What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-12 · 732 added, 995 removed, 1231 unchanged (58% of the section changed)

3 unchanged sentences

(Dollars in thousands)

September 30,

Unrestricted cash and cash equivalents (including $ 93.5 million and $ 96.6 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively)

Unrestricted cash and cash equivalents (including $ 211.6 million and $209.5 million associated with variable interest entities at March 31, 2022 and December 31, 2021, respectively)

$ 373,468  

$ 409,660  

Restricted cash and cash equivalents (including $ 30.9 million and $ 70.2 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively)

Restricted cash and cash equivalents (including $ 12.5 million and $ 75.9 million associated with variable interest entities at March 31, 2022 and December 31, 2021, respectively)

32,009  

1 unchanged sentence

Loans, interest and fees receivable:

Loans, interest and fees receivable, at fair value (including $ 753.8 million and $ 374.2 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively)

Loans, interest and fees receivable, at fair value (including $ 1,293.2 million and $ 925.5 million associated with variable interest entities at March 31, 2022 and December 31, 2021, respectively)

1,405,765  

1,026,424  

Loans, interest and fees receivable, gross (including $ 404.1 million and $ 560.2 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively)

Loans, interest and fees receivable, gross (including $ 369.6 million associated with variable interest entities at December 31, 2021)

99,916  

470,293  

Allowances for uncollectible loans, interest and fees receivable (including $ 76.8 million and $ 120.9 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively)

Allowances for uncollectible loans, interest and fees receivable (including $ 55.1 million associated with variable interest entities at December 31, 2021)

( 1,612 )  

Deferred revenue (including $ 7.4 million and $ 10.3 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively)

Deferred revenue (including $ 8.2 million associated with variable interest entities at December 31, 2021)

( 15,878 )  

3 unchanged sentences

Property at cost, net of depreciation

Investments in equity-method investee

Operating lease right-of-use assets

8 unchanged sentences

Operating lease liabilities

Notes payable, net (including $ 1,206.6 million and $ 1,223.4 million associated with variable interest entities at March 31, 2022 and December 31, 2021, respectively)

1,268,821  

Notes payable, net (including $ 944.5 million and $ 827.1 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively)

1,278,864  

Senior notes, net

143,310  

Notes payable associated with structured financings, at fair value (associated with variable interest entities)

Convertible senior notes

142,951  

7 unchanged sentences

Preferred stock, no par value, 10,000,000 shares authorized:

Series A preferred stock, 400,000 shares issued and outstanding at September 30, 2021 (liquidation preference - $ 40.0 million);

Series A preferred stock, 400,000 shares issued and outstanding at March 31, 2022 (liquidation preference - $ 40.0 million);

400,000 shares issued and outstanding at December 31, 2021 (Note 4) (1)

5 unchanged sentences

Shareholders' Equity

Series B preferred stock, no par value, 3,188,533 shares issued and outstanding at September 30, 2021 and 0 shares issued and outstanding at December 31, 2020 (liquidation preference - $79.7 million) (1)

Series B preferred stock, no par value, 3,188,533 shares issued and outstanding at March 31, 2022 (liquidation preference - $ 79.7 million);

3,188,533 shares issued and outstanding at December 31, 2021 (1)

Common stock, no par value, 150,000,000 shares authorized:

16,553,615 and 16,115,353 shares issued at September 30, 2021 and December 31, 2020, respectively;

15,094,382 and 16,115,353 (including 1,459,233 loaned shares to be returned) shares outstanding at September 30, 2021 and December 31, 2020, respectively

14,912,895 and 14,804,408 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Paid-in capital

1 unchanged sentence

227,763  

Retained earnings (deficit )

Retained earnings

113,828  

Treasury stock, 1,459,233 and 0 shares at September 30, 2021 and December 31, 2020, respectively, at cost

60,236  

Total shareholders’

5 unchanged sentences

287,499  

Total liabilities, preferred stock and shareholders' equity

Total liabilities, preferred stock and equity

$ 1,921,637  

3 unchanged sentences

Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Operations (Unaudited)

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)

For the Three Months Ended

For the Nine Months Ended

September 30,

Consumer loans, including past due fees

14 unchanged sentences

Income before income taxes

Income tax expense

Net (income) loss attributable to noncontrolling interests

Income tax benefit (expense)

Net loss attributable to noncontrolling interests

Net income attributable to controlling interests

6 unchanged sentences

Consolidated Statements of Shareholders’

Equity (Deficit) (Unaudited)

For the Three and Nine Months Ended September 30, 2021 and September 30, 2020

Equity (Unaudited)

For the Three Months Ended March 31, 2022 and March 31, 2021

(Dollars in thousands)

4 unchanged sentences

Paid-In Capital

Retained Earnings (Deficit)

Retained Earnings

Noncontrolling Interests

Class B Preferred Units

Series A Preferred Stock  

Balance at December 31, 2021

16,115,353  

$ 194,950  

$ ( 117,666 )  

$ ( 774 )  

$ 76,510  

$ 99,350  

$ 40,000  

Accretion of discount associated with issuance of subsidiary equity

( 75 )  

Preferred dividends

( 4,612 )  

Stock option exercises and proceeds related thereto

494,900  

Compensatory stock issuances, net of forfeitures

39,942  

Deferred stock-based compensation costs

Redemption and retirement of shares

( 9,928 )  

( 297 )  

44,075  

( 48 )  

44,027  

Balance at March 31, 2021

16,640,267  

$ 192,207  

$ ( 73,591 )  

$ ( 822 )  

$ 117,794  

$ 99,425  

$ 40,000  

Cumulative effects from adoption of the CECL standard

Accretion of discount associated with issuance of subsidiary equity

( 75 )  

Preferred dividends

( 4,663 )  

Stock option exercises and proceeds related thereto

Compensatory stock issuances, net of forfeitures

Issuance of series B preferred stock, net

2,800,000  

66,148  

Contributions by owners of noncontrolling interests

1 unchanged sentence

Redemption and retirement of shares

( 8,747 )  

( 304 )  

36,876  

( 50 )  

36,826  

Balance at June 30, 2021

2,800,000  

16,638,161  

$ 254,001  

$ ( 36,715 )  

$ ( 868 )  

$ 216,418  

$ 99,500  

$ 40,000  

Accretion of discount associated with issuance of subsidiary equity

( 75 )  

Preferred dividends

( 6,554 )  

Stock option exercises and proceeds related thereto

10,266  

Compensatory stock issuances, net of forfeitures

14,500  

Issuance of series B preferred stock, net

388,533  

Deferred stock-based compensation costs

Redemption and retirement of shares

( 109,312 )  

( 5,193 )  

46,974  

47,097  

Balance at September 30, 2021

3,188,533  

16,553,615  

$ 252,438  

$ 10,259  

$ ( 745 )  

$ 261,952  

$ 99,575  

$ 40,000  

Balance at March 31, 2022

Series B Preferred Stock

3 unchanged sentences

Paid-In Capital

Retained Earnings (Deficit)

Retained Earnings

Noncontrolling Interests

6 unchanged sentences

Compensatory stock issuances, net of forfeitures

Contributions by preferred unit holders

Deferred stock-based compensation costs

1 unchanged sentence

Balance at March 31, 2021

Accretion of discount associated with issuance of subsidiary equity

Preferred dividends

Stock option exercises and proceeds related thereto

Deferred stock-based compensation costs

Redemption and retirement of shares

Balance at June 30, 2020

Accretion of discount associated with issuance of subsidiary equity

Preferred dividends

Stock option exercises and proceeds related thereto

Compensatory stock issuances, net of forfeitures

Deferred stock-based compensation costs

Redemption and retirement of shares

Balance at September 30, 2020

See accompanying notes.

2 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Operating activities

$ 127,950  

$ 67,286  

Adjustments to reconcile net income to net cash provided by operating activities:

1 unchanged sentence

Provision for losses on loans, interest and fees receivable

24,469  

116,894  

Interest expense from accretion of discount on notes

Income from accretion of merchant fees and discount associated with receivables purchases

( 130,166 )  

Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value

144,981  

73,156  

Amortization of deferred loan costs

Income from equity-method investments

( 16 )  

Loss on repurchase and redemption of convertible senior notes

29,439  

Deferred stock-based compensation costs

Lease liability payments

( 7,837 )  

Changes in assets and liabilities:

Increase in uncollected fees on earning assets

( 70,980 )  

Increase in income tax liability

12,085  

15,905  

Increase (decrease) in accounts payable and accrued expenses

(Decrease) increase in income tax liability

Increase in accounts payable and accrued expenses

Net cash provided by operating activities

139,995  

147,774  

Investing activities

Investments in equity-method investee

( 398 )  

Proceeds from equity-method investee

Proceeds from recoveries on charged off receivables

11,773  

Investments in earning assets

( 1,432,768 )  

Proceeds from earning assets

1,128,653  

760,461  

Purchases and development of property, net of disposals

Net cash used in investing activities

( 294,486 )  

Financing activities

Noncontrolling interests contributions

50,000  

Proceeds from issuance of Series B preferred stock, net of issuance costs

75,270  

Preferred dividends

( 15,582 )  

Proceeds from exercise of stock options

Purchase and retirement of outstanding stock

( 5,794 )  

Proceeds from borrowings

507,227  

249,353  

Repayment of borrowings

( 452,554 )  

Net cash provided by financing activities

110,313  

33,641  

Net cash used in financing activities

Effect of exchange rate changes on cash

Net (decrease) increase in cash and cash equivalents

( 44,187 )  

Net decrease in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash at beginning of period

258,961  

176,394  

Cash and cash equivalents and restricted cash at end of period

$ 214,774  

$ 176,875  

Supplemental cash flow information

Cash paid for interest

$ 35,203  

$ 35,824  

Net cash income tax payments (refunds)

$ 16,584  

Net cash income tax payments

Increase (decrease) in accrued and unpaid preferred dividends

$ 3,203  

See accompanying notes.

1 unchanged sentence

Notes to Consolidated Financial Statements

September 30, 2021 and 2020

March 31, 2022 and 2021

Description of Our Business

9 unchanged sentences

typically refer to receivables we have purchased from our bank partners or from third parties.

Within our Credit and Other Investments segment, we facilitate consumer finance programs offered by our bank partner to originate consumer loans through multiple channels, including retail and healthcare point-of-sale (collectively "point-of-sale"), direct mail solicitation, digital marketing and through partner relationships.

In the point-of-sale channel, we partner with retailers and service providers in various industries across the United States (“U.S.”) to enable them to provide credit to their customers for the purchase of goods and services.

These services of our bank partner are often extended to consumers who may have been declined by other providers of credit.

Within our Credit as a Service ("CaaS") segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing over $27 billion in consumer loans over our 25 -year operating history, to support lenders in offering more inclusive financial services.

These products include private label credit and general purpose credit cards originated by lenders through multiple channels, including retailers and healthcare providers, direct mail solicitation, digital marketing and partnerships with third parties.

The services of our bank partners are often extended to consumers who may not have access to financing options with larger financial institutions.

We specialize in supporting this “second-look”

credit service in various market segments across the U.S.

Additionally, we support lenders who market general purpose credit cards directly to consumers (collectively, the “direct-to-consumer”

operations) through multiple channels enabling them to reach consumers through a diverse origination platform.

Using our infrastructure and technology platform, we also provide loan servicing, including risk management and customer service outsourcing, for third parties.

We also report within our Credit and Other Investments segment:

1 ) the servicing income from our legacy credit card receivables, 2 ) the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer;

credit service.

Our flexible technology solutions allow our bank partners to integrate our paperless process and instant decisioning platform with the existing infrastructure of participating retailers and service providers.

Using our technology and proprietary predictive analytics, lenders can make instant credit decisions utilizing hundreds of inputs from multiple sources and thereby offer credit to consumers overlooked by many providers of financing who focus exclusively on consumers with higher FICO scores.

Atlanticus’

underwriting process is enhanced by artificial intelligence and machine learning, enabling fast, sound decision-making when it matters most.

We also report within our CaaS segment:

1 ) servicing income;

and 2 ) gains or losses associated with investments previously made in consumer finance technology platforms.

These include investments in companies engaged in mobile technologies, marketplace lending and other financial technologies.

These investments are carried at cost.

These investments are carried at lower of cost or market valuation.

None of these companies are publicly-traded and there are no material pending liquidity events.

1 unchanged sentence

We purchase auto loans at a discount and with dealer retentions or holdbacks that provide risk protection.

Also within our Auto Finance segment, we are providing certain installment lending products in addition to our traditional loans secured by automobiles.

On March 13, 2020, a national emergency was declared under the National Emergencies Act due to a new strain of coronavirus ("COVID- 19" ).

On March 11, 2021, the American Rescue Plan, a $1.9 trillion stimulus package that extended and expanded benefits provided under previous legislation, was signed into law. The long-term impacts of the new law on the economy and our consumers is currently unknown.

Also within our Auto Finance segment, we are providing certain installment lending products in addition to our traditional loans secured by automobiles.

In March 2020, a national emergency was declared under the National Emergencies Act due to a new strain of coronavirus ("COVID- 19" ).

The COVID- 19 pandemic has negatively impacted global supply chains and business operations as suppliers continue to experience difficulties keeping up with strong demand for factory goods, which is being driven by low business inventories.

In addition, rising inflation in 2021 and 2022 has resulted in increasing costs for many goods and services.

As a result of persistently high inflation, interest rates have been on the rise and are expected to continue rising in the near term.

The combination of rising inoculation rates in the U.S.

population and the federal COVID- 19 relief package contributed to increased economic recovery in 2021;

however, fiscal support of business and personal incomes has declined.

Russia’s invasion of Ukraine has intensified supply chain disruptions and heightened uncertainty surrounding the near-term outlook for the broader economy.

The impacts of new COVID- 19 variants, responses to the COVID- 19 pandemic by both consumers and governments, rising energy costs, inflation, rising interest rates, and the unresolved geopolitical tensions relating to Russia’s invasion of Ukraine could significantly affect the sustainability of current economic growth.

The duration and severity of the effects of COVID- 19 on our financial condition, results of operations and liquidity remain highly uncertain.

2 unchanged sentences

as well as our employees.

We continue to monitor the ongoing pandemic and have modified certain business practices including minimizing employee travel and executing on a company-wide remote work program.

We continue to monitor the ongoing pandemic and have modified certain business practices including minimizing employee travel and transitioning to a hybrid distributed work model.

These practices have also been adopted by certain of our third party service partners.

2 unchanged sentences

Basis of Presentation and Use of Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S.

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S.

(“GAAP”).

2 unchanged sentences

Actual results could differ materially from these estimates.

Certain estimates, such as credit losses, payment rates, costs of funds, discount rates and the yields earned on credit card receivables, significantly affect the reported amount (and changes thereon) of our Loans, interest and fees receivables, at fair value and Notes payable associated with structured financings recorded at fair value on our consolidated balance sheets and consolidated statements of operations.

Additionally, estimates of future credit losses have a significant effect on loans, interest and fees receivable, net, as shown on our consolidated balance sheets, as well as on the provision for losses on loans, interest and fees receivable within our consolidated statements of operations. Certain prior year amounts on our consolidated statements of operations have been reclassified for consistency with the current year presentation.

These reclassifications had no effect on the reported results of operations. 

Additionally, estimates of credit losses have a significant effect on loans, interest and fees receivable, net, as shown on our consolidated balance sheets, as well as on the provision for losses on loans, interest and fees receivable within our consolidated statements of income.

We have eliminated all significant intercompany balances and transactions for financial reporting purposes.

Loans, Interest and Fees Receivable

We maintain two categories of Loans, Interest and Fees Receivable on our consolidated balance sheets:

We maintain two categories of Loans, Interest and Fees Receivable on our consolidated balance sheets:

those that are carried at fair value (Loans, interest and fees receivable, at fair value) and those that are carried at net amortized cost (Loans, interest and fees receivable, gross).

For both categories of loans, interest and fees receivable, other than our Auto Finance receivables, interest and fees are discontinued when loans, interest and fees receivable become contractually 90 or more days past due.

We charge off our Credit and Other Investments and Auto Finance segment receivables when they become contractually more than 180 days past due.

For all of our products, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death.

We charge off our CaaS and Auto Finance segment receivables when they become contractually more than 180 days past due.

For all of our receivables portfolios, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death.

However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or estate large enough to pay the debt in full.

We adopted Accounting Standards Update ("ASU") 2016 - 13, Measurement of Credit Losses on Financial Instruments on 

January 1, 2022.

This ASU requires the use of an impairment model (the current expected credit loss (“CECL”) model) that is based on expected rather than incurred losses.

The ASU also allows for a one -time fair value election for receivables.

Upon adoption, we elected the fair value option for all remaining loans receivable associated with our private label credit and general purpose credit card platform previously measured at amortized cost and recorded an increase to our allowance for loan losses for our remaining Loans, interest and fees receivable associated with our Auto Finance Segment. 

The adoption of CECL resulted in an increase to our opening balance of retained earnings of $ 8.6 million.

Loans, Interest and Fees Receivable, at Fair Value.

 Loans, interest and fees receivable held at fair value represent both the receivables underlying credit card securitization trusts (the "Securitized Receivables") and those receivables for which we elected the fair value option on January 1, 2020 ( the "Fair Value Receivables").

Both the Securitized Receivables and the Fair Value Receivables are held by entities that qualify as variable interest entities ("VIE"), and are consolidated onto our consolidated balance sheets, some portfolios of which are unencumbered and some of which are still encumbered under structured or other financing facilities.

Loans and finance receivables include accrued and unpaid interest and fees.

 Loans, interest and fees receivable held at fair value represent receivables for which we have elected the fair value option (the "Fair Value Receivables").

The Fair Value Receivables are held by entities that qualify as variable interest entities ("VIE"), and are consolidated onto our consolidated balance sheets, some portfolios of which are unencumbered and some of which are still encumbered under structured or other financing facilities.

Loans and finance receivables include accrued and unpaid interest and fees.

As discussed above, as of March 31, 2022 all receivables associated with our private label credit and general purpose credit cards are included within this category of receivables.

Under the fair value option, direct loan origination fees (such as annual and merchant fees) are taken into income when billed to the consumer or upon loan acquisition and direct loan origination costs are expensed in the period incurred.

The Company estimates the fair value of the loans using a discounted cash flow model, which considers various unobservable inputs such as remaining cumulative charge-offs, remaining cumulative prepayments, average life and discount rate.

The Company re-evaluates the fair value of loans receivable at the close of each measurement period.

Changes in the fair value of loans, interest and fees receivable are recorded as a component of "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value" in the consolidated statements of income in the period of the fair value changes.

Changes in the fair value of loans, interest and fees receivable recorded at fair value include the impact of current period charge-offs associated with these receivables.

Further details concerning our loans, interest and fees receivable held at fair value are presented within Note 6, “Fair Values of Assets and Liabilities.”

Loans, Interest and Fees Receivable, Gross.

Our loans, interest and fees receivable, gross, currently consist of receivables associated with (a) a portion (those which are not part of our Fair Value Receivables) of our U.S.

point-of-sale and direct-to-consumer financing and other credit products platform within our Credit and Other Investments segment and (b) our Auto Finance segment’s operations.

Our Credit and Other Investments segment loans, interest and fees receivable generally are unsecured, while our Auto Finance segment loans, interest and fees receivable generally are secured by the underlying automobiles for which we hold the vehicle title.

We purchased auto loans with outstanding principal of $ 47.8 million, $ 146.1 million, $ 47.1 million and $ 139.7 million for the three and nine months ended September 30, 2021 

Our loans, interest and fees receivable, gross, currently consist of receivables associated with our Auto Finance segment’s operations.

Prior to January 1, 2022 this category of receivable also included a portion (those which are not part of our Fair Value Receivables) of our private label credit and general purpose credit card receivables within our CaaS segment. Our CaaS segment loans, interest and fees receivable generally are unsecured, while our Auto Finance segment loans, interest and fees receivable generally are secured by the underlying automobiles for which we hold the vehicle title.

We purchased auto loans with outstanding principal of $ 56.5 million and $ 50.5 million for the three months ended March 31, 2022 

and 2021, respectively, through our pre-qualified network of independent automotive dealers and automotive finance companies.

As of September 30, 2021 and 

December 31, 2020 , the weighted average remaining accretion period for the $ 29.8  million and $ 39.5 million of deferred revenue reflected in the consolidated balance sheets was 15  months and 14  months, respectively.

Included within deferred revenue, are merchant fees and discounts on purchased loans of $ 22.0  million and $ 28.2 million as of September 30, 2021 and 

December 31, 2020 , respectively.

As a result of the COVID- 19 pandemic and subsequent declaration of a national emergency on March 13, 2020 under the National Emergencies Act, certain consumers have been offered the ability to defer their payment without penalty during the national emergency period.

On March 22, 2020, the federal bank regulatory agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” ("COVID- 19 Guidance").

We show both an allowance for uncollectible loans, interest and fees receivable and unearned fees (or “deferred revenue”) for our loans, interest and fees receivable that are not carried at fair value.

Upon adoption of CECL, the allowance is an estimate of the expected losses (rather than incurred losses) inherent within loans, interest and fees receivable that the Company does not report at fair value.

Our loans, interest and fees receivable consist of smaller-balance, homogeneous loans.

While each of these categories has unique features, they share many of the same credit risk characteristics and thus share a similar approach to the establishment of an allowance for loan losses.

Each portfolio is divided into pools based on common characteristics such as contract or acquisition channel.

For each pool, we determine the necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the following unique attributes for each type of receivable pool:

historical loss rates;

current delinquency and roll-rate trends;

vintage analyses based on the number of months an account has been in existence;

the effects of changes in the economy on consumers;

changes in underwriting criteria;

and estimated recoveries.

We may further reduce the expected charge-off, taking into consideration specific dealer level reserves which may allow us to offset our losses and, in the case of secured loans, the impact of collateral available to offset a potential loss. 

A considerable amount of judgment is required to assess the ultimate amount of uncollectible loans, interest and fees receivable, and we continuously evaluate and update our methodologies to determine the most appropriate allowance necessary.

We may individually evaluate a receivable or pool of receivables for impairment if circumstances indicate that the receivable or pool of receivables may be at higher risk for non-performance than other receivables (e.g., if a particular retail or auto-finance partner has indications of non-performance (such as a bankruptcy) that could impact the underlying pool of receivables we purchased from the partner).

Certain of our loans, interest and fees receivable (including those receivables associated with our private label credit and general purpose credit card receivables prior to their adoption of fair value accounting) also contain components of deferred revenue including merchant fees on the purchases of receivables for our private label credit receivables and annual fee billings for our general purpose credit card receivables.

Our private label credit and auto finance loans, interest and fees receivable include principal balances and associated fees and interest due from customers which are earned each period a loan is outstanding, net of the unearned portion of merchant fees and loan discounts.

Additionally, many of our general purpose credit card receivables have an annual membership fee that is billed to the consumer on card activation and on each anniversary of that date thereafter.

As of March 31, 2022 

and December 31, 2021, the weighted average remaining accretion period for the $ 15.9 million and $ 29.3 million of deferred revenue reflected in the consolidated balance sheets was 26  months and 15  months, respectively.

Included within deferred revenue, are merchant fees and discounts on purchased loans of $ 15.9 million and $ 20.4 million as of March 31, 2022 

and December 31, 2021, respectively.

As a result of the COVID- 19 pandemic and subsequent declaration of a national emergency in March 2020 under the National Emergencies Act, certain consumers have been offered the ability to defer their payment without penalty during the national emergency period.

In March 2020, the federal bank regulatory agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus”

("COVID- 19 Guidance").

The COVID- 19 Guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID- 19.

1 unchanged sentence

Receivables enrolled in these short-term payment deferrals continue to accrue interest and their delinquency status will not change through the deferment period.

Through September 30, 2021 we continued to actively work with consumers that indicated hardship as a result of COVID- 19;

 however, the number of impacted consumers continued to be a diminishing part of our overall receivable base.

