CONSUMER PORTFOLIO SERVICES, INC. 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 inthe 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 originate vehicle purchase money loans by lending directly to consumers and have (i) acquired installment purchase contracts in four merger and acquisition transactions, and (ii) purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders. In this report, we refer to all of such contracts and loans as "automobile contracts." We were incorporated and began our operations inMarch 1991 . From inception throughSeptember 30, 2021 , we have originated a total of approximately$17.8 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: $ in thousands Contracts Purchased in Managed Portfolio Period Period at Period End 2015 1,060,538 2,031,136 2016 1,088,785 2,308,070 2017 859,069 2,333,530 2018 902,416 2,380,847 2019 1,002,782 2,416,042 2020 742,584 2,174,972 Nine months ended September 30, 2021 818,341 2,184,142
InMay 2021 , we entered into arrangements with two non-affiliated entities for whom we originate certain receivables with the intention of selling them to the respective non-affiiliates. Depending on the program, we may or may not continue to service receivables after they are sold. Under these programs, we earn fees for originating the receivable and also servicing fees in the case where we retain the servicing. For the nine months endedSeptember 30, 2021 , we originated$23.7 million under these third-party programs. As ofSeptember 30, 2021 , our managed portfolio includes$22.6 million of such third-party receivables. Our principal executive offices are inLas Vegas, Nevada . Most of our operational and administrative functions take place inIrvine, California . Credit and underwriting functions are performed primarily in thatCalifornia branch with certain of these functions also performed in ourFlorida and Nevada branches. We service our automobile contracts from ourCalifornia ,Nevada ,Virginia ,Florida andIllinois 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. 26
Securitization and Warehouse Credit Facilities
Throughout the period for which information is presented in this report, we have purchased automobile contracts with the intention of financing them on a long-term basis through securitizations, and on an interim basis through warehouse credit facilities. All such financings have involved identification of specific automobile contracts, sale of those automobile contracts (and associated rights) to one of our special-purpose subsidiaries, and issuance of asset-backed securities to be purchased by institutional investors. Depending on the structure, these transactions may be accounted for under generally accepted accounting principles as sales of the automobile contracts or as secured financings. All of our active securitizations are structured as secured financings. When structured to be treated as a secured financing for accounting purposes, the subsidiary is consolidated with us. Accordingly, the sold automobile contracts and the related debt appear as assets and liabilities, respectively, on our consolidated balance sheet. We then periodically (i) recognize interest and fee income on the contracts, and (ii) recognize interest expense on the securities issued in the transaction. For automobile contracts acquired after 2017 we take account of estimated credit losses in our computation of a level yield used to determine recognition of interest on the contracts. For contracts acquired before 2018, we adopted CECL onJanuary 1, 2020 and we may, as circumstances warrant, record as expense provisions for credit losses, as we did during the year endedDecember 31, 2020 because of the uncertainty related
to the pandemic. Since 1994 we have conducted 90 term securitizations of automobile contracts that we originated. As ofSeptember 30, 2021 , 20 of those securitizations are active and all are structured as secured financings. SinceSeptember 2010 we have utilized senior subordinated structures without any financial guarantees. We have generally conducted our securitizations on a quarterly basis, near the end of each calendar quarter, resulting in four securitizations per calendar year. However, in 2015 and 2020, we closed only three term securitization transactions in each calendar year rather than four. Our recent history of term securitizations is summarized in the table below: Recent Asset-Backed Term Securitizations $ in thousands Receivables Pledged Number of Term in Term Period Securitizations Securitizations 2015 3 $ 795,000 2016 4 1,214,997 2017 4 870,000 2018 4 883,452 2019 4 1,014,124 2020 3 741,867 Nine months ended September 30, 2021 3 785,000 Generally, prior to a securitization transaction we fund our automobile contract purchases primarily with proceeds from warehouse credit facilities. We previously had short-term funding capacity of$300 million , comprising three credit facilities. The first$100 million credit facility was established inMay 2012 . This facility was most recently renewed inDecember 2020 , extending the revolving period toDecember 2022 , with an optional amortization period throughDecember 2023 . InNovember 2015 , we entered into another$100 million facility. This facility was renewed inNovember 2017 and again inDecember 2019 , extending the revolving period toDecember 2021 , followed by an amortization period toDecember 2023 . InApril 2015 , we entered into a$100 million facility that was renewed inApril 2017 and again inFebruary 2019 . We repaid the outstanding balance for this facility at its maturity date inFebruary 2021 and elected not to renew it. We currently have short-term funding capacity of$200 million . In a securitization and in our warehouse credit facilities, we are required to make certain representations and warranties, which are generally similar to the representations and warranties made by dealers in connection with our purchase of the automobile contracts. 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. 27 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.
Receivables we originate and service for third-parties are not pledged to our warehouse facilities or included in our securitizations.
