Good day, everyone, and welcome to the Consumer Portfolio Services 2012 Third 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 meaning of the Private Securities Litigations Reform Act of 1995. Any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Such forward-looking statements are subject to certain risks that could cause actual results to differ materially from those projected. I'll 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; Mr. Jeff Fritz, Chief Financial Officer; and Mr. Robert Riedl, Chief Investment Officer of Consumer Portfolio Services. I'd now like to turn the call over to Mr. Bradley.

Thank you, and thank you, everyone, for attending this morning for our third quarter earnings call. As everyone can see from the earnings that we've put out last night, we had a very nice quarter. We're very pleased with the results. I think it's safe to say we're exactly where we want to be at this point in the year if we could have predicted it a year ago. So everything is going according to plan. We're very satisfied with the results. Some of the highlights. Originations continued to be strong. We really had a target of around $50 million, and we've stayed right around there. But we've -- in terms of the course of the year, we're about where we want to be. And for the quarter, they remained as strong as they've been all year, and they've tended generally to begin to weaken in the third quarter. We were also able to maintain our credit quality throughout the quarter. The results in terms of the parameters we originate under have all been very consistent and continue to look very good. We were also able to maintain our margins. The discount remained strong, probably significantly stronger than we expected, along with the APR. And the cost of funds is probably the most surprising piece to that in that we did our third securitization of the year, and we got the lowest cost of funds to date. And we've been very impressed with the cost of funds each quarter. So each quarter, they get better as -- it's certainly a significant change, and given that our volumes are growing, it's very good for the company. I think with that, we'll go through a little more detail in a minute. But for now, we'll switch over to Jeff Fritz to talk about the financials.

Thanks, Brad, and welcome, everybody. We'll begin with the revenues. Our revenues for the third quarter, $47.9 million. That's up about 8% from $44.2 million for the June quarter and up 42% from the 2011 third quarter of $33.8 million. For the 9 months ended September 2012, revenues were $137 million. That's up about 40% from the 2011 9-month period of $97.4 million. Almost all the revenues were driven by our interest income, which has grown significantly and is driven, of course, by the growth in our organic portfolio. As Brad mentioned, originations have been strong. We bought $143 million in new contracts in the third quarter, and that's helped to drive those revenue numbers that we just talked about. Moving on to expenses. For the quarter, $45.2 million. That's up about 6% from the June quarter of $42.8 million and up 19% from $37.9 million a year ago. For the 9-month period, the expenses were $132 million. That's up about 18% from $112 million for the 9-month period ended September 2011. The sequential and year-over-year increases in most expense categories reflect the growth in the originations volume and the growth in the managed portfolio. One notable exception is that our interest expense has actually decreased now 3 consecutive quarters due to the lower cost of the new asset-backed securitizations that we've put on in 2012 and as the higher cost of funds, sort of legacy ABS deals, have been amortizing off. Moving on to the provision expense. Provision for loan losses for the quarter was $9.5 million. That's up about 23% from the June quarter of $7.7 million and up a significant 137% from $4 million for the third quarter 2011. Year-to-date basis for the 9 months, provision expense was $22 million, and that's up about 83% from $12…

Thanks, Jeff. Looking at a couple of the asset performance metrics, delinquencies for the quarter ending September finished at 4.64%. That's up from 3.81% at the end of the June quarter but down significantly from a year ago, 6.54%. Seasonally, we will typically see increases from second -- from June to September due to kind of back-to-school shopping. So a little uptick is -- was expected. On the net losses, the third quarter finished at 3.35% on an annualized basis. That's up slightly from the second quarter at 3.16%. But once again, year-over-year, down significantly from 4.13%. The second quarter, typically, seasonally, is the best quarter in the year for losses. So once again, we would expect a little uptick there. For the 9 months this year, the annualized net losses were 3.47%, and that compares favorably versus last year of about 6.5%. At the auction, we saw a little bit of a downtick in the third quarter. But expected, we were at 47.2%, down from 49.1% in the June quarter but up fairly significantly from a year ago at 43.2%. We did see September was close to 50%, so we would expect a decent fourth quarter. Turning to the financing side. Brad mentioned that we completed our third securitization of the year in September. And once again, we were able to improve on the structure and the cost of funds. It was a $147 million deal. And this time, we had 5 rated tranches. We added one more tranche to the structure, which was rated AA at -- on the senior tranche by S&P. Our blended cost there was 2.45%, which was a significant improvement versus our June deal at 3.15%. We had 4 incremental tranches, so we went from a AA tranche down to a B tranche, a blended sort of net advance similar to our last transaction at $0.99. The transaction also, as Jeff mentioned, had a pre-funding component, so we were able to fund on a long-term basis our September originations at this 2.45%. So that helps continue to drive down our cost of funds. The asset-backed market today continues to be strong. There's been a lot of deals in the marketplace this month. So we continue to see very significant investor demand for our paper. With that, I'll turn it back to Brad.

