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What changed in CONSUMER PORTFOLIO SERVICES, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CONSUMER PORTFOLIO SERVICES, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+322 added−334 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-15)

Top changes in CONSUMER PORTFOLIO SERVICES, INC.'s 2023 10-K

322 paragraphs added · 334 removed · 263 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

81 edited+12 added−12 removed96 unchanged
Biggest changeThe tables below document the delinquency, repossession, and net credit loss experience of all such automobile contracts that we own as of the respective dates shown. 8 Delinquency, Repossession and Extension Experience Delinquency and Extension Experience (1) Total Managed Portfolio (Excludes Third Party Portfolio) December 31, 2022 December 31, 2021 December 31, 2020 Number of Contracts Amount Number of Contracts Amount Number of Contracts Amount (Dollars in thousands) Delinquency Experience Gross servicing portfolio (1) 170,658 $ 2,795,383 154,151 $ 2,209,430 163,117 $ 2,174,972 Period of delinquency (2) 31-60 days 13,434 201,764 10,895 146,904 11,357 152,868 61-90 days 5,481 80,146 3,939 51,069 4,525 59,096 91+ days 2,148 31,036 1,171 14,279 1,290 14,989 Total delinquencies (2) 21,063 312,946 16,005 212,252 17,172 226,953 Amount in repossession (3) 2,904 41,401 1,882 22,912 2,979 35,839 Total delinquencies and amount in repossession (2) 23,967 $ 354,347 17,887 $ 235,164 20,151 $ 262,792 Delinquencies as a percentage of gross servicing portfolio 12.3% 11.2% 10.4% 9.6% 10.5% 10.4% Total delinquencies and amount in repossession as a percentage of gross servicing portfolio 14.0% 12.7% 11.6% 10.6% 12.4% 12.1% Extension Experience Contracts with one extension, accruing 27,584 $ 464,323 23,740 $ 328,128 29,709 $ 417,347 Contracts with two or more extensions, accruing 38,714 417,682 46,541 513,183 55,885 665,572 66,298 882,005 70,281 841,311 85,594 1,082,919 Contracts with one extension, non-accrual (4) 981 14,792 597 7,736 915 12,408 Contracts with two or more extensions, non-accrual (4) 1,485 15,395 1,414 15,128 2,502 28,189 2,466 30,187 2,011 22,864 3,417 40,597 Total accounts with extensions 68,764 $ 912,192 72,292 $ 864,175 89,011 $ 1,123,516 (1) All amounts and percentages are based on the amount remaining to be repaid on each automobile contract.
Biggest changeDelinquency, Repossession and Extension Experience Delinquency and Extension Experience (1) Total Managed Portfolio (Excludes Third Party Portfolio) December 31, 2023 December 31, 2022 December 31, 2021 Number of Contracts Amount Number of Contracts Amount Number of Contracts Amount (Dollars in thousands) Delinquency Experience Gross servicing portfolio (1) 179,198 $ 2,970,066 170,658 $ 2,795,383 154,151 $ 2,209,430 Period of delinquency (2) 31-60 days 13,337 210,200 13,434 201,764 10,895 146,904 61-90 days 6,717 104,144 5,481 80,146 3,939 51,069 91+ days 3,252 50,610 2,148 31,036 1,171 14,279 Total delinquencies (2) 23,306 364,954 21,063 312,946 16,005 212,252 Amount in repossession (3) 4,653 67,182 2,904 41,401 1,882 22,912 Total delinquencies and amount in repossession (2) 27,959 $ 432,136 23,967 $ 354,347 17,887 $ 235,164 Delinquencies as a percentage Delinquencies as a percentage of gross servicing portfolio 13.0% 12.3% 12.3% 11.2% 10.4% 9.6% Total delinquencies and amount in repossession as a percentage of gross servicing portfolio 15.6% 14.5% 14.0% 12.7% 11.6% 10.6% Extension Experience Contracts with one extension, accruing 33,920 $ 610,617 27,584 $ 464,323 23,740 $ 328,128 Contracts with two or more extensions, accruing 42,462 563,308 38,714 417,682 46,541 513,183 76,382 1,173,926 66,298 882,005 70,281 841,311 Contracts with one extension, non-accrual (4) 2,367 38,933 981 14,792 597 7,736 Contracts with two or more extensions, non-accrual (4) 2,081 27,497 1,485 15,395 1,414 15,128 4,448 66,430 2,466 30,187 2,011 22,864 Total accounts with extensions 80,830 $ 1,240,355 68,764 $ 912,192 72,292 $ 864,175 (1) All amounts and percentages are based on the amount remaining to be repaid on each automobile contract.
Credit and underwriting functions are performed primarily in our California branch with certain of these functions also performed in our Florida and Nevada branches. We service our automobile contracts from our California, Nevada, Virginia, Florida, and Illinois branches. Most of our contract acquisitions volume results from our purchases of retail installment sales contracts from franchised or independent automobile dealers.
Credit and underwriting functions are performed primarily in our 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. Most of our contract acquisitions volume results from our purchases of retail installment sales contracts from franchised or independent automobile dealers.
We make available free of charge on our internet web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. 16
We make available free of charge on our internet web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
The fact that the delinquency has been reduced below the 90-day threshold is a positive indicator. Should the contract again exceed the 90-day delinquency level at the end of any reporting period, it would again be reflected as a non-accrual account. 12 Our policy for placing a contract on non-accrual status is independent of our policy to grant an extension.
The fact that the delinquency has been reduced below the 90-day threshold is a positive indicator. Should the contract again exceed the 90-day delinquency level at the end of any reporting period, it would again be reflected as a non-accrual account. Our policy for placing a contract on non-accrual status is independent of our policy to grant an extension.
In addition, we contact each customer by telephone to confirm that the customer understands and agrees to the terms of the related automobile contract. During this " welcome call, " we also ask the customer a series of open-ended questions about his application and the contract, which may uncover potential misrepresentations. Credit Scoring .
In addition, we contact each customer by telephone to confirm that the customer understands and agrees to the terms of the related automobile contract. During this “ welcome call, ” we also ask the customer a series of open-ended questions about his application and the contract, which may uncover potential misrepresentations. Credit Scoring .
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. After receiving an extension, an account remains subject to our normal policies and procedures for interest accrual, reporting delinquency and recognizing charge-offs.
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. 10 After receiving an extension, an account remains subject to our normal policies and procedures for interest accrual, reporting delinquency and recognizing charge-offs.
In the case of repossession, the amount of the charge-off is the difference between the outstanding principal balance of the defaulted automobile contract and the net repossession sale proceeds. Credit Experience Our primary method of monitoring ongoing credit quality of our portfolio is to closely review monthly delinquency, default and net charge off activity and the related trends.
In the case of repossession, the amount of the charge-off is the difference between the outstanding principal balance of the defaulted automobile contract and the net repossession sale proceeds. 8 Credit Experience Our primary method of monitoring ongoing credit quality of our portfolio is to closely review monthly delinquency, default and net charge off activity and the related trends.
Without the extension, however, the account may have defaulted, and we would have likely incurred a substantial loss and no additional interest revenue. 11 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.
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.
Preferred - This program accommodates applicants with past non-performing credit, but who demonstrate a somewhat stronger history of recent performing credit than the Super Alpha program. Contract interest rates and dealer acquisition fees are lower, and the maximum loan amount is somewhat higher than the Super Alpha program.
Contract interest rates and dealer acquisition fees are lower, and the maximum loan amount is somewhat higher, than the Alpha Plus program. Preferred - This program accommodates applicants with past non-performing credit, but who demonstrate a somewhat stronger history of recent performing credit than the Super Alpha program.
For the year ended December 31, 2022, our automated application decisioning system produced our initial decision within seconds on approximately 99% of those applications. Upon receipt an application, if the application meets certain minimum criteria, we immediately order two credit reports to document the buyer's credit history and an alternative data credit score provided by a major credit reporting bureau.
For the year ended December 31, 2023, our automated application decisioning system produced our initial decision within seconds on approximately 99% of those applications. Upon receipt an application, if the application meets certain minimum criteria, we immediately order two credit reports to document the buyer’s credit history and an alternative data credit score provided by a major credit reporting bureau.
Specifically, our funding guidelines generally limit the maximum principal amount of a purchased automobile contract to 115% of wholesale book value in the case of used vehicles or to 115% of the manufacturer's invoice in the case of new vehicles, plus, in each case, sales tax, licensing and, when the customer purchases such additional items, a service contract or a product to supplement the customer’s casualty policy in the event of a total loss of the related vehicle.
Specifically, our funding guidelines generally limit the maximum principal amount of a purchased automobile contract to 125% of wholesale book value in the case of used vehicles or to 125% of the manufacturer’s invoice in the case of new vehicles, plus, in each case, sales tax, licensing and, when the customer purchases such additional items, a service contract or a product to supplement the customer’s casualty policy in the event of a total loss of the related vehicle.
The sold notes (“2021-1 Notes”), issued by CPS Auto Securitization Trust 2021-1, consist of a single class with a coupon of 7.86%. As of December 31, 2022, the notes had a principal balance of $50.0 million. Generally, prior to a securitization transaction we fund our automobile contract acquisitions primarily with proceeds from warehouse credit facilities.
The sold notes (“2021-1 Notes”), issued by CPS Auto Securitization Trust 2021-1, consist of a single class with a coupon of 7.86%. As of December 31, 2023, the notes had a principal balance of $50.0 million. Generally, prior to a securitization transaction we fund our automobile contract acquisitions primarily with proceeds from warehouse credit facilities.
In addition, we acquired a total of approximately $822.3 million of automobile contracts in mergers and acquisitions in 2002, 2003, 2004 and 2011. Contract purchase volumes and managed portfolio levels for the five years ended December 31, 2022 are shown in the table below. Managed portfolio comprises both contracts we owned and those we were servicing for third parties.
In addition, we acquired a total of approximately $822.3 million of automobile contracts in mergers and acquisitions in 2002, 2003, 2004 and 2011. Contract purchase volumes and managed portfolio levels for the five years ended December 31, 2023 are shown in the table below. Managed portfolio comprises both contracts we owned and those we were servicing for third parties.
We depend upon the availability of short-term warehouse credit facilities as interim financing for our contract purchases prior to the time we pool those contracts for a securitization. As of December 31, 2022, we had two such short-term warehouse facilities, each with a maximum borrowing amount of $200 million.
We depend upon the availability of short-term warehouse credit facilities as interim financing for our contract purchases prior to the time we pool those contracts for a securitization. As of December 31, 2023, we had two such short-term warehouse facilities, each with a maximum borrowing amount of $200 million.
We then advise the applicant as to whether we would grant them credit and on what terms. The following table sets forth the geographical sources of the automobile contracts we originated (based on the addresses of the customers as stated on our records) during the years ended December 31, 2022 and 2021.
We then advise the applicant as to whether we would grant them credit and on what terms. The following table sets forth the geographical sources of the automobile contracts we originated (based on the addresses of the customers as stated on our records) during the years ended December 31, 2023 and 2022.
(3) 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 after the date of charge-off, including some recoveries which have been classified as other income in the accompanying financial statements.
(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 after the date of charge-off, including some recoveries which have been classified as other income in the accompanying financial statements.
Meta - This program accommodates applicants with past non-performing credit, but who demonstrate a stronger history of recent performing credit than the Preferred program. Contract interest rates and dealer acquisition fees are lower, and the maximum loan amount is somewhat higher than the Preferred program.
Contract interest rates and dealer acquisition fees are lower, and the maximum loan amount is somewhat higher than the Super Alpha program. Meta - This program accommodates applicants with past non-performing credit, but who demonstrate a stronger history of recent performing credit than the Preferred program.
We consider accounts that have had extensions and were active or paid off as of December 31, 2022 to be successful. Successful extensions result in continued payments of interest and principal (including payment in full in many cases).
We consider accounts that have had extensions and were active or paid off as of December 31, 2023 to be successful. Successful extensions result in continued payments of interest and principal (including payment in full in many cases).
We use proprietary scoring models to assign two internal "credit scores" at the time the application is received. These proprietary scores are used to help determine whether we want to approve the application and, if so, the program and pricing we will offer either to the dealer, or in the case of our direct lending platform, directly to the customer.
We use proprietary scoring models to assign two internal “credit scores” at the time the application is received. These proprietary scores are used to help determine whether we want to approve the application and, if so, the program and pricing we will offer either to the dealer, or in the case of our direct lending platform, directly to the customer.
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 December 31, 2022, we were in compliance with all such covenants. 14 Competition The automobile financing business is highly competitive.
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 December 31, 2023, we were in compliance with all such covenants. Competition The automobile financing business is highly competitive.
The following table identifies the credit program, sorted from highest to lowest credit quality, under which we originated automobile contracts during the years ended December 31, 2022 and 2021.
The following table identifies the credit program, sorted from highest to lowest credit quality, under which we originated automobile contracts during the years ended December 31, 2023 and 2022.
In addition to purchasing installment purchase contracts directly from dealers, we also originate vehicle purchase money loans by lending directly to consumers and have (i) acquired installment purchase contracts in four merger and acquisition transactions, and (ii) purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders.
In addition to purchasing installment purchase contracts directly from dealers, we also have (i) originated vehicle purchase money loans by lending directly to consumers and have (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.
Our upper credit tier products, which are our Meta, Preferred, Super Alpha, Alpha Plus and Alpha programs, accounted for approximately 80% of our new contract acquisitions for our own portfolio in 2022, 75% in 2021, and 75% in 2020, measured by aggregate amount financed.
Our upper credit tier products, which are our Meta, Preferred, Super Alpha, Alpha Plus and Alpha programs, accounted for approximately 83% of our new contract acquisitions for our own portfolio in 2023, 80% in 2022, and 75% in 2021, measured by aggregate amount financed.
A portion of the DealerTrack and Route One volume are applications from our pass-through arrangements with other lenders who send us applications from their dealers in cases where those lenders choose not to approve those applications. For the year ended December 31, 2022, such pass-through applications represented 13% of our total applications.
A portion of the DealerTrack and Route One volume are applications from our pass-through arrangements with other lenders who send us applications from their dealers in cases where those lenders choose not to approve those applications. For the year ended December 31, 2023, such pass-through applications represented 37% of our total applications.
However, we completed only three securitizations in 2020. In April 2020 we postponed our planned securitization due to the onset of the pandemic and the effective closure of the capital markets in which our securitizations are executed. Subsequently we successfully completed securitizations in June and September 2020.
In April 2020 we postponed our planned securitization due to the onset of the pandemic and the effective closure of the capital markets in which our securitizations are executed. Subsequently we successfully completed securitizations in June and September 2020.
Super Alpha – This program accommodates applicants with past non-performing credit, but with a somewhat stronger history of recent performing credit, including auto or mortgage related credit, and higher incomes than the Alpha Plus program. Contract interest rates and dealer acquisition fees are lower, and the maximum loan amount is somewhat higher, than the Alpha Plus program.
Contract interest rates and dealer acquisition fees are lower than the Alpha program. Super Alpha – This program accommodates applicants with past non-performing credit, but with a somewhat stronger history of recent performing credit, including auto or mortgage related credit, and higher incomes than the Alpha Plus program.
Dealers with which we do business are under no obligation to submit any automobile contracts to us, nor are we obligated to purchase any automobile contracts from them. During the year ended December 31, 2022, no dealer accounted for as much as 1% of the total number of automobile contracts we purchased.
Dealers with which we do business are under no obligation to submit any automobile contracts to us, nor are we obligated to purchase any automobile contracts from them. During the year ended December 31, 2023, no dealer accounted for as much as 2% of the total number of automobile contracts we purchased.
Securitizations are transactions in which we sell a specified pool of automobile contracts to a special purpose subsidiary of ours. The subsidiary in turn issues (or contributes to a trust that issues) asset-backed securities, which are purchased by institutional investors. Since 1994, we have completed 95 term securitizations of approximately $17.7 billion in automobile contracts.
Securitizations are transactions in which we sell a specified pool of automobile contracts to a special purpose subsidiary of ours. The subsidiary in turn issues (or contributes to a trust that issues) asset-backed securities, which are purchased by institutional investors. Since 1994, we have completed 99 term securitizations of approximately $19.1 billion in automobile contracts.
Contract Purchases and Outstanding Managed Portfolio $ in thousands Year Contracts Purchased in Period Managed Portfolio at Period End 2018 $ 902,416 $ 2,380,847 2019 1,002,782 2,416,042 2020 742,584 2,174,972 2021 1,146,321 2,249,069 2022 1,854,385 3,001,308 Our principal executive offices are in Las Vegas, Nevada. Most of our operational and administrative functions take place in Irvine, California.
Contract Purchases and Outstanding Managed Portfolio $ in thousands Year Contracts Purchased in Period Managed Portfolio at Period End 2019 $ 1,002,782 $ 2,416,042 2020 742,584 2,174,972 2021 1,146,321 2,249,069 2022 1,854,385 3,001,308 2023 1,357,752 3,194,623 Our principal executive offices are in Las Vegas, Nevada. Most of our operational and administrative functions take place in Irvine, California.
