Consumer Portfolio Services, Inc. (NASDAQ:CPSS) Q2 2023 Earnings Conference Call August 3, 2023 3:00 PM ET Company Participants Charles Bradley - Chief Executive Officer Danny Bharwani - Chief Financial Officer Mike Lavin - President and Chief Operating Officer Conference Call Participants Operator Good day everyone and welcome to the Consumer Portfolio Services' 2023 Second Quarter Operating Results Conference Call. Today's call is being recorded. Before we begin, management has asked me to inform you tha ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 3800 Howard Hughes Parkway, Suite 1400, Las Vegas, Nevada 89169 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including Area Code: (949) 753-6800 Former name, former address and former fiscal year, if changed since last report: N/A Securitie ...

Consumer Portfolio Services, Inc. (NASDAQ:CPSS) Q1 2023 Earnings Conference Call April 27, 2023 2:00 PM ET Company Participants Charles Bradley - CEO Danny Bharwani - CFO Michael Lavin - President and COO of Consumer Portfolio Services Operator Good day, everyone, and welcome to the Consumer Portfolio Services 2023 First Quarter Operating Results Conference Call. Today's call is being recorded. Before we begin, management had asked me to inform you that this conference call may contain forward-looking stat ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM 10-K ☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number: 001-14116 CONSUMER PORTFOLIO SERVICES, INC. (Exact name of registrant as specified in its charter) Californ ...

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Consumer Portfolio Services, Inc., highlighting significant asset growth and a substantial increase in nine-month net income to $71.8 million [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $2.65 billion, driven by finance receivables, with liabilities rising to $2.43 billion and shareholders' equity to $218.2 million Condensed Consolidated Balance Sheet Data (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $12,944 | $29,928 | | Finance receivables measured at fair value | $2,343,253 | $1,749,098 | | Finance receivables, net | $89,690 | $176,184 | | **Total Assets** | **$2,650,524** | **$2,159,578** | | **Liabilities & Equity** | | | | Warehouse lines of credit | $242,449 | $105,610 | | Securitization trust debt | $2,057,100 | $1,759,972 | | **Total Liabilities** | **$2,432,340** | **$1,989,371** | | **Total Shareholders' Equity** | **$218,184** | **$170,207** | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Net income significantly increased to $25.4 million for Q3 2022 and $71.8 million for the nine-month period, driven by higher revenues and fair value adjustments Key Operating Results (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $90,305 | $68,565 | $246,689 | $198,446 | | Income before income tax | $34,344 | $19,547 | $97,888 | $41,366 | | Net Income | $25,413 | $13,683 | $71,848 | $28,559 | | Diluted EPS | $0.95 | $0.52 | $2.61 | $1.12 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating activities provided $164.7 million in cash, while investing activities used $566.5 million, primarily for finance receivables, and financing provided $397.9 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $164,744 | $163,076 | | Net cash used in investing activities | ($566,524) | ($50,174) | | Net cash provided by (used in) financing activities | $397,938 | ($83,289) | | **Increase (decrease) in cash** | **($3,842)** | **$29,613** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, fair value adoption for receivables, significant debt from securitizations, legal proceedings, and compliance with financial covenants - The company specializes in purchasing and servicing retail automobile contracts for **sub-prime customers**, providing indirect financing through dealers[20](index=20&type=chunk) - Finance receivables acquired since January 1, 2018, are accounted for at fair value, with a positive mark-to-market adjustment of **$15.3 million** for the nine months ended Sep 30, 2022[24](index=24&type=chunk)[26](index=26&type=chunk) - As of September 30, 2022, the company had **$2.06 billion** in securitization trust debt and **$242.4 million** outstanding on its warehouse lines of credit[10](index=10&type=chunk)[58](index=58&type=chunk) - The company estimates probable incurred losses for legal contingencies at **$3.4 million**, with reasonably possible losses not exceeding **$11.3 million** as of September 30, 2022[83](index=83&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses significant growth in contract purchases and managed portfolio to $2.84 billion, revenue increases driven by fair value mark-ups, funding strategies, and credit performance trends [Overview and Contract Purchases](index=25&type=section&id=Overview%20and%20Contract%20Purchases) The company's sub-prime auto contract purchases significantly increased to $1.43 billion, driving the total managed portfolio to $2.84 billion by Q3 2022 Contract Purchases and Managed Portfolio (in thousands) | Period | Contracts Purchased in Period | Managed Portfolio at Period End | | :--- | :--- | :--- | | 2020 | $742,584 | $2,174,972 | | 2021 | $1,146,321 | $2,249,069 | | Nine months ended Sep 30, 2022 | $1,426,302 | $2,838,858 | [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Revenues significantly increased for Q3 and nine-month periods, driven by portfolio growth and fair value adjustments, while operating expenses rose and credit loss provision decreased - Q3 2022 revenues increased by **$21.7 million (31.7%)** YoY, primarily due to higher interest income from a larger portfolio and an **$8.2 million** mark-up on fair value receivables[117](index=117&type=chunk) - Nine-month 2022 revenues increased by **$48.2 million (24.3%)** YoY, including a **$15.3 million** mark-up, compared to a **$4.4 million** mark-down in the prior year period[145](index=145&type=chunk) - Q3 2022 interest expense rose to **$23.5 million** from **$18.3 million** YoY, driven by higher average debt balances and rising interest rates on new securitizations[127](index=127&type=chunk)[128](index=128&type=chunk) - A reduction to the provision for credit losses of **$23.4 million** was recorded for the nine months ended Sep 30, 2022, due to better-than-expected credit performance on the legacy portfolio[164](index=164&type=chunk) [Credit Experience](index=36&type=section&id=Credit%20Experience) Credit performance shows increased delinquencies and net charge-offs, with total delinquencies at 9.7% and annualized net charge-offs at 4.9% for Q3 2022 Delinquency Experience (% of gross servicing portfolio) | Metric | Sep 30, 2022 | Sep 30, 2021 | Dec 31, 2021 | | :--- | :--- | :--- | :--- | | Total Delinquencies (Amount) | 9.7% | 8.4% | 9.6% | | Total Delinquencies & Repossession (Amount) | 10.9% | 9.4% | 10.6% | Annualized Net Charge-Offs (% of average servicing portfolio) | Portfolio | Q3 2022 | Q3 2021 | Full Year 2021 | | :--- | :--- | :--- | :--- | | Total Owned Portfolio | 4.9% | 2.8% | 4.7% | - The company views its extension program as effective, noting that of accounts granted extensions in 2018, **55.1%** were either paid off or active as of September 30, 2022[184](index=184&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is primarily from securitizations and credit facilities, with $12.9 million unrestricted cash and $157.6 million available borrowings, and total debt at $2.38 billion - Primary sources of cash are securitization proceeds, warehouse credit facilities, and customer payments, with primary uses being contract purchases and debt repayment[191](index=191&type=chunk) - As of Sep 30, 2022, the company had **$12.9 million** in unrestricted cash and **$157.6 million** in available borrowings under its two warehouse credit facilities[198](index=198&type=chunk) - Total debt outstanding was approximately **$2.38 billion** at Sep 30, 2022, primarily composed of **$2.06 billion** in securitization trust debt and **$242.4 million** in warehouse lines of credit[201](index=201&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2022[205](index=205&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates legal proceedings from Note 8, including consumer litigation and a wage claim, with estimated probable losses of $3.4 million - Information regarding legal proceedings is incorporated by reference from **Note 8** to the Unaudited Condensed Consolidated Financial Statements[208](index=208&type=chunk) [Risk Factors](index=44&type=page&id=Item%201A.%20Risk%20Factors) Substantial indebtedness of $2.38 billion poses a key risk, potentially limiting financial flexibility and increasing vulnerability to adverse economic conditions - The company has substantial indebtedness of approximately **$2.38 billion** as of September 30, 2022, which could adversely affect its financial condition and flexibility[210](index=210&type=chunk)[211](index=211&type=chunk) - Forward-looking statements, including estimates for credit losses and fair value of receivables, are subject to risks such as **economic conditions**, **consumer bankruptcies**, and changes in **used vehicle prices**[214](index=214&type=chunk)[215](index=215&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 678,911 shares of common stock at an average price of $10.59 per share during Q3 2022, with $12.9 million remaining for future purchases Issuer Purchases of Equity Securities (Q3 2022) | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2022 | 400,011 | $11.23 | | August 2022 | 6,000 | $11.30 | | September 2022 | 272,900 | $9.63 | | **Total** | **678,911** | **$10.59** | [Exhibits](index=46&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The exhibits filed with the report include certifications from the Chief Executive Officer and Chief Financial Officer, and various Inline XBRL data files[222](index=222&type=chunk) [Signatures](index=47&type=section&id=Signatures) The report was signed and authorized by the President and CEO, and Senior Vice President and CFO on November 14, 2022 - The report was signed on **November 14, 2022**, by the company's Principal Executive Officer and Principal Financial Officer[225](index=225&type=chunk)

