Good day, everyone and welcome to the Consumer Portfolio Services 2015 Third Quarter Operating Results Conference Call. Today’s call is being recorded. Before we begin, management has asked me to inform you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Such forward-looking statements are subject to certain risks that could cause actual results to differ materially from those projected. I 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 of Consumer Portfolio Services. I will now turn the call over to Mr. Bradley..

Thank you and welcome, everyone to our third quarter earnings call. Overall, we had a good quarter. It’s in line with our expectations, pretty much what we expect, what we’re doing is pretty much -- I don’t know about the norm, but we’re getting there. So -- but generally speaking, it was a, what we’ll loosely call a routine third quarter.

We continue to grow, but not at a significant level, we’re just sort of moving along down the road at some point. We did the securitization. That went well, we were in a rocky market, so the securitization market has been a little bumpy. So we didn’t price quite as well as we might have hoped.

We also, for the first time in a long time, or in this kind of structure have a AAA, AAA, we finally got our AAA from S&P. As mentioned, that didn’t show on the pricing on this securitization. We think down the road that will have rather good positive implications on the pricing structures going forward.

So having said that, we’re glad we got our deals on, it wasn’t quite as exciting in terms of pricing as we might have hoped, but still, it was very good. Other things to note, in terms of the DQ, delinquency continues to be a battle.

I’d mentioned on multiple calls in a row that it’s probably our sole focus right now in terms of, we’re looking on something specific on improving the company.

We’ve done a lot in terms of retraining this whole, what we loosely call, a kind of general regulatory environment, it’s still something we’re trying to figure out in terms of how to get the best results from the collections.

The good news is, as of yet, the higher DQ in the front end buckets, the 1 to 30 and the 30 to 60 have transferred into losses at this point.

And so this may just be the new way that we’re going to collect and that we’re going to have some higher front end DQs that just sits there, but then don’t really translate into losses, which in the big picture, we’d be fine with. Having said that, we would certainly like to have our DQ improve, and we’re still working on to see where it goes.

Regulatory environment, nothing particularly new there. I think that’s probably as I mentioned, the heavy weight on the stock is that people are worried about the regulatory environment, VW certainly doesn’t help in those kind of things. To avoid the question, I think VW is with diesel, we have less than a dozen in the portfolio.

So that whole thing doesn’t affect us one bit. So I guess that’s a good thing. We’ll talk more specifically about some of the departments in a minute. We’ll let Jeff walk through the financials first..

Thanks, Brad. Welcome everybody. We'll begin with the revenues. The revenues for the third quarter were $94 million, that's up about 6% from second quarter of this year and up 22% from $77 million for the third quarter of last year. For the nine-month period, the revenues were $268 million and that's a 24% increase over the nine-month period in 2014.

No surprises here really. We bought $288 million of contracts in the quarter. So our consolidated portfolio grew about 7% for the consecutive quarter and about 22% compared to last year. On the expense front, for the quarter, $78.3 million, that's a 7% increase over our June quarter this year and a 24% increase over the third quarter of 2014.

The nine-month expense number is $222.7 million and that also is a 24% increase over $179 million last year. Those expense categories were flat, except for provisions for loan losses, interest expense is obviously driven by the size of the portfolio, employee expenses ticked up a little this quarter compared to the previous quarter.

I think our headcount moved up maybe just a little bit and I think it was actually one more employee payday in the third quarter than there was in second quarter contributing a little bit to those differences. The provisions for credit losses $37.4 million for the quarter.

That’s a 5% increase compared to our June quarter this year, and 37% increase compared to the third quarter of 2014. And for the nine month period $106.5 million, a 39% increase over last year’s nine month period of $76.8 million.

And again, pretty much as we would have expected, approximately 8% of the average portfolio for the quarter or the provisions for credit losses. Credit performance on the net loss basis seems to be pretty steady and in line with our expectations.

Pre-tax earnings for the quarter $15.6 million, 3% increase over the second quarter this year and a 13% increase over $13.8 million in pre-tax earnings of the third quarter of 2014. Nine month pre-tax earnings $45.6 million, a 20% increase over the $37.9 million we posted in the first nine months of 2014.

Net income $8.8 million for the quarter, a 4% increase over the $8.5 million for the June quarter this year, and 13% increase over $7.8 million in net income in the third quarter of 2014. And nine month period $25.7 million in net income, a 20% increase over the $21.5 million we posted in the first nine months of 2014.

Diluted earnings per share $0.28, $0.01 more than last quarter, $0.04 more than the third quarter of last year that’s 17% year-over-year increase. And year-to-date, we have $0.81 in the books compared to $0.67, a 21% increase over the first nine months of last year. Moving onto the balance sheet. The cash balance is pretty much in line.

We continue to get really good execution in ABS market. In terms of the leverage, there has been no changes in the deals. From leverage standpoint, we did one of a little bit of a volatile market from a cost defense standpoint that I’m going to talk about maybe a little bit in a second here.