Thank you, Robert. I think it's -- we can get through a few of those sort of highlights of what we're doing. At the beginning of the year, our originations target was around $50 million a month. We started out last December at about $30 million a month. And then as we've probably all mentioned at some point, we've hit that target and we're sort of sitting at that target today. We might miss monthly [ph] a little bit more than that. Depending on the amount of days and the months for rest of the year, that number should bounce around right around $50 million, the point being that, that was the target we set out to hit and we hit it. So we're going to spend the better part of the rest of this year just planning for next year. And I think next year, our target could be in the $70 million, $75 million range, and then continue to grow. Even that target, relative to what we grew this year, wouldn't be that much growth. But I think it's a very reasonable and certainly a doable target. I think it'll take another year or 2 before we get back to the $100 million, $125 million range we used to do. But I think, as I've mentioned in many calls, our goal is just to go back where we were. So it's somewhat easier than a lot of folks who are new in the industry and growing. We know exactly where we're going. We're going to sort of pace ourself in getting there. And along the way, we can get some opportunities to do it a little easier, then we'll take advantage of that. I think along those lines, our -- sort of our primary focus for the rest…

[Operator Instructions] Our first questioner in queue comes from the line of Kirk Ludtke with CRT Capital Group.

Well, a lot of positive trends in the numbers this quarter, originations, credit experience, pricing, funding all improving. Can you talk a little bit about the trends in your underwriting standards? Are you moving down the credit spectrum, staying where you were, moving up? Any kind of color on that?

Sure. I think the -- we have a sort of a loss target of roughly 12.5% to 13% cumulative loss in the portfolio. And I think we're probably well within that target. Let's assume for the moment we think that our originations are somewhere in that 10% to 11% loss range. And I think what you really have to do is look at the historic performance to come up with those kind of numbers or projections. But you really -- if you're smart, you don't factor in the economy. And as I mentioned, with our slow-rising, good economy -- well, people might define good differently, but I've already defined it for us. But a slow-growing economy with unemployment going down or at least staying the same, you generally are going to see better performance than you would expect. And so we probably have a cushion in that sense. And on top of that, I think our numbers are conservative in nature, and how we've done this has turned out even better. So we don't really expect to change our underwriting standards much. I think for us, it's more a focus of sort of keeping the mix we've always wanted and occasionally adjust things. I think another way to look at it is we're always looking at our model and our performance to find the pockets where we think there's either more money to be made or better credits to be bought with more money attached to it. And so we're not really looking to shift our overall buying profile, but we do move it around slightly to take advantage of opportunities in given states and given areas and given programs for that matter.

During your remarks, you mentioned that you expect to give back some of the discount over time, and, at the same time, your funding costs are likely to come down, continue to come down. Where does that all shake out? Where do you see the net interest margin normalizing over the next year or so?

Well, I think so much relates to your first question in that we'd much rather give the discount away to grow than change our credit quality to grow. And I think that's sort of an easy way for us. In the beginning, we wanted to hang on to the discount, we weren't able to get all the growth we wanted. So I think for us, giving up the discount to get a little better piece of different markets is sort of the way to go. The thing that we probably have a little trouble guessing is the margin. As much as I've said in all -- the way we -- our projections run, we expect an increasing cost of funds next year, though we're not so sure that's going to happen. The other thing is, as Robert pointed out, we've been doing A-rated deals. Now we just did one that was sort of a hybrid of a A, AA. Over time, we probably can get to AA and make get to AAA. And so in some nice way, the better rated deals and the lower cost of funds associated with those deals would offset us giving up some discount. And it's hard to say where the floor is in terms of the cost of funds, but we have enough margin now so we can roll with it either way. But I think the trick is to give up the discount in order to grow and ride along with our sort of continued improving margin over time.

Okay. You mentioned that you thought recovery rates would stay relatively strong in the fourth quarter. Where do you see -- just stepping back for a second, where do you see these cars -- car prices going in 2013?