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 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 ofSeptember 30, 2021 , we were in compliance with all such covenants. Results of Operations
Comparison of Operating Results for the three months ended
Revenues. During the three months endedSeptember 30, 2021 , our revenues were$68.6 million , a decrease of$2.1 million , or 3.0%, from the prior year revenue of$70.7 million . The primary reason for the decrease in revenues is a decrease in interest income. Interest income for the three months endedSeptember 30, 2021 decreased$5.6 million , or 7.7%, to$67.0 million from$72.6 million in the prior year. The primary reason for the decrease in interest income is the continued runoff of our legacy portfolio of finance receivables originated prior toJanuary 2018 , the average balance of which decreased by 51.0% from the prior period. The decrease in interest from that legacy portion of our portfolio was partially offset by the increase in our portfolio of receivables measured at fair value, which are those originated sinceJanuary 2018 . 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 balances and interest yields of the two components of our loan portfolio for the three months endedSeptember 30, 2021 and 2020:
Three Months Ended September 30,
2021 2020
(Dollars in thousands)
Average Interest Average Interest
Balance Interest Yield
Balance Interest Yield
Interest Earning
Assets
Finance receivables $ 305,820 $ 16,067 21.0% $ 624,532 $ 29,775 19.1%
Finance receivables
measured at fairvalue 1,837,138 50,951 11.1% 1,646,022 42,807 10.4% Total$ 2,142,958 $ 67,018 12.5%$ 2,270,554 $ 72,582 12.8% Revenues for the three months endedSeptember 30, 2020 are net of a mark down of$3.2 million to the recorded value of the finance receivables measured at fair value. The mark downs are estimates based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and our assessment of potential additional future net losses arising from the pandemic. Our evaluation of these finance receivables measured at fair value for the three months endedSeptember 30, 2021 indicated that no adjustment was required for the period. 28
Other income was$1.5 million for the three months endedSeptember 30, 2021 compared to$1.2 million for the comparable period in 2020. This 24.9% increase was primarily driven by the origination and servicing fees we earned from third party receivables that began inMay 2021 . These fees were$495,000 for the quarter endedSeptember 30, 2021 . 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 internal rate of return or the recorded value 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 purchased and serviced.
Other operating expenses consist largely of facilities expenses, telephone and other communication services, credit services, computer services, sales and advertising expenses, and depreciation and amortization.
Total operating expenses were$49.0 million for the three months endedSeptember 30, 2021 , compared to$64.8 million for the prior period, a decrease of$15.8 million , or 24.3%. The decrease is primarily due to decreases in interest expense and provisions for credit losses. Employee costs were$18.2 million during the three months endedSeptember 30, 2021 compared to$19.2 million for the same quarter in the prior year. 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,September 30, 2021 and 2020: Three Months EndedSeptember 30, 2021 2020 (Dollars in millions)
Contracts purchased (dollars) $ 326.8 $
174.0
Contracts purchased (units) 14,741
9,106
Managed portfolio outstanding (dollars)
156,456 168,071
Number of Originations staff 170
161
Number of Sales staff 110
94
Number of Servicing staff 397
472
Number of other staff 74
73
Total number of employees 751
800 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$7.5 million , a decrease from$7.8 million in the previous year and represented 15.2% of total operating expenses. 29
Interest expense for the three months ended
Interest on securitization trust debt decreased by$6.3 million for the three months endedSeptember 30, 2021 compared to the prior period. The average balance of securitization trust debt decreased to$1,819.8 million for the three months endedSeptember 30, 2021 compared to$1,979.5 million for the three months endedSeptember 30, 2020 . In addition, the blended interest rates on new term securitizations have declined in 2020 and 2021. The annualized average rate on our securitization trust debt was 3.4% for the three months endedSeptember 30, 2021 compared to 4.4% in the prior year period. For each quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including the market interest rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks that investors are willing to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization. These and other factors have resulted in fluctuations in our securitization trust debt interest costs. The blended interest rates of our recent securitizations are summarized in the table below: Blended Cost of Funds on Recent Asset-Backed Term Securitizations
Period Blended Cost of Funds
January 2018 3.46%April 2018 3.98%July 2018 4.18%October 2018 4.25%January 2019 4.22%April 2019 3.95%July 2019 3.36%October 2019 2.95%January 2020 3.08%June 2020 4.09%September 2020 2.39%January 2021 1.11%April 2021 1.65%July 2021 1.55% Interest expense on warehouse credit line debt decreased by$928,000 to$929,000 for the three months endedSeptember 30, 2021 compared to$1.9 million in the prior year period. The decrease was due to the lower utilization of our credit lines during the quarter compared to last year. The average balance of our warehouse debt was$39.4 million during the three months endedSeptember 30, 2021 compared to$90.7 million for the same period in 2020. Interest expense on subordinated renewable notes increased by$137,000 . The average balance of the outstanding subordinated debt increased 36.1% to$26.9 million for the three months endedSeptember 30, 2021 compared to$19.7 million for the three months endedSeptember 30, 2020 . The average yield of subordinated notes decreased to 10.4% in the three-month period endedSeptember 30, 2021 compared to 11.4% in the prior period.
In
30 The following table presents the components of interest income and interest expense and a net interest yield analysis for the three-month periods endedSeptember 30, 2021 and 2020: Three Months Ended September 30, 2021 2020 (Dollars in thousands) Annualized Annualized Average Average Average Average Balance (1) Interest Yield/Rate Balance (1) Interest Yield/Rate Interest Earning Assets Finance receivables gross (2)$ 305,820 $ 16,067 21.0%$ 624,532 $ 29,775 19.1% Finance receivables at fair value 1,837,138 50,951 11.1% 1,646,022 42,807 10.4% 2,142,958 67,018 12.5% 2,270,554 72,582 12.8% Interest Bearing Liabilities Warehouse lines of credit$ 39,447 929 9.4%$ 90,697 1,857 8.2% Residual interest financing 66,824 1,413 8.5% 36,407 876 9.6% Securitization trust debt 1,819,789 15,292 3.4% 1,979,491 21,605 4.4% Subordinated renewable notes 26,868 700 10.4% 19,737 563 11.4%$ 1,952,928 18,334 3.8%$ 2,126,332 24,901 4.7% Net interest income/spread$ 48,684 $ 47,681 Net interest yield (3) 8.7% 8.1% Ratio of average interest earning assets to average interest bearing liabilities 110% 107%
(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) Annualized net interest income divided by average interest earning assets.
