# CONSUMER PORTFOLIO SERVICES, INC. (CPSS) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CONSUMER PORTFOLIO SERVICES, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/889609/000168316824001499/cps_i10k-123123.htm
Accession: 0001683168-24-001499
Filing date: 2024-03-15
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CPSS/
All MD&A years: /company/CPSS/mda/
Previous year: /company/CPSS/mda/fy2022/ (FY 2022)
Next year: /company/CPSS/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations

The following discussion
of our financial condition and results of operations for the years ended December 31, 2023 and 2022 should be read in conjunction with
our consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K.
Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors. We use words such as anticipate, estimate, plan, project, continuing, ongoing,
expect, believe, intend, may, will, should, could, and similar expressions to identify forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”

Overview

We are a specialty finance
company. Our business is to purchase and service retail automobile contracts originated primarily by franchised automobile dealers and,
to a lesser extent, by select independent dealers in the United States in the sale of new and used automobiles, light trucks and passenger
vans. Through our automobile contract purchases, we provide indirect financing to the customers of dealers who have limited credit histories
or past credit problems, who we refer to as sub-prime customers. We serve as an alternative source of financing for dealers, facilitating
sales to customers who otherwise might not be able to obtain financing from traditional sources, such as commercial banks, credit unions
and the captive finance companies affiliated with major automobile manufacturers. In addition to purchasing installment purchase contracts
directly from dealers, we 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. 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. 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.

[[GREPCENT_TABLE]]
[["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"]]
[[/GREPCENT_TABLE]]

Our principal executive offices
are in Las Vegas, Nevada. Most of our operational and administrative functions take place in Irvine, California. Credit and underwriting
functions are performed primarily in 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.

The programs we offer to dealers
and consumers are intended to serve a wide range of sub-prime customers, primarily through franchised new car dealers. We originate automobile
contracts with the intention of financing them on a long-term basis through securitizations. Securitizations are transactions in which
we sell a specified pool of contracts to a special purpose subsidiary of ours, which in turn issues asset-backed securities to fund the
purchase of the pool of contracts from us.

[[GREPCENT_TABLE]]
[["","35"]]
[[/GREPCENT_TABLE]]

Securitization and Warehouse Credit Facilities

Throughout the period for which information is
presented in this report, we have purchased automobile contracts with the intention of financing them on a long-term basis through securitizations,
and on an interim basis through warehouse credit facilities. All such financings have involved identification of specific automobile contracts,
sale of those automobile contracts (and associated rights) to one of our special-purpose subsidiaries, and issuance of asset-backed securities
to be purchased by institutional investors. Depending on the structure, these transactions may be accounted for under generally accepted
accounting principles as sales of the automobile contracts or as secured financings. All of our active securitizations are structured
as secured financings.

When structured to be treated as a secured financing
for accounting purposes, the subsidiary is consolidated with us. Accordingly, the sold automobile contracts and the related debt appear
as assets and liabilities, respectively, on our consolidated balance sheet. We then periodically (i) recognize interest and fee income
on the contracts, and (ii) recognize interest expense on the securities issued in the transaction. For automobile contracts acquired before
2018, we also periodically record as expense a provision for credit losses on the contracts; for automobile contracts acquired after 2017
we take account of estimated credit losses in our computation of a level yield used to determine recognition of interest on the contracts.

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. 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.

Our recent history of term securitizations is summarized
in the table below:

[[GREPCENT_TABLE]]
[["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"]]
[[/GREPCENT_TABLE]]

Generally, prior to a securitization
transaction we fund our automobile contract acquisitions primarily with proceeds from warehouse credit facilities. Our current short-term
funding capacity is $400 million, comprising two credit facilities. The first credit facility was established in May 2012. This facility
was most recently renewed in July 2022, extending the revolving period to July 2024, with an optional amortization period through July
2025. In addition, the capacity was doubled from $100 million to $200 million at the July 2022 renewal.

In November 2015, we entered
into another $100 million facility. This facility was most recently renewed in February 2022, extending the revolving period to January
2024, followed by an amortization period to January 2026. In June 2022, we doubled the capacity for this facility from $100 million to
$200 million. Prior to the expiration of the revolving period in January 2024, the revolving period was extended to March 31, 2024.

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. We repaid this facility in full at its maturity in February 2021 and elected not to renew it.