Consumer Portfolio Services, Inc. (NASDAQ:CPSS) Q3 2022 Earnings Conference Call November 10, 2022 1:00 PM ET Company Participants Charles Bradley - CEO Mike Lavin - COO Denesh Bharwani - CFO of Consumer Portfolio Services Conference Call Participants Operator Good day, everyone, and welcome to the Consumer Portfolio Services 2022 Third Quarter Operating Results Conference Call. Today's call is being recorded. Before we begin, management has asked me to inform you that this conference call may contain forwa ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Consumer Portfolio Services, Inc. and its subsidiaries, along with detailed notes on accounting policies, finance receivables, and debt structures [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity at specific points in time Unaudited Condensed Consolidated Balance Sheets | ASSETS | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :----------------------------------- | :-------------------------- | :------------------------------ | | Cash and cash equivalents | 11,348 | 29,928 | | Restricted cash and equivalents | 157,021 | 146,620 | | Finance receivables measured at fair value | 2,174,133 | 1,749,098 | | Finance receivables, net | 113,338 | 176,184 | | Total Assets | 2,500,473 | 2,159,578 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Accounts payable and accrued expenses | 62,415 | 43,648 | | Warehouse lines of credit | 228,906 | 105,610 | | Securitization trust debt | 1,934,156 | 1,759,972 | | Total Liabilities | 2,302,182 | 1,989,371 | | Total Shareholders' Equity | 198,291 | 170,207 | | Total Liabilities and Shareholders' Equity | 2,500,473 | 2,159,578 | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net income over specific reporting periods, reflecting operational performance Unaudited Condensed Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2022 ($ thousands) | Three Months Ended June 30, 2021 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Revenues | 82,018 | 66,769 | 156,384 | 129,881 | | Expenses | 47,802 | 52,893 | 92,840 | 108,061 | | Income before income tax expense (benefit) | 34,216 | 13,876 | 63,544 | 21,820 | | Income tax expense (benefit) | 8,896 | 4,163 | 17,109 | 6,943 | | Net income | 25,320 | 9,713 | 46,435 | 14,877 | | Basic Earnings per share | 1.18 | 0.43 | 2.18 | 0.65 | | Diluted Earnings per share | 0.91 | 0.39 | 1.66 | 0.59 | [Unaudited Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents the company's net income and other comprehensive income, providing a complete view of changes in equity from non-owner sources Unaudited Condensed Consolidated Statements of Comprehensive Income | Metric | Three Months Ended June 30, 2022 ($ thousands) | Three Months Ended June 30, 2021 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | | :----------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net income | 25,320 | 9,713 | 46,435 | 14,877 | | Comprehensive income | 25,320 | 9,713 | 46,435 | 14,877 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Unaudited Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | | :--------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | 119,670 | 112,406 | | Net cash provided by (used in) investing activities | (398,396) | 12,744 | | Net cash provided by (used in) financing activities | 270,547 | (70,395) | | Increase (decrease) in cash and cash equivalents | (8,179) | 54,755 | | Cash and restricted cash at end of period | 168,369 | 198,907 | [Unaudited Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This statement tracks changes in the company's equity accounts, including common stock and retained earnings, over specific reporting periods Unaudited Condensed Consolidated Statements of Shareholders' Equity | Metric | Three Months Ended June 30, 2022 ($ thousands) | Three Months Ended June 30, 2021 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Common Stock (Shares Outstanding) - End of period | 21,207 | 23,055 | 21,207 | 23,055 | | Common Stock - End of period | 36,947 | 73,204 | 36,947 | 73,204 | | Retained Earnings - End of period | 162,966 | 83,884 | 162,966 | 83,884 | | Total Shareholders' Equity - End of period | 198,291 | 148,517 | 198,291 | 148,517 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the financial statements, covering accounting policies, debt, and other financial items [(1) Summary of Significant Accounting Policies](index=8&type=section&id=(1)%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the company's business model, which involves purchasing and servicing retail automobile installment sale contracts for sub-prime customers, and details key accounting policies including the fair value method for finance receivables acquired post-2017, recognition of other income, lease accounting, stock-based compensation, and financial covenants. The company was in compliance with all financial covenants as of June 30, 2022 - The company specializes in purchasing and servicing retail automobile installment sale contracts from dealers for sub-prime customers, providing indirect financing[22](index=22&type=chunk) - Effective January 1, 2018, the company adopted the fair value method for finance receivables acquired on or after that date, recognizing interest income on a level yield basis[26](index=26&type=chunk) Other Income Components (Three and Six Months Ended June 30, 2022 vs. 2021) | Component | Three Months June 30, 2022 ($ thousands) | Three Months June 30, 2021 ($ thousands) | Six Months June 30, 2022 ($ thousands) | Six Months June 30, 2021 ($ thousands) | | :---------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Origination and servicing fees from third party receivables | 1,408 | – | 2,252 | – | | Direct mail revenues | – | 890 | 774 | 1,869 | | Convenience fee revenue | 40 | 180 | 120 | 420 | | Recoveries on previously charged-off contracts | 24 | 45 | 44 | 60 | | Sales tax refunds | 159 | 118 | 303 | 289 | | Other | 17 | 96 | 61 | 127 | | **Total Other Income** | **1,648** | **1,329** | **3,554** | **2,765** | - Stock-based compensation costs for the three and six months ended June 30, 2022, were **$1.5 million** and **$728,000**, respectively, with **$12.4 million** in unrecognized costs to be expensed over a weighted-average period of **2.7 years**[40](index=40&type=chunk) Common Stock Purchases (Six Months Ended June 30, 2022 vs. 2021) | Purchase Type | June 30, 2022 Shares | June 30, 2022 Avg. Price | June 30, 2021 Shares | June 30, 2021 Avg. Price | | :--------------------------------------- | :------------------- | :----------------------- | :------------------- | :----------------------- | | Open market purchases | 1,938,637 | $11.42 | 301,088 | $4.18 | | Shares redeemed upon net exercise of stock options | 893,153 | $13.56 | 56,983 | $4.47 | | **Total stock purchases** | **2,831,790** | **$12.09** | **358,071** | **$4.42** | - The company was in compliance with all financial covenants related to securitization transactions, warehouse credit facilities, and residual interest financing as of June 30, 2022[46](index=46&type=chunk) [(2) Finance Receivables](index=14&type=section&id=(2)%20Finance%20Receivables) This note details the company's finance receivables portfolio, distinguishing between those measured at fair value and those evaluated for impairment. It provides delinquency status and outlines the methodology for the allowance for credit losses, which applies only to the legacy portfolio (pre-2018 originations) - Finance receivables measured at fair value are recorded separately and excluded from credit loss provisions, as anticipated credit losses are factored into the internal rate of return[29](index=29&type=chunk)[50](index=50&type=chunk)[151](index=151&type=chunk) Delinquency Status of Finance Receivables (June 30, 2022 vs. December 31, 2021) | Delinquency Status | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :----------------- | :-------------------------- | :------------------------------ | | Current | 115,721 | 186,625 | | 31 - 60 days | 21,866 | 30,980 | | 61 - 90 days | 9,247 | 12,070 | | 91 + days | 2,176 | 2,715 | | **Total** | **149,010** | **232,390** | - Finance receivables totaling **$2.2 million** (June 30, 2022) and **$2.7 million** (December 31, 2021) were on non-accrual status due to delinquency[51](index=51&type=chunk) Allowance for Finance Credit Losses Activity (Three and Six Months Ended June 30, 2022 vs. 2021) | Activity | Three Months June 30, 2022 ($ thousands) | Three Months June 30, 2021 ($ thousands) | Six Months June 30, 2022 ($ thousands) | Six Months June 30, 2021 ($ thousands) | | :------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Balance at beginning of period | 45,001 | 73,497 | 56,206 | 80,790 | | Provision for credit losses | (8,000) | – | (17,400) | – | | Charge-offs | (4,446) | (6,699) | (9,805) | (18,820) | | Recoveries | 3,117 | 