CONSUMER PORTFOLIO SERVICES, INC. 10-Q

Item 1. Financial Statements CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) September 30, December 31, 2023 2022 ASSETS Cash and cash equivalents $ 8,306 $ 13,490 Restricted cash and equivalents 133,787 149,299 Finance receivables measured at fair value 2,671,540 2,476,617 Finance receivables 38,493 92,304 Less: Allowance for finance credit losses ( 4,228 ) ( 21,753 ) Finance receivables, net 34,265 70,551 Furniture and equipment, net 1,295 1,660 Deferred tax assets, net 5,763 10,177 Other assets 25,892 30,974 Total Assets $ 2,880,848 $ 2,752,768 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Accounts payable and accrued expenses $ 62,309 $ 55,421 Warehouse lines of credit 240,384 285,328 Residual interest financing 49,812 49,623 Securitization trust debt 2,243,284 2,108,744 Subordinated renewable notes 19,163 25,263 Total liabilities 2,614,952 2,524,379 COMMITMENTS AND CONTINGENCIES – – Shareholders' Equity Preferred stock, $ 1 par value; authorized 4,998,130 shares; none issued – – Series A preferred stock, $ 1 par value; authorized 5,000,000 shares; none issued – – Series B preferred stock, $ 1 par value; authorized 1,870 shares; none issued – – Common stock, no par value; authorized 75,000,000 shares; 21,113,152 and 20,131,323 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively 28,257 28,906 Retained earnings 240,670 202,514 Accumulated other comprehensive loss ( 3,031 ) ( 3,031 ) Total stockholders’ equity 265,896 228,389 Total liability and stockholder’ equity $ 2,880,848 $ 2,752,768 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 3 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues: Interest income $ 83,261 $ 79,817 $ 245,960 $ 225,547 Mark to finance receivables measured at fair value 6,000 8,183 6,000 15,283 Other income 2,818 2,305 8,077 5,859 Total revenues 92,079 90,305 260,037 246,689 Expenses: Employee costs 21,812 20,671 64,991 63,414 General and administrative 13,045 9,408 36,224 25,920 Interest 37,889 23,483 106,354 58,654 Provision for credit losses ( 2,000 ) ( 6,000 ) ( 20,700 ) ( 23,400 ) Sales 5,330 5,962 16,517 17,186 Occupancy 1,586 2,031 4,756 5,820 Depreciation and amortization 199 406 642 1,207 Total operating expenses 77,861 55,961 208,784 148,801 Income before income tax expense 14,218 34,344 51,253 97,888 Income tax expense 3,839 8,931 13,097 26,040 Net income $ 10,379 $ 25,413 $ 38,156 $ 71,848 Earnings per share: Basic $ 0.49 $ 1.22 $ 1.83 $ 3.39 Diluted 0.41 0.95 1.51 2.61 Number of shares used in computing earnings per share: Basic 21,154 20,911 20,815 21,166 Diluted 25,218 26,654 25,331 27,512 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 4 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Net income $ 10,379 $ 25,413 $ 38,156 $ 71,848 Other comprehensive income/(loss); change in funded status of pension plan – – – – Comprehensive income $ 10,379 $ 25,413 $ 38,156 $ 71,848 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 5 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income $ 38,156 $ 71,848 Adjustments to reconcile net income to net cash provided by operating activities: Net interest income accretion on fair value receivables 143,949 97,462 Depreciation and amortization 642 1,207 Amortization of deferred financing costs 7,264 5,860 Mark to finance receivables measured at fair value ( 6,000 ) ( 15,283 ) Provision for credit losses ( 20,700 ) ( 23,400 ) Stock-based compensation expense 2,634 2,966 Changes in assets and liabilities: Deferred tax assets, net 4,414 5,005 Other assets 4,671 5,252 Accounts payable and accrued expenses 6,888 13,827 Net cash provided by operating activities 181,918 164,744 Cash flows from investing activities: Payments received on finance receivables held for investment 56,986 109,894 Purchases of finance receivables measured at fair value ( 958,587 ) ( 1,311,735 ) Payments received on finance receivables at fair value 625,715 635,401 Change in repossessions held in inventory 411 1,694 Purchase of furniture and equipment ( 277 ) ( 1,778 ) Net cash used in investing activities ( 275,752 ) ( 566,524 ) Cash flows from financing activities: Proceeds from issuance of securitization trust debt 949,385 1,104,000 Proceeds from issuance of subordinated renewable notes – 4,004 Payments on subordinated renewable notes ( 6,100 ) ( 3,214 ) Net proceeds from (repayments of) warehouse lines of credit ( 46,407 ) 139,477 Net proceeds from (repayment of) residual interest financing debt – ( 4,311 ) Repayment of securitization trust debt ( 814,473 ) ( 804,774 ) Payment of financing costs ( 5,984 ) ( 10,407 ) Purchase of common stock ( 19,116 ) ( 41,535 ) Exercise of options and warrants 15,833 14,698 Net cash provided by financing activities 73,138 397,938 Increase in cash and cash equivalents ( 20,696 ) ( 3,842 ) Cash and restricted cash at beginning of period 162,789 176,548 Cash and restricted cash at end of period $ 142,093 $ 172,706 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 97,812 $ 51,300 Income taxes $ 4,389 $ 13,977 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 6 CONSUMER PORTFOLIO SERVICES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Common Stock (Shares Outstanding) Balance, beginning of period 21,152 21,207 20,131 21,144 Common stock issued upon exercise of options and warrants 27 79 2,832 2,974 Repurchase of common stock ( 66 ) ( 679 ) ( 1,850 ) ( 3,511 ) Balance, end of period 21,113 20,607 21,113 20,607 Common Stock Balance, beginning of period $ 27,937 $ 36,947 $ 28,906 $ 55,298 Common stock issued upon exercise of options and warrants 155 282 15,833 14,698 Repurchase of common stock ( 652 ) ( 7,250 ) ( 19,116 ) ( 41,535 ) Stock-based compensation 817 1,448 2,634 2,966 Balance, end of period $ 28,257 $ 31,427 $ 28,257 $ 31,427 Retained Earnings Balance, beginning of period $ 230,291 $ 162,966 $ 202,514 $ 116,531 Net income 10,379 25,413 38,156 71,848 Balance, end of period $ 240,670 $ 188,379 $ 240,670 $ 188,379 Accumulated Other Comprehensive Loss