Consumer Portfolio Services Inc (CPSS) 2015 Q2 法說會逐字稿

Good day, everyone, and welcome to the Consumer Portfolio Services 2015 second-quarter operating results conference call. Today's call is being recorded.

Before beginning, 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 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. 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, and thank you everyone for attending our call today.

I think, being how it's the summer and the second quarter is over, there is not a lot of particularly exciting news, other than it's about what we expected. The quarter was consistent with our projections. I think, again, I think the big thing about summer is generally nothing happens. After last year, we had hoped to have some growth, and we have had some. So that is in line with what we expect, and what I mentioned on the last call.

So overall, we would say that we are very pleased with the quarter,15th quarter in a row with increased earnings. Almost across the board, all the numbers are what we expect. I think the DQ is up a little bit, but that's partially because it's the summer months. And also, we're -- now the portfolio is getting closer to $2 billion in size. The growth dilution from growing doesn't affect numbers as much. And so, it's a bit higher, but -- and again well within in line of what we would expect.

In marketing, we are still -- we're not hiring quite as much, but we are, as I've mentioned in the past calls, our emphasis now is on training. Very recently, we've seen a real uptick in the deals purchased per dealer. And I think, as I mentioned in the previous call, that was one of our goals. Because in the beginning, in some marketing -- I don't have how many steps it is. But step one, is to get a bunch of marketing people in house, train them, get them up to speed.

Next was to grow the dealer footprint, and get access to as many dealers as we can across the country. And then the third step, was to increase the penetration of that dealer network. And in fact, that is beginning to show some results. So we are very pleased in terms of what's happening in marketing.

I think down the road that will show even a better return, as that project comes full circle. Originations, as we continue to grow originations, works very smoothly. I don't know, maybe eight, nine years ago, when we used to grow in sudden spurts, originations had a tough time keeping up. That is no longer the case these days. Whenever we grow, they have no problem keeping up, and the dealer service is some of the best in our industry. So we're very pleased with that.

Collections is our continuing work in progress. We have seen small movements of progress. I still think there is a lot more to be had out of our collection production. But again, we think we're doing pretty good. We strive to have some of the best in the industry. And so, we think there is room to improve and grow there.

But overall, both in terms of the management structure within the branches, and the overall functioning of collections, and the training involved in getting around -- not getting -- in improving our compliance with all the statutory things going on, the regulatory issues going on, I think we are doing really well, in terms of what collections is doing today, versus what it was doing five years ago. But even so, I think we will see continued improvement in the collection area, as well.

Capital markets, I think capital markets are generally what we'll call, not boring, but consistent. The interest rates appear to be about the same. There is always a talk about interest rates going up, and they may go up a little bit. But if they wait long enough to raise interest rates, we'll probably get some of the cost reductions in terms of how we do business in the Wall Street markets. So that could be nice timing, for both them and us.

With that, I'll turn it over to Jeff to go over financial results.

Thanks, Brad. Welcome, everybody.

We'll begin with the revenues. Revenues for the quarter were $88.4 million. That is 3% increase over our first-quarter revenues this year of $86 million, and a 23% increase over the second quarter of 2014.

For the six-month period, revenues were $174.4 million, and that's a 25% increase over the six-month period of 2014. Basically, it's business as usual, revenue driving, coming from the growth in the portfolio. We bought $270 million of contracts in the second quarter. That's $504 million for the six-month period. That's allowed our portfolio to grow 6% for the quarter, and 36% compared to a year ago. So obviously, we're pleased with the continued gradual ramp up of the portfolio.

On the expense side, expenses for the quarter, $73.2 million. That's a 3% increase over the previous quarter, the March quarter, and a 23% increase over $59.3 million in the second quarter of 2014. For the six-month period, expenses were $144.4 million, and that also is a 25% increase over the expenses for the first six months of 2014.

In the sequential quarter, as most of our expense categories were flat, at least the core operating expenses were mostly flat. Obviously, we had, and we will talk a little bit more about provisions for credit losses increasing. Interest expense certainly increased as the debt from securitizations increased in the sequential quarters. Year-over-year, the core operating expenses increased obviously, and generally consistent with the increase in originations and the size of the portfolio.

A big expense category, of course, is provisions for credit losses. That was $35.7 million for the quarter. That is a [7]% increase over the March quarter this year, and a 39% increase over the second quarter of 2014. For the six-months, provisions for credit loss is $69.1 million, a 40% increase over the first six months of 2014. Our provisioning schedule -- our actual credit losses, the growth in our allowance, very much in tracking with our projections, our schedules. And consistent -- that growth is consistent with our prior expectations.

Pretax earnings for the quarter, $15.2 million. That's a [3]% increase over the March quarter, and a 24% increase over the pretax earnings in the second quarter of 2014. The year-to-date pretax earnings, $29.9 million, a 24% increase over the first six months of last year.

Net income was $8.5 million for the quarter, a 2% increase over the March quarter this year, and a 21% increase over the $7 million that we earned in the first -- in the second quarter of last year. And year-to-date net income, $16.9 million, a 23% increase over the net income of $13.7 million for the first six months of 2014.

Diluted earnings per share, $0.27 for the quarter. That's a $0.01 better than last quarter, and $0.05 better than the $0.22 we earned in the second quarter last year. That's a 23% year-over-year increase in diluted earnings per share. And for the six-months, $0.53. That's also a 23% increase over the $0.43 we earned in the first six months of last year.