For the year ended December 31, 2022 approximately 91% of the automobile contracts originated under our programs consisted of financing for used cars and 9% consisted of financing for new cars. We generally solicit applications with the intent of originating contracts to hold as investments in our own portfolio.
For the year ended December 31, 2023 approximately 94% of the automobile contracts originated under our programs consisted of financing for used cars and 6% consisted of financing for new cars. We generally solicit applications with the intent of originating contracts to hold as investments in our own portfolio.
Dealers can send credit applications to us by entering the necessary data on our website or through one of two third-party application aggregators. For the year ended December 31, 2022, we received 2.5 million applications. Approximately 63% of all applications came through DealerTrack (the industry leading dealership application aggregator), 36% via another aggregator, Route One and 1% via our website.
Dealers can send credit applications to us by entering the necessary data on our website or through one of two third-party application aggregators. For the year ended December 31, 2023, we received 2.9 million applications. Approximately 63% of all applications came through DealerTrack (the industry leading dealership application aggregator), 37% via another aggregator, Route One.
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.
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 weighted average seasoning of our total owned portfolio, represented in the tables below, was 25 months, 23 months, and 23 months as of December 31, 2022, December 31, 2021, and December 31, 2020, respectively. Our financial results are dependent on the performance of the automobile contracts in which we retain an ownership interest.
The weighted average seasoning of our total owned portfolio, represented in the tables below, was 19 months, 17 months, and 21 months as of December 31, 2023, December 31, 2022, and December 31, 2021, respectively. Our financial results are dependent on the performance of the automobile contracts in which we retain an ownership interest.
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 December 31, 2022, we have purchased a total of approximately $20.0 billion of automobile contracts from dealers.
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 December 31, 2023, we have purchased a total of approximately $21.3 billion of automobile contracts from dealers.
We believe this improves our allocation of credit evaluation resources, enhances our competitiveness in the marketplace and manages the risk inherent in the sub-prime market. Characteristics of Contracts. All the automobile contracts we purchase are fully amortizing and provide for level payments over the term of the automobile contract. All automobile contracts may be prepaid at any time without penalty.
We believe this improves our allocation of credit evaluation resources, enhances our competitiveness in the marketplace and manages the risk inherent in the sub-prime market. 6 Characteristics of Contracts. All the automobile contracts we purchase are fully amortizing and provide for level payments over the term of the automobile contract.
Because we serve customers who are unable to meet certain credit standards, we incur greater risks, and generally receive interest rates higher than those charged in the prime credit market. We also sustain a higher level of credit losses because of the higher risk customers we serve.
Because we serve customers who are unable to meet certain credit standards, we incur greater risks, and generally receive interest rates higher than those charged in the prime credit market.
The table below compares certain characteristics, at the time of origination, of our contract purchases for the years ended December 31, 2022 and 2021: Contracts Purchased During the Year Ended December 31, 2022 December 31, 2021 Average Original Amount Financed $ 22,632 $ 21,104 Weighted Average Original Term 70 months 70 months Average Down Payment Percent 10.5% 9.0% Average Vehicle Purchase Price $ 21,122 $ 19,881 Average Age of Vehicle 7 years 5 years Average Age of Customer 42 years 42 years Average Time in Current Job 4 years 5 years Average Household Annual Income $ 69,121 $ 61,377 6 Dealer Compliance .
The table below compares certain characteristics, at the time of origination, of our contract purchases for the years ended December 31, 2023 and 2022: Contracts Purchased During the Year Ended December 31, 2023 December 31, 2022 Average Original Amount Financed $ 20,845 $ 22,632 Weighted Average Original Term 67 months 70 months Average Down Payment Percent 10.7% 10.5% Average Vehicle Purchase Price $ 19,651 $ 21,122 Average Age of Vehicle 7 years 7 years Average Age of Customer 42 years 42 years Average Time in Current Job 5 years 4 years Average Household Annual Income $ 72,930 $ 69,121 Dealer Compliance .
Our history of term securitizations, over the most recent ten years, is summarized in the table below: Recent Asset-Backed Securitizations Period Number of Term Securitizations Amount of Receivables $ in thousands 2013 4 778,000 2014 4 923,000 2015 3 795,000 2016 4 1,214,997 2017 4 870,000 2018 4 883,452 2019 4 1,014,124 2020 3 741,867 2021 4 1,145,002 2022 4 1,537,383 13 From time to time we have also completed financings of our residual interests in other securitizations that we and our affiliates previously sponsored.
Our recent history of term securitizations is summarized in the table below: Recent Asset-Backed Securitizations $ in thousands Period Number of Term Securitizations Amount of Receivables 2017 4 $ 870,000 2018 4 883,452 2019 4 1,014,124 2020 3 741,867 2021 4 1,145,002 2022 4 1,537,383 2023 4 1,352,114 From time to time we have also completed financings of our residual interests in other securitizations that we and our affiliates previously sponsored.
In support of our collection activities, we maintain a computerized collection system specifically designed to service automobile contracts with sub-prime customers. We engage a nearshore third-party call center to supplement the efforts the collectors in our five branch locations. As of December 31, 2022, our nearshore partner had approximately 33 agents assigned to our portfolio.
In support of our collection activities, we maintain a computerized collection system specifically designed to service automobile contracts with sub-prime customers. We engage a nearshore third-party call center to supplement the efforts the collectors in our five branch locations.
We have offered eight different financing programs, and price each program according to the relative credit risk. Our programs cover a wide band of the sub-prime credit spectrum and are labeled as follows: First Time Buyer – This program accommodates an applicant who has limited significant past credit history, such as a previous auto loan.
Our programs cover a wide band of the sub-prime credit spectrum and are labeled as follows: First Time Buyer – This program accommodates an applicant who has limited significant past credit history, such as a previous auto loan.
Alpha Plus – This program accommodates applicants with past non-performing credit, but with a stronger history of recent performing credit, such as auto or mortgage related credit, and higher incomes than the Alpha program. Contract interest rates and dealer acquisition fees are lower than the Alpha program.
The contract interest rate and dealer acquisition fees are lower than the Standard program, down payment and payment-to-income ratio requirements are somewhat less restrictive. Alpha Plus – This program accommodates applicants with past non-performing credit, but with a stronger history of recent performing credit, such as auto or mortgage related credit, and higher incomes than the Alpha program.
Since the applicant has limited credit history, the contract interest rate and dealer acquisition fees tend to be higher, and the loan amount, loan-to-value ratio, down payment, and payment-to-income ratio requirements tend to be more restrictive compared to our other programs.
As a result, the contract interest rate and dealer acquisition fees tend to be higher, and the loan amount, loan-to-value ratio, down payment, and payment-to-income ratio requirements tend to be more restrictive compared to our other programs.
In addition, the Federal Trade Commission has jurisdiction to investigate aspects of our business. We expect that regulatory investigation by both state and federal agencies will continue, and there can be no assurance that the results of such investigations will not have a material adverse effect on us.
We expect that regulatory investigation by both state and federal agencies will continue, and there can be no assurance that the results of such investigations will not have a material adverse effect on us.
The following table summarizes the average net acquisition fees we charged dealers and the weighted average annual percentage rate on contracts purchased for our own portfolio for the periods shown: 2022 2021 2020 2019 2018 Average net acquisition fee charged (paid) to dealers (1) $ (150 ) $ (65 ) $ 71 $ (25 ) $ (238 ) Average net acquisition fee as % of amount financed (1) -0.7% -0.3% 0.4% -0.1% -1.4% Weighted average annual percentage interest rate 18.4% 17.8% 19.3% 19.2% 18.3% (1) Not applicable to direct lending platform Our pricing strategy is driven by our objectives for new contract purchase quantities and maximizing our risk adjusted yield.
The following table summarizes the average net acquisition fees we charged dealers and the weighted average annual percentage rate on contracts purchased for our own portfolio for the periods shown: 2023 2022 2021 2020 2019 Average net acquisition fee charged (paid) to dealers (1) $ 98 $ (150 ) $ (65 ) $ 71 $ (25 ) Average net acquisition fee as % of amount financed (1) 1.3% -0.7% -0.3% 0.4% -0.1% Weighted average annual percentage interest rate 20.9% 18.4% 17.8% 19.3% 19.2% (1) Not applicable to direct lending platform.
A significant judgment against us or within the industry in connection with any such litigation could have a material adverse effect on our financial condition, results of operations or liquidity. Human Capital We rely on our employees for everything we do. To make our business work, we seek to supply them with the tools and knowledge they need to succeed.
A significant judgment against us or within the industry in connection with any such litigation could have a material adverse effect on our financial condition, results of operations or liquidity. 15 Human Capital We rely on our employees for everything we do.
We attempt to make telephonic contact with delinquent customers from one to 20 days after their monthly payment due date, depending on our risk-based assessment of the customer’s likelihood of payment during early stages of delinquency.
As of December 31, 2023, our nearshore partner had approximately 47 agents assigned to our portfolio. 7 We attempt to make telephonic contact with delinquent customers from one to 20 days after their monthly payment due date, depending on our risk-based assessment of the customer’s likelihood of payment during early stages of delinquency.
If the payment is not made, or if the payment is made, but the account remains delinquent, the account is returned to a collector’s queue for subsequent contacts. 7 If a customer fails to make or keep promises for payments, or if the customer is uncooperative or attempts to evade contact or hide the vehicle, a supervisor will review the collection activity relating to the account to determine if repossession of the vehicle is warranted.
If a customer fails to make or keep promises for payments, or if the customer is uncooperative or attempts to evade contact or hide the vehicle, a supervisor will review the collection activity relating to the account to determine if repossession of the vehicle is warranted.
As a result, the contract interest rate and dealer acquisition fees tend to be higher, and the loan amount, loan-to-value ratio, down payment, and payment-to-income ratio requirements tend to be more restrictive compared to our other programs. 4 Standard – This program accommodates an applicant who may have significant past non-performing credit, but who has also exhibited some performing credit in their history.
Since the applicant has limited credit history, the contract interest rate and dealer acquisition fees tend to be higher, and the loan amount, loan-to-value ratio, down payment, and payment-to-income ratio requirements tend to be more restrictive compared to our other programs. 4 Mercury / Delta – This program accommodates an applicant who may have had significant past non-performing credit including recent derogatory credit.
Employee Engagement Our means of evaluating our human capital resources include, on an individual basis, annual performance reviews and annual meetings with senior management on or close to the employee’s anniversary date. On an aggregate basis, a new hire survey and department round table meetings.
Employee Engagement Our means of evaluating our human capital resources include, on an individual basis, annual performance reviews and annual meetings with senior management on or close to the employee’s anniversary date. Most departments meet one-on-one with employees monthly to discuss performance, suggestions, and concerns. On an aggregate basis, we distribute new hire surveys and host department round table meetings.
The contract interest rate and dealer acquisition fees are comparable to the First Time Buyer and Mercury/Delta programs, but the loan amount and loan-to-value ratio requirements are somewhat less restrictive. Alpha – This program accommodates applicants who may have a discharged bankruptcy, but who have also exhibited performing credit.
Standard – This program accommodates an applicant who may have significant past non-performing credit, but who has also exhibited some performing credit in their history. The contract interest rate and dealer acquisition fees are comparable to the First Time Buyer and Mercury/Delta programs, but the loan amount and loan-to-value ratio requirements are somewhat less restrictive.
The information in the table represents all automobile contracts we service, excluding certain contracts we have serviced for third parties on which we earn servicing fees only, and have no credit risk. (2) The finance receivables portfolio is comprised of contracts we originated prior to January 2018.
The information in the table represents all automobile contracts we service, excluding certain contracts we have serviced for third parties on which we earn servicing fees only, and have no credit risk.
(4) We do not recognize interest income on accounts past due more than 90 days. 9 Net Credit Loss Experience (1) Total Owned Portfolio Finance Receivables Portfolio (2) Year Ended December 31, 2022 2021 2020 (Dollars in thousands) Average portfolio outstanding $ 150,919 $ 345,021 $ 684,259 Net charge-offs as a percentage of average portfolio (3) 4.6% 5.8% 11.7% Fair Value Receivables Portfolio (4) Year Ended December 31, 2022 2021 2020 (Dollars in thousands) Average portfolio outstanding $ 2,388,191 $ 1,802,590 $ 1,631,491 Net charge-offs as a percentage of average portfolio (3) 4.5% 3.1% 4.3% Total Owned Portfolio Year Ended December 31, 2022 2021 2020 (Dollars in thousands) Average portfolio outstanding $ 2,539,110 $ 2,147,611 $ 2,315,750 Net charge-offs as a percentage of average portfolio (3) 4.5% 3.5% 6.5% (1) All amounts and percentages are based on the principal amount scheduled to be paid on each automobile contract contracts.
(4) We do not recognize interest income on accounts past due more than 90 days. 9 Net Credit Loss Experience (1) Total Managed Portfolio (Excludes Third Party Portfolio) Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Average portfolio outstanding $ 2,913,571 $ 2,539,110 $ 2,147,611 Net charge-offs as a percentage of average portfolio (2) 6.5% 4.5% 3.5% (1) All amounts and percentages are based on the principal amount scheduled to be paid on each automobile contract contracts.
Broken out by function, our human capital was allocated thus: 11 were senior management personnel; 407 were servicing personnel; 182 were automobile contract origination personnel; 127 were sales personnel and program development (78 of whom were sales representatives); 65 were various administrative personnel including human resources, legal, accounting and systems.
Broken out by function, our human capital was allocated thus: 15 were senior management personnel; 529 were servicing personnel; 185 were automobile contract origination personnel; 105 were sales personnel (67 of whom were sales representatives); 56 were various administrative personnel including human resources, legal, accounting and systems.
Contracts Purchased During the Year Ended (1) December 31, 2022 December 31, 2021 (dollars in thousands) Program Amount Financed Percent (1) Amount Financed Percent (1) Meta $ 57,145 3.1% $ n/a n/a Preferred 219,872 11.9% 161,289 14.1% Super Alpha 394,743 21.3% 197,809 17.3% Alpha Plus 193,728 10.4% 157,212 13.7% Alpha 463,466 25.0% 304,978 26.6% Standard 196,738 10.6% 177,876 15.5% Mercury / Delta 74,865 4.0% 62,334 5.4% First Time Buyer 61,742 3.3% 42,537 3.7% Third Parties 192,086 10.4% 42,286 3.7% $ 1,854,385 100.0% $ 1,146,321 100.0% (1) Percentages may not total to 100.0% due to rounding. 5 We attempt to control misrepresentation regarding the customer's credit worthiness by carefully screening the automobile contracts we originate, by establishing and maintaining professional business relationships with dealers, and by including certain representations and warranties by the dealer in the dealer agreement.
Contracts Purchased During the Year Ended (1) December 31, 2023 December 31, 2022 (dollars in thousands) Program Amount Financed Percent (1) Amount Financed Percent (1) Meta $ 45,319 3.3% $ 57,145 3.1% Preferred 175,122 12.9% 219,872 11.9% Super Alpha 265,385 19.5% 394,743 21.3% Alpha Plus 179,526 13.2% 193,728 10.4% Alpha 383,512 28.2% 463,466 25.0% Standard 103,499 7.6% 196,738 10.6% Mercury / Delta 52,250 3.8% 74,865 4.0% First Time Buyer 52,313 3.9% 61,742 3.3% Third Parties 100,826 7.4% 192,086 10.4% $ 1,357,752 100.0% $ 1,854,385 100.0% (1) Percentages may not total to 100.0% due to rounding. 5 We attempt to control misrepresentation regarding the customer’s credit worthiness by carefully screening the automobile contracts we originate, by establishing and maintaining professional business relationships with dealers, and by including certain representations and warranties by the dealer in the dealer agreement.
We continue to assess the Dodd-Frank Act’s probable effect on our business, financial condition and results of operations, and to monitor developments involving the entities charged with promulgating regulations.
We continue to assess the Dodd-Frank Act’s probable effect on our business, financial condition and results of operations, and to monitor developments involving the entities charged with promulgating regulations. However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and on us in particular, is uncertain at this time.
On May 16, 2018, we completed a $40.0 million securitization of residual interests from previously issued securitizations.
On June 30, 2021, we completed a $50.0 million securitization of residual interests from previously issued securitizations.
Outstanding Managed Portfolio as of December 31, 2022 December 31, 2021 Amount Percent (1) Amount Percent (1) ($ in millions) California $ 303.8 10.1% $ 265.3 11.8% Ohio 243.0 8.1% 205.6 9.1% Texas 220.4 7.3% 140.7 6.3% Florida 148.0 4.9% 112.7 5.0% Indiana 139.3 4.6% 112.6 5.0% Illinois 135.2 4.5% 69.1 3.1% All others 1,811.6 60.4% 1,343.1 59.7% Total $ 3,001.3 100.0% $ 2,249.1 100.0% (1) Percentages may not total to 100.0% due to rounding.
