<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to _______
Commission file number: 1-11416
CONSUMER PORTFOLIO SERVICES, INC.
(Exact name of registrant as specified in its charter)
California 33-0459135
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2 Ada, Irvine, California 92618
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (714) 753-6800
Former name, former address and former fiscal year, if changed since last
report: N/A
Indicate by check mark whether the registrant (1) 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 [_]
As of August 13, 1997, the registrant had 14,335,442 common shares outstanding.
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<PAGE>
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets as of June 30, 1997 and
December 31, 1996.
Condensed consolidated statements of income for the three and
six month periods ended June 30, 1997 and 1996.
Condensed consolidated statements of cash flows for the six
month periods ended June 30, 1997 and 1996.
Notes to condensed consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
------------- --------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash $ 431,437 $ 153,958
Contracts held for sale (note 2) 68,292,407 21,656,773
Servicing fees receivable 5,716,978 3,086,194
Residual interest in securitizations (note 3) 86,549,901 67,251,933
Furniture and equipment, net 1,457,926 629,774
Taxes receivable - 610,913
Deferred financing costs 2,001,833 943,222
Investment in unconsolidated affiliate 3,359,705 2,263,768
Investment in preferred stock of related party (note 6) 14,500,000 -
Other assets 9,062,144 5,349,885
------------- --------------
$ 191,372,331 $ 101,946,420
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable & accrued expenses $ 10,411,998 $ 1,697,051
Warehouse line of credit 31,001,850 13,264,585
Taxes payable 3,665,641 -
Deferred tax liability 7,027,251 7,027,251
Notes payable (note 7) 40,000,000 20,000,000
Convertible subordinated debt - 3,000,000
Related party debt (note 6) 29,597,431 -
Other notes payable 1,074,991 -
------------- --------------
122,779,162 44,988,887
Shareholders' Equity
Preferred stock, $1 par value; authorized
5,000,000 shares; none issued - -
Series A preferred stock, $1 par value;
authorized 5,000,000 shares; 3,415,000
shares issued; none outstanding - -
Common stock, no par value; authorized
30,000,000 shares; 14,299,242 and 13,779,242
shares issued and outstanding at June 30, 1997
and December 31, 1996, respectively 37,749,564 34,644,314
Retained earnings 30,843,605 22,313,219
------------- --------------
68,593,169 56,957,533
------------- --------------
$ 191,372,331 $ 101,946,420
============= ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
Consumer Portfolio Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Net gain on sale of contracts (note 5) $ 7,942,147 $ 5,582,236 $ 15,275,397 $ 10,080,067
Servicing fees (note 4) 4,555,096 3,643,882 9,825,598 6,646,664
Interest 4,712,437 3,259,067 7,977,557 5,666,035
Other 900,999 -- 1,289,791 --
------------ ------------ ------------ ------------
18,110,679 12,485,185 34,368,343 22,392,766
------------ ------------ ------------ ------------
Expenses:
Interest 2,220,831 1,523,541 3,658,940 2,712,646
Employee costs 3,310,859 2,288,395 6,532,689 3,757,377
General and administrative 3,718,590 1,891,822 6,219,150 3,213,158
Marketing 409,631 293,992 729,956 616,668
Occupancy 290,198 176,688 534,564 403,333
Depreciation and amortization 42,990 70,982 404,677 140,055
Provision for credit losses 569,048 722,516 1,596,474 930,984
------------ ------------ ------------ ------------
10,562,147 6,967,936 19,676,450 11,774,221
------------ ------------ ------------ ------------
Income before income taxes 7,548,532 5,517,249 14,691,893 10,618,545
Income taxes 3,162,900 2,246,020 6,161,507 4,296,020
------------ ------------ ------------ ------------
Net income $ 4,385,632 $ 3,271,229 $ 8,530,386 $ 6,322,525
============ ============ ============ ============
Net income per common and common
equivalent share $ 0.29 $ 0.22 $ 0.56 $ 0.43
============ ============ ============ ============
Weighted average number of common
and common equivalent shares 15,326,809 14,767,623 15,344,976 14,714,687
============ ============ ============ ============
Fully diluted net income per common
and common equivalent share $ 0.28 $ 0.22 $ 0.55 $ 0.42
============ ============ ============ ============
Fully diluted weighted average number
of common and common equivalent shares 16,017,481 15,247,623 15,773,566 15,194,687
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
Consumer Portfolio Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> Six Months Ended
June 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operation activities:
Net income $ 8,530,386 $ 6,322,525
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 404,677 140,055
Amortization of net interest receivables 5,560,610 2,594,863
Amortization of deferred financing costs 106,341 78,604
Provision for credit losses 569,048 930,984
Gain on sale of contracts (12,823,862) (7,708,716)
Loss on sale of fixed asset 13,449 --
Gain on investment in unconsolidated affiliate (614,320) --
Changes in operating assets and liabilities:
Purchases of contracts held for sale (276,094,949) (160,327,070)
Liquidation of contracts held for sale 228,890,266 161,175,551
Servicing fees receivable (2,630,784) (1,256,620)
Initial deposits to spread accounts (7,759,116) (5,795,619)
Deposits to spread accounts (13,048,559) (8,318,873)
Release of cash from spread accounts 8,772,959 3,688,020
Other assets (1,830,681) (402,746)
Accounts payable and accrued expenses 8,315,315 1,981,775
Warehouse line of credit 17,737,265 (659,188)
Taxes payable 4,276,554 (1,813,000)
------------- --------------
Net cash used in operating activities (31,625,401) (9,369,455)
Cash flows from investing activities:
Proceeds from sale of subordinated certificates -- 2,022,220
Investment in preferred stock of related party (14,500,000) --
Investment in unconsolidated affiliate (481,617) (3,995,318)
Purchases of furniture and equipment (632,772) (279,486)
Payments received on subordinated certificates -- 152,446
Purchase of subsidiary (80,000) --
------------- --------------
Net cash used in investing activities (15,694,389) (2,100,138)
Cash flows from financing activities:
Issuance of notes to related party 29,500,000 --
Issuance of long term notes 20,000,000 --
Repayment of notes payable (440,461) --
Repayment of related party debt (402,569)
Payment of financing costs (1,164,951) --
Exercise of options and warrants 105,250 645,500
------------- --------------
Net cash provided by financing activities 47,597,269 645,500
------------- --------------
Increase (decrease) in cash 277,479 (10,824,093)
Cash at beginning of period 153,958 10,895,157
------------- --------------
Cash at end of period $ 431,437 $ 71,064
============= ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 3,121,684 $ 2,366,470
Income taxes $ 2,033,140 $ 5,054,000
Supplemental disclosure of non-cash investing and
financing activities:
Issuance of common stock upon conversion
of debt $ 3,000,000 $ --
Purchase of CPS Leasing, Inc.
