Charles Bradley - Chief Executive Officer Jeff Fritz - Chief Financial Officer.

J. R. Bizzell - Stephens & Company David Scharf - JMP Securities Kyle Joseph - Jefferies Charles Frischer - LF Partners Mitchell Sacks - Grand Slam Asset Management Kirk Ludtke - CRT Capital Group.

Good day, everyone and welcome to the Consumer Portfolio Services 2014 Fourth Quarter Operating Results Conference Call. Today’s call is being recorded. Before we begin, management has asked me to inform you that this conference call may contain forward-looking statements within the 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 future 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 of Consumer Portfolio Services. I will now turn the call over to Mr. Bradley..

Thank you and welcome everyone to our fourth quarter conference call. Let’s see. I think the results pretty much speak for themselves that are pretty much in line with what we have expected. Overall, we had strong originations in the fourth quarter, which is a little unusual, but nonetheless it worked out very well.

Collections were as usual seasonally somewhat soft, but as far as the quarter went, I think it really worked out pretty much very well in the way we expected it to.

In terms of everything else, I think the one thing that we will probably address a little later in the call is the stock price certainly doesn’t seem to be nearly representative to where it should be or representative of the success we have had with the long string of consecutive increasing quarters and the progress we have made over the last couple of years, but I will address that a little bit later.

First, we will look through the financials and I will turn it over to Jeff Fritz..

Thanks Brad. Welcome, everybody. We will begin with the P&L and the revenues. Revenues for the quarter were $83.5 million, that’s an 8% increase over our third quarter of 2014 and a 25% increase over the fourth quarter of 2013. A year-to-date basis, the full year revenues were $300.3 million, that’s a 17% increase over the full year of 2013.

You may recall we talked about this several times. In 2013, we did have a gain – an unusual gain of $11 million from the retirement of certain debt available legacy securitization. So, without that, in last year’s revenues, the increase for this year is really 23%.

And as usual there is nothing surprising about the revenue growth that’s driven by the growth of the portfolio, the managed portfolio. We did originate $264 million of new receivables in the fourth quarter. That brought us up to $945 million for the full year. So, our consolidated portfolio increased about 9% for the quarter and 38% for the full year.

Of course, that’s driving all that revenue growth. Moving on to the expenses, for the quarter $69 million is a 9% increase over the third quarter of this year and that’s a 25% increase over $55 million for the fourth quarter of 2013.

The full year expenses were $248 million, that’s a 13% increase over the full year of 2013, but again, we had unusual – slightly unusual gain – excuse me, charge of about $8 million to contingent liabilities throughout 2013. So, if you remove that, the increase in expenses for 2014 was about 18%.

Most of the regular categories of expenses have increased gradually throughout the year and even in the sequential quarters. Interestingly, interest expense for the year decreased primarily due to lower ABS costs, which we will talk about maybe a little more in a minute.

And you recall that earlier this year, we repaid about $39 million of expenses at senior subordinated debt, which increased to – which resulted in a decrease in interest expense from 2014 compared to 2013.

Provisions for credit losses $31.4 million for the quarter, that’s up 15% from $27.3 million in the third quarter this year, up 30% compared to the fourth quarter of 2013. The full year provision for credit loss is $108 million is a 41% increase compared to $77 million for the full year 2013.

Provisions of course are funding our allowance for loan losses. We have seen in general increase in our allowance for loan losses over last couple of years with some seasonal ups and downs, but generally the credit performance which we will talk about more in a minute is tracking in line with our expectations.

Pretax earnings for the quarter were $14.3 million, that’s a 4% increase over the third quarter this year and a 24% increase compared to $11.5 million in the fourth quarter of 2013. The year-to-date pretax earnings of $52.2 million is a 40% increase compared to $37.2 million for 2013.

The net income and even $8 million for the quarter, that’s up about 3% from $7.8 million in the third quarter this year, up 23% compared to $6.5 million for the fourth quarter of 2013 and the year-to-date net income $29.5 million, a 40% increase compared to $21 million for 2013.

The diluted earnings per share $0.25 for the quarter, that’s 4% increase compared to the previous quarter, the sequential quarter and 19% increase compared to the fourth quarter of 2013 and for the full year $0.92 and that’s a 37% increase compared to last year 2013.

Moving on to the balance sheet, free unrestricted cash on the balance sheet is about $18 million, that’s up a little bit from $13 million in September of 2014 and down a little bit compared to $22 million a year ago. Generally we have had strong liquidity position throughout the year.

We have mentioned it several times we repaid $39 million of subordinated debt earlier this year without doing any refinancing. We get good execution of the asset backed securitizations, the new ones that we do and where most of the deals of that are matured are cash flowing, so we have the strong liquidity position continuing.

The net finance receivables on the balance sheet, net of allowance for loan losses is about $1.5 billion that’s a 9% increase compared $1.4 billion in September this year and a 38% increase compared to $1.1 billion in December 2013. We have talked about the volumes this year $945 million for the full year new originations.

Just on the debt side, really not much changing on the debt side, we are utilizing our warehouse lines of – our revolving warehouse lines to support our originations program.

One thing we did really subsequent to year end was we cleaned up and repaid early the debt associated with the little fireside portfolio, so that kind of brings that acquisition which we did back in September of ‘11 brings the financing portion of that to a conclusion. You will see the securitization trust debt continues to increase to $1.6 billion.

We did our 14-D transaction in December and that was $269 million of new securitization trust debt associated with that transaction. And we will talk a little bit about ABS market in a minute.

Performance metrics, the net interest margin for the quarter was $70.6 million, a 9% increase compared to the previous quarter and a 33% increase compared to the fourth quarter of 2013. On a year-to-date basis the NIM $250 million, a 34% increase compared $186.7 million last year.

So we talked a little bit about what contributes to the significant improvement in the net interest margin. We repaid that expense with senior subordinated debt and as our ABS deals have come on, the 2014 deals have generally had lower blended cost of funds than the older deals that are running off.

