Consumer Portfolio Services' (CPSS) CEO Charles Bradley on Q3 2016 Results - Earnings Call Transcript

| About: Consumer Portfolio (CPSS)

Consumer Portfolio Services, Inc. (NASDAQ:CPSS)

Q3 2016 Earnings Conference Call

October 18, 2016 13:00 P.M. ET


Charles E. Bradley – Chairman, President, and CEO

Jeffrey P. Fritz – EVP and CFO


David Scharf – JMP Securities

Kyle Joseph – Jefferies

John Rowan - Janney Montgomery Scott

Michael Tarkan - Compass Point


Good day everyone and welcome to the Consumer Portfolio Services 2016 Third Quarter Earnings Conference Call. Today’s call is being recorded. Before we begin, management has asked me to inform you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements are subject to certain risks that could cause actual results to differ materially from those projected. I refer you to the Company’s SEC filings for 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 will now turn the call over to Mr. Bradley.

Charles E. Bradley

Thank you and welcome to our third quarter conference call. I think looking at the results, they may not be the greatest numbers in the world, the numbers we can be happy with and given the circumstances in our industry it’s really not a bad thing. I think in a strange way over the last year or so CPS has become somewhat of a spectator in our own industry and that’s a good thing or a bad thing. The good part is everyone seems to go what is going on in the industry. No one seems to be able to care what CPS is doing. Everybody is happy with what CPS is doing.

We are doing well, we’re making money, our numbers look pretty good, in some ways as much as we’re not wonderfully happy with our total overall performance we’ve done pretty well. Ironically compared to lots of people in the industry we’ve done great. And so that puts us in an odd spot and that everyone is waiting to see what everyone else is going to do. How is industry going to shakeout, how are the big players are going to change, what are the small people going to do, the small players going to do. And so we sit in the middle, we are doing well, we’re making money, our results are pretty good, and so we’re going to have to wait and see.

I think in terms of some of the highlights if you can call them that, our originations shrank this quarter. We made a decision to tight some credit, maybe raise a little pricing. The sort of the rumor was everyone in the industry was doing that. It doesn’t seem like everyone did but that sort of -- well playing the sort of the numbers we got through in a while. Collections probably the highlight or low light there is that our DQ has gone up a bit. The good news is our repos aren't and our losses aren't. So they’re actually going the other way. And I think we mentioned this in many calls at this point, we’re sort of having to live with this higher upfront DQ and as long as it doesn’t affect the backend results it could be sort of the new norm that we will see but again a high light or low light on is only point of view.

Some easier highlights, we renewed one of our credit lines with Citibank. The good news by our warehouse lines is that each time we renew them we are getting slightly better terms so that’s an improvement along the way and I think those terms and the things we have in those line give us -- keep us well prepared for any eventual recession or downturn in the market which is the best and really important thing to keep rolling along and improving as we go.

And last we did a third quarter securitization, we actually just finished our fourth but about fourth quarter securitization we will talk about that later. Third quarter one went well, it sort of followed the trend of sort of increasing pricing. We will talk about the pricing little more in a minute. But overall we got the securitizations done so that’s an important part, so that’s good. I am going to let Jeff run through the financials and then we’ll go into specifics in some of these areas.

Jeffrey P. Fritz

Thanks Brad, welcome everybody. We will begin with the revenues. Revenues for our third quarter were $108.5 million, that is a 3% increase over the June quarter this year and a 15% increase over the third quarter last year. For the year-to-date the nine months ended just now, $314.1 million that’s a 17% increase over the first nine months of 2015. Now revenues of course are driven by our portfolio growth and even with the sort of the lower volumes that Brad alluded to in the third quarter, our consolidated portfolio did increase 2% for the consecutive quarter and 19% compared to a year ago.

For the expenses $96.1 million for the quarter, that’s a 4% increase over the June quarter and 23% increase over the third quarter of 2015. For the nine months 277.1 million and that’s a 24% increase over the nine months ended September 2015. For the most part the expense growth was pretty consistent with the portfolio growth. The big expense item is of course interest expense and provisions for loan losses which we’ll talk about in a minute. I think we have done a really good job controlling our core operating expenses and which is why we’ll see that metric continues to be pretty solid improvement as we have been progressing here.

Moving on to the loss provision 46.3 million for the quarter, that’s a 4% increase over the June quarter this year and a 24% increase compared to the 37.4 million in the third quarter of 2015. For the nine months provision to cut our losses 134.9 million, a 27% increase over the nine months in the 2015.

The pretax earnings for the quarter $12.5 million, that’s a 2% increase over the $12.3 million in the second quarter this year and its down 20% compared to $15.6 million in the third quarter of last year. Year-to-date pretax earnings $37 million and that’s a 19% decrease compared to $45.6 million for the nine months of 2015. Net income, $7.3 million, that is essentially flat with our second quarter of this year and it is down 17% compared to $8.8 million last year in the third quarter and for the nine months $21.8 million down 15% compared to the $25.7 million for the first nine months of 2015.

Our earnings per share of $0.26 for the quarter that is up 2 pennies, excuse me up a penny from $0.25 in the second quarter this year and down compared to $0.28 in the third quarter of last year. For the full year so far nine months $0.75 down 7% compared to last year. We are continuing our program of buying back our stock in the marketplace and we have those numbers, we will probably talk about those a little bit later.

Moving on to the balance sheet, not much difference in the balance sheet from the sequential quarters, $11.5 million of cash, free cash in the balance sheet and about $116 million in restricted cash. These numbers are pretty close to the June quarter. The only comparison, I think I pointed this out last quarter too, if you are looking at the year ago balance sheet you see an extra $100 million or so of restricted cash compared to what we have now and you will recall that we changed the timing of our securitizations so that we don’t have this big pre-funding deposited restricted cash when we get to the end of the quarter.

The finance receivables on the balance sheet $2.160 [ph] billion, that is 2% increase over the June quarter and an 18% increase compared to one year ago. Looking at the debt on the balance sheet, warehouse line usage 81.7 million at the end of the quarter that is down a little bit from the second quarter because the volumes were down. Obviously as we talked about the other components of the debt securitization, that continues to increase as we do our quarterly securitizations. The residual interest financing continues to amortize, that facility although it matures further far down the road, I think it has got a hard maturity date in 2018. The two deals that are supporting that residual interest financing will in all likelihood be cleaned up early in 2017 and the bad debt will be retired at that point if not sooner.

Looking now to some of the performance metrics, the net interest margin was $87.6 million for the quarter and it is up 3% compared to the June quarter and up 11% compared to the third quarter of last year. The year-to-date NIM $255.7 million, that is a 13% increase compared to the first nine months of last year. So, I think Brad is going to talk more about this but the ABS cost over the last year or so have generally trended up, so our ABS interest expense for the quarter was 3.4% compared to 2.8% for the first -- for the third quarter of 2015. However, in our last two securitizations we reversed that trend somewhat.

Moving on to risk adjusted NIM, for the quarter $41.4 million, 1% increase over the second quarter and 1% decrease compared to the third quarter of last year. Our core operating expenses as I mentioned earlier we have done a good job of controlling these expenses 28.9 million, a 2% increase compared to the second quarter and 11% increase compared to the third quarter of last year. As a percentage there is a cooperating expenses 5.1% of the managed portfolio and that is a decrease compared to 5.5% in the third quarter of last year.

Return on managed assets 2.2% for the quarter, that is flat with the second quarter of this year and down a little bit compared to 3.3% a year ago. Most of that metric is being impacted by the higher provisions for credit losses and somewhat higher interest expenses for those periods. The delinquency as Brad mentioned is up a little bit this quarter, 10.46% for all buckets including repo inventory that is up from 8.6% in the second quarter and up from 8.8% a year ago. Annualized losses for the quarter 6.69% down just a little from 6.94% in the second quarter and up a little bit compared to 6.27% a year ago.

At the auctions, saw a little bit more deterioration at the auctions, 36.1% on average recovery of our balances, of our loan balances at the auctions and that is down a little bit from 38.9% in the second quarter and down significantly from 40% a year ago. So overall some of these trends are higher, but not completely out of line with our expectations. The third quarter the beginning sort of the tougher time of the year for servicing performance and so we often see an uptick in delinquencies in the third and fourth quarters.

Just a quick comment on our third quarter securitization which we concluded in July earlier in the quarter, that was a $325 million transaction. The same structure as the previous transaction with the two AAA ratings at the top of the stack, we got very good reception in the marketplace for that deal. We had 22 unique investors, 6 new investors, the top of the stack class A and B bonds were oversubscribed by 2.9 and 3.8 times respectively. And so we achieved a really good execution in that deal with an all in blended cost of funds, I think it was 4.49%. And so with that I’ll turn it back over to Brad.

Charles E. Bradley

Thanks Jeff. I will try and walk you through some of the areas focusing first on marketing. We made an effort to grow marketing, currently we now had 87 marketing reps versus I think a peak of about 114. Given that we’ve made a conscious decision to sort of slowdown a little bit in the market. We focused on sort of building the reps we have rather than continue to grow. That doesn’t mean we won’t grow them but we’re going to grow them slower and trying to just find qualified individuals we can get up to speed a little quicker.

The thing to take away from that is some ways you rather have 87 well seasoned reps who are really doing a great job than 114 we have to keep sort of hiring new wins and getting rid of old one or getting rid of the weaker ones. So as much as the numbers are slightly different I think the results are probably just as good if not better. As we sort of move into next year we’ll probably start hiring again. It should -- with a strong base like that it should be rather easy for us to expand when we see the opportunity. As you probably can guess so far from the call that we don’t really see the opportunity for growth today.

Looking at originations we did make a decision a quarter or so ago to sort of tighten credit. Ironically so the rumor in the industry was everyone was going to slowdown and tighten credit and sort of improve their portfolio of performance. And as I mentioned at the top of the call, that probably is a very good idea for a lot of folks in the industry. So following along we thought well we might as well do it too because we can make a little more money by raising the price and probably a little better results for taking the credit. Sort of a funny thing happened on the way of that project which was -- doesn’t seem like anyone else did it. We did in fact tighten our credit, we sort of looked at some of the LTVs and some of the programs, we looked at some of how we’re buying in independence, we fine tuned some of the credit criteria and I think overall what we are looking to do is sort of cutback about 10% on our originations volumes. And in the end we cut back or we ended up with about a 20% cutback which sort of surprised us a little bit.

There could be a couple of things as I mentioned, I think a lot of folks in the industry are still being rather aggressive, they don’t appear from what we see to cut prices might sort of improved credit lines. And also I think there is a hint of a slowing economy in there. I have always said our customers are very close to the front edge of that project and so to the extent the economy is in fact sort of sputtering yet again or anything like that, our customers are the first to feel it. So maybe they are not buying quite as many cars now, that car buying market has been very robust for the last couple of years, and it's possible we’ll see it slowdown there but for the net, net as we drop to about 20% versus 10% which was our target.

Again since everything else seems to be going quite well we’re not overly worried with slowing down a little bit in this timeframe. We did have a chance to increase our fees a bit but that always helps. Our target APRs is about 19.5 and we’re sitting right on that target. We had dropped to almost down to 19 flat so that’s a good thing. Our fees are target there, it is about 25 basis points to maybe 50 basis points. Again we dropped down to almost zero fees. So again we’ve gathered some of our little bit of margin there and we’ve improved credit which you won't see for a while but it will be there eventually. As I said that’s probably more in contrast to what we’re seeing in the industry where we haven't seen much change.

Moving on to questions yes, the DQ went up a bit. It is almost as important as the repos aren't going up and the losses aren't going up. And in fact coming down a little bit, the portfolio is aging as we go, that accounts a little bit of it. As Jeff pointed out it’s a tougher quarter, we’re going to a little bit of lower option return. So this much of little things affecting it. At some level I think that higher delinquencies going to be the new normal and we have mentioned that many times. So I think we are just going to have to live with it and as long as it doesn’t flow to the back it really doesn’t matter.

I think our texting initiatives and some of the other things we are doing might eventually effect that and I think we have done a lot of different things in question to sort of attack this problem in different angles and hope we will see some results. But the easy answer is, since this is where it sits we are probably fine with that. They extended this at the bottom and we improved from there that is great. So collections will always be an ongoing project and somewhat of a struggle to get the best possible results but again if you check our results against others they look pretty darn good.

Moving on to the industry, as I mentioned it doesn’t seem like there is a lot of easing. The competition is still out there, it doesn’t look like lot of people are fighting so we have a -- it is tough environment where you have a lot of small companies that sort of entered the market to take advantage of it a few years back. They are all struggling and even more importantly some of the very large companies in our industry are struggling. And so between that we sort of sit in the middle, and as I said again at the beginning we are not being ignored but somewhat everyone wants to know what is going to happen with the small guys that just got into the industry. Are they going to survive, are they going to go out, someone is going to buy them. But they also want to know what is going to happen to the good guys. Some of these guys were supposed to go public and haven’t. Some guys have gone public and everybody wants to know what is going to happen there. So they sort of bypass us because we are already public, everything is going fine, and we actually make more money than lots of other folks. So, again we are sort of like lots of people waiting to see what happens in our industry.

Maybe as I said, it is probably not a bad thing if we are sitting on the side lines doing pretty darn well and other people are jumping around and doing other things. It is not a bad spot to be. It is certainly different than our normal operating strategies of growing whenever we can and growing aggressively and taking advantage of all the markets. Today we are not and this is probably the first time in 25 year history of the company where we are actually in a real good firm spot to sort of wait and see how the rest of it shapes up. So what is interesting and new it is sort of not a bad place to be.

The good news is the securitization market continues to roll on. We did our third quarter securitization as Jeff mentioned. What is a little bit interesting and I think most people know the pricing of our cost of fund and securitizations has been at a very significant upward trend giving up almost 200 basis points over the last three years. And I think it allows the market to achieve, we want to be paid for the potential risk in the industry which is fair enough. But ironically in the last two quarters we have actually seen that trend certainly peak and maybe start to come down. And so as that trend continues that will be a very significant development in terms of our cost of funds if we can get back some of those to 200 basis points over time.

So, that is certainly very good highlight in terms of where we sit today. We continue on our stock repurchase. We brought 421,000 shares this quarter and it is down a little from the 850,000 we bought the previous quarter. But we have now bought over 3 million shares, so it is not -- as many as some people think we should buy but we are definitely taking a piece out of it each time and we will continue to buy it as often as we can, there is lot of rules but we will buy this opportunistically as possible.

And I think sort of the good news is our book value as of today is now $7.54 a share that is versus $6 a year ago, give or take. I mean as much as we would love to see the stock price go up, I mean it is not such a bad second price that our book value continues to go up. When the economy clears up whilst we get into the overall which is I looked at the overall economy now in sort of three pieces. Now everybody is still wondering about the regulatory environment in our industry and I think after the election at least we will find some stabilization in the regulatory environment. It certainly seems to have eased quite a bit over all the last six to nine months. Well I will just see what happens next year but I think when people see that the regulatory environment is stable and isn’t going to be subject to a lot of change that will give a lot of people confidence in our industry or about our industry.

Secondarily there is always a threat of recession. It would be very nice to have really quick recession just to get that off the table so people would stop worry about having those severe recession. I think recession will show up, I don’t know if it is tomorrow but again we are very well prepared for it. So that is a good thing, we wanted to get it done and over with so people stopped worrying about buying at the end of the cycle versus the beginning. And I think to the extent we can get through a few of these pieces and CPSS is certainly doing rather well at the beginning of our cycles, you could see lots of improvement in the stock.

And like I said the third part is what is going to happen in the industry. We need some sort of result in what is going to happen with big guys, what is going to happen to the small guys. Personally in our experience of 25 years, I think our industry is well suited to pick up the new small guys. I don’t think there will be a big bunch of crashes and I think we -- the industry itself would absorb anybody who has any problem whatsoever. But we just need all this to happen and then I think you get some closure on those two areas, CPSS was well positioned to take advantage of the market both in terms of our size, in terms of our growth potential, and certainly you don’t make lots of money in our stock price. So it’s a painful thing for everyone here, that is the way but nonetheless we’re in a good spot. With that I’ll open it up for questions.

Question-and-Answer Session


[Operator Instructions]. Our first question comes from David Scharf of JMP Securities. Your question please.

David Scharf

Hi, good morning. Brad some interesting comments about how you feel like sometime is the outside looking unit is observing your own industry and what some other competitors are doing. I am wondering on that theme of sort of taking a step back as you think about the volumes this quarter and going forward is it entirely due to just some of the tightened underwriting and what is still very competitive lending terms out there or do you have any sense for just how much the consumer might be slowing down. I mean obviously we see new vehicles stars showing signs of topping off. I’m just trying to get a sense for whether which should view your outcome on volumes over the next few quarters is being entirely a competitive factor or do you think the consumer is losing a little gas here?

Charles E. Bradley

You know it is actually both as I mentioned. We thought we were going tide in an increased price a little bit, maybe give up 10% of our margins or 10% of our growth -- not growth, of our production and we ended giving up about 20%. So the question is where is the other 10% going and so it is very hard to -- I am certainly all we are going to do is to guess. But sort of the safe bet is to say its 50% because of competitiveness in the marketplace and 50% of the consumer.

Personally I may tend to think it is more consumer. You know it is funny because it is just sort of getting that feeling that things could slowdown quite a bit and it is more the consumer. Let me say that I get almost nothing in terms of empirical evidence to support it but nonetheless it just seems a little bit likely the consumers are in fact getting little tighter, slowing down a little bit. It will be very interesting to see what the retail sales are for the fourth quarter. If they have a lousy Christmas it is going to get real interesting next year.

But having said all that I would imagine things, probably going to guess things trend along probably about where they are for us the rest of the year. Maybe they go down a little bit like they normally do but it wouldn’t surprise me at all if all or something pickup again. Well you know they will in the beginning of the year because you have a tax refund basis, so whatever we’re doing as we roll into January will go up. Whether it is going to go up because it is fun because the market is great or because of competitiveness, it is hard to say. I think we’ll just have to see but having said that we sort of like where we sit in terms of the production.

David Scharf

Got it, got it, subsequent to your changes to some of the fees, it looks like you raised the fee a little bit to dealers at 25 bps, 50 bps. Have you seen any other major players follow suit, I know you commented that they didn't at the time, but just in recent weeks or last month, any sense that the rest of the industry is starting to move in your direction?

Charles E. Bradley

You know it's again hard to tell. The way we can tell is what the margin people say in the market. To the extent they say oh, so and so is not buying at all. They’ve really pulled back and then you know to the extent they say so and so hasn’t changed a bit you might think nothing has changed. We’re getting more of the latter than the former. We are not hearing that people are calling back. We’re not hearing that people have tightened or increased pricing.

I mean at some level it may have done at some and probably they have, it’s just not a significant amount for us to actually tell in the marketplace. I mean we did it too, to an extent we all did it exactly the same and fine it going to be hard to tell. But certainly the way we hear things we haven't heard too much chatter that the market is getting easier right now.

Now part of that though if you think about to extend the business or the dealerships drop down and the consumers aren't quite showing up as often then you’re actually, the competitive nature is going to look the same because you are fighting for fewer and fewer customers. And so that could be very well the answer as everybody did in fact tighten a little and raise price a little but the markets is a little bit bare so people are pushing hard and you are not going to be able to see the pricing differentials.

David Scharf

Got it, got it, just a couple quick ones as follows. Switching to recoveries, as we think about loss rate and obviously the impact that your recovery rate has on it, I seem to recall that after the big drop in used car pricing a year ago, it seemed like the recovery rate was expected to sort of settle in and stabilize around that 40% level. It looks like there was another drop this quarter in terms of what you are getting at auction. At this point, do you feel like 36%, based on all the supply trends and forward indicators, is a trough? Or should we be expecting that to drop lower?

Charles E. Bradley

You know I am going to vote trough. It is not too much reason for it to go lower. Now granted to the extent if everything slows down so more it could but we’re getting close to -- we are in a historical low. We are at 36 for the quarter down almost three points from the previous quarter and a point more from the quarter before that. I mean something in the low 30s is sort of the basements or home forever. So if you’re betting for instance, you need to take this is a trough rather than stay lower because too much lower its going to get to the historical bottom for the industry, so or at least for us. So the easy answer is yes, I will say trough but no home to go to.

David Scharf

Got it and then lastly looking out to next year I can't recall maybe in the past cycle how low your efficiency ratio or OPEX per balance is, how far below 5% it got but should we be thinking about that trending below 5% by next year I mean it sounds like you are certainly holding the line in terms of headcount marketing reps?

Charles E. Bradley

We would hope so. I mean at some point we’re going to start sort of storing up a little over capacity in that. We still want to do 120 million, 130 million a month so I think the business itself is efficient enough and certainly the way we run it is quite efficient. So now I think that trend should least fall the same. We start growing it will do very well.

David Scharf

Got it, okay I’ll get back in queue, thank you.


Thank you. Our next question comes from the line of Carl Joseph of Jeffries. Your line is open.

Kyle Joseph

Hey, good morning guys, thanks for taking my questions. Just to get back into originations that Dave hit on earlier, just wondering if you can give us any color on the terms on the new deals and what you're seeing. I know you talked about fees a little bit but are there are changes to LTVs or the terms of the deal, sorry, meaning like the duration of the loans?

Jeffrey P. Fritz

Let's see we mentioned that the APR is about the same as last quarter. The fees are up a little bit, LTVs are up just a little bit. We had a slight trend towards our upper tier programs Kyle during the quarter and so that also coincided with a slight increase in the extended term, the 72 month contracts. So I mean that mix, that program mix will ebb and flow throughout the course of the year but that was one notice this quarter, slight trend of the upper tier.

Kyle Joseph

Alright, that's helpful, thanks. And then just given the level of new originations -- you guys have been doing this a lot longer than I have. Just wanted to know kind of when you anticipate that sort of impacting credit performance going forward?

Jeffrey P. Fritz

We generally say a year to 18 months is the window. So to extend let's just broadly say over the last six months we’ve tightened credit and we would want to see that come out a year from now so you might start to see it.

Kyle Joseph

Okay. And then I know your securitization deal as you seen got execution there recently so from a cost of funds perspective should we anticipate that sort of topping out as we go forward and being relatively flat or do you I am not asking you to predict where securitization pricing is done but just in the near term at least should we see some stabilization there?

Jeffrey P. Fritz

Well, you know it has been sort of a funny ride because it was so good before then all of a sudden out of nowhere went up quite a bit and now it seems to have leveled so I think the safe bet is to say its leveled. If you want to see it may be come down but the problem is at the first hint of any kind of problem it is going to go back up. So I think the safe bet is to keep it level and then if it goes down that’s good. I don’t know that it would go up too much higher.

Kyle Joseph

Got it and then and you talked about your expectations for volumes remaining around this level or a little lower in the next quarter, does that change your appetite for share repurchases at all?

Jeffrey P. Fritz

No we’re going to buy the shares as often and as much as we can.

Kyle Joseph

Alright, great, thanks a lot for answering my questions.

Unidentified Company Representative:

Thank you. Thanks Kyle.


Thank you, our next question comes from John Rowan of Janney. Your question please.

John Rowan

Good afternoon guys.

Charles E. Bradley

Good afternoon Hi Joe.

John Rowan

One question. Charles, to go back to your comment earlier about the industry having seen kind of an all-time low in recoveries in the low 30% range, maybe just give us a little bit of qualitative information around that. Is that a good foundation to use just when you juxtapose that versus the current environment. Were loan-to-value rates the same? Were durations the same as they are now? Obviously, all those affect how much you lose at auction. So I just wanted to understand kind of historically if we could actually even go lower than that if we are in a more aggressive lending environment. Not necessarily specific to CPSS but the industry as a whole, given where competition has pushed loan terms.?

Charles E. Bradley

That’s an excellent question. You know we’re happy about because I think probably you are going to pick one factor to watch in terms of auction value of LTV, loan to value. If that LTV is going up amongst our friendly competitors yes, if that’s what they are doing just sort of move the needle or whatever it takes and I am not saying they are and I don’t know. I am going to tell you what we are doing which I will in a sec. You have a chance that you got more cars, you are upside down in the car more and more and then you have extended term, you have higher LTVs. Yes, you could build a bigger problem in terms of the auction values. Its CPS, I am just looking for the last three years our LTV hasn’t gone outside of 100 basis points. So we are pretty much LTV conscious all the time and so our LTV is probably well within a 2 point range for the last 5 or 10 years so that’s pretty good for us.

So we’re not overly worried about our changes in the auctions, but you are right to the extent people are looking for ways to push the envelope in terms of getting loans and probably even if you ask the rating agencies they would say that extended term higher miles in LTV are the three factors that people been pushing as well. The two factors mostly we ask at all the time are extended term and higher miles. And so to the extent those are the two most operating factors in terms of what you are buying or financing. That LTV generally speaking is going to sneak up and so that’s in fact what everybody is doing. Yes, you could have a bigger problem at the auction.

Again I sort of say that in a good way to see business and do that. But it’s an interesting question I don’t know exactly what the industry is doing but if they are yes you see it.

John Rowan

Okay, thanks.

Charles E. Bradley

Thank you.


[Operator Instructions]. Our next question comes from the line of Michael Tarkan of Compass Point, your question please.

Michael Tarkan

Thanks for taking my question. Just a little more granular on the origination volume, so you talked about $120 million, $130 million a month as a target. Obviously, we are tracking below that. Any sense as to when we might get back there or is this just more of a wait-and-see approach and the third-quarter level is just a better run rate for us to think about going forward?

Charles E. Bradley

I think the third quarter level is better run rate for the rest of the year certainly and you even take historically you know October is supposed to be good and then November and December are going to drop. And so we’re still in October and it seems okay. So I mean conservatively speaking I wouldn’t be surprised that we hung on to our levels for the rest of the year just because we gave up a little bit more than we thought we did before. And again it is a little bit of a guess but probably fair.

Next year I mean it is so hard to guess what the first six months and next three will do, the first six months of any new year. Like I said, the environment seems all positive, the new Presidents make all sort of good noises, people go running out and buy boatloads of cars and then we could go up a lot. We are going to go up some no matter what because we can get faster trends in the season which seems to have reassured itself in the last year or so. So, that is an easy way to look at it sort of slow through the rest of the year, flat to the rest of the year. We are going to go up some in the first quarter, second quarter if you have glad tidings or whatever that maybe it goes further. But the good news is we are sitting around waiting to take advantage of it. So if it is there we will go but we can't -- we are not going to push if it is not there.

Michael Tarkan

Understood, thanks. And then just as a follow-up, do you guys disclose what your average long-terms are on the portfolio or what the average age of the cars are?

Jeffrey P. Fritz

I don’t think they put anything in the 10-Q filings as regarding like the age of the units. But if there is a lot of that disclosure in the asset back transactions obviously but we could talk offline and I could give you some of that information or we could always expand some of that stuff in the quarterly filings too.

Michael Tarkan

That will be very helpful, thank you.

Jeffrey P. Fritz



Thank you, as there are no further questions in queue I would like to turn the call back over to Mr. Charles Bradley for any additional or closing remarks. Sir?

Charles E. Bradley

Thank you. So, I think given the discussion every sort of flavor for how third quarter went. Like I said it is little different than our normal hopefully aggressive, hard pushing, do the best we can kind of approach. It is a little bit ironic I went back to in 2007 or after we got out in 2007, we are sitting around in 2008, 2009 trying to make all of them work again. One of the things I said was we can get to 50 million a month, we could sit there forever and make a lot of money. And of course then we did get there and then we went to 100 then we kept going. And so, now we are back in the 70 to 80 kind of range, the 70s and 80s and as much as I sort of didn’t listen to myself in the 50s, I am listening to myself a little bit now. I mean this is a good place to be where we are originating pretty good volumes, portfolio is growing. You know awful lot of things are right, we can't control our industry and the environment and so I think the best approach strategically is to wait and see. Sounds strange for us too but it is a very nice spot to fit in given lot of the things going on. So, thanks for attending, we will talk to you in the next quarter.


This does conclude today's teleconference. A replay will be available beginning two hours from now until October 25, 2016 11:59 PM by dialing 855-859-2056 or 404-537-3406 with conference identification number 98489886. A broadcast of the conference call will also be available live and for 90 days after the call via the company's website at Please disconnect your lines at this time and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!