Former name, former address and former fiscal year, if changed since last report: N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~ ☒ No ~~[_]~~☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ~~[X]~~ ☒ No ~~[_]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[_]~~☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ~~[_]~~ ☐ No ~~[X]~~ ☒

As of ~~November 6, 2019~~July 24, 2020 the registrant had ~~22,530,918~~ 22,704,868 common shares outstanding.

~~See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.~~

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

We were formed in California on March 8, 1991. We specialize in purchasing and servicing retail automobile installment sale contracts (“automobile contracts” or “finance receivables”) originated by licensed motor vehicle dealers located throughout the United States (“dealers”) in the sale of new and used automobiles, light trucks and passenger vans. Through our purchases, we provide indirect financing to dealer customers for borrowers with limited credit histories or past credit problems (“sub-prime customers”). We serve as an alternative source of financing for dealers, allowing sales to customers who otherwise might not be able to obtain financing. In addition to purchasing installment purchase contracts directly from dealers, we have also (i) lent money directly to consumers for loans secured by vehicles, (ii) purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders, and (iii) acquired installment purchase contracts in four merger and acquisition transactions. In this report, we refer to all of such contracts and loans as "automobile contracts."

Our Unaudited Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America, with the instructions to Form 10-Q and with Article 10 of Regulation S-X of the Securities and Exchange Commission, and include all adjustments that are, in management’s opinion, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are, in the opinion of management, of a normal recurring nature. Results for the ~~nine month~~six-month period ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of the operating results to be expected for the full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these Unaudited Condensed Consolidated Financial Statements. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods.

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

We re-evaluate the fair value of such receivables at the close of each measurement period. If the reevaluation were to yield a value materially different from the ~~carrying~~recorded value, an adjustment would be required. InResults for the ~~three-month period ended September 30, 2019,~~second quarter include the ~~net present~~estimated potential effect on credit performance resulting from the COVID-19 pandemic. We recorded a $9.5 million mark down to the recorded value of the ~~forecasted cash flows for~~portion of the receivables ~~acquired~~portfolio accounted for at fair value in the second quarter and $10.4 million in the first ~~quarter of 2018 exceeded the carrying value of that pool by $604,000, which we have recorded~~quarter. The mark down is reflected as a ~~mark to market value of that pool of receivables.~~reduction in revenue for each period.

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

The following table presents the primary components of Other Income for the three-month and ~~nine-month~~six-month periods ending ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”. The majority of the Company’s revenues come from interest income which is outside the scope of ASC 606. The Company’s services that fall within the scope of ASC 606 are presented within Other Income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include revenue associated with direct mail and other related products and services that we offer to our dealers.

Effective January 1, 2019, the Company adopted guidance Accounting Standards Update (“ASU 2016-02”) Topic 842, “Leases” using the modified retrospective transition method. Prior comparable periods are presented accordance with previous guidance under Accounting Standards Codification (“ASC”) Topic 840, “Leases.” The Company also elected the package of practical expedients, ASU 2018-11. This election allowed the Company to not reassess if expired or existing contracts contain leases, to not reassess lease classifications for any expired or existing leases and to not reassess existing leases initial direct costs.

We determine if a contract contains a lease at contract inception. Right-of-use assets and liabilities are recognized based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use the Company’s incremental borrowing rate. Right-of-use assets are included in other assets and lease liabilities are included in accounts payable and accrued expenses in our Unaudited Condensed Consolidated Balance Sheet at September 30, 2019.

The Company has operating leases for corporate offices, equipment, software and hardware. The Company has entered into operating leases for the majority of its real estate locations, primarily office space. These leases are generally for periods of three to seven years with various renewal options. The depreciable life of leased assets is limited by the expected lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.

The following table presents the supplemental balance sheet information related to leases:

The following table presents the ~~leases~~lease expense included in ~~Occupancy,~~ General and administrative and Occupancy expense on our Unaudited Condensed Consolidated Statement of Operations:

The following table presents the supplemental cash flow information related to leases:

We recognize compensation costs in the financial statements for all share-based payments based on the grant date fair value estimated in accordance with the provisions of ASC 718 “Stock Compensation”.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we recorded stock-based compensation costs in the amount of ~~$377,000~~$412,000 and ~~$1.5 million,~~$898,000, respectively. These stock-based compensation costs were ~~$663,000~~$481,000 and ~~$2.8~~$1.1 million1,119 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. As of ~~September~~June 30, ~~2019,~~2020, unrecognized stock-based compensation costs to be recognized over future periods equaled ~~$2.1~~$4.2 million. This amount will be recognized as expense over a weighted-average period of ~~2.3~~2.6 years.

The following represents stock option activity for the six months ended June 30, 2020:

~~The following represents stock option activity for the nine months ended September 30, 2019:~~

At ~~September~~June 30, ~~2019,~~2020, the aggregate intrinsic value of options outstanding and exercisable was ~~$5.8~~$3.5 million and ~~$5.5~~$3.0 million, respectively. There were ~~482,500~~256,600 options exercised for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~315,500~~482,500 for the comparable period in ~~2018.~~2019. The total intrinsic value of options exercised was ~~$1.4~~$285,000 and $1.4 million ~~and $869,000~~ for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019. There were ~~1,458,000~~21,000 shares available for future stock option grants under existing plans as of ~~September~~June 30, ~~2019.~~2020.

The table below describes the purchase of our common stock for the ~~nine-month~~six-month ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on net income or shareholders’ equity.

Certain of our securitization transactions, our warehouse credit facilities and our residual interest financing contain various financial covenants requiring minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. As of ~~September~~June 30, ~~2019,~~2020, we were in compliance with all such covenants. In addition, certain of our debt agreements other than our term securitizations contain cross-default provisions. Such cross-default provisions would allow the respective creditors to declare a default if an event of default occurred with respect to other indebtedness of ours, but only if such other event of default were to be accompanied by acceleration of such other indebtedness.

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

We record at each measurement date, most recently as of September 30, 2019, our best estimate of probable incurred losses for legal contingencies. The amount of losses that may ultimately be incurred cannot be estimated with certainty.

In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-13, ~~- Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The revised accounting guidance~~which changes the criteria under which credit losses on financial instruments (such as the Company’s finance receivables) are measured. ~~The amendment~~ASU 2016-3 introduces a new credit reserving model known as the Current Expected Credit Loss ~~(CECL)~~(“CECL”) model, which replaces the incurred loss impairment methodology ~~in current~~previously used under U.S. GAAP with a methodology that ~~reflects~~records currently the expected lifetime credit losses ~~and requires~~on financial instruments. To establish such lifetime credit loss estimates, consideration of a ~~broader~~broadened range of reasonable and supportable information to establish credit loss ~~estimates.~~estimates is required. ASU 2016-13 was initially scheduled to become effective for interim and annual reporting periods beginning after December 15, 2019, however on October 16, 2019, the FASB changed the effective date for smaller reporting companies to~~interim and annual reporting periodsbeginning after December 15, 2022. Early adoption would still be permitted for~~ interim and annual reporting periods beginning after December 15, ~~2019.~~2022, with early adoption permitted.

Effective January 1, 2020, the Company adopted the CECL model. The ~~Company is currently evaluating~~adoption of CECL required that we establish an allowance for the ~~provisions of ASU 2016-13, however, it is~~remaining expected ~~that the new CECL model will alter the assumptions used in calculating the Company's~~lifetime credit losses ~~given~~on the ~~change~~portion of the Company’s receivable portfolio for which the Company was not already using fair value accounting. We refer to that portion, which is those receivables that were originated prior to January 2018, as our “legacy portfolio”. To comply with CECL, the Company recorded an addition to its allowance for finance credit losses of $127.0 million. In accordance with the rules for adopting CECL, the offset to the addition to the allowance for finance credit losses was a tax affected reduction to retained earnings using the modified retrospective method, and not a current period expense.

In December 2019, a new strain of coronavirus (the “COVID-19 virus”) originated in Wuhan, China. Since its discovery, the COVID-19 virus has spread throughout the world, and the outbreak has been declared to be a pandemic by the World Health Organization. We refer from time to time in this report to the outbreak and spread of the COVID-19 virus as “the pandemic.”

Results for the six-month period ending June 30, 2020 include the estimated potential effect on credit performance resulting from the pandemic. We recorded a $6.7 million charge to the provision for credit losses for the ~~estimated life~~legacy portfolio accounted for under CECL and a $19.9 million mark down to the recorded value of the ~~financial asset,~~finance receivables measured at fair value.

The pandemic itself, if sufficient numbers of people were to be afflicted, could cause obligors under our automobile contracts to be unable to pay their contractual obligations. As the future course of the COVID-19 pandemic is as yet unknown, its direct effect on future obligor payments is likewise uncertain.

The mandatory shutdown of large portions of the United States economy pursuant to emergency restrictions has impaired and will ~~likely result~~impair the ability of obligors under our automobile contracts to pay their contractual obligations. The extent to which that ability will be impaired, and the extent to which public ameliorative measures such as stimulus payments and enhanced unemployment benefits may restore such ability, cannot be estimated.

We measure our portfolio of finance receivables carried at fair value with consideration for unobservable inputs that reflect our own assumptions about the factors that market participants use in pricing similar receivables and are based on the best information available in the circumstances. They include such inputs as estimates for the magnitude and timing of net charge-offs and the rate of amortization of the portfolio. The pandemic and the adverse effect it may have on the U.S. economy and our obligors may cause us to consider significant changes in any of those inputs, which in turn may have a ~~material~~significant effect on ~~the Company’s financial position and results of operations.~~our fair value measurement.

Our portfolio of finance receivables consists of small-balance homogeneous contracts comprising a single segment and class that is collectively evaluated for impairment on a portfolio basis according to delinquency status. Our contract purchase guidelines are designed to produce a homogenous portfolio. For key terms such as interest rate, length of contract, monthly payment and amount financed, there is relatively little variation from the average for the portfolio. We report delinquency on a contractual basis. Once a contract becomes greater than 90 days delinquent, we do not recognize additional interest income until the obligor under the contract makes sufficient payments to be less than 90 days delinquent. Any payments received on a contract that is greater than 90 days delinquent are first applied to accrued interest and then to principal reduction.

In January 2018 the Company adopted the fair value method of accounting for finance receivables acquired after 2017. Finance receivables measured at fair value are recorded separately on the Company’s Balance Sheet and are excluded from all tables in this footnote.

The following table presents the components of Finance Receivables, net of unearned interest:

We consider an automobile contract delinquent when an obligor fails to make at least 90% of a contractually due payment by the following due date, which date may have been extended within limits specified in the servicing agreements. The period of delinquency is based on the number of days payments are contractually past due, as extended where applicable. Automobile contracts less than 31 days delinquent are not included. In certain circumstances we will grant obligors one-month payment extensions to assist them with temporary cash flow problems. The only modification of terms is to advance the obligor’s next due date by one month and extend the maturity date of the receivable by one month. In certain limited cases, a two-month extension may be granted. There are no other concessions such as a reduction in interest rate, forgiveness of principal or of accrued interest. Accordingly, we consider such extensions to be insignificant delays in payments rather than troubled debt restructurings. The following table summarizes the delinquency status of finance receivables as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

Finance receivables totaling ~~$26.2~~$8.5 million and ~~$31.8~~$31.4 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, including all receivables greater than 90 days delinquent, have been placed on non-accrual status as a result of their delinquency status.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of finance receivables to present the net amount expected to be collected. Charge offs are deducted from the allowance when management believes that collectability is unlikely.

Management estimates the allowance using relevant available information, from internal and external sources, relating to past events, current conditions and, reasonable and supportable forecasts. We believe our historical credit loss experience provides the best basis for the estimation of expected credit losses. Consequently, we use ahistorical loss ~~allowance methodology commonly referred to as~~"~~static pooling,~~" ~~which stratifies our finance receivable portfolio~~experience for older receivables, aggregated into ~~separately identified~~vintage pools based on their calendar quarter of origination, to forecast expected losses for less seasoned quarterly vintage pools.