5,444 | 6,671 | 10,272 | | **Balance at end of period** | **35,672** | **72,242** | **35,672** | **72,242** | [(3) Securitization Trust Debt](index=17&type=section&id=(3)%20Securitization%20Trust%20Debt) This note details the company's securitization trust debt, which is secured by specific automobile receivables and issued through bankruptcy-remote subsidiaries. As of June 30, 2022, the company had $1,934.2 million in securitization trust debt outstanding and was in compliance with all related covenants - As of June 30, 2022, securitization trust debt outstanding was **$1,934.2 million**, secured by **$2,151.6 million** in pledged receivables[9](index=9&type=chunk)[66](index=66&type=chunk) - The company was in compliance with all securitization agreement covenants as of June 30, 2022, which require meeting delinquency and credit loss criteria, and maintaining minimum liquidity and leverage levels[70](index=70&type=chunk) - Restricted cash accounts totaling approximately **$157.0 million** were held as additional collateral for borrowings under securitization agreements[9](index=9&type=chunk)[71](index=71&type=chunk) [(4) Debt](index=18&type=section&id=(4)%20Debt) This section summarizes the company's other debt, including warehouse lines of credit, residual interest financing, and subordinated renewable notes. Total other debt outstanding increased significantly from December 31, 2021, to June 30, 2022, primarily due to increased utilization of warehouse lines of credit Other Debt Outstanding (June 30, 2022 vs. December 31, 2021) | Description | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------------- | :-------------------------- | :------------------------------ | | Warehouse lines of credit | 228,906 | 105,610 | | Residual interest financing | 50,000 | 54,311 | | Subordinated renewable notes | 27,208 | 26,459 | | **Total Other Debt Outstanding** | **307,824** | **186,780** | - The company renewed its two-year revolving credit agreement with Ares Agent Services, L.P. on February 2, 2022, and increased its capacity from **$100 million** to **$200 million** on June 28, 2022[75](index=75&type=chunk) [(5) Interest Income and Interest Expense](index=20&type=section&id=(5)%20Interest%20Income%20and%20Interest%20Expense) This note details the components of interest income and interest expense for the three and six months ended June 30, 2022 and 2021. Interest income saw a significant increase, primarily driven by finance receivables measured at fair value, while interest expense decreased for securitization trust debt but increased for warehouse lines and residual interest financing Interest Income Components (Three and Six Months Ended June 30, 2022 vs. 2021) | Component | Three Months June 30, 2022 ($ thousands) | Three Months June 30, 2021 ($ thousands) | Six Months June 30, 2022 ($ thousands) | Six Months June 30, 2021 ($ thousands) | | :-------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Interest on finance receivables | 9,832 | 18,491 | 21,146 | 40,590 | | Interest on finance receivables at fair value | 65,730 | 46,943 | 124,470 | 90,931 | | Other interest income | 108 | 6 | 114 | 12 | | **Total Interest Income** | **75,670** | **65,440** | **145,730** | **131,533** | Interest Expense Components (Three and Six Months Ended June 30, 2022 vs. 2021) | Component | Three Months June 30, 2022 ($ thousands) | Three Months June 30, 2021 ($ thousands) | Six Months June 30, 2022 ($ thousands) | Six Months June 30, 2021 ($ thousands) | | :------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Securitization trust debt | 15,745 | 16,823 | 29,273 | 35,276 | | Warehouse lines of credit | 1,386 | 1,021 | 2,544 | 2,335 | | Residual interest financing | 1,050 | 467 | 2,144 | 1,033 | | Subordinated renewable notes | 590 | 669 | 1,210 | 1,281 | | **Total Interest Expense** | **18,771** | **18,980** | **35,171** | **39,925** | [(6) Earnings Per Share](index=21&type=section&id=(6)%20Earnings%20Per%20Share) This note provides the reconciliation of basic and diluted earnings per share calculations, highlighting the weighted average number of common shares outstanding and the incremental shares attributable to options and warrants Shares Used in EPS Calculation (Three and Six Months Ended June 30, 2022 vs. 2021) | Metric | Three Months June 30, 2022 (thousands) | Three Months June 30, 2021 (thousands) | Six Months June 30, 2022 (thousands) | Six Months June 30, 2021 (thousands) | | :----------------------------------- | :------------------------------------- | :------------------------------------- | :----------------------------------- | :----------------------------------- | | Basic shares outstanding | 21,370 | 22,842 | 21,296 | 22,791 | | Incremental shares (options/warrants) | 6,317 | 2,288 | 6,647 | 2,257 | | Diluted shares outstanding | 27,687 | 25,130 | 27,943 | 25,048 | [(7) Income Taxes](index=21&type=section&id=(7)%20Income%20Taxes) This note details the company's income tax accounting, including the asset and liability method for deferred taxes and the effective tax rates. The company reported a net deferred tax asset of $17.5 million as of June 30, 2022, and effective tax rates of 26% and 27% for the three and six months ended June 30, 2022, respectively - The company had a net deferred tax asset of **$17.5 million** as of June 30, 2022, consisting of **$10.5 million** federal and **$7.0 million** state deferred tax assets[84](index=84&type=chunk) Effective Income Tax Rates (Three and Six Months Ended June 30, 2022 vs. 2021) | Period | Effective Tax Rate 2022 | Effective Tax Rate 2021 | | :----------------------------------- | :---------------------- | :---------------------- | | Three months ended June 30 | 26% | 30% | | Six months ended June 30 | 27% | 32% | [(8) Legal Proceedings](index=22&type=section&id=(8)%20Legal%20Proceedings) This note describes ongoing legal proceedings, including consumer litigation and a wage and hour claim, and a civil investigative demand from Massachusetts. The company estimates probable incurred losses for legal contingencies at $3.4 million as of June 30, 2022, with a reasonably possible loss range not exceeding $11.3 million - The company is involved in consumer litigation, including a class action cross-claim in Connecticut regarding deficiency notices, and a wage and hour lawsuit in California[86](index=86&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) - A civil investigative demand from the Massachusetts Attorney General's Office is ongoing, related to communications and repossession notices[90](index=90&type=chunk) - Probable incurred losses for legal contingencies are estimated at **$3.4 million** as of June 30, 2022, with a reasonably possible loss range not exceeding **$11.3 million**[92](index=92&type=chunk) [(9) Fair Value Measurements](index=23&type=section&id=(9)%20Fair%20Value%20Measurements) This note explains the company's fair value measurement policies, particularly for finance receivables acquired after 2017, which are valued using Level 3 unobservable inputs. It provides a reconciliation of changes in fair value receivables and compares fair values to contractual balances - The company uses the fair value method for finance receivables acquired after January 2018, utilizing Level 3 unobservable inputs such as discount rate and cumulative net losses[96](index=96&type=chunk)[98](index=98&type=chunk)[101](index=101&type=chunk) Reconciliation of Finance Receivables Measured at Fair Value (Three and Six Months Ended June 30, 2022 vs. 2021) | Activity | Three Months June 30, 2022 ($ thousands) | Three Months June 30, 2021 ($ thousands) | Six Months June 30, 2022 ($ thousands) | Six Months June 30, 2021 ($ thousands) | | :--------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Balance at beginning of period | 1,903,857 | 1,533,723 | 1,749,098 | 1,523,726 | | Finance receivables acquired | 511,068 | 279,658 | 904,475 | 485,117 | | Payments received | (215,930) | (199,419) | (425,774) | (355,439) | | Net interest income accretion | (29,562) | (31,787) | (60,766) | (66,812) | | Mark to fair value | 4,700 | – | 7,100 | (4,417) | | **Balance at end of period** | **2,174,133** | **1,582,175** | **2,174,133** | **1,582,175** | Fair Value vs. Contractual Balance of Finance Receivables (June 30, 2022 vs. December 31, 2021) | Metric | June 30, 2022 Contractual Balance ($ thousands) | June 30, 2022 Fair Value ($ thousands) | December 31, 2021 Contractual Balance ($ thousands) | December 31, 2021 Fair Value ($ thousands) | | :----------------------------------- | :---------------------------------------------- | :------------------------------------- | :-------------------------------------------------- | :----------------------------------------- | | Finance receivables measured at fair value | 2,402,830 | 2,174,133 | 1,972,699 | 1,749,098 | [(10) Subsequent Events](index=26&type=section&id=(10)%20Subsequent%20Events) This note reports on significant events occurring after the reporting period, including the renewal and increased capacity of a revolving credit agreement with Citibank, N.A., and the execution of a $391.6 million asset-backed securitization in August 2022 - On July 15, 2022, the company renewed its two-year revolving credit agreement with Citibank, N.A., doubling its capacity from **$100 million** to **$200 million**[107](index=107&type=chunk) - On August 3, 2022, the company completed a **$391.6 million** asset-backed securitization (CPS Auto Receivables Trust 2022-C) secured by **$440.0 million** in