CONSUMER PORTFOLIO SERVICES, INC. 10-Q

Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We are a specialty finance company. Our business is to purchase and service retail automobile contracts originated primarily by franchised automobile dealers and, to a lesser extent, by select independent dealers in the United States in the sale of new and used automobiles, light trucks and passenger vans. Through our automobile contract purchases, we provide indirect financing to the customers of dealers who have limited credit histories or past credit problems, who we refer to as sub-prime customers. We serve as an alternative source of financing for dealers, facilitating sales to customers who otherwise might not be able to obtain financing from traditional sources, such as commercial banks, credit unions and the captive finance companies affiliated with major automobile manufacturers. In addition to purchasing installment purchase contracts directly from dealers, we have also (i) originated vehicle purchase money loans by lending directly to consumers, (ii) acquired installment purchase contracts in four merger and acquisition transactions, and (iii) purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders. In this report, we refer to all of such contracts and loans as "automobile contracts." We were incorporated and began our operations in March 1991. From inception through September 30, 2025, we have originated a total of approximately $24.3 billion of automobile contracts, primarily by purchasing retail installment sales contracts from dealers, and to a lesser degree, by originating loans secured by automobiles directly with consumers. In addition, we acquired a total of approximately $822.3 million of automobile contracts in mergers and acquisitions in 2002, 2003, 2004 and 2011. Recent contract purchase volumes and managed portfolio levels are shown in the table below: Contract Purchases and Outstanding Managed Portfolio $ in thousands Period Contracts Purchased in Period Managed Portfolio at Period End 2019 1,002,782 2,416,042 2020 742,584 2,174,972 2021 1,146,321 2,249,069 2022 1,854,385 3,001,308 2023 1,357,752 3,194,623 2024 1,681,941 3,665,725 Nine months ended September 30, 2025 1,275,293 3,892,856 In May 2021 we began purchasing some contracts for immediate sale to a third-party to whom we refer applications that don’t meet our lending criteria. We service all such contracts on behalf of the third-party. We earn fees for originating the receivable and also servicing fees on active accounts in the third-party portfolio. For the nine months ended September 30, 2025, we originated $11.0 million under this third-party program. As of September 30, 2025, our managed portfolio includes $132.5 million of such third-party receivables. 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 that California branch with certain of these functions also performed in our Florida, Nevada, and Virginia branches. We service our automobile contracts from our California, Nevada, Virginia, Florida and Illinois branches. 31 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 Throughout the period for which information is presented in this report, we have purchased automobile contracts with the intention of financing them on a long-term basis through securitizations, and on an interim basis through warehouse credit facilities. All such financings have involved identification of specific automobile contracts, sale of those automobile contracts (and associated rights) to one of our special-purpose subsidiaries, and issuance of asset-backed securities to be purchased by institutional investors. Depending on the structure, these transactions may be accounted for under generally accepted accounting principles as sales of the automobile contracts or as secured financings. All of our active securitizations are structured as secured financings. When structured to be treated as a secured financing for accounting purposes, the subsidiary is consolidated with us. Accordingly, the sold automobile contracts and the related debt appear as assets and liabilities, respectively, on our consolidated balance sheet. We then periodically (i) recognize interest and fee income on the contracts, and (ii) recognize interest expense on the securities issued in the transaction. For automobile contracts acquired after 2017 we take account of estimated credit losses in our computation of a level yield used to determine recognition of interest on the contracts. For contracts acquired before 2018, we adopted CECL on January 1, 2020, and we may, as circumstances warrant, record or reverse expense provisions for credit losses. Since 1994 we have conducted 106 term securitizations of automobile contracts that we originated. As of September 30, 2025, 18 of those securitizations are active and all are structured as secured financings. We generally conduct our securitizations on a quarterly basis, near the beginning of each calendar quarter, resulting in four securitizations per calendar year. Our recent history of term securitizations is summarized in the table below: Recent Asset-Backed Term Securitizations $ in thousands Period Number of Term Securitizations Receivables Pledged in Term Securitizations 2019 4 1,014,124 2020 3 741,867 2021 4 1,145,002 2022 4 1,537,383 2023 4 1,352,114 2024 4 1,533,854 Nine months ended September 30, 2025 3 1,335,329 32 Generally, prior to a securitization transaction we fund our automobile contract purchases primarily with proceeds from warehouse credit facilities. We currently have short-term funding capacity of $535 million over two credit facilities. The first credit facility was established in May 2012 with Citibank, N.A. This facility was most recently renewed in July 2024, extending the revolving period to July 2026, with an optional amortization period through July 2027. In addition, a subordinated lender was added to the credit facility in November 2024, effectively increasing our advance rate to a maximum of 95% for eligible receivables across the facility. The capacity was then increased from $200 million at the most recent renewal date to $335 million in December 2024. In November 2015, we entered into another $100 million facility with Ares Agent Services, L.P.. In June 2022, we increased the capacity of that credit agreement from $100 million to $200 million. This facility was most recently renewed in March 2024, extending the revolving period to