We measure the weighted average monthly incremental change in cumulative net losses for the vintage pools in the relevant historical period. The data reflect the effect on vintage pools of past events as well as more recent events reflecting current conditions. We then apply the results of the historical analysis to less seasoned vintage pools beginning with each vintage pool’s most recent actual cumulative net loss experience and extrapolating from that point based on the historical data. We believe the pattern and magnitude of losses on older vintages allows us to establish a reasonable and supportable forecast of less seasoned vintages.

Our contract purchase guidelines are designed to produce a homogenous portfolio. For key credit characteristics of individual contracts such as obligor credit history, job stability, residence stability and ability to pay, there is relatively little variation from the average for the portfolio. Similarly, for key structural characteristics such as loan-to-value, length of contract, monthly payment and amount financed, there is relatively little variation from the average for the portfolio. Consequently, we do not believe there are significant differences in risk characteristics between various segments of our portfolio.

Our methodology incorporates historical pools that are sufficiently seasoned to capture the magnitude and trends of losses within those vintage pools. Furthermore, the historical period encompasses a substantial volume of ~~origination. Using analytical~~receivables over periods that include fluctuations in the competitive landscape, the Company’s rates of growth, size of our managed portfolio and ~~formula driven techniques,~~fluctuations in economic growth and unemployment.

In consideration of the depth and breadth of the historical period, and the homogeneity of our portfolio, we ~~estimate~~generally do not adjust historical loss information for differences in risk characteristics such as credit or structural composition of segments of the portfolio or for changes in environmental conditions such as changes in unemployment rates, collateral values or other factors. However, we have considered how certain qualitative factors may affect future credit losses and have incorporated our judgement of the effect of such factors into our estimates.

The following table presents the amortized cost basis of our finance receivables by annual vintage as of June 30, 2020 and December 31, 2019.

At the adoption of CECL, the Company recorded an addition to its allowance for finance credit losses ~~which we believe is adequate~~of $127.0 million. In accordance with the rules for ~~probable incurred~~adopting CECL, the offset to the addition to the allowance for finance credit losses ~~that can be reasonably estimated in our portfolio~~was a tax affected reduction to retained earnings using the modified retrospective method.

In consideration of ~~automobile contracts. The estimate for probable incurred credit losses is reduced by our estimate for future recoveries on previously incurred losses. Provision~~the uncertainty associated with the pandemic, the Company made additional provision for credit losses ~~is charged to our consolidated statement of operations. Net losses incurred~~ on finance receivables ~~are charged to~~for the ~~allowance.~~for the three-month and six-month periods ended June 30, 2020, in the amounts of $3.1 million and $6.7 million, respectively.

The following table presents a summary of the activity for the allowance for finance credit losses for the ~~three-months~~three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Excluded from finance receivables are contracts that were previously classified as finance receivables but were reclassified as other assets because we have repossessed the vehicle securing the Contract. The following table presents a summary of such repossessed inventory together with the allowance for losses in repossessed inventory that is not included in the allowance for finance credit losses:

We have completed many securitization transactions that are structured as secured borrowings for financial accounting purposes. The debt issued in these transactions is shown on our Unaudited Condensed Consolidated Balance Sheets as “Securitization trust debt,” and the components of such debt are summarized in the following table:

Debt issuance costs of ~~$11.9 million and $11.8~~$12.0 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018, respectively,~~2019 have been excluded from the table above. These debt issuance costs are presented as a direct deduction to the carrying amount of the securitization trust debt on our Unaudited Condensed Consolidated Balance Sheets.

All of the securitization trust debt was sold in private placement transactions to qualified institutional buyers. The debt was issued through our wholly-owned bankruptcy remote subsidiaries and is secured by the assets of such subsidiaries, but not by our other assets.

The terms of the securitization agreements related to the issuance of the securitization trust debt and the warehouse credit facilities require that we meet certain delinquency and credit loss criteria with respect to the pool of receivables, and certain of the agreements require that we maintain minimum levels of liquidity and not exceed maximum leverage levels. As of ~~September~~June 30, ~~2019,~~2020, we were in compliance with all such covenants.

We are responsible for the administration and collection of the automobile contracts. The securitization agreements also require certain funds be held in restricted cash accounts to provide additional collateral for the borrowings, to be applied to make payments on the securitization trust debt or as pre-funding proceeds from a term securitization prior to the purchase of additional collateral. As of ~~September~~June 30, ~~2019,~~2020, restricted cash under the various agreements totaled approximately ~~$128.6~~$146.7 million. Interest expense on the securitization trust debt consists of the stated rate of interest plus amortization of additional costs of borrowing. Additional costs of borrowing include facility fees, amortization of deferred financing costs and discounts on notes sold. Deferred financing costs and discounts on notes sold related to the securitization trust debt are amortized using a level yield method. Accordingly, the effective cost of the securitization trust debt is greater than the contractual rate of interest disclosed above.

Our wholly-owned bankruptcy remote subsidiaries were formed to facilitate the above asset-backed financing transactions. Similar bankruptcy remote subsidiaries issue the debt outstanding under our credit facilities. Bankruptcy remote refers to a legal structure in which it is expected that the applicable entity would not be included in any bankruptcy filing by its parent or affiliates. All of the assets of these subsidiaries have been pledged as collateral for the related debt. All such transactions, treated as secured financings for accounting and tax purposes, are treated as sales for all other purposes, including legal and bankruptcy purposes. None of the assets of these subsidiaries are available to pay other creditors.

On October 16, 2019 we completed our fourth securitization transaction of 2019. In the transaction, qualified institutional buyers purchased $274.3 million of asset-backed notes secured by $275 million in automobile receivables purchased by us. The sold notes, issued by CPS Auto Receivables Trust 2019-D, consist of six classes. Ratings of the notes were provided by Standard & Poor’s and Kroll Bond Rating Agency, and were based on the structure of the transaction, the historical performance of similar receivables and CPS’s experience as a servicer. The weighted average yield on the notes is approximately 2.95%.

The terms and amounts of our other debt outstanding at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 are summarized below:

Unamortized debt issuance costs of ~~$615,000~~$429,000 and ~~$894,000~~$522,000 as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, have been excluded from the amount reported above for residual interest financing. Similarly, unamortized debt issuance costs of ~~$1.2~~$1.3 million and ~~$1.2~~$2.0 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, have been excluded from the Warehouse lines of credit amounts in the table above. These debt issuance costs are presented as a direct deduction to the carrying amount of the debt on our Unaudited Condensed Consolidated Balance Sheets.

Earnings per share for the ~~three-months~~three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were calculated using the weighted average number of shares outstanding for the related period. The following table reconciles the number of shares used in the computations of basic and diluted earnings per share for the ~~three-months~~three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

If the anti-dilutive effects of common stock equivalents were considered, shares included in the diluted earnings per share calculation for the three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 would have included an additional ~~10.6~~13.3 million and ~~10.6~~13.1 million shares, respectively, attributable to the exercise of outstanding options and warrants. For the three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2018,~~2019, an additional ~~11.0~~10.7 million and ~~10.1~~10.5 million shares, respectively, would be included in the diluted earnings per share calculation.

We file numerous consolidated and separate income tax returns with the United States and with many states. With few exceptions, we are no longer subject to U.S. federal, state, or local examinations by tax authorities for years before 2013.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was adopted, 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 such NOLs reflected on its balance sheet as a portion of deferred tax assets. The Company has previously valued its NOLs at the federal corporate income tax rate of 21%. However, the provisions of the CARES Act provide 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. Consequently, the Company has revalued the benefit from its NOLs to reflect a 35% tax rate. The result of the revaluation of NOLs and other tax adjustments is a net tax benefit of $8.8 million, which is reflected in income taxes for the six-month period ending June 30, 2020.

As of ~~September~~June 30, ~~2019~~2020, and December 31, ~~2018,~~2019, we had no0 unrecognized tax benefits for uncertain tax positions. We do not anticipate that total unrecognized tax benefits will significantly change due to any settlements of audits or expirations of statutes of limitations over the next 12 months.

The Company and its subsidiaries file a consolidated federal income tax return and combined or stand-alone state franchise tax returns for certain states. We utilize the asset and liability method of accounting for income taxes, under which deferred income taxes are recognized for the future tax consequences attributable to the differences between the financial statement values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. In making such judgments, significant weight is given to evidence that can be objectively verified. Although realization is not assured, we believe that the realization of the recognized net deferred tax asset of ~~$16.1~~$33.4 million as of ~~September~~June 30, ~~2019~~2020 is more likely than not based on forecasted future net earnings. Our net deferred tax asset of ~~$16.1~~$33.4 million consists of approximately ~~$11.5~~$22.1 million of net U.S. federal deferred tax assets and ~~$4.6~~$11.3 million of net state deferred tax assets.

Income tax expense was ~~$991,000~~$1.7 million 1,671 for the three months ended June 30, 2020. Income tax benefit was $6.0 million (6,009) for the six months ended June 30, 2020, which includes net tax benefits of $8.8 million. Excluding the tax benefit, income tax expense would have been $2.8 million for the six months ended June 30,2020, representing an effective income tax rate of 36%. For the prior year period, income tax expense was $970,000 and ~~$2.9~~$1.9 million1,907 for the three months and ~~nine~~six months ended ~~September~~June 30, 2019 and represents an effective income tax rate of ~~35%, compared to income tax expense of $1.5 million and $4.4 million for the three and nine months ended September 30, 2018, and represents an effective income tax rate of 32%~~35%.

Consumer Litigation. We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices, both continuing and discontinued. Consumers can and do initiate lawsuits against us alleging violations of law applicable to collection of receivables, and such lawsuits sometimes allege that resolution as a class action is appropriate.

For the most part, we have legal and factual defenses to consumer claims, which we routinely contest or settle (for immaterial amounts) depending on the particular circumstances of each case.

Wage and Hour Claim.On September 24, 2018, a former employee filed a lawsuit against us in the Superior Court of Orange County, California, alleging that we incorrectly classified our sales representatives as outside salespersons exempt from overtime wages, mandatory break periods and certain other employee protective provisions of California and federal law. The complaint seeks injunctive relief, an award of unpaid wages, liquidated damages, and attorney fees and interest. The plaintiff purports to act on behalf of a class of similarly situated employees and ex-employees. As of the date of this report, no motion for class certification has been filed or granted.

We believe that our compensation practices with respect to our sales representatives are compliant with applicable law. Accordingly, we have defended and intend to continue to defend this lawsuit. We have not recorded a liability with respect to this claim on the accompanying consolidated financial statements.

In General.There can be no assurance as to the outcomes of the matters described or referenced above. We record at each measurement date, most recently as of ~~September~~June 30, ~~2019,~~2020, our best estimate of probable incurred losses for legal contingencies, including ~~each of~~ the matters ~~described or referenced above.~~identified above, and consumer claims. The amount of losses that may ultimately be incurred cannot be estimated with certainty. However, based on such information as is available to us, we believe that the total of probable incurred losses for legal contingencies as of ~~September~~June 30, ~~2019~~2020 is ~~immaterial,~~$250,000 (all of which is related to consumer claims), and that the range of reasonably possible losses for the legal proceedings and contingencies we face, including those described or ~~referenced~~identified above, as of ~~September~~June 30, ~~2019~~2020 does not exceed $3 million.

Accordingly, we believe that the ultimate resolution of such legal proceedings and contingencies should not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the uncertainties inherent in contested proceedings there can be no assurance that the ultimate resolution of these matters will not be material to our operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of our income for that period.

ASC 820, "Fair Value Measurements" clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.

ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The three levels are defined as follows: level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Effective January 2018 we have elected to use the fair value method to value our portfolio of finance receivables acquired in January 2018 and thereafter.

Our valuation policies and procedures have been developed by our Accounting department in conjunction with our Risk department and with consultation with outside valuation experts. Our policies and procedures have been approved by our Chief Executive and our Board of Directors and include methodologies for valuation, internal reporting, calibration and back testing. Our periodic review of valuations includes an analysis of changes in fair value measurements and documentation of the reasons for such changes. There is little available third-party information such as broker quotes or pricing services available to assist us in our valuation process.

Our level 3, unobservable inputs reflect our own assumptions about the factors that market participants use in pricing similar receivables and are based on the best information available in the circumstances. They include such inputs as estimates for the magnitude and timing of net charge-offs and the rate of amortization of the portfolio of finance receivable.Significant changes in any of those inputs in isolation would have a significant ~~impact~~effect on our fair value measurement.

