CPSS 10-K & 10-Q changes, risk factors and insider trading

We expect to earn quarterly profits during 20252026; however, there can be no assurance as to that expectation. Our expectation of profitability is a forward-looking statement. We discuss the assumptions underlying that expectation under the caption “Cautionary Note Regarding Forward-Looking Statements” in this report. We identify important factors that could cause actual results to differ, generally in the “Risk Factors” section of this report, and also under the caption “Cautionary Note Regarding Forward-Looking Statements.” One reason for our expectation is that we have had positive net income in each of the thirteenfourteen fiscal years ended December 31, 2024,2025, although not in every quarter within that period.

We depend on various financing sources, including credit facilities, our securitization program and other secured and unsecured debt issuances, to finance our business operations. Historically, our primary sources of day-to-day liquidity have been our warehouse credit facilities, in which we sell and contribute automobile contracts, as often as twice a week, to special-purpose subsidiaries, where they are "warehoused" until they are financed on a long-term basis through the issuance and sale of asset-backed notes. Upon sale of the notes, funds advanced under one or more warehouse credit facilities are repaid from the proceeds. Our current short-term funding capacity is $535$702.5 million, comprising twothree credit facilities. BothAll warehouse credit facilities have a revolving period during which we may receive advances secured by contributed automobile contracts, followed by an amortization period during which no further advances may be made, but prior to which outstanding advances are due and payable. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Liquidity”.

While the specific terms and mechanics vary among transactions, our securitization and warehousing agreements generally provide that we will receive excess spread cash flows only if the amount of overcollateralization and spread account balances have reached specified levels and/or the delinquency, defaults or net losses related to the automobile contracts in the automobile contract pools are below certain predetermined levels. In the event delinquencies, defaults or net losses on automobile contracts exceed these levels, the terms of the securitization or warehouse credit facility:

A deterioration in economic conditions and certain economic factors, such as reduced business activity, high unemployment, interest rates, housing prices, energy prices (including the price of gasoline), increased consumer indebtedness (including of obligors on the receivables), lack of available credit, the rate of inflation (such as the recent increase in inflation) and consumer perceptions of the economy, as well as other factors, such as terrorist events, civil unrest, cyber-attacks, public health emergencies, extreme weather conditions or significant changes in the geopolitical environment (such as the ongoing military conflict between Ukraine and Russia and the conflictconflicts in Israelthe Middle East, and recent U.S. action taken in Venezuela) and/or public policy, including increased state, local or federal taxation, could adversely affect the ability and willingness of obligors to meet their payment obligations under the receivables we originate. Our operating results could be adversely affected if obligors are unable to make timely payments on their receivables.

The credit spread between the interest rates payable on our securitization trust debt and the rates payable on risk-free investments has varied. The Federal Reserve increased interest rates multiple times in 2022 and 2023. As a result, we experienced increased interest expense in 2023. In 2024,2024 and 2025, the Federal Reserve lowered short term interest rates. The pace and direction of additional interest rate changes remain uncertain. If interest rates on risk-free debt increase, or if our spread above risk-free rates increase, or both, we would expect an increase in interest expense. If interest rates in general should rise, our expenses would likewise rise, which could have a material adverse effect on our financial position, liquidity, results of operation and our ability to enter into future financing transactions.

We specialize in the purchase purchase and servicing of automobile contracts to finance automobile purchases by sub-prime customers, those who have limited credit history, low income,histories or past credit problems. Such automobile contracts entail a higher risk of non-performance, higher delinquencies and higher losses than automobile contracts with more creditworthy customers. While we believe that our pricing of the automobile contracts and the underwriting criteria and collection methods we employ enable us to control, to a degree, the higher risks inherent in automobile contracts with sub-prime customers, no assurance can be given that such pricing, criteria and methods will afford adequate protection against such risks.

The fair value of an asset is, by definition, the exchange price in an orderly transaction between market participants. Receivables such as ours are not regularly traded on exchanges where we can observe prices for exchanges of similar assets. We may therefore rely on estimates of what a market participant would pay for our receivables. If such estimated value were to be materially different from our recorded value, wean might be requiredadjustment to adjust the recorded value of our receivables.receivables will be required. A downward readjustment in recorded value would correspondingly reduce our income and book value.

