NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(1) Summary of Significant Accounting Policies
Description of Business
We were formed in California on March 8, 1991.
We specialize in purchasing and servicing retail automobile installment sale contracts (“automobile contracts” or “finance
receivables”) originated by licensed motor vehicle dealers located throughout the United States (“dealers”) in the sale
of new and used automobiles, light trucks and passenger vans. Through our purchases, we provide indirect financing to dealer customers
for borrowers with limited credit histories or past credit problems (“sub-prime customers”). We serve as an alternative source
of financing for dealers, allowing sales to customers who otherwise might not be able to obtain financing. In addition to purchasing installment
purchase contracts directly from dealers, we have also (i) lent money directly to consumers for loans secured by vehicles, (ii) purchased
immaterial amounts of vehicle purchase money loans from non-affiliated lenders, and (iii) acquired installment purchase contracts in four
merger and acquisition transactions. In this report, we refer to all of such contracts and loans as "automobile contracts."
Basis of Presentation
Our Unaudited Condensed Consolidated Financial
Statements have been prepared in conformity with accounting principles generally accepted in the United States of America, with the instructions
to Form 10-Q and with Article 10 of Regulation S-X of the Securities and Exchange Commission, and include all adjustments that are, in
management’s opinion, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are,
in the opinion of management, of a normal recurring nature. Results for the three-month period ended March 31, 2022 are not necessarily
indicative of the operating results to be expected for the full year.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America
have been condensed or omitted from these Unaudited Condensed Consolidated Financial Statements. These Unaudited Condensed Consolidated
Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements
included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the
reported amounts of income and expenses during the reported periods.
Finance Receivables Measured
at Fair Value
Effective January 1, 2018, we adopted the fair
value method of accounting for finance receivables acquired on or after that date. For each finance receivable acquired after 2017, we
consider the price paid on the purchase date as the fair value for such receivable. We estimate the cash to be received in the future
with respect to such receivables, based on our experience with similar receivables acquired in the past. We then compute the internal
rate of return that results in the present value of those estimated cash receipts being equal to the purchase date fair value. Thereafter,
we recognize interest income on such receivables on a level yield basis using that internal rate of return as the applicable interest
rate. Cash received with respect to such receivables is applied first against such interest income, and then to reduce the recorded value
of the receivables.
We re-evaluate the fair value of such receivables
at the close of each measurement period. If the reevaluation were to yield a value materially different from the recorded value, an adjustment
would be required. Results for the first quarter include a $2.4 million mark down reversal to the carrying value of the portion of the
receivables portfolio accounted for at fair value. Results for the first quarter of 2021 include a $4.4 million mark down, and the mark
down is reflected as a reduction in revenue.
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Anticipated credit losses are included in our
estimation of cash to be received with respect to receivables. Because such credit losses are included in our computation of the
appropriate level yield, we do not thereafter make periodic provision for credit losses, as our best estimate of the lifetime aggregate
of credit losses is included in that initial computation. Also, because we include anticipated credit losses in our computation of the
level yield, the computed level yield is materially lower than the average contractual rate applicable to the receivables. Because our
initial recorded value is fixed as the price we pay for the receivable, rather than as the contractual principal balance, we do not record
acquisition fees as an amortizing asset related to the receivables, nor do we capitalize costs of acquiring the receivables. Rather we
recognize the costs of acquisition as expenses in the period incurred.
Other Income
The following table presents
the primary components of Other Income for the three-month periods ending March 31, 2022 and 2021:
Schedule of other income | |
| | | |
| | |
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
Direct mail revenues | |
$ | 774 | | |
$ | 979 | |
Convenience fee revenue | |
| 80 | | |
| 240 | |
Recoveries on previously charged-off contracts | |
| 20 | | |
| 15 | |
Sales tax refunds | |
| 144 | | |
| 171 | |
Other | |
| 888 | | |
| 31 | |
Other income for the period | |
$ | 1,906 | | |
$ | 1,436 | |
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Leases
The Company has operating leases for corporate
offices, equipment, software and hardware. The Company has entered into operating leases for the majority of its real estate locations,
primarily office space. These leases are generally for periods of three to seven years with various renewal options. The depreciable life
of leased assets is limited by the expected lease term. Leases with an initial term of 12 months or less are not recorded on the balance
sheet and the related lease expense is recognized on a straight-line basis over the lease term.