For the period ended June 30, 2020, the Company considered the effect of the pandemic on the portfolio of finance receivables carried at fair value and recorded a mark down to that portfolio of $19.9 million.

The table below presents a reconciliation of the finance receivables measured at fair value on a recurring basis using significant unobservable inputs:

The table below compares the fair values of these finance receivables to their contractual balances for the periods shown:

The following table provides certain qualitative information about our level 3 fair value measurements:

The following table summarizes the delinquency status of these finance receivables measured at fair value as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

Repossessed vehicle inventory, which is included in Other assets on our unaudited condensed consolidated balance sheet, is measured at fair value using level 2 assumptions based on our actual loss experience on sale of repossessed vehicles. At ~~September~~June 30, ~~2019~~2020 the finance receivables related to the repossessed vehicles in inventory totaled ~~$37.5~~$27.8 million. We have applied a valuation adjustment, or loss allowance, of ~~$27.9~~$23.1 million, which is based on a recovery rate of approximately ~~26%~~17%, resulting in an estimated fair value and carrying amount of ~~$9.6~~$4.7 million. The fair value and carrying amount of the repossessed inventory at December 31, ~~2018~~2019 was ~~$8.9~~$7.5 million after applying a valuation adjustment of ~~$24.6~~$21.4 million.

There were no transfers in or out of level 1, level 2 or level 3 assets and liabilities for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

The estimated fair values of financial assets and liabilities at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, were as follows:

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

We are a specialty finance company. Our business is to purchase and service retail automobile contracts originated primarily by franchised automobile dealers and, to a lesser extent, by select independent dealers in the United States in the sale of new and used automobiles, light trucks and passenger vans. Through our automobile contract purchases, we provide indirect financing to the customers of dealers who have limited credit histories or past credit problems, who we refer to as sub-prime customers. We serve as an alternative source of financing for dealers, facilitating sales to customers who otherwise might not be able to obtain financing from traditional sources, such as commercial banks, credit unions and the captive finance companies affiliated with major automobile manufacturers. In addition to purchasing installment purchase contracts directly from dealers, we also 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 in March 1991. From inception through ~~September~~June 30, ~~2019,~~2020, we have originated a total of approximately ~~$16.0~~$16.6 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:

During the three months ended June 30, 2020, due to the onset of the pandemic, we have seen a decrease in the monthly volumes of our contract purchases compared to the prior year period and also compared to our first quarter of 2020.

Our principal executive offices are in Las Vegas, Nevada. Most of our operational and administrative functions take place in Irvine, California. Credit and underwriting functions are performed primarily in that California branch with certain of these functions also performed in our Florida and Nevada branches. We service our automobile contracts from our California, Nevada, Virginia, Florida and Illinois branches.

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.

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

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

Since 1994 we have conducted 8386 term securitizations of automobile contracts that we originated. As of ~~September~~June 30, ~~2019, 20~~2020, 22 of those securitizations are active and all are structured as secured financings. Since September 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, we elected to defer what would have been our December securitization in favor of a securitization in January 2016, and since that time have generally conducted our securitizations near the beginning of each calendar quarter.

Generally, prior to a securitization transaction we fund our automobile contract purchases primarily with proceeds from warehouse credit facilities. Our current short-term funding capacity is $300 million, comprising three credit facilities. The first $100 million credit facility was established in May 2012. This facility was most recently renewed in September 2018, extending the revolving period to September 2020, with an optional amortization period through September 2021. In April 2015, we entered into a second $100 million facility. This facility was renewed in April 2017 and again in February 2019, extending the revolving period to February 2021, followed by an amortization period to February 2023. In November 2015, we entered into a third $100 million facility. This facility was renewed in November 2017 and again in December 2019, extending the revolving period to ~~November 2019,~~December 2021, followed by an amortization period to ~~November 2021.~~December 2023.

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

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

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 of ~~September~~June 30, ~~2019,~~2020, we were in compliance with all such covenants.

Comparison of Operating Results for the three months ended ~~September~~June 30, ~~2019~~2020 with the three months ended ~~September~~June 30, ~~2018~~2019

Revenues. During the three months ended ~~September~~June 30, ~~2019,~~2020, our revenues were ~~$85.5~~$67.3 million, a decrease of ~~$10.1~~$19.0 million, or ~~10.6%~~22.0%, from the prior year revenue of ~~$95.6~~$86.3 million. The primary reason for the decrease in revenues is a decrease in interest ~~income.~~income and a mark down to the recorded value of the portion of the receivables portfolio accounted for at fair value. Interest income for the three months ended ~~September~~June 30, ~~2019~~2020 decreased ~~$10.1~~$8.9 million, or ~~10.8%~~10.5%, to ~~$83.5~~$75.6 million from ~~$93.6~~$84.4 million in the prior year. The primary reason for the decrease in interest income is the ~~lower~~continued runoff of our portfolio of finance receivables originated prior to January 2018, which accrued interest ~~yield on~~at an average of 18.5%, which is offset only in part by the increase in our portfolio of receivables measured at fair ~~value.~~value, which are those originated since January 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 ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Revenues for the second quarter of 2020 include a $9.5 million mark down to the recorded value of the finance receivables measured at fair value. The mark down is an estimate based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and our assessment of potential additional future net losses arising from the pandemic.

In the three months ended ~~September~~June 30, ~~2019,~~2020, other income of ~~$1.9~~$1.3 million decreased by ~~$20,000,~~$587,000, or ~~1.0%~~31.3% compared to the prior year. The three-month period ended ~~September~~June 30, ~~2019~~2020 includes a decrease of ~~$207,000~~$549,000 in revenues associated with direct mail and other related products and services that we offer to our dealers and ~~decreases in other income categories. These were partially offset by an increase~~a decrease of ~~$240,000~~$40,000 in payments from third-party providers of convenience fees paid by our customers for web based and other electronic payments.

Expenses. Our operating expenses consist largely of interest expense, provision for credit losses, employee costs, sales and general and administrative expenses. Provision for credit losses is affected by the balance and credit performance of our portfolio of finance receivables (other than our portfolio of finance receivables measured at fair value, as to which expected credit losses have the effect of reducing the ~~interest~~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 ~~processed~~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 ~~$82.7~~$62.6 million for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$90.9~~$83.6 million for the prior period, a decrease of ~~$8.2~~$20.9 million, or ~~9.1%~~25.0%. The decrease is primarily due to a decrease in provision for credit ~~losses, offsetting increases in interest expense, employee costs and general and administrative expenses.~~losses.

Employee costs increased by ~~$1.4 million~~$122,000 or ~~7.7%~~0.6%, to ~~$20.3~~$19.8 million during the three months ended ~~September~~June 30, ~~2019,~~2020, representing ~~24.5%~~31.6% of total operating expenses, from ~~$18.8~~$19.7 million for the prior year, or ~~20.7%~~23.6% of total operating expenses. The table below summarizes our employees by category as well as contract purchases and units in our managed portfolio as of, and for the three-month periods ended, ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

During the second quarter, we laid off 114 staff members due to the decrease in our business caused by the pandemic. The layoffs did not materially decrease our employee costs in the quarter ended June 30, 2020 but should result in decreased employee costs in future periods.

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 ~~$8.2~~$7.8 million, ~~an increase~~a decrease from ~~$7.8~~$8.8 million in the previous year and represented ~~9.9%~~12.5% of total operating expenses.

Interest expense for the three months ended ~~September~~June 30, ~~2019 increased by $2.1~~2020 were $26.5 million ~~to $27.9 million, or 8.3%~~ and represented ~~33.8%~~42.3% of total operating expenses, compared to ~~$25.8~~$27.7 million in the previous year, when it was ~~28.4%~~33.2% of total operating expenses.

Interest on securitization trust debt ~~increased~~decreased by ~~$1.5~~$2.1 million ~~or 6.8%,~~ for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the prior period. The average balance of securitization trust debt ~~increased 1.8%~~decreased to ~~$2,165.9~~$2,008.0 million for the three months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$2,128.1~~$2,175.9 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The blended interest rates on new term securitizations have generally increased in 2017 and 2018 before declining in 2019. ~~As a result, the cost of securitization debt during the three-month period ended September 30, 2019 was 4.5%, compared to 4.3% in the prior year period.~~ For any particular quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including the market interest rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks that investors are willing to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization. These and other factors have resulted in fluctuations in our securitization trust debt interest costs. The blended interest rates of our recent securitizations are summarized in the table below:

The annualized average rate on our securitization trust debt was 4.5% for the three months ended June 30, 2020 and 2019. The annualized average rate is influenced by the manner in which the underlying securitization trust bonds are repaid. The rate tends to increase over time on any particular securitization since the structures of our securitization trusts generally provide for sequential repayment of the shorter term, lower interest rate bonds before the longer term, higher interest rate bonds. We observed a significant increase in the blended cost of funds in our June 2020 securitization compared to our January 2020 securitization, which we attribute to pandemic related disruptions and uncertainties in the market for asset-backed securitizations at the time.

Interest expense on subordinated renewable notes increased by ~~$2,000.~~$202,000. The average balance of the outstanding subordinated debt ~~decreased 9.1%~~increased 33.5% to ~~$15.1~~$18.7 million for the three months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$16.7~~$14.0 million for the three months ended ~~September~~June 30, ~~2018. However, the~~2019. The average yield of subordinated notes increased to ~~9.8%~~11.2% in the three-month period ended ~~September~~June 30, ~~2019~~2020 compared to ~~8.8%~~9.2% in the prior period.

Interest expense on warehouse debt increased by ~~$580,000,~~$715,000, or ~~31.8%~~36.5%, for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the prior period. The average rate on the debt ~~decreased to 9.8% in the three-month period ended September 30, 2019 compared to 12.4% in the prior period. However, the decrease~~ was ~~offset by higher outstanding warehouse debt balance in the current period.~~9.6% for both periods.

On May 16, 2018, we completed a $40.0 million securitization of residual interests from previously issued securitizations. Interest expense on this residual interest financing was ~~$956,000~~$920,000 for the three months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$936,000~~$955,000 in the prior year period.

The following table presents the components of interest income and interest expense and a net interest yield analysis for the three-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

(1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances.

The reduction in the annualized yield on our finance receivables for the three months ended ~~September~~June 30, ~~2019~~2020 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 ~~$1,304.0~~$1,631.7 million for the three months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$547.5~~$1,136.1 million in the prior year period.

InEffective January 1, 2020, the ~~three-month period ended September 30, 2019,~~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 ~~net present value~~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 ~~forecasted cash flows~~Company’s receivable portfolio that was originated prior to January 2018. To comply with CECL, the Company recorded an addition to its allowance for finance credit losses of $127.0 million. In accordance with the ~~receivables acquired in~~rules for adopting CECL, the ~~first quarter of 2018 exceeded~~offset to the ~~carrying value by $604,000, which we have recorded as~~addition to the allowance for finance credit losses was a ~~mark~~tax affected reduction to ~~market value of that pool of receivables.~~retained earnings using the modified retrospective method.

Provision for credit losses was ~~$19.9~~$3.1 million for the three months ended ~~September~~June 30, ~~2019, a decrease~~2020. The provision represents our estimate of ~~$12.1 million, or 37.8% compared to~~additional losses that may be incurred on the portfolio of finance receivables resulting from the pandemic. Such losses were not considered in our initial estimate of remaining lifetime losses that we recorded with the adoption of CECL in January 2020. In the prior year ~~and represented 24.0%~~period, prior to the adoption of ~~total operating expenses. The~~CECL, provision for credit losses maintains the allowance for finance credit losses at levels that we feel are adequate for probable incurred credit losses that can be reasonably estimated. Our approach for establishing the allowance requires greater amounts of provision for credit losses early in the terms of our finance receivables. In addition, we monitor the delinquency and net charge off rates in our portfolio to consider how such rates may affect the allowance for finance credit losses. was $20.5 million.