Balance, beginning of period $ ( 3,031 ) $ ( 1,622 ) $ ( 3,031 ) $ ( 1,622 ) Pension benefit obligation – – – – Balance, end of period $ ( 3,031 ) $ ( 1,622 ) $ ( 3,031 ) $ ( 1,622 ) Balance, beginning of period – – 228,389 – Pension benefit obligation – – – – Total Shareholders' Equity $ 265,896 $ 218,184 $ 265,896 $ 218,184 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 7 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Description of Business We were formed in California on March 8, 1991. We specialize in purchasing and servicing retail automobile installment sale contracts (“automobile contracts” or “finance receivables”) originated by licensed motor vehicle dealers located throughout the United States (“dealers”) in the sale of new and used automobiles, light trucks and passenger vans. Through our purchases, we provide indirect financing to dealer customers for borrowers with limited credit histories or past credit problems (“sub-prime customers”). We serve as an alternative source of financing for dealers, allowing sales to customers who otherwise might not be able to obtain financing. In addition to purchasing installment purchase contracts directly from dealers, we have also (i) lent money directly to consumers for loans secured by vehicles, (ii) purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders, and (iii) acquired installment purchase contracts in four merger and acquisition transactions. In this report, we refer to all of such contracts and loans as "automobile contracts." Basis of Presentation Our Unaudited Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America, with the instructions to Form 10-Q and with Article 10 of Regulation S-X of the Securities and Exchange Commission, and include all adjustments that are, in management’s opinion, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are, in the opinion of management, of a normal recurring nature. Results for the nine-month period ended September 30, 2023 are not necessarily indicative of the operating results to be expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these Unaudited Condensed Consolidated Financial Statements. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods. 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. 8 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 recorded value, an adjustment would be required. 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. Other Income The following table presents the primary components of Other Income for the three-month and nine-month periods ending September 30, 2023 and 2022: Schedule of other income Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 (In thousands) (In thousands) Origination and servicing fees from third party receivables $ 2,546 $ 2,016 $ 7,207 $ 4,268 Direct mail revenues – – – 774 Sales tax refunds 256 209 780 512 Other 16 80 90 305 Other income for the period $ 2,818 $ 2,305 $ 8,077 $ 5,859 Leases The Company has operating leases for corporate offices, equipment, software and hardware. The Company has entered into operating leases for the majority of its real estate locations, primarily office space. These leases are generally for periods of three to seven years with various renewal options. The depreciable life of leased assets is limited by the expected lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term. 9 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following table presents the supplemental balance sheet information related to leases: Schedule of supplemental balance sheet information related to leases September 30, December 31, 2023 2022 (In thousands) Operating Leases Operating lease right-of-use assets $ 29,575 $ 28,397 Less: Accumulated amortization right-of-use assets ( 25,673 ) ( 22,613 ) Operating lease right-of-use assets, net $ 3,902 $ 5,784 Operating lease liabilities $ ( 4,222 ) $ ( 6,234 ) Finance Leases Property and equipment, at cost $ 3,454 $ 3,407 Less: Accumulated depreciation ( 3,373 ) ( 3,301 ) Property and equipment, net $ 81 $ 106 Finance lease liabilities $ ( 85 ) $ ( 177 ) Weighted Average Discount Rate Operating lease 5.0 % 5.0 % Finance lease 6.5 % 6.5 % Maturities of lease liabilities were as follows: Schedule of maturities of lease liabilities (In thousands) Operating Finance Year Ending September 30, Lease Lease 2023 $ 1,365 $ 12 2024 1,787 37 2025 737 20 2026 455 11 2027 452 11 Thereafter 565 1 Total undiscounted lease payments 5,361 92 Less amounts representing interest ( 1,139 ) ( 7 ) Lease Liability $ 4,222 $ 85 10 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following table presents the lease expense included in General and administrative and Occupancy expense on our Unaudited Condensed Consolidated Statement of Operations: Schedule of lease information Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 (In thousands) (In thousands) Operating lease cost $ 1,410 $ 1,767 $ 4,181 $ 5,288 Finance lease cost 18 257 144 813 Total lease cost $ 1,428 $ 2,024 $ 4,325 $ 6,101 The following table presents the supplemental cash flow information related to leases: Schedule of supplemental cash flow information related to leases Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 (In thousands) (In thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 1,410 $ 1,921 $ 4,181 $ 5,616 Operating cash flows from finance leases 17 249 139 776 Financing cash flows from finance leases 1 8 5 36 Stock-based Compensation We recognize compensation costs in the financial statements for all share-based payments based on the grant date fair value estimated in accordance with the provisions of ASC 718 “Stock Compensation”. For the three and nine months ended September 30, 2023, we recorded stock-based compensation costs in the amount of $ 816,000 and $ 2.6 million, respectively. These stock-based compensation costs were $ 1.4 million and $ 3 .0 million for the three and nine months ended September 30, 2022. As of September 30, 2023, unrecognized stock-based compensation costs to be recognized over future