Through March 31, 2022 

we continued to actively work with consumers that indicated hardship as a result of COVID- 19;

however, the number of impacted consumers is a small and diminishing part of our overall receivable base.

In order to establish appropriate reserves for this population, we considered various factors such as subsequent payment behavior and additional requests by the consumer for further deferrals or hardship claims.

A roll-forward (in millions) of our allowance for uncollectible loans, interest and fees receivable by class of receivable is as follows: 

For the Three Months Ended September 30, 2021

Our CaaS segment consists of two classes of receivable:

credit cards and other unsecured lending products.

A roll-forward (in millions) of our allowance for uncollectible loans, interest and fees receivable by class of receivable is as follows:

For the Three Months Ended March 31, 2022

Other Unsecured Lending Products

4 unchanged sentences

$ ( 12.4 )  

Provision for loan losses

( 9.5 )  

( 0.1 )  

( 1.6 )  

( 0.2 )  

( 1.2 )  

Balance at end of period

$ ( 59.0 )  

$ ( 1.4 )  

$ ( 19.6 )  

For the Nine Months Ended September 30, 2021

Other Unsecured Lending Products

Allowance for uncollectible loans, interest and fees receivable:

Balance at beginning of period

$ ( 88.2 )  

$ ( 1.7 )  

Cumulative effects from adoption of fair value under the CECL standard

Cumulative effects from adoption of the CECL standard

( 0.2 )  

2 unchanged sentences

( 0.3 )  

( 0.8 )  

( 5.5 )  

Balance at end of period

$ ( 1.6 )  

$ ( 1.4 )  

$ ( 19.6 )  

As of September 30, 2021

As of March 31, 2022

Other Unsecured Lending Products

1 unchanged sentence

Balance at end of period individually evaluated for impairment

$ ( 0.1 )  

Balance at end of period collectively evaluated for impairment

$ ( 1.6 )  

$ ( 1.3 )  

$ ( 19.6 )  

Loans, interest and fees receivable:

2 unchanged sentences

$ 99.9  

$ 135.2  

$ 511.1  

Loans, interest and fees receivable individually evaluated for impairment

2 unchanged sentences

$ 99.9  

$ 135.2  

$ 510.8  

For the Three Months Ended September 30, 2020

Other Unsecured Lending Products

Allowance for uncollectible loans, interest and fees receivable:

Balance at beginning of period

$ ( 112.5 )  

$ ( 1.8 )  

$ ( 43.8 )  

Provision for loan losses

( 14.9 )  

( 0.4 )  

( 1.7 )  

( 2.8 )  

( 0.3 )  

( 2.6 )  

Balance at end of period

$ ( 90.9 )  

$ ( 1.9 )  

$ ( 33.1 )  

For the Nine Months Ended September 30, 2020

For the Three Months Ended March 31, 2021

Other Unsecured Lending Products

10 unchanged sentences

( 1.7 )  

( 13.0 )  

Balance at end of period

23 unchanged sentences

$ 469.9  

Recoveries, noted above, consist of amounts received from the efforts of third -party collectors we employ and through the sale of charged-off accounts to unrelated third -parties. All proceeds received, associated with charged-off accounts, are credited to the allowance for uncollectible loans, interest and fees receivable and effectively offset our provision for losses on loans, interest and fees receivable recorded at net realizable value on our consolidated statements of operations.

For the three and nine months ended September 30, 2021, $ 1.8  million and $ 6.9  million, respectively, of our recoveries noted above related to collections from third -party collectors we employ and $ 1.1  million and $ 5.7  million, respectively, related to sales of charged-off accounts to unrelated third -parties.

For the three and months ended September 30, 2020, $ 2.8 million and $ 9.8  million, respectively, of our recoveries noted above related to collections from third -party collectors we employ and $ 2.9  million and $ 11.8  million, respectively, related to sales of charged-off accounts to unrelated third -parties.

An aging of our delinquent loans, interest and fees receivable, gross (in millions) by class of receivable as of September 30, 2021 and 

December 31, 2020  is as follows:

As of September 30, 2021

Delinquent loans, interest and fees receivable reflect the principal, fee and interest components of loans we did not collect on or prior to the contractual due date.

Amounts we believe we will not ultimately collect are included as a component in our overall allowance for uncollectible loans, interest and fees receivable.

Recoveries, noted above, consist of amounts received from the efforts of third -party collectors we employ and through the sale of charged-off accounts to unrelated third -parties.

All proceeds received, associated with charged-off accounts, are credited to the allowance for uncollectible loans, interest and fees receivable and effectively offset our provision for losses on loans, interest and fees receivable recorded at net realizable value on our consolidated statements of income.

For the three months ended March 31, 2022, $ 0.3 million of our recoveries noted above related to collections from third -party collectors we employ and $ 0.0  million related to sales of charged-off accounts to unrelated third -parties.

For the three months ended March 31, 2021, $ 2.4 million of our recoveries noted above related to collections from third -party collectors we employ and $ 1.3 million related to sales of charged-off accounts to unrelated third -parties.

We consider loan delinquencies a key indicator of credit quality because this measure provides the best ongoing estimate of how a particular class of receivable is performing.

An aging of our delinquent loans, interest and fees receivable, gross (in millions) by class of receivable as of March 31, 2022 

and December 31, 2021 

is as follows:

As of March 31, 2022

Other Unsecured Lending Products

30-59 days past due

$ 16.8  

60-89 days past due

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$ 99.9  

$ 135.2  

$ 511.1  

Balance of loans greater than 90-days delinquent still accruing interest and fees

3 unchanged sentences

$ 17.8  

$ 25.1  

60-89 days past due

9 unchanged sentences

Troubled Debt Restructurings

As part of ongoing collection efforts, once an account, the receivable of which is included in our Credit and Other Investments segment, becomes 

90  days or more past due, the related receivable is placed on a non-accrual status.

Placement on a non-accrual status results in the use of programs under which the contractual interest associated with a receivable may be reduced or eliminated, or a certain amount of accrued fees is waived, provided a minimum number or amount of payments have been made.

As part of ongoing collection efforts, once an account, the receivable of which is included in our CaaS segment, becomes

90 days or more past due, the related receivable is placed on a non-accrual status.

Placement on a non-accrual status results in the use of programs under which the contractual interest associated with a receivable

may be reduced or eliminated, or a certain amount of accrued fees is waived, provided a minimum number or amount of payments have been made.

Following this adjustment, if a customer demonstrates a willingness and ability to resume making monthly payments and meets certain additional criteria, we will re-age the customer’s account.

When we re-age an account, we adjust the status of the account to bring a delinquent account current, but generally do 

not  make any further modifications to the payment terms or amount owed.

When we re-age an account, we adjust the status of the account to bring a delinquent account current, but generally do

not make any further modifications to the payment terms or amount owed.

Once an account is placed on a non-accrual status, it is closed for further purchases.

Accounts that are placed on a non-accrual status and thereafter make at least 

one  payment qualify as troubled debt restructurings (“TDRs”). The above referenced COVID- 19 Guidance issued by federal bank regulatory agencies, in consultation with the FASB staff, concluded that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were impacted by COVID- 19 and who were less than 30 days past due as of the implementation date of a relief program are not TDRs. Although we are not a financial institution and therefore not directly subject to the COVID- 19 Guidance, we believe this constitutes an interpretation of GAAP and therefore should be applied to our accounting circumstances.

As a result, the below tables exclude certain accounts that are included under that guidance. 

Accounts that are placed on a non-accrual status and thereafter make at least

one payment qualify as troubled debt restructurings (“TDRs”).

The above referenced COVID-

19 Guidance issued by federal bank regulatory agencies, in consultation with the Financial Accounting Standards Board ("FASB") staff, concluded that short-term modifications (e.g.,

six months) made on a good faith basis to borrowers who were impacted by COVID-

19 and who were less than

30 days past due as of the implementation date of a relief program are

Although we are

not a financial institution and therefore

not directly subject to the COVID-

19 Guidance, we believe this constitutes an interpretation of GAAP and therefore should be applied to our accounting circumstances.

As a result, the below tables exclude certain accounts that are included under that

The following table details by class of receivable, the number and amount of modified loans, including TDRs that have been re-aged, as of 

September 30, 2021 and 

March 31, 2022 and 

December 31, 2021 :

September 30, 2021

March 31, 2022

December 31, 2021

Point-of-sale

Direct-to-consumer

Point-of-sale

Direct-to-consumer

Private label credit

General purpose credit card

Private label credit

General purpose credit card

Number of TDRs

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$ 1,553  

$ 4,662  

$ 6,890  

Carrying value of TDRs (in thousands)

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We do not separately reserve or impair these receivables outside of our general reserve process.

The Company modified 57,142 and 66,667 accounts in the amount of $ 62.2 million and $ 78.2 million during the twelve month periods ended September 30, 2021  and September 30, 2020 , respectively, that qualified as TDRs.

The Company modified 84,878 and 51,424 accounts in the amount of $89.5 million and $ 59.2 million during the twelve month periods ended March 31, 2022  and March 31, 2021 , respectively, that qualified as TDRs.

The following table details by class of receivable, the number of accounts and balance of loans that completed a modification (including those that were classified as TDRs) within the prior twelve months and subsequently defaulted.

Twelve Months Ended

September 30, 2021

September 30, 2020

Point-of-sale

Direct-to-consumer

Point-of-sale

Direct-to-consumer

March 31, 2022

March 31, 2021

Private label credit

General purpose credit card

Private label credit

General purpose credit card

Number of accounts

10,487  

Loan balance at time of charge off (in thousands)

3 unchanged sentences

$ 5,553  

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses reflect both the billed and unbilled amounts owed at the end of a period for services rendered.

Commencing in July 2019, accounts payable and accrued expenses includes payments owed under a deferred payment program started with an unrelated third -party for a portion of our marketing expenditures.

As a result of this agreement, we were able to extend the payment terms associated with our growing marketing spend between 10 - 37 months. 

We experienced effective tax rates of 18.7 % and 18.3 %, for the three and nine months ended September 30, 2021, compared to 19.6 % and 18.9 % for the three and nine months ended September 30, 2020. 

Our effective tax rates for the three and nine months ended September 30, 2021, 

are below the statutory rate principally due to ( 1 ) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’

grant date values and ( 2 ) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes. 

Offsetting these two items for the three and nine months ended September 30, 2021, are the effects on our effective tax rate of state and foreign income tax expense and executive compensation deduction limitations under Section 162 (m) of the Internal Revenue Code of 1986.

Additionally, certain state tax valuation allowance releases and benefits received under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in prior quarters of 2021 contributed to our effective tax rate being lower than the statutory rate for the nine months ended September 30, 2021.

Our effective tax rates for the three and nine months ended September 30, 2020, 

were below the statutory rate principally due to ( 1 ) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes and ( 2 ) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’

grant date values.

Partially offsetting such effects on our effective tax rates were the effects of accruals of interest on unpaid federal tax liabilities and uncertain tax positions and state and foreign income tax expense during such periods.

We experienced a negative effective tax rate of 18.8%  for the three months ended March 31, 2022, compared to an effective tax rate of 15.0 % for the three months ended March 31, 2021.

Our negative effective tax rate for the three months ended March 31, 2022 ( i.e., versus the statutory rate) resulted from ( 1 ) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’

Our effective tax rate for the three months ended March 31, 2021 

was below the statutory rate due to ( 1 ) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’

grant date values, ( 2 ) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes, and ( 3 ) our release of state tax valuation allowances.

Partially offsetting the foregoing items were the effects of ( 1 ) executive compensation deduction limits under Section 162 (m) of the Internal Revenue Code of 1986, as amended, and ( 2 ) state and foreign income tax expense.

We report interest expense associated with our income tax liabilities (including accrued liabilities for uncertain tax positions) within our income tax line item on our consolidated statements of operations.

We likewise report within such line item the reversal of interest expense associated with our accrued liabilities for uncertain tax positions to the extent we resolve such liabilities in a manner favorable to our accruals therefor.

We had de minimis interest expense or reversals thereof during the three and nine months ended September 30, 2021, and 2020.

We had de minimis interest expense or reversals thereof during the three months ended March 31, 2022, and 2021.

Revenue Recognition and Revenue from Contracts with Customers

Consumer Loans, Including Past Due Fees

Consumer loans, including past due fees reflect interest income, including finance charges, and late fees on loans in accordance with the terms of the related customer agreements.

Premiums, discounts and merchant fees paid or received associated with installment or auto loans that are not included as part of our Fair Value Receivables are deferred and amortized over the average life of the related loans using the effective interest method.

Consumer loans, including past due fees reflect interest income, including finance charges, and late fees on loans in accordance with the terms of the related customer agreements.

Discounts received associated with auto loans that are not included as part of our Fair Value Receivables are deferred and amortized over the average life of the related loans using the effective interest method.

Premiums, discounts and merchant fees paid or received associated with Fair Value Receivables are recognized upon receivable acquisition.

1 unchanged sentence

Fees and Related Income on Earning Assets

Fees and related income on earning assets primarily include fees associated with the credit products, including the receivables underlying our U.S.

point-of-sale finance and direct-to-consumer platform, and our legacy credit card receivables which include the recognition of annual fee billings and cash advance fees among others.

Other revenue includes revenues associated with ancillary product offerings, interchange revenues and servicing income. We recognize these fees as income in the period earned.

Loss on repurchase and redemption of convertible senior notes

In periods where we repurchased or redeemed outstanding 5.875 % convertible senior notes (“convertible senior notes”), we recorded any discount or premium paid for the repurchase or redemption (including accrued interest) relative to the amortized book value of the notes. In the three and nine months ended September 30, 2021, we repurchased or redeemed $ 12.7 million and $ 33.8 million, respectively, in face amount of our outstanding convertible senior notes for $ 25.4  million and $ 54.3 million, respectively, in cash (including accrued interest). The repurchase and redemption resulted in an aggregate loss of approximately $ 16.2  million and $ 29.4 million (including the convertible senior notes’

applicable share of deferred costs, which were written off in connection with the repurchase), respectively.

Upon acquisition, the notes were retired. 

See Note 10, "Convertible Senior Notes" for more information.

Other non-operating revenue

Other non-operating revenue includes revenues associated with investments in equity method investees and other revenues not associated with our ongoing business operations. 

Fees and related income on earning assets primarily include fees associated with the credit products, including the receivables underlying our private label credit and general purpose credit card platform, and our legacy credit card receivables which include the recognition of annual fee billings and cash advance fees among others.

Fees are assessed on credit card accounts underlying our credit card receivables according to the terms of the related cardholder agreements and we recognize these fees as income when they are charged to the customers’

Fees and related income on earning assets, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable and revenue when the fees are earned based upon the contractual terms of the loans.

The election of the fair value option to account for certain loans receivable resulted in increased fees recognized on credit products throughout the periods presented.

Revenue from Contracts with Customers

Components (in thousands) of our revenue from contracts with customers are as follows:

For the Three Months Ended September 30, 2021

Other Investments

Interchange revenues, net (1)

$ 5,276  

Servicing income

Service charges and other customer related fees

Total revenue from contracts with customers

$ 8,315  

$ 8,655  

( 1 ) Interchange revenue is presented net of customer reward expense.

For the Nine Months Ended September 30, 2021

Other Investments

Interchange revenues, net (1)

$ 12,167  

Servicing income

Service charges and other customer related fees

Total revenue from contracts with customers

$ 19,552  

$ 20,546  

( 1 ) Interchange revenue is presented net of customer reward expense.

For the Three Months Ended September 30, 2020

Other Investments

The majority of our revenue is earned from financial instruments and is not included within the scope of ASU No.

2014 - 09, "Revenue from Contracts with Customers".

We have determined that revenue from contracts with customers would primarily consist of interchange revenues in our CaaS segment and servicing revenue and other customer-related fees in both our CaaS segment and our Auto Finance segment.

Interchange fees are earned when our customer's cards are used over established card networks.

We earn a portion of the interchange fee the card networks charge merchants for the transaction.

Servicing revenue is generated by meeting contractual performance obligations related to the collection of amounts due on receivables, and is settled with the customer net of our fee.

Service charges and other customer related fees are earned from customers based on the occurrence of specific services.

None of these revenue streams result in an ongoing obligation beyond what has already been rendered.

Revenue from these contracts with customers is included as a component of Other revenue on our consolidated statements of income.

Components (in thousands) of our revenue from contracts with customers is as follows:

For the Three Months Ended March 31, 2022

Interchange revenues, net (1)

7 unchanged sentences

( 1 ) Interchange revenue is presented net of customer reward expense.

For the Nine Months Ended September 30, 2020

Other Investments

For the Three Months Ended March 31, 2021

Interchange revenues, net (1)

7 unchanged sentences

( 1 ) Interchange revenue is presented net of customer reward expense.

Loss on repurchase and redemption of convertible senior notes

In periods where we repurchased or redeemed 5.875 % convertible senior notes (“convertible senior notes”), we recorded any discount or premium paid for the repurchase or redemption (including accrued interest) relative to the amortized book value of the notes.

In the three months ended March 31, 2021, we repurchased $ 14.7 million in face amount of our convertible senior notes for $ 18.6 million in cash (including accrued interest).

The repurchase resulted in a loss of approximately $ 7.8 million (including the convertible senior notes’

applicable share of deferred costs, which were written off in connection with the repurchase).

Upon acquisition, the notes were retired. 

Recent Accounting Pronouncements

4 unchanged sentences

In May 2019, the FASB issued ASU 2019 - 05, which allows entities to measure assets in the scope of ASC 326 - 20, except held to maturity securities, using the fair value option when they adopt the new credit impairment standard.

The election can be made on an instrument by instrument basis. 

ASU 2016 - 13 (and ASU 2019 - 05 ) was initially effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.

The FASB delayed the effective date of this standard until annual and interim periods beginning after December 15, 2022 for filers that qualified as smaller reporting companies at the time of the delay, with early adoption permitted.

We plan to adopt ASU 2016 - 13 beginning January 1, 2022 utilizing the fair value option for all receivables currently measured at amortized cost. 

This standard is expected to result in more potential volatility in the recorded value of the assets as these receivables are remeasured each period. 

The impact upon adoption is expected to result in an increase to our opening retained earnings.

The extent of the financial statement impact will depend on the asset quality of the portfolio, and economic conditions and forecasts at adoption.

The election can be made on an instrument by instrument basis.

We adopted ASU 2016 - 13 beginning January 1, 2022, using the modified retrospective method of adoption.

We elected the fair value option for all receivables in our CaaS segment previously measured at amortized cost.

For all other receivables, we recorded an increase to our allowance for loan losses using the current expected credit loss model.

As a result of our adoption, we increased our Loans, interest and fees receivable (net of the related revaluation), at fair value by $ 315.0 million (with a corresponding decrease to Loans, interest and fees receivable, gross of $ 375.7 million), a decrease to our Allowances for uncollectible loans, interest and fees receivable of $ 55.6 million, a decrease to our Deferred revenue of $ 15.6 million, a decrease to Accounts payable and accrued expenses of $ 600 thousand, an increase to our deferred tax liability of $ 2.5 million, and an increase to our retained earnings of $ 8.6 million.

The aforementioned impacts associated with our adoption of ASU 2016 - 13 primarily relate to those assets within our CaaS segment with an immaterial impact to our Auto Finance segment receivables.

In March 2020, the FASB issued ASU No.

2020 - 04,  Reference Rate Reform (Topic 848 ), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The guidance provides an optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ASU can be adopted no later than December 1, 2022, with early adoption permitted.

In January 2021, FASB issued ASU 2021 - 01,  Reference Rate Reform (Topic 848 ):

Scope, which refines the scope of ASC 848 and clarifies some of its guidance as part of the FASB’s monitoring of global reference rate reform.

2020 - 04, Reference Rate Reform (Topic 848 ), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The guidance provides an optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The ASU can be adopted no later than December 1, 2022, with early adoption permitted.

In January 2021, FASB issued ASU 2021 - 01, Reference Rate Reform (Topic 848 ):

Scope, which refines the scope of ASC 848 and clarifies some of its guidance as part of the FASB’s monitoring of global reference rate reform.

We have not yet adopted this ASU and are evaluating the effect of adopting this new accounting guidance.

Based on our preliminary analysis, the London Interbank Offered Rate ("LIBOR") impacts us in limited circumstances primarily related to our existing debt agreements.

Subsequent Events

We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated financial statements are issued. There are two types of subsequent events: ( 1 ) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements;

and ( 2 ) nonrecognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. 

We have evaluated subsequent events occurring after September 30, 2021 ,and based on our evaluation we did not identify any recognized or nonrecognized subsequent events that would have required further adjustments to our consolidated financial statements.

We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated financial statements are issued.

There are two types of subsequent events:

( 1 ) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements;

and ( 2 ) nonrecognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.

We have evaluated subsequent events occurring after March 31, 2022.

Based on our evaluation, we included an accrual for a $ 8.5 million settlement associated with outstanding litigation related to our Auto Finance segment in our Other expense category on our consolidated statements of income . 

Segment Reporting

We operate primarily within one industry and manage our business through the following two reportable segments: Credit and Other Investments, and Auto Finance.

We operate primarily within one industry consisting of two reportable segments by which we manage our business.

Our two reportable segments are:

CaaS and Auto Finance.

As of both March 31, 2022 

and December 31, 2021, we did not have a material amount of long-lived assets located outside of the U.S.

We measure the profitability of our reportable segments based on their income after allocation of specific costs and corporate overhead;

however, our segment results do not reflect any charges for internal capital allocations among our segments.

Overhead costs are allocated based on headcounts and other applicable measures to better align costs with the associated revenues.

Summary operating segment information (in thousands) is as follows:

Three Months Ended September 30, 2021

Credit and Other Investments

Consumer loans, including past due fees

$ 132,747  

$ 8,430  

$ 141,177  

Fees and related income on earning assets

54,065  

54,085  

Other revenue

Other non-operating revenue

Total revenue

195,127  

203,949  

Interest expense

( 12,109 )  

( 261 )  

Provision for losses on loans, interest and fees receivable recorded at net realizable value

( 9,192 )  

( 46 )  

Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value

( 58,727 )  

$ 115,099  

$ 8,515  

$ 123,614  

Income before income taxes

$ 55,134  

$ 2,744  

$ 57,878  

Income tax expense

$ ( 10,117 )  

$ ( 664 )  

Nine Months Ended September 30, 2021

Credit and Other Investments

Three Months Ended March 31, 2022

Consumer loans, including past due fees

7 unchanged sentences

10,266  

20,546  

Other non-operating revenue

2 unchanged sentences

229,831  

530,789  

Interest expense

8 unchanged sentences

$ 107,594  

Income before income taxes

$ 148,410  

$ 8,208  

$ 156,618  

Income tax expense

$ ( 26,670 )  

$ ( 1,998 )  

$ 1,400,701  

$ 82,243  

$ 1,482,944  

Three Months Ended September 30, 2020

Credit and Other Investments

Consumer loans, including past due fees

$ 95,684  

$ 7,959  

$ 103,643  

Fees and related income on earning assets

35,471  

35,488  

Other revenue

Other non-operating revenue

Total revenue

136,221  

144,488  

Interest expense

( 12,438 )  

( 240 )  

Provision for losses on loans, interest and fees receivable recorded at net realizable value

( 16,713 )  

( 315 )  

Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value

Income (loss) before income taxes

$ 43,598  

1 unchanged sentence

$ 37,634  

Income tax benefit

$ 5,518  

Income before income taxes

$ 1,603  

1 unchanged sentence

$ 1,835,155  

Income tax expense

$ 86,482  

$ 1,921,637  

Nine Months Ended September 30, 2020

Credit and Other Investments

Three Months Ended March 31, 2021

Consumer loans, including past due fees

6 unchanged sentences

Other revenue

10,358  

Other non-operating revenue

2 unchanged sentences

144,735  

420,742  

Interest expense

22 unchanged sentences

November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove Ventures, LLC, a Nevada limited liability company (“Dove”).

