Consumer Portfolio Services Inc (CPSS) 2015 Q4 法說會逐字稿

Good day, everyone, and welcome to the Consumer Portfolio Services 2015 fourth-quarter operating results conference call.

Today's call is being recorded.

Before we begin, management has asked me to inform you that this conference call may contain forward-looking statements within the meanings 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 risks and uncertainties 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 you 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, everyone, to our fourth-quarter, year-end conference call. So let's see, so it was a good quarter overall. We had the results we expected.

I think a couple of the highlights of the quarter, we set up a new credit facility, $100 million with Ares Capital. That now brings our credit facilities to three at $100 million each. With $300 million capacity we think we're pretty well set in terms of going forward. We may yet, I think, as time goes by, we may increase some of those lines. I don't know that we would add any more players at this point.

Other positives of the quarter, we launched what we -- I think our eighth program, which is the Bravo program in marketing. It's a deeper cut than most of all of our programs. It has a higher coupon, a lower advance. It seems to be being well received in the marketplace, and so that will yet again expand our reach in the overall marketplace, which we look at as a very positive thing.

The other thing we're doing was we've launched our direct lending program. There's lots of other folks who do that, but we've started to do that. And that also looks like it's gaining ground. And these are just a couple different areas we're pursuing to widen our available targets in the market and how we can expand and continue to grow.

Another highlight was the managed portfolio passed $2 billion. We view that as an important part of our overall strategy, getting to that critical mass. $2 billion's a big portfolio; it's getting us where we want to go. So again, that's a milestone that's worth noting.

On the negative side, collections remains a challenge. I guess if there's good news to that, I think it remains a challenge for everybody in the industry. We've spent a lot of time, as I've mentioned in previous calls, in revamping how we collect. And so whether that's going to be the trend or whether this is more of an overall economic thing is still up in the air. But again, collections is a continuing challenge, and we're hopeful it will improve but at the moment, that's what it is.

Auction rates also continue to disappoint. They've been continuing their downward slide. I think the good news there is at some point that should turn around and probably they won't slide much further. But again, it's just something to note that we're not particularly happy about, but there's nothing we can really do about it.

Lastly, which we're truly not happy about, the stock price continues to languish. There's certainly all sorts of rumors around the sub-prime auto industry has fallen into disfavor on Wall Street. Not quite sure why, given the industry's track record of being very resilient, very strong. But nonetheless, that certainly seems to reflect -- a continuing reflection in our stock price.

We'll go into some of these things in more detail, but first, I'll turn it over to Jeff to go through the financial results.

Thanks, Brad. Welcome, everybody.

We'll start with the revenues. $95.3 million for the quarter represents 1% increase compared to our third quarter this year, and a 14% increase over the fourth quarter of 2014. The year-to-date revenues, full-year revenues, $363.7 million; that's a 21% increase over $300 million for the full year of 2014. Generally, all this is of course, driven by the portfolio growth. We originated $269 million in the quarter, and the consolidated portfolio grew 4% for the quarter and 24% year over year.

Moving on to the expenses, $79.5 million for the quarter is up 2% compared to the third quarter of this year of $78.3 million, and up 15% compared to $69.1 million in the fourth quarter of 2014. Full-year operating -- full-year expenses, $302.3 million, a 22% increase over the full year of 2014.

For the most part, those expenses consistent with the portfolio and originations growth. The interest expense, which we'll probably talk about a little bit more, has generally widened out a little bit as cost of funds has increased gradually due to spreads widening in the ABS deals and some of the cheaper deals running off a little bit as somewhat more expensive deals are getting on the books.

Provision for losses, $36.1 million for the quarter. It's actually down about $1 million at 3% from the third quarter and up 15% from the fourth quarter of last year. Full-year provisions for credit losses $142.6 million; that's up 32% from $108.2 million of last year. And if you've been tracking this, you can see that the provisions have been running pretty consistently between 7% and 8% of the average portfolio balance for the quarter.

Pretax earnings for the quarter, $15.8 million, that's a 1% increase over the sequential quarter, and a 10% increase over the fourth quarter of 2014. Pretax earnings for the full year, $61.4 million, an 18% increase over pretax earnings of $52 million in 2014. Net income for the quarter, $9 million, a 2% increase over the third quarter of this year and a 13% increase over $8 million in the fourth quarter of 2014. Net income for the full year, $34.7 million, an 18% increase over the full year of 2014.

Diluted earnings per share, $0.29 this quarter. That's a penny more than the third quarter this year and four pennies more, or 16% more than fourth quarter of 2014. For the full year, $1.10, a 20% increase over the $0.92 we posted in 2014.

Moving on to the balance sheet, the thing that might have popped off the balance sheet for you, the only thing that looks a little unusual, maybe a couple things relate to how we handled our ABS deals for the fourth quarter. Restricted cash is $106 million, $100 million less than we showed in September of this year.

You may have already noticed that we didn't do a fourth-quarter ABS deal. The warehouse line, the new warehouse line that Brad mentioned that we acquired in November gave us the flexibility to postpone what would have normally been our December transaction and conduct that transaction in January. December's typically been a lackluster response in the ABS market.

So getting back to the restricted cash, on almost every other previous quarter end for several years now, we've had a restricted cash deposit that represented the pre-funding amount for that period's ABS deal. Essentially, we were selling bonds for the last month of the quarter, and that big restricted cash balance represented that presale amount.

Anyway, so not having done a sale -- a securitization in the fourth quarter, we don't have what would otherwise have been about $100 million of additional restricted cash on the balance sheet. And if we continue on with this plan, loose plan of doing -- beginning-of-quarter securitizations rather than end-of-quarter securitizations, we should continue with this pattern of no big restricted cash balances from pre-funding amounts.