The allowance applies only to our finance receivables originated through December 2017, which we refer to as our legacy portfolio. Since no receivables have been added to the legacy portfolio since December 2017, it has seasoned to the point where its weighted age is 39 months at September 30, 2019. The age of the legacy portfolio, its continuously declining balance and the significant variance of the relative credit performance of the vintage pools that make up the legacy portfolio have contributed to lower provisions for credit losses and lower levels of the allowance for finance credit losses. Finance receivables that we have originated since January 2018 are accounted for at fair value. Under the fair value method of accounting, we recognize interest income net of expected credit losses. Thus, no provision for credit loss expense is recorded for finance receivables measured at fair value.

Sales expense consists primarily of commission-based compensation paid to our employee sales representatives. Our sales representatives earn a salary plus commissions based on volume of contract purchases and sales of ancillary products and services that we offer our dealers, such as training programs, internet lead sales, and direct mail products. Sales expense ~~increased~~decreased by ~~$30,000~~$1.6 million to ~~$4.4~~$3.1 million during the three months ended ~~September~~June 30, ~~2019~~2020 and represented ~~5.3%~~4.9% of total operating expenses. ~~Although our sales staff was slightly lower as~~We purchased $135.9 million of ~~September~~new contracts during the three months ended June 30, ~~2019 compared September 30, 2018, we have gradually shifted to more field sales representatives as~~2020 compared to in-house sales representatives. Field sales representatives are somewhat more costly than in-house sales representatives, but we feel will ultimately be more effective. The increase in sales expense can also be attributed to the increase in the volume of contact purchases. We purchased 14,353 contracts representing $262.1$250.1 million ~~in receivables during the three-month period ending September 30, 2019 compared to 12,853 contracts representing $225.3 million in receivables~~ in the prior year period. We attribute the decrease in contract purchases to the partial shutdown of the economy caused by the pandemic.

Occupancy expenses decreased by ~~$175,000~~$178,000 or ~~9.0%~~8.9%, to $1.8 million compared to ~~$1.9~~$2.0 million in the previous year and represented ~~2.1%~~3.0% of total operating expenses.

Depreciation and amortization expenses increased ~~by $20,000 or 7.8%,~~ to ~~$276,000~~$487,000 compared to ~~$256,000~~$262,000 in the previous year and represented ~~0.3%~~0.8% of total operating expenses.

For the three months ended ~~September~~June 30, ~~2019~~2020 we recorded income tax expense of ~~$991,000,~~$1.7 million, representing a ~~35.0%~~36% effective ~~income~~ tax rate. In the prior year period, we ~~recorded $1.5 million in~~our income tax expense ~~representing a 32.0%~~was $970,000, for an effective income tax ~~rate.~~rate of 35%.

Comparison of Operating Results for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 with the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019

Revenues. During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, our revenues were ~~$260.1~~$138.1 million, a decrease of ~~$38.5~~$36.5 million, or ~~12.9%~~20.9%, from the prior year revenue of ~~$298.6~~$174.6 million. The primary reason for the decrease in revenues is a decrease in interest ~~income.~~income and a mark down to the recorded value of the portion of the receivables portfolio accounted for at fair value. Interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 decreased ~~$37.7~~$15.6 million, or ~~12.9%~~9.2%, to ~~$253.8~~$154.7 million from ~~$291.5~~$170.3 million in the prior year. The primary reason for the decrease in interest income is the ~~lower~~continued runoff of our portfolio of finance receivables originated prior to January 2018, which accrued interest ~~yield on~~at an average of 18.5%, which is offset only in part by the increase in our portfolio of receivables measured at fair ~~value.~~value, which are those originated since January 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 ~~outstanding and~~ average balances and interest yields of our loan portfolio ~~held by consolidated subsidiaries~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Revenues for the six months ended June 30, 2020 include a $19.9 million mark down to the recorded value of the finance receivables measured at fair value. The mark down is an estimate based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and our assessment of potential additional future net losses arising from the pandemic.

In the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, other income of ~~$6.3~~$3.3 million decreased by ~~$767,000,~~$1.0 million, or ~~10.9%~~23.3% compared to the prior year. The ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019~~2020 includes a decrease of ~~$1.3 million~~$700,000 in ~~revenue~~revenues associated with direct mail and other related products and services that we offer to our ~~dealers. This~~dealers and a decrease ~~was partially offset by an increase~~ of ~~$670,000~~$210,000 in payments from third-party providers of convenience fees paid by our customers for web based and other electronic payments.

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

Total operating expenses were ~~$251.8~~$130.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$284.6~~$169.1 million for the prior period, a decrease of ~~$32.8~~$38.8 million, or ~~11.5%~~22.9%. The decrease is primarily due to a decrease in provision for credit ~~losses, offsetting increases in interest expense and general and administrative expenses.~~losses.

Employee costs ~~decreased~~increased by ~~$258,000~~$2.9 million or ~~0.4%~~7.5%, to ~~$59.0~~$41.7 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, representing ~~23.4%~~32.0% of total operating expenses, from ~~$59.3~~$38.8 million for the prior year, or ~~20.8%~~22.9% of total operating expenses. ~~The decrease in employee costs were primarily a result of a decrease of $1.3 million in stock compensation expense offset by other increases in employee costs related to higher headcounts in 2019.~~ 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~~six-month periods ended, ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

During the second quarter, we laid off 114 staff members due to the decrease in our business caused by the pandemic. The layoffs should result in decreased employee costs in future periods.

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 ~~$25.1~~$16.5 million, ~~an increase of $2.4~~a decrease from $16.9 million ~~or 10.5% compared to~~in the previous year and represented ~~10.0%~~12.7% of total operating expenses.

Interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2019 increased by $7.9~~2020 were $53.5 million ~~to $82.9 million, or 10.5%~~ and represented ~~32.9%~~41.0% of total operating expenses, compared to ~~$75.1~~$55.0 million in the previous year, when it was ~~26.4%~~32.5% of total operating expenses.

Interest on securitization trust debt ~~increased~~decreased by ~~$5.9~~$2.3 million ~~or 8.8%,~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the prior period. The average balance of securitization trust debt ~~increased~~decreased to ~~$2,178.4~~$2,097.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$2,137.5~~$2,184.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018. In addition, the~~2019. The blended interest rates on new term securitizations have generally increased ~~since 2017. As a result, the cost of securitization debt during the nine-month period ended September 30, 2019 was 4.4%, compared to 4.2%~~ in ~~the prior year period.~~2017 and 2018 before declining in 2019. For any particular quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including the market interest rates for ~~risk-free securities (against~~benchmark swaps of various maturities against which our bonds are ~~priced),~~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 ~~a general trend toward higher~~fluctuations in our securitization trust debt interest costs. The blended interest rates of our recent securitizations are summarized in the table below:

The annualized average rate on our securitization trust debt was 4.4% for the six months ended June 30, 2020 and 2019. The annualized average rate is influenced by the manner in which the underlying securitization trust bonds are repaid. The rate tends to increase over time on any particular securitization since the structures of our securitization trusts generally provide for sequential repayment of the shorter term, lower interest rate bonds before the longer term, higher interest rate bonds. We observed a significant increase in the blended cost of funds in our June 2020 securitization compared to our January 2020 securitization, which we attribute to pandemic related disruptions and uncertainties in the market for asset-backed securitizations at the time.

Interest expense on subordinated renewable notes ~~decreased~~increased by ~~$41,000, or 3.9%.~~$369,000. The ~~decrease is primarily due~~average balance of the outstanding subordinated debt increased 30.0% to ~~a decrease~~$18.4 million for the six months ended June 30, 2020 compared to $14.2 million for the six months ended June 30, 2019. The average yield of subordinated notes increased to 11.1% in the ~~average outstanding balance on our subordinated renewable notes from $16.4 million~~six-month period ended June 30, 2020 compared to 9.1% in the prior ~~year period~~period.

Interest expense on warehouse debt increased by $457,000, or 11.5%, for the six months ended June 30, 2020 compared to ~~$14.5 million in~~ the ~~current~~prior period. The average ~~yield~~rate on ~~these notes increased~~the debt was 7.7% in 2020 compared to ~~9.3% from 8.6%~~10.1% in the prior year.

On May 16, 2018, we completed a $40.0 million securitization of residual interests from previously issued securitizations. Interest expense on this residual interest financing was ~~$2.9~~$1.9 million for the ~~nine months ended September 30, 2019 compared to $1.4 million in the~~current year and prior year ~~period.~~

Interest expense on warehouse lines of credit debt increased by $537,000, or 9.2%, for the nine months ended September 30, 2019 compared to the prior period. The average outstanding balance was $85.3 million compared to $64.6 million in the prior year period.periods.

The following table presents the components of interest income and interest expense and a net interest yield analysis for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

(1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances.

The reduction in the annualized yield on our finance receivables for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the prior year period is athe 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 $1,606.1 million for the six months ended June 30, 2020 compared to $1,045.8 million in the prior year period.

InEffective January 1, 2020, the ~~nine-month period ended September 30, 2019,~~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 ~~net present value~~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 ~~forecasted cash flows~~Company’s receivable portfolio that was originated prior to January 2018. To comply with CECL, the Company recorded an addition to its allowance for finance credit losses of $127.0 million. In accordance with the ~~receivables acquired in~~rules for adopting CECL, the ~~first quarter of 2018 exceeded~~offset to the ~~carrying value by $604,000, which we have recorded as~~addition to the allowance for finance credit losses was a ~~mark~~tax affected reduction to ~~market value of that pool of receivables.~~retained earnings using the modified retrospective method.

Provision for credit losses was ~~$64.3~~$6.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019, a decrease~~2020. The provision represents our estimate of ~~$43.7 million, or 40.4% compared to~~additional losses that may be incurred on the portfolio of finance receivables resulting from the pandemic. Such losses were not considered in our initial estimate of remaining lifetime losses that we recorded with the adoption of CECL in January 2020. In the prior year ~~and represented 25.5%~~period, prior to the adoption of ~~total operating expenses. The~~CECL, provision for credit losses maintains the allowance for finance credit losses at levels that we feel are adequate for probable incurred credit losses that can be reasonably estimated. Our approach for establishing the allowance requires greater amounts of provision for credit losses early in the terms of our finance receivables. In addition, we monitor the delinquency and net charge off rates in our portfolio to consider how such rates may affect the allowance for finance credit losses. was $44.4 million.

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~~decreased by ~~$701,000, or 5.3%,~~$2.0 million to ~~$13.9~~$7.5 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020 and represented 5.8% of total operating expenses. We purchased $401.9 million of new contracts during the six months ended June 30, 2020 compared to ~~$13.2~~$493.2 million in the prior year ~~period, and represented 5.5%~~period. We attribute the decrease in contract purchases to the partial shutdown of ~~total operating expenses. For~~ the ~~nine months ended September 30, 2019, we purchased 42,534 contracts representing $755.3 million in receivables compared to 38,749 contracts representing $650.6 million in receivables in~~economy caused by the prior period. In addition, in recent months, we have gradually shifted to more field sales representatives as compared to in-house sales representatives. Field sales representatives are somewhat more costly than in-house sales representatives, but we feel will ultimately be more effective.pandemic.

Occupancy expenses ~~increased~~decreased by ~~$101,000~~$461,000 or ~~1.8%~~11.6%, to ~~$5.7~~$3.5 million compared to ~~$5.6~~$4.0 million in the previous year and represented ~~2.3%~~2.7% of total operating expenses.

Depreciation and amortization expenses increased ~~by $43,000 or 5.8%,~~ to ~~$789,000~~$906,000 compared to ~~$746,000~~$513,000 in the previous year and represented ~~0.2%~~0.7% of total operating expenses.

~~For~~Income tax benefit was $6.0 million for the ~~nine~~six months ended ~~September~~June 30, 2020, which includes an $8.8 million tax benefit. On March 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 ~~we recorded~~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 ~~of $2.9~~would have been $2.8 million, representing ~~a 35.0%~~an effective income tax ~~rate. In~~rate of 36%. For the prior year period, ~~we recorded $4.4 million in~~ income tax expense ~~representing a 31.7%~~was $1.9 million, which represents an effective income tax ~~rate.~~rate of 35%.

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 will likely have a negative effect on our delinquency and charge off experience in the future, which is not yet reflected in the tables ~~do not include the experience of third party originated and owned portfolios.~~below.

(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.