periods equaled $ 6.8 million. This amount will be recognized as expense over a weighted-average period of 2.0 years. The following represents stock option activity for the nine months ended September 30, 2023: Schedule of option activity Weighted Number of Weighted Average Shares Average Remaining (in thousands) Exercise Price Contractual Term Options outstanding at the beginning of period 11,167 $ 5.21 N/A Granted – – N/A Exercised ( 2,832 ) 5.59 N/A Forfeited – – N/A Options outstanding at the end of period 8,335 $ 5.08 3.36 years Options exercisable at the end of period 6,250 $ 4.30 2.80 years 11 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following table presents the price distribution of stock options outstanding and exercisable for the years ended September 30, 2023 and December 31, 2022: Schedule of stock options outstanding and exercisable Number of shares as of Number of shares as of September 30, 2023 December 31, 2022 Outstanding Exercisable Outstanding Exercisable (In thousands) (In thousands) Range of exercise prices: $2.00 - $2.99 1,440 1,105 1,445 775 $3.00 - $3.99 2,533 2,533 3,785 3,495 $4.00 - $4.99 2,659 2,034 2,739 1,802 $5.00 - $5.99 – – – – $6.00 - $6.99 – – 740 740 $7.00 - $7.99 – – 748 748 $10.00 - $10.99 1,703 578 1,710 210 Total shares 8,335 6,250 11,167 7,770 At September 30, 2023 the aggregate intrinsic value of options outstanding and exercisable was $ 35.3 million and $ 30.5 million, respectively. There were 2.8 million options exercised for the nine months ended September 30, 2023 compared to 3 .0 million for the comparable period in 2022. The total intrinsic value of options exercised was $ 13.5 million and $ 23.1 million for the nine-month periods ended September 30, 2023 and 2022. There were 2,661,000 shares available for future stock option grants under existing plans as of September 30, 2023. Purchases of Company Stock The table below describes the purchase of our common stock for the nine-month ended September 30, 2023 and 2022: Schedule of purchases of company stock Nine Months Ended September 30, 2023 September 30, 2022 Shares Avg. Price Shares Avg. Price Open market purchases 625,887 $ 11.20 2,617,548 $ 11.20 Shares redeemed upon net exercise of stock options 1,224,673 13.56 893,153 13.56 Total stock purchases 1,850,560 $ 11.80 3,510,701 $ 11.80 Reclassifications Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on net income or shareholders’ equity. Financial Covenants Certain of our securitization transactions, our warehouse credit facilities and our residual interest financing contain various financial covenants requiring minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. As of September 30, 2023, we were in compliance with all such covenants. In addition, certain of our debt agreements other than our term securitizations contain cross-default provisions. Such cross-default provisions would allow the respective creditors to declare a default if an event of default occurred with respect to other indebtedness of ours, but only if such other event of default were to be accompanied by acceleration of such other indebtedness. 12 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Provision for Contingent Liabilities We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices, both continuing and discontinued. Our legal counsel has advised us on such matters where, based on information available at the time of this report, there is an indication that it is both probable that a liability has been incurred and the amount of the loss can be reasonably determined. Adoption of New Accounting Standards In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2022-02, known as the Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs in ASC 310-40 on troubled debt restructurings for entities that have adopted the CECL model introduced by ASU 2016-13, Current Expected Credit Loss. ASU 2022-02 also requires that public business entities disclose current-period gross charge offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost. This guidance is effective for fiscal years beginning after December 15, 2022, and the adoption of this guidance did not have a material impact on the condensed consolidated financial statements. (2) Finance Receivables Our portfolio of finance receivables consists of small-balance homogeneous contracts comprising a single segment and class that is collectively evaluated for impairment on a portfolio basis according to delinquency status. Our contract purchase guidelines are designed to produce a homogenous portfolio. For key terms such as interest rate, length of contract, monthly payment and amount financed, there is relatively little variation from the average for the portfolio. We report delinquency on a contractual basis. Once a contract becomes greater than 90 days delinquent, we do not recognize additional interest income until the obligor under the contract makes sufficient payments to be less than 90 days delinquent. Any payments received on a contract that is greater than 90 days delinquent are first applied to accrued interest and then to principal reduction. In January 2018 the Company adopted the fair value method of accounting for finance receivables acquired after 2017. Finance receivables measured at fair value are recorded separately on the Company’s Balance Sheet and are excluded from all tables in this footnote. We consider an automobile contract delinquent when an obligor fails to make at least 90% of a contractually due payment by the following due date, which date may have been extended within limits specified in the servicing agreements. The period of delinquency is based on the number of days payments are contractually past due, as extended where applicable. Automobile contracts less than 31 days delinquent are not included. In certain circumstances we will grant obligors one-month payment extensions to assist them with temporary cash flow problems. The only modification of terms is to advance the obligor’s next due date by one month and