Assets acquired $ 2,495,084 $ --
Liabilities assumed (2,415,084) --
------------- --------------
Net cash used to acquire business $ 80,000 $ --
============= ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
Note 1: Summary of Significant Accounting Policies
Unaudited Condensed Consolidated Financial Statements
- -----------------------------------------------------
The unaudited condensed consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include all
adjustments that are, in the opinion of management, 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 three and six month periods ended June 30, 1997 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 generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1996.
Principles of Consolidation
- ---------------------------
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Alton Receivables Corp., CPS
Receivables Corp. and CPS Funding Corp. The consolidated financial statements
also include the accounts of SAMCO Acceptance Corp., LINC Acceptance Company,
LLC and CPS Leasing, Inc., all of which are 80% owned subsidiaries of the
Company. All significant intercompany transactions and balances have been
eliminated. Investments in affiliates that are not majority owned are reported
using the equity method.
Recent Accounting Developments
- ------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128).
This statement is effective for both interim and annual periods ending after
December 15, 1997, and replaces the presentation of "primary" earnings per share
with "basic" earnings per share and the presentation of "fully diluted" earnings
per share with "diluted" earnings per share. Earlier application is not
permitted. When adopted, all previously reported earnings per common share
amounts must be restated based on the provisions of the new standard. Pro forma
basic and diluted earnings per share calculated in accordance with SFAS No. 128
are provided below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Basic earnings per share $ 0.31 $ 0.24 $ 0.60 $ 0.47
====== ====== ====== ======
Diluted earnings per share $ 0.28 $ 0.22 $ 0.55 $ 0.42
====== ====== ====== ======
</TABLE>
Residual Interest in Securitizations
- ------------------------------------
The Company is a party to various agreements with institutional investors and
investment banks for the sale of the Company's Contracts. The agreements call
for the Company to sell Contracts to one of the Company's special purpose
subsidiaries (the "SPS"), which subsequently transfers the Contracts to various
grantor trusts (the "Trusts"), which then issue interest-bearing, asset-backed
securities ("Certificates"), which are purchased by institutional investors.
The terms of the agreements provide that with each purchase of Certificates by
the investors, the Company is required to provide a credit enhancement in the
form of (i) a cash capital contribution to the SPS, held in a credit enhancement
account ("Spread Account"), and (ii) a Certificate guarantor insurance policy.
Cash deposited in the various Spread Accounts is pledged to the related Trust,
which in turn invests the cash in high quality liquid investment securities as
defined by the various agreements.
6
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
At the closing of each securitization, the Company removes from its balance
sheet the Contracts held for sale and adds to its balance sheet (i) the cash
received and (ii) the estimated fair value of the portion of the Contracts
retained from the securitizations ("residuals"), which consists of (a) the cash
deposited by the Company into the Spread Account, and (b) the net interest
receivables, as defined below. The excess of the cash received and assets
retained by the Company over the carrying value of the Contracts sold, less
transaction costs, equals the net gain on sale of Contracts recorded by the
Company.
The Company allocates its basis in the Contracts between the portion of the
Contracts sold through asset-backed securities (the "Certificates") and the
residuals, based on the relative fair values of those portions on the date of
the sale. The Company may recognize gains or losses attributable to the change
in the fair value of the residuals, which are recorded at estimated fair value
and accounted for as "held-for-trading" securities in accordance with SFAS No.
115. The Company is not aware of an active market for the purchase or sale of
the residuals; accordingly, the Company estimates fair value of the residuals by
calculating the present value of the estimated expected future cash flows using
a discount rate appropriate for the risks involved.
The Spread Account consists of an initial cash deposit, made simultaneously with
the purchase of the Certificates by the investors, and subsequent cash flows to
the extent required by the terms of the various securitization agreements. In
the event that the cash flows generated by the Contracts transferred to the
Trust should be insufficient to pay the obligations of the Trust, including
principal or interest due to Certificate holders or expenses of the Trust, the
trustee would draw from the Spread Account an amount necessary to pay the
obligations of the Trust. The securitization agreements provide that the
Spread Accounts shall be maintained at a specified percentage of the outstanding
principal balance of the Certificates, which percentage can be increased
significantly in the event delinquencies or losses exceed certain specified
levels. In the event delinquencies or losses on the Contracts serviced exceed
certain higher specified levels defined in the Company's securitization
agreements, the terms of those securitizations may require the transfer of
servicing to another servicer.
As principal payments are made to the Certificate holders, and if the Spread
Accounts are in excess of the specified percentage of the outstanding principal
balance of the Certificates, the trustee releases to the SPS the portion of the
pledged cash that is in excess of the amount necessary to maintain the Spread
Account at the specified percentage of the outstanding principal balance of the
certificates. To the extent cash in excess of the predetermined level is
generated, such cash is either transferred to cover deficiencies, if any, in
Spread Accounts for other pools, or is released to the Company. Except for
releases in this manner, the cash in the Spread Accounts is restricted from use
by the SPS or the Company.
Net interest receivables ("NIRs") are calculated as the net present value of the
excess of the weighted-average coupon on the Contracts sold over the sum of (i)
the coupon on the Certificates, (ii) a base servicing fee paid to the servicer
of the Contracts (currently, the Company), (iii) expected losses to be incurred
on the portfolio of Contracts sold over their estimated lives and (iv) other
expenses and revenues. The significant assumptions used by the Company to
estimate NIRs cash flows are anticipated prepayments and estimated credit
losses. The Company estimates prepayments by evaluating historical prepayment
performance of comparable Contracts and the effect of trends in the industry.
The Company estimates credit losses using available historical loss data for
comparable Contracts and the specific characteristics of the Contracts included
in the Company's securitizations.