Moving to the finance receivables, the portfolio grew about 4% over the quarter, as I said before, 24% for the year. The other items on the balance sheet, not much changes in the debt. Warehouse line is a little higher than you're accustomed to seeing, because again, we postponed and didn't do this ABS deal until January. The residual facility pay continues to pay down. Securitization trust debt is down for the quarter, again because the ABS deal was postponed.

Moving on then to some of the other credit performance metrics. The net interest margin for the quarter was $79.3 million. That's essentially flat with the third quarter this year and a 12% increase over last year. I mentioned we've had some compression in the NIM. The overall ABS cost for the quarter, the interest expense, the debt service for the ABS bonds was about 3% for the quarter compared to 2.8% in the third quarter and also 2.8% for a year ago. So you can see that we're starting to feel a little bit the impact of what has been a gradual increase in the ABS cost of funds.

The risk-adjusted NIM, which takes into account the provision for loan losses, $43.2 million for the quarter. That's a 3% increase over the third quarter and a 10% increase over last year. We have continued to show improvement in that area, even with the slightly higher and the trending higher debt costs and overall increases in provisions for credit losses. Year to date, the risk-adjusted NIM was $163.3 million. That's a 15% increase over the full year of 2014.

Our core operating expenses as a percentage, it's a key metric. We've been watching this carefully and sharing with you over the last several quarters. Core operating expenses as a percentage of managed portfolio, 5.5% for the quarter. That's flat for the third quarter, but notably that's a significant decrease from 6.2% in the fourth quarter of 2014.

Similarly, for the full year, those core operating expense as a percentage of managed portfolio, 5.5% for 2015, significant reduction from 6.3% in 2014. So we're seeing that what we've been promising: the improved operating leverage of controlling our operating expenses as the portfolio's grown, and as Brad said, has now crested $2 billion.

The return on managed assets for the quarter, 3.2%, down a tick from 3.3% in the third quarter this year and down from 3.6% for the fourth quarter of 2014. For the full year, 3.3%, and that's down from 3.7% for the full year of 2014. Nevertheless, at those 3% ranges, generally is what our business plan has called for.

Moving on to the credit performance numbers, delinquencies significantly up in the fourth quarter, as Brad mentioned. We're continuing to see our challenges on the collections side, servicing side, and of course, the fourth quarter, typically the most challenging of the calendar seasonal periods. The full delinquency was 9.5%, that's up from 8.8% in the third quarter and up from 7.2% a year ago.

The annualized net losses for the quarter, 6.23%. That's about flat from 6.27% in the third quarter this year and actually down a little bit from 6.44% a year ago. And the annualized net losses for the full-year 2015, 6.42%, and that's up from 5.8% a year ago.

One of the contributors to these credit performance numbers, as we've been tracking all year, is the continued softening erosion in the auctions. The recovery rates at the auctions for us during the quarter was 38%, and that's down significantly from 42.7% a year ago. Even really down significantly from the 40% we realized in the third quarter. And so that's just a trend we've continued to monitor and watch.

With that, I will turn it back over to Brad.

Thanks, Jeff.

So going into a little more detail on the operations. In terms of marketing, our marketing staff is holding steady around 112, which is where we wanted to be. I think we had targeted somewhere between 110, 120. And I think what we'll see instead of an all-out push to continue to grow marketing staff, we'll probably you just grow it in fits and starts as we go along.

As I said, the first part was to hire them all, and the next part was to train them all. At this point, we're at the point where we want to see increased production across the board. And it would appear, at least from the fourth to the first quarter, that we are seeing some improved production individually within the marketing staff. So the marketing looks good.

As I mentioned, we did launch the Bravo program. Our normal advance, on average, across all other programs is around 114% of book. The Bravo program's significantly back of book.

And so what we're doing is we're looking for a customer who certainly has credit challenges, but we're giving ourselves a very secure position in the vehicle, and yet, being able to offer that package to the customers, through the dealerships. And so what you're really doing is you're giving the dealership a deeper spot in terms of the overall mix of the CPS programs.

There's some other folks out there in the country that do programs similar to this. And I think we've been able to, what we think, take the best of all worlds and make this program and put it together. We initially launched it with 5 dealers, then we added the 50 dealers. Today, currently 500 dealers are now participating in the Bravo program. So it's not nationwide to our 8,000 or 10,000 dealers or so, but it's quickly expanding. So we think it's being very well received, and we think there's a lot of upside in that program.

As I mentioned in the direct lending, also is now -- it's very complicated given the statutory things and the regulatory environment to do direct lending, and so we've had to spend a lot of time putting all that together. But we launched that in the fourth quarter. And again, we think we're going to see some good results in 2016 from the direct lending program, as well.

Direct lending basically means they come to our website. We basically pre-approve them, give them a check or what looks like a check, or an authorization to go buy a car. We generally then direct them to a dealer. And so the big rub in that whole idea of direct lending is the customer goes to the dealer that you've asked them to go to and the dealer tries to get them financed somewhere else.

We seem to be getting through those hurdles, but again, it's just another area where we think we can do pretty well. The fact that we get to screen the borrower first, generally the results are far better in terms of credit performance from customers that come through direct lending versus the indirect route. So, that would be just another way to add to our overall portfolio.

In terms of originations, our goal was to staff to be able to do $125 million a month. They are there and ready to go. We are currently in that $90 million to $100 million a month range, so we're very well set up there. This is the time of the year when, to the extent there's a lot of growth potential, that you want to be a little overstaffed. So we're in a perfect position there.

One of the fundamental, most important parts of originations is the credit quality, and it's safe to say we've may contained our credit quality. We follow lots and lots of metrics in terms of what we buy, and they have changed very little year over year and even over the last few years.

And so as much as -- as I mentioned earlier, there seems to be ongoing credit problems in the industry. What we're buying up front is very close to what we've always bought. In terms of how we advance, in terms of the term and length of the loan, which is a big thing out there today, we're always significantly behind everyone else.

