What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-15 compared with 2022-03-16 · 325 added, 340 removed, 713 unchanged (48% of the section changed)

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Contract Purchases and Outstanding Managed Portfolio

Contracts Purchased in Period

Managed Portfolio at Period End

Our principal executive offices are in Las Vegas,

$ in thousands

Contracts Purchased

Managed Portfolio

at Period End

Our principal executive offices

are in Las Vegas, Nevada.

Most of our operational and administrative functions take place in Irvine, California.

Credit and underwriting functions are performed

primarily in our California branch with certain of these functions also performed in our Florida and Nevada branches.

We service our automobile

contracts from our California, Nevada, Virginia, Florida and Illinois branches.

Credit and underwriting

functions are performed primarily in our California branch with certain of these functions also performed in our Florida and Nevada branches.

We service our automobile contracts from our California, Nevada, Virginia, Florida and Illinois branches.

The programs we offer to dealers

and consumers are intended to serve a wide range of sub-prime customers, primarily through franchised new car dealers.

We originate automobile

contracts with the intention of financing them on a long-term basis through securitizations.

Securitizations are transactions in which

we sell a specified pool of contracts to a special purpose subsidiary of ours, which in turn issues asset-backed securities to fund the

purchase of the pool of contracts from us.

Coronavirus Pandemic

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our staff were working without a significant impact from the pandemic.

The pandemic itself, if sufficient numbers of

people were to be afflicted, could cause obligors under our automobile contracts to be unable to pay their contractual obligations.

the future course of the COVID-19 pandemic is as yet unknown, its direct effect on future obligor payments is likewise uncertain.

The mandatory shutdown of

large portions of the United States economy pursuant to emergency restrictions has impaired and will impair the ability of obligors under

our automobile contracts to pay their contractual obligations.

The extent to which that ability will be impaired, and the extent to which

public ameliorative measures such as stimulus payments and enhanced unemployment benefits may restore such ability, cannot be estimated.

Other effects of the pandemic on our operations is referred to throughout this report.

The programs we offer to dealers

and consumers are intended to serve a wide range of sub-prime customers, primarily through franchised new car dealers.

We originate automobile

contracts with the intention of financing them on a long-term basis through securitizations.

Securitizations are transactions in which

we sell a specified pool of contracts to a special purpose subsidiary of ours, which in turn issues asset-backed securities to fund the

purchase of the pool of contracts from us.

Securitization and Warehouse Credit Facilities

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Subsequently we successfully completed securitizations in June and September 2020.

Our history of term securitizations, over the most

recent ten years, is summarized in the table below:

Our recent history of term securitizations is summarized

in the table below:

Recent Asset-Backed Term Securitizations

$ in thousands

Number of Term Securitizations

Amount of Receivables

Generally, prior to a securitization

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funding capacity is $400 million, comprising two credit facilities.

The first $100 million credit facility was established in May 2012.

This facility was most recently renewed in December 2020, extending the revolving period to December 2022, with an optional amortization

period through December 2023.

In November 2015, we entered into another $100 million facility.

This facility was most recently renewed

in February 2022, extending the revolving period to January 2024, followed by an amortization period to January 2028.

We previously had a third $100

million facility.

This facility was established in April 2015 and was renewed in April 2017 and again in February 2019, extending the

revolving period to February 2021.

We repaid this facility in full at its maturity in 2021.

The first credit facility was established in May 2012.

This facility

was most recently renewed in July 2022, extending the revolving period to July 2024, with an optional amortization period through July

In addition, the capacity was doubled from $100 million to $200 million at the July 2022 renewal.

In November 2015, we entered

into another $100 million facility.

This facility was most recently renewed in February 2022, extending the revolving period to January

2024, followed by an amortization period to January 2026.

In June 2022, we doubled the capacity for this facility from $100 million to

$200 million.

We previously had a third facility.

This $100 million facility was established in April 2015 and was renewed in April 2017 and again in February 2019, extending the revolving

period to February 2021.

We repaid this facility in full at its maturity in February 2021 and elected not to renew it.

In a securitization and in

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our liquidity and results of operations.

Critical Accounting Policies

Critical Accounting Estimates

We believe that our accounting

policies related to (a) Finance Receivables at Fair Value, (b) Allowance for Finance Credit Losses, (c) Term Securitizations, (d) Accrual for Contingent Liabilities and (e) Income Taxes are the most critical

to understanding and evaluating our reported financial results.

policies related to (a) Finance Receivables at Fair Value, (b) Allowance for Finance Credit Losses, (c) Term Securitizations, (d) Accrual

for Contingent Liabilities and (e) Income Taxes are the most critical to understanding and evaluating our reported financial results.

Such policies are described below.

Finance Receivables Measured at Fair Value

Effective January 1, 2018, we adopted the fair

value method of accounting for finance receivables acquired on or after that date.

For each finance receivable acquired after 2017, we

consider the price paid on the purchase date as the fair value for such receivable.

We estimate the cash to be received in the future

with respect to such receivables, based on our experience with similar receivables acquired in the past.

We then compute the internal

rate of return that results in the present value of those estimated cash receipts being equal to the purchase date fair value.

we recognize interest income on such receivables on a level yield basis using that internal rate of return as the applicable interest

Cash received with respect to such receivables is applied first against such interest income, and then to reduce the recorded value

of the receivables.

We re-evaluate the fair value of such receivables

at the close of each measurement period.

If the re-evaluation were to yield a value materially different from the recorded value, an adjustment

would be required.

Results for the year ended December 31, 2022 included a $15.3 million mark to the carrying value of the portion of

the receivables portfolio accounted for at fair value.

The mark-up was the result of lower than expected losses during the period as our

previous estimates for higher losses due to the pandemic had not materialized.