automobile receivables, with a weighted average yield of approximately **6.02%**[108](index=108&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an in-depth analysis of the company's financial condition and operational results, covering its business overview, financing strategies (securitization and warehouse credit facilities), detailed comparison of operating results for the three and six months ended June 30, 2022, credit experience, liquidity, capital resources, and forward-looking statements [Overview](index=27&type=section&id=Overview) This section provides a business overview, detailing the company's focus on purchasing and servicing retail automobile contracts for sub-prime customers - The company specializes in indirect financing for sub-prime customers through automobile contract purchases from dealers[111](index=111&type=chunk) - Since inception through June 30, 2022, the company has originated approximately **$19.1 billion** of automobile contracts[111](index=111&type=chunk) Contract Purchase Volumes and Managed Portfolio Levels (2016-H1 2022) | Period | Contracts Purchased in Period ($ thousands) | Managed Portfolio at Period End ($ thousands) | | :------------------------- | :------------------------------------------ | :-------------------------------------------- | | 2016 | 1,088,785 | 2,308,070 | | 2017 | 859,069 | 2,333,530 | | 2018 | 902,416 | 2,380,847 | | 2019 | 1,002,782 | 2,416,042 | | 2020 | 742,584 | 2,174,972 | | 2021 | 1,146,321 | 2,249,069 | | Six months ended June 30, 2022 | 958,088 | 2,650,906 | - The company began purchasing contracts for immediate sale to a third-party in May 2021, servicing these contracts for fees. For the six months ended June 30, 2022, **$63.6 million** was originated under this program, with **$96.1 million** of such receivables in the managed portfolio[112](index=112&type=chunk) [Securitization and Warehouse Credit Facilities](index=28&type=section&id=Securitization%20and%20Warehouse%20Credit%20Facilities) This section describes the company's financing strategies, including term securitizations and interim warehouse credit facilities - The company finances automobile contracts through term securitizations (long-term) and warehouse credit facilities (interim), with all active securitizations structured as secured financings[116](index=116&type=chunk) Term Securitizations History (2016-H1 2022) | Period | Number of Term Securitizations | Receivables Pledged in Term Securitizations ($ thousands) | | :------------------------- | :----------------------------- | :-------------------------------------------------------- | | 2016 | 4 | 1,214,997 | | 2017 | 4 | 870,000 | | 2018 | 4 | 883,452 | | 2019 | 4 | 1,014,124 | | 2020 | 3 | 741,867 | | 2021 | 4 | 1,145,002 | | Six months ended June 30, 2022 | 2 | 760,000 | - The company currently has a short-term funding capacity of **$400 million** across two warehouse credit facilities, with recent renewals extending revolving periods and increasing capacity[119](index=119&type=chunk)[120](index=120&type=chunk)[125](index=125&type=chunk) - As of June 30, 2022, the company was in compliance with all financial covenants related to its securitization transactions and warehouse credit facilities[129](index=129&type=chunk) [Results of Operations - Three Months Ended June 30, 2022 with the three months ended June 30, 2021](index=29&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20June%2030,%202022%20with%20the%20three%20months%20ended%20June%2030,%202021) For the three months ended June 30, 2022, revenues increased by 22.8% to $82.0 million, primarily due to a $4.7 million mark-up on fair value finance receivables and a 31.8% increase in their average balance. Total operating expenses decreased by 9.6% to $47.8 million, mainly driven by a reduction in the provision for credit losses. Net income significantly increased to $25.3 million from $9.7 million in the prior year Key Financial Highlights (Three Months Ended June 30, 2022 vs. 2021) | Metric | June 30, 2022 ($ millions) | June 30, 2021 ($ millions) | Change ($ millions) | Change (%) | | :----------------------------------- | :------------------------- | :------------------------- | :------------------ | :--------- | | Revenues | 82.0 | 66.8 | 15.2 | 22.8% | | Interest income | 75.7 | 65.4 | 10.3 | 15.7% | | Mark to finance receivables at fair value | 4.7 | 0.0 | 4.7 | N/A | | Other income | 1.6 | 1.3 | 0.3 | 23.1% | | Total operating expenses | 47.8 | 52.9 | (5.1) | (9.6%) | | Provision for credit losses | (8.0) | 0.0 | (8.0) | N/A | | Net income | 25.3 | 9.7 | 15.6 | 160.8% | - The increase in revenues was primarily driven by a **$4.7 million** mark-up to finance receivables measured at fair value and a **31.8%** increase in their average outstanding balance[130](index=130&type=chunk)[132](index=132&type=chunk) - The decrease in total operating expenses was primarily due to an **$8.0 million** reduction in the provision for credit losses, reflecting improved credit performance[135](index=135&type=chunk)[148](index=148&type=chunk) Interest Earning Assets and Yields (Three Months Ended June 30, 2022 vs. 2021) | Asset Type | Average Balance 2022 ($ thousands) | Interest 2022 ($ thousands) | Yield 2022 | Average Balance 2021 ($ thousands) | Interest 2021 ($ thousands) | Yield 2021 | | :----------------------------------- | :--------------------------------- | :-------------------------- | :--------- | :--------------------------------- | :-------------------------- | :--------- | | Finance receivables | 164,380 | 9,940 | 24.2% | 371,718 | 18,497 | 19.9% | | Finance receivables measured at fair value | 2,305,575 | 65,730 | 11.4% | 1,748,991 | 46,943 | 10.7% | | **Total** | **2,469,955** | **75,670** | **12.3%** | **2,120,709** | **65,440** | **12.3%** | Employee and Portfolio Metrics (Three Months Ended June 30, 2022 vs. 2021) | Metric | June 30, 2022 | June 30, 2021 | | :----------------------------------- | :------------ | :------------ | | Contracts purchased (dollars, $ millions) | 548.1 | 286.0 | | Contracts purchased (units) | 23,261 | 14,452 | | Managed portfolio outstanding (dollars, $ millions) | 2,650.9 | 2,120.7 | | Managed portfolio outstanding (units) | 167,146 | 156,995 | | Total number of employees | 799 | 761 | [Results of Operations - Six Months Ended June 30, 2022 with the six months ended June 30, 2021](index=35&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20June%2030,%202022%20with%20the%20six%20months%20ended%20June%2030,%202021) For the six months ended June 30, 2022, revenues increased by 20.4% to $156.4 million, driven by a $7.1 million mark-up on fair value finance receivables and a 27.3% increase in their average balance. Total operating expenses decreased by 14.1% to $92.8 million, primarily due to a $17.4 million reduction in the provision for credit losses. Net income significantly increased to $46.4 million from $14.9 million in the prior year Key Financial Highlights (Six Months Ended June 30, 2022 vs. 2021) | Metric | June 30, 2022 ($ millions) | June 30, 2021 ($ millions) | Change ($ millions) | Change (%) | | :----------------------------------- | :------------------------- | :------------------------- | :------------------ | :--------- | | Revenues | 156.4 | 129.9 | 26.5 | 20.4% | | Interest income | 145.7 | 131.5 | 14.2 | 10.8% | | Mark to finance receivables at fair value | 7.1 | (4.4) | 11.5 | N/A | | Other income | 3.6 | 2.8 | 0.8 | 28.6% | | Total operating expenses | 92.8 | 108.1 | (15.3) | (14.1%) | | Provision for credit losses | (17.4) | 0.0 | (17.4) | N/A | | Net income | 46.4 | 14.9 | 31.5 | 211.4% | - The increase in revenues was primarily driven by a **$7.1 million** mark-up on fair value finance receivables (compared to a **$4.4 million** mark-down in the prior year) and a **27.3%** increase in their average outstanding balance[155](index=155&type=chunk)[157](index=157&type=chunk) - The decrease in total operating expenses was primarily due to a **$17.4 million** reduction in the provision for credit losses, reflecting improved credit performance[160](index=160&type=chunk)[173](index=173&type=chunk) Interest Earning Assets and Yields (Six Months Ended June 30, 2022 vs. 2021) | Asset Type | Average Balance 2022 ($ thousands) | Interest 2022 ($ thousands) | Yield 2022 | Average Balance 2021 ($ thousands) | Interest 2021 ($ thousands) | Yield 2021 | | :----------------------------------- | :--------------------------------- | :-------------------------- | :--------- | :--------------------------------- | :-------------------------- | :--------- | | Finance receivables | 185,288 | 21,260 | 22.9% | 411,571 | 40,602 | 19.7% | | Finance receivables measured at fair value | 2,186,431 | 124,470 | 11.4% | 1,718,112 | 90,931 | 10.6% | | **Total** | **2,371,719** | **145,730** | **12.3%** | **2,129,683** | **131,533** | **12.4%** | Employee and Portfolio Metrics (Six Months Ended June 30, 2022 vs. 2021) | Metric | June 30, 2022 | June 30, 2021 | | :----------------------------------- | :------------ | :------------ | | Contracts purchased (dollars, $ millions) | 958.1 | 491.5 | | Contracts purchased (units) | 41,059 | 25,188 | | Managed portfolio outstanding (dollars, $ millions) | 2,650.9 | 2,120.7 | | Managed portfolio outstanding (units) | 167,146 | 156,995 | | Total number of employees | 799 | 761 | [Credit Experience](index=41&type=section&id=Credit%20Experience) This section analyzes the credit performance of the company's automobile contracts, including delinquency, repossession, net