Good day, everyone, and welcome to the Consumer Portfolio Services 2018 Second Quarter Operating Results Conference Call. Today’s call is being recorded. Before we begin, management has asked me to inform you that the 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 is 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 you everyone for joining us on our second quarter conference call. I think looking at the quarter it's hard to be somewhat repetitive or we are going to be somewhat repetitive, and it's about what we would expect. We are very much, and what I loosely call a holding pattern, we've been talking about the industry every call for the last two years in terms of what the industry is doing. And at this point, I think the real focus is on the industry. In terms of the Company, we think the market is still very competitive. There is still a very aggressive buying pattern from our competitors and there still for us. In light of those two things, we really continue just to focus on credit and collections. We want to improve what we buy. We want to make sure we are buying the best paper possible and probably just to continue to improve the trend in terms of what we buy. But also on collections, we have been focused on collections for years. At this point, I think we've got all going the right way and we are beginning slowly but surely to see some results. We again want that to continue and we work on all the different branches and all the different aspects of collections to make that happen, and we are seeing good results. Charge-off and delinquencies were basically flat. I think that's actually pretty good given the fact that we are not growing. If we grow the portfolio, it has a tendency to mass those numbers rather effectively. So for us to be on maintaining those numbers in a portfolio that is not growing then we think we are doing pretty good. And lastly, we did do a $40 million residual deal. We haven't done within a few years what when we thought the timing was pretty good, the cost of funds is pretty good or to put another way, the cost of funds in terms on that deal was best we have borrowed long-term capital ever in the history of the Company by a lot. Normally that kind of capital costs something in the double digit kind of number and this was substantial less than that. So for us, that was an excellent deal and one we sort of almost couldn’t turn down in terms of the opportunity that will provide money some for working capital and some of hopefully a rainy day to do something, if we can get some results in the industry going forward. And I’ll tell a little bit more about all those different things after we go through financials and I’ll turn it over to Jeff to do that.

Thank you, Brad. Welcome everybody. We will begin with the revenues 99.4 million for the quarter, that’s down 4% from the first quarter this year of 103.6 million and down 10% from the second quarter of last year. For the six months 202.9 million that’s down 7% for the six month period in 2017. So, I mean, you can see kind of what's happening here. There is couple of things that influenced these numbers. First of all portfolio sequentially and year-over-year is actually down slightly as a result of the origination volumes that we've been doing. But more significantly with the adoption of the fair value accounting effective with the 2018 originations, the revenue recognition on that segment of the portfolio is net of the consideration for the impact of losses. And so, the trade-off as you recognized a little bit less revenue, but as you will see in a minute and you may have already noticed, there's no provision for credit losses on those fair value receivables. Looking at the expenses, $94.7 million for the quarter, it's down 4% from the first quarter this year; however, up 7% from 102.1 million for the second quarter last year. For the six months, 193.7 million is up about 4% for the first six months of the last year. I think there is some modest increase in a couple of core categories where it looks like a significant increase year-over-year in the employee cost. But I think as we mentioned on the last call, again, the fair value accounting requires results in immediate recognition of significant employee cost related to the originations of the receivables that would otherwise be deferred over the life of the receivables under the traditional accounting. Looking at provision for credit losses, $35.5 million is down 12% from…

Thank you, Jeff. And talking about the Company and it apartments, marketing, there was a time when we thought that our business has become a bit of a commodity, but all we want to make sure the dealers had things like dealers tracking such. We really thought that we have the best product, you just get the business and that's turned out to not be so true. It turns out being in the dealership, working with the dealers is really the best route to getting their business, it doesn't quite follow the footprint of gee everything is automated and easy, but nonetheless. So, we've have a little bit of focus to switch back to put more boots on the ground, more people in the field and that's been our focus this year and it's been becoming more effective. Obviously, being it more people in those different cities and they are doing, getting the results we would like will be able to grow that way. So, we really can't grow competitively as we'll get to in a minute, but we can't grow by adding more people. So, one of the focus is to get more folks out there and grow that national footprint as much as we can. In terms of originations, origination is going just fine. They can buy as much as we can throw out them. The problem is I'm trying to get enough stuff to come through the door. With that, we've been focused on improving our scoring model, trying to tighten certain areas, find better areas that are performing really well and maybe losing those slightly. But the two together was improving the model and the keeping originations, as the gatekeeper for good credit is as the effective combination we've always had and we will continue to…

The floor is now open for question at this time. [Operator Instructions] Thank you. Our first question comes from John Rowan of Janney. Your line is open.