We were incorporated and began began our operations in March 1991. From inception through December 31, 2024,2025, we have purchased a total of approximately $23.0$24.7 billion of automobile contracts from dealers. In addition, we acquired a total of approximately $822.3 million of automobile contracts in mergers and acquisitions in 2002, 2003, 2004 and 2011. Contract purchase volumes and managed portfolio levels for the five years ended December 31, 20242025 are shown in the table below. Managed portfolio comprises both contracts we owned and those we were servicing for third parties.

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

Since 1994 we have conducted 103107 term securitizations of automobile contracts that we originated under our regular programs. As of December 31, 2024,2025, 1719 of those securitizations are active and all are structured as secured financings. We generally conduct our securitizations on a quarterly basis, near the beginning of each calendar quarter, resulting in four securitizations per calendar year. However, we completed only three securitizations in 2020. In April 2020 we postponed our planned securitization due to the onset of the pandemic and the effective closure of the capital markets in which our securitizations are executed. Subsequently we successfully completed securitizations in June and September 2020.

Generally, prior to a securitization transaction we fund our automobile contract acquisitions primarily with proceeds from warehouse credit facilities. Our current short-term funding capacity is $535$702.5 million, comprising twothree credit facilities. The first credit facility was established in May 2012. This facility was most recently renewed in July 2024, extending the revolving period to July 2026, with an optional amortization period through July 2027. In addition, the capacity was increased from $200 million to $335 million in December 2024.

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

We believe that our accounting accounting policies related to (a) Finance Receivables at Fair Value,Value (b) Allowance for Finance Credit Losses, (c)and Term Securitizations, (d) Accrual for Contingent Liabilities and (e) Income TaxesSecuritizations are the most critical to understanding and evaluating our reported financial results. Such policies are described below.

Uncertainty of Capital Markets and General Economic Conditions We depend upon the availability of warehouse credit facilities and access to long-term financing through the issuance of asset-backed securities collateralized by our automobile contracts. Since 1994, we have completed 103107 term securitizations of approximately $20.6$22.4 billion in contracts. We generally conduct our securitizations on a quarterly basis, near the beginning of each calendar quarter, resulting in four securitizations per calendar year. However, we completed only three securitizations in 2020. In April 2020 we postponed our planned securitization due to the onset of the pandemic and the effective closure of the capital markets in which our securitizations are executed. Subsequently, we successfully completed securitizations in June and September 2020, and then on a regular quarterly schedule from January 2021 through January 2025.

Certain of our securitization transactions and ourOur warehouse credit facilities and our residual interest financings contain various financial covenants requiring certain minimum financial ratiosratios. and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. In addition, certain securitization and non-securitization related debt contain cross-default provisions that would allow certain creditors to declare a default if a default occurred under a different facility. As of December 31, 20242025 we were in compliance with all such financial covenants.

Revenues. During the year ended December 31, 2024,2025, our revenues were $393.5$434.5 million, an increase of $41.5$41.0 million, or 11.8%,10.4%, from the prior year revenues of $352.0$393.5 million. The primary reason for the increase in revenues is the increase in interest income resulting from the increase in the average outstanding balance of finance receivables measured at fair value. Revenues for the years ended December 31, 2024 2025 and 20232024 include fair value marks of $21.0$6.5 and $12.0$21.0 million, respectively, to the carrying value of the portion of the receivables portfolio accounted for at fair value. The marks are estimates based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and increases or decreases in our estimates of future net losses. The fair value mark in the current period also includes an increase in our estimates of cash receipts from interest. interest and fees compared to our estimates at the time of acquisition. For the year ended December 31, 2024,2025, our re-evaluation of the fair values of these receivables resulted in a mark up for certain older receivables and a mark down to the fair values of newer receivables. The fair value mark up on the older receivables exceeded the mark down to the newer receivables resulting in a net mark up of $21.0$6.5 million.

Interest income for the year ended December 31, 20242025 increased $34.7$58.7 million, or 10.6%,16.1% to $364.0$422.7 million from $329.2$364.0 million in the prior year. The primary reason for the increase in interest income is the 10.2%15.1% increase in the average balance of our loan portfolio over the prior year period. The interest yield on our total loan portfolio stayedincreased theto same11.4% atfrom 11.3% in the prior year period to 11.3% in the current year period. The table below shows the average balance and interest yield of our loan portfolio for the years ended December 31, 20242025 and 20232024:

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

Total operating expenses were $366.1$406.5 million for the year ended December 31, 2024,2025, compared to $290.9$366.1 million for the prior year, an increase of $75.2$40.4 million, or 25.8%.11.0%. The increase is primarily due to increases in interest expense, employee costs and the amount of reductions to provision for credit losses expenses.expense.