And so if everyone else is doing it super poorly, then that's not great to be behind them. But nonetheless, we're not leading any charge. We generally look and we'll take the length of term as an example: It used to be that pretty much American-made cars barely made 100,000 miles. Today they do substantially better. And so lots of folks and us, to some extent, have increased the term on how long we'll do a loan for those kind of cars. Our experience after all these years is those cars can hang in there just much better than they could 10 years ago, and so we're willing to go longer terms on those cars.

Having said that, we're probably 20% behind the high end of anyone else, and so we like where we sit. We're confident in what we do. But that's a glimpse of how we do move in terms of expanding how we buy. We look at what we've done. We look at it very carefully, and generally, we lag the rest of the group until we're sure the water's safe to play in.

We're not particularly worried with what we buy. We do have concerns about how we collect these debts as we move into the collections. Because of the regulatory environment and having to redo everything, that's provided a long list of challenges in terms of how you can collect papers these days.

We've been working on those challenges for over three or four years now. We think we have the programs put together. We have the infrastructure in place and the guidelines in place for everybody to collect successfully. As I've said in many calls, we've been working on all that and we're expecting to see results. At this point, we have not seen those results.

A couple of interesting things have come out of the ongoing analysis of why we can't get this paper to perform better. We still think and hold out hope that it will, but some interesting things have come about, such as customers these days don't want to talk on the phone. That seems to be a big negative for companies like us that really need to talk to them. We've now switch over to we text message very often and that proves to be very effective.

And so part of this is a dynamic setup, both with the new regulatory environment and with what we'll call the changing culture of the way people like to connect with lenders and creditors. Lots more things are done online. It turns out lots more things are going to be done from smartphones, and so we're doing many things to access that end of the market, along with our continued efforts on talking to each of our customers.

What you've seen is this increased delinquency. And as much as we would like the delinquency to come down, we could live with it if we really thought that was the new norm and it wasn't going to produce future losses. So we are attacking this with everything we've got and coming up with new an inventive ways to get to our customers and get them to pay.

So far, it's the delinquency that doesn't look very good. The losses seem okay. And so again, this is probably one of the most important things we work on every day. And we'll continue to work on, knowing that we think the credits we buy are just fine. So that's the best we can say about collections in the ongoing numbers you'll see.

It certainly doesn't help that the ARD or the recovery end of it has flipped off a cliff. The rumor is or the consensus is that with all these cars coming off lease, they put tremendous pressure in terms of the auction. Now that should change. Remember, the offset to that would be that cars still are the oldest they've ever been out on the road. At some point, that number of cars being out there, whatever it is, 10 years or so, should come down. When that number comes downer down, you're going to have more cars, you're going to have a better used car market.

And so, as much as we're not particularly happy with it, there's nothing we can do about it. We certainly do everything we can to maximize results at the auctions. But nonetheless, I think we could run through a long list of historical numbers and the auction results do change cyclically. We're in a down cycle now, but we're not overly concerned that eventually won't normalize or go back to where it was. Again, it certainly doesn't help that we have to deal with that along with everything else.

In terms of the industry, the competition seems about the same. There really haven't been a lot of new players. There certainly haven't been any new big players. There's always going to be lots of new guys coming in, lots of them are small and trying to get a foot up or leg up in the industry, and that doesn't particularly concern us. New big players that do something crazy does. That just hasn't happened, hasn't happened in over a year. It does appear that some of the big fellows might be pulling back a little bit here and there, might be working on different things. So market seems pretty good that way.

I think everyone is -- the rumors around the market are that collections is an issue for everyone. Whether that's a collection issue like ours or a collection issue like they bought bad paper, we don't know. Obviously, we wouldn't mind if they bought bad paper, but nonetheless, that's the lay of the land is that everyone's having some struggles.

What I think that's led to is a Wall Street issue. As Jeff pointed out in our cost of funds, we thought we would have a gradual -- we've always built in a gradual rise in ABS costs as we go forward. The rise in ABS costs over the last nine months has been somewhat extraordinary. We went from doing a 3% cost of funds around a year ago to our deal most recently was 4.3%, and so that's a very significant upward trend and that 4.3% is off of 3.8% in the previous deal and 3.2% the deal before that.

So Wall Street clearly has got something going on with how they appreciate or don't appreciate sub-prime auto. There's lots of rumors they think it's the next big mortgage mess, which doesn't make sense, since in the last big mortgage mess, we did very well. The auto industry in general and certainly everyone, and us individually in terms of performance. That doesn't make sense, but that seems to be why there seems to be more short interest across the industry in the stocks.

But more importantly for the way we go forward is that the ABS costs have gone up dramatically. Again, that could come down, but to the extent we have this ongoing trend in ABS cost, that's the challenge that we don't have much control over. But it does have a significant impact in terms of you how we can make money going forward.

Remembering there's probably three areas that assuming that we know what we're doing and we can control our costs and our operational costs, which we can, then the three operational issues or areas are growth, cost of funds, and credit performance. We addressed the credit performance. We think we bought very well. We're working on the collection issues involved with the new regulatory environment, and we think in the end, we'll collect this paper just fine, though it's been a challenge.

Growth, we haven't seen that growth in a couple years. Over the last two years after growing very substantially the last few years before that, our growth last year was only around 12%. And so, it's hard for us to forecast some big upshoot in growth.

Having said that, I've mentioned in previous calls that we didn't have what we'll call the spring tax refund season in 2015 and 2014. And so I said last year and in other calls, that we would have to see what happened in 2016 whether we would revert back to having a big growth trend from tax season, or whether the new norm would be that it was stretched out.

