Consumer Portfolio Services' (CPSS) CEO Charles Bradley on Q1 2017 Results - Earnings Call Transcript

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Consumer Portfolio Services, Inc. (NASDAQ:CPSS) Q1 2017 Earnings Conference Call April 20, 2017 1:00 PM ET


Charles Bradley - Chief Executive Officer

Jeff Fritz - Chief Financial Officer


David Scharf - JMP Securities

Kyle Joseph - Jefferies


Good day everyone and welcome to the Consumer Portfolio Services 2017 First Quarter Operating Results Conference Call. Today’s call is being recorded.

Before we begin, management has asked me to inform you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements are subject to certain risks that could cause actual results to differ materially from those projected. I refer you to the Company’s SEC filings for further clarification.

The company assumes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or otherwise. With us here now is Mr. Charles Bradley, Chief Executive Officer, and Mr. Jeff Fritz, Chief Financial Officer.

I will now turn the call over to Mr. Bradley.

Charles Bradley

Thank you. And welcome everyone to our first quarter conference call for CPS. I think overall we’re pleased, not excited about how the quarter went. I think generally speaking, for a long, long time everybody is very used to having the first quarter of the year be a very big quarter, tax returns and such and lately in the last few years that’s changed, maybe it's just the rolling release of tax returns are now later in the quarter and they’ve seen that they don’t come quite as suddenly and they certainly don’t last quite as long and sort of what we deem to the tax season.

And so the quarter is not known, I just think the days of the first quarter being the hallmark for the year are probably over and that you’ll see more of an evening of the quarters over the year. But having said that, we had a very slow January and February and a very good March, and so March did wonders to sort of pull the quarters through. You know April appears to be a bit slow, but not as slow as January and February. So again like I said, I think it’s more of a you’re scattering that tax season over more months and more towards the end of the first quarter and into the second quarter, and so maybe that will benefit the second quarter some.

Collections continue to improve slightly, they are not -- they're still not improving to the extent we want them to. I think there is a lot of sort of reasoning behind that which we’ll get to a little later in the call, but you know they're better, they are not great. So again, we keep waiting for some real move in the collection area, but we’ll have to see when and how that’s going to happen.

Losses on the other hand, they are higher, but we think we're hopefully at a point where maybe they've peaked and we could hopefully, as collection does continue to improve that we have sort of reached the high end of that scale and we’ll start working our way back down.

Interestingly enough there is lots of talk of pricing in the marketplace, as far as we can tell there is a little action along those lines. We haven’t seen much tightening from what we can see, so as much as that seems to be what everybody else is talking about we’ve tightened, we haven’t seen too much from anyone else.

And then lastly, the capital markets, in the face of all these driven things still remain very strong and we’re having no problem with securitization and execution of that is actually starting to improve again. So real sort of good news there and it bodes well for the future as well. Again in all those areas a little bit more detail, but first I’ll turn it over to Jeff to go through the financials.

Jeff Fritz

Thanks Brad, welcome everyone. We’ll begin with the revenues. Revenues for our first quarter $107.6 million, that’s down actually 1% from December quarter and up 7% from first quarter of 2016. So what we’re seeing now here from a revenue standpoint is that as the portfolio has sort of leveled out with the current volume of originations. You see virtually flat revenues in sequential quarters, but still that increase over a year ago. We did do $229 million in new originations in the first quarter, but as I indicated that really just keeps the portfolio kind of at the current level.

Expenses for the quarter $99.8 million, a 5% increase over the fourth quarter of last year and a 13% increase over the $88.4 million for the first quarter a year ago. Actually on a sequential basis, most of our expenses, operating expenses were flat, but we did have a significant increase in the provision for credit losses. We can look at that, the credit loss provision for the quarter was $47.2 million, that’s an 8% increase from the fourth quarter and a 7% increase compared to $44.2 million a year ago.

And so you know, what I think we’re seeing continuously is erosion in the recovery rates that we get at the auctions which has been a big industry topic and we’re certainly seeing the impact of that on or losses and flowing back through to the provision for credit losses on the P&L. And then you know similarly just as Brad indicated the servicing side of the business continues to be a challenge, although we do have some indications of improvements, some seasonal improvement in the first quarter on the delinquency side.