charge-off rates, and the effectiveness of its extension program. Delinquency and repossession amounts increased, while net charge-off rates varied between finance receivables and fair value receivables [Delinquency, Repossession and Extension Experience](index=41&type=section&id=Delinquency,%20Repossession%20and%20Extension%20Experience) This section analyzes the company's credit portfolio performance, focusing on delinquency rates, repossessions, and the impact of payment extensions Delinquency and Repossession Experience (June 30, 2022 vs. June 30, 2021 vs. December 31, 2021) | Metric | June 30, 2022 Amount ($ thousands) | June 30, 2021 Amount ($ thousands) | December 31, 2021 Amount ($ thousands) | | :----------------------------------- | :--------------------------------- | :--------------------------------- | :------------------------------------- | | Gross servicing portfolio | 2,554,855 | 2,115,612 | 2,209,430 | | Total delinquencies | 221,021 | 155,384 | 212,253 | | Amount in repossession | 26,988 | 19,928 | 22,912 | | Total delinquencies and amount in repossession | 248,009 | 175,312 | 235,165 | | Delinquencies as % of gross servicing portfolio | 8.7% | 7.3% | 9.6% | | Total delinquencies and amount in repossession as % of gross servicing portfolio | 9.7% | 8.3% | 10.6% | Extension Experience (June 30, 2022 vs. June 30, 2021 vs. December 31, 2021) | Metric | June 30, 2022 Amount ($ thousands) | June 30, 2021 Amount ($ thousands) | December 31, 2021 Amount ($ thousands) | | :----------------------------------- | :--------------------------------- | :--------------------------------- | :------------------------------------- | | Total contracts with extensions | 811,588 | 940,320 | 864,175 | [Net Charge-Off Experience](index=43&type=section&id=Net%20Charge-Off%20Experience) This section details the company's net charge-off rates for different finance receivable portfolios, reflecting credit loss trends Annualized Net Charge-Offs as % of Average Servicing Portfolio (Three Months Ended June 30, 2022 vs. 2021, and Year Ended December 31, 2021) | Portfolio Type | June 30, 2022 | June 30, 2021 | December 31, 2021 | | :----------------------------------- | :------------ | :------------ | :---------------- | | Finance Receivables | 4.2% | 5.1% | 7.7% | | Fair Value Receivables | 3.5% | 2.3% | 3.1% | | **Total Owned Portfolio** | **3.6%** | **2.8%** | **4.7%** | [Extensions](index=44&type=section&id=Extensions) The company's extension program is a key component of its loss mitigation strategy, allowing temporary payment deferrals under specific conditions. The program has shown effectiveness, with a significant portion of extended accounts remaining active or paid off, and even charged-off accounts showing extended payment periods - The company grants one- or two-month payment extensions to obligors facing temporary cash flow problems, adhering to limits specified in securitization agreements[188](index=188&type=chunk) - The extension program is considered effective in mitigating losses; for 2018 extensions, **56.4%** of accounts were active or paid off by June 30, 2022[192](index=192&type=chunk) Average Monthly Extensions (Three Months Ended June 30, 2022 vs. Year Ended December 31, 2021 vs. Six Months Ended June 30, 2021) | Metric | June 30, 2022 | December 31, 2021 | June 30, 2021 | | :----------------------------------- | :------------ | :---------------- | :------------ | | Average number of extensions granted per month | 4,164 | 3,918 | 3,371 | | Average monthly extensions as % of average outstandings | 2.6% | 2.5% | 2.1% | [Non-Accrual Receivables](index=47&type=section&id=Non-Accrual%20Receivables) The company places contracts on non-accrual status when they are more than 90 days past due, as collectability is deemed unlikely. Accounts can be restored to full accrual if delinquency is reduced below the 90-day threshold - The company does not recognize interest income for contracts greater than **90 days** past due, placing them on non-accrual status[197](index=197&type=chunk) - A contract can be restored to full accrual status if the obligor makes sufficient payments to reduce delinquency to less than or equal to **90 days**[198](index=198&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's cash flows, debt structure, and available capital, highlighting compliance with financial covenants - Net cash provided by operating activities increased by **$7.3 million** to **$119.7 million** for the six months ended June 30, 2022[201](index=201&type=chunk) - Net cash used in investing activities was **$398.4 million** for the six months ended June 30, 2022, primarily due to **$904.5 million** in purchases of finance receivables[202](index=202&type=chunk) - Net cash provided by financing activities was **$270.5 million** for the six months ended June 30, 2022, driven by **$712.4 million** in new securitization trust debt issuance[204](index=204&type=chunk) - As of June 30, 2022, the company had **$11.3 million** in unrestricted cash and **$171.1 million** in available borrowings under warehouse credit facilities[207](index=207&type=chunk) - Total debt outstanding was approximately **$2,239.8 million** at June 30, 2022, primarily consisting of **$1,934.2 million** in securitization trust debt and **$228.9 million** in warehouse lines of credit[210](index=210&type=chunk) - The company was in compliance with all financial covenants of its warehouse credit facilities as of June 30, 2022[209](index=209&type=chunk) [Forward Looking Statements](index=49&type=section&id=Forward%20Looking%20Statements) This section cautions that forward-looking statements are subject to various risks and uncertainties, including economic conditions and regulatory changes - Forward-looking statements include provisions for credit losses, valuation of receivables at fair value, and estimates of future cash flows and losses[213](index=213&type=chunk)[224](index=224&type=chunk) - Key factors that could affect actual results include changes in general economic conditions, ability to obtain financing, interest rate fluctuations, competition, and regulatory requirements[213](index=213&type=chunk)[223](index=223&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures, with no material changes to internal controls - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2022[214](index=214&type=chunk) - No material changes to internal controls over financial reporting occurred during the most recently completed fiscal quarter[214](index=214&type=chunk) [PART II. OTHER INFORMATION](index=50&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity security sales, and exhibits [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the detailed discussion of legal proceedings from Note 8 of the Unaudited Condensed Consolidated Financial Statements - Information on legal proceedings is incorporated by reference from Note 8 of the financial statements[217](index=217&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) This section updates previously disclosed risk factors, emphasizing the substantial indebtedness of the company and the inherent uncertainties in forward-looking statements [Substantial Indebtedness](index=50&type=section&id=Substantial%20Indebtedness) This section highlights the company's significant debt levels and their potential impact on financial condition and operational flexibility - As of June 30, 2022, the company had approximately **$2,239.8 million** of debt outstanding, primarily securitization trust debt (**$1,934.2 million**) and warehouse lines of credit (**$228.9 million**)[219](index=219&type=chunk) - Substantial indebtedness increases vulnerability to adverse economic conditions, reduces cash flow for operations, limits business flexibility, and places the company at a competitive disadvantage[220](index=220&type=chunk) [Forward-Looking Statements](index=51&type=section&id=Forward-Looking%20Statements) This section cautions that forward-looking statements are subject to various risks and uncertainties, including economic conditions and regulatory changes - Forward-looking statements in the report are subject to risks and uncertainties, including changes in economic conditions, financing availability, interest rates, competition, and regulatory requirements[223](index=223&type=chunk) - The accuracy of estimates for credit losses and fair value measurements can be affected by factors such as increased delinquencies, repossessions, consumer bankruptcy filings, and declines in used vehicle market prices[224](index=224&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's repurchase of equity securities under a publicly announced program during the reporting period Issuer Purchases of Equity Securities (Three Months Ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price per Share | | :--------- | :------------------------------- | :---------------------- | | April 2022 | 432,654 | $11.45 | | May 2022 | 188,907 | $13.23 | | June 2022 | 394,713 | $11.04 | | **Total** | **1,016,274** | **$11.62** | - The board of directors authorized additional purchases of **$5.0 million**, **$10.0 million**, and **$20 million** in January, March, and July 2022, respectively, under a program with no fixed expiration date[229](index=229&type=chunk) [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q report, including debt instruments and certifications from executive officers - Exhibits include instruments defining rights of long-term debt holders (omitted per Regulation S-K exclusion) and Rule 13a-14(a) and Section 1350 certifications from the CEO and CFO[231](index=231&type=chunk) [Signatures](index=53&type=section&id=Signatures) This section contains the official signatures of the registrant's authorized officers, certifying the accuracy and completeness of the report - The report is signed by Charles E. Bradley, Jr., President and CEO, and Jeffrey P. Fritz, Executive Vice President and CFO, on August 8, 2022[235](index=235&type=chunk)[236](index=236&type=chunk)