Shockingly, application volume and calls and everything else is up almost 50% in the last couple months. So we're very pleasantly surprised that we seem to be having the old spring growth spurt. That would be very helpful; if we could have a lot of growth, that would offset a lot of those ABS costs going forward.

So we're very interested to see whether this is just a quick growth thing or whether there's actually a big growth push here. We would certainly welcome the big growth push, and that would be great. Again, that would help us with the ABS struggles and the collection struggles. Those are the three components that drive this train, and again, we don't control all of them. We can only do -- manage what we control, and we are doing a very good job of that.

Lastly, of course, our stock price continues to languish. I look just for fun. We made $61 million pretax this year. It's easier to do pre-tax and take out the tax noise. But the most we've ever made previous, post the gain on sale days, was only about $24 million. So that's triple where we were back in the day. So in terms of what CPS has done in the market, we've done a ton. We're triple the best numbers we ever produced ever, and yet our stock is languishing.

A lot of people ask lots of questions on what are we doing about the stock. There's not a lot we can do. We are buying back shares. In the last two quarters, we bought, well let's see, in total, we bought over 1 million shares. We bought 285,000 shares two quarters ago, 180,000 shares -- excuse me, three quarters ago; 180 two quarters ago, and we bought almost 600,000 shares in the fourth quarter for a total of a little over 1 million. We're buying back as l many shares as we can using the NASDAQ rules, which is all you can do. And we will continue to buy back those shares because we think the stock is severely underpriced.

But given the way the industry sits, everybody's getting pummeled. Everybody's getting shorted. It's very hard to think that we're the ones causing this problem. We're more suffering from this whatever group problem that the industry seems to have.

Now whether -- why sub-prime auto has fallen into disfavor, don't know. I must admit, there's some aspects to all this in terms of the overall economy, in terms of some of our customer perform that makes it feel a little recession-like in terms of people pay you but only when they have to, as opposed to trying to be timely with their debt obligations.

Which, again, smacks of a recession. Certainly the numbers or the overall economy, everybody says it's not a recession. But in terms of our customer performance and the feel in the marketplace, it certainly feels a bit like one. We're doing everything we can. I think the fourth quarter was again a real good quarter for us. I think the overall results have been very good. And I think we're managing everything as best we possibly can. So all we can do is wait and get those future results we're looking for in terms of stock appreciation and the like.

With that, we'll open it up for questions.

The floor is now opened for questions.

(Operator Instructions)

Our first question comes from the line of John Rowan of Janney. Your line is now open.

Good afternoon, guys.

Good morning. Good afternoon.

I want to go into the Bravo program a little bit. Can you maybe give us a comparison to another product that we might have a little bit more information on? Who are you lending to, whether or not the dealers participate in risk? I just want to understand how that product fits in competitively.

I think it's not a huge reach to think our product looks like a lot like a few other lenders out there. I think for fun, we can take either a Westlake or a CACC, who both run programs where they lend back of book. They have the dealer participate in the risk and the upside. And they do different things in terms of how they -- CACC, as far as I heard, had some inventory stuff they did. Then they had some pools where they had to have a certain number of loans and things like that. I'm not sure whether Westlake does something like that, but they might.

We don't do any of that, but we do like the idea of lending back of book. We like the idea of having the dealer participate in the risk and the upside, which are both aspects of our program. We do not require 100 loan pool or anything like that. This program will slot in just like all the rest, and I think one of the reasons we're not overly concerned with maybe dealer concentration is because we have a very broad dealer base. So the good Bravo loans will offset the bad Bravo loans and such.

Having said all that, we haven't bought 50 of these things yet. We're not lighting the thing on fire in terms of how successful it's going to be. It is being very well received and it's working very well in terms of being added across the board to our dealer programs.

Now, just staying with this for one moment. This is the first time we heard about the Bravo program, and it also coincidentally is a quarter in which CACC lost the patent on their cap system for which they've sued many competitors, including the other one that you mentioned, Westlake, in your comments. Is this time to try to exploit a -- not a gap but an opportunity in the market, to go in with something that may be more attractive to the dealers, where you don't have that 100 loan pool cap and put your brand on a similar type of program?

It was interesting that legal thing came out, because obviously, we've had this in the works for a long time. So we weren't overly concerned. You couldn't [gin] this thing up fast enough to say, gee, they lost their patent or whatever, let's go play. So no, it's not really what we were doing.

Having said that, certainly the aspects of having that lower tier program, CACC has been a very successful company for a long, long time. And so, much like, one of the things we did, I don't know, five years ago is we said gee, the independent market's really good. There's a part of the independent market that performs very well and they seem to be able to charge an awful lot more money, and so we made a big move to go into the independent market.

Before, we were about an 80/20 franchise versus independent; now we're about 60/40. So that was a big move for us, and it's been very, very successful. I think looking at Bravo, you might want to look at it in the same light. We lend -- we barely tick up into what you'll call the, maybe the non-prime guys. Only about 2% to 5% of our business is even remotely near those folks. On the other side, we go down the spectrum fairly far, but in all that, we would still be termed a credit lender because we're advancing book or better, and therefore, we need the guys to perform.

This would be going into that other end of the woods a little bit, whereas now you get to go back of the book. You get to take riskier credits and you're going to be very well paid for it. And so yes, obviously, Westlake being a good example. Thought CACC had a good program and wanted to do something along those lines. That's not to say that we don't all watch too.

So I think anybody smart, I think one of our advantages, one of the things CACC did is they rolled their program out very slowly. We were shocked to find that they had a very small dealer base even overall, whereas we have a very large, fairly large dealer base. One of the benefits we may have is by offering our program not quickly but sort of quickly across our entire dealer base spectrum, we may get some nice results quickly. But that's one of our advantages.