[[GREPCENT_TABLE]]
[["","36"]]
[[/GREPCENT_TABLE]]

In a securitization and in
our warehouse credit facilities, we are required to make certain representations and warranties, which are generally similar to the representations
and warranties made by dealers in connection with our purchase of the automobile contracts. If we breach any of our representations or
warranties, we will be obligated to repurchase the automobile contract at a price equal to the principal balance plus accrued and unpaid
interest. We may then be entitled under the terms of our dealer agreement to require the selling dealer to repurchase the contract at
a price equal to our purchase price, less any principal payments made by the customer. Subject to any recourse against dealers, we will
bear the risk of loss on repossession and resale of vehicles under automobile contracts that we repurchase.

In a securitization, the related
special purpose subsidiary may be unable to release excess cash to us if the credit performance of the securitized automobile contracts
falls short of pre-determined standards. Such releases represent a material portion of the cash that we use to fund our operations. An
unexpected deterioration in the performance of securitized automobile contracts could therefore have a material adverse effect on both
our liquidity and results of operations.

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.

Finance Receivables Measured at Fair Value

Effective January 1, 2018,
we adopted the fair value method of accounting for finance receivables acquired on or after that date. For each finance receivable acquired
after 2017, we consider the price paid on the purchase date as the fair value for such receivable.  We estimate the cash to be received
in the future with respect to such receivables, based on our experience with similar receivables acquired in the past.  We then compute
the internal rate of return that results in the present value of those estimated cash receipts being equal to the purchase date fair value.
Thereafter, we recognize interest income on such receivables on a level yield basis using that internal rate of return as the applicable
interest rate. Cash received with respect to such receivables is applied first against such interest income, and then to reduce the recorded
value of the receivables.

We re-evaluate the fair value
of such receivables at the close of each measurement period. If the 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. Results for the years ended December 31, 2023 and
2022 include marks of $12.0 and $15.3 million, respectively, to the carrying value of the portion of the receivables portfolio accounted
for at fair value. The marks are estimates based on our evaluation of the appropriate fair value and future earnings rate of existing
receivables compared to recently acquired receivables and increases or decreases in our estimates of future net losses.

Anticipated credit losses are included in our
estimation of cash to be received with respect to receivables. 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. Also, because we include anticipated
credit losses in our computation of the level yield, the computed level yield is materially lower than the average contractual rate applicable
to the receivables. Because our initial recorded value is fixed as the price we pay for the receivable, rather than as the contractual
principal balance, we do not record acquisition fees as an amortizing asset related to the receivables, nor do we capitalize costs of
acquiring the receivables. Rather we recognize the costs of acquisition as expenses in the period incurred.

[[GREPCENT_TABLE]]
[["","37"]]
[[/GREPCENT_TABLE]]

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. 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. 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.

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. The agreements governing the securitization transactions require that the initial level of internal credit enhancement
be supplemented by a portion of collections from the automobile contracts until the level of internal credit enhancement reaches specified
levels, which are then maintained. The specified levels are generally computed as a percentage of the principal amount remaining unpaid
under the related automobile contracts. The specified levels at which the internal credit enhancement is to be maintained will vary depending
on the performance of the portfolios of automobile contracts held by the trusts and on other conditions, and may also be varied by agreement
among us, our special purpose subsidiary, the insurance company, if any, and the trustee. Such levels have increased and decreased from
time to time based on performance of the various portfolios, and have also varied from one transaction to another. The agreements governing
the securitizations generally grant us the option to repurchase the sold automobile contracts from the trust when the aggregate outstanding
balance of the automobile contracts has amortized to a specified percentage of the initial aggregate balance.

Upon each transfer of automobile
contracts in a transaction structured as a secured financing for financial accounting purposes, we retain on our consolidated balance
sheet the related automobile contracts as assets and record the asset-backed notes or loans issued in the transaction as indebtedness.

We receive periodic base servicing
fees for the servicing and collection of the automobile contracts. Under our securitization structures treated as secured financings for
financial accounting purposes, such servicing fees are included in interest income from the automobile contracts. In addition, we are
entitled to the cash flows from the trusts that represent collections on the automobile contracts in excess of the amounts required to
pay principal and interest on the asset-backed securities, base servicing fees, and certain other fees and expenses (such as trustee and
custodial fees). Required principal payments on the asset-backed notes are generally defined as the payments sufficient to keep the principal
balance of such notes equal to the aggregate principal balance of the related automobile contracts (excluding those automobile contracts
that have been charged off), or a pre-determined percentage of such balance. Where that percentage is less than 100%, the related securitization
agreements require accelerated payment of principal until the principal balance of the asset-backed securities is reduced to the specified
percentage. Such accelerated principal payment is said to create overcollateralization of the asset-backed notes.