Consumer Portfolio Services, Inc. (NASDAQ:CPSS) Q2 2022 Earnings Conference Call July 26, 2022 1:00 PM ET Company Participants Charles Bradley - CEO Jeffrey Fritz - CFO Conference Call Participants Operator Good day, everyone, and welcome to the Consumer Portfolio Services 2022 Second 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. Any statements made during thi ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements, including balance sheets, operations, cash flows, and detailed notes for Q1 2022 [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets rose to $2,277,550 thousand by March 31, 2022, driven by finance receivables and increased liabilities | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Total Assets | $2,277,550 | $2,159,578 | | Cash and cash equivalents | $21,726 | $29,928 | | Restricted cash and equivalents | $164,550 | $146,620 | | Finance receivables at fair value | $1,903,857 | $1,749,098 | | Finance receivables, net | $141,744 | $176,184 | | Total Liabilities | $2,093,682 | $1,989,371 | | Securitization trust debt | $1,813,478 | $1,759,972 | | Warehouse lines of credit | $147,026 | $105,610 | | Total Shareholders' Equity | $183,868 | $170,207 | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Net income significantly increased to $21,115 thousand for Q1 2022, driven by higher revenues and reduced credit loss provisions | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Total Revenues | $74,366 | $63,112 | +17.8% | | Interest income | $70,060 | $66,093 | +6.0% | | Mark to finance receivables at fair value | $2,400 | $(4,417) | N/A | | Other income | $1,906 | $1,436 | +32.7% | | Total Expenses | $45,038 | $55,168 | -18.4% | | Provision for credit losses | $(9,400) | $0 | N/A | | Interest expense | $16,400 | $20,946 | -21.7% | | Income before income tax expense | $29,328 | $7,944 | +269.2% | | Income tax expense | $8,213 | $2,780 | +195.4% | | Net Income | $21,115 | $5,164 | +308.9% | | Basic Earnings per share | $0.99 | $0.23 | +330.4% | | Diluted Earnings per share | $0.75 | $0.21 | +257.1% | [Unaudited Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for Q1 2022 was $21,115 thousand, matching net income with no other comprehensive items | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net income | $21,115 | $5,164 | | Comprehensive income | $21,115 | $5,164 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased, investing activities used cash for receivables, and financing activities provided cash from debt | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by operating activities | $68,300 | $65,350 | | Net cash provided by (used in) investing activities | $(139,517) | $23,890 | | Net cash provided by (used in) financing activities | $80,945 | $(64,791) | | Increase in cash and cash equivalents | $9,728 | $24,449 | | Cash and restricted cash at end of period | $186,276 | $168,601 | [Unaudited Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity increased to $183,868 thousand by March 31, 2022, due to net income, partially offset by repurchases | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Retained Earnings, beginning of period | $116,531 | $69,007 | | Net income | $21,115 | $5,164 | | Retained Earnings, end of period | $137,646 | $74,171 | | Common Stock, beginning of period | $55,298 | $72,926 | | Common stock issued (options/warrants) | $5,860 | $298 | | Repurchase of common stock | $(14,104) | $(755) | | Stock-based compensation | $790 | $408 | | Common Stock, end of period | $47,844 | $72,877 | | Total Shareholders' Equity, end of period | $183,868 | $138,477 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Details accounting policies, fair value measurements, credit losses, debt, income taxes, legal proceedings, and subsequent events [(1) Summary of Significant Accounting Policies](index=8&type=section&id=(1)%20Summary%20of%20Significant%20Accounting%20Policies) Outlines business model, accounting policies for fair value, income, stock compensation, financial covenants, and COVID-19 impact - The company specializes in purchasing and servicing retail automobile installment sale contracts from licensed motor vehicle dealers for sub-prime customers, providing indirect financing[27](index=27&type=chunk) - Effective January 1, 2018, the company adopted the fair value method for finance receivables acquired on or after that date, recognizing interest income on a level yield basis and re-evaluating fair value each period[31](index=31&type=chunk)[32](index=32&type=chunk) | Other Income Component | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Direct mail revenues | $774 | $979 | | Convenience fee revenue | $80 | $240 | | Recoveries on previously charged-off | $20 | $15 | | Sales tax refunds | $144 | $171 | | Other | $888 | $31 | | Total Other Income | $1,906 | $1,436 | - The company recorded stock-based compensation costs of **$790,000** for the three months ended March 31, 2022, an increase from **$408,000** in the prior year, with **$8.4 million** in unrecognized costs remaining[45](index=45&type=chunk) - The company was in compliance with all financial covenants related to its securitization transactions, warehouse credit facilities, and residual interest financing as of March 31, 2022[52](index=52&type=chunk) - The COVID-19 pandemic may cause significant changes in fair value measurements due to potential impacts on the U.S. economy and obligors, affecting estimates for net charge-offs and portfolio amortization[54](index=54&type=chunk) [(2) Finance Receivables](index=13&type=section&id=(2)%20Finance%20Receivables) Details finance receivables portfolio, impairment evaluation, fair value measurement, credit loss allowance, and delinquency reporting - Finance receivables measured at fair value are recorded separately and excluded from credit loss provisions, as anticipated credit losses are embedded in the level yield computation[34](index=34&type=chunk)[56](index=56&type=chunk) | Delinquency Status | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------- | :---------------------------- | :------------------------------- | | Current | $152,949 | $186,625 | | 31 - 60 days | $22,426 | $30,980 | | 61 - 90 days | $9,252 | $12,070 | | 91 + days | $2,118 | $2,715 | | Total | $186,745 | $232,390 | - Finance receivables totaling **$2.1 million** (March 31, 2022) and **$2.7 million** (December 31, 2021) were on non-accrual status due to delinquency[58](index=58&type=chunk) [Allowance for Credit Losses – Finance Receivables](index=14&type=section&id=Allowance%20for%20Credit%20Losses%20%E2%80%93%20Finance%20Receivables) Credit loss allowance is based on historical data; Q1 2022 saw a $9.4 million reduction due to improved credit performance - The allowance for credit losses is estimated using historical loss experience from vintage pools, with adjustments for qualitative factors, and applies only to the legacy portfolio originated through December 2017[60](index=60&type=chunk)[61](index=61&type=chunk)[65](index=65&type=chunk)[150](index=150&type=chunk) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Balance at beginning of period | $56,206 | $80,790 | | Provision for credit losses | $(9,400) | $0 | | Charge-offs | $(5,359) | $(12,122) | | Recoveries | $3,554 | $4,829 | | Balance at end of period | $45,001 | $73,497 | - The **$9.4 million** reduction in provision for credit losses was primarily due to decreased lifetime expected credit losses from improved credit performance, an improved macroeconomic outlook, and higher used car prices[67](index=67&type=chunk) [(3) Securitization Trust Debt](index=16&type=section&id=(3)%20Securitization%20Trust%20Debt) Details securitization trust debt, totaling $1,813,478 thousand at March 31, 2022, with compliance to covenants and new securitization | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Securitization trust debt | $1,813,478 | $1,759,972 | | Receivables Pledged at March 31, 2022 | $2,003,373 | N/A | | Initial Principal (Total) | $4,851,034 | N/A | | Outstanding Principal at March 31, 2022 | $1,826,016 | N/A | | Outstanding Principal at Dec 31, 2021 | N/A | $1,771,953 | - The company was in compliance with all financial covenants related to securitization agreements and warehouse credit facilities as of March 31, 2022[74](index=74&type=chunk) - Restricted cash held as additional collateral for securitization agreements totaled approximately **$164.6 million** as of March 31, 2022[75](index=75&type=chunk) [(4) Debt](index=17&type=section&id=(4)%20Debt) Summarizes other debt, which increased to $224,936 thousand by March 31, 2022, mainly from warehouse lines of credit | Debt Type | Interest Rate (March 31, 2022) | Maturity (March 31, 2022) | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------------------- | :----------------------------- | :------------------------ | :---------------------------- | :------------------------------- | | Warehouse lines of credit | 3.00% over one month Libor (Min 3.75%) / 3.50% over commercial paper rate (Min 4.50%) | December 