March 2026, followed by an amortization period to March 2028. In a securitization and in our warehouse credit facilities, we are required to make certain representations and warranties, which are generally similar to the representations and warranties made by dealers in connection with our purchase of the automobile contracts. If we breach any of our representations or warranties, we may be required to repurchase the automobile contract at a price equal to the principal balance plus accrued and unpaid interest. We may then be entitled under the terms of our dealer agreement to require the selling dealer to repurchase the contract at a price equal to our purchase price, less any principal payments made by the customer. Subject to any recourse against dealers, we will bear the risk of loss on repossession and resale of vehicles under automobile contracts that we repurchase. In a securitization, the related special purpose subsidiary may be unable to release excess cash to us if the credit performance of the securitized automobile contracts falls short of pre-determined standards. Such releases represent a material portion of the cash that we use to fund our operations. An unexpected deterioration in the performance of securitized automobile contracts could therefore have a material adverse effect on both our liquidity and results of operations. In addition, from time to time, we have also completed financings of our residual interests in other securitizations that we and our affiliates previously sponsored. On March 20, 2025, we completed a $65 million securitization of residual interests from previously issued securitizations. In the transaction, a qualified institutional buyer purchased $65.0 million of asset-backed notes secured by an 80% interest in a CPS affiliate that owns the residual interests in five CPS securitizations issued from October 2023 through September 2024. The sold notes (“2025-1 Notes”), issued by CPS Auto Securitization Trust 2025-1, consist of a single class with a coupon of 11.00%. Receivables we originate and service for third parties are not pledged to our warehouse facilities or included in our securitizations. Financial Covenants Certain of our securitization transactions and our warehouse credit facilities contain various financial covenants requiring certain minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. 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 events of default were to be accompanied by acceleration of such other indebtedness. As of September 30, 2025, we were in compliance with all such covenants. 33 Results of Operations Comparison of Operating Results for the three months ended September 30, 2025, with the three months ended September30, 2024 Revenues . During the three months ended September 30, 2025, our revenues were $108.4 million, an increase of $7.8 million, or 7.8% from the prior year revenue of $100.6 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. Revenues for the three months ended September 30, 2025, did not include a mark to the recorded value of the finance receivables measured at fair value. 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. In the current period, our re-evaluation of the fair values of these receivables resulted in no marks to finance receivables measured at fair value. There was a $5.5 million mark up to the fair value portfolio in the prior year period. Interest income for the three months ended September 30, 2025, increased $14.0 million, or 15.0%, to $107.2 million from $93.2 million in the prior year. The primary reason for the increase in interest income is the 14.2% increase in the average balance of our loan portfolio over the prior year period. The interest yield on our total loan portfolio is 11.4% for both current and in the prior period. 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 average balance and interest yield of our loan portfolio for the three months ended September 30, 2025 and 2024: Three Months Ended September 30, 2025 2024 (Dollars in thousands) Average Interest Average Interest Balance Interest Yield Balance Interest Yield Interest Earning Assets Loan Portfolio $ 3,745,325 $ 107,166 11.4% $ 3,278,336 $ 93,158 11.4% Other income was $1.3 million for the three months ended September 30, 2025, compared to $1.9 million for the comparable period in 2024. This $667,000 decrease was primarily driven by the decrease in origination and servicing fees we earned from third party receivables. These fees were $1.2 million for the quarter ended September 30, 2025, compared to $1.6 million in the prior year period. Expenses . Our operating expenses consist largely of interest expense, employee costs, sales and general and administrative expenses. Interest expense is significantly affected by the volume of automobile contracts we purchased during the trailing 12-month period and the use of our warehouse facilities and asset-backed securitizations to finance those contracts. Employee costs and general and administrative expenses are incurred as applications and automobile contracts are received, processed and serviced. Factors that affect profit margins and net income include changes in the automobile and automobile finance market environments, and macroeconomic factors such as interest rates and changes in the unemployment level. Employee costs include base salaries, commissions and bonuses paid to employees, and certain expenses related to the accounting treatment of outstanding stock options and are one of our most significant operating expenses. These costs (other than those relating to stock options) generally fluctuate with the level of applications and automobile contracts purchased and serviced. 