In the fourth quarter of 2022, our re-evaluation

of the fair values of these receivables resulted in a positive mark for certain older receivables and a negative mark to the fair values

of newer receivables that largely offset each other.

As a result, on a net basis, no mark was taken in the fourth quarter of 2022.

Anticipated credit losses are included in our

estimation of cash to be received with respect to receivables.

Because such credit losses are included in our computation of the

appropriate level yield, we do not thereafter make periodic provision for credit losses, as our best estimate of the lifetime aggregate

of credit losses is included in that initial computation.

Also, because we include anticipated credit losses in our computation of the

level yield, the computed level yield is materially lower than the average contractual rate applicable to the receivables.

initial recorded value is fixed as the price we pay for the receivable, rather than as the contractual principal balance, we do not record

acquisition fees as an amortizing asset related to the receivables, nor do we capitalize costs of acquiring the receivables.

recognize the costs of acquisition as expenses in the period incurred.

Allowance for Finance Credit Losses

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to its allowance for finance credit losses of $127.0 million.

At the onset of the pandemic in March 2020, Government

mandated shutdowns of large portions of the United States economy impaired and will likely continue to impair the ability of obligors

under our automobile contracts to make their monthly payments.

The extent to which that ability will be impaired, and the extent to which

public ameliorative measures such as stimulus payments and enhanced unemployment benefits may restore such ability, cannot be estimated.

During the twelve-month period

ended December 31, 2021, we recorded a reduction to provision for finance credit losses in the amount of $14.6 million.

The reserve decrease

was primarily due to a decrease in lifetime expected credit losses resulting from improved credit performance.

Finance Receivables Measured at Fair Value

Effective January 1, 2018,

we adopted the fair value method of accounting for finance receivables acquired on or after that date.

For each finance receivable acquired

after 2017, we consider the price paid on the purchase date as the fair value for such receivable.

We estimate the cash to be received

in the future with respect to such receivables, based on our experience with similar receivables acquired in the past.

We then compute

the internal rate of return that results in the present value of those estimated cash receipts being equal to the purchase date fair value.

Thereafter, we recognize interest income on such receivables on a level yield basis using that internal rate of return as the applicable

interest rate.

Cash received with respect to such receivables is applied first against such interest income, and then to reduce the recorded

value of the receivables.

We re-evaluate the fair value

of such receivables at the close of each measurement period.

If the reevaluation were to yield a value materially different from the recoded

value, an adjustment would be required.

In the twelve-month period ended December 31, 2021, the Company considered the effect of the pandemic

on the portfolio of finance receivables carried at fair value and recorded a mark down to that portfolio of $4.4 million.

The mark down

is reflected as a reduction in revenue.

Anticipated credit losses

are included in our estimation of cash to be received with respect to receivables.

Because such credit losses are included in our

computation of the appropriate level yield, we do not thereafter make periodic provision for credit losses, as our best estimate of the

lifetime aggregate of credit losses is included in that initial computation.

Also because we include anticipated credit losses in our

computation of the level yield, the computed level yield is materially lower than the average contractual rate applicable to the receivables.

Because our initial recorded value is fixed as the price we pay for the receivable, rather than as the contractual principal balance,

we do not record acquisition fees as an amortizing asset related to the receivables, nor do we capitalize costs of acquiring the receivables.

Rather we recognize the costs of acquisition as expenses in the period incurred.

Term Securitizations

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to include internal credit enhancement for the benefit the investors (i) in the form of an initial cash deposit to an account ( " spread

account”) held by the trust, (ii) in the form of overcollateralization of the senior asset-backed securities, where the principal

balance of the senior asset-backed securities issued is less than the principal balance of the automobile contracts, (iii) in the form

of subordinated asset-backed securities, or (iv) some combination of such internal credit enhancements.

The agreements governing the

securitization transactions require that the initial level of internal credit enhancement be supplemented by a portion of collections

from the automobile contracts until the level of internal credit enhancement reaches specified levels, which are then maintained.

specified levels are generally computed as a percentage of the principal amount remaining unpaid under the related automobile contracts.

The specified levels at which the internal credit enhancement is to be maintained will vary depending on the performance of the portfolios

of automobile contracts held by the trusts and on other conditions, and may also be varied by agreement among us, our special purpose

subsidiary, the insurance company, if any, and the trustee.

Such levels have increased and decreased from time to time based on performance

of the various portfolios, and have also varied from one transaction to another.

The agreements governing the securitizations generally

grant us the option to repurchase the sold automobile contracts from the trust when the aggregate outstanding balance of the automobile

contracts has amortized to a specified percentage of the initial aggregate balance.

account " ) held by the trust, (ii) in the form of overcollateralization

of the senior asset-backed securities, where the principal balance of the senior asset-backed securities issued is less than the principal

balance of the automobile contracts, (iii) in the form of subordinated asset-backed securities, or (iv) some combination of such internal

credit enhancements.

The agreements governing the securitization transactions require that the initial level of internal credit enhancement

be supplemented by a portion of collections from the automobile contracts until the level of internal credit enhancement reaches specified

levels, which are then maintained.

The specified levels are generally computed as a percentage of the principal amount remaining unpaid

under the related automobile contracts.

The specified levels at which the internal credit enhancement is to be maintained will vary depending

on the performance of the portfolios of automobile contracts held by the trusts and on other conditions, and may also be varied by agreement

among us, our special purpose subsidiary, the insurance company, if any, and the trustee.

Such levels have increased and decreased from

time to time based on performance of the various portfolios, and have also varied from one transaction to another.