Pre-tax earnings $7.8 million for the quarter, that’s down compared to $12.7 million in the fourth quarter of last year and down 36% compared to $12.2 million a year ago. Net income for the quarter $4.5 million that’s down 40% from 7.5 million in the fourth quarter and 38% compared to $7.2 million a year ago. Diluted earnings per share $0.16 for the quarter compared to $0.26 in the fourth quarter and 38% reduction and a 33% reduction compared to $0.24 in the first quarter of 2016.

Moving onto the balance sheet, no significant liquidity related transactions during the quarter. We continue to use our warehouse facilities to originate receivables and we did our first quarter securitization in January of the first quarter, and we’ll talk a little bit more about that in a minute. As I have indicated the managed portfolio stayed pretty much at the same levels in the sequential quarters, but is up about 9% compared to last year.

No significant changes to the debt side of the balance sheet. As I said, we continue to use our warehouse lines, our three warehouse lines, no other changes in other forms of debt. Looking at some of the performance metrics, the net interest margin for the quarter was $85.5 million, that’s down just a tick 1% compared to 86.7 million in the fourth quarter of last year but up 3% compared to $82.8 million a year ago. We continue to see -- although we had good execution from a spread standpoint of our first quarter securitization, we have continued to see a rising cost, blended cost of all of our ABS borrowings.

So for instance in the first quarter the ABS cost of funds was 3.7% compared to 3.6% in the fourth quarter of 2016 and a significant increase compared to 3% in the first quarter of 2016, in the year ago quarter. The risk adjusted NIM which takes into account the provision for credit losses was $38.3 million in the first quarter here, that’s down 11% from 43.1 million in the fourth quarter of '16 and down only 1% from $38.5 million a year ago. So the NIM compression is really significantly impacted by the increase in the provision for credit losses as we’ve moved along here.

Core operating expense for the quarter are essentially flat at $30.6 million compared to the fourth quarter of last year and up 16% compared to 26.4 million for a year ago and we’re seeing pretty consistent improvement in our operating leverage, but now I think we’re seeing that kind of level off a little bit as the originations has sort of leveled out and in turn the portfolio leveled out somewhat. That particular metric, core operating expenses as a percent of the average portfolio, pretty much flat at 5.3% in the first quarter compared to the fourth quarter of last year and actually up a little bit compared to 5% in the first quarter of 2016.

The return on managed assets for the quarter, 1.3% compared to 2.2% in the fourth quarter of last year and 2.3% compared to the first quarter a year ago. The two biggest impacts on those that particular metric is the higher borrowing cost, as I've alluded to in the blended ABS cost of funds and the increases in the provisions for credit losses.

Looking at the servicing metrics, the delinquency 9.7% at the end of the first quarter here that’s down significantly from 11% at the end of the fourth quarter and up a little bit compared to 8.9% a year ago. So we had sort of the predictable seasonal improvement, first quarter improvement in the DQ. Our loss is 7.9% for the first quarter annualized, that’s up compared to 6.9% almost 7% in fourth quarter and up a little bit from 7.6% to year ago. We've talked about the auction percentages, actually kind of flat, maybe up a little bit going to the first quarter from the fourth quarter last year. I think we saw a similar pattern last year after which there was significant continued degradation in that number and throughout the year.

Let’s look at the ABS markets, so our 2017 A transaction was concluded, closed in January this quarter. That was for $206.3 million of bonds, the blended cost of funds at 3.9% reflected -- it was up a little bit in terms of a blended cost of funds from the fourth quarter of 2016, but actually reflected a 19 basis points of spread compression compared to the fourth quarter 2016. So the execution on the deals continues to be very good. We have our two AAA ratings at the top of the stack as we’ve had now for I think a couple of years, 27 unique investors, three new investors and very strong response kind of at the top and the bottom of the cap structure with many of the classes oversubscribed three, four and even one classes was six times over subscribe.