Brad, if it's so difficult to grow responsibly in this environment, right. Why not cut cost? I mean if I look at your net revenue, right. There just kind of eliminate some of the issues with fair value accounting. Your net revenue is actually up 4% year-over-year, but your operating expenses, even when I back out that $3 million a penny non-recurring employee cost, they are up 4%. I realize there is not a significant difference -- there are 5%. There is not massive chasm between those two numbers. But without kind of the timeframe is to win or when you get back to responsible growth. Why not cost in this environment because obviously your net income and everything is down pretty substantially year-over-year?

The part that I somewhat agree with that is I think in a position we’re in today, the problem is if we cut cost also need to grow then you really wasted all the quality people you’ve hired and grown into the positions. For us to truly cut cost is, people cost is the most expensive part of our business by far. We’re not -- I mean to close a branch, it was substantially hurt what we're doing. And so, we do have some sunk overhead at this point. We had some space. We could probably contract some. But like you said in the end, we probably have to go through a fairly significant effort that really cut some meaningful cost would take some real moves. And at that point, we would then be about as soon as we want to be to the extent it's a growth environment. But the problem is as a year ago, if you told me a year-ago or two years ago, the next two years are going to be super slow, we're going to have sit around and wait. We would have cut cost like crazy. To the extent, we thought and everyone in the industry said, this is going to -- this is consolidation is going to happen in '16 and '17. We thought we are in the right spot. Today, I think we are in the right spot given what's going on sort of in the world today. So with that, we had to stomach those cost for what almost is the 1.5 year or more, and I wonder whether it's wise to not stomach then for six more months. I think given where we see sit, we're in the much better position to take advantage rather than sort of take those…

Our next question comes from David Scharf with JMP Securities. Your line is open.

Brad, I hope you won't be insulted when I say the commentary and competition in the asset-backed market so forth. I mean it pretty much sounds exactly the same as what we've been hearing for the last few quarters. So, I won't probably you with questions on those. But maybe following up on John's question, first of all, can you remind us how many cities or regions you are in? And as you think about adding bodies this year, I mean, what's the magnitude of expanding your footprint is supposed to look like?

Well, the easy answer is, net of all, we're not going to add any anybodies. At this point what you really do is just sort of fine-tune. You'll think like there isn't performing, you lose those collectors. We're not adding or replacing new collectors. The portfolio -- the one of the problems is that obviously the portfolio ages, its going -- and even at this point, it stays relatively same. The balance is dropped. The count number is down. So, you still need folks to service those accounts even though the overall dollars drop and we don’t make quite as much money because of that, you still have the counts to service. But the easy answer is, we have plenty of people, we have enough people and to the extent, we have people now underperforming. Those people go and that’s how we cut the workforce and that goes across all levels of the Company collections, originations, marketing whatever it is. The only place where we’re still adding folks, and again, I am not so sure even that really a net positive is in the marketing area. So to the extent we had a few folks there, I would easily say that short of something changing and the industry or us getting a portfolio to service or something in that nature, we would see the headcount shrink rather than grow for the rest of this year at least. I think if something doesn’t change -- at this point what we’ll probably do as I said, nothing will change the rest of the year in terms of growth, if anything, you subtract to the extent that portfolio being able to to shrink then we would subtract accordingly with that. We have five branches, three in the East Coast or two in the…

And as we think about the spread landscape over the next 6 to 12 months, I mean you had noted how pricing is down at the high 18s kind of a 100 basis points of it where you would typically see the industry as part of the cycle. We’re certainly counting that on funding costs continuing to creep up notwithstanding the tightening spreads you have been able to benefit from. But on the pricing side, do you feel comfortable that high 18s is a reasonable floor that we should be thinking about over the next year? Or are there any indications that it might come down lower?