Three Months Ended September 30, 2021
Compared to September 30, 2020
Total Change Due Change Due
Change to Volume to Rate
(In thousands)
Interest Earning Assets
Finance receivables gross $ (13,708 ) $ (15,161 ) $ 1,453 Finance receivables at fair value 8,144 4,929
3,215
(5,564 ) (10,232 ) 4,668
Interest Bearing Liabilities
Warehouse lines of credit (928 ) (1,046 ) 118
Residual interest financing 537 721 (184 )
Securitization trust debt (6,313 ) (1,764 ) (4,549 )
Subordinated renewable notes 137 204 (67 )
(6,567 ) (1,885 ) (4,682 )
Net interest income/spread $ 1,003 $ (8,347 ) $ 9,350
31
The reduction in the annualized yield on our finance receivables for the three
months ended September 30, 2021 compared to the prior year period is the result
of the lower interest yield on the receivables measured at fair value. 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 receivables was $1,837.1 million for
the three months ended September 30, 2021 compared to $1,646.0 million in the
prior year period.
EffectiveJanuary 1, 2020 , the Company adopted Accounting Standards Update 2016-13 - 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 toJanuary 2018 . The Company recorded an addition to its allowance for finance credit losses of$127.0 million upon its adoption of CECL inJanuary 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 three months endedSeptember 30, 2021 , we recorded a reduction to provision for credit losses on finance receivables in the amount of$1.6 million . The reserve decrease was primarily due to a decrease in lifetime expected credit losses resulting from improved credit performance. Provision for credit losses was$7.4 million for the three months endedSeptember 30, 2020 . That provision represented our estimate in 2020 of additional forecasted losses that might be incurred as a result of the pandemic in our portfolio of finance receivables. Such losses were not considered in our initial estimate of remaining lifetime losses that we recorded upon our adoption of CECL inJanuary 2020 . Our evaluation of the allowance for credit losses indicated that the reserves against future losses are adequate as ofSeptember 30, 2021 . Although we have not yet seen a deterioration in the credit performance for these receivables as a result of the pandemic, we expect that the absence of any additional government stimulus payments, the expiration of the eviction moratorium and a reversion to the mean for used car pricing could negatively affect credit performance in the future. The allowance applies only to our finance receivables originated throughDecember 2017 , which we refer to as our legacy portfolio. Finance receivables that we have originated sinceJanuary 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, such as training programs, internet lead sales, and direct mail products. Sales expense increased by$1.1 million to$4.3 million during the three months endedSeptember 30, 2021 and represented 8.7% of total operating expenses. We purchased$326.8 million of new contracts during the three months endedSeptember 30, 2021 compared to$174.0 million in the prior year period. In our second quarter of 2020, we experienced a significant reduction in contract purchases due to the pandemic and partial shutdown of the economy. Since then, our contract purchase volumes have gradually increased to pre-pandemic levels.
Occupancy expenses was
Depreciation and amortization expenses decreased to
For the three months endedSeptember 30, 2021 , we recorded income tax expense of$5.9 million , representing a 30% effective tax rate. In the prior period, our income tax expense was$2.1 million , representing a 36% effective tax rate.
32
Comparison of Operating Results for the nine months ended
Revenues. During the nine months endedSeptember 30, 2021 , our revenues were$198.4 million , a decrease of$10.3 million , or 4.9%, from the prior year revenue of$208.7 million . The primary reason for the decrease in revenues is a decrease in interest income. Interest income for the nine months endedSeptember 30, 2021 decreased$28.7 million , or 12.6%, to$198.6 million from$227.3 million in the prior year. The primary reason for the decrease in interest income is the continued runoff of our legacy portfolio of finance receivables originated prior toJanuary 2018 , the average balance of which decreased by 44.4% from the prior period. The decrease in interest from that legacy portion of our portfolio was partially offset by the increase in our portfolio of receivables measured at fair value, which are those originated sinceJanuary 2018 . The interest yield on receivables measured at fair value is reduced to take account of expected losses and is therefore less than the yield on other finance receivables. The table below shows the average balances and interest yields of the two components of our loan portfolio for the nine months endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, 2021 2020 (Dollars in thousands) Average Interest Average Interest Balance Interest Yield Balance Interest Yield Interest Earning Assets Finance receivables$ 375,642 $ 56,669 20.1%$ 734,195 $ 101,998 18.5% Finance receivables measured at fair value 1,757,787 141,882 10.8% 1,619,399 125,273 10.3% Total$ 2,133,429 $ 198,551 12.4%$ 2,353,594 $ 227,271 12.9%
Revenues for the nine months endedSeptember 30, 2021 and 2020 are net of a mark downs of$4.4 million and$23.1 million , respectively, to the recorded value of the finance receivables measured at fair value. The mark downs are estimates based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and our assessment of potential additional future net losses arising from the pandemic.
Other income was
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 internal rate of return or the recorded value 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 purchased and serviced.
Other operating expenses consist largely of facilities expenses, telephone and other communication services, credit services, computer services, sales and advertising expenses, and depreciation and amortization.