extend the maturity date of the receivable by one month. In certain limited cases, a two-month extension may be granted. There are no other concessions such as a reduction in interest rate, forgiveness of principal or of accrued interest. Automobile finance receivables, net of unearned interest was $ 38.5 million and $ 92.3 million as of September 30, 2023 and December 31, 2022, respectively. The following table summarizes the delinquency status of finance receivables as of September 30, 2023 and December 31, 2022: Schedule of delinquency status of finance receivables September 30, December 31, 2023 2022 (In thousands) Delinquency Status Current $ 25,805 $ 65,764 31-60 days 7,167 16,796 61-90 days 4,086 7,756 90+ days 1,435 1,988 Balance at end of period $ 38,493 $ 92,304 Finance receivables totaling $ 1.4 million and $ 2.0 million at September 30, 2023 and December 31, 2022, respectively, including all receivables greater than 90 days delinquent, have been placed on non-accrual status as a result of their delinquency status. 13 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Allowance for Credit Losses – Finance Receivables The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of finance receivables to present the net amount expected to be collected. Charge offs are deducted from the allowance when management believes that collectability is unlikely. Management estimates the allowance using relevant available information, from internal and external sources, relating to past events, current conditions and, reasonable and supportable forecasts. We believe our historical credit loss experience provides the best basis for the estimation of expected credit losses. Consequently, we use historical loss experience for older receivables, aggregated into vintage pools based on their calendar quarter of origination, to forecast expected losses for less seasoned quarterly vintage pools. We measure the weighted average monthly incremental change in cumulative net losses for the vintage pools in the relevant historical period. For the pools in the relevant historical period, we consider each pool’s performance from its inception through the end of the current period. We then apply the results of the historical analysis to less seasoned vintage pools beginning with each vintage pool’s most recent actual cumulative net loss experience and extrapolating from that point based on the historical data. We believe the pattern and magnitude of losses on older vintages allows us to establish a reasonable and supportable forecast of less seasoned vintages. Our contract purchase guidelines are designed to produce a homogenous portfolio. For key credit characteristics of individual contracts such as obligor credit history, job stability, residence stability and ability to pay, there is relatively little variation from the average for the portfolio. Similarly, for key structural characteristics such as loan-to-value, length of contract, monthly payment and amount financed, there is relatively little variation from the average for the portfolio. Consequently, we do not believe there are significant differences in risk characteristics between various segments of our portfolio. Our methodology incorporates historical pools that are sufficiently seasoned to capture the magnitude and trends of losses within those vintage pools. Furthermore, the historical period encompasses a substantial volume of receivables over periods that include fluctuations in the competitive landscape, the Company’s rates of growth, size of our managed portfolio and fluctuations in economic growth and unemployment. In consideration of the depth and breadth of the historical period, and the homogeneity of our portfolio, we generally do not adjust historical loss information for differences in risk characteristics such as credit or structural composition of segments of the portfolio or for changes in environmental conditions such as changes in unemployment rates, collateral values or other factors. However, we have considered how certain qualitative factors may affect future credit losses and have incorporated our judgement of the effect of such factors into our estimates. The following table presents the amortized cost basis of our finance receivables by annual vintage as of September 30, 2023 and December 31, 2022. Schedule of amortized cost basis of finance receivables September 30, December 31, 2023 2022 (In thousands) Annual Vintage Pool 2014 and prior $ 595 $ 1,865 2015 2,748 8,627 2016 11,243 28,632 2017 23,907 53,180 $ 38,493 $ 92,304 14 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following table presents a summary of the activity for the allowance for finance credit losses for the three-month and nine-month periods ended September 30, 2023 and 2022: Schedule of allowance for finance credit losses Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 (In thousands) (In thousands) Balance at beginning of period $ 5,721 $ 35,672 $ 21,753 $ 56,206 Provision for credit losses on finance receivables ( 2,000 ) ( 6,000 ) ( 20,700 ) ( 23,400 ) Charge-offs ( 1,477 ) ( 4,375 ) ( 6,391 ) ( 14,181 ) Recoveries 1,984 2,699 9,566 9,371 Balance at end of period $ 4,228 $ 27,996 $ 4,228 $ 27,996 The following table presents the gross charge-offs by year of origination of our finance receivables for the three-month and nine-month ended September 30, 2023 and 2022: Schedule of charge-offs for financed receivables Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Annual Vintage Pool (In thousands) (In thousands) 2014 and prior $ 43 $ 261 $ 251 $ 795 2015 129 602 870 2,343 2016 568 1,598 2,602 5,136 2017 948 2,072 3,548 6,304 Applied against repos in inventory (net) ( 211 ) ( 158 ) ( 880 ) ( 397 ) $ 1,477 $ 4,375 $ 6,391 $ 14,181 Excluded from finance receivables are contracts that were previously classified as finance receivables but were reclassified as other assets because we have repossessed the vehicle securing the Contract. The following table presents a summary of such repossessed