The restricted cash balance is about half of that $206 million, represents the pre-funding portion of the 2015-C transaction so that actually clears off the books in the month of October, and which already have been cleared off the books since we’ve already closed the pre-funding.

The portfolio of finance receivable, net of the allowance for losses is $1.8 billion that’s a 7% increase over the previous quarter and a 30% increase over a year ago.

And I mentioned that our managed portfolio, maybe I didn’t mention, the managed portfolio is a whopping $1.940 billion and so we’re inching towards that $2 billion milestone looking forward to hitting that sometime soon.

Moving onto the liability side of the balance sheet, really nothing of note here, we continue to amortize down a little residual interest financing and that’s going to be paying down probably within the next two quarters, much more significantly or maybe all together.

The securitization debt, obviously tracking well with the portfolio at $1.9 billion. Looking at some of the performance metrics. The net interest margin for the quarter $79 million, a 6% increase over the $74.7 million in the June quarter and a 22% increase over last year.

On a year-to-date basis, the net interest margin $226.6 million, a 26% increase over last year’s nine month net interest margin. The 2015 C transaction that we just completed, the blended cost of that deal was 3.78%, which is up a little bit from the 3.17% for the second quarter. I’m going to get back to that in a second.

The actual cost of all the ABS debt on the balance sheet for the quarter was 2.8%, which is flat with our second quarter this year and actually down from 2.9% in the third quarter of 2014. The risk adjusted net interest margin $41.7 million for the quarter, up 7% from the June quarter and up 11% from a year ago.

The nine month risk adjusted NIM of $120 million, an increase of 17% over the first nine months of last year. Looking at the core operating expenses, we continue to achieve pretty good operating leverage, controlling our other operating expenses, $26.1 million for the quarter.

That is a 10% increase over the June quarter and also a 10% increase over a year ago. And those core operating expenses were $74.5 billion for the nine months, a 15% increase over the nine months of last year.

Looking at those numbers as a percentage of the average managed portfolio, for the quarter 5.5%, up just a little bit from 5.3% for the June quarter, but you can see down very significantly from 6.5% in the third quarter last year.

And for the nine month numbers, those cooperating expenses as a percent of the managed portfolio 5.5% for the nine month period this year, down from 6.3% for the nine month period last year. So you can see how the operating leverage has manifested itself this year.

The return on managed assets, the pretax income as a percentage of the average managed portfolio 3.3% for the quarter, down just slightly from 3.4% for the June quarter and down even more from 3.8% a year ago and on an annualized basis for the nine months 3.4% compared to 3.7% for the nine month period last year.

Looking at the credit performance metrics, Brad mentioned the delinquency. It continues to be a challenge in is this environment. 8.8% the full delinquency number for the September 30 cut off, that’s up from 7.5% in June of this year, the previous quarter and up from about 6.7% a year ago.

Annualized net losses, however, remain kind of in the same relevant range for quite some time now, 6.27% for the quarter. It's actually down a little bit from 6.6% in June and up a little bit from 6.2% in the third quarter of last year. The auction percentages, we have that in the press release.

We continue to see softening in the wholesale vehicle market where we liquidate our collateral after defaults. 40% was the third quarter number. That's down from 44.8% in the June period and down from 44.6% a year ago and there is a lot going on there.

I think one thing that caught our attention is, there's a publication that covers this segment of the market and they pointed out that there – this year there has been a significant influx of off-leased vehicles and they are starting to see that more so than in previous, the previous couple of years, because the leasing market has had a resurgence which has begun a couple of years ago coming out of the financial crisis and now those cars are starting to flow through that segment of the market.

Moving on, looking at the ABS market, we’ve talked about 2015-C, that was a $300 million transaction. We achieved a long time milestone of getting the second AAA ratings in our both Standard & Poor's and DBRS gave our senior class of bonds the highest possible investment grade rating.

And it was a volatile marketplace, but we did -- we were able – and we are actually pleased with the execution. We were able to achieve 18 unique investors in the 15-C transaction compared to 12 in the 15-B transaction. We have three brand new investors, two from both the Class A bonds.

So, I mean, as you can see, we had good demand particularly at the top of their cap structure where the spread stayed about the same, but we saw kind of less demand and somewhat of a widening of the spreads as you move down the cap structure in that deal. Okay, with that I think I will turn it over to Brad..

Thank you, Jeff. So walking through the markets, these apartments, first one is marketing. Marketing is relatively unchanged from last quarter. We are sitting right around 117 marketing folds, reps.

I think our goal is to get to 125, so we are, we might have used all that go a little bit, we probably have what we need for now and we will probably edge up in the next few months anyway. So we sort of achieved the people we want in terms of the environment, competition and peers will be relatively flat.

We haven’t heard any resurgence of anybody, new kids in the block, it’s really pretty much steady as she goes. Originations, more of the same. I think the origination staff has been and is set out to do somewhere between $100 million and $120 million a month, so they are perfectly set.