The agreement provided for a senior secured term loan facility in an amount of up to $ 40.0 million at any time outstanding. On December 27, 2019, the Company issued 400,000 shares ( 10,000,000 shares authorized, 400,000 shares outstanding) of its Series A Preferred Stock with an aggregate initial liquidation preference of $ 40.0 million, in exchange for full satisfaction of the $ 40.0 million that the Company owed Dove under the Loan and Security Agreement.

Dividends on the preferred stock are 

6 % per annum (cumulative, non-compounding) and are payable as declared, and in preference to any common stock dividends, in cash.

The agreement provided for a senior secured term loan facility in an amount of up to $ 40.0 million at any time outstanding.

On December 27, 2019, the Company issued 400,000 shares of its Series A Preferred Stock with an aggregate initial liquidation preference of $ 40.0 million, in exchange for full satisfaction of the $ 40.0 million that the Company owed Dove under the Loan and Security Agreement.

Dividends on the preferred stock are 6 % per annum (cumulative, noncompounding) and are payable as declared, and in preference to any common stock dividends, in cash.

The Series A Preferred Stock is perpetual and has no maturity date.

The Company may, at its option, redeem the shares of Series A Preferred Stock on or after January 1, 2025 at a redemption price equal to $ 100 per share, plus any accumulated and unpaid dividends.

At the request of holders of a majority of the shares of Series A Preferred Stock, the Company shall offer to redeem all of the Series A Preferred Stock at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends, at the option of the holders thereof, on or after January 1, 2024. 

Upon the election by the holders of a majority of the shares of Series A Preferred Stock, each share of the Series A Preferred Stock is convertible into the number of shares of the Company’s common stock as is determined by dividing (i) the sum of (a) $100 and (b) any accumulated and unpaid dividends on such share by (ii) an initial conversion price equal to $ 10 per share, subject to certain adjustment in certain circumstances to prevent dilution.

Given the redemption rights contained within the Series A Preferred Stock, we account for the outstanding preferred stock as temporary equity in the consolidated balance sheets. Dividends paid on the Series A Preferred Stock are deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders.

Given the redemption rights contained within the Series A Preferred Stock, we account for the outstanding preferred stock as temporary equity in the consolidated balance sheets.

Dividends paid on the Series A Preferred Stock are deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders.

The common stock issuable upon conversion of Series A Preferred Stock is included in our calculation of Net income attributable to common shareholders per share—diluted.

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Hanna, III and members of his immediate family are the beneficiaries of these other two trusts.

During the three and nine months ended September 30, 2021 , we repurchased and contemporaneously retired 109,312 and 127,987 shares of our common stock at an aggregate cost of $ 5,193,000  and $ 5,794,000 , respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations. During the three and nine months ended September 30, 2020, we repurchased and contemporaneously retired 48,275 and 133,998 shares of our common stock at an aggregate cost of $ 492,000  and $ 1,163,000 , respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations.

We had 1,459,233 loaned shares outstanding at 

December 31, 2020 , which were originally lent in connection with our November 2005 issuance of convertible senior notes.

As of September 30, 2021, all loaned shares had been returned to us and are included as Treasury stock on our consolidated balance sheets. 

November 14, 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $ 1.00 per unit to an unrelated third party.

During the three months ended March 31, 2022 

and 2021, we repurchased and contemporaneously retired 1,005,212 and 9,928 shares of our common stock at an aggregate cost of $ 65,214,000 and $ 297,000 , respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations.

On November 14, 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $ 1.00 per unit to an unrelated third party.

The units carry a 16 % preferred return to be paid quarterly, with up to 6 percentage points of the preferred return to be paid through the issuance of additional units or cash, at our election.

The units have both call and put rights and are also subject to various covenants including a minimum book value, which if not satisfied, could allow for the securities to be put back to the subsidiary.

On March 30, 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms.

In March 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms.

The proceeds from the transaction are being used for general corporate purposes.

We have included the issuance of these Class B preferred units as temporary noncontrolling interest on the consolidated balance sheets.

Dividends paid on the Class B preferred units are deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders. See Note 12,  “Net Income Attributable to Controlling Interests Per Common Share”

Dividends paid on the Class B preferred units are deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders.

See Note 11, “Net Income Attributable to Controlling Interests Per Common Share”

for more information.

On June 8, 2021, we issued an aggregate of 2.8 million shares of 7.625 % Series B Cumulative Perpetual Preferred Stock, no par value with a liquidation preference of $ 25.00 per share (the “Series B Cumulative Perpetual Preferred Stock”), in a public offering at a price to the public of $ 25.00 per share.

The Company also granted the Underwriters an option to purchase additional shares of Series B Cumulative Perpetual Preferred Stock during the 30 days following the date of the Underwriting Agreement. The Company raised gross proceeds of $ 70.0 million before deducting underwriting discounts, the structuring fee and other offering expenses.

On July 8, 2021, the Company issued an additional 

388,533 shares of the Company's Series B Cumulative Perpetual Preferred Stock, pursuant to the exercise of the underwriters’

option to purchase additional shares. 

Upon the closing of the second issuance, the Company raised additional gross proceeds of $ 9.7 million before deducting underwriting discounts, the structuring fee and other offering expenses.

The Series B Cumulative Perpetual Preferred Stock may be redeemed at our election (after 5 years) in whole or from time to time in part, by paying $ 25.00 per share, plus any accumulated and unpaid dividends.

Dividends on the Series B Cumulative Perpetual Preferred Stock will be payable quarterly and are deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders.

In June and July 2021, we issued an aggregate of 3,188,533 shares of 7.625 % Series B Cumulative Perpetual Preferred Stock, liquidation preference of $ 25.00 per share (the “Series B Preferred Stock”) for net proceeds of approximately $ 76.5 million after deducting underwriting discounts and commissions, but before deducting expenses and the structuring fee.

We pay cumulative cash dividends on the Series B Preferred Stock, when and as declared by our Board of Directors, in the amount of $ 1.90625 per share each year, which is equivalent to 7.625% of the $ 25.00 liquidation preference per share.

Investment in Equity-Method Investee

Our equity-method investment outstanding at December 31, 2020 consisted of our 66.7 % interest in a joint venture formed to purchase a credit card receivable portfolio.

Our former equity-method investment consisted of our 66.7 % interest in a joint venture formed to purchase a credit card receivable portfolio.

On September 30, 2021, we acquired the outstanding noncontrolling interest.

In the following tables, we summarize (in thousands) balance sheet and results of operations data for this equity-method investee:

September 30, 2021

December 31, 2020  

Loans, interest and fees receivables, at fair value

$ 1,994  

$ 2,105  

Total liabilities

Members’

$ 2,095  

Three Months Ended September 30,

Nine Months Ended September 30,

In the following table, we summarize (in thousands) results of operations data for our former equity-method investee:

Three Months Ended March 31,

Net income attributable to our equity investment investee

Fair Values of Assets and Liabilities

As previously discussed, as of January 1, 2020, we elected the fair value option to account for certain loans receivable associated with our point-of-sale and direct-to-consumer platform that are acquired on or after January 1, 2020.

We estimate the fair value of these receivables using a discounted cash flow model, and reevaluate the fair value of our Fair Value Receivables at the end of each quarter.

Additionally, we may adjust our models to reflect macro events that we believe market participants would consider relevant.

With the aforementioned market impacts of COVID- 19 and related economic impacts, we included expected market degradation in our model to reflect the possibility of delinquency rates increasing in the near term (and the corresponding increase in chargeoffs and decrease in payments) above the level that historical trends would suggest. 

We previously elected the fair value option with respect to our credit card loans, interest and fees receivable portfolios, the retained interests in which we historically recorded at fair value under securitization structures that were off balance sheet prior to accounting rules changes requiring their consolidation into our financial statements.

Fair value differs from amortized cost accounting in various ways.

Under the fair value option credit losses are recognized through income as they are incurred rather than through the establishment of an allowance and provision for losses.

We update our fair value analysis each quarter, with changes since the prior reporting period reflected as a component of "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value" in the consolidated statements of operations.

Changes in interest rates, credit spreads, realized and projected credit losses and cash flow timing will lead to changes in the fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value and therefore impact earnings. 

As previously discussed, we adopted ASU 2016 - 13, electing the fair value option for all remaining loans receivable associated with our private label credit and general purpose credit card platform previously measured at amortized cost. We estimate the fair value of these receivables using a discounted cash flow model, and reevaluate the fair value of our Fair Value Receivables at the end of each quarter.

Additionally, we may adjust our models to reflect macroeconomic events.

With the aforementioned market impacts of COVID- 19 and related economic impacts, we continue to include expected market degradation in our model to reflect the possibility of delinquency rates increasing in the near term (and the corresponding increase in charge-offs and decrease in payments) above the level that historical trends would suggest.

Fair value differs from amortized cost accounting in the following ways:

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Changes in the fair value of loans and notes impact recorded revenues;

Net charge-offs are recognized as they occur.

For all of our other receivables and debt (other than the notes payable underlying our formerly off-balance sheet credit card securitization structures), we have not elected the fair value option.

Nevertheless, pursuant to applicable requirements, we include disclosures of the fair value of these other items to the extent practicable within the disclosures below.

Net charge-offs are recognized as they occur rather than through the establishment of an allowance and provision for losses.

For all of our other receivables and debt (other than the notes payable underlying our formerly off-balance sheet credit card securitization structures), we have not elected the fair value option.

Nevertheless, pursuant to applicable requirements, we include disclosures of the fair value of these other items to the extent practicable within the disclosures below.

Additionally, we have other liabilities, associated with consolidated legacy credit card securitization trusts, that we are required to carry at fair value in our consolidated financial statements, and they also are addressed within the disclosures below.

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The table below summarizes (in thousands) by fair value hierarchy the 

September 30, 2021 and 

March 31, 2022 and 

December 31, 2021 fair values and carrying amounts of ( 1 ) our assets that are required to be carried at fair value in our consolidated financial statements and ( 2 ) our assets not carried at fair value, but for which fair value disclosures are required:

Assets –

As of September 30, 2021 (1)

As of March 31, 2022 (1)

Quoted Prices in Active Markets for Identical Assets (Level 1)

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For cash, deposits and investments in equity securities, the carrying amount is a reasonable estimate of fair value.

For those asset classes above that are required to be carried at fair value in our consolidated financial statements, gains and losses associated with fair value changes are detailed on our consolidated statements of operations as a component of "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value". For our loans, interest and fees receivable included in the above tables, we assess the fair value of these assets based on our estimate of future cash flows net of servicing costs, and to the extent that such cash flow estimates change from period to period, any such changes are considered to be attributable to changes in instrument-specific credit risk.

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the nine months ended September 30, 2021  and 2020 :

For our loans, interest and fees receivable included in the above tables, we assess the fair value of these assets based on our estimate of future cash flows net of servicing costs, and to the extent that such cash flow estimates change from period to period, any such changes are considered to be attributable to changes in instrument-specific credit risk.

Loans, Interest and Fees Receivables, at Fair Value

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$ 417,098  

Cumulative effects from adoption of fair value under the CECL standard

314,985  

Net revaluations of loans, interest and fees receivable, at fair value, included in earnings

( 3,372 )  

Chargeoffs, net of recoveries, included in earnings

Principal charge-offs, net of recoveries, included in earnings

( 68,797 )  

Finance charge-offs, included in earnings

( 32,511 )  

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250,469  

( 563,104 )  

Finance and fees, included in earnings

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52,551  

Balance at September 30,

Balance at March 31,

$ 1,405,765  

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The unrealized gains and losses for assets within the Level 3 category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs.

Impacts related to foreign currency translation are included as a component of other operating expense on the consolidated statements of operations when recognized.

Net Revaluation of Loans, Interest and Fees Receivable.

We record the net revaluation of loans, interest and fees receivable (including those pledged as collateral) in the Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value category in our consolidated statements of operations.

We record the net revaluation of loans, interest and fees receivable (including those pledged as collateral) in the Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value category in our consolidated statements of income.

The net revaluation of loans, interest and fees receivable is based on the present value of future cash flows using a valuation model of expected cash flows and the estimated cost to service and collect those cash flows.

We estimate the present value of these future cash flows using a valuation model consisting of internally-developed estimates of assumptions third -party market participants would use in determining fair value, including estimates of net collected yield, principal payment rates, expected principal credit loss rates, costs of funds, discount rates and servicing costs.

Interest income on receivables underlying our asset classes that are carried at fair value in our consolidated financial statements is recorded in Revenue - Consumer loans, including past due fees in our consolidated statements of operations.

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of September 30, 2021 and 

December 31, 2020 :

and December 31, 2021:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurement

Fair Value at September 30, 2021 (in thousands)  

Fair Value at March 31, 2022 (in thousands)  

Valuation Technique

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Valuations and Techniques for Liabilities

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the liability.

The table below summarizes (in thousands) by fair value hierarchy the September 30, 2021 and 

December 31, 2020 fair values and carrying amounts of ( 1 ) our liabilities that are required to be carried at fair value in our consolidated financial statements and ( 2 ) our liabilities not carried at fair value, but for which fair value disclosures are required:

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the liability.

The table below summarizes (in thousands) by fair value hierarchy the March 31, 2022 

and December 31, 2021 

fair values and carrying amounts of ( 1 ) our liabilities that are required to be carried at fair value in our consolidated financial statements and ( 2 ) our liabilities not carried at fair value, but for which fair value disclosures are required:

Liabilities –

As of September 30, 2021

As of March 31, 2022

Quoted Prices in Active Markets for Identical Assets (Level 1)

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$ 23,308  

Convertible senior notes

Liabilities carried at fair value

Notes payable associated with structured financings, at fair value

Senior notes, net

$ 148,200  

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$ 23,346  

Convertible senior notes

$ 41,284  

$ 24,386  

Liabilities carried at fair value

Notes payable associated with structured financings, at fair value

Senior notes, net

$ 153,000  

$ 142,951  

For our notes payable, we assess the fair value of these liabilities based on our estimate of future cash flows generated from their underlying credit card receivables collateral, net of servicing compensation required under the note facilities, and to the extent that such cash flow estimates change from period to period, any such changes are considered to be attributable to changes in instrument-specific credit risk.

Gains and losses associated with fair value changes for our notes payable associated with structured financing liabilities that are carried at fair value are detailed on our consolidated statements of operations as a component of "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value". For our convertible senior notes, we assess fair value based upon the most recent trade data available from third -party providers.

We have evaluated the fair value of our third party debt by analyzing the expected repayment terms and credit spreads included in our recent financing arrangements obtained with similar terms.

These recent financing arrangements provide positive evidence that the underlying data used in our assessment of fair value has not changed relative to the general market and therefore the fair value of our debt continues to be the same as the carrying value.

For our notes payable where market prices are not available, we assess the fair value of these liabilities based on our estimate of future cash flows generated from their underlying credit card receivables collateral, net of servicing compensation required under the note facilities, and to the extent that such cash flow estimates change from period to period, any such changes are considered to be attributable to changes in instrument-specific credit risk.

Gains and losses associated with fair value changes for our notes payable associated with structured financing liabilities that are carried at fair value are detailed on our consolidated statements of income as a component of "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value". We have evaluated the fair value of our third party debt by analyzing the expected repayment terms and credit spreads included in our recent financing arrangements obtained with similar terms.

See Note 9, “Notes Payable,”

for further discussion on our other notes payable.

For our material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the nine months ended September 30, 2021 and 2020 .

Notes Payable Associated with Structured Financings, at Fair Value  

For our material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the three months ended March 31, 2021 ( no amounts were outstanding as of March 31, 2022):

Notes Payable Associated with Structured Financings, at Fair Value

Balance at January 1,

$ 2,919  

$ 3,920  

Net revaluations of notes payable associated with structured financings, at fair value, included in earnings

(698 )  

Repayments on outstanding notes payable, net

Balance at September 30,

$ 2,221  

Balance at March 31,

$ 2,791  

The unrealized gains and losses for liabilities within the Level 3 category presented in the table above include changes in fair value that are attributable to both observable and unobservable inputs.

The unrealized gains and losses for liabilities within the Level 3 category presented in the table above include changes in fair value that are attributable to both observable and unobservable inputs.

We provide below a brief description of the valuation techniques used for Level 3 liabilities.

Net Revaluation of Notes Payable Associated with Structured Financings, at Fair Value.

We record the net revaluations of notes payable associated with structured financings, at fair value, in the Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value on our consolidated statements of operations.

The legal entity associated with the securitization transaction is consolidated as a VIE as the Company is deemed the primary beneficiary of the entity.

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and contractual servicing fees.

Accrued interest expense on notes payable underlying our notes payable associated with structured financings, at fair value is recorded in Interest expense in our consolidated statements of operations.

For material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of September 30, 2021 and 

December 31, 2020 :

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurement

Fair Value at September 30, 2021 (in thousands)  

Valuation Technique

Unobservable Input

Weighted Average

Notes payable associated with structured financings, at fair value

$ 2,221  

Discounted cash flows

Gross yield, net of finance charge charge-offs

Expected principal credit loss rate

Discount rate

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurement

Fair Value at December 31, 2020 (in thousands)  

Valuation Technique

Unobservable Input

Weighted Average

Notes payable associated with structured financings, at fair value

$ 2,919  

Discounted cash flows

Gross yield, net of finance charge charge-offs

Expected principal credit loss rate

Discount rate

Accrued interest expense on notes payable underlying our notes payable associated with structured financings, at fair value is recorded in Interest expense in our consolidated statements of income.

Other Relevant Data

Other relevant data (in thousands) as of September 30, 2021 and 

Other relevant data (in thousands) as of March 31, 2022 and 

December 31, 2021 concerning certain assets and liabilities we carry at fair value are as follows:

As of September 30, 2021

As of March 31, 2022

Loans, Interest and Fees Receivable at Fair Value  

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$ 1,249  

$ 1,234,039  

Aggregate unpaid principal balance included within loans, interest and fees receivable that are reported at fair value

$ 1,204  

$ 1,131,895  

Aggregate fair value of loans, interest and fees receivable that are reported at fair value

$ 1,215  

$ 1,025,209  

Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)

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$ 59,656  

Notes Payable

Notes Payable Associated with Structured Financings, at Fair Value as of September 30, 2021

Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2020

Aggregate unpaid principal balance of notes payable

$ 101,314  

Aggregate fair value of notes payable

$ 2,221  

$ 2,919  

Variable Interest Entities

The Company contributes certain receivables to VIEs.

These entities are sometimes established to facilitate third party financing.

When assets are contributed to a VIE, they serve as collateral for the debt securities issued by that VIE.

The evaluation of whether the entity qualifies as a VIE is based upon the sufficiency of the equity at risk in the legal entity.

This evaluation is generally a function of the level of excess collateral in the legal entity.

We consolidate VIEs when we hold a variable interest and are the primary beneficiary.

We are the primary beneficiary when we have the power to direct activities that most significantly affect the economic performance and have the obligation to absorb the majority of the losses or benefits.

In certain circumstances we guarantee the performance of the underlying debt or agree to contribute additional collateral when necessary.

When collateral is pledged it is not available for the general use of the Company and can only be used to satisfy the related debt obligation.

The results of operations and financial position of consolidated VIEs are included in our consolidated financial statements.

The following table presents a summary of VIEs in which we had continuing involvement or held a variable interest (in millions):

September 30, 2021

March 31, 2022

December 31, 2021

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Loans, interest and fees receivable, at fair value

1,293.2  

Loans, interest and fees receivable, gross

Allowances for uncollectible loans, interest and fees receivable

( 76.8 )  

Deferred revenue

( 7.4 )  

Total Assets held by VIEs

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$ 1,223.4  

Notes Payable, at fair value held by VIEs

Maximum exposure to loss due to involvement with VIEs

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We have operating leases primarily associated with our corporate offices and regional service centers as well as for certain equipment.

Our leases have remaining lease terms of 1 to 5  years, some of which include options, at our discretion, to extend the leases for additional periods generally on one -year revolving periods.

Our leases have remaining lease terms of 1 to 6 years, some of which include options, at our discretion, to extend the leases for additional periods generally on one -year revolving periods.

Other leases allow for us to terminate the lease based on appropriate notification periods.

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The terms of the sublease arrangement generally coincide with the underlying lease.

The components of lease expense associated with our lease liabilities and supplemental cash flow information related to those leases were as follows (dollars in thousands):

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

The components of lease expense associated with our lease liabilities and supplemental cash flow information related to those leases were as follows (dollar amounts in thousands):

For the Three Months Ended March 31,

Operating lease cost, gross

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$ 1,726  

$ 5,187  

$ 5,155  

Sublease income

( 1,302 )  

( 1,334 )  

( 3,876 )  

Net Operating lease cost

$ 1,311  

$ 1,254  

Cash paid under operating leases, gross

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$ 2,584  

$ 7,837  

$ 7,689  

Weighted average remaining lease term - months

Weighted average discount rate

As of September 30, 2021 , maturities of lease liabilities were as follows (in thousands):

As of March 31, 2022 , maturities of lease liabilities were as follows (in thousands):

Gross Lease Payment

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Net Lease Payment

2021 (excluding the nine months ended September 30, 2021)

$ 2,633  

2022 (excluding the three months ended March 31, 2022)

$ 2,151  

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$ 2,457  

August 2021, we entered into an operating lease agreement for our corporate headquarters in Atlanta, Georgia with an unaffiliated third party.

The new lease covers approximately 73,000 square feet and commences in June 2022 for a 146 month term.

The total commitment under the new lease is approximately $ 27.8 million and is not included in the table above.

A right-of-use asset and liability will be recorded at the commencement date of the lease.

In addition, we occasionally lease certain equipment under cancelable and non-cancelable leases, which are accounted for as capital leases in our consolidated financial statements.

As of September 30, 2021 , we had no material non-cancelable capital leases with initial or remaining terms of more than one year.

In August 2021, we entered into an operating lease agreement for our corporate headquarters in Atlanta, Georgia with an unaffiliated third party. 

The new lease covers approximately 73,000 square feet and commences in June 2022 for a 146  month term. The total commitment under the new lease is approximately $ 27.8 million and is not included in the table above.

A right-of-use asset and liability will be recorded at the commencement date of the lease. 

As of March 31, 2022 , we had no material non-cancelable capital leases with initial or remaining terms of more than one year.

Notes Payable

Notes Payable, at Face Value

Other notes payable outstanding as of September 30, 2021 and 

Other notes payable outstanding as of March 31, 2022 and 

December 31, 2021 that are secured by the financial and operating assets of either the borrower, another of our subsidiaries or both, include the following, scheduled (in millions);

except as otherwise noted, the assets of our holding company (Atlanticus Holdings Corporation) are subject to creditor claims under these scheduled facilities:

September 30, 2021

March 31, 2022

December 31, 2021

Revolving credit facilities at a weighted average interest rate equal to 4.5% as of September 30, 2021 ( 4.8% as of December 31, 2020) secured by the financial and operating assets of CAR and/or certain receivables and restricted cash with a combined aggregate carrying amount of $ 1,194.1 million as of September 30, 2021 ($ 943.6 million as of December 31, 2020)

Revolving credit facilities at a weighted average interest rate equal to 4.3 % as of March 31, 2022 ( 4.3 % as of December 31, 2021) secured by the financial and operating assets of CAR and/or certain receivables and restricted cash with a combined aggregate carrying amount of $ 1,392.2 million as of March 31, 2022 ($ 1,391.6 million as of December 31, 2021)

Revolving credit facility, not to exceed $ 55.0 million (expiring November 1, 2024 ) (1) (2) (3)

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Revolving credit facility, not to exceed $ 50.0 million (expiring October 30, 2023 ) (2) (3) (4) (5)

Revolving credit facility, not to exceed $ 70.0 million (repaid in May 2021 ) (2) (3) (4) (5) (6)

Revolving credit facility, not to exceed $ 100.0 million (expiring October 15, 2022 ) (2) (3) (4) (5) (6)

Revolving credit facility, not to exceed $ 15.0 million (expiring July 15, 2022 ) (2) (3) (4) (5)

Revolving credit facility, not to exceed $ 100.0 million (expiring August 15, 2022 ) (2) (3) (4) (5) (6)

Revolving credit facility, not to exceed $ 200.0 million (repaid in June 2021 ) (3) (4) (5) (6)

Revolving credit facility, not to exceed $ 100.0 million (expiring March 15, 2024 ) (2) (3) (4) (5) (6)

Revolving credit facility, not to exceed $ 200.0 million (expiring May 15, 2024 ) (3) (4) (5) (6)

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Revolving credit facility, not to exceed $ 75.0 million (expiring March 15, 2025 ) (3) (4) (5) (6)

Revolving credit facility, not to exceed $ 300.0 million (expiring May 15, 2026 ) (3) (4) (5) (6)

Other facilities

Unsecured term debt (expiring August 26, 2024 ) with a weighted average interest rate equal to 8.0 % (3)

Amortizing debt facility (repaid in September 2021 ) (2) (3) (4) (5)

Total notes payable before unamortized debt issuance costs and discounts

1,278.7  

1,289.0  

Unamortized debt issuance costs and discounts

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Creditors do not have recourse against the general assets of the Company but only to the collateral within the VIEs.