In the end, what you really do is you look at Bravo, and we put together a bunch of criteria to put it together. And we think the paper will perform just fine, if not very well and we think we can charge quite a bit out there. What it really does is it gives a dealer a way, to the extent they're working with CPS on all of our other programs, this becomes a place -- for a dealer, if you have a car, you have to set up to fund in the CPS situation or one of our friendly competitors. Then that doesn't fit so well with Bravo. Bravo would be a new market in terms of having dealers be able to fund cars that are lower dollar amounts and riskier credits, because you're going to be lending back of the book, which would require a larger down payment from the customer.

For us it's very additive in terms of what we're looking for. For the dealer, to the extent they like CPS and they like working with CPS, it gives them a way to go at that lower end of the spectrum that they can do with confidence knowing that they have us sitting there. That's the concept of what we're doing. Sure, you can certainly make comparisons to what other folks are doing. The fact that CACC lost their patent recently, it doesn't concern us one way or another. It is interesting that maybe that means more people will look at this area, which is fine. We're going to get there fairly quickly, so that's good for us.

Then just one last question. The allowance ratio was down quite a bit sequentially, and it hadn't been in prior fourth quarters. I'm just curious with delinquencies and repos up quite a bit, why there would be a relatively sharp drop in the allowance ratio?

There's two parts to that. One, if you look back historically, the allowance ratio isn't all that different than it was a year ago; it's almost exactly the same, as a matter of fact. We did do a charge-off sale in the fourth quarter that pushed it down a little bit. So I think that put a little noise in there. But generally speaking, the allowance bounces anywhere from that 3.7, 3.8 number up to 4.2.

We do a lot of analysis based on the pools themselves, and so it's not like you sit there and say -- in other words, we don't target a specific number for the overall allowance. It's all done on a pool-by-pool basis, and so you come up with an aggregate. This quarter that aggregate just comes in a little bit lower than -- we've gotten a few comments or questions on that already, so.

I would just add to that, John. John, one of the things, as you pointed out, the DQ and the repo inventory were high in the fourth quarter and increased in the fourth quarter compared to the third quarter. And that repo inventory, in particular, will drag its share of the allowance out of the allowance for financed receivables down into other assets where the repos are reclassified. So you have a fourth quarter -- a little bit of a fourth quarter event where you have some high stress credit performance. And what you already saw, which was higher levels of DQ and repos.

Okay. Fair enough. Thank you.

Thank you.

Thank you. Our next question comes from the line of David Scharf of JMP Securities. Your line is now open.

Good morning. Brad, wonder if we can circle back to get a little more sense for how we ought to think or maybe your thinking about volume growth this year. There are obviously a lot of moving pieces, and you highlighted how it sounds like application volume over the last couple months, whether that is translating into what historically had been a big seasonal lift in the spring, whether that comes through.

But just given the level of competition out there, what you're seeing in terms of pricing and buy rates, as well as just trends in new car purchases or used car purchases. Want to get a better feel for whether an 8% to 10% growth in originations is still something that's achievable this year.

Well, to the easy part, we think 8% to 10% is a good target for us. As I said in the three areas, that's somewhat the easiest because I think we grew about 12% last year. To the extent it slows a little this year, you could get into that 8% to 10% range hopefully pretty easily.

To ask me what's really going to happen, you got to wait until April, because it's just, it's too early to tell. What's interesting is, because this is almost verbatim from a year ago when I said gee, it's too early to tell whether it was going to be a flat year again or whether it's going to be a big year. And last year was a flat year. We didn't get the big push in the February, March, April time frame. This year the early indications are we will.

Having said that, it's very hard, because I can't tell just yet whether we're going to do really well with that or whether it's going to be mild or short-lived. It's very hard to say. I certainly wouldn't be in a position to say we're going to grow 25%, but I think I could feel fairly confident saying 8% to 10% is a good range, given that we did 12% last year anyway. But it is interesting that things are up.

In terms of competition, there's a chance out there -- we've actually increased our APR slightly in the midst of this, which tells you a little bit that maybe there isn't quite as much pricing pressure or competition floating around as you might think. Again, very early returns, so it's very hard to say. But at the moment, we haven't given a price to get this big influx of applications.

Whether other people are being a little more conservative or slowing down, it's very hard to say. We haven't heard that per se, particularly with the big guys. I think with the smaller guys, maybe they are having a little trouble, but maybe the ABS market or the Wall Street market's pushing on them a little harder. I think the critical mass thing is very important in terms of being able to weather what we'll call the Wall Street not liking our industry, and so maybe that has something to do with it.

But to try and give you the short answer, yes, I think 8% to 10%'s not a bad number, something just off of last year is a safe bet. We'll have to see how the first quarter goes as to what that real growth number is going to look like for the rest of the year. In term of competition, I think it's - we'd call it flat to normal, maybe it may slightly ease. We'll see.

Got it. Well, you answered my next question, which was on competition. But I'll raise it nevertheless, because we seem to be hearing conflicting commentary. Obviously, large lend -- obviously, a couple large banks throughout 2015 pulled back a little bit from sub-prime lending. Santander has noted that they sacrificed some market share in the fourth quarter. Yet at the same time, anecdotally, we hear comments about a little more aggressive terms out there. But small, private lenders on the margin can't move the whole market.

In general, is your sense that this big pickup in application volume in just the last couple months is probably most related to the fact that a lot of your dealers are seeing some of their go-to lenders pulling back?

I'd be guessing, but I might say that's possible. If you look at the history of the industry, Santander in some large part has taken the role of AmeriCredit. Back in the day, AmeriCredit was the gorilla. When AmeriCredit moved, things moved. And so to the extent Santander starts pulling back or changing how they buy or raising the prices, I honestly don't know -- as far as we've heard, they haven't done too much differently. They're still there. But to the extent they do move, and generally we may not be quite the first to know, though we should be. But to the extent they do move, that would have a significant impact on the industry.

