year. However, last week's securitization reduced our warehouse debt by about $270 million, thus freeing up that capacity for future originations volume.

We drew down a little more on our residual interest financing facility, bringing that balance to $90 million at the end of the quarter compared to 70 million at year end and compared to 28 million a year ago, which was a slightly different and less robust residual interest financing facility at that time. Securitization debt decreased slightly from the December quarter, 1.6 billion now compared to 1.8 billion at year end and 1.6 billion a year ago, and our long-term debt remained roughly flat at 28 million from December of '07 to March of '08 and down a little bit from 43 million at last year at this time. Last year at this time we had an additional $25 million of long-term debt associated with another debt instrument that we have since repaid.

Looking at a couple of the other metrics that we review at this time, the net interest margin, which is interest income less interest expense for the quarter $60.3 million, down just slightly from 63.3 million at year end, a 5% reduction, and down -- up 18%, excuse me, from $51 million compared to last year's first quarter. The risk adjusted net interest margin, which is the net interest margin less the provision, $25.4 million for this first quarter, up about 4% from the December quarter of 24.5 million and up 18% from $21.5 million in the 2007 first quarter. Our core operating expenses, which is all of our expenses except interest expense and our loss provision, were 25.6 million in this first quarter of '08, pretty flat compared to the previous quarter of 25.1 million, up only 2 % and up 16% from $22.1 million in the first quarter of '07.

Our operating expenses consist of our employee costs and other servicing costs related to servicing the portfolio. We do have 924 employees at the end of this first quarter compared to 832 in the first quarter of '07, and that's even with a significant reduction in primarily marketing staff during this first quarter of 2008. Our core operating expenses as a percent of our average portfolio, 4.8%, basically flat compared to the fourth quarter of '07, and down 9% from 5.3% in the year-ago first quarter. And lastly here, our return on managed assets, pretax income as a percentage of our average managed portfolio 0.7%, down 37% from 1.1% in the previous quarter and down 45% from 1.3% in the first quarter of 2007. I'll turn it back over to Brad.

Thanks, Jeff. All right. So let's look at credit numbers. The delinquency numbers for the quarter were 4.82%. That's down significantly from the December quarter of 6.31%, but it's up a bit from last March of 3.55%. We would expect it to be up some. We're probably more pleased with its decline from the fourth quarter. Fourth quarter's always seasonally higher anyway. In terms of losses, the net losses for the quarter annualized were 6.66%. That's up a little bit from 6.34% in December, and that's up a bit from 5.12% last March. Again, I think we would like the losses to be a little bit less, but in this environment we're probably pretty pleased with those numbers as it is. The portfolio at 2,000,000,092 is down slightly from 2.126 billion, and that's still up significantly year-over-year from 1.726 billion last year.

Looking at the credit quality, I mean I think there's a couple of easy ways to look at. I mean it's not a great way to say it, but compared to everyone else, our credit's doing great. Again, we're not as concerned with everybody else. We care about CPS first, but if you compare the way CPS's credit performance as performed relative to our peers, one would be enormously pleased. Having said that, overall, it's still not as good as it's been. I think we've mentioned on several different calls that we're really kind of getting back to more of an '03-'04 vintage performance. The '05-'06 paper just performed really well, particularly the '05. I think that was a bunch of different parts that made it perform well and we can certainly blame the economy and all these other things. I'm not so sure if their perception of the worsening economy isn't just as bad as maybe the economy itself. But in either event, I think the credit is softer but, overall, and certainly compared to the rest of the world, our credit is doing rather well.

We are recently seeing improvement in DQ and repos. Those are the leading indicators for future performance. It may be, as everyone's hoping, that the economy's coming around and with it the portfolio performance. We're very pleased with the recent results. We're happy with the past results. We certainly would like them to be better but, again, in the big picture they are probably pretty darn good. And we expect the credit environment to remain challenging until people stop talking about whether we're in a recession or going in a recession and you get a little more positive feedback, I think people and the economy will start doing the right thing and that will impact performance in a positive way. But again, overall, we're pretty happy with the way our credit performance is going along today. And again, I think the signs are positive going forward.

In looking at operations, without being repetitive, we're very happy with the way the company is running. We are a little bit way more dependent on the capital markets, like everyone else, than we would like to be given the one thing we have been counting on for the last 15 years, is that capital markets would remain there. And given the fact we got a securitization done, that statement is true. The difficulties and the instability in the market is what we probably are still going to have to live with for a little while longer. So with that in mind, what we've done and what we've stated we were going to do before, is we've tightened credit significantly. With the capital markets where they are and everyone pulling back a lot out of the market, lots of the banks are out, all our fellow competitors have pulled back, and everyone is tightening. So it's given us the opportunity to tighten the credit probably, we would think, to produce easily the best performing paper we've ever bought as we go forward.

