Good day, everyone and welcome to the Consumer Portfolio Services 2017 Third Quarter Earnings Call. Today’s call is being recorded. Before we begin, management has asked me to inform you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements are subject to certain risks that could cause actual results to differ materially from those projected. I refer you to the Company’s SEC filings for further clarification. The Company assumes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or otherwise. With us here now are Mr. Charles Bradley, Chief Executive Officer, and Mr. Jeff Fritz, Chief Financial Officer. I would now turn the call over to Mr. Bradley.

Thank you and thank everyone for attending our call today. I think overall probably not overly surprising that our third quarter looked an awful lot like our second and first quarter. That’s sort of what we told people we thought we would do and in fact that come to pass. So generally pleased with the whole quarter, I think I have some highlights of the quarter. We continually completed our fourth securitization of the year. The cost of funds in those securitizations continues to trend down. I think the comment there is really that Wall Street or the ABS market is still exceedingly interested in our industry and therefore our ABS deals is having a strong demand and we keep doing deals and the deals just keep getting better either more buyers, lower costs, more aggressive pricing. Even with the cost of funds overall going up in the economy, we've been able to sort of match that and go down with tighter spreads, more participants et cetera. So that’s a trend that’s really strong for us and the industry for that matter and we would - if that continues that's all good. But we're very pleased with how that’s worked this year. So talking about few other things, everybody is very interested in the hurricanes and where we were affected. In the Harvey, Houston hurricane we had about 2.5% of our portfolio, our loans were in that area. So we actually weren't overly concentrated by any means and as a result weren't particularly affected. In Florida, we had 6.5% which certainly is more, but the interesting thing we’ve really had a very low casualty showing out of that, we have been, you know, are generous with extensions in those two areas. But the good answer is, overall there is no real significant stress on the DQ. So as much as everyone thought and certainly a lot of people wrote about the problems in those areas, as of yet we really haven't seen very much nor have we been affected hardly at all. So we're sort of pleased with all that. Again maybe a tad early to say it’s over and done with, but in terms of the initial fall out as you might say it's been very good for us and not really a problem at all. And now we’ll get into some more details on the quarter, I'll turn it over to Jeff to run through the financials first.

Welcome everybody, thanks Brad. We’ll begin with revenues for the quarter were 109.5 million that’s actually down slightly from 110 million in our second quarter this year, but up 1% compared to 108.5 million for the third quarter of 2016. Year-to-date revenues 327.2 million and that's up about 4% compared to $314 million a year ago. So kind of the story there is that year-over-year increase is due to a 3% increase in growth of the organic portfolio aided by originations of 205 million in this third quarter and 668 million year-to-date this year and the flat – essentially flat revenues from second quarter of this year to third quarter of this year are largely attributable to the fact that the portfolio is largely flat in those two sequential quarters. On the expenses $101.4 million for the quarter that’s actually down about 1% compared to 102 million in the June quarter this year and up 6% compared to $96.1 million last year in the third quarter. For the nine months, 303.3 million compared to 277.1 million, a 9% increase. So on a year-over-year basis, the increase in expenses is largely due to increases in interest expense and provisions for credit losses. However in the sequential quarter, the total expenses are down slightly which is largely led by flat interest expense and it's like decrease in the provisions for credit losses. Let's look at the provisions for credit losses 47.3 million for the quarter. That's down 2% compared to 48.5 million in the second quarter this year and up 2% compared to 46.3 million in the third quarter of last year. On year-to-date basis 143.1 million and that's up 6% compared to 135 million a year ago. And so a couple of things influencing the provisions for credit losses, the growth…

So I’d run through some of the departments, marketing has been a focus of ours for the last several years. Interestingly we sort of thought that with all the automation involved these days that the marketing would be somewhat more of a commodity with dealer tracking all of the dealers. As it turns out we sort of think that actually being in the dealerships is still very important. So we're sort of working on new strategies to do that. The other part is that the marketplace is still very competitive. Sort of regardless of what other folks are saying about competition and such, our feeling is that people are just as competitive today as they were before. And so that has an effect on the overall efforts here as well. But we're almost okay with that given sort of where we think we're going to be for the near future. In originations, we continue to focus heavily on improving our credit metrics and we actually put out some of the best credit metrics we've had. And the LTV is probably lowest LTV we've had in almost five years or even more at 111. Generally speaking, all credit metrics are improving. So in terms of our stated aim of not really chasing the competition and not really chasing the market and instead improving our credit, focusing on what we do best that all seems to be coming true exactly where we thought in that our credit metrics are improving, we're not really pushing the marketing effort and we're getting the paper we want to get rather than sort of needing to go out and buy paper. In the collections area, we've been working on increasing the analytics involved looking at different ways to work on delinquency and different ways to work…

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

The first one is, as Brad you talked about still tight competition, but yeah, on the same topic that you did have improving loan to values. Some of the industry data we've seen suggest in certain categories there, prices are improving, meaning loan yields. I still understand it's tight. Is it softening up anywhere? Is it stabilized at a tight level and how would you kind of think the next two, three, four quarters look from a competitive perspective?