The agreements governing

the securitizations generally grant us the option to repurchase the sold automobile contracts from the trust when the aggregate outstanding

balance of the automobile contracts has amortized to a specified percentage of the initial aggregate balance.

Upon each transfer of automobile

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Subsequently, we successfully

completed securitizations in June and September 2020 and four securitizations in 2021.

completed securitizations in June and September 2020 and four securitizations in each of 2021 and 2022.

Financial Covenants

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2022 with the year ended December 31, 2021

the year ended December 31, 2021, our revenues were $267.8 million, a decrease of $3.4 million, or 1.2%, from the prior year revenues

of $271.2 million.

The primary reason for the decrease in revenues is a decrease in interest income.

Interest income for the year ended

December 31, 2021 decreased $28.7 million, or 9.7%, to $266.3 million from $295.0 million in the prior year.

The primary reason for the

decrease in interest income is the continued runoff of our legacy portfolio of finance receivables originated prior to January 2018, which

accrued interest at an average of 20.2%, which is offset only in part by the increase in our portfolio of receivables measured at fair

value, which are those originated since January 2018.

The interest yield on receivables measured at fair value is reduced to take account

of expected losses and is therefore less than the yield on other finance receivables.

The table below shows the outstanding and average

balances of our portfolio held by consolidated subsidiaries for the year months ended December 31, 2021 and 2020:

Ended December 31,

During the year ended

December 31, 2022, our revenues were $329.7 million, an increase of $61.9 million, or 23.1%, from the prior year revenues of $267.8 million.

The primary reason for the increase in revenues is the increase in interest income resulting from the increase in the average outstanding

balance of finance receivables measured at fair value.

In addition, mark ups to the finance receivables measured at fair value also contributed

to the increase in revenues during the year.

Revenues for the year ended December 31, 2022 include a $15.3 million mark up to the recorded

value of the finance receivables measured at fair value.

The marks are estimates based on our evaluation of the appropriate fair value

and future earnings rate of existing receivables compared to recently acquired receivables and increases or decreases in our estimates

of future net losses.

Results for the nine-month period ended September

30, 2022 included the $15.3 million mark to the carrying value of the portion of the receivables portfolio accounted for at fair value.

The mark-up was the result of lower than expected losses during the period as our previous estimates for higher losses due to the pandemic

had not materialized.

In the fourth quarter of 2022, our re-evaluation of the fair values of these receivables resulted in a positive

mark for certain older receivables and a negative mark to the fair values of newer receivables that largely offset each other.

on a net basis, no mark was taken in the fourth quarter of 2022.

Revenues for the prior year period include a $4.4 million mark down to

the fair value portfolio.

Revenues for the year ended

December 31, 2021 include a $4.4 million mark down to the fair value portfolio.

Interest income for the year

ended December 31, 2022 increased $39.0 million, or 14.6%, to $305.2 million from $266.2 million in the prior year.

The primary reason

for the increase in interest income is the 32.5% increase in the average balance of finance receivables measured at fair value over the

prior year period.

The table below shows the outstanding and average balances of our portfolio held by consolidated subsidiaries for the

years ended December 31, 2022 and 2021:

Year Ended December 31,

(Dollars in thousands)

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Finance receivables measured at fair value

Revenues for the year ended December 31, 2021 and 2020 are net of mark downs

of $4.4 million and $29.5 million, respectively, to the recorded value of the finance receivables measured at fair value.

The mark down

is an estimate based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently

acquired receivables and our assessment of potential additional future net losses arising from the pandemic.

Other income was $9.2 million

for the year ended December 31, 2022 compared to $6.0 million for the year ended December 31, 2021.

This 54.1% increase was primarily

driven by the increase in origination and servicing fees we earned from third party receivables that we began originating in May 2021.

These fees were $6.8 million for the year ended December 31, 2022 and $1.3 million in the prior year period.

Our operating expenses

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Total operating expenses were

$202.1 million for the year ended December 31, 2021, compared to $251.0 million for the prior year, a decrease of $49.0 million, or 19.5%.

The decrease is primarily due to a decreases in interest expense and provisions for credit losses.

$213.5 million for the year ended December 31, 2021, compared to $202.1 million for the prior year, an increase of $11.5 million, or 5.7%.

The increase is primarily due to increases in interest expense, sales expense, employee costs and general and administrative expenses.

Reductions in provisions for credit losses offset some of the increase in operating expenses.

Employee costs increased by

$336,000 or 0.4%, to $80.5 million during the year ended December 31, 2021, representing 39.9% of total operating expenses, from $80.2

million for the prior year, or 31.9% of total operating expenses.

Employee costs for 2021 include approximately $8.0 million for the establishment

of a bonus pool for a segment of employees we classify as Managers.

$3.7 million or 4.7%, to $84.3 million during the year ended December 31, 2022, representing 39.5% of total operating expenses.

costs were $80.5 million in the prior year, or 39.9% of total operating expenses.

The table below summarizes our

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Number of Originations staff

Number of Marketing staff

Number of Sales staff

Number of Servicing staff

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Interest expense for the year

ended December 31, 2021 decreased by $26.1 million to $75.2 million, or 25.8%, compared to $101.3 million in the previous year.

ended December 31, 2022 increased by $12.3 million to $87.5 million, or 16.3%, compared to $75.2 million in the previous year.

expense represented 41.0% of total operating expenses in 2022.

The primary reason for the decrease in interest expense is the decrease

in securitzation trust debt interest.

The primary reason for the increase in interest expense is the increase

in interest expense on our warehouse lines of credit and securitization trust debt.

Interest on securitization trust

debt decreased by $23.6 million, or 26.9%, for the year ended December 31, 2021 compared to the prior year.

debt increased by $6.2 million, or 9.7%, for the year ended December 31, 2022 compared to the prior year.