If the amount of cash required
for payment of fees, expenses, interest and principal on the senior asset-backed notes exceeds the amount collected during the collection
period, the shortfall is withdrawn from the spread account, if any. If the cash collected during the period exceeds the amount necessary
for the above allocations plus required principal payments on the subordinated asset-backed notes, and there is no shortfall in the related
spread account or the required overcollateralization level, the excess is released to us. If the spread account and overcollateralization
is not at the required level, then the excess cash collected is retained in the trust until the specified level is achieved. Although
spread account balances are held by the trusts on behalf of our special-purpose subsidiaries as the owner of the residual interests (in
the case of securitization transactions structured as sales for financial accounting purposes) or the trusts (in the case of securitization
transactions structured as secured financings for financial accounting purposes), we are restricted in use of the cash in the spread accounts.
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.

[[GREPCENT_TABLE]]
[["","38"]]
[[/GREPCENT_TABLE]]

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. The difference between the two structures is that in securitizations that are treated as secured financings
we report the assets and liabilities of the securitization trust on our consolidated balance sheet. 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.

Accrual for Contingent Liabilities

We are routinely involved
in various legal proceedings resulting from our consumer finance activities and practices, both continuing and discontinued. Our legal
counsel has advised us on such matters where, based on information available at the time of this report, there is an indication that it
is both probable that a liability has been incurred and the amount of the loss can be reasonably determined.

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. 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.

Accordingly, we believe that
the ultimate resolution of such legal proceedings and contingencies, after taking into account our current litigation reserves, should
not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the uncertainties inherent
in contested proceedings, there can be no assurance that the ultimate resolution of these matters will not significantly exceed the reserves
we have accrued; as a result, the outcome of a particular matter may be material to our operating results for a particular period, depending
on, among other factors, the size of the loss or liability imposed and the level of our income for that period.

Income Taxes

We account for income taxes
under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities
is recognized in income in the period that includes the enactment date.

Deferred tax assets are recognized
subject to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax
asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not
be realized. In making such judgements, significant weight is given to evidence that can be objectively verified.

In determining the possible
future realization of deferred tax assets, we have considered future taxable income from the following sources: (a) reversal of taxable
temporary differences; and (b) forecasted future net earnings from operations. Based upon those considerations, we have concluded that
it is more likely than not that the U.S. and state net operating loss carryforward periods provide enough time to utilize the deferred
tax assets pertaining to the existing net operating loss carryforwards and any net operating loss that would be created by the reversal
of the future net deductions which have not yet been taken on a tax return. 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.

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.

[[GREPCENT_TABLE]]
[["","39"]]
[[/GREPCENT_TABLE]]

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 99 term securitizations of approximately $19.1 billion in contracts. 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. 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.

Financial Covenants

Certain of our securitization
transactions and our warehouse credit facilities contain various financial covenants requiring certain minimum financial ratios and results.
Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. In addition, certain
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.

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.
The primary reason for the increase in revenues is the increase in interest income resulting from the increase in the average outstanding
balance of finance receivables measured at fair value. Revenues for the years ended December 31, 2023 and 2022 include fair value marks
of $12.0 and $15.3 million, respectively, to the carrying value of the portion of the receivables portfolio accounted for at fair value.
The marks are estimates based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared
to recently acquired receivables and increases or decreases in our estimates of future net losses. 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. The fair value mark up on the older receivables exceeded the mark down to the newer receivables resulting
in a net mark up of $12.0 million.

Interest income for the year
ended December 31, 2023 increased $24.0 million, or 7.9%, to $329.2 million from $305.2 million in the prior year. The primary reason
for the increase in interest income is the 14.7% increase in the average balance of our loan portfolio over the prior year period. The
interest yield on our total loan portfolio decreased from 12.0% in the prior year period to 11.3% in the current year period. The primary
reason for the decrease in total interest yield is that the receivables measured at fair value makes up a larger portion of our total
loan portfolio in the current year period. The interest yield on receivables measured at fair value is calculated taking into account
expected losses and is therefore less than the yield on other finance receivables. The table below shows the average balance and interest
yield of our loan portfolio for the years ended December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022"],["","","(Dollars in thousands)"],["","","Average","","","","","","Interest","","","Average","","","","","","Interest"],["","","Balance","","","Interest","","","Yield","","","Balance","","","Interest","","","Yield"],["Interest Earning Assets"],["Loan portfolio","","$","2,913,571","","","$","329,219","","","","11.3%","","","$","2,539,110","","","$","305,237","","","","12.0%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","40"]]
[[/GREPCENT_TABLE]]