33 Total operating expenses were$157.1 million for the nine months endedSeptember 30, 2021 , compared to$195.1 million for the prior period, a decrease of$38.0 million , or 19.5%. The decrease is primarily due to decreases in interest expense, provisions for credit losses and employee costs. Employee costs decreased by$3.0 million or 5.0%, to$57.8 million during the nine months endedSeptember 30, 2021 , representing 36.8% of operating expenses, from$60.8 million for the prior year. The table below summarizes our employees by category as well as contract purchases and units in our managed portfolio as of, and for the nine-month periods ended,September 30, 2021 and 2020: Nine Months EndedSeptember 30, 2021 2020 (Dollars in millions)
Contracts purchased (dollars) $ 818.3 $
575.9
Contracts purchased (units) 39,929
31,475
Managed portfolio outstanding (dollars)
156,456 168,071
Number of Originations staff 170
161
Number of Sales staff 110
94
Number of Servicing staff 397
472
Number of other staff 74
73
Total number of employees 751
800 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$23.0 million , a decrease from$24.4 million in the previous year and represented 14.7% of total operating expenses. Interest expense for the nine months endedSeptember 30, 2021 were$58.3 million and represented 37.1% of total operating expenses, compared to$78.4 million in the previous year, when it was 40.2% of total operating expenses. Interest on securitization trust debt decreased by$17.2 million for the nine months endedSeptember 30, 2021 compared to the prior period. The average balance of securitization trust debt decreased to$1,842.7 million for the nine months endedSeptember 30, 2021 compared to$2,058.1 million for the nine months endedSeptember 30, 2020 . In addition, the blended interest rates on new term securitizations have declined in 2020 and 2021. The annualized average rate on our securitization trust debt was 3.7% for the nine months endedSeptember 30, 2021 compared to 4.4% 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: 34 Blended Cost of Funds on Recent Asset-Backed Term Securitizations Period Blended Cost of Funds
January 2018 3.46%April 2018 3.98%July 2018 4.18%October 2018 4.25%January 2019 4.22%April 2019 3.95%July 2019 3.36%October 2019 2.95%January 2020 3.08%June 2020 4.09%September 2020 2.39%January 2021 1.11%April 2021 1.65%July 2021 1.55%
Interest expense on warehouse credit line debt decreased by$3.0 million to$3.3 million for the nine months endedSeptember 30, 2021 compared to$6.3 million in the prior year period. The decrease was primarily due to the lower utilization of our credit lines during the quarter compared to last year. The average balance of our warehouse debt was$46.7 million during the nine months endedSeptember 30, 2021 compared to$107.4 million for the same period in 2020. Interest expense on subordinated renewable notes increased by$401,000 . The average balance of the outstanding subordinated debt increased 30.7% to$24.6 million for the nine months endedSeptember 30, 2021 compared to$18.8 million for the nine months endedSeptember 30, 2020 . The average yield of subordinated notes decreased to 10.7% in the nine-month period endedSeptember 30, 2021 compared to 11.2% in the prior period.
In
The following table presents the components of interest income and interest expense and a net interest yield analysis for the nine-month periods endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, 2021 2020 (Dollars in thousands) Annualized Annualized Average Average Average Average Balance (1) Interest Yield/Rate Balance (1) Interest Yield/Rate Interest Earning Assets Finance receivables gross (2)$ 375,642 $ 56,669 20.1%$ 734,195 $ 101,998 18.5% Finance receivables at fair value 1,757,787 141,882 10.8% 1,619,399 125,273 10.3% 2,133,429 198,551 12.4% 2,353,594 227,271 12.9% Interest Bearing Liabilities Warehouse lines of credit$ 46,709 3,265 9.3%$ 107,388 6,294 7.8% Residual interest financing 36,101 2,446 9.0% 37,959 2,734 9.6% Securitization trust debt 1,842,694 50,568 3.7% 2,058,110 67,770 4.4% Subordinated renewable notes 24,637 1,981 10.7% 18,847 1,580 11.2%$ 1,950,141 58,260 4.0%$ 2,222,304 78,378 4.7% Net interest income/spread$ 140,291 $ 148,893 Net interest yield (3) 8.4% 8.2% Ratio of average interest earning assets to average interest bearing liabilities 109% 106%
(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) Annualized net interest income divided by average interest earning assets.
35
Nine Months Ended September 30, 2021
Compared to September 30, 2020
Total Change Due Change Due
Change to Volume to Rate
(In thousands)
Interest Earning Assets
Finance receivables gross $ (45,329 ) $ (51,307 ) $ 5,978 Finance receivables at fair value 16,609 8,738
7,871
(28,720 ) (42,569 ) 13,849
Interest Bearing Liabilities
Warehouse lines of credit (3,029 ) (3,732 ) 703
Residual interest financing (288 ) (82 ) (206 )
Securitization trust debt (17,202 ) (3,724 ) (13,478 )
Subordinated renewable notes 401 513 (112 )
(20,118 ) (7,025 ) (13,093 )
Net interest income/spread $ (8,602 ) $ (35,544 ) $ 26,942
The reduction in the annualized yield on our finance receivables for the nine
months ended September 30, 2021 compared to the prior year period is the result
of the lower interest yield on the receivables measured at fair value. 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 receivables was $1,757.8 million for
the nine months ended September 30, 2021 compared to $1,619.4 million in the
prior year period.