Outstanding Managed Portfolio as of December 31, 2023 December 31, 2022 Amount Percent (1) Amount Percent (1) ($ in millions) California $ 274.7 8.6% $ 303.8 10.1% Texas 237.6 7.4% 220.4 7.3% Ohio 232.7 7.3% 243.0 8.1% Illinois 173.3 5.4% 135.2 4.5% Florida 160.2 5.0% 148.0 4.9% Pennsylvania 152.8 4.8% 134.1 4.5% All others 1,963.3 61.5% 1,816.8 60.5% Total $ 3,194.6 100.0% $ 3,001.3 100.0% (1) Percentages may not total to 100.0% due to rounding.
Contracts Purchased During the Year Ended December 31, 2022 December 31, 2021 Number Percent (1) Number Percent (1) California 6,707 8.2% 5,928 10.9% Texas 6,415 7.8% 3,336 6.1% Ohio 6,247 7.6% 5,071 9.3% Illinois 4,648 5.7% 1,963 3.6% Florida 4,189 5.1% 2,716 5.0% Pennsylvania 3,767 4.6% 2,525 4.6% Indiana 3,791 4.6% 2,725 5.0% Other States 46,171 56.4% 30,053 55.3% Total 81,935 100.0% 54,317 100.0% (1) Percentages may not total to 100.0% due to rounding. 3 The following table sets forth the geographic concentrations of our outstanding managed portfolio as of December 31, 2022 and 2021.
Contracts Purchased During the Year Ended December 31, 2023 December 31, 2022 Number Percent (1) Number Percent (1) Texas 4,620 7.1% 6,415 7.8% Illinois 4,482 6.9% 4,648 5.7% Ohio 4,015 6.2% 6,247 7.6% California 3,911 6.0% 6,707 8.2% Florida 3,489 5.4% 4,189 5.1% Pennsylvania 3,274 5.0% 3,767 4.6% Other States 41,346 63.5% 49,962 61.0% Total 65,137 100.0% 81,935 100.0% (1) Percentages may not total to 100.0% due to rounding. 3 The following table sets forth the geographic concentrations of our outstanding managed portfolio as of December 31, 2023 and 2022.
Broad economic factors such as pandemic, 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.
Broad economic factors such as pandemic, 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 own as of the respective dates shown.
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.
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.
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 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.
The table below summarizes the status, as of December 31, 2022, for accounts that received extensions from 2012 through 2021: Period of Extension # of Extensions Granted Active or Paid Off at December 31, 2022 % Active or Paid Off at December 31, 2022 Charged Off > 6 Months After Extension % Charged Off > 6 Months After Extension Charged Off % Charged Off Avg Months to Charge Off Post Extension 2012 18,783 11,320 60.3% 6,667 35.5% 796 4.2% 18 2013 23,398 11,147 47.6% 11,275 48.2% 976 4.2% 23 2014 25,773 10,483 40.7% 14,464 56.1% 826 3.2% 25 2015 53,319 22,361 41.9% 29,876 56.0% 1,082 2.0% 26 2016 80,897 36,770 45.5% 42,194 52.2% 1,933 2.4% 26 2017 133,881 61,465 45.9% 65,490 48.9% 6,926 5.2% 22 2018 121,531 66,007 54.3% 49,517 40.7% 6,007 4.9% 19 2019 71,548 50,795 71.0% 18,811 26.3% 1,942 2.7% 18 2020 83,170 64,768 77.9% 14,057 16.9% 2,099 2.5% 15 2021 47,029 40,292 85.7% 5,482 11.7% 1,236 2.5% 11 We view these results as a confirmation of the effectiveness of our extension program.
The table below summarizes the status, as of December 31, 2023, for accounts that received extensions from 2012 through 2022: Period of Extension # of Extensions Granted Active or Paid Off at December 31, 2023 % Active or Paid Off at December 31, 2023 Charged Off > 6 Months After Extension % Charged Off > 6 Months After Extension Charged Off % Charged Off Avg Months to Charge Off Post Extension 2012 18,783 11,320 60.3% 6,667 35.5% 796 4.2% 18 2013 23,398 11,143 47.6% 11,277 48.2% 976 4.2% 23 2014 25,773 10,475 40.6% 14,477 56.2% 826 3.2% 25 2015 53,319 22,279 41.8% 30,014 56.3% 1,082 2.0% 26 2016 80,897 36,449 45.1% 42,740 52.8% 1,933 2.4% 27 2017 133,847 59,643 44.6% 67,278 50.3% 6,926 5.2% 23 2018 121,531 64,608 53.2% 51,961 42.8% 6,007 4.9% 21 2019 71,548 49,448 69.1% 21,173 29.6% 1,942 2.7% 21 2020 83,170 62,685 75.4% 20,666 24.8% 2,099 2.5% 19 2021 47,010 38,072 81.0% 9,560 20.3% 1,236 2.5% 15 2022 56,142 49,176 87.6% 8,312 14.8% 1,954 3.5% 11 We view these results as a confirmation of the effectiveness of our extension program.
In addition to new hire training, we provide mentor programs and management workshops. Workforce Allocation and Diversity We had 792 employees as of December 31, 2022. Our employee population was 66% female, and 67% self-identified as ethnically diverse (defined as all EEOC classifications other than white).
Workforce Allocation and Diversity We had 890 employees as of December 31, 2023. Our employee population was 67% female, and 71% self-identified as ethnically diverse (defined as all EEOC classifications other than white).
However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and on us in particular, is uncertain at this time. 15 In addition to the CFPB, other state and federal agencies have the ability to regulate aspects of our business. For example, the Dodd-Frank Act provides a mechanism for state Attorneys General to investigate us.
In addition to the CFPB, other state and federal agencies have the ability to regulate aspects of our business. For example, the Dodd-Frank Act provides a mechanism for state Attorneys General to investigate us. In addition, the Federal Trade Commission has jurisdiction to investigate aspects of our business.
Additional information about our extensions is provided in the tables below: For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 Average number of extensions granted per month 4,689 3,918 6,931 Average number of outstanding accounts 162,264 157,076 172,129 Average monthly extensions as % of average outstandings 2.9% 2.5% 4.0% December 31, 2022 December 31, 2021 December 31, 2020 Number of Contracts Amount Number of Contracts Amount Number of Contracts Amount (Dollars in thousands) Contracts with one extension 28,565 $ 479,114 24,337 $ 335,864 30,624 $ 429,754 Contracts with two extensions 13,730 180,547 15,861 200,705 19,381 259,236 Contracts with three extensions 9,837 108,986 11,755 136,970 13,117 159,447 Contracts with four extensions 7,938 76,220 9,272 95,182 10,868 122,469 Contracts with five extensions 5,425 45,519 6,531 59,651 8,548 90,322 Contracts with six extensions 3,269 21,806 4,536 35,803 6,473 62,288 68,764 $ 912,192 72,292 $ 864,175 89,011 $ 1,123,516 Gross servicing portfolio 180,795 $ 3,001,308 156,280 $ 2,249,069 163,117 $ 2,174,972 Non-Accrual Receivables It is not uncommon for our obligors to fall behind in their payments.
Additional information about our extensions is provided in the tables below: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Average number of extensions granted per month 6,926 4,689 3,918 Average number of outstanding accounts 176,438 162,264 157,076 Average monthly extensions as % of average outstandings 3.9% 2.9% 2.5% 11 December 31, 2023 December 31, 2022 December 31, 2021 Number of Contracts Amount Number of Contracts Amount Number of Contracts Amount (Dollars in thousands) Contracts with one extension 36,287 $ 649,551 28,565 $ 479,114 24,337 $ 335,864 Contracts with two extensions 19,335 326,552 13,730 180,547 15,861 200,705 Contracts with three extensions 10,109 133,207 9,837 108,986 11,755 136,970 Contracts with four extensions 6,784 67,735 7,938 76,220 9,272 95,182 Contracts with five extensions 5,197 42,734 5,425 45,519 6,531 59,651 Contracts with six extensions 3,118 20,576 3,269 21,806 4,536 35,803 80,830 $ 1,240,355 68,764 $ 912,192 72,292 $ 864,175 Gross servicing portfolio (Excludes Third Party Portfolio) 179,198 $ 2,970,066 170,658 $ 2,795,383 154,151 $ 2,209,430 Non-Accrual Receivables It is not uncommon for our obligors to fall behind in their payments.
Since 1994 we have conducted 95 term securitizations of automobile contracts that we originated under our regular programs. As of December 31, 2022, 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.
As of December 31, 2023, 18 of those securitizations are active and all are structured as secured financings. We generally conduct our securitizations on a quarterly basis, near the beginning of each calendar quarter, resulting in four securitizations per calendar year. However, we completed only three securitizations in 2020.
We also solicit credit applications directly from prospective automobile consumers through the internet under a program we refer to as our direct lending platform. For qualified applicants we offer terms similar to those that we offer through dealers, though without a down payment requirement and with more restrictive loan-to-value and credit score requirements.
For qualified applicants we offered terms similar to those that we offer through dealers, though without a down payment requirement and with more restrictive loan-to-value and credit score requirements.
While we believe that we can obtain from dealers sufficient automobile contracts for purchase at attractive prices by consistently applying reasonable underwriting criteria and making timely purchases of qualifying automobile contracts, there can be no assurance that we will do so.
While we believe that we can obtain from dealers sufficient automobile contracts for purchase at attractive prices by consistently applying reasonable underwriting criteria and making timely purchases of qualifying automobile contracts, there can be no assurance that we will do so. 14 Regulation Numerous federal and state consumer protection laws, including the federal Truth-In-Lending Act, the federal Equal Credit Opportunity Act, the federal Fair Debt Collection Practices Act and the Federal Trade Commission Act, regulate consumer credit transactions.
In June 2022, we doubled the capacity for this facility from $100 million to $200 million. 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.
Prior to the expiration of the revolving period in January 2024, the revolving period was extended to March 31, 2024. 13 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.
The so-called Lemon Laws enacted by various states provide certain rights to purchasers with respect to automobiles that fail to satisfy express warranties.
In addition, laws in a number of states impose limitations on the amount of finance charges that may be charged by dealers on credit sales. The so-called Lemon Laws enacted by various states provide certain rights to purchasers with respect to automobiles that fail to satisfy express warranties.
We believe that levels of acquisition fees are determined primarily by competition in the marketplace, which has been robust over the periods presented, and by our pricing strategy. We make changes to our pricing algorithm based on our volume goals, our own costs for borrowing and periodic recalibration of our risk-based scoring models.
Our pricing strategy is driven by our objectives for new contract purchase quantities and maximizing our risk adjusted yield. We believe that levels of acquisition fees are determined primarily by competition in the marketplace, which has been robust over the periods presented, and by our pricing strategy.
In most states, a license is required to engage in the business of purchasing automobile contracts from dealers. In addition, laws in a number of states impose limitations on the amount of finance charges that may be charged by dealers on credit sales.
These laws mandate certain disclosures with respect to finance charges on automobile contracts and impose certain other restrictions. In most states, a license is required to engage in the business of purchasing automobile contracts from dealers.
For these receivables, we recognize interest income on a level yield basis using that internal rate of return as the applicable interest rate. We do not record an expense for provision for credit losses on these receivables because such credit losses are included in our computation of the appropriate level yield.
We do not record an expense for provision for credit losses on these receivables because such credit losses are included in our computation of the appropriate level yield. Since 1994 we have conducted 99 term securitizations of automobile contracts that we originated under our regular programs.
We then periodically (i) recognize interest and fee income on the contracts, (ii) recognize interest expense on the securities issued in the transaction and (iii) record as expense a provision for credit losses on the contracts. Effective January 1, 2018, we adopted the fair value method of accounting for finance receivables acquired on or after that date.
Effective January 1, 2018, we adopted the fair value method of accounting for finance receivables acquired on or after that date. For these receivables, we recognize interest income on a level yield basis using that internal rate of return as the applicable interest rate.
Applicants approved in this fashion are free to shop for and purchase a vehicle from a dealer of their choosing, after which we enter into a note and security agreement directly with the consumer. 1 During the year ended December 31, 2022 automobile contracts originated under the direct lending platform represented 3.2% of our total acquisitions and represented 2.7% of our outstanding managed portfolio as of December 31, 2022.
Applicants approved in this fashion are free to shop for and purchase a vehicle from a dealer of their choosing, after which we entered into a note and security agreement directly with the consumer. We terminated our direct lending platform in September 2023 and we do not intend to originate any such loans going forward.
We organize our servicing activities based on the tasks performed by our personnel.
Servicing and Collections We currently service all automobile contracts that we own as well as those automobile contracts we service for third parties. We organize our servicing activities based on the tasks performed by our personnel.
As of December 31, 2022, we had 90 sales representatives, and in that month, we received applications from 8,078 dealers in 47 states. As of December 31, 2022, approximately 75% of our active dealers were franchised new car dealers that sell both new and used vehicles, and the remainder were independent used car dealers.
As of December 31, 2023, we had 84 sales representatives, and in that month, we received applications from 7,865 dealers in 47 states.
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.
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. 12 When structured to be treated as a secured financing for accounting purposes, the subsidiary is consolidated with us.
The feedback from the meetings and survey results are reviewed by senior management and used to assist in reviewing our human capital strategies, programs, and practices. Other metrics used in human capital management include average employee tenure and annual turnover rate. We believe that our relations with our employees are good.
The feedback from the meetings and survey results are reviewed by senior management and used to assist in reviewing our human capital strategies, programs, and practices. Our COO holds town hall meetings in every branch and virtual sessions to provide company-wide updates and conduct open Q&A for all employees.
As of December 31, 2022, most of our staff were working without a significant impact from the pandemic. 2 Contract Acquisitions When a retail automobile buyer elects to obtain financing from a dealer, the dealer takes a credit application to submit to its financing sources.
We also sustain a higher level of credit losses because of the higher risk customers we serve. 2 Contract Acquisitions When a retail automobile buyer elects to obtain financing from a dealer, the dealer takes a credit application to submit to its financing sources. Typically, a dealer will submit the buyer’s application to more than one financing source for review.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt or to obtain additional financing. There can be no assurance that any refinancing will be possible or that any additional financing could be obtained on acceptable terms.
Biggest changeThere can be no assurance that any refinancing will be possible or that any additional financing could be obtained on acceptable terms. The inability to service or refinance our existing debt or to obtain additional financing would have a material adverse effect on our financial position, liquidity and results of operations.
While our access to such funding has improved since then, our results of operations, financial condition and cash flows have been from time to time in the past and may be in the future materially and adversely affected. We require a substantial amount of cash liquidity to operate our business.
While our access to such funding has improved since then, our results of operations, financial condition and cash flows have been from time to time in the past and may in the future be materially and adversely affected. We require a substantial amount of cash liquidity to operate our business.
A deterioration in economic conditions and certain economic factors, such as reduced business activity, high unemployment, interest rates, housing prices, energy prices (including the price of gasoline), increased consumer indebtedness (including of obligors on the receivables), lack of available credit, the rate of inflation (such as the recent increase in inflation) and consumer perceptions of the economy, as well as other factors, such as terrorist events, civil unrest, cyber-attacks, public health emergencies, extreme weather conditions or significant changes in the geopolitical environment (such as the ongoing military conflict between Ukraine and Russia) and/or public policy, including increased state, local or federal taxation, could adversely affect the ability and willingness of obligors to meet their payment obligations under the receivables we originate.
A deterioration in economic conditions and certain economic factors, such as reduced business activity, high unemployment, interest rates, housing prices, energy prices (including the price of gasoline), increased consumer indebtedness (including of obligors on the receivables), lack of available credit, the rate of inflation (such as the recent increase in inflation) and consumer perceptions of the economy, as well as other factors, such as terrorist events, civil unrest, cyber-attacks, public health emergencies, extreme weather conditions or significant changes in the geopolitical environment (such as the ongoing military conflict between Ukraine and Russia and the conflict in Israel) and/or public policy, including increased state, local or federal taxation, could adversely affect the ability and willingness of obligors to meet their payment obligations under the receivables we originate.
The relief requested by the plaintiffs varies but includes requests for compensatory, statutory and punitive damages. 24 While we intend to vigorously defend ourselves against such proceedings, there is a chance that our results of operations, financial condition and cash flows could be materially and adversely affected by unfavorable outcomes.
The relief requested by the plaintiffs varies but includes requests for compensatory, statutory and punitive damages. While we intend to vigorously defend ourselves against such proceedings, there is a chance that our results of operations, financial condition and cash flows could be materially and adversely affected by unfavorable outcomes.
Any sustained period of increased delinquencies, defaults, repossessions or losses or increased servicing costs could adversely affect our financial position, liquidity, results of operation and our ability to enter into future financing transactions. We sell repossessed automobiles at wholesale auction markets located throughout the United States.
Any sustained period of increased delinquencies, defaults, repossessions or losses or increased servicing costs could adversely affect our financial position, liquidity, results of operation and our ability to enter into future financing transactions. 20 We sell repossessed automobiles at wholesale auction markets located throughout the United States.
Because the rules place an upper limit on the degree to which we may use financial leverage, our securitization structures may require more capital of us, or may release less cash to us, than might be the case in the absence of such rules. If We Experience Unfavorable Litigation Results, Our Results of Operations May Be Impaired.