inventory together with the allowance for losses in repossessed inventory that is not included in the allowance for finance credit losses: Schedule of allowance for losses on repossessed inventory September 30, December 31, 2023 2022 (In thousands) Gross balance of repossessions in inventory $ 604 $ 1,894 Allowance for losses on repossessed inventory ( 444 ) ( 1,323 ) Net repossessed inventory included in other assets $ 160 $ 571 15 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (3) Securitization Trust Debt We have completed many securitization transactions that are structured as secured borrowings for financial accounting purposes. The debt issued in these transactions is shown on our Unaudited Condensed Consolidated Balance Sheets as “Securitization trust debt,” and the components of such debt are summarized in the following table: Schedule of securitization trust debt Weighted Average Final Receivables Outstanding Outstanding Contractual Debt Scheduled Pledged at Principal at Principal at Interest Rate at Payment September 30, Initial September 30, December 31, September 30, Series Date (1) 2023 (2) Principal 2023 2022 2023 (Dollars in thousands) CPS 2018-A March 2025 $ – $ 190,000 $ – $ 12,939 – CPS 2018-B December 2024 – 201,823 – 17,077 – CPS 2018-C September 2025 – 230,275 – 20,222 0.00 % CPS 2018-D June 2025 – 233,730 – 25,563 0.00 % CPS 2019-A March 2026 21,838 254,400 16,739 32,898 5.81 % CPS 2019-B June 2026 24,211 228,275 19,935 33,897 5.82 % CPS 2019-C September 2026 29,160 243,513 24,635 41,515 4.90 % CPS 2019-D December 2026 38,268 274,313 33,693 53,625 4.28 % CPS 2020-A March 2027 36,578 260,000 31,769 52,705 4.67 % CPS 2020-B June 2027 42,170 202,343 27,649 41,736 6.88 % CPS 2020-C November 2027 58,424 252,200 49,298 72,894 3.81 % CPS 2021-A March 2028 62,378 230,545 44,128 72,076 1.74 % CPS 2021-B June 2028 78,721 240,000 65,432 101,206 2.31 % CPS 2021-C September 2028 117,555 291,000 98,915 147,593 1.92 % CPS 2021-D December 2028 160,217 349,202 143,583 209,277 2.36 % CPS 2022-A April 2029 177,253 316,800 155,921 222,613 2.65 % CPS 2022-B October 2029 267,738 395,600 237,944 325,907 4.64 % CPS 2022-C April 2030 304,257 391,600 255,748 346,714 5.62 % CPS 2022-D June 2030 255,071 307,018 227,124 292,461 7.73 % CPS 2023-A August 2030 177,253 324,768 255,056 – 6.25 % CPS 2023-B November 2030 267,738 332,885 293,825 – 6.53 % CPS 2023-C February 2031 304,257 291,732 276,438 – 6.61 % $ 2,423,087 $ 6,042,022 $ 2,257,832 $ 2,122,918 _________________ (1) The Final Scheduled Payment Date represents final legal maturity of the securitization trust debt. Securitization trust debt is expected to become due and to be paid prior to those dates, based on amortization of the finance receivables pledged to the trusts. Expected payments, which will depend on the performance of such receivables, as to which there can be no assurance, are $ 201 .0 million in 2023, $ 844.3 million in 2024, $ 529.7 million in 2025, $ 317.1 million in 2026, $ 206.2 million in 2027, $ 119 .0 million in 2028, and $ 26 .0 million in 2029. (2) Includes repossessed assets that are included in Other assets on our Unaudited Condensed Consolidated Balance Sheet. 16 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Debt issuance costs of $ 14.5 million and $ 14.2 million as of September 30, 2023 and December 31, 2022, respectively, have been excluded from the table above. These debt issuance costs are presented as a direct deduction to the carrying amount of the Securitization trust debt on our Consolidated Balance Sheets. All of the securitization trust debt was sold in private placement transactions to qualified institutional buyers. The debt was issued through our wholly-owned bankruptcy remote subsidiaries and is secured by the assets of such subsidiaries, but not by our other assets. The terms of the securitization agreements related to the issuance of the securitization trust debt and the warehouse credit facilities require that we meet certain delinquency and credit loss criteria with respect to the pool of receivables, and certain of the agreements require that we maintain minimum levels of liquidity and not exceed maximum leverage levels. As of September 30, 2023, we were in compliance with all such covenants. We are responsible for the administration and collection of the automobile contracts. The securitization agreements also require certain funds be held in restricted cash accounts to provide additional collateral for the borrowings, to be applied to make payments on the securitization trust debt or as pre-funding proceeds from a term securitization prior to the purchase of additional collateral. As of September 30, 2023, restricted cash under the various agreements totaled approximately $ 142.1 million. Interest expense on the securitization trust debt consists of the stated rate of interest plus amortization of additional costs of borrowing. Additional costs of borrowing include facility fees, amortization of deferred financing costs and discounts on notes sold. Deferred financing costs and discounts on notes sold related to the securitization trust debt are amortized using a level yield method. Accordingly, the effective cost of the securitization trust debt is greater than the contractual rate of interest disclosed above. Our wholly-owned bankruptcy remote subsidiaries were formed to facilitate the above asset-backed financing transactions. Similar bankruptcy remote subsidiaries issue the debt outstanding under our credit facilities. Bankruptcy remote refers to a legal structure in which it is expected that the applicable entity would not be included in any bankruptcy filing by its parent or affiliates. All of the assets of these subsidiaries have been pledged as collateral for the related debt. All such transactions, treated as secured financings for accounting and tax purposes, are treated as sales for all other purposes, including legal and bankruptcy purposes. None of the assets of these subsidiaries are available to pay other