Good day, everyone and welcome to the Consumer Portfolio Services 2017 Third Quarter Earnings Call. Today’s call is being recorded. Before we begin, management has asked me to inform you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements are subject to certain risks that could cause actual results to differ materially from those projected. I refer you to the Company’s SEC filings for further clarification.

The Company assumes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or otherwise. With us here now are Mr. Charles Bradley, Chief Executive Officer, and Mr. Jeff Fritz, Chief Financial Officer. I would now turn the call over to Mr. Bradley..

Thank you and thank everyone for attending our call today. I think overall probably not overly surprising that our third quarter looked an awful lot like our second and first quarter. That’s sort of what we told people we thought we would do and in fact that come to pass.

So generally pleased with the whole quarter, I think I have some highlights of the quarter. We continually completed our fourth securitization of the year. The cost of funds in those securitizations continues to trend down.

I think the comment there is really that Wall Street or the ABS market is still exceedingly interested in our industry and therefore our ABS deals is having a strong demand and we keep doing deals and the deals just keep getting better either more buyers, lower costs, more aggressive pricing.

Even with the cost of funds overall going up in the economy, we've been able to sort of match that and go down with tighter spreads, more participants et cetera. So that’s a trend that’s really strong for us and the industry for that matter and we would - if that continues that's all good. But we're very pleased with how that’s worked this year.

So talking about few other things, everybody is very interested in the hurricanes and where we were affected. In the Harvey, Houston hurricane we had about 2.5% of our portfolio, our loans were in that area. So we actually weren't overly concentrated by any means and as a result weren't particularly affected.

In Florida, we had 6.5% which certainly is more, but the interesting thing we’ve really had a very low casualty showing out of that, we have been, you know, are generous with extensions in those two areas. But the good answer is, overall there is no real significant stress on the DQ.

So as much as everyone thought and certainly a lot of people wrote about the problems in those areas, as of yet we really haven't seen very much nor have we been affected hardly at all. So we're sort of pleased with all that.

Again maybe a tad early to say it’s over and done with, but in terms of the initial fall out as you might say it's been very good for us and not really a problem at all. And now we’ll get into some more details on the quarter, I'll turn it over to Jeff to run through the financials first..

Welcome everybody, thanks Brad. We’ll begin with revenues for the quarter were 109.5 million that’s actually down slightly from 110 million in our second quarter this year, but up 1% compared to 108.5 million for the third quarter of 2016. Year-to-date revenues 327.2 million and that's up about 4% compared to $314 million a year ago.

So kind of the story there is that year-over-year increase is due to a 3% increase in growth of the organic portfolio aided by originations of 205 million in this third quarter and 668 million year-to-date this year and the flat – essentially flat revenues from second quarter of this year to third quarter of this year are largely attributable to the fact that the portfolio is largely flat in those two sequential quarters.

On the expenses $101.4 million for the quarter that’s actually down about 1% compared to 102 million in the June quarter this year and up 6% compared to $96.1 million last year in the third quarter. For the nine months, 303.3 million compared to 277.1 million, a 9% increase.

So on a year-over-year basis, the increase in expenses is largely due to increases in interest expense and provisions for credit losses. However in the sequential quarter, the total expenses are down slightly which is largely led by flat interest expense and it's like decrease in the provisions for credit losses.

Let's look at the provisions for credit losses 47.3 million for the quarter. That's down 2% compared to 48.5 million in the second quarter this year and up 2% compared to 46.3 million in the third quarter of last year. On year-to-date basis 143.1 million and that's up 6% compared to 135 million a year ago.

And so a couple of things influencing the provisions for credit losses, the growth – the originations growth has been kind of tepid this year so the portfolio has been flat - relatively flat. And the portfolio is aging. So the portfolio is now crested 20 months of average seasoning.

And so that - to the extent that that trend or that path continues we're going to see sort of this leveling out I think of provisions for credit losses with some seasonal degradation and the credit performance which we'll look at in a minute, but overall we're pleased and credit performance is more or less meeting our expectations.