Moving onto the balance sheet, free cash on the balance sheet was $18.4 million, compared to $20 million last quarter, and $14 million a year ago. The restricted cash at $200 million includes $95 million in pre-fund proceeds from the 2015-B securitization, which was settled and released, after we closed the books for the quarter.

I might mention that in addition to -- our liquidity position is very strong, and in addition to the cash you see on the balance sheet, the $18.4 million, we also carried on the balance sheet $34 million at the end of the quarter of unpledged receivables. And so, those would have been new receivables that we have recently acquired in the last couple of weeks of June, that we did not pledge to one of the warehouse lines. And if we had pledged them, we would have received significant additional cash proceeds.

The financed receivables portfolio, net of the allowance for losses is now $1.7 billion. That is up about 6%, I think as I've said, compared to the previous quarter, and 36% compared to a year ago. The managed portfolio now is $1.822 billion. So we're rapidly approaching this milestone of $2 billion, and hopefully we will get there soon with continued originations growth.

On the liability side of balance sheet, no new debt. The residual interest financing continues to wind down. The long-term debt, the notes, the [little] notes program at $[15] million has stayed the same. The only significant change is we did a $250 million 2015-B securitization. And so, our securitization net trust debt now is up to $1.8 billion.

Looking at some of the performance metrics, the net interest margin for the quarter was $74.7 million. That's a 3% increase over the March quarter, and 25% increase over the second quarter of last year. On a year-to-date basis, the NIM was $147.5 million. That's a 29% increase over the first six months of last year. So this, of course, is driven by our interest income, offset by our cost of funds.

The blended cost of funds and the 2015-B securitization that we just did this quarter was 3.17%. That's up a little bit from the first quarter [deal], where it was about 3.0%. And the blended cost of all the ABS debt on the balance sheet now for the quarter is about 2.8%.

The risk-adjusted NIM which takes into account the provision for credit losses for the quarter, $39 million. That's about flat with the first quarter, and a 15% increase over the second quarter of last year. On a year-to-date basis, the risk-adjusted NIM, $78.4 million, a 21% increase over last year's six-month period.

Our core operating expenses, which exclude the interest and provisions for credit losses were $23.8 million, roughly flat, as I think I said earlier, with the first quarter this year, and a 10% increase over last year. And more importantly, I think this metric that we have been referring to recently, improving metric -- our core operating expenses as a percentage of our average managed portfolio, down to 5.3% for this quarter. That is a continued reduction, compared to 5.8% in the first quarter of this year, and that metric was 6.5% in the second quarter of last year.

And so, what we're seeing is what we predicted, I think continued improvement in operating leverage, core operating expenses decreasing at a lower rate than the portfolio itself and the top line revenue. And so, our return on managed assets for the quarter was 3.4%. That's down a basis point from 3.5% for the first quarter, and our -- and was also 3.4% for the six-month period, which is down a little bit from the 3.7% for the six-month period last year.

Looking a little bit at more detailed credit metrics, the delinquency at the end of June was 7.49%. That's up a little bit from 6.86% at the end of March, and compares to 6.21% for June 30, 2014. So we're seeing a little bit of seasonal, calendar seasonal increase in the delinquency numbers. As well as I think Brad alluded to the age of the portfolio, the size of the portfolio, providing less growth dilution with the new business that comes on.

Net losses for the quarter 6.59%. That's down a little bit from 6.64% in the first quarter this year, and up compared to 4.98% a year ago. Just a quick note. The return on the auctions, the vehicles we liquidate at the auctions for the quarter, 44.8%, which is up a little bit, and slightly improved compared 43.8% in the first quarter, but down compared to 49.2%. And those numbers have been trending down, as really everybody in the industry has observed.

I'll just make a quick comment on the asset-backed market. We completed our 2015-B deal in the quarter. The blended cost of funds, as I've said, was 3.17%. We benefited a little bit from slightly tighter spreads and execution in the deal on a couple of the classes, but the benchmarks had widened a little bit compared to the first-quarter, which led to it's somewhat wider overall price [up].

But overall, that market continues to be very dynamic. The structure of our deal has really remained unchanged now for almost two years. Eight consecutive deals have been the same five-class structure, going from a AAA at the top of stack, down to a single B. We had, I think, a dozen unique investors in the deal, and almost all the tranches were oversubscribed, 1.5 to -- I think one tranche was 3.5 times oversubscribed. That market continues to be very receptive to our [collateral].

And with that, I will turn it over to Brad.

Thank you, Jeff.

Looking at the industry, not a lot of movement going on out there. I think because of the regulatory environment potentially, and maybe a variety of other things, there aren't a lot of new entrants in the industry. There haven't been in well over a year.

So again, nothing particularly new to report there. But obviously, having no new entrants is certainly a good thing. That keeps people from jumping in, and trying to grow real fast, and do crazy things. So I think on that end of the market it is quite good.

Yet again, it looks like the large players -- banks and otherwise are beginning to pull back or slow down. And so, I think I've mentioned in previous calls, it would appear sort of the new trend is for people to get very aggressive in the first quarter or so on the belief that either they need to put up some earnings, or they are getting better paper. We don't believe that the paper you buy in the first quarter or early second quarter is any better than the paper you buy the whole year. So it's a little odd that that would be a reason, but it's possible.

But what the result of that is, is this year like last, we're seeing a bit of an uptick in our originations volumes during the summer. And as I've said before, normally that doesn't happen. But I'm beginning to by into the fact that in the future now, you're not going to have near that big tax return refund spike in the early months of the year, and maybe a little more consistent production throughout the summer. And so, we're doing that.