I think, this is where we're hoping for the M&A activity. I think, we are certainly hearing rumors that people are struggling and some of the -- one of the things I've heard people said is a lot of money came in, in this industry in 2011, 2012. A lot of those folks have five year windows. So that window is kind of there. So it’s going to be interesting to see what happens, but we don't see anything in the way of easing anywhere. People are still using credit quality as their tool to compete. People are still competing on price. Our coupon is down a little bit. We're not seeing as much as like I said earlier, people are saying, we're growing, it’s a great environment, we're not buying it and flat out. So hopefully, we’re not playing, but I think this could be sort of that last gasp before people start giving up. And so, if that happens, all the better for us. It's interesting, we don't necessarily need to buy someone to do well, people just going away helps a ton. So, and I’m not saying that to disparage the industry in any way. This is the natural way things seem to work, particular in our industry in a cyclical nature. So, we’ll see, but I think for a few players, slow down go away, then that market and things will change. So to answer your question, I would think that over the next three or four quarters, you're going to see some things change in terms of M&A that will open up the market and might ease some pressure on pricing and quality and that would be my bet I guess. It's hard to really say that’s going to happen for sure, because like I said, I thought it might have happened 18 months ago and it didn't.

Okay. That’s good update on that topic. You mentioned stabilization of recovery rates or auction prices in the quarter. Is that a function of the hurricanes or do you see kind of a more stabilized environment with respect to used car prices as we step forward here.

I could go out on a limb and say, it's sheer luck, but it's just too hard to tell right now. I think it is interesting that the last few quarters, it seems to have stabilized some. Whether that’s an influence because of the hurricanes know or what, I just don't know it, but I’d give you a 50-50. They could drop three points next quarter easily if things change. So it's just too hard to tell right now. It's possible the hurricanes are influencing a little bit and without them, it would be coming down some more. So I will see. Again, our sort of stated nature here is, anything over 30, sort of 30 was the worst it ever got, we’re sitting at 34, 35. There's room to move down and if it doesn’t, that's fine. But I wouldn't place any bets for it going up or staying here for a long time.

Okay. And then final question is for Jeff, what's the right tax rate to think for you guys the next few quarters?

I think we're hovering right around that 40.5%, John and so I don’t see any reason for that to be changing over the next few quarters.

Okay. I thought my model had a slightly lower tax rate the last few quarters. Is it more just like of an annual rate? Okay. No. I apologize. I got that wrong. All right. We’re good.

Thank you. Our next question comes from David Scharf of JMP Securities. Your question please.

Brad, maybe a follow-up to the question about the competitive environment over the next few quarters. I'm wondering, trying to reconcile maybe on the one hand the tightening spreads in the ABS market and what that says about how freely capital is flowing into your industry versus the hope that maybe M&A activity will pick up, some of the more aggressive lenders will run into trouble. As we think about the spreads, is there a goldilocks or a sweet spot in which your cost of funds is optimized, but at the same time, it's not an indicator that maybe there's really no shakeout inevitable here. What are your thoughts about just those tradeoffs because it really seems like the ABS markets are a double edged sword at this point.

It's an interesting question. I think historically, over 25 years, we might think our cost of funds should be closer to 5, rather than 3.5. So if I were running or backing some of these other companies, I would certainly keep that fact foremost in my mind, thinking if I can’t survive at 5, then this 3.5 is an illusion and I should take the opportunity to do something different. But you're right. Certainly, what is it, high tide lifts all boats and certainly that will have some effect. I don't know that a point or a point and a half or whatever it is, half a point is enough. The problem is if you were running one of these other guys and your numbers, there's certainly -- again, I’ll do this sort of hypothetically. The thing you said in there and you really can't look at you numbers and say, hey, these collection numbers are coming around. We’ve got something. There is new papers better than the old paper and there's a right trend going and let's put the pedal to the metal and grow real hard and because remember if you get a bigger portfolio, you cover up your past sins and so there's a lot of folks out there probably thinking real hard that's what they can do. And so granted the ABS, flow cost ABS is going to help them and give them a little more margin for that. On the other hand, to the extent those numbers aren't turning around and not going the right way and you've got some hocus pocus to make it all work, then you’re looking at the wrong end of the barrel. So, the ABS isn't going to save you by any means. We've heard some rumors where some companies…

I might also add David related to ABS market and the recent deals is, it’s been very receptive. There's a lot of capital that's looking for the kind of yield to come out on these bonds and you think like a AAA bond or BB bond, it's kind of a commodity, but in reality, when the investors line up for these bonds, you’re also taking into consideration the issuer and the track record of the issuer and so we've been in business for 26 years. These last two deals marked our 75th and our 76th structured asset backed Wall Street type of deal. And so, a component of our execution has to do with our track record and our stability and another player in the marketplace who maybe doesn't have that isn't necessarily going to get the exact same execution.