The average balance of securitization

trust debt decreased 9.8% to $1,819.9 million for the year ended December 31, 2021 compared to $2,017.2 million for the year ended December

The blended interest rates on new term securitizations have generally decreased since 2019 and have stayed relatively low in

2021 despite trending upward throughout the year.

For any particular quarterly securitization transaction, the blended cost of funds is

ultimately the result of many factors including the market interest rates for benchmark swaps of various maturities against which our

bonds are priced and the margin over those benchmarks that investors are willing to accept, which in turn, is influenced by investor demand

for our bonds at the time of the securitization.

These and other factors have resulted in fluctuations in our securitization trust debt

interest costs.

The blended interest rates of our recent securitizations are summarized in the table below:

trust debt increased 11.0% to $2,020.0 million for the year ended December 31, 2022 compared to $1,819.9 million for the year ended December

The blended interest rates on new term securitizations have increased in 2022 after decreasing in 2021.

For any particular quarterly

securitization transaction, the blended cost of funds is ultimately the result of many factors including the market interest rates for

benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks that investors are willing

to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization.

These and other factors have

resulted in fluctuations in our securitization trust debt interest costs.

The blended interest rates of our recent securitizations are

summarized in the table below:

Blended Cost of Funds on Recent Asset-Backed Term Securitizations

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The annualized average rate

on our securitization trust debt was 3.5% for the year ended December 31, 2021 compared with 4.4% for 2020.

The annualized average rate

is influenced by the manner in which the underlying securitization trust bonds are repaid.

The rate tends to increase over time on any

particular securitization since the structures of our securitization trusts generally provide for sequential repayment of the shorter

term, lower interest rate bonds before the longer term, higher interest rate bonds.

on our securitization trust debt was 3.5% for the years ended December 31, 2022 and 2021.

The annualized average rate is influenced by

the manner in which the underlying securitization trust bonds are repaid.

The rate tends to increase over time on any particular securitization

since the structures of our securitization trusts generally provide for sequential repayment of the shorter term, lower interest rate

bonds before the longer term, higher interest rate bonds.

Interest expense on warehouse

lines of credit decreased by $3.2 million, or 42.1% for the year ended December 31, 2021 compared to the prior year.

The decrease was

primarily due to the lower utilization of our credit lines during the year.

The average balance of our warehouse debt was $51.3 million

during 2021 compared to $92.5 million in 2020.

lines of credit was $10.3 million for the year ended December 31, 2022 compared to $4.4 million in the prior year.

Lower rates were offset

by higher utilization of our credit lines during the year compared to last year.

The average balance of our warehouse debt was $130.1

million during 2022 compared to $51.3 million in 2021.

Interest expense on residual

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Interest expense on our subordinated

renewable notes increased by $466,000, or 21.4%, for the year ended December 31, 2021 compared to the prior year.

renewable notes decreased by $297,000, or 11.3%, for the year ended December 31, 2022 compared to the prior year.

The average balance

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the components of interest income and interest expense and a net interest yield analysis for the years ended December 31, 2022 and 2021:

Year Ended December 31,

(Dollars in thousands)

Average Balance (1)

Annualized Average Yield/Rate

Average Balance (1)

Annualized Average Yield/Rate

Interest Earning Assets

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Ratio of average interest earning assets to average interest bearing liabilities

_________________________

(1) Average balances are based on month

end balances except for warehouse lines of credit, which are based on daily balances.

(1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances.

(2) Net of deferred fees and direct costs.

(3) Net interest income divided by average

interest earning assets.

Ended December 31, 2021

to December 31, 2020

Interest Earning Assets

(3) Net interest income divided by average interest earning assets.

Year Ended December 31, 2022

Compared to December 31, 2021

Change Due to Volume

(In thousands)

Interest Earning Assets

Finance receivables gross

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Net interest income/spread

The reduction in the annualized yield on our finance

receivables for the year ended December 31, 2021 compared to the prior year period is the result of the lower interest yield on the receivables

measured at fair value.

The interest yield on receivables measured at fair value is reduced to take account of expected losses and is

therefore less than the yield on other finance receivables.

The average balance of these receivables was $1,802.6 million for the twelve

months ended December 31, 2021 compared to $1,631.5 million in the prior year period.

The annualized yield on our finance receivables

was 12.0% for 2022 compared to 12.4% in 2021.

The interest yield on receivables measured at fair value is reduced to take account of expected

losses and is therefore less than the yield on other finance receivables.

The average balance of these fair value receivables was $2,388.2

million for the year ended December 31, 2022 compared to $1,802.6 million in the prior year period.

Effective January 1, 2020,

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For the year ended December 31, 2022, we recorded

a reduction to provision for credit losses on finance receivables in the amount of $14.6 million.

The reserve decrease was primarily due

to a decrease in lifetime expected credit losses resulting from improved credit performance.

In the prior year period, we recorded an

increase to provision for credit losses for $14.1 million.

That provision represented our estimate in 2020 of additional forecasted losses

that might be incurred as a result of the pandemic on our portfolio of finance receivables.

Such losses were not considered in our initial

estimate of remaining lifetime losses that we recorded upon our adoption of CECL in January 2020.

The allowance applies only to

our finance receivables originated through December 2017, which we refer to as our legacy portfolio.

Finance receivables that we

have originated since January 2018 are accounted for at fair value.

Under the fair value method of accounting, we recognize interest income

net of expected credit losses.

Thus, no provision for credit loss expense is recorded for finance receivables measured at fair value.

a reduction to provision for credit losses on finance receivables in the amount of $28.1 million compared to $14.6 million in 2021.

reserve decreases were primarily due to improved credit performance for these

The allowance applies only to our finance receivables originated through December 2017, which we refer to as our legacy portfolio.