We've settled in right around $100 million or a little more. Last year, we were in the $80s million range, and I think we hit $100 million once last year for a month. And this year, we may go to $100 million per month for the rest of the year. So I think there is improvement. It's not quite going [$125 million] we're looking for. But still, we are not pushing to get to that [$125 million] either.

I think, as much as that' is a subtle difference, it's a very important one, in that we're not pushing very hard to grow the portfolio in -- by either credit, which seems to be a way a lot of people do it, and we have not really cut price much either. So we're getting some growth. We're not getting huge growth, but we are getting some consistent growth, and we are not sacrificing hardly anything in credit, hardly anything in pricing to get there, which I think is, overall probably as good as we can hope for.

And I think, so moving onto the corporate side of things, I think -- well, let's see. Let's talk about the shelf. We had a lot of comments on the shelf. A lot of people saying, oh my God, you put the shelf out there. You're going to go sell all kinds of stock and everything else. Well, we talked to investment folks, and some of our financial advisor folks, and they all said, if you ever are going to think about raising some capital or selling some stock, then you should have a shelf in place. And under that advice, we put the shelf out.

I think I've mentioned many times, sometime down the road, dominant we may go out and raise some debt. We certainly not doing it today. At this very moment, we have no intention of either raising a lot of debt tomorrow, or selling a stock tomorrow, which was a lot of the questions we got. Boy, you put this shelf out there. You must be doing something imminently, and that just isn't the case.

I think having the shelf in place, there was a chance we would have been reviewed. And so just for a lot of housekeeping reasons, it was a good move to put the shelf out there, so you have it, and it lasts forever. And down the road, we may raise some capital, if we think the market is right. If the stock ever goes up to some level we like, maybe we would sell some stock.

Neither of those things are true today. So that takes care of the shelf. To the extent that some people got somewhat irate or upset, that we put it out there without any notice, we apologize for that. But again, it was much more of a housekeeping thing, without any imminent things happening.

Let's see, in terms of the stock, we could talk for about for -- I don't know -- two or three hours about how great the Company is doing, and how we're doing everything like we said we would. We've been doing that for quarter after quarter after quarter. But in the end, no one cares about anything but the stock price. What people should realize, as much as we also get lots of comments on, how come you're not doing anything about the stock price, the one thing we cannot control is the stock price.

We can run the Company. We can grow it, we can buy good paper. We can do all of the things we've said that we're going to do, and in fact, have done. But one thing we cannot do is anything with stock price. We can put those results out there, but the stock price is going take care of itself at some point.

We're trading in a very low multiple. We have produced lots of consecutive quarters of earnings. We have real growth in the revenue and earnings. Trying to get the stock to follow it, is difficult.

I mentioned we might buy in some stock, and we have. We bought in 285,000 shares at an average price of $6.21 over the last few months. I think as the opportunities present themselves, we will continue to buy some stock. We thought we were buying it really low at $6.21. Most of the stock we bought was more than it is trading for today. So it's a little bit problematic, in that we would like to go out, and we think the stock is significantly undervalued.

So we're trying to buy some back, but then again when we buy it in at $6.21 per share, and it is sitting at $6.00 a share, that's a little disappointing even to us. But as the opportunities come along, we will continue to buy some in, or if we have the opportunity to do so. But we have in fact, bought some in to date.

Another thing we noticed was that in April, the short interest in our stock at the end of April was only about 0.5 million shares. Today it's almost 1.3 million. So what whatever reason, there is folks out there that don't have a lot of faith in the Company and the stock, and have shorted it. So an easy thing to do is, is gee, if you really want the stock to go up, go buy some, and put the guys with the shorts in a tough spot. I can't quite understand why the short interest increased. Maybe it's just an a strategy for some hedge funds or whatever. But nonetheless, but it's a little bit noteworthy that the short interest in our stock has doubled over the last couple of months.

I also want to mention that we didn't, in fact, renew one of our credit facilities. I think we did it with Fortress, one of our longtime partners, and so that's been a good thing. We're probably always in the market to keep looking at those facilities. Currently, we have two facilities at $100 million each. We may yet add another one in the future, as we continue to grow and need a little more capacity.

Let's see, I think Jeff mentioned, the better operating leverage [blendings]. One of the things we did say we would do, and we have in fact done, is that get -- that operating leverage continues to improve. If you've take in the fact, that interest rates have not moved up much, and the operating leverage continues to get better. Those are all very positive things for the future of this Company.

I think the overall economy, it's just slogging along. As I've said, everyone wants a real fast-growing or improving economy. We particularly, probably don't care: having it move slowly is good for us. It keeps those rates down. Generally, it's a very good lending atmosphere. Unemployment isn't really a factor today.

So as I've mentioned, that would be the most important factor to our performance. So to the extent you have a moderating economy, and you have low rates, and low unemployment, it's a very good recipe for sub prime auto. And so, we're taking advantage of that.

In terms of opportunities, to the extent we could buy a company, that would do -- may be a big move. There aren't any companies out there today. We continue to look. I think someday, whenever there is a recession, there will be some opportunities, and we will be in a good spot to take advantage of them.

But for now, we just can -- all we can really do is run the Company the way we are supposed to, and the way we have been. And hopefully, eventually the stock price will catch up. With that, I'll open up for questions.

(Operator Instructions)

J.R. Bizzell, Stephens Inc.

Yes, good afternoon, guys. Congrats again on another earnings growth quarter. Brad, building on that share buyback, I knew you had talked about it last quarter. I just wonder if you could provide some more details, maybe about that share buyback plan. What you're capable of going out and buying, and how you are thinking about it. I know you said recently you bought some, and its traded off. But just wondering how you all are thinking about that for the rest of the year?

