CPS(CPSS) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the company's unaudited condensed consolidated financial statements and related notes for the specified periods Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Consumer Portfolio Services, Inc. and its subsidiaries, including the balance sheets, statements of operations, comprehensive income, cash flows, and shareholders' equity, along with detailed notes explaining significant accounting policies, financial instruments, debt, and other relevant financial information for the periods ended September 30, 2021, and December 31, 2020 Unaudited Condensed Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates Key Balance Sheet Data (in thousands): | Metric | Sep 30, 2021 | Dec 31, 2020 | | :----------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $28,799 | $13,466 | | Restricted cash and equivalents | $144,966 | $130,686 | | Finance receivables measured at fair value | $1,667,193 | $1,523,726 | | Finance receivables, net | $213,916 | $411,343 | | Total assets | $2,106,599 | $2,145,895 | | Total liabilities | $1,945,205 | $2,012,533 | | Total stockholders' equity | $161,394 | $133,362 | - Total assets decreased by approximately $39.3 million from December 31, 2020, to September 30, 2021, primarily due to a reduction in net finance receivables not measured at fair value, partially offset by an increase in fair value receivables[10] - Total liabilities decreased by approximately $67.3 million, driven mainly by a reduction in securitization trust debt and warehouse lines of credit[10] - Shareholders' equity increased by $28.0 million, reflecting an increase in retained earnings[11] Unaudited Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income for the three and nine months ended September 30, 2021 and 2020 Key Operations Data (in thousands, except per share data): | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $68,565 | $70,669 | $198,446 | $208,728 | | Total operating expenses | $49,018 | $64,780 | $157,080 | $195,084 | | Income before income tax expense (benefit) | $19,547 | $5,889 | $41,366 | $13,644 | | Income tax expense (benefit) | $5,864 | $2,121 | $12,807 | $(3,888) | | Net income | $13,683 | $3,768 | $28,559 | $17,532 | | Basic EPS | $0.59 | $0.17 | $1.25 | $0.77 | | Diluted EPS | $0.52 | $0.16 | $1.12 | $0.74 | - Net income significantly increased for both the three-month and nine-month periods ended September 30, 2021, compared to the prior year, driven by lower operating expenses, particularly reduced provision for credit losses and interest expense[13] - Total revenues decreased year-over-year for both periods, primarily due to a decrease in interest income from the legacy finance receivables portfolio, partially offset by increased interest income from fair value receivables and other income[13] Unaudited Condensed Consolidated Statements of Comprehensive Income Presents the company's net income and other comprehensive income components for the specified periods Comprehensive Income (in thousands): | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $13,683 | $3,768 | $28,559 | $17,532 | | Comprehensive income | $13,683 | $3,768 | $28,559 | $17,532 | - Comprehensive income mirrors net income, with no other comprehensive income or loss components reported for the periods presented[15] Unaudited Condensed Consolidated Statements of Cash Flows Outlines the cash inflows and outflows from operating, investing, and financing activities Key Cash Flow Data (in thousands): | Metric | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $163,076 | $190,566 | | Net cash provided by (used in) investing activities | $(50,174) | $45,391 | | Net cash used in financing activities | $(83,289) | $(164,624) | | Increase in cash and cash equivalents | $29,613 | $71,333 | | Cash and restricted cash at end of period | $173,765 | $212,165 | - Operating cash flow decreased by $27.5 million year-over-year, while investing activities shifted from providing cash to using cash, primarily due to increased purchases of finance receivables measured at fair value[17] - Cash used in financing activities significantly decreased, mainly due to higher proceeds from securitization trust debt and residual interest financing, coupled with lower repayments of warehouse lines of credit[17] Unaudited Condensed Consolidated Statements of Shareholders' Equity Tracks changes in the company's equity accounts over the nine-month periods Shareholders' Equity (in thousands): | Metric | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Common Stock (Shares Outstanding) - End of period | 23,000 | 22,509 | | Common Stock (Value) - End of period | $72,399 | $72,197 | | Retained Earnings - End of period | $97,566 | $64,868 | | Total Shareholders' Equity - End of period | $161,394 | $128,644 | - Total shareholders' equity increased by $32.75 million for the nine months ended September 30, 2021, primarily driven by an increase in retained earnings due to net income[19] - The company repurchased common stock totaling $3.96 million for the nine months ended September 30, 2021, compared to $0.97 million in the prior year period[19] Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations of significant accounting policies and financial statement line items Summary of Significant Accounting Policies Describes the key accounting principles and methods used in preparing the financial statements - The company specializes in purchasing and servicing retail automobile installment sale contracts from dealers, providing indirect financing to sub-prime customers, and also originates direct loans to consumers and has acquired contracts through M&A[21] - Finance receivables acquired after January 1, 2018, are measured at fair value, with interest income recognized on a level yield basis that incorporates anticipated credit losses, and no separate provision for credit losses is made for these receivables[25][28] Other Income Components (in thousands): | Component | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Direct mail revenues | $779 | $760 | $2,648 | $2,444 | | Convenience fee revenue | $120 | $280 | $540 | $1,340 | | Recoveries on previously charged-off contracts | $18 | $4 | $78 | $79 | | Sales tax refunds | $134 | $192 | $423 | $601 | | Other | $496 | $3 | $623 | $44 | | Total Other Income | $1,547 | $1,239 | $4,312 | $4,508 | - Stock-based compensation costs were $530,000 and $1.3 million for the three and nine months ended September 30, 2021, respectively, with $5.6 million in unrecognized costs to be expensed over a weighted-average period of 2.5 years[36] - The company repurchased 791,683 shares of common stock for $4.99 million during the nine months ended September 30, 2021, compared to 291,156 shares for $3.32 million in the prior year period[40] - The company was in compliance with all financial covenants related to its securitization transactions, warehouse credit facilities, and residual interest financing as of September 30, 2021[42] - The COVID-19 pandemic may significantly affect fair value measurements of finance receivables due to potential changes in net charge-offs and portfolio amortization rates, though no material adjustments were made in Q3 2021[44] Finance Receivables Details the composition, delinquency, and credit loss allowance for the company's finance receivables portfolio - The finance receivables portfolio is homogenous, with impairment evaluated collectively based on delinquency status, and contracts over 90 days delinquent are placed on non-accrual status[46] Finance Receivables Delinquency Status (in thousands): | Delinquency Status | Sep 30, 2021 | Dec 31, 2020 | | :----------------- | :----------- | :----------- | | Current | $234,782 | $406,693 | | 31 - 60 days | $33,929 | $56,572 | | 61 - 90 days | $11,734 | $22,660 | | 91 + days | $2,299 | $5,382 | | Total Finance Receivables | $282,744 | $491,307 | - The allowance for credit losses is estimated using historical loss experience for older receivables, aggregated into vintage pools, and the CECL model was adopted on January 1, 2020, requiring an initial addition of $127.0 million to the allowance for the legacy portfolio (pre-2018 originations)[51][56] Allowance for Finance Credit Losses Activity (in thousands): | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance at beginning of period | $72,242 | $98,602 | $80,790 | $11,640 | | Early adoption of CECL | – | – | – | $127,000 | | Provision for credit losses | $(1,590) | $7,400 | $(1,590) | $14,113 | | Charge-offs | $(6,336) | $(15,574) | $(25,157) | $(73,096) | | Recoveries | $4,408 | $3,790 | $14,681 | $14,561 | | Balance at end of period | $68,724 | $94,218 | $68,724 | $94,218 | - A reduction in the provision for credit losses of $1.6 million was recorded for the three and nine months ended September 30, 2021, due to improved credit performance, contrasting with provisions made in 2020 due to pandemic uncertainty[59] Securitization Trust Debt Outlines the company's securitization trust debt, including outstanding