So with that, I will turn I back over to Brad.

Charles Bradley

Thank you, Jeff. And looking at a few of the different areas, starting with marketing, our workforce is fairly stable at the moment. We’re not really trying to grow it particularly and we may be individually trying to improve in certain areas of the country. But overall just keeping it stable, as I mentioned the markets seem to be slowing down yet again and further more we’re not really looking to grow very aggressively in this market. So again it’s more of an internal improving the marketing situation, internally rather than growing in on a national level.

New car sales are now starting to slow down, certainly it’s my belief that last year towards the end of the year in particular, the manufactures pushed real hard to get those sales number up for the rest of the year and now you’re seeing the result of that. I would fully expect new car sales to continue to trend down. You know you then move on to the used car sales and there is somewhat -- a lot of cars in the market which is impacting our resale prices. Overall, it certainly feels like there is too many cars out there and until that changes its going to be a bit of a burden on the industry.

In terms of originations, as I mentioned, we haven't seen too much signs of tightening overall in the industry. I think some of the bigger folks, some of the larger banks have certainly talked about tightening, and you may be seeing a little bit of it there, down in our end of the neck of woods, you really haven't seen too much of it lately. We did tighten our LTV, we contracted on LTV sum to where it’s the lowest it's been since the second quarter of 2014. We think LTV is one of the real indicators of what you're buying. So, that would be an easy way to indicate that we certainly did do some tightening in the first quarter.

I think other players will tighten as they go or maybe we’ll see more tightening, but at the moment certainly through the first quarter we haven’t seen too much other than sort of ourselves. In terms of collections, this is the long road of change there is a bunch of things that work, I mean everyone, we talked about probably all of these things, I'm going to mentioned before, first you had the regulatory environment, you had a lot of regulatory changes in the way we could contact customers. And pretty much we had a rewrite the book and we started doing that in 2012-2013, and it's been a long slow process.

As I've said in the past, I think it's getting there and I think sooner or later we’re going to see some improvement as our collectors are used to collecting the new way and even some of the folks that never could learn to do it the way and now gone. And so, we’re having a much stronger overall collection force and that’s certainly what we’re seeing now of course we want to see the results.

The other thing that also we now sort of been able to recognize is that our customers change, we’ve mentioned before, I used to get a call at the home, the phone will ring on the wall and such, today everybody has an iPhone or some kind of smartphone and they can see the calls. And so what we’ve seen more is an ongoing trend of customers being able to sort of put off making the payment. And then making the payment when we either talk to home and tell them that its time, we’re going to take the car or in fact when we’ve actually taken the car.

Reinstatements are going up significantly overtime in that when we have their car obviously, they're much more interesting in getting it back, in the past that wasn’t so true, if we repossessed a car, most times to customer wasn’t in a position to buy it back. Today that just is one more indication that the customers are willing to sort of play the credit game, if you want to call it that, and it is a whole different thing for the industry in terms of how you work through collections with what appear to be higher delinquencies in the frontend, but not really seeing any results in the backend in terms of losses that you might have expected 10 years ago.

Also recoveries, as Jeff mentioned, recoveries picked up a little bit in the first quarter. We might want to say that that shows that recoveries are stabilizing, but unfortunately last year in exactly the first quarter, they ticked up as well and then they continued to slide down. So, again we’re not really looking for recoveries to improve. I don’t think they’re going to slide too much further, but I'm not really a proponent that they’re going to either level up or go up anytime soon.

Looking at the industry overall, we had the same three themes in a fairly repetitive basis, the regulatory environment, where we are in the cycle and the competitors in the marketplace. Regulatory environment certainly has become far more stabilize than it has been over the last eight years. If anything, it really hasn’t improved, but as I've said in the past, I'm not really looking for improvements, I'm looking for stability and what we should expect. And I think we are getting that. And so, at some level we would like to check off the regulatory environment as a problem for our industry.