I mean I think I would like to think that is. The easy answer is much like the auction results. We thought long time trended down and they've now flatten out about where we thought they would. We probably make the same assumption on the APR staying give or take where it is, it could drop a little bit a more. I don’t see it dropping substantially. Again, if you take everything I said, the APR is down, the acquisition fees is down, the costs to funds are up. Lots of folks are growing. Lots of people bought a lot risky paper and to the extent they’re trying to grow now or buying probably riskier paper still. This isn't going to last. It just can’t. And so, [indiscernible] I feel strong with more stronger today given the news in the last few days, the last few months that we have done the right and we just going to have to see. But to your question, I think the APR should hang in there. I don’t -- I can’t imagine that it would be more competitive pressure beyond what there already is given the state of affairs going on.

Yes, fair enough. That’s consistent with what we’re hearing from a number of folks. And lastly just on the capital allocation, obviously, you’ve always been in a sort of re-purchaser of your shares at these levels. I mean the stock is obviously retreated in the last couple of weeks ever since that 2 million share warrant. Was exercised and represents a new overhang? I mean, is there any potential to sort of take out that 2 million position in a one-off transaction?

I mean there is always a potential for us. I think we talked to folks and sort of they have a conversation about it, I think it’s unfortunate that is coming into the market, but it certainly can’t last forever and given and wherever so active buying shares. So, it is an overhang, I don’t see them lasting them a long, so we’ll see. We talked to the more frequent basis.

Our next question comes from Kyle Joseph with Jefferies. Your line is open.

Thanks for taking my questions. Most of them have been asked. We talked about yields. We’ve talked about cost and funds. But just in terms of your newer vintages just wanted to get a sense for the economics on these vintages entities versus the legacy book. And the one real fact that we haven’t covered is the losses, but just the lost content on the new book you’re originating our fair value and how that compares to your legacy book?

Well, we would like think that everything we originated since the middle of 2016 better than we have originated before. We also probably would safely say that overall everything we’ve originated since early 2013, is better than we’ve done in the past. So, that we would expect that trend it continued, our target loss numbers 16%, I think we may have already gotten there. It's hard to tell you that, but that’s certainly where we’re looking to go. I think probably our high watermark, certainly we have people they’ve got as high as 18%. We have people that have approximately 17%, 17 range. So, again what we think probably if I'm going to guess really as you get guys you probably argue that our pools in that 16 range at this point. It could be better. It’s a little early to tell just exactly where they are today. But we like where they are going that's as good as I can say today.

And then just on in terms of modeling going forward and looking at the provision and the allowance this quarter, should the allowance on the legacy portfolio kind of wind down at the same rate the overall portfolio? Or is it a little bit of the delay there? Just wondering because looks like the reserve wasn’t in fact increase on a year-over-year basis, if you look at the AOL. So just wondering about the cadence to that?

I think Kyle what you’ll see is, the allowance as a percentage of the legacy portfolio will even at the provisions come down. I think the allowance as a percentage of that portfolio will trend upward slightly as we go through the year and then it will sort of level off. If you recall, the methodology we employed for the allowance was to grow the allowance and new originations over the first 12 months. And so, like where we’re at today for example, everything in the legacy portfolio except for the last six months of 2017 originations has a full just kind of 12 months allowance. But by the time we get to the end of the year, everything in the legacy portfolio will have a full 12 month allowance. And so, I think what was your observation should be for the rest of the year is a slight trend upward for the allowance as a percentage of the portfolio -- excuse me, and then a leveling out there after.

There are no further questions. I'd like to turn the call back over to Mr. Bradley for any additional or closing remarks.

Thank you. I think that we could almost see -- feel some of the frustration from the call, but trust me, we feel just as much. We think we have a very good model. We think we have a very good set up. We would like nothing better than to start growing the portfolio and start getting a bigger share of the market. I can only hope that will happen sooner. We are doing everything we can to expand our marketplace, our footprint and growth that way. But at the moment, you can see the compression between the spreads and the margins coming in. There is absolute, folks pushing to get things done here. And the best way to -- if we wanted to do something, we would grow real fast by as much as we could. We cut our cost to do it and then go where we want to go. That's not our game plan, but so we have to wait and see what other folks do. But hopefully we will see soon. Certainly, some announcements folks have made in last few months, last few months to six months. Those announcements should come through in the next less than six months. And then, we will have to see where we stand then. Again, thanks everyone for attending and we'll speak to you in next quarter.

Thank you. This does conclude today's teleconference. A replay will be available beginning two hours from now until August 1st at 4:00 PM Eastern Time by dialing 1855-859-2056 or 404-537-3406. This conference identification number is 25558910. 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.