It's almost like -- I used to reference Capital One. Capital One's a tremendous lender. They do lots of things great. When Capital One wants to go into sub-prime, we all know it in a minute because they buy a lot. So they haven't really moved off of where they have been in a long time. But that's a good example. If Capital One wants to buy a little deeper, we would see it. If Santander changes their buying pattern, we'll probably see it quite soon.

Those are the things we're looking for. If we see a big thing out of Santander, we see a big thing out of whoever else, then we'll notice it. Today we haven't heard much. Small little noises here and there, but not enough to really comment on.

Got it.

Certainly, if the big banks pull back, that certainly doesn't hurt us one bit. Though that's hard for us to see, because you don't really get in the position where our people are reporting back that we're losing all these deals to Wells Fargo or somebody. Wells Fargo taking the top piece of the business is standard course. To the extent that we're getting a little more of that business because they're not buying quite as aggressively, that would almost be hard for us to really see, though it would happen.

When the big banks move marginally, it's tough to see because it's at the top end. And it still would only be a real, not de minimis, but a smaller impact in terms of what we would actually get from what we'll call loosely the trickle-down theory.

Got it. That's helpful color. Just lastly on turning to credit, I guess Jeff, if we exclude the sale of charge-offs in the quarter of around $5 million, which front-end loaded some recoveries, I'm guessing the net charge-off rate was probably closer to 7%. Based on your qualitative commentary about some of the customer behavior maybe feeling like it is more recessionary or getting closer, should we be anticipate -- is our best guess that net losses on an annual basis, particularly with less denominator effect, if originations grow 8% to 10%, is north of 7% a reasonable thesis?

Yes, I think so. We've seen levels at 7% in the past. Actually, that charge-off sale is closer to $6 million, and so the normalized charge-off rate for the quarter would be a little over 7%. And within our model with the spreads we're getting, even with the higher ABS costs, that's still something that we think is within the working basics of the model.

Got it. Got it. Thank you.

Thanks.

Thank you. Our next question comes from the line of JR Bizzell of Stephens Incorporated. Your line is now open.

Yes, good afternoon and thanks for taking my questions. Brad, maybe or Jeff, thinking about your monthly originations, just wondering if you could give us maybe not specific numbers, but the cadence throughout the quarter. Was there a specific month that was stronger than the other?

No. Fourth quarter generally speaking, I think I can do this without even looking. But October's usually okay, then November and December slide off. I think that was generally the same trend last quarter. And then January recovers back to what we might think of as an October level, and then you wait and see how February, March, and April go. And I think that trend line is still there.

Okay. Great. And switching gears, I was wondering on that -- the new third revolving credit facility that you all have, I wonder if it provides any more flexibility in underwriting that maybe the other two revolvers limited for you guys.

Yes, it did, JR. In fact a couple things. For one, we carved out the ability to finance the Bravo loan, so we didn't want to get our cart before our horse in the Bravo loan to begin originating those things and not have a financing source for them. So we worked with those lenders, showed them even though we hadn't originated a single loan at that time, we showed them the guidelines, what we intended. I think we have really just a limited bucket at this time, like a $10 million bucket to finance those receivables, but one that allows us to get the wheels turning and then we can expand it as the volume requires. And then in addition, all of these lines, all three of the lines have all kinds of concentration limits and things that protect the lender to keep us from deviating too far from our normal path of originations. And one of the areas that we were bumping up against on the other two facilities was what we refer to as extended term, basically 72-month contracts. And so when we went to negotiate this new facility, we told the lenders, this is important. We want a lot more capacity on 72-month contracts and we got that. And so now when we go back and renew the new -- the existing facilities with the existing lenders, we have a new template to work with. And that's kind of what we've been doing all along with these facilities.

Great. And then building off that, Jeff, and Brad as well, if you're going to have a little more flexibility in at least $100 million of that revolver to go after that more extended term, what does that mean for growth maybe longer term with the current set up? And then similar to what you said, once you renegotiate the additional, does that limit being extended on the term allow you to be a little bit maybe not more aggressive, but allow you to have more paper fall into the path?

No, I think -- I mean, all you really are doing is having the lines conform to what we buy. We're certainly not going to be any more aggressive. We're not going to buy any more extended term. I think on the margin, the difference in extended term is a couple of points. It's not -- it's almost just a little bit what we'll call the lines is -- the new line is slightly more user friendly than the last line. And this last line was slightly more user friendly than the line before that. So it's not nearly the differences you might contemplate. It certainly wasn't ever intended to get a new line to buy a bunch of deeper stuff and stuff like that. So no, none of those things.

Really the new line, what we did want to have -- the Bravo program is a specific kind of lending. And so neither of the other lines supported that. And so we did need a bucket that would support Bravo, and we put that in the new line. And I would guess to the extent that Bravo actually works and does what it's supposed to do, we would then go back and try and add that element to the other lines. But generally speaking, the lines are all fine. We just needed another one.

The overriding reason to get the third line was capacity. It does -- it might be slightly more user friendly than the last one, so on and so forth. But that's really the only element. It does give us some room and some concentration areas, but not enough for us to think this would be a new focus. The only real difference between what we bought before and what we buy going forward would be Bravo and maybe some direct lending to the extent that starts going too.

Having said that, we're hoping Bravo could maybe during 2016 get to like 5% of our production on a good day. None of this is going to be a game-changing thing in the short term. But it does give us the ability, like I said with getting into the independents over time, it can be a very significant game-changing event.

Great, and then last one from me. Sticking with you, Brad. Last quarter, you referenced choppy consumer sentiment and your views on the consumer health. Just wondering, and I know in your prepared remarks you made some comments, but just wondering, overall, 30,000-foot view of the consumer and how you all are thinking about that as we move into 2016.