I think we are going to continue to buy opportunistically. We are not really putting out a plan per se. I think, the stock sits where it's sitting -- and well, the easy way to look at is, we think the stock is tremendously undervalued. To the extent we can find opportunities to buy it, then we will probably continue to buy some here and there.

We're not really -- there's no real set number in what we're going to buy. There's no set time line on what we're going to buy. So it's not particularly helpful to your question, but it's where we sit. We're going to buy it opportunistically, as we go.

Great. And then switching back you talked about competition, and what you're seeing there. I'm just wondering, with your yield and thinking about that moving forward, and are you seeing any pricing pressure. I know you said, you are not seeing a lot, but just the cadence of the pricing throughout the quarter? And was it more aggressive obviously in the 1, 2 in the beginning of the second quarter, and how you are thinking about competition for the remainder of the year?

That's a good question. I think, it isn't so much, as it is easy enough from say, your point of view or many other points of view, that you look at the APR comes down a little bit and its pricing pressure. When it's really that small of a change, our goal for the APR is somewhere above 19% and maybe 19.5%. So our target range is 19% to 19.5%. We've been in that for a long time.

To the extent it moves around within that range, that's almost more from a mix perspective from what we do. We're always trying to find areas that are a little more productive. We can find a spot in what we buy where the performance is better than we expected, we might buy a little more, lower the price there. And then conversely, to the extent we find some paper that is not performing quite as well, we might tighten it there. So occasionally our mix changes.

We buy a little bit more new car paper or new dealer paper versus independent paper. And that has a tendency -- if we're buying more paper from the new car franchises, the APR will come down because it's lower priced. These are buying more from the lower tier programs, then the APR is going to go up. So I think what you're seeing more today is just a small fluctuations within our range, based on the product mix we are buying, as opposed to real competition.

I think the competition certainly since -- I don't know -- April has very much moderated to where no one is out there buying aggressively. No one is particularly to try to grow real much. That is not to say that there's no compass. Everyone is buying and so on and so forth. So the competition is steady. So there's no real change; there's no real pressure.

If a new company came in and said, I want to buy $0.5 billion quickly, and pick Exeter, just for an example. There is no new Exeter today. Exeter has been around for a long time now. But when they started, they bought very aggressively, and wanted to grow a lot. There's no new entrant like that today. And so, you're having what we'll call, a much more normalized buying trends from all those folks.

Great. And last one for me, I promise. Cadence is the keyword I am using today. But just originations, obviously, when we talked in -- I guess, it was in April and things hadn't really accelerated yet as you thought they would.

Just thinking about June, did you see a pretty substantial ramp up in June? I know you said, you're over $100 million in the month. I'm wondering if May was very similar to June, and would you expect that rate to continue in July and August?

We did see the bump up in May and June, and we would expect that to continue -- we'd probably guess for the rest of the year. Originations appear strong. You can sort of tell a few weeks ahead of what's going on. And so, July looks a lot like June, and June and May were better than April.

So we did in fact see that uptick in the middle months that we normally didn't expect. So it's two years running, and I am close enough to saying this is the new metric, in terms of how the growth mode works in sub prime. It's certainly, for us. So we probably -- and I'm guessing next year, and if it happens again next year, we will certainly say this is the way it's going to be.

But my guess is you have a much softer growth in the first four or five months of the year, and then instead of having it dip through the summer, you'd see much more normal growth throughout the year. And then, maybe a dip towards the end of the year. The only thing that seems consistent right now is originations drop off still in November and December. So we would expect maybe a gradual increase over the summer. But certainly we did see a little pop in May and June, and that's continued to nudge forward through the summer.

Guys, I appreciate it. Thank you for taking my questions.

David Scharf, JMP Securities.

Thank you for taking questions. Hey, switching gears a little on recoveries and collections. Brad, you mentioned that there's always room for improvement. Just from a process standpoint, we're in this post SEC settlement for you all. I mean, have you largely implemented all of what was required in terms of collection practices? Or from a standpoint of just new processes or having to add headcount? Is there still more to go?

I think there are two parts. I'll do the second part first. In terms of headcount, nothing really changes that way in terms of implementing the collection practices. And so headcount has not particularly changed. Maybe it's up a little bit. But that's more I think we have the ability when we want to -- if we want to change things, just as a safety net, you might increase headcount a little bit. But I think in the long run, the headcount is not going to be changed as a result of implementing better collection practices.

So to that part of the question, we started implementing better collection practices in the middle of 2011. And so, that is now four years old, and it took some time. I think it took -- and it wasn't so much the headcount. It was more teaching folks the better way to collect. And so, I think we've gotten the point where most everyone -- all the collection folks know what to do and are doing it.

Maybe an interesting sidelight would be, we found that it was much easier to train the new people, because they didn't -- they never collected the other way. And so all the new hires all do it very well, and we've had some time to train the old folks -- the veteran collectors to do it the right way. And I think at this point, that is just about complete.

So we've implemented all of the collection practices over the last few years, and I think at this point -- it's a process, and I think we're way ahead of a lot of folks in it. But first, you have to be trained on how to do it, and then you have to get them used to it, and then they got to do it. And so, we are doing that now. All of those folks collect the way they are know supposed to. And I think the results we are going to see will continue to improve, because it's only about now that I would say that the entire collection force is doing -- walking in the same line that they are supposed to be.