The following table presents
the supplemental balance sheet information related to leases:
Supplemental balance sheet information related to leases | |
| | | |
| | |
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
| |
| | |
| |
Operating Leases | |
| | | |
| | |
Operating lease right-of-use assets | |
$ | 25,820 | | |
$ | 25,819 | |
Less: Accumulated amortization right-of-use assets | |
| (18,972 | ) | |
| (17,624 | ) |
Operating lease right-of-use assets, net | |
$ | 6,848 | | |
$ | 8,195 | |
| |
| | | |
| | |
Operating lease liabilities | |
$ | (7,684 | ) | |
$ | (9,058 | ) |
| |
| | | |
| | |
Finance Leases | |
| | | |
| | |
Property and equipment, at cost | |
$ | 3,407 | | |
$ | 3,407 | |
Less: Accumulated depreciation | |
| (2,620 | ) | |
| (2,348 | ) |
Property and equipment, net | |
$ | 787 | | |
$ | 1,059 | |
| |
| | | |
| | |
Finance lease liabilities | |
$ | (842 | ) | |
$ | (1,124 | ) |
| |
| | | |
| | |
Weighted Average Discount Rate | |
| | | |
| | |
Operating lease | |
| 5.0% | | |
| 5.0% | |
Finance lease | |
| 6.5% | | |
| 6.5% | |
Maturities of leases | |
| | | |
| | |
Maturities of lease liabilities were as follows: | |
| | | |
| | |
(In thousands) | |
| Operating | | |
| Finance | |
Year Ending March 31, | |
| Lease | | |
| Lease | |
2022 | |
$ | 4,644 | | |
$ | 752 | |
2023 | |
| 1,888 | | |
| 84 | |
2024 | |
| 920 | | |
| 26 | |
2025 | |
| 795 | | |
| 9 | |
2026 | |
| 501 | | |
| – | |
Thereafter | |
| 1,160 | | |
| – | |
Total undiscounted lease payments | |
| 9,908 | | |
| 871 | |
Less amounts representing interest | |
| (2,224 | ) | |
| (29 | ) |
Lease Liability | |
$ | 7,684 | | |
$ | 842 | |
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The following table presents
the lease expense included in General and administrative and Occupancy expense on our Unaudited Condensed Consolidated Statement of Operations:
Lease information
| |
| | | |
| | |
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
Operating lease cost | |
$ | 1,761 | | |
$ | 1,837 | |
Finance lease cost | |
| 298 | | |
| 308 | |
Total lease cost | |
$ | 2,059 | | |
$ | 2,145 | |
The following table presents the supplemental
cash flow information related to leases:
Supplemental cash flow information related to leases
| |
| | | |
| | |
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Cash paid for amounts included in the measurement of lease liabilities: | |
(In thousands) | |
Operating cash flows from operating leases | |
$ | 1,788 | | |
$ | 1,930 | |
Operating cash flows from finance leases | |
| 282 | | |
| 274 | |
Financing cash flows from finance leases | |
| 16 | | |
| 35 | |
Stock-based Compensation
We recognize compensation costs in the financial
statements for all share-based payments based on the grant date fair value estimated in accordance with the provisions of ASC 718 “Stock
Compensation”.
For the three months ended March 31, 2022 and
2021, we recorded stock-based compensation costs in the amount of $790,000 and $408,000, respectively. As of March 31, 2022, unrecognized
stock-based compensation costs to be recognized over future periods equaled $8.4 million. This amount will be recognized as expense over
a weighted-average period of 2.4 years.
The following represents stock option activity
for the three months ended March 31, 2022:
Share-based Payment Arrangement, Option, Activity | |
| | |
| | | |
|
| |
Number of
Shares
(in thousands) | | |
Weighted
Average
Exercise Price | | |
Weighted
Average
Remaining
Contractual
Term |
Options outstanding at the beginning of period | |
13,074 | | |
$ | 4.54 | | |
N/A |
Granted | |
750 | | |
| 10.32 | | |
N/A |
Exercised | |
(1,366 | ) | |
| 4.29 | | |
N/A |
Forfeited | |
(430 | ) | |
| 7.51 | | |
N/A |
Options outstanding at the end of period | |
12,028 | | |
$ | 4.82 | | |
3.18 years |
| |
| | |
| | | |
|
Options exercisable at the end of period | |
8,068 | | |
$ | 4.74 | | |
2.00 years |
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The following table presents the price distribution
of stock options outstanding and exercisable for the years ended March 31, 2022 and December 31, 2021:
Schedule of stock options outstanding and exercisable | |
| |
| |
| |
| |
| |
Number of shares as of | |
Number of shares as of | |
| |
March 31, 2022 | |
December 31, 2021 | |
| |
Outstanding | |
Exercisable | |
Outstanding | |
Exercisable | |
Range of exercise prices: | |
(In thousands) | |
(In thousands) | |
$0.95 - $1.99 | |
34 | |
34 | |
577 | |
577 | |
$2.00 - $2.99 | |
1,517 | |
489 | |
1,517 | |
489 | |
$3.00 - $3.99 | |
4,172 | |
3,270 | |
4,285 | |
3,382 | |
$4.00 - $4.99 | |
2,847 | |
1,567 | |
2,870 | |
1,410 | |
$5.00 - $5.99 | |
– | |
– | |
– | |
– | |
$6.00 - $6.99 | |
1,933 | |
1,933 | |
2,651 | |
2,652 | |
$7.00 - $7.99 | |
775 | |
775 | |
1,175 | |
1,175 | |
$8.00 - $11.00 | |
750 | |
– | |
– | |
– | |
| |
| |
| |
| |
| |
Total shares | |
12,028 | |
8,068 | |
13,074 | |
9,685 | |
At March 31, 2022 the aggregate intrinsic value
of options outstanding and exercisable was $64.3 million and $43.7 million, respectively. There were 1,366,000 options exercised for
the three months ended March 31, 2022 compared to 98,000 for the comparable period in 2021. The total intrinsic value of options exercised
was $10.2 million and $122,000 for the three-month periods ended March 31, 2022 and 2021. There were 3,561,000 shares available for future
stock option grants under existing plans as of March 31, 2022.
Purchases of Company Stock
The table below describes the purchase of our
common stock for the three-month ended March 31, 2022 and 2021:
Schedule of purchases of company stock | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended | |
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
| Shares | | |
| Avg. Price | | |
| Shares | | |
| Avg. Price | |
Open market purchases | |
| 922,363 | | |
$ | 11.19 | | |
| 138,004 | | |
$ | 4.18 | |
Shares redeemed upon net exercise of stock options | |
| 295,088 | | |
| 12.68 | | |
| 40,727 | | |
| 4.36 | |
Total stock purchases | |
| 1,217,451 | | |
$ | 11.55 | | |
| 178,731 | | |
$ | 4.22 | |
Reclassifications
Some items in the prior year financial statements
were reclassified to conform to the current presentation. Reclassifications had no effect on net income or shareholders’ equity.