2022 / January 2024 | $147,026 | $105,610 | | Residual interest financing | 8.60% / 7.86% | January 2026 / June 2026 | $50,000 | $54,311 | | Subordinated renewable notes | Weighted average 8.65% | Weighted average March 2024 | $26,756 | $26,459 | | Total Other Debt | N/A | N/A | $224,936 | $186,780 | [(5) Interest Income and Interest Expense](index=18&type=section&id=(5)%20Interest%20Income%20and%20Interest%20Expense) Details interest income and expense components; total interest income rose to $72.5 million, while total interest expense decreased to $16.4 million | Interest Income Component | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Interest on finance receivables | $11,314 | $22,099 | | Interest on finance receivables at fair value | $58,740 | $43,988 | | Mark to finance receivables at fair value | $2,400 | $(4,417) | | Total Interest Income | $72,460 | $61,676 | | Interest Expense Component | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Securitization trust debt | $13,528 | $18,453 | | Warehouse lines of credit | $1,158 | $1,314 | | Residual interest financing | $1,094 | $566 | | Subordinated renewable notes | $620 | $613 | | Total Interest Expense | $16,400 | $20,946 | [(6) Earnings Per Share](index=19&type=section&id=(6)%20Earnings%20Per%20Share) Details basic and diluted EPS calculation; basic EPS increased to $0.99 and diluted EPS to $0.75 for Q1 2022 | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Basic Earnings per share | $0.99 | $0.23 | | Diluted Earnings per share | $0.75 | $0.21 | | Weighted average basic shares outstanding | 21,221 | 22,741 | | Weighted average diluted shares outstanding | 28,197 | 24,967 | [(7) Income Taxes](index=19&type=section&id=(7)%20Income%20Taxes) Income tax expense for Q1 2022 was $8.2 million, with an effective tax rate of 28%, and a net deferred tax asset of $18.9 million | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--------------------- | :----------------------------------------------- | :----------------------------------------------- | | Income tax expense | $8,213 | $2,780 | | Effective income tax rate | 28% | 35% | - The company had a recognized net deferred tax asset of **$18.9 million** as of March 31, 2022, consisting of **$11.6 million** federal and **$7.3 million** state deferred tax assets[86](index=86&type=chunk) [(8) Legal Proceedings](index=20&type=section&id=(8)%20Legal%20Proceedings) Describes legal proceedings, including two civil actions with potential material liability; probable losses are $3.4 million, possible up to $11.3 million - Two civil actions, a Connecticut deficiency judgment cross-claim and a California wage and hour lawsuit, could potentially result in material class action liabilities[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) - The estimated total probable incurred losses for legal contingencies as of March 31, 2022, is **$3.4 million**, with a reasonably possible loss range not exceeding **$11.3 million**[95](index=95&type=chunk) [(9) Fair Value Measurements](index=20&type=section&id=(9)%20Fair%20Value%20Measurements) Explains fair value measurements for finance receivables, classified as Level 3 due to unobservable inputs; totaled $1,903,857 thousand at March 31, 2022 - Finance receivables acquired since January 2018 are valued using the fair value method, classified as Level 3 measurements due to significant unobservable inputs such as discount rate and cumulative net losses[100](index=100&type=chunk)[102](index=102&type=chunk)[105](index=105&type=chunk) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :------------------------------- | | Finance receivables measured at fair value | $1,903,857 | $1,749,098 | | Contractual Balance | $2,133,969 | $1,972,699 | | Unobservable Inputs | March 31, 2022 | December 31, 2021 | | :------------------------ | :------------- | :---------------- | | Discount rate | 9.9% - 11.3% | 10.6% - 11.3% | | Cumulative net losses | 10.0% - 18.4% | 10.00% - 18.4% | [(10) Subsequent Events](index=24&type=section&id=(10)%20Subsequent%20Events) Describes a subsequent event: the April 20, 2022, securitization of $395.6 million in asset-backed notes secured by $430.0 million in receivables - On April 20, 2022, the company executed the CPS Auto Receivables Trust 2022-B securitization, selling **$395.6 million** of asset-backed notes secured by **$430.0 million** in automobile receivables[110](index=110&type=chunk) - The 2022-B transaction has initial credit enhancement of **1.00%** cash deposit and **8.00%** overcollateralization, with accelerated principal payments to reach **9.00%** of original pool balance or **25.80%** of outstanding balance[111](index=111&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides business overview, discusses financing, analyzes Q1 2022 operations, credit experience, liquidity, and forward-looking statements [Overview](index=25&type=section&id=Overview) The company finances and services sub-prime auto contracts, originating $18.5 billion and managing a $2.38 billion portfolio by March 31, 2022 - The company specializes in purchasing and servicing retail automobile contracts for sub-prime customers, primarily through franchised dealers, and has originated approximately **$18.5 billion** in contracts since March 1991[113](index=113&type=chunk) | Period | Contracts Purchased in Period (in thousands) | Managed Portfolio at Period End (in thousands) | | :-------------------------- | :------------------------------------------- | :--------------------------------------------- | | 2016 | $1,088,785 | $2,308,070 | | 2017 | $859,069 | $2,333,530 | | 2018 | $902,416 | $2,380,847 | | 2019 | $1,002,782 | $2,416,042 | | 2020 | $742,584 | $2,174,972 | | 2021 | $1,146,321 | $2,249,069 | | Three months ended Mar 31, 2022 | $409,961 | $2,381,588 | - The company began purchasing contracts for immediate sale to a third-party in May 2021, earning origination and servicing fees. For Q1 2022, **$20.6 million** was originated under this third-party program, with a managed portfolio of **$57.2 million**[114](index=114&type=chunk) [Securitization and Warehouse Credit Facilities](index=25&type=section&id=Securitization%20and%20Warehouse%20Credit%20Facilities) Finances auto contracts via securitizations and warehouse credit facilities; 19 active securitizations and $200 million short-term funding capacity - The company finances automobile contracts through securitizations (long-term) and warehouse credit facilities (interim), with all active securitizations structured as secured financings[117](index=117&type=chunk)[122](index=122&type=chunk) - Since 1994, the company has completed **92** term securitizations, with **19** currently active as secured financings[123](index=123&type=chunk) | Period | Number of Term Securitizations | Receivables Pledged in Term Securitizations (in thousands) | | :----- | :----------------------------- | :--------------------------------------------------------- | | 2016 | 4 | $1,214,997 | | 2017 | 4 | $870,000 | | 2018 | 4 | $883,452 | | 2019 | 4 | $1,014,124 | | 2020 | 3 | $741,867 | | 2021 | 4 | $1,145,002 | - The company currently has a short-term funding capacity of **$200 million** from warehouse credit facilities[125](index=125&type=chunk) [Financial Covenants](index=27&type=section&id=Financial%20Covenants) The company must meet financial covenants for securitization and credit facilities, including liquidity and leverage, and was compliant as of March 31, 2022 - The company must comply with financial covenants for securitization transactions and warehouse credit facilities, including maintaining minimum liquidity and net worth and not exceeding maximum leverage levels[129](index=129&type=chunk) - As of March 31, 2022, the company was in compliance with all financial covenants[129](index=129&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Q1 2022 revenues rose 17.8% to $74.4 million, driven by fair value receivables; expenses decreased 18.4% to $45.0 million due to lower interest and credit losses | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Total Revenues | $74,366 | $63,112 | +17.8% | | Mark to finance receivables at fair value | $2,400 | $(4,417) | N/A | | Average balance of fair value receivables | $2,067,286 | $1,687,232 | +22.5% | | Other income (from third-party fees) | $1,906 (incl. $844) | $1,436 | +32.7% | | Total Operating Expenses | $45,038 | $55,168 | -18.4% | [Revenues](index=29&type=section&id=Revenues) Revenues increased 17.8% to $74.4 million, driven by fair value receivables mark-up and balance growth; other income rose 32.7% - Revenues increased by **17.8%** to **$74.4 million**, driven by a **$2.4 million** mark-up reversal on fair value receivables (vs. **$4.4 million** mark-down in prior year) and a **22.5%** increase in their average balance[131](index=131&type=chunk)[132](index=132&type=chunk) - Other income increased by **32.7%** to **$1.9 million**, primarily due to **$844,000** in origination and servicing fees from third-party receivables, a new program started in May 2021[132](index=132&type=chunk) [Expenses](index=29&type=section&id=Expenses) Total operating expenses decreased 18.4% to $45.0 million, primarily from lower interest expense and a $9.4 million reduction in credit loss provision - Total operating expenses decreased by **18.4%** to **$45.0 million**, primarily due to a **$4.9 million** decrease in securitization trust debt interest expense and a **$9.4 million** reduction in the provision for credit