* As of September 30, 2021 , the LIBOR rate was 0.08 % and the prime rate was 3.25 %.

October 2015, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $ 50.0 million revolving borrowing limit that can be drawn to the extent of outstanding eligible principal receivables (of which $ 28.7  million was drawn as of September 30, 2021).

This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to LIBOR plus 3.0 %.

The facility matures on October 30, 2023 

and is subject to certain affirmative covenants, including a liquidity test and an eligibility test, the failure of which could result in required early repayment of all or a portion of the outstanding balance.

The facility is guaranteed by Atlanticus, which is required to maintain certain minimum liquidity levels.

October 2016, we (through a wholly owned subsidiary) entered a revolving credit facility with an initial $ 40.0 million borrowing limit available to the extent of outstanding eligible principal receivables of our CAR subsidiary (of which $ 33.4 million was drawn as of September 30, 2021).

* As of March 31, 2022 , the LIBOR rate was 0.45 % and the prime rate was 3.50 %.

This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to LIBOR plus 3.0 %.

The facility matures on October 30, 2023 and is subject to certain affirmative covenants, including a liquidity test and an eligibility test, the failure of which could result in required early repayment of all or a portion of the outstanding balance.

The facility is guaranteed by Atlanticus, which is required to maintain certain minimum liquidity levels.

October 2016, we (through a wholly owned subsidiary) entered a revolving credit facility available to the extent of outstanding eligible principal receivables of our CAR subsidiary (of which $ 38.9  million was drawn as of March 31, 2022).

This facility is secured by the financial and operating assets of CAR and accrues interest at an annual rate equal to LIBOR plus a range between 2.4 % and 3.0 % based on certain ratios.

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In periods subsequent to October 2016, we amended the original agreement to either extend the maturity date and/or expand the capacity of this revolving credit facility.

As of September 30, 2021, the borrowing limit was $ 55.0  million and the facility matures on November 1, 2023.

As of March 31, 2022, the borrowing limit was $ 55.0 million and the maturity is November 1, 2024.

There were no other material changes to the existing terms or conditions as a result of these amendments and the new maturity date and borrowing limit are reflected in the table above.

February 2017, we (through a wholly owned subsidiary) established a program under which we sell certain receivables to a consolidated trust in exchange for notes issued by the trust.

The notes were secured by the receivables and other assets of the trust.

Simultaneously with the establishment of the program, the trust issued a series of variable funding notes and sold an aggregate amount of up to $ 90.0 million (subsequently reduced to $ 70.0 million) of such notes to an unaffiliated third party.

The facility was repaid in May 2021.

In connection with the repayment, we removed an accrual of $ 1.5 million associated with a contingent liability incurred with the issuance of the notes. Removal of the contingent liability was recorded as a component of Other non-operating revenue on our consolidated statements of operations.

2018, we (through a wholly owned subsidiary) entered into two separate facilities associated with the above mentioned program to sell up to an aggregate $ 200.0 million of notes which are secured by the receivables and other assets of the trust (of which $ 35.0  million was outstanding as of September 30, 2021) to separate unaffiliated third parties pursuant to facilities that can be drawn upon to the extent of outstanding eligible receivables.

Interest rates on the notes are based on commercial paper rates plus 3.15 % and LIBOR plus a range between 4.5 % and 6.5 %, respectively.

The facilities mature on October 15, 2022 

and August 15, 2022, respectively, and are subject to certain affirmative covenants and collateral performance tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance of notes. 

In December 2017, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $ 25.0 million revolving borrowing limit that is available to the extent of outstanding eligible principal receivables (of which $ 23.8 million was drawn as of September 30, 2021).

This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to LIBOR plus 3.5 %. The facility matures on April 21, 2023 

and is subject to certain affirmative covenants, including payment, delinquency and charge-off tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance.

In 2018, we (through a wholly owned subsidiary) entered into two separate facilities associated with the above mentioned program to sell up to an aggregate $ 200.0  million of notes which are secured by the receivables and other assets of the trust (of which $ 0.0 million was outstanding as of March 

31, 2022 ) to separate unaffiliated third parties pursuant to facilities that can be drawn upon to the extent of outstanding eligible receivables.

Interest rates on the notes are based on commercial paper rates plus 3.15 % and Secured Overnight Financing Rate ("SOFR") plus a range between 4.5 % and 6.5 %, respectively.

The facilities mature on October 15, 2022 and March 15, 2024, respectively, and are subject to certain affirmative covenants and collateral performance tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance of notes.

This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to LIBOR plus 3.5 %.

The facility matures on April 21, 2023 and is subject to certain affirmative covenants, including payment, delinquency and charge-off tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance.

The note is guaranteed by Atlanticus.

In June 2019, we (through a wholly owned subsidiary) entered a revolving credit facility with a $ 15.0 million revolving borrowing limit that is available to the extent of outstanding eligible principal receivables (of which $ 5.1 million was drawn as of September 30, 2021).

This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to the prime rate.

The note is guaranteed by Atlanticus.

In June 2019, we sold $ 200.0 million of ABS secured by certain credit card receivables (expiring December 15, 2022). 

The facility was repaid in June 2021.

In August 2019, we repurchased $ 54.4 million in face amount of our outstanding convertible senior notes for $ 16.3 million in cash (including accrued interest) and the issuance of a $ 17.4 million term note, which bears interest at a fixed rate of 8.0 % and is due in August 2024.

See Note 10,  "Convertible Senior Notes" for additional information.

In September 2019, we (through a wholly owned subsidiary) entered a term facility with a $ 30.0 million revolving borrowing limit. 

The facility was repaid in September 2021. 

In August 2019, we issued a $ 17.4 million term note, which bears interest at a fixed rate of 8.0 % and is due in August 2024.

In November 2019, we sold $ 200.0 million of ABS secured by certain credit card receivables (expiring May 15, 2024).

A portion of the proceeds from the sale was used to pay-down our existing facilities associated with our credit card receivables and the remaining proceeds were available to fund the acquisition of future receivables.

The terms of the ABS allow for a three -year revolving structure with a subsequent 12 -month to 18 -month amortization period. The weighted average interest rate on the securities is fixed at 4.91 %.

In July 2020, we sold $ 100.0 million of ABS secured by certain retail point-of-sale receivables.

A portion of the proceeds from the sale were used to pay-down some of our existing revolving facilities associated with our point-of-sale receivables, and the remaining proceeds were used to fund the acquisition of receivables.

A portion of the proceeds from the sale was used to pay-down our existing facilities associated with our credit card receivables and the remaining proceeds were used to fund the acquisition of future receivables.

The terms of the ABS allow for a three -year revolving structure with a subsequent 12 -month to 18 -month amortization period.

The weighted average interest rate on the securities is fixed at 4.91 %.

In July 2020, we sold $ 100.0 million of ABS secured by certain private label credit receivables.

A portion of the proceeds from the sale were used to pay-down some of our existing revolving facilities associated with our private label credit receivables, and the remaining proceeds were used to fund the acquisition of receivables.

The terms of the ABS allow for a three -year revolving structure with a subsequent 18 -month amortization period.

The weighted average interest rate on the securities is fixed at 5.47 %.

In October 2020, we sold $ 250.0 million of ABS secured by certain retail point-of-sale receivables.

A portion of the proceeds from the sale were used to pay-down our existing term ABS associated with our point-of-sale receivables, noted above, and the remaining proceeds have been invested in the acquisition of receivables.

October 2020, we sold $ 250.0 million of ABS secured by certain private label credit receivables.

A portion of the proceeds from the sale were used to paydown our existing term ABS associated with our private label credit receivables, noted above, and the remaining proceeds have been invested in the acquisition of receivables.

The terms of the ABS allow for a 41 -month revolving structure with an 18 -month amortization period and the securities mature between August 2025 and October 2025.

The weighted average interest rate on the securities is fixed at 4.1 %.

In January 

2021, we (through a wholly owned subsidiary) entered a term facility with a $ 15.0 million revolving borrowing limit (of which $ 10.0 million was drawn as of September 30, 2021) that is available to the extent of outstanding eligible principal receivables.

In January 2021, we (through a wholly owned subsidiary) entered a revolving credit facility with a $ 15.0 million borrowing limit (of which $ 10.0 million was drawn as of March 31, 2022) that is available to the extent of outstanding eligible principal receivables.

This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to the greater of the prime rate or 4 %.

The facility matures on February 15, 2024 

The facility matures on February 15, 2024 and is subject to certain affirmative covenants, including a liquidity test and an eligibility test, the failure of which could result in required early repayment of all or a portion of the outstanding balance.

The note is guaranteed by Atlanticus, which is required to maintain certain minimum liquidity levels.

In June 2021, we sold $ 300.0 million of ABS secured by certain credit card receivables (expiring May 15, 2026 through December 15, 2026).

The terms of the ABS allow for a four -year revolving structure with a subsequent 11 -month to 18 -month amortization period. The weighted average interest rate on the securities is fixed at 4.24 %.

In September 2021, we entered a term facility with a $ 75 million limit (of which $ 0 was drawn as of September 30, 2021) 

that is available to the extent of outstanding eligible principal receivables.

This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to 2.75 %. 

The terms of the facility allow for a 24  month revolving structure with an 18 -month amortization period and the security matures March 2025. 

As of September 30, 2021 , we were in compliance with the covenants underlying our various notes payable.

Notes Payable Associated with Structured Financings, at Fair Value

Scheduled (in millions) in the table below are ( 1 ) the carrying amount of our structured financing note secured by certain credit card receivables and reported at fair value as of September 30,  

2021 and 

December 31, 2020 , ( 2 ) the outstanding face amount of our structured financing note secured by certain credit card receivables and reported at fair value as of September 30, 2021 and 

December 31, 2020 , and ( 3 ) the carrying amount of the credit card receivables and restricted cash that provide the exclusive means of repayment for the note (i.e., lenders have recourse only to the specific credit card receivables and restricted cash underlying each respective facility and cannot look to our general credit for repayment) as of September 30, 2021 and 

December 31, 2020 .

Carrying Amounts at Fair Value as of

September 30, 2021

December 31, 2020

Securitization facility (stated maturity of December 2021 ), outstanding face amount of $101.3 million as of September 30, 2021 ($ 101.3 million as of December 31, 2020) bearing interest at a weighted average 5.6 % interest rate, based upon LIBOR, at September 30, 2021 (5.7 % at December 31, 2020), which is secured by credit card receivables and restricted cash aggregating $ 2.2 million as of September 30, 2021 ($ 2.9 million as of December 31, 2020) in carrying amount

Contractual payment allocations within this credit card receivables structured financing provide for a priority distribution of cash flows to us to service the credit card receivables, a distribution of cash flows to pay interest and principal due on the notes, and a distribution of all excess cash flows (if any) to us.

The structured financing facility included in the above table is amortizing down along with collections of the underlying receivables and there are no provisions within the debt agreement that allow for acceleration or bullet repayment of the facility prior to its scheduled expiration date.

The aggregate carrying amount of the credit card receivables and restricted cash that provide security for the $ 2.2  million in fair value of the structured financing facility indicated in the above table is $ 2.2  million, which means that we have no aggregate exposure to pre-tax equity loss associated with the above structured financing arrangement at September 30, 2021 .

As discussed elsewhere, the legal entity holding the securitization facility discussed in the table above, is a VIE. Beyond our role as servicer of the underlying assets within the credit cards receivables structured financing, we have provided no other financial or other support to the structure, and we have no explicit or implicit arrangements that could require us to provide financial support to the structure.

Convertible Senior Notes

In November 

2005, we issued $ 300.0 million aggregate principal amount of convertible senior notes.

These notes (net of repurchases since the issuance date) are reflected within convertible senior notes on our consolidated balance sheets. 

In the three and nine months ended September 30, 2021, we repurchased $ 0.9  million and $ 22.1 million, respectively, in face amount of our outstanding convertible senior notes for $ 1.6 million and $ 30.4  million, respectively, in cash (including accrued interest). The repurchase resulted in a loss of approximately $ 0.9 million and $ 14.1  million, respectively (including the convertible senior notes’

applicable share of deferred costs, which were written off in connection with the repurchase).

Upon acquisition, the notes were retired.

On June 17, 2021, we provided notice of redemption of all outstanding convertible senior notes.

Upon the redemption notice, holders were allowed to convert the convertible senior notes in lieu of the redemption consideration. At the expiration of the conversion option, holders with $ 11.8 million in principal amount of the convertible senior notes had elected to convert.

Upon final determination of the conversion consideration amount, we delivered to holders of the converting notes, cash of $1,000 per $ 1,000 aggregate principal amount of notes and $ 12.1 million of cash in respect of the remainder of the conversion obligation.

The redemption resulted in a loss of approximately $ 15.3 million (including the convertible senior notes’

applicable share of deferred costs, which were written off in connection with the repurchase).

Upon redemption, the notes were retired.

The following summarizes (in thousands) components of our consolidated balance sheets associated with our convertible senior notes:

September 30, 2021

December 31, 2020

Face amount of convertible senior notes

$ 33,839  

Net carrying value

$ 24,386  

Carrying amount of equity component included in paid-in capital

$ 108,714  

Excess of instruments’

if-converted values over face principal amounts

The terms of the ABS allow for a four -year revolving structure with a subsequent 11 -month to 18 -month amortization period.

The weighted average interest rate on the securities is fixed at 4.24 %.

In September 2021, we entered a term facility with a $ 75 million limit (of which $ 0 was drawn as of March 31, 2022) that is available to the extent of outstanding eligible principal receivables.

This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to 2.75 %.

The terms of the facility allow for a 24 -month revolving structure with an 18 -month amortization period and the facility matures in March 2025.

In November 2021, we sold $ 300.0 million of ABS secured by certain credit card receivables (expiring May 15, 2026).

The terms of the ABS allow for a three -year revolving structure with a subsequent 18 -month amortization period.

The weighted average interest rate on the securities is fixed at 3.53 %.

As of March 31, 2022, we were in compliance with the covenants underlying our various notes payable and credit facilities.

Senior Notes, net

In November 2021, we issued $ 150.0 million aggregate principal amount of senior notes (included on our consolidated balance sheet as "Senior notes, net").

The senior notes are general unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured and unsubordinated indebtedness, and will rank senior in right of payment to the Company’s future subordinated indebtedness, if any.

The senior notes are effectively subordinated to all of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, and the senior notes are structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries (excluding any amounts owed by such subsidiaries to the Company).

The senior notes bear interest at the rate of 6.125 % per annum.

Interest on the senior notes is payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year.

The senior notes will mature on November 30, 2026.

We are amortizing fees associated with the issuance of the senior notes into interest expense over the expected life of the notes.

Amortization of these fees for the three months ended March 31, 2022 

totaled $ 0.4  million.

Commitments and Contingencies

Under finance products available in the point-of-sale and direct-to-consumer channels, consumers have the ability to borrow up to the maximum credit limit assigned to each individual’s account. Unfunded commitments under these products aggregated $ 1.9 billion at September 30, 2021 .

We have never experienced a situation in which all borrowers have exercised their entire available lines of credit at any given point in time, nor do we anticipate this will ever occur in the future. Moreover, there would be a concurrent increase in assets should there be any exercise of these lines of credit. 

Additionally, our CAR operations provide floor-plan financing for a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here used car business. The floor plan financing allows dealers and finance companies to borrow up to the maximum pre-approved credit limit allowed in order to finance ongoing inventory needs. These loans are secured by the underlying auto inventory and, in certain cases where we have other lending products outstanding with the dealer, are secured by the collateral under those lending arrangements as well, including any outstanding dealer reserves.

As of September 30, 2021 , CAR had unfunded outstanding floor-plan financing commitments totaling $ 12.8  million. Each draw against unused commitments is reviewed for conformity to pre-established guidelines.

Under agreements with third -party originating and other financial institutions, we have pledged security (collateral) related to their issuance of consumer credit and purchases thereunder, of which $ 16.9  million remains pledged as of September 30, 2021 to support various ongoing contractual obligations. 

Under agreements with third -party originating and other financial institutions, we have agreed to indemnify the financial institutions for certain liabilities associated with the services we provide on behalf of the financial institutions—such indemnification obligations generally being limited to instances in which we either (a) have been afforded the opportunity to defend against any potentially indemnifiable claims or (b) have reached agreement with the financial institutions regarding settlement of potentially indemnifiable claims.

As of September 30, 2021 , we have assessed the likelihood of any potential payments related to the aforementioned contingencies as remote.

Under finance products available in the private label credit and general purpose credit card channels, consumers have the ability to borrow up to the maximum credit limit assigned to each individual’s account.

Unfunded commitments under these products aggregated $ 2.1 billion at March 31, 2022.

We have never experienced a situation in which all borrowers have exercised their entire available lines of credit at any given point in time, nor do we anticipate this will ever occur in the future.

Moreover, there would be a concurrent increase in assets should there be any exercise of these lines of credit.

The floor plan financing allows dealers and finance companies to borrow up to the maximum pre-approved credit limit allowed in order to finance ongoing inventory needs.

These loans are secured by the underlying auto inventory and, in certain cases where we have other lending products outstanding with the dealer, are secured by the collateral under those lending arrangements as well, including any outstanding dealer reserves.

As of March 31, 2022, CAR had unfunded outstanding floor-plan financing commitments totaling $ 12.8  million.

Each draw against unused commitments is reviewed for conformity to pre-established guidelines.

to support various ongoing contractual obligations.

Under agreements with third -party originating and other financial institutions, we have agreed to indemnify the financial institutions for certain liabilities associated with the services we provide on behalf of the financial institutions—such indemnification obligations generally being limited to instances in which we either (a) have been afforded the opportunity to defend against any potentially indemnifiable claims or (b) have reached agreement with the financial institutions regarding settlement of potentially indemnifiable claims.

As of March 31, 2022, we have assessed the likelihood of any potential payments related to the aforementioned contingencies as remote.

We would accrue liabilities related to these contingencies in any future period if and in which we assess the likelihood of an estimable payment as probable.

Under the account terms, consumers have the option of enrolling in a credit protection program with our lending partner which would make the minimum payments owed on their accounts for a period of up to six months upon the occurrence of an eligible event. Eligible events typically include loss of life, job loss, disability, or hospitalization.

As an acquirer of receivables, our potential exposure under this program, if all eligible participants applied for this benefit, was $ 50.8 million as of September 30, 2021 ( of which we have accrued $ 0.6  million as of September 30, 2021 

based on current claims). We have never experienced a situation in which all eligible participants have applied for this benefit at any given point in time, nor do we anticipate this will ever occur in the future. 

Under the account terms, consumers have the option of enrolling in a credit protection program with our lending partner which would make the minimum payments owed on their accounts for a period of up to six months upon the occurrence of an eligible event.

Eligible events typically include loss of life, job loss, disability, or hospitalization.

As an acquirer of receivables, our potential exposure under this program, if all eligible participants applied for this benefit, was $ 63.8 million as of March 31, 2022.

We have never experienced a situation in which all eligible participants have applied for this benefit at any given point in time, nor do we anticipate this will ever occur in the future.

We include our estimate of future claims under this program within our fair value analysis of the associated receivables.

We also are subject to certain minimum payments under cancelable and non-cancelable lease arrangements.

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We are involved in various legal proceedings that are incidental to the conduct of our business.

There are currently no pending legal proceedings that are expected to be material to us.

In the first quarter of 2022, we accrued $ 8.5 million related to a settlement of outstanding litigation associated with our Auto Finance segment. There are currently no other pending legal proceedings that are expected to be material to us.

Net Income Attributable to Controlling Interests Per Common Share

We compute net income attributable to controlling interests per common share by dividing net income attributable to controlling interests by the weighted-average number of shares of common stock (including participating securities) outstanding during the period, as discussed below.

Diluted computations applicable in financial reporting periods in which we report income reflect the potential dilution to the basic income per share of common stock computations that could occur if securities or other contracts to issue common stock were exercised, were converted into common stock or were to result in the issuance of common stock that would share in our results of operations.

In performing our net income attributable to controlling interests per share of common stock computations, we apply accounting rules that require us to include all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding in our basic and diluted calculations.

Common stock and certain unvested share-based payment awards earn dividends equally, and we have included all outstanding restricted stock awards in our basic and diluted calculations for current and prior periods.

The following table sets forth the computations of net income attributable to controlling interests per share of common stock (in thousands, except per share data): 

For the Three Months Ended

For the Nine Months Ended

September 30,

Net income attributable to controlling interests

$ 45,010  

$ 44,075  

Preferred stock and preferred unit dividends and accretion

( 6,206 )  

Net income attributable to common shareholders—basic

38,804  

39,388  

Effect of dilutive preferred stock dividends and accretion

Net income attributable to common shareholders—diluted

$ 39,396  

$ 39,980  

Basic (including unvested share-based payment awards) (1)

14,821  

15,013  

Effect of dilutive stock compensation arrangements and exchange of preferred stock

Diluted (including unvested share-based payment awards) (1)

20,059  

20,934  

Net income attributable to common shareholders per share—basic

$ 2.62  

Net income attributable to common shareholders per share—diluted

Shares related to unvested share-based payment awards included in our basic and diluted share counts were 278,425 and 376,301 for the three and nine months ended September 30, 2021 , respectively, compared to 417,483 and 436,414 for the three and nine months ended September 30, 2020

As their effects were anti-dilutive, we excluded stock options to purchase 0.0 shares and 0.1 million shares from our net income attributable to controlling interests per share of common stock calculations for the three and nine months ended September 30, 2021, 

respectively. 

No stock options were excluded for either the three or nine months ended September 30, 2020.

For the three and nine months ended 

September 30, 2021 and 2020, we included 4,000,000 , 4,000,000 , 4,000,000 and 3,725,158 shares, respectively, in our outstanding diluted share counts associated with our Series A Preferred Stock.

$ 1.96  

$ 1.91  

Shares related to unvested share-based payment awards included in our basic and diluted share counts were 100,331  for the three months ended March 31, 2022 , compared to 421,639 for the three months ended March 31, 2021

As their effects were anti-dilutive, we excluded stock options to purchase 0.0  shares and 0.1 million shares from our net income attributable to controlling interests per share of common stock calculations for the three months ended March 31, 2022 and 2021, respectively.

For both of the three months ended March 31, 2022 

and 2021, we included 4,000,000 shares in our outstanding diluted share counts associated with our Series A Preferred Stock.

See Note 4, "Shareholders' Equity and Preferred Stock", for a further discussion of these convertible securities.

Stock-Based Compensation

We currently have two stock-based compensation plans, the Second Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and the Fourth Amended and Restated 2014 Equity Incentive Plan (the “Fourth Amended 2014 Plan”). Our Fourth Amended 

2014 Plan provides that we may grant options on or shares of our common stock (and other types of equity awards) to members of our Board of Directors, employees, consultants and advisors.