We are slightly overstaffed, because there is much better dealer service, so we kind of like where we sit there too. In terms of what we are buying, it doesn’t seem to change much at all. Moving on to collections, collections of course is our challenge.

We’ve had to revamp the way we collect, it’s kind of different when you collect the same way for about 20 years and all of a sudden you need to change a lot of how that works. And so it’s an ongoing process. I keep saying, we see the light at the end of the tunnel, it’s definitely not a train, but we are getting there. It’s just very time-consuming.

Just as an example, some of the people are hardest to turnaround are your best collectors. Once they have been there forever and they are just serving grain and doing it one way and sort of trying to get them to learn and do it another way is a long process. But as I said, the good news is, there is nothing that shows that’s translating the losses.

At the end of the day, we only care about the losses. So we’re working with it. Going into the fourth quarter, the DQ will probably go up a little bit more, but it’s expected and as long as we keep where we are supposed to go with it, then they’re going to work out fine.

But having said that, we want better results from the DQ and that is one of our focuses. ARD, Jeff mentioned that the auctions have softened up. I think it was -- we’ll say, certainly a particularly bad quarter for the auctions, but I don’t know, if it will stay at that lower recovery rate.

We’ll see what the leasing really does in terms of driving that market. We’re not overly concerned about it, but it is something we are keeping an eye on. Overall in the industry, as I said, there is nothing really going on in terms of competition and the regulatory environment, well hasn’t changed either.

The VW thing is a little interesting, again doesn’t affect us, but certainly it gets some attention, a lot of attention. It may have a little bit of effect on securitization market. What we have seen sort of moving on to the big picture is, it looks a little bit like or feels little bit like the economy is softening again.

It doesn’t look like there is huge demand in the car market in terms of people trading up on their cars or refinancing or trading in their cars, so we don’t see the growth that you might hope to see here and there. Also in the securitization market, some of the lower-end tranches aren’t quite as popular. So you know, what it’s going to feel like.

On one hand, the consumer side is falling back a little bit, on the other hand, the financial side is falling back a little bit. And so, we’ll see what next year brings, but it is a little bit interesting that I used to say, we thought consumer confidence is very good, we would also now say that maybe it looks like it’s softening a little bit.

I think people were really hoping that Fed will raise the rates and give people some confidence in the strength of the economy, in fact they didn’t.

In fact the bunch of people who are running for President telling everybody else the economy isn’t really getting where it needs to go, who knows what the answer is, but it does appear that people aren’t overly encouraged in what’s going on. But bottom line, not a lot of that affects us in any monumental way.

I guess, that on the inside part, we are working on collections mostly. On the outside part, things move around a little bit, but not anyway that we are particularly concerned about. With that, we’ll open up for questions..

[Operator Instructions] Our first question comes from Kyle Joseph from Jefferies. Your line is open..

Good morning, guys. Thanks for taking my questions.

Can you talk just a little bit about the terms on new loans, have those been relatively consistent and talk about average FICO score, the Fed, duration of the loans and everything and trends you’re seeing there?.

Sure, I can talk about almost everything except the FICO score, since I don’t have that in front of me. Like I said earlier, I think, in terms what we are buying, all things being equal hasn’t changed hardly at all.

The APR is identical as last quarter, the acquisition piece is down a little bit, and we never add much of one any way, the LTD is dead flat, payment incomes up a tiny bit, so we call it flat, even our credit scores – actually, our credit scores are a little down, which is in a positive direction.

So we might argue, we are buying a little bit tighter. Lower tier is also down from last quarter, extended churn is about flat. And then I could almost -- if I’m looking at the last 12 quarters, I mean, we do nothing else, we buy the same stuff very consistently.

We've been buying in the range I just described for well over two years, with very little fluctuation. And so at some level, that's where it starts.

To an extent, I gave you a bunch of different numbers or said all these numbers are creeping up from the last whatever, then we might look at the collections a little differently, but the fact that we’ve been buying the same way for a long time now and I’ve only got the last 12 quarters, but probably goes further back than that.

We have a lot of confidence and the loans we’re buying should perform the same. To the extent they don't, it’s either because the way you’re collecting them because of the economy, even though we’re not wonderfully excited about the economy, we think the economy is steady enough. It doesn't affect the collectors.

Remember, the real key in the economy that hurts us in terms of customers is unemployment. As I mentioned, unemployment is probably not low as we said, it's probably not going up. So we’re really kind of happy with the consistency at that level. I guess we're working to making the collection results match that too..

Okay. Thanks. And then just in terms of the, the charge-offs are relatively flat despite the decline in the recovery rate.

Can you explain what's going on there? Are you guys seeing sort of lower gross charge-offs to offset the lower recoveries or just what sort of dynamics you’re seeing there or I can wait for the queue to when we get the actual numbers?.