Employee costs increaseddecreased by $8.0 million$823,000 or 9.1%,0.9%, to $96.2$95.4 million during the year ended December 31, 2024,2025, representing 26.3%23.5% of total operating expenses. Employee costs costs were $88.1$96.2 million in the prior year, or 30.3%26.3% of total operating expenses. The increase in employee costs can be attributed to the increase in our outstanding managed portfolio.

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 $54.7$52.9 million, ana increasedecrease of $4.7$1.8 million, or 9.4%,3.4%, compared to the previous year and represented 14.9%13.0% of total operating expenses.

Interest expense on warehouse lines of credit was $19.3$27.4 million for the year ended December 31, 20242025 compared to $19.2$19.3 million in the prior year. The increase was primarily due to the higher ratesutilization of our credit lines during 2024the year compared to 2023.last year. The average balance of our warehouse debt was $288.0 million during the year 2025, compared to $178.5 million in 2024. The average yield of our warehouse debt was 10.8%9.5% during 2024 2025 compared to 10.6%10.8% million in 2023.

In June 2021, March 2024, and again in March 2025, we completed a residual interest financingsecuritization of our residual interests from previously issued securitizations in the amount of $50.0 million. In March 2024, we completed a new residual interest financing of our residual interests fromother previously issued securitizations in the amount of $50.0$50 million.million, $50 million, and $65 million, respectively. Interest expense on residual interest financing was $8.7$15.0 million for the year ended December 31, 20242025, compared to $4.2 $8.7 million in the prior year.

Interest expense on our subordinated renewable notes was $2.2$2.8 million in 20242025 compared to $1.8$2.2 million in the prior year. The average balance of the notes increased from $20.9$22.9 million in the prior year to $22.9$28.2 million for the year ended December 31, 2024.2025. The average interest rate on our subordinated notes was 9.8% during 20242025 compared to 8.7% millionand in 2023.2024.

For our receivables originated prior to January 2018, we maintain an allowance for credit losses on automobile contracts held on our balance sheet, which reflects our estimates of probable credit losses that can be reasonably estimated. For the year ended December 31, 2024,2025, we recorded a reduction to provision for credit losses on finance receivables in the amount of $5.3$2.9 million. In the prior year period, we recorded similar reductions to provision for credit losses in the amount of $22.3$5.3 million. The adjustments recorded to reduce provisions for credit losses in both periods were primarily due to better than expected credit performance for these receivables. The allowance applies only to our finance receivables originated through December 2017, which we refer to as our legacy portfolio. The legacy portfolio balance decreased from from $27.6 million on December 31, 2023 to $5.4 million on December 31, 2024.2024 to $520,000 on December 31, 2025. Finance receivables that we have originated since January 2018 are accounted for at fair value. Under the fair value method of accounting, we recognize interest income net of expected credit losses. Thus, no provision for credit loss expense is recorded for finance receivables measured at fair value.

Sales expense consists primarily of commission-based compensation paid to our employee sales representatives. Our sales representatives earn a salary plus commissions based on volume of contract purchases and sales of ancillary products and services that we offer our dealers. Sales expense increased by $1.5 million$49,000 to $22.8 million during the year ended December 31, 20242025 and represented 6.2%5.6% of total operating expenses. We purchased $1,638.3 $1,681.9 million of new contracts during the year ended December 31, 20242025 compared to $1,357.8$1,681.9 million in the prior year period.

For the year ended December 31, 2024,2025, we recorded income tax expense of $8.2$8.7 million, representing a 30%31% effective tax rate. In the prior period, our income tax expense was $15.6$8.2 million, also representing a 26%30% effective tax rate.

Net cash provided by operating activities for the years ended December 31, 2024, 20232025, and 20222024 was $233.8 million, $238.0$289.0 million and $215.9$233.8 million, respectively. Net cash from operating activities is generally provided by net income from operations adjusted for significant non-cash items such as our provision for credit losses and interest accretion on fair value receivables.

Net cash used in investing activities for the year ended December 31, 2024, 20232025, and 20222024 was $769.7$590.1 million, $359.5 million and $713.9$769.7 million, respectively. Cash used in investing activities generally relates to purchases of automobile contracts. Purchases of finance receivables were $1,653.0$1,639.0 million (includes acquisition fees paid), $1,251.0 million and $1,673.2$1,653.0 million in 2024, 20232025, and 2022,2024, respectively. Cash provided by investing activities primarily results from principal payments and other proceeds received on finance receivables.

