Good day, everyone, and welcome to the Consumer Portfolio Services 2014 Second 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 maybe contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements are subject to certain risks that can 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 today is Mr. Charles Bradley, Chief Executive Officer; and Mr. Jeff Fritz, Chief Financial Officer. I will now turn the call over to Mr. Bradley.

Thank you, and welcome, everyone, to our second quarter conference call. I think to sum up the quarter, it really was about as expected for us. We sort of hit the numbers we thought we would in terms of the overall numbers. In terms of, sort of, the front end originations part, the quarter started a little bit slow but it has picked up somewhat more in the middle and we're having a -- we had a very good end to the quarter. So it was a little interesting that normally, it goes a little bit the other way around. It's strong in the beginning and then slows down, but either way, it's worked out fine. A couple of other highlights. As we pointed out in the press release, we did our -- we've got back to a AAA-rated securitization, which is one of our goals. That was very important to us. It also does wonders for the cost of funds. And a note on the securitization, not only did we get to AAA, but it was very well-received in the marketplace. Demand was 8x, and we ended up with a price of 2.37% for the average cost. Again, very low and well below even our expectations in terms of what the pricing on that deal would be. Finally, we did, in fact, finally settle the FTC matter and we're now in the process of putting the monitoring stuff in place. So all that is going very smoothly I think, at this point, it's much more in the rear view mirror rather than in front of us. And as I mentioned a little bit in the previous conference call, we learned a few lessons with that. We have done a few things, we changed a few things. But overall, the…

Thanks, Brad. Welcome, everybody. We'll begin with the revenues. And first, as a clarifying note, you might recall last year in the second quarter, we've recorded a gain of $10.9 million, resulting from the cancellation of the -- certain debt associated with a legacy securitization that we cleaned up that quarter. So as I go through these comparisons on the revenue, I'm going to omit that gain from last year's numbers because it makes these comparisons a little more meaningful, I think. So anyway, for this quarter, revenues were $71.6 million, that's a 5% increase over the March quarter of $68.1 million, and a 20% increase over the June quarter last year of $59.6 million. Again, that's without that gain. For the 6-month period, revenues were $139.7 million, and that's a 22% increase over the 6-month period last year of $114.2 million, again, without the gain. And so this is pretty much in line with our expectations. The portfolio grew about 6% for the sequential quarter and 30% year-over-year, aided by $211.4 million in originations for the second quarter this year. So those numbers are going to continue to track along with the growth of the portfolio, and pretty much in line with our expectations. Moving on to the expenses. Similarly, last year in the second quarter, we had kind of an unusual expense item, $9.7 million in contingent liability expense, a portion of which was related to the FTC matter, another portion was this long-standing party litigation that we talked about from time to time. So again, I'm going to omit the $9.7 million contingent liability expense from last year's numbers as I go through this brief comparison. So expenses for this quarter, $59.3 million, that's up about 5% from $56.4 million for the March quarter this year, and…

Thank you, Jeff. In terms of the industry, I think on the one hand, we certainly are very happy where we sit within the industry. I think looking at sort of the competitive environment, a lot of folks say how competitive it is. I think, sort of, from our opinion, it would appear that a lot of the sort of the competition has eased a bit. Now whether everybody's just taking a step back for a variety of reasons, it's a little hard to tell. I mean, on the one hand, we can say we think that the competitive environment eased some. We really have a few ideas on why, but we're not having anything definitive to point out. On the one hand, we think there was a few companies out there, particularly large ones, maybe growing on purpose, maybe before an IPO or something. And so maybe they've slowed down. Some of the larger guys probably have slowed down. But if you look at sort of in the 3 segments, at the very top or the really big players, no one appears to be being overly aggressive in trying to seize market share. And sort of the medium segment of players, there's probably a few guys that might have gotten a little ahead of themselves, and so we see some sort of true backing off in sort of the mid level. And then at the lower level, you have a bunch of small companies who are trying to go in and grab market share. And maybe they finally have been getting a little bit burned and backed off some. So if you look at it on the whole, what you really have is it's not like everybody's backing up like crazy, but it's really nobody's particularly pushing forward. And…

[Operator Instructions] Our first question comes from John Hecht of Jefferies.

First question, I guess, is just a bit of an accounting one. Just looking at the shareholders' equity account have dropped in an otherwise pretty good quarter. Was there something through the OCI or something that we should be aware of that accounts for that?

Are you referring to the dollars or the...?

Yes, the dollar equity account went from $123 million to $111 million.

In the consecutive quarters, I guess, I don't -- I'll have to check on that, John and get back to you because I don't know the answer to that right now.