Pre-tax earnings 8.1 million for the quarter that's up compared to 8.0 million in the second quarter of this year, but down compared to 12.5 million a year ago. On a year-to-date basis 12.5 million of pretax earnings that's down compared to 37 million for the nine months ended September 2016.

Net income was 4.7 million for the quarter that's up 2% compared to the second quarter of this year, but down compared to 7.3 million for the third quarter of 2016. Year-to-date number is similar at 13.7 million. Net income for this year that's down compared to 21.8 million a year ago.

Diluted earnings per share is $0.17 that's actually flat for the sequential quarters and down compared to $0.26 in the third quarter of last year. $0.50 for the nine months and that's down compared to $0.75 for the nine months ended September 2016.

Looking at the balance sheet, our cash position remained stable, finance receivables portfolio as I mentioned was kind of flat going from the second quarter to third quarter, up about 3% compared to year ago.

Our allowance for loan losses, we actually saw some growth in that some nice growth in that sequentially it's up, the net allowance is up about 4.7% and the gross allowance is up to 5.6% of the total portfolio.

No real changes – well, no changes at all really to the warehouse lines, we stopped [ph] the three $100 million facilities that we use in continuous fashion. Securitization debt is about flat and long-term debt is also flat sequentially, but up about $2 million compared to last year.

Moving onto the performance metrics, the net interest margin was $86.2 million that’s off just a 1% compared to the second quarter this year and off 2% compared to the third quarter of last year. For year-to-date the net interest margin was 258.5 million and that's a 1% increase over the nine months ended September of 2016.

So what's happening here is the actual blended cost of all of our ABS debt for the quarter was 3.78%. And so that's actually down compared to 3.8% three in the second quarter of this year, but up a little bit compared to 3.4% from Q3 ’16.

So what we've seen here, Brad alluded to this, the ABS market has been very receptive and we've actually seen generally improved cost of funds since about the second quarter of 2016, which followed about four quarters of consecutive increase in cost of funds.

And so we had a little blip in there in the end of ’15, early ’16 with increasing cost of funds. But ABS market has been very receptive and we have very good execution since that time. The risk adjusted NIM $38.8 million, essentially flat compared to the June quarter of this year and down about 6% compared to the third quarter of 2016.

Year-to-date risk adjusted NIM 115.5 million and that's down about 4% from a year ago nine month period. So the NIM improvement sequentially is due as I alluded to primarily from the somewhat improved cost of funds and also due to somewhat from year-over-year compression in the provision for credit losses.

The core operating expenses essentially flat 30.7 million for this quarter flat compared to the June quarter of this year and up slightly compared to 28.9 million a year ago. Year-to-date core operating expenses $91.6 million, up about 9% from 83.8 million a year ago. So operating expenses, the portfolio did increase about 3% year-over-year.

So we have some increases in the operating expenses which are reflected in those increased numbers year-over-year.

As a percentage, the core operating expenses were 5.2% of our average managed portfolio that's flat compared to the June quarter of this year and up compared to 5.1% a year ago and the nine month numbers are essentially the same 5.2% for this year compared to 5.1% a year ago.

So the return on managed assets to pretax income as a percentage of average managed portfolio 1.4% and that's flat with the second quarter of this year, but down compared to 2.2% a year ago.

The nine month number is 1.4% for the nine months of 2017 and that's down compared to the 2.2% for the nine months of 2016, largely attributed to higher interest costs and provisions for credit losses during those two nine-month periods.

On the credit performance side, fully loaded delinquency as of September 30 of ‘17 10.27% that’s’ up sequentially from 9.64% for the June quarter which is a seasonal sort of trend we'd expect to see going from Q2 to Q3 and that's actually down compared to 10.46% for September compared to September 30 a year ago.

The annualized net losses for the quarter is 7.96%, up a little bit from 7.62% in the June quarter and 6.69% in the third quarter a year ago. And the nine month annualized net loss is 7.83% compared to 7.76% for the six months ended June 30 and 7.05% for the nine months ended September of 2016.

The auction percentages after really losing a lot of ground in this area, the recovery percentages of the auctions during ’16, those have largely stayed flat, fluctuated a little bit, but 34.6% for this quarter is only down a little bit from 35.6% in June and down a little bit from 36.1% a year ago.

Moving onto the ABS market which Brad alluded to, and I actually talk about both of our third quarter deal which was our 2017 C-transaction which we completed in July of this year that was a $224.8 million transaction.

It was a little unique that it included about $18 million of called receivables which were loans that we pulled out of prior securitization that we closed out or cleaned up as we say and contributed to lowering the weighted average remaining term of this pool of receivables.

We got really good execution on that deal in July and resulted in a blended coupon of 3.52%. However in 2017 D-transaction, our fourth quarter transaction which we just closed last week was $196.3 million and this was maybe the best or in fact it was the best spread execution transaction that we've had since 2014 A.

And so what I mean to say there is the weighted average spread over the benchmarks of that deal was 160 basis points over the benchmarks. And as I said that was the best execution we had since 2014 A resulted in a 3.38% blended coupon. And so again we continue to see a very robust response to our bonds when we got to the market every quarter.

And with that I’ll turn it back over to Brad..

So I’d run through some of the departments, marketing has been a focus of ours for the last several years. Interestingly we sort of thought that with all the automation involved these days that the marketing would be somewhat more of a commodity with dealer tracking all of the dealers.

As it turns out we sort of think that actually being in the dealerships is still very important. So we're sort of working on new strategies to do that. The other part is that the marketplace is still very competitive.

Sort of regardless of what other folks are saying about competition and such, our feeling is that people are just as competitive today as they were before. And so that has an effect on the overall efforts here as well. But we're almost okay with that given sort of where we think we're going to be for the near future.

In originations, we continue to focus heavily on improving our credit metrics and we actually put out some of the best credit metrics we've had. And the LTV is probably lowest LTV we've had in almost five years or even more at 111. Generally speaking, all credit metrics are improving.

So in terms of our stated aim of not really chasing the competition and not really chasing the market and instead improving our credit, focusing on what we do best that all seems to be coming true exactly where we thought in that our credit metrics are improving, we're not really pushing the marketing effort and we're getting the paper we want to get rather than sort of needing to go out and buy paper.

In the collections area, we've been working on increasing the analytics involved looking at different ways to work on delinquency and different ways to work on losses.

As much as the numbers don't totally reflect any grand improvement in our collection effort, there are some of those trends involved that actually seem to be very strong, whether it's a year-over-year, month-over-month, we’re tracking off on a stat and a lot of those numbers really seem to indicate that maybe we've really gotten a handle on collections and at some point that should translate to more numbers you can see.

But overall we’re kind of pleased with the way that's going. ARD, the recoveries at auction, Jeff mentioned, I think, you know, they probably can still go down some. We seem to be flattening out in that 34%, 35% range and that would be nice. We’ll sort of prepare either way, but again it looks like its trending sort of flat over the last few quarters.

We do continue our share repurchase. We had a very large repurchase quarter. We repurchased 1,189,000 shares in the third quarter. Normally we purchase around 0.5 million, so that was a bit significant. We’ve almost purchased 6 million shares since the first quarter of ’15.

So that program continues to run and be effective in terms of trying to increase shareholder value and take those shares out of the market. Moving out of the industry, I think I mentioned I think a lot of folks out there sort of say, geez, the market is good, it’s not as competitive and we want to grow up. That's not the way we look at the market.

We think the market is very competitive. We think that with card sales down it puts more pressure on other companies to grow anyway. So one thing we saw they had a big maybe as conference down in Miami last month and there are some panels that sort of talked about the state in the industry and things like that.

And what was sort of nice is they sort of reinforced sort of the three areas I usually focus on when I talk about the state of the industry. One being the regulatory environment, there was some thought with the new administration regulatory environment might either get a whole lot better and certainly wouldn't get any worse.

We probably ended up where it's not going to get any worse, not a lot of tap in the regulatory world lately, which I think is actually fine as much as some people might have thought things would loosen up and get better.

I’m not just sure I really believe that, probably the better angle is that we now understand where the regulatory environment is, people don’t need to be afraid of government agencies coming in and kind of wiping out your business.

So that part seems good, if anything maybe they'll get better down the road, but it probably won't get any more punitive than it has been in the last few years. Secondarily, as car sales, as we know, the car sales are dropping off and won't be as strong in 2017 as 2016.

I think generally speaking, [indiscernible] well didn't buy cars coming out of recession and that sort of 2007, 2008, 2009, 2010 and then people started buying cars ’11, ’12, ’13, ’14, ’15 and then I think the manufacturers sort of tried to keep the needle moving into ’16 and then ‘17 where it will stop.

And so now you have too many cars, yet all that leasing coming off market. So you’re seeing a lot of that in the used car prices. The folks in Miami said that they thought that that would be a continuing trend through 2019. I certainly I was thinking it was at least through 2018. And so what you're really going to see is less cars out there to finance.

And so that makes things a lot more interesting, but certainly that was a second trend. And the third thing that was brought up which I also heavily agree with was the very lack of M&A activity in our industry. I think everyone thought that there would be a lot more M&A activities so far and there really hasn’t been hardly any.

But having said that I think most people including myself believe that will increase over the next year or two. So it's going to be an interesting time.

What you really have is you have a lot of people who got into this marketplace in 2012, 2013 and thought well we can do a startup, we're going to grow real fast and get real big, we’re going to public and make all this money and that's a lot like the first cycle back in the 90s when people didn't quite do the things they're supposed to do.

Didn't have the controls in place and so you've seen the delinquency in losses and lots of these companies really not do very well at all.

So the problem is once you get into a position we originated all this paper and it doesn't perform very well, you have a couple of choices, you can slow down and sort of take your [indiscernible] fix what you're doing and start again or you can help you fix it and grow real fast.

So in our current industry, I might lend towards the second part which is people think they fixed it, they're growing real fast and they’re growing - they're trying to grow real fast in a competitive environment because car sales are down, which puts more pressure across the board. And I say this because CPS isn't doing any of that.

We reached a point where we can sort of buy what we want to buy, we don't have any pressure to grow. Our portfolio is in relatively non-growth for almost three years. We've been kind of running flat for a while now.

What’s interesting is in 2007, 2008 after getting whacked around in that recession even though CPS is doing very, very well, I sort of said geez, if we could get to 50 million originations a month, we could probably run a very stable company and be very successful. But we instead grew a whole bunch and got up into the 100s for a while.

But now after doing that we are sitting in that 70 to 75 million a month range and in fact doing exactly what I said. We're running a very stable company or quite profitable. Our numbers all look good. The hard part is something we’ve never done before or generally speaking, an aggressive growth oriented move the ball forward kind of company.

But given the environment I just described and given where we stand as a company, it just doesn't seem like the right course to get out there and slug it out in an industry that's going to have problems going forward. We think doing what we're doing right and doing it for a while here is probably the best course.

Having said that we are very opportunistic, we think there will be opportunities in the future and sort of keeping some dry powder, doing the things we're doing the way we are, we could be in a really good spot going forward.

But it is hard to sort of stick your knitting where you think there is things to be done out there, but given what people say about the industry, the potential of M&A activity in the future, we sort of think this is the right course for us. And it's proved to be really good.

We've reached that sort of level of critical mass where things kind of take care of themselves in many different ways. We would love the stock price to go up and things like that. But people are still worried about the industry or maybe worried a little bit of regulatory and certainly now they're worried about car sales.

So we’re just going to sort of see how that plays, but we again like our spot. And the overall economy, it certainly seems like the economy is trending up. There's a chance that they ever pass that tax reform act or whatever that the economy could really jump.

If that happens we’ll be able to go with it as you probably get an increase in car sales and that would benefit everyone. But of course we would get to play in that game as well. So overall I think the prospects of the timing is pretty good in terms of that maybe turning a corner and helping us, we'll have to wait and see.

But generally speaking it all looks very positive. And again in terms of the overall economy, sort of that performance maybe as market is almost most important, our securitization outlet is hugely important to us the fact that it's operating so well today certainly bodes well for the immediate if not long-term future.

And I think that's pretty much all the comments I have. So we’ll open for questions..

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

The first one is, as Brad you talked about still tight competition, but yeah, on the same topic that you did have improving loan to values. Some of the industry data we've seen suggest in certain categories there, prices are improving, meaning loan yields. I still understand it's tight.

Is it softening up anywhere? Is it stabilized at a tight level and how would you kind of think the next two, three, four quarters look from a competitive perspective?.

I think, this is where we're hoping for the M&A activity. I think, we are certainly hearing rumors that people are struggling and some of the -- one of the things I've heard people said is a lot of money came in, in this industry in 2011, 2012. A lot of those folks have five year windows. So that window is kind of there.

So it’s going to be interesting to see what happens, but we don't see anything in the way of easing anywhere. People are still using credit quality as their tool to compete. People are still competing on price. Our coupon is down a little bit.

We're not seeing as much as like I said earlier, people are saying, we're growing, it’s a great environment, we're not buying it and flat out. So hopefully, we’re not playing, but I think this could be sort of that last gasp before people start giving up. And so, if that happens, all the better for us.

It's interesting, we don't necessarily need to buy someone to do well, people just going away helps a ton. So, and I’m not saying that to disparage the industry in any way. This is the natural way things seem to work, particular in our industry in a cyclical nature.

So, we’ll see, but I think for a few players, slow down go away, then that market and things will change.

So to answer your question, I would think that over the next three or four quarters, you're going to see some things change in terms of M&A that will open up the market and might ease some pressure on pricing and quality and that would be my bet I guess.

It's hard to really say that’s going to happen for sure, because like I said, I thought it might have happened 18 months ago and it didn't..

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

I could go out on a limb and say, it's sheer luck, but it's just too hard to tell right now. I think it is interesting that the last few quarters, it seems to have stabilized some. Whether that’s an influence because of the hurricanes know or what, I just don't know it, but I’d give you a 50-50.

They could drop three points next quarter easily if things change. So it's just too hard to tell right now. It's possible the hurricanes are influencing a little bit and without them, it would be coming down some more. So I will see.

Again, our sort of stated nature here is, anything over 30, sort of 30 was the worst it ever got, we’re sitting at 34, 35. There's room to move down and if it doesn’t, that's fine. But I wouldn't place any bets for it going up or staying here for a long time..

Okay.

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

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

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

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

Brad, maybe a follow-up to the question about the competitive environment over the next few quarters.

I'm wondering, trying to reconcile maybe on the one hand the tightening spreads in the ABS market and what that says about how freely capital is flowing into your industry versus the hope that maybe M&A activity will pick up, some of the more aggressive lenders will run into trouble.

As we think about the spreads, is there a goldilocks or a sweet spot in which your cost of funds is optimized, but at the same time, it's not an indicator that maybe there's really no shakeout inevitable here. What are your thoughts about just those tradeoffs because it really seems like the ABS markets are a double edged sword at this point..

It's an interesting question. I think historically, over 25 years, we might think our cost of funds should be closer to 5, rather than 3.5.

So if I were running or backing some of these other companies, I would certainly keep that fact foremost in my mind, thinking if I can’t survive at 5, then this 3.5 is an illusion and I should take the opportunity to do something different. But you're right. Certainly, what is it, high tide lifts all boats and certainly that will have some effect.

I don't know that a point or a point and a half or whatever it is, half a point is enough. The problem is if you were running one of these other guys and your numbers, there's certainly -- again, I’ll do this sort of hypothetically.

The thing you said in there and you really can't look at you numbers and say, hey, these collection numbers are coming around. We’ve got something.

There is new papers better than the old paper and there's a right trend going and let's put the pedal to the metal and grow real hard and because remember if you get a bigger portfolio, you cover up your past sins and so there's a lot of folks out there probably thinking real hard that's what they can do.

And so granted the ABS, flow cost ABS is going to help them and give them a little more margin for that. On the other hand, to the extent those numbers aren't turning around and not going the right way and you've got some hocus pocus to make it all work, then you’re looking at the wrong end of the barrel.

So, the ABS isn't going to save you by any means. We've heard some rumors where some companies sort of, like would slow down and fix it and then also now they’ve grown real fast.

And so, the problem is a lot of people know and a lot of people may be learning is if you’ve got, if you bought a lot of bad paper or a paper that hasn't really trended the way you wanted to and you slow down, it makes those problems look a whole lot worse.

And so to the extent, people are like, oh, we’ll slow down and we’ll fix it and then we’ll start going again and they slow down, and realize the numbers are going to be really bad, then they said let’s go anyway.

And then maybe some of that out there and then, maybe the ABS, the low cost of ABS is keeping a couple of guys in the game for a little bit, but the bottom line, if your portfolio isn't performing, like I said, our portfolio is probably off in terms of its performance by somewhere in that 15% range.

But we've heard people in the industry, in terms of their targeted loss numbers. Our targeted loss numbers are up 15% over the last few years. A lot of these companies targeted loss numbers are up 40%, 50%. You don't survive that.

And so that's why, a lot of folks, including myself, at the M&A activity over the last couple of years have been significant. But, I think there's people that are backing some of these companies that are stronger and they’re in for a little more long term. And so they’re putting the cash in. And that was a comment some folks down in Miami made as well.

And so, maybe, so it's almost more. If you are really going to make sort of the observation, it's probably that the money backing some of these companies is stronger and that's why they're hanging around much more so than the ABS having a low cost to funds.

And having said that, at some point, you really got to look in the mirror and go, this is not working the right way and then decide what to do next. And so, and again, you can almost see, you can see the growth numbers of companies, to the extent they’re growing up fast, the numbers are getting worse.

That is a real problem to look at, because if you've grown real fast, you can cover it up.

At some point, I think that's a slowdown in normalized and then those numbers pop up in a big way, whereas you look at CPS and we've done really close to the same kind of annual origination for three years or almost four years running and so -- and to be fair, as Jeff points out, our portfolio is level and getting older and so it's not helping us performance wise and even so our performance is okay.

So, those are kind of things. So I mentioned, we don't see the collection numbers perfectly in terms of some improvement, but the fact that we've slowed down and are almost running on a steady state, the portfolio is getting older. You really -- we’re not doing the sort of things like growing fast to help our performance and performance is just fine.

But that's sort of a good maybe measure to some of the other guys, because to the extent you’re growing up fast, you can cover it up. But again, you better be doing it right sooner than later..

I might also add David related to ABS market and the recent deals is, it’s been very receptive.

There's a lot of capital that's looking for the kind of yield to come out on these bonds and you think like a AAA bond or BB bond, it's kind of a commodity, but in reality, when the investors line up for these bonds, you’re also taking into consideration the issuer and the track record of the issuer and so we've been in business for 26 years.

These last two deals marked our 75th and our 76th structured asset backed Wall Street type of deal. And so, a component of our execution has to do with our track record and our stability and another player in the marketplace who maybe doesn't have that isn't necessarily going to get the exact same execution..

The last comment would be, we've been making money all along and I think I mentioned it at least a few quarters ago, we were shocked when some of you were talking about, how do you guys make a lot of money, people don't make any money and that surprised us a lot.

And to the extent you aren't really making any money, then obviously trying to grow to make that happen is very important and maybe ABS helps you there. But in the end, you need to make money or this game doesn’t play at all. So there's a lot going on out there. It will be interesting to see what happens in the next 12 to 18 months..

Got it. Maybe a follow-up on credit and it's more just the math surrounding the portfolio aging, since there's less of a denominator effect. Jeff, is there any way, given a stable, if you feel like, in general, it's stable credit performance, but it's sort of the 800 million to 900 million annual origination profile.

How should we be thinking about loss rates next year in that context, just as that average age of the portfolio expands beyond 20 months and you get a little less? Brad said there's less ability to cover it up through growth.

Just trying to get a sense for how it trends towards ultimately the cumulative loss rate when the portfolio kind of stays flattish?.

Yeah. That's a good question. At these origination levels, our portfolio is going to continue to hover at about the same $2.3 billion and so the portfolio seems to be seasoning at about a month with every consecutive quarter.

And so in terms of the annualized loss rates in that scenario, we might expect those rates to continue to tick up a little bit until the weighted average age of the portfolio gets to be somewhere between 24 and 30 months. And then, we'd expect I think stability or a relative flattening of the annualized loss rates..

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

Just a follow-up on that last point. Jeff, you talked a little bit about loss rates migrating up a little bit at the current origination level, but Brad earlier, you talked about the origination floor being somewhere around 50 million per month, which obviously would work out to a reduction, relative to where you are now as far as originations go.

How does that look if you guys kind of compare your last comments about the loss rates migrating up as the portfolio age is up to a certain age, at 70ish million dollars, 70ish million worth of dollars originations per month versus whether it's at 50 million, how do all those metrics look if we go back to that baseline scenario that you guys laid out earlier..

Yeah. I think the first part is, I said in 2007, we would do 50 million, so we won't do that. I think our baseline is, yeah, that’s fine. Our baseline is probably that, I was shocked that we dropped any lower than we are today. I mean, we’re sitting around just doing what we’re doing.

So it’s – 70 to 75 is probably the baseline and somewhere right around there, the portfolio is going to stay the same size. I think, over time, we probably, like I said, I think by the time, the portfolio starts to get all down to where that number is insufficient to keep it flat, we would probably be growing again. So that's one part of it.

So on the one hand, our portfolio should stay the same size and again, some of the slings and arrows of having our numbers really prove out, which is fine because they prove out, that makes us look good.

Our really task will be to continue the improvement in collections so that whereas Jeff's point earlier was you might see an uptick and would be to have it stay flat. And so in other words, our collections will improve to the level where we don't see a degradation in the loss number a little bit.

And so, we'll see, but that’s a bet I'd be kind of interested in taking that. Our improvement in collections will offset the aging of the portfolio. I'm truly saying that's where I’ve got my head.

But it's not a bad thing to think about, because in fact, that's what we're trying to do, as much as our collections are improving, you don't quite see the numbers in that, but again, it's because of all these different factors and so that's what we'll continue to try and do.

So between all that, like I said, it's almost going to be a slightly boring world for us, because we're going to continue to work on collections and if we do everything right, we're going to stay looking pretty much the same, which is really boring.

But on the other hand, it's probably a good kind of boring and things started to change in the economy or the industry, we should be able to do pretty well real quickly with those changes. But that’s a good way to look at what our sort of our ammo is going to be for the next 6, 12 months..

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

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

There certainly are. I mean we look at the numbers and the real trick is we're probably almost across the board a little over staffed here and there, because we weren't exactly thinking -- we were thinking the M&A thing would go a little quicker.

And so we wanted to be ready and so we're sitting ready and so, I think given everything we just said and we may look at that and I mean to be fair, we're always looking at ways to save some money. We're certainly going to monitor sort of the benefit of being ready to grow a lot.

I mean, we could probably originate $100 million a month, no problem tomorrow, and we're doing 75. We could probably originate 125 million a month tomorrow and we probably could service the next year 200 to 500 million tomorrow, not quite, but within 90 to 120 days. So we have a lot of stuff ready to go. And so, yeah, you're right.

At some point, we might have to look at that a little closer, but probably what we do instead is you got to remember as the portfolio continues to move, if it grows and you need more people any way. So -- but since we’re not growing, we’ll sort of look at that a little bit, but there's probably some money that’s saved along the way.

What I'd rather do is find something good to happen so we don't need to worry about it..

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

Just back on the credit question, so you mentioned you expect losses to kind of keep ticking up as the portfolio continues to season. I’m just kind of wondering how to dovetail that with comments around provision expenses leveling off here.

How do we think about reserves currently versus maybe where they're headed? And then a follow-up on yields, just kind of curious how to think about that line moving forward. Thank you..

Well, I think the way you look at sort of the annualized loss rate compared to provision expense, one of the things we do is we build the provision or excuse me, we build the allowance for a new batch of receivables, so the contracts that I buy this month have a very low allowance, so should with those contracts, because they’re brand new contracts and they not even delinquent, right.

So I build an allowance for those receivables over a 12-month period, so that I have what I feel is a fully funded allowance for those receivables once they get to be 12 months in age.

And so when we're in a situation where we're growing rapidly or the amount of new originations is a significant number compared to the existing portfolio, then, you always have this kind of this catch up sort of taking place that influences the amount of provision expense, makes it in some cases, makes things relatively low compared to the size of portfolio, but as the portfolio seasons and then if you have a circumstance we have now where the amount of new receivables is relatively small compared to the existing receivables balance, then the provision expenses will tend to look lower compared to the portfolio, the allowance will tend to grow a little bit compared to the portfolio and all these could be happening at the same time that the annualized loss rates are inching up a little bit.

So it kind of all goes together although it’s maybe not completely intuitive..

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

Yeah. I mean, we wouldn't characterize it really anything in the excess necessarily.

I mean, we have a methodology that we've used for some time, we're pretty comfortable with and we literally monitor each portfolio as a monthly static pool and as that pool seasons, we can compare that pool’s relative -- cumulative losses that are point in time compared to previous pools and we make adjustments from time to time as necessary.

So, we have these little kind of fluctuations from quarter-to-quarter and they're not necessarily reflective of any strategy change, certainly not a strategy change, they are influenced from quarter to quarter by some of the calendar seasonality that takes place in the portfolio. And as we mentioned, they are influenced somewhat in these levels.

We’ll continue to be influenced somewhat by the ongoing seasoning in the portfolio..

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

We would like to have the yield go back up a little bit. I think we do have a little bit of a mix. We’ve done more new versus used and so that influences that somewhat. And so the trade-off is the credit metrics are way better than that. So as much as -- we’re kind of okay with what we have.

I'd certainly like to figure out a way to improve that a little bit. We'd like to keep that number above 19 and it dropped below for the first time in a while this quarter. Again, we're sort of, it's not like we're solving with that interest rate, we’re solving for everything else and that just pops out.

But, it's one of those things we’ll certainly look at and see what we can do to maybe adjust.

But again, our trade-off there is probably better and while I was sitting, I actually thought I would comment on one of the earlier questions, which is much of the ABS is down a little bit, sort of if you look at things from a very objective point of view, as much as you might be getting some benefit from the low cost ABS today or lately, the low pricing option recoveries probably offsets that.

So it's not like you're really going to benefit dramatically from lower ABS, which is suffering from the low options. But back to your interest question, we're looking at it..

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

Sir?.

Thank you, again for everybody coming in and attending the call. Again, I probably don't need to say it again. We sort of like where we sit. We’re hoping for excitement in the future and it's an interesting time in the industry as well. So -- but there's all that money that came in, in 2012, 2011.

Those five year windows are hopefully going to close and some decisions will get made and some things will happen and we’ll be in a good spot to take advantage. So with that, we look forward to talking to you guys next quarter..

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

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