Net cash provided by financing activities were $547.9$335.9 million and $84.2$547.9 million in 20242025 and 2023,2024, respectively. Net cash used in financing activities for the year ended December 31, 2022 was $484.2 million. Cash used or provided by financing activities is primarily related to the issuance of securitization trust debt, reduced by the amount of repayment of securitization trust debt and net proceeds or repayments on our warehouse lines of credit and other debt. We issued $1,453.9$1,665.3 million in new securitization trust debt in 20242025 compared to $1,235.5$1,453.9 million in 2023 and $1,411.0 million in 2022.2024. Repayments of securitization debt were $1,124.1$1,272.0 million, $1,078.4 million and $1,060.1$1,124.1 million in 2024, 20232025, and 2022, 2024, respectively.

We are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital. As of December 31, 2024,2025, we had unrestricted cash of $11.7$6.3 million and $124.1$375.3 million aggregate available borrowings under our twothree warehouse credit facilities (assuming the availability of sufficient eligible collateral). As of December 31, 2024,2025, we had approximately $23.0$11.9 million of such eligible collateral. During 2024,2025, we completed four securitizations aggregating $1,453.9$1,665.3 million of notes sold. In January 2025,2026, we completed another securitization with $442.4$345.6 million of notes sold. Cash proceeds from this securitization were used to pay down the outstanding balance on our twowarehouse warehousecredit credit facilities thus increasing the amounts available for borrowing under these facilities. Our plans to manage our liquidity include maintaining maintaining our rate of automobile contract purchases at a level that matches our available capital, and, as appropriate, minimizing our operating operating costs. If we are unable to complete such securitizations, we may be unable to increase our rate of automobile contract purchases, in which case our interest income and other portfolio related income could decrease.

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

Our warehouse credit facilities contain various financial covenants requiring certain minimum financial ratios and results.ratios. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. In addition, certain of our debt agreements other than our term securitizations contain cross-default provisions. Such cross-default provisions would allow the respective creditors to declare a default if an event of default occurred with respect to other indebtedness of ours, but only if such other event of default were to be accompanied by acceleration of such other indebtedness. As of December 31, 2024,2025, we were in compliance with all such financial covenants.

The agreed valuation of the collateral for the 2021-12021-1, 2024-1, and 2024-12025-1 Notes is the sum of the amounts on deposit in the underlying spread accounts for each related securitization securitization and the over-collateralization of each related securitization, which is the difference between the outstanding principal balances of the related receivables less the principal balance of the outstanding notes issued in the related securitization. On each monthly payment date, the 2021-12021-1, 2024-1, and 2024-12025-1 Notes are entitled to interest at the coupon rate and, if necessary, a principal payment necessary to maintain a specified minimum collateral ratio.

We have and will continue to to have a substantial amount of indebtedness. At MarchJune 31,30, 2026, we had approximately $3,668.2$4,008.3 million debt outstanding. Such debt consisted consisted primarily of $2,992.2$3,131.1 million of securitization trust debt and $467.1$679.9 million of debt from warehouse lines of credit. Our securitization securitization trust debt has increased by $5.6$144.5 million while our warehouse lines of credit debt has also increased by $142.3 $355.0 million since December 31, 2025 (each net of deferred financing costs). Since 2005, we have offered renewable subordinated notes to the public on a continuous basis, and such notes have maturities that range from six months to 10 years. We had $27.5$28.5 million and $29.0 million in subordinated renewable notes outstanding at MarchJune 31,30, 2026, and December 31, 2025, respectively. In June 2021, March 2024, March 2025, and again onin March 2026, we completed a securitization of residual interests from other previously issued securitizations in the amounts of $50 million, $50 million, $65 million, and $50 million, respectively. As of MarchJune 31,30, 2026, $181.4 $168.8 million of the residual interest debt remains outstanding.

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, wewe, also, to a lesser extent, originate loans directly to consumers for the refinancing of an existing loan from other lenders secured by an automobile and have also (i) originated vehicle purchase money loans by lending directly to consumers, (ii) acquired installment purchase contracts in four merger and acquisition transactions, and (iii) purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders. In this report, we refer to all of such contracts and loans as “"automobile contracts.”"

We were incorporated and began our operations in March 1991. From inception through MarchJune 31,30, 2026, we have originated a total of approximately $25.2$26.0 billion of automobile contracts from dealers, and to a lesser degree, by originating loans secured by automobiles directly with consumers. Our recent history of contract purchase volumes and managed portfolio levels are shown in the table below. Managed portfolio comprises both contracts we owned and those we were servicing for third parties.