So to put that in a perspective a little bit, our blended cost of ABS transactions or debt was 2.8% for the fourth quarter of 2014 and that’s down from 3.2% for that same ABS debt in the fourth quarter of 2013.

The risk adjusted NIM which takes into consideration the allowance for – the provision for credit losses $39.2 million for the quarter and that’s up 4% from the September quarter and up 35% compared to the fourth quarter of 2013. For the full year $141.6 million, a 29% increase compared to last year.

Our core operating expenses for the quarter were $25 million, that’s a 5% increase compared to the third quarter, a 28% increase compared to the fourth quarter of last year. For the full year, core operating expenses $89.4 million, an 18% increase compared to $76 million last year.

So, you see that the operating expenses are increasing, but not increasing at the same rate as our revenues.

And in fact looking to that next metric, the core operating expenses as a percentage of the average managed portfolio were down to 6.2% compared to 6.5% in the third quarter this year and 6.4% compared to the fourth quarter of 2013 and for the full year that annualized core operating expenses as a percent of the average managed portfolio is 6.3% compared to 7%, so a significant improvement over the full year of 2013.

Our bottom line metric, the return on managed asset was 3.6% for the quarter, that’s an improvement compared to 3.8% for the third quarter this year and also 3.8% for the fourth quarter a year ago and the annualized was 3.7% for the full year of 2014. That is an improvement over 3.4% for the full year of 2013.

Let’s look at the credit metrics delinquency for as of the end of the year of ‘14, 7.18%, that’s up seasonally from 6.7% in September of this year and up a little bit from 6.9% compared to a year ago.

The annualized net losses for the quarter were 6.4%, up again seasonally compared to 6.2% for the September quarter this year and 5.6% compared to the fourth quarter a year ago. And for the full year, the annualized net loss is 5.8% compared to 4.7% a year ago.

And so we think those losses are tracking in line with the seasoning and the vintages of the portfolios. The weighted average seasoning of the portfolio at December 2014 is about 14.2 months compared to 13.2 months a year ago. So, the portfolio is getting a little bit older even with the origination of almost $1 billion this year.

A quick update on the ABS market, I mentioned our 14D transaction, which went out in December. The blended cost of funds in that deal was up a little bit to 3.07% compared to 2.7% for our third quarter 14C transaction. I mean, we think we have experienced seasonally wider spreads in that transaction, which is not unusual for the fourth quarter.

The market where it is today is very receptive and active. There are four sub-prime deals in the market this week, big deals and three of which are sub-prime auto deals.

And so our view of those as they are coming into focus with their pricing is that they are well received in the market and we’d expect to grow our deal later in the first quarter here our 15A securitization. With that, I will turn it back over to Brad..

Thank you, Jeff. So, looking at sort of the operations of the company, marketing we are still growing, but not quite at the pace that we were in terms of hiring marketing reps. We are doing what we have been doing for years now, which is we strategically expand our geographic footprint in different areas.

We now work with a mix of both inside reps and outside reps and that’s been very effective in terms of having the control and the flexibility by having reps that are in-house and they can call on service multiple markets very quickly and then we still have sort of our older backbone of field reps that work in specific markets.

And the combination has given us a lot of flexibility in terms of expansion. As I mentioned, we are very aggressively hiring in the last two years. We have settled in right around 125 marketing reps today, which is right around our historic all-time high. We may push it up a little bit depending on how the year goes.

I think we have sort of envisioned getting to around 140, but for the moment, we are about 125 and we are not pushing it particularly hard. In terms of originations, originations, continues to perform wonderfully well. It’s our frontlines in terms of making sure we are buying what we are supposed to be buying.

And so we would safely say that over the last couple of years, we maintained all of our credit standards in terms of how we buy. Also, as we have grown rather significantly over the last couple of years, the originations platform has grown really well with it, so that our dealer services has been very strong throughout that growth period.

And today, the originations platform is probably capable of handling as much as 125 to 130 million a month and we are currently doing anywhere between 85 and 100. So, again that part of the platform is really all set.

In collection, it’s a little bit still work in progress that we have mentioned in past calls, after our FTC review, we looked – we have sort of re-looked at how we collect things.

And so we have spent a lot of time retraining some of our collection folks and so as much as our numbers are up slightly seasonally and maybe up a little bit, they are still within our range of what we would expect in terms of collection results.

But as much as it may look like that they are weaker, it’s actually just us continuing to improve the overall collection program. And so I think in another quarter or so you might see some real results or better results as we improve collections and as opposed to say other folks who might be trying to improve what they are buying.

So, ours is more of a collection thing than a quality of what we are buying things. And so that’s continuing along. And as part of that sort of leads into the next part, which is all the legal issues.

The regulatory market obviously is continuing to be more interesting by the day and so we have spent an awful lot of time, particularly in the collection front, training everyone in terms of all the different compliance areas.

And the process I think we are way ahead of the curve in terms of what other does, but nonetheless, it is the process of really making sure everything we do is compliant across the board, because whether regulatory people look around, we want to that’s the why it supposed to be.

And so we spent a lot of time with retraining and more training and listening to calls and really all of a sudden to make sure everything is being done the right way. And so I think as I said currently we are seeing little bit improvement. Down the road, I think we can see very significant improvement in terms of how we collect our loans.

And that leads into the DOJ and the CFPB. In the DOJ, we announced that we receive as much like everyone else in the industry.

And so I think at least for us compared to the FTC where they were coming to talk to or look at us for specific reasons, the DOJ certainly feels that we have gotten the same thing everyone else in the industry has done and is focused on how we and everyone else in the industry securitizes loans.

What’s a little interesting about that is as one can imagine, the investors buying those loans or the bonds, the ABS bonds are pretty used to buying a very standardized format. And so all of the companies, including ourselves follow those formats and so we are all doing it basically the same is the short answer.