Along with that, we've had the opportunity to raise prices, again, very significantly. I think I stated in previous conference calls, we've rarely raised prices in 15 years and we've now been able to raise prices a great deal over the last 3 to 6 months and I think that will pay dividends as we go forward. We probably, at this point, we needed to get the securitization done to give us an idea of what the market would be going forward. One, we needed to establish that we could do the securitization, which we have now done and we needed to know what the pricing would look like worst case because we kind of think the deal we did is probably at the low part of the market and, therefore, things will get better. But we're going to make the assumption that that's where it will be for a little while and as things improve and the market recovers, and the capital markets become more liquid, we'll adjust from there. But we needed to know sort of the bottom and that's where we think we've gone to. We've been adjusting pricing and credit along the way so that even with that bottom we can do very well. And so that's what we've done.

Other things we've done, we've cut production by 60%. This is an environment where you could double production without any problem whatsoever with the higher prices. But given the instability of the capital markets, the conservative and the wise decision would be to cut and that's what we've done, along with everyone else, and we've cut our production by about 60% from last fall knowing full well we could go back the other way easily if the opportunity was there. We've also reduced staff slightly. One unfortunate outcome of all of this, we were very proud of how we've built our marketing staff and, unfortunately, in this environment, that's part of the company that's probably taken the biggest hit but, again, it has to happen and that's the way we've done it, but we have reduced staff somewhat across the board, but we don't really foresee any significant layoffs whatsoever.

So in looking at the industry, what you really have is you have a whole bunch other folks waiting to securitize. It's no fun being the pioneers, but we dodged most of the arrows and we got our deal done and we would fully expects other folks to get out there and get their deals done as well. By doing that, what you're going to see is hopefully the return of the capital markets. One of the things we saw in doing that is that there's lots of money. There's many, many readied buyers for our securitization but everybody was afraid of, do I want to buy this at this price and then have another bad deal come along or bad news come along that's going to make my buying into this deal look bad or having them get marked down in their books and things like that. And so I think everybody's as much as we wanted to get our securitization done, I think the capital markets folks, the people with all the cash really want to get those deals and buying those deals as well, but we needed to get the thing going. Like I said, we sort of went first. Now we would expect those deals to get done more easily and we would expect the pricing to improve significantly over the course of the rest of this year. I think everyone's, again, looking at the economy and I think to the extent the economy begins to turn around or the media starts -- doesn't keep playing the weakness in it and the recession idea, I think that will come along and help as well.

What are we going to do in the meantime? What we're going to do is work on improving our business model. Remembering that we think our business model is very good, but given the fact that we're really not going to be in a growth mode, I think there's lots of things we can do. As I mentioned, we built in the higher cost of funds. We've adjusted profit to where things got back to normal we would be doing significantly better on the other side. And we're going to continue to improve credit so that at the end of the day we're going to be buying a much better credit product and we're going to be making a lot more money on it when the capital markets even out again. After three years of very significant growth, which we've had, having the opportunity this year to sort of regroup and streamline some of the systems and get everything sort of reratchetted for the next growth phase isn't a bad thing given that we would rather be dealing with how do you handle all the growth and how do we make things better in sort of a down market, it is what it is and we're going to take advantage of that opportunity. Having said that, we think there's some real opportunities that are going to come our way.

I think there's, as much as the securitization market's taken some bumps and bruises, it's opened up a new market in that there appears to be some interest in whole loan sales. To the extent we can come up with some avenues to sell some whole loans, which would supplement and be an alternative to accessing the capital markets that, would be very good for the company and a real opportunity for us to not be as reliant on the capital markets and to get right back in the game and start growing again. Also, this is all very reminiscent of 1998 and 1999 and as we came out of that problem, there was some interesting acquisition opportunities and other things to do and we think that could happen as well this time. And, once again, we'll look opportunistically for maybe doing possible acquisitions for other opportunities that may arise in terms of servicing and things of that nature.

Mortgage share's another thing we'll be able to look at. With everyone tightening credit, we're going to have a real opportunity to capture market share. Many of the banks are going to back away from this industry and already you can see that and many other folks are going to tighten their credit because unlike us, some other folks have some credit issues. A couple things to look at in terms of that, and maybe a little bit why we're experiencing a little different than some other folks, when it came time to grow, we've told everyone for the last, I don't know, year or two or longer, that the way we grow is by expanding our geographic footprint. We add more marketing reps in different cities. We get them on the ground. They access the dealer base and they sell our product as it is. What some other folks have done, and I think there's a couple different things. One, would be extended term. A lot of people decided that extended term was the way to go. We weren't real believers in that and so as much in the end we did some of it, we had a much tighter criteria for extended term and I think a lot of people just thought that better cars, extended term will work out fine. But in a softer credit environment, you're putting a lot more pressure on extended term. A lot of different companies got a lot of -- very significantly involved in extended term, where we didn't.