And having said that I think there's lots to do, even so. Because I think the last step, and probably I guess, what we're doing today is we're still working on all the monitoring, and the things necessary to make sure that all stays the way we have now built it. And I think that's also very important in terms of the regulatory environment. Because not only you want to be able to do the right way, but you want to be able to monitor it so it stays the right way. And on top of that, you want to be able to prove to anyone that it is exactly the way it supposed to be. And that's about where we are today.

And it might sound easier than it is, but it takes a significant amount of time, a significant amount of training and planning to implement all of those steps. And as of today, we can pretty much say we have done that. Having said that, I still think that the results from the collection force could be better and they probably will be over time.

Got it. No, that is helpful. In terms of recoveries, the -- is the current level of provisioning -- I mean, the ending allowance in June was a slight uptick from March at 4.2%. Obviously, the average age of the portfolio is going up a bit. Does that level of provisioning reflect recovery staying at this 43%, 44% range? Or are you forecasting over the next 12 months further degradation in collateral values?

I would think, I mean, would bet on historic trends. I am going to say off the top of my head, is always been the low 40%s. And so short of an economic change like another recession or whatever, we would expect recoveries to stay right about where they are. So and even having said that, the recoveries probably don't have enough of a big factor or big piece of the factoring in terms of the provisioning.

I think the provisioning is more of -- we've said all along we're trying to get to the range of losses in the paper performance that we are about at now. And so, I guess, the net on top of that, to the extent give you a little bit of extra provisioning for a little bit of the cushion, and that is helpful, too.

But I think on the one hand, I think the recoveries will stay in the low 40%s without a recession changing that significantly. And then, I also don't think that recoveries play that big of a role in the overall provisioning process, and I think the provisioning process itself is settling in, other than to the extent you can build a little cushion that's always helpful.

Got it. And then, just lastly on the origination front. I'm trying to get a better feel for the comfort level, and maybe what programs -- what type of product or even geographies are -- give you the confidence of getting to that $100 million -- sustaining really the $100 million a month level for the rest of the year? It seems like based on what was purchased this quarter relative to the securitization size in June, that the month of June came in stronger than maybe you anticipated. Is there any particular type of programs where you are seeing more opportunity or less competition in what the pricing looks like in those programs as well as a deeper down the strata of sub prime?

I think June was better than we expected. We had hoped for a little boost in June and we got it. So that is what we expected. In terms of how we buy, interestingly enough, and this also sort of make sense. Knowing that all of our six or seven programs we run are profitable across the board. The deeper programs where maybe we have slightly more expertise, it's easy enough to say banks and big players can beat us at the higher end, because they're a little bit cheaper, or a little bit -- their cost of funds might be slightly less. But we still play in that market, but our margins are thinner.

As you go down the curve, towards the lower end programs, our margins grow. So in some ways, buying deeper is more profitable. Over time your loss number goes up a little bit, but if you're making more money, that is just fine. And so, but to answer your question I think, and I alluded to this earlier, for us it's all about the mix.

And like I said last year, we lowered the pricing at the top end, and got a ton of new cars that we didn't expect, because we thought that market would be less elastic. We thought, you wouldn't get a lot of push by lowering your price below the top end, and we got a lot which was very interesting last year. This year we're seeing that, there might be more room a little further down the curve with less competition. So we're looking at that.

But for us, it's always trying to balance it out to where we stay right in that targeted range of losses. We haven't -- we're certainly not in a position to say we're going to make a move down or up. We are still trying to have it all balanced out. So when we look at the programs, a lot of it is how do we mix them together to find the most profitable mix all overall, while trying to maintain the losses. But the easy answer is the lower programs are more profitable than the higher ones, because there's a little less competition, and maybe we're a little bit better at what we buy at that end. Down the road, we might revisit that but not right now.

Got it. I guess lastly along those lines, in terms of the product mix or the program mix, is the weighted average FICO within the portfolio pretty consistent with where we were a year ago?

It is. I think, remembering on the one hand, we don't use FICO in terms of how we buy paper at all. But because people like you and every one else happens to ask (multiple speakers) we keep track of them. And so, first-time buyer is generally regarded as the riskiest paper, and its FICO is higher than the next four programs above it. So I think the FICOs are remaining very consistent, and are generally very close together.

Got it. Thank you very much.

John Hecht, Jefferies.

Good morning. Thanks very much. First, and forgive me if you had mentioned this. You talked about it a little bit of pricing compression. Do guys have handy the average rate in this quarter versus last quarter? And then moving beyond that a little bit, or more into the weeds on that, where are you seeing -- you that you talked about different programs -- where are you seeing more? I guess, you sort of answered this on the last question. Where are you see more or less competition, or if spreads widen more, giving you some arbitrage opportunities?

I can tell you John, that the weighted average coupon of the second-quarter production was 19.3%. And that is just down 10 basis points from 19.4% in the first quarter. And then, the acquisition fees also trended downward about 40 basis points for the second quarter, compared to 70 basis points for the first quarter.

Okay. That's great.

So I would almost think that is more -- again, that's more of a mix thing. I think we might have grown a little bit on the high-end, and that has pushed the numbers down a touch. I think what we're going to say, we would say as I just said a minute ago, we think the lower programs offer less competition in today's market.

Yes. So it sounds like coupon relatively flat but a little bit down. Fees maybe more mix shift. But in the coming months you guys might go a little deeper, just because that's where you see the near-term opportunity?