principal and compliance with covenants Securitization Trust Debt (in thousands): | Series | Outstanding Principal at Sep 30, 2021 | Outstanding Principal at Dec 31, 2020 | Weighted Average Contractual Interest Rate at Sep 30, 2021 | | :----------------- | :------------------------------------ | :------------------------------------ | :--------------------------------------------------------- | | CPS 2016-C | $25,373 | $47,325 | 8.39% | | CPS 2016-D | $19,402 | $36,455 | 6.86% | | CPS 2017-A | $22,163 | $40,619 | 6.84% | | CPS 2017-B | $17,592 | $39,016 | 5.75% | | CPS 2017-C | $30,272 | $47,553 | 5.40% | | CPS 2017-D | $31,136 | $49,297 | 4.77% | | CPS 2018-A | $34,447 | $53,549 | 4.54% | | CPS 2018-B | $42,028 | $66,955 | 4.98% | | CPS 2018-C | $49,803 | $77,345 | 5.14% | | CPS 2018-D | $57,940 | $88,228 | 4.98% | | CPS 2019-A | $72,357 | $114,373 | 4.76% | | CPS 2019-B | $72,804 | $118,982 | 4.42% | | CPS 2019-C | $88,668 | $142,080 | 3.62% | | CPS 2019-D | $115,544 | $181,485 | 3.09% | | CPS 2020-A | $117,252 | $184,944 | 3.18% | | CPS 2020-B | $104,048 | $164,403 | 4.18% | | CPS 2020-C | $162,049 | $231,961 | 2.11% | | CPS 2021-A | $171,918 | – | 0.88% | | CPS 2021-B | $203,796 | – | 1.14% | | CPS 2021-C | $276,228 | – | 1.04% | | Total Outstanding Principal | $1,714,820 | $1,767,807 | | - Securitization trust debt decreased from $1,767.8 million at December 31, 2020, to $1,714.8 million at September 30, 2021, reflecting ongoing amortization and new issuances[62] - The company was in compliance with all securitization agreement covenants, which require meeting certain delinquency and credit loss criteria and maintaining minimum liquidity and leverage levels[68] Debt Presents details on the company's other debt, including warehouse lines of credit and residual interest financing Other Debt Outstanding (in thousands): | Description | Sep 30, 2021 | Dec 31, 2020 | | :----------------------------------- | :----------- | :----------- | | Warehouse lines of credit | $97,768 | $118,999 | | Residual interest financing | $65,281 | $25,576 | | Subordinated renewable notes | $27,462 | $21,323 | | Total | $190,511 | $165,898 | - Short-term funding capacity decreased from $300 million to $200 million after not renewing a $100 million credit facility in February 2021[73] - Residual interest financing significantly increased from $25.6 million to $65.3 million, primarily due to a new $50.0 million securitization completed in June 2021[71] Interest Income and Interest Expense Analyzes the components and trends of the company's interest income and expense Interest Income (in thousands): | Component | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest on finance receivables | $16,062 | $29,753 | $56,652 | $101,333 | | Interest on finance receivables at fair value | $50,951 | $42,808 | $141,882 | $125,273 | | Mark to finance receivables measured at fair value | – | $(3,152) | $(4,417) | $(23,051) | | Other interest income | $5 | $21 | $17 | $665 | | Total Interest Income | $67,018 | $69,430 | $194,134 | $204,220 | Interest Expense (in thousands): | Component | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Securitization trust debt | $15,292 | $21,605 | $50,568 | $67,770 | | Warehouse lines of credit | $929 | $1,856 | $3,264 | $6,294 | | Residual interest financing | $1,413 | $876 | $2,446 | $2,734 | | Subordinated renewable notes | $700 | $564 | $1,982 | $1,579 | | Total Interest Expense | $18,334 | $24,901 | $58,260 | $78,377 | - Interest income decreased for both periods, primarily due to the runoff of the legacy finance receivables portfolio, despite an increase in interest from fair value receivables[75] - Interest expense significantly decreased for both periods, mainly driven by lower securitization trust debt and warehouse lines of credit interest, reflecting reduced average balances and lower blended interest rates[75] Earnings Per Share Provides the calculation of basic and diluted earnings per share for the reporting periods Earnings Per Share Calculation (in thousands): | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Weighted average common shares outstanding (Basic) | 23,011 | 22,666 | 22,866 | 22,630 | | Incremental common shares attributable to options/warrants | 3,207 | 1,242 | 2,573 | 1,195 | | Weighted average common shares (Diluted) | 26,218 | 23,908 | 25,439 | 23,825 | - Diluted EPS increased to $0.52 for the three months and $1.12 for the nine months ended September 30, 2021, from $0.16 and $0.74 respectively in the prior year, reflecting higher net income[13] Income Taxes Discusses the company's income tax expense, benefits, and deferred tax assets - The CARES Act allowed the company to carry back net operating losses (NOLs) from 2018-2020 to prior tax years at a 35% rate, resulting in a net tax benefit of $8.8 million for the nine months ended September 30, 2020[79] - Income tax expense for the three and nine months ended September 30, 2021, was $5.9 million (30% effective rate) and $12.8 million (31% effective rate), respectively[84] - The company recognized a net deferred tax asset of $25.4 million as of September 30, 2021, believing its realization is more likely than not based on forecasted future net earnings[83] Legal Proceedings Summarizes the company's involvement in legal actions and potential liabilities - The company is routinely involved in consumer litigation and a wage and hour claim, with two civil actions potentially resulting in material liability if resolved adversely on a class basis[85][86][90] - The estimated total probable incurred losses for legal contingencies as of September 30, 2021, are immaterial, with a range of reasonably possible losses not exceeding $5.8 million[92] Fair Value Measurements Explains the methodology and inputs used for fair value measurements of finance receivables - Finance receivables acquired after January 2018 are valued using the fair value method (Level 3 inputs), which relies on unobservable inputs like estimated net charge-offs and amortization rates[96][99] Fair Value of Finance Receivables (in thousands): | Metric | Sep 30, 2021 | Dec 31, 2020 | | :----------------------------------- | :----------- | :----------- | | Contractual Balance | $1,874,111 | $1,668,076 | | Fair Value | $1,667,193 | $1,523,726 | | Discount rate (unobservable input) | 10.9% - 11.3% | 10.4% - 11.1% | | Cumulative net losses (unobservable input) | 10.3% - 18.4% | 15.3% - 18.4% | - No mark-down was recorded for finance receivables measured at fair value for the quarter ended September 30, 2021, indicating no material adjustment was required based on the company's evaluation[100] Subsequent Events Reports significant events that occurred after the reporting period but before financial statement issuance - On October 20, 2021, the company repurchased and cancelled 1,999,995 shares of its common stock for $12.5 million, representing approximately 8.7% of outstanding shares prior to the transaction[106] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the company's business, its financing strategies through securitizations and warehouse credit facilities, and a detailed analysis of its financial performance for the three and nine months ended September 30, 2021, compared to the prior year. It also discusses credit experience, liquidity, capital resources, and forward-looking statements Overview Provides a general description of the company's business model and contract purchasing activities - Consumer Portfolio Services, Inc. is a specialty finance company that purchases and services retail automobile contracts, primarily from franchised dealers, providing indirect financing to sub-prime customers[108] Contract Purchase Volumes and Managed Portfolio Levels (in thousands): | Period | Contracts Purchased in Period | Managed Portfolio at Period End | | :----------------------------------- | :---------------------------- | :------------------------------ | | 2015 | $1,060,538 | $2,031,136 | | 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 | | Nine months ended September 30, 2021 | $818,341 | $2,184,142 | - The company originated $23.7 million under third-party programs for receivables with the intention of selling them, earning origination and servicing fees[108] Securitization and Warehouse Credit Facilities Explains the company's primary financing mechanisms for automobile contract purchases - The company finances automobile contract purchases through long-term securitizations and interim warehouse credit facilities, with all active securitizations structured as secured financings[112] Recent Asset-Backed Term Securitizations (in thousands): | Period | Number of Term Securitizations | Receivables Pledged in Term Securitizations | | :----------------------------------- | :----------------------------- | :------------------------------------------ | | 2015 | 3 | $795,000 | | 2016 | 4 | $1,214,997 | | 2017 | 4 | $870,000 | | 2018 | 4 | $883,452 | | 2019 | 4 | $1,014,124 | | 2020 | 3 | $741,867 | | Nine months ended September 30, 2021 | 3 | $785,000 | - Short-term funding capacity was reduced from $300 million to $200 million after a $100 million facility matured and was not renewed in February 2021[116] Financial Covenants Confirms the company's compliance with debt-related financial covenants - The company was in compliance with all financial covenants as of September 30, 2021, which include maintaining minimum liquidity and net worth and not exceeding maximum leverage levels[121] Results of Operations Analyzes the company's financial performance, including revenues and expenses, for the reporting periods Comparison of Operating Results for the three months ended September 30, 2021 with the three months ended September 30, 2020 Compares the company's financial performance for the three-month periods, highlighting key changes in revenues and expenses - Total revenues decreased by 3.0% to $68.6 million, primarily due to a 7.7% decrease in interest income from the runoff of the legacy portfolio, partially offset by increased interest from fair value receivables and a 24.9% increase in other income[122][124] Interest Earning Assets & Yields (3 Months Ended Sep 30, in thousands): | Asset Type | 2021 Average Balance | 2021 Interest | 2021 Interest Yield | 2020 Average Balance | 2020 Interest | 2020 Interest Yield | | :----------------------------------- | :------------------- | :------------ | :------------------ | :------------------- | :------------ | :------------------ | | Finance receivables | $305,820 | $16,067 | 21.0% | $624,532 | $29,775 | 19.1% | | Finance receivables measured at fair value | $1,837,138 | $50,951 | 11.1% | $1,646,022 | $42,807 | 10.4% | | Total | $2,142,958 | $67,018 | 12.5% | $2,270,554 | $72,582 | 12.8% | - Total operating expenses decreased by 24.3% to $49.0 million, mainly driven by a $6.3 million decrease in interest expense and a $9.0 million reduction in provision for credit losses[127][131][143] Blended Cost of Funds on Recent Asset-Backed Term Securitizations: | Period | Blended Cost of Funds | | :----------------- | :-------------------- | | January 2020 | 3.08% | | June 2020 | 4.09% | | September 2020 | 2.39% | | January 2021 | 1.11% | | April 2021 | 1.65% | - Sales expense increased by $1.1 million to $4.3 million due to a significant increase in new contract purchases ($326.8 million in Q3 2021 vs. $174.0 million in Q3 2020)[146] Comparison of Operating Results for the nine months ended September 30, 2021 with the nine months ended September 30, 2020 Compares the company's financial performance for the nine-month periods, detailing changes in revenues and expenses - Total revenues decreased by 4.9% to $198.4 million, primarily due to a 12.6% decrease in interest income from the legacy portfolio, partially offset by increased interest from fair value receivables[150] Interest Earning Assets & Yields (9 Months Ended Sep 30, in thousands): | Asset Type | 2021 Average Balance | 2021 Interest | 2021 Interest Yield | 2020 Average Balance | 2020 Interest | 2020 Interest Yield | | :----------------------------------- | :------------------- | :------------ | :------------------ | :------------------- | :------------ | :------------------ | | Finance receivables | $375,642 | $56,669 | 20.1% | $734,195 | $101,998 | 18.5% | | Finance receivables measured at fair value | $1,757,787 | $141,882 | 10.8% | $1,619,399 | $125,273 | 10.3% | | Total | $2,133,429 | $198,551 | 12.4% | $2,353,594 | $227,271 | 12.9% | - Total operating expenses decreased by 19.5% to $157.1 million, driven by a $20.1 million decrease in interest expense, a $15.7 million reduction in provision for credit losses, and a $3.0 million decrease in employee costs[156][157][158][170] Blended Cost of Funds on Recent Asset-Backed Term Securitizations: | Period | Blended Cost of Funds | | :----------------- | :-------------------- | | January 2020 | 3.08% | | June 2020 | 4.09% | | September 2020 | 2.39% | | January 2021 | 1.11% | | April 2021 | 1.65% | | July 2021 | 1.55% | - Sales expense increased by $1.8 million to $12.5 million, reflecting higher contract purchases ($818.3 million in 9M 2021 vs. $575.9 million in 9M 2020) as volumes returned to pre-pandemic levels[174] Credit Experience Examines the company's portfolio credit quality, including delinquency, repossession, and charge-off trends Delinquency, Repossession and Extension Experience Provides detailed statistics on the company's delinquency, repossession, and payment extension rates Delinquency and Repossession Experience (Total Owned