And I think given the mortgage comparison unfair, kind or true that it may be, I think the government wants to make sure that we are not doing what the mortgage folks did, which is putting out a bunch of loans that aren’t going to be able to be paid.

I won’t bother anyone with a long list of why auto industry is nothing like the mortgage industry, with a small exception that all of our bonds are and as everyone else in our industry paid great to a very significant recession unlike the mortgage folks.

And so we, I, and the rest of our industry would stand on that and say in the right way, but even so we will be participating in the DOJ investigation along with everyone else. And it’s very hard to say more on that subject than we already have.

In terms of the 50B, we again sort of think we have got way ahead of that curve in terms of looking at our portfolio and looking at disparity of impact both in how we lend and how our dealers make loans. We have done a fairly exhaustive review that’s not quite finished of our own lending practices and portfolio.

And I have found that we have no disparity of impact in terms of lending to productive classes. Another part of that furnace is that we are also looking at dealers.

And out of the 8,000 or 10,000 dealers we work with on a regular basis, about once a quarter, about every quarter we notify 8 dealers or so, and I mentioned 8,000, that there might be some disparity of impact in the way they make car loans and so we cut them off our program and put them into a rehabilitation program at which point if they can complete that and demonstrate that there have been some changes they can reenter our program.

Those kind of things in those programs that I think can put us in a very strong position in terms of where we sit with all the CFPB stuff that’s coming down the pike and all that.

And again, the DOJ is a separate sort of area, but again we feel we are rather comfortable in terms of how we sell our portfolios in the marketplace, which we have been doing for 20 years or so. But as for the brief update on those things in terms of the competition in the industry, I think competition means loose the call normal.

Generally people will go a little more aggressive in the first quarter. I think last year was probably more aggressive than this year but again I don’t think there is anything unusual in terms of the competition in our industry today.

Car sales probably we can see it remained very strong so I think that’s an overall good positive driving force for the industry for us and everyone else. I think the overall economy is doing just fine too.

I think in terms of the way we would look at the economy we would think 2015 might look like off a i2014, everybody keeps staying it’s economy is going finally start growing and I said that in 2011, 2012, and finally in 2015 it just might. But again I think this is already positive for us.

People having a little more disposable income replacing cars certainly seems to be the trend today. Interest rates certainly helped and probably will continue for the foreseeable future and they may go up to at the end of the year, but that’s probably since we might expect them to.

So overall pretty good picture in terms of how our company is operating, how the industry is operating and it really goes along with that. So one final area to talk about, which really doesn’t goes well with everything we just said which is the stock price.

We certainly have done a lot of calls over the last few months when people say what you end up with stock price and the simple answer we are doing anything and everything we possibly can.

Jeff and I in 2014 spent a lot of time going equity road shows on non-deal road shows getting out there and talking to the hedge funds or funds and all sorts of folks to try and drum up more interest in the stock. And I think that had a positive effect if nothing else is getting our name out there and that’s very positive.

I think for a variety of reasons some folks who own the stock big hedge funds and such have decided that they may not like the industry maybe because of the regulatory stuff or whatever when people decide they want to dump a million shares in the market its going to have a real significant push on the stock.

Now these answers did not [indiscernible] we can do about that. It’s not like the earnings are down or anything like that. We can’t buy a million shares every time somebody wants to sell a million shares. And so that’s why what we can see is stock prices going down.

It doesn’t appear to have any rational or suddenly when we announced the DOJ thing, the stock price came down and I think maybe some people sold then. People now understand that our DOJ has been just like all the rest and should not really be a factor on the stock price.

I think we will continue in 2015 to do everything we can to get the word out and again do more road shows, more speaking at conferences to see if we can get some more interest in the stock.

But end of the day, we think we can do the best and I think it should in the long run have the most effect on the stock as we continue to grow and put out our earnings which is what we have been doing very successfully last 3 years or 4 years.

Beyond that the I think the stock price continues to languish or low or go down somewhat we might consider doing a stock buyback. We are certainly authorized by the Board to do that and we are as large shows and truly myself we’re not particularly happy about the stock price either.

But again there is only so much we can do as a public company to drum up demand for the stocks. So we are dong the most important things. We are continuing to improve our earnings quarterly.

We are also doing everything we can in sort of a publicity way of getting out on the road and talking about the company and the stock and our experience and success in the industry. Beyond that we just can’t do anything about people who want to sell stock for whatever reasons they may want to. And so I know it’s a concern.

We are doing everything we can. And we will continue to. That’s a little bad part about the call, but again I think people in the long haul including ourselves will be rewarded in the end. With that I will open it for questions..

[Operator Instructions] Our first question comes from J. R. Bizzell with Stephens & Company..

Good evening guys. Thanks for taking my questions and congrats on the quarter.

Current competition I know you, Brady you talked about that a little bit, but I was wondering if you go into little more detail that some of the larger guys are still continuing to see a nice ramp up in sub-prime auto and continued to originate a nice clip of loans and paper.

I am just wondering maybe around term LTVs pricing, can you go into a little more granular detail what you saw there throughout the quarter and what you kind of expect it to do as we move into ‘15?.

Sure. It’s a good question. Certainly, the folks out there are doing some interesting things that we generally – we never really participate in. There is always rumors about people leaving what’s called POI or proof of income. We found and certainly could prove that buying loans they go to verify that they have a job is really not a good place to go.

So, there is things like that, but I think the things you mentioned will turn and even advance are still some of the keys for people who want to grow. [indiscernible] are raising the term, extending the term and raising the advance, those are dangerous levers to pull as well. I think it’s safe to say, we probably lag the market in both those areas.

We wanted to lengthen our term sum and raise our LTV and our business might jump further. But if you look at what our business has done, it’s done quite nicely over the last couple of years. So, we don’t need to participate in that.