Finance receivables that we have originated since January 2018 are accounted for at fair value.

Under the fair value method of accounting,

we recognize interest income net of expected credit losses.

Thus, no provision for credit loss expense is recorded for finance receivables

measured at fair value.

Sales expense consists primarily

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Our sales representatives earn a salary plus commissions

based on volume of contract purchases and sales of ancillary products and services that we offer our dealers, such as training programs,

internet lead sales, and direct mail products.

Sales expense increased by $2.7 million to $16.9 million during the year ended December

31, 2021 and represented 8.4% of total operating expenses.

We purchased $1,146.3 million of new contracts during the year ended December

31, 2021 compared to $742.6 million in the prior year period.

In our second quarter of 2020, we experienced a significant reduction in

contract purchases due to the pandemic and partial shutdown of the economy.

Since then, our contract purchase volumes have gradually increased

to pre-pandemic levels.

Occupancy expenses increased

based on volume of contract purchases and sales of ancillary products and services that we offer our dealers.

Sales expense increased

by $6.2 million to $23.0 million during the year ended December 31, 2022 and represented 10.8% of total operating expenses.

$1,854.4 million of new contracts during the year ended December 31, 2022 compared to $1,146.3 million in the prior year period.

Occupancy expenses decreased

by $180,000 or 2.3%, to $7.5 million compared to $7.7 million in the previous year and represented 3.5% of total operating expenses.

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expenses decreased by $57,000 or 3.4%, to $1.6 million compared to $1.7 million in the previous year and represented 0.8% of total operating

Income tax expense was $18.2

million in 2021 compared to an income tax benefit of $1.6 million for 2020.

On March 27, 2020, the Coronavirus Aid, Relief and Economic

Security (“CARES”) Act was passed into law, providing wide ranging economic relief for individuals and businesses.

One component

of the CARES Act provides the Company with an opportunity to carry back net operating losses (“NOLs”) arising from 2018, 2019

and 2020 to the prior five tax years.

The Company has previously valued its NOLs at the federal corporate income tax rate of 21%.

the CARES Act provides for NOL carryback claims to be calculated based on a rate of 35%, which was the federal corporate tax rate in effect

for the carryback years.

The result of the revaluation of NOLs and other tax adjustments is a net tax benefit of $680,000 and $8.8 million

for 2021 and 2020, respectively.

Excluding the tax benefit, income tax expense for 2021 would have been $18.9 million, representing an

effective income tax rate of 29%.

For 2020, income tax expense would have been $7.2 million for an effective tax rate of 36%.

For the year ended December

31, 2022, we recorded income tax expense of $30.2 million, representing a 26% effective tax rate.

In the prior period, our income tax

expense was $18.2 million, representing a 28% effective tax rate.

Comparison of Operating Results for the year ended December 31,

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of $271.2 million.

The primary reason for the decrease in revenues is a decrease in interest income and a mark down to the recorded value

of the portion of the receivables portfolio accounted for at fair value.

Interest income for the year ended December 31, 2020 decreased

$42.1 million, or 12.5%, to $295.0 million from $337.1 million in the prior year.

The primary reason for the decrease in interest income

is the continued runoff of our portfolio of finance receivables originated prior to January 2018, which accrued interest at an average

of 18.5%, which is offset only in part by the increase in our portfolio of receivables measured at fair value, which are those originated

since January 2018.

The interest yield on receivables measured at fair value is reduced to take account of expected losses and is therefore

less than the yield on other finance receivables.

The table below shows the outstanding and average balances of our portfolio held by

consolidated subsidiaries for the year months ended December 31, 2020 and 2019:

Ended December 31,

The primary reason for the decrease in revenues is a decrease in interest income.

Interest income for the year ended

December 31, 2021 decreased $28.7 million, or 9.7%, to $266.3 million from $295.0 million in the prior year.

The primary reason for the

decrease in interest income is the continued runoff of our legacy portfolio of finance receivables originated prior to January 2018, which

accrued interest at an average of 20.2%, which is offset only in part by the increase in our portfolio of receivables measured at fair

value, which are those originated since January 2018.

The interest yield on receivables measured at fair value is reduced to take account

of expected losses and is therefore less than the yield on other finance receivables.

The table below shows the outstanding and average

balances of our portfolio held by consolidated subsidiaries for the year months ended December 31, 2021 and 2020:

Year Ended December 31,

(Dollars in thousands)

Average Balance

Interest Earning Assets

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Finance receivables measured at fair value

Revenues for the year ended December 31, 2020 include a $29.5 million mark

down to the recorded value of the finance receivables measured at fair value.

The mark down is an estimate based on our evaluation of

the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and our assessment

of potential additional future net losses arising from the pandemic.

Other income decreased by $3.0

million, or 34.4%, to $5.7 million in the year ended December 31, 2020 from $8.7 million in the prior year.

The decrease in other income

generally resulted from a decrease of $1.3 million in revenues associated with direct mail and other related products and services that

we offer to our dealers and a decrease of $1.0 million in payments from third-party providers of convenience fees paid by our customers

for web based and other electronic payments.

Revenues for the year ended December 31, 2021 and 2020 are net of mark downs

of $4.4 million and $29.5 million, respectively, to the recorded value of the finance receivables measured at fair value.

The mark down

is an estimate based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently

acquired receivables and our assessment of potential additional future net losses arising from the pandemic.

Other income was $6.0 million

for the year ended December 31, 2021 compared to $5.7 million for the year ended December 31, 2020.

Our operating expenses

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$202.1 million for the year ended December 31, 2021, compared to $251.0 million for the prior year, a decrease of $49.0 million, or 19.5%.