34 Other operating expenses consist largely of facilities expenses, telephone and other communication services, credit services, computer services, sales and advertising expenses, and depreciation and amortization. Total operating expenses were $101.4 million for the three months ended September 30, 2025, compared to $93.7 million for the prior period, an increase of $7.7 million, or 8.2%. The increase is primarily due to increases in interest expense. Employee costs were $22.5 million during the three months ended September 30, 2025, compared to $24.2 million for the same quarter in the prior year, a decrease of $1.7 million, or 7.0%. The table below summarizes our employees by category as well as contract purchases and units in our managed portfolio as of, and for the three-month periods ended, September 30, 2025, and 2024: Three Months Ended September 30, 2025 2024 (Dollars in millions) Contracts purchased (dollars) $ 391.1 $ 445.9 Contracts purchased (units) 16,832 20,179 Managed portfolio outstanding (dollars) $ 3,760.3 $ 3,329.8 Managed portfolio outstanding (units) 212,509 194,434 Number of Originations staff 180 200 Number of Sales staff 116 116 Number of Servicing staff 555 525 Number of other staff 67 84 Total number of employees 918 925 General and administrative expenses include costs associated with purchasing and servicing our portfolio of finance receivables, including expenses for facilities, credit services, and telecommunications. General and administrative expenses were $13.4 million, an increase of $145,000 from $13.3 million in the prior year period. Interest expense for the three months ended September 30, 2025, was $59.1 million and represented 58.3% of total operating expenses, compared to $50.1 million in the previous year, when it was 53.4% of total operating expenses. The $9.0 million increase in interest expense compared to the prior year period was largely due to increases in the average balance of our securitization trust debt, warehouse credit line debt and residual interest financing debt. To a lesser extent, the increase is also due to the increase in the interest rate on our securitization trust debt. 35 Interest on securitization trust debt increased by $4.6 million for the three months ended September 30, 2025, compared to the prior period. The average balance of securitization trust debt increased to $2.830 million for the three months ended September 30, 2025, compared to $2,706.3 million for the three months ended September 30, 2024. The annualized average rate on our securitization trust debt was 6.7% for the three months ended September 30, 2025, compared to 6.4% in the prior year period. For each 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 Period Blended Cost of Funds January 2022 2.54% April 2022 4.83% July 2022 6.02% October 2022 8.48% January 2023 6.48% April 2023 7.17% July 2023 7.13% October 2023 7.89% January 2024 6.51% April 2024 6.69% June 2024 6.56% September 2024 5.52% January 2025 5.88% May 2025 5.96% July 2025 5.43% Interest expense on warehouse credit line debt increased by $2.7 million to $6.7 million for the three months ended September 30, 2025, compared to $4.0 million in the prior year period. The increase was primarily due to the higher utilization of our credit lines during the quarter compared to last year. The average balance of our warehouse debt was $284.6 million during the three months ended September 30, 2025, compared to $132.3 million for the same period in 2024. The annualized average rate on our credit line debt was 9.4% for the three months ended September 30, 2025, compared to 12.1% in the prior year period. Interest expense on subordinated renewable notes was $722,000 for the three months ended September 30, 2025. The average balance of the outstanding subordinated debt was $29.0 million for the three months September 30, 2025, compared to $23.2 million for the prior year period. The average yield of subordinated notes is 10.0% for both current and the prior period. In June 2021, March 2024, and again on March 20, 2025, we completed a securitization of residual interests from other previously issued securitizations in the amount of $50 million, $50 million, and $65 million, respectively. Interest expense for these residual interest financings was $4.1 million for the three months ended September 30, 2025, compared to 2.5 million for the same period in 2024. 36 The following table presents the components of interest income and interest expense and a net interest yield analysis for the three-month periods ended September 30, 2025, and 2024: Three Months Ended September 30, 2025 2024 (Dollars in thousands) Annualized Annualized Average Average Average Average Balance (1) Interest Yield/Rate Balance (1) Interest Yield/Rate Interest Earning Assets Loan Portfolio $ 3,745,325 $ 107,166 11.4% $ 3,278,336 $ 93,158 11.4% Interest Bearing Liabilities Warehouse lines of credit $ 284,638 $ 6,710 9.4% $ 132,254 $ 4,000 12.1% Residual interest financing 165,000 4,085 9.9% 100,000 2,477 9.9% Securitization trust debt 2,829,527 47,581 6.7% 2,706,266 42,998 6.4% Subordinated renewable notes 28,976 722 10.0% 23,237 581 10.0% $ 3,308,141 59,098 7.1% $ 2,961,757 50,056 6.8% Net interest income/spread $ 48,068 $ 43,102 Net interest yield (2) 4.3% 4.6% Ratio of average interest earning assets to average interest bearing liabilities 113% 111% _________________________ (1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances. (2) Annualized net interest income divided by average interest earning assets. Three Months Ended September 30, 2025 Compared to September 30, 2024 Total Change Due Change Due Change to Volume to Rate (In thousands) Interest Earning Assets Loan Portfolio $ 14,008 $ 14,008 $ – Interest Bearing Liabilities Warehouse lines of credit 2,710 4,631 (1,921 ) Residual interest financing 1,608 1,608 – Securitization trust debt 4,583 2,461 2,122 Subordinated renewable notes 141 141 – 9,042 8,841 201 Net interest income/spread $ 4,966 $ 5,167 $ (201 ) 37 Our evaluation of the allowance for credit losses indicated that the reserves against future losses are adequate as of September 30, 2025. 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. For the three months ended September 30, 2025, we recorded a reduction to provision for credit losses on finance receivables in the amount of $712,000. The reserve decrease was primarily due to better-than-expected recovery rates and a decrease in lifetime expected credit losses resulting from improved credit performance as our previous estimates for future losses exceeded actual incurred losses. This compares to $994,000 in reductions to provision for credit losses for the three months ended September 30, 2024. Sales expenses consist primarily of commission-based compensation paid to our employee sales representatives. Our sales representatives earn a salary plus commission based on volume of contract purchases. Sales expense decreased by $41,000 to $5.7 million during the three months ended September 30, 2025, from $5.7 million for the same quarter in 2024. We purchased $391.1 million of new contracts during the three months ended September 30, 2025, compared