But there is always people out there, firms, companies out there, that decided really need to grow usually at this time of the year and they get a little more aggressive. And so whether it’s sort of the big guys or others, it’s a little hard to tell. We are certainly hearing the rumors right now that few folks are doing that.

Having said that, it doesn’t appear to be quite as intense as it was last year and to the extent, it gets very aggressive this quarter then we probably will stood it out a little bit much like we did last year. And so in one way or other, it doesn’t bother us, but I agree with you it’s interesting to see what other folks are doing..

Great.

And then building on the originations and I know you talked about 125 marketing reps is kind of the number and then I remember last call we were kind of talking about the monthly origination goals and I think you put up about $88 million, it looked like for this quarter average and that was a sequential decline, but normally it’s much larger sequential decline, 3Q to 4Q, just wondering how you are thinking about these monthly origination goals as we move forward and is 100 still kind of the goal for the end of FY ‘15 or should we continue to stay at the level we are at here?.

Again, a good question. It’s picking in a row normally right around that, things really start to go. And it looks like it started to go, but it’s little hard to tell you. Back in past years, tax refunds came starting on January 4 and they get pushed back further and further each year.

And so January these days isn’t really a month where you do whole lot of anything, whereas in the past it was. And so February is a month that will tell and February seems to be starting to move. And so if you compare to last year with January February and March we are relatively slow, but the summer was enormous.

We are much like most folks sitting around trying to figure out is it going to do like last year or it’s a little softer in the beginning in a big middle or is it going to return to normal historical levels, where we have a lot of growth in the sort of February, March and April timeframe. And to be fair it’s just too early to tell.

Having said that, I would expect certainly our goals to get to $100 million as a normal run-rate, if things go a little bit our way, it could be $125 million. Certainly, I think our hope is that it goes to $125 million since we are aptly set up to do just that.

But next quarter which isn’t that far away, we will have a much better graph in terms of what we think the year will do in terms of origination volumes..

Great. Thanks for taking my questions..

Absolutely. Thank you..

Our next question comes from David Scharf with JMP Securities..

Hi, good morning. Brad actually you kind of addressed most of my questions just now regarding the outlook on originations, I guess, it sounds like it’s kind of wait and see.

Maybe let me ask it a different way, to the extent that you have the infrastructure both in terms of reps collection, agents, servicing in place to ultimately to get to kind of 135, 140 million per month average.

What would you have to see industry wise competitively terms or just your cost – how should we think about what the environment has to look like for you to get to that level beyond 125 a month?.

Well, I think if you compare to last year, last year has several sort of larger companies got very aggressive in the first quarter and try to grow and do much stock, I think grown kind of who we are, but we don’t really expect that so much for this year.

And so I guess our hope is if there isn’t what we will call sort of the frenzy volume in the first quarter of last year, that we might have a much more normalized yield at which point I think the road is right there to get to 125, but you just never know whether it’s new folks doing new things.

I will say that there is certainly what we will call the smaller new players really seem sort of dropped off. We have seen that was pretty easy to say given the regulatory environment was kind of ahead. If you look at this as an industry, the auto industry, car sales are booming. Everybody is after buying cars.

The average age of cars out there is still too old. So, you got about – interest rates are still below. You got a bunch of reasons why the auto industry should be just great. And as such, the financing, auto financing industry should be great too.

There is this regulatory thing which as much as it gets a lot oppressed and a lot of interest from folks, I think us and most folks in our industry are in a very good position to handle with no problem. And so a lot of it sort of trying to separate what the world is viewing, people read in the newspapers in terms of what the industry is really doing.

We are not the mortgage industry. We don’t do things the way the mortgage industry does. The financial asset involved is nothing like the mortgage asset. And so I think most people know that, but I think the general public story in the newspapers.

So, having said that, you try and then relate that to what the company is going to do in that environment? And so at one hand, all the good news should make everybody want to grow and grow in a nice orderly fashion. On the other hand, the extent people have the numbers to make and maybe I get a little irrational like we did last year.

So, not really particularly helpful, I am trying to telling you the way we look at it. And so we would love to see everybody just get back to normal and we all take advantage of the growth.

To the extent the people do irrational things, that puts us sort of not as a greater position, but the good news is some people do rational things, they back off real quickly after a little bit and then we pick it all up. That’s exactly what happened last year.

So, unfortunately it’s hard to tell, but we have been here a long time we can handle it either way..

Got it, got it. But just so I don’t misinterpret your comments on first 6 weeks of this year. I mean Q1, you always see little more aggressive activity as people gear up for the tax refund season.

Are they from your competitors, I mean, how do you differentiate between the normal seasonal uptick in sales activity versus what you would deem to be sort of some overly frothy activity? I mean, I want to make sure I am kind of hearing from you that interpreting correctly that it sounds like things are more rational than they were a year ago?.

We have seen that way, but don’t underestimate there is still some frothing that’s out there. I think part of it as soon as tax refund season starts, there were things like every year, it starts a week or two later.

So, that makes it really hard for us to tell whether it’s in fact people being extra aggressive or just – it’s just starting to get rolling. And as far as we know, the tax season started like four days ago. It should have started two weeks ago. So, it’s a little hard to tell, because people are being overly aggressive.

So, to answer the question, we are unfortunately we are working on for rumors of what we have from our marketing people and problem with the marketing folks is they go to dealers, the dealers say some folks buying everything.

And yes, take that with a grain of salt, so it’s very hard to tell like I said, in another few weeks we will have a much better handle on what’s really going to happen this year and unfortunately it’s about as good as we got right now..

Got it, got it. That’s helpful color.

Switching to credit, how much of the sequential rise in delinquencies in the 31-day bucket, I mean, how much would you attribute to sort of normal seasonality versus just normalization and deterioration that we are expecting to some degree?.

I don’t know, we think it’s 50-50..