Net Charge-Off Experience (1)

Total Owned Portfolio

							Finance Receivables Portfolio
	September 30,		September 30,		December 31,		June 30,			June 30,			December 31,
	2019		2018		2018		2020			2019			2019
	(Dollars in thousands)						(Dollars in thousands)
Average servicing portfolio outstanding	$	2,400,078	$	2,332,256	$	2,341,954	$	732,325		$	1,262,836		$	1,192,484

Annualized net charge-offs as a percentage of average servicing portfolio (2)		8.0%		7.9%		7.7%
Annualized net charge-offs as a percentage of
average servicing portfolio (2)								12.8	%		12.2	%		12.2	%

	Fair Value Receivables Portfolio
	June 30,			June 30,			December 31,
	2020			2019			2019
	(Dollars in thousands)
Average servicing portfolio outstanding	$	1,631,708		$	1,136,086		$	1,212,226
Annualized net charge-offs as a percentage of
average servicing portfolio (2)		5.0	%		2.9	%		3.8	%

	Total Managed Portfolio
	June 30,			June 30,			December 31,
	2020			2019			2019
	(Dollars in thousands)
Average servicing portfolio outstanding	$	2,364,033		$	2,398,922		$	2,404,710
Annualized net charge-offs as a percentage of
average servicing portfolio (2)		7.4	%		7.8	%		8.0	%

_________________________

~~(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, 2019 and September 30, 2018 percentages represent nine months ended September 30, 2019 and September 30, 2018 annualized. December 31, 2018 represents 12 months ended December 31, 2018.

(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. June 30, 2020 and June 30, 2019 percentages represent three months ended June 30, 2020 and June 30, 2019 annualized. December 31, 2019 represents 12 months ended December 31, 2019.

Extensions

In certain circumstances we will grant obligors one-month payment extensions to assist them with temporary cash flow problems. In general, ~~an obligor would not be entitled~~we are bound by our securitization agreements to refrain from agreeing to more than two such extensions in any 12-month period and noto 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.

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 with the obligor so that he 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 most cases, the extension will be granted in conjunction with our receiving a past due payment (and where allowed by law, a nominal fee, applied to the loan as a partial 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; and (4) the obligor’s willingness to communicate and cooperate on resolving the delinquency. If the collector believes the obligor is a good candidate for an extension, he must obtain approval from his 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 ~~September~~June 30, ~~2019,~~2020, for accounts that received extensions from 2008 through 2018 (2019 and 2020 extension data are not included at this time due to insufficient passage of time for meaningful evaluation of results):

Period of Extension #
Extensions Granted Active or
Paid Off at September 30, 2019 % Active or Paid Off at September 30, 2019 Charged Off
> 6 Months After Extension % Charged
Off > 6
Months After Extension Charged Off
<= 6 Months After Extension % Charged
Off <= 6 Months After Extension Avg Months
to Charge
Off Post Extension

2008 35,588 10,710 30.1% 20,059 56.4% 4,819 13.5% 19
2009 32,226 10,274 31.9% 16,168 50.2% 5,783 17.9% 17
2010 26,167 12,165 46.5% 12,003 45.9% 1,999 7.6% 19
2011 18,786 10,975 58.4% 6,879 36.6% 932 5.0% 19
2012 18,783 11,332 60.3% 6,655 35.4% 796 4.2% 18
2013 23,398 11,314 48.4% 11,108 47.5% 976 4.2% 22
2014 25,773 11,105 43.1% 13,842 53.7% 826 3.2% 23
2015 53,319 25,404 47.6% 26,833 50.3% 1,082 2.0% 22
2016 80,897 45,756 56.6% 33,208 41.0% 1,933 2.4% 19
2017 133,881 84,120 62.8% 42,801 32.0% 6,926 5.2% 14
2018 121,531 95,240 78.4% 20,284 16.7% 6,007 4.9% 9

Period of Extension	# Extensions Granted		Active or Paid Off at June 30, 2020		% Active or Paid Off at June 30, 2020	Charged Off > 6 Months After Extension		% Charged Off > 6 Months After Extension	Charged Off <= 6 Months After Extension		% Charged Off <= 6 Months After Extension	Avg Months to Charge Off Post Extension

2008		35,588		10,710	30.1%		20,059	56.4%		4,819	13.5%	19

2009		32,226		10,274	31.9%		16,168	50.2%		5,783	17.9%	17

2010		26,167		12,165	46.5%		12,003	45.9%		1,999	7.6%	19

2011		18,786		10,974	58.4%		6,880	36.6%		932	5.0%	19

2012		18,783		11,325	60.3%		6,662	35.5%		796	4.2%	18

2013		23,398		11,222	48.0%		11,200	47.9%		976	4.2%	23

2014		25,773		10,778	41.8%		14,169	55.0%		826	3.2%	24

2015		53,319		23,966	44.9%		28,271	53.0%		1,082	2.0%	24

2016		80,897		41,992	51.9%		36,972	45.7%		1,933	2.4%	22

2017		133,881		74,241	55.5%		52,680	39.3%		6,926	5.2%	17

2018		121,531		82,273	67.7%		33,251	27.4%		6,007	4.9%	12

~~_________________________~~______________________

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 2012, 60.3% were either paid in full or active and performing at ~~September~~June 30, ~~2019.~~2020. 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 subsequent to the extension.

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 Ended September 30, Year Ended December 31,
2019 2018 2018

Average number of extensions granted per month 5,152 10,460 10,128

Average number of outstanding accounts 177,094 174,425 174,738

Average monthly extensions as % of average outstandings 2.9% 6.0% 5.8%

	Six Months Ended June 30,						Year Ended December 31,
	2020			2019			2019

Average number of extensions granted per month		9,448			4,994			5,962

Average number of outstanding accounts		175,366			176,885			177,256

Average monthly extensions as % of average outstandings		5.4	%		2.8	%		3.4	%

______________________

Note: Table excludes portfolios originated and owned by third parties

	June 30, 2020				June 30, 2019				December 31, 2019
	Number of Contracts		Amount		Number of Contracts		Amount		Number of Contracts		Amount
					(Dollars in thousands)

Contracts with one extension		32,160	$	460,882		25,715	$	342,074		28,807	$	400,202
Contracts with two extensions		19,265		254,247		18,807		244,288		17,895		229,555
Contracts with three extensions		13,780		169,137		15,430		201,324		14,423		181,896
Contracts with four extensions		11,964		141,288		12,740		166,119		12,367		153,170
Contracts with five extensions		9,082		101,524		8,717		110,251		8,742		103,989
Contracts with six extensions		6,407		67,585		5,265		61,975		5,454		60,743
		92,658	$	1,194,663		86,674	$	1,126,031		87,688	$	1,129,555

Managed portfolio (excluding originated and owned by 3rd parties)		173,214	$	2,326,440		177,115	$	2,399,221		177,604	$	2,416,042

~~_________________________~~______________________

Note: Table excludes portfolios originated and owned by third parties

4041

September 30, 2019 September 30, 2018 December 31, 2018
Number of Contracts Amount Number of Contracts Amount Number of Contracts Amount
(Dollars in thousands)
Contracts with one extension 26,120 $ 351,019 28,176 $ 374,711 27,991 $ 374,116
Contracts with two extensions 17,816 228,337 21,294 285,741 20,789 277,497
Contracts with three extensions 14,611 187,088 17,435 237,743 17,210 231,905
Contracts with four extensions 12,372 157,264 13,152 180,657 13,583 185,114
Contracts with five extensions 8,507 104,396 8,544 114,061 9,189 121,836
Contracts with six extensions 5,311 61,201 4,765 60,041 5,152 64,134
84,737 $ 1,089,305 93,366 $ 1,252,954 93,914 $ 1,254,602

Managed portfolio (excluding originated and owned by 3rd parties) 177,575 $ 2,412,638 174,584 $ 2,342,889 176,042 $ 2,380,847

~~_________________________~~

~~Note: Table excludes portfolios originated and owned by third parties~~

In recent years, we have experienced an increase in the number of extensions that we grant to our customers. We attribute this to a number of factors. First, in June 2014 we entered into a consent decree with the FTC that required us to make certain procedural changes in our servicing practices, which we believe have contributed to somewhat higher delinquencies and extensions compared to prior periods. Secondly, in recent years we have found it more difficult to communicate with our customers via outbound voice telephone calls, which have historically been our primary means of communicating with our customers. Consequently, we have recently developed text messaging platforms to supplement our outbound voice calling efforts. In addition, in 2016 we added features to the customer portal of our website to facilitate the process whereby the customer may request an extension. 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. Due to the pandemic, we have after March 2020 granted more extensions than in the prior year period, as shown in the table below:

	Second Quarter of 2019									Second Quarter of 2020
	Apr-19			May-19			Jun-19			Apr-20			May-20			Jun-20

Number of extensions granted		3,806			4,033			4,174			14,227			9,112			4,954

Number of outstanding accounts		177,220			177,124			177,115			177,644			175,241			173,214

Extensions as % of outstandings		2.1	%		2.3	%		2.4	%		8.0	%		5.2	%		2.9	%

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~~six-month period ended ~~September~~June 30, ~~2019~~2020 was ~~$170.0~~$129.4 million, an increase of ~~$11.4~~$17.0 million, compared to net cash provided by operating activities for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2018~~2019 of ~~$158.6~~$112.4 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 interest accretion on fair value receivables.

Net cash ~~used in~~provided by investing activities for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019~~2020 was ~~$177.7~~$4.9 million compared to net cash used in investing activities of ~~$157.7~~$115.4 million in the prior year period. 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 ~~$755.3~~$399.7 million and ~~$650.6~~$494.6 million during the first ~~nine~~six months of ~~2019~~2020 and ~~2018,~~2019, respectively.

Net cash ~~provided by~~used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$14.9~~$128.4 million compared to net cash ~~used in~~provided by financing activities of ~~$4.6~~$8.1 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~~six months of ~~2019,~~2020, we issued ~~$726.2~~$462.3 million in new securitization trust debt compared to ~~$622.1~~$482.7 million in the same period of ~~2018.~~2019. We repaid ~~$723.2~~$508.9 million in securitization trust debt in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to repayments of securitization trust debt of ~~$671.7~~$468.9 million in the prior year period. In the ~~nine~~six months ended ~~September 30, 2019,~~June 31, 2020, we had net ~~advances~~repayments on warehouse lines of credit of ~~$20.9~~$78.8 million, compared to net advances of ~~$15.0~~$2.7 million in the prior year’s period. ~~On May 16, 2018, we completed a $40.0 million securitization of residual interests from previously issued securitizations.~~

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. Since approximately April 1, 2020, due to the onset of the pandemic, we have seen a decrease in the number of purchased contracts.

We are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital. As of ~~September~~June 30, ~~2019,~~2020, we had unrestricted cash of ~~$8.8~~$7.5 million and ~~$142.8~~$243.3 million aggregate available borrowings under our three warehouse credit facilities (assuming the availability of sufficient eligible collateral). As of ~~September~~June 30, ~~2019,~~2020, we had approximately ~~$19.7~~$20.3 million of such eligible collateral. ~~During the nine-month period ended September 30, 2019, we completed three securitizations aggregating $726.2 million of notes sold.~~ 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, 2020, we completed two securitizations aggregating $462.3 million of notes sold. We generally complete one securitization each calendar quarter and have completed four securitizations every year since 2012, except for 2015 in which we completed three. We had planned to complete a securitization in April 2020 but chose to delay it to June 2020 because the market for asset-backed securities had been significantly interrupted due to the pandemic. Although we were able to complete our June 2020 securitization, the structure and amount of bonds sold relative to the underlying receivables resulted in significantly less leverage than we had experienced in recent transactions. We intend to continue to monitor the market for asset-backed securities with the intention of completing our next securitization when we find terms to be acceptable. There is no assurance that we will be able to complete a securitization on acceptable terms. If we are unable to complete such securitizations, we may be ~~unable~~required to ~~increase~~further reduce our ~~rate of~~ automobile contract purchases, in which case our interest income and other portfolio related income ~~could~~would decrease.

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

Our warehouse credit facilities contain various financial covenants requiring certain minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. In addition, certain of our debt agreements other than our term securitizations contain cross-default provisions. Such cross-default provisions would allow the respective creditors to declare a default if an event of default occurred with respect to other indebtedness of ours, but only if such other event of default were to be accompanied by acceleration of such other indebtedness. As of ~~September~~June 30, ~~2019,~~2020, we were in compliance with all such financial covenants.