to $445.9 million in the prior year period. Occupancy expenses were $1.2 million for the three months ending September 30, 2025, which is down from $1.3 million in the third quarter of 2024. Depreciation and amortization expenses decreased to $207,000 compared to $214,000 in the previous year. For the three months ended September 30, 2025, we recorded income tax expense of $2.2 million, representing a 31% effective tax rate. In the prior period, our income tax expense was $2.1 million, representing a 30% effective tax rate. Comparison of Operating Results for the nine months ended September 30, 2025 with the nine months ended September 30, 2024 Revenues . During the nine months ended September 30, 2025, our revenues were $325.1 million, an increase of $36.9 million, or 12.8%, from the prior year revenue of $288.2 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. Revenues for the nine months ended September 30, 2025 include a $6.5 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. In the current period, our re-evaluation of the fair values of these receivables resulted in a mark up for certain receivables and a mark down to the fair values of selected receivables. The net effect of the marks to the fair value resulted in a net mark up of $6.5 million. There was a $16.0 million mark up to the fair value portfolio in the prior year period. 38 Interest income for the nine months ended September 30, 2025 increased $48.7 million, or 18.3%, to $314.5 million from $265.8 million in the prior year. The primary reason for the increase in interest income is the 17.1% increase in the average balance of our loan portfolio over the prior year period. The interest yield on our total loan portfolio increased from 11.3% in the prior year period to 11.4% in the current year period. 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 average balance and interest yield of our loan portfolio for the nine months ended September 30, 2025 and 2024: Nine Months Ended September 30, 2025 2024 (Dollars in thousands) Average Interest Average Interest Balance Interest Yield Balance Interest Yield Interest Earning Assets Loan Portfolio $ 3,666,975 $ 314,462 11.4% $ 3,131,477 $ 265,812 11.3% Other income was $4.1 million for the nine months ended September 30, 2025 compared to $6.4 million for the comparable period in 2024. This $2.3 million decrease was primarily driven by the decrease in origination and servicing fees we earned from third party receivables. These fees were $4.1 million for the nine months ended September 30, 2025 compared to $5.5 million in the prior year period. Expenses . Our operating expenses consist largely of interest expense, provision for credit losses, employee costs, sales and general and administrative expenses. Provision for credit losses is affected by the balance and credit performance of our portfolio of finance receivables (other than our portfolio of finance receivables measured at fair value, as to which expected credit losses have the effect of reducing the internal rate of return or the recorded value applicable to such receivables). Interest expense is significantly affected by the volume of automobile contracts we purchased during the trailing 12-month period and the use of our warehouse facilities and asset-backed securitizations to finance those contracts. Employee costs and general and administrative expenses are incurred as applications and automobile contracts are received, processed and serviced. Factors that affect profit margins and net income include changes in the automobile and automobile finance market environments, and macroeconomic factors such as interest rates and changes in the unemployment level. Employee costs include base salaries, commissions and bonuses paid to employees, and certain expenses related to the accounting treatment of outstanding stock options and are one of our most significant operating expenses. These costs (other than those relating to stock options) generally fluctuate with the level of applications and automobile contracts purchased and serviced. Other operating expenses consist largely of facilities expenses, telephone and other communication services, credit services, computer services, sales and advertising expenses, and depreciation and amortization. Total operating expenses were $304.3 million for the nine months ended September 30, 2025, compared to $268.1 million for the prior period, an increase of $36.2 million, or 13.5% The increase is primarily due to increases in interest expense and a decrease in the reduction to provision for credit losses. To a lesser extent, increases to sales expenses also contributed to the increase in operating expenses during the period. 39 Employee costs were $71.9 million during the nine months ended September 30, 2025 compared to $72.3 million for the same period in the prior year. The table below summarizes our employees by category as well as contract purchases and units in our managed portfolio as of, and for the nine-month periods ended, September 30, 2025 and 2024: Nine Months Ended September 30, 2025 2024 (Dollars in millions) Contracts purchased (dollars) $ 1,275.3 $ 1,224.1 Contracts purchased (units) 56,861 56,303 Managed portfolio outstanding (dollars) $ 3,760.3 $ 3,329.8 Managed portfolio outstanding (units) 212,509 194,434 Number of Originations staff 180 200 Number of Sales staff 116 116 Number of Servicing staff 555 525 Number of other staff 67 84 Total number of employees 918 925 General and administrative expenses include costs associated with purchasing and servicing our portfolio of finance receivables, including expenses for facilities, credit services, and telecommunications. General and administrative expenses were $40.1 million for the nine months ended September 30, 2025, a decrease of $141,000 from $40.3 million in the prior year period. Interest expense for the nine months ended September 30, 2025, was $172.7 million, compared to $138.7 million in the previous year, an increase of $34.0 million. Interest on securitization trust debt increased by $21.3 million for the nine months ended September 30, 2025, compared to the prior period. The average balance of securitization trust debt increased to $2,834.4 million for the nine months ended September 30, 2025, compared to $2,549.9 million for the nine months ended September 30, 2024. The annualized average rate on our securitization trust debt was 6.5% for the nine months ended