EffectiveJanuary 1, 2020 , the Company adopted Accounting Standards Update 2016-13 - 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 toJanuary 2018 . The Company recorded an addition to its allowance for finance credit losses of$127.0 million upon its adoption of CECL inJanuary 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 nine months endedSeptember 30, 2021 , we recorded a reduction to provision for credit losses on finance receivables in the amount of$1.6 million . The reserve decrease was primarily due to a decrease in lifetime expected credit losses resulting from improved credit performance. Provision for credit losses was$14.1 million for the nine months endedSeptember 30, 2020 . That provision represented our estimate in 2020 of additional forecasted losses that might be incurred as a result of the pandemic on our portfolio of finance receivables. Such losses were not considered in our initial estimate of remaining lifetime losses that we recorded upon our adoption of CECL inJanuary 2020 . Our evaluation of the allowance for credit losses indicated that the reserves against future losses are adequate as ofSeptember 30, 2021 . Although we have not yet seen a deterioration in the credit performance for these receivables as a result of the pandemic, we expect that the absence of any additional government stimulus payments, the expiration of the eviction moratorium and a reversion to the mean for used car pricing could negatively affect credit performance in the future. 36 The allowance applies only to our finance receivables originated throughDecember 2017 , which we refer to as our legacy portfolio. Finance receivables that we have originated sinceJanuary 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, such as training programs, internet lead sales, and direct mail products. Sales expense increased by$1.8 million to$12.5 million during the nine months endedSeptember 30, 2021 and represented 7.9% of total operating expenses. We purchased$818.3 million of new contracts during the nine months endedSeptember 30, 2021 compared to$575.9 million in the prior year period. In our second quarter of 2020, we experienced a significant reduction in contract purchases due to the pandemic and partial shutdown of the economy. Since then, our contract purchase volumes have gradually increased to pre-pandemic levels.
Occupancy expenses was
Depreciation and amortization expenses decreased by
For the nine months endedSeptember 30, 2021 we recorded income tax expense of$12.8 million , representing a 31% effective tax rate. For the nine months endedSeptember 30, 2020 , we recorded a net income tax benefit of$3.9 million . OnMarch 27, 2020 , the Coronavirus Aid, Relief and Economic Security ("CARES") Act was passed into law, providing wide ranging economic relief for individuals and businesses. One component of the CARES Act provides the Company with an opportunity to carry back net operating losses ("NOLs") arising from 2018, 2019 and 2020 to the prior five tax years. The Company has previously valued its NOLs at the federal corporate income tax rate of 21%. However, the CARES Act provides for NOL carryback claims to be calculated based on a rate of 35%, which was the federal corporate tax rate in effect for the carryback years. The result of the revaluation of NOLs and other tax adjustments is a net tax benefit of$8.8 million . Excluding the tax benefit, income tax expense for the nine months endedSeptember 30, 2020 would have been$4.9 million , representing an effective
income tax rate of 36%.
Credit Experience
Our financial results are dependent on the performance of the automobile
contracts in which we retain an ownership interest. Broad economic factors such
as recession and significant changes in unemployment levels influence the credit
performance of our portfolio, as does the weighted average age of the
receivables at any given time. The tables below document the delinquency,
repossession and net credit loss experience of all such automobile contracts
that we originated or own an interest in as of the respective dates shown.
Recent effects of the pandemic include higher volumes of payment extensions
requested by our customers and, in some states, temporary suspension of our
rights to repossess automobiles. The pandemic may have a negative effect on our
delinquency and charge off experience in the future, which is not yet reflected
in the tables below.
37
Delinquency, Repossession and Extension Experience (1)
Total Owned Portfolio
September 30, 2021 September 30, 2020 December 31, 2020
Number of Number of Number of
Contracts Amount Contracts Amount Contracts Amount
(Dollars in thousands)
Delinquency Experience
Gross servicing portfolio
(1) 156,456 $ 2,184,142 168,071 $ 2,250,395 163,117 $ 2,174,972
Period of delinquency (2)
31-60 days 9,621 $ 127,900 9,883 $ 133,671 11,357 $ 152,868
61-90 days 3,371 42,997 3,771 49,376 4,525 59,096
91+ days 961 11,745 1,413 16,067 1,290 14,989
Total delinquencies (2) 13,953 182,642 15,067 199,114 17,172 226,953
Amount in repossession (3) 1,792 21,803 2,733 32,383 2,979 35,839
Total delinquencies and
amount in repossession (2) 15,745 $ 204,445 17,800 $ 231,497 20,151 $ 262,792
Delinquencies as a
percentage of gross
servicing portfolio 8.9% 8.4% 9.0% 8.8% 10.5% 10.4%
.
Total delinquencies and
amount in repossession as a
percentage of gross
servicing portfolio 10.1% 9.4% 10.6% 10.3% 12.4% 12.1%
Extension Experience
Contracts with one
extension, accruing 23,730 $ 320,330 30,912 $ 441,306 29,709 $ 417,347
Contracts with two or more
extensions, accruing 48,840 548,609 56,204 675,607 55,885 665,572
72,570 868,939 87,116 1,116,913 85,594 1,082,919
Contracts with one
extension, non-accrual (4) 530 6,440 761 9,872 915 12,408
Contracts with two or more
extensions, non-accrual (4) 1,210 13,376 2,505 28,126 2,502 28,189
1,740 19,816 3,266 37,998 3,417 40,597
Total contracts with
extensions 74,310 $ 888,755 90,382 $ 1,154,911 89,011 $ 1,123,516
______________________
(1) All amounts and percentages are based on the amount remaining to be repaid
on each automobile contract, including, for pre-computed automobile contracts,
any unearned interest. The information in the table represents the gross
principal amount of all automobile contracts we have purchased, including
automobile contracts subsequently sold in securitization transactions that we
continue to service. The table does not include certain contracts we have
serviced for third parties on which we earn servicing fees only and have no
credit risk.