creditors. (4) Debt The terms and amounts of our other debt outstanding at September 30, 2023 and December 31, 2022 are summarized below: Schedule of debt outstanding Amount Outstanding at September 30, December 31, 2023 2022 (In thousands) Description Interest Rate Maturity Warehouse lines of credit 3.00% over one month Libor (Minimum 3.75%) 8.59% and 7.48% at September 30, 2023 and December 31, 2022, respectively July 2024 $ 163,462 $ 150,293 4.15% over a commercial paper rate (Minimum 5.15%) 9.60% and 8.60% at September 30, 2023, and December 31, 2022, respectively January 2024 78,009 137,585 Residual interest financing 7.86 % June 2026 50,000 50,000 Subordinated renewable notes Weighted average rate of 8.16% and 7.82% at September 30, 2023 and December 31, 2022, respectively Weighted average maturity of July 2025 and October 2024 at September 30, 2023 and December 31, 2022, respectively 19,163 25,263 $ 310,634 $ 363,141 17 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS On February 2, 2022, we renewed our two-year revolving credit agreement with Ares Agent Services, L.P. There was $ 163.5 million outstanding under this facility at September 30, 2023. On June 28, 2022, we increased the capacity of its credit agreement with Ares Agent Services, L.P. from $ 100 million to $ 200 million. The revolving period for this facility was extended to January 2024 followed by an amortization period through January 2028 for any receivables pledged at the end of the revolving period. On July 15, 2022, we renewed our two-year revolving credit agreement with Citibank, N.A., and doubled the capacity from $ 100 million to $ 200 million. There was $ 78.0 million outstanding under this facility at September 30, 2023. The revolving period for this facility was extended to July 2024 followed by an amortization period through July 2025 for any receivables pledged at the end of the revolving period. Unamortized debt issuance costs of $ 188,000 and $ 377,000 as of September 30, 2023 and December 31, 2022, respectively, have been excluded from the amount reported above for residual interest financing. Similarly, unamortized debt issuance costs of $ 1.1 million and $ 2.6 million as of September 30, 2023 and December 31, 2022, respectively, have been excluded from the Warehouse lines of credit amounts in the table above. These debt issuance costs are presented as a direct deduction to the carrying amount of the debt on our Unaudited Condensed Consolidated Balance Sheets. (5) Interest Income and Interest Expense The following table presents the components of interest income: Schedule of interest income Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 (In thousands) (In thousands) Interest on finance receivables $ 3,769 $ 7,620 $ 12,809 $ 28,766 Interest on finance receivables at fair value 77,848 71,734 228,641 196,204 Other interest income 1,644 463 4,510 577 Interest income $ 83,261 $ 79,817 $ 245,960 $ 225,547 The following table presents the components of interest expense: Schedule of interest expense Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 (In thousands) (In thousands) Securitization trust debt $ 31,734 $ 18,519 $ 87,258 $ 47,792 Warehouse lines of credit 4,665 3,342 14,521 5,887 Residual interest financing 1,050 1,050 3,149 3,193 Subordinated renewable notes 440 572 1,426 1,782 Interest expense $ 37,889 $ 23,483 $ 106,354 $ 58,654 18 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (6) Earnings Per Share Earnings per share for the three-month and nine-month periods ended September 30, 2023 and 2022 were calculated using the weighted average number of shares outstanding for the related period. The following table reconciles the number of shares used in the computations of basic and diluted earnings per share for the three-month and nine-month periods ended September 30, 2023 and 2022: Schedule of earnings per share Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 (In thousands) (In thousands) Weighted average number of common shares outstanding during the period used to compute basic earnings per share 21,154 20,911 20,815 21,166 Incremental common shares attributable to exercise of outstanding options and warrants 4,064 5,743 4,516 6,346 Weighted average number of common shares used to compute diluted earnings per share 25,218 26,654 25,331 27,512 If the anti-dilutive effects of common stock equivalents were considered, shares included in the diluted earnings per share calculation for the three-month and nine-month periods ended September 30, 2023 would have included an additional 1.5 million and 1.5 million shares, respectively, attributable to the exercise of outstanding options and warrants. For the three-month and nine-month periods ended September 30, 2022, 1.7 million and 1 .0 million shares, respectively, would be included in the diluted earnings per share calculation. (7) Income Taxes We file numerous consolidated and separate income tax returns with the United States and with many states. With few exceptions, we are no longer subject to U.S. federal, state, or local examinations by tax authorities for years before 2015. As of September 30, 2023, and December 31, 2022, we had no unrecognized tax benefits for uncertain tax positions. We do not anticipate that total unrecognized tax benefits will significantly change due to any settlements of audits or expirations of statutes of limitations over the next 12 months. The Company and its subsidiaries file a consolidated federal income tax return and combined or stand-alone state franchise tax returns for certain states. We utilize the asset and liability method of accounting for income taxes, under which deferred income taxes are recognized for the future tax consequences attributable to the differences between the financial statement values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. 