September 30, 2025, compared to 6.1% in the prior year period. The blended interest rates on new term securitizations have been increasing since 2022. For each 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: 40 Blended Cost of Funds on Recent Asset-Backed Term Securitizations Period Blended Cost of Funds January 2022 2.54% April 2022 4.83% July 2022 6.02% October 2022 8.48% January 2023 6.48% April 2023 7.17% July 2023 7.13% October 2023 7.89% January 2024 6.51% April 2024 6.69% June 2024 6.56% September 2024 5.52% January 2025 5.88% May 2025 5.96% July 2025 5.43% Interest expense on warehouse credit line debt increased by $7.4 million to $21.4 million for the nine months ended September 30, 2025 compared to $14.0 million in the prior year period. The increase was due to higher rates on the debt during the nine month period compared to last year. The average balance of our warehouse debt was $304.6 million during the nine months ended September 30, 2025 compared to $170.7 million for the same period in 2024. The annualized average rate on our credit line debt was 9.4% for the nine months ended September 30, 2025 compared to 11.0% in the prior year period. Interest expense on subordinated renewable notes was $2.1 million for the nine months ended September 30, 2025. The average balance of the outstanding subordinated debt increased by $5.9 million to $28.0 million for the nine months ended September 30, 2025 compared to $22.1 million for the prior year. The average yield of subordinated notes was 9.8% in the current and prior period. In June 2021, March 2024, and again on March 20, 2025, we completed a securitization of residual interests from other previously issued securitizations in the amount of $50 million, $50 million, and $65 million, respectively. Interest expense on the residual interest financing was $11.0 million for the nine months ended September 30, 2025 compared to $6.2 million for the same period in 2024. 41 The following table presents the components of interest income and interest expense and a net interest yield analysis for the nine-month periods ended September 30, 2025 and 2024: Nine Months Ended September 30, 2025 2024 (Dollars in thousands) Annualized Annualized Average Average Average Average Balance (1) Interest Yield/Rate Balance (1) Interest Yield/Rate Interest Earning Assets Loan portfolio $ 3,666,975 $ 314,462 11.4% $ 3,131,477 $ 265,812 11.3% Interest Bearing Liabilities Warehouse lines of credit $ 304,568 21,439 9.4% $ 170,706 14,022 11.0% Residual interest financing 146,429 11,048 10.1% 89,051 6,225 9.3% Securitization trust debt 2,834,434 138,182 6.5% 2,549,877 116,859 6.1% Subordinated renewable notes 27,993 2,051 9.8% 22,117 1,629 9.8% $ 3,313,424 172,720 7.0% $ 2,831,751 138,735 6.5% Net interest income/spread $ 141,742 $ 127,077 Net interest yield (2) 4.5% 4.8% Ratio of average interest earning assets to average interest bearing liabilities 111% 111% _________________________ (1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances (2) Annualized net interest income divided by average interest earning assets Nine Months Ended September 30, 2025 Compared to September 30, 2024 Total Change Due Change Due Change to Volume to Rate (In thousands) Interest Earning Assets Loan portfolio $ 48,650 $ 44,390 $ 4,260 Interest Bearing Liabilities Warehouse lines of credit 7,417 12,188 (4,771 ) Residual interest financing 4,823 3,740 1,083 Securitization trust debt 21,323 10,280 11,043 Subordinated renewable notes 422 436 (14 ) 33,985 26,645 7,340 Net interest income/spread $ 14,665 $ 17,745 $ (3,080 ) 42 Our evaluation of the allowance for credit losses indicated that the reserves against future losses are adequate as of September 30, 2025. 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. For the nine months ended September 30, 2025, we recorded a reduction to provision for credit losses on finance receivables in the amount of $2.5 million. The reserve decrease was primarily due to better-than-expected recovery rates and a decrease in lifetime expected credit losses resulting from improved credit performance as our previous estimates for future losses exceeded actual losses incurred. This compares to $4.6 million in reductions to provision for credit losses for the nine months ended September 30, 2024. Sales expenses consist primarily of commission-based compensation paid to our employee sales representatives. 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. Sales expense increased to $17.3 million during the nine months ended September 30, 2025 from $16.5 million in the same period in 2024. We purchased $1,275.3 million of new contracts during the nine months ended September 30, 2025 compared to $1,224.1 million in the prior year period. Occupancy expenses were $4.0 million for the nine months ending September 30, 2025, which is down from $4.3 million for the same period in 2024. Depreciation and amortization expenses increased to $705,000 compared to $650,000 in the previous year. For the nine months ended September 30, 2025, we recorded income tax expense of $6.4 million, representing a 31% effective tax rate. In the prior period, our income tax expense was $6.0 million, representing a 30% effective tax rate. Credit Experience Our financial results are dependent on the performance of the automobile contracts in which we retain an ownership interest. Broad economic factors such as recession and significant changes in unemployment levels influence the credit performance of our portfolio, as does the weighted average age of the receivables at any given time. The tables below document the delinquency, repossession and net credit loss experience of all such automobile contracts that we originated or own an interest in as of the respective dates shown. 