We currently have two stock-based compensation plans, the Second Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and the Fourth Amended and Restated 2014 Equity Incentive Plan (the “Fourth Amended 2014 Plan”).

Our Fourth Amended 2014 Plan provides that we may grant options on or shares of our common stock (and other types of equity awards) to members of our Board of Directors, employees, consultants and advisors.

The Fourth Amended 2014 Plan was approved by our shareholders in May 2019.

Among other things, the Fourth Amended 2014 Plan (i) increased the number of shares of Common Stock available for issuance under the plan by 2,000,000 shares and (ii) extended the term of the plan by approximately two years.

As of September 30, 2021, 54,734 shares remained available for issuance under the ESPP and 1,613,958 shares remained available for issuance under the Fourth Amended 2014 Plan.

Exercises and vestings under our stock-based compensation plans resulted in no income tax-related charges to paid-in capital during the three and nine months ended September 30, 2021 and 2020 .

As of March 31, 2022, 53,724 shares remained available for issuance under the ESPP and 1,996,953 shares remained available for issuance under the Fourth Amended 2014 Plan.

Exercises and vestings under our stock-based compensation plans resulted in no income tax-related charges to paid-in capital during the three months ended March 31, 2022 

Restricted Stock and Restricted Stock Units

During the nine  months ended September 30, 2021 

and 2020, we granted 53,584 and 61,373 shares of restricted stock and restricted stock units (net of any forfeitures), respectively, with aggregate grant date fair values of $ 1.7  million and $ 0.6  million, respectively.

We incurred expenses of $ 0.9  million and $ 0.7  million during the nine months ended September 30, 2021 

During the three months ended March 31, 2022 

and 2021, we granted 106,498 and 33,276 shares of restricted stock and restricted stock units (net of any forfeitures), respectively, with aggregate grant date fair values of $ 5.0  million and $ 0.9 million, respectively.

We incurred expenses of $ 0.6 million and $ 0.2  million during the three months ended March 31, 2022 

and 2021, respectively, related to restricted stock awards.

When we grant restricted stock and restricted stock units, we defer the grant date value of the restricted stock and restricted stock unit and amortize that value (net of the value of anticipated forfeitures) as compensation expense with an offsetting entry to the paid-in capital component of our consolidated shareholders’

When we grant restricted stock and restricted stock units, we defer the grant date value of the restricted stock and restricted stock unit and amortize that value (net of the value of anticipated forfeitures) as compensation expense with an offsetting entry to the paid-in capital component of our consolidated shareholders’

Our restricted stock awards typically vest over a range of 12 to 60 months (or other term as specified in the grant which may include the achievement of performance measures) and are amortized to salaries and benefits expense ratably over applicable vesting periods.

As of September 30, 2021, our unamortized deferred compensation costs associated with non-vested restricted stock awards were $ 1.3  million with a weighted-average remaining amortization period of 1.5  years.

No forfeitures have been included in our compensation cost estimates based on historical forfeiture rates.

As of March 31, 2022, our unamortized deferred compensation costs associated with non-vested restricted stock awards were $ 5.4 million with a weighted-average remaining amortization period of 3.0 years.

No forfeitures have been included in our compensation cost estimates based on historical forfeiture rates.

Stock Options

The exercise price per share of the options awarded under the Fourth Amended 2014 Plan must be equal to or greater than the market price on the date the option is granted.

The option period may not exceed 10 years from the date of grant.

Options granted during 2021  were valued using the Black-Scholes-Merton option pricing model with the following assumptions:

a dividend yield of zero, years to maturity of 

5  years (which equals the expected term), volatility of 80.9 % (based on the average of daily historical volatility using the expected term), and a risk-free rate of 0.86 % (based on 5 year US Treasury securities).

All options granted during the year vest ratably over a 3 year period conditioned upon continued employment with the Company. We had expense of $ 0.7  million, 

$ 1.4 million, $ 0.1 million and $ 0.3  million related to stock option-related compensation costs during the three and nine months ended September 30, 2021 

The option period may not exceed 10 years from the date of grant. We had expense of $ 0.5 million and $ 0.3  million related to stock option-related compensation costs during the three months ended March 31, 2022 

and 2021, respectively.

When applicable, we recognize stock option-related compensation expense for any awards with graded vesting on a straight-line basis over the vesting period for the entire award. The table below includes additional information about outstanding options:

When applicable, we recognize stock option-related compensation expense for any awards with graded vesting on a straight-line basis over the vesting period for the entire award.

The table below includes additional information about outstanding options:

Number of Shares

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Outstanding at December 31, 2021

2,017,969  

$ 6.74  

( 1,000,534 )  

$ 2.79  

Expired/Forfeited

Outstanding at September 30, 2021

Exercisable at September 30, 2021

Options issued during the three and nine months ended September 30, 2021 had an aggregate grant-date fair value of $ 2.1 million and $ 3.2 million, respectively.

No options were issued during the corresponding periods in 2020.

 We had $ 3.1  million and $ 1.4  million of unamortized deferred compensation costs associated with unvested stock options as of September 30, 2021 and 

December 31, 2020 , respectively.

( 1,000 )  

$ 15.30  

Outstanding at March 31, 2022

1,016,435  

$ 10.63  

$ 41,834,424  

Exercisable at March 31, 2022

815,666  

$ 6.19  

$ 37,191,595  

Options issued during the three months ended March 31, 

2021  had an aggregate grant-date fair value of $ 0.1 million.

No options were issued during the three months ended March 31, 2022. 

We had $ 1.9 million and $ 2.4 million of unamortized deferred compensation costs associated with non-vested stock options as of March 31, 2022 

and December 31, 2021, respectively, with a weighted average remaining amortization period of 1.5  years as of March 31, 2022.

Upon exercise of outstanding options, the Company issues new shares.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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refer to Atlanticus Holdings Corporation and its subsidiaries and predecessors.

We utilize technology, proprietary analytics and a flexible technology platform to enable financial institutions to provide various credit and related financial services and products to everyday Americans.

According to data published by FICO, 37% of Americans had FICO®

Atlanticus is a financial technology company powering more inclusive financial solutions for everyday Americans.

We leverage data, analytics, and innovative technology to unlock access to financial solutions for the millions of Americans who would otherwise be underserved.

According to data published by FICO, 37% of Americans had FICO®

scores of less than 700 as of the second quarter of 2021.

We believe this equates to a population of over 100 million everyday Americans in need of additional access to credit. These consumers often have financial needs that are not effectively met by larger financial institutions. By facilitating fairly priced consumer credit and financial service alternatives with value added features and benefits curated for the unique needs of these consumers, we endeavor to empower everyday Americans on a path to improved financial well-being.

Currently, within our Credit and Other Investments segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing over $26 billion in consumer loans over our 25-year operating history, to support lenders who originate a range of consumer loan products.

These products include private label and general purpose credit cards originated by lenders through multiple channels, including retail and healthcare point-of-sale (collectively "point-of-sale"), direct mail solicitation, online and partnerships with third parties.

In the point-of-sale channel, we partner with retailers and service providers in various industries across the U.S.

to allow them to provide credit to their customers for the purchase of a variety of goods and services including consumer electronics, furniture, elective medical procedures, healthcare, educational services, and home-improvements.

The services of our bank partners are often extended to consumers who may not have access to financing options with larger financial institutions.

We believe this equates to a population of over 100 million everyday Americans in need of access to credit.

These consumers often have financial needs that are not effectively met by larger financial institutions.

By facilitating appropriately priced consumer credit and financial service alternatives with value-added features and benefits curated for the unique needs of these consumers, we endeavor to empower better financial outcomes for everyday Americans.

Currently, within our Credit as a Service ("CaaS") segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing over $27 billion in consumer loans over our 25-year operating history, to support lenders in offering more inclusive financial services.

These products include private label credit and general purpose credit cards originated by lenders through multiple channels, including retail and healthcare, direct mail solicitation, digital marketing and partnerships with third parties.

The services of our bank partners are often extended to consumers who may not have access to financing options with larger financial institutions.

We specialize in supporting this “second-look”

credit service.

Our flexible technology solutions allow our bank partners to integrate our paperless process and instant decisioning platform with the existing infrastructure of participating retailers and service providers.

By supporting a range of products through a multitude of channels, we enable lenders to provide the right type of credit, whenever and wherever the consumer has a need.

Atlanticus’

underwriting process is enhanced by AI and machine learning, enabling lenders to make fast, sound decision-making when it matters most.

We are principally engaged in providing products and services to lenders in the U.S.

and, in most cases, we invest in the receivables originated by lenders who utilize our technology platform and other related services.

and, in most cases, we invest in the receivables originated by lenders who utilize our technology platform and other related services.

From time to time, we also purchase receivables portfolios from third parties.

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Using our infrastructure and technology, we also provide loan servicing, including risk management and customer service outsourcing, for third parties.

Also through our Credit and Other Investments segment, we engage in testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and infrastructure.

Additionally, we report within our Credit and Other Investments segment:

1) the servicing income from our legacy credit card receivables, 2) the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer;

Also through our CaaS segment, we engage in testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and infrastructure.

Additionally, we report within our CaaS segment:

1) servicing income;

and 2) gains or losses associated with investments previously made in consumer finance technology platforms.

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None of these companies are publicly-traded and there are no material pending liquidity events.

We will continue to carry the investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

The recurring cash flows we receive within our Credit and Other Investments segment principally include those associated with (1) point-of-sale and direct-to-consumer receivables, (2) servicing compensation and (3) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility (such as those associated with our legacy credit card operations).

Subject to possible disruptions caused by COVID-19 and disruptions in supply chains, we believe that our point-of-sale and direct-to-consumer receivables are generating, and will continue to generate, attractive returns on assets, thereby facilitating debt financing under terms and conditions (including advance rates and pricing) that will support attractive returns on equity, and we continue to pursue growth in this area.

Beyond these activities within our Credit and Other Investments segment, we invest in and service portfolios of credit card receivables.

Within our Auto Finance segment, our CAR subsidiary operations principally purchase and/or service loans secured by automobiles from or for, and also provide floor plan financing for, a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here, used car business.

We purchase auto loans at a discount and with dealer retentions or holdbacks that provide risk protection.

Also within our Auto Finance segment, we are providing certain installment lending products in addition to our traditional loans secured by automobiles.

Subject to the availability of capital at attractive terms and pricing, we plan to continue to evaluate and pursue a variety of activities, including: (1) investments in additional financial assets associated with point-of-sale and direct-to-consumer finance and credit activities as well as the acquisition of interests in receivables portfolios; (2) investments in other assets or businesses that are not necessarily financial services assets or businesses and (3) the repurchase or retirement of debt.

We elected the fair value option to account for certain loans receivable associated with our point-of-sale and direct-to-consumer platform that are acquired on or after January 1, 2020.

We believe the use of fair value for these receivables more closely approximates the true economics of these receivables, better matching the yields and corresponding charge-offs.

We believe the fair value option also enables us to report GAAP net income that provides increased transparency into our profitability and asset quality.

Receivables arising in accounts originated prior to January 1, 2020 will continue to be accounted for in our 2020 and subsequent financial statements at amortized cost, net.

We estimate the Fair Value Receivables using a discounted cash flow model, which considers various factors such as expected yields on consumer receivables, the timing of expected payments, customer default rates, estimated costs to service the portfolio, interest rates, and valuations of comparable portfolios.

As a result of this fair value adoption, our loans, interest and fees receivable arising in accounts originated subsequent to January 1, 2020 will be carried at fair value with changes in fair value recognized directly in earnings, and certain fee billings (such as annual membership fees and merchant fees) and origination costs associated with these receivables will no longer be deferred.

We reevaluate the fair value of our Fair Value Receivables at the end of each quarter.

As discussed elsewhere in this Report we plan to adopt ASU 2016-13 beginning January 1, 2022 utilizing the fair value option for all receivables currently measured at amortized cost. 

COVID-19 Pandemic  

On March 13, 2020, a national emergency was declared under the National Emergencies Act due to the COVID-19 pandemic.

As of the date of filing this Quarterly Report on Form 10-Q, the duration and severity of the effects of the COVID-19 pandemic remain unknown.

We will continue to carry these investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

The recurring cash flows we receive within our CaaS segment principally include those associated with (1) private label credit and general purpose credit card receivables, (2) servicing compensation and (3) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility.

Our credit and other operations are heavily regulated, which may cause us to change how we conduct our operations either in response to regulation or in keeping with our goal of leading the industry in adherence to consumer-friendly practices.

We have made meaningful changes to our practices over the past several years, and because our account management practices are evolutionary and dynamic, it is possible that we may make further changes to these practices, some of which may produce positive, and others of which may produce adverse, effects on our operating results and financial position.

Customers at the lower end of the credit score range intrinsically have higher loss rates than do customers at the higher end of the credit score range.

As a result, the products we support are priced to reflect expected loss rates for our various risk categories.

See “Consumer and Debtor Protection Laws and Regulations—CaaS Segment”

in Part I, Item 1 of our Annual Report on Form 10K for the year ended December 31, 2021 and Part II, Item 1A, “Risk Factors”

contained in this Report.

Subject to possible disruptions caused by COVID-19, supply chain interruptions, or inflation, we believe that our private label credit and general purpose credit card receivables are generating, and will continue to generate, attractive returns on assets, thereby facilitating debt financing under terms and conditions (including advance rates and pricing) that will support attractive returns on equity, and we continue to pursue growth in this area.

Within our Auto Finance segment, our CAR subsidiary operations principally purchases and/or services loans secured by automobiles from or for, and also provides floor-plan financing for, a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here used car business.

We generate revenues on purchased loans through interest earned on the face value of the installment agreements combined with the accretion of discounts on loans purchased.

We generally earn discount income over the life of the applicable loan.

Additionally, we generate revenues from servicing loans on behalf of dealers for a portion of actual collections and by providing back-up servicing for similar quality assets owned by unrelated third parties.

We offer a number of other products to our network of buy-here, pay-here dealers (including our floor-plan financing offering), but the majority of our activities are represented by our purchases of auto loans at discounts and our servicing of auto loans for a fee.

As of March 31, 2021, our CAR operations served more than 600 dealers in 33 states, the District of Columbia and two U.S.

These operations continue to perform well (achieving consistent profitability and generating positive cash flows and growth).

Fair Value Election

We adopted ASU 2016-13 beginning January 1, 2022.

This ASU requires the use of an impairment model that is based on expected rather than incurred losses.

The ASU also allows for a one-time fair value election for receivables.

See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components-Recent Accounting Pronouncements”

to our consolidated financial statements included herein for further discussion of our adoption of ASU 2016-13.

Impact of the COVID-19 Pandemic on Atlanticus and our Markets

In March 2020, a national emergency was declared under the National Emergencies Act due to the COVID-19 pandemic.  The COVID-19 pandemic has negatively impacted global supply chains and business operations as suppliers continue to experience difficulties keeping up with strong demand for factory goods, which is being driven by low business inventories.

In addition, rising inflation in 2021 and 2022 has resulted in increasing costs for many goods and services.

As a result of persistently high inflation, interest rates have been on the rise and are expected to continue rising in the near term.

The combination of rising inoculation rates in the U.S.

population and the federal COVID-19 relief package contributed to increased economic recovery in 2021;

however, fiscal support of business and personal incomes has declined.

Russia’s invasion of Ukraine has intensified supply chain disruptions and heightened uncertainty surrounding the near-term outlook for the broader economy.

The impacts of new COVID-19 variants, responses to the COVID-19 pandemic by both consumers and governments, rising energy costs, inflation, rising interest rates, and the unresolved geopolitical tensions relating to Russia’s invasion of Ukraine could significantly affect the sustainability of current economic growth.

As of the date of filing this Quarterly Report on Form 10-Q, the duration and severity of the effects of the COVID-19 pandemic and resulting government stimulus programs remain unknown.

Likewise, we do not know the duration and severity of the impact of the COVID-19 pandemic on all members of the Company’s ecosystem –

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as well as our employees.

In addition to instituting a Company-wide remote work program to ensure the safety of all employees and their families, we are communicating to employees on a regular basis regarding such efforts as planning for contingencies related to the COVID-19 pandemic, providing updated information and policies related to the safety and health of employees, and monitoring the ongoing pandemic for new developments that may impact the Company, our work locations or our employees and are taking reasonable measures. 

The following are anticipated key impacts on our business and response initiatives taken by the Company, in coordination with our partners, to mitigate such impacts:

Consumer spending behavior has been significantly impacted by the COVID-19 pandemic, principally due to social distancing and uncertainties about the extent and duration of the pandemic.

Additionally, earlier government stimulus programs decreased consumer need for credit products and generally led to an increase in customer payments. While we have seen some improvements in this area, to the extent this change in consumer spending behavior continues, receivables purchases could decline relative to the prior year.

The extent to which our merchants have remained open for business has varied across merchant category and geographic location within the U.S.

Furthermore, a number of our merchants have recently experienced labor shortages and supply chain disruptions.

These trends could decrease consumer spending and our receivables growth.

Borrowers impacted by COVID-19 requesting hardship assistance have been receiving temporary relief from payments.

While we expect these measures to mitigate credit losses, related economic disruptions could result in increased portfolio credit losses in the future.

As the impact of COVID-19 continues to evolve, the Company remains committed to serving our bank partner, merchants and consumers, while caring for the safety of our employees and their families.

At the onset of the COVID-19 pandemic, Atlanticus instituted a company-wide distributed work program to promote the safety of all employees and their families.

Once COVID-19 cases declined, Atlanticus transitioned to a hybrid distributed work model.

Appropriate safety measures continue to be followed to protect employees working on site.

Atlanticus will continue to follow all government mandates and make adjustments to support employees and prioritize employee safety.

Consumer spending behavior has been significantly impacted by the COVID-19 pandemic, initially due to uncertainties about the extent and duration of the pandemic.

Additionally, earlier government stimulus programs decreased consumer need for credit products and generally led to an increase in customer payments.

While we have seen improvements in this area, to the extent this change in consumer spending behavior continues or is further impacted by economic inflation, receivables purchases could decline relative to the prior year.

Furthermore, a number of our merchant partners have recently experienced labor shortages and supply chain disruptions.

These trends could decrease or delay consumer spending and our receivables growth.

Borrowers impacted by COVID-19 requesting hardship assistance received temporary relief from payments.

While we expect these measures to mitigate credit losses, related economic disruptions could result in increased portfolio credit losses in the future.

As the impact of COVID-19 continues to evolve, the Company remains committed to serving our bank partner, merchant partners and consumers, while caring for the safety of our employees and their families.

The potential impact that COVID-19, related economic impacts, and labor shortages and supply chain disruptions could have on our financial condition and results of operations remains highly uncertain.

For more information, refer to Part II, Item 1A “Risk Factors”

and, in particular, “– 

The global outbreak of COVID-19  

has caused severe disruptions in the U.S.

and, in particular, “–

COVID-19 has caused severe disruptions in the U.S.

economy, and may have an adverse impact on our performance, results of operations and access to capital.

CONSOLIDATED RESULTS OF OPERATIONS

For the Three Months Ended September 30,

Increases (Decreases)

(In Thousands)

from 2020 to 2021

Total operating revenue

Other non-operating revenue

Interest expense

Provision for losses on loans, interest and fees receivable recorded at net realizable value

Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value

Operating expenses:

Salaries and benefits

Card and loan servicing

Marketing and solicitation

Total operating expenses:

Loss on repurchase and redemption of convertible senior notes

Net (income) loss attributable to noncontrolling interests

Net income attributable to controlling interests

Net income attributable to controlling interests to common shareholders

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Increases (Decreases)

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Loss on repurchase and redemption of convertible senior notes

Net (income) loss attributable to noncontrolling interests

Net loss attributable to noncontrolling interests

Net income attributable to controlling interests

Net income attributable to controlling interests to common shareholders

Three and Nine Months Ended September 30, 2021, Compared to Three and Nine Months Ended September 30, 2020

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

Total operating revenue.

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1) interest income, finance charges and late fees on consumer loans, 2) other fees on credit products including annual and merchant fees and 3) ancillary, interchange and servicing income on loan portfolios.

Period-over-period results primarily relate to growth in point-of-sale finance and direct-to-consumer products, the receivables of which increased from $982.5 million as of September 30, 2020 to $1,441.5 million as of September 30, 2021.

While we noted some disruptions in consumer spending behavior due to the COVID-19 pandemic and labor shortages, supply chain disruptions and other related economic impacts, we are currently experiencing continued period-over-period growth in point-of-sale and direct-to-consumer receivables and to a lesser extent in our CAR receivables—growth which we expect to result in net period-over-period growth in our total interest income and related fees for these operations for the remainder of 2021 and into 2022.

Period-over-period results primarily relate to growth in private label credit and general purpose credit card products, the receivables of which increased from $1,088.5 million as of March 31, 2021 to $1,677.6 million as of March 31, 2022.

We experienced higher growth in our acquisitions of general purpose credit card receivables (which tend to have higher yields and corresponding charge-offs) than in our acquisitions of private label credit receivables. This relative mix of receivable acquisitions led to an increase in our Total managed yield ratio, annualized and our corresponding revenue. While we noted some disruptions in consumer spending behavior due to the COVID- 19 pandemic and related economic impacts, including inflation, labor shortages and supply chain disruptions, we are currently experiencing continued period-over-period growth in private label credit and general purpose credit card receivables and to a lesser extent in our CAR receivables—growth which we expect to result in net period-over-period growth in our total interest income and related fees for these operations for 2022.

Future periods’

growth is also dependent on the addition of new retail partners to expand the reach of point-of-sale operations as well as growth within existing partnerships and continued growth and marketing within the direct-to-consumer receivables. As discussed elsewhere in this Report, we have elected the fair value option to account for certain loan receivables associated with our point-of-sale and direct-to-consumer platform that are originated on or after January 1, 2020. As a result, annual fees and merchant fees that are charged upon the acquisition of the receivable will no longer be deferred and will be recognized in the loan acquisition period. This difference in recognition also served to increase our other fees on credit products (included as a component of "Fees and related income on earning assets" on our consolidated statements of operations).

Other revenue on our consolidated statements of operations consists of ancillary, interchange and servicing income. Ancillary and interchange revenues are largely impacted by growth in our receivables as discussed above. These fees are earned when customers we serve use their cards over established card networks.

We earn a portion of the interchange fee the card networks charge merchants for the transaction.

growth is also dependent on the addition of new retail partners to expand the reach of private label credit operations as well as growth within existing partnerships and continued growth and marketing within the general purpose credit card receivables.

Other revenue on our consolidated statements of income consists of ancillary, interchange and servicing income.

Ancillary and interchange revenues are largely impacted by growth in our receivables as discussed above.

These fees are earned when customers we serve use their cards over established card networks.

We earn a portion of the interchange fee the card networks charge merchants for the transaction.

We earn servicing income by servicing loan portfolios for third parties.

Unless and/or until we grow the number of contractual servicing relationships we have with third parties or our current relationships grow their loan portfolios, we will not experience significant growth and income within this category.

As discussed elsewhere in this Report, we plan to adopt ASU 2016-13 beginning January 1, 2022 utilizing the fair value option for all receivables currently measured at amortized cost.

The impact of this adoption will result in an adjustment to our opening retained earnings with future changes in the fair value associated with these receivables being included as part of our "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value" on our consolidated statements of operations. The above discussions on expectations for finance, fee and other income are based on our current expectations. The potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable could result in changes in these assumptions in the near term.

As discussed elsewhere in this Report we adopted the fair value option under ASU 2016-13, beginning January 1, 2022, for all remaining loans receivable associated with our private label credit and general purpose credit card platform previously measured at amortized cost.

The impact of this adoption, for those accounts that elected the fair value option, resulted in an increase in the recognition of certain fee categories with future changes in the fair value associated with the associated receivables being included as part of our "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value" on our consolidated statements of income.

