Consumer Portfolio Services Inc (CPSS) 2009 Q1 法說會逐字稿

Good day, everyone, and welcome to the Consumer Portfolio Services 2009 first quarter 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 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 the 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.

With us here now is Mr. Charles Bradley, Chief Executive Officer and Mr. Jeff Fritz, Chief Financial Officer of Consumer Portfolio Services. I'll now turn the call over to Mr. Bradley.

Thank you and welcome to our first quarter conference call. We had a year-end call just over a month ago,so not a whole lot has changed. We'll go through the numbers in a moment.

I think overall, what we continue to do is everything we can to reduce costs, both in staff and operational areas, to meet the decline in the servicing portfolio, with the broad picture or the big picture being to maintain the platform, maintain the franchise with everything we have, until the market comes around. The good news is, even since the last conference call, the market does seem to be coming along. Not only the little signs the economy is percolating, but also the secondary market where our bonds trade also is beginning to pick up a little steam with spreads tightening.

Our theory is that once that market tightens up to where there's a lot of demand or more demand for new product, the first thing you have to do is get rid of all of these secondary bonds, mortgage bonds that are deeply discounted and trading today, and it appears that that's beginning to happen. Once those bonds get cleared out and the spreads tighten, then the demand for new products should really come into play and that in turn will start the capital markets moving again, and obviously then open up the market for companies like ourselves.

So the real game is to get to that time period. And doing whatever we need to in terms of trimming operations, trimming staff, to maintain the Company to get to that point. So it looks like there's some light at the end of the tunnel. Looking at the Company, the Company's done tremendously well in getting to this point to date.

Everything's running smoothly. There's been seasonal credit improvement in the portfolio. The new originations are doing very, very well. So we think the model's in real good shape in terms of go forward. When we start originating new loans, we are still originating a little bit, and we are looking for some opportunities to start doing some large originations in the new future.

If all that comes to pass, we should really be able to get going when the market really turns around, which will probably be later this year or sometime next. Until then, it's really just steady as it goes. We'll go through the financials and then answer any questions. So here's Jeff Fritz.

Thanks, Brad. Good morning everybody. We'll take a look at the revenues for the quarter of $66.1 million. That's down about 11% from the December quarter of $75 million and down about 36% from the first quarter of 2008, which was $103 million. The overriding factor that's taking place in driving our results now is the continued shrink to the portfolio, we are as Brad said originating a nominal amount of loans each month.

But, the portfolio is shrinking at a pace of about 11% in the last quarter and 36% in the last year, which is virtually the same percentages as you have seen in the decrease in the revenues for those two periods. Total expenses for the quarter, first quarter of 2009, $67 million, that's down from $112 million in the fourth quarter of 2008. And down from $99.5 million in the first quarter of 2008. Significant reductions, 40% and 33%, respectively. The biggest reduction was in the provision for losses.

In the first quarter, we posted a provision of $16.1 million, that's down $40 million from $56.6 million in the fourth quarter of 2008, and down from about $35 million in the first quarter of 2008. You'll recall that we posted a very substantial provision in the fourth quarter of 2008, reflecting the current recession and the ongoing stress to the credit performance of the portfolio as a result of that.

As Brad mentioned, we're seeing our expected seasonal improvement in credit performance in the first quarter, and the first quarter provision somewhat reflects that. You'll also maybe recall that in the first quarter of 2008, we were still originating much more significant amount of receivables, which contributed to the more significant provision at that time a year ago.

The pre-tax loss for the quarter was about $0.5 million. That's an improvement of significant amount, from $37 million loss in the fourth quarter of 2008, and $3.8 million pre-tax earnings in the first quarter of 2008. On an after tax basis, the loss is really about the same, $0.5 million compared to after tax, $23.4 million loss in the fourth quarter of 2008, and a $2.1 million after tax earnings in the first quarter of 2008.

There really was no, even though we had the nominal loss, there's no tax benefit associated with that because of some minor permanent tax differences, book and tax differences, that effectively wiped out any little tax benefit we would have accrued as a result of that small loss. Loss per share for the quarter $0.03, compared to a loss of $1.22 in the fourth quarter of 2008, and earnings, diluted earnings of $0.11 per share in the first quarter of 2008. Again, a lot of those numbers driven by the significant provision for credit losses that we posted in the fourth quarter, and the fact that a year ago we were still growing and originating receivables and had substantially better earnings, obviously.

Moving to the balance sheet, cash on the balance sheet, $20.8 million at March 31, 2009. That's down slightly from $22 million at the end of the year. And up a little bit from $18.5 million a year ago. The restricted cash balance is around $150 million, a little less than the fourth quarter, the December 31, 2008 balance and significantly less than the larger restricted cash balance of $177 million a year ago, when of course the portfolio was 36% larger. The cash balances, the free cash of $20.8 million on the balance sheet at the end of the first quarter did not reflect $12.5 million tax refund that we received in the middle of April, as a result of our having filed, in an expedited fashion, our 2008 tax return.

Looking at the portfolio, we've been talking about how the shrinkage of the portfolio is driving these numbers. Financed receivables before the allowance for losses is about $1.3 billion, that's down 11% from $1.4 billion at the end of the year, and down from a little over $2 billion a year ago. The allowance for credit losses, $52.6 million at March 31, 2009, and that's down from $78 million at the year end, and $95 million a year ago.