43 Delinquency, Repossession and Extension Experience (1) Total Managed Portfolio (Excludes Third Party Portfolio) September 30, 2025 September 30, 2024 December 31, 2024 Number of Number of Number of Contracts Amount Contracts Amount Contracts Amount (Dollars in thousands) Delinquency Experience Gross servicing portfolio (1) 212,509 $ 3,760,315 194,434 $ 3,329,836 201,441 $ 3,490,960 Period of delinquency (2) 31-60 days 14,498 $ 247,940 13,460 $ 219,265 14,643 $ 243,068 61-90 days 6,924 111,396 6,621 103,404 7,244 114,633 91+ days 4,057 58,672 3,402 52,046 4,477 65,081 Total delinquencies (2) 25,479 418,008 23,483 374,715 26,364 422,782 Amount in repossession (3) 7,173 106,907 6,222 92,939 6,227 95,620 Total delinquencies and amount in repossession (2) 32,652 $ 524,915 29,705 $ 467,654 32,591 $ 518,402 Delinquencies as a percentage of gross servicing portfolio 11.99 11.12% 12.08 11.25% 13.09% 12.11% Total delinquencies and amount in repossession as a percentage of gross servicing portfolio 15.36 13.96% 15.28 14.04% 16.18% 14.85% Extension Experience Contracts with one extension, accruing 36,628 $ 674,431 32,191 $ 567,435 33,623 $ 601,049 Contracts with two or more extensions, accruing 50,593 794,733 46,701 681,625 47,227 701,158 87,221 1,469,164 78,892 1,249,060 80,850 1,302,207 Contracts with one extension, non-accrual (4) 3,034 45,617 3,293 51,821 3,483 53,018 Contracts with two or more extensions, non-accrual (4) 5,183 75,779 3,278 48,020 4,052 60,660 8,217 121,396 6,571 99,841 7,535 113,678 Total contracts with extensions 95,438 $ 1,590,560 85,463 $ 1,348,901 88,385 $ 1,415,885 _________________________ (1) All amounts and percentages are based on the amount remaining to be repaid on each automobile contract. The information in the table represents the gross principal amount of all automobile contracts we have purchased, including automobile contracts subsequently sold in securitization transactions that we continue to service. The table does not include certain contracts we have serviced for third parties on which we earn servicing fees only and have no credit risk. (2) 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. Automobile contracts less than 31 days delinquent are not included. The delinquency aging categories shown in the tables reflect the effect of extensions. (3) Amount in repossession represents financed vehicles that have been repossessed but not yet liquidated. (4) Amount in repossession and accounts past due more than 90 days are on non-accrual. 44 Net Charge-Off Experience (1) Total Managed Portfolio (Excludes Third Party Portfolio) Finance Receivables Portfolio September 30, September 30, December 31, 2025 2024 2024 (Dollars in thousands) Average servicing portfolio outstanding $ 3,666,975 $ 3,131,477 $ 3,209,988 Annualized net charge-offs as a percentage of average servicing portfolio (2) 7.67% 7.47% 7.62% _________________________ (1) All amounts and percentages are based on the principal amount scheduled to be paid on each automobile contract. (2) Net charge-offs include the remaining principal balance, after the application of the net proceeds from the liquidation of the vehicle (excluding accrued and unpaid interest) and amounts collected subsequent to the date of charge-off, including some recoveries which have been classified as other income in the accompanying interim consolidated financial statements. September 30, 2025, and September 30, 2024, percentages represent nine months ended September 30, 2025, and September 30, 2024, annualized. December 31, 2024, represents 12 months ended December 31, 2024. Extensions In certain circumstances we will grant obligors one-month payment extensions to assist them with temporary cash flow problems. In general, we are bound by our securitization agreements to refrain from agreeing to more than two such extensions in any 12-month period and to more than eight over the life of the contract. 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 some 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. The basic question in deciding to grant an extension is whether or not we will (a) be delaying the inevitable repossession and liquidation or (b) risk losing the vehicle as a result of not being able to locate the obligor and vehicle. In both of those situations, the loss would likely be higher than if the vehicle had been repossessed without the extension. The benefits of granting an extension include minimizing current losses and delinquencies, minimizing lifetime losses, getting the obligor’s account current (or close to it) and building goodwill so that the obligor might prioritize us over other creditors on future payments. Our servicing staff are trained to identify when a past due obligor is facing a temporary problem that may be resolved with an extension. In some cases, the extension will be granted in conjunction with our receiving all or a portion of a past due payment from the obligor, thereby indicating an additional monetary and psychological commitment to the contract on the obligor’s part. The credit assessment for granting an extension is initially made by our collector, who bases the recommendation on the collector’s discussions with the obligor. In such assessments the collector will consider, among other things, the following factors: (1) the reason the obligor has fallen behind in payment; (2) whether or not the reason for the delinquency is temporary, and if it is, have conditions changed such that the obligor can begin making regular monthly payments again after the extension; (3) the obligor's past payment history, including past extensions if applicable; (4) the obligor’s willingness to communicate and cooperate on resolving the delinquency; and (5) a numeric score from our internal risk assessment system that indicating the likelihood that the extension will prove beneficial. If the collector believes the obligor is a good candidate for an extension, an approval is obtained from a supervisor, who will review the same factors stated above prior to offering the extension to the obligor. After receiving an extension, an account remains subject to our normal policies and procedures for interest accrual, reporting delinquency and recognizing charge-offs. 45 We believe that a prudent extension program is an integral component to mitigating losses in our portfolio of sub-prime automobile receivables. The table below summarizes the status, as of September 30, 2025, for accounts that received extensions from 2011 through 2024: Period of Extension # Extensions Granted Active or Paid Off at September 30, 2025 % Active or Paid Off at September 30, 2025 Charged Off > 6 Months After Extension % Charged Off > 6 Months After Extension Charged Off <= 6 Months After Extension % Charged Off <= 6 Months After Extension Avg Months to Charge Off Post Extension 2011 18,786 10,962 58.4% 6,883 36.6% 941 5.0% 19 2012 18,783 11,315 60.2% 6,667 35.5% 801 4.3% 18 2013 23,398 11,130 47.6% 11,282 48.2% 986 4.2% 23 2014 25,773 10,418 40.4% 14,486 56.2% 869 3.4% 25 2015 53,319 21,932 41.1% 30,058 56.4% 1,329 2.5% 26 2016 80,897 34,936 