Because the rules place an upper limit on the degree to which we may use financial leverage, our securitization structures may require more capital of us, or may release less cash to us, than might be the case in the absence of such rules. 24 If We Experience Unfavorable Litigation Results, Our Results of Operations May Be Impaired.
Because of our focus on sub-prime customers, the actual rates of delinquencies, repossessions and losses on our automobile contracts could be higher under adverse economic conditions than those experienced in the automobile finance industry in general, particularly in the states of California, Ohio, Texas, and Florida, states in which our automobile contracts are geographically concentrated.
Because of our focus on sub-prime customers, the actual rates of delinquencies, repossessions and losses on our automobile contracts could be higher under adverse economic conditions than those experienced in the automobile finance industry in general, particularly in the states of California, Texas, Ohio, Illinois and Florida, states in which our automobile contracts are geographically concentrated.
However, if the market conditions for asset-backed securitizations should reverse, we would expect a material adverse effect on our results of operations. Our Results of Operations Will Depend on Cash Flows from Our Residual Interests in Our Securitization Program and Our Warehouse Credit Facilities.
However, if the market conditions for asset-backed securitizations should reverse, we would expect a material adverse effect on our results of operations. 19 Our Results of Operations Will Depend on Cash Flows from Our Residual Interests in Our Securitization Program and Our Warehouse Credit Facilities.
A breach in the security of our systems could result in the disclosure of confidential information or subject us to liability We hold in our systems confidential financial and other personal data with respect to our customers, which may be of value to identity thieves and others if revealed.
A Breach in the Security of Our Systems Could Result in the Disclosure of Confidential Information, Subject us to Liability. We hold in our systems confidential financial and other personal data with respect to our customers, which may be of value to identity thieves and others if revealed.
Historically, our primary sources of day-to-day liquidity have been our warehouse credit facilities, in which we sell and contribute automobile contracts, as often as twice a week, to special-purpose subsidiaries, where they are "warehoused" until they are financed on a long-term basis through the issuance and sale of asset-backed notes.
Historically, our primary sources of day-to-day liquidity have been our warehouse credit facilities, in which we sell and contribute automobile contracts, as often as twice a week, to special-purpose subsidiaries, where they are “warehoused” until they are financed on a long-term basis through the issuance and sale of asset-backed notes.
As a result, an increase in prevailing interest rates could cause us to receive less excess spread cash flows on automobile contracts, and thus could adversely affect our earnings and cash flows. See “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk.” Risks Related to Our Common Stock Our Common Stock Is Thinly-Traded.
As a result, an increase in prevailing interest rates could cause us to receive less excess spread cash flows on automobile contracts, and thus could adversely affect our earnings and cash flows. See “ Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk.” Risks Related to Our Common Stock Our Common Stock Is Thinly-Traded.
In April 2020 we postponed our planned securitization due to the onset of the pandemic and the effective closure of the capital markets in which our securitizations are executed. Subsequently we successfully completed securitizations in June and September 2020, and then on a regular quarterly schedule from January 2021 through January 2023.
In April 2020 we postponed our planned securitization due to the onset of the pandemic and the effective closure of the capital markets in which our securitizations are executed. Subsequently we successfully completed securitizations in June and September 2020, and then on a regular quarterly schedule from January 2021 through January 2024.
Similar periods of losses began in the quarter ended March 31, 1999 through the quarter ended December 31, 2000 and also from the quarter ended September 30, 2003 through the quarter ended March 31, 2005. We expect to earn quarterly profits during 2023; however, there can be no assurance as to that expectation.
Similar periods of losses began in the quarter ended March 31, 1999 through the quarter ended December 31, 2000 and also from the quarter ended September 30, 2003 through the quarter ended March 31, 2005. We expect to earn quarterly profits during 2024; however, there can be no assurance as to that expectation.
We depend upon our ability to obtain permanent financing for pools of automobile contracts by conducting term securitization transactions. By "permanent financing" we mean financing that extends to cover the full term during which the underlying automobile contracts are outstanding and requires repayment as the underlying automobile contracts are repaid or charged off.
We depend upon our ability to obtain permanent financing for pools of automobile contracts by conducting term securitization transactions. By “permanent financing” we mean financing that extends to cover the full term during which the underlying automobile contracts are outstanding and requires repayment as the underlying automobile contracts are repaid or charged off.
In April 2020 we postponed our planned securitization due to the onset of the pandemic and the effective closure of the capital markets in which our securitizations are executed. Subsequently we successfully completed securitizations in June and September 2020, and then on a regular quarterly schedule from January 2021 through January 2023.
In April 2020 we postponed our planned securitization due to the onset of the pandemic and the effective closure of the capital markets in which our securitizations are executed. Subsequently we successfully completed securitizations in June and September 2020, and then on a regular quarterly schedule from January 2021 through January 2024.
We sometimes refer to these future cash flows as "excess spread cash flows." 19 Under the financial structures we have used to date in our securitizations and warehouse credit facilities, excess spread cash flows that would otherwise be paid to the holder of the residual interest are first used to increase overcollateralization or are retained in a spread account within the securitization trusts or the warehouse facility to provide liquidity and credit enhancement for the related securities.
We sometimes refer to these future cash flows as “excess spread cash flows.” Under the financial structures we have used to date in our securitizations and warehouse credit facilities, excess spread cash flows that would otherwise be paid to the holder of the residual interest are first used to increase overcollateralization or are retained in a spread account within the securitization trusts or the warehouse facility to provide liquidity and credit enhancement for the related securities.
Our profitability is largely determined by the difference, or "spread," between the effective interest rate we receive on the automobile contracts that we acquire and the interest rates payable under warehouse credit facilities and on the asset-backed securities issued in our securitizations.
Our profitability is largely determined by the difference, or “spread,” between the effective interest rate we receive on the automobile contracts that we acquire and the interest rates payable under warehouse credit facilities and on the asset-backed securities issued in our securitizations.
Finally, and depending on the extent to which the pandemic adversely affects the United States economy, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those related to our business or operations, the ability or willingness of our customers to make timely payments, and risks of geographic concentrations. 27 Our Results of Operations May Be Impaired as a Result of Natural Disasters.
Finally, and depending on the extent to which a pandemic or other public health emergency adversely affects the United States economy, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those related to our business or operations, the ability or willingness of our customers to make timely payments, and risks of geographic concentrations. 28 Our Results of Operations May Be Impaired as a Result of Natural Disasters.
Our industry is also at times investigated by regulators and offices of state attorneys general, which could lead to enforcement actions, fines and penalties, or the assertion of private claims and law suits against us.
Our industry is also at times investigated by regulators and offices of state attorneys general, which could lead to enforcement actions, fines and penalties, or the assertion of private claims and lawsuits against us.
Existing law, regulations and interpretations may change in ways that increase our costs of compliance. In addition to direct costs, such compliance requires changes in forms, processes, procedures, controls and in the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing.
Changes in Law and Regulations May Have an Adverse Effect on Our Business. Existing law, regulations and interpretations may change in ways that increase our costs of compliance. In addition to direct costs, such compliance requires forms, processes, procedures, controls and in the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing.
Negative publicity about our alleged or actual practices or about our industry generally could adversely affect our stock price and our ability to retain and attract employees. If We Experience Problems with Our Originations, Accounting or Collection Systems, Our Results of Operations May Be Impaired.
Negative publicity about our alleged or actual practices or about our industry generally could adversely affect our stock price and our ability to retain and attract employees, which could in turn negatively affect our results of operations or cashflows. If We Experience Problems with Our Originations, Accounting or Collection Systems, Our Results of Operations May Be Impaired.
The CFPB and the Federal Trade Commission (“FTC”) have the authority to investigate consumer complaints against us, to conduct inquiries at their own instance, and to recommend enforcement actions and seek monetary penalties. The FTC conducted and concluded an inquiry into our practices, and proposed remedial action against us in 2014, to which we consented.
The Consumer Financial Protection Bureau (“CFPB”) and the Federal Trade Commission (“FTC”) have the authority to investigate consumer complaints against us, to conduct inquiries at their own instance, and to recommend enforcement actions and seek monetary penalties. The FTC has conducted and concluded an inquiry into our practices, and proposed remedial action against us in 2014, to which we consented.
The inability to service or refinance our existing debt or to obtain additional financing would have a material adverse effect on our financial position, liquidity and results of operations. 18 The degree to which we are leveraged creates risks, including: · we may be unable to satisfy our obligations under our outstanding indebtedness; · we may find it more difficult to fund future credit enhancement requirements, operating costs, tax payments, capital expenditures or general corporate expenditures; · we may have to dedicate a substantial portion of our cash resources to payments on our outstanding indebtedness, thereby reducing the funds available for operations and future business opportunities; and · increasing our vulnerability to adverse general economic, industry and capital markets conditions. · limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; · placing us at a competitive disadvantage compared to our competitors that have less debt; and · limiting our ability to borrow additional funds.
The degree to which we are leveraged creates risks, including: · we may be unable to satisfy our obligations under our outstanding indebtedness; · we may find it more difficult to fund future credit enhancement requirements, operating costs, tax payments, capital expenditures or general corporate expenditures; · we may have to dedicate a substantial portion of our cash resources to payments on our outstanding indebtedness, thereby reducing the funds available for operations and future business opportunities; and · increasing our vulnerability to adverse general economic, industry and capital markets conditions. · limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; · placing us at a competitive disadvantage compared to our competitors that have less debt; and · limiting our ability to borrow additional funds.
Because there historically has been low trading volume in our common stock, there can be no assurance that our stock price will not decline as additional shares are sold in the public market. As of December 31, 2022, our directors and executive officers collectively owned 6.3 million shares of our common stock, or approximately 31%.
Because there historically has been low trading volume in our common stock, there can be no assurance that our stock price will not decline as additional shares are sold in the public market. As of December 31, 2023, our directors and executive officers collectively owned 13.2 million shares of our common stock, or approximately 62%.
Our Substantial Indebtedness Could Adversely Affect Our Financial Health and Prevent Us From Fulfilling Our Obligations Under Our Existing Indebtedness We currently have and will continue to have a substantial amount of outstanding indebtedness. At December 31, 2022, we had approximately $2,469.0 million of debt outstanding.
Our Substantial Indebtedness Could Adversely Affect Our Financial Health and Prevent Us From Fulfilling Our Obligations Under Our Existing Indebtedness We currently have and will continue to have a substantial amount of outstanding indebtedness. At December 31, 2023, we had approximately $2,566.5 million of debt outstanding.
We identify important factors that could cause actual results to differ, generally in the “Risk Factors” section of this report, and also under the caption “Forward-Looking Statements.” One reason for our expectation is that we have had positive net income in each of the eleven fiscal years ended December 31, 2022, although not in every quarter within that period.
We identify important factors that could cause actual results to differ, generally in the “Risk Factors” section of this report, and also under the caption “Cautionary Note Regarding Forward-Looking Statements.” One reason for our expectation is that we have had positive net income in each of the twelve fiscal years ended December 31, 2023, although not in every quarter within that period.
Our expectation of profitability is a forward-looking statement. We discuss the assumptions underlying that expectation under the caption “Forward-Looking Statements” in this report.
Our expectation of profitability is a forward-looking statement. We discuss the assumptions underlying that expectation under the caption “Cautionary Note Regarding Forward-Looking Statements” in this report.
If the operations of the wholesale auction markets are disrupted, as they were during the recent COVID 19 pandemic, we may be unable to sell our used vehicles at sufficient volume and/or pricing. 20 The number of delinquencies, defaults, losses and repossessions on sub-prime automobile receivables has historically been significantly influenced by the employment status of obligors on automobile loan contracts.
If the operations of the wholesale auction markets are disrupted, we may be unable to sell our used vehicles at sufficient volume and/or pricing. The number of delinquencies, defaults, losses and repossessions on sub-prime automobile receivables has historically been significantly influenced by the employment status of obligors on automobile loan contracts.
If Actual Results for Our Receivables Materially Deviate from Our Estimates, We May Be Required to Reduce the Interest Income We Recognize for Some or All of the Receivables Measured at Fair Value.
The risks described below are risks related to fair value accounting. If Actual Results for Our Receivables Materially Deviate from Our Estimates, We May Be Required to Reduce the Interest Income We Recognize for Some or All of the Receivables Measured at Fair Value.
Other economic factors include interest rates, general unemployment levels, the rate of inflation, adjustments in monthly mortgage payments and consumer perceptions of economic conditions generally and the effect of government stimulus programs and consumer protection/payment relief efforts implemented in connection with the COVID-19 virus.
Other economic factors include interest rates, general unemployment levels, the rate of inflation, adjustments in monthly mortgage payments and consumer perceptions of economic conditions generally and the effect of any government stimulus programs and consumer protection/payment relief efforts.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Liquidity”.
See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Liquidity”.
It is possible that we may not be able to anticipate, detect or recognize threats to our systems or to implement effective preventive measures against all security breaches, especially because the techniques used change frequently or are not recognized until launched, and because cyberattacks can originate from a wide variety of sources, including third parties outside the Company such as persons who are associated with external service providers or who are or may be involved in organized crime or linked to terrorist organizations.
Although we endeavor to protect the security of our computer systems and the confidentiality of customer information entrusted to us, there can be no assurance that our security measures will provide adequate security. 25 It is possible that we may not be able to anticipate, detect or recognize threats to our systems or to implement effective preventive measures against all security breaches, especially because the techniques used change frequently or are not recognized until launched, and because cyberattacks can originate from a wide variety of sources, including third parties outside the Company such as persons who are associated with external service providers or who are or may be involved in organized crime or linked to terrorist organizations.
We Do Not Intend to Pay Dividends on Our Common Stock. We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.
We Do Not Intend to Pay Dividends on Our Common Stock. We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. 29 Item 1B. Unresolved Staff Comments Not applicable.
If actual credit losses were to exceed our estimates, or if the actual amortization and prepayments of the receivables were to be materially different from our estimates, we might be required to adjust the recorded value of such receivables.
If the re-evaluation were to yield a value materially different from the previous recorded value, an adjustment would be required. If actual credit losses were to exceed our estimates, or if the actual amortization and prepayments of the receivables were to be materially different from our estimates, we might be required to adjust the recorded value of such receivables.
There can be no assurance that we will be able to continue to compete successfully and, as a result, we may not be able to purchase automobile contracts from dealers at a price acceptable to us, which could result in reductions in our revenues or the cash flows available to us. 21 If Our Dealers Do Not Submit a Sufficient Number of Suitable Automobile Contracts to Us for Purchase, Our Results of Operations May Be Impaired.
There can be no assurance that we will be able to continue to compete successfully and, as a result, we may not be able to purchase automobile contracts from dealers at a price acceptable to us, which could result in reductions in our revenues or the cash flows available to us.
In addition, the transaction documents for our securitizations restrict our securitization subsidiaries from declaring or making payment to us of (i) any dividend or other distribution on or in respect of any shares of their capital stock, or (ii) any payment on account of the purchase, redemption, retirement or acquisition of any option, warrant or other right to acquire shares of their capital stock unless (in each case) at the time of such declaration or payment (and after giving effect thereto) no amount payable under any transaction document with respect to the related securitization is then due and owing, but unpaid.
Even if any new financing is available, it may not be on terms that are acceptable to us or it may not be sufficient to refinance all of our indebtedness as it becomes due. 26 In addition, the transaction documents for our securitizations restrict our securitization subsidiaries from declaring or making payment to us of (i) any dividend or other distribution on or in respect of any shares of their capital stock, or (ii) any payment on account of the purchase, redemption, retirement or acquisition of any option, warrant or other right to acquire shares of their capital stock unless (in each case) at the time of such declaration or payment (and after giving effect thereto) no amount payable under any transaction document with respect to the related securitization is then due and owing, but unpaid.
If we fail to comply with applicable laws and regulations, such failure could result in penalties, litigation losses and expenses, damage to our reputation, or the suspension or termination of our licenses to conduct business, which would materially adversely affect our results of operations, financial condition and stock price.
No assurance can be given as to whether any of such hypothetical proceedings might materially and adversely affect us. 23 If we fail to comply with applicable laws and regulations, such failure could result in penalties, litigation losses and expenses, damage to our reputation, or the suspension or termination of our licenses to conduct business, which would materially adversely affect our results of operations, financial condition and stock price.
However, we may be materially and adversely affected if we fail to comply with: · applicable laws and regulations; · changes in existing laws or regulations; · changes in the interpretation of existing laws or regulations; or · any additional laws or regulations that may be enacted in the future. 23 Changes in Law and Regulations May Have an Adverse Effect on Our Business.
However, we may be materially and adversely affected if we fail to comply with: · applicable laws and regulations; · changes in existing laws or regulations; · changes in the interpretation of existing laws or regulations; or · any additional laws or regulations that may be enacted in the future.
If actual credit losses were to exceed our estimates, or if the actual amortization and prepayments of the receivables were to be materially different from our estimates, we might be required to change our estimates, which could result in a reduced interest income for those receivables in subsequent periods. 26 If Actual Results for Our Receivables Materially Deviate from Our Estimates, We May Be Required to Reduce the Recorded Value for Some or All of the Receivables Measured at Fair Value.