Well, that's a good question. I think, as the dealerships -- and they've been growing and doing better. And I think as -- so 2 ways to look at it. I think let's look at it from the simple one, which is as the economy improves, the theory is that customers will be more able to buy new cars, as opposed to today, where people are still sort of pinching their pennies and they're looking to replace their cars that are finally giving up the ghost, and so a lot of people doing that would buy used cars. And that keeps the used car market really strong. And the fact that dealers aren't selling new cars, the dealers are also putting tons of pressure on the used car market because they're trying to put a bunch of used cars on their lot since nobody's buying new cars. That's going to change. I think as the economy continues to roll along, as everybody's seeing new car sales are in fact improving out of Detroit [ph] or on all areas. And so as more new cars start to really -- start to move up the lots, the pressure that dealers themselves are putting on the used car prices will drop. People will buy more new cars rather than used. So you'll really -- they'll sort of snap like a slingshot. But certainly, it'll ease back the other way. I think we might expect a 2-point drop or something over the following year. But the used car, in terms of our auction liquidation values, it jumps around a little bit. And so a 2-point drop in 1 particular month isn't going to change a whole lot for us. And again, I'm guessing a little bit because what we've also seen as sort of a long-term trend is that dealers are focusing much more on being able to sell used cars because the profit margins are so much better. So as much as when new cars really start to grow some more, new car sales, the pressure will ease. It's not going to really change a whole lot, or it could. It could either move a little or could move not at all. But we don't expect it to be some giant change.

Yes, and I think, Kirk, that the levels that we have right now kind of the third quarter at 47%, for us, historically, that's still a very good number, depending upon where we've been in the different economic cycles we've seen. Close to 50% kind of gets to the top range of our recoveries. And the kind of the lowest was kind of the fourth quarter of '08, kind of in the low 30s. So historically, low to mid-40s have been a pretty good number for us. And if we give -- get 3 or 4 points back over the course of next year, it's still going to be a strong level for us.

Fantastic. And I appreciate it. And then I've got one last and then I'll get back in the queue. The -- you mentioned that there's been all that recent M&A activity, probably a lot of additional capital coming into your space. Did you see any change in the competitive landscape in the quarter? Or do you expect, say, over the next few quarters things to become more competitive as a result?

We don't really see any particular change. And it's not -- I mean, we -- there's probably been lots of entrants in the last 12 months. So the good news is it's going to take most of them a lot. It's not quite as easy to list to put out a national footprint. And so almost all of them have to start somewhat small. And I probably know most of them, and they all agree that you're going to -- nobody wants to grow super fast because then you blow up. And so it's going to take them some time. So what you'll really see is some regional competition across the country. You don't really see a national footprint from any of the new guys particularly. And I think the fact that the banks have still backed off significantly and stayed there, there's still plenty of room for everybody. So as much as we've seen people on a regional basis pop up over the last 12 months or so, we haven't really seen anyone putting on a national push. Now having said all that, I could bet you right now that in 2 years, 3 of those new guys will blow up. But that'll just create acquisition opportunities for other folks.

Blow up because they tried to buy somebody and they couldn't integrate the systems or there are credit standards?

No, they grew too fast.

But they've got their credit standards and -- okay.

They probably didn't know they were cutting their credit standard. They just tried to grow real fast, didn't realize they weren't buying very well and then they were overwhelmed by the problem. Remember the rule in the industry is you won't see what you're doing for 12 months. So instead, you really run fast. If it doesn't work out, then you've got a real problem ahead [ph].

Our next questioner in queue comes from the line of John Hecht with Stephens.

First question is, you did discuss pricing and there were some questions from the prior caller about the competition. So for the -- I'm wondering, can you tell me, on your high-end customers, the higher end credit quality into the lower end credit quality based on your various programs, what are the APRs and discounts you're getting right now just to kind of get a sense for the range? And then within those ranges, is there any compression at all?

Let's see, John. At the higher end, I think our APRs are probably right around 16%, 17%. That's that higher credit end. Down to the weaker credit programs are 21%, 22% APRs. From a discount perspective, at the high end, we're probably right around par versus at the weaker credits, we're 11%, 12%. When you blend it all out, we're right around 5% and an APR a little bit above 20%. And we've done some things over the course of the last couple of years. Two years ago, our discounts were close to 10%, but we've made targeted changes where we've reduced the acquisition fees in certain segments that we think will perform better so that we get more of that paper. So we've done probably half a dozen of those over the couple of years, which have brought that blended discount down to 5%.

