[PART I — FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Consumer Portfolio Services, Inc. as of September 30, 2023, and for the three and nine-month periods then ended, along with detailed notes on accounting policies [Unaudited Condensed Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2023, total assets increased to $2.88 billion from $2.75 billion at year-end 2022, primarily driven by a rise in Finance receivables measured at fair value, while total liabilities grew to $2.61 billion from $2.52 billion, and shareholders' equity increased to $265.9 million from $228.4 million Condensed Consolidated Balance Sheet Data (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$2,880,848** | **$2,752,768** | | Finance receivables measured at fair value | $2,671,540 | $2,476,617 | | Finance receivables, net | $34,265 | $70,551 | | **Total Liabilities** | **$2,614,952** | **$2,524,379** | | Warehouse lines of credit | $240,384 | $285,328 | | Securitization trust debt | $2,243,284 | $2,108,744 | | **Total Shareholders' Equity** | **$265,896** | **$228,389** | [Unaudited Condensed Consolidated Statements of Operations](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended September 30, 2023, net income was $10.4 million, a decrease from $25.4 million in the prior-year period, with the nine-month net income at $38.2 million, down from $71.8 million year-over-year, primarily due to a significant increase in interest expense Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $92,079 | $90,305 | $260,037 | $246,689 | | Interest Expense | $37,889 | $23,483 | $106,354 | $58,654 | | Total Expenses | $77,861 | $55,961 | $208,784 | $148,801 | | Net Income | $10,379 | $25,413 | $38,156 | $71,848 | | Diluted EPS | $0.41 | $0.95 | $1.51 | $2.61 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2023, net cash provided by operating activities was $181.9 million, net cash used in investing activities was $275.8 million primarily for finance receivables, and net cash provided by financing activities was $73.1 million, reflecting debt proceeds offset by repayments and stock purchases Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $181,918 | $164,744 | | Net cash used in investing activities | ($275,752) | ($566,524) | | Net cash provided by financing activities | $73,138 | $397,938 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes provide critical details on accounting policies, including the use of fair value for finance receivables acquired since 2018, debt structures, legal proceedings, and fair value measurement methodologies, with a key subsequent event being a $286.1 million securitization in October 2023 - The company specializes in purchasing and servicing sub-prime retail automobile contracts, which it finances through securitizations and warehouse credit facilities[107](index=107&type=chunk) - Finance receivables acquired since January 1, 2018, are accounted for at fair value, with interest income recognized on a level yield basis, meaning no separate provision for credit losses is made for this portfolio[130](index=130&type=chunk)[131](index=131&type=chunk) - Subsequent to the quarter end, on October 24, 2023, the company executed a securitization, selling **$286.1 million** of asset-backed notes secured by **$306.7 million** in automobile receivables[70](index=70&type=chunk) - The company is involved in various legal proceedings, including a wage and hour claim settled by agreement in August 2023 (pending court approval), and a civil investigative demand from Massachusetts, for which a probable loss contingency of **$3.8 million** has been recorded[190](index=190&type=chunk)[226](index=226&type=chunk)[210](index=210&type=chunk) Debt Outstanding (in thousands) | Debt Type | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Securitization trust debt | $2,257,832 | $2,122,918 | | Warehouse lines of credit | $241,471 | $287,878 | | Residual interest financing | $50,000 | $50,000 | | Subordinated renewable notes | $19,163 | $25,263 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, including business overview, financing strategies, and a comparative analysis of operating results for the three and nine-month periods ended September 30, 2023 and 2022 [Overview](index=27&type=section&id=Overview) The company is a specialty finance firm that purchases and services sub-prime auto contracts, primarily from franchised dealers, having originated approximately $21.0 billion in contracts since 1991, with its business model relying on warehouse facilities and securitizations, and a managed portfolio growing to $3.18 billion as of September 30, 2023 Contract Purchases and Managed Portfolio (in thousands) | Period | Contracts Purchased in Period | Managed Portfolio at Period End | | :--- | :--- | :--- | | 2022 | $1,845,385 | $3,001,308 | | Nine months ended Sep 30, 2023 | $1,055,957 | $3,181,758 | - The company also originates and services contracts for a third-party, originating **$92.0 million** under this program in the first nine months of 2023[75](index=75&type=chunk) [Results of Operations - Three Months Ended Sep 30, 2023](index=29&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20Sep%2030%2C%202023) For Q3 2023, revenues increased 2.0% to $92.1 million, driven by a 10.8% increase in