The above discussions on expectations for finance, fee and other income are based on our current expectations.

The potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable could result in changes in these assumptions in the near term.

See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components-Recent Accounting Pronouncements”

to our consolidated financial statements included herein for further discussion of our adoption of ASU 2016-13.

Other non-operating revenue.

 Included within our Other non-operating revenue category is income (or loss) associated with investments in non-core businesses or other items not directly associated with our ongoing operations.

We liquidated one of these investments during 2021, resulting in income of approximately $560,000. As previously discussed, these investments are carried at the lower of cost or market valuation.

In the three months ended March 31, 2021, we liquidated one of these investments resulting in income of approximately $560,000. As previously discussed, these investments are carried at the lower of cost or market valuation.

None of these companies are publicly-traded and there are no material pending liquidity events.

We will continue to carry the investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes. Further impacting our second quarter 2021 results was income resulting from the extinguishment of a contingent liability associated with the repayment of outstanding notes issued by a trust in February 2017.

See Note 9, "Notes Payable," to our consolidated financial statements for additional information.

We will continue to carry the investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

Interest expense.

Variations in interest expense are due to new borrowings associated with growth in point-of-sale and direct-to-consumer receivables and CAR operations as evidenced within Note 9, “Notes Payable,”

Variations in interest expense are due to new borrowings associated with growth in private label credit and general purpose credit card receivables and CAR operations as evidenced within Note 9, “Notes Payable,”

to our consolidated financial statements, offset by our debt facilities being repaid commensurate with net liquidations of the underlying credit card, auto finance and installment loan receivables that serve as collateral for the facilities.

Outstanding notes payable, net of unamortized debt issuance costs and discounts, associated with our point-of-sale and direct-to-consumer platform increased from $696.8 million as of September 30, 2020 to $944.5 million as of September 30, 2021.

The majority of this increase in outstanding debt relates to the $300 million revolving credit facility that was established in June 2021. Despite this period over period increase, an overall decrease in the weighted average cost of funds, coupled with repurchases an redemptions of our convertible senior notes and the timing of the increases in debt balances, resulted in a year over year decline in interest expense. We anticipate additional debt financing over the next few quarters as we continue to grow, and as such, we expect our quarterly interest expense to be above that experienced in the prior periods for these operations.

Loss on repurchase and redemption of convertible senior notes. 

In the three and nine months ended September 30, 2021, we repurchased $0.9 million and $22.1 million, respectively, in face amount of our outstanding convertible senior notes for $1.6 million and $30.4 million, respectively, in cash (including accrued interest). The repurchase resulted in a loss of approximately $0.9 million and $14.1 million, respectively (including the convertible senior notes’

applicable share of deferred costs, which were written off in connection with the repurchase).

Upon acquisition, the notes were retired.

On June 17, 2021, we provided notice of redemption of all outstanding convertible senior notes.

Upon the redemption notice, holders were allowed to convert the convertible senior notes in lieu of the redemption consideration. At the expiration of the conversion option, holders with $11.8 million in principal amount of the convertible senior notes had elected to convert.

Upon final determination of the conversion consideration amount, we delivered to holders of the converting notes, cash of $1,000 per $1,000 aggregate principal amount of notes and $12.1 million of cash in respect of the remainder of the conversion obligation.

The redemption resulted in a loss of approximately $15.3 million (including the convertible senior notes’

applicable share of deferred costs, which were written off in connection with the repurchase).

Upon redemption, the notes were retired.

In conjunction with the original offering of the convertible senior notes, we entered into a share lending agreement with JPMorgan Chase & Co.

(as successor to Bear, Stearns International Limited and Bear, Stearns & Co.

Pursuant to the share lending agreement, we lent JPMorgan Chase & Co.

(“JPMorgan”) 5,677,950 shares of our common stock. 

JPMorgan agreed to use the loaned shares for the purpose of directly or indirectly facilitating the hedging of the convertible senior notes by the holders thereof or for such other purpose as reasonably determined by us. 

At the retirement of the convertible senior notes, 1,459,233 shares of common stock remained outstanding under the share lending agreement. 

In September 2021, JPMorgan returned the outstanding loaned shares, without consideration being payable in respect thereof. 

As of September 30, 2021, these shares were held in treasury.  

Outstanding notes payable, net of unamortized debt issuance costs and discounts, associated with our private label credit and general purpose credit card platform increased from $781.1 million as of March 31, 2021 to $1,206.6 million as of March 31, 2022.

The majority of this increase in outstanding debt relates to the addition of multiple revolving credit facilities during 2021.

Additionally, the issuance of $150.0 million of Senior notes in November 2021 (included on our consolidated balance sheet as "Senior notes, net") will also serve to increase interest expense in future periods.

Offsetting these increases in interest expense is an overall decrease in the weighted average cost of funds, coupled with the repurchase and redemption of our convertible senior notes.

We anticipate additional debt financing over the next few quarters as we continue to grow coupled with increased effective interest rates resulting from anticipated federal funds rate increases, and as such, we expect our quarterly interest expense to be above that experienced in the prior periods for these operations.

Provision for losses on loans, interest and fees receivable recorded at net realizable value.

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All proceeds received associated with charged-off accounts, are credited to the allowance for uncollectible loans, interest and fees receivable and effectively offset our provision for losses on loans, interest and fees receivable recorded at net realizable value.

We have experienced a period-over-period decrease in this category between the years ended September 30, 2020 and September 30, 2021 primarily reflecting:

1) the effects of our adoption of the fair value option to account for certain loans receivable that are acquired on or after January 1, 2020 which has resulted in a decline in the outstanding receivables subject to this provision and 2) the overall reduction in delinquencies associated with these receivables in part due to government stimulus programs, which served to increase payments on outstanding receivables. This reduction in provision has been offset somewhat due to additional reserves associated with accounts that have been impacted due to COVID-19.

We have experienced a period-over-period decrease in this category between the three months ended March 31, 2021 and March 31, 2022 primarily reflecting:

1) the effects of our adoption of the fair value option under ASU 2016-13 on January 1, 2022, which has resulted in a significant decline in the outstanding receivables subject to this provision and 2) the overall reduction in delinquencies associated with these receivables in part due to government stimulus programs, which have served to increase payments on outstanding receivables.

See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components,”

to our consolidated financial statements and the discussions of our Credit and Other Investments and Auto Finance segments for further credit quality statistics and analysis. Given our adoption of fair value accounting for certain receivables acquired on or after January 1, 2020, and absent the potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on the ability of a consumer to make payments on outstanding loans and fees receivable, we expect that our provision for losses on loans will continue to diminish, relative to levels experienced in prior periods, as the underlying receivables that continue to be recorded at net realizable value liquidate.

Further, with the aforementioned adoption of fair value for all receivables currently accounted for at amortized cost, this category of expense will not be present in 2022, being replaced by changes in fair value recorded as a component of "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value" on our consolidated statements of operations.

to our consolidated financial statements and the discussions of our CaaS and Auto Finance segments for further credit quality statistics and analysis.

Given our adoption of fair value accounting under ASU 2016-13 on January 1, 2022 for our private label credit and general purpose credit card products, and absent the unknown impacts COVID-19, related government stimulus and relief measures and related economic impacts may have on our ability to acquire new receivables or the impact they may have on our customers' ability to make payments on outstanding loans and fees receivable, we expect that our provision for losses on loans will continue to diminish when compared to similar periods in 2021 as the underlying receivables that continue to be recorded at net realizable value has been significantly reduced.

Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value.

For credit card receivables for which we use fair value accounting (including those for which we elected the fair value option on January 1, 2020), we expect our change in fair value of credit card receivables recorded at fair value to increase throughout the remainder of 2021 and into 2022 commensurate with growth in these receivables. Inversely (and to a lesser degree), we expect our change in fair value of notes payable associated with structured financings for our legacy credit card receivables recorded at fair value amounts to gradually diminish (absent significant changes in the assumptions used to determine these fair values) in the future.

We may adjust our models to reflect macro events that we believe market participants would consider relevant.

With the aforementioned market impacts of COVID-19 and related economic impacts, we have included some expected market degradation in our model to reflect the possibility of delinquency rates increasing in the near term (and the corresponding increase in chargeoffs and decrease in payments) above the level that historical trends would suggest. These amounts, however, are subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if there are significant changes in market valuation factors (e.g., interest rates and spreads) in the future. 

 The increase in Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value was largely driven by growth in the underlying receivables (as noted above), coupled with increased fee billings on those receivables.

Fee billings on our fair value receivables increased from $52.6 million for the three months ended March 31, 2021 to $194.6 million for the three months ended March 31, 2022. 

For both periods presented, we included expected market degradation in our model to reflect the possibility of delinquency rates increasing in the near term (and the corresponding increase in charge-offs and decrease in payments) above the level that historical trends would suggest. 

See Note 6 "Fair Values of Assets and Liabilities" included herein for further discussion of assumptions underlying this calculation.

For credit card receivables for which we use fair value accounting (including those for which we elected the fair value option on January 1, 2022), we expect our change in fair value of credit card receivables recorded at fair value to increase throughout 2022 commensurate with growth in these receivables.

We may adjust our models to reflect macroeconomic events.

Thus, the fair values are subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if there are significant changes in market valuation factors (e.g., interest rates and spreads) in the future. 

Total operating expense.

Total operating expense variances for the three and nine months ended September 30, 2020, relative to the three and nine months ended September 30, 2021, reflect the following:

Total operating expense variances for the three months ended March 31, 2022, relative to the three months ended March 31, 2021, reflect the following:

increases in salaries reflecting marginal growth in both the number of employees and increases in related benefit costs. We expect some marginal increase in this cost for the remainder of 2022 when compared to 2021 as we expect our receivables to continue to grow and as a result we expect to modestly increase our number of employees;

increases in card and loan servicing expenses due to growth in receivables associated with our investments in point-of-sale and direct-to-consumer receivables, which grew from $982.5 million outstanding to $1,441.5 million outstanding at September 30, 2020 and September 30, 2021, respectively.

increases in card and loan servicing expenses due to growth in receivables associated with our investments in private label credit and general purpose credit card receivables, which grew from $1,088.5 million outstanding to $1,677.6 million outstanding at March 31, 2021 and March 31, 2022, respectively.

As many of the expenses associated with our card and loan servicing efforts are now variable based on the amount of underlying receivables, we would expect this number to continue to grow throughout the remainder of 2022.

As our receivables have grown, we have significantly reduced our servicing costs per account, realizing greater economies of scale.

increases in marketing and solicitation costs primarily due to receivables growth associated with our direct-to-consumer and retail point-of-sale portfolios.

We expect that increased origination and brand marketing support will result in overall increases in year-over-year costs during the remainder of 2021 although the frequency and timing of marketing efforts could result in reductions in quarter-over-quarter marketing costs;

other expenses primarily relate to fixed costs associated with occupancy or other third party expenses that are largely fixed in nature.

Offsetting some of this increase, we have significantly reduced our servicing costs per account, realizing greater economies of scale as our receivables have grown.

increases in marketing and solicitation costs primarily due to increased origination and brand marketing support;

we expect these efforts to result in increases in marketing and solicitation costs during the remainder of 2022 although the frequency and timing of marketing efforts could result in reductions in quarter-over-quarter marketing costs;

other expenses primarily relate to costs associated with occupancy or other third party expenses that are largely fixed in nature.

Some costs including legal expenses and travel expenses are variable based on growth.

While we expect some increase in these costs as we continue to grow our receivable portfolios, we do not anticipate the increases to be meaningful.

Certain operating costs are variable based on the levels of accounts and receivables we service (both for our own account and for others) and the pace and breadth of our growth in receivables.

Included in the first quarter of 2022 is an $8.5 million accrual related to a settlement of outstanding litigation associated with our Auto Finance segment. While we expect some increase in these costs (excluding the accrued litigation costs) as we continue to grow our receivable portfolios, we do not anticipate the increases to be meaningful.

Certain operating costs are variable based on the levels of accounts and receivables we service (both for our own receivables and for others) and the pace and breadth of our growth in receivables.

However, a number of our operating costs are fixed and until recently have comprised a larger percentage of our total costs.

This trend is reversing as we continue to grow our earning assets (including loans, interest and fees receivable) based principally on growth of point-of-sale and direct-to-consumer receivables and to a lesser extent, growth within our CAR operations.

This trend is reversing as we continue to grow our earning assets (including loans, interest and fees receivable) based principally on growth of private label credit and general purpose credit card receivables and to a lesser extent, growth within our CAR operations.

This is evidenced by the growth we experienced in our managed receivables levels over the past two years with minimal growth in the fixed portion of our card and loan servicing expenses as well as our salaries and benefits costs as we were able to better utilize our fixed costs to grow our asset base.

Notwithstanding our cost-management efforts, we expect increased levels of expenditures associated with anticipated growth in point-of-sale and direct-to-consumer credit card-related operations.

Notwithstanding our cost-management efforts, we expect increased levels of expenditures associated with anticipated growth in private label credit and general purpose credit card operations.

These expenses will primarily relate to the variable costs of marketing efforts and card and loan servicing expenses associated with new receivable acquisitions.

The above referenced unknown potential impacts related to COVID-19 could result in more variability in these expenses and could impair our ability to acquire new receivables, resulting in increased costs despite our efforts to manage costs effectively.

The above referenced unknown potential impacts related to COVID-19 could result in more variability in these expenses and could impair our ability to acquire new receivables, resulting in increased costs despite our efforts to manage costs effectively.

Loss on repurchase and redemption of convertible senior notes. 

In the three months ended March 31, 2021, we repurchased $14.7 million in face amount of our convertible senior notes for $18.6 million in cash (including accrued interest). The repurchase resulted in a loss of approximately $7.8 million (including the convertible senior notes’

applicable share of deferred costs, which were written off in connection with the repurchase).

All remaining convertible senior notes were retired during 2021.

Noncontrolling interests.

 We reflect the ownership interests of noncontrolling holders of equity in our majority-owned subsidiaries as noncontrolling interests in our consolidated statements of operations.

Unless we enter into significant new majority-owned subsidiary ventures with noncontrolling interest holders in the future, we expect to have negligible noncontrolling interests in our majority-owned subsidiaries and negligible allocations of income or loss to noncontrolling interest holders in future quarters. 

On November 14, 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $1.00 per unit to an unrelated third party.

 We reflect the ownership interests of noncontrolling holders of equity in our majority-owned subsidiaries as noncontrolling interests in our consolidated statements of income.

In November 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $1.00 per unit to an unrelated third party.

The units carry a 16% preferred return to be paid quarterly, with up to 6 percentage points of the preferred return to be paid through the issuance of additional units or cash, at our election.

On March 30, 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms.

The proceeds from the transaction were used for general corporate purposes. We have included the issuance of these Class B preferred units as temporary noncontrolling interests on the consolidated balance sheets and the associated dividends are included as a reduction of our net income attributable to common shareholders on the consolidated statements of operations.

In March 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms.

The proceeds from the transaction are being used for general corporate purposes.

We have included the issuance of these Class B preferred units as temporary noncontrolling interests on the consolidated balance sheets and the associated dividends are included as a reduction of our net income attributable to common shareholders on the consolidated statements of income.

Income Taxes.

We experienced effective tax rates of 18.7% and 18.3%, for the three and nine months ended September 30, 2021, compared to 19.6% and 18.9% for the three and nine months ended September 30, 2020. 

Our effective tax rates for the three and nine months ended September 30, 2021, are below the statutory rate principally due to (1) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’

grant date values and (2) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes. 

Our effective tax rates for the three and nine months ended September 30, 2020, were below the statutory rate principally due to (1) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes and (2) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’

grant date values.

We experienced a negative effective tax rate of 18.8% for the three months ended March 31, 2022, compared to an effective tax rate of 15.0% for the three months ended March 31, 2021.

Our negative effective tax rate for the three months ended March 31, 2022 (i.e., versus the statutory rate) resulted from (1) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’

grant date values and (2) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes. Partially offsetting these two items are the effects of state and foreign income tax expense.

Our effective tax rate for the three months ended March 31, 2021 was below the statutory rate due to (1) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’

grant date values, (2) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes, and (3) our release of state tax valuation allowances.

Partially offsetting the foregoing items were the effects of (1) executive compensation deduction limits under Section 162(m) of the Internal Revenue Code of 1986, as amended, and (2) state and foreign income tax expense.

We had de minimis interest expense or reversals thereof during the three and nine months ended September 30, 2021, and 2020.

Credit and Other Investments Segment

Our Credit and Other Investments segment includes our activities relating to our servicing of and our investments in the point-of-sale and direct-to-consumer credit card operations, our various credit card receivables portfolios, as well as other product testing and investments that generally utilize much of the same infrastructure.

The types of revenues we earn from our investments in receivables portfolios and services primarily include fees and finance charges, merchant fees or annual fees associated with the point-of-sale and direct-to-consumer receivables.

We record (i) the finance charges, merchant fees and late fees assessed on our Credit and Other Investments segment receivables in the Revenue - Consumer loans, including past due fees category on our consolidated statements of operations, (ii) the annual, monthly maintenance, returned-check, cash advance and other fees in the Revenue - Fees and related income on earning assets category on our consolidated statements of operations, and (iii) the charge offs (and recoveries thereof) within our Provision for losses on loans, interest and fees receivable recorded at net realizable value on our consolidated statements of operations (for all credit product receivables other than those for which we have elected the fair value option) and within Changes in fair value of loans, interest and fees receivable and notes payable on our consolidated statements of operations (for all of our other receivables for which we have elected the fair value option).

Additionally, we show the effects of fair value changes for those credit card receivables for which we have elected the fair value option as a component of Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value in our consolidated statements of operations.

We had de minimis interest expense or reversals thereof during the three months ended March 31, 2022, and 2021.

Our CaaS segment includes our activities relating to our servicing of and our investments in the private label credit and general purpose credit card operations, our various credit card receivables portfolios, as well as other product testing and investments that generally utilize much of the same infrastructure.

We record (i) the finance charges, merchant fees and late fees assessed on our CaaS segment receivables in the Revenue - Consumer loans, including past due fees category on our consolidated statements of income, (ii) the annual, monthly maintenance, returned-check, cash advance and other fees in the Revenue - Fees and related income on earning assets category on our consolidated statements of income, and (iii) the charge-offs (and recoveries thereof) within our Provision for losses on loans, interest and fees receivable recorded at net realizable value on our consolidated statements of income (for all credit product receivables other than those for which we have elected the fair value option) and within Changes in fair value of loans, interest and fees receivable and notes payable on our consolidated statements of income (for all of our other receivables for which we use the fair value method).

We historically have invested in receivables portfolios through subsidiary entities.

If we control through direct ownership or exert a controlling interest in the entity, we consolidate it and reflect its operations as noted above.

If we exert significant influence but do not control the entity, we record our share of its net operating results in the equity in income of equity-method investee category on our consolidated statements of operations.

Non-GAAP Financial Measures

In addition to financial measures presented in accordance with GAAP, we present managed receivables, total managed yield, total managed yield ratio, combined net charge-off ratio, percent of managed receivables 30 or more days past due, percent of managed receivables 60 or more days past due and percent of managed receivables 90 or more days past due, all of which are non-GAAP financial measures. These non-GAAP financial measures aid in the evaluation of the performance of our credit portfolios, including our risk management, servicing and collection activities and our valuation of purchased receivables. The credit performance of our managed receivables provides information concerning the quality of loan originations and the related credit risks inherent with the portfolios. Management relies heavily upon financial data and results prepared on the “managed basis”

In addition to financial measures presented in accordance with GAAP, we present managed receivables, total managed yield, total managed yield ratio, combined principal net charge-off ratio, percent of managed receivables 30-59 days past due, percent of managed receivables 60-89 days past due and percent of managed receivables 90 or more days past due, all of which are non-GAAP financial measures. These non-GAAP financial measures aid in the evaluation of the performance of our credit portfolios, including our risk management, servicing and collection activities and our valuation of purchased receivables. The credit performance of our managed receivables provides information concerning the quality of loan originations and the related credit risks inherent with the portfolios. Management relies heavily upon financial data and results prepared on the “managed basis”

in order to manage our business, make planning decisions, evaluate our performance and allocate resources.

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Loans, interest and fees receivable, at face value

(1) As discussed in more detail above in "—Overview," we elected the fair value option to account for certain loans receivable associated with our point-of-sale and direct-to-consumer platform that are acquired on or after January 1, 2020.

(1)  We elected the fair value option to account for certain loans receivable associated with our private label credit and general purpose credit card platform that were acquired on or after January 1, 2020 and as discussed in more detail above in "—Overview," on January 1, 2022, we elected the fair value option under ASU 2016-13 for those private label credit and general purpose credit card receivables that were previously accounted for under the amortized cost method. 

(2) The fair value mark against receivables reflects the difference between the face value of a receivable and the net present value of the expected cash flows associated with that receivable.

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Total managed receivables

As discussed above, our managed receivables data differ in certain aspects from our GAAP data in certain areas. First, managed receivables data are based on billings and actual charge offs as they occur without regard to any changes in our allowance for uncollectible loans, interest and fees receivable. Second, for managed receivables data, we amortize certain fees (such as annual and merchant fees) associated with our Fair Value Receivables over the expected life of the corresponding receivable and recognize certain costs, such as claims made under credit deferral programs, when paid. Under fair value accounting, these fees are recognized when billed or upon receivable acquisition. Third, managed receivables data excludes the impacts of equity in income of equity method investees. A reconciliation of our operating revenues to comparable amounts used in our calculation of Total managed yield ratios are as follows:

(1) As discussed in more detail above in "—Overview," on January 1, 2022, we elected the fair value option under ASU 2016-13 for those private label credit and general purpose credit card receivables that were accounted for under the amortized cost method.

As discussed above, our managed receivables data differ in certain aspects from our GAAP data. First, managed receivables data are based on billings and actual charge-offs as they occur without regard to any changes in our allowance for uncollectible loans, interest and fees receivable (in periods where applicable). Second, for managed receivables data, we amortize certain fees (such as annual and merchant fees) associated with our Fair Value Receivables over the expected life of the corresponding receivable and recognize certain costs, such as claims made under credit deferral programs, when paid. Under fair value accounting, these fees are recognized when billed or upon receivable acquisition. Third, managed receivables data excludes the impacts of equity in income of equity method investees.

As of January 1, 2022, we changed the name of combined net charge-offs to combined principal net charge-offs and the combined net charge-off ratio, annualized to combined principal net charge-off ratio, annualized. 

These changes reflect that we now subtract finance charge-offs in the calculation of combined principal net charge-offs and the related ratio. 

We believe this revised calculation is more in line with the calculations used by our peers. 

All prior periods have been restated to reflect this new methodology.

A reconciliation of our operating revenues, net of finance and fee charge-offs, to comparable amounts used in our calculation of Total managed yield ratios are as follows:

At or for the Three Months Ended

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Removal of expense accruals under GAAP

Removal of finance charge-offs

Total managed yield

The calculation of Combined net charge offs used in our Combined net charge-off ratio, annualized is as follows:

These changes reflect that we now subtract finance charge-offs in the calculation of combined principal net charge-offs and the related ratio. 

We believe this revised calculation is more in line with the calculations used by our peers. 

All prior periods have been restated to reflect this new methodology.

The calculation of Combined principal net charge-offs used in our Combined principal net charge-off ratio, annualized is as follows:

At or for the Three Months Ended

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Gross charge-offs on non-fair value accounts

Finance charge-offs (2)

Recoveries on non-fair value accounts

Combined net charge-offs

Combined principal net charge-offs

(1) As discussed in more detail above in "—Overview," on January 1, 2022, we implemented the fair value method under ASU 2016-13 for those private label credit and general purpose credit card receivables that were previously accounted for under the amortized cost method.

(2) Finance charge-offs are included as a component of our Provision for losses on loans, interest and fees receivable recorded at net realizable value and Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value in the accompanying consolidated statements of income.