The last comment would be, we've been making money all along and I think I mentioned it at least a few quarters ago, we were shocked when some of you were talking about, how do you guys make a lot of money, people don't make any money and that surprised us a lot. And to the extent you aren't really making any money, then obviously trying to grow to make that happen is very important and maybe ABS helps you there. But in the end, you need to make money or this game doesn’t play at all. So there's a lot going on out there. It will be interesting to see what happens in the next 12 to 18 months.

Got it. Maybe a follow-up on credit and it's more just the math surrounding the portfolio aging, since there's less of a denominator effect. Jeff, is there any way, given a stable, if you feel like, in general, it's stable credit performance, but it's sort of the 800 million to 900 million annual origination profile. How should we be thinking about loss rates next year in that context, just as that average age of the portfolio expands beyond 20 months and you get a little less? Brad said there's less ability to cover it up through growth. Just trying to get a sense for how it trends towards ultimately the cumulative loss rate when the portfolio kind of stays flattish?

Yeah. That's a good question. At these origination levels, our portfolio is going to continue to hover at about the same $2.3 billion and so the portfolio seems to be seasoning at about a month with every consecutive quarter. And so in terms of the annualized loss rates in that scenario, we might expect those rates to continue to tick up a little bit until the weighted average age of the portfolio gets to be somewhere between 24 and 30 months. And then, we'd expect I think stability or a relative flattening of the annualized loss rates.

[Operator Instructions] Our next question comes from John Rowan of Janney.

Just a follow-up on that last point. Jeff, you talked a little bit about loss rates migrating up a little bit at the current origination level, but Brad earlier, you talked about the origination floor being somewhere around 50 million per month, which obviously would work out to a reduction, relative to where you are now as far as originations go. How does that look if you guys kind of compare your last comments about the loss rates migrating up as the portfolio age is up to a certain age, at 70ish million dollars, 70ish million worth of dollars originations per month versus whether it's at 50 million, how do all those metrics look if we go back to that baseline scenario that you guys laid out earlier.

Yeah. I think the first part is, I said in 2007, we would do 50 million, so we won't do that. I think our baseline is, yeah, that’s fine. Our baseline is probably that, I was shocked that we dropped any lower than we are today. I mean, we’re sitting around just doing what we’re doing. So it’s – 70 to 75 is probably the baseline and somewhere right around there, the portfolio is going to stay the same size. I think, over time, we probably, like I said, I think by the time, the portfolio starts to get all down to where that number is insufficient to keep it flat, we would probably be growing again. So that's one part of it. So on the one hand, our portfolio should stay the same size and again, some of the slings and arrows of having our numbers really prove out, which is fine because they prove out, that makes us look good. Our really task will be to continue the improvement in collections so that whereas Jeff's point earlier was you might see an uptick and would be to have it stay flat. And so in other words, our collections will improve to the level where we don't see a degradation in the loss number a little bit. And so, we'll see, but that’s a bet I'd be kind of interested in taking that. Our improvement in collections will offset the aging of the portfolio. I'm truly saying that's where I’ve got my head. But it's not a bad thing to think about, because in fact, that's what we're trying to do, as much as our collections are improving, you don't quite see the numbers in that, but again, it's because of all these different factors and so that's what we'll continue to try and do. So between all that, like I said, it's almost going to be a slightly boring world for us, because we're going to continue to work on collections and if we do everything right, we're going to stay looking pretty much the same, which is really boring. But on the other hand, it's probably a good kind of boring and things started to change in the economy or the industry, we should be able to do pretty well real quickly with those changes. But that’s a good way to look at what our sort of our ammo is going to be for the next 6, 12 months.

Thank you. Our next question comes from Erik Volfing of Grand Slam.

This is Mitch for Eric. Assuming that you guys are sort of in a stability mode for the foreseeable future, are there opportunities on controllable cost to start to improve margins from that perspective.