The decrease is primarily due to a decrease in provision for credit losses and interest expense.

Employee costs decreased by

The decrease is primarily due to a decreases in interest expense and provisions for credit losses.

Employee costs increased by

$336,000 or 0.4%, to $80.5 million during the year ended December 31, 2021, representing 39.9% of total operating expenses, from $80.2

million for the prior year, or 31.9% of total operating expenses.

In the first quarter of 2020, prior to the onset of the pandemic, our

employee costs were greater than in the first quarter of 2019.

Those increases have been partially offset by decreases since the first

quarter of 2020, which are the result of staff reductions due in part to the fact that our contract purchases have not returned to pre-pandemic

If our contract purchase volumes remain at current levels, we expect lower employee costs in future periods.

Employee costs for 2021 include approximately $8.0 million for the establishment

of a bonus pool for a segment of employees we classify as Managers.

The table below summarizes our

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services, and telecommunications.

General and administrative expenses were $32.0 million, a decrease of $1.0 million, or 3.1%, compared

General and administrative expenses were $34.6 million, an increase of $2.6 million, or 8.2%, compared

to the previous year and represented 17.1% of total operating expenses.

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expense represented 37.2% of total operating expenses in 2021.

The primary reason for the decrease in interest expense is the decrease

in securitization trust debt interest.

Interest on securitization trust

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trust debt decreased 9.8% to $1,819.9 million for the year ended December 31, 2021 compared to $2,017.2 million for the year ended December

The blended interest rates on new term securitizations have generally increased in 2017 and 2018 before declining in 2019 and

For any particular quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including

the market interest rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks

that investors are willing to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization.

These and other factors have resulted in fluctuations in our securitization trust debt interest costs.

The blended interest rates of our

recent securitizations are summarized in the table below:

The blended interest rates on new term securitizations have generally decreased since 2019 and have stayed relatively low in

2021 despite trending upward throughout the year.

For any particular quarterly securitization transaction, the blended cost of funds is

ultimately the result of many factors including the market interest rates for benchmark swaps of various maturities against which our

bonds are priced and the margin over those benchmarks that investors are willing to accept, which in turn, is influenced by investor demand

for our bonds at the time of the securitization.

These and other factors have resulted in fluctuations in our securitization trust debt

interest costs.

The blended interest rates of our recent securitizations are summarized in the table below:

Blended Cost of Funds on Recent Asset-Backed Term Securitizations

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The annualized average rate

on our securitization trust debt was 4.4% for the year ended December 31, 2020 and 2019.

The annualized average rate is influenced by

the manner in which the underlying securitization trust bonds are repaid.

The rate tends to increase over time on any particular securitization

since the structures of our securitization trusts generally provide for sequential repayment of the shorter term, lower interest rate

bonds before the longer term, higher interest rate bonds.

on our securitization trust debt was 3.5% for the year ended December 31, 2021 compared with 4.4% for 2020.

The annualized average rate

is influenced by the manner in which the underlying securitization trust bonds are repaid.

The rate tends to increase over time on any

particular securitization since the structures of our securitization trusts generally provide for sequential repayment of the shorter

term, lower interest rate bonds before the longer term, higher interest rate bonds.

Interest expense on warehouse

lines of credit decreased by $724,000, or 8.6% for the year ended December 31, 2020 compared to the prior year.

The average rate on the

debt was 8.3% in 2020 compared to 9.7% in the prior year while the average balance of the warehouse debt increased to $92.5 million from

$86.2 million.

lines of credit decreased by $3.2 million, or 42.1% for the year ended December 31, 2021 compared to the prior year.

The decrease was

primarily due to the lower utilization of our credit lines during the year.

The average balance of our warehouse debt was $51.3 million

during 2021 compared to $92.5 million in 2020.

Interest expense on residual

interest financing was $3.8 million in the year ended December 31, 2021 compared to $3.5 million in the prior year as the average balance

has decreased.

has increased.

Interest expense on our subordinated

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The average interest

rate on our subordinated notes increased to 11.2% for the year ended December 31, 2020 from 9.6% for the year ended December 31, 2019.

rate on our subordinated notes decreased to 10.5% for the year ended December 31, 2021 from 11.2% for the year ended December 31, 2020.

The following table presents

the components of interest income and interest expense and a net interest yield analysis for the years ended December 31, 2021 and 2020:

Ended December 31,

Year Ended December 31,

(Dollars in thousands)

Earning Assets

Interest Earning Assets

Finance receivables gross (2)

Finance receivables at fair

Bearing Liabilities

Finance receivables at fair value

Interest Bearing Liabilities

Warehouse lines of credit

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Net interest margin (3)

Ratio of average interest earning assets to average interest bearing

___________________

(1) Average balances are based on month

end balances except for warehouse lines of credit, which are based on daily balances.

Ratio of average interest earning assets to average interest bearing liabilities

(1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances.

(2) Net of deferred fees and direct costs.

(3) Net interest income divided by average

interest earning assets.

(3) Net interest income divided by average interest earning assets.

Year Ended December 31, 202

to December 31, 2019

Interest Earning Assets

Compared to December 31, 2020

Change Due to Volume

(In thousands)

Interest Earning Assets

Finance receivables gross

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the addition to the allowance for finance credit losses was a tax affected reduction to retained earnings using the modified retrospective

Provision for credit losses was $14.1 million

for the year ended December 31, 2020.

The provision represents our estimate of additional losses that may be incurred on the portfolio

of finance receivables resulting from the pandemic.

Such losses were not considered in our initial estimate of remaining lifetime losses

that we recorded with the adoption of CECL in January 2020.