43.2% 43,007 53.2% 2,954 3.7% 26 2017 133,847 54,799 40.9% 68,336 51.1% 10,712 8.0% 23 2018 121,531 56,011 46.1% 53,641 44.1% 11,879 9.8% 20 2019 71,548 41,186 57.6% 22,951 32.1% 7,411 10.4% 19 2020 83,170 54,607 65.7% 24,531 29.5% 4,032 4.8% 23 2021 47,010 32,043 68.2% 13,731 29.2% 1,236 2.6% 22 2022 56,142 36,099 64.3% 18,089 32.2% 1,954 3.5% 18 2023 83,113 56,070 67.5% 23,784 28.6% 3,259 3.9% 15 2024 90,484 75,690 83.7% 12,153 13.4% 2,641 2.9% 10 ______________________ Note: Table excludes extensions on portfolios serviced for third parties We view these results as a confirmation of the effectiveness of our extension program. For example, of the accounts granted extensions in 2019, 57.6% were either paid in full or active and performing as of September 30, 2025. Each of these successful accounts represent continued payments of interest and principal (including payment in full in many cases), where without the extension we likely would have incurred a substantial loss and no interest revenue after the extension. 46 For the extension accounts that ultimately charge off, we consider any that charged off more than six months after the extension to be at least partially successful. For example, of the accounts granted extensions in 2018 that subsequently charged off, such charge offs occurred, on average, 20 months after the extension, indicating that even in the cases of an ultimate loss, the obligor serviced the account with additional payments of principal and interest. Additional information about our extensions is provided in the tables below: Nine Months Ended September 30, Nine Months Ended September 30, Year Ended December 31, 2025 2024 2024 Average number of extensions granted per month 8,725 7,342 7,540 Average number of outstanding accounts 209,228 186,139 189,460 Average monthly extensions as % of average outstandings 4.2% 3.9% 4.0% ____________________ Note: Table excludes portfolios originated and owned by third parties September 30, 2025 September 30, 2024 December 31, 2024 Number of Contracts Amount Number of Contracts Amount Number of Contracts Amount (Dollars in thousands) Contracts with one extension 39,662 $ 720,048 35,484 $ 619,256 37,106 $ 654,067 Contracts with two extensions 23,521 404,496 22,277 381,208 22,452 382,301 Contracts with three extensions 14,574 236,989 12,614 198,602 13,300 214,194 Contracts with four extensions 8,828 134,431 7,053 86,837 7,462 99,071 Contracts with five extensions 5,199 65,084 4,674 40,801 4,645 43,264 Contracts with six extensions 3,654 29,513 3,361 22,196 3,420 22,988 95,438 $ 1,590,560 85,463 $ 1,348,900 88,385 $ 1,415,885 Managed portfolio (excluding originated and owned by 3rd parties) 212,509 $ 3,760,315 194,434 $ 3,329,836 201,441 $ 3,490,960 ___________________ Note: Table excludes portfolios originated and owned by third parties 47 Since 2019, we have been able to reduce extensions by working with our servicing staff to be more selective in granting extensions including, where appropriate, to exhaust all possibilities of payment by the customer before granting an extension. However, as delinquency rates have risen, so has the average number of extensions granted. Non-Accrual Receivables It is not uncommon for our obligors to fall behind in their payments. However, with the diligent efforts of our Servicing staff and systems for managing our collection efforts, we regularly work with our customers to resolve delinquencies. Our staff are trained in employing a counseling approach to assist our customers with their cash flow management skills and help them to prioritize their payment obligations in order to avoid losing their vehicle to repossession. Through our experience, we have learned that once a customer becomes greater than 90 days past due, it is not likely that the delinquency will be resolved and will ultimately result in a charge-off. As a result, we do not recognize any interest income for contracts that are greater than 90 days past due. If a contract exceeds the 90 days past due threshold at the end of one period, and then makes the necessary payments such that it becomes less than or equal to 90 days delinquent at the end of a subsequent period, it would be restored to full accrual status for our financial reporting purposes. At the time a contract is restored to full accrual in this manner, there can be no assurance that full repayment of interest and principal will ultimately be made. However, we monitor each obligor’s payment performance and are aware of the severity of his delinquency at any time. The fact that the delinquency has been reduced below the 90-day threshold is a positive indicator. Should the contract again exceed the 90-day delinquency level at the end of any reporting period, it would again be reflected as a non-accrual account. Our policy for placing a contract on non-accrual status is independent of our policy to grant an extension. In practice, it would be an uncommon circumstance where an extension was granted and the account remained in a non-accrual status, since the goal of the extension is to bring the contract current (or nearly current). Liquidity and Capital Resources Our business requires substantial cash to support our purchases of automobile contracts and other operating activities. Our primary sources of cash have been cash flows from the proceeds from term securitization transactions and other sales of automobile contracts, amounts borrowed under various revolving credit facilities (also sometimes known as warehouse credit facilities), customer payments of principal and interest on finance receivables, fees for origination of automobile contracts, and releases of cash from securitization transactions and their related spread accounts. Our primary uses of cash have been the purchases of automobile contracts, repayment of amounts borrowed under lines of credit, securitization transactions and otherwise, operating expenses such as employee, interest, occupancy expenses and other general and administrative expenses, the establishment of spread accounts and initial overcollateralization, if any, the increase of credit enhancement to required levels in securitization transactions, and income taxes. There can be no assurance that internally generated cash will be sufficient to meet our cash demands. The sufficiency of internally generated cash will depend on the performance of securitized pools (which determines the level of releases from those pools and their related spread accounts), the rate of expansion or contraction in our managed portfolio, and the terms upon which we are able to acquire and borrow against automobile contracts. Net cash provided by operating activities for the nine-month period ended September 30, 2025 was $213.2 million, an increase of $47.4 million, compared to net cash provided by operating activities for the nine-month period ended September 30, 2024 of $165.8 million. Net cash from operating activities is generally provided by net income from operations adjusted for significant non-cash items such as our provision for credit losses and marks to finance receivables measured at fair value. 