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Financial Covenants
Certain of our securitization
transactions, our warehouse credit facilities and our residual interest financing contain various financial covenants requiring minimum
financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage
levels. As of March 31, 2022, we were in compliance with all such covenants. In addition, certain of our debt agreements other than our
term securitizations contain cross-default provisions. Such cross-default provisions would allow the respective creditors to declare a
default if an event of default occurred with respect to other indebtedness of ours, but only if such other event of default were to be
accompanied by acceleration of such other indebtedness.
Provision for Contingent
Liabilities
We are routinely involved
in various legal proceedings resulting from our consumer finance activities and practices, both continuing and discontinued. Our legal
counsel has advised us on such matters where, based on information available at the time of this report, there is an indication that it
is both probable that a liability has been incurred and the amount of the loss can be reasonably determined.
Coronavirus Pandemic
In December 2019, a new strain
of coronavirus (the “COVID-19 virus”) originated in Wuhan, China. Since its discovery, the COVID-19 virus has spread throughout
the world, and the outbreak has been declared to be a pandemic by the World Health Organization. We refer from time to time in this report
to the outbreak and spread of the COVID-19 virus as “the pandemic.”
We measure our portfolio of finance receivables
carried at fair value with consideration for unobservable inputs that reflect our own assumptions about the factors that market participants
use in pricing similar receivables and are based on the best information available in the circumstances. They include such inputs as
estimates for the magnitude and timing of net charge-offs and the rate of amortization of the portfolio. The pandemic and the adverse
effect it may have on the U.S. economy and our obligors may cause us to consider significant changes in any of those inputs, which in
turn may have a significant effect on our fair value measurement.
(2) Finance Receivables
Our portfolio of finance receivables
consists of small-balance homogeneous contracts comprising a single segment and class that is collectively evaluated for impairment on
a portfolio basis according to delinquency status. Our contract purchase guidelines are designed to produce a homogenous portfolio. For
key terms such as interest rate, length of contract, monthly payment and amount financed, there is relatively little variation from the
average for the portfolio. We report delinquency on a contractual basis. Once a contract becomes greater than 90 days delinquent, we do
not recognize additional interest income until the obligor under the contract makes sufficient payments to be less than 90 days delinquent.
Any payments received on a contract that is greater than 90 days delinquent are first applied to accrued interest and then to principal
reduction.
In January 2018 the Company
adopted the fair value method of accounting for finance receivables acquired after 2017. Finance receivables measured at fair value are
recorded separately on the Company’s Balance Sheet and are excluded from all tables in this footnote.
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
We consider an automobile contract delinquent
when an obligor fails to make at least 90% of a contractually due payment by the following due date, which date may have been extended
within limits specified in the servicing agreements. The period of delinquency is based on the number of days payments are contractually
past due, as extended where applicable. Automobile contracts less than 31 days delinquent are not included. In certain circumstances
we will grant obligors one-month payment extensions to assist them with temporary cash flow problems. The only modification of terms
is to advance the obligor’s next due date by one month and extend the maturity date of the receivable by one month. In certain
limited cases, a two-month extension may be granted. There are no other concessions such as a reduction in interest rate, forgiveness
of principal or of accrued interest. Accordingly, we consider such extensions to be insignificant delays in payments rather than troubled
debt restructurings. Automobile finance receivables, net of unearned interest was $186.7
million and $232.4 million as of March
31, 2022 and December 31, 2021, respectively. The following table summarizes the delinquency status of finance receivables as of March
31, 2022 and December 31, 2021:
Schedule of delinquency status of finance receivables | |
| | | |
| | |
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
Delinquency Status | |
| | | |
| | |
Current | |
$ | 152,949 | | |
$ | 186,625 | |
31 - 60 days | |
| 22,426 | | |
| 30,980 | |
61 - 90 days | |
| 9,252 | | |
| 12,070 | |
91 + days | |
| 2,118 | | |
| 2,715 | |
| |
$ | 186,745 | | |
$ | 232,390 | |
Finance receivables totaling
$2.1 million and $2.7 million at March 31, 2022 and December 31, 2021, respectively, including all receivables greater than 90 days delinquent,
have been placed on non-accrual status as a result of their delinquency status.
Allowance for Credit Losses
– Finance Receivables
The allowance for credit losses
is a valuation account that is deducted from the amortized cost basis of finance receivables to present the net amount expected to be
collected. Charge offs are deducted from the allowance when management believes that collectability is unlikely.
Management estimates the allowance
using relevant available information, from internal and external sources, relating to past events, current conditions and, reasonable
and supportable forecasts. We believe our historical credit loss experience provides the best basis for the estimation of expected credit
losses. Consequently, we use historical loss experience for older receivables, aggregated into vintage pools based on their calendar quarter
of origination, to forecast expected losses for less seasoned quarterly vintage pools.
We measure the weighted average
monthly incremental change in cumulative net losses for the vintage pools in the relevant historical period. For the pools in the relevant
historical period, we consider each pool’s performance from its inception through the end of the current period. We then apply the
results of the historical analysis to less seasoned vintage pools beginning with each vintage pool’s most recent actual cumulative
net loss experience and extrapolating from that point based on the historical data. We believe the pattern and magnitude of losses on
older vintages allows us to establish a reasonable and supportable forecast of less seasoned vintages.
Our contract purchase guidelines
are designed to produce a homogenous portfolio. For key credit characteristics of individual contracts such as obligor credit history,
job stability, residence stability and ability to pay, there is relatively little variation from the average for the portfolio. Similarly,
for key structural characteristics such as loan-to-value, length of contract, monthly payment and amount financed, there is relatively
little variation from the average for the portfolio. Consequently, we do not believe there are significant differences in risk characteristics
between various segments of our portfolio.