We have and will continue to have a substantial amount of indebtedness. At ~~September~~June 30, ~~2019,~~2020, we had approximately ~~$2,279.1~~$2,165.0 million of debt outstanding. Such debt consisted primarily of ~~$2,066.5~~$2,051.2 million of securitization trust debt and ~~$157.8~~$56.7 million of debt from warehouse lines of credit. Our securitization trust debt has ~~increased~~decreased by ~~$32.2~~$26.1 million while our warehouse lines of credit debt has ~~increased~~decreased by ~~$30.1~~$82.5 million since ~~September~~June 30, ~~2018~~2019 (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 ~~$15.5~~$19.6 million and ~~$16.9~~$14.4 million in subordinated renewable notes outstanding at ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. On May 16, 2018, we completed a $40.0 million securitization of residual interests from previously issued securitizations. At ~~September~~June 30, ~~2019, $40.0~~2020, $37.9 million of this residual interest financing debt remains outstanding ($~~39.4~~37.5 million net of deferred financing costs).

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.

4344

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.

Item 4.Controls and Procedures

We maintain a system of internal controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. As of the end of the period covered by this report, we evaluated the effectiveness of the design and operation of such disclosure controls and procedures. Based upon that evaluation, the principal executive officer (Charles E. Bradley, Jr.) and the principal financial officer (Jeffrey P. Fritz) concluded that the disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, material information relating to us that is required to be included in our reports filed under the Securities Exchange Act of 1934. There has been no change in our internal controls over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

4445

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

The information provided under the caption “Legal Proceedings,” Note 8 to the Unaudited Condensed Consolidated Financial Statements, included in Part I of this report, is incorporated herein by reference.

Item 1A.Risk Factors

We remind the reader that risk factors are set forth in Item 1A of our report on Form 10-K, filed with the U.S. Securities and Exchange Commission on March ~~13, 2019.~~16, 2020. Where we are aware of material changes to such risk factors as previously disclosed, we set forth below an updated discussion of such risks. The reader should note that the other risks identified in our report on Form 10-K remain applicable.

The COVID-19 pandemic and public authorities’ responses to the pandemic have materially and adversely affected our business, and the continuation or intensification of the pandemic or of public authorities’ responses may materially affect our financial condition, liquidity and results of operations.

An outbreak of a novel strain of coronavirus (“COVID-19”) has spread throughout the world, including in the United States. The outbreak has been declared a pandemic by the World Health Organization, the president of the United States has declared a national emergency, and governments in a substantial majority of the states of the United States have imposed emergency restrictions, of varying kind and detail, on economic activity. Such restrictions have included outright bans on the conduct of business not deemed essential by the respective governments.

The mandatory shutdown of large portions of the United States economy pursuant to emergency restrictions has impaired and will impair the ability of obligors under our automobile contracts to pay their contractual obligations. The extent to which that ability will be impaired, and the extent to which public ameliorative measures such as stimulus payments and enhanced unemployment benefits may restore such ability, cannot be estimated, but we believe it may be material.

Obligors’ willingness to pay may be impaired as a result of any combination of the following:

actual losses of income, resulting from emergency shutdowns, or general economic conditions, or both

obligors’ perception of increased risk that they may suffer a loss of income in the future

encouragement on the part of officials and others to expect deferrals and other accommodations from creditors

emergency or permanent limitations on our ability to enforce our automobile contracts.

The extent to which these or other factors may increase obligors’ refusal to pay in accordance with the terms of our automobile contracts cannot be estimated, but we believe it may be material.

Emergency regulations in some states mandate that we refrain from enforcing our automobile contacts by repossession or by legal process. The effective dates of such mandates vary from state to state, and we expect that the effective dates will change in the future. In addition to the emergency regulations in effect as of the date of this report, federal and state governments may impose further restrictions on servicing practices, such as requiring forbearance for affected borrowers or prohibiting repossession. The effect of existing emergency mandates, and the extent and effect of any such further restrictions is uncertain, but may be material.

The pandemic itself (if sufficient numbers of people are afflicted) may adversely affect, and actions taken in response to the pandemic on a national and local level by governmental authorities have adversely affected, general and local economic conditions. We expect that such adverse effects on the economy generally will have an adverse effect on payments that we will receive in the future on our automobile contracts. Such adverse effect may be material.

Further, a general decline in economic activity, should it occur, may adversely affect the availability of automobile contracts for our purchase. We have seen a material decrease in the availability of contracts for purchase since April 2020. We are unable to predict the extent to which such a decrease may reverse, intensify or persist, nor whether or when such a decrease may end. A material and continued decrease would cause the size of our portfolio of automobile contracts to be reduced, which in turn would decrease the revenue that we may receive in the future from our portfolio of automobile contracts, in an amount that we cannot estimate at this time, but which may be material.

The pandemic has resulted in unsettled conditions in financial markets, which has caused us to defer an April 2020 securitization transaction and has resulted in an adverse change in terms in our most recent securitization (June 2020), as compared with securitizations in 2018 and 2019. We cannot predict the time and extent to which such unsettled conditions may persist, but continuing adverse conditions would increase our interest expense, and could reduce our ability to purchase automobile contracts, which would cause the size of our portfolio of automobile contracts to be reduced, which in turn would decrease the revenue that we may receive in the future from our portfolio of automobile contracts. We cannot estimate the amount of any such decrease at this time, but the increase in expense, decrease in revenue, or both, may be material.

We measure our portfolio of finance receivables carried at fair value with consideration for unobservable inputs that reflect our own assumptions about the factors that market participants use in pricing similar receivables and are based on the best information available in the circumstances. They include such inputs as estimates for the magnitude and timing of net charge-offs and the rate of amortization of the portfolio. The pandemic and the adverse effect it may have on the U.S. economy and our obligors may cause us to consider significant changes in any of those inputs, which in turn may a significant effect on our fair value measurement.

We have substantial indebtedness.

We have and will continue to have a substantial amount of indebtedness. At ~~September~~June 30, ~~2019,~~2020, we had approximately ~~$2,279.1~~$2,165.0 million of debt outstanding. Such debt consisted primarily of ~~$2,066.5~~$2,051.2 million of securitization trust debt and ~~$157.8~~$57.6 million of debt from warehouse lines of credit. Our securitization trust debt has ~~increased~~decreased by ~~$32.2~~$46.6 million while our warehouse lines of credit debt has ~~increased~~decreased by ~~$30.1~~$78.1 million since ~~September 30, 2018~~December 31, 2019 (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 ~~$15.5~~$19.6 million and ~~$16.9~~$17.5 million in subordinated renewable notes outstanding at ~~September~~June 30, ~~2019~~2020 and ~~2018,~~December 31, 2019, respectively. On May 16, 2018, we completed a $40.0 million securitization of residual interests from previously issued securitizations. At ~~September~~June 30, ~~2019, $40.0~~2020, $37.9 million of this residual interest financing debt remains outstanding ($~~39.4~~37.5 million net of deferred financing costs). Our substantial indebtedness could adversely affect our financial condition by, among other things:

increasing our vulnerability to general adverse economic and industry conditions;

requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing amounts available for working capital, capital expenditures and other general corporate purposes;

limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

placing us at a competitive disadvantage compared to our competitors that have less debt; and

limiting our ability to borrow additional funds.

Although we believe we are able to service and repay such debt, there is no assurance that we will be able to do so. If we do not generate sufficient operating profits, our ability to make required payments on our debt would be impaired. Failure to pay our indebtedness when due could have a material adverse effect.

4547

Forward-Looking Statements

Discussions of certain matters contained in this report may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange Act, and as such, may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which we operate, projections of future performance, perceived opportunities in the market and statements regarding our mission and vision. You can generally identify forward-looking statements as statements containing the words "will," "would," "believe," "may," "could," "expect," "anticipate," "intend," "estimate," "assume" or other similar expressions. Our actual results, performance and achievements may differ materially from the results, performance and achievements expressed or implied in such forward-looking statements. The discussion under "Risk Factors" identifies some of the factors that might cause such a difference, including the following:

changes in general economic conditions;

our ability or inability to obtain necessary financing, and the terms of any such financing;

changes in interest rates, especially as applicable to securitization trust debt;

our ability to generate sufficient operating and financing cash flows;

competition;

level of future provisioning for receivables losses;

the levels of actual losses on receivables; and

regulatory requirements.

Forward-looking statements in this report also include our recorded figures representing allowances for remaining expected lifetime credit losses, our markdown of the recorded value for the portion of our portfolio accounted for at fair value, our charge to the provision for credit losses for the our legacy portfolio, our estimates of fair value (most significantly for our receivables accounted for at fair value), our entries offsetting the preceding, and figures derived from any of the preceding. In each case, such figures are forward-looking statements because they are dependent on our estimates of cash to be received and losses to be incurred in the future. The accuracy of such estimates may be adversely affected by various factors, which include (in addition to risks relating to the COVD-19 pandemic and to the economy generally) the following: possible increased delinquencies; repossessions and losses on retail installment contracts; incorrect prepayment speed and/or discount rate assumptions; possible unavailability of qualified personnel, which could adversely affect our ability to service our portfolio; possible increases in the rate of consumer bankruptcy filings, which could adversely affect our rights to collect payments from our portfolio; other changes in government regulations affecting consumer credit; possible declines in the market price for used vehicles, which could adversely affect our realization upon repossessed vehicles; and economic conditions in geographic areas in which the Company's business is concentrated. The accuracy of such estimates may also be affected by the effects of the COVID-19 pandemic and of governmental responses to said pandemic, which have included prohibitions on certain means of enforcement of receivables, and may include additional restrictions, as yet unknown, in the future. Any or all of such factors also may affect our future financial results, as to which there can be no assurance. Any implication that past results or past consecutive earnings are indicative of future results or future earnings is disclaimed, and the reader should draw no such inference. Factors such as those identified above in relation to losses to be incurred in the future may affect future performance.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Actual results may differ from expectations due to many factors beyond our ability to control or predict, including those described herein, and in documents incorporated by reference in this report. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of ~~1995.~~1995

We undertake no obligation to publicly update any forward-looking information. You are advised to consult any additional disclosure we make in our periodic reports filed with the SEC.

4648

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended ~~September~~June 30, ~~2019,~~2020, we ~~did not repurchase~~repurchased 25,113 shares from existing shareholders, as reflected in the ~~open market.~~table below.

Issuer Purchases of Equity Securities

Total Number of Approximate Dollar
Total Shares Purchased as Value of Shares that
Number of Average Part of Publicly May Yet be Purchased
Shares Price Paid Announced Plans or Under the Plans or
Period(1) Purchased per Share Programs Programs (2)

July 2019 – $ – – $ 6,144,520
August 2019 – $ – – $ 6,144,520
September 2019 – $ – – $ 6,144,520
Total – $ – –

	Total Number of Shares		Average Price Paid		Total Number of Shares Purchased as Part of Publicly Announced Plans or		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or
Period(1)	Purchased		per Share		Programs		Programs (2)

April 2020		–	$	–		–	$	6,144,520
May 2020		–	$	–		–	$	6,144,520
June 2020		25,113	$	2.85		25,113	$	6,072,949
Total		25,113	$	2.85		25,113

~~_________________________~~____________________

(1)

Each monthly period is the calendar month.

(2)

Through ~~September~~June 30, ~~2019,~~2020, our board of directors had authorized the purchase of up to $74.5 million of our outstanding securities, under a program first announced in our annual report for the year 2002, filed on June 26, 2003. All purchases described in the table above were under the program announced in June 2003, which has no fixed expiration date.

Item 6.Exhibits

The Exhibits listed below are filed with this report.

4.14	Instruments defining the rights of holders of long-term debt of certain consolidated subsidiaries of the registrant are omitted pursuant to the exclusion set forth in subdivisions (b)(iv)(iii)(A) and (b)(v) of Item 601 of Regulation S-K (17 CFR 229.601). The registrant agrees to provide copies of such instruments to the United States Securities and Exchange Commission upon request.
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer of the registrant.
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer of the registrant.
32	Section 1350 Certifications.**
101.INS	XBRL Instances Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* These Certifications shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. These Certifications shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registration statement specifically states that such Certifications are incorporated therein.