Well, like I said, the most interesting thing about our 30,000-foot view of the consumer is the consumer seems to have changed. Nobody wants to talk on the phone. Everybody has a smartphone. Everybody wants to do things through texting and messaging. I guess we should have been, anyone in the industry should be more aware that this is the new trend, and it's going to continue to evolve. The good news is, we're right there and following along with it, so that's all good. But I still think -- so in terms of the technology, that's interesting and new. But again, I think certainly we and most people will keep up with it no problem. There is a moment there where you're going to lose a little ground in trying to get everything working the right way again.

Like I said, it's almost -- you can almost start putting in terms of the collection picture, a few events. One, the regulatory environment was the one that happened a few years ago. And so with the regulatory environment everyone, including us, has to collect in a different way. So we've spent a whole lot of time re-educating and re-training, so on and so forth. And so you find out late in that game that gee, customers don't want to talk on the phone as much as they used to. You have to retrench things a little bit that way. There's always been, there seems to be a bunch of little things change in the way this works.

Probably the third thing is, again, it's a little interesting that whether this is the new norm of customers running their accounts DQ and then paying when they need to pay, or whether the economy's a little weaker and that's causing that. We don't really know. Like I mentioned earlier, it does seem a little different that the customer isn't as inclined to pay as quickly as they have in the past. Whether that's a technology thing, whether that's an economy thing, we just don't know. And whether it's the fact that the regulatory environment, you can't push them quite as hard as you used to, you can pick your poison. But all of them are having the effect of higher delinquencies, hopefully not higher losses, but potentially slightly higher losses. And so we'll have to see how it plays out.

We think the customers, they all understand that working with CPS or other sub-prime lenders, their number one thing is to re-establish their credit. Now our whole educational thing with customers is that gee, running your DQ at 20, 30 and 60 days isn't helping your credit much. That's the view from 30,000 feet of our customer today.

Thanks for all the detail.

Thank you. Our next question comes from the line of John Hecht of Jefferies. Your line is now open.

Thanks very much. We've talked about, I think we can model, given your anticipation and marketing and originations, balance sheet directionality. But I wonder given the trends with respect to delinquencies and charge-offs, can you give us a sense for where you think your ALL coverage might go over the course of the next year?

You mean the percentage of the allowance?

Yes.

I think we'd expect the allowance percentage to continue to hover around that 4%. The net, when we talk about the net allowance, the finance receivables allowance, it's been around 4% for some time. What we call the gross allowance, which takes into account the repo inventory component, has been hovering around 5%. We don't see any reasons at this time for any significant changes in those trends.

So then how -- is your ALL just based on a level or are you looking forward to some period of time and charge-off anticipation? How do we think about that from a modeling perspective?

It's a challenge from a modeling perspective, because we literally do it on a monthly static pool basis. Each monthly vintage pool gets its own schedule of provision expense and expected losses, and then those losses are charged to that pool's provision. And then the whole thing, all 60 months, call it five years worth of the existing portfolio, is all aggregated to come up with any given period's provision expense, charge-offs, and remaining allowance.

So for you guys, from the outside particularly, we're not the only Company you cover, it's pretty detailed and complicated. But if you were looking for a short cut, I think you'd go with these two big analytical ratios like 7.5% to 8% provision expense. And then trying to manage an allowance of something close to 4% on a net basis. That's assuming that our portfolio continues to grow at something like these 10 -- well, it's been higher in the past, but something like these expected growth rates.

Okay. And then with respect to -- I know I've heard tax refunds came a little later this year, but apparently early February. Are you seeing the seasonal snapback in delinquencies and charge-offs at this point in time? Or is it too early to read?

It's probably too early to read. It seems like we're doing okay, but again, the quarter's not even half over. But it's not negative, let's put it that way.

Okay.

Certainly shouldn't be.

And then with respect to the Bravo and -- I know these are early on, but will you have to add staff in the servicing side? Or does the servicing infrastructure -- is it currently well set for the more direct and deeper sub-prime products?

We won't change the servicing at all. I think as much as we're getting a lot of questions on Bravo now, a couple years ago, or maybe even a little over a year ago, we started doing title lending. We pulled the plug on that about, I don't know, 15 minutes later. So this isn't worth getting massively wound up like this is going to be this huge game changer yet. But it is interesting that it's a good program. It's been very well received in the market. It's not big enough for us to do anything different in terms of staffing and such, but we think it's a cool program. We think it could do real well.

I appreciate the color. Thanks very much.

Thank you.

Thank you. Our next comes from the line of Mitch Sacks of Grand Slam. Your line is now open.

Hey, guys. I wanted to expand a little bit on the comments you guys were talking about with respect to funding costs, costs of delinquencies, with respect to pricing in the market for what you guys and your competitors are charging for loans. I think you started to say you started to see a little bit of firming. Do you think if delinquencies and funding costs continue to trend the way they are, that you'll be able to -- you or your competitors will be able to start to raise price in the market to try to help offset the net impact?

I'll take it in a couple pieces. I think -- I don't know that delinquency has a big impact in terms of pricing. I don't think Wall Street -- you're selling rated bonds. So I think the fact that they're sub-prime is what changes the price compared to a prime or something else, not -- I think to the extent that people start getting worried about delinquencies and charge-offs and things like that, then as you go down the stack of bonds to the lower more riskier bonds, the pricing on those will go up. Again, that's probably not even that big a deal, because the bonds we care about are the top couple. So I don't know that credit performance -- at the moment, Wall Street certainly seems to have a low opinion of our industry anyway. So I don't know that opinion could get an awful lot worse in terms of having a pricing effect. So that part doesn't particularly concern me.