Okay. And then, regarding getting the AAA rating on the recent securitization and 2.37% all-in cost of financing, just to give us a sense of what kind of interest expense that might save, maybe can you characterize what the ABS that are running off now, maybe the ABS you put in place 1 to 2 years ago? What was the all-in cost of those?

I think if you go back a year ago, we were probably doing in the high 2s and low 3s of the new transactions. And that was trending -- that was also trending down. I mean, if you go way back into the 2011 vintages, I think the blended cost in those deals were at a 4 handle. So we've kind of had that kind of steady improvement all along. I think the only time we kind of went backwards is in the September transaction of last year, was I think our first increase in the blended cost in probably 6 or 7 quarters. So you've had that kind of steady generally decrease except for that third quarter of last year.

Okay. And can you talk about -- Brad, you mentioned kind of stabilizing of the competitive trends. What are you guys seeing in terms of -- it doesn't look like, when we just looked at our calculations, at our model, it doesn't look like yields moved much in the quarter. Is that a safe statement? Or what are you guys seeing in pricing in your kind of main lending categories?

One of the things we looked at, we actually cut pricing a little bit to see if we could buy sort of a little bit different part of the portfolio spectrum. And we were somewhat very surprised to see how receptive the market was to a price cut. And you would've thought, with a lot of competition, that any price cut at all would really not get you much, and we -- it got us a lot. And so that was sort of an interesting indication that the market is there if you want it. So we're thinking about what we might want to do because, obviously, we're not really wanting to compete on credit and we have lots of room on price. And so we've been running with a 20 APR for a long time. We would expect probably to bring that down into the 19-ish -- low 19s at some point over the next, probably, 6 to 12 months.

John, I was just looking at a couple of notes here. And I think our shareholders' equity went up in the consecutive quarters. It was $103 million at the end of March and went up to $111.7 million at the end of June. So I don't think...

Okay. That might -- it might have been an error in our March model.

There you go.

Our next question comes from David Scharf of JMP Securities.

Brad, I want to just follow up on your comments on the marketing side and the 120 reps. You've talked kind of over the past year of ultimately kind of working your way back up to about $1 billion of annual origination volume. I mean, given the bodies you have in place and your assessment of the competitive environment, is that a realistic target for next year? I don't want to pin you down on guidance, but trying to get a sense for, ultimately, where those bodies could ramp to once they become productive?

That's a fair question. I think an easy way to look at it is, when we were doing about $120 million per month, we had around 120 reps, maybe we had as many as 130, somewhere in the neighborhood. And so I think we've now got the 120, so I think my expectation or hope would be to get up to that at least $100 million kind of number. Given the competitive environment, or lack thereof, will sort of determine how fast that happens. But I think on the one hand, I don't mind sticking my neck out a little bit. I mean, I would hope -- our goal is not even that. I mean, our goal is to get to that $100 million per month level next year. Now whether we get there or not is a little up in the air. But certainly, we think we're well-equipped in both -- the origination staffing is there for that. Now the marketing staffing is there for that. So the only problem is whether the market will play along. And recent signals may, as I sort of mentioned or alluded to, might -- if I ever had to -- if I had to flip a coin, I'd be flipping it -- I'd be betting on -- a little on the positive side that we'd hit that number. But things change somewhat rapidly, so it's hard to say.

Got it, got it. In reflecting on the competitive environment, I know you just talked a little bit about some of the price moves in the quarter. I mean, given that summer is a slow time and maybe some people naturally are backing off, I mean, did you have a sense if the competitive environment, particularly from the large guys has, in fact, eased? Or was it just maybe the kind of the impact of some cuts with the dealers during what's typically a slow period of the year?

I would -- again, it's tough to crystal ball it, but I would -- I still kind of think that the big guys have probably eased some. I think -- it's a little hard to say. Santander is a big player in the industry. They've recently had this sort of federal banking issue come up, and so it's hard to say what they're doing. But the way -- truly, the way we see it is what we're hearing in the marketplace. And what we currently see is the big guys, in particular, aren't being overly aggressive, whether that's Wells easing back or Santander easing back or Capital One, it's a little hard to say. But it's almost easier to say that none of those 3, which I generally throw in Chase Custom, none of those 4 are being overly aggressive. Now to say they're all backing off, I probably wouldn't say that. But it's easy to say none of the 4 are pushing hard. GM Financial came back and seemed to be making a little bit of an aggressive move 1 quarter or so ago but that doesn't seem to be overly apparent, either. So if you call it the Big 5 or whatever you want to call it -- and that pretty much sums up the top end of our industry. I'd safely say none of them are being overly aggressive. Probably, I'd put more emphasis that they're all sort of coasting or whatever, maybe some have pulled back. But again, it's a little hard to tell because if 2 pull back and 2 are holding even and 2 are modestly aggressive, and you're sitting still, so...