Yes, we wouldn't mind picking up APR a little bit, and the discount a little bit so. But again, we have to do it judiciously to make sure we're not -- we don't want to [make it too deep] kind of thing. And to be fair, we're not really worried. What we're buy on all the lower programs performs great, and certainly very profitably as I mentioned earlier. And so, a lot of it is just, we don't want to have -- we don't want to have the loss -- what our target losses drop down too much or go up too much, or our targeted pricing go down too much.

Okay. And turning to credit, delinquencies and charge-offs are up from prior recent periods, but yet we attribute that and I think you guys do to, to a normalizing environment. Where are we in that curve? And when you think things start to flatten out or stabilize on a comparative period basis?

I would like to say any minute, though I don't know. Because I think in the last quarter I said sort of the same thing, which is we would hope for improved results in that area soon. So at this point, I guess, it's safe to say we'd hope to target the end of the year for that start to improve.

But again, it's still a little bit of work in progress, and we are still waiting for some better results from some of the large big scale thing we've done over the last couple of years. And so, but we have a lot of new folks that are all [roaming] the right way, and we would expect to have some better results over time. Picking a time is a little tough to do (multiple speakers)

Does that stabilizing -- or do you think that is more on the collections side, or it's more on the front end, where your -- the terms just tighten up a little bit, and new loans that allow credit to stabilize?

No, I think it's just on the collection side. If you look at what we buy. I mean, I just happened to glance at it a few minutes ago. We buy real consistently, in terms of what we've been buying. Just to pick one, like LTV is a good indicator. Our LTV is very stable over the last year, or last several years. And so, to the extent we were really buying very differently, you would see some of those metrics change. And ours really don't. And so, we think the front end is doing just fine, and we would expect the improvement in the back end in the collections.

Okay. And then last question, just interested in your thoughts, and we've seen some of the captives concede with the regulators in terms of going into a single dealer mark-up. Where are we in that discussion at the more kind of monoliner, independent lenders, and where do you see that going in the next few months?

Now that's a very good question. I think, obviously the news came out a few days ago with Honda, and I think everybody is watching that carefully. The good news is, we don't have a lot of dealer markup anyway, and we are within the industry standard kind of thing. So it's not going to change what we do dramatically one way or the other. But I think we will wait and see what we'll call the big boys do, and we'll follow along.

But I think -- I guess, the easy answer is it's probably coming one way or another. And remembering that, the markup doesn't really affect us at all. It affects the dealers. And so, it's kind of odd that the regulatory folks are using the lenders to regulate the dealers. I mean, the bottom line is they don't want dealers to markup loans to customers beyond a certain level. And the way they're going to enforce that is by not letting lenders buy those loans above those levels.

And if you think about it, it doesn't really change what we do. It will have an effect on the dealership market, or the auto industry that way, and that's why there is probably such a lot of noise about it. But it doesn't effect what we make in any of those loans one bit. And in some ways, to the extent that they actually do cap it, arguably we will be buying better credits. So on the one hand, it looks somewhat alarming when you read about in the paper, but it's really all about the dealers not the lenders. And so, in some ways many of the lenders are gong to benefit from it. I'm sure nobody likes to talk about it that way. But that is just the way it is, from our point of view anyway.

Yes. No, that is great. I appreciate the color. Thanks very much.

Charles Frischer, LF Partners

Good afternoon, gentlemen. Hey, thanks for taking the phone call. Brad, you guys had a terrific quarter, at least I think it was. I mean, your originations have picked up, your metrics. First of all, I just want to say, you guys are doing everything right. I couldn't run the operation -- I don't think anybody could do a better job than what you guys are doing. It's just very impressive to watch you guys from 2009 to where you've gotten.

Thank you.

The -- I guess my question is really about the share buyback program, and I really applaud you. I can't tell you how happy I am that you, and the Company has bought just under 300,000 shares in the last few months. I guess this is more of the comment than a question. My thought is, don't worry too much about the price. Whether you pay $6.20 or $6.30 or $6.00, I don't think it matters very much, because we're buying it at such a terrific value that it really doesn't make a difference. So won't worry about the last $0.10 or $0.20. I'm not a seller here. I'm not saying that so you can buy my shares. If you're going to be a share buyer, I'm never going to sell my shares.

Well, I agree with you. I think -- I was just pointing out, even when we were buying it in -- above $6.00, we thought we saw where the bottom is, it's come down a little bit. And I agree with you 100%. There's no real difference between buying it at $6.00 or whatever.

Yes and I would argue that if you sit there, and you're a buyer of your shares and the market sees it, one of two things will happen. Either your stock will go higher, which if that's what will make people happy, that's great. Or the stock won't go higher, and you'll get the chance to buy back gobs of stock at 5, 5.5, 6 times earnings, whatever number it ends up being which are a hell of a value. And if we can buy a company at 6 times earnings, you'd be the first one to buy it. We would buy ourselves in a heartbeat, I guess.

That's true.

So anyway, keep up the great work. You guys are going to get there. Lay on the accelerator a little more in the buyback, and you'll be surprised at where you end up in a year or two.

Thank you for the encouragement and the comments.

Buzz Heidtke, Heidtke & Company.

Yes, I've been a shareholder for about two years, and I just bought some more shares today, with a good report. On that short selling, I imagine what you see is going to be selling shareholders. And some of the sharpies are shorting the stock, and feel like they are buying on the offering, maybe it will be done somewhere between -- under $7.00 a share. But my question was, I have been an investor in the investment business for 47 years. And I have a formula about what people should get, what people [should get] paid. And normally the top three officers shouldn't make more than 10% of what the net income is. It should go down as a smaller -- in smaller, in the larger companies. And also the top guy shouldn't make more than the next two back guys combined.