Well, yeah, I can comment a little bit on that, Kyle. So there is a couple of components involved in the net charge-off figure that influence that ultimate net number. You alluded to one.

I mean some of your charge-offs in a quarter are what we call gross charge-offs where we’ve been unable to locate the vehicle, but it's gone over the line or needs to be charged off. So we take that gross charge-offs at that time and then continue to search and find ultimately locate the vehicle. That becomes a recovery down the road.

So depending on the relative mix of gross versus net charge-offs in a quarter, that will influence your net charge-off percentage. The other thing too -- and even though those aren’t a significant component of the total charge-offs in a quarter, not a significant number of units, but their dollars are over double what a deficiency balance would be.

And then, probably more significant would be the fluctuation of deficiency or charge-off recoveries.

So these are dollars collected from accounts that we charged off in earlier periods, but our back-end deficiency collectors are working those accounts and those are significant dollars that flow through, but they have their own sort of ebb and flow of actual activity and that will have a significant impact on that net percentage in a given quarter..

Got it, thanks. That's very helpful.

And then just in terms of share repurchase activity, I don’t have your period end share count yet, but can you talk about, it looks like your average share count declined, did you guys buy back some shares and then going into the fourth quarter and last few years, it’s been a little slower, would that give you the potential to repurchase more shares in the fourth quarter?.

Guessing what the stock price is going to do is certainly an interesting game, which we look at, but we did buy shares in the third quarter, we bought about 184,000 shares, we bought 285,000 shares a quarter before. So we didn’t buy quite as many. Our average price in both quarters is higher than it currently stays at today.

So we’re not wild about buying the stock when it’s at the high it appears. We bought our stock in the third quarter at an average price of 585, in the previous quarter, it’s 621 and currently, our stock trades at, I don’t know, 560.

So we’re not a fan of that program, but we’re still doing it and I think if the stock goes up, we’re going to continue to buy it as we sort of see fit or capable or we see the dips in the market, so we seem to be buying it on the highs, but whatever.

Of not also as we continue at this point trade below the book value of the company, so that's also fun, but all things being equal, the one part of the thing we have the least control over and certainly we would love to have more control is stock price.

We've done an awful lot of things while in these last three quarters, the last three, four years and we've not been rewarded in the stock market and we're working on it. Like I said earlier in other calls that I think the regulatory environment has a lot to do with people being scared of the industry.

I don’t think particularly that people compare us to the mortgage industry as the next bubble or anything like that.

So I think as the next year rolls forward, I think that environment is going to change and people are going to realize that there aren’t that many [ph] regulatory issues in our industry and then eventually that will translate into stock price.

Sooner or later, somebody is going to make that determination and then they are going to start buying us and everyone else like that and then those stock will move up, but again, we’ll have to wait for it..

All right. Thanks a lot for answering my questions and congratulations on a good quarter..

Thank you. Our next question comes from David Scharf of JMP Securities. Your line is open..

So, Brad what are two maybe follow-up in some of your observations at the macro level and maybe translate that into how we should be thinking about origination growth going forward.

I know you’ve been talking for a few years about a couple of goals ultimately working back to kind of the pre-recession level in the portfolio and you’re bumping up against $2 billion, so you’re pretty close there, you are also talking about $100 million monthly run rate and origination, you’re getting close.

Should we be thinking about you as sort of bumping up against the ceiling or without pinning it on guidance, should we be thinking about 2016 as the continuation? You talked about your staffs to basically originate as much as a $120 million a month.

Just trying to get a sense for the message you’re delivering, whether you feel like things are sort of peaking here or if you feel like you still have fair amount of capacity that you’re going to grow into?.

Interesting question. Now there are two people, the first guy would say, we’re going to be dead flat, we will sit with $100 million a month and we’ll just kind of roll through 2016 thinking that maybe recession is going to go on.

The other guy is going to say, well, since the first guy says it’s not going to go anywhere, the second guy is going to say, it’s going to degrade, and we’ll bump up the $125 million a month and things will be terrific. Identifying which guy is mean becomes a little difficult. We’re somewhere in the middle I think.

On the one hand, I think the downside is the first one, that we kind of cruise along, the economy doesn’t really couldn’t do anything, everybody waits around for new elections. And we kind of bump along, and having said that, that’s not a terrible thing; we’re making $6 billion pre-tax.

So we’re making lots of money, we have a real stable portfolio; we get to tinker along with the collection of things more. It’s a good place to be. I have zero problem if that’s the result. On the other hand, particularly the more I lean towards option one, a much more likely option two happens, because it’s always what you don’t expect.

So the extent we expect to be flat will probably grow. But I think the good news is, we’re built for number two, we’re built to grow to that 125, we’ve got all the staffing we need up front. We’ve got plenty of collection space, the people we need in the growth room to do that. So, we bump up that would be great.

Trying to tell you which one we’re going to do is very difficult. I think if I were going to guess, I think if you look at the industry competition, certainly allows for either one, I mean there is nobody coming in. So maybe if there is an opportunity for growth, there shouldn’t be anybody there to push too hard.