Got it. No, that's helpful. And thinking about pricing, I know the average yield on the portfolio was still a shade above 20%. But in terms of the 2014 vintages, are the APRs on those loans below 20% now? I mean, I know you've talked about dipping below 20% for the last couple of quarters.

I would think the 2014 vintages will be below 20% in terms of the -- they'll have a 19 handle.

Okay, got it. And is there a charge-off number for us this quarter? Not the rate but the actual number.

Yes, I think I'll get back to you on that, David. I just looked through the math, or look at our sheet, but we can talk later and I'll give you that number.

Our next question comes from Kirk Ludtke of CRT Capital Group.

More strategically for a second. When you think about where the auto finance, particularly the sub-prime auto finance market is today relative to where it was precrisis, do you -- does it matter how many consumers are sub-prime today versus how many consumers were sub-prime precrisis? I'm guessing that there are more people that are sub-prime today in your market, is therefore -- the addressable market is therefore bigger. But I -- do you agree with that or?

Yes. Actually, that's an interesting question. On the one hand, a statement we've probably made many times, our industry is so large that the pure size of it at $80 billion or whatever it is per year. It lends itself to having enough room for just about anybody and everybody. However, I think you're absolutely correct. I think given a couple of things, since the last recession, everyone is far more credit driven. And it's not so much -- shockingly, it isn't so much that they are trying to look at credit to how they buy, they're looking at credit to try and know what they're buying, if that makes sense. And so to the extent that the recession has put a far larger class of consumers sort of in that sub-prime category, I think that's probably a fair statement. I think interestingly enough, I don't think that's particularly causing lenders to shy away from the sector. I think if anything, it wants -- it encourages them to get more into it because now it's even bigger than it was before and it was very large to begin with. And so as much as, again, and I said this a few phone -- a few conference calls before, that we weren't really seeing that much competition, and more recently I said we finally have. But again, I think that the universe of sub-prime customers has expanded greatly over, certainly, since the last recession. And through credit -- better credit reporting, it's continued to expand over the last decade. And so I think one interesting thing is everyone today is so much more, at least, trying to establish the credit criteria of their customers than -- and even, I would make one more point, I guess, if you look at the…

That's helpful. You also mentioned that you brought down or you may bring down your APR into low 19s over the next -- was it a couple quarters?

Well, we started this quarter. And I think in all honesty, we were somewhat surprised at how effective it was. And I think as I've mentioned before, we've tried a few years ago -- certainly, we tried very hard to keep our APR and discounts up to generate cash. And as I also mentioned, that worked very effectively. So we're now in the position, where we're toying around with it. If we lower the APR, how much business are we really going to get? We were a little surprised in our first foray that we picked up so much. So I think you can expect to see that trending down. I think our goal, certainly, is to keep it above 19. But we're not too worried if it gets into the low 19s, almost soon.

Okay, that's helpful. And the cumulative loss rates, you're still targeting about 14?

Yes, I think 14 -- I think we might have mentioned that given that we had to, sort of, move around the collections policies and procedures a little bit, we might have a pool or 2 that ticks over that, just because it's sort of in the middle. If it got caught right in the middle of a change in the policies, it might not perform quite as well as it should. But even so, 14 is the target.

Okay, great. And I think on the last call you mentioned that you thought by, say, the first quarter of 2015, you would have paid off the subordinated notes. Did I hear that right?

Well, what we've done is sort of -- I guess an easier way to look at those notes is, on one hand, they're practically equity debt. And so we're not -- we're certainly not aggressively -- we used to put that money out or at least advertise that money at about 10% or more. Today, we advertised it at 3%. So you can well imagine there isn't a lot of people running for that money like they were before. So its natural run-off has been something close to $1 million a month. There's currently, I think, $18 million on the balance sheet. So it may not run off entirely, but I think by the next 18 months, you could say it will be gone. So on the one hand, we're not actively trying to get rid of it. On the other hand, we're not trying to grow it one bit. How long it takes to run off will depend on whether people want to renew at those lower levels.

Got it. And the residual interest financing, that will run off by...?

Yes, that's got a finite period. It will be gone within a year.

Okay. So the recourse debt will pretty much be gone?