Well, you all are making 15% approximately that, of the net income. And you're making about 2.33 times the next two guys combined, and that just seems like its, on my formula is very excessive. I have owned 1,500 companies in my lifetime probably. So I'd like some comment on that please?

Sure. I think there's a couple of things to consider when looking at those numbers. I think on the one hand, the easy answer is -- and again it's difficult for me to do in trying to defend myself publicly, but I'll take a shot. The easy answer is the Company has been around for -- I don't know -- 23 years or 24 years. It's one of about five that can say that.

One of the reasons one might think is, because I am here at some of the folks are here. And so, to the extent the money wasn't there to stay, then a lot people would have left, and the company might have gone under like many others. And so, at some level -- people -- I don't have too much trouble with people saying, I've actually got lot of comments saying I that I earn exactly what I get, because of the things we've done with the Company over all this time.

But also, I think in terms of looking at -- I just think it is not a big enough Company for you to compare my salary versus other salaries below me. I think of note, our COO has left company this year, and we didn't replace him. So we actually cut, and trying to compare me to the next two. The person in the number two spot left. So it's hard to use that as a number, when that number is no longer there.

But the easy answer is, I think as a shareholder -- something to remember is, as much money as I may make or whatever, the reason I'm in this business, I'm in this company is because of the shares. I own, I guess, I'm the largest shareholder in the Company. And so, what I care about is that share value. Changing my salary particularly isn't going to affect the share price. So the easy answer is, I'm aligned with every single person out there more than anyone could be, being how I'm the largest shareholder. And I have every interest in the world in getting that stock price up.

But in the same token, I think as a shareholder you want a management team that is dedicated to running this Company, and isn't interested when the share price goes down, are looking for greener pasture somewhere else. And so I think that's, part and parcel of what you get here. We -- our management team is one of the strongest, one of the ones with the most experience in this industry. And growing a Company from the 1990s through today takes a lot of experience, a lot of staying with it through the downturns, and a lot of expertise to make it through those downturns.

And so, I think I understand your comments. And I think if the stock price was $27, there probably wouldn't be any comments. But nonetheless, comments are comments, and that's the way it is. But I would hope that we can get the stock price up and make everyone happy. I'm not all that worried about the management. Our management is one of the best in the industry, if not the best. We've been with our company longer than almost anyone can say they've been with their company. And so, I'm somewhat okay with the whole thing (multiple speakers). But thank you for your comments.

My last question is I think it's predicted 3.5 million shares sold, and I guess about selling shareholders, how many of that 3.5 million will be selling shareholders?

What are selling shareholders?

I thought I read that --

Are you referring to the shelf offering?

Yes

I mean, again, as Brad said, that is just an offer, the shelf is put in place as a housekeeping measure. There is no imminent plans to sell shares.

But there will be selling shareholders in that?

The shelf gives us the opportunity if we wanted to. As I mentioned earlier, we filed the shelf. And I believe the shelf had $150 million of debt and 3.5 million of shares. Now I understand what you are saying (multiple speakers). To the extent that the company wanted to issue 3.5 million shares some day we could under that shelf. As I mentioned earlier, there is no plans today for us to do any of that.

Okay. Thank you very much.

Thank you.

David Cohn, M.S. Howells & Company.

Hi guys. Excellent quarter, and thanks very much for taking my question. This is the first call that I have participated in, and I just had a couple of follow-up questions. Could you please explain what the terms of your buyback were, how many shares have you announced?

We didn't actually announce a buyback. We are just buying back opportunistically as things go along.

The Board has to authorize how many shares -- (multiple speakers)

Yes, I'm sorry --

So what is the authorized buy back?

5 million.

5 million shares. And what did you expect would happen to the stock price after you announced the shelf? You seemed discouraged that you bought back at $6.21, and it traded lower. But you recognize that any time you offer a shelf, it's very common to see the stock decline. So I am a bit confused.

With respect to the last caller's questions on compensation. You are always entitled to be paid, and you guys do a great job. As you suggest, you are amongst the best in the industry. But you have to recognize your shareholders are the ones who essentially own the business, and I recognize you are the largest shareholder. But shareholders buy stock for only one reason, and that is to see an increase in the valuation of the business, and your business hasn't really improved in terms of its valuation for a couple of years.

Before I started to buy the stock, I went back and looked at the chart, and I was a bit puzzled as to why the marketplace hasn't rewarded you for the improvements of the last couple of years. And your business appears to be very consistent, very well-managed. I do note that management did have a significant number of option grants in the last calendar year, and as the last caller said your salaries are quite high.

Have you ever explored taking the company private? I mean, at 5 times earnings, and significant publicly traded company costs, and I am looking at your audit costs. They look like they are $1.5 million a year, and you probably have other significant public company costs. Have you considered taking the company private?

Certainly, we have considered it. I think, on the one hand, and I'm a believer that the stock price is going to go up. And so our goal every day is to run the Company in such a way to improve shareholder value, and get that value recognized in the stock. Obviously, in the last year or two as you point out that hasn't happened.

And so, but we've been here for 24 years. I've never sold any shares just for the record. And also just to point out the -- in the option grants all of those shares that are granted in options are granted at market price. And that's a real incentive for the management. Because most of the shares actually over last couple years have been granted something near $7.00 (multiple speakers).

I believe $6.59 was the price for last year. I did miss that.