7
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
Note 2: Contracts held for sale
The Contracts that the Company purchases from Dealers provide for finance
charges of approximately 20% per annum, in most cases. Each Contract provides
for full amortization, equal monthly payments and may be fully prepaid by the
customer at any time without penalty. The Company has historically purchased
Contracts from Dealers at discounts ranging from 0% to 10% of the total amount
financed under the Contracts, depending on the perceived credit risk of the
Contract, plus a flat acquisition fee, generally $200, for each Contract
purchased. Effective January 10, 1997, the Company began purchasing all
Contracts without a percentage discount, charging Dealers only an acquisition
fee ranging from zero to $1,195 for each Contract purchased. The fees vary
based on the perceived credit risk and, in some cases, the interest rate on the
Contract. The acquisition fees instituted in January 1997 are larger, on
average, than the acquisition fees previously charged in conjunction with
percentage discounts, so as to result in a similar net purchase price on a
typical Contract. Contracts held for sale are stated at the lower of aggregate
cost or market value, net of related reserves. At June 30, 1997 and December
31, 1996, the balance of Contracts held for sale were comprised of the following
components:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------------- -------------
<S> <C> <C>
Gross receivable balance $ 83,510,012 $ 28,095,461
Unearned finance charges (12,722,641) (5,268,107)
Dealer discounts (199,220) (509,266)
Deferred loan origination
fees and costs, net (864,779) 61,774
Allowance for credit losses (1,430,965) (723,089)
--------------- -------------
Net contracts held for sale $ 68,292,407 $ 21,656,773
=============== =============
</TABLE>
Note 3: Residual interest in securitizations
Residual interest in securitizations comprised the following components at June
30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- --------------
<S> <C> <C>
Spread accounts $ 55,632,189 $ 43,597,472
NIRs 30,917,712 23,654,461
------------- --------------
$ 86,549,901 $ 67,251,933
============= ==============
</TABLE>
The following table summarizes NIRs activity for the six months ended June 30,
1997:
<TABLE>
<S> <C>
Beginning balance, December 31, 1996 $ 23,654,461
NIRs portion of gains recognized 12,823,861
Amortization of NIRs (5,560,610)
-------------
Ending balance, June 30, 1997 30,917,712
=============
</TABLE>
8
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
Included in NIRs balances are estimates of losses totaling the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Estimated credit losses $ 68,056,340 $ 50,098,119
============= =============
Servicing subject to recourse provisions $ 602,623,400 $ 483,106,256
============= =============
Estimated credit losses as percentage of
servicing subject to recourse provisions 11.29% 10.37%
============= =============
</TABLE>
Spread Accounts consisted of the following components at June 30, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Funds held by investors $ 866,168 $ 1,263,660
Investment in subordinated certificates 1,140,734 1,530,950
US government securities 53,625,287 40,802,862
------------ ------------
$ 55,632,189 $ 43,597,472
============ ============
</TABLE>
Note 4: Servicing fees
Servicing fees are reported as income when earned, net of related amortization
of NIRs. Servicing costs are charged to expense as incurred. Servicing fees
for the three and six month periods ended June 30, 1997 and 1996, consisted of
the following components:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Base servicing fees $ 3,301,294 $ 1,763,887 $ 6,130,600 $ 3,313,242
Residual interest income 4,227,473 3,327,782 9,255,608 5,928,285
Amortization of NIRs (2,973,671) (1,447,787) (5,560,610) (2,594,863)
----------- ----------- ----------- -----------
Net servicing fees $ 4,555,096 $ 3,643,882 $ 9,825,598 $ 6,646,664
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
Note 5: Net gain on sale of contracts
Net gain on sale of contracts for the three and six month periods June 30, 1997
and 1996, consisted of the following components:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Dealer discounts and
acquisition fees (net
of acquisition costs) $2,076,250 $1,926,503 $ 3,980,939 $ 3,730,587
NIRs portion of gains
recognized 6,723,165 4,469,996 12,823,861 7,708,716
Expenses related to sales (857,268) (814,263) (1,529,403) (1,359,236)
---------- ---------- ----------- -----------
$7,942,147 $5,582,236 $15,275,397 $10,080,067
========== ========== =========== ===========
</TABLE>
Note 6: Investment in preferred stock of related party
In May 1997, the Company entered into two transactions: (i) the Company
purchased $14.5 million of preferred stock of Stanwich Holdings, Inc.
("Holdings"), with dividends cumulative at the rate of 9% per annum and
redeemable at an aggregate price of $14.6 million, plus accrued dividends, and
(ii) the Company borrowed $14.5 million with an interest rate of 8% per annum
under a 60-day related party loan from Stanwich Financial Services Corp.
("SFSC"). Charles E. Bradley, Sr., Charles E. Bradley, Jr., and John G. Poole,
who are officers and directors of the Company, collectively own 92.5% of the
common stock of Holdings, and Mr. Bradley, Sr., is the president and a director
of Holdings. In August 1997, the Company received $14.9 million in redemption
of its preferred stock of Holdings and repaid the 60-day related party loan in
its entirety. SFSC is a wholly-owned subsidiary of Holdings.
In addition to the 60-day related party loan, in June 1997, the Company borrowed
$15 million on an unsecured and subordinated basis from SFSC. This loan ("RPL")
is due 2004, and has a fixed rate of interest of 9% per annum, payable monthly
beginning July 1997. The Company may pre-pay the RPL without penalty at any
time. The RPL is also convertible into equity. At maturity or repayment of the
RPL, the holder thereof will have an option to convert 20% of the principal
amount into common stock of the Company, at a conversion rate of $11.86 per
share.
Note 7: Notes payable
In April 1997, the Company issued $20 million of Participating Equity Notes due
2004 ("PENs"), in a registered public offering. After deduction of underwriting
commissions, the net proceeds of that offering were $19.2 million. The PENs
have a fixed coupon rate of interest of 10.5% per annum, payable monthly
beginning May 15, 1997. The PENs may be redeemed without premium at any time
after April 15, 2000. The PENs are partially convertible into equity. At
maturity or earlier redemption of the PENs, the holders thereof will have the
option to convert 25% of the principal amount into common stock of the Company,
at a conversion rate of $10.15 per share.
10
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Consumer Portfolio Services, Inc. (the "Company") and its subsidiaries engage
primarily in the business of purchasing, selling and servicing retail automobile
installment sale contracts ("Contracts") originated by automobile dealers
("Dealers") located throughout the Unites States. Through its purchase of
Contracts, the Company provides indirect financing to Dealer customers with
limited credit histories, low incomes or past credit problems, who generally
would not be expected to qualify for financing provided by banks or by
automobile manufacturers' captive finance companies.
The major components of the Company's revenue are gains recognized on the sale
or securitization of its Contracts, servicing fees earned on Contracts sold, and
interest earned on Contracts held for sale. Because the servicing fees are
dependent in part on the collections received on sold Contracts, the Company's
income is affected by losses incurred on Contracts, whether such Contracts are
held for sale or have been sold in securitizations.