Portfolio, in thousands): | Metric | Sep 30, 2021 | Sep 30, 2020 | Dec 31, 2020 | | :----------------------------------- | :----------- | :----------- | :----------- | | Gross servicing portfolio | $2,184,142 | $2,250,395 | $2,174,972 | | Total delinquencies (31+ days) | $182,642 | $199,114 | $226,953 | | Amount in repossession | $21,803 | $32,383 | $35,839 | | Total delinquencies and amount in repossession | $204,445 | $231,497 | $262,792 | | Delinquencies as % of gross servicing portfolio | 8.4% | 8.8% | 10.4% | | Total delinquencies and repossession as % of gross servicing portfolio | 9.4% | 10.3% | 12.1% | Extension Experience (Total Owned Portfolio, in thousands): | Metric | Sep 30, 2021 | Sep 30, 2020 | Dec 31, 2020 | | :----------------------------------- | :----------- | :----------- | :----------- | | Total contracts with extensions | $888,755 | $1,154,911 | $1,123,516 | | Contracts with one extension, accruing | $320,330 | $441,306 | $417,347 | | Contracts with two or more extensions, accruing | $548,609 | $675,607 | $665,572 | | Contracts with one extension, non-accrual | $6,440 | $9,872 | $12,408 | | Contracts with two or more extensions, non-accrual | $13,376 | $28,126 | $28,189 | - Delinquencies and amounts in repossession decreased significantly from December 31, 2020, to September 30, 2021, indicating improved credit performance[181] Net Charge-Off Experience Presents the annualized net charge-off rates for different segments of the company's portfolio Annualized Net Charge-Offs as % of Average Servicing Portfolio: | Portfolio Type | Sep 30, 2021 (3 months annualized) | Sep 30, 2020 (3 months annualized) | Dec 31, 2020 (12 months) | | :----------------------------------- | :--------------------------------- | :--------------------------------- | :----------------------- | | Finance Receivables (legacy) | 3.8% | 14.1% | 11.7% | | Fair Value Receivables | 2.7% | 3.5% | 4.3% | | Total Managed Portfolio | 2.8% | 6.4% | 6.5% | - Net charge-off rates for both legacy and fair value receivables, as well as the total managed portfolio, decreased significantly for the three months ended September 30, 2021, compared to the prior year[184] Extensions Describes the company's payment extension program and its effectiveness in mitigating losses - The company grants one-month payment extensions to obligors facing temporary cash flow problems, with limits generally set by securitization agreements (max two in 12 months, six over contract life)[185] - The extension program is considered effective in mitigating losses, with 59.2% of accounts granted extensions in 2018 either paid in full or active and performing as of September 30, 2021[189] Average Monthly Extensions as % of Average Outstandings: | Period | Average number of extensions granted per month | Average number of outstanding accounts | Average monthly extensions as % of average outstandings | | :----------------------------------- | :------------------------------------------- | :------------------------------------- | :------------------------------------------------------ | | Nine Months Ended September 30, 2021 | 3,656 | 157,976 | 2.3% | | Year Ended December 31, 2020 | 6,931 | 172,129 | 4.0% | | Nine Months Ended September 30, 2020 | 7,256 | 174,549 | 4.2% | - The company has attempted to reduce extensions since January 2019 by being more selective and exhausting other payment possibilities[193] Non-Accrual Receivables Explains the policy for placing and restoring finance receivables on non-accrual status - Contracts greater than 90 days past due are placed on non-accrual status, as it is unlikely the delinquency will be resolved without a charge-off, and if payments reduce delinquency below 90 days, the contract is restored to full accrual[194][195] Liquidity and Capital Resources Assesses the company's cash flow, funding sources, and overall financial flexibility - Net cash provided by operating activities decreased to $163.1 million for the nine months ended September 30, 2021, from $190.6 million in the prior year[198] - Net cash used in investing activities was $50.2 million, a shift from $45.4 million provided in the prior year, primarily due to increased purchases of finance receivables[199] - Net cash used in financing activities decreased to $83.3 million from $164.6 million, driven by higher securitization trust debt issuance ($761.5 million vs. $714.5 million) and lower warehouse line repayments[201] - As of September 30, 2021, the company had $28.8 million in unrestricted cash and $102.2 million in available borrowings under warehouse credit facilities, with $95.6 million in eligible collateral[204] - The company had substantial indebtedness of $1,893.3 million at September 30, 2021, primarily from securitization trust debt ($1,703.5 million) and warehouse lines of credit ($97.8 million)[208] Forward Looking Statements Highlights the inherent uncertainties and risks associated with the company's future financial projections - The report contains forward-looking statements, including provisions for credit losses and fair value measurements, which are dependent on estimates of future charge-offs, recovery rates, and cash receipts[210] - Factors that could affect these estimates include changes in economic conditions, interest rates, financing availability, competition, regulatory requirements, and the impact of the COVID-19 pandemic[210] Item 4. Controls and Procedures The company's principal executive and financial officers concluded that the disclosure controls and procedures were effective as of September 30, 2021, ensuring timely and accurate reporting of material information. No material changes to internal controls over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2021, by the principal executive and financial officers[211] - No material changes in internal controls over financial reporting occurred during the most recently completed fiscal quarter[211] PART II — OTHER INFORMATION Contains additional information not included in the financial statements, such as legal proceedings and risk factors Item 1. Legal Proceedings This section incorporates by reference the detailed discussion of legal proceedings from Note 8 to the Unaudited Condensed Consolidated Financial Statements, which outlines ongoing consumer litigation and a wage and hour claim - Information regarding legal proceedings is incorporated by reference from Note 8 of the financial statements[214] Item 1A. Risk Factors This section updates previously disclosed risk factors, emphasizing the significant risk posed by the company's substantial indebtedness and reiterating the inherent uncertainties in forward-looking statements, particularly concerning credit losses and fair value measurements - The company has substantial indebtedness, totaling approximately $1,893.3 million at September 30, 2021, which includes securitization trust debt and warehouse lines of credit[216] - This substantial debt increases vulnerability to adverse economic conditions, reduces cash flow for operations, limits business flexibility, creates a competitive disadvantage, and restricts the ability to borrow additional funds[217] - Forward-looking statements, such as provisions for credit losses and fair value measurements, are subject to risks including changes in economic conditions, financing availability, interest rates, competition, actual losses on receivables, and regulatory requirements[220][221] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during the three months ended September 30, 2021, and a significant repurchase event that occurred subsequent to the quarter end Issuer Purchases of Equity Securities (3 Months Ended Sep 30, 2021): | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | :----------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | | July 2021 | 94,800 | $4.82 | 94,800 | | August 2021 | 150,825 | $5.54 | 150,825 | | September 2021 | 187,987 | $5.73 | 187,987 | | Total | 433,612 | $5.47 | 433,612 | - All purchases were made under a program authorized by the board of directors in 2003, with approximately $1.29 million remaining for purchases under the program as of September 30, 2021[226] - Subsequent to the quarter, on October 20, 2021, the company purchased and cancelled 1,999,995 shares of its common stock for $12.5 million[227] Item 6. Exhibits This section lists the exhibits filed with the report, including certifications and Inline XBRL documents - The report includes various exhibits such as Rule 13a-14(a) Certifications from the CEO and CFO, Section 1350 Certifications, and Inline XBRL documents[228] Signatures The report is duly signed on behalf of Consumer Portfolio Services, Inc. by its President and Chief Executive Officer, Charles E. Bradley, Jr., and its Executive Vice President and Chief Financial Officer, Jeffrey P. Fritz, on November 10, 2021 - The report was signed by Charles E. Bradley, Jr., President and Chief Executive Officer, and Jeffrey P. Fritz, Executive Vice President and Chief Financial Officer, on November 10, 2021[231]