The cycle is still a problem, we’ve been in this business a long-time at this point, 25 years or more. And right now 001 [ph], you could sort of see the industry having sort of a shake out, we had again that same shake out in '08 and '09, both of those were some of a result of, if not a lot of result of a recession. We haven't had a recession this time, but certainly feels a lot like there is going to be some consolidation in industry, we’re going to lose some of the competitors in the industry. And so, it may not be the direct results of recession, but we certainly had a very weak economy for while there and maybe that’s what's going to cause our readjustment within our industry. But having said that, people are all waiting to see that play out in terms over my buying into the down, to the end of the cycle, when I much rather be buying into the beginning of a new cycle. So that is yet to be determined, but maybe we’ll see it soon.

And lastly, the competitors, there is a lot of competitors in our industry struggling, lots of small ones that came into the industry over the last couple of years, are now having some real significant problems as the paper they've bought hasn’t performed, they’re going to have more difficult access to the capital markets. And that also applies to some of the larger players in our industry who have grown real fast and haven’t really done as well as people might have expected. And so again many folks are waiting to see how that shakes out.

Having the press write numerous articles on a continuing basis about how terrible everything is and have there is going to be the new bubble, which is not, and all these other things hasn't helped, but in terms of the investor universe lots of people are looking at those kind of factors in determining when they want to play in these stocks.

And then sort of, trying to go back to some good news, the capital markets on the other hand are doing great. We recently renewed our Fortress credit line and that works out very well, as Jeff pointed out we did a securitization in the first quarter in January, we recently done another one that trend now appears to be even in the face of rising interest rates, we have tightening spreads and so that’s a very strong sign that the capital markets are very healthy and very good and particularly good for CPS.

It would appear that the pricing is now going to be on an improving trend from what appears to be around a high for us around 4.5% about a year ago. And we can keep that pricing below 4, I mean that’s a very good advantage and again particularly in the face of rising of interest rates, if they continue to rise as we might expect. So, the securitization market is quite strong, the credit line market also is quite strong, and to the extent we needed some capital, I think that market is pretty good. We’re not really in the market right now, but just overall I think the capital markets are as good as they've been in some ways they might have taken a little bit of a holiday last year, but now they've seem to be much stronger this year, which I think is a very good indication of what we can do in the future.

In terms of credit, I mentioned there are few larger people have said they're pulling back some of the big banks and we’ve seen that and so I think at this point we’re waiting to see what our competitors do and we’ve also has many instances said there is tightening and readjusting credit which as I mentioned we haven’t really seen, but maybe we will see it sort of as time rolls by I think that would be a good thing for the industry and certainly would help us as well.

In terms of stock repurchase, we bought 562,000 -- or 562,000 shares give or take this last quarter with an average price of just under 5, that brings us to over 4 million shares over the last couple of years. We are continuing to do what we can to buy in that stock and I think it's beginning to have a good effect.

Probably something that's noting as much as our stock price doesn't seem to want to go anywhere, is our book value. Our book in the first quarter of 2015 was $5.31, last year in the same period it was $6.69, and today, it's $8.14. So again, as much as you know -- lots of things going on in the industry, lots of companies struggling, we are doing quite well. Not few people out there are going to say that their book value is continuing to rise like ours has. You can only assume that if we continually do things right, we continue to perform strongly, continue to increase our book value, that someday we'll be rewarded for that with a better stock price.

We can control an awful lot of things at CPS, how we do business and what we do, we cannot control the stock price. And it's very unfortunate when we expect it to be much better these days, but as I said before with all these given factors out there, people just want to wait and see how it all boils out. Given our -- one of our goals is to continue that book value to where it's just too attractive to ignore and I think we're doing a good job of that. But 2017 could be an interesting year for the industry, CPS is very well positioned within the industry, our credit -- we've been tightening credit for three years, we should see the results for that in the future. We think we've got the handle on the collections, we should see improvement in that in the future.

And so most importantly we are not going anywhere. Our company is doing well. We are going to whether whatever industry out shake there is or shakeout there is and with any kind of luck we'll take advantage of it. So it's been a little bit of long slow grind last couple years and it may continue to be for a little while longer. But at some point, we are going to do very well as a result of being very tendentious and conservative and moving along at the right pace.