Since 1994 we have conducted 108109 term securitizations of automobile contracts that we originated. As of MarchJune 31,30, 2026, 19 of those securitizations are active and all all are structured as secured financings. We generally conduct our securitizations on a quarterly basis, near the beginning of each calendar quarter, resulting in four securitizations per calendar year.

Generally, prior to a securitization transaction we fund our automobile contract purchases primarily with proceeds from warehouse credit facilities. WeAs currentlyof haveJune 30, 2026 our short-term funding capacity ofwas $702.5$725.0 million over threetwo credit facilities. The first credit facility was established in May 2012. This facility was most recently renewed in July 2024, extending the revolving period to July 2026, with an optional amortization period through July 2027. In addition, the capacity was increased from $200 million to $335 million in December 2024.

In October 2025, we entered into a new $167.5 million facility. On April 3, 2026, it amended its two-year revolving credit agreement with Capital One, N.A. to increase the capacity of the facility. The amendment applies to both Capital One, N.A. and the subordinate lender, and increases the capacity of the facility from $167.5 million to $390 million. This facility has a two yeartwo-year revolving period to October 2027, with an optional amortization period period through April 2029.

In addition, from time to time, time, we have also completed financings of our residual interests in other securitizations that we and our affiliates previously sponsored. OnMost recently, in March 4, 2026, we completed a $50 million securitization of residual interests from previously issued securitizations. In the transaction, qualified institutional buyers purchased $50.0 million of asset-backed notes secured by an 80% interest in a CPS affiliate that owns the residual interests in four CPS securitizations issued from January 2025 through October 2025. The sold notes (“2026-1 Notes”), issued by CPS Auto Securitization Trust 2026-1, consist of a single class with a coupon of 8.75%.

Our warehouse credit facilities and our residual interest financings contain various financial covenants requiring certain minimum financial ratios. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. In addition, certain securitization and non-securitization related debt contain cross-default provisions that would allow certain creditors to declare a default if a default occurred under a different facility. As of MarchJune 31,30, 2026 we were in compliance with all such financial covenants.

Comparison of Operating Results for the three months ended MarchJune 31,30, 2026, with the three months ended MarchJune 31,30, 2025

Revenues. During the three months ended MarchJune 31,30, 2026, our revenues were $112.3$121.4 million, an increase of $5.5$11.6 million, or 5.1%10.6% from the prior year revenue revenue of 106.9109.8 million. The primary reason for the increase in revenues is the increase in interest income resulting from the increase in the average outstanding balance of finance receivables measured at fair value. Revenues for the three months ended March 31,June 30, 2026, did not include a mark to the recorded value of the finance receivables measured at fair value. Marks are estimates based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and increases or decreases in our estimates of future net losses. In the current period, our re-evaluation of the fair values of these receivables resulted in no marks to finance receivables measured at fair value. There was a $3.5$3.0 million mark up to the fair value portfolio in the prior year period.

Interest income for the three months ended MarchJune 31,30, 2026, increased $6.8$12.8 million, or 6.7%12.1% to $108.7$118.1 million from $101.9$105.4 million in the prior year. The primary reason for the increase in interest income is the 7.9%13.7% increase in the average balance of our loan portfolio over the prior year period. The interest yield on our total loan portfolio decreased to 11.3% from 11.4% in the prior year period. The interest yield on receivables measured at fair value is reduced to take account of expected losses and is therefore less than the yield on other finance receivables. The table below shows the average balance and interest yield of our loan portfolio for the three months ended MarchJune 31,30, 2026 and 2025:

Other income was $3.6$3.3 million for the three months ended MarchJune 31,30, 2026, compared to $1.4 million for the comparable period in 2025. This $2.2$1.9 million increase was primarily driven by the dealer recoveries collected for the three months ending MarchJune 31,30, 2026. These dealer recoveries were $2.3$1.8 million for the quarter ended MarchJune 31,30, 2026. There There were no dealer recoveries in the prior year period. The Company engaged a third party that identifies discrepancies in the values of the vehicles that have been repossessed and sold at auction. The third party attempts to collect the amount of the discrepancy from the dealers and remits the amounts collected to the Company net of fees charged.

Total operating expenses were $104.3$112.4 million for the three months ended MarchJune 31,30, 2026, compared to $100.1$102.8 million for the prior period, an increase of $4.2$9.5 million, or 4.2%.9.3%. The increase is primarily due to increases in interest expense.