4749

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CONSUMER PORTFOLIO SERVICES, INC.
	(Registrant)
Date: ~~November 12, 2019~~July 31, 2020
	By:/s/ CHARLES E. BRADLEY, JR.
	Charles E. Bradley, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)
~~Date: November 12, 2019~~
Date: July 31, 2020	By:/s/ JEFFREY P. FRITZ
	Jeffrey P. Fritz
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

4850

California	33-0459135
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

3800 Howard Hughes Parkway, Suite 1400, Las Vegas, Nevada	89169
(Address of principal executive offices)	(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	CPSS	The Nasdaq Stock Market LLC (Global Market)

Large accelerated filer ~~[_]~~☐		Accelerated ~~filer [X]~~
		Filer ☒
Non-accelerated filer ~~[_]~~☐		Smaller reporting company ~~[X]~~
		☒
Emerging growth company ~~[_]~~☐

	September 30,			December 31,
	2019			2018

ASSETS
Cash and cash equivalents	$	8,799		$	12,787
Restricted cash and equivalents		128,556			117,323

Finance receivables		1,022,391			1,522,085
Less: Allowance for finance credit losses		(12,740	)		(67,376	)
Finance receivables, net		1,009,651			1,454,709

Finance receivables measured at fair value		1,313,205			821,066
Furniture and equipment, net		1,702			1,837
Deferred tax assets, net		16,125			19,188
Accrued interest receivable		12,729			31,969
Other assets		46,695			26,801
	$	2,537,462		$	2,485,680

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses	$	55,431		$	31,692
Warehouse lines of credit		157,761			136,847
Residual interest financing		39,385			39,106
Securitization trust debt		2,066,458			2,063,627
Subordinated renewable notes		15,529			17,290
		2,334,564			2,288,562
COMMITMENTS AND CONTINGENCIES
Shareholders’ Equity
Preferred stock, $1 par value; authorized 4,998,130 shares; none issued		–			–
Series A preferred stock, $1 par value; authorized 5,000,000 shares; none issued		–			–
Series B preferred stock, $1 par value; authorized 1,870 shares; none issued		–			–
Common stock, no par value; authorized 75,000,000 shares; 22,525,718 and 22,421,688 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		70,676			70,273
Retained earnings		139,776			134,399
Accumulated other comprehensive loss		(7,554	)		(7,554	)
		202,898			197,118

	$	2,537,462		$	2,485,680

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018

Revenues:
Interest income	$	83,528	$	93,617	$	253,822	$	291,535
Other income		1,994		2,014		6,255		7,022
		85,522		95,631		260,077		298,557

Expenses:
Employee costs		20,251		18,806		59,030		59,288
General and administrative		8,185		7,784		25,109		22,730
Interest		27,940		25,808		82,933		75,057
Provision for credit losses		19,874		31,959		64,319		107,997
Sales		4,407		4,377		13,877		13,176
Occupancy		1,760		1,935		5,745		5,644
Depreciation and amortization		276		256		789		746
		82,693		90,925		251,802		284,638
Income before income tax expense		2,829		4,706		8,275		13,919
Income tax expense		991		1,508		2,898		4,409
Net income	$	1,838	$	3,198	$	5,377	$	9,510

Earnings per share:
Basic	$	0.08	$	0.14	$	0.24	$	0.44
Diluted	$	0.08	$	0.13	$	0.22	$	0.38


Number of shares used in computing earnings per share:
Basic		22,526		22,636		22,378		21,800
Diluted		24,066		24,735		24,102		25,178

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019	3

	Unaudited Condensed Consolidated Statements of Operations for the three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	6
	Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 4.	Controls and Procedures	44



PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4546
Item 1A.	Risk Factors	4546


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020				2019		2020			2019
Revenues:
Interest income	$	75,552			$	84,449	$	154,689		$	170,294
Mark to finance receivables measured at fair value		(9,549	)			–		(19,899	)		–
Other income		1,289				1,876		3,269			4,261
Total revenues		67,292				86,325		138,059			174,555

Expenses:
Employee costs		19,828				19,706		41,671			38,779
General and administrative		7,837				8,750		16,506			16,924
Interest		26,485				27,703		53,476			54,993
Provision for credit losses		3,100				20,489		6,713			44,445
Sales		3,079				4,634		7,508			9,470
Occupancy		1,833		��		2,011		3,524			3,985
Depreciation and amortization		487				262		906			513
Total operating expenses		62,649				83,555		130,304			169,109
Income before income tax expense (benefit)		4,643				2,770		7,755			5,446
Income tax expense (benefit)		1,671				970		(6,009	)		1,907
Net income	$	2,972			$	1,800	$	13,764		$	3,539

Earnings per share:
Basic	$	0.13			$	0.08	$	0.61		$	0.16
Diluted		0.13				0.08		0.58			0.15

Number of shares used in computing earnings per share:
Basic		22,685				22,362		22,612			22,302
Diluted		23,687				23,978		23,783			24,119

	Three Months Ended				Nine Months Ended
Schedule of other income									Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
		2019		2018		2019		2018	2020		2019		2020		2019
		(In thousands)				(In thousands)			(In thousands)				(In thousands)
Direct mail revenues	$	1,121	$	1,328	$	3,508	$	4,833	$	501	$	1,051	$	1,684	$	2,387
Convenience fee revenue		600		360		1,870		1,200		530		570		1,060		1,270
Recoveries on previously charged-off contracts		30		44		132		198		50		45		75		102
Sales tax refunds		200		220		631		658		208		204		409		431
Other		43		62		114		133		–		6		41		71
Other income for the period	$	1,994	$	2,014	$	6,255	$	7,022	$	1,289	$	1,876	$	3,269	$	4,261

	Nine Months Ended,
	September 30, 2019
Supplemental balance sheet information related to leases							June 30,			December 31,
		(In thousands)					2020			2019
							(In thousands)
Operating Leases
Operating lease right-of-use assets	$	23,555					$	23,735		$	23,735
Less: Accumulated amortization right-of-use assets		(4,986	)					(9,729	)		(6,600	)
Operating lease right-of-use assets, net	$	18,569					$	14,006		$	17,135

Operating lease liabilities	$	(20,005	)				$	(15,308	)	$	(18,527	)

Finance Leases
Property and equipment, at cost	$	545					$	3,224		$	876
Less: Accumulated depreciation		(84	)					(672	)		(150	)
Property and equipment, net	$	461					$	2,552		$	726

Finance lease liabilities	$	(447	)				$	(2,586	)	$	(718	)

Weighted Average Discount Rate
Operating lease		5.0%						5.0	%		5.0	%
Finance lease		6.7%						6.6	%		6.4	%

Maturities of lease liabilities were as follows:
(In thousands)		Operating			Finance
Year Ending December 31,		Lease			Lease
2019 (excluding the nine months ended September 30, 2019)	$	1,908		$	46
2020		7,500			183
2021		7,391			183
2022		6,125			60
2023		1,389			18
Thereafter		689			6
Total undiscounted lease payments		25,002			496
Less amounts representing interest		(4,997	)		(49	)
Lease Liability	$	20,005		$	447

Maturities of leases
(In thousands)	Operating			Finance
Year Ending December 31,	Lease			Lease
2020 (excluding the six months ended June 30, 2020)	$	3,903		$	587
2021		7,458			1,170
2022		6,066			992
2023		1,397			42
2024		419			14
Thereafter		282			–
Total undiscounted lease payments		19,525			2,805
Less amounts representing interest		(4,524	)		(219	)
Lease Liability	$	15,308		$	2,586

Lease information
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands)				(In thousands)
Operating lease cost	$	1,885	$	1,886	$	3,769	$	3,775
Finance lease cost		293		44		572		44
Total lease cost	$	2,178	$	1,930	$	4,341	$	3,819

Supplemental cash flow information related to leases
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:	(In thousands)				(In thousands)
Operating cash flows from operating leases	$	1,932	$	1,890	$	3,858	$	3,776
Operating cash flows from finance leases		248		36		481		36
Financing cash flows from finance leases		45		8		91		8

Schedule of stock option activity	Number of Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Options outstanding at the beginning of period		15,348		$	4.59		N/A
Granted		1,600			2.47		N/A
Exercised		(256	)		1.76		N/A
Forfeited		(164	)		5.48		N/A
Options outstanding at the end of period		16,528		$	4.42		3.31 years

Options exercisable at the end of period		12,535		$	4.81		2.45 years

	Number of Shares			Weighted Average Exercise		Weighted Average Remaining Contractual
	(in thousands)			Price		Term

Options outstanding at the beginning of period		14,421		$	4.57		N/A
Granted		1,490			3.53		N/A
Exercised		(483	)		0.86		N/A
Forfeited		(75	)		4.00		N/A
Options outstanding at the end of period		15,353		$	4.58		3.59 years

Options exercisable at the end of period		11,722		$	4.87		2.94 years

	Nine Months Ended
	September 30, 2019				September 30, 2018
Schedule of purchases of company stock									Six Months Ended
		Shares		Avg. Price		Shares		Avg. Price	June 30, 2020				June 30, 2019
									Shares		Avg. Price		Shares		Avg. Price
Open market purchases		335,546	$	3.95		714,898	$	3.81		25,113	$	2.85		335,546	$	3.95
Shares redeemed upon net exercise of stock options		18,424		3.76		33,599		4.37		46,909		2.86		18,424		3.76
Other purchases		24,500		4.20		90,000		4.13		–		–		24,500		4.20
Total stock purchases		378,470	$	3.97		838,497	$	3.87		72,022	$	2.85		378,470	$	3.97

Schedule of finance receivables	June 30,		December 31,
	2020		2019
	(In thousands)
Finance receivables
Automobile finance receivables, net of unearned interest	$	668,449	$	895,566
Unearned acquisition fees and originations costs		1,323		1,964
Finance receivables	$	669,772	$	897,530

Schedule of delinquency status of finance receivables	June 30,		December 31,
	2020		2019
	(In thousands)
Delinquency Status
Current	$	553,523	$	669,937
31 - 60 days		55,498		107,951
61 - 90 days		23,199		57,395
91 + days		8,464		31,350
Repo		27,765		28,933
	$	668,449	$	895,566

Schedule of amortized cost basis of finance receivables	June 30,		December 31,
	2020		2019
	(In thousands)
Annual Vintage Pool
2012	$	1,312	$	2,432
2013		9,057		15,489
2014		41,225		61,290
2015		122,363		162,242
2016		228,234		292,360
2017		266,258		361,753
	$	668,449	$	895,566

Schedule of allowance for finance credit losses
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
	(In thousands)						(In thousands)
Balance at beginning of period	$	114,073		$	48,196		$	11,640		$	67,376
Early adoption of CECL		–			n/a			127,000			n/a
Provision for credit losses on finance receivables		3,100			20,489			6,713			44,445
Charge-offs		(23,308	)		(50,409	)		(57,522	)		(102,919	)
Recoveries		4,737			14,388			10,771			23,762
Balance at end of period	$	98,602		$	32,664		$	98,602		$	32,664

	September 30,			December 31,
Schedule of allowance for losses on repossessed inventory							June 30,			December 31,
	2019			2018			2020			2019
	(In thousands)						(In thousands)
Gross balance of repossessions in inventory	$	37,481		$	33,462		$	27,765		$	28,933
Allowance for losses on repossessed inventory		(27,851	)		(24,564	)		(23,109	)		(21,389	)
Net repossessed inventory included in other assets	$	9,630		$	8,898		$	4,656		$	7,544