I think to the extent, the Fed raises rates, and everybody starts thinking the good times are coming, then you could get to option two.

Because where we sit today, where everybody looks nervous, and the financial markets look a little bit soft and the car markets look a little bit soft, it’s a little easier to lean towards door number one kind of thing. So, we’re set up, we’re hoping for a number, the second one but we’ll see.

I honestly can’t give you, like I said, if I said it was going to be flat, we’ll grow, if I said, we’re going to grow, we’d flat. So, that’s really is clear because I’m going to get on that whole topic..

Got it, got it, clear as mud..

Like I said, there are a lot of different things in running this company..

True. Back to the delinquency and collections, practices, I’m just curious. It’s been a -- hasn’t it been close to a couple of years since the FTC settlement, when you had to really start instituting different practices on the servicing and collection side.

Just curious, it’s seems like it’s really just these last couple of quarters where there has been a noticeable change in the delinquencies and the frequency of late payments.

But maybe you can give a little more color on perhaps whether there has been some incremental practices in just the last six months of why just suddenly we’re seeing this as opposed to we didn’t see this magnitude of an increase when these new collection rules were put into effect..

I think you’re absolutely right.

I would agree with what you’re thinking and saying, because remember when the SEC showed up, we didn’t really get the results until probably the beginning of ’14 or middle of ’14, so – and we settled with them in June of ’14, if I recall, July of ’14 and so somewhere between, call it, January we might have started getting the inkling of what was going on in June, has been really when we sort of figured out what we were supposed to be doing.

So we started to try and implement stuff then and you figure it would have taken, I don’ know, the first three months or whatever from June somewhere in the middle of the year to the end of the year to sort of get a handle on what was really wrong and what needed to be fixed.

And so truly we didn’t really start implementing stuff until January, February of this year and so your time in terms of where you are seeing the change is almost fits exactly with – they took us, I don’t know, three to six months to figure out what we needed to fix and then we implemented those fixes starting in January of this year and you would start seeing the results of those right around then I guess.

And so that’s why you see in the last few quarters the rise in delinquencies. Now, of course, we’ve seen in the horizon as well and so as much as we wanted to make the changes and we needed to make the changes and we are making them still, we still think we can get better results and that’s what I have been saying all along.

But it’s kind of a weird thing where, I mean the bottom line and what we are seeing in the way collections works, certainly if you call up and you push real hard, you get the guy to pay real soon. Shockingly to the extent you push a little or whatever we call it, he is going to pay because he wants to keep the car.

So the fundamental answer is, one way or another he wants to keep the car. How soon you are pushing to make that payment is the regulatory environment we are sitting today. And so what we are starting to see is, you don’t have to push them as hard as to get the results, and having said that, we still would like to see a DQ a lot lower than it is.

So as you know, the bottom line is, you are generally little firm as DQ turns into losses. Having said that, there is a couple of big companies like us that are still out there that all of run much bigger, 30 to 60 buckets than we ever did back in the day.

And so, there is something to be said that this is what it is supposed to look like, because we watch those companies and I won’t name them, but they are out there, but they ran much higher, zero to 30, 30 to 60 and those all cured, they all did fine and their portfolio did great.

And this is from the stuff we looked at four years ago, so it’s now like they are faking and it’s all going to fall apart. Those companies did fine running almost the same DQs we ran a little bit higher still and that has fine results.

So it is nothing to worry about it, we are certainly on one hand trying to get used to it and on the other hand we still we think we can do better. But the timing you are seeing, that’s really probably the answer..

And just last question on the same credit topic.

I mean, as we think about the ending allowance rate which is pretty much flat from a quarter ago, is that predicated more on the expectation that this 31 day, 30 day bucket continues to -- consists mainly of late payers and that they don't roll into losses or is it predicated more on the expectation that the recovery rate was usually low this quarter, a bit of an anomaly and will probably pick up a little?.

Let me give you the way. On the one hand I think the allowance is mostly based on losses. I mean, the DQ hasn’t really [indiscernible] do with it if anything. In terms of we're not going to – the provisioning is a complicated big time model that you are not going to change on one quarter’s information.

So certainly in terms of the recoveries and option, this one quarter is not enough to make us move on that yet. And again we're not going to move on it at all based on the DQ..

Got it. Okay, very helpful. Great quarter. Thank you..

Thank you..

Thank you. Our next question comes from J. R. Bizzell of Stephens Inc. Your line is open..

Yeah, good afternoon guys and congrats again on another earnings growth quarter..

Thank you..

Brad, we're beating this to death, but I guess my question around the delinquencies and that was the one observation that you clearly pointed out that they're not turning into losses And I’m just wondering if you or Jeff could kind of walk through may be the frontend DQ process and collection process and what’s so successful once you get past that 60 day to turn those DQs into non-losses..