In each securitization, the Company sells Contracts to a trust (the "Trust"),
which then issues interest-bearing, asset-backed securities ("Certificates"),
which are purchased by institutional investors. The terms of the agreements
provide that with each purchase of Certificates by the investors, the Company is
required to provide a credit enhancement in the form of (i) a cash capital
contribution, held in a credit enhancement account ("Spread Account") and (ii) a
certificate guarantor insurance policy provided by a monoline insurance company.
Cash deposited in the various Spread Accounts is pledged to the related Trust,
which in turn invests the cash in high quality liquid investment securities as
defined by the various agreements.
At the closing of each securitization, the Company removes from its balance
sheet the Contracts held for sale and adds to its balance sheet (i) the cash
received and (ii) the estimated fair value of the portion of the Contracts
retained from the securitizations ("residuals"), which consist of (a) the cash
deposited by the Company into the Spread Account and (b) the net interest
receivables ("NIRs"). The excess of the cash received and assets retained by
the Company over the carrying value of the Contracts sold, less transaction
costs, equals the net gain on sale of Contracts recorded by the Company.
The Company allocates its basis in the Contracts between the portion of the
Contracts sold through Certificates and the residuals, based on the relative
fair values of those portions on the date of the sale. The Company may
recognize gains or losses attributable to the change in the fair value of the
residuals, which are recorded at estimated fair value and accounted for as
"held-for-trading" securities. The Company is not aware of an active market for
the purchase or sale of the residuals; accordingly, the Company estimates fair
value of the residuals by calculating the present value of the estimated
expected future cash flows using a discount rate appropriate for the risks
involved.
The Spread Account consists of an initial cash deposit, made simultaneously with
the purchase of the Certificates by the investors, and subsequent cash flows
required by the terms of the various agreements. In the event that the cash
flows generated by the Contracts transferred to the Trust should be insufficient
to pay the obligations of the Trust, including principal or interest due to
Certificate holders or expenses of the Trust, the trustee would draw from the
Spread Account an amount necessary to pay the obligations of the Trust. The
securitization agreements provide that the Spread Accounts shall be maintained
at a specified percentage of the outstanding principal balance of the
Certificates, which percentage can be increased significantly in the event
delinquencies or losses exceed certain specified levels. In the event
delinquencies or losses on the Contracts serviced exceed certain higher
specified levels defined in the Company's securitization agreements, the terms
of those securitizations may require the transfer of servicing to another
servicer.
As principal payments are made to the Certificate holders, and if the Spread
Accounts are in excess of the specified percentage of the outstanding principal
balance of the Certificates, the trustee releases to the special purpose
subsidiaries ("SPS ") the portion of the pledged cash that is in excess of the
amount necessary to meet the specified percentage of the outstanding principal
balance of the Certificates. To the extent cash in excess of the predetermined
level is generated, such cash is either transferred to cover deficiencies, if
any, in Spread Accounts for other pools, or is released to the Company. Except
for releases in this manner, the cash in the Spread Accounts is restricted from
use by the SPS or the Company.
11
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
NIRs are calculated as the net present value of the excess of the weighted-
average coupon on the Contracts sold over the sum of (i) the coupon on the
Certificates, (ii) a base servicing fee paid to the servicer of the Contracts
(currently, the Company), (iii) expected losses to be incurred on the portfolio
of Contracts sold over their estimated lives and (iv) other expenses and
revenues. The significant assumptions used by the Company to estimate NIRs cash
flows are anticipated prepayments and estimated credit losses. The Company
estimates prepayments by evaluating historical prepayment performance of
comparable Contracts and the effect of trends in the industry. The Company
estimates credit losses using available historical loss data for comparable
Contracts and the specific characteristics of the Contracts included in the
Company's securitizations.
There can be no assurance that actual performance of any of the Company's
securitized loan portfolios will be consistent with the Company's estimates and
assumptions. To the extent that actual prepayments, losses or market discount
rates materially differ from the Company's estimates, the estimated value of its
residual interests may increase or decrease, which could have a material effect
on the Company's results of operations, financial condition and liquidity.
Results of Operations
The three month period ended June 30, 1997, compared to the three month period
- ------------------------------------------------------------------------------
ended June 30, 1996
- -------------------
Revenues. During the three months ended June 30, 1997, revenues increased $5.6
million, or 45.1%, compared to the three month period ended June 30, 1996. Net
gain on sale of Contracts includes (i) the excess of the amount realized on the
sale of Contracts over the Company's net cost, (ii) the fair value of the
residual interest in each securitization of sold Contracts, and (iii) the
recognition of deferred acquisition fees paid by Dealers net of related
acquisition costs. Net gain on sale of Contracts increased by $2.4 million, or
42.3%, and represented 43.9% of total revenues for the three month period ended
June 30, 1997. The increase in gain on sale is largely due to the increased
volume of Contracts sold in the period. During the three month period ended
June 30, 1997, the Company sold $119.4 million in Contracts, compared to $88.9
million in the three month period ended June 30, 1996.
Servicing fees increased by $911,214, or 25%, and represented 25.2% of total
revenues. Servicing fees consist primarily of base monthly servicing fees
earned on Contracts sold and serviced by the Company and the excess of the
weighted-average coupon earned on the contracts sold over the sum of (i) the
coupon of the Certificates, (ii) the base servicing fees paid to the servicer of
the Contracts (currently the Company), (iii) any losses incurred during the
period on the portfolio of Contracts sold, (iv) and any other expenses and
revenues, net of amortization of NIRs. The increase in servicing fees is due to
the Company's continued expansion of its Contract purchase, sale and servicing
activities. As of June 30, 1997, the Company was earning servicing fees on
57,365 Contracts with aggregate outstanding principal balances approximating
$602.6 million, compared to 34,764 Contracts with aggregate outstanding
principal balances approximating $367.8 million as of June 30, 1996. In
addition to the $602.6 million in sold Contracts, on which servicing fees were
earned, the Company was holding for sale and servicing an additional $71.5
million in Contracts for an aggregate total servicing portfolio of $674.1
million.
Interest income on Contracts held for sale increased by $1.5 million, or 44.6%,
and represented 26.0% of total revenues for the three month period ended June
30, 1997. The increase is due to the increase in the volume of Contracts
purchased and held for sale. During the three month period ended June 30, 1997,
the Company purchased $156.7 million in Contracts from Dealers, compared to
$88.0 million in the three month period ended June 30, 1996.