Okay. With respect to credit quality, I know it's pretty strong now, and I'm wondering -- and you already talked about some of this in terms where your expectations are. But I'm wondering where we are in the cycle. I mean, is this sort where your delinquencies and charge-offs kind of trough on a static basis and then you just hope for stability? Or is there still some downside opportunity based on the trends you're seeing?

I think, generally speaking, things -- gradually, they're going to maybe move up just a little bit. But I think it's a little hard to tell because as I said, you have the magic cushion of having a really good economy or whatever, a slightly growing economy or positive economy. And that dampens any real negative effect you'd have in terms of as we grow the portfolio. And so I think -- I would think there's going to be trend one way or another. It might trend upward a little bit, but it's a little hard to tell because, as I sort of mentioned earlier, where we sort of pick a certain range of what we think the paper will do, it's performing better in that range because then we keep buying and it'll push the overall numbers down.

Okay. Can you guys -- where are you selling down to in the securitizations now? In other words, what's the kind of initial cash C requirement? And what does that grow to?

Well, let's see. We sell the complete stack. So we -- $147 million of collateral, we get $147 million of bonds. We've put up 1 point in a reserve account, and then we build over-collateralization up to -- we build 11 points of OC initially, which typically is a 7-, 8-, 9-month time frame before cash flow starts coming back to us.

Okay. And last question, can you give us -- what's the reserve for the DTA right now? And based on kind of -- just give me a status of kind of when, based on -- I don't want you guys think to give any forecasting if you don't -- not coming up with the base of kind of run rates of profitability, when would you take that back into book value?

Well, the valuation allowance is about $60 million on the -- against the deferred tax assets. And the key components of the relevant accounting standards call for us to make a determination of when it's more likely than not that we'll realize those tax benefits for future earnings. And so -- and in the process of doing that, the standards goes on to say you evaluate various positive and negative evidence in order to make that "More likely than not determination." So we look at things like consecutive positive quarters. We obviously have projections of future income, and we evaluate all those things. Just to give you a benchmark, we've been around this track once before, and the last time we reversed the valuation allowance of about $23 million or $24 million, we at that time sewed together 6 consecutive profitable quarters. And so that's not a single benchmark, but that's just something that we might look at as we go forward.

[Operator Instructions] Next questioner in queue comes from the line of K.C. Ambrecht [ph] with Ice Cap Capital [ph].

First question I have for you. Looks like you have of your -- you have 2 facilities, funding facilities, of $200 million, which the Goldman/Fortress one is going to expire this December and the Citibank one is May of next year. Can you just give us an update on what you're doing with those facilities?

Sure. The Citi facility, the annual facility, we do a lot of stuff with them. We more than likely expect to just renew that and maybe expand it. The Goldman facility -- the 2-year facility. It's up in December. We are currently actively talking about renewing that one with them. And again, as I mentioned, at some point, we would expect to expand both facilities as well. And having said that, there's other folks we're talking to. I don't know that we'll go 3 facilities, but we might -- it's actually a good time to be looking for facilities.

How much of the warehouse have you actually used before it turns...

We use it all for about 2 days in the quarter. We fill it up monthly, but right before securitization, it's been getting pretty full. And then we'll do securitization and empty it again. So -- but the easy way to look at it is we fill most of it over a quarter, we dump it after the quarter and then start over.

The -- will the pricing improve? I mean, will that be a big savings of your interest expense, of the...

I think the pricing on the line isn't particularly bad in any sense. So maybe it would improve a little bit. But it's probably within 100 basis points of where it's going to be, so.

Keeping in mind, K.C. [ph], the paper doesn't stay in there very long. So, well, one of the reasons we do the quarterly deals is to get them into -- get the receivables into a long-term ABS funding where the cost of funds is several hundred basis points lower. So it's -- you won't see a huge benefit to the P&L, I think, from an improved warehouse funding cost.

Okay. And then when I look back on some historical numbers for you guys, back in 2006, in 2Q '06, you guys earned $0.11. You are actually producing more, I think, than you were back then. And this is also when you did not have your -- did not recapture DTA back then. But on an annual basis, you've printed in 2006, $0.55. Stock traded up to over $8. Right now, you're putting $0.11. That's pretty clearly without the -- without recapturing DTA, it's going to be $1 run rate by the end of next year. And so you're trading at half the level. What -- Brad, what can you tell investors that we're not going to round-trip this thing, that you're trading at half the valuation and the company is stronger today? It's kind of like a Goldilocks scenario on the economy, not too hot, not too cold.