Our delinquency and charge-off data at any point in time reflect the credit performance of our managed receivables.

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Our strategy for managing delinquency and receivables losses consists of account management throughout the life of the receivable.

This strategy includes credit line management and pricing based on the risks.

See also our discussion of collection strategy under “Collection Strategy”

This strategy includes credit line management and pricing based on the risks. See also our discussion of collection strategy under “Collection Strategy”

in Item 1, “Business”

of our Annual Report on Form 10-K for the year ended December 31, 2021.

The following table presents the delinquency trends of the receivables we manage within our Credit and Other Investments segment, as well as charge-off data and other non-GAAP managed receivables statistics (in thousands;

The following table presents the delinquency trends of the receivables we manage within our CaaS segment, as well as charge-off data and other non-GAAP managed receivables statistics (in thousands;

percentages of total):

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Period-end managed receivables

30 or more days past due

60 or more days past due

30-59 days past due

60-89 days past due

90 or more days past due

Averaged managed receivables

Average managed receivables

Total managed yield ratio, annualized (2)

Combined net charge-off ratio, annualized (2)

Combined principal net charge-off ratio, annualized (3)

At or for the Three Months Ended

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Period-end managed receivables

30 or more days past due

60 or more days past due

30-59 days past due

60-89 days past due

90 or more days past due

Averaged managed receivables

Average managed receivables

Total managed yield ratio, annualized (2)

Combined net charge-off ratio, annualized (2)

Combined principal net charge-off ratio, annualized (3)

(2) The Total managed yield ratio, annualized is calculated using the annualized total managed yield as the numerator and period-end average managed receivables as the denominator.

(2) The Combined net charge-off ratio, annualized is calculated using the annualized combined net chargeoffs as the numerator and period-end average managed receivables as the denominator.

The following table presents additional trends and data with respect to our point-of-sale (“Retail”) and direct-to-consumer (“Direct”) receivables (dollars in thousands).

(3) The Combined principal net charge-off ratio, annualized is calculated using the annualized combined principal net charge-offs as the numerator and period-end average managed receivables as the denominator.

The following table presents additional trends and data with respect to our private label credit and general purpose credit card receivables (dollars in thousands).

Results of our legacy credit card receivables portfolios are excluded:

Retail - At or for the Three Months Ended

Private Label Credit - At or for the Three Months Ended

Fair Value Receivables

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Period-end managed receivables

30 or more days past due

60 or more days past due

30-59 days past due

60-89 days past due

90 or more days past due

Receivables purchased during period

Retail - At or for the Three Months Ended

Private Label Credit - At or for the Three Months Ended

Fair Value Receivables

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Period-end managed receivables

30 or more days past due

60 or more days past due

30-59 days past due

60-89 days past due

90 or more days past due

Receivables purchased during period

Direct - At or for the Three Months Ended

General Purpose Credit Card - At or for the Three Months Ended

Fair Value Receivables

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Period-end managed receivables

30 or more days past due

60 or more days past due

30-59 days past due

60-89 days past due

90 or more days past due

Receivables purchased during period

Direct - At or for the Three Months Ended

General Purpose Credit Card - At or for the Three Months Ended

Fair Value Receivables

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Period-end managed receivables

30 or more days past due

60 or more days past due

30-59 days past due

60-89 days past due

90 or more days past due

Receivables purchased during period

The following discussion relates to the tables above.

Managed receivables levels.

 We have continued to experience overall period-over-period quarterly receivables growth with over $459.0 million in net receivables growth associated with the point-of-sale and direct-to-consumer products offered by our bank partners between September 2020 and September 2021.

The addition of large point-of-sale retail partners and ongoing purchases of receivables arising in accounts issued by our bank partners to customers of our existing retail partners helped net growth in our point-of-sale receivables by $194.6 million and $128.3 million in the twelve months ended September 30, 2021 and 2020, respectively.

Our direct-to-consumer receivables experienced net growth of over $264.4 million and $85.2 million, net during the twelve months ended September 30, 2021 and 2020, respectively.

The decline in the pace of receivables growth for our direct-to-consumer receivables in 2020 and through the second quarter of 2021 was largely driven by reduced consumer demand for general-purpose card products coupled with higher payments on outstanding amounts largely as a result of the various government stimulus programs in effect.

We have noted recent recoveries in consumer spending behavior and increased demand for general-purpose credit products, that have helped to increase the overall combined managed receivables levels, and we currently expect this trend to continue through the remainder of the year (absent further potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable). Growth in future periods largely is dependent on the addition of new retail partners to the point-of-sale origination platform, the timing and size of solicitations within the direct-to-consumer platform by our bank partner, as well as purchase activity of consumers.

Further, the loss of existing retail partner relationships could adversely affect new loan acquisition levels. Our top five retail partnerships accounted for over 65% of the above referenced Retail period-end managed receivables outstanding as of September 30, 2021. 

 We have continued to experience overall period-over-period quarterly receivables growth with over $589.1 million in net receivables growth associated with the private label credit and general purpose credit card products offered by our bank partners from March 31, 2021 to March 31, 2022.

The addition of large private label credit retail partners and ongoing purchases of receivables arising in accounts issued by our bank partners to customers of our existing retail partners helped grow our private label credit receivables by $142.4 million in the twelve months ended March 31, 2022.

Our general purpose credit card receivables grew by $446.7 million, net during the twelve months ended March 31, 2022.

We have noted recent recoveries in consumer spending behavior that have helped to increase the overall combined managed receivables levels, and we currently expect this trend to continue into 2022 (absent further unknown impacts COVID-19, related government stimulus and relief measures and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable). Growth in future periods largely is dependent on the addition of new retail partners to the private label credit origination platform, the timing and size of solicitations within the general purpose credit card platform by our bank partner, as well as purchase activity of consumers.

Further, the loss of existing retail partner relationships could adversely affect new loan acquisition levels. Our top five retail partnerships accounted for over 65% of the above-referenced Retail period-end managed receivables outstanding as of March 31, 2022. 

Delinquencies.

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These rates exclude receivables that have been charged off.

As we continue to acquire newer point-of-sale and direct-to-consumer receivables, we expect our delinquency rates to increase when compared to the same periods in prior years.

Our delinquency rates have continued to be somewhat lower than what we ultimately expect for our new point-of-sale and direct-to-consumer receivables given the continued growth and age of the related accounts as well as government stimulus efforts. The aforementioned positive impacts related to government stimulus programs have served to increase consumer payment rates beyond expectations.

As we continue to acquire newer private label credit and general purpose credit card receivables, we expect our delinquency rates to increase when compared to the same periods in prior years.

Our delinquency rates have continued to be somewhat lower than what we ultimately expect for our new private label credit and general purpose credit card receivables given the continued growth and age of the related accounts as well as government stimulus efforts. The aforementioned positive impacts related to government stimulus programs have served to increase consumer payment rates beyond expectations.

The impact due to growth in the receivable base can be seen in periods of large growth in the charts above which result in lower delinquency rates.

If and when growth for these product lines moderate, with no further government stimulus programs or other interventions, we expect increased overall delinquency rates when compared to prior periods, as the existing receivables mature through their peak charge-off periods.

Additionally, in accordance with prescribed guidance discussed elsewhere in this Report, certain consumers negatively impacted by COVID-19 have been offered short-term payment deferrals and fee waivers.

Additionally, in accordance with prescribed guidance discussed elsewhere in this Report, certain consumers negatively impacted by COVID-19 have been provided short-term payment deferrals and fee waivers.

Receivables enrolled in these short-term payment deferrals continue to accrue interest and their delinquency status will not change through the deferment period.

We continue to actively work with consumers that indicate hardship as a result of COVID-19, however, the number of impacted consumers continues to be a diminishing part of our overall receivable base.

We continue to actively work with consumers that indicate hardship as a result of COVID-19, however, the number of impacted consumers is a small and diminishing part of our overall receivable base.

In order to establish appropriate reserves for this population we considered various factors such as subsequent payment behavior and additional requests by the consumer for further deferrals or hardship claims.

In 2020 and early 2021, nearly all of these customers were considered current and thus not included as delinquent receivables. The exclusion of these accounts resulted in lower delinquency rates for those periods than we would have otherwise expected.

Given this, and absent the potential impacts COVID-19 and related economic impacts, may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable and the corresponding impact on our delinquency rates, we expect to continue to see seasonal payment patterns on these receivables that impact our delinquencies in line with prior periods.

For example, delinquency rates historically are lower in the first quarter of each year due to the benefits of seasonally strong payment patterns associated with year-end tax refunds for most consumers.

In 2020 and early 2021, nearly all of these customers were considered current and thus the receivables underlying their accounts were not considered delinquent. The exclusion of these accounts resulted in lower delinquency rates for those periods than we would have otherwise expected.

Given this, and absent the potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable and the corresponding impact on our delinquency rates, we expect to continue to see seasonal payment patterns on these receivables that impact our delinquencies in line with prior periods.

Total managed yield ratio, annualized .

 We continue to experience growth in newer, higher yielding receivables, including direct-to-consumer receivables and our point-of-sale receivables.

 We continue to experience growth in newer, higher yielding receivables, including private label credit and general purpose credit card receivables.

While this growth has contributed to consistently higher total managed yield ratios, we expect this growth also will continue to (absent the beneficial impacts of government stimulus programs discussed elsewhere) result in higher charge-off and delinquency rates than those experienced historically.

Direct-to-consumer receivables tend to have higher total yields than point-of-sale receivables, so declines in the growth of our managed receivables that includes direct-to-consumer receivables in periods noted above, contributed to slightly lower total managed yield ratios for those periods in 2021 and 2020.

General purpose credit card receivables tend to have higher total yields than private label credit receivables, so declines in the growth of our managed receivables that includes general purpose credit card receivables in periods noted above, contributed to slightly lower total managed yield ratios for those periods in 2021 and 2020.

Additionally, lower delinquencies (and thus associated fee billings) noted during 2020 and 2021, in addition to reductions in the prime rate that corresponds to lower yields charged on credit card receivables, contributed to an overall lower total managed yield ratio.

Recent growth in our direct-to-consumer receivables in excess of the growth experienced in our point-of-sale receivables, along with expected increased delinquency rates associated with those receivables, has resulted in an increase in our total managed yield ratio. We currently expect continued higher growth rates for our direct-to consumer receivables when compared to growth rates for our point-of-sale receivables and, as such, expect to see continued managed yield ratios similar to those experienced in the third quarter of 2021. Our fourth quarter 2019 total managed yield ratio excludes the impact of $37.8 million associated with reductions in reserves associated with one of our portfolios.

Absent the potential impacts COVID-19 may have on our ability to acquire new receivables or the impact it may have on consumers' ability to make payments on outstanding loans and fees receivable, we expect total managed yield ratios to continue to fluctuate somewhat based on the relative mix of growth in point-of-sale receivables and higher yielding direct-to-consumer credit card receivables. 

Combined net charge-off ratio, annualized.

 We charge off our Credit and Other Investments segment receivables when they become contractually more than 180 days past due.

Recent growth in our general purpose credit card receivables in excess of the growth experienced in our private label credit receivables, along with expected increased delinquency rates associated with those receivables, has resulted in an increase in our total managed yield ratio. We currently expect continued higher growth rates for our general purpose credit card receivables when compared to growth rates for our private label credit receivables and, as such, expect to see managed yield ratios similar to those experienced in the first quarter of 2022 and fourth quarter of 2021. 

Combined principal net charge-off ratio, annualized.

 We charge off our CaaS segment receivables when they become contractually more than 180 days past due.

For all of our products, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death.

However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or an estate large enough to pay the debt in full.

Growth within our direct-to-consumer receivables (as a percent of outstanding receivables) has resulted in increases in our charge-off rates over time.

The first and second quarters 2020 combined net charge-off ratios reflect receivable growth during 2019 reaching peak charge-off during those periods.

Slightly offsetting the combined net charge-off ratio in the second quarter of 2020 are the positive impacts of a bulk sale of charged off receivables in that period.

Absent this sale, the combined net charge-off ratio would have been 29.1%.

Improvements in our delinquency rates throughout 2020 and continuing throughout 2021 as a result of the increases in customer payments noted above have resulted in lower charge-offs than we would have otherwise expected.

As we continue to experience lower than expected delinquency rates, we expect these improvements will continue to result in lower combined net charge-off rates for the remainder of 2021 and early 2022 (with some increases expected over current ratios), when compared to comparable prior periods (i.e., those periods prior to COVID-19 and the resulting government stimulus programs).

Notwithstanding the improvements we have recently experienced in delinquency rates, we expect the continued growth in point-of-sale and direct-to-consumer receivables to result in higher charge-offs than those experienced in 2020.

When the principal of an outstanding loan is charged off, the related finance charges and fees are simultaneously charged off, resulting in a reduction to our Total managed yield.

Growth within our general purpose credit card receivables (as a percent of outstanding receivables) has resulted in increases in our charge-off rates over time.

The second quarter 2020 combined principal net charge-off ratio reflects receivable growth during 2019 reaching peak charge-off during that period.

Slightly offsetting the combined principal net charge-off ratio in the second quarter of 2020 are the positive impacts of a bulk sale of charged-off receivables in that period.

Absent this sale, the combined principal net charge-off ratio would have been 20.5%.

Improvements in our delinquency rates throughout 2020 and continuing in the first three quarters of 2021 as a result of the increases in customer payments noted above resulted in lower charge-offs than we would have otherwise expected.

The recent increase in the combined principal net charge-off ratio, net is a reflection of the increased delinquencies noted in the latter part of 2021, as we continue to see receivables return to historically normalized levels. 

As delinquency rates return to historically normalized levels (i.e., those periods prior to COVID-19 and the related government stimulus programs), we expect combined principal net charge-off rates for the remainder of 2022 to continue to increase, when compared to comparable prior periods.

This expectation is based on the following:

(1) higher expected charge off rates on the point-of-sale and direct-to-consumer receivables corresponding with higher yields on these receivables, (2) continued testing of receivables with higher risk profiles, which could lead to periodic increases in combined net charge-offs, (3) recent vintages reaching peak charge-off periods, (4) our receivables growth during 2021 and (5) negative impacts on some consumers' ability to make payments on outstanding loans and fees receivable as a result of COVID-19 and the related economic impacts.

(1) higher expected charge off rates on the private label credit and general purpose credit card receivables corresponding with higher yields on these receivables, (2) continued testing of receivables with higher risk profiles, which could lead to periodic increases in combined principal net charge-offs, (3) recent vintages reaching peak charge-off periods, (4) our receivables growth during 2021 and (5) negative impacts on some consumers' ability to make payments on outstanding loans and fees receivable as a result of COVID-19 and the related economic impacts.

Further impacting our charge-off rates are the timing and size of solicitations that serve to minimize charge off rates in periods of high receivable acquisitions but also exacerbate charge-off rates in periods of lower receivable acquisitions.

The potential impacts COVID-19 and related economic impacts, government stimulus and relief measures may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable could lead to changes in these expectations.

We previously referred to this financial measure as "combined gross charge-off ratio." We have renamed this financial measure to more accurately describe its content and have not changed the calculation of this measure. 

Our average annual percentage rate (“APR”) charged to customers varies by receivable type, credit history and other factors.

The APR for receivables originated through our point-of-sale platform range from 0% to 36.0%.

For direct-to-consumer receivables, APR ranges from 19.99% to 36.0%.

The average annual percentage rate (“APR”) charged to customers varies by receivable type, credit history and other factors.

The APR for receivables originated through our private label credit platform range from 0% to 36.0%.

For general purpose credit card receivables, APR ranges from 19.99% to 36.0%.

We have experienced minor fluctuations in our average APR based on the relative product mix of receivables purchased during a period.

We currently expect our average APRs in the remainder of 2021 and early 2022 to remain consistent with average APRs over the past several quarters;

however, the timing and relative mix of receivables acquired could cause some minor fluctuations.

We currently expect our average APRs in 2022 to remain consistent with average APRs over the past several quarters;

however, the timing and relative mix of receivables acquired could cause some minor fluctuations. None of the programs we service have APRs in excess of 36%.

Receivables purchased during period.

Receivables purchased during the period reflect the gross amount of investments we have made in a given period, net of any credits issued to consumers during that same period.

For most periods presented, our point-of-sale receivable purchases experienced overall growth largely based on the addition of new point-of-sale retail partners, as previously discussed.

For most periods presented, our private label credit receivable purchases experienced overall growth largely based on the addition of new private label credit retail partners, as previously discussed.

We may experience periodic declines in these acquisitions due to:

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or the timing of new customer originations by our lending partners. We currently expect to see increases in receivable acquisitions when compared to the same period in prior years.

Our direct-to-consumer receivable acquisitions tend to have more volatility based on the issuance of new credit card accounts by our lending partner and the availability of capital to fund new purchases.

Nonetheless, absent the potential impacts COVID-19 may have on our ability to acquire new receivables or the impact it may have on consumers' ability to make payments on outstanding loans and fees receivable, we expect continued growth in the acquisition of these receivables for the remainder of 2021 and 2022.

Our general purpose credit card receivable acquisitions tend to have more volatility based on the issuance of new credit card accounts by our lending partner and the availability of capital to fund new purchases.

Auto Finance Segment

CAR, our auto finance platform acquired in April 2005, principally purchases and/or services loans secured by automobiles from or for, and also provides floor-plan financing for, a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here used car business. We have expanded these operations to also include certain installment lending products in addition to our traditional loans secured by automobiles both in the U.S.

Collectively, as of September 30, 2021, we served more than 600 dealers through our Auto Finance segment in 33 states, the District of Columbia and two U.S.

Collectively, as of March 31, 2022, we served more than 600 dealers through our Auto Finance segment in 33 states, the District of Columbia and two U.S.

Non-GAAP Financial Measures

For reasons set forth above within our Credit and Other Investments segment discussion, we also provide managed receivables-based financial, operating and statistical data for our Auto Finance segment.

For reasons set forth above within our CaaS segment discussion, we also provide managed receivables-based financial, operating and statistical data for our Auto Finance segment.

Reconciliation of the auto finance managed receivables data to GAAP data requires an understanding that our managed receivables data are based on billings and actual charge-offs as they occur, without regard to any changes in our allowance for uncollectible loans, interest and fees receivable. Similar to the managed calculation above, the average managed receivables used in the ratios below is calculated based on the quarter ending balances of consolidated receivables.

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Other revenue

Finance charge-offs

Total managed yield

The calculation of Combined net charge offs used in our Combined net charge-off ratio follows (in millions):

These changes reflect that we now subtract finance charge-offs in the calculation of combined principal net charge-offs and the related ratio. 

We believe this revised calculation is more in line with the calculations used by our peers. 

All prior periods have been restated to reflect this new methodology.

The calculation of Combined principal net charge-offs used in our Combined principal net charge-off ratio, annualized follows (in millions):

At or for the Three Months Ended

Gross charge-offs

Combined net charge-offs

Finance charge-offs (1)

Combined principal net charge-offs

(1) Finance charge-offs are included as a component of our Provision for losses on loans, interest and fees receivable recorded at net realizable value in the accompanying consolidated statements of income.

Financial, operating and statistical metrics for our Auto Finance segment are detailed (in thousands;

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Period-end managed receivables

30 or more days past due

60 or more days past due

30-59 days past due

60-89 days past due

90 or more days past due

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Total managed yield ratio, annualized (1)

Combined net charge-off ratio, annualized (2)

Combined principal net charge-off ratio, annualized (2)

Recovery ratio, annualized (3)

(1) The total managed yield ratio, annualized is calculated using the annualized Total managed yield as the numerator and Period-end average managed receivables as the denominator.

(2) The Combined net charge-off ratio, annualized is calculated using the annualized Combined net chargeoffs as the numerator and Period-end average managed receivables as the denominator.

(2) The Combined principal net charge-off ratio, annualized is calculated using the annualized Combined principal net charge-offs as the numerator and Period-end average managed receivables as the denominator.

(3) The Recovery ratio, annualized is calculated using annualized Recoveries as the numerator and Period-end average managed receivables as the denominator.

Managed receivables.

 Absent the potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable, we expect modest growth in the level of our managed receivables for the remainder of 2021 and early 2022 when compared to the same periods in prior years as CAR expands within its current geographic footprint and continues plans for service area expansion.

 Absent the potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable, we expect modest growth in the level of our managed receivables for 2022 when compared to the same periods in prior years as CAR expands within its current geographic footprint and continues plans for service area expansion.

Although we are expanding our CAR operations, the Auto Finance segment faces strong competition from other specialty finance lenders, as well as the indirect effects on us of our buy-here, pay-here dealership partners’

competition with other franchise dealerships for consumers interested in purchasing automobiles.

Included in the fourth quarter of 2020 was an unplanned bulk purchase of receivables that increased our period over period growth and kept receivables levels higher in the first quarter of 2021 when compared to the first quarter of 2020.

While we continually evaluate bulk purchases of receivables, the timing and size of the purchases are difficult to predict. Although receivable levels in each period of 2020 were roughly equal to those in 2019 (with the exception of the fourth quarter of 2020), this primarily reflects strong customer payments throughout 2020 offsetting receivables growth when compared to the same periods of 2019. 

Included in the fourth quarter of 2020 was an unplanned bulk purchase of receivables that increased our period over period growth and kept receivables levels higher in the first quarter of 2021.

While we continually evaluate bulk purchases of receivables, the timing and size of the purchases are difficult to predict. 

Delinquencies.

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We have experienced modest fluctuations in our total managed yield ratio largely impacted by the relative mix of receivables in various products offered by CAR as some shorter term product offerings tend to have higher yields.

Yields on our CAR products over the last few quarters are consistent with our expectations.

Yields on our CAR products over the last few quarters are consistent with our expectations over the coming quarters.

Further, we expect our total managed yield ratio to remain in line with current experience, with moderate fluctuations based on relative growth or declines in average managed receivables for a given quarter.

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As such, growth in that region also will serve to slightly depress our overall total managed yield ratio, yet we expect growth in that region to continue to generate attractive returns on assets.

Combined net charge-off ratio, annualized and recovery ratio, annualized.

Combined principal net charge-off ratio, annualized and recovery ratio, annualized.

We charge off auto finance receivables when they are between 120 and 180 days past due, unless the collateral is repossessed and sold before that point, in which case we will record a charge off when the proceeds are received.

Combined net charge-off ratios in the above table reflect the lower delinquency rates we have recently experienced.

While we anticipate our charge-offs to be incurred ratably across our portfolio of dealers, specific dealer-related losses are difficult to predict and can negatively influence our combined net charge-off ratio.

This is evidenced by the slightly elevated combined net charge-off rate we experienced during the fourth quarter of 2019.

Combined principal net charge-off ratios in the above table reflect the lower delinquency rates we have recently experienced.

In addition, used car prices are near historic levels, further improving recovery and lowering charge-offs. 

We continually re-assess our dealers and will take appropriate action if we believe a particular dealer’s risk characteristics adversely change.

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plus 3) servicing, other income and other activities collectively included in our other operating income category on our consolidated statements of income;

The denominator used represents our average managed receivables.

Combined net charge-off ratio, annualized .

Represents an annualized fraction, the numerator of which is the aggregate consolidated amounts of finance charge, fee and principal losses from consumers unwilling or unable to pay their receivables balances, as well as from bankrupt and deceased consumers, less current-period recoveries (including recoveries from dealer reserve offsets for our CAR operations) and the related portion of unamortized fees and discounts, as reflected in Note 2 “Significant Accounting Policies and Consolidated Financial Statement Components—Loans, Interest and Fees Receivable”, and the denominator of which is average managed receivables.

minus 4) finance charge and fee losses from consumers unwilling or unable to pay their receivables balances, as well as from bankrupt and deceased consumers. The denominator used represents our average managed receivables.

Combined principal net charge-off ratio, annualized .