The growth in the Company's revenue and expenses is a result of increases in the
volume of Contract purchases and the Company's servicing portfolio. The Company
has achieved these increases primarily by expanding into new geographic areas
and increasing the number of marketing representatives and Dealers. At June 30,
1997, the Company had 67 marketing representatives servicing 2,292 Dealers,
compared to 51 representatives servicing 1,528 Dealers at June 30, 1996.
Expenses. During the three month period ended June 30, 1997, operating expenses
increased $3.6 million, or 51.6%, compared to the three month period ended June
30, 1996. Employee costs increased by $1.0 million, or 44.7%, and represented
31.3% of total operating expenses. The increase is due to the addition of staff
necessary to accommodate the Company's growth and certain increases in salaries
of existing staff. General and administrative expenses increased by $1.8
million, or 96.6% and represented 35.2% of total operating expenses. Increases
in general and administrative expenses included increases in telecommunications,
stationery, credit reports and other related items as a result of increases in
the volume of purchasing and servicing of Contracts.
12
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
Interest expense increased $697,020, or 45.8%, and represented 21.0% of total
operating expenses. During the three month period ended June 30, 1997, interest
expense consisted primarily of interest on (i) borrowings under a warehouse line
of credit ("Warehouse Line") used to acquire Contracts and hold them pending
securitization, (ii) $20 million of outstanding Rising Interest Subordinated
Redeemable Securities due 2006 ("RISRS"), (iii) $20 million of outstanding
Participating Equity Notes due 2004, (iv) a $15 million unsecured related party
loan due 2004, and (v) a $14.5 million 60-day related party loan due July 1997.
With respect to the Warehouse Line, the Company's cost of borrowed funds varies
with market rates, and the total interest payable is affected in proportion to
the amount of Contract purchases funded under the Warehouse Line and the average
time such Contracts are held prior to securitization. With respect to the RISRS
debt, the interest paid on the debt increases each calendar year from 10.25% at
present to 12.00% in 2004, and then to 12.50% until maturity at December 31,
2005. The April 1997 issuance of $20 million of PENs (discussed below), on
which interest is payable at a fixed rate of 10.50% per annum, and the Company's
June 1997 borrowing of $15 million in an unsecured related party loan due 2004
(discussed below), on which interest is payable at a fixed rate of 9.0% per
annum, can be expected to increase the Company's interest expense in future
periods.
During the three month period ended June 30, 1997, the provision for losses on
Contracts held for sale decreased by $153,468, or 21.2%, and represented 5.4% of
total operating expenses. The provision for losses on Contracts held for sale
and the related allowance for credit losses vary from quarter to quarter based
on a number of factors, including (i) the dollar amount of Contracts held for
sale at the end of the period, (ii) the relative age of those Contracts, (iii)
the estimated credit risk of those Contracts, and (iv) the portion of Contracts
that are seriously past due or are assigned for or in repossession.
In March 1997, the Company opened a satellite collections facility in
Chesapeake, Virginia. In addition, the Company plans to lease additional space
in the vicinity of its California headquarters at some point in the third
quarter of 1997. Lease of such additional space should be expected to result in
increased occupancy and general and administrative expenses in future periods.
The Company continues to expand its staff to accommodate increases in its
purchases of Contracts and in its servicing portfolio. The Company therefore
expects to incur commensurate additional employee costs in future periods.
The six month period ended June 30, 1997, compared to the six month period ended
- --------------------------------------------------------------------------------
June 30, 1996
- -------------
Revenues. During the six months ended June 30, 1997, revenues increased $12.0
million, or 53.5%, compared to the six month period ended June 30, 1996. Net
gain on sale of Contracts increased by $5.2 million, or 51.5%, and represented
44.4% of total revenues for the six month period ended June 30, 1997. The
increase in gain on sale is largely due to the increased volume of Contracts
sold in the period. During the six month period ended June 30, 1997, the
Company sold $221.7 million in Contracts, compared to $156.0 million in the six
month period ended June 30, 1996.
Servicing fees increased by $3.2 million, or 47.8%, and represented 28.6% of
total revenues. The increase in servicing fees is due to the Company's
continued expansion of its Contract purchase, sale and servicing activities.
Interest income on Contracts held for sale increased by $2.3 million, or 40.8%,
and represented 23.2% of total revenues for the six month period ended June 30,
1997. The increase is due to the increase in the volume of Contracts purchased
and held for sale. During the six month period ended June 30, 1997, the Company
purchased $276.1 million in Contracts from Dealers, compared to $160.3 million
in the six month period ended June 30, 1996.
Expenses. During the six month period ended June 30, 1997, operating expenses
increased $7.9 million, or 67.1%, compared to the six month period ended June
30, 1996. Employee costs increased by $2.8 million, or 73.9%, and represented
33.2% of total operating expenses. The increase is due to the addition of staff
necessary to accommodate the Company's growth and certain increases in salaries
of existing staff. General and administrative expenses increased by $3.0
million, or 93.6% and represented 31.6% of total operating expenses. Increases
in general and administrative expenses included increases in telecommunications,
stationery, credit reports and other related items as a result of increases in
the volume of purchasing and servicing of Contracts.
Interest expense increased $946,294, or 34.9%, and represented 18.6% of total
operating expenses. During the six month period ended June 30, 1997, interest
expense consisted primarily of interest on (i) borrowings under the Warehouse
Line, (ii)
13
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
$20 million of outstanding RISRS, (iii) $20 million of outstanding PENs, (iv) a
$15 million unsecured related party loan due 2004, (v) a $14.5 million 60-day
related party loan due July 1997, and (vi) a $3 million convertible subordinated
note, which was converted into common stock in accordance with its terms on
January 17, 1997.
During the six month period ended June 30, 1997, the provision for losses on
Contracts held for sale increased by $665,490, or 71.5%, and represented 8.1% of
total operating expenses.
Financial Condition
Contracts held for sale increased $46.6 million, or 215.3%, from December 31,
1996 to June 30, 1997. The number of Contracts held for sale at any specific
date is dependent on both the volume of the Company's Contract origination
activities, and the length of time since its most recent securitization
transaction. Both volume and timing directly affect the amount of Contracts
held for sale because the Company has made a practice of selling, in any
securitization transaction, substantially all of its Contracts then held for
sale.