Another thing that other companies did is that they also bought higher credits. They thought that higher end credit market would be the good place to be. Now, the problem with that is that higher end credit market has much tighter spreads, thus a much thinner margin of error. The extent you're buying with lesser margins, you need that credit to perform to the extent you might have a slightly weaker economy or a weaker credit environment or any of those things you put a lot of pressure on those spreads at the higher end. Since CPS stayed well within our band, we moved a little bit to the high side of our band, but in no way did we move up the credit spectrum like some others. We weren't really exposed to those tighter margins and that thinner margin for error, and so as a result, I think our papers performed much better. We, for the most part, stayed home in our niche. We grew our niche geographically rather than aggressively by expanding into different areas and I think that's probably the main driver to why our performance has kind of done pretty well, relative to others. Granted, ours isn't what we would expect, given the economy and the environment we're very happy with it and I think that's probably worth highlighting.

Couple things we've done is our LTVs have remained low compared to others, which is our loan to value. We've always sort of worked on tightening credit in different points across the country and weaker markets whereas I think to the extent you're really trying to grow, you probably wouldn't pay attention to those areas quite as much. So, I think going forward, it's easy enough to say that '08 is going to be a challenging year. I think with getting our securitization done it would be hard to underestimate the importance of that and the success of getting that done, but I think it's going to take the rest of the year for the capital markets to sort themselves out. We do find it very encouraging that there's lots and lots of capital available in those markets. They are just waiting to really -- the old adage in the capital markets that we need to see the bottom before we actively get in. Maybe the bottom's now, maybe the bottom's in a couple of months, but either way we would expect over the next 6 to 9 months that market to come back. And once it does, we are going to be very, very well set up to take advantage of that market and be able to grow and get back into it and really have some interesting successes going forward. And probably, again, referencing the '98-99 experience, one, having been through that we learned an awful lot about how to get through this kind of situation and I think our results are beginning to show that.

What's a little more interesting this time around, it took us about three years to dig out of that mess. Remember, that mess was in the auto industry as opposed to related industry and this time it's not. But we fully expect that we could pull out of this in the next six to nine months if the capital markets come back sooner, then sooner than that. But we are in a much, much better spot this time around than that time around, and, again, I think it's due to the experience of going through it. It's, knowing how to be prepared for it and knowing what to do while you're in it that is all going to pay off kind of good dividends for us going forward. So having said that, we're happy with the quarter. We're looking to have this year improve. We want those capital markets to recover and, more importantly, we're going to put ourselves in the position that as the market and the economy recovers, we're going to be able to take significant advantage of it. With that, we'll open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Your first question comes from Dan Furtado of Jefferies.

Good afternoon. Thanks for taking the questions. I just had a quick question on both the types of conversations you're having with your warehouse line providers, as well as what you think the appetite is for players who provide these warehouse lines for the rest of the space going forward.

That's a good question. I think we sort of have a little bit of interesting thing, since one of our warehouse line providers is Bear Stearns, but now that they are basically a part of J.P. Morgan, I think interestingly, we had been talking to J.P. Morgan about a year ago about possibly doing a credit line and so we think that's a good situation. UBS, we've had strong support from the warehouse lines. They are up for renewal towards the end of the year, I think it's September and November. But I think given that -- I think the easy way to look at that, the warehouse line providers want to know that you can securitize their paper out of their portfolio out of the warehouse line. To the extent we've just done that, we're fairly confident with the relationship with the providers or for that matter, other providers. I think -- if you needed to get a warehouse line tomorrow, that would be probably somewhat difficult to do. I think down the road our market like any other will become a little more flexible and get back in the business.

What's kind of interesting to look forward to is you got to remember that most of the people that provided the warehouse lines are in the auto sector were also partly in the mortgage sector. Not having that mortgage business any longer, or sort of a totally different kind of mortgage business, all these banks are going to be looking for other ways to make money and do business, and so we think that market could turn out pretty good. They are going to focus on credit cards, autos and other things that they can do. So we think, again, everybody's waiting to see the bottom of the market, but I think as that proves out and the economy starts to tilt the right way, that market should be pretty good. I mean having said that, we're happy with our lines. We're securing our lines, but as those opportunities come forward, we certainly would look at them.