Looking at the debt side of the balance sheet, we have this one remaining amortizing warehouse line which is down to $7.5 million from $10 million at year end. Of course, a year ago we were operating with two, $200 million warehouse lines and still originating receivables. This remaining amortizing warehouse line will be fully paid off with its continued scheduled payments by around September of 2009. The residual interest financing is down to $65.3 million, that's $2 million less than year end, and significantly less than $90 million a year ago. Again, the reductions there, regular scheduled reductions associated with the terms of that facility.

Securitization debt, $1.2 billion, $1.3 billion at year end, compared to -- excuse me, at the end of the quarter, compared to $1.4 billion at year end and $1.6 billion a year ago, again that's amortizing relative to the portfolio. The other long-term debt was roughly the same, about $45 million at the end of the quarter, more or less the same, a little bit -- slightly less than at the end of the year.

The total managed portfolio, we do have this one $170 million securitization that's off balance sheet, so the total managed portfolio is $1.488 billion at March 31, 2009, that's down from $1.664 billion, or down about 11% from the previous quarter, from the year end 2008, and that's down from $2.1 billion compared to a year ago.

The net interest margin was $29 million for the quarter, and that's down about 15% from $34 million in the fourth quarter of 2008, and down 50% from the $60 million in the first quarter of 2008. The risk adjusted margin, which is the NIM less the provision for losses, was $13 million in the first quarter of 2009. That's a significant improvement from a loss of $22 million in the fourth quarter of 2008. Recall, in the fourth quarter of 2008, the provision for losses was $40 million greater than it was here in the first quarter. One important aspect of this continued situation with the declining portfolio has been to monitor our core operating expenses.

The core operating expenses for the first quarter of 2009, $18.3 million, which is a 9% decrease from the $20 million in the fourth quarter of 2008, and a 30% decrease from the $25.5 million in the first quarter of 2008. So we worked hard at making sure that the operating expenses stepped down in relation to the servicing and origination effort involved in managing the business.

One of the metrics to compare that to, or to consider with regards to the operating expenses, is the ratio of the core operating expenses to the outstanding average managed portfolio. That ratio is 4.74 for the first quarter. It's actually just slightly up from 4.65 in the fourth quarter of 2008, but down about 2% from 4.8% in the first quarter of 2008. And we'll turn it back over to Brad.

Thanks, Jeff. In looking at the delinquency in the portfolio, this quarter, the delinquency was 6.73%. That's down from 8.59% in the last quarter, but up from year ago at 4.82%. The net losses were 11.59% for this quarter, annualized and that's up from 9.97% last quarter. And up from 6.66% year ago quarter. As Jeff has pointed out, with a shrinking portfolio, a lot of these numbers are going to be skewed significantly.

The last time we had a portfolio that was shrinking like this, probably a fair year to compare the numbers to would be like 2000 when we did, 1998 was a full year of originations, 1999 was a short year of originations, and 2000 would have been none. For us, 2007 was a full year, 2008 was a short year, and 2009 now has been almost nothing. And then the first quarter of 2000, which would compare somewhat to the 2009 year, the first quarter delinquency was 5.9% versus 6.73%. So delinquency's still up somewhat in the comparable time, but the charge-offs were 13.9% in the first quarter of 2000, compared to 11.6%. The charge-offs are actually better this time around.

The way to look at it is, with the portfolio shrinking, it's going to skew the numbers significantly up. Overall, as I mentioned earlier, the portfolio, the new originations are doing very, very well. The 2006 and 2007 originations are going to suffer. Those would be the ones most impacted by the recession. The earlier vintages, 2004, 2005 have done very well.

The good news is, the 2006 and 2007 paper is now aging to the point where we're seeing a lot of those losses, and those curves should start to turn and actually they are. As I said, the 2008 originations look very good. Certainly anything in 2009 is even better than that. Overall the credit picture still looks fine.

From a bigger view, all of our pools are performing well within the metrics in terms of the rating agencies and the triggers and all of that and again, that would be a fundamental importance to the performance in showing the world or showing the capital markets that all of our pools and our securitizations do perform as expected.

Now, even with relatively significant rise based on the poor economy and the recession, our pools are still performing well within the parameters set out when those pools originally originated. And again, we're very happy with that. I don't know that there's a lot of companies that can say that today. So I think we're really just in an idle mode here.

We're doing everything we can to trim the operations and make them as cost efficient as possible, but what we're really doing is we're just waiting for the economy to improve and the markets to improve. I think there are some spots that show the economy is coming around a little bit, and people are beginning to think the recession is coming to an end and things are going to improve.

If that's the case, we're in real good shape if it could come this fall. Even if it comes next year, either way the portfolio is doing very well. The infrastructure is in place, the franchise and the model work. So, we think we have something that's going to do quite well once things get going again. We certainly hope it will be sooner rather than later. But, we're in a position where we can wait it out. With that, we'll open it up for questions.

The floor is now open for questions. (Operator Instructions). One moment for your first question. (Operator Instructions). At this time, there are no questions. Mr. Bradley, do you have any further remarks?

We didn't really expect a lot of questions, being that we had the call just over a month ago. So, we're very happy with the first quarter. We're very happy with where the Company stands today. We think if the economy improves and the markets tighten up, we're going to be in a position to take advantage of that. We've done what we tried to do, which is keep the Company well positioned, and fighting trim to make it through these difficult times. Times aren't over, but we're doing very well in managing through them. Thank you for those listening and we'll see you in a quarter.

Thank you. This does conclude today's conference. A replay will be available beginning two hours from now until Tuesday, May 26th by dialing 800-642-1687 or 706-645-9291, with pin number 10358893. 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.