With that I’ll open it up for questions.

Question-and-Answer Session


Thank you. The floor is now open for questions. [Operator Instruction] Our first question comes from David Scharf with JMP Securities.

David Scharf

Brad, as usual a very thorough presentation, so maybe just a few follow up questions. And one is, we discuss this every quarter, the competitive landscape out there and your observations that you really haven't seen much tightening by other. I am curious do you have any thoughts about when we may see the first signs of a shake out if you will of some of the smaller lenders, are you seeing anything either in some other marketed ABS transactions or just what you hear through the grapevine about the ability to secure funding or warehouse lines that gives you a sense of whether perhaps in the second half for the year. We may see things ease up? Just curious, what your broader observations are?

Charles Bradley

Yes, I think we are as curious as the next person on what's going to happen in the industry. In terms of signs, it almost sort of make sense, what we are beginning see is the smaller players. The guys that have come in a few years back and they haven't really gotten to some critical mass are beginning to show signs of trouble. We've certainly heard rumors of companies having trouble, some of the equity investor's sponsorships in those companies wanting to get liquid or get out.

We its probably knowledge there has been some management changes in some of those companies. And so I guess that would be the beginning of what you might see, certainly you might also begin to see some companies having particularly the smaller ones having much tougher times, having access to the securitization market or having access to capital in general. And so, we are beginning to see that with some of the smaller players, sort of the down side is the smaller players don’t have that big effect on what we do. But it’s a good start in terms of trying to see what's going to happen next.

I think the problem you have and I think sort of just to give context, you buy all this paper, let's just take a small company. Small company continue the business with equity, sponsorship and capital, they start buying a lot of paper and they think its working out fine, and let's just say that all happen in 2014 or so or '13, by '15, '16, you're starting to see that paper's performance and if it's not working and you're not a big enough company than you’ve got a problem. Because you still need more capital, you think about it, if that paper doesn’t perform that you originated in '14 and '15 and when you get the '16 and '17, the capital requirements to move forward with securitization will be more, the capital or equity requirements to draw more capital in will be more, and now you get all sorts of pressure on those companies in terms of staying alive.

And then if you than take that sort of same analogy and role it to the bigger companies. If you don’t have critical mass, you don’t have enough capital and you're making money, all sorts of problems start to evolve in terms of how you can access capital you need to run your business and how you can access the capital you need to fund your securitizations. And so, we haven’t seen that with the big players yet, but certainly you might expect we might.

So we’ll see, but the answer to your question, yes we are being [indiscernible] smaller players, that trend continues, this might be a very interesting year across the board.

David Scharf

Got it. And that’s helpful. And maybe similar topic, but switching to credit, you made the comment, I know it was written in stone, but you're hopeful that perhaps the net loss rate that you're experienced in the quarter was close to the peak. Is that based on your observations of how your most recent originations have been performing after tightening a bit and reducing LTVs, is it based on the believe that recovery rates have hit -- finally bottom out? Trying to get a sense for how we should be thinking about that in the [Multiple Speakers] rest of the industry.

Charles Bradley

It was a surprise a little to us, exactly not the way to think about it. Because -- but it's a very interesting question, because it sort of give me a chance to give you an interesting answer, in that. If your paper isn’t in performing and this goes back you previous question, and its true for us, but not to the extent maybe for lots of other folks. There are '13 and '14 paper at this point, we know how that paper is really going performed and it's not the performance as well as we wanted it to.

And so we also might have known some of that a while back. And so what you do in that arena is you start tightening, and so we did. And so on the one hand we have a lot of more faith in our '15 and '16 paper performing much better. And so that's sort of the hedge, when you're sitting there in 2014 and '12 and '13 don’t look very good and '14 and '15 is defined by better paper, which we did. And so on the one hand we think the paper from '14, '15 and '16 will all improve, but that doesn’t help collections today. Collection today is collection all of it the same, and so our sort of originations and marketing hedge was to buy better paper, to tightened and we did. But that paper -- so therefore even if collections doesn’t improve, the paper performance down the road should improve because we bought better paper, but nothing to do with collections, which is why it's sort of funny.

And then the second thing, we don’t really -- recoveries again, we don’t think recoveries are going to improve, so that’s not in the solution or the equation either. But what we really see is, we just think our branches are performing better, the branches are working together better, everyone now marching to the same tune in terms of how we collect loans and that’s what we see. And again that’s much more of a CPS thing anything else, which is why I tried to distinguish it from the other two.

Better recovery rates will flow to all boats, to the extent people tightened like we did, buying better credit will flow to all boats equally as well. But improving collections your collections internally and the way you collect your loans that's much more of an individual thing, company to companies. And so we think that we're beginning and unfortunately, I've said this before and I haven’t been quite accurate.

Again, we think we're finally getting some progress in just the overall way we collect our loans, and we see that at the branch level, we see that a way all different collecting groups performed and so that’s why I'm optimistic that maybe these things are finally peaked. And I've said that I've been slightly wrong in the past, if not a lot of wrong in other things. But in this thing, we're rather hopeful.

But it's because of the way our collectors are now collecting much more than buying better paper, we won’t see the results for that for another a year or two.

David Scharf

Right, got it. Thanks very much.


Thank you. Our next question comes from Kyle Joseph with Jefferies.

Kyle Joseph

I wanted to talk a little bit about tax refunds during the quarter, I know you talked about sales in January and February being weak and recovering in March. Can you give us a little sense for the credit performance, did it sort of mirror those trends as well or delinquencies elevated earlier in the quarter and did they recover later in the quarter?

Charles Bradley

Probably that’s a fair statement that in January and February, they weren’t as good as in March, that trend is -- and that it was probably be somewhat typical to the quarter. Ironically, as I think I mentioned, it used to be the tax refunds started back in January 5th, now they don’t start till the end of February something along those lines. And so it would make sense that certainly March was another very strong month, both in terms of originations and in terms of performance. So yes, I would agree with you that it trended in a positive fashion over the quarter in probably both areas.

April hasn’t fallen off a cliff by any means. It slowed a little bit, but we would still expect to have a pretty good, so far start to the second quarter. Again, we would kind of hope that the credit performance would also drift through the quarter as well.

Kyle Joseph

Got it. And then shifting over to used car prices, was there any impact in the quarter from tax refunds being delayed and the industries that we look at, there is two in particular and they are kind of showing diverging trends, what would you say used car prices have done year-over-year for you in terms of auction values you are receiving?

Charles Bradley

Jeff has the direct numbers.

Jeff Fritz

Yes, I mean it's interesting Kyle because that our recoveries at the auction was 35.2% for the first quarter and that compares to almost 40% in the first quarter, 39.9% in the first quarter of 2016. So, we really lost a lot of ground over the course of 2016, two years ago in the first quarter of 2015 our returns at the auction were 43.8%.

So there is no deigning what the change in that market has done to our recoveries and it's had a significant and material impact on our loss rates and we’ve had to increase our provisioning as a result of all those factors. So -- and from what you read and hear about in the industry about this never-ending pipeline of vehicles heading towards the auctions at some point, I mean I think we have to be realistic about the prospects for that market in the near-term not really changing very much, certainly not improving.

Kyle Joseph

Got it. But, so given those trends your net charge-offs only increased marginally year-over-year. Is that fair to say that your growth charge-offs are either stable or down a bit year-over-year. I know we don’t have that until the Q comes out.

Jeff Fritz

Yeah. I mean that particularly in the first quarter we typically see a little bit of the rebound in the credit performance mostly in the delinquency side, not so much on the losses. But, I think you're probably right there is probably some stability in the gross loss numbers.

Kyle Joseph

All right. And then moving over to competition, I think -- sorry I think I miss some of your remarks. But, we have seen two of the larger public players sort of pull back and we’ve seen volumes trend down year-over-year. So, who is really, who are the companies that are still continuing to make these loans and whether it's an industry in particular or you can name names that you want.

Charles Bradley

I'm not going to name names. I think our feel would be generally speaking we haven't seen that much tightening into anyone. And part of the problem is, it goes back to your prior question, is if you bought not so great paper for a while one of the hard things to do is slowdown. Because if you slowdown that exposes that performance even more. It's kind of like, and this is why it's so hard once you've gone down the wrong path to get out of it, because what you really need to do is you got to sit down and say okay, we’ve fixed all our credit and then you got to go twice as fast and hope that the new credit outruns the old credit.

As I sort of mentioned when I said, we look at our '12 and '13 paper and didn’t like how it's performing during 2014 and so then we started tightening credit in '14, '15 and '16 knowing that that paper down the road would be better. But the problem is, we were also able to -- since we didn’t really miss by that much in sort of '12 and '13, we didn’t have to do some huge restart in '14 and '15 and '16, but what we did do, which I think is important is we sort of the leveled off, we didn’t need to grow real fact because we were doing pretty well.

And so other folks, if you're not making money or you're having the issues unfortunately the real way out of it is to figure out what you did wrong, fix it and then go fast because the new production covers up the old mistakes and you make more money, to the extend you are suffering from any of those problems and you don’t go fast, those problems just get worse. And so as much as everyone says they’re tightening, it's is the very thing to say in concept, it's a very hard thing to do in reality, but in most cases makes your near-term problems worse.

So, we may yet, and the other thing we would see and the reason I'm sort of saying this is that if everyone really started tightening we'd see all that volume, because we’re not really looking -- we’re not pushing volume away, we’re not saying we’re not going to take it, so if it was out there, we'd get it and we’re not. And so that’s maybe an -- it's probably the easiest way for us to tell and there is no one in our margin side business saying so and so or so and so are all pulling back dramatically as much as publicly you hear a lot of that talk.

So I may change that tune next quarter, but not right now. So as much as I agree with you, some of the big players and a lot of the folks have said, they're trying to tighten credits slowdown. We haven't seen that in actuality really yet.

Kyle Joseph

Got it. And then one last one from me. On expenses, as you guys were growing we saw expenses as a percentage of FX [ph] decline towards the 5%, we have seen that number sort of increase a little bit. So as your volume started to trend down, do you have any sense for where that navigates towards?

Jeff Fritz

Well, I think that’s Kyle at this level of the portfolio $2.3 billion, if our originations stay at these levels and our portfolios stay at these levels, I think that just kind of even small fluctuations in the operating expenses from quarter-to-quarter will probably result in that numbers staying right around that 5% plus or minus, a few basis points. If we could get on track and buy the kind of paper we are comfortable buying in greater volumes and start growing the portfolio again, then I think we would see some -- have the prospect for some improvement in that metric.

Kyle Joseph

That’s helpful. Great, thanks for answering my questions.


Thank you. I am showing no further questions at this time. I’ll turn the call back over to you Mr. Bradley for any additional or closing remarks.

Charles Bradley

Thank you. In closing, I get accused of being very pessimistic, I am very often, I just wanted to say, we are not only pessimistic, we're just experienced in what's going on. And I think 2017 is going to be an interesting year for our industry and we have sat in almost this exact position in the other cycle where we got kind of wacked in the head a little bit along with likes of other folks and this time it's not going to happen.

So we want to be the one that get the benefit from everything that comes out of what's going on in our industry and I think we are doing a pretty good job of positioning ourselves to do just that. And so as much as you know, I mean if we can't grow as quite as fast and we have to keep working on credit and collections, we are making money and we have great access to markets, our credit even though we missed a little, we didn’t miss nearly as much as a whole a lot of folks did.

And so we have to wait for those varying things sort of play out in our industry before we can expect to really take advantage, but having said that opportunities pop up all the time and we will be there to do that.

So thank you all for attending the call and we look forward to seeing you next quarter.


This does conclude today's teleconference. A replay will be available beginning two hours from now until April 27, 2017 at 11:59 by dialing 855-859-2056 or 404-537-3406 with conference identification number 8553937. A broadcast of the conference call will also be available live for 90 days after the call via the company's website at Please disconnect your lines at this time and have a wonderful day.

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