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 March 31, 2026, we have originated a total of approximately $25.2 billion of automobile contracts from dealers, and to a lesser degree, by originating loans secured by automobiles directly with consumers. Our recent history of contract purchase volumes and managed portfolio levels are shown in the table below. Managed portfolio comprises both contracts we owned and those we were servicing for third parties. Contract Purchases and Outstanding Managed Portfolio $ in thousands Period Contracts Purchased in Period Managed Portfolio at Period End 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 2025 1,638,326 3,898,425 Three months ended March 31, 2026 533,220 4,058,335 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. 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. 24 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 108 term securitizations of automobile contracts that we originated. As of March 31, 2026, 19 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 2020 4 741,867 2021 3 1,145,002 2022 4 1,537,383 2023 4 1,352,114 2024 4 1,533,854 2025 4 1,727,785 Three months ended March 31, 2026 1 352,664 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 $702.5 million over three credit facilities. The first credit facility was established in May 2012. 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, the capacity was increased from $200 million to $335 million in December 2024. In November 2015, we entered into a $100 million facility with Ares Agent Services, L.P. In June 2022, we increased the capacity of our 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 March 2026, the revolving period was extended to April 2026. There was nothing outstanding under this facility at March 31, 2026. 25 In October 2025, we entered into a new $167.5 million facility. This facility has a two year revolving period to October 2027, with an optional amortization period through April 2029. 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 4, 2026, we completed a $50 million securitization of residual interests from previously issued securitizations. In the transaction, qualified institutional buyers purchased $50.0 million of asset-backed notes secured by an 80% interest in a CPS affiliate that owns the residual interests in four CPS securitizations issued from January 2025 through October 2025. The sold notes (“2026-1 Notes”), issued by CPS Auto Securitization Trust 2026-1, consist of a single class with a coupon of 8.75%. Receivables we originate and service for third parties are not pledged to our warehouse facilities or included in our securitizations. Financial Covenants Our warehouse credit facilities and our residual interest financings contain various financial covenants requiring certain minimum financial ratios. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. In addition, certain securitization and non-securitization related debt contain cross-default provisions that would allow certain creditors to declare a default if a default occurred under a different facility. As of March 31, 2026 we were in compliance with all such financial covenants. Results of Operations Comparison of Operating Results for the three months ended March 31, 2026, with the three months ended March 31, 2025 Revenues . During the three months ended March 31, 2026, our revenues were $112.3 million, an increase of $5.5 million, or 5.1% from the prior year revenue of 106.9 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 March 31, 2026, 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 $3.5 million mark up to the fair value portfolio in the prior year period. 26 Interest income for the three months ended March 31, 2026, increased $6.8 million, or 6.7% to $108.7 million from $101.9 million in the prior year. The primary reason for the increase in interest income is the 7.9% increase in the average balance of our loan portfolio over the prior year period. The interest yield on our total loan portfolio decreased to 11.3% from 11.4% in the prior 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 three months ended March 31, 2026 and 2025: Three Months Ended March 31, 2026 2025 (Dollars in Thousands) Average Interest Average Interest Balance Interest Yield Balance Interest Yield Interest Earning Assets Loan Portfolio $ 3,853,746 $ 108,721 11.3% $ 3,572,642 $ 101,933 11.4% Other income was $3.6 million for the three months ended March 31, 2026, compared to $1.4 million for the comparable period in 2025. This $2.2 million increase was primarily driven by the dealer recoveries collected for the three months ending March 31, 2026. These dealer recoveries were $2.3 million for the quarter ended March 31, 2026. There were no dealer recoveries in the prior year period. The Company engaged a third party that identifies discrepancies in the values of the vehicles that have been repossessed and sold at auction. The third party attempts to collect the amount of the discrepancy from the dealers and remits the amounts collected to the Company net of fees charged. Expenses . Our operating expenses consist largely of interest expenses, employee costs, sales and general and administrative expenses. Interest expense is 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 and on the interest rates on these facilities. Employee costs and general and administrative expenses are incurred as applications and automobile contracts are received, processed and serviced. Factors that affect 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 $104.3 million for the three months ended March 31, 2026, compared to $100.1 million for the prior period, an increase of $4.2 million, or 4.2%. The increase is primarily due to increases in interest expense. Employee costs were $23.0 million during the three months ended March 31, 2026, compared to $25.0 million for the same quarter in the prior year, a decrease of $2.0 million, or 7.9%. 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, March 31, 2026, and 2025. Three Months Ended March 31, 2026 2025 (Dollars in millions) Contracts purchased (dollars) $ 533.2 $ 451.2 Contracts purchased (units) 23,919 20,707 Managed portfolio outstanding (dollars) $ 3,942.2 $ 3,614.6 Managed portfolio outstanding (units) 220,310 207,123 Number of Originations staff 191 200 Number of Sales staff 149 120 Number of Servicing staff 546 559 Number of other staff 70 64 Total number of employees 956 943 27 Increases in headcount among our Sales staff during the three-month period ended, March 31, 2026, and the decrease from the prior year period in the average cost of our Servicing staff, were the largest contributing factors to the increase in headcount and decrease to employee costs for the three-month period ended, March 31, 2026 compared to the prior year period. 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 $12.9 million, a decrease of $345,000 from $12.6 million in the prior year period. Interest expense for the three months ended March 31, 2026, was $60.1 million and represented 57.6% of total operating expenses, compared to $54.9 million in the previous year, when it was 54.9% of total operating expenses. Interest on securitization trust debt increased by $3.7 million for the three months ended March 31, 2026, compared to the prior period. The average balance of securitization trust debt increased to $3,127.4 million for the three months ended March 31, 2026, compared to $2,861.9 million for the three months ended March 31, 2025. The annualized average rate on our securitization trust debt was 6.2% for the three months ended March 31, 2026, compared to 6.3% 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 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% October 2025 5.72% January 2026 5.18% Interest expense on warehouse credit line debt was $6.5 million for the three months ended March 31, 2026, and in the same period prior year period. The average balance of our warehouse debt was $276.0 million during the three months ended March 31, 2026, compared to $275.8 million for the same period in 2025. The annualized average rate on our credit line debt was 9.4% for the three months ended March 31, 2026, consistent with the same period in the prior year. 28 Interest expense on subordinated renewable notes was $685,000 for the three months ended March 31, 2026. The average balance of the outstanding subordinated debt was $28.7 million for the three months March 31, 2026, compared to $26.9 million for the prior year period. The average yield of subordinated notes is 9.6% for both current and the prior period. In June 2021, March 2024, March 20, 2025, and again on March 4, 2026 we completed a securitization of residual interests from other previously issued securitizations in the amount of $50 million, $50 million, $65 million, and $50 million, respectively. Interest expense for these residual interest financings was $4.2 million for the three months ended March 31, 2026, compared to $2.7 million for the same period in 2025. The following table presents the components of interest income and interest expense and a net interest yield analysis for the three-month periods ended March 31, 2026, and 2025: Three Months Ended March 31, 2026 2025 (Dollars in thousands) Annualized Annualized Average Average Average Average Balance (1) Interest Yield/Rate Balance (1) Interest Yield/Rate Interest Earning Assets Loan Portfolio $ 3,853,746 $ 108,721 11.3% $ 3,572,642 $ 101,933 11.4% Interest Bearing Liabilities Warehouse lines of credit $ 275,980 6,465 9.4% $ 275,816 6,513 9.4% Residual interest financing 154,594 4,155 10.8% 108,667 2,715 10.0% Securitization trust debt 3,127,388 48,756 6.2% 2,861,870 45,044 6.3% Subordinated renewable notes 28,652 685 9.6% 26,945 646 9.6% $ 3,586,614 60,061 6.7% $ 3,273,298 54,918 6.7% Net interest income/spread $ 48,660 $ 47,015 Net interest yield (2) 4.6% 4.7% Ratio of average interest earning assets to average interest bearing liabilities 107% 109% _________________________ (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. 29 Three Months Ended March 31, 2026 Compared to March 31, 2025 Total Change Due Change Due Change to Volume to Rate (In thousands) Interest Earning Assets Loan Portfolio $ 6,788 $ 7,751 (963 ) Interest Bearing Liabilities Warehouse lines of credit (48 ) (48 ) – Residual interest financing 1,440 1,131 309 Securitization trust debt 3,712 4,494 (782 ) Subordinated renewable notes 39 39 – 5,143 5,616 (473 ) Net interest income/spread $ 1,645 $ 2,135 $ (490 ) 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. Finance receivables acquired before 2018 are recorded at cost, and both their total balance and activity is immaterial. 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 increased by $641,000 to $6.6 million during the three months ended March 31, 2026, from $5.9 million for the same quarter in 2025. We purchased $533.2 million of new contracts during the three months ended March 31, 2026, compared to $451.2 million in the prior year period. Occupancy expenses were $1.5 million for the three months ending March 31, 2026, which is up from $1.4 million in the first quarter of 2025. Depreciation and amortization expenses decreased to $225,000 compared to $249,000 in the previous year. For the three months ended March 31, 2026, we recorded income tax expense of $2.5 million, representing a 31% effective tax rate. In the prior period, our income tax expense was $2.1 million, representing a 31% 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. 30 Delinquency, Repossession and Extension Experience (1) Total Managed Portfolio (Excludes Third Party Portfolio) March 31, 2026 March 31, 2025 December 31, 2025 Number of Number of Number of Contracts Amount Contracts Amount Contracts Amount (Dollars in thousands) Delinquency Experience Gross servicing portfolio (1) 220,310 $ 3,942,218 207,123 $ 3,614,555 212,718 $ 3,778,647 Period of delinquency (2) 31-60 days 12,551 217,661 11,800 195,595 15,639 272,499 61-90 days 5,262 86,272 6,020 95,712 7,163 118,304 91+ days 3,426 48,929 4,161 61,037 3,806 56,223 Total delinquencies (2) 21,239 352,862 21,981 352,344 26,608 447,026 Amount in repossession (3) 7,098 103,555 6,214 93,997 7,462 111,152 Total delinquencies and amount in repossession (2) 28,337 $ 456,417 28,195 $ 446,341 34,070 $ 558,178 Delinquencies as a percentage of gross servicing portfolio 9.64% 8.95% 10.61% 9.75% 12.51% 11.83% Total delinquencies and amount in repossession as a percentage of gross servicing portfolio 12.86% 11.58% 13.61% 12.35% 16.02% 14.77% Extension Experience Contracts with one extension, accruing 38,462 $ 713,435 34,239 $ 616,697 41,504 $ 759,863 Contracts with two or more extensions, accruing 55,411 903,092 47,578 716,420 58,326 927,980 93,873 1,616,527 81,817 1,333,117 99,830 1,687,843 Contracts with one extension, non-accrual (4) 2,495 36,432 3,203 48,729 3,008 45,848 Contracts with two or more extensions, non-accrual (4) 5,259 76,649 4,122 61,109 5,285 77,351 7,754 113,081 7,325 109,838 8,293 123,199 Total contracts with extensions 101,627 $ 1,729,608 89,142 $ 1,442,955 108,123 $ 1,811,043 ____________________________________ (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. 31 Net Charge-Off Experience (1) Total Managed Portfolio (Excludes Third Party Portfolio) Finance Receivables Portfolio March 31, March 31, December 31, 2026 2025 2025 (Dollars in thousands) Average servicing portfolio outstanding $ 3,853,746 $ 3,572,642 $ 3,693,796 Annualized net charge-offs as a percentage of average servicing portfolio (2) 8.57% 7.54% 7.76% _________________________ (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. March 31, 2026, and March 31, 2025, percentages represent three months ended March 31, 2026, and March 31, 2025, annualized. December 31, 2025, represents 12 months ended December 31, 2025. Extensions In certain circumstances we will grant obligors one-month payment extensions to assist them with temporary cash flow problems. In general, an obligor will not be permitted more than two such extensions in any 12-month period and no more than eight over the life of the contract. The only modification of terms is to advance the obligor’s next due date, generally by one month, though in some cases we may permit a longer extension, and in any case an advance in the maturity date corresponding to the advance of the due date. There are no other concessions such as a reduction in interest rate, forgiveness of principal or of accrued interest. Accordingly, we consider such extensions to be insignificant delays in payments. 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 payments; (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; and (4) the obligor’s willingness to communicate and cooperate on resolving the delinquency. If the collector believes the obligor is a good candidate for an extension, he must obtain approval from his supervisor, who will review the same factors stated above prior to offering the extension to the obligor. During 2020 we incorporated an algorithmic extension score card which provides our staff with an objective and quantitative assessment of whether or not a obligor is a good candidate for an extension, based on the current circumstances of the account. The extension score card was developed by our internal risk management team and is derived from the post-extension performance of accounts in our managed portfolio. 32 After receiving an extension, an account remains subject to our normal policies and procedures for interest accrual, reporting delinquency and recognizing charge-offs. 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 March 31, 2026, for accounts that received extensions from 2014 through 2025: Period of Extension # Extensions Granted Active or Paid Off at March 31, 2026 % Active or Paid Off at March 31, 2026 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 2014 25,773 10,417 40.4% 14,486 56.2% 869 3.4% 25 2015 53,319 21,929 41.1% 30,058 56.4% 1,329 2.5% 26 2016 80,897 34,902 43.1% 43,007 53.2% 2,954 3.7% 26 2017 133,847 54,601 40.8% 68,336 51.1% 10,712 8.0% 23 2018 121,531 55,545 45.7% 53,641 44.1% 11,879 9.8% 20 2019 71,548 40,404 56.5% 22,951 32.1% 7,411 10.4% 20 2020 83,170 53,727 64.6% 25,121 30.2% 4,032 4.8% 24 2021 47,010 31,276 66.5% 14,498 30.8% 1,236 2.6% 24 2022 56,142 34,232 61.0% 19,956 35.5% 1,954 3.5% 20 2023 83,113 51,205 61.6% 28,649 34.5% 3,259 3.9% 17 2024 90,484 67,956 75.1% 19,887 22.0% 2,641 2.9% 13 2025 110,200 102,293 92.8% 4,854 4.4% 3,053 2.8% 6 ______________________ Note: Table excludes extensions on portfolios serviced for third parties We view these results as a confirmation of the effectiveness of our extension program. We consider accounts that have had extensions and were active or paid off as of March 31, 2026, to be successful. Successful extensions result in continued payments of interest and principal (including payment in full in many cases). Without the extension, however, the account may have defaulted, and we would have likely incurred a substantial loss and no additional interest revenue. For extension accounts that ultimately charged off, we consider accounts that charged off more than six months after the extension to be at least partially successful. In such cases, despite the ultimate loss, we received additional payments of principal and interest that otherwise we would not have received. 33 Additional information about our extensions is provided in the tables below: Three Months Ended March 31, Three Months Ended March 31, Year Ended December 31, 2026 2025 2025 Average number of extensions granted per month 10,233 7,390 9,183 Average number of outstanding accounts 216,170 205,203 210,100 Average monthly extensions as % of average outstandings 4.7% 3.6% 4.4% ____________________ Note: Table excludes portfolios originated and owned by third parties March 31, 2026 March 31, 2025 December 31, 2025 Number of Contracts Amount Number of Contracts Amount Number of Contracts Amount (Dollars in thousands) Contracts with one extension 40,957 $ 749,867 37,442 $ 665,427 41,504 $ 759,863 Contracts with two extensions 24,606 433,061 22,345 377,895 24,171 421,363 Contracts with three extensions 15,304 252,937 13,685 221,613 14,963 246,175 Contracts with four extensions 9,975 156,060 7,785 108,780 9,490 146,777 Contracts with five extensions 6,326 91,211 4,586 46,605 5,754 77,884 Contracts with six extensions 4,459 46,473 3,299 22,635 3,948 35,781 101,627 $ 1,729,609 89,142 $ 1,442,955 99,830 $ 1,687,843 Managed portfolio (excluding originated and owned by 3rd parties) 220,310 $ 3,942,218 207,123 $ 3,614,555 212,718 $ 3,778,647 ___________________ Note: Table excludes portfolios originated and owned by third parties 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 is trained to employ a counseling approach to assist our customers with their cash flow management skills and help them to prioritize their payment obligations to avoid losing their vehicle to repossession. Through our experience, we have learned that once a contract becomes greater than 90 days past due, it is more likely than not that the delinquency will not be resolved and will ultimately result in a charge-off. Contracts originated since January 2018 are accounted for at fair value and the economic impact of late payments is incorporated into the estimated net yield on those contracts. 34 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 three-month period ended March 31, 2026 was $83.8 million, an increase of $9.9 million, compared to net cash provided by operating activities for the three-month period ended March 31, 2026 of $73.9 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. Net cash used in investing activities was $250.7 million for the three months ended March 31, 2026 compared to $194.1 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 $524.9 million and $449.6 million during the first three months of 2026 and 2025, respectively. Net cash provided by financing activities for the three months ended March 31, 2026 was $180.1 million compared to $166.3 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 three months of 2026, we issued $345.6 million in new securitization trust debt compared to $442.4 million for the same period in 2025. We repaid $340.2 million in securitization trust debt in the three months ended March 31, 2026 compared to repayments of securitization trust debt of $293.0 million in the prior year period. In the three months ended March 31, 2026, we had net advances on warehouse lines of credit of $141.5 million, compared to net repayments from warehouse lines of credit of $45.8 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. 35 We are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital. As of March 31, 2026, we had unrestricted cash of $6.9 million and $178.5 million aggregate available borrowings under our three warehouse credit facilities (assuming the availability of sufficient eligible collateral). As of March 31, 2026, we had approximately $5.3 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 three-month period ended March 31, 2026, we completed one securitizations aggregating $345.6 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 March 31, 2026, we were in compliance with all such financial covenants. We currently have and will continue to have a substantial amount of outstanding indebtedness. At March 31, 2026, we had approximately $3,668.2 million of debt outstanding. Such debt consisted primarily of $2,992.2 million of securitization trust debt, and also included $467.1 million of warehouse lines of credit, $181.4 million of residual interest financing debt and $27.5 million in subordinated renewable notes. 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.