Residual interest in securitizations increased $19.3 million, or 28.7%, from
December 31, 1996 to June 30, 1997. This increase results from (i) additions to
net interest receivable resulting from gains recognized in conjunction with the
securitization of Contracts, net of amortization, and (ii) increases in Spread
Account balances resulting from initial deposits on new securitizations and
deposits relating to prior securitizations, net of releases from Spread Accounts
which have reached their required target levels.
The amount outstanding under the Warehouse Line increased from $13.3 million at
December 31, 1996 to $31.0 million at June 30, 1997. This increase reflects a
greater number of Contracts held for sale at the end of the quarter than at the
end of the preceding fiscal year.
Liquidity and Capital Resources
The Company's primary sources of cash from operations include servicing fees it
earns on portfolios of Contracts it has previously sold, proceeds from sales of
Contracts, release of investments in Spread Accounts, and customer payments on
Contracts held for sale. The Company's primary uses of cash are its normal
operating expenses, the purchase of Contracts, the establishment of Spread
Accounts and the further contribution of cash to the Spread Accounts until they
reach their maintenance levels, and payment of income taxes.
Net cash used in operating activities was $31.5 million during the six month
period ended June 30, 1997, compared to net cash used of $9.4 million during the
six month period ended June 30, 1996. Cash used for purchasing Contracts was
$276.1 million, an increase of $115.8 million, or 72.2%, over cash used for
purchasing Contracts in the prior year's period. Cash provided from the
liquidation of Contracts was $228.9 million, an increase of $67.7 million, or
42.0%, over cash provided from the liquidation of Contracts in the prior year's
period.
The Company's cash requirements have been and will continue to be significant.
Each agreement under which the Company has securitized and sold its Contracts
required the Company to make a significant initial cash deposit to a Spread
Account, which is pledged to enhance the credit of the related Certificates and
is invested in high quality liquid securities.
During the six month period ended June 30, 1997, cash used for initial deposits
to Spread Accounts was $7.8 million, an increase of $2.0 million, or 33.9%, from
the amount of cash used for initial deposits to Spread Accounts in the prior
year's period. Cash deposited to Spread Accounts for the six month period ended
June 30, 1997, was $13.0 million, an increase of $4.7 million, or 56.9%, over
cash deposited to Spread Accounts in the prior year's period. Cash released from
Spread Accounts for the six month period ended June 30, 1997, was $8.8 million,
an increase of $5.1 million, or 137.9%, over cash released from Spread Accounts
in the prior year's period. Changes in deposits to and releases from Spread
Accounts are affected by the relative size and seasoning of the various pools of
sold Contracts that make up the Company's servicing portfolio. In the prior
year's period, certain securitized pools exceeded predetermined delinquency
levels, which resulted in increases in the required levels for certain Spread
Accounts and consequently, in less releases of cash from Spread Accounts. In
November 1996, the Company restructured certain aspects of its financial
guarantee insurance agreements with Financial Security Assurance, Inc. Under
the restructured agreements, the levels of delinquency that trigger increased
Spread Account requirements were raised, so that the delinquency levels
currently experienced by the Company do not result in increased Spread Account
requirements.
14
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
As a result, the Company experienced greater releases of cash from Spread
Accounts for the six month period ended June 30, 1997 than in the prior year's
period.
On a day-to-day basis, the Company funds its purchases of Contracts from Dealers
by drawing on the Warehouse Line, and pledges the purchased Contracts to the
warehouse lender. The amount borrowed under the Warehouse Line increases until
the Company sells the pledged Contracts in a securitization transaction, at
which time the proceeds of the sale are used to pay down the balance of the
Warehouse Line. Since June 1995, such securitization transactions have taken
place on a quarterly basis. The Company has experienced continued growth in the
levels of Contracts purchased and securitized and expects that such growth may
continue. The amount of Contracts that the Company can hold for sale prior to a
securitization is limited by its available cash and the $100 million Warehouse
Line. If the volume of Contract purchases continues to increase, the Company
will be required to seek additional or alternative warehouse financing.
The Company funds the increase in its servicing portfolio through off balance
sheet securitization transactions, and funds its other capital needs with cash
from operations and with the proceeds from the issuance of long-term debt. From
December 31, 1996, through June 30, 1997, the Company has engaged in two
securitization transactions, has issued $20 million of PENs (due 2004) and has
borrowed $15 million in an unsecured related party loan due 2004 ("RPL").
The PENs were issued in a registered public offering in April 1997. After
deduction of underwriting commissions, the proceeds of that offering were $19.2
million. The PENs have a fixed coupon rate of interest of 10.5% per annum,
payable monthly beginning May 15, 1997. The fixed interest rate payable on the
PENs may be considered comparable to the rising interest rate payable on the
RISRS that the Company issued in 1995: the RISRS interest rate is 10.25% per
annum throughout 1997 and will rise by .25% per annum in each calendar year
through 2004, and then by an additional .50% per annum for the final year prior
to maturity on December 31, 2005. The RISRS may be redeemed without premium at
any time after January 1, 2000, and the PENs may be redeemed without premium at
any time after April 15, 2000. The PENs are also partially convertible into
equity. At maturity or earlier redemption of the PENs, the holders thereof will
have the option to convert 25% of the principal amount into common stock of the
Company, at a conversion rate of $10.15 per share.
The RPL is long-term subordinated debt held by Stanwich Financial Services Corp.
("SFSC"), a financial services company owned by Stanwich Holdings, Inc.
("Holdings"). Charles E. Bradley, Sr., Charles E. Bradley, Jr., and John G.
Poole, who are officers and directors of the Company, collectively own 92.5% of
the common stock of Holdings, and Mr. Bradley, Sr., is the president and a
director of Holdings. The RPL has a fixed rate of interest of 9% per annum,
payable monthly beginning July 1997. The Company may pre-pay the RPL without
penalty at any time. The RPL is also partially convertible into equity. At
maturity or repayment of the RPL, the holder thereof will have the option to
convert 20% of the principal amount into common stock of the Company, at a
conversion rate of $11.86 per share.
In conjunction with the RPL, in May 1997, the Company entered into two
additional transactions; (i) the Company purchased $14.5 million of preferred
stock of Holdings, with dividends cumulative at the rate of 9% per annum and
redeemable at an aggregate price of $14.6 million, plus accrued dividends, and
(ii) the Company borrowed $14.5 million with interest at 8% per annum under a
60-day related party loan from SFSC. In August 1997, the Company received $14.9
million in redemption of the preferred stock of Holdings and repaid the 60-day
related party loan in its entirety.