the average loan portfolio balance, but total operating expenses surged 39.1% to $77.9 million, primarily due to a $14.4 million increase in interest expense, leading to a significant drop in pre-tax income to $14.2 million from $34.3 million in Q3 2022, despite a $2.0 million reduction to the provision for credit losses Q3 2023 vs Q3 2022 Performance (in millions) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $92.1 | $90.3 | +2.0% | | Interest Expense | $37.9 | $23.5 | +61.3% | | Total Operating Expenses | $77.9 | $56.0 | +39.1% | | Income Before Tax | $14.2 | $34.3 | -58.6% | - The annualized average rate on securitization trust debt rose to **5.4%** from **3.6%** YoY, and the rate on warehouse debt increased to **10.9%** from **7.7%** YoY, driving the surge in interest expense[219](index=219&type=chunk)[3](index=3&type=chunk) - Contract purchases decreased to **$322.4 million** in Q3 2023 from **$468.2 million** in Q3 2022[7](index=7&type=chunk) [Results of Operations - Nine Months Ended Sep 30, 2023](index=33&type=section&id=Results%20of%20Operations%20-%20Nine%20Months%20Ended%20Sep%2030%2C%202023) For the nine months ended September 30, 2023, revenues grew 5.4% to $260.0 million, while operating expenses increased 40.3% to $208.8 million, primarily due to interest expense nearly doubling to $106.4 million from $58.7 million, resulting in pre-tax income falling to $51.3 million from $97.9 million, despite a $20.7 million reduction in the provision for credit losses Nine Months 2023 vs 2022 Performance (in millions) | Metric | 9M 2023 | 9M 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $260.0 | $246.7 | +5.4% | | Interest Expense | $106.4 | $58.7 | +81.3% | | Total Operating Expenses | $208.8 | $148.8 | +40.3% | | Income Before Tax | $51.3 | $97.9 | -47.6% | - Interest expense on securitization trust debt increased by **$39.5 million**, and on warehouse credit lines by **$8.6 million**, due to higher average balances and significantly higher interest rates[13](index=13&type=chunk)[242](index=242&type=chunk) - A reduction to the provision for credit losses of **$20.7 million** was recorded, as previous estimates for future losses exceeded actual incurred losses[245](index=245&type=chunk) [Credit Experience](index=38&type=section&id=Credit%20Experience) The company's credit performance is detailed through delinquency, repossession, and net charge-off data, with total delinquencies at 11.7% as of September 30, 2023, and an annualized net charge-off rate of 6.9% for Q3 2023, emphasizing payment extensions as a key loss mitigation tool Delinquency Experience (% of gross servicing portfolio amount) | Metric | Sep 30, 2023 | Sep 30, 2022 | Dec 31, 2022 | | :--- | :--- | :--- | :--- | | Total Delinquencies | 11.7% | 9.7% | 11.2% | | Total Delinquencies & Repossessions | 13.3% | 10.9% | 12.7% | - The annualized net charge-off rate for the total owned portfolio was **6.9%** for Q3 2023, compared to **4.9%** for Q3 2022[268](index=268&type=chunk)[290](index=290&type=chunk) - The company views its extension program as effective, with **69.1%** of accounts granted extensions in 2019 either paid in full or active and performing as of September 30, 2023[270](index=270&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) The company's primary liquidity sources are cash from operations, securitization proceeds, and warehouse credit facilities, with $8.3 million in unrestricted cash and $159.6 million available under warehouse facilities as of September 30, 2023, and total debt outstanding of approximately $2.55 billion - Primary sources of cash are securitizations, warehouse credit facilities, and customer payments, with primary uses being purchasing auto contracts and servicing debt[297](index=297&type=chunk) - As of September 30, 2023, the company had **$8.3 million** in unrestricted cash and **$159.6 million** available under warehouse credit facilities, though available borrowings are limited by eligible collateral of approximately **$19.6 million**[25](index=25&type=chunk) - Total debt outstanding was approximately **$2.55 billion** at September 30, 2023, primarily composed of securitization trust debt[26](index=26&type=chunk) - Net cash from financing activities decreased to **$73.1 million** for the nine months ended Sep 30, 2023, from **$397.9 million** in the prior year, mainly due to lower new securitization debt issuance and net repayments on warehouse lines versus net advances in 2022[42](index=42&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures are effective, with no material changes to internal controls over financial reporting during the most recently completed fiscal quarter - The CEO and CFO have concluded that the company's disclosure controls and procedures are effective for timely recording, processing, and reporting of material information[28](index=28&type=chunk) - No material changes were made to internal controls over financial reporting during the most recent fiscal quarter[28](index=28&type=chunk) [PART II — OTHER INFORMATION](index=45&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the information on legal proceedings detailed in Note 8 to the Unaudited Condensed Consolidated Financial Statements - Information regarding legal proceedings is provided in Note 8 to the financial statements and is incorporated here by reference[280](index=280&type=chunk) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) This section highlights material risks to the company, including substantial indebtedness of $2.55 billion as of September 30, 2023, which could limit financial flexibility, and a potential rescission liability of up to $5.3 million related to past sales of subordinated renewable notes - The company has substantial indebtedness of approximately **$2.55 billion** as of September 30, 2023, which poses risks such as limiting financial flexibility and increasing vulnerability to adverse economic conditions[302](index=302&type=chunk)[30](index=30&type=chunk) - The company faces potential rescission liability for certain subordinated renewable notes sold after its registration statement expired, with approximately **$5.3 million** of such notes outstanding as of October 31, 2023, which could require repurchase[304](index=304&type=chunk)[31](index=31&type=chunk) [Issuer Purchases of Equity Securities](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the third quarter of 2023, the company repurchased a total of 61,685 shares of its common stock at an average price of $9.59 per share under a publicly announced program, with approximately $1.9 million remaining for future purchases as of September 30, 2023 Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jul 2023 | 10,257 | $11.31 | | Aug 2023 | – | $– | | Sep 2023 | 51,428 | $9.25 | | **Total** | **61,685** | **$9.59** | - As of September 30, 2023, approximately **$1.9 million** remained available for share repurchases under the authorized program[308](index=308&type=chunk)[34](index=34&type=chunk) [Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, which include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 1350, as well as Inline XBRL documents - The exhibits filed with the report include Rule 13a-14(a) certifications for the CEO and CFO, Section 1350 certifications, and various Inline XBRL documents[309](index=309&type=chunk)[52](index=52&type=chunk)[36](index=36&type=chunk) [Signatures](index=49&type=section&id=Signatures) The report is duly signed and authorized by the company's Chief Executive Officer, Charles E. Bradley, Jr., and its Executive Vice President and Chief Financial Officer, Denesh Bharwani, on November 9, 2023 - The report was signed on November 9, 2023, by Charles E. Bradley, Jr. (Principal Executive Officer) and Denesh Bharwani (Principal Financial Officer)[289](index=289&type=chunk)[48](index=48&type=chunk)[37](index=37&type=chunk)

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 June 30, 2023 Commission file number: 1-11416 CONSUMER PORTFOLIO SERVICES, INC. (Exact name of registrant as specified in its charter) California 33-0459135 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 3800 Howard Hughes Parkway, Suite 1400, ...

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 ...

Financial Performance - Revenues for the three months ended March 31, 2023, were $83.1 million, an increase of $8.7 million, or 11.7%, from $74.4 million in the prior year[108]. - Interest income increased by $10.0 million, or 14.3%, to $80.1 million, driven by a 34.4% increase in the average balance of finance receivables measured at fair value[109]. - Total operating expenses rose to $64.7 million, an increase of $19.6 million, or 43.6%, primarily due to higher interest and general administrative expenses[112]. - Interest expense for the three months ended March 31, 2023, was $32.8 million, representing 50.7% of total operating expenses, compared to $16.4 million, or 36.4%, in the prior year[114]. - Other income for the three months ended March 31, 2023, was $3.0 million, a 59.4% increase from $1.9 million in the comparable period in 2022[109]. - Income tax expense for the three months ended March 31, 2023, was $4.6 million, representing a 25% effective tax rate, down from $8.2 million and 28% in the prior period[127]. Portfolio and Contracts - Contracts purchased in dollars for the three months ended March 31, 2023, were $415.2 million, compared to $410.0 million in the same period of the previous year[113]. - The managed portfolio outstanding increased to $2.8818 billion, up from $2.3816 billion in the prior year[113]. - The average servicing portfolio outstanding as of March 31, 2023, was $2,856,598,000, compared to $2,273,483,000 in 2022, reflecting a year-over-year increase of approximately 25.6%[134]. - The total managed portfolio, excluding portfolios originated and owned by third parties, was $2,687,308,000 as of March 31, 2023, compared to $2,184,142,000 in the previous year[141]. Debt and Financing - As of March 31, 2023, the company had a short-term funding capacity of $400 million across two credit facilities[102]. - Total outstanding debt as of March 31, 2023, was approximately $2,534.0 million, consisting of $2,175.1 million in securitization trust debt and $285.8 million from warehouse lines of credit[154]. - The company completed one securitization totaling $324.8 million of notes sold during Q1 2023[151]. - Net cash provided by financing activities was $62.3 million in Q1 2023, down from $80.9 million in the prior year, with $324.8 million in new securitization trust debt issued[148]. Cash Flow and Investments - Net cash provided by operating activities for Q1 2023 was $65.1 million, a decrease of 4.7% from $68.3 million in Q1 2022[146]. - Net cash used in investing activities decreased to $121.2 million in Q1 2023 from $139.5 million in the prior year, with purchases of finance receivables at $353.9 million compared to $393.4 million[147]. - As of March 31, 2023, the company had $10.2 million in unrestricted cash and $114.2 million in available borrowings under warehouse credit facilities[151]. Credit Performance and Risk - A reduction to provision for credit losses on finance receivables was recorded at $9.0 million for the three months ended March 31, 2023, compared to $9.4 million in the prior year[122]. - Total delinquencies as a percentage of gross servicing portfolio increased to 11.0% as of March 31, 2023, compared to 9.9% in the prior year[130]. - Annualized net charge-offs as a percentage of the average servicing portfolio increased to 5.2% for the three months ended March 31, 2023, up from 3.3% in the same period of 2022[134]. - The company considers any charge-offs occurring more than six months after an extension to be at least partially successful, as it reflects additional payments made by obligors[140]. Extensions and Customer Base - The company granted an average of 6,089 extensions per month in the three months ended March 31, 2023, compared to 4,869 in the same period of 2022, representing a 25% increase[141]. - As of March 31, 2023, 69.9% of accounts granted extensions in 2019 were either paid in full or active and performing, indicating the effectiveness of the extension program[139]. - The total number of contracts with one extension as of March 31, 2023, was 31,198, with an outstanding amount of $547,720,000[141]. - The average number of outstanding accounts increased to 173,731 as of March 31, 2023, from 162,264 in the previous year, indicating growth in the customer base[141]. Economic Outlook - Future cash flows and earnings are uncertain, which may impair the ability to service and repay debt[155]. - Forward-looking statements indicate that factors such as economic conditions and market changes could significantly impact revenues and expenses[156].

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)

Financial Data and Key Metrics Changes - Revenues for Q3 2022 were $90.3 million, up 10% from $82 million in Q2 2022 and up 32% from $68.6 million in Q3 2021 [13] - Pre-tax earnings for Q3 2022 were $34.3 million, slightly up from $34.2 million in Q2 2022 and significantly up from $19.5 million in Q3 2021 [19] - Net income for Q3 2022 was $25.4 million, compared to $25.3 million in Q2 2022 and up 85% from $13.7 million in Q3 2021 [20] - Earnings per share for Q3 2022 increased to $0.95, up 83% from $0.52 in Q3 2021 [21] Business Line Data and Key Metrics Changes - The fair value portfolio, which constitutes 96% of the total portfolio, grew 8% quarter-over-quarter and 41% year-over-year, yielding 11.4% [14][15] - The legacy portfolio now represents only 4% of the total, yielding 24% [15] - Core operating expenses were $38.5 million in Q3 2022, a 4% increase from $37 million in Q2 2022 and a 19% increase from $32 million in Q3 2021 [23] Market Data and Key Metrics Changes - The company originated $468 million in Q3 2022, a 14% drop from $548 million in Q2 2022, but applications increased to 653,000, a 6.2% sequential increase [28][29] - Year-to-date originations for 2022 reached $1.4 billion, a 71% growth rate compared to $818 million in the same period in 2021 [31] Company Strategy and Development Direction - The company is focusing on maintaining a rep force of 108 and increasing its dealer base, which has grown 15% this year [32] - The company is leveraging technology to improve efficiency, including partnerships for robotic process automation [37][38] - The company aims to cut costs and improve operational efficiency while navigating a challenging economic environment [50] Management's Comments on Operating Environment and Future Outlook - Management noted that despite rising interest rates, demand for financing remains strong, with expectations for continued business [10][11] - The company is tightening credit and raising rates to maintain margins, while credit performance remains strong compared to competitors [12][41] - Management expressed optimism about the future, anticipating a strong close to 2022 and readiness for the next year [50] Other Important Information - The company has increased its warehouse capacity to $400 million, which provides a strong liquidity position [6][22] - The company is not reliant on forward flow agreements, positioning it favorably compared to competitors [45][46] Q&A Session Summary Question: How is the company managing the impact of rising interest rates? - Management indicated that they are raising rates in line with the Fed and tightening credit to maintain margins while still seeing strong demand for their products [11][41] Question: What are the expectations for future growth? - Management expressed confidence in maintaining growth through increased originations and efficiency improvements, despite a slight slowdown in Q3 [31][50]

[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 ...