Now to the last part, I was going to say I love the way you think. But that was up until you said it's $1 run rate. But...

Well, without the DTA, though, it will be $1. I mean, you're probably going to be around $1 run rate by the end of -- by the fourth quarter of next year.

I'm listening.

Yes.

So -- well, but the DTA is really more of a balance sheet item than anything else. And you can't really -- the extent -- I think I know what you're saying. The extent where we split the DTA, it's going to have a momentary massive spike in earnings that nobody really should pay that much attention to. But it's a wonderful thing to the balance sheet. In terms of run rate, I mean, we can sit here and say, "Go back and look at '05, '06 and '07." And you -- it's not like we're rewriting the book here. We're just following along and doing a little bit better and the funds are cheaper. So without getting into projecting the future, it's easy enough to say, "All we're trying to do is go back to where we were, the cost of funds are better, the efficiencies are better. So maybe we can actually do it better the next -- this third time around." Would that help?

I know. So, I mean, do you think the balance sheets are better if we do hit some sort of pocket in the economy, I mean, with the warehouse set up?

Well, that's actually -- all your questions are good, but that's a particularly good one. One of the things I've sort of -- I highlighted on is we are going to spend the rest of this year focusing on getting our growth set for next year so that next year can run as well as this year. The real thing I spend almost, I don't know, all my time thinking about is what to do to get us prepared for the next time Wall Street falls apart. And unlike last time when Wall Street fell apart in 2007, we were fully leveraged and hanging on over a cliff. And that's not going to happen this time. And so I think it's very fundamentally important to us as a company that next year is a good year and we spend a lot of next year getting ourselves pulled back from any kind of leverage where we're in a position that if something does happen in '14 or '15, then we're in a very strong spot to take advantage of if it, as opposed to get our throat slit from it. I think if we can have '13 as another year like '12 and '14 is a decent year, by '15 we're in cruise control in terms of what will happen if hit a pocket in the economy. But your question, if I interpret it slightly, is what do you do in a pocket. And we're preparing for it right as much as we don't really see it for at least 2 years.

Our next question in the queue is a follow-up question from Kirk Ludtke.

I just had 1 or 2 others. You mentioned that -- you said that you released some cash -- some $42 million of cash went from restricted to unrestricted. Is that -- did I hear that right?

Yes, well, actually, this was the pre-funding component. So we've put in into restricted cash when we closed the securitization mid-September. And then when we deliver the incremental receivables, it flows through and pays down our line and the rest flows through back to us.

Okay, got it. And is there a way to think about a normalized cash position here? Is there -- or do you have a target as a percentage of assets or something like that?

Well, we have some requirements in our financial set-up, so DAB [ph], some certain amount of balance each month. In terms of an overall cash position, I think to the extent we start rolling in some cash, which we might -- as I just mentioned, our first and foremost thing is to pay all our debt down. Once that's done, we would probably -- well, an easy progression for us. As we accumulate cash, get all the debt de-levered, when you say next year's plan. And anytime we get close to doing that, then we'd probably stop selling all the way down in the spectrum in the securitization. And that would be another very good use of our cash. Today, the cost of funds up and down the securitization structure is so enormously cheap it doesn't behoove us to not sell everything. But over time, we're going to have -- things being the right way, we're going to have an awful lot of cash to do something with. And so I think at that point -- here's something we've never had to think about, is when all the debt is paid off and you're not really so far down the securitization structure, what you do with all the cash? And at that point, we'll have another call and talk about it. But it will be a really good call.

[Operator Instructions] Presenters, I'm showing no additional questioners. I'd like to turn the floor back over to Mr. Charles Bradley for any additional or closing remarks.

Thank you. Appreciate all the questions. I think it's nice to see we're getting a little more activity in the stock. We've been trying real hard to make all this work. The plan, as I mentioned or referred to several times, is really coming together. We're very pleased with third quarter results. We're very pleased with the first 3 quarters for the year. We look forward to continued quarters as we go, economy hopefully hanging in there and it all working out. According to my good -- my favorite sports guy, Yogi Berra, it's déjà vu all over again. We're just doing what we know how to do, and it's working out rather well. Thank you all for attending. We'll see you next quarter.

Thank you. This does conclude today's teleconference. A replay will be available beginning 2 hours from now until October 23, 2012, 11:59 p.m., by dialing (855) 859-2056 or (404) 537-3406 with the conference identification number 43148332. A broadcast of the conference call will also be available live and for 90 days after the call via the company's website at www.consumerportfolio.com. Please disconnect your lines.