Yes. That's really what we truly care about and it will be. I mean, as Jeff mentioned, and we've talked about before, paying off Levine Leichtman, our good capital lenders last quarter was a huge step. And the real only piece of debt we look at is that residual piece. And I believe we can pay it off in full next March, which we might do.

Okay. And is there a target for your -- how much you'll be accessing the warehouse facilities? Is there a level where you want to get it down?

Well, I think we'll probably keep it about where it is today. I think a lot of it will depend on how much we grow down the road. If we can get to $90 million, $100 million in the beginning of next year, we would probably access a little more. But I think this steady state is probably a fair statement.

There are requirements -- there are certain required usage parameters to those deals. And so we keep that in mind as we are drawing and pledging receivables. So I think what Brad said is true. We'll probably maintain about the same level of usage that you've seen over the last couple of quarters.

Got it. And then unrestricted cash, do you have a target for that before you start thinking about a dividend?

You might be the first person who has asked us about a dividend. That's a great question, though. I think, as I sort of mentioned all along, we're probably in the "build cash for a recession" kind of mode. And so we would target a fairly large number of cash on the balance sheet before we would think about what to do next. So I think one could fairly estimate we would continue to build cash over the next 18 months.

[Operator Instructions] Our next question comes from Jason Stewart of Compass Point. Jason Stewart - Compass Point Research & Trading, LLC, Research Division: One more question on the competitive environment, if I might. How much do you think that the -- aside from Santander and the Fed, the regulatory environment, namely the CFPB, is factoring into people -- other competitors' desire to grow?

Shockingly, I didn't mention that, but I should have. So that's a good question. I think the CFPB is certainly something everyone is really looking at, including us. We spent a lot of time -- on the one hand, it's a little hard to figure out how you're supposed to be working with the CFPB because in some level, putting it loosely, they want us to help monitor the dealers. And again, if you read the lovely New York Times article, it certainly sounds like it's hard, objectively, to think the dealers aren't sort of causing their own problems. But having said that, I think all the lenders are certainly trying to pay attention and do -- including us, what we can do to keep in line with the CFPB, unfortunately, not knowing exactly what they want to require from us. And I would think we've already been through almost a very similar situation with the FTC. So maybe we have a little more experience. And certainly, we have a big head start in terms of compliance factors along those lines. So it may not be as big an issue for us and probably one of these I might have mentioned prominently. But I think you're absolutely right. I think with lots of our competitors who -- we know certainly a bunch who are probably talking to the CFPB today or now. So it probably is a significant factor. Jason Stewart - Compass Point Research & Trading, LLC, Research Division: Yes, and it certainly seems like you would be ahead of the rest of the market in that, with putting the FTC behind you. But have you looked at the NADA proposal or tried to quantify the impact if that were to be what became industry -- standard industry practice?

I can only think that it would be positive. I mean, I think the more you work with the dealers, because of the exception, CFPB can't go directly to the dealers and so they're trying to do it through lenders. And I think any easing on that would work. And there is recently a ruling that I think did benefit us. But it's so hard to decide where you sit in all this. I mean, much like many other things and certainly the way we look at it, we're going to read everything the CFPB puts out, we're going to comply with it as much as we possibly can. But like you said, we think we sit in a pretty strong position to begin with. So it shouldn't really affect us the way it might affect others.

At this time, I'm showing no further questions. I'd like to turn the floor back over to our speaker, Mr. Charles Bradley, for any additional or closing comments.

So like I said, second quarter went very well for us. It's kind of where we are following our script and we're getting to where we want to go. We -- interestingly enough, I think we set our plan, whether it's a 2- or 3-year plan or whatever you want to call it, and we've been pretty good sticking to that plan. And much like anything else, it's interesting to see how the environment around you affects that's plan. And it's easy to say that over the last 2 years or so, the environment has been very helpful in our plan. And it's made it far more successful than we would've thought. So we will likely continue to ride that wave, as you may say. And -- but for the most part, we're going to run our business the way we think is the appropriate way to do it and take advantage of the opportunities presented by the environment and then, see where we go. So it's certainly -- we certainly -- we're doing what we're supposed to be doing. We're sitting on a very and probably the most excellent auto finance environments. We like the economic environment. So we're obviously very positive on -- we're very positive on how the second quarter came out, we are very positive on the future. So thank you, all, for attending the call and we'll speak to you next quarter.

Thank you. This does conclude today's teleconference. A replay will be available beginning 2 hours from now until July 29, 2014, at 11:59 p.m. by dialing (855) 859-2056 or (404) 537-3406, with conference ID 76956813. 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 and have a wonderful day.