That's right. Two, or the two to three years before that, was all around $7.00. And nonetheless, all that stock is now under water. So it's basically worthless. The only way for anyone to earn anything on the shares in the management is to improve the stock value of the Company. So we're all very motivated to do just that. So I'm not so sure that's -- that's a very good incentive, the way I look at it, because to the extent we want the stock to be $7.00 or $8.00 or $9.00, that's what it needs to get to before anyone here makes any money on that -- those options.

Understood.

But in terms of going forward, we're always looking at different things. I think taking the company private is -- obviously it's an option out there always. Again, I'm little more of a believer that at some point, the industry will recognize the value, and the stock price will go up.

If I could interrupt you there. What is the event, or what are the results that in your opinion -- what you have to do to make the market recognize you trading 5 times with an exemplary five-year growth record, and one of the stronger management teams in this space, and a really good business? What do you have to do to get the marketplace to give a multiple and why don't they?

Well, okay. The easy answer is we could sit here for a couple hours and try to guess what that would be. Let's just throw one out there that's possible, and we thought about lately. I think the regulatory environment today, and the view that some folks have of our industry certainly isn't overly positive, given the things you read about in the press. So there is probably a bit of a negative of hedge funds and other folks taking huge positions in companies like ours, because they're worried that something could go wrong, and they have some headline risk. And that would be enough of a negative to keep a lot folks out of this industry and out of our company, along with everyone else's, or least ours in particular or whatever.

And so, to the extent the regulatory environment changes at some point, that could be somewhat of a watershed event, where let's say the Honda thing and all these other things settle to where there is no regulatory problems. That would be enough to where people could come flooding back into our industry, and float all companies including ours. And maybe recognize at that point -- when they go looking for companies in this industry because they think the water is safe again -- that we would get a real value because people would recognize that was the only thing that was keeping us from being recognized as a better one than the rest. And again, I can only guess at what these events might be. But that is certainly one we've thought of lately.

No, I appreciate your comments. And if I were running your Company and I am not, I would be out borrowing money to buy back stock at 5 times earnings. I would buy everything that I could buy at $6.00. So my two cents worth, I am a new shareholder. I am going to buy more stock. It is a very attractive business at these valuations. Thank you for taking my questions.

Thank you very much.

Lucy Webster, Compass Point

Hey, good afternoon. Thanks for taking my question. My question's on the wholesale channel side. I was just wondering if you had any color on what vehicles are performing better at auction? Is there a certain type that has stronger pricing than others, or are you seeing strength and increasing across the board?

Go ahead, Jeff.

Lucy, I don't think there is any, necessarily any pattern. We're buying, of course, we are originating generally a basic transportation vehicle, a lot of light trucks. And historically, we find that light trucks for example, hold up very well at the auctions. We have a broad mix of manufacturers. There is a couple of -- some of the Asian manufacturers, Hyundai and Honda generally hold up very well and do well at the auctions. And none of those patterns have really changed. Really, even as the overall levels have come down, none of those patterns within the broad groupings have changed really at all.

All right. Thanks for the color. Thanks for taking my question.

(Operator Instructions)

Mitch Sacks, Grand Slam

Hey guys, you actually got Erik Volfing in for Mitch. Congrats on a good quarter. I was wondering if you could you give a bit more color about -- as you are scaling the business, and you are growing, what do you see on the operating efficiencies -- not so much maybe on the origination side, but more on the back office side? Have you gotten your people more trained, and what can we look for there in terms of efficiency?

Well, that's a very good question. Over the last few years, we had a lot of focus on the front end, a lot of automation. What's interesting is, today the automation is now on the back end, and the collections side. And so, we would expect over time to actually have our collection performance efficiency improve.

And so, the focus before was all on the metrics, and the things that you could do upfront. In other words, putting a scorecard, having the computer decision things rather than people. And as everyone knows, we now give decisions in two seconds instead of two hours. But now all of a sudden, that kind of focus is on the collection side. In other words, which customers need to be called, how often, what type of customers are more likely to need more collection efforts than others?

We have done a lot in terms of the way the auctions function, to make those efficient. So I think -- I guess, an easy way to answer the question is generally speaking, there has always been lots of efficiencies and it's improving. But we think there could be some more in the collections as we go forward. Not to the great extent we've had over the last 10 years in the front end, but there is still more on the table there, and I think we'll get some more out of it as time goes by.

Great. Thank you.

I am not showing any further questions at this time. I would like to turn the conference back over to Mr. Bradley for closing remarks

Well, again, I think the quarter went like we expected. The results were very good. I think the trends are all very good. We are doing what we're supposed to be doing, and I think we are seeing the results.

I would like to hope for that watershed event, to have the stock get the recognition it deserves, and we are dutifully trying to do all of those things. I think we will continue to opportunistically buy back stock when we can. I agree there is no difference between a $6.00 price and $6.21 price. Anything at this pricing level is a bargain, and we will look to continue trending in those ways.

I think we're also on the road constantly, trying to get our name out there more, and trying to get in front of the hedge funds, and folks who buy these stocks. And just get CPS more in the marketplace, and see if we can get some more recognition of our performance on the stock. So knowing that that's our goal, along with running the Company efficiently, which we have been able to for long time now, we will continue to do that, and we will talk to you all next quarter. Thank you.

This does conclude today's teleconference. A replay will be available beginning two hours from now until July 23, 2015 at 11:59 by dialing 855-859-2056 or 404-537-3406, with conference identification number 83557731. A broadcast of the conference call will also be available live for 90 days after the call via the Company's website at www.consumerportfolio.com. Please disconnect your lines at this time, and have a wonderful day.