48 Net cash used in investing activities was $492.3 million for the nine months ended September 30, 2025 compared to $536.8 million in the prior year period. Net cash used in investing activities generally relates to new purchases of automobile contracts net of principal payments and other proceeds received during the period. Purchases of finance receivables excluding acquisition fees were $1,275.7 million and $1,195.9 million during the first nine months of 2025 and 2024, respectively. Net cash provided by financing activities for the nine months ended September 30, 2025 was $293.5 million compared to $524.7 million in the prior year period. Cash 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. In the first nine months of 2025, we issued $1,280.7 million in new securitization trust debt compared to $1,453.9 million for the same period in 2024. We repaid $957.6 million in securitization trust debt in the nine months ended September 30, 2025 compared to repayments of securitization trust debt of $840.5 million in the prior year period. In the nine months ended September 30, 2025, we had net repayments on warehouse lines of credit of $72.3 million, compared to net advances from warehouse lines of credit of $125.6 million in the prior year’s period. We purchase automobile contracts from dealers for a cash price approximately equal to their principal amount, adjusted for an acquisition fee which may either increase or decrease the automobile contract purchase price. Those automobile contracts generate cash flow, however, over a period of years. We have been dependent on warehouse credit facilities to purchase automobile contracts and our securitization transactions for long term financing of our contracts. In addition, we have accessed other sources, such as residual financings and subordinated debt in order to finance our continuing operations. The acquisition of automobile contracts for subsequent financing in securitization transactions, and the need to fund spread accounts and initial overcollateralization, if any, and increase credit enhancement levels when those transactions take place, results in a continuing need for capital. The amount of capital required is most heavily dependent on the rate of our automobile contract purchases, the required level of initial credit enhancement in securitizations, and the extent to which the previously established trusts and their related spread accounts either release cash to us or capture cash from collections on securitized automobile contracts. Of those, the factor most subject to our control is the rate at which we purchase automobile contracts. We are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital. As of September 30, 2025, we had unrestricted cash of $8.1 million and $271.0 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability of sufficient eligible collateral). As of September 30, 2025, we had approximately $8.5 million of such eligible collateral. 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. During the nine-month period ended September 30, 2025, we completed three securitizations aggregating $1,280.7 million of notes sold. Our liquidity will also be affected by releases of cash from the trusts established with our securitizations. While the specific terms and mechanics of each spread account vary among transactions, our securitization agreements generally provide that we will receive excess cash flows, if any, only if the amount of credit enhancement has reached specified levels and the net losses related to the automobile contracts in the pool are below certain predetermined levels. In the event delinquencies or net losses on the automobile contracts exceed such levels, the terms of the securitization may require increased credit enhancement to be accumulated for the particular pool. There can be no assurance that collections from the related trusts will continue to generate sufficient cash. Our warehouse credit facilities contain various financial covenants requiring certain minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. 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. As of September 30, 2025, we were in compliance with all such financial covenants. 49 We have and will continue to have a substantial amount of indebtedness. At September 30, 2025, we had approximately $3,435.2 million of debt outstanding. Such debt consisted primarily of $2,916.4 million of securitization trust debt and $340.6 million of debt from warehouse lines of credit. Our securitization trust debt has increased by $322.1 million while our warehouse lines of credit debt has decreased by $70.3 million since December 31, 2024 (each net of deferred financing costs). Since 2005, we have offered renewable subordinated notes to the public on a continuous basis, and such notes have maturities that range from six months to 10 years. We had $28.6 million and $26.5 million in subordinated renewable notes outstanding at September 30, 2025, and December 31, 2024, respectively. In June 2021, March 2024, and again on March 20, 2025, we completed a securitization of residual interests from other previously issued securitizations in the amount of $50 million, $50 million, and $65 million, respectively. As of September 30, 2025, we have $149.5 million of the residual interest debt remains outstanding. Although we believe we are able to service and repay our debt, there is no assurance that we will be able to do so. If our plans for future operations do not generate sufficient cash flows and earnings, our ability to make required payments on our debt would be impaired. If we fail to pay our indebtedness when due, it could have a material adverse effect on us and may require us to issue additional debt or equity securities.