I will get into the whole thing for you. Two senses. Back in the day, you could call a customer up and say, hey, you are three days down or one payment down or two payments down, you need to pay me today or we are going to repossess your car. And the regulatory folks didn’t like us saying that to them.

So you don’t get to say that until they are about 90 days down, three payments. And shockingly when you say, then it works. I mean, they could certainly work when you said it up front. But you know, that’s one of the fundamental differences and that the loose term was it was threatening.

We may not particularly agree with the term threatening, but at least then you push them to say, hey you need to pay us today or you’re in serious risk of losing your car, a lot of people pay. To the extent you say, hey, it’s really important you pay and let’s work something out, shockingly they still pay, just take some extra two months.

So that’s really fundamentally exact difference of what we are doing. It’s rather than pushing, I just use the term pushing since its better, rather than pushing, by the way. I will give you one other example.

The other example is a lot of the way collections is driven in many companies including ours, is you want the collector to collect the payment today; you want them to get the customer to send something today. In the new world that isn’t really the way to do it.

And so it’s taking us a dramatic amount of time to convince our collectors not to try and get them pay today. The customer says, hey, I can probably pay you next week, that wasn’t good enough in the old dynamic. And today, I can pay you next week is just fine.

Now, of course you know, I will pay you next week and then you do it again, and they don’t all pay it in the next week, but eventually they do because at the end of the road, you got to tell him, you are in danger of losing your car and that’s when they pay.

So I know it’s a little – it’s hard to actually think there is that much in those type of senses, but there really is. It’s how fast you can push. And in the regulatory environment, you don’t push anymore and you give them the time to not string you along, but take some more time.

But this two aspects, one is the manner in which you have to address the customers, and two the dynamic of how the collection arms work. And the collection arms used to work, get the money in today, and now that’s not true. And so it’s as much as -- it’s a simple explanation at some level, it is a lot tougher to make it all work..

Okay. Thank you. That’s very helpful. I guess switching gears, last quarter, you talked about kind of the stages of the headcount maturation process and the last phase being the focus around penetration at dealerships.

And given kind of the volume level you’re at, right at between $95 million and $100 million a month, just wondering what that 117 marketing rep headcount, where do you think you’re from a penetration of kind of your current dealer partners and how you see that moving forward as we go forward to the next, maybe call 6 to 12 months?.

I think it’s probably – well, certainly penetration is better than it has been and I think it will continue to improve. And so back to the earlier question about growing, the penetration continues in the market, it doesn’t get worse or flatten anymore. You know, we may get the growth just from that.

So that’s why it was somewhat clearly vague and where we would end up. I don’t think we are going backwards in terms of numbers at all. I don’t think the economy is such, I don’t think the environment and market or anything would make me think that originations are going down.

Whether they are going to jump is really the question everybody wants to know and I wish I knew it too. But the answer – but yeah, we’re doing everything in exactly the right way. Our penetration continues to improve all the time, our experienced when the rep market of course is getting better all the time.

I think our program of the dealers is very consistent and they rely on it more and more all the time. And so to the extent one of our fellow competitors had a problem, our business would jump dramatically. To the extent the economy starts doing better, our business might jump dramatically.

So all the tools are there, but big year, maybe I should be talking like this, try and push stock up that’s not a good plan. So we are going to run the company the way we’re supposed to and see how that works. But certainly the elements are on the table for us to have a real big next year, we’re just going to see how it comes out..

Great. And kind of building on that, Brad, last quarter and you’ve talked about it before just not last quarter, but multiple quarters. Further down the curve as you call it, is kind of providing maybe a competitive opportunity for you all.

Just wondering if your – if you took advantage of that this quarter and if so at what level do you think that still provides an opportunity for you moving forward?.

We probably moved down the curve as much as we are going to. I mean, we got a little bit deeper, but on the numbers-wise it’s very marginal, but to us, it was little bit deeper. We have probably fully gone on board, what we obviously call extended term.

I looked at the numbers just while we are talking and the one number that’s moved up is, we do buy a higher percentage of extended term in the portfolio today. But the funny part is, none of our competitors call what we call extended term, extended term anymore.

Everyone uses 72 months as a standard contract and we still think of anything over 60 as extended term. So the fact that we're finally kind of doing what everyone else is doing, it’s sort of novel, but some people will now buy more than 72 months, which we don't.

So maybe that's a little bit, is an example of us being more down the curve is that we are doing more extended term at least the way we look at it. But in terms -- I think the opportunity moving down the curve is still there. We're probably not inclined to move down the curve any further than we have already right now.

So where we might pick up is, again I think our -- in the environment we’re in, the place where we have the best chance to pick up is if other people pull back. And there is a chance as always an interesting opportunity where people start doing other things and just to pick Santander is now a bank.

So they’re being a little more careful of what they can buy in terms of the regulatory environment and so things like that might play bigger for us down the road, but we’re not, so we will see..