19 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. In making such judgments, significant weight is given to evidence that can be objectively verified. Although realization is not assured, we believe that the realization of the recognized net deferred tax asset of $ 5.8 million as of September 30, 2023 is more likely than not based on forecasted future net earnings. Our net deferred tax asset of $5.8 million consists of approximately $ 3.5 million of net U.S. federal deferred tax assets and $ 2.3 million of net state deferred tax assets. Income tax expense was $ 3.8 million and $ 13.1 million for the three months and nine months ended September 30, 2023, representing effective income tax rates of 27 % and 26 % respectively, compared to income tax expense of $ 8.9 million and $ 26.0 million for the three months and nine months ended September 30, 2022, and represents an effective income tax rates of 26 % and 27 % respectively. (8) Legal Proceedings Consumer Litigation. We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices, both continuing and discontinued. Consumers can and do initiate lawsuits against us alleging violations of law applicable to collection of receivables, and such lawsuits sometimes allege that resolution as a class action is appropriate. For the most part, we have legal and factual defenses to consumer claims, which we routinely contest or settle (for immaterial amounts) depending on the particular circumstances of each case. Following our filing of a complaint for a deficiency judgment in the Superior Court at Waterbury, Connecticut, the defendant filed a cross-claim on October 16, 2019 alleging that our deficiency notices were not compliant with Connecticut law, and seeking relief on behalf of a class of Connecticut obligors whose vehicles we had repossessed. The complaint seeks primarily damages, injunctive relief, waiver of contract deficiencies, and attorney fees and interest. The defendant’s contract provided for resolution of disputes exclusively by arbitration, and exclusively on an individual basis, not a class basis. Nevertheless, in August 2021, the court denied our motion to compel arbitration, without opinion. In April 2022, a motion for certification of a class was filed but has not been ruled upon. It is reasonable to expect that resolution of these claims will be on a class basis. Wage and Hour Claim. On September 24, 2018, a former employee filed a lawsuit against us in the Superior Court of Orange County, California, alleging that we incorrectly classified our sales representatives as outside salespersons exempt from overtime wages, mandatory break periods and certain other employee protective provisions of California and federal law. The complaint seeks injunctive relief, an award of unpaid wages, liquidated damages, and attorney fees and interest. The plaintiff purports to act on behalf of a class of similarly situated employees and ex-employees. We believe that our compensation practices with respect to our sales representatives are compliant with applicable law. In August 2023, the parties settled by agreement the claims of the plaintiff and a California settlement class and the settlement remains subject to final court approval. Massachusetts Civil Investigative Demand . In September 2021, we received a civil investigative demand from the Office of the Attorney General of the Commonwealth of Massachusetts relating to the Company’s communications with and repossession notices sent to Massachusetts customers. We are cooperating with the inquiry. 20 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In General. There can be no assurance as to the outcomes of the matters described or referenced above. We record at each measurement date, most recently as of September 30, 2023, our best estimate of probable incurred losses for legal contingencies, including the matters identified above. The amount of losses that may ultimately be incurred cannot be estimated with certainty. However, based on such information as is available to us, we believe that the total of probable incurred losses for legal contingencies as of September 30, 2023 is $ 3.8 million, and that the range of reasonably possible losses for the legal proceedings and contingencies we face, including those described or identified above, as of September 30, 2023 does not exceed $ 7.3 million. Accordingly, we believe that the ultimate resolution of such legal proceedings and contingencies should not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the uncertainties inherent in contested proceedings there can be no assurance that the ultimate resolution of these matters will not be material to our operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of our income for that period. (9) Fair Value Measurements ASC 820, "Fair Value Measurements" clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The three levels are defined as follows: level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Effective January 2018 we have elected to use the fair value method to value our portfolio of finance receivables acquired in January 2018 and thereafter. Our valuation policies and procedures have been developed by our Accounting department in conjunction with our Risk department and with consultation with outside valuation experts. Our policies and procedures have been approved by our Chief Executive and our Board of Directors and include methodologies for valuation, internal reporting, calibration and back testing. Our periodic review of valuations includes an analysis of changes in fair value measurements and documentation of the reasons for such changes. There is little available third-party information such as broker quotes or pricing services available to assist us in our valuation process. Our level 3, unobservable inputs reflect our own assumptions about the factors that market participants use in pricing similar receivables and are based on the best information available in the circumstances. They include such inputs as estimates for the magnitude and timing of net charge-offs and the rate of amortization of the portfolio of finance receivable. Significant changes in any of those inputs in isolation would have a significant effect on our fair value measurement. For the quarter ended September 30, 2023, the Company evaluated 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 on the portfolio of finance receivables carried at fair value and did not record a mark down to that portfolio. 