Employee costs were $23.0$23.4 million during the three months ended MarchJune 31,30, 2026, compared to $25.0$24.4 million for the same quarter in the prior year, a decrease of $2.0 million,$944,000, or 7.9%.3.9%. 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, MarchJune 31,30, 2026, and 2025.

IncreasesThe increase in headcount among within our Sales staff during throughout the three-month periodperiods ended, MarchJune 31,30, 2026, and the decrease from the prior year period in the average employee cost of our Servicing staff staff, from June 30, 2025, were the largest contributing factors to the increase in headcount and decrease to employee costs forfrom the three-month period ended, March 31,June 202630, compared2025 to theJune prior30, year period.2026.

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 $12.9$14.7 million, aan decreaseincrease of $345,000$2.3 million from $12.6$12.4 million in in the prior year period.

Interest expense for the three months ended MarchJune 31,30, 2026, was $60.1$64.3 million and represented 57.6%57.2% of total operating expenses, compared to $54.9$58.7 million in the previous year, when it was 54.9%57.1% of total operating expenses. The $5.5 million increase in interest expense compared to the prior year period was largely due to increases in the average balance of our securitization trust debt, warehouse credit line debt and residual interest financing debt.

Interest on securitization trust debt increased by $3.7$4.5 million for the three months ended MarchJune 31,30, 2026, compared to the prior period. The average balance of securitization trust debt increased to $3,127.4$3,272.1 million for the three months ended MarchJune 31,30, 2026, compared to $2,861.9$2,811.9 million for the three months ended endedJune March 31,30, 2025. The annualized average rate on our securitization trust debt was 6.2%6.1% for the three months ended MarchJune 31,30, 2026, compared compared to 6.3%6.5% in the prior year period. For each quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including the market interest rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks that investors are willing to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization. These and other factors have resulted in fluctuations in our securitization trust debt interest costs. The The blended interest rates of our recent securitizations are summarized in the table below:

Interest expense on warehouse credit line debt wasincreased $6.5by $617,000 to $8.8 million for the three months ended MarchJune 31,30, 2026, andcompared to $8.2 million in the same period prior year period. The increase was primarily due to the higher utilization of our credit lines during the quarter compared to last year. The average balance of our warehouse debt was $276.0$445.6 million during the three months ended MarchJune 31,30, 2026, compared to $275.8$353.2 million for the same period in 2025. The annualized average rate on our credit line debt was 9.4%7.9% for the three months ended MarchJune 31,30, 2026, consistentcompared with the sameto period9.3% in the prior year.year period.

Interest expense on subordinated renewable notes was $685,000$668,000 for the three months ended MarchJune 31,30, 2026. The average balance of the outstanding subordinated debt was $28.7$28.1 million for the three months MarchJune 31,30, 2026, compared to $26.9$28.0 million for the prior year period. The average yield of subordinated notes is 9.6%9.5% for boththe currentthree andmonths ended June 30, 2025, compared to 9.7% in the prior year period.

In June 2021, March 2024, March 20, 2025, and again onin March 4, 2026 we completed a securitization of residual interests from other previously issued securitizations in the amount of $50 million, $50 million, $65 million, and $50 million, respectively. Interest expense for these residual interest financings was $4.2$4.7 million for the three months ended MarchJune 31,30, 2026, compared to $2.7$4.2 million for the same period in 2025.

The following table presents the components of interest income and interest expense and a net interest yield analysis for the three-month periods ended MarchJune 31,30, 2026, and 2025:

Sales expenses consist primarily of commission-based compensation paid to our employee sales representatives. Our sales representatives earn a salary plus commission based on volume of contract purchases. Sales expense increased by $641,000$2.6 to $6.6$8.3 million during the three months ended MarchJune 31,30, 2026, from $5.7 $5.9 million for the same quarter in 2025. We purchased $533.2$757.7 million of new contracts during the three months ended MarchJune 31,30, 2026, compared compared to $451.2$433.0 million in the prior year period.

Occupancy expenses were $1.5 million for the three months ending MarchJune 31,30, 2026, which is up from $1.4 million in the firstsecond quarter of 2025.

Depreciation and amortization expenses decreased to $225,000 compared tois $249,000 infor both current and the previousprior year.period.

For the three months ended MarchJune 31,30, 2026, we recorded recorded income tax expense of $2.5$2.8 million, representing a 31% effective tax rate. In the prior period, our income tax expense was $2.1$2.2 million, million, representing a 31% effective tax rate.