Okay, and then -- thank you for that. When you were talking about you've been able to drive pricing over the last two quarters like never before, can you give us kind of a ball park of where pricing has gone on new originations?

Sure. I think it's easy enough to say, we've been able to quadruple our discount, but to put numbers on it, our average discount on the paper used to be about 1 to 1.5%. It's now crossed over 4 and probably continuing to rise. We've raised our average coupon by 100 basis points. I think ironically, it's the kind of market where we could double our volume and increase our pricing 20% and you would still get all the volume. So it's an interesting, like I said, we've never seen a market like this and I think if the market -- that's there to be taken advantage of somewhat and it's going to be interesting. But we've had those significant changes already.

Actually, final quick question on the latest deal that you, this 310-2008-1 deal, did you fully swap out the interest costs there or how should I think about the progression of the overall interest costs for the entire stack moving through time?

No, we didn't swap it out, but I think it's going to be what it is. So it's an expensive deal, but given the market, it was a deal to do. But, no, we didn't swap it out and it's going to stay there through its two-year average life.

Got it. And so I guess going forward, we -- I guess your expectation is that each new deal you do from this point spreads should tighten incrementally, leverage should go up incrementally, kind of like this is at or near the bottom in terms of the "unattractiveness" of this next generation of securitizations.

Certainly that would be our impression and certainly our hope. Like I said, I think the way you sort of attack the situation is we changed the pricing. It's sort of -- it's going to be interesting. We're going to change the pricing and increase the coupon to where this is as good as it gets. We're going to make money almost expect like we used to. To the extent that things improve, we're actually going to do significantly better. And the caveat to all of that was we're going to do all of that not even considering that we're going to be buying significantly better credits in the process. And the problem with that is even though you're buying significantly better credits today, we won't get any real credit for them for about 18 months and everyone knows that. But the product we're producing could be somewhat phenomenal. It's going to be way more profitable, way better performing, and so our margins, if in fact the capital markets come back to anything close to where they were, are going to be rather sensational.

To the extent the market stayed exactly where they are, we're going to get back over the next six to nine months so where we're probably almost in the same margins as we were before this whole thing started. That's sort of what I was referring to in terms of having control of the situation. By us being able to dictate those terms and build the product to match the situation, we control what we're doing. We control our liquidity going forward. We control our profit margins going forward. The unknown of not being able to get a deal done or not accessing capital markets was rather painful. Now that we're there, it's going to be interesting. To the extent those do all improve and they bounce off the bottom, we -- painful though this experience has been, we could end up doing way better going forward.

I understand perfectly. Thank you for answering the questions and congratulations on the latest deal.

Thank you for the questions.

Thank you. Your next question comes from John Hecht of JMP Securities.

Good morning, guys. Thanks for taking the questions. A couple of quick homework questions I think for Jeff. Jeff, you referred to the other income in your prepared remarks. Is this level 3.5 million more of a constant level and what does sort of -- what is it composed of?

I think we can say that now at the $3 to $3.5 million level, particularly with the portfolio stabilizing or maybe shrinking a little bit, the main components now, John, are what we call convenience fees on electronic payments that our consumers make through a couple of different channels like Money Gram and Western Union and those will fluctuate more or less with the size of the portfolio. And then we have this small direct mail unit that markets direct mail type products to dealers to help them generate our customers and their shop and that volume is pretty constant at about 1.5 million a quarter as well. And so those are the big components. There's a couple other small components that represent old recoveries which are shrinking, but I think it's safe to say although we might have predicted this before and were incorrect, I think it's safe to say the residual write-up income which continued to flow throughout each quarter of '07, although shrunk each quarter, is really done.

And diminimus activity in that in the first quarter of '08.

Residual interest income?

Yes.

It was almost nothing, maybe just a very little bit, but not a significant amount.

Okay, and then the -- your core costs have been pretty consistent, although I did note the G&A went up a little bit in Q1. Is that, is there a seasonal issue there or is this 7.3 million a good core run rate to assume going forward?

Well, it's a good core run rate. We might expect some decreases in those G&A-type costs if our portfolio continues to run off. If the volumes were, we're projecting for this year, we're probably going to see a little poral portfolio runoff. Lot of those G&A costs are tied to servicing types of expenses like, like banking expenses, item processing fees, repossessions, skip tracing, all those kinds of costs. We should not see any increases, significant increases in most of those components as long as the portfolio is flat or shrinking slightly.

Okay, and then shifting to Brad. You talked about geographical expansion was how you picked up volume. How are you pulling back or staying consistent? Is it types of programs, types of borrowers, or is it just regions that you went into that are leaving, but how are you kind of containing growth now?

In terms of containing growth, what we've done is we went through the dealer base and did two things, two fundamental things. One was we took all the dealers that were basically sending us applications but not funding a lot of deals, which we generally call look the book. And we took all of those dealers and basically stopped accepting applications from those. And so as much as we were getting some business, it wasn't enough and so the cost savings were significant and basically by knocking that group out, you cut off a significant amount of the funding as well. The other thing we did, and easily as important, we went through the performance metrics for all the dealers and we took the weaker-performing dealers and cut all those dealers out, too. And so it's that grand thing where we're buying more efficiently. We're buying from the strongest dealers and by the way, we jacked up the prices and we tightened all the credit. So overall, you're getting the best of the best and it's very effective and it's been what we've done. I think some of it, a little is geographic, but those are the two broadest. Beyond the cuts to the dealer base itself, we may have made some cuts in terms of weaker-performing regional areas that really weren't supporting the marketing staff in that area.

Okay, and a little bit of fault from the prior questions, where you spoke about pricing, increasing your discount, increasing your coupons and the improvement in yield from that perspective. But you also talked about it was the best credit book you put together probably ever. What have you, have you changed your down payment requirements or is there anything you can refer to in terms of maybe average scoring or things of that regard that would provide some detail about the type of credit you're putting together now?

Sure. In terms of some of the base metrics, loan to value, price -- payment to income, those would be a couple easy ones. We really haven't done much with the down payment. But those are two easy ones. We've sort of looked harder at the stability factors. We've gone for longer-term jobs, a little more stability in the jobs than normal, and also in terms of the internal score card, we've improved internal scoring by about 20%. And so you've tightened both the obvious metrics of looking at the job, the income stability. You've looked at the metric of lowering our exposure within the vehicle, in terms of LTV, and then in just the overall credit worthiness of the borrower, we've tightened that up, like I said, 20% or more. So those, it's easy enough to say we've tightened everything. But those would be some fundamental easy ones to look at.

Okay, thanks. Then last question, you referred to potential whole loan sales. I think, if I remember, you were involved with one of the captives several years ago. Who are the type of buyers you would be looking at selling whole loans to in this type of environment?

Well, I mean I think if you think about sort of the overall big picture, lots of banks. As you well know, you have all these people that basically put a lot of mortgages on their balance sheet and those mortgages are all big numbers and in fact that caused a big problem. But now, as much as it's been painful for all those banks to write down all of those assets, they are still in the business of putting assets on their books and they have now got a big whole in their portfolio that used to be held by mortgages. We've seen a little interest from some of the large banks and I think that type of setup, banks and others, could be the people that could buy it.

All right, great. Thanks for taking my questions.

Thank you.

(OPERATOR INSTRUCTIONS) There appear to be no further questions -- I do apologize. We have a question coming from [Casey Ambrich] of MLP.

Hi, guys. Thanks very much for taking the question. Brad, do you see any interesting -- I know stock has come in a little bit here, but any acquisition opportunities that might be out there to take advantage of right now?

Well, like I said, I mean a lot of people looking to securitize to the extent -- the other players in our industry are faced with two problems. One is accessing the capital markets and two is handling the credit performance they are currently experiencing. And I think I have kind of talked a little bit. Obviously we've accessed the capital markets getting our deal done recently and our credit performance is doing pretty well based on the criteria that I described. How other folks deal with those issues is going to be interesting. I think, I think they all could do well and they all should succeed. To the extent they don't, that's going to cause some problems. In terms of looking at the stock, I think our stock and most everyone else in the industry, people have been viewing the equity stock market like everyone's going to fail. I think certainly in our world we, over the last 15 years, we certainly at many different times in terms of survivor, and we certainly earned that label, but I think to the extent people have troubles, that would produce the opportunities. I don't have any such opportunities today, but we'll see how things go.

Okay. Just keep it down the middle this month and everything will work out. Thank you.

Thank you.

Thank you. There appear to be no further questions. I would like to turn the floor back to Mr. Charles Bradley for any closing comments.

Thank you very much. Thank you all for listening. I think as I said '08 is going to be a bit of a challenge but, as I just said, we're a survivor in this market. We continue to do well. Much like last time, once you survive then you look for the opportunities. I think given everything I've said about pricing, about credit, about the market coming around, as much as '08 is going to be challenging, it could be dramatically interesting in opportunistic ways. So having said that, we look forward to next quarter and improving capital markets and overall improving economy, and then we'll try and ride that wave. Thank you all.

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