In the prior year period, prior to the adoption of CECL, provision for credit

losses was $85.8 million.

For the year ended December 31, 2021, we recorded

a reduction to provision for credit losses on finance receivables in the amount of $14.6 million.

The reserve decrease was primarily due

to a decrease in lifetime expected credit losses resulting from improved credit performance.

In the prior year period, we recorded an

increase to provision for credit losses for $14.1 million.

That provision represented our estimate in 2020 of additional forecasted losses

that might be incurred as a result of the pandemic on our portfolio of finance receivables.

Such losses were not considered in our initial

estimate of remaining lifetime losses that we recorded upon our adoption of CECL in January 2020.

The allowance applies only to

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internet lead sales, and direct mail products.

Sales expense decreased by $3.7 million to $14.2 million during the year ended December

Sales expense increased by $2.7 million to $16.9 million during the year ended December

31, 2021 and represented 8.4% of total operating expenses.

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31, 2021 compared to $742.6 million in the prior year period.

In our second quarter of 2020, we experienced a significant reduction

in contract purchases due to the pandemic and partial shutdown of the economy.

Subsequently, our contract purchase volumes have increased

but have not recovered to pre-pandemic levels.

Occupancy expenses decreased

In our second quarter of 2020, we experienced a significant reduction in

contract purchases due to the pandemic and partial shutdown of the economy.

Since then, our contract purchase volumes have gradually increased

to pre-pandemic levels.

Occupancy expenses increased

by $294,000 or 4.0%, to $7.7 million compared to $7.4 million in the previous year and represented 3.8% of total operating expenses.

Depreciation and amortization

expenses increased by $709,000 or 65.9%, to $1.8 million compared to $1.1 million in the previous year and represented 0.6% of total operating

Income tax benefit was $1.6

million for the year ended December 31, 2020, which includes an $8.8 million tax benefit.

On March 27, 2020, the Coronavirus Aid, Relief

and Economic Security (“CARES”) Act was passed into law, providing wide ranging economic relief for individuals and businesses.

One component of the CARES Act provides the Company with an opportunity to carry back net operating losses (“NOLs”) arising

from 2018, 2019 and 2020 to the prior five tax years.

The Company has previously valued its NOLs at the federal corporate income tax rate

However, the CARES Act provides for NOL carryback claims to be calculated based on a rate of 35%, which was the federal corporate

tax rate in effect for the carryback years.

The result of the revaluation of NOLs and other tax adjustments is a net tax benefit of $8.8

Excluding the tax benefit, income tax expense would have been $7.2 million, representing an effective income tax rate of 36%.

For the prior year period, income tax expense was $3.8 million, which represents an effective income tax rate of 41%.

expenses decreased by $109,000 or 6.1%, to $1.7 million compared to $1.8 million in the previous year and represented 0.8% of total operating

Income tax expense was $18.2

million in 2021 compared to an income tax benefit of $1.6 million for 2020.

On March 27, 2020, the Coronavirus Aid, Relief and Economic

Security (“CARES”) Act was passed into law, providing wide ranging economic relief for individuals and businesses.

One component

of the CARES Act provides the Company with an opportunity to carry back net operating losses (“NOLs”) arising from 2018, 2019

and 2020 to the prior five tax years.

The Company has previously valued its NOLs at the federal corporate income tax rate of 21%.

the CARES Act provides for NOL carryback claims to be calculated based on a rate of 35%, which was the federal corporate tax rate in effect

for the carryback years.

The result of the revaluation of NOLs and other tax adjustments is a net tax benefit of $680,000 and $8.8 million

for 2021 and 2020, respectively.

Excluding the tax benefit, income tax expense for 2021 would have been $18.9 million, representing an

effective income tax rate of 29%.

For 2020, income tax expense would have been $7.2 million for an effective tax rate of 36%.

Liquidity and Capital Resources

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Net cash used in investing

activities for the year ended December 31, 2021 was $115.4 million.

This compares to net cash provided by investing activities of $93.0

million for the year ended December 31, 2020.

Net cash used in investing activities for the years ended December 31, 2019 was $229.4 million.

Cash provided by investing activities primarily results from principal payments and other proceeds received on finance receivables.

used in investing activities generally relates to purchases of automobile contracts.

Purchases of finance receivables were $1,107.5 million

(includes acquisition fees paid), $739.7 million and $1,004.2 million in 2021, 2020 and 2019, respectively.

Net cash used in financing

activities for the year ended December 31, 2022 and 2021 was $713.9 million and $115.4 million, respectively.

This compares to net cash

provided by investing activities of $93.0 million for the year ended December 31, 2020.

Cash used in investing activities generally relates

to purchases of automobile contracts.

Purchases of finance receivables were $1,673.2 million (includes acquisition fees paid), $1,107.5

million and $739.7 million in 2022, 2021 and 2020, respectively.

Cash provided by investing activities primarily results from principal

payments and other proceeds received on finance receivables.

Net cash provided by financing

activities for the years ended December 31, 2019 was $23.3 million.

Cash used or provided by financing activities is primarily related

to the issuance of securitization trust debt, reduced by the amount of repayment of securitization trust debt and net proceeds or repayments

on our warehouse lines of credit and other debt.

We issued $1,110.7 million in new securitization trust debt in 2021 compared to $714.5

million in 2020 and $1,000.5 million in 2019.

Repayments of securitization debt were $1,153.1 million, $1,010.0 million and $966.1 million

in 2021, 2020 and 2019, respectively.

activities were $484.2 million in 2022.

Net cash used in financing activities for the year ended December 31, 2021 and 2020 was $50.4

million and $328.5 million, respectively.