Great, thanks for taking my question..

Thank you..

Thank you. Our next question comes from Lucy Webster of Compass Point. Your line is open..

Hey, good afternoon. Thanks for taking my question.

Could you talk a little bit about how you're thinking about the allowance for credit losses, given you’ve said that contracts you’re purchasing are fairly flat quarter-over-quarter is the sort of a little north of 4% level of something that you would look to keep consistent going forward?.

Yeah. Hi, Lucy. I think that we’d expect the allowance potentially to grow and a lot of depends on as a percentage -- and that depends mostly on how much our origination volume grows or doesn't grow compared to the outstanding portfolio.

So as the portfolio is growing, we’d expect it to grow slightly if the originations relative to the size of the portfolio slows down and the growth of the portfolio slows down, then we’d expect the allowance percentage to creep up ever so slightly.

I mean ultimately, auto approach, it would never fully – as long as you’re buying new loans, we never fully reach something that approximates our annualized loss rate of 7%, 8%, but it should approach those levels if the portfolio size ultimately stabilized, sort of where the originations balanced out to the run-off of the portfolio..

Great. That was it from me. Thanks for taking my question..

You’re welcome..

Thank you. Our next question comes from Mitchell Sacks of Grand Slam Asset Management. Your line is open..

The first question I have is regarding the extended collecting process, does that end up driving more fee because people are in arrears for longer period of time?.

Well, it drives more accrual of late for you for sure, because I mean that's a good point actually, because you have more people who are rolling out of the casual delinquent and into beyond the grace period where they accrue late fees. And so, we do accrue a substantial amount of late fees in accordance with what the various state guidelines are.

We don't book those accruals as income, rather we only recognize them as income if and when we collect them in cash. Now, that amount of cash is a significant amount, right. I mean, we do collect probably $500,000 to $700,000 a month in cash late fees, which contributes to interest income, we classify this interest income.

Now, would be expect that number to increase as a result of higher front-end delinquencies? I think the jury is out on that a little bit. Part of the whole compliance minded environment is to try to work with the customer and be nice to the customer, cooperate to the customer.

I’m sure that we're probably negotiating and waving a number of accrued late fees in order to secure payments and so I don't know that we will see material significant increase in late fee collections..

But does that accrual of late fees impact your delinquencies at all?.

No, it's completely independent of the delinquency calculations..

Okay.

And the second question had to do with employee cost you talked briefly, could you just sort of give me just a little bit more clear explanation of the increase in employee cost and getting one of these as an extra pay period, does that mean that the next quarter doesn’t have that and just go back to more trend line?.

It kind of depends, I don’t have the next, I mean some quarters have 66 work days and some paid work days and some have 65. I mean it’s not going to fluctuate a lot right, but it could be plus or minus one or two days any given quarter and it’s not a giant number but it’s a measureable number.

And I thought I had the headcounts or the exact headcounts by department, I’m sorry I don’t but I know that historically we do some hiring, I mean we continue to hire on the servicing front, okay. So we really continue to add collectors and almost all the branches where we have seeds.

And so clearly the headcount on the servicing side, the collection side is increasing every month and every quarter.

And then, often beginning in the fall, with third quarter and on through the fourth quarter, even though we’re generally not growing a lot, we often hire people on the credit and marketing side, I don’t think we did much in the marketing side this quarter but we hire people in the fall and train them to get ready for what is usually a robust first quarter on the credit side.

So that will influence, often influence those third and fourth quarter employee expense numbers..

And then I thought I heard you say on the call, I think it was Charles saying that the residual interest advancing probably go away over the next two quarters, did I hear that correctly?.

Well, I mean it’s paying down according to its terms. I don’t know that it will get to the end in the next two quarters but you’re going to see significant reductions in that balance over the next two quarters for sure..

Okay. Great quarter guys, thanks..

Thank you. [Operator Instructions] Our next question comes from Charles Frischer of LF Partners. Your line is open..

Good morning gentleman, another very nice quarter. Thanks for taking my questions. A couple of minor questions.

One is, were we a federal tax payer in the quarter?.

Oh, you bet, we’ve been a federal tax payer; sadly, it’s sad to report. We’ve been -- paying federal and state income taxes for probably a little over a year. We have that massive deferred tax asset that was a result of all the losses we incurred going back to 2008, 2009, 2010.

And then, we’ve been eroding that, eating away at that, and that’s sadly, that’s long gone. So we’re paying taxes..

Okay. And could you just talk for a second or two about the state of the securitization market.

I know, I’ve heard in the grapevine that Santander had a – maybe it might have been a consumer loan portfolio that they pulled, maybe you guys could talk a little bit about how to help this and how you think about it in the next 12 or 18 days?.

I don’t know that that SCUSA pulled the deal. I mean, I thought they had a deal in the market couple of weeks but they actually upsized right. So that tells me that their deal was timed well and then well received in the marketplace.