losses[135](index=135&type=chunk)[138](index=138&type=chunk)[148](index=148&type=chunk) | Expense Category | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Employee costs | $22,152 | $20,159 | +9.9% | | General and administrative | $8,231 | $7,748 | +6.2% | | Interest expense | $16,400 | $20,946 | -21.7% | | Provision for credit losses | $(9,400) | $0 | N/A | | Sales expense | $5,386 | $3,986 | +35.1% | | Occupancy | $1,852 | $1,901 | -2.6% | | Depreciation and amortization | $417 | $428 | -2.6% | - Interest expense on securitization trust debt decreased by **$4.9 million** due to a lower average balance (**$1,808.5 million** vs. **$1,876.8 million**) and a reduced annualized average rate (**3.0%** vs. **3.9%**)[139](index=139&type=chunk) - Sales expense increased by **$1.4 million** to **$5.4 million**, driven by a significant increase in new contracts purchased (**$410.0 million** in Q1 2022 vs. **$205.5 million** in Q1 2021)[151](index=151&type=chunk) [Credit Experience](index=34&type=section&id=Credit%20Experience) Analyzes credit performance; delinquencies (31+ days) rose to 8.3%, total delinquencies and repossessions to 9.6%, while net charge-offs decreased to 3.3% | Metric | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | December 31, 2021 (in thousands) | | :--------------------------------------------- | :---------------------------- | :---------------------------- | :------------------------------- | | Gross servicing portfolio | $2,324,354 | $2,119,073 | $2,209,430 | | Total delinquencies (31+ days) | $173,197 | $134,280 | $212,253 | | Amount in repossession | $26,442 | $30,353 | $22,912 | | Delinquencies as % of gross servicing portfolio | 8.3% | 7.5% | 9.6% | | Total delinquencies & repossession as % of gross servicing portfolio | 9.6% | 8.1% | 10.6% | | Portfolio Type | Average Servicing Portfolio Outstanding (March 31, 2022, in thousands) | Annualized Net Charge-offs as % of Average Servicing Portfolio (March 31, 2022) | Average Servicing Portfolio Outstanding (March 31, 2021, in thousands) | Annualized Net Charge-offs as % of Average Servicing Portfolio (March 31, 2021) | | :----------------------------- | :--------------------------------------------------------------------- | :------------------------------------------------------------------------------ | :--------------------------------------------------------------------- | :------------------------------------------------------------------------------ | | Finance Receivables Portfolio | $206,197 | 0.8% | $451,425 | 12.6% | | Fair Value Receivables Portfolio | $2,067,286 | 3.5% | $1,687,232 | 4.6% | | Total Owned Portfolio | $2,273,483 | 3.3% | $2,138,657 | 6.3% | [Extensions](index=36&type=section&id=Extensions) The company grants one-month payment extensions, limited by agreements, which are effective in mitigating losses, with 56.7% of 2018 extensions active or paid off - The company grants one-month payment extensions, typically limited to two per 12-month period and six over the contract life, to assist obligors with temporary cash flow issues[161](index=161&type=chunk) - The extension program is considered effective; for example, **56.7%** of accounts granted extensions in 2018 were active or paid off by March 31, 2022[167](index=167&type=chunk) | Metric | Three Months Ended March 31, 2022 | Year Ended December 31, 2021 | Three Months Ended March 31, 2021 | | :-------------------------------------------- | :-------------------------------- | :--------------------------- | :-------------------------------- | | Average number of extensions granted per month | 4,061 | 3,918 | 3,535 | | Average monthly extensions as % of average outstandings | 2.6% | 2.5% | 2.2% | [Non-Accrual Receivables](index=39&type=section&id=Non-Accrual%20Receivables) Contracts over 90 days past due are non-accrual; restored if delinquency falls below 90 days, independent of extensions - Contracts are placed on non-accrual status when greater than **90** days past due, as resolution is unlikely, and no interest income is recognized[171](index=171&type=chunk) - Accounts are restored to full accrual status if delinquency falls below the **90**-day threshold, and the non-accrual policy is independent of extension grants[172](index=172&type=chunk)[173](index=173&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) Cash is sourced from securitizations and customer payments; Q1 2022 saw operating cash flow of $68.3 million, investing used $139.5 million, and financing provided $80.9 million - Primary cash sources include securitization proceeds, warehouse credit facilities, customer payments, and origination fees; primary uses are contract purchases, debt repayment, and operating expenses[174](index=174&type=chunk) | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by operating activities | $68,300 | $65,350 | | Net cash used in investing activities | $(139,517) | $23,890 | | Net cash provided by financing activities | $80,945 | $(64,791) | | Purchases of finance receivables | $393,407 | $205,500 | | New securitization trust debt issued | $316,800 | $230,500 | | Net advances on warehouse lines of credit | $42,200 | $(48,300) | - As of March 31, 2022, the company had **$21.7 million** in unrestricted cash and **$53.0 million** in available borrowings under warehouse credit facilities, with **$93.9 million** in eligible collateral[181](index=181&type=chunk) - The company had approximately **$2,036.7 million** of debt outstanding at March 31, 2022, primarily **$1,813.5 million** in securitization trust debt and **$147.0 million** in warehouse lines of credit[184](index=184&type=chunk) [Forward Looking Statements](index=41&type=section&id=Forward%20Looking%20Statements) Highlights forward-looking statements on credit losses, fair value, and financial results, subject to economic, financing, and regulatory risks - Forward-looking statements include provisions for credit losses, fair value valuations, and future financial results, which are dependent on estimates of future charge-offs, recovery rates, and cash receipts[187](index=187&type=chunk)[198](index=198&type=chunk) - Key risk factors affecting forward-looking statements include changes in general economic conditions, financing availability and terms, interest rates, competition, credit loss levels, and regulatory requirements[196](index=196&type=chunk)[198](index=198&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms effective internal controls and procedures as of March 31, 2022, with no material changes during the quarter - The company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022, by the principal executive and financial officers[188](index=188&type=chunk) - There have been no material changes in internal controls over financial reporting during the most recently completed fiscal quarter[188](index=188&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) Incorporates legal proceedings from Note 8, detailing consumer litigation with probable losses of $3.4 million and a possible range up to $11.3 million - The information on legal proceedings is incorporated by reference from Note 8 of the Unaudited Condensed Consolidated Financial Statements[191](index=191&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) Updates risk factors, emphasizing substantial indebtedness of $2,036.7 million at March 31, 2022, impacting financial condition and flexibility - The company has substantial indebtedness, totaling approximately **$2,036.7 million** at March 31, 2022, primarily from securitization trust debt (**$1,813.5 million**) and warehouse lines of credit (**$147.0 million**)[193](index=193&type=chunk) - Substantial indebtedness increases vulnerability to adverse economic conditions, reduces cash flow for operations, limits business flexibility, creates a competitive disadvantage, and restricts ability to borrow additional funds[194](index=194&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 922,363 common shares at an average of $11.19 per share during Q1 2022 under an authorization program | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :---------- | :------------------------------- | :--------------------------- | | January 2022 | 119,000 | $11.68 | | February 2022 | 254,492 | $11.04 | | March 2022 | 548,871 | $11.16 | | Total | 922,363 | $11.19 | - The board of directors authorized an additional **$15.0 million** for stock repurchases in January and March 2022, bringing the total authorized under the program to **$103.2 million** since 2002[202](index=202&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including debt instruments, CEO/CFO certifications, and Inline XBRL documents - The exhibits include certifications from the CEO and CFO (Rule 13a-14(a) and Section 1350) and Inline XBRL documents for financial data[205](index=205&type=chunk) [Signatures](index=45&type=section&id=Signatures) The report was signed by Charles E. Bradley, Jr. (President and CEO) and Jeffrey P. Fritz (EVP and CFO) on May 4, 2022 - The report was signed by Charles E. Bradley, Jr. (President and CEO) and Jeffrey P. Fritz (EVP and CFO) on May 4, 2022[211](index=211&type=chunk)[212](index=212&type=chunk)

Consumer Portfolio Services, Inc. (NASDAQ:CPSS) Q1 2022 Earnings Conference Call April 19, 2022 1:00 PM ET Company Participants Charles Bradley – Chief Executive Officer Jeffrey Fritz – Chief Financial Officer Conference Call Participants Operator Good day, everyone, and welcome to the Consumer Portfolio Services 2022 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 st ...