As to the cost of off balance sheet financing, the interest rates payable on the
senior Certificates issued in the Company's March and May 1997 securitizations
were 6.55%, and 6.65%, respectively, as compared with 6.40% and 6.65% payable on
the similar securities issued in the Company's March and June 1996
securitization transactions. The change in the rates is primarily due to
changes in rates payable on U.S. Treasuries of similar maturities.
There can be no assurance that such financing will continue to be available to
the Company, nor that the cost of any such financing will not increase
materially in the future.
The Company anticipates that the proceeds from the PENs, the RPL, funds
available under the Warehouse Line, proceeds from the sale of Contracts and cash
from operations will be sufficient to satisfy the Company's estimated cash
requirements for the next twelve months, assuming that the Company continues to
have a means by which to sell its warehoused Contracts. If for any reason the
Company is unable to sell its Contracts, or if the Company's available cash
otherwise
15
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
proves to be insufficient to fund operations (because of future changes in the
industry, general economic conditions, unanticipated increases in expenses, or
other factors), the Company may be required to seek additional funding.
The Company in January 1997 acquired a company engaged in the equipment leasing
business. Any material growth in that subsidiary's business will require
significant capital resources, to allow that subsidiary to purchase equipment
for lease. The Company is examining possible sources of capital for that
subsidiary, but has made no commitments as of the date of this report.
The descriptions of the Company's business and activities set forth in this Form
10-Q and in other past and future reports and announcements by the Company may
contain forward-looking statements and assumptions regarding the future
activities and results of operations of the Company. Actual results may be
adversely affected by various factors including the following: increases in
unemployment or other changes in domestic economic conditions which adversely
affect the sales of new and used automobiles and may result in increased
delinquencies, foreclosures and losses on Contracts; adverse economic conditions
in geographic areas in which the Company's business is concentrated; changes in
interest rates, adverse changes in the market for securitized receivables pools,
or a substantial lengthening of the Company's warehousing period, each of which
could restrict the Company's ability to obtain cash for new Contract
originations and purchases; increases in the amounts required to be set aside in
Spread Accounts or to be expended for other forms of credit enhancement to
support future securitizations; the reduction or unavailability or warehouse
lines of credit which the Company uses to accumulate Contracts for
securitization transactions; increased competition from other automobile finance
sources; reduction in the number and amount of acceptable Contracts submitted to
the Company by its automobile dealer network; changes in government regulations
affecting consumer credit; and other economic, financial and regulatory factors
beyond the Company's control.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is party to litigation in the ordinary course of business, generally
involving actions against automobile purchasers to collect amounts due on
purchase contracts or to recover vehicles. In one such case, relating to the
Chapter 13 bankruptcy of obligors Madeline and Darryl Brownlee, of Chicago,
Illinois, the obligors counterclaimed against the Company on June 30, 1997 in
the bankruptcy court for the Northern District of Illinois. The obligors seek
class-action treatment of their allegation that the cost of an extended service
contract on the automobile they purchased was inadequately disclosed by the
automobile dealer, Joe Cotton Ford of Carol Stream, Illinois. The disclosure is
alleged to be violative of the federal Truth In Lending Act and of Illinois
consumer protection statutes. The obligors' claim is directed against both the
dealer for making the allegedly improper disclosures and against the Company as
holder of the purchase contract. The relief sought is damages in an unspecified
amount, plus costs of suit and attorney's fees. The court has not ruled on the
obligors' request for class-action treatment.
The Company intends to dispute this matter vigorously, and believes that it has
meritorious defenses to each claim made by the obligors. Nevertheless, the
outcome of any litigation is uncertain, and there is the possibility that
damages could be assessed against the Company in amounts that could be material.
It is management's opinion that this litigation will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
16
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders of the Company was held on July 10, 1997. At
the meeting, each of the six nominees to the Board of Directors was elected for
a one-year term by the shareholders, with votes cast as follows:
<TABLE>
<CAPTION>
Votes
Nominees Votes For Withheld
<S> <C> <C>
C. Bradley, Sr. 13,077,952 14,750
C. Bradley, Jr. 13,078,952 13,750
T. Chrystie 13,078,952 13,750
J. Poole 13,078,952 13,750
W. Roberts 13,078,952 13,750
R. Simms 13,078,952 13,750
</TABLE>
The shareholders also approved each other proposal placed before the annual
meeting. Such proposals were (i) an amendment to the Company's bylaws that
permits the number of authorized directors to vary within a range from five to
nine, and sets the authorized number within that range initially at six, (ii)
approval of the Company's 1997 Long-Term Incentive Plan, and (iii) ratification
of the appointment of KPMG Peat Marwick LLP as independent auditors of the
Company. Votes on such proposals were cast as follows:
<TABLE>
<CAPTION>
Bylaw Long-Term Appointment
Amendment Incentive Plan of Auditors
<S> <C> <C> <C>
For 9,819,728 8,160,871 12,964,105
Against 28,000 1,269,005 21,850
Abstain 107,647 241,483 106,747
Broker nonvote 3,137,327 3,421,343 0
---------- ---------- ----------
Total 13,092,702 13,092,702 13,092,702
========== ========== ==========
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this report:
3.1 Restated Articles of Incorporation of the Company, as amended
on December 13, 1993, and March 7, 1996. (Previously filed as an exhibit to
the Company's Form 10-KSB for the transition period ended December 31, 1995,
and incorporated herein by reference)
3.2 Amended and Restated Bylaws of the Company, adopted November
30, 1993. (Previously filed as an exhibit to the Company's Form 10-KSB for
the fiscal year ended June 30, 1994, and incorporated herein by reference)
10.1 Form of Indenture between the Company and Banker's Trust
Company. (filed as an exhibit to the Company's registration statement on Form
S-3, file No. 333-21289, and incorporated herein by reference)
17
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
10.2 Form of First Supplemental Indenture between the Company and
Banker's Trust Company, relating to issuance of the Participating Equity
Notes. (filed as an exhibit to the Company's registration statement on Form
S-3, file number 333-21289, and incorporated herein by reference)
10.3 Purchase Agreement relating to sale of Participating Equity Notes
to underwriters. (Previously filed as an exhibit to the Company's
registration statement on Form S-3, file number 333-21289, and incorporated
herein by reference)
10.4 Underwriting Agreement relating to the Company's May 1997
securitization transaction (filed as an exhibit to the Company's current
report on Form 8-K dated May 30, 1997, and incorporated herein by reference)
10.5 Pooling and Servicing Agreement relating to the Company's May 1997
securitization transaction (filed as an exhibit to the Company's current
report on Form 8-K dated May 30, 1997, and incorporated herein by reference)
10.6 Receivables Purchase Agreement relating to the Company's May 1997
securitization transaction (filed as an exhibit to the Company's current
report on Form 8-K dated May 30, 1997, and incorporated herein by reference)
10.7 Receivables Purchase Agreement relating to the Company's May 1997
securitization transaction (filed as an exhibit to the Company's current
report on Form 8-K dated May 30, 1997, and incorporated herein by reference)
11 Statement re computation of per share earnings.
27 Financial Data Schedule.
99.1 Cautionary Statement.
99.2 Undertaking to furnish copy of partially convertible note upon
request of Securities and Exchange Commission.