Yes, I mean, I think particularly when you compare the third quarter to the fourth quarter, David, my take on that, I think lot of people around here would be, that’s primarily due to the seasonality. It’s a pattern we see very year for almost the entire history of the company.

So, I think we would attribute that one metric, that one increase from quarter to quarter to just the seasonality that people have a little bit less disposable income as a result of the holidays literally.

So, on the plus side, the other seasonal pattern that we see with summer liability is improvement in that metric as you get into the first and second quarters. So, we are hopeful that those patterns will hold up..

Okay.

And then as we think about net loss rates sort of holding all other factors constant I mean where do you think that kind of 6.44 would be trending this year, only factoring in what you are seeing in terms of used car prices moderating at auction?.

I mean used car prices have been sliding a little bit, so that hasn’t had probably some small effect.

I don’t know that we are almost probably getting down that normalized level for the used car prices at least in terms of what we receive at auction as much as I think you are still seeing a strong market for used cars, but it’s probably it’s not as strong as it was.

It should I don’t know I would probably expect to get a really strong used car market prices 48.9% normalized market is 42% or 43% and that’s about where we are at now.

If the weak market is something in the 30s and so probably settling in a little bit it may bounce up a little bit I think there are lots of folks out there trying to sell new cars and so that has an obvious effect.

But again I think still there are a lot of folks who purchased the new cars depending on their economic situation we used to get little more play. I mean for instance you might get a little more play right now because the accident refund folks are probably not quite the new car buyers we will say.

I think for us we are still got a little bit of a bubble probably to go through in terms of question process and the retraining we did and that might have some side effect in terms of that we see going forward to. But I think in the next 6 months to 9 months all sort of hard work we put in and revamping question will really start to show..

Got it.

And last question since you kind of raised the topic Brad, the frustration it sounds like you are feeling with your stock performance, what are the metrics, what are the parameters that you and the Board consider with respect to ultimately buying back stock I mean what sort of trying to get a sense for how we audit to think about the trigger in your mind?.

I think a little will depend on what the next quarter how the stock performs in the next quarter or so, what the industry looks like. I think and then they will look at how much cash we are sitting on and what we think would be a reasonable thing to buyback at.

Obviously, we think its not trading or it should be trading the multiples aren’t there and so and so forth. We will probably – we will give it a little more time if we are able to might do.

I think the easy answer is this is the fourth quarter conference call, we are going to have another one in 60 days, so it’s a much closer window again its easier for me to answer those questions may be more definitively in the next conference call..

Fair enough. Thanks a lot..

Thank you..

Our next question comes from Kyle Joseph with Jefferies..

Good morning guys. Thanks for taking my questions.

Most of them have been answered, but can you guys comment a little bit on what gas prices did either in the quarter or what you have seen so far in the first quarter, I know gas prices didn’t really fall off a cliff until late in the fourth quarter, but again any sort of credit tailwind from that?.

I don’t think that it’s produce since it was little hard to tell as the fact the gas prices are down, how can people pay their bills we could easily make should have a little more disposable income and therefore yes it makes it easier.

I was trying to get that there were payments, I know it’s a little hard to distinguish clearly the customer to go out and save $25 this week, so I’m going to send it to you. They would just say I don’t want to pay this week, I want to pay next week or something.

So I think sort of maybe more interesting part is gas prices certainly are impacting how people want to go buy cars. You would think I don’t know if gas prices aren’t so much lower that you think you can go for a new car, it certainly seems like that’s the more interesting outcome of lowering gas prices.

And then again it’s easier to see that than it is to see them actually making other payments better.

So the easy answer is certainly anyway to increase our customers as well as income problem to help in terms of how they pay, it is a little easier to see from what people are saying that folks are going to buy cars because they think they are more economical to drive..

Alright, thanks.

And just one other quick modeling question, it looks like other income grew pretty substantially in the quarter, is there anything going on there or what’s sort of a good run rate to expect from that line item going forward?.

That’s a good observation. Other income in the fourth quarter had one slightly unusual item I mentioned we cleaned up after the quarter.

We cleaned up the remaining debt on our fireside portfolio, but because we were closing the books and we knew that we cleaned it up and we actually were able to repay that debt for about $0.5 million less than we are carrying it for in the balance sheet.

So we had a little what will be a final one-time pickup on the – in the other income for the buyers’ side fair valuation of the debt, so almost mid that from your number from a sort of a going forward projection standpoint..

Got it thanks a lot for answering my question guys..

You are welcome..

Thank you..

Our next question comes from Charles Frischer with LF Partners..

Good morning Brad and Jeff, another very strong quarter..

Thank you..

I really appreciate all the hard work you guys are doing.

Can you talk about the actual cash taxes paid by the company in the quarter and when you are expecting NOLs to rundown?.

We are kind of already there, the cash we pay in taxes is for a variety of reasons is a little bit less than the provision that you see on the P&L but for the most we have utilized all of the NOL portion of the deferred tax assets during the third and fourth quarter this year.

We have a little bit of remaining NOL that’s associated with some acquisitions that we did a long time ago, but the utilization of that is limited to a relatively small amounts every quarter whereas our own NOL that was generated from the bad times in 2008, 2009, and 2010 was fully utilized as we are getting back into our earning.

So the answer to your question is basically the provisions what we pay out in cash is going to be very similar to those provisions that are run a little bit less than those actual numbers..

Perfect.

My next question is the company has had a great 2 year or 3 year run with another nice quarter reported last night, as you think about 2015 is there anything currently on the horizon kind of the stuff you talked about that would also be the ability of the company to continue kind of the steady progress that has been out over last few years?.

That’s an interesting question, I think certainly the natural answer is no. I think it will be fine. I think really I spend a lot of time thinking about what you go wrong. We have been constantly searching for the causes in extra session much like really the economists around the world and we will have a little trouble putting the finger on it.