(2) We consider an automobile contract delinquent when an obligor fails to make
at least 90% of a contractually due payment by the following due date, which
date may have been extended within limits specified in the Servicing Agreements.
The period of delinquency is based on the number of days payments are
contractually past due. Automobile contracts less than 31 days delinquent are
not included. The delinquency aging categories shown in the tables reflect the
effect of extensions.
(3) Amount in repossession represents financed vehicles that have been repossessed but not yet liquidated.
(4) Amount in repossession and accounts past due more than 90 days are on
non-accrual.
38
Net Charge-Off Experience (1)
Total Owned Portfolio
Finance Receivables Portfolio
September 30, September 30, December 31,
2021 2020 2020
(Dollars in thousands)
Average servicing portfolio outstanding$ 305,820 $ 624,532 $ 684,259 Annualized net charge-offs as a percentage of average servicing portfolio (2) 3.8% 14.1% 11.7% Fair Value Receivables Portfolio September 30, September 30, December 31, 2021 2020 2020 (Dollars in thousands) Average servicing portfolio outstanding$ 1,837,138 $ 1,646,022 $ 1,631,491 Annualized net charge-offs as a percentage of average servicing portfolio (2) 2.7%
3.5% 4.3%
Total Managed Portfolio
September 30, September 30, December 31,
2021 2020 2020
(Dollars in thousands)
Average servicing portfolio outstanding $ 2,142,958 $ 2,270,554 $ 2,315,750
Annualized net charge-offs as a percentage
of average servicing portfolio (2) 2.8% 6.4% 6.5% _________________________
(1) All amounts and percentages are based on the principal amount scheduled to be paid on each automobile contract, net of unearned income on pre-computed automobile contracts.
(2) Net charge-offs include the remaining principal balance, after the application of the net proceeds from the liquidation of the vehicle (excluding accrued and unpaid interest) and amounts collected subsequent to the date of charge-off, including some recoveries which have been classified as other income in the accompanying interim consolidated financial statements.September 30, 2021 andSeptember 30, 2020 percentages represent three months endedSeptember 30, 2021 andSeptember 30, 2020 annualized.December 31, 2020 represents 12 months endedDecember 31, 2020 . Extensions In certain circumstances we will grant obligors one-month payment extensions to assist them with temporary cash flow problems. In general, we are bound by our securitization agreements to refrain from agreeing to more than two such extensions in any 12-month period and to more than six over the life of the contract. The only modification of terms is to advance the obligor's next due date by one month and extend the maturity date of the receivable by one month. In some cases, a two-month extension may be granted. There are no other concessions such as a reduction in interest rate, forgiveness of principal or of accrued interest. Accordingly, we consider such extensions to be insignificant delays in payments rather than troubled debt restructurings. Because financial regulatory authorities have encouraged obligors to expect payment deferrals as a response to the pandemic, we may seek amendments or waivers of our securitization agreements to relax the limits on extensions; however, we have not sought such changes in terms as of the date of this report, and if we do seek such changes, there can be no assurance that the other parties to our securitization agreements will agree to such amendments or waivers, nor as to the effect on credit performance that may result if such amendments or waivers are agreed to. 39 The basic question in deciding to grant an extension is whether or not we will (a) be delaying the inevitable repossession and liquidation or (b) risk losing the vehicle as a result of not being able to locate the obligor and vehicle. In both of those situations, the loss would likely be higher than if the vehicle had been repossessed without the extension. The benefits of granting an extension include minimizing current losses and delinquencies, minimizing lifetime losses, getting the obligor's account current (or close to it) and building goodwill so that the obligor might prioritize us over other creditors on future payments. Our servicing staff are trained to identify when a past due obligor is facing a temporary problem that may be resolved with an extension. In some cases, the extension will be granted in conjunction with our receiving all or a portion of a past due payment from the obligor, thereby indicating an additional monetary and psychological commitment to the contract on the obligor's part. The credit assessment for granting an extension is initially made by our collector, who bases the recommendation on the collector's discussions with the obligor. In such assessments the collector will consider, among other things, the following factors: (1) the reason the obligor has fallen behind in payment; (2) whether or not the reason for the delinquency is temporary, and if it is, have conditions changed such that the obligor can begin making regular monthly payments again after the extension; (3) the obligor's past payment history, including past extensions if applicable; (4) the obligor's willingness to communicate and cooperate on resolving the delinquency; and (5) a numeric score from our internal risk assessment system that indicating the likelihood that the extension will prove beneficial. If the collector believes the obligor is a good candidate for an extension, an approval is obtained from a supervisor, who will review the same factors stated above prior to offering the extension to the obligor. After receiving an extension, an account remains subject to our normal policies and procedures for interest accrual, reporting delinquency and recognizing charge-offs.
We believe that a prudent extension program is an integral component to
mitigating losses in our portfolio of sub-prime automobile receivables. The
table below summarizes the status, as of
Active or Paid Avg Months
Off at % Active or Paid Charged Off > 6 % Charged Off > Charged Off <= 6 % Charged Off <= to Charge
Period of # Extensions
Extension Granted 2021 30, 2021 Extension Extension Extension Extension Extension
2008 35,588 10,708 30.1% 20,061 56.4% 4,819 13.5% 19
2009 32,226 10,274 31.9% 16,170 50.2% 5,783 17.9% 17
2010 26,167 12,165 46.5% 12,009 45.9% 1,999 7.6% 19
2011 18,786 10,972 58.4% 6,882 36.6% 932 5.0% 19
2012 18,783 11,320 60.3% 6,667 35.5% 796 4.2% 18
2013 23,398 11,165 47.7% 11,257 48.1% 976 4.2% 23
2014 25,773 10,564 41.0% 14,383 55.8% 826 3.2% 25
2015 53,319 22,770 42.7% 29,467 55.3% 1,082 2.0% 25
2016 80,897 38,161 47.2% 40,803 50.4% 1,933 2.4% 25
2017 133,881 64,944 48.5% 61,977 46.3% 6,926 5.2% 20
2018 121,531 70,569 58.1% 44,955 37.0% 6,007 4.9% 17
2019 71,548 54,700 76.5% 14,906 20.8% 1,942 2.7% 14
2020 83,170 72,769 87.5% 8,302 10.0% 2,099 2.5% 9
______________________
Note: Table excludes extensions on portfolios serviced for third parties
We view these results as a confirmation of the effectiveness of our extension program. For example, of the accounts granted extensions in 2018, 59.2% were either paid in full or active and performingSeptember 30, 2021 . Each of these successful accounts represent continued payments of interest and principal (including payment in full in many cases), where without the extension we likely would have incurred a substantial loss and no interest revenue after the extension. 40
For the extension accounts that ultimately charge off, we consider any that
charged off more than six months after the extension to be at least partially
successful. For example, of the accounts granted extensions in 2012 that
subsequently charged off, such charge offs occurred, on average, 18 months after
the extension, indicating that even in the cases of an ultimate loss, the
obligor serviced the account with additional payments of principal and interest.
Additional information about our extensions is provided in the tables below:
Nine Months Nine Months
Ended September Year Ended Ended September
30, December 31, 30,
2021 2020 2020
Average number of extensions granted
per month 3,656 6,931 7,256
Average number of outstanding accounts 157,976 172,129 174,549
Average monthly extensions as % of
average outstandings 2.3% 4.0% 4.2%
______________________
Note: Table excludes portfolios originated and owned by third parties
September 30, 2021 September 30, 2020 December 31, 2020
Number of Number of Number of
Contracts Amount Contracts Amount Contracts Amount
(Dollars in thousands)
Contracts with one
extension 24,260 $ 326,770 31,673 $ 451,178 30,624 $ 429,754
Contracts with two
extensions 16,888 216,878 19,028 252,189 19,381 259,236
Contracts with three
extensions 12,155 144,035 13,228 161,303 13,117 159,447
Contracts with four
extensions 9,379 97,391 11,281 130,279 10,868 122,469
Contracts with five
extensions 6,782 63,531 8,801 95,481 8,548 90,322
Contracts with six
extensions 4,846 40,149 6,371 64,481 6,473 62,288
74,310 $ 888,754 90,382 $ 1,154,911 89,011 $ 1,123,516
Managed portfolio
(excluding originated and
owned by 3rd parties) 156,456 $ 2,184,142 168,071 $ 2,250,395 163,117 $ 2,174,972
_____________________
Note: Table excludes portfolios originated and owned by third parties
Since January of 2019, we have attempted to reduce extensions by working with our servicing staff to be more selective in granting extensions including, where appropriate, to exhaust all possibilities of payment by the customer before
granting an extension. 41 Non-Accrual Receivables It is not uncommon for our obligors to fall behind in their payments. However, with the diligent efforts of our Servicing staff and systems for managing our collection efforts, we regularly work with our customers to resolve delinquencies. Our staff 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. If a contract exceeds the 90 days past due threshold at the end of one period, and then makes the necessary payments such that it becomes less than or equal to 90 days delinquent at the end of a subsequent period, it would be restored to full accrual status for our financial reporting purposes. At the time a contract is restored to full accrual in this manner, there can be no assurance that full repayment of interest and principal will ultimately be made. However, we monitor each obligor's payment performance and are aware of the severity of his delinquency at any time. The fact that the delinquency has been reduced below the 90-day threshold is a positive indicator. Should the contract again exceed the 90-day delinquency level at the end of any reporting period, it would again be reflected as a non-accrual account. Our policy for placing a contract on non-accrual status is independent of our policy to grant an extension. In practice, it would be an uncommon circumstance where an extension was granted and the account remained in a non-accrual status, since the goal of the extension is to bring the contract current (or nearly current).
Liquidity and Capital Resources
Our business requires substantial cash to support our purchases of automobile contracts and other operating activities. Our primary sources of cash have been cash flows from the proceeds from term securitization transactions and other sales of automobile contracts, amounts borrowed under various revolving credit facilities (also sometimes known as warehouse credit facilities), customer payments of principal and interest on finance receivables, fees for origination of automobile contracts, and releases of cash from securitization transactions and their related spread accounts. Our primary uses of cash have been the purchases of automobile contracts, repayment of amounts borrowed under lines of credit, securitization transactions and otherwise, operating expenses such as employee, interest, occupancy expenses and other general and administrative expenses, the establishment of spread accounts and initial overcollateralization, if any, the increase of credit enhancement to required levels in securitization transactions, and income taxes. There can be no assurance that internally generated cash will be sufficient to meet our cash demands. The sufficiency of internally generated cash will depend on the performance of securitized pools (which determines the level of releases from those pools and their related spread accounts), the rate of expansion or contraction in our managed portfolio, and the terms upon which we are able to acquire and borrow against automobile contracts.
Net cash provided by operating activities for the nine-month period ended
Net cash used in investing activities was$50.2 million for the nine months endedSeptember 30, 2021 . Net cash provided by investing activities for the nine-month period endedSeptember 30, 2020 was$45.4 million . Cash provided by investing activities primarily results from principal payments and other proceeds received on finance receivables. Cash used in investing activities generally relates to purchases of automobile contracts. Purchases of finance receivables excluding acquisition fees were$818.3 million and$572.9 million during the first nine months of 2021 and 2020, respectively. 42 Net cash used in financing activities for the nine months endedSeptember 30, 2021 was$83.3 million compared to$164.6 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 nine months of 2021, we issued$761.5 million in new securitization trust debt compared to$714.5 million in the same period of 2020. We repaid$861.0 million in securitization trust debt in the nine months endedSeptember 30, 2021 compared to repayments of securitization trust debt of$764.1 million in the prior year period. In the nine months endedSeptember 30, 2021 , we had net repayments on warehouse lines of credit of$22.1 million , compared to$104.7 million in the prior year's period. We purchase automobile contracts from dealers for a cash price approximately equal to their principal amount, adjusted for an acquisition fee which may either increase or decrease the automobile contract purchase price. Those automobile contracts generate cash flow, however, over a period of years. We have been dependent on warehouse credit facilities to purchase automobile contracts and our securitization transactions for long term financing of our contracts. In addition, we have accessed other sources, such as residual financings and subordinated debt in order to finance our continuing operations. The acquisition of automobile contracts for subsequent financing in securitization transactions, and the need to fund spread accounts and initial overcollateralization, if any, and increase credit enhancement levels when those transactions take place, results in a continuing need for capital. The amount of capital required is most heavily dependent on the rate of our automobile contract purchases, the required level of initial credit enhancement in securitizations, and the extent to which the previously established trusts and their related spread accounts either release cash to us or capture cash from collections on securitized automobile contracts. Of those, the factor most subject to our control is the rate at which we purchase automobile contracts. We are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital. As ofSeptember 30, 2021 , we had unrestricted cash of$28.8 million and$102.2 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability of sufficient eligible collateral). As ofSeptember 30, 2021 , we had approximately$95.6 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 nine-month period endedSeptember 30, 2021 , we completed three securitizations aggregating$761.5 million of notes sold. Our liquidity will also be affected by releases of cash from the trusts established with our securitizations. While the specific terms and mechanics of each spread account vary among transactions, our securitization agreements generally provide that we will receive excess cash flows, if any, only if the amount of credit enhancement has reached specified levels and the net losses related to the automobile contracts in the pool are below certain predetermined levels. In the event delinquencies or net losses on the automobile contracts exceed such levels, the terms of the securitization may require increased credit enhancement to be accumulated for the particular pool. There can be no assurance that collections from the related trusts will continue to generate sufficient cash. Our warehouse credit facilities contain various financial covenants requiring certain minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. In addition, certain of our debt agreements other than our term securitizations contain cross-default provisions. Such cross-default provisions would allow the respective creditors to declare a default if an event of default occurred with respect to other indebtedness of ours, but only if such other event of default were to be accompanied by acceleration of such other indebtedness. As ofSeptember 30, 2021 , we were in compliance with all such
financial covenants. 43
We have and will continue to have a substantial amount of indebtedness. AtSeptember 30, 2021 , we had approximately$1,893.3 million of debt outstanding. Such debt consisted primarily of$1,703.5 million of securitization trust debt and$97.8 million of debt from warehouse lines of credit. Our securitization trust debt has decreased by$100.2 million while our warehouse lines of credit debt has decreased by$21.2 million sinceDecember 31, 2020 (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$21.3 million in subordinated renewable notes outstanding atSeptember 30, 2021 andDecember 31, 2020 , respectively. OnMay 16, 2018 , we completed a$40.0 million securitization of residual interests from previously issued securitizations. AtSeptember 30, 2021 ,$15.3 million of this residual interest financing debt remains outstanding. OnJune 30, 2021 , we completed a$50.0 million securitization of residual interests from other previously issued securitizations. As ofSeptember 30, 2021 ,$50.0 million of this debt remains outstanding. 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. Forward Looking Statements This report on Form 10-Q includes certain "forward-looking statements." Forward-looking statements may be identified by the use of words such as "anticipates," "expects," "plans," "estimates," or words of like meaning. Our provision for credit losses is a forward-looking statement, as it is dependent on our estimates as to future chargeoffs and recovery rates. Factors that could affect charge-offs and recovery rates include changes in the general economic climate, which could affect the willingness or ability of obligors to pay pursuant to the terms of automobile contracts, changes in laws respecting consumer finance, which could affect our ability to enforce rights under automobile contracts, and changes in the market for used vehicles, which could affect the levels of recoveries upon sale of repossessed vehicles. Our valuation of receivables measured at fair value is a forward-looking statement, as it is dependent, among other things, on our estimates of cash to be received in the future with respect to such receivables. Each of the factors listed above as affecting charge-offs and recovery rates could have a similar effect on cash to be received in the future with respect to receivables measured at fair value. Factors that could affect our revenues in the current year include the levels of cash releases from existing pools of automobile contracts, which would affect our ability to purchase automobile contracts, the terms on which we are able to finance such purchases, the willingness of dealers to sell automobile contracts to us on the terms that we offer, and the terms on which and whether we are able to complete term securitizations once automobile contracts are acquired. Factors that could affect our expenses in the current year include competitive conditions in the market for qualified personnel and interest rates (which affect the rates that we pay on notes issued in our securitizations). The factors identified in this and other reports as "Risk Factors" could affect our revenues, expenses, liquidity and financial condition, and the timing and amount of cash received with respect to our automobile contracts.
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