		Final Scheduled Payment	Receivables Pledged at September 30,		Initial		Outstanding Principal at September 30,		Outstanding Principal at December 31,		Weighted Average Contractual Interest Rate at September 30,
Series		Date (1)	2019 (2)		Principal		2019		2018		2019
		(Dollars in thousands)
	CPS 2014-A	June 2021		–		180,000		–		15,328		–
	CPS 2014-B	September 2021		–		202,500		–		24,051		–
	CPS 2014-C	December 2021		24,989		273,000		23,997		40,896		5.04%
	CPS 2014-D	March 2022		28,979		267,500		28,550		46,489		5.33%
	CPS 2015-A	June 2022		34,107		245,000		32,069		52,448		5.09%
	CPS 2015-B	September 2022		41,879		250,000		42,412		64,591		4.97%
	CPS 2015-C	December 2022		61,129		300,000		61,648		90,639		5.59%
	CPS 2016-A	March 2023		80,790		329,460		81,833		119,444		5.82%
	CPS 2016-B	June 2023		96,470		332,690		94,181		135,688		6.13%
	CPS 2016-C	September 2023		96,780		318,500		94,589		136,114		6.06%
	CPS 2016-D	April 2024		75,637		206,325		74,176		104,645		4.51%
	CPS 2017-A	April 2024		83,017		206,320		80,887		113,527		4.61%
	CPS 2017-B	December 2023		100,865		225,170		87,633		127,726		3.96%
	CPS 2017-C	September 2024		102,834		224,825		91,654		131,845		3.88%
	CPS 2017-D	June 2024		104,368		196,300		95,003		132,919		3.55%
	CPS 2018-A	March 2025		112,179		190,000		103,008		142,643		3.50%
	CPS 2018-B	December 2024		131,373		201,823		124,822		167,809		3.87%
	CPS 2018-C	September 2025		157,848		230,275		148,605		204,418		3.94%
	CPS 2018-D	June 2025		183,774		233,730		169,869		224,189		3.95%
	CPS 2019-A	March 2026		222,685		254,400		206,977		–		3.87%
	CPS 2019-B	June 2026		209,982		228,275		202,163		–		3.52%
	CPS 2019-C	December 2026		237,068		243,513		234,315		–		2.98%
			$	2,186,753	$	5,339,606	$	2,078,391	$	2,075,409

Schedule of securitization trust debt											Weighted
											Average
	Final		Receivables				Outstanding		Outstanding		Contractual
	Scheduled		Pledged at				Principal at		Principal at		Interest Rate at
	Payment		June 30,		Initial		June 30,		December 31,		June 30,
Series	Date (1)		2020 (2)		Principal		2020		2019		2020
	(Dollars in thousands)
CPS 2014-C		December 2021		–		273,000		–		19,758		–
CPS 2014-D		March 2022		17,002		267,500		15,647		23,755		5.82	%
CPS 2015-A		June 2022		18,894		245,000		17,301		26,713		5.87	%
CPS 2015-B		September 2022		26,444		250,000		26,142		36,338		5.45	%
CPS 2015-C		December 2022		39,594		300,000		39,739		53,579		6.17	%
CPS 2016-A		March 2023		50,410		329,460		53,801		71,599		6.55	%
CPS 2016-B		June 2023		62,854		332,690		62,967		82,667		7.08	%
CPS 2016-C		September 2023		64,356		318,500		63,748		83,696		7.12	%
CPS 2016-D		April 2024		51,487		206,325		49,635		65,021		5.31	%
CPS 2017-A		April 2024		57,147		206,320		54,980		71,450		5.26	%
CPS 2017-B		December 2023		70,008		225,170		56,243		76,201		4.57	%
CPS 2017-C		September 2024		72,442		224,825		61,597		80,315		4.45	%
CPS 2017-D		June 2024		74,749		196,300		64,292		83,801		4.01	%
CPS 2018-A		March 2025		80,427		190,000		70,616		91,258		3.85	%
CPS 2018-B		December 2024		94,479		201,823		86,861		111,188		4.25	%
CPS 2018-C		September 2025		111,494		230,275		100,415		130,064		4.36	%
CPS 2018-D		June 2025		131,159		233,730		115,229		149,470		4.35	%
CPS 2019-A		March 2026		164,744		254,400		147,634		186,900		4.15	%
CPS 2019-B		June 2026		159,841		228,275		150,112		184,308		3.74	%
CPS 2019-C		September 2026		186,160		243,513		177,905		216,650		3.12	%
CPS 2019-D		December 2026		232,484		274,313		223,234		265,035		2.68	%
CPS 2020-A		March 2027		232,307		260,000		228,045		–		2.66	%
CPS 2020-B		June 2027		216,306		202,343		197,023		–		2.77	%
			$	2,214,788	$	5,693,762	$	2,063,166	$	2,109,766

				Amount Outstanding at
Schedule of debt outstanding										Amount Outstanding at
				September 30,		December 31,				June 30,		December 31,
				2019		2018				2020		2019
				(In thousands)						(In thousands)
Description	Interest Rate	Maturity						Interest Rate	Maturity

Warehouse lines of credit	5.50% over one month Libor (Minimum 6.50%)		February 2021	$	35,264	$	38,198	5.50% over one month Libor (Minimum 6.50%)	February 2021	$	15,871	$	40,558

	3.00% over one month Libor (Minimum 3.75%)		September 2020		96,154		99,885	3.00% over one month Libor (Minimum 3.75%)	September 2020		28,563		96,225

	6.75% over a commercial paper rate (Minimum 7.75%)		November 2019		27,578		–	4.00% over a commercial paper rate (Minimum 5.00%)	December 2021		13,507		–

Residual interest financing	8.60%		January 2026		40,000		40,000	8.60%	January 2026		37,881		40,000

Subordinated renewable notes	Weighted average rate of 9.22% and 8.53% at September 30, 2019 and December 31, 2018, respectively		Weighted average maturity of December 2021 and January 2021 at September 30, 2019 and December 31, 2018, respectively		15,529		17,290	Weighted average rate of 10.36% and 9.75% at June 30, 2020 and December 31, 2019 , respectively	Weighted average maturity of July 2022 and April 2022 at June 30, 2020 and December 31, 2019, respectively		19,580		17,534

				$	214,525	$	195,373			$	115,402	$	194,317

Schedule of interest income
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2020			2019		2020			2019
	(In thousands)					(In thousands)
Interest on finance receivables	$	33,773		$	55,660	$	71,580		$	117,950
Interest on finance receivables at fair value		41,659			27,978		82,465			50,793
Mark to finance receivables measured at fair value		(9,549	)		–		(19,899	)		–
Other interest income		120			811		644			1,551
Interest income	$	66,003		$	84,449	$	134,790		$	170,294

Schedule of interest expense	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands)				(In thousands)
Securitization trust debt	$	22,367	$	24,466	$	46,165	$	48,454
Warehouse lines of credit		2,675		1,960		4,437		3,980
Residual interest financing		920		955		1,857		1,911
Subordinated renewable notes		523		322		1,017		648
Interest expense	$	26,485	$	27,703	$	53,476	$	54,993

Computation of earnings per share
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands)				(In thousands)
Weighted average number of common shares outstanding during the period used to compute basic earnings per share		22,685		22,362		22,612		22,302
Incremental common shares attributable to exercise of outstanding options and warrants		1,002		1,616		1,171		1,817
Weighted average number of common shares used to compute diluted earnings per share		23,687		23,978		23,783		24,119

Schedule of reconciliation of the finance receivables measured at fair value on a recurring basis
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
	(In thousands)						(In thousands)
Balance at beginning of period	$	1,559,697		$	997,552		$	1,444,038		$	821,066
Finance receivables at fair value acquired during period		134,447			249,873			399,729			494,626
Payments received on finance receivables at fair value		(112,505	)		(68,005	)		(222,063	)		(117,505	)
Net interest income accretion on fair value receivables		(34,441	)		(21,055	)		(64,156	)		(39,822	)
Mark to fair value		(9,549	)		–			(19,899	)		–
Balance at end of period	$	1,537,649		$	1,158,365		$	1,537,649		$	1,158,365

	September 30, 2019				December 31, 2018
	Contractual		Fair		Contractual		Fair
	Balance		Value		Balance		Value
	(In thousands)
Finance receivables measured at fair value	$	1,356,157	$	1,313,205	$	829,039	$	821,066

Schedule of level 3 fair value measurements
Financial Instrument	Fair Values as of					Inputs as of				Fair Values as of					Inputs as of
	September 30,		December 31,			September 30,		December 31,		June 30,		December 31,			June 30,		December 31,
	2019		2018		Unobservable Inputs	2019		2018		2020		2019		Unobservable Inputs	2020		2019
	(In thousands)										(In thousands)
Assets:
Finance receivables measured at fair value	$	1,313,205	$	821,066	Discount rate Cumulative net losses		8.9% - 11.1% 15.0% - 16.1%		8.9% - 9.9% 15.0% - 16.0%	$	1,537,649	$	1,444,038	Discount rate		10.0% - 11.1%		8.9% - 11.1%
														Cumulative net losses		15.3% - 18.4%		15.0% - 16.1%

	As of September 30, 2019
Financial Instrument	(In thousands)
	Carrying		Fair Value Measurements Using:
	Value		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	8,799	$	8,799	$	–	$	–	$	8,799
Restricted cash and equivalents		128,556		128,556		–		–		128,556
Finance receivables, net		1,009,651		–		–		964,540		964,540
Accrued interest receivable		12,729		–		–		12,729		12,729
Liabilities:
Warehouse lines of credit	$	157,761	$	–	$	–	$	157,761	$	157,761
Accrued interest payable		5,257		–		–		5,257		5,257
Residual interest financing		39,385		–		–		39,385		39,385
Securitization trust debt		2,066,458		–		–		2,095,487		2,095,487
Subordinated renewable notes		15,529		–		–		15,529		15,529

Schedule of estimated fair values of financial assets and liabilities
	As of June 30, 2020
Financial Instrument	(In thousands)
	Carrying		Fair Value Measurements Using:
	Value		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	7,475	$	7,475	$	–	$	–	$	7,475
Restricted cash and equivalents		139,191		139,191		–		–		139,191
Finance receivables, net		571,170		–		–		526,888		526,888
Accrued interest receivable		7,229		–		–		7,229		7,229
Liabilities:
Warehouse lines of credit	$	56,668	$	–	$	–	$	56,668	$	56,668
Accrued interest payable		5,231		–		–		5,231		5,231
Residual interest financing		37,544		–		–		37,544		37,544
Securitization trust debt		2,051,172		–		–		2,034,363		2,034,363
Subordinated renewable notes		19,580		–		–		19,580		19,580

	As of December 31, 2018
Financial Instrument	(In thousands)
	Carrying		Fair Value Measurements Using:
	Value		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	12,787	$	12,787	$	–	$	–	$	12,787
Restricted cash and equivalents		117,323		117,323		–		–		117,323
Finance receivables, net		1,454,709		–		–		1,434,631		1,434,631
Accrued interest receivable		31,969		–		–		31,969		31,969
Liabilities:
Warehouse lines of credit	$	136,847	$	–	$	–	$	136,847	$	136,847
Accrued interest payable		4,819		–		–		4,819		4,819
Residual interest financing		39,106		–		–		39,106		39,106
Securitization trust debt		2,063,627		–		–		2,051,920		2,051,920
Subordinated renewable notes		17,290		–		–		17,290		17,290


	As of December 31, 2019
Financial Instrument	(In thousands)
	Carrying		Fair Value Measurements Using:
	Value		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	5,295	$	5,295	$	–	$	–	$	5,295
Restricted cash and equivalents		135,537		135,537		–		–		135,537
Finance receivables, net		885,890		–		–		841,160		841,160
Accrued interest receivable		11,645		–		–		11,645		11,645
Liabilities:
Warehouse lines of credit	$	134,791	$	–	$	–	$	134,791	$	134,791
Accrued interest payable		5,254		–		–		5,254		5,254
Residual interest financing		39,478		–		–		39,478		39,478
Securitization trust debt		2,097,728		–		–		2,116,520		2,116,520
Subordinated renewable notes		17,534		–		–		17,534		17,534

Contract Purchases and Outstanding Managed Portfolio
	$ in thousands				$ in thousands
Period	Contracts Purchased in Period		Managed Portfolio at Period End		Contracts Purchased in Period		Managed Portfolio at Period End

2013	$	764,087	$	1,231,422
2014		944,944		1,643,920
2015		1,060,538		2,031,136		1,060,538		2,031,136
2016		1,088,785		2,308,070		1,088,785		2,308,070
2017		859,069		2,333,530		859,069		2,333,530
2018		902,416		2,380,847		902,416		2,380,847
Nine months ended September 30, 2019		755,285		2,412,638
2019						1,002,782		2,416,042
Six months ended June 30, 2020						401,857		2,326,440