There certainly are. I mean we look at the numbers and the real trick is we're probably almost across the board a little over staffed here and there, because we weren't exactly thinking -- we were thinking the M&A thing would go a little quicker. And so we wanted to be ready and so we're sitting ready and so, I think given everything we just said and we may look at that and I mean to be fair, we're always looking at ways to save some money. We're certainly going to monitor sort of the benefit of being ready to grow a lot. I mean, we could probably originate $100 million a month, no problem tomorrow, and we're doing 75. We could probably originate 125 million a month tomorrow and we probably could service the next year 200 to 500 million tomorrow, not quite, but within 90 to 120 days. So we have a lot of stuff ready to go. And so, yeah, you're right. At some point, we might have to look at that a little closer, but probably what we do instead is you got to remember as the portfolio continues to move, if it grows and you need more people any way. So -- but since we’re not growing, we’ll sort of look at that a little bit, but there's probably some money that’s saved along the way. What I'd rather do is find something good to happen so we don't need to worry about it.

Thank you. Our next question comes from Michael Tarkan of Compass Point.

Just back on the credit question, so you mentioned you expect losses to kind of keep ticking up as the portfolio continues to season. I’m just kind of wondering how to dovetail that with comments around provision expenses leveling off here. How do we think about reserves currently versus maybe where they're headed? And then a follow-up on yields, just kind of curious how to think about that line moving forward. Thank you.

Well, I think the way you look at sort of the annualized loss rate compared to provision expense, one of the things we do is we build the provision or excuse me, we build the allowance for a new batch of receivables, so the contracts that I buy this month have a very low allowance, so should with those contracts, because they’re brand new contracts and they not even delinquent, right. So I build an allowance for those receivables over a 12-month period, so that I have what I feel is a fully funded allowance for those receivables once they get to be 12 months in age. And so when we're in a situation where we're growing rapidly or the amount of new originations is a significant number compared to the existing portfolio, then, you always have this kind of this catch up sort of taking place that influences the amount of provision expense, makes it in some cases, makes things relatively low compared to the size of portfolio, but as the portfolio seasons and then if you have a circumstance we have now where the amount of new receivables is relatively small compared to the existing receivables balance, then the provision expenses will tend to look lower compared to the portfolio, the allowance will tend to grow a little bit compared to the portfolio and all these could be happening at the same time that the annualized loss rates are inching up a little bit. So it kind of all goes together although it’s maybe not completely intuitive.

I guess just in terms of the excess provisions or excess reserves that you guys had built in the sort of first half of this year, that slowed down a little bit in the third quarter, I guess sort of just so I’m clear, like just maybe a little bit more modest reserve building dollar levels to sort of how you’re thinking about it, with the static portfolio?

Yeah. I mean, we wouldn't characterize it really anything in the excess necessarily. I mean, we have a methodology that we've used for some time, we're pretty comfortable with and we literally monitor each portfolio as a monthly static pool and as that pool seasons, we can compare that pool’s relative -- cumulative losses that are point in time compared to previous pools and we make adjustments from time to time as necessary. So, we have these little kind of fluctuations from quarter-to-quarter and they're not necessarily reflective of any strategy change, certainly not a strategy change, they are influenced from quarter to quarter by some of the calendar seasonality that takes place in the portfolio. And as we mentioned, they are influenced somewhat in these levels. We’ll continue to be influenced somewhat by the ongoing seasoning in the portfolio.

And then just on yields, I found that down a little bit this quarter, just kind of wondering how to think about that moving forward.

We would like to have the yield go back up a little bit. I think we do have a little bit of a mix. We’ve done more new versus used and so that influences that somewhat. And so the trade-off is the credit metrics are way better than that. So as much as -- we’re kind of okay with what we have. I'd certainly like to figure out a way to improve that a little bit. We'd like to keep that number above 19 and it dropped below for the first time in a while this quarter. Again, we're sort of, it's not like we're solving with that interest rate, we’re solving for everything else and that just pops out. But, it's one of those things we’ll certainly look at and see what we can do to maybe adjust. But again, our trade-off there is probably better and while I was sitting, I actually thought I would comment on one of the earlier questions, which is much of the ABS is down a little bit, sort of if you look at things from a very objective point of view, as much as you might be getting some benefit from the low cost ABS today or lately, the low pricing option recoveries probably offsets that. So it's not like you're really going to benefit dramatically from lower ABS, which is suffering from the low options. But back to your interest question, we're looking at it.

Thank you. At this time, I'd like to turn the floor back over to Mr. Charles Bradley for any additional or closing remarks. Sir?

Thank you, again for everybody coming in and attending the call. Again, I probably don't need to say it again. We sort of like where we sit. We’re hoping for excitement in the future and it's an interesting time in the industry as well. So -- but there's all that money that came in, in 2012, 2011. Those five year windows are hopefully going to close and some decisions will get made and some things will happen and we’ll be in a good spot to take advantage. So with that, we look forward to talking to you guys next quarter.

Thank you. This concludes today's teleconference. A replay will be available beginning two hours from now until October 31, 2017 at 11:59 PM by dialing 855-859-2056 or 404-537-3406 with the conference identification number, 1857939. 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 at this time and have a wonderful day.