If actual credit losses were to exceed our estimates, or if the actual amortization and prepayments of the receivables were to be materially different from our estimates, we might be required to change our estimates, which could result in a reduced interest income for those receivables in subsequent periods.
A successful penetration of the security of our systems could cause serious negative consequences, including disruption of our operations, misappropriation of confidential information, or damage to our computers or systems, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, customer dissatisfaction, significant litigation exposure and harm to our reputation, any or all of which could have a material adverse effect on us. 25 Because We Are Subject to Many Restrictions in Our Existing Credit Facilities and Securitization Transactions, Our Ability to Pay Dividends or Engage in Specified Transactions May Be Impaired.
A successful penetration of the security of our systems could cause serious negative consequences, including disruption of our operations, misappropriation of confidential information, or damage to our computers or systems, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, customer dissatisfaction, significant litigation exposure and harm to our reputation, any or all of which could have a material adverse effect on us.
The CFPB has adopted regulations that place us and other companies similar to us under its supervision. A host of state and local governmental agencies have jurisdiction over material portions of our business, and might take action adverse to us. No assurance can be given as to whether any of such hypothetical proceedings might materially and adversely affect us.
The CFPB has adopted regulations that place us and other companies similar to us under its supervision. A host of state and local governmental agencies have jurisdiction over material portions of our business, and might take action adverse to us.
Our ability to make payments of principal or interest on, or to refinance, our indebtedness will depend on our future operating performance, and our ability to enter into additional credit facilities and securitization transactions as well as other debt financings, which, to a certain extent, are subject to economic, financial, competitive, regulatory, capital markets and other factors beyond our control.
Our ability to make payments of principal or interest on, or to refinance, our indebtedness will depend on our future operating performance, and our ability to enter into additional credit facilities and securitization transactions as well as other debt financings, which, to a certain extent, are subject to economic, financial, competitive, regulatory, capital markets and other factors beyond our control. 18 If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt or to obtain additional financing.
If such estimated value were to be materially different from our recorded value, we might be required to adjust the recorded value of our receivables. A downward readjustment in recorded value would correspondingly reduce our income and book value.
If such estimated value were to be materially different from our recorded value, we might be required to adjust the recorded value of our receivables. A downward readjustment in recorded value would correspondingly reduce our income and book value. 27 We May Have Rescission Liability in Connection With Sales of Our Subordinated Renewable Notes to Certain Purchasers.
Such debt consisted primarily of $2,108.7 million of securitization trust debt, and also included $285.3 million of warehouse lines of credit, $49.6 million of residual interest financing debt and $25.3 million in subordinated renewable notes.
Such debt consisted primarily of $2,265.4 million of securitization trust debt, and also included $234.0 million of warehouse lines of credit, $49.9 million of residual interest financing debt and $17.2 million in subordinated renewable notes.
The credit spread between the interest rates payable on our securitization trust debt and the rates payable on risk-free investments has varied. The Federal Reserve increased interest rates multiple times in 2022, once in early 2023, and is expected to continue to raise rates further in 2023.
The credit spread between the interest rates payable on our securitization trust debt and the rates payable on risk-free investments has varied. The Federal Reserve increased interest rates multiple times in 2022 and 2023. As a result, we have experienced increased interest expense in 2023.
The extent to which obligors on our automobile contracts may be adversely affected by the pandemic (including a resurgence due to variants of COVID-19), by loss of employment, and by related efforts of governments to slow the spread of the COVID-19 virus throughout the nation and world cannot be predicted.
A Pandemic or Other Public Health Emergency Could Have Adverse Effects The extent to which obligors on our automobile contracts may be adversely affected by a pandemic or other public health emergency, by loss of employment, and by related efforts of governments to slow the spread of a disease outbreak throughout the nation and world cannot be predicted.
If We Are Unable to Compete Successfully with our Competitors, Our Results of Operations May Be Impaired. The automobile financing business is highly competitive. We compete with a number of national, regional and local finance companies.
The automobile financing business is highly competitive. We compete with a number of national, regional and local finance companies.
In addition, under the terms of our warehouse credit facilities, we are not able to borrow against defaulted automobile contracts, including automobile contracts that are, at the time of default, funded under our warehouse credit facilities, which will reduce the overcollateralization of those warehouse credit facilities and possibly reduce the amount of cash flows available to us.
If actual credit losses were to exceed our estimates, we might be required to change our estimates, which could result in a fair value adjustment to those receivables or reduced interest income for those receivables in subsequent periods. 22 In addition, under the terms of our warehouse credit facilities, we are not able to borrow against defaulted automobile contracts, including automobile contracts that are, at the time of default, funded under our warehouse credit facilities, which will reduce the overcollateralization of those warehouse credit facilities and possibly reduce the amount of cash flows available to us.
Such persons may also attempt to fraudulently induce employees or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers. These risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expands our use of web-based products and applications.
These risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expands our use of web or cloud-based products and applications.
If interest rates on risk-free debt continue to increase, or if our spread above risk-free rates should increase, or both, we would expect increased interest expense, If interest rates in general should rise, our expenses would likewise rise, to have a material adverse effect on our financial position, liquidity, results of operation and our ability to enter into future financing transactions.
If interest rates in general should continue to rise, our expenses would likewise continue rise, which could have a material adverse effect on our financial position, liquidity, results of operation and our ability to enter into future financing transactions. 21 If We Are Unable to Compete Successfully with our Competitors, Our Results of Operations May Be Impaired.
Our results of operations, financial condition and cash flow, would be materially and adversely affected if we were to be terminated as servicer with respect to a material portion of our managed portfolio. 22 If We Lose Key Personnel, Our Results of Operations May Be Impaired. Our senior management team averages over 20 years of service with us.
The loss of our servicing rights could materially and adversely affect our results of operations, financial condition and cash flows. Our results of operations, financial condition and cash flow, would be materially and adversely affected if we were to be terminated as servicer with respect to a material portion of our managed portfolio.
To service our existing substantial indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors, including our successful financial and operating performance. Our financial and operational performance depends upon a number of factors, many of which are beyond our control.
See “ Cautionary Note Regarding Forward-Looking Statements .” 16 Risks Related to Our Business We Require a Substantial Amount of Cash to Service Our Substantial Debt. To service our existing substantial indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors, including our successful financial and operating performance.
The agreements we have with dealers to purchase automobile contracts do not require dealers to submit a minimum number of automobile contracts for purchase.
During the years ended December 31, 2023 and 2022, no single dealer accounted for as much as 2% of the automobile contracts we purchased. The agreements we have with dealers to purchase automobile contracts do not require dealers to submit a minimum number of automobile contracts for purchase.
We cannot assure you that we will be successful in attracting or retaining such personnel. Conversely, adverse general economic conditions may have had a countervailing effect.
Our future operating results also depend in part upon our ability to attract and retain qualified management, technical, sales and support personnel for our operations. Competition for such personnel is intense. We cannot assure you that we will be successful in attracting or retaining such personnel. Conversely, adverse general economic conditions may have had a countervailing effect.
If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance our indebtedness. Even if any new financing is available, it may not be on terms that are acceptable to us or it may not be sufficient to refinance all of our indebtedness as it becomes due.
If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance our indebtedness.
We re-evaluate the recorded value of receivables measured at fair value at the close of each quarter. If the re-evaluation were to yield a value materially different from the previous recorded value, an adjustment would be required.
If Actual Results for Our Receivables Materially Deviate from Our Estimates, We May Be Required to Reduce the Recorded Value for Some or All of the Receivables Measured at Fair Value. We re-evaluate the recorded value of receivables measured at fair value at the close of each quarter.
Our future operating results depend in significant part upon the continued service of our key senior management personnel, none of whom is bound by an employment agreement. Our future operating results also depend in part upon our ability to attract and retain qualified management, technical, sales and support personnel for our operations. Competition for such personnel is intense.
If We Lose Key Personnel, Our Results of Operations May Be Impaired. Our senior management team averages over 20 years of service with us. Our future operating results depend in significant part upon the continued service of our key senior management personnel, none of whom is bound by an employment agreement.
The rule also sets forth prohibitions on transferring or hedging the credit risk that the sponsor is required to retain.
The rule also sets forth prohibitions on transferring or hedging the credit risk that the sponsor is required to retain. Similar but not identical risk retention requirements are applicable after December 2018 to securitization transactions where purchasers of the ABS have sufficient contacts with the European Union.
Our operating results could be adversely affected if obligors are unable to make timely payments on their receivables or if we elect to, or are required to, implement forbearance programs in connection with obligors suffering a hardship (including hardships related to the COVID-19 pandemic and general economic conditions).
Our operating results could be adversely affected if obligors are unable to make timely payments on their receivables.
We are dependent upon establishing and maintaining relationships with a large number of unaffiliated automobile dealers to supply us with automobile contracts. During the years ended December 31, 2022 and 2021, no single dealer accounted for as much as 1% of the automobile contracts we purchased.
If Our Dealers Do Not Submit a Sufficient Number of Suitable Automobile Contracts to Us for Purchase, Our Results of Operations May Be Impaired. We are dependent upon establishing and maintaining relationships with a large number of unaffiliated automobile dealers to supply us with automobile contracts.
Removed
Item 1A. RISK FACTORS Our business, operating results and financial condition could be adversely affected by any of the following specific risks. The trading price of our common stock could decline due to any of these risks and other industry risks.
Added
Item 1A. Risk Factors We are subject to various risks that may materially harm our business, prospects, financial condition and results of operations. An investment in our common stock is speculative and involves risk.
Removed
This listing of risks by its nature cannot be exhaustive, and the order in which the risks appear is not intended as an indication of their relative weight or importance.
Added
In evaluating an investment in shares of our common stock, you should carefully consider the risks described below, together with the other information included in this Annual Report on Form 10-K. The risks described below are not the only risks we face.
Removed
In addition to the risks described below, we may encounter risks that we do not currently recognize or that we currently deem immaterial, which may also impair our business operations and the value of our common stock. Risks Related to Our Business We Require a Substantial Amount of Cash to Service Our Substantial Debt.
Added
If any of the events described in the following risk factors actually occurs, or if additional risks and uncertainties later materialize that are not presently known to us or that we currently deem immaterial, then our business, prospects, results of operations and financial condition could be materially adversely affected.
Removed
If actual credit losses were to exceed our estimates, we might be required to change our estimates, which could result in a fair value adjustment to those receivables or reduced interest income for those receivables in subsequent periods.
Added
In that event, the trading price of our common stock could decline, and you may lose all or part of your investment in our shares. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.
Removed
The loss of our servicing rights could materially and adversely affect our results of operations, financial condition and cash flows.
Added
Our financial and operational performance depends upon a number of factors, many of which are beyond our control.
Removed
Although we endeavor to protect the security of our computer systems and the confidentiality of customer information entrusted to us, there can be no assurance that our security measures will provide adequate security.
Added
If interest rates on risk-free debt continue to increase, or if our spread above risk-free rates continue to increase, or both, we would expect a continued increase in interest expense.
Removed
The Coronavirus Outbreak Could Have Adverse Effects The COVID-19 virus has spread (“the pandemic”) throughout the world. The pandemic has had adverse effects on the economy of the United States (notably a significant decrease in employment) and the global economy in general. The long-term effects of the social, economic and financial disruptions caused by the pandemic are unknown.
Added
Such persons may also attempt to fraudulently induce employees or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers.
Removed
See " Dividend Policy ". 28 Forward-Looking Statements Discussions of certain matters contained in this report may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the " Securities Act " ) and Section 21E of the Exchange Act, and as such, may involve risks and uncertainties.
Added
Because We Are Subject to Many Restrictions in Our Existing Credit Facilities and Securitization Transactions, Our Ability to Pay Dividends or Engage in Specified Transactions May Be Impaired.
Removed
These forward-looking statements relate to, among other things, expectations of the business environment in which we operate, projections of future performance, perceived opportunities in the market and statements regarding our mission and vision.
Added
We filed a registration statement on Form S-3 with respect to various securities, including our renewable unsecured subordinated notes, on May 28, 2015, and filed amendments to the registration statement on June 26, 2015, and July 27, 2015 (such registration statement, as so amended, the “Former Registration Statement”).
Removed
You can generally identify forward-looking statements as statements containing the words " will, " " would, " " believe, " " may, " " could, " " expect, " " anticipate, " " intend, " " estimate, " " assume " or other similar expressions.
Added
The Former Registration Statement was declared effective on August 26, 2015 (the “Former Registration Statement Effective Date”). Rule 415(a)(5) under the Securities Act of 1933, as amended (the “Securities Act”), provides that a shelf registration statement such as the Former Registration Statement expires three years after the official effective date.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe termination dates of such leases range from 2023 to 2029. The annual base rent for these facilities total approximately $1.4 million. 29
Biggest changeThe termination dates of such leases range from 2025 to 2031. The annual base rent for these facilities total approximately $1.4 million.
Our operating headquarters are located in Irvine, California, where we currently lease approximately 69,000 square feet of general office space from an unaffiliated lessor. The annual base rent is approximately $2.5 million through 2024. The remaining three regional servicing centers occupy a total of approximately 59,000 square feet of leased space in Chesapeake, Virginia; Maitland, Florida; and Oak Brook, Illinois.
Our operating headquarters are located in Irvine, California, where we currently lease approximately 69,000 square feet of general office space from an unaffiliated lessor. The annual base rent is approximately $2.5 million through 2024. The remaining three regional servicing centers occupy a total of approximately 65,000 square feet of leased space in Chesapeake, Virginia; Maitland, Florida; and Oak Brook, Illinois.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

7 edited+4 added−1 removed5 unchanged
Biggest changeThe 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.
Biggest changeThe complaint seeks primarily damages, injunctive relief, waiver of contract deficiencies, and attorney fees and interest. The defendant’s contract provided for resolution of disputes exclusively by arbitration, and exclusively on an individual basis, not a class basis. Nevertheless, in August 2021, the court denied our motion to compel arbitration, without opinion.
We record at each measurement date, most recently as of December 31, 2022, our best estimate of probable incurred losses for legal contingencies, including the matters identified above. The amount of losses that may ultimately be incurred cannot be estimated with certainty.
We record at each measurement date, most recently as of December 31, 2023, our best estimate of probable incurred losses for legal contingencies, including the matters identified above. The amount of losses that may ultimately be incurred cannot be estimated with certainty.
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.
Following our filing of a complaint for a deficiency judgment in the Superior Court at Waterbury, Connecticut, the defendant filed a cross-claim on October 16, 2019 alleging that our deficiency notices were not compliant with Connecticut law, and seeking relief on behalf of a class of Connecticut obligors whose vehicles we had repossessed.
However, based on such information as is available to us, we believe that the total of probable incurred losses for legal contingencies as of December 31, 2022 is $4.9 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 December 31, 2022 does not exceed $11.2 million.
However, based on such information as is available to us, we believe that the total of probable incurred losses for legal contingencies as of December 31, 2023 is $3.6 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 December 31, 2023 does not exceed $5.6 million.
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. In General. There can be no assurance as to the outcomes of the matters described or referenced above.
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.
It is reasonable to expect that resolution of these claims will be on a class basis. Wage and Hour Claim.
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.
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.
The complaint seeks injunctive relief, an award of unpaid wages, liquidated damages, and attorney fees and interest. The plaintiff purports to act on behalf of a class of similarly situated employees and ex-employees. We believe that our compensation practices with respect to our sales representatives are compliant with applicable law.
Removed
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 .
Added
In August 2023, the parties settled by agreement the claims of the plaintiff and a California settlement class for $1.1 million and the settlement remains subject to final court approval. Massachusetts Civil Investigative Demand .
Added
On December 28, 2023 and without admitting any wrongdoing, the Company entered into an assurance of discontinuance with the Office of the Attorney General of the Commonwealth of Massachusetts, reflecting the parties’ agreements to settle and fully resolve allegations of the Company’s noncompliance with Massachusetts law.
Added
The Company agreed to make a payment in the total amount of $1.24 million to an independent trust for the purposes of making payments to eligible consumers, paying costs of implementation, and paying the Attorney General’s costs of investigation.
Added
In addition, the Company agreed to pay $75,000 for the fees and costs of a trustee to oversee the trust. 31 In General. There can be no assurance as to the outcomes of the matters described or referenced above.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changePrior to that he was our President from March 1991 to December 2022. From April 1989 to November 1990, he served as Chief Operating Officer of Barnard and Company, a private investment firm. From September 1987 to March 1989, Mr. Bradley, Jr. was an associate of The Harding Group, a private investment banking firm. Mr.
Biggest changeFrom April 1989 to November 1990, he served as Chief Operating Officer of Barnard and Company, a private investment firm. From September 1987 to March 1989, Mr. Bradley, Jr. was an associate of The Harding Group, a private investment banking firm. Mr. Bradley does not currently serve on the board of directors of any other publicly-traded companies. Michael T.
Catrina Ralston , 47, has been Senior Vice President of Human Resources since December 2022. Prior to that, she was Vice President - Human Resources since March 2016. She joined the Company in 1997 as an Operations Clerk and transferred into the Human Resources Department in 2001 where she held a series of successively more responsible positions.
Catrina Ralston , 48, has been Senior Vice President of Human Resources since December 2022. Prior to that, she was Vice President - Human Resources since March 2016. She joined the Company in 1997 as an Operations Clerk and transferred into the Human Resources Department in 2001 where she held a series of successively more responsible positions.
Lavin was previously engaged as an associate at a large law firm and a spin off start up law firm. Danny Bharwani , 55, has been Chief Financial Officer since September 2022 and Executive Vice President – Finance since December 2022.
Lavin was previously engaged as an associate at a large law firm and a spin off start up law firm. Danny Bharwani , 56, has been Chief Financial Officer since September 2022 and Executive Vice President – Finance since December 2022.
Robinson, 60, has been Executive Vice President of Sales and Originations since December 2022. Prior to that she was Senior Vice President of Sales and Originations from June 2020 to December 2022 and Senior Vice President of Originations from April 2007 to June 2020. Prior to that, she held the position of Vice President of Originations since August 1998.
Robinson, 61, has been Executive Vice President of Sales and Originations since December 2022. Prior to that she was Senior Vice President of Sales and Originations from June 2020 to December 2022 and Senior Vice President of Originations from April 2007 to June 2020. Prior to that, she held the position of Vice President of Originations since August 1998.
Christopher Terry, 55, has been Executive Vice President of Risk Management, Systems, and IT since December 2022. Prior to that he was our Senior Vice President of Risk Management, Systems, and IT from October 2018 to December 2022, and Senior Vice President of Risk Management from May 2017 to October 2018.
Christopher Terry, 56, has been Executive Vice President of Risk Management, Systems, and IT since December 2022. Prior to that he was our Senior Vice President of Risk Management, Systems, and IT from October 2018 to December 2022, and Senior Vice President of Risk Management from May 2017 to October 2018.
She joined the Company in June 1991 as an Operations Specialist, and held a series of successively more responsible positions. Previously, Ms. Robinson held an administrative position at Greco & Associates. Laurie A. Straten, 56 , has been Executive Vice President of Servicing since December 2022.
She joined the Company in June 1991 as an Operations Specialist, and held a series of successively more responsible positions. Previously, Ms. Robinson held an administrative position at Greco & Associates. 32 Laurie A. Straten, 57 , has been Executive Vice President of Servicing since December 2022.
She started with the Company in March 1996 as a bankruptcy specialist and took on more responsibility within Asset Recovery over time. Prior to joining CPS she worked for the FDIC and served in the United States Marine Corps. John P. Harton , 58, has been Senior Vice President – Business Development since June 2020.
She started with the Company in March 1996 as a bankruptcy specialist and took on more responsibility within Asset Recovery over time. Prior to joining CPS she worked for the FDIC and served in the United States Marine Corps. Michele Baumeister , 57, has been Senior Vice President of Originations since June 2023.
He joined in the Company in 2000 as a Systems Analyst and took on more responsibility over time. Mr. Schween was previously a Systems Analyst with Jeunique International. 31 PART II
Steve Schween , 61, has been Senior Vice President of Systems since December 2022. Previously, he was Vice President of Systems from February 2014. He joined in the Company in 2000 as a Systems Analyst and took on more responsibility over time. Mr. Schween was previously a Systems Analyst with Jeunique International. 33 PART II
Prior to joining CPS, Ms. Ralston worked as a customer service representative for the City of Virginia Beach Parks & Recreation Department. Steve Schween , 60, has been Senior Vice President of Systems since December 2022. Previously, he was Vice President of Systems since February 2014.
Prior to joining CPS, Ms. Ralston worked as a customer service representative for the City of Virginia Beach Parks & Recreation Department. Lisette Reynoso , 36, has been Senior Vice President and General Counsel since June 2023.
Item 4. Mine Safety Disclosures Not applicable. 30 Executive Officers of the Registrant Charles E. Bradley, Jr ., 63, has been our Chief Executive Officer since January 1992, a director since our formation in March 1991, and was elected Chairman of the Board of Directors in July 2001.
Bradley, Jr ., 64, has been our Chief Executive Officer since January 1992, a director since our formation in March 1991, and was elected Chairman of the Board of Directors in July 2001. Prior to that he was our President from March 1991 to December 2022.
Bradley does not currently serve on the board of directors of any other publicly-traded companies. Michael T. Lavin, 50, has been President since December 2022, Chief Operating Officer since February 2019, and our Chief Legal Officer since March 2014.
Lavin, 51, has been President since December 2022, Chief Operating Officer since February 2019, and our Chief Legal Officer since March 2014.
Added
Item 4. Mine Safety Disclosures Not applicable. Information about Our Executive Officers Set forth below are the names, ages, offices held, tenure, and certain biographical information of each of our executive officers as of the filing of this report: Charles E.
Added
Prior to that she was the Vice President of Originations from March 2017 to June 2023. She started with the Company in March 1997 as a Loan Processor and held a series of more senior positions within the Originations Department. Ms. Baumeister was previously a personal banker with Western Financial.
Added
April Crisp , 37, has been the Senior Vice President of Compliance and Regulatory Affairs since June 2023. Prior to that, she was the Vice President of Legal from August 2016 to June 2023, and the Assistant Vice President of Legal from November 2013 to August 2016. Ms. Crisp is a California barred attorney.
Added
Charles Gonel , 43, has been Senior Vice President of Servicing since June 2023. Prior to that he was the Vice President of Collections from March 2015 to June 2023. He joined the Company in March 2008 as a Collections Analyst and transferred into the Risk Management Department in 2010 where he held a sequence of increasingly more responsible positions.
Added
Prior to joining CPS, he was a Quality Assurance Analyst with AT&T Wireless. John P. Harton , 59, has been Senior Vice President – Business Development since June 2020.
Added
Prior to that she was the Vice President of Legal from January 2020 to June 2023, the Assistant Vice President of Legal/Corporate Counsel from December 2018 to January 2020, and Corporate Counsel from December 2015 to December 2018. Ms. Reynoso is a California barred attorney. Susan Ryan , 52, has been Senior Vice President of Servicing since June 2023.
Added
Prior to that she was the Vice President of Collections from March 2015 to June 2023. She started with the Company in 2003 as a Deficiency Supervisor where she took on more responsibility over time. Prior to joining CPS, she was a Deficiency Supervisor with The Finance Company.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+1 added−2 removed2 unchanged
Biggest changeThe table below presents information regarding outstanding options to purchase our Common Stock as of December 31, 2022: Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 11,167,329 $ 5.21 2,661,330 Equity compensation plans not approved by security holders. – – – Total 11,167,329 $ 5.21 2,661,330 Issuer Purchases of Equity Securities in the Fourth Quarter Period(1) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs October 2022 315,800 $ 6.46 315,800 $ 10,863,384 November 2022 178,611 7.85 178,611 9,460,731 December 2022 135,552 8.25 135,552 8,342,529 Total 629,963 $ 7.24 629,963 (1) Each monthly period is the calendar month.
Biggest changeIssuer Purchases of Equity Securities in the Fourth Quarter Period(1) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs October 2023 $ 39,221 $ 8.95 39,221 $ 1,554,030 November 2023 – – – 1,554,030 December 2023 5,860 9.16 5,860 1,500,334 Total $ 45,081 $ 8.98 45,081 (1) Each monthly period is the calendar month.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The Company’s Common Stock is traded on the Nasdaq Global Market, under the symbol “ CPSS.” As of January 1, 2023, there were 28 holders of record of the Company’s Common Stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The Company’s Common Stock is traded on the Nasdaq Global Market, under the symbol “ CPSS. ” As of January 1, 2024, there were 28 holders of record of the Company’s Common Stock.
Through December 31, 2022, our board of directors had authorized the purchase of up to $123.2 million of our outstanding securities, which program was first announced in our annual report for the year 2002, filed on March 26, 2003. All purchases described in the table above were under the plan announced in March 2003, which has no fixed expiration date.
(2) Through December 31, 2023, our board of directors had authorized the purchase of up to $123.2 million of our outstanding securities, which program was first announced in our annual report for the year 2002, filed on March 26, 2003.
Removed
(2) Our board of directors authorized the purchase of $5.0 million, $10 million and $20 million of our outstanding securities in January, March and July 2022, respectively.
Added
All purchases described in the table above were under the plan announced in March 2003, which has no fixed expiration date. As of December 31, 2023, we have purchased $157.7 million of our common stock representing 24,245,802 shares.
Removed
As of December 31, 2022, we have purchased $109.9 million of our common stock representing 22,903,866 shares. 32 Item 6. [Reserved]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table presents the components of interest income and interest expense and a net interest yield analysis for the years ended December 31, 2021 and 2020: Year Ended December 31, 2021 2020 (Dollars in thousands) Annualized Annualized Average Average Average Average Balance (1) Interest Yield/Rate Balance (1) Interest Yield/Rate Interest Earning Assets Finance receivables gross (2) $ 345,021 $ 69,805 20.2% $ 684,259 $ 126,716 18.5% Finance receivables at fair value 1,802,590 196,461 10.9% 1,631,491 168,266 10.3% 2,147,611 266,266 12.4% 2,315,750 294,982 12.7% Interest Bearing Liabilities Warehouse lines of credit $ 51,313 4,448 8.7% $ 92,481 7,678 8.3% Residual interest financing 42,692 3,763 8.8% 34,906 3,454 9.9% Securitization trust debt 1,819,914 64,387 3.5% 2,017,152 88,031 4.4% Subordinated renewable notes 25,270 2,641 10.5% 19,340 2,175 11.2% $ 1,939,189 75,239 3.9% $ 2,163,879 101,338 4.7% Net interest income/spread $ 191,027 $ 193,644 Net interest margin (3) 8.9% 8.4% Ratio of average interest earning assets to average interest bearing liabilities 111% 107% (1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances.
Biggest changeThe average interest rate on our subordinated notes was 8.7% for the both years. 42 The following table presents the components of interest income and interest expense and a net interest yield analysis for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 (Dollars in thousands) Annualized Annualized Average Average Average Average Balance (1) Interest Yield/Rate Balance (1) Interest Yield/Rate Interest Earning Assets Loan portfolio 2,913,571 329,219 11.3% 2,539,110 305,237 12.0% Interest Bearing Liabilities Warehouse lines of credit $ 181,742 19,192 10.6% $ 130,122 10,310 7.9% Residual interest financing 50,000 4,199 8.4% 50,488 4,243 8.4% Securitization trust debt 2,333,472 121,408 5.2% 2,020,036 70,627 3.5% Subordinated renewable notes 20,936 1,832 8.7% 26,806 2,344 8.7% $ 2,586,150 146,631 5.7% $ 2,227,452 87,524 3.9% Net interest income/spread $ 182,588 $ 217,713 Net interest margin (3) 6.3% 8.6% Ratio of average interest earning assets to average interest bearing liabilities 113% 114% (1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances.
Credit and underwriting functions are performed primarily in our California branch with certain of these functions also performed in our Florida and Nevada branches. We service our automobile contracts from our California, Nevada, Virginia, Florida and Illinois branches.
Credit and underwriting functions are performed primarily in our California branch with certain of these functions also performed in our Florida, Nevada, and Virginia branches. We service our automobile contracts from our California, Nevada, Virginia, Florida, and Illinois branches.
Provision for credit losses is affected by the balance and credit performance of our portfolio of finance receivables (other than our portfolio of finance receivables measured at fair value, as to which expected credit losses have the effect of reducing the interest rate applicable to such receivables).
Provision for credit losses is affected by the balance and credit performance of our portfolio of finance receivables (other than our portfolio of finance receivables measured at fair value, as to which expected credit losses have the effect of reducing the interest rate applicable to such receivables).
Interest expense is significantly affected by the volume of automobile contracts we purchased during the trailing 12-month period and the use of our warehouse facilities and asset-backed securitizations to finance those contracts. Employee costs and general and administrative expenses are incurred as applications and automobile contracts are received, processed and serviced.
Interest expense is significantly affected by the volume of automobile contracts we purchased during the trailing 12-month period and the use of our warehouse facilities and asset-backed securitizations to finance those contracts. Employee costs and general and administrative expenses are incurred as applications and automobile contracts are received, processed and serviced.
Factors that affect 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.
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 processed and serviced.
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 processed and serviced.
These and other factors have resulted in fluctuations in our securitization trust debt interest costs.
These and other factors have resulted in fluctuations in our securitization trust debt interest costs.
The allowance applies only to our finance receivables originated through December 2017, which we refer to as our legacy portfolio. Finance receivables that we have originated since January 2018 are accounted for at fair value. Under the fair value method of accounting, we recognize interest income net of expected credit losses.
The allowance applies only to our finance receivables originated through December 2017, which we refer to as our legacy portfolio. Finance receivables that we have originated since January 2018 are accounted for at fair value. Under the fair value method of accounting, we recognize interest income net of expected credit losses.
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 2019 4.22% April 2019 3.95% July 2019 3.36% October 2019 2.95% January 2020 3.08% June 2020 4.09% September 2020 2.39% January 2021 1.11% April 2021 1.65% July 2021 1.55% October 2021 2.09% January 2022 2.54% April 2022 4.83% July 2022 6.02% October 2022 8.48% The annualized average rate on our securitization trust debt was 3.5% for the years ended December 31, 2022 and 2021.
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 2019 4.22% April 2019 3.95% July 2019 3.36% October 2019 2.95% January 2020 3.08% June 2020 4.09% September 2020 2.39% January 2021 1.11% April 2021 1.65% July 2021 1.55% October 2021 2.09% January 2022 2.54% April 2022 4.83% July 2022 6.02% October 2022 8.48% 46 The annualized average rate on our securitization trust debt was 3.5% for the years ended December 31, 2022 and 2021.
We repaid this facility in full at its maturity in February 2021 and elected not to renew it. 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.
We repaid this facility in full at its maturity in February 2021 and elected not to renew it. 36 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.
Critical Accounting Estimates We believe that our accounting policies related to (a) Finance Receivables at Fair Value, (b) Allowance for Finance Credit Losses, (c) Term Securitizations, (d) Accrual for Contingent Liabilities and (e) Income Taxes are the most critical to understanding and evaluating our reported financial results. Such policies are described below.
Critical Accounting Policies We believe that our accounting policies related to (a) Finance Receivables at Fair Value, (b) Allowance for Finance Credit Losses, (c) Term Securitizations, (d) Accrual for Contingent Liabilities and (e) Income Taxes are the most critical to understanding and evaluating our reported financial results. Such policies are described below.
General and administrative expenses were $37.6 million, an increase of $3.0 million, or 8.7%, compared to the previous year and represented 17.6% of total operating expenses. 40 Interest expense for the year ended December 31, 2022 increased by $12.3 million to $87.5 million, or 16.3%, compared to $75.2 million in the previous year.
General and administrative expenses were $37.6 million, an increase of $3.0 million, or 8.7%, compared to the previous year and represented 17.6% of total operating expenses. Interest expense for the year ended December 31, 2022 increased by $12.3 million to $87.5 million, or 16.3%, compared to $75.2 million in the previous year.
This 54.1% increase was primarily driven by the increase in origination and servicing fees we earned from third party receivables that we began originating in May 2021. These fees were $6.8 million for the year ended December 31, 2022 and $1.3 million in the prior year period. 39 Expenses .
This 54.1% increase was primarily driven by the increase in origination and servicing fees we earned from third party receivables that we began originating in May 2021. These fees were $6.8 million for the year ended December 31, 2022 and $1.3 million in the prior year period. Expenses .
Occupancy expenses decreased by $180,000 or 2.3%, to $7.5 million compared to $7.7 million in the previous year and represented 3.5% of total operating expenses. Depreciation and amortization expenses decreased by $57,000 or 3.4%, to $1.6 million compared to $1.7 million in the previous year and represented 0.8% of total operating expenses.
Occupancy expenses decreased by $180,000 or 2.3%, to $7.5 million compared to $7.7 million in the previous year and represented 3.5% of total operating expenses. 48 Depreciation and amortization expenses decreased by $57,000 or 3.4%, to $1.6 million compared to $1.7 million in the previous year and represented 0.8% of total operating expenses.
Of those, the factor most subject to our control is the rate at which we purchase automobile contracts. 48 We are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital.
Of those, the factor most subject to our control is the rate at which we purchase automobile contracts. We are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital.
In addition, we acquired a total of approximately $822.3 million of automobile contracts in mergers and acquisitions in 2002, 2003, 2004 and 2011. Contract purchase volumes and managed portfolio levels for the five years ended December 31, 2022 are shown in the table below. Managed portfolio comprises both contracts we owned and those we were servicing for third parties.
In addition, we acquired a total of approximately $822.3 million of automobile contracts in mergers and acquisitions in 2002, 2003, 2004 and 2011. Contract purchase volumes and managed portfolio levels for the five years ended December 31, 2023 are shown in the table below. Managed portfolio comprises both contracts we owned and those we were servicing for third parties.
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 December 31, 2022, we were in compliance with all such financial covenants.
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 December 31, 2023, we were in compliance with all such financial covenants.
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 December 31, 2022 we were in compliance with all such financial covenants.
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 December 31, 2023 we were in compliance with all such financial covenants.
Revenues for the prior year period include a $4.4 million mark down to the fair value portfolio. Revenues for the year ended December 31, 2021 include a $4.4 million mark down to the fair value portfolio. Interest income for the year ended December 31, 2022 increased $39.0 million, or 14.6%, to $305.2 million from $266.2 million in the prior year.
Revenues for the year ended December 31, 2021 include a $4.4 million mark down to the fair value portfolio. 44 Interest income for the year ended December 31, 2022 increased $39.0 million, or 14.6%, to $305.2 million from $266.2 million in the prior year.
We have recorded a liability as of December 31, 2022, which represents our best estimate of probable incurred losses for legal contingencies at that date. The amount of losses that may ultimately be incurred cannot be estimated with certainty.
We have recorded a liability as of December 31, 2023, which represents our best estimate of probable incurred losses for legal contingencies at that date. The amount of losses that may ultimately be incurred cannot be estimated with certainty.
For any particular quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including the market interest rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks that investors are willing to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization.
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.
In addition to purchasing installment purchase contracts directly from dealers, we also originate vehicle purchase money loans by lending directly to consumers and have (i) acquired installment purchase contracts in four merger and acquisition transactions, and (ii) purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders.
In addition to purchasing installment purchase contracts directly from dealers, we also have (i) originated vehicle purchase money loans by lending directly to consumers and have (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.
Net cash provided by operating activities for the years ended December 31, 2022, 2021 and 2020 was $215.9 million, $198.2 million and $238.8 million, respectively. 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 interest accretion on fair value receivables.
Net cash provided by operating activities for the years ended December 31, 2023, 2022 and 2021 was $238.0 million, $215.9 million and $198.2 million, respectively. 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 interest accretion on fair value receivables.
The facility is structured to allow us to fund a portion of the purchase price of automobile contracts by borrowing from a credit facility to our consolidated subsidiary Page Nine Funding, LLC. The facility provides for effective advances up to 88.00% of eligible finance receivables.
The facility is structured to allow us to fund a portion of the purchase price of automobile contracts by borrowing from a credit facility to our consolidated subsidiary Page Nine Funding, LLC. The facility provides for effective advances up to 85.25% of eligible finance receivables.
Our recent history of term securitizations is summarized in the table below: Recent Asset-Backed Term Securitizations $ in thousands Period Number of Term Securitizations Amount of Receivables 2016 4 $ 1,214,997 2017 4 870,000 2018 4 883,452 2019 4 1,014,124 2020 3 741,867 2021 4 1,145,002 2022 4 1,537,383 34 Generally, prior to a securitization transaction we fund our automobile contract acquisitions primarily with proceeds from warehouse credit facilities.
Our recent history of term securitizations is summarized in the table below: Recent Asset-Backed Securitizations $ in thousands Period Number of Term Securitizations Amount of Receivables 2017 4 $ 870,000 2018 4 883,452 2019 4 1,014,124 2020 3 741,867 2021 4 1,145,002 2022 4 1,537,383 2023 4 1,352,114 Generally, prior to a securitization transaction we fund our automobile contract acquisitions primarily with proceeds from warehouse credit facilities.
Since 1994 we have conducted 95 term securitizations of automobile contracts that we originated under our regular programs. As of December 31, 2022, 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.
Since 1994 we have conducted 99 term securitizations of automobile contracts that we originated under our regular programs. As of December 31, 2023, 18 of those securitizations are active and all are structured as secured financings. We generally conduct our securitizations on a quarterly basis, near the beginning of each calendar quarter, resulting in four securitizations per calendar year.
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.
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.
Renewed notes bear interest at the rate we are offering at that time to other investors with similar note maturities. Based on the terms of the individual notes, interest payments may be required monthly, quarterly, annually or upon maturity. At December 31, 2022 there were $25.3 million of such notes outstanding.
Renewed notes bear interest at the rate we are offering at that time to other investors with similar note maturities. Based on the terms of the individual notes, interest payments may be required monthly, quarterly, annually or upon maturity. At December 31, 2023 there were $17.2 million of such notes outstanding.
However, based on such information as is available to us, we believe that the range of reasonably possible losses for the legal proceedings and contingencies described or referenced above, as of December 31, 2022, and in excess of the liability we have recorded, does not exceed $11.2 million.
However, based on such information as is available to us, we believe that the range of reasonably possible losses for the legal proceedings and contingencies described or referenced above, as of December 31, 2023, and in excess of the liability we have recorded, does not exceed $5.6 million.
The table below summarizes our employees by category as well as contract purchases and units in our managed portfolio as of, and for the years ended, December 31, 2022 and 2021: December 31, 2022 December 31, 2021 Amount Amount ($ in millions) Contracts purchased (dollars) $ 1,854.4 $ 1,146.3 Contracts purchased (units) 81,935 54,317 Managed portfolio outstanding (dollars) $ 2,795.4 $ 2,249.1 Managed portfolio outstanding (units) 180,795 156,280 Number of Originations staff 182 170 Number of Sales staff 107 105 Number of Servicing staff 407 388 Number of other staff 88 76 Total number of employees 784 739 General and administrative expenses include costs associated with purchasing and servicing our portfolio of finance receivables, including expenses for facilities, credit services, and telecommunications.
Employee costs were $80.5 million in the prior year, or 39.9% of total operating expenses. 45 The table below summarizes our employees by category as well as contract purchases and units in our managed portfolio as of, and for the years ended, December 31, 2022 and 2021: December 31, 2022 December 31, 2021 Amount Amount ($ in millions) Contracts purchased (dollars) $ 1,854.4 $ 1,146.3 Contracts purchased (units) 81,935 54,317 Managed portfolio outstanding (dollars) $ 2,795.4 $ 2,249.1 Managed portfolio outstanding (units) 180,795 156,280 Number of Originations staff 182 170 Number of Sales staff 107 105 Number of Servicing staff 407 388 Number of other staff 88 76 Total number of employees 784 739 General and administrative expenses include costs associated with purchasing and servicing our portfolio of finance receivables, including expenses for facilities, credit services, and telecommunications.
In January 2023, we completed another securitization with $324.8 million of notes sold. Cash proceeds from this securitization were used to pay down the outstanding balance on our two warehouse credit facilities thus increasing the amounts available for borrowing under these facilities.
In January 2024, we completed another securitization with $280.9 million of notes sold. Cash proceeds from this securitization were used to pay down the outstanding balance on our two warehouse credit facilities thus increasing the amounts available for borrowing under these facilities.
We may retain or sell subordinated asset-backed securities issued by the trust or by a related entity. 36 We structure our securitizations to include internal credit enhancement for the benefit the investors (i) in the form of an initial cash deposit to an account ( " spread account " ) held by the trust, (ii) in the form of overcollateralization of the senior asset-backed securities, where the principal balance of the senior asset-backed securities issued is less than the principal balance of the automobile contracts, (iii) in the form of subordinated asset-backed securities, or (iv) some combination of such internal credit enhancements.
We structure our securitizations to include internal credit enhancement for the benefit the investors (i) in the form of an initial cash deposit to an account ( “ spread account ” ) held by the trust, (ii) in the form of overcollateralization of the senior asset-backed securities, where the principal balance of the senior asset-backed securities issued is less than the principal balance of the automobile contracts, (iii) in the form of subordinated asset-backed securities, or (iv) some combination of such internal credit enhancements.
Contract Purchases and Outstanding Managed Portfolio $ in thousands Year Contracts Purchased in Period Managed Portfolio at Period End 2018 $ 902,416 $ 2,380,847 2019 1,002,782 2,416,042 2020 742,584 2,174,972 2021 1,146,321 2,249,069 2022 1,854,385 3,001,308 Our principal executive offices are in Las Vegas, Nevada. Most of our operational and administrative functions take place in Irvine, California.
Contract Purchases and Outstanding Managed Portfolio $ in thousands Year Contracts Purchased in Period Managed Portfolio at Period End 2019 $ 1,002,782 $ 2,416,042 2020 742,584 2,174,972 2021 1,146,321 2,249,069 2022 1,854,385 3,001,308 2023 1,357,752 3,194,623 Our principal executive offices are in Las Vegas, Nevada. Most of our operational and administrative functions take place in Irvine, California.
At December 31, 2022 there was $150.3 million outstanding under this facility. Facility Established in November 2015. On November 24, 2015, we entered into an additional $100 million one-year warehouse credit line with affiliates of Credit Suisse Group and Ares Management LP.
At December 31, 2023 there was $165.6 million outstanding under this facility. Facility Established in November 2015. On November 24, 2015, we entered into an additional $100 million one-year warehouse credit line with affiliates of Credit Suisse Group and Ares Management LP.
We re-evaluate the fair value of such receivables at the close of each measurement period. If the re-evaluation were to yield a value materially different from the recorded value, an adjustment would be required.
We re-evaluate the fair value of such receivables at the close of each measurement period. If the re-evaluation were to yield a value materially different from the recorded value, an adjustment, which we also refer to as a mark, would be required.
Since 2011, we treated all 45 of our securitizations of automobile contracts as secured financings for financial accounting purposes, and the asset-backed securities issued in such securitizations remain on our consolidated balance sheet as securitization trust debt. We had $2,108.7 million of securitization trust debt outstanding at December 31, 2022. Subordinated Renewable Notes Debt.
Since 2011, we treated all 49 of our securitizations of automobile contracts as secured financings for financial accounting purposes, and the asset-backed securities issued in such securitizations remain on our consolidated balance sheet as securitization trust debt. We had $2,265.4 million of securitization trust debt outstanding at December 31, 2023. Subordinated Renewable Notes Debt.
For the year ended December 31, 2022, we recorded income tax expense of $30.2 million, representing a 26% effective tax rate. In the prior period, our income tax expense was $18.2 million, representing a 28% effective tax rate. Comparison of Operating Results for the year ended December 31, 2021 with the year ended December 31, 2020 Revenues .
In the prior period, our income tax expense was $30.2 million, also representing a 26% effective tax rate. Comparison of Operating Results for the year ended December 31, 2022 with the year ended December 31, 2021 Revenues .
The average interest rate on our subordinated notes decreased to 8.7% for the year ended December 31, 2022 from 10.5% for the year ended December 31, 2021. 41 The following table presents the components of interest income and interest expense and a net interest yield analysis for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 (Dollars in thousands) Average Balance (1) Interest Annualized Average Yield/Rate Average Balance (1) Interest Annualized Average Yield/Rate Interest Earning Assets Finance receivables gross (2) $ 150,919 $ 36,616 24.3% $ 345,021 $ 69,805 20.2% Finance receivables at fair value 2,388,191 268,621 11.2% 1,802,590 196,461 10.9% 2,539,110 305,237 12.0% 2,147,611 266,266 12.4% Interest Bearing Liabilities Warehouse lines of credit $ 130,122 10,311 7.9% $ 51,313 4,448 8.7% Residual interest financing 50,488 4,243 8.4% 42,692 3,763 8.8% Securitization trust debt 2,020,036 70,626 3.5% 1,819,914 64,387 3.5% Subordinated renewable notes 26,806 2,344 8.7% 25,270 2,641 10.5% $ 2,227,452 87,524 3.9% $ 1,939,189 75,239 3.9% Net interest income/spread $ 217,713 $ 191,027 Net interest margin (3) 8.6% 8.9% Ratio of average interest earning assets to average interest bearing liabilities 114% 111% (1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances.
The following table presents the components of interest income and interest expense and a net interest yield analysis for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 (Dollars in thousands) Annualized Annualized Average Average Average Average Balance (1) Interest Yield/Rate Balance (1) Interest Yield/Rate Interest Earning Assets Loan portfolio 2,539,110 305,237 12.0% 2,147,611 266,266 12.4% Interest Bearing Liabilities Warehouse lines of credit $ 130,122 10,311 7.9% $ 51,313 4,448 8.7% Residual interest financing 50,488 4,243 8.4% 42,692 3,763 8.8% Securitization trust debt 2,020,036 70,626 3.5% 1,819,914 64,387 3.5% Subordinated renewable notes 26,806 2,344 8.7% 25,270 2,641 10.5% $ 2,227,452 87,524 3.9% $ 1,939,189 75,239 3.9% Net interest income/spread $ 217,713 $ 191,027 Net interest margin (3) 8.6% 8.9% Ratio of average interest earning assets to average interest bearing liabilities 114% 111% (1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances.
We issued $1,411.0 million in new securitization trust debt in 2022 compared to $1,110.7 million in 2021 and $714.5 million in 2020. Repayments of securitization debt were $1,060.1 million, $1,153.1 million and $1,010.0 million in 2022, 2021 and 2020, respectively.
We issued $1,235.5 million in new securitization trust debt in 2023 compared to $1,411.0 million in 2022 and $1,110.7 million in 2021. Repayments of securitization debt were $1,078.4 million, $1,060.1 million and $1,153.1 million in 2023, 2022 and 2021, respectively.
We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.
We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of operations.
Revenues for the year ended December 31, 2022 include a $15.3 million mark up to the recorded value of the finance receivables measured at fair value.
In addition, mark ups to the finance receivables measured at fair value also contributed to the increase in revenues during the year. Revenues for the year ended December 31, 2022 include a $15.3 million mark up to the recorded value of the finance receivables measured at fair value.
Year Ended December 31, 2022 Compared to December 31, 2021 Total Change Change Due to Volume Change Due to Rate (In thousands) Interest Earning Assets Finance receivables gross $ (33,189 ) $ (39,271 ) $ 6,082 Finance receivables at fair value 72,160 63,824 8,336 38,971 24,553 14,418 Interest Bearing Liabilities Warehouse lines of credit 5,863 6,831 (968 ) Residual interest financing 480 687 (207 ) Securitization trust debt 6,239 7,080 (841 ) Subordinated renewable notes (297 ) 161 (458 ) 12,285 14,759 (2,474 ) Net interest income/spread $ 26,686 $ 9,794 $ 16,892 42 The annualized yield on our finance receivables was 12.0% for 2022 compared to 12.4% in 2021.
(3) Net interest income divided by average interest earning assets. 47 Year Ended December 31, 2022 Compared to December 31, 2021 Total Change Due Change Due Change to Volume to Rate (In thousands) Interest Earning Assets Loan portfolio 38,971 24,553 14,418 Interest Bearing Liabilities Warehouse lines of credit 5,863 6,831 (968 ) Residual interest financing 480 687 (207 ) Securitization trust debt 6,239 7,080 (841 ) Subordinated renewable notes (297 ) 161 (458 ) 12,285 14,759 (2,474 ) Net interest income/spread $ 26,686 $ 9,794 $ 16,892 The annualized yield on our finance receivables was 12.0% for 2022 compared to 12.4% in 2021.
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.
In accordance with the fair value accounting standards, credit losses are included in our computation of the appropriate level yield, therefore 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.
In addition, certain securitization and non-securitization related debt contain cross-default provisions that would allow certain creditors to declare default if a default occurred under a different facility. As of December 31, 2022, we were in compliance with all such covenants. Forward-looking Statements This report on Form 10-K includes certain "forward-looking statements".
In addition, certain securitization and non-securitization related debt contain cross-default provisions that would allow certain creditors to declare default if a default occurred under a different facility. As of December 31, 2023, we were in compliance with all such covenants.
Our estimates of taxable income are forward-looking statements, and there can be no assurance that our estimates of such taxable income will be correct. Factors discussed under "Risk Factors," and in particular under the subheading "Risk Factors -- Forward-Looking Statements" may affect whether such projections prove to be correct.
Our estimates of taxable income are forward-looking statements, and there can be no assurance that our estimates of such taxable income will be correct. Factors discussed under “Risk Factors,” and under the heading “Cautionary Note Regarding Forward-Looking Statements.” may affect whether such projections prove to be correct.
One or more investors purchase the asset-backed securities issued by the trust; the proceeds from the sale of the asset-backed securities are then used to purchase the automobile contracts from us.
One or more investors purchase the asset-backed securities issued by the trust; the proceeds from the sale of the asset-backed securities are then used to purchase the automobile contracts from us. We may retain or sell subordinated asset-backed securities issued by the trust or by a related entity.
As of December 31, 2022, we had unrestricted cash of $13.5 million and $114.7 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability of sufficient eligible collateral). As of December 31, 2022, we had approximately $22.1 million of such eligible collateral. During 2022, we completed four securitizations aggregating $1,411.0 million of notes sold.
As of December 31, 2023, we had unrestricted cash of $6.2 million and $166.0 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability of sufficient eligible collateral). As of December 31, 2023, we had approximately $21.9 million of such eligible collateral. During 2023, we completed four securitizations aggregating $1,235.5 million of notes sold.
The primary reason for the increase in revenues is the increase in interest income resulting from the increase in the average outstanding balance of finance receivables measured at fair value. In addition, mark ups to the finance receivables measured at fair value also contributed to the increase in revenues during the year.
The primary reason for the increase in revenues is the increase in interest income resulting from the increase in the average outstanding balance of finance receivables measured at fair value.
In all of our term securitizations and warehouse credit facilities, whether treated as secured financings or as sales, we have sold the automobile contracts (through a subsidiary) to the securitization entity.
As a result, the residual interests described above historically have been a significant asset of ours. 38 In all of our term securitizations and warehouse credit facilities, whether treated as secured financings or as sales, we have sold the automobile contracts (through a subsidiary) to the securitization entity.
At December 31, 2022 there was $50.0 million outstanding under this facility. 51 The agreed valuation of the collateral for the 2021-1 Notes is the sum of the amounts on deposit in the underlying spread accounts for each related securitization and the over-collateralization of each related securitization, which is the difference between the outstanding principal balances of the related receivables less the principal balance of the outstanding notes issued in the related securitization.
The agreed valuation of the collateral for the 2021-1 Notes is the sum of the amounts on deposit in the underlying spread accounts for each related securitization and the over-collateralization of each related securitization, which is the difference between the outstanding principal balances of the related receivables less the principal balance of the outstanding notes issued in the related securitization.
Cash held in the various spread accounts is invested in high quality, liquid investment securities, as specified in the securitization agreements. The interest rate payable on the automobile contracts is significantly greater than the interest rate on the asset-backed notes. As a result, the residual interests described above historically have been a significant asset of ours.
Cash held in the various spread accounts is invested in high quality, liquid investment securities, as specified in the securitization agreements. The interest rate payable on the automobile contracts is significantly greater than the interest rate on the asset-backed notes.
Under both structures, recourse to us by holders of the asset-backed securities and by the trust, for failure of the automobile contract obligors to make payments on a timely basis, is limited to the automobile contracts included in the securitizations or warehouse credit facilities, the spread accounts and our retained interests in the respective trusts. 37 Accrual for Contingent Liabilities We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices, both continuing and discontinued.
Under both structures, recourse to us by holders of the asset-backed securities and by the trust, for failure of the automobile contract obligors to make payments on a timely basis, is limited to the automobile contracts included in the securitizations or warehouse credit facilities, the spread accounts and our retained interests in the respective trusts.
We plan to adjust our levels of automobile contract purchases and the related capital requirements to match anticipated releases of cash from the trusts and related spread accounts. 50 Capitalization Over the period from January 1, 2020 through December 31, 2022 we have managed our capitalization by issuing and refinancing debt as summarized in the following table: Year Ended December 31, 2022 2021 2020 (Dollars in thousands) RESIDUAL INTEREST FINANCING: Beginning balance $ 53,682 $ 25,426 $ 39,478 Issuances – 50,000 – Payments (4,311 ) (21,265 ) (14,424 ) Capitalization of deferred financing costs – (755 ) – Amortization of deferred financing costs 252 276 372 Ending balance $ 49,623 $ 53,682 $ 25,426 SECURITIZATION TRUST DEBT: Beginning balance $ 1,759,972 $ 1,803,673 $ 2,097,728 Issuances 1,411,018 1,110,747 714,543 Payments (1,060,052 ) (1,153,114 ) (1,009,988 ) Capitalization of deferred financing costs (8,681 ) (7,058 ) (4,862 ) Amortization of deferred financing costs 6,487 5,724 6,252 Ending balance $ 2,108,744 $ 1,759,972 $ 1,803,673 SUBORDINATED RENEWABLE NOTES: Beginning balance $ 26,459 $ 21,323 $ 17,534 Issuances 4,004 12,298 6,750 Payments (5,200 ) (7,162 ) (2,961 ) Ending balance $ 25,263 $ 26,459 $ 21,323 Residual Interest Financing.
Capitalization Over the period from January 1, 2021 through December 31, 2023 we have managed our capitalization by issuing and refinancing debt as summarized in the following table: Year Ended December 31, 2023 2022 2021 (Dollars in thousands) RESIDUAL INTEREST FINANCING: Beginning balance $ 49,623 $ 53,682 $ 25,426 Issuances – – 50,000 Payments – (4,311 ) (21,265 ) Capitalization of deferred financing costs – – (755 ) Amortization of deferred financing costs 252 252 276 Ending balance $ 49,875 $ 49,623 $ 53,682 SECURITIZATION TRUST DEBT: Beginning balance $ 2,108,744 $ 1,759,972 $ 1,803,673 Issuances 1,235,534 1,411,018 1,110,747 Payments (1,078,432 ) (1,060,052 ) (1,153,114 ) Capitalization of deferred financing costs (7,888 ) (8,681 ) (7,058 ) Amortization of deferred financing costs 7,488 6,487 5,724 Ending balance $ 2,265,446 $ 2,108,744 $ 1,759,972 SUBORDINATED RENEWABLE NOTES: Beginning balance $ 25,263 $ 26,459 $ 21,323 Issuances 586 4,004 12,298 Payments (8,661 ) (5,200 ) (7,162 ) Ending balance $ 17,188 $ 25,263 $ 26,459 52 Residual Interest Financing.
Results of Operations Comparison of Operating Results for the year ended December 31, 2022 with the year ended December 31, 2021 Revenues . During the year ended December 31, 2022, our revenues were $329.7 million, an increase of $61.9 million, or 23.1%, from the prior year revenues of $267.8 million.
Results of Operations Comparison of Operating Results for the year ended December 31, 2023 with the year ended December 31, 2022 Revenues . During the year ended December 31, 2023, our revenues were $352.0 million, an increase of $22.3 million, or 6.8%, from the prior year revenues of $329.7 million.
Subsequently, we successfully completed securitizations in June and September 2020 and four securitizations in each of 2021 and 2022. 38 Financial Covenants Certain of our securitization transactions and our warehouse credit facilities contain various financial covenants requiring certain minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels.
Financial Covenants Certain of our securitization transactions and our warehouse credit facilities contain various financial covenants requiring certain minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels.
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.
In addition, we have accessed other sources, such as residual financings and subordinated debt in order to finance our continuing operations. 49 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.
(2) Long-term debt represents subordinated renewable notes. 49 We anticipate repaying debt due in 2023 with a combination of cash flows from operations and the potential issuance of new debt.
We anticipate repaying debt due in 2024 with a combination of cash flows from operations and the potential issuance of new debt.
Term Securitizations Our term securitization structure has generally been as follows: We sell automobile contracts we acquire to a wholly-owned special purpose subsidiary, which has been established for the limited purpose of buying and reselling our automobile contracts. The special-purpose subsidiary then transfers the same automobile contracts to another entity, typically a statutory trust.
Rather we recognize the costs of acquisition as expenses in the period incurred. 37 Term Securitizations Our term securitization structure has generally been as follows: We sell automobile contracts we acquire to a wholly-owned special purpose subsidiary, which has been established for the limited purpose of buying and reselling our automobile contracts.
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.
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. 35 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.
In June 2022, we doubled the capacity for this facility from $100 million to $200 million. We previously had a third facility. This $100 million facility was established in April 2015 and was renewed in April 2017 and again in February 2019, extending the revolving period to February 2021.
This $100 million facility was established in April 2015 and was renewed in April 2017 and again in February 2019, extending the revolving period to February 2021.
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 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.
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 $202.1 million for the year ended December 31, 2021, compared to $251.0 million for the prior year, a decrease of $49.0 million, or 19.5%.
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 $290.9 million for the year ended December 31, 2023, compared to $213.5 million for the prior year, an increase of $77.4 million, or 36.3%.
Thus, no provision for credit loss expense is recorded for finance receivables measured at fair value. Sales expense consists primarily of commission-based compensation paid to our employee sales representatives.
Thus, no provision for credit loss expense is recorded for finance receivables measured at fair value. Sales expense consists primarily of commission-based compensation paid to our employee sales representatives. Our sales representatives earn a salary plus commissions based on volume of contract purchases and sales of ancillary products and services that we offer our dealers.
The trust issues interest-bearing asset-backed securities, in a principal amount equal to or less than the aggregate principal balance of the automobile contracts. We typically sell these automobile contracts to the trust at face value and without recourse, except that representations and warranties similar to those provided by the dealer to us are provided by us to the trust.
We typically sell these automobile contracts to the trust at face value and without recourse, except that representations and warranties similar to those provided by the dealer to us are provided by us to the trust.
In accordance with the rules for adopting CECL, the offset to the addition to the allowance for finance credit losses was a tax affected reduction to retained earnings using the modified retrospective method. For the year ended December 31, 2021, we recorded a reduction to provision for credit losses on finance receivables in the amount of $14.6 million.
To comply with CECL, the Company recorded an addition to its allowance for finance credit losses of $127.0 million in 2020. In accordance with the rules for adopting CECL, the offset to the addition to the allowance for finance credit losses was a tax affected reduction to retained earnings using the modified retrospective method.
Interest expense represented 37.2% of total operating expenses in 2021. The primary reason for the decrease in interest expense is the decrease in securitization trust debt interest. Interest on securitization trust debt decreased by $23.6 million, or 26.9%, for the year ended December 31, 2021 compared to the prior year.
Interest expense represented 50.4% of total operating expenses in 2023. Interest on securitization trust debt increased by $50.8 million, or 71.9%, for the year ended December 31, 2023 compared to the prior year.
Net cash used in investing activities for the year ended December 31, 2022 and 2021 was $713.9 million and $115.4 million, respectively. This compares to net cash provided by investing activities of $93.0 million for the year ended December 31, 2020. Cash used in investing activities generally relates to purchases of automobile contracts.
Net cash used in investing activities for the year ended December 31, 2023, 2022 and 2021 was $359.5 million, $713.9 million and $115.4 million, respectively. Cash used in investing activities generally relates to purchases of automobile contracts. Purchases of finance receivables were $1,251.0 million (includes acquisition fees paid), $1,673.2 million and $1,107.5 million in 2023, 2022 and 2021, respectively.
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.
We have been dependent on warehouse credit facilities to purchase automobile contracts and our securitization transactions for long term financing of our contracts.
General and administrative expenses were $34.6 million, an increase of $2.6 million, or 8.2%, compared to the previous year and represented 17.1% of total operating expenses. Interest expense for the year ended December 31, 2021 decreased by $26.1 million to $75.2 million, or 25.8%, compared to $101.3 million in the previous year.
General and administrative expenses were $50.0 million, an increase of $12.4 million, or 32.9%, compared to the previous year and represented 17.2% of total operating expenses. Interest expense for the year ended December 31, 2023 increased by $59.1 million to $146.6 million, or 67.5%, compared to $87.5 million in the previous year.
Uncertainty of Capital Markets and General Economic Conditions We depend upon the availability of warehouse credit facilities and access to long-term financing through the issuance of asset-backed securities collateralized by our automobile contracts. Since 1994, we have completed 95 term securitizations of approximately $17.7 billion in contracts.
Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. 39 Uncertainty of Capital Markets and General Economic Conditions We depend upon the availability of warehouse credit facilities and access to long-term financing through the issuance of asset-backed securities collateralized by our automobile contracts.
At December 31, 2022 there was $137.6 million outstanding under this facility. Capital Resources Securitization trust debt is repaid from collections on the related receivables, and becomes due in accordance with its terms as the principal amount of the related receivables is reduced.
Prior to the expiration of the revolving period in January 2024, the revolving period was extended to March 31, 2024. 51 Capital Resources Securitization trust debt is repaid from collections on the related receivables, and becomes due in accordance with its terms as the principal amount of the related receivables is reduced.
The average balance of the notes increased from $19.3 million in the prior year to $25.3 million for the year ended December 31, 2021. The average interest rate on our subordinated notes decreased to 10.5% for the year ended December 31, 2021 from 11.2% for the year ended December 31, 2020.
The average interest rate on our subordinated notes decreased to 8.7% for the year ended December 31, 2022 from 10.5% for the year ended December 31, 2021.
Contractual Obligations The following table summarizes our material contractual obligations as of December 31, 2022 (dollars in thousands): Payment Due by Period (1) Less than 2 to 3 4 to 5 More than Total 1 Year Years Years 5 Years Long Term Debt (2) $ 25,263 $ 13,800 $ 5,944 $ 4,101 $ 1,418 Operating and Finance Leases $ 8,558 $ 4,524 $ 2,373 $ 1,009 $ 652 (1) Securitization trust debt, in the aggregate amount of $2,108.7 million as of December 31, 2022, is omitted from this table because it becomes due as and when the related receivables balance is reduced by payments and charge-offs.
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. 50 Contractual Obligations The following table summarizes our material contractual obligations as of December 31, 2023 (dollars in thousands): Payment Due by Period (1) Less than 2 to 3 4 to 5 More than Total 1 Year Years Years 5 Years Long Term Debt (2) $ 17,188 $ 5,373 $ 3,955 $ 4,066 $ 3,794 Operating and Finance Leases $ 4,405 $ 1,879 $ 831 $ 516 $ 1,179 (1) Securitization trust debt, in the aggregate amount of $2,265.4 million as of December 31, 2023, is omitted from this table because it becomes due as and when the related receivables balance is reduced by payments and charge-offs.
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.
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 December 31, 2023, we have purchased a total of approximately $21.3 billion of automobile contracts from dealers.
Expected payments, which will depend on the performance of such receivables, as to which there can be no assurance, are $804.4 million in 2023, $578.9 million in 2024, $339.1 million in 2025, $202.3 million in 2026, $128.1 million in 2027, $55.3 million in 2028, and $0.6 million in 2029.
Expected payments, which will depend on the performance of such receivables, as to which there can be no assurance, are $826.3 million in 2024, $618.4 million in 2025, $386.5 million in 2026, $242.8 million in 2027, $152.6 million in 2028, and $38.8 million in 2029. (2) Long-term debt represents subordinated renewable notes.
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 2018 3.46% April 2018 3.98% July 2018 4.18% October 2018 4.25% January 2019 4.22% April 2019 3.95% July 2019 3.36% October 2019 2.95% January 2020 3.08% June 2020 4.09% September 2020 2.39% January 2021 1.11% April 2021 1.65% July 2021 1.55% October 2021 2.09% The annualized average rate on our securitization trust debt was 3.5% for the year ended December 31, 2021 compared with 4.4% for 2020.
The 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 2020 3.08% June 2020 4.09% September 2020 2.39% January 2021 1.11% April 2021 1.65% July 2021 1.55% October 2021 2.09% January 2022 2.54% April 2022 4.83% July 2022 6.02% October 2022 8.48% January 2023 6.48% April 2023 7.17% July 2023 7.13% October 2023 7.89% Interest expense on warehouse lines of credit was $19.2 million for the year ended December 31, 2023 compared to $10.3 million in the prior year.
Adoption of CECL required the establishment of an allowance for the remaining expected lifetime credit losses on the portion of the Company’s receivable portfolio that was originated prior to January 2018. To comply with CECL, the Company recorded an addition to its allowance for finance credit losses of $127.0 million.
The amendment introduces a new credit reserving model known as the Current Expected Credit Loss model, generally referred to as CECL. Adoption of CECL required the establishment of an allowance for the remaining expected lifetime credit losses on the portion of the Company’s receivable portfolio that was originated prior to January 2018.
The mark down is an estimate based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and our assessment of potential additional future net losses arising from the pandemic.
The marks are estimates based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and increases or decreases in our estimates of future net losses.
The decrease is primarily due to a decreases in interest expense and provisions for credit losses. Employee costs increased by $336,000 or 0.4%, to $80.5 million during the year ended December 31, 2021, representing 39.9% of total operating expenses, from $80.2 million for the prior year, or 31.9% of total operating expenses.
The increase is primarily due to increases in interest expense and general and administrative expenses. Employee costs increased by $3.9 million or 4.6%, to $88.1 million during the year ended December 31, 2023, representing 30.3% of total operating expenses. Employee costs were $84.3 million in the prior year, or 39.5% of total operating expenses.
In the fourth quarter of 2022, our re-evaluation of the fair values of these receivables resulted in a positive mark for certain older receivables and a negative mark to the fair values of newer receivables that largely offset each other.
For the year ended December 31, 2023, our re-evaluation of the fair values of these receivables resulted in a mark up for certain older receivables and a mark down to the fair values of newer receivables.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed8 unchanged
Biggest changeTo mitigate, but not eliminate, the short-term risk relating to interest rates payable under the warehouse facilities, we have historically held automobile contracts in the warehouse credit facilities for less than four months.
Biggest changeA decrease in excess spread cash flow could adversely affect our earnings and cash flow. 53 To mitigate, but not eliminate, the short-term risk relating to interest rates payable under the warehouse facilities, we have historically held automobile contracts in the warehouse credit facilities for less than four months.
Our customers, on the other hand, pay fixed rates of interest on the automobile contracts, set at the time they purchase the underlying vehicles. A decrease in excess spread cash flow could adversely affect our earnings and cash flow.
Our customers, on the other hand, pay fixed rates of interest on the automobile contracts, set at the time they purchase the underlying vehicles.

Other CPSS 10-K year-over-year comparisons