I think the cost of funds, and well, there's two other parts. In terms of the cost of funds, the fact that Wall Street is now certainly demanding a significant higher premium, it's not just us, we look around and everybody else is getting tagged just as hard. The bar has certainly gone up rather quickly. And I think I've mentioned this in the past. The old cost of funds used to be around 5%, and now it went all the way down to just around 3%. Now it's getting very close to where 5% might be just around the corner. That's going to have the most significant impact.

Now, so the last part is can we raise prices? We might be able to raise prices and I think we've nudged them up a little. Are we going to be able to raise them a full 1 point to offset that? No. Are we going to be able to cover it up with growth? Maybe. The bottom line is if that price trend in ABS keeps going up, it's going to hurt our earnings. There's nothing you can do about it. Now I think the good news is you might get a little bit backward price increases maybe, but in some ways I'm not so sure I wouldn't rather take the volume if other people are hurt more by it.

Ironically, if ABS pricing keeps going up, as much as we don't like it, it's going to hurt a lot of other folks a whole lot more than us. All the littler guys, all the guys that don't have that critical mass, that ABS pricing, if it continues ramping up, could almost put them all out of business. Just because they're all expected to make money. To the extent you're trying to make money and you're not, that ABS pricing is the kiss of death, because now you've got a whole new bar to get over. So as much as we don't like it, and it would affect our future earnings and stuff like that, it's going to affect everyone else more or most people more that don't have big, critical portfolios.

In history, when the cost of funds is significantly higher was the APR that the consumer was paying much higher also?

No, you go back to the last cycle, as an example, in the last cycle when the banks or the lowest cost of funds were playing, our APR was only 18.25%. Today it's 19.25%, maybe a little bit more. So from the last cycle our APR is up one full point because the banks aren't really playing in a significant way like they did before. And we had the nice part of having the ABS costs way down.

So I think in past cycles, we're able to charge more than before and the pricing was a lot less. I think a lot will depend on who's in the market. I think if a couple of big guys pulled back or went away, you could raise your prices and eat the whole thing, no problem. But it's a little early for us to make those kind of guesses.

But I think like I said, pricing pressure on other folks doesn't particularly hurt the bigger folks to the extent they know what they're doing, and we would fall into that category. So I think it's going to hurt the little guys a lot more than us, and I think if things move around a little bit in terms of what other folks are doing, you might be able to recover some of the APR. Again, what I'd rather do is if other people slow down or pull out, us get up to $150 million a month or something great where you won't care what the price is. Because you'll obviously -- remember, the basis of the business is still extremely profitable, and so as much as it -- in the short term might hurt a little bit, in the long term, it doesn't hurt us at all.

Okay. Thanks very much.

Thanks, Mitch.

Thank you. Our next question comes from the line of Lucy Webster of Compass Point. Your line is now open.

Hi, thanks. Good afternoon. Do you guys have the average price where you did share repurchases during the quarter and the remaining dollar amount on your authorization?

Sure. The average price for the last three quarters, starting with the second quarter of 2015, average price was $6.21 a share. And we bought 285,000 shares, give or take. In the third quarter the average price was $5.85 a share, and we bought 183,000 shares. And the fourth quarter, the average price was $5.18 and we bought almost 600,000 shares.

And then I can take it a step further, Lucy. We've acquired shares subsequent to year end as well. We acquired almost 200,000; 300,000; 400,000 shares subsequent to year end at something like an average price of $4.15 and we have about $3.4 million remaining on our Board authorization.

Okay. Great.

Plenty to get us to the next Board meeting, I'm sure.

And then just more broadly in terms of leverage, I know that you guys have historically run higher than peers perhaps. But I was wondering longer term one-year, five-year view what are your thoughts there? Are you comfortable at these levels or do you think that comes down over time? Any color there would be helpful.

I think from the debt point of view, our debt is kind of disappearing. So we look at it in terms of corporate debt you're going to have to pay back, and then the debt that's in the securitization that is on balance sheet but the securitizations are going to pay it out. So if you take -- if you look from just the corporate debt concern, we're not very leveraged at all. To the extent you throw in the big securitization debt, we're leveraged.

And so the problem you have is if we grow and we're successful, that leverage is going to increase because the portfolio's going to get larger, there's going to be more and more debt. To the extent -- the magic answer is gee, if the stock was $12 or something, or whatever the stock price, you go out and sell a bunch of equity and you lower the leverage. But even that would be a Band-Aid, because if you continue to grow and you're successful, that leverage will come right back. Because the portfolio's just going to get bigger and bigger, and what accounts for the vast majority of the leverage is the securitization debt.

So it's a little -- I think the way -- if you were going forward to try to figure out how to guess the leverage or what it would be, you can run the same earnings you're looking at. You can run the same growth you're looking at, and that leverage will probably increase. On the other hand, if you want to throw in a stock price of $10 down the road and us selling a bunch of shares to lower the leverage, you can do that too. But we're not going to swear to that.

All right. Thanks. Very helpful.

Thank you.

Thanks, Lucy.

Thank you. And I am showing no further questions at this time. I'd like to hand the call back over the management for any closing remarks.

Thank you. Appreciate all the people attending. I appreciate all the good questions. Like I said, I think the fourth quarter went very well. 2016 might prove to be a bit more interesting year in terms of both the industry and Wall Street. But we've done this for a long time and whether Wall Street wants to slow down or cost more or any of that, it's just going to be another small bump in the road. In the end we're going to continue on our goal to get to be very large and very successful, and that's the way it's going to go. Again, thank you all for you attending and we'll see you again in April.

Thank you. This does conclude today's teleconference. A replay will be available beginning two hours from now until March 2, 2016 at 11:59 PM by dialing 855-859-2056 or 404-537-3406, with the conference identification number of 499-43840. A broadcast of the conference call will be available live and for 90 days after the call via the Company's website at www.consumerportfolio.com. Please disconnect your lines at this time. You have a wonderful day.