21 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The table below presents a reconciliation of the finance receivables measured at fair value on a recurring basis using significant unobservable inputs: Schedule of reconciliation of the finance receivables measured at fair value on a recurring basis Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 (In thousands) (In thousands) Balance at beginning of period $ 2,618,420 $ 2,174,133 $ 2,476,617 $ 1,749,098 Finance receivables at fair value acquired during period 300,539 407,260 958,587 1,311,735 Payments received on finance receivables at fair value ( 203,775 ) ( 209,627 ) ( 625,715 ) ( 635,401 ) Net interest income accretion on fair value receivables ( 49,644 ) ( 36,696 ) ( 143,949 ) ( 97,462 ) Mark to fair value 6,000 8,183 6,000 15,283 Balance at end of period $ 2,671,540 $ 2,343,253 $ 2,671,540 $ 2,343,253 The table below compares the fair values of these finance receivables to their contractual balances for the periods shown: Schedule of finance receivables fair and contractual balances September 30, 2023 December 31, 2022 Contractual Fair Contractual Fair Balance Value Balance Value (In thousands) Finance receivables measured at fair value. $ 2,904,235 $ 2,671,540 $ 2,701,184 $ 2,476,617 The following table provides certain qualitative information about our level 3 fair value measurements: Schedule of level 3 fair value measurements Financial Instrument Fair Values as of Inputs as of September 30, December 31, September 30, December 31, 2023 2022 Unobservable Inputs 2023 2022 (In thousands) Assets: Finance receivables measured at fair value $ 2,671,540 $ 2,476,617 Discount rate 11.0% - 11.7% 11.0% - 11.3% Cumulative net losses 10.0% - 21.7% 13.4% - 19.4% The following table summarizes the delinquency status of these finance receivables measured at fair value as of September 30, 2023 and December 31, 2022: Schedule of delinquency status of finance receivables measured at fair value September 30, December 31, 2023 2022 (In thousands) Delinquency Status Current $ 2,525,830 $ 2,375,271 31 - 60 days 192,735 184,968 61 - 90 days 90,847 72,390 91 + days 49,337 29,048 Repo 45,486 39,507 $ 2,904,235 $ 2,701,184 22 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Repossessed vehicle inventory, which is included in Other Assets on our unaudited condensed consolidated balance sheet, is measured at fair value using level 2 assumptions based on our actual loss experience on sale of repossessed vehicles. At September 30, 2023 the finance receivables related to the repossessed vehicles in inventory totaled $ 604,000 . We have applied a valuation adjustment, or loss allowance, of $ 444,000 , which is based on a recovery rate of approximately 26%, resulting in an estimated fair value and carrying amount of $ 160,000 . The fair value and carrying amount of the repossessed inventory at December 31, 2022 was $ 1.9 million after applying a valuation adjustment of $ 1.3 million. There were no transfers in or out of level 1, level 2 or level 3 assets and liabilities for the three months ended September 30, 2023 and 2022. The estimated fair values of financial assets and liabilities at September 30, 2023 and December 31, 2022, were as follows: Schedule of estimated fair values of financial assets and liabilities As of September 30, 2023 Financial Instrument (In thousands) Carrying Fair Value Measurements Using: Value Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 8,306 $ 8,306 $ – $ – $ 8,306 Restricted cash and equivalents 133,787 133,787 – – 133,787 Finance receivables, net 34,265 – – 25,171 25,171 Accrued interest receivable 284 – – 284 284 Liabilities: Warehouse lines of credit $ 240,384 $ – $ – $ 240,384 $ 240,384 Residual interest financing 49,812 49,812 49,812 Accrued interest payable 7,468 – – 7,468 7,468 Securitization trust debt 2,243,284 – – 2,134,496 2,134,496 Subordinated renewable notes 19,163 – – 19,163 19,163 As of December 31, 2022 Financial Instrument (In thousands) Carrying Fair Value Measurements Using: Value Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 13,490 $ 13,490 $ – $ – $ 13,490 Restricted cash and equivalents 149,299 149,299 – – 149,299 Finance receivables, net 70,551 – – 60,063 60,063 Accrued interest receivable 649 – – 649 649 Liabilities: Warehouse lines of credit $ 285,328 $ – $ – $ 285,328 $ 285,328 Accrued interest payable 6,190 – – 6,190 6,190 Securitization trust debt 2,108,744 – – 1,957,995 1,957,995 Subordinated renewable notes 25,263 – – 25,263 25,263 23 CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (10) Subsequent Events On October 24, 2023 we executed our fourth securitization of 2023. In the transaction, qualified institutional buyers purchased $286.1 million of asset-backed notes secured by $306.7 million in automobile receivables originated by CPS. The sold notes, issued by CPS Auto Receivables Trust 2023-D, consist of five classes. Ratings of the notes were provided by Standard & Poor’s and DBRS Morningstar, and were based on the structure of the transaction, the historical performance of similar receivables and CPS’s experience as a servicer. The weighted average yield on the notes is approximately 7.89%. The 2023-D transaction has initial credit enhancement consisting of a cash deposit equal to 1.00% of the original receivable pool balance and overcollateralization of 6.70%. The transaction agreements require accelerated payment of principal on the notes to reach overcollateralization of the lesser of 9.70% of the original receivable pool balance, or 26.75% of the then outstanding pool balance. The transaction was a private offering of securities, not registered under the Securities Act of 1933, or any state securities law. 24