Other income was $10.8 million
for the year ended December 31, 2023 compared to $9.2 million for the year ended December 31, 2022. This 17.5% 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 $9.3 million for the year ended December 31, 2023 and $6.8 million in the prior year period.

Expenses.  Our operating expenses
consist largely of interest expense, provision for credit losses, employee costs, sales and general and administrative expenses. Provision
for credit losses is affected by the balance and credit performance of our portfolio of finance receivables (other than our portfolio
of finance receivables measured at fair value, as to which expected credit losses have the effect of reducing the 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. 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.

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%.
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.

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, 2023
and 2022:

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","","December 31, 2022"],["","","Amount","","","Amount"],["","","($ in millions)"],["Contracts purchased (dollars)","","$","1,357.8","","","$","1,854.4"],["Contracts purchased (units)","","","65,137","","","","81,935"],["Managed portfolio outstanding (dollars)","","$","2,970.1","","","$","2,795.4"],["Managed portfolio outstanding (units)","","","179,198","","","","170,658"],["Number of Originations staff","","","185","","","","182"],["Number of Sales staff","","","105","","","","107"],["Number of Servicing staff","","","529","","","","407"],["Number of other staff","","","71","","","","88"],["Total number of employees","","","890","","","","784"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","41"]]
[[/GREPCENT_TABLE]]

General and administrative expenses
include costs associated with purchasing and servicing our portfolio of finance receivables, including expenses for facilities, credit
services, and telecommunications. General and administrative expenses were $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. 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. The average balance of securitization
trust debt increased 15.5% to $2,333.5 million for the year ended December 31, 2023 compared to $2,020.0 million for the year ended December
31, 2022. The annualized average rate on our securitization trust debt was 5.2% for the year ended December 31, 2023 compared to 3.5%
in the prior year period. The blended interest rates on new term securitizations have been increasing since 2022. For each quarterly securitization
transaction, the blended cost of funds is ultimately the result of many factors including the market interest rates for benchmark swaps
of various maturities against which our bonds are priced and the margin over those benchmarks that investors are willing to accept, which
in turn, is influenced by investor demand for our bonds at the time of the securitization. These and other factors have resulted in fluctuations
in our securitization trust debt interest costs. The blended interest rates of our recent securitizations are summarized in the table
below:

[[GREPCENT_TABLE]]
[["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%"]]
[[/GREPCENT_TABLE]]

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. The increase was due
to higher rates and the higher utilization of our credit lines during 2023 compared to 2022. The average balance of our warehouse debt
was $181.7 million during 2023 compared to $130.1 million in 2022.

Interest expense on residual
interest financing was $4.2 million for each of the years ended December 31, 2023 and 2022.

Interest expense on our subordinated
renewable notes was $1.8 million in 2023 compared to $2.3 million in the prior year. The average balance of the notes decreased from $26.8
million in the prior year to $20.9 million for the year ended December 31, 2023. The average interest rate on our subordinated notes was
8.7% for the both years.

[[GREPCENT_TABLE]]
[["","42"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","","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%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances."],["(2) Net of deferred fees and direct costs."],["(3) Net interest income divided by average interest earning assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2023 Compared to December 31, 2022"],["","","Total","","","Change Due","","","Change Due"],["","","Change","","","to Volume","","","to Rate"],["","","(In thousands)"],["Interest Earning Assets"],["Loan portfolio","","$","23,982","","","$","29,404","","","$","(5,422",")"],["Interest Bearing Liabilities"],["Warehouse lines of credit","","","8,883","","","","4,090","","","","4,793"],["Residual interest financing","","","(44",")","","","(41",")","","","(3",")"],["Securitization trust debt","","","50,781","","","","10,959","","","","39,822"],["Subordinated renewable notes","","","(512",")","","","(513",")","","","1"],["","","","59,108","","","","14,495","","","","44,613"],["Net interest income/spread","","$","(35,126",")","","$","14,909","","","$","(50,035",")"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","43"]]
[[/GREPCENT_TABLE]]

Effective January 1, 2020,
the Company adopted Accounting Standards Codification Topic 326 - Financial Instruments - Credit Losses: Measurement of Credit Losses
on Financial Instruments. 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. 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.

For the year ended December 31, 2023, we recorded
a reduction to provision for credit losses on finance receivables in the amount of $22.3 million. In the prior year period, we recorded
similar reductions to provision for credit losses in the amount of $28.1 million. The reserve decreases were primarily due to better than
expected credit performance for these receivables. The allowance applies only to our finance receivables originated through December 2017,
which we refer to as our legacy portfolio.  Finance receivables that we have originated since January 2018 are accounted for at fair
value. Under the fair value method of accounting, we recognize interest income net of expected credit losses. Thus, no provision for credit
loss expense is recorded for finance receivables measured at fair value.

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. Sales expense decreased
by $1.8 million to $21.2 million during the year ended December 31, 2023 and represented 7.3% of total operating expenses. We purchased
$1,357.8 million of new contracts during the year ended December 31, 2023 compared to $1,854.4 million in the prior year period.

Occupancy expenses were $6.4
million in 2023 which is down from $7.5 million in 2022.

Depreciation and amortization
expenses decreased to $847,000 compared to $1.6 million in the prior year.

For the year ended December
31, 2023, we recorded income tax expense of $15.6 million, representing a 26% effective tax rate. 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.  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.
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. 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. 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.

Results for the nine-month period ended September
30, 2022 included the $15.3 million mark to the carrying value of the portion of the receivables portfolio accounted for at fair value.
The mark-up was the result of lower than expected losses during the period as our previous estimates for higher losses due to the pandemic
had not materialized. 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. As a result,
on a net basis, no mark was taken in the fourth quarter of 2022. 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.

[[GREPCENT_TABLE]]
[["","44"]]
[[/GREPCENT_TABLE]]

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. The primary reason
for the increase in interest income is the 32.5% increase in the average balance of finance receivables measured at fair value over the
prior year period. The table below shows the outstanding and average balances of our portfolio held by consolidated subsidiaries for the
years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","2021"],["","","(Dollars in thousands)"],["","","Average","","","","","","Interest","","","Average","","","","","","Interest"],["","","Balance","","","Interest","","","Yield","","","Balance","","","Interest","","","Yield"],["Interest Earning Assets"],["Finance receivables","","$","150,919","","","$","36,616","","","","24.3%","","","$","345,021","","","$","69,805","","","","20.2%"],["Finance receivables measured at fair value","","","2,388,191","","","","268,621","","","","11.2%","","","","1,802,590","","","","196,461","","","","10.9%"],["Total","","$","2,539,110","","","$","305,237","","","","12.0%","","","$","2,147,611","","","$","266,266","","","","12.4%"]]
[[/GREPCENT_TABLE]]

Other income was $9.2 million
for the year ended December 31, 2022 compared to $6.0 million for the year ended December 31, 2021. 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.  Our operating expenses
consist largely of interest expense, provision for credit losses, employee costs, sales and general and administrative expenses. Provision
for credit losses is affected by the balance and credit performance of our portfolio of finance receivables (other than our portfolio
of finance receivables measured at fair value, as to which expected credit losses have the effect of reducing the 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. 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.

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
$213.5 million for the year ended December 31, 2021, compared to $202.1 million for the prior year, an increase of $11.5 million, or 5.7%.
The increase is primarily due to increases in interest expense, sales expense, employee costs and general and administrative expenses.
Reductions in provisions for credit losses offset some of the increase in operating expenses.

Employee costs increased by
$3.7 million or 4.7%, to $84.3 million during the year ended December 31, 2022, representing 39.5% of total operating expenses. Employee
costs were $80.5 million in the prior year, or 39.9% of total operating expenses.

[[GREPCENT_TABLE]]
[["","45"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","","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"]]
[[/GREPCENT_TABLE]]

General and administrative expenses
include costs associated with purchasing and servicing our portfolio of finance receivables, including expenses for facilities, credit
services, and telecommunications. General and administrative expenses were $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. Interest
expense represented 41.0% of total operating expenses in 2022. The primary reason for the increase in interest expense is the increase
in interest expense on our warehouse lines of credit and securitization trust debt.

Interest on securitization trust
debt increased by $6.2 million, or 9.7%, for the year ended December 31, 2022 compared to the prior year. The average balance of securitization
trust debt increased 11.0% to $2,020.0 million for the year ended December 31, 2022 compared to $1,819.9 million for the year ended December
31, 2021. The blended interest rates on new term securitizations have increased in 2022 after decreasing in 2021. 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. These and other factors have
resulted in fluctuations in our securitization trust debt interest costs. The blended interest rates of our recent securitizations are
summarized in the table below:

[[GREPCENT_TABLE]]
[["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%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","46"]]
[[/GREPCENT_TABLE]]

The annualized average rate
on our securitization trust debt was 3.5% for the years ended December 31, 2022 and 2021. The annualized average rate is influenced by
the manner in which the underlying securitization trust bonds are repaid. The rate tends to increase over time on any particular securitization
since the structures of our securitization trusts generally provide for sequential repayment of the shorter term, lower interest rate
bonds before the longer term, higher interest rate bonds.

Interest expense on warehouse
lines of credit was $10.3 million for the year ended December 31, 2022 compared to $4.4 million in the prior year. Lower rates were offset
by higher utilization of our credit lines during the year compared to last year. The average balance of our warehouse debt was $130.1
million during 2022 compared to $51.3 million in 2021.

Interest expense on residual
interest financing was $4.2 million in the year ended December 31, 2022 compared to $3.8 million in the prior year as the average balance
has increased.

Interest expense on our subordinated
renewable notes decreased by $297,000, or 11.3%, for the year ended December 31, 2022 compared to the prior year. The average balance
of the notes increased from $25.3 million in the prior year to $26.8 million for the year ended December 31, 2022. 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.

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:

[[GREPCENT_TABLE]]
[["","","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%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances."],["(2) Net of deferred fees and direct costs."],["(3) Net interest income divided by average interest earning assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","47"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","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"]]
[[/GREPCENT_TABLE]]

The annualized yield on our finance receivables
was 12.0% for 2022 compared to 12.4% in 2021. The interest yield on receivables measured at fair value is reduced to take account of expected
losses and is therefore less than the yield on other finance receivables. The average balance of these fair value receivables was $2,388.2
million for the year ended December 31, 2022 compared to $1,802.6 million in the prior year period.

Effective January 1, 2020,
the Company adopted Accounting Standards Codification Topic 326 - Financial Instruments - Credit Losses: Measurement of Credit Losses
on Financial Instruments. 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. To comply with CECL, the Company recorded
an addition to its allowance for finance credit losses of $127.0 million. 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, 2022, we recorded
a reduction to provision for credit losses on finance receivables in the amount of $28.1 million compared to $14.6 million in 2021. The
reserve decreases were primarily due to improved credit performance for these receivables. The allowance applies only to our finance receivables
originated through December 2017, which we refer to as our legacy portfolio.  Finance receivables that we have originated since January
2018 are accounted for at fair value. Under the fair value method of accounting, we recognize interest income net of expected credit losses.
Thus, no provision for credit loss expense is recorded for finance receivables measured at fair value.

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. Sales expense increased
by $6.2 million to $23.0 million during the year ended December 31, 2022 and represented 10.8% of total operating expenses. We purchased
$1,854.4 million of new contracts during the year ended December 31, 2022 compared to $1,146.3 million in the prior year period.

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.

[[GREPCENT_TABLE]]
[["","48"]]
[[/GREPCENT_TABLE]]

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.

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.

Liquidity and Capital Resources

Liquidity

Our business requires substantial
cash to support our purchases of automobile contracts and other operating activities. Our primary sources of cash have been cash flows
from the proceeds from term securitization transactions and other sales of automobile contracts, amounts borrowed under various revolving
credit facilities (also sometimes known as warehouse credit facilities), customer payments of principal and interest on finance receivables,
fees for origination of automobile contracts, and releases of cash from securitization transactions and their related spread accounts.
Our primary uses of cash have been the purchases of automobile contracts, repayment of amounts borrowed under lines of credit, securitization
transactions and otherwise, operating expenses such as employee, interest, occupancy expenses and other general and administrative expenses,
the establishment of spread accounts and initial overcollateralization, if any, the increase of credit enhancement to required levels
in securitization transactions, and income taxes. There can be no assurance that internally generated cash will be sufficient to meet
our cash demands. The sufficiency of internally generated cash will depend on the performance of securitized pools (which determines the
level of releases from those pools and their related spread accounts), the rate of expansion or contraction in our managed portfolio,
and the terms upon which we are able to acquire and borrow against automobile contracts.

Net cash provided by operating
activities for the 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.

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. Cash provided by investing
activities primarily results from principal payments and other proceeds received on finance receivables.

Net cash provided by financing
activities were $84.2 million and $484.2 million in 2023 and 2022, respectively. Net cash used in financing activities for the year ended
December 31, 2021 was $50.4 million. Cash used or provided by financing activities is primarily related to the issuance of securitization
trust debt, reduced by the amount of repayment of securitization trust debt and net proceeds or repayments on our warehouse lines of credit
and other debt. 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 purchase automobile contracts
from dealers for a cash price approximately equal to their principal amount, adjusted for an acquisition fee which may either increase
or decrease the automobile contract purchase price. Those automobile contracts generate cash flow, however, over a period of years. We
have been dependent on warehouse credit facilities to purchase automobile contracts and our securitization transactions for long term
financing of our contracts. In addition, we have accessed other sources, such as residual financings and subordinated debt in order to
finance our continuing operations.

[[GREPCENT_TABLE]]
[["","49"]]
[[/GREPCENT_TABLE]]

The acquisition of automobile
contracts for subsequent financing in securitization transactions, and the need to fund spread accounts and initial overcollateralization,
if any, and increase credit enhancement levels when those transactions take place, results in a continuing need for capital. The amount
of capital required is most heavily dependent on the rate of our automobile contract purchases, the required level of initial credit enhancement
in securitizations, and the extent to which the previously established trusts and their related spread accounts either release cash to
us or capture cash from collections on securitized automobile contracts. Of those, the factor most subject to our control is the rate
at which we purchase automobile contracts.

We are and may in the future
be limited in our ability to purchase automobile contracts due to limits on our capital. As of 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. 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. Our plans to manage our liquidity include
maintaining our rate of automobile contract purchases at a level that matches our available capital, and, as appropriate, minimizing our
operating costs. If we are unable to complete such securitizations, we may be unable to increase our rate of automobile contract purchases,
in which case our interest income and other portfolio related income could decrease.

Our liquidity will also be
affected by releases of cash from the trusts established with our securitizations. While the specific terms and mechanics of each spread
account vary among transactions, our securitization agreements generally provide that we will receive excess cash flows, if any, only
if the amount of credit enhancement has reached specified levels and the delinquency or net losses related to the automobile contracts
in the pool are below certain predetermined levels. In the event delinquencies or net losses on the automobile contracts exceed such levels,
the terms of the securitization may require increased credit enhancement to be accumulated for the particular pool. There can be no assurance
that collections from the related trusts will continue to generate sufficient cash.

Our warehouse credit facilities
contain various financial covenants requiring certain minimum financial ratios and results. Such covenants include maintaining minimum
levels of liquidity and net worth and not exceeding maximum leverage levels. In addition, certain of our debt agreements other than our
term securitizations contain cross-default provisions. Such cross-default provisions would allow the respective creditors to declare a
default if an event of default occurred with respect to other indebtedness of ours, but only if such other event of default were to be
accompanied by acceleration of such other indebtedness. As of December 31, 2023, we were in compliance with all such financial covenants.

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. 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.

Although we believe we are
able to service and repay our debt, there is no assurance that we will be able to do so. If our plans for future operations do not generate
sufficient cash flows and earnings, our ability to make required payments on our debt would be impaired. If we fail to pay our indebtedness
when due, it could have a material adverse effect on us and may require us to issue additional debt or equity securities.

[[GREPCENT_TABLE]]
[["","50"]]
[[/GREPCENT_TABLE]]

Contractual Obligations

The following table summarizes
our material contractual obligations as of December 31, 2023 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","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"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(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. 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."]]
[[/GREPCENT_TABLE]]

We anticipate
repaying debt due in 2024 with a combination of cash flows from operations and the potential issuance of new debt.

Warehouse Credit Facilities

The terms on which credit
has been available to us for purchase of automobile contracts have varied in recent years, as shown in the following summary of our warehouse
credit facilities:

Facility Established in
May 2012. On May 11, 2012, we entered into a $100 million one-year warehouse credit line with Citibank, N.A. 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 Eight Funding, LLC. The facility provides for effective advances up to 82.0% of eligible finance receivables. The Class A loans under
the facility generally accrue interest during the revolving period at a per annum rate equal to one-month SOFR plus 3.00% per annum, with
a minimum rate of 3.75% per annum and during the amortization period at a per annum rate equal to one-month SOFR plus 4.00% per annum,
with a minimum rate of 4.75% per annum. The Class B loans under the facility generally accrue interest during the revolving period at
a per annum rate equal to 8.50% per annum and during the amortization period at a per annum rate equal to 9.50% per annum. In July 2022,
we renewed our two-year revolving credit agreement with Citibank, N.A., and doubled the capacity from $100 million to $200 million. This
facility was amended to extend the revolving period to July 2024 and to include an amortization period through July 2025 for any receivables
pledged to the facility at the end of the revolving period. 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. 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. The loans under the facility accrue interest at a commercial paper rate plus 4.15%
per annum, with a minimum rate of 5.15% per annum. On February 2, 2022, we renewed our two-year revolving credit agreement with Ares Agent
Services, L.P. In June 2022, we increased the capacity of our credit agreement with Ares Agent Services, L.P. from $100 million to $200
million. This facility was amended to extend the revolving period to January 2024 followed by an amortization period through January 2028
for any receivables pledged to the facility at the end of the revolving period. At December 31, 2023 there was $69.0 million outstanding
under this facility. Prior to the expiration of the revolving period in January 2024, the revolving period was extended to March 31, 2024.

[[GREPCENT_TABLE]]
[["","51"]]
[[/GREPCENT_TABLE]]

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. Although the securitization trust debt also has alternative final maturity dates, those dates are significantly
later than the dates at which repayment of the related receivables is anticipated, and at no time in our history have any of our sponsored
asset-backed securities reached those alternative final maturities.

The acquisition of automobile
contracts for subsequent transfer in securitization transactions, and the need to fund spread accounts and initial overcollateralization,
if any, when those transactions take place, results in a continuing need for capital. The amount of capital required is most heavily dependent
on the rate of our automobile contract purchases, the required level of initial credit enhancement in securitizations, and the extent
to which the trusts and related spread accounts either release cash to us or capture cash from collections on securitized automobile contracts.
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.

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:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","2021"],["","","(Dollars in thousands)"],["RESIDUAL INTEREST FINANCING:"],["Beginning balance","","$","49,623","","","$","53,682","","","$","25,426"],["Issuances","","","\u2013","","","","\u2013","","","","50,000"],["Payments","","","\u2013","","","","(4,311",")","","","(21,265",")"],["Capitalization of deferred financing costs","","","\u2013","","","","\u2013","","","","(755",")"],["Amortization of deferred financing costs","","","252","","","","252","","","","276"],["Ending balance","","$","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"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","52"]]
[[/GREPCENT_TABLE]]

Residual Interest Financing.  On
May 16, 2018, we completed a $40.0 million securitization of residual interests from previously issued securitizations. In this residual
interest financing transaction, qualified institutional buyers purchased $40.0 million of asset-backed notes secured by residual interests
in thirteen CPS securitizations consecutively conducted from September 2013 through December 2016, and an 80% interest in a CPS affiliate
that owns the residual interests in the four CPS securitizations conducted in 2017. The sold notes (“2018-1 Notes”), issued
by CPS Auto Securitization Trust 2018-1, consist of a single class with a coupon of 8.595%. The notes were paid off in February 2022.

On June 30, 2021, we completed
a $50 million securitization of residual interests from other previously issued securitizations. In this residual interest financing transaction,
qualified institutional buyers purchased $50.0 million of asset-backed notes secured by residual interests in eleven CPS securitizations
consecutively issued from January 2018 and September 2020. 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%. At December 31, 2023 there was $50.0 million outstanding under this facility.

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. On each monthly payment
date, the 2021-1 Notes are entitled to interest at the coupon rate and, if necessary, a principal payment necessary to maintain a specified
minimum collateral ratio.

Securitization Trust 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.   In June 2005, we began issuing registered subordinated renewable notes in an ongoing offering to the public.
Upon maturity, the notes are automatically renewed for the same term as the maturing notes, unless we repay the notes or the investor
notifies us within 15 days after the maturity date of his note that he wants it repaid. 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.

We must comply with certain
affirmative and negative covenants related to debt facilities, which require, among other things, that we maintain certain financial ratios
related to liquidity, net worth, capitalization, investments, acquisitions, restricted payments and certain dividend restrictions. 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.