But there are a lot of other players kind of coming in and around the marketplace, it’s certainly it’s not the same market it was a year ago.

I mean, a year ago, the bonds were selling so fast and it would make your head spin and the oversubscription, over allowance demand for different classes of bonds was, many classes in our deals were two and three times oversubscribed which really helped drive down the spreads.

And these last two quarters we haven’t seen that, we’ve seen oversubscription which has helped us primarily in the upper part of the cap structure but even not to the degree we saw a year ago and there is noticeably less demand for the higher coupon lower rated bonds. Although, we were able to get what we still felt was a good and fair execution.

So it’s a volatile market, there is a lot of other stuff going on that not directly related to our business or our segment but it impacts the people who buy the stuff and so they, you have to kind of be prepared to go with the ebbs and flows of that market..

And -- I’m sorry, please Brad..

There are two things to keep in mind. On one hand, our bumpy terrible deal processed about 30 basis points more and still is 200 basis points off the historical average is what our price of cost of funds is. So we’re sort of you know we’re complaining for whatever preaching of the quire in terms of, the pricing of our industry is still great.

The fact that it’s gone up a little, we’ve gotten so happy with where we were that is easy for us to complain but in truth, we have nothing to complain about. The other part of that in terms of securitization market is everybody is assuming the rates are going up.

That’s why we wish they would because as long as everybody things they’re going up and they don’t go up, everybody is waiting. And so, particularly right now, in the third quarter and fourth quarter, even probably more so. Everyone is going to assume the rates are going to go up and they want to wait till then to get to the new environment.

They don’t want to be tied into these bonds when they think they could get a better return three months or six months down the road. So it’s not just that.

It’s just where – your question is a good one, what’s the bond market doing and the bond market on a lot of ways is waiting for the uptick in the interest rates to get some higher yields and end of the year people tend to sort of run out of money, but they buy less frequently. So that’s really what we are seeing..

Got it. And then Brad and Jeff on the last three, four years you guys have done a great job rebuilding the balance sheet, I was curious if we could get your color on how you read the condition of the balance sheet especially if things are good it won’t be a problem, I think that’s little rocky, how you feel about your balance sheet right now..

Wish we weren’t paying federal taxes, but the balance sheet is really good. As Jeff pointed out we will probably clean up the pay off – the residual data will probably run off certainly by the end of this year, but in middle of next year, end of next year and so that’s the strong spot.

I think I guess where I mostly look at the balance sheet is in terms of any oncoming recession. If we think there is a recession coming, we might actually go and get some cash, but we are in a pretty good cash spot. We are in a very good debt spot. So it’s really – we are quite happy about where we sit.

That’s probably the best cash position the company has been in 15 years..

Well, that’s kind of what I think which kind of leads to the next – my last question about the buyback and you talked about this last quarter and the quarter before and I guess my takeaway for you guys is, I wouldn’t worry about getting to the low tick or the middle tick or the high tick, because what do we say, 6.20 or 5.85 or 5.75 or 6, I’m just not smart enough to know how it matters because our stock is trading at 5.5 times earnings.

If you could buy a company for $50 million [ph] at 5.5 times earnings, I assume you would just do the deal..

No, you are absolutely right, that was me complaining..

No, but don’t complain. You guys are doing a great job..

Thanks, you are 100% right. Whatever we buy it at, it’s the fine price. It is ironic that every time we buy a bunch, their average price is higher than the current market..

That’s a positive. Next quarter you buy another 0.5 million, you knick it by a quarter and with two low grade. I mean that would be a positive..

Truthfully you are absolutely, right. I was complaining a little bit, but, no, we will continue buying the stock. There are bunch of rules in how we buy this, why we can’t buy as much as we would like, but nonetheless we will continue to chip away at it whatever given price we’ve got..

If somebody has a block they want sell, should they call Jeff up and ask them..

Sure..

Okay, listen, thanks a lot guys, keep up the hard work. I appreciate it..

Thanks, Charles..

Thank you. I am showing no further questions. I would like to turn the call back to Charles Bradley for closing remarks..

Anyhow, on the one hand, the easy way to look at this is, we had a very routine quarter. Things went pretty much where we wanted them to. The questions that were asked were all very good, it brought out a few things. I mean, obviously internally a big focus is to continue to improve collections.

There’s been a lot of resources in that, a lot of executive time to make sure we are going in the right direction. I think we are well set up for growth that we can get it and we are well set up for whatever happens next in terms of balance. We would like the stock price to eventually go up, it should eventually.

The regulatory environment is good, the competition environment is good. The economic environment, we will see. So, overall, we thank you all. We enjoyed having the quarter; we look forward to talking to you next quarter too..

Thank you. This does conclude today’s teleconference. A replay will be available beginning two hours from now until October 22, 2015 at 11:59 PM by dialing 855-859-2056 or 404-537-3406 with conference identification number, 59399169.

A broadcast of the conference call 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 at this time, and have a wonderful day..