I mean although growth is going to be in such a fashion, 3 years ago we said 2015 would be the year we had enough growth towards something in another way. And as I pointed ‘15 at least from our point of view is going to go off like ’14. And so maybe the rates finally go up a little bit or maybe they don’t.

I think, we don’t see from what we call the macro or the broad scope, we really don’t see this is going to affect our market particularly. I think what would certainly perhaps took us for a loop in 2007 and 2008 was the failure of ABS market.

I think the way they are sort regulating the banks today and even then I think sort of maybe my personal observation will be those two banks had failed. I don’t know that the ABS market would come to this preaching hall like it did.

And so my thinking is generally that I really believe we are not going to have any more bank failures as such, certainly not of that magnitude if any at all. And with that I think the ABS market is relatively protected. But we certainly are relying on the ABS market.

I think same old thing, historically over 23 years the thing that affects our company the most is recession, so guess in the next recession the real game. As I said we don’t really see all that coming this year. So, we wanted a few years, couple of years ago to have our run we are in the middle of it.

So we don’t see any real headwinds, certainly I think if I had a gap say to the competition normalizes rather than increases probably the same time every time the auto market probably slows down a little, but maybe those go hand in hand.

I think over the next year or two the rational competition that may pop up here and there goes away more, maybe start having a little consolidation in the industry in the year or so which will be great for us. We usually have our opportunities in this kind of events. So I just don’t see certainly any real big players charging in the markets.

In some ways if you look sort of the regulatory issues that probably puts a little bit of a cap on people entering the market right now, so maybe there is a similar line in everything.

I think probably I am talking it through probably the biggest effect on our industry over the next year or 2 years is sort of getting through the regulatory supervision, inspection whatever you want to call but a year from now or 2 years from now when the regulatory reviews are done and we all came out with a grade that could be really interesting time for the industry..

Thank you. Our next question comes from [indiscernible] with Compass Point..

Thanks for taking my questions.

You mentioned having current capacity of 125 to 135 per month I think, how has that changed since beginning of 2014?.

Well, in 2004 our goal was to go to 100 and we ended up doing that goal. So I think the way we started to run or we work at is beginning of 2014 we said we want to build – handle or actually sort of the end of 2013 with total originations we want to be able to handle $100 million a month at some point during 2014.

So remembering that we closed ’13 around $55 million or $58 million a month and so we grew from that level all up to $100 million and there is no problem.

And so this year in 2014 we have reset that goal to be able to handle $125 million to $135 million and what that really tells is hiring more people and our headcount is now at 900 just about and so you have few more bodies.

The good news is particularly in the originations side or to handle that increase there is so much more efficiencies today even more so than a couple of years ago much less 10 years ago without having NIM we saw one of our friendly competitors have said if we install a system and they can now respond to an application that [Technical Difficulty].

We respond to the applications and have been for several years in two seconds.

So the efficiencies that we have are very extreme and so what that means is over more each time we want to grow to that level there is less people involved and so to actually put together the process to go to be ready to do $125 million, $135 million instead of $100 million was it nearly as extensive as being able to do going from $60 million to $100 million and that trend will continue as we use fewer people to get the bigger numbers and rely more and more on the automation..

Okay.

And just to clarify some of your commentary surrounding originations volume in the outlook did you say that the growth drivers in competitive environment today appear to be similar to the beginning of 2014?.

Yes as much as the historic 20 year trend you might say doesn’t look like last year’s it’s still a little hard to tell whether the new trend, the new trend would be people get very aggressive in the first quarter and so the jump begun on what we will call a tax season.

So there are two things going on levelly [ph] and what we will call is the near-term trend. And that would be that the tax season each year seems to get pushed a little further out normally they used to be literally January 3, and each year it seems to be another week or another 10 days further into February and that’s one trend.

Now other companies are misreading that and saying well, things are flat so we have to get very aggressive to make up for it and May everything happened last year and so and then May happen this year though so far it was happening some, it’s not happening the quite extent it did last year.

But I don’t know [Technical Difficulty] really to see how the next 3 months play out is going to be very hard for us to sort of call it in a real situation like that..

Okay, great.

And then [indiscernible] reaction today given that overall it was a pretty good quarter and you had mentioned originations volume generally takes down 10% in the fourth quarter, it was only down 5% do you have any thoughts as to why stock prices come up a little bit why shares got ahead so much today?.

One is as you think we are surprised. Yes, terrifically got that we put out a nice number less than I and other stocks did go wall out. Certainly we made some idea that it gives us the nice happy medium to kind of work for. We are just doing everything live and I was appreciating it.

Even though we found out the last I don’t know two quarters or so a couple of large holders of the stock for know predictably apparent reason they started to dump a chunk of their holdings.

If I had a guess what happened this morning is probably a little more the same and I don’t know what we are doing those whether it is industry forever, every now and then if somebody have shares those – they are just guys we got to get out of it. And we got to get out of it and we got to get out of this industry.

We don’t like regulatory pressure, blah, blah, blah, and all of a sudden people started dumping stock. And so now, compounded with that is when somebody said, well, gee, again, I am sort of coming over that now [indiscernible] my work is somebody said, gee, we have been buying CPSS whole time. And it’s never going to go up.

So, let’s try something else. Now, you can pick your flavor in terms of what’s causing the stock to go down, but those will be two of my favorites. It’s certainly not the people we know, it’s not from our affiliate industries or people we work with industry or our strategy players that own the stock. Those guys aren’t selling.

So, it’s got to be folks that for whatever reason whether they don’t like the regulatory view or whatever expressions we have explained how that’s going to work or they just think we have tried the CPSS that’s not going to get there, I don’t know, but those are couple of theories we might slow for what happened this morning.

Having said that, we will be looking real close to figure out how all those stock hit the market this morning and see what we can do not have it happened again. So, yes, we weren’t surprised as anybody. I mean, certainly to the extent, the stock came down. The good news is everyone this happens when the selling is done, the stock goes right back up.

So, there is no fun to wake up to this when you put out a good quarter. You think we missed the numbers or something, but we didn’t. And so we will – like I said, it’s not like we are sitting around, going on well, we see what happens next time. We are doing everything we can to both get the stock tuck up and also to find out why people are selling.

Hopefully, we will know a little more in the next conference call..

Okay, great. Thank you..

Thank you..

[Operator Instructions] Our next question comes from Mitchell Sacks with Grand Slam Asset Management..

A question I have, it hasn’t been answered yet.

I just want to get a quick dump on the employee cost just in terms of where you see them and then whether the quarter we just saw is more likely for future quarters or is it really just – is there some seasonality in there?.

That’s a good question, Mitch. There is a little seasonality. We generally do a fair amount of hiring at the end of the third quarter and throughout the fourth quarter in the marketing and the originations area, as we see we always expect it will reduce in the front end of the business, the originations business in the first quarter.

And so we want to have those people in their seats prepared to accept that increased flow of business. And so we typically add some headcount. I have got some numbers here. We had 869 people at the end of the year compared to 804 at September 14. So, you can see that’s not insignificant.

And so it’s a fair amount of people that they grow us in the headcount in the next few quarters, not likely to be so much in the originations and marketing area, we always add some people probably, but we will continue to gradually add as we did throughout the year, people on the servicing side, servicing and collections, because the portfolio continues to grow gradually.

But you do see and we would expect to see maybe another bigger bite of that apple in the fourth quarter..

Okay, thank you very much..

You are welcome..

Thank you..

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

Hello, guys..

Hi, Kirk..

How are you doing?.

I guess with respect to the delinquency rate, this has been with very low levels for a long time.

And I guess inevitably it’s going to normalize and I was wondering if you could give us the perspective on where that 31 plus day delinquency rate would have to be before you would reassess either pricing or underwriting criteria or something else? And then maybe talk about what you would do first? And then secondly, I have got another question on the market..

Well, on the delinquency side, I mean, that’s an important metric and it’s one that everybody understands.

I think in terms of making us look at pricing analytics and credit performance, there is a deeper dive, things that we look at here, static loss performance by vintage and those are better indicators for us that we maybe need to tweak the pricing, adjust our risk-based model or something like that.

On the delinquency side, an uptick in delinquencies for us would suggest, okay, you need to add resources, revisit number of accounts per collector, those sorts of things.

We know and Brad has mentioned it many times, we know that a lot of our delinquency performance had been translating into the credit loss performance over the last couple of years has been a result of our really taking a different approach in culture and the collections environment and retraining people and going through that process.

So while that’s an important metric, we monitor it, it’s just one of many, many things that we would look at in conjunction with assessing the risk based pricing model..

Well, I might add that one of the things that happened, we probably took a pretty serious sort of revamp of how we collect loans and that happened in 2013 and 2014 and late 2012, 2013 and 2014. And so we are still trying – I think at this point we would safely say we are just about done and.

So you are going to see a little uptake [indiscernible] here are there. But what’s sort of more important is what we want to see is it may not be this quarter or next but this year we want to see sort of the fruits of a labors and sort of revamping a lot of way we collect loans really pay off.

And so with someone ironic is our sort of collection results or credit results have sort of mirrored a lot of the other industry and some of the industries got a little deeper we haven’t.

And so as much as we sort of can slide under the umbrella of various amounts of reforming an industry we certainly like to think that really there is a little more to do on how we are changing how we collect loans that’s causes a little upticks and little bumps here and there was the general trend I should say.

And we think once we get the thing really working that number will actually improve.

And so with the answer your question more specifically we think we are buying a back credit or our credits loosened then we would change and that then get reflects in delinquency we would change first that we buy it will be kind of a long list before we actually start changing the pricing..

Okay, that’s helpful.

So it really is maybe not necessarily on the stripped order but collections is at the first place you will walk and then underwriting and then pricing?.

That will be – so that’s a fair statement, yes..

Okay.

Is there a level on this 31 day delinquency rate where you feel like you need to some of that or no?.

I think we probably we look at losses before we look at delinquency certainly delinquencies are indicators of what the losses might look like.

But in terms of making some of those big decisions we wanted to see – we would – remember we will break down those delinquencies and losses by pool, by vintage before we actually so it’s almost like as much as you can you are looking at the bad delinquency number we would be looking at fairly significantly different things to make that same decision.

So I guess this industry is now, we will look at the front end delinquency as a real indicator..

Okay, it doesn’t capture used power pricing for instance?.

Right, I mean it’s not a novelty, it’s an interesting metric but there is a little more that are more indicative of what’s really going on in the portfolio that’s adversely helpful but..

I will just say it’s helpful. Thank you.

And then with respect to the market you mentioned earlier that people – your people in the field will attribute market trends to this competitor or that competitor but my impression is that the used car market is so fragmented that it’s really hard for anyone player to really drive it am I mistaken or is that…?.

I would agree with you 100%, I think we have been in a long time and the industry moves with – it’s fairly because there is always a few big players and I am not going to bore you with my cyclical nature of the industry.

But these days it doesn’t appear to be quite as many big players and it certainly doesn’t appear to be quite as many new little players. And so we would view that all positively. I think I won’t pick on capital I think they have been wonderful company [Technical Difficulty] to drop the pricing and take a lot of business.

And what’s funny fun is when they do it, it’s absolutely fun.

So what’s interesting is they do it for short periods of time and slowly now they are doing it right now, but interestingly in 2014 they didn’t do hardly a law and so you just don’t know, but when those peak up it’s a little bit you have to sit back for a second when it goes through, but it is interesting that I think sort of a good interesting comment is there is a fewer of those guidance kicking around today than ever before and just takes in a MERI credit, marine credit is now GM Financial and again they have done a wonderful job over Jim but they are looking on least things instead they are not really actively trying to blowup the sub-prime side of the business and as a result a very strong player with staying normal and so those sorts of things were not every big items accounts trying to knock it out of the park every 10 second that I think it’s a really good trend in our industry.

And we put in the fact like in 2014, you have lots of new entrants in the market who were really trying to establish themselves. So far in 2015, we haven’t heard much out of those guys at all. And so, again, it’s early to tell.

And it’s always an interesting year these days, but at the moment, I think broadly speaking, there are less fewer big guys moving around and there is a lot little guys trying to make the mark..

Great, that’s very helpful.

And then on that topic, have you seen any change in Ally’s behavior since they lost that leasing business to GM Financial?.

I think, Ally, if I remember going to give you the answer is we don’t fall that much, because we just don’t see them in the marketplace that much. And so if we heard that Ally was trying to taking a big hunk out of sub-prime, we would hear it. And so my guess is – and then it goes through even some of the banks.

There is all bunch of folks that are – what we will call operating, just about our heads that we won’t ever see whether it’s an Ally or is that couple, we see Citi custom occasionally, but not to the extent you might think. I think those guys are fighting on battle in what we will call 10% to 14% coupon range.

And we are – they are above us at that level for the most part. And so we are below them. Then we haven’t seen much of Ally..

Great, thank you very much. Good quarter..

Our next question is a follow-up question from Charles Frischer with LF Partners..

Hi, thank you gentlemen. Over the past 6 to 12 months, you have talked about using free cash flow to pay down debt and to start adding cash to balance sheet in an effort to get ready for the next downturn. As a 2% stockholder of the company, I am fully supportive of that strategy.

How is that strategy progressing and when would you start to see a more comfortable return on cash to shareholders to either a dividend or a buyback, I believe, 6 months, 1 year, 2 years away, how do you think about that?.

That’s excellent question as it sort of goes into what I was talking about earlier. I think the one thing that’s [indiscernible] for one is to have the cash to grow without particularly borrowing. And so I think we are comfortable with our cash to grow and we don’t need to borrow right now.

And so as with all of us in the stake, we do $135 million a month, we would probably have the cash to do that, but not have the cash to do a buyback. And so to the extent, we sort of modeled through as a 100 level or something this year as stock continues to languish our activity.

And so the third area would be as the interest rates are really low, so I don’t think we think this is a great time to pickup some cash and maybe we could get some cash with that specific learning purpose that we could do both.

If you could also do the math in terms of, I don’t know what we could borrow money at today, but if it’s an interesting enough rate that where we think it works through using to go borrow money to buy a stock, that will sort of novel. But so one thing we are not going to do is sort of a knee-jerk reaction.

I am as barely disappointed that the stock isn’t reacting better, but nonetheless, my job is run the company as opposed to – I mean, I certainly I could send it to shareholders, but we have to do like I said earlier, the company is doing all the right stuff. So, that’s our foremost focus.

To the extent, we can find a way to accomplish that goal and help all the way to increase the stock price or return value to the shareholders. That’s certainly job number two..

Well, a couple of things, I am not disappointed necessarily with that stock price, I bought 75,000 shares this morning. And in the last month or two, I brought probably north of 200,000 shares, so there is opportunities here with the stock where it is, so it’s not all bad news and I am not depressed.

I am more happier that you guys are executing and doing everything you are saying and stock will take care of itself in due time. So, I don’t want you to feel like it’s all bad news out there.

But regarding the share buyback, it looks like the company is going to generate somewhere between $30 million and $40 million in free cash flow this year as we pick here now. And my concern like I said about the stock price is not the low price.

I don’t know where the stock is today, but it’s the opportunity that we might be losing by not buying in say 2 million a quarter or 5 or 10 million a year as we held the stock into fixes. So, my view is not to support the stock price, but to use the buyback to increase the earnings per share.

That’s kind of where I was coming and I want to see what you thought about?.

I agree. I mean, we are on a sort of very public call here. We said we are always around the stock might be doing something all by itself. So, the easy answer is we are authorized to do a buyback, we would strongly consider it and I am not depressed about it.

My judgment of the company and then put up the numbers the way we did that, it kind of stuck when he is clapping about it, but whatever, so that is what it is, but yes, we certainly would consider all variety of options if we think there is a real strategic opportunity. And I will just leave it at that..

Terrific, Brad and Jeff. And I just want to say I appreciate all the hard work you guys are doing and you are doing a great job, just keep it up..

Great, thank you..

Thank you..

I am not showing any further questions at this time. I would like to turn the conference back over to our speaker, Mr. Charles Bradley for any additional or closing remarks..

Well, I think I hope we answered all our questions and it seems we might have. Again, I think the thing to takeaway is we are doing – we certainly announced some goals and we are getting them accomplished. The company is doing what it’s supposed to be doing.

I think we are more comfortable everyday that we really got this thing go in the right direction. Even with sort of the regulatory issues, we think we are away out of the curve there. And I think our friendly competitors are also going to address those issues just as well as we are.

So, I think in terms of the company is doing well, I think regulatory environment will work out fine. I think in the end, it will end up being a plus, because it will make the industry look even better. I think the car sales and the industry is healthy. Interest rates are healthy. Overall, it’s a real strong picture.

And same old thing, we are not – we certainly would like the stock price to go up. We are not going to run around and jump out of windows as it doesn’t. We are going to keep doing what we are doing. The stock price will get better one way or another and that’s what we are going to do.

So, good news is we will get to do as well again in a couple of months, because this is a short quarter for the conference calls. And I thank you all for attending and have a good day..

Thank you. This does conclude today’s teleconference. A replay will be available beginning two hours from now until February 25, 2014 11:59 PM by dialing (855) 859-2056 or (404) 537-3406 with conference identification number, 87486533.

A broadcast of the conference will be also available live and for 90 days after the call via the company’s website at www.consumerportfolio.com. Please disconnect your lines and have a wonderful day..