(b) During the quarter for which this report is filed, the Company
filed one report on Form 8-K. Such report was dated May 30, 1997, and
reported, under Item 5 thereof, information regarding the Company's May 1997
securitization transaction.
18
<PAGE>
Consumer Portfolio Services, Inc.
Form 10-Q June 30, 1997
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: August 13, 1997 /s/ Charles E. Bradley, Jr.
------------------------------------------------------
Charles E. Bradley, Jr.
Director, President, Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1997 /s/ Jeffrey P. Fritz
------------------------------------------------------
Jeffrey P. Fritz
Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
19
<PAGE>
EXHIBIT 11
CONSUMER PORTFOLIO SERVICES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary Earnings Per Share
- --------------------------
Computation for Statement of Income:
Net earnings per statement of income
used in primary earnings per share
computation
Net earnings $ 4,385,632 $ 3,271,229 $ 8,530,386 $ 6,322,525
============== ============== ============== ==============
Weighted-average number of shares
outstanding 14,297,464 13,453,020 14,233,895 13,377,601
Net shares issuable from assumed
exercise of warrants and options, as
determined by the application of the
Treasury Stock Method 1,029,345 1,314,603 1,111,081 1,337,086
-------------- -------------- -------------- --------------
Weighted-average number of shares
outstanding 15,326,809 14,767,623 15,344,976 14,714,687
============== ============== ============== ==============
-------------- -------------- -------------- --------------
Primary earnings per share $ 0.29 $ 0.22 $ 0.56 $ 0.43
============== ============== ============== ==============
Fully Diluted Earnings Per Share
- --------------------------------
Computation for Statement of Income:
Net earnings per statement of income
used in fully diluted earnings per
share computation
Net earnings $ 4,385,632 $ 3,271,229 $ 8,530,386 $ 6,322,525
Interest on borrowings, net of tax
effect on conversion of convertible
subordinated debt 69,576 42,608 77,382 85,215
-------------- -------------- -------------- --------------
Net earnings as adjusted $ 4,455,208 $ 3,313,837 $ 8,607,768 $ 6,407,740
============== ============== ============== ==============
Weighted-average number of shares
outstanding 14,297,464 13,453,020 14,233,895 13,377,601
Net shares issuable from assumed
exercise of warrants and options, as
determined by the application of the
Treasury Stock Method 1,274,812 1,314,603 1,270,756 1,337,086
Shares issuable from assumed conversion
of subordinated debt 445,205 480,000 268,915 480,000
--------------- -------------- -------------- ---------------
Weighted-average number of shares
outstanding 16,017,481 15,247,623 15,773,566 15,194,687
============== ============== ============== ==============
-------------- -------------- -------------- --------------
Fully diluted earnings per share $ 0.28 $ 0.22 $ 0.55 $ 0.42
============== ============== ============== ==============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> APR-01-1997 APR-01-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 431,437 153,958
<SECURITIES> 0 0
<RECEIVABLES> 74,009,385 24,742,967
<ALLOWANCES> 1,430,965 723,089
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 2,835,638 1,727,353
<DEPRECIATION> 1,377,712 1,097,579
<TOTAL-ASSETS> 191,372,311 101,946,420
<CURRENT-LIABILITIES> 0 0
<BONDS> 40,000,000 20,000,000
0 0
0 0
<COMMON> 37,749,564 34,644,314
<OTHER-SE> 30,843,605 22,313,219
<TOTAL-LIABILITY-AND-EQUITY> 191,372,331 101,946,420
<SALES> 18,110,679 12,485,185
<TOTAL-REVENUES> 18,110,679 12,485,185
<CGS> 0 0
<TOTAL-COSTS> 10,562,147 6,967,936
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 569,048 722,516
<INTEREST-EXPENSE> 2,220,831 1,523,541
<INCOME-PRETAX> 7,548,532 5,517,249
<INCOME-TAX> 3,162,900 2,246,020
<INCOME-CONTINUING> 4,385,632 3,271,229
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,385,632 3,271,229
<EPS-PRIMARY> 0.29 0.22
<EPS-DILUTED> 0.28 0.22
</TABLE>
<PAGE>
EXHIBIT 99.1
Statements contained in this report on Form 10-Q relating to future events and
expectations are forward-looking statements. In addition to risks relating to
the economy generally, the Company's future results of operations may be
adversely affected by various factors including the following: possible
increased delinquencies, foreclosures and losses on retail installment
contracts; adverse economic conditions in geographic areas in which the
Company's business is concentrated; changes in interest rates, adverse changes
in the market for securitized receivables pools, or a substantial lengthening of
the Company's warehousing period, each of which could restrict the Company's
ability to obtain cash for new contract originations and purchases; increases in
the amounts required to be set aside as credit enhancement to support future
securitizations; the reduction or unavailability or warehouse lines of credit
which the Company uses to accumulate contracts for securitization transactions;
increased competition from other automobile finance sources; reduction in the
number and amount of acceptable contracts submitted to the Company by its
automobile dealer network; and changes in government regulations affecting
consumer credit.
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<PAGE>
EXHIBIT 99.2
Exhibit 99.2 to
Form 10-Q report for June 30, 1997 of
Consumer Portfolio Services, Inc.
Agreement to Provide Copy
Registrant Consumer Portfolio Services, Inc. hereby agrees to provide to the
Securities and Exchange Commission, upon its request, a copy of registrant's
partially convertible note in favor of Stanwich Financial Services, Inc. in the
principal amount of $15,000,000, dated June 12, 1997.
CONSUMER PORTFOLIO SERVICES, INC.
By: /s/
Mark Creatura, Sr. Vice President
Page 1