Cash used or provided by financing activities is primarily related to the issuance of securitization

trust debt, reduced by the amount of repayment of securitization trust debt and net proceeds or repayments on our warehouse lines of credit

and other debt.

We issued $1,411.0 million in new securitization trust debt in 2022 compared to $1,110.7 million in 2021 and $714.5 million

Repayments of securitization debt were $1,060.1 million, $1,153.1 million and $1,010.0 million in 2022, 2021 and 2020, respectively.

We purchase automobile contracts

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we completed four securitizations aggregating $1,411.0 million of notes sold.

Our plans to manage our liquidity include maintaining our

rate of automobile contract purchases at a level that matches our available capital, and, as appropriate, minimizing our operating costs.

If we are unable to complete such securitizations, we may be unable to increase our rate of automobile contract purchases, in which case

our interest income and other portfolio related income could decrease.

In January 2023, we completed another securitization with

$324.8 million of notes sold.

Cash proceeds from this securitization were used to pay down the outstanding balance on our two warehouse

credit facilities thus increasing the amounts available for borrowing under these facilities.

Our plans to manage our liquidity include

maintaining our rate of automobile contract purchases at a level that matches our available capital, and, as appropriate, minimizing our

operating costs.

If we are unable to complete such securitizations, we may be unable to increase our rate of automobile contract purchases,

in which case our interest income and other portfolio related income could decrease.

Our liquidity will also be

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credit, $49.6 million of residual interest financing debt and $25.3 million in subordinated renewable notes.

We are also currently offering

the subordinated renewable notes to the public on a continuous basis, and such notes have maturities that range from three months to five

Although we believe we are

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Operating and Finance Leases

___________________

(1) Securitization trust debt, in the aggregate amount of $2,108.7 million as of December 31, 2022, is omitted

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which will depend on the performance of such receivables, as to which there can be no assurance, are $804.4 million in 2023, $578.9 million

in 2023, $150.6 million in 2024, $167.0 million in 2025, $92.1 million in 2026, and $41.2 million in 2027.

in 2024, $339.1 million in 2025, $202.3 million in 2026, $128.1 million in 2027, $55.3 million in 2028, and $0.6 million in 2029.

(2) Long-term debt represents subordinated renewable notes.

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The facility provides for effective advances up to 82.0% of eligible finance receivables.

The loans under the

facility accrue interest at one-month LIBOR plus 3.00% per annum, with a minimum rate of 3.75% per annum.

In December 2020, this facility

was amended to extend the revolving period to December 2022 and to include an amortization period through December 2023 for any receivables

The Class A loans under

the facility generally accrue interest during the revolving period at a per annum rate equal to one-month SOFR plus 3.00% per annum, with

a minimum rate of 3.75% per annum and during the amortization period at a per annum rate equal to one-month SOFR plus 4.00% per annum,

with a minimum rate of 4.75% per annum.

The Class B loans under the facility generally accrue interest during the revolving period at

a per annum rate equal to 8.50% per annum and during the amortization period at a per annum rate equal to 9.50% per annum.

In July 2022,

we renewed our two-year revolving credit agreement with Citibank, N.A., and doubled the capacity from $100 million to $200 million.

facility was amended to extend the revolving period to July 2024 and to include an amortization period through July 2025 for any receivables

pledged to the facility at the end of the revolving period.

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Facility Established in

On April 17, 2015, we entered into an additional $100 million one-year warehouse credit line with Fortress Investment

The facility is structured to allow us to fund a portion of the purchase price of automobile contracts by borrowing from a credit

facility to our consolidated subsidiary Page Six Funding, LLC.

The facility provides for effective advances up to 88.0% of eligible finance

The loans under the facility accrue interest at one-month LIBOR plus 5.50% per annum, with a minimum rate of 6.50% per annum.

In February 2019, this facility was amended to extend the revolving period to February 2021 followed by an amortization period through

February 2023.

In February 2021, we repaid this facility in full at its maturity date and elected not to renew it.

Facility Established in

November 2015.

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per annum, with a minimum rate of 5.15% per annum.

At December 31, 2021 there was $35.4 million outstanding under this facility.

On February 2, 2022, we renewed our two-year revolving credit agreement with Ares Agent

Services, L.P.

In June 2022, we increased the capacity of our credit agreement with Ares Agent Services, L.P.

from $100 million to $200

This facility was amended to extend the revolving period to January 2024 followed by an amortization period through January 2028

for any receivables pledged to the facility at the end of the revolving period.

At December 31, 2022 there was $137.6 million outstanding

under this facility.

Capital Resources

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by CPS Auto Securitization Trust 2018-1, consist of a single class with a coupon of 8.595%.

At December 31, 2021 there was $4.3 million

outstanding under this facility.

The notes were paid off in February 2022.

On June 30, 2021, we completed

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The agreed valuation of the

collateral for the 2018-1 and 2021-1 Notes is the sum of the amounts on deposit in the underlying spread accounts for each related securitization

collateral for the 2021-1 Notes is the sum of the amounts on deposit in the underlying spread accounts for each related securitization

and the over-collateralization of each related securitization, which is the difference between the outstanding principal balances of the

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On each monthly payment

date, the 2018-1 Notes and the 2021-1 Notes are entitled to interest at the coupon rate and, if necessary, a principal payment necessary

to maintain a specified minimum collateral ratio.

date, the 2021-1 Notes are entitled to interest at the coupon rate and, if necessary, a principal payment necessary to maintain a specified

minimum collateral ratio.

Securitization Trust Debt.

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mandates imposed in reaction to such

events, such as prohibitions of otherwise permissible activity, which might impair the obligation to perform contracts, or the abilty

events, such as prohibitions of otherwise permissible activity, which might impair the obligation to perform contracts, or the ability

of obligors to earn;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis