CONSUMER PORTFOLIO SERVICES, INC.

Previous wording

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

Current wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations**

Previous wording

We were incorporated and began our operations in March 1991. From inception through March 31, 2025, we have originated a total of approximately $23.5 billion of automobile contracts, primarily by purchasing retail installment sales contracts from dealers, and to a lesser degree, by originating loans secured by automobiles directly with consumers. In addition, we acquired a total of approximately $822.3 million of automobile contracts in mergers and acquisitions in 2002, 2003, 2004 and 2011. Recent contract purchase volumes and managed portfolio levels are shown in the table below:

Current wording

We were incorporated and began our operations in March 1991. From inception through June 30, 2025, we have originated a total of approximately $23.9 billion of automobile contracts, primarily by purchasing retail installment sales contracts from dealers, and to a lesser degree, by originating loans secured by automobiles directly with consumers. In addition, we acquired a total of approximately $822.3 million of automobile contracts in mergers and acquisitions in 2002, 2003, 2004 and 2011. Recent contract purchase volumes and managed portfolio levels are shown in the table below:

Previous wording

In May 2021 we began purchasing some contracts for immediate sale to a third-party to whom we refer applications that don’t meet our lending criteria. We service all such contracts on behalf of the third-party. We earn fees for originating the receivable and also servicing fees on active accounts in the third-party portfolio. For the three months ended March 31, 2025, we originated $4.3 million under this third-party program. As of March 31, 2025, our managed portfolio includes $160.1 million of such third-party receivables.

Current wording

In May 2021 we began purchasing some contracts for immediate sale to a third-party to whom we refer applications that don’t meet our lending criteria. We service all such contracts on behalf of the third-party. We earn fees for originating the receivable and also servicing fees on active accounts in the third-party portfolio. For the six months ended June 30, 2025, we originated $8.3 million under this third-party program. As of June 30, 2025, our managed portfolio includes $146.4 million of such third-party receivables.

Previous wording

Since 1994 we have conducted 104 term securitizations of automobile contracts that we originated. As of March 31, 2025, 18 of those securitizations are active and all are structured as secured financings. We generally conduct our securitizations on a quarterly basis, near the beginning of each calendar quarter, resulting in four securitizations per calendar year.

Current wording

Since 1994 we have conducted 105 term securitizations of automobile contracts that we originated. As of June 30, 2025, 17 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.

Previous wording

Generally, prior to a securitization transaction we fund our automobile contract purchases primarily with proceeds from warehouse credit facilities. We currently have short-term funding capacity of $535 million over two credit facilities. The first credit facility was established in May 2012. This facility was most recently renewed in July 2024, extending the revolving period to July 2026, with an optional amortization period through July 2027. In addition, a subordinated lender was added to the credit facility in November 2024, effectively increasing our advance rate to a maximum of 95% for eligible receivables across the facility. The capacity was then increased from $200 million at the most recent renewal date to $335 million in December 2024.

Current wording

Generally, prior to a securitization transaction we fund our automobile contract purchases primarily with proceeds from warehouse credit facilities. We currently have short-term funding capacity of $535 million over two credit facilities. The first credit facility was established in May 2012 with Citibank, N.A. This facility was most recently renewed in July 2024, extending the revolving period to July 2026, with an optional amortization period through July 2027. In addition, a subordinated lender was added to the credit facility in November 2024, effectively increasing our advance rate to a maximum of 95% for eligible receivables across the facility. The capacity was then increased from $200 million at the most recent renewal date to $335 million in December 2024.

Previous wording

In November 2015, we entered into another $100 million facility. 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 most recently renewed in March 2024, extending the revolving period to March 2026, followed by an amortization period to March 2028.

Current wording

In November 2015, we entered into another $100 million facility with Ares Agent Services, L.P.. In June 2022, we increased the capacity of that credit agreement from $100 million to $200 million. This facility was most recently renewed in March 2024, extending the revolving period to March 2026, followed by an amortization period to March 2028.

Previous wording

Comparison of Operating Results for the three months ended March 31, 2025, with the three months ended March 31, 2024

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Comparison of Operating Results for the three months ended June 30, 2025, with the three months ended June30, 2024

Previous wording

Revenues. During the three months ended March 31, 2025, our revenues were $106.9 million, an increase of $15.2 million, or 16.6%, from the prior year revenue of $91.7 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 three months ended March 31, 2025, include a $3.5 million mark up to the recorded value of the finance receivables measured at fair value. The marks are estimates based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and increases or decreases in our estimates of future net losses. In the current period, our re-evaluation of the fair values of these receivables resulted in a mark up for certain 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 $3.5 million. There was a $5.0 million mark up to the fair value portfolio in the prior year period.

Current wording

Revenues. During the three months ended June 30, 2025, our revenues were $109.8 million, an increase of $13.9 million, or 14.5% from the prior year revenue of $95.9 million. The primary reason for the increase in revenues is the increase in interest income resulting from the increase in the average outstanding balance of finance receivables measured at fair value. Revenues for the three months ended June 30, 2025, include a $3.0 million mark up to the recorded value of the finance receivables measured at fair value. The marks are estimates based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and increases or decreases in our estimates of future net losses. In the current period, our re-evaluation of the fair values of these receivables resulted in a mark up for certain receivables and a mark down to the fair values of selected receivables. The net effect of the marks to the fair value resulted in a net mark up of $3.0 million. There was a $5.5 million mark up to the fair value portfolio in the prior year period.

Previous wording

Interest income for the three months ended March 31, 2025, increased $17.6 million, or 20.9%, to $101.9 million from $84.3 million in the prior year. The primary reason for the increase in interest income is the 19.3% increase in the average balance of our loan portfolio over the prior year period. The interest yield on our total loan portfolio increased from 11.3% in the prior year period to 11.4% in the current year period. The interest yield on receivables measured at fair value is reduced to take account of expected losses and is therefore less than the yield on other finance receivables. The table below shows the average balance and interest yield of our loan portfolio for the three months ended March 31, 2025 and 2024:

Current wording

Interest income for the three months ended June 30, 2025, increased $17.0 million, or 19.2%, to $105.4 million from $88.4 million in the prior year. The primary reason for the increase in interest income is the 18.0% increase in the average balance of our loan portfolio over the prior year period. The interest yield on our total loan portfolio increased from 11.3% in the prior year period to 11.4% in the current year period. The interest yield on receivables measured at fair value is reduced to take account of expected losses and is therefore less than the yield on other finance receivables. The table below shows the average balance and interest yield of our loan portfolio for the three months ended June 30, 2025 and 2024:

Previous wording

Other income was $1.4 million forthe three months ended March 31, 2025, compared to $2.5 million for the comparable period in 2024. This 41.3% decrease was primarily driven by the decrease in origination and servicing fees we earned from third party receivables. These fees were $1.4 million for the quarter ended March 31, 2025, compared to $2.1 million in the prior year period.

Current wording

Other income was $1.4 million forthe three months ended June 30, 2025, compared to $2.0 million for the comparable period in 2024. This 30.4% decrease was primarily driven by the decrease in origination and servicing fees we earned from third party receivables. These fees were $1.4 million for the quarter ended June 30, 2025, compared to $1.7 million in the prior year period.

Previous wording

Total operating expenses were $100.1 million for the three months ended March 31, 2025, compared to $85.2 million for the prior period, an increase of $14.9 million, or 17.5%. The increase is primarily due to increases in interest expense and to a lesser extent, increases to sales costs.

Current wording

Total operating expenses were $102.8 million for the three months ended June 30, 2025, compared to $89.2 million for the prior period, an increase of $13.6 million, or 15.3%. The increase is primarily due to increases in interest expense.

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Employee costs were $25.0 million during the three months ended March 31, 2025, compared to $24.4 million for the same quarter in the prior year, an increase of $617,000, or 2.5%. The table below summarizes our employees by category as well as contract purchases and units in our managed portfolio as of, and for the three-month periods ended, March 31, 2025, and 2024:

Current wording

Employee costs were $24.4 million during the three months ended June 30, 2025, compared to $23.7 million for the same quarter in the prior year, an increase of $637,000, or 2.7%. The table below summarizes our employees by category as well as contract purchases and units in our managed portfolio as of, and for the three-month periods ended, June 30, 2025, and 2024:

Previous wording

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 was $13.5 million, a decrease of $211,000 from $13.8 million in the prior year period.

Current wording

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 was $13.2 million, a decrease of $77,000 from $13.3 million in the prior year period.

Previous wording

Interest expense for the three months ended March 31, 2025, was $54.9 million and represented 54.9% of total operating expenses, compared to $42.0 million in the previous year, when it was 49.3% of total operating expenses. The $12.9 million increase in interest expense compared to the same three month period in the prior year was largely due to the volume, and to a lesser extent, due to the rate.

Current wording

Interest expense for the three months ended June 30, 2025, was $58.7 million and represented 57.1% of total operating expenses, compared to $46.7 million in the previous year, when it was 52.4% of total operating expenses. The $12.0 million increase in interest expense compared to the prior year period was largely due to increases in the average balance of our securitization trust debt, warehouse credit line debt and residual interest financing debt. To a lesser extent, the increase is also due to the increase in the interest rate on our securitization trust debt.

Previous wording

Interest on securitization trust debt increased by $9.1 million for the three months ended March 31, 2025, compared to the prior period. The average balance of securitization trust debt increased to $2,861.9 million for the three months ended March 31, 2025, compared to $2,388.1 million for the three months ended March 31, 2024. The annualized average rate on our securitization trust debt was 6.3% for the three months ended March 31, 2025, compared to 6.0% in the prior year period. For each quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including the market interest rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks that investors are willing to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization. These and other factors have resulted in fluctuations in our securitization trust debt interest costs. The blended interest rates of our recent securitizations are summarized in the table below:

Current wording

Interest on securitization trust debt increased by $7.6 million for the three months ended June 30, 2025, compared to the prior period. The average balance of securitization trust debt increased to $2,811.9 million for the three months ended June 30, 2025, compared to $2,555.2 million for the three months ended June 30, 2024. The annualized average rate on our securitization trust debt was 6.5% for the three months ended June 30, 2025, compared to 5.9% in the prior year period. For each quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including the market interest rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks that investors are willing to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization. These and other factors have resulted in fluctuations in our securitization trust debt interest costs. The blended interest rates of our recent securitizations are summarized in the table below:

Previous wording

Interest expense on warehouse credit line debt increased by $2.2 million to $6.5 million for the three months ended March 31, 2025, compared to $4.3 million in the prior year period. The increase was primarily due to the higher utilization of our credit lines during the quarter compared to last year. The average balance of our warehouse debt was $275.8 million during the three months ended March 31, 2025, compared to $164.9 million for the same period in 2024. The annualized average rate on our credit line debt was 9.4% for the three months ended March 31, 2025, compared to 10.5% in the prior year period.

Current wording

Interest expense on warehouse credit line debt increased by $2.5 million to $8.2 million for the three months ended June 30, 2025, compared to $5.7 million in the prior year period. The increase was primarily due to the higher utilization of our credit lines during the quarter compared to last year. The average balance of our warehouse debt was $353.2 million during the three months ended June 30, 2025, compared to $215.4 million for the same period in 2024. The annualized average rate on our credit line debt was 9.3% for the three months ended June 30, 2025, compared to 10.6% in the prior year period.

Previous wording

Interest expense on subordinated renewable notes was $646,000 for the three months ended March 31, 2025. The average balance of the outstanding subordinated debt was $26.9 million for the three months ended March 31, 2025, compared to $20.8 million for the prior year period. The average yield of subordinated notes decreased to 9.6% compared to 9.7% in the prior period.

Current wording

Interest expense on subordinated renewable notes was $684,000 for the three months ended June 30, 2025. The average balance of the outstanding subordinated debt was $28.0 million for the three months June 30, 2025, compared to $22.3 million for the prior year period. The average yield of subordinated notes is 9.7% for both current and in the prior period.

Previous wording

In June 2021, March 2024, and again on March 20, 2025, we completed a securitization of residual interests from other previously issued securitizations in the amount of $50 million, $50 million, and $65 million, respectively. Interest expense for these residual interest financings was $2.7 million for the three months ended March 31, 2025, compared to $1.2 for the same period in 2024.

Current wording

In June 2021, March 2024, and again on June 30, 2025, we completed a securitization of residual interests from other previously issued securitizations in the amount of $50 million, $50 million, and $65 million, respectively. Interest expense for these residual interest financings was $4.2 million for the three months ended June 30, 2025, compared to 2.5 million for the same period in 2024.

Previous wording

For the three months ended March 31, 2025, we recorded a reduction to provision for credit losses on finance receivables in the amount of $979,000. The reserve decrease was primarily due to better than expected recovery rates and a decrease in lifetime expected credit losses resulting from improved credit performance as our previous estimates for future losses exceeded actual incurred losses. This compares to $1.6 million in reductions to provision for credit losses for the three months ended March 31, 2024.

Current wording

For the three months ended June 30, 2025, we recorded a reduction to provision for credit losses on finance receivables in the amount of $781,000. The reserve decrease was primarily due to better than expected recovery rates and a decrease in lifetime expected credit losses resulting from improved credit performance as our previous estimates for future losses exceeded actual incurred losses. This compares to $2.0 million in reductions to provision for credit losses for the three months ended June 30, 2024.

Previous wording

Sales expenses consist primarily of commission-based compensation paid to our employee sales representatives. Our sales representatives earn a salary plus commissions based on volume of contract purchases. Sales expense increased to $5.9 million during the three months ended March 31, 2025, from $4.9 million for the same quarter in 2024. We purchased $451.2 million of new contracts during the three months ended March 31, 2025, compared to $346.3 million in the prior year period.

Current wording

Sales expenses consist primarily of commission-based compensation paid to our employee sales representatives. Our sales representatives earn a salary plus commissions based on volume of contract purchases. Sales expense decreased to $5.7 million during the three months ended June 30, 2025 from $5.9 million for the same quarter in 2024. We purchased $433.0 million of new contracts during the three months ended June 30, 2025 compared to $431.9 million in the prior year period.

Previous wording

Occupancy expenses was $1.4 million for the three months ending March 31, 2025, which is down from the $1.6 million in the first quarter of 2024.

Current wording

Occupancy expenses was $1.4 million for the three months ending June 30, 2025, which is up from $1.3 million in the second quarter of 2024.

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Depreciation and amortization expenses increased to $249,000 compared to $215,000 in the previous year.

Current wording

Depreciation and amortization expenses increased to $249,000 compared to $221,000 in the previous year.

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For the three months ended March 31, 2025, we recorded income tax expense of $2.1 million, representing a 31% effective tax rate. In the prior period, our income tax expense was $2.0 million, representing a 30% effective tax rate.

Current wording

For the three months ended June 30, 2025, we recorded income tax expense of $2.2 million, representing a 31% effective tax rate. In the prior period, our income tax expense was $2.0 million, representing a 30% effective tax rate.

Previous wording

It is not uncommon for our obligors to fall behind in their payments. However, with the diligent efforts of our Servicing staff and systems for managing our collection efforts, we regularly work with our customers to resolve delinquencies. Our staff are trained to employ a counseling approach to assist our customers with their cash flow management skills and help them to prioritize their payment obligations in order to avoid losing their vehicle to repossession. Through our experience, we have learned that once a customer becomes greater than 90 days past due, it is not likely that the delinquency will be resolved and will ultimately result in a charge-off. As a result, we do not recognize any interest income for contracts that are greater than 90 days past due.

Current wording

It is not uncommon for our obligors to fall behind in their payments. However, with the diligent efforts of our Servicing staff and systems for managing our collection efforts, we regularly work with our customers to resolve delinquencies. Our staff are trained in employing a counseling approach to assist our customers with their cash flow management skills and help them to prioritize their payment obligations in order to avoid losing their vehicle to repossession. Through our experience, we have learned that once a customer becomes greater than 90 days past due, it is not likely that the delinquency will be resolved and will ultimately result in a charge-off. As a result, we do not recognize any interest income for contracts that are greater than 90 days past due.

Previous wording

Net cash provided by operating activities for the three-month period ended March 31, 2025, was $73.9 million, an increase of $24.2 million, compared to net cash provided by operating activities for the three-month period ended March 31, 2024, of $52.7 million. Net cash from operating activities is generally provided by net income from operations adjusted for significant non-cash items such as our provision for credit losses and marks to finance receivables measured at fair value.

Current wording

Net cash provided by operating activities for the six-month period ended June 30, 2025 was $128.3 million, a increase of $32.3 million, compared to net cash provided by operating activities for the six-month period ended June 30, 2024 of $96.0 million. Net cash from operating activities is generally provided by net income from operations adjusted for significant non-cash items such as our provision for credit losses and marks to finance receivables measured at fair value.

Previous wording

Net cash used in investing activities was $194.1 million for the three months ended March 31, 2025, compared to $108.6 million in the prior year period. Net cash used in investing activities generally relates to new purchases of automobile contracts net of principal payments and other proceeds received during the period. Purchases of finance receivables excluding acquisition fees were $449.6 million and $328.9 million during the first three months of 2025 and 2024, respectively.

Current wording

Net cash used in investing activities was $360.8 million for the six months ended June 30, 2025 compared to $317.8 million in the prior year period. Net cash used in investing activities generally relates to new purchases of automobile contracts net of principal payments and other proceeds received during the period. Purchases of finance receivables excluding acquisition fees were $882.9 million and $753.8 million during the first six months of 2025 and 2024, respectively.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2025, was $166.3 million compared to $81.5 million in the prior year period. Cash provided by financing activities is primarily related to the issuance of securitization trust debt, reduced by the amount of repayment of securitization trust debt and net proceeds or repayments on our warehouse lines of credit and other debt. In the first three months of 2025, we issued $442.4 million in new securitization trust debt compared to $280.9 million for the same period in 2024. We repaid $293.0 million in securitization trust debt in the three months ended March 31, 2025, compared to repayments of securitization trust debt of $268.7 million in the prior year period. In the three months ended March 31, 2025, we had net repayments on warehouse lines of credit of $45.8 million, compared to net advances from warehouse lines of credit of $17.2 million in the prior year’s period.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2025 was $255.3 million compared to $363.0 million in the prior year period. Cash provided by financing activities is primarily related to the issuance of securitization trust debt, reduced by the amount of repayment of securitization trust debt and net proceeds or repayments on our warehouse lines of credit and other debt. In the first six months of 2025, we issued $862.4 million in new securitization trust debt compared to $1,307.1 million for the same period in 2024. We repaid $642.7 million in securitization trust debt in the six months ended June 30, 2025 compared to repayments of securitization trust debt of $563.7 million in the prior year period. In the six months ended June 30, 2025, we had net repayments on warehouse lines of credit of $16.6 million, compared to net advances from warehouse lines of credit of $150.7 million in the prior year’s period.

Previous wording

We are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital. As of March 31, 2025, we had unrestricted cash of $29.8 million and $153.6 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability of sufficient eligible collateral). As of March 31, 2025, we had approximately $23.5 million of such eligible collateral. Our plans to manage our liquidity include maintaining our rate of automobile contract purchases at a level that matches our available capital, and, as appropriate, minimizing our operating costs. During the three-month period ended March 31, 2025, we completed one securitization aggregating $442.4 million of notes sold.

Current wording

We are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital. As of June 30, 2025, we had unrestricted cash of $15.8 million and $136.4 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability of sufficient eligible collateral). As of June 30, 2025, we had approximately $18.6 million of such eligible collateral. Our plans to manage our liquidity include maintaining our rate of automobile contract purchases at a level that matches our available capital, and, as appropriate, minimizing our operating costs. During the six-month period ended June 30, 2025, we completed two securitizations aggregating $862.4 million of notes sold.

Previous wording

We have and will continue to have a substantial amount of indebtedness. At March 31, 2025, we had approximately $3,300.0 million of debt outstanding. Such debt consisted primarily of $2,743.3 million of securitization trust debt and $365.7 million of debt from warehouse lines of credit. Our securitization trust debt has increased by $148.9 million while our warehouse lines of credit debt has decreased by $45.2 million since December 31, 2024 (each net of deferred financing costs). Since 2005, we have offered renewable subordinated notes to the public on a continuous basis, and such notes have maturities that range from six months to 10 years. We had $27.5 million and $26.5 million in subordinated renewable notes outstanding at March 31, 2025, and December 31, 2024, respectively. In June 2021, March 2024, and again on March 20, 2025, we completed a securitization of residual interests from other previously issued securitizations in the amount of $50 million, $50 million, and $65 million, respectively. As of March 31, 2025, all $165.0 million of the residual interest debt remains outstanding.

Current wording

We have and will continue to have a substantial amount of indebtedness. At June 30, 2025, we had approximately $3,392.8 million of debt outstanding. Such debt consisted primarily of $2,813.2 million of securitization trust debt and $395.6 million of debt from warehouse lines of credit. Our securitization trust debt has increased by $218.9 million while our warehouse lines of credit debt has decreased by $15.3 million since December 31, 2024 (each net of deferred financing costs). Since 2005, we have offered renewable subordinated notes to the public on a continuous basis, and such notes have maturities that range from six months to 10 years. We had $28.8 million and $26.5 million in subordinated renewable notes outstanding at June 30, 2025, and December 31, 2024, respectively. In June 2021, March 2024, and again on March 20, 2025, we completed a securitization of residual interests from other previously issued securitizations in the amount of $50 million, $50 million, and $65 million, respectively. As of June 30, 2025, all $155.1 million of the residual interest debt remains outstanding.