Our methodology incorporates
historical pools that are sufficiently seasoned to capture the magnitude and trends of losses within those vintage pools. Furthermore,
the historical period encompasses a substantial volume of receivables over periods that include fluctuations in the competitive landscape,
the Company’s rates of growth, size of our managed portfolio and fluctuations in economic growth and unemployment.
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
In consideration of the depth
and breadth of the historical period, and the homogeneity of our portfolio, we generally do not adjust historical loss information for
differences in risk characteristics such as credit or structural composition of segments of the portfolio or for changes in environmental
conditions such as changes in unemployment rates, collateral values or other factors. However, we have considered how certain qualitative
factors may affect future credit losses and have incorporated our judgement of the effect of such factors into our estimates.
The following table presents the amortized cost
basis of our finance receivables by annual vintage as of March 31, 2022 and 2021.
Schedule of amortized cost basis of finance receivables | |
| | | |
| | |
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
Annual Vintage Pool | |
| | | |
| | |
2012 and prior | |
$ | 92 | | |
$ | 131 | |
2013 | |
| 721 | | |
| 1,091 | |
2014 | |
| 4,877 | | |
| 6,881 | |
2015 | |
| 22,037 | | |
| 29,695 | |
2016 | |
| 61,259 | | |
| 76,728 | |
2017 | |
| 97,759 | | |
| 117,864 | |
| |
$ | 186,745 | | |
$ | 232,390 | |
The following table presents a summary of the
activity for the allowance for finance credit losses for the three-month periods ended March 31, 2022 and 2021:
Schedule of allowance for finance credit losses | |
| | | |
| | |
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
Balance at beginning of period | |
$ | 56,206 | | |
$ | 80,790 | |
Provision for credit losses on finance receivables | |
| (9,400 | ) | |
| – | |
Charge-offs | |
| (5,359 | ) | |
| (12,122 | ) |
Recoveries | |
| 3,554 | | |
| 4,829 | |
Balance at end of period | |
$ | 45,001 | | |
$ | 73,497 | |
For the three months ended March 31, 2022, we
recorded a reduction to provision for credit losses on finance receivables in the amount of $9.4 million. The reserve decrease was primarily
due to a decrease in lifetime expected credit losses resulting from improved credit performance, an improved macroeconomic outlook and
higher used car prices. The Company did not make additional provisions for credit losses for the three months ended March 31, 2021.
Excluded from finance receivables are contracts
that were previously classified as finance receivables but were reclassified as other assets because we have repossessed the vehicle
securing the Contract. The following table presents a summary of such repossessed inventory together with the allowance for losses in
repossessed inventory that is not included in the allowance for finance credit losses:
Schedule of allowance for losses on repossessed inventory | |
| | | |
| | |
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
Gross balance of repossessions in inventory | |
$ | 3,640 | | |
$ | 4,341 | |
Allowance for losses on repossessed inventory | |
| (1,652 | ) | |
| (1,871 | ) |
Net repossessed inventory included in other assets | |
$ | 1,988 | | |
$ | 2,470 | |
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(3) Securitization Trust Debt
We have completed many securitization transactions
that are structured as secured borrowings for financial accounting purposes. The debt issued in these transactions is shown on our Unaudited
Condensed Consolidated Balance Sheets as “Securitization trust debt,” and the components of such debt are summarized in the
following table:
Schedule of Long-term Debt Instruments | |
| |
| | | |
| | | |
| | | |
| | | |
|
Series | |
Final
Scheduled
Payment
Date (1) | |
Receivables
Pledged at
March 31,
2022 (2) | | |
Initial
Principal | | |
Outstanding
Principal at
March 31,
2022 | | |
Outstanding
Principal
at December 31,
2021 | | |
Weighted
Average
Contractual
Interest Rate
at
March 31,
2022 |
| |
(Dollars in thousands) | |
|
CPS 2017-A | |
April 2024 | |
$ | – | | |
$ | 206,320 | | |
$ | – | | |
$ | 17,644 | | |
– |
CPS 2017-B | |
December
2023 | |
| 22,739 | | |
| 225,170 | | |
| 7,491 | | |
| 12,491 | | |
5.75% |
CPS 2017-C | |
September 2024 | |
| 24,874 | | |
| 224,825 | | |
| 20,955 | | |
| 25,846 | | |
5.72% |
CPS 2017-D | |
June 2024 | |
| 25,965 | | |
| 196,300 | | |
| 22,589 | | |
| 26,744 | | |
5.17% |
CPS 2018-A | |
March 2025 | |
| 29,215 | | |
| 190,000 | | |
| 25,303 | | |
| 29,518 | | |
4.86% |
CPS 2018-B | |
December
2024 | |
| 35,386 | | |
| 201,823 | | |
| 30,749 | | |
| 36,092 | | |
5.24% |
CPS 2018-C | |
September 2025 | |
| 40,840 | | |
| 230,275 | | |
| 36,876 | | |
| 42,765 | | |
5.41% |
CPS 2018-D | |
June 2025 | |
| 50,069 | | |
| 233,730 | | |
| 42,922 | | |
| 49,634 | | |
5.24% |
CPS 2019-A | |
March 2026 | |
| 62,139 | | |
| 254,400 | | |
| 53,492 | | |
| 62,667 | | |
5.05% |
CPS 2019-B | |
June 2026 | |
| 62,243 | | |
| 228,275 | | |
| 53,392 | | |
| 61,730 | | |
4.77% |
CPS 2019-C | |
September 2026 | |
| 73,278 | | |
| 243,513 | | |
| 64,980 | | |
| 75,065 | | |
3.91% |
CPS 2019-D | |
December
2026 | |
| 94,335 | | |
| 274,313 | | |
| 83,924 | | |
| 98,625 | | |
3.32% |
CPS 2020-A | |
March 2027 | |
| 88,745 | | |
| 260,000 | | |
| 83,987 | | |
| 99,485 | | |
3.48% |
CPS 2020-B | |
June 2027 | |
| 96,567 | | |
| 202,343 | | |
| 72,955 | | |
| 87,048 | | |
4.98% |
CPS 2020-C | |
November 2027 | |
| 129,864 | | |
| 252,200 | | |
| 118,901 | | |
| 138,899 | | |
2.57% |
CPS 2021-A | |
March 2028 | |
| 138,427 | | |
| 230,545 | | |
| 123,688 | | |
| 147,516 | | |
1.08% |
CPS 2021-B | |
June 2028 | |
| 165,925 | | |
| 240,000 | | |
| 157,719 | | |
| 179,856 | | |
1.36% |
CPS 2021-C | |
September 2028 | |
| 235,461 | | |
| 291,000 | | |
| 222,432 | | |
| 250,003 | | |
1.21% |
CPS 2021-D | |
December
2028 | |
| 311,727 | | |
| 349,202 | | |
| 300,177 | | |
| 330,325 | | |
1.47% |
CPS 2022-A | |
April 2029 | |
| 315,574 | | |
| 316,800 | | |
| 303,481 | | |
| – | | |
1.85% |
| |
| |
$ | 2,003,373 | | |
$ | 4,851,034 | | |
$ | 1,826,016 | | |
$ | 1,771,953 | | |
|
_________________
| (1) | The Final Scheduled Payment Date represents final legal maturity of the securitization trust debt.
Securitization trust debt is expected to become due and to be paid prior to those dates, based on amortization of the finance receivables
pledged to the trusts. Expected payments, which will depend on the performance of such receivables, as to which there can be no assurance,
are $556.3 million in 2022, $703.8 million in 2023, $178.0 million in 2024, $197.3 million in 2025, $114.1 million in 2026, $58.4 million
in 2027, and $5.5 million in 2028. |
| (2) | Includes repossessed assets that are included in Other assets on our Unaudited Condensed Consolidated
Balance Sheet. |
Debt issuance costs of $12.5
million and $12.0 million as of March 31, 2022 and December 31, 2021, respectively, have been excluded from the table above. These debt
issuance costs are presented as a direct deduction to the carrying amount of the Securitization trust debt on our Consolidated Balance
Sheets.
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
All of the securitization trust
debt was sold in private placement transactions to qualified institutional buyers. The debt was issued through our wholly-owned bankruptcy
remote subsidiaries and is secured by the assets of such subsidiaries, but not by our other assets.
The terms of the securitization
agreements related to the issuance of the securitization trust debt and the warehouse credit facilities require that we meet certain delinquency
and credit loss criteria with respect to the pool of receivables, and certain of the agreements require that we maintain minimum levels
of liquidity and not exceed maximum leverage levels. As of March 31, 2022, we were in compliance with all such covenants.
We are responsible for the administration
and collection of the automobile contracts. The securitization agreements also require certain funds be held in restricted cash accounts
to provide additional collateral for the borrowings, to be applied to make payments on the securitization trust debt or as pre-funding
proceeds from a term securitization prior to the purchase of additional collateral. As of March 31, 2022, restricted cash under the various
agreements totaled approximately $164.6 million. Interest expense on the securitization trust debt consists of the stated rate of interest
plus amortization of additional costs of borrowing. Additional costs of borrowing include facility fees, amortization of deferred financing
costs and discounts on notes sold. Deferred financing costs and discounts on notes sold related to the securitization trust debt are amortized
using a level yield method. Accordingly, the effective cost of the securitization trust debt is greater than the contractual rate of interest
disclosed above.
Our wholly-owned bankruptcy remote subsidiaries
were formed to facilitate the above asset-backed financing transactions. Similar bankruptcy remote subsidiaries issue the debt outstanding
under our credit facilities. Bankruptcy remote refers to a legal structure in which it is expected that the applicable entity would not
be included in any bankruptcy filing by its parent or affiliates. All of the assets of these subsidiaries have been pledged as collateral
for the related debt. All such transactions, treated as secured financings for accounting and tax purposes, are treated as sales for all
other purposes, including legal and bankruptcy purposes. None of the assets of these subsidiaries are available to pay other creditors.
(4) Debt
The terms and amounts of our other debt outstanding
at March 31, 2022 and December 31, 2021 are summarized below:
Schedule of debt outstanding | |
| |
| | | |
| | | |
| | |
| |
| |
| | |
Amount Outstanding at | |
| |
| |
| | |
March 31, | | |
December 31, | |
| |
| |
| | |
2022 | | |
2021 | |
| |
| |
| | |
(In thousands) | |
Description | |
Interest Rate | |
Maturity | | |
| | |
| |
| |
| |
| | |
| | |
| |
Warehouse lines of credit | |
3.00% over one month Libor (Minimum 3.75%) | |
| December 2022 | | |
$ | 69,430 | | |
$ | 70,590 | |
| |
| |
| | | |
| | | |
| | |
| |
3.50% over a commercial paper rate (Minimum 4.50%) | |
| January 2024 | | |
| 78,750 | | |
| 35,420 | |
| |
| |
| | | |
| | | |
| | |
Residual interest financing | |
8.60% | |
| January 2026 | | |
| – | | |
| 4,311 | |
| |
| |
| | | |
| | | |
| | |
Residual interest financing | |
7.86% | |
| June 2026 | | |
| 50,000 | | |
| 50,000 | |
| |
| |
| | | |
| | | |
| | |
Subordinated renewable notes | |
Weighted average rate of 8.65% and 8.93% at March 31, 2022 and December 31, 2021, respectively | |
| Weighted average maturity of March 2024 and January 2024 at March 31, 2022 and December 31, 2021,
respectively | | |
| 26,756 | | |
| 26,459 | |
| |
| |
| | | |
| | | |
| | |
| |
| |
| | | |
$ | 224,936 | | |
$ | 186,780 | |
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Unamortized debt issuance costs of $566,000 and $629,000 as of March 31, 2022 and December
31, 2021, respectively, have been excluded from the amount reported above for residual interest financing. Similarly, unamortized debt
issuance costs of $1.2 million and $400,000 as of March 31, 2022 and December 31, 2021, respectively, have been excluded from the Warehouse
lines of credit amounts in the table above. These debt issuance costs are presented as a direct deduction to the carrying amount of the
debt on our Unaudited Condensed Consolidated Balance Sheets.
(5) Interest Income and Interest Expense
The following table presents the components of interest
income:
Schedule of interest income | |
| | | |
| | |
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
Interest on finance receivables | |
$ | 11,314 | | |
$ | 22,099 | |
Interest on finance receivables at fair value | |
| 58,740 | | |
| 43,988 | |
Mark to finance receivables measured at fair value | |
| 2,400 | | |
| (4,417 | ) |
Other interest income | |
| 6 | | |
| 6 | |
Interest income | |
$ | 72,460 | | |
$ | 61,676 | |
The following table presents the components of
interest expense:
Schedule of interest expense | |
| | | |
| | |
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
Securitization trust debt | |
$ | 13,528 | | |
$ | 18,453 | |
Warehouse lines of credit | |
| 1,158 | | |
| 1,314 | |
Residual interest financing | |
| 1,094 | | |
| 566 | |
Subordinated renewable notes | |
| 620 | | |
| 613 | |
Interest expense | |
$ | 16,400 | | |
$ | 20,946 | |
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(6) Earnings Per Share
Earnings per share for the three-month periods
ended March 31, 2022 and 2021 were calculated using the weighted average number of shares outstanding for the related period. The following
table reconciles the number of shares used in the computations of basic and diluted earnings per share for the three-month periods ended
March 31, 2022 and 2021:
Computation of earnings per share | |
| |
|
|
| |
Three Months Ended |
| |
March 31, |
| |
2022 | | |
2021 |
| |
(In thousands) |
Weighted average number of common shares outstanding during the period used to compute basic earnings per share | |
21,221 | | |
22,741 |
| |
| |
|
|
Incremental common shares attributable to exercise of outstanding options and warrants | |
6,976 | | |
2,226 |
| |
| |
|
|
Weighted average number of common shares used to compute diluted earnings per share | |
28,197 | | |
24,967 |
If the anti-dilutive effects of common stock
equivalents were considered, shares included in the diluted earnings per share calculation for the three-months ended March 31, 2022
and 2021 would have included an additional 558,000 and 7.5 million shares, respectively, attributable to the exercise of outstanding
options and warrants.
(7) Income Taxes
We file numerous consolidated
and separate income tax returns with the United States and with many states. With few exceptions, we are no longer subject to U.S. federal,
state, or local examinations by tax authorities for years before 2015.
As of March 31,2022, and December
31, 2021, we had no unrecognized tax benefits for uncertain tax positions. We do not anticipate that total unrecognized tax benefits will
significantly change due to any settlements of audits or expirations of statutes of limitations over the next 12 months.
The Company and its subsidiaries
file a consolidated federal income tax return and combined or stand-alone state franchise tax returns for certain states. We utilize the
asset and liability method of accounting for income taxes, under which deferred income taxes are recognized for the future tax consequences
attributable to the differences between the financial statement values of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
Deferred tax assets are recognized
subject to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax
asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not
be realized. In making such judgments, significant weight is given to evidence that can be objectively verified. Although realization
is not assured, we believe that the realization of the recognized net deferred tax asset of $18.9 million as of March 31, 2022 is more
likely than not based on forecasted future net earnings. Our net deferred tax asset of $18.9 million consists of approximately $11.6 million
of net U.S. federal deferred tax assets and $7.3 million of net state deferred tax assets.
Income tax expense was $8.2
million for the three months ended March 31, 2022, representing effective income tax rates of 28%. For the prior year period, income tax
expense was $2.8 million for the three months ended March 31, 2021 representing an effective tax rate of 35%.
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(8) Legal Proceedings
Consumer Litigation.
We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices, both continuing and
discontinued. Consumers can and do initiate lawsuits against us alleging violations of law applicable to collection of receivables, and
such lawsuits sometimes allege that resolution as a class action is appropriate.
For the most part, we have
legal and factual defenses to consumer claims, which we routinely contest or settle (for immaterial amounts) depending on the particular
circumstances of each case. There are as of the date of this report two civil actions that could possibly result in a material liability,
if resolved adversely and on a class basis, as the respective plaintiffs allege would be appropriate.
Following our filing of a
complaint for a deficiency judgment in the Superior Court at Waterbury, Connecticut, the defendant filed a cross-claim alleging that our
deficiency notices were not compliant with Connecticut law, and seeking relief on behalf of a class of Connecticut obligors whose vehicles
we had repossessed. The defendant’s contract provided for resolution of disputes exclusively by arbitration, and exclusively on
an individual basis, not a class basis. Nevertheless, in August 2021, the court denied our motion to compel arbitration, without opinion.
In April 2022, a motion for certification of a class was filed but has not been ruled upon. It is reasonable to expect that resolution
of these claims will be on a class basis.
Wage and Hour Claim.
On September 24, 2018, a former employee filed a lawsuit against us in the Superior Court of Orange County, California, alleging that
we incorrectly classified our sales representatives as outside salespersons exempt from overtime wages, mandatory break periods and certain
other employee protective provisions of California and federal law. The complaint seeks injunctive relief, an award of unpaid wages, liquidated
damages, and attorney fees and interest. The plaintiff purports to act on behalf of a class of similarly situated employees and ex-employees.
As of the date of this report, no motion for class certification has been filed or granted.
We believe that our compensation
practices with respect to our sales representatives are compliant with applicable law. Accordingly, we have defended and intend to continue
to defend this lawsuit.
Massachusetts Civil Investigative Demand.
In September 2021, we received a civil investigative demand from the Office of the Attorney General of the Commonwealth of Massachusetts
relating to the Company’s communications with and repossession notices sent to Massachusetts customers. We are cooperating with
the inquiry. At this time, it is not possible to determine any amount of loss that is probable and measurable.
In General. There can
be no assurance as to the outcomes of the matters described or referenced above. We record at each measurement date, most recently as
of March 31, 2022, our best estimate of probable incurred losses for legal contingencies, including the matters identified above, and
consumer claims. The amount of losses that may ultimately be incurred cannot be estimated with certainty. However, based on such information
as is available to us, we believe that the total of probable incurred losses for legal contingencies as of March 31, 2022 is $3.4 million,
and that the range of reasonably possible losses for the legal proceedings and contingencies we face, including those described or identified
above, as of March 31, 2022 does not exceed $11.3 million.
Accordingly, we believe that
the ultimate resolution of such legal proceedings and contingencies should not have a material adverse effect on our consolidated financial
condition. We note, however, that in light of the uncertainties inherent in contested proceedings there can be no assurance that the ultimate
resolution of these matters will not be material to our operating results for a particular period, depending on, among other factors,
the size of the loss or liability imposed and the level of our income for that period.
(9) Fair Value Measurements
ASC 820, "Fair Value
Measurements" clarifies the principle that fair value should be based on the assumptions market participants would use when pricing
an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under
the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.
ASC 820 defines fair value,
establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement
and enhances disclosure requirements for fair value measurements. The three levels are defined as follows: level 1 - inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; level 2 – inputs to the valuation
methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial instrument; and level 3 – inputs to the
valuation methodology are unobservable and significant to the fair value measurement.
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Effective January 2018 we
have elected to use the fair value method to value our portfolio of finance receivables acquired in January 2018 and thereafter.
Our valuation policies and
procedures have been developed by our Accounting department in conjunction with our Risk department and with consultation with outside
valuation experts. Our policies and procedures have been approved by our Chief Executive and our Board of Directors and include methodologies
for valuation, internal reporting, calibration and back testing. Our periodic review of valuations includes an analysis of changes in
fair value measurements and documentation of the reasons for such changes. There is little available third-party information such as broker
quotes or pricing services available to assist us in our valuation process.
Our level 3, unobservable
inputs reflect our own assumptions about the factors that market participants use in pricing similar receivables and are based on the
best information available in the circumstances. They include such inputs as estimates for the magnitude and timing of net charge-offs
and the rate of amortization of the portfolio of finance receivable. Significant changes in any of those inputs in isolation would have
a significant effect on our fair value measurement.
For the quarter ended March
31, 2022, the Company evaluated the appropriate fair value and future earnings rate of existing receivables compared to recently acquired
receivables and our assessment of potential additional future net losses on the portfolio of finance receivables carried at fair value
and did not record a mark down to that portfolio.
The table below presents a reconciliation of
the finance receivables measured at fair value on a recurring basis using significant unobservable inputs:
Schedule of reconciliation of the finance receivables measured at fair value on a recurring basis | |
| | | |
| | |
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
Balance at beginning of period | |
$ | 1,749,098 | | |
$ | 1,523,726 | |
Finance receivables at fair value acquired during period | |
| 393,407 | | |
| 205,459 | |
Payments received on finance receivables at fair value | |
| (209,844 | ) | |
| (156,020 | ) |
Net interest income accretion on fair value receivables | |
| (31,204 | ) | |
| (35,025 | ) |
Mark to fair value | |
| 2,400 | | |
| (4,417 | ) |
Balance at end of period | |
$ | 1,903,857 | | |
$ | 1,533,723 | |
The table below compares the fair values of these
finance receivables to their contractual balances for the periods shown:
Finance receivables fair and contractual balances | |
| | | |
| | | |
| | | |
| | |
| |
March 31, 2022 | | |
December 31, 2021 | |
| |
Contractual | | |
Fair | | |
Contractual | | |
Fair | |
| |
Balance | | |
Value | | |
Balance | | |
Value | |
| |
(In thousands) | |
| |
| | | |
| | | |
| | | |
| | |
Finance receivables measured at fair value | |
$ | 2,133,969 | | |
$ | 1,903,857 | | |
$ | 1,972,699 | | |
$ | 1,749,098 | |
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The following table provides certain qualitative
information about our level 3 fair value measurements:
Schedule of level 3 fair value measurements | |
| | | |
| | | |
| |
| |
|
Financial Instrument | |
Fair Values as of | | |
| |
Inputs as of |
| |
March 31, | | |
December 31, | | |
| |
March 31, | |
December 31, |
| |
2022 | | |
2021 | | |
Unobservable Inputs | |
2022 | |
2021 |
| |
(In thousands) | | |
| |
| |
|
Assets: | |
| | |
| | |
| |
| |
|
Finance receivables measured at fair value | |
$ | 1,903,857 | | |
$ | 1,749,098 | | |
Discount rate | |
9.9% - 11.3% | |
10.6% - 11.3% |
| |
| | | |
| | | |
Cumulative net losses | |
10.0% - 18.4% | |
10.00% - 18.4% |
The following table summarizes the delinquency
status of these finance receivables measured at fair value as of March 31, 2022 and December 31, 2021:
Schedule of delinquency status of finance receivables measured at fair value | |
| | | |
| | |
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
(In thousands) | |
Delinquency Status | |
| | | |
| | |
Current | |
$ | 1,971,766 | | |
$ | 1,787,641 | |
31 - 60 days | |
| 92,440 | | |
| 115,924 | |
61 - 90 days | |
| 35,714 | | |
| 38,999 | |
91 + days | |
| 11,248 | | |
| 11,564 | |
Repo | |
| 22,801 | | |
| 18,571 | |
| |
$ | 2,133,969 | | |
$ | 1,972,699 | |
Repossessed vehicle inventory,
which is included in Other assets on our unaudited condensed consolidated balance sheet, is measured at fair value using level 2 assumptions
based on our actual loss experience on sale of repossessed vehicles. At March 31, 2022 the finance receivables related to the repossessed
vehicles in inventory totaled $3.6 million. We have applied a valuation adjustment, or loss allowance, of $1.6 million, which is based
on a recovery rate of approximately 56%, resulting in an estimated fair value and carrying amount of $2.0 million. The fair value and
carrying amount of the repossessed inventory at December 31, 2021 was $ million after applying a valuation adjustment of $1.9 million.
There were no transfers in
or out of level 1, level 2 or level 3 assets and liabilities for the three months ended March 31, 2022 and 2021.
The estimated fair values of financial assets
and liabilities at March 31, 2022 and December 31, 2021, were as follows:
Schedule of estimated fair values of financial assets and liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
As of March 31, 2022 | |
Financial Instrument | |
(In thousands) | |
| |
Carrying | | |
Fair Value Measurements Using: | | |
| |
| |
Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Assets: | |
| | |
| | |
| | |
| | |
| |
Cash and cash equivalents | |
$ | 21,726 | | |
$ | 21,726 | | |
$ | – | | |
$ | – | | |
$ | 21,726 | |
Restricted cash and equivalents | |
| 164,550 | | |
| 164,550 | | |
| – | | |
| – | | |
| 164,550 | |
Finance receivables, net | |
| 141,711 | | |
| – | | |
| – | | |
| 144,178 | | |
| 144,178 | |
Accrued interest receivable | |
| 1,673 | | |
| – | | |
| – | | |
| 1,673 | | |
| 1,673 | |
Liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | |
Warehouse lines of credit | |
$ | 147,026 | | |
$ | – | | |
$ | – | | |
$ | 147,026 | | |
$ | 147,026 | |
Accrued interest payable | |
| 3,807 | | |
| – | | |
| – | | |
| 3,807 | | |
| 3,807 | |
Securitization trust debt | |
| 1,813,478 | | |
| – | | |
| – | | |
| 1,727,163 | | |
| 1,727,163 | |
Subordinated renewable notes | |
| 26,756 | | |
| – | | |
| – | | |
| 26,756 | | |
| 26,756 | |
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
As of December 31, 2021 | |
Financial Instrument | |
(In thousands) | |
| |
Carrying | | |
Fair Value Measurements Using: | | |
| |
| |
Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Assets: | |
| | |
| | |
| | |
| | |
| |
Cash and cash equivalents | |
$ | 29,928 | | |
$ | 29,928 | | |
$ | – | | |
$ | – | | |
$ | 29,928 | |
Restricted cash and equivalents | |
| 146,620 | | |
| 146,620 | | |
| – | | |
| – | | |
| 146,620 | |
Finance receivables, net | |
| 176,184 | | |
| – | | |
| – | | |
| 178,795 | | |
| 178,795 | |
Accrued interest receivable | |
| 2,269 | | |
| – | | |
| – | | |
| 2,269 | | |
| 2,269 | |
Liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | |
Warehouse lines of credit | |
$ | 105,610 | | |
$ | – | | |
$ | – | | |
$ | 105,610 | | |
$ | 105,610 | |
Accrued interest payable | |
| 3,568 | | |
| – | | |
| – | | |
| 3,568 | | |
| 3,568 | |
Securitization trust debt | |
| 1,759,972 | | |
| – | | |
| – | | |
| 1,740,901 | | |
| 1,740,901 | |
Subordinated renewable notes | |
| 26,459 | | |
| – | | |
| – | | |
| 26,459 | | |
| 26,459 | |
(10) Subsequent Events
On April 20, 2022 we executed our second securitization
of 2022. In the transaction, qualified institutional buyers purchased $395.6 million of asset-backed notes secured by $430.0 million in
automobile receivables originated by CPS. The sold notes, issued by CPS Auto Receivables Trust 2022-B, consist of five classes. Ratings
of the notes were provided by Moody’s and DBRS Morningstar, and were based on the structure of the transaction, the historical performance
of similar receivables and CPS’s experience as a servicer. The weighted average yield on the notes is approximately 4.83%.
The 2022-B transaction has initial credit enhancement
consisting of a cash deposit equal to 1.00% of the original receivable pool balance and overcollateralization of 8.00%. The transaction
agreements require accelerated payment of principal on the notes to reach overcollateralization of the lesser of 9.00% of the original
receivable pool balance, or 25.80% of the then outstanding pool balance. The transaction utilizes a pre-funding structure, in which CPS
sold approximately $285.8 million of receivables at inception and plans to sell approximately $144.2 million of additional receivables
in May 2022. The transaction was a private offering of securities, not registered under the Securities Act of 1933, or any state securities
law.