CPS(CPSS) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements 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 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 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 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 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] - 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][26] - 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][58] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 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] - 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] - 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][128] - 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] Credit Experience 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] Liquidity and Capital Resources 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] - 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] - 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] Controls and Procedures 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] PART II. OTHER INFORMATION Legal Proceedings 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] Risk Factors 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][211] - 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][215] Unregistered Sales of Equity Securities and Use of Proceeds 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 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] 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]