Represents an annualized fraction, the numerator of which is the aggregate consolidated amounts of principal losses from consumers unwilling or unable to pay their receivables balances, as well as from bankrupt and deceased consumers, less current-period recoveries (including recoveries from dealer reserve offsets for our CAR operations), as reflected in Note 2 “Significant Accounting Policies and Consolidated Financial Statement Components—Loans, Interest and Fees Receivable”, and the denominator of which is average managed receivables.

Recoveries on managed receivables represent all amounts received related to managed receivables that previously have been charged off, including payments received directly from consumers and proceeds received from the sale of those charged-off receivables.

Recoveries typically have represented less than 2% of average managed receivables. 

LIQUIDITY, FUNDING AND CAPITAL RESOURCES

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We believe that our actions taken to date, future cash provided by operating activities, availability under our debt facilities, and access to the capital markets will provide adequate resources to fund our operating and financing needs.

Our primary focus is expanding the reach of our financial technology so that we grow our point-of-sale and direct-to-consumer credit card receivables and generate revenues from these investments that will allow us to maintain consistent profitability.

Increases in new and existing retail partnerships and the expansion of our investments in direct-to-consumer finance products have resulted in year-over-year growth of total managed receivables levels, and we expect growth to continue in the coming quarters.

Accordingly, we will continue to focus on (i) obtaining the funding necessary to meet capital needs required by the growth of our receivables, (ii) adding new retail partners to our platform to continue growth of the point-of-sale receivables, (iii) continuing growth in direct-to-consumer credit card receivables and (iv) effectively managing costs.

All of our Credit and Other Investments segment’s structured financing facilities are expected to amortize down with collections on the receivables within their underlying trusts and should not represent significant refunding or refinancing risks to our consolidated balance sheets.

Facilities that could represent near-term significant refunding or refinancing needs (within the next 24 months) as of September 30, 2021 are those associated with the following notes payable in the amounts indicated (in millions):

Our primary focus is expanding the reach of our financial technology so that we grow our private label credit and general purpose credit card receivables and generate revenues from these investments that will allow us to maintain consistent profitability.

Increases in new and existing retail partnerships and the expansion of our investments in general purpose credit card finance products have resulted in year-over-year growth of total managed receivables levels, and we expect growth to continue in the coming quarters.

Accordingly, we will continue to focus on (i) obtaining the funding necessary to meet capital needs required by the growth of our receivables, (ii) adding new retail partners to our platform to continue growth of the private label credit receivables, (iii) continuing growth in general purpose credit card receivables and (iv) effectively managing costs.

All of our CaaS segment’s structured financing facilities are expected to amortize down with collections on the receivables within their underlying trusts and should not represent significant refunding or refinancing risks to our consolidated balance sheets.

Facilities that could represent near-term significant refunding or refinancing needs (within the next 24 months) as of March 31, 2022 are those associated with the following notes payable in the amounts indicated (in millions):

Revolving credit facility (expiring July 15, 2022) that is secured by certain receivables and restricted cash

Revolving credit facility (expiring August 15, 2022) that is secured by certain receivables and restricted cash

Revolving credit facility (expiring October 15, 2022) that is secured by certain receivables and restricted cash

Revolving credit facility (expiring April 21, 2023) that is secured by certain receivables and restricted cash

Revolving credit facility (expiring October 30, 2023) that is secured by certain receivables and restricted cash

Revolving credit facility (expiring February 15, 2024) that is secured by certain receivables and restricted cash

Based on the state of the debt capital markets, the performance of our assets that serve as security for the above facilities, and our relationships with lenders, we view imminent refunding or refinancing risks with respect to the above facilities as low in the current environment, and we believe that the quality of our new receivables should allow us to raise more capital through increasing the size of our facilities with our existing lenders and attracting new lending relationships. Further details concerning the above debt facilities and other debt facilities we use to fund the acquisition of receivables are provided in Note 10, “Notes Payable,” to our consolidated financial statements included herein.

In the three and nine months ended September 30, 2021, we repurchased $0.9 million and $22.1 million, respectively, in face amount of our outstanding convertible senior notes for $1.6 million and $30.4 million, respectively, in cash (including accrued interest). The repurchase resulted in a loss of approximately $0.9 million and $14.1 million, respectively (including the convertible senior notes’

In November 2021, we issued $150.0 million aggregate principal amount of senior notes (included on our consolidated balance sheet as "Senior notes, net").

The senior notes bear interest at the rate of 6.125% per annum.

Interest on the senior notes is payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year.

The senior notes will mature on November 30, 2026.

In June and July 2021, we issued an aggregate of 3,188,533 shares of 7.625% Series B Cumulative Perpetual Preferred Stock, liquidation preference of $25.00 per share (the “Series B Preferred Stock”) for net proceeds of approximately $76.5 million after deducting underwriting discounts and commissions, but before deducting expenses and the structuring fee.

We pay cumulative cash dividends on the Series B Preferred Stock, when and as declared by our Board of Directors, in the amount of $1.90625 per share each year, which is equivalent to 7.625% of the $25.00 liquidation preference per share.

We repurchased $22.1 million in face amount of our convertible senior notes during the year ended December 31, 2021 for $30.4 million in cash (including accrued interest).

The repurchase resulted in a loss of approximately $14.1 million (including the convertible senior notes’

applicable share of deferred costs, which were written off in connection with the repurchase).

Upon acquisition, the notes were retired.

On June 17, 2021, we provided notice of redemption of all outstanding convertible senior notes.

Upon the redemption notice, holders were allowed to convert the convertible senior notes in lieu of the redemption consideration. At the expiration of the conversion option, holders with $11.8 million in principal amount of the convertible senior notes had elected to convert.

In June 2021, we provided notice of redemption of all convertible senior notes.

Upon the redemption notice, holders were allowed to convert the convertible senior notes in lieu of the redemption consideration.

At the expiration of the conversion option, holders with $11.8 million in principal amount of the convertible senior notes had elected to convert.

Upon final determination of the conversion consideration amount, we delivered to holders of the converting notes, cash of $1,000 per $1,000 aggregate principal amount of notes and $12.1 million of cash in respect of the remainder of the conversion obligation.

The redemption resulted in a loss of approximately $15.3 million (including the convertible senior notes’

The redemption resulted in a loss of approximately $15.3 million (including the convertible senior notes’

applicable share of deferred costs, which were written off in connection with the repurchase).

Upon redemption, the notes were retired.

On November 14, 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $1.00 per unit to an unrelated third party.

On November 14, 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $1.00 per unit to an unrelated third party.

The units carry a 16% preferred return to be paid quarterly, with up to 6 percentage points of the preferred return to be paid through the issuance of additional units or cash, at our election.

On March 30, 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms.

In March 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms.

The proceeds from the transaction were used for general corporate purposes.

We have included the issuance of these Class B preferred units as temporary noncontrolling interest on the consolidated balance sheets.

Dividends paid on the Class B preferred units are deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders. See Note 12, “Net Income Attributable to Controlling Interests Per Common Share”

Dividends paid on the Class B preferred units are deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders.

See Note 11, “Net Income Attributable to Controlling Interests Per Common Share”

to our consolidated financial statements for more information.

On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove Ventures, LLC, a Nevada limited liability company (“Dove”).

The agreement provided for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding. On December 27, 2019, the Company issued 400,000 shares of its Series A Preferred Stock with an aggregate initial liquidation preference of $40.0 million, in exchange for full satisfaction of the $40.0 million that the Company owed Dove under the Loan and Security Agreement. Dividends on the preferred stock are 6% per annum (cumulative, non-compounding) and are payable as declared, and in preference to any common stock dividends, in cash.

The agreement provided for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding.

On December 27, 2019, the Company issued 400,000 shares of its Series A Preferred Stock with an aggregate initial liquidation preference of $40.0 million, in exchange for full satisfaction of the $40.0 million that the Company owed Dove under the Loan and Security Agreement.

Dividends on the preferred stock are 6% per annum (cumulative, noncompounding) and are payable as declared, and in preference to any common stock dividends, in cash.

The Series A Preferred Stock is perpetual and has no maturity date.

The Company may, at its option, redeem the shares of Series A Preferred Stock on or after January 1, 2025 at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends.

At the request of the holders of a majority of the shares of the Series A Preferred Stock, the Company is required to offer to redeem all of the Series A Preferred Stock at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends, at the option of the holders thereof, on or after January 1, 2024. Upon the election by the holders of a majority of the shares of Series A Preferred Stock, each share of the Series A Preferred Stock is convertible into the number of shares of the Company’s common stock as is determined by dividing (i) the sum of (a) $100 and (b) any accumulated and unpaid dividends on such share by (ii) an initial conversion price equal to $10 per share, subject to adjustment in certain circumstances to prevent dilution.

In June and July 2021, we issued an aggregate of 3,188,533 shares of 7.625% Series B Cumulative Perpetual Preferred Stock, liquidation preference of $25.00 per share (the “Series B Preferred Stock”) for net proceeds of approximately $76.5 million after deducting underwriting discounts and commissions, but before deducting expenses and the structuring fee. 

We pay cumulative cash dividends on the Series B Preferred Stock, when and as declared by our Board of Directors, in the amount of $1.90625 per share each year, which is equivalent to 7.625% of the $25.00 liquidation preference per share.

Upon the election by the holders of a majority of the shares of Series A Preferred Stock, each share of the Series A Preferred Stock is convertible into the number of shares of the Company’s common stock as is determined by dividing (i) the sum of (a) $100 and (b) any accumulated and unpaid dividends on such share by (ii) an initial conversion price equal to $10 per share, subject to adjustment in certain circumstances to prevent dilution.

The use of the London Interbank Offered Rate (“LIBOR”) is expected to be phased out by mid-2023.

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In any event, the majority of our revolving credit facilities mature prior to the expected phase out of LIBOR.

At this time, there is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate;

however, we continue to monitor the efforts of various parties, including government agencies, seeking to identify an alternative rate to replace LIBOR.

Going forward, we will work with our lenders to use suitable alternative reference rates for our financial instruments.

Recently, we replaced LIBOR with SOFR for one of our facilities. We will work with our lenders to use suitable alternative reference rates for our financial instruments.

We will continue to monitor, assess and plan for the phase out of LIBOR;

however, we currently do not expect the impact to be material to the Company.

At September 30, 2021, we had $167.0 million in unrestricted cash held by our various business subsidiaries.

At March 31, 2022, we had $373.5 million in unrestricted cash held by our various business subsidiaries.

Because the characteristics of our assets and liabilities change, liquidity management has been a dynamic process for us, driven by the pricing and maturity of our assets and liabilities.

We historically have financed our business through cash flows from operations, asset-backed structured financings and the issuance of debt and equity.

Details concerning our cash flows for the nine months ended September 30, 2021 and 2020 are as follows:

During the nine months ended September 30, 2021, we generated $140.0 million of cash flows from operations compared to our generating $147.8 million of cash flows from operations during the nine months ended September 30, 2020.

The decrease in cash provided by operating activities was principally related to slight decreases in finance and fee collections associated with point-of-sale and direct-to-consumer receivables as government stimulus payments declined and consumer payments return to normalized levels as well as a bulk sale of charge-off accounts in the nine months ended September 30, 2020 which resulted in proceeds of $5.0 million. 

During the nine months ended September 30, 2021, we used $294.5 million of cash in our investing activities, compared to use of $180.9 million of cash in investing activities during the nine months ended September 30, 2020. This increase in cash used is primarily due to significant increases in the level of net investments in the point-of-sale and direct-to-consumer receivables relative to the same period in 2020 primarily due to increased consumer spending offset by strong customer payments noted in the first and second quarters of 2021.

While we are now seeing some increases in consumer spending behavior, the impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable are unknown. 

During the nine months ended September 30, 2021, we generated $110.3 million of cash in financing activities, compared to our generating of $33.6 million of cash in financing activities during the nine months ended September 30, 2020.

In both periods, the data reflect borrowings associated with point-of-sale and direct-to-consumer receivables offset by net repayments of amortizing debt facilities as payments are made on the underlying receivables that serve as collateral.

Further, during the second and third quarters of 2021, we issued Series B Preferred Stock, which resulted in net proceeds (after associated expenses) of $75.3 million. Offsetting capital raised through the preferred stock issuance was the repurchase and redemption of $33.8 million in face amount of our outstanding convertible senior notes for $54.3 million in cash (including accrued interest). The repurchase and redemption resulted in an aggregate loss of approximately $29.4 million (including the convertible senior notes’

applicable share of deferred costs, which were written off in connection with the repurchase).

Further, on March 30, 2020, a wholly-owned subsidiary issued 50.0 million Class B preferred units at a purchase price of $1.00 per unit.

Details concerning our cash flows for the three months ending March 31, 2022 and 2021 are as follows:

During the three months ended March 31, 2022, we generated $80.7 million of cash flows from operations compared to our generating $52.8 million of cash flows from operations during the three months ended March 31, 2021.

The increase in cash provided by operating activities was principally related to an increase in finance and fee collections associated with growing private label credit and general purpose credit card receivables and increased recoveries on charged-off receivables.

Offsetting these collections were increased year over year payments made to pay federal and state taxes.

Collections on receivables have generally benefited from increased consumer payments as a result of government stimulus payments. As these stimulus payments decrease, we expect consumer payments to return to historical levels. 

During the three months ended March 31, 2022, we used $102.6 million of cash in our investing activities, compared to use of $2.2 million of cash in investing activities during the three months ended March 31, 2021. This increase in cash used is primarily due to significant increases in the level of net investments in the private label credit and general purpose credit card receivables relative to the same period in 2021. While we continue to see increases in consumer spending behavior, the impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable are unknown. 

During the three months ended March 31, 2022, we used $79.3 million of cash in financing activities, compared to our use of $66.1 million of cash in financing activities during the three months ended March 31, 2021.

In both periods, the data reflect borrowings associated with private label credit and general purpose credit card receivables offset by net repayments of amortizing debt facilities as payments are made on the underlying receivables that serve as collateral. Further, during the first quarter of 2022, we repurchased (and subsequently retired) $65.2 million of our outstanding common stock pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations. 

Beyond our immediate financing efforts discussed throughout this Report, we will continue to evaluate debt and equity issuances as a means to fund our investment opportunities.

We expect to take advantage of any opportunities to raise additional capital if terms and pricing are attractive to us.

Any proceeds raised under these efforts or additional liquidity available to us could be used to fund additional investments in point-of-sale and direct-to-consumer finance receivables as well as the acquisition of credit card receivables portfolios.

Pursuant to a share repurchase plan authorized by our Board of Directors on May 7, 2020, we are authorized to repurchase up to 5,000,000 shares of our common stock through June 30, 2022. As of September 30, 2021, we were authorized to repurchase a remaining 4,911,080 shares under this share repurchase plan.

Any proceeds raised under these efforts or additional liquidity available to us could be used to fund (1) additional investments in private label credit and general purpose credit card finance receivables as well as the acquisition of credit card receivables portfolios and (2) further repurchases or redemptions of preferred and common stock.

Pursuant to a share repurchase plan authorized by our Board of Directors on March 15, 2022, we are authorized to repurchase up to 5,000,000 shares of our common stock through June 30, 2024. 

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE-SHEET ARRANGEMENTS

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Fees and Related Income on Earning Assets

Fees and related income on earning assets primarily include fees associated with the credit products, including the receivables underlying our U.S.

point-of-sale finance and direct-to-consumer platform, and our legacy credit card receivables which include the recognition of annual fee billings and cash advance fees among others.

We assess fees on credit card accounts underlying our credit card receivables according to the terms of the related cardholder agreements and, except for annual membership fees, we recognize these fees as income when they are charged to the customers’

We accrete annual membership fees associated with our credit card receivables into income on a straight-line basis over the cardholder privilege period which is generally 12 months for amortized cost receivables, and when billed for Fair Value Receivables.

Similarly, fees on our other credit products are recognized when earned, which coincides with the time they are charged to the customers' accounts.

Fees and related income on earning assets primarily include fees associated with the credit products, including the receivables underlying our private label credit and general purpose credit card platform, and our legacy credit card receivables which include the recognition of annual fee billings and cash advance fees among others.

The implementation of the fair value method to account for certain loans receivable resulted in increased fees recognized on credit products throughout the periods presented.

Measurements for Loans, Interest and Fees Receivable at Fair Value and Notes Payable Associated with Structured Financings at Fair Value

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estimates of gross yield, payment rates, expected credit loss rates, servicing costs, and discount rates.

The estimates for credit losses, payment rates, servicing costs, contractual servicing fees, costs of funds, discount rates and yields earned on credit card receivables significantly affect the reported amount (and changes thereon) of our loans, interest and fees receivable, at fair value and our notes payable associated with structured financings, at fair value on our consolidated balance sheets and consolidated statements of operations.

Allowance for Uncollectible Loans, Interest and Fees

Through our analysis of loan performance, delinquency data, charge-off data, economic trends and the potential effects of those economic trends on consumers, we establish an allowance for uncollectible loans, interest and fees receivable as an estimate of the probable losses inherent within those loans, interest and fees receivable that we do not report at fair value .

Our loans, interest and fees receivable consist of smaller-balance, homogeneous loans, divided into two portfolio segments:

Credit and Other Investments;

and Auto Finance.

Each of these portfolio segments is further divided into pools based on common characteristics such as contract or acquisition channel.

Our loans, interest and fees receivable consist of smaller-balance, homogeneous loans in our Auto Finance segment.

 These loans are further divided into pools based on common characteristics such as contract or acquisition channel.

For each pool, we determine the necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the following unique to each type of receivable pool:

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Hanna, Frank J.

Hanna, III and certain trusts that were Hanna affiliates, following our initial public offering (1) if one or more of the shareholders accepts a bona fide offer from a third party to purchase more than 50% of the outstanding common stock, each of the other shareholders that is a party to the agreement may elect to sell his shares to the purchaser on the same terms and conditions, and (2) if shareholders that are a party to the agreement owning more than 50% of the common stock propose to transfer all of their shares to a third party, then such transferring shareholders may require the other shareholders that are a party to the agreement to sell all of the shares owned by them to the proposed transferee on the same terms and conditions.

In June 2007, we entered into a sublease for 1,000 square feet (as later adjusted to 600 square feet) of excess office space at our Atlanta headquarters with HBR Capital, Ltd.

Hanna, III and certain trusts that were Hanna affiliates, following our initial public offering (1) if one or more of the shareholders accepts a bona fide offer from a third party to purchase more than 50% of the outstanding common stock, each of the other shareholders that is a party to the agreement may elect to sell his shares to the purchaser on the same terms and conditions, and (2) if shareholders that are a party to the agreement owning more than 50% of the common stock propose to transfer all of their shares to a third party, then such transferring shareholders may require the other shareholders that are a party to the agreement to sell all of the shares owned by them to the proposed transferee on the same terms and conditions.

In June 2007, we entered into a sublease for 1,000 square feet (as later adjusted to 600 square feet) of excess office space at our Atlanta headquarters with HBR Capital, Ltd.

(“HBR”), a company co-owned by David G.

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The sublease rate per square foot is the same as the rate that we pay under the prime lease.

Under the sublease, HBR paid us $16,960 and $16,627 for 2020 and 2019, respectively.

Under the sublease, HBR paid us $17,299 and $16,960 for 2021 and 2020, respectively.

The aggregate amount of payments required under the sublease from January 1, 2022 to the expiration of the sublease in May 2022 is $7,267.

In January 2013, HBR began leasing the services of four employees from us. HBR reimburses us for the full cost of the employees, based on the amount of time devoted to HBR.

In the nine months ended September 30, 2021 and 2020, we received $286,048 and $225,003, respectively, of reimbursed costs from HBR associated with these leased employees.

On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove.

The agreement provided for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding. On December 27, 2019, the Company issued 400,000 shares (aggregate initial liquidation preference of $40 million) of its Series A Preferred Stock in exchange for full satisfaction of the $40.0 million that the Company owed Dove under the Loan and Security Agreement. Dividends on the preferred stock are 6% per annum (cumulative, non-compounding) and are payable in preference to any common stock dividends, in cash.

In January 2013, HBR began leasing the services of four employees from us.

HBR reimburses us for the full cost of the employees, based on the amount of time devoted to HBR.

In the three months ended March 31, 2022 and 2021, we received $101,236 and $96,781, respectively, of reimbursed costs from HBR associated with these leased employees.

On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove.

The agreement provided for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding.

On December 27, 2019, the Company issued 400,000 shares (aggregate initial liquidation preference of $40 million) of its Series A Preferred Stock in exchange for full satisfaction of the $40.0 million that the Company owed Dove under the Loan and Security Agreement.

Dividends on the preferred stock are 6% per annum (cumulative, non-compounding) and are payable in preference to any common stock dividends, in cash.

The Series A Preferred Stock is perpetual and has no maturity date.

The Company may, at its option, redeem the shares of Series A Preferred Stock on or after January 1, 2025 at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends.

At the request of the holders of a majority of the shares of the Series A Preferred Stock, the Company shall offer to redeem all of the Series A Preferred Stock at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends, at the option of the holders thereof, on or after January 1, 2024. Upon the election by the holders of a majority of the shares of Series A Preferred Stock, each share of the Series A Preferred Stock is convertible into the number of shares of the Company’s common stock as is determined by dividing (i) the sum of (a) $100 and (b) any accumulated and unpaid dividends on such share by (ii) an initial conversion price equal to $10 per share, subject to certain adjustment in certain circumstances to prevent dilution.

Upon the election by the holders of a majority of the shares of Series A Preferred Stock, each share of the Series A Preferred Stock is convertible into the number of shares of the Company’s common stock as is determined by dividing (i) the sum of (a) $100 and (b) any accumulated and unpaid dividends on such share by (ii) an initial conversion price equal to $10 per share, subject to certain adjustment in certain circumstances to prevent dilution.

Given the redemption rights contained within the Series A Preferred Stock, we account for the outstanding preferred stock as temporary equity in the consolidated balance sheets.

Dove is a limited liability company owned by three trusts.

Hanna is the sole shareholder and the President of the corporation that serves as the sole trustee of one of the trusts, and David G.

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delinquency and charge-off rates;

the extent and duration of the COVID-19 pandemic and its impact on the Company, our bank partners, merchant network, financing sources, borrowers, loan demand, the labor market supply chain, legal and regulatory matters, borrower payment patterns, information security and consumer privacy, the capital markets, the economy in general and changes in the U.S.

economy that could materially impact consumer spending behavior, unemployment and demand for our products;

changes in the credit quality and fair value of our credit card loans, interest and fees receivable and the fair value of their underlying structured financing facilities;

the impact of actions by the Federal Deposit Insurance Corporation (“FDIC”), Federal Reserve Board, Federal Trade Commission (“FTC”), Consumer Financial Protection Bureau (“CFPB”) and other regulators on both us, banks that issue credit cards and other credit products on our behalf, and merchants that participate in our retail and healthcare point-of-sale (collectively "point-of-sale") finance operations;

the extent and duration of the COVID-19 pandemic and its impact on the Company, our bank partners, merchant network, financing sources, borrowers, loan demand, labor markets, supply chain, legal and regulatory matters, borrower payment patterns, information security and consumer privacy, the developing metaverse, capital markets, the economy in general and changes in the U.S.

economy that could materially impact consumer spending behavior, unemployment and demand for the products we support;

changes in the credit quality and fair value of our credit card receivables, interest and fees receivable and the fair value of their underlying structured financing facilities;

account growth;

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sources of funding operations and acquisitions;

growth and profitability of our point-of-sale finance operations;

growth and profitability of our private label credit operations;

our ability to raise funds or renew financing facilities;

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our ability to manage costs in line with the expansion or contraction of our various business lines;

our relationship with (i) the merchants that participate in point-of-sale finance operations and (ii) the banks that issue credit cards and provide certain other credit products utilizing our technology platform and related services;

our relationship with (i) the merchants that participate in private label finance operations and (ii) the banks that issue credit cards and provide certain other credit products utilizing our technology platform and related services;

theft and employee errors.

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We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,”

as defined by Item 10 of Regulation S-K, we are not required to provide this information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements