What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-03-15 compared with 2022-03-15 · 450 added, 300 removed, 392 unchanged (66% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Global Select Market under the symbol “ATLC.” As of March 8, 2022, there were 42 record holders of our common stock, which does not include persons whose stock is held in nominee or “street name”

Our common stock is traded on the NASDAQ Global Select Market under the symbol “ATLC.” As of February 28, 2023, there were 43 record holders of our common stock, which does not include persons whose stock is held in nominee or “street name”

accounts through brokers, banks and intermediaries.

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December 1 - December 31

Because withholding tax-related stock repurchases are permitted outside the scope of our 5,000,000 share Board-authorized repurchase plan, these amounts exclude shares of stock returned to us by employees in satisfaction of withholding tax requirements on vested stock grants.

There were 20 such shares returned to us during the three months ended December 31, 2022.

Pursuant to a share repurchase plan authorized by our Board of Directors on March 15, 2022, we are authorized to repurchase 5,000,000 shares of our common stock through June 30, 2024.

We will continue to evaluate our stock price relative to other investment opportunities and, to the extent we believe that the repurchase of our stock represents an appropriate return of capital, we will repurchase shares of our stock.

We have no current plans to pay dividends to holders of our common stock.

The following table sets forth information with respect to our repurchases of Series B Preferred Stock during the three months ended December 31, 2022.

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (1)

October 1 - October 31

November 1 - November 30

December 1 - December 31

On November 8, 2022, our Board of Directors authorized the Company to repurchase up to 500,000 shares of our Series B Preferred Stock through June 30, 2024.

We will continue to evaluate our common stock price and Series B Preferred Stock prices relative to other investment opportunities and, to the extent we believe that the repurchase of our common stock or Series B Preferred Stock represents an appropriate return of capital, we will repurchase shares of our common stock or Series B Preferred Stock.

We have no current plans to pay dividends to holders of our common stock.

As we continue to pursue our growth strategy, we will assess our cash flow, the long-term capital needs of our business and other uses of cash.

Payment of any cash dividends in the future will depend upon, among other things, our results of operations, financial condition, cash requirements and contractual restrictions.

Furthermore, dividends on our Series A Convertible Preferred Stock and Series B Cumulative Perpetual Preferred Stock are payable in preference to any common stock dividends.

For additional information, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, Funding and Capital Resources.”

Furthermore, dividends on our Series A Preferred Stock and Series B Preferred Stock are payable in preference to any common stock dividends.

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. For additional information, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, Funding and Capital Resources.”

Common Stock Performance Graph

The following graph shows the cumulative total stockholder return on our common stock compared to an overall stock market index, the Russell 2000 Index (“Russell 2000”), and a published industry index, the NASDAQ Financial 100 Index (“NASDAQ Financial 100”), over the five-year period commencing December 31, 2016 and ended December 31, 2021.

The stock performance graph assumes that $100 was invested in our common stock and each index and that all dividends were reinvested.

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at the beginning of this Report.

For additional information related to the earliest of the three years presented please refer to the Company's 2021 Annual Report on Form 10-K.

In this Report, except as the context suggests otherwise, the words “Company,”

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refer to Atlanticus Holdings Corporation and its subsidiaries and predecessors.

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 access to credit.

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 Experian, 40% of Americans had FICO®

scores of less than 700.

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. Everyday Americans are underserved. Atlanticus is changing that.

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 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.

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.

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 $30 billion in consumer loans over more than 25 years of 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.

Our flexible technology solutions allow our bank partners to integrate our paperless process and instant decisioning platform with the existing infrastructure of participating retailers, healthcare providers and other 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 AI and machine learning, enabling fast, sound decision-making when it matters most.

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.

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

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.

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 (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 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.

None of these companies are publicly-traded and the carrying value of our investment in these companies is not material.

One of these companies, Fintiv Inc., has sued Apple, Inc., Walmart, Inc., and PayPal Holdings, Inc.

for patent infringement.

has approximately 150 patents related to secure money transfer on computer and mobile devices.

The transaction volume in these areas has increased dramatically over the last five years. 

If Fintiv Inc.

is successful in the patent litigation, there could be large exposure, including treble damages for these companies.

The claimed losses sustained by this patent infringement are substantial and could be measured in the billions of dollars.

We believe on a diluted basis that we will own over 10% of the company.

The case against Apple, Inc.

is expected to go to trial in June 2023.

Apple has vigorously contested the claims, and we expect it to continue doing so.

In light of the uncertainty around these lawsuits, 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 Item 1 and Item 1A, “Risk Factors”

contained in this Report.

Subject to possible disruptions caused by inflation, rising interest rates, COVID-19 and supply chain interruptions, 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 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 private label credit and general purpose credit card 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 and equity securities.

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 December 31, 2022, our CAR operations served more than 610 dealers in 32 states and two U.S.

The core operations continue to perform well, absent the recent settlement of outstanding litigation (achieving consistent profitability and generating positive cash flows and growth).

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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, are accounted for in our 2020 and 2021 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, are 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. This ASU requires the use of the 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 plan to elect the fair value option for all remaining loans receivable associated with our private label credit and general purpose credit card platform currently measured at amortized cost and will record an increase to our allowance for loan losses for our remaining Loans, interest and fees receivable associated with our Auto Finance Segment. See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components-Recent Accounting Pronouncements”

Receivables arising in accounts originated prior to January 1, 2020, were accounted for in our 2021 financial statements at amortized cost, net.

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.

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 Allowances for uncollectible loans, interest and fees receivable for our remaining Loans, interest and fees receivable associated with our Auto Finance segment.

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.

COVID-19 Pandemic 

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

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

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.

In addition, rising inflation in 2021 and 2022 resulted in increased 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.

Russia’s invasion of Ukraine has intensified supply chain disruptions and heightened uncertainty surrounding the near-term outlook for the global 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 related to Russia’s invasion of Ukraine has negatively affected the economic outlook.  

As of the date of filing this Annual Report on Form 10-K, the duration and severity of the effects of the COVID-19 pandemic and resulting economic trends remain uncertain.

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 –

our bank partner, merchants and consumers –

as well as our employees.

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

Once COVID-19 cases declined, Atlanticus transitioned to a hybrid remote work model where eligible positions may arrange with their manager to work partially or fully remote.

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.

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 uncertainties about the extent and duration of the pandemic.

as well as our employees. 

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, 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.

While we have seen improvements in consumer spending behavior, receivables purchases could decline relative to the prior year if purchase behavior is further impacted by economic inflation.

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 have been receiving temporary relief from payments.

Borrowers impacted by COVID-19 requesting hardship assistance may receive 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.

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.

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 health and safety of our employees and their families.

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

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

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.

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 ”

and " –Our business and operations may be negatively affected by rising prices and interest rates.

CONSOLIDATED RESULTS OF OPERATIONS

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Interest expense

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

Provision for losses on loans, interest and fees receivable recorded at amortized cost

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

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 Total operating revenue consists of:

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 private label credit and general purpose credit card products, the receivables of which increased from $1,085.9 million as of December 31, 2020 to $1,609.8 million as of December 31, 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 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.

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 private label credit and general purpose credit card products, the receivables of which increased from $1,609.8 million as of December 31, 2021 to $2,119.3 million as of December 31, 2022.

We have 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 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 that we expect to result in net period-over-period growth in our total interest income and related fees for these operations for the majority of 2023.

Future periods’

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.

As discussed elsewhere in this Report, we have elected the fair value option to account for certain loan receivables associated with our private label credit and general purpose credit card 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 income).

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 effective marketing for the general purpose credit card operations.

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

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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 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 currently measured at amortized cost and will record an increase to our allowance for loan losses for our remaining Loans, interest and fees receivable associated with our Auto Finance Segment under the CECL model. The impact of this adoption, for those accounts that are electing the fair value option, will result 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.

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 of 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”

While we expect continued period over period growth in the receivable loan balances, as noted above, we do expect that the pace of growth in these receivable loan balances will slow. 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 income 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 Other non-operating revenue of approximately $560,000. For the year ended December 31, 2020, other non-operating revenue included $2.0 million in distributions received from an investment in a consumer finance technology company. As previously discussed, these investments are carried at the lower of cost or market valuation.

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.

In 2021, we liquidated one of these investments resulting in a gain of approximately $560,000.

As previously discussed, these investments are carried at cost.

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 10, "Notes Payable," to our consolidated financial statements for additional information.

One of these companies, Fintiv Inc., has sued Apple, Inc., Walmart, Inc., and PayPal Holdings, Inc.

for patent infringement.

has approximately 150 patents related to secure money transfer on computer and mobile devices.

The transaction volume in these areas has increased dramatically over the last five years. 

If Fintiv Inc.

is successful in the patent litigation, there could be large exposure, including treble damages for these companies.

The claimed losses sustained by this patent infringement are substantial and could be measured in the billions of dollars.

We believe on a diluted basis that we will own over 10% of the company.

The case against Apple, Inc.

is expected to go to trial in June 2023.

Apple has vigorously contested the claims, and we expect it to continue doing so.

Interest expense.

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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 private label credit and general purpose credit card platform increased from $827.1 million as of December 31, 2020 to $1,223.5 million as of December 31, 2021.

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 fund 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.

 Our provision for losses on loans, interest and fees receivable recorded at net realizable value covers, with respect to such receivables, changes in estimates regarding our aggregate loss exposures on (1) principal receivable balances, (2) finance charges and late fees receivable underlying income amounts included within our total interest income category, and (3) other fees receivable. Recoveries of charged off receivables, 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.

We have experienced a period-over-period decrease in this category between the years ended December 31, 2020 and December 31, 2021 primarily reflecting:

1) the effects of our adoption of the fair value option to account for certain loans receivable that were 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 have 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.

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 $1,223.5 million as of December 31, 2021 to $1,586.0 million as of December 31, 2022.

The majority of this increase in outstanding debt relates to the addition of multiple revolving credit facilities during 2021 and 2022.

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 result in increased interest expense over prior periods.

Recent increases in the federal funds rate have thus far had a modest impact on our interest expense as over 90% of interest rates on our outstanding debt are fixed.

We anticipate additional debt financing over the next few quarters as we continue to grow coupled with increased effective interest rates resulting from recent and additional anticipated federal funds rate increases.

As such, we expect our quarterly interest expense for these operations to increase compared to prior periods.

Provision for losses on loans, interest and fees receivable recorded at amortized cost.

Our provision for losses on loans, interest and fees receivable recorded at amortized cost covers, with respect to such receivables, changes in estimates regarding our aggregate loss exposures on (1) principal receivable balances, (2) finance charges and late fees receivable underlying income amounts included within our total interest income category, and (3) other fees receivable.

Recoveries of charged off receivables, consist of amounts received from the efforts of third-party collectors 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 amortized cost.

We have experienced a period-over-period decrease in this category primarily reflecting the effects of our adoption of the fair value option under ASU 2016-13 on January 1, 2022, resulting in a significant decline in the outstanding receivables subject to this provision.

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

to our consolidated financial statements and the discussions of our CaaS and Auto Finance segments for further credit quality statistics and analysis. Given 1) the ongoing impacts of our adoption of fair value accounting for certain receivables acquired on or after January 1, 2020;

2) our adoption of fair value accounting under ASU 2016-13 on January 1, 2022 for certain of our receivables discussed above, and 3) absent the unknown impacts COVID-19 and related government stimulus and relief measures 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 as the underlying receivables that continue to be recorded at net realizable value are reduced.

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 increase modestly in 2023 in relation to growth in the underlying Auto Finance receivables.

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 will elect 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 macro economic events.

With the aforementioned market impacts of COVID-19 and related economic impacts, we continue to include 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 recent 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 $366.3 million for the year ended December 31, 2021 to $874.7 million for the year ended December 31, 2022.

For both periods presented, we included expected market degradation in our forecasts 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 and current trends would suggest.

Offsetting this increase in Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value was a reduction in the discount rate applied to the net cash flows associated with these investments.

The applied discount rate represents estimates third-party market participants could use in determining fair value.

The reduction in this discount rate during the second quarter of 2022 reflected the asset level returns we believe would be required by market participants.

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 2023 commensurate with growth in these receivables.

We may adjust our forecasts 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 year ended December 31, 2020, relative to the year ended December 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 an increase in this cost for 2022 when compared to 2021 as we expect our receivables to continue to grow and as a result we expect to increase our employee base;

increases in card and loan servicing expenses in the year ended December 31, 2021 when compared to the year ended December 31, 2020 due to growth in receivables associated with our investments in private label credit and general purpose credit card receivables, which grew from $1,085.9 million outstanding to $1,609.8 million outstanding at December 31, 2020 and December 31, 2021, respectively.

Total operating expense variances for the year ended December 31, 2022, relative to the year ended December 31, 2021, reflect the following:

increases in salaries and benefit costs related to both the growth in the number of employees and inflationary compensation pressure.

We expect some continued increase in this cost for 2023 compared to 2022 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 private label credit and general purpose credit card receivables, which grew from $1,609.8 million outstanding to $2,119.3 million outstanding at December 31, 2021 and December 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 2023.

As our receivables have grown, we have significantly reduced our servicing costs per account, through greater economies of scale and investments in technology.

Offsetting a portion of this increase are significant reductions in our servicing costs per account, resulting from the realization of greater economies of scale as our receivables have grown.

increases in marketing and solicitation costs for the year ended December 31, 2022 primarily due to receivables growth associated with our private label credit and general purpose credit card portfolios.

We expect that increased origination and brand marketing support will result in overall increases in year-over-year costs during 2023 although the frequency and timing of marketing efforts could result in periodic 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.

Some costs including 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 relative to the corresponding growth in receivables.

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 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 private label credit and general purpose credit card operations.

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.

Included in the first quarter of 2022 was a one-time $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.

As we have significantly grown our managed receivables levels over the past two years with minimal increase in the fixed portion of our card and loan servicing expenses as well as our salaries and benefits costs, we have realized greater operating efficiency.

Notwithstanding our cost management activities, 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 year ended December 31, 2021, we repurchased $22.1 million in face amount of our outstanding convertible senior notes 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’

In the year ended December 31, 2021, we repurchased or redeemed $33.8 million in face amount of our 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).

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 December 31, 2021, these shares have been retired.

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 income.

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. 

 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.

The units carry a 16% preferred return 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.

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.

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 income.

Income Taxes.

We experienced an effective income tax expense rate of 19.0% and 17.9% for the years ended December 31, 2021, and December 31, 2020, respectively.

Our effective income tax expense rate for the year ended December 31, 2021, was 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. Offsetting the above factors 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.

Our effective income tax expense rate for the year ended December 31, 2020, was 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) the reversal in 2020 of our prior year accruals of interest and penalties on liabilities for unpaid taxes, such reversal arising from the complete abatement by the IRS of failure -to-pay penalties (and accrued interest thereon) related to a now-completed audit by the IRS of our 2008 tax returns.

We report income tax-related interest and penalties (including those associated with both our accrued liabilities for uncertain tax positions and unpaid tax liabilities) within our income tax line item on our consolidated statements of income. We likewise report the reversal of income tax-related interest and penalties within such line item to the extent we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals therefor. For 2021, we experienced only de minimis interest expense and reversals, and for 2020, we reported a net reversal of income tax-related interest and penalties of $1.0 million within our income tax line item.

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 experienced an effective income tax expense rate of 9.8% and 19.0% for the years ended December 31, 2022, and December 31, 2021, respectively.

Our effective income tax expense rates for these years 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—such deductions being significantly higher in 2022 than in 2021 given stock option exercises in 2022 by the Executive Chairman of our Board of Directors, such options being grandfathered from executive compensation deduction limitations under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) 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 the above factors are the effects on our effective tax rate of state and foreign income tax expense, taxes on global intangible low-taxed income, and executive compensation deduction limitations under Section 162(m) of the Code.

Further details related to the above are reflected in Note 12, “Income Taxes”.

We report income tax-related interest and penalties (including those associated with both our accrued liabilities for uncertain tax positions and unpaid tax liabilities) within our income tax line item on our consolidated statements of income. We likewise report the reversal of income tax-related interest and penalties within such line item to the extent we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals therefor.

For 2022 and 2021, we experienced only de minimis interest expense and reversals within our income tax line item.

Our CaaS segment includes our activities related 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.

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 private label credit and general purpose credit card receivables.

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 have elected the fair value option).

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 amortized cost 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).

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 income.

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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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These non-GAAP financial measures may differ from the non-GAAP financial measures used by other companies.

A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures or the calculation of the non-GAAP financial measures are provided below for each of the fiscal periods indicated. 

These non-GAAP financial measures include only the performance of those receivables underlying consolidated subsidiaries (for receivables carried at amortized cost basis and fair value) and exclude the performance of receivables held by our former equity method investee.

A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures or the calculation of the non-GAAP financial measures are provided below for each of the fiscal periods indicated.

These non-GAAP financial measures include only the performance of those receivables underlying consolidated subsidiaries (for receivables carried at amortized cost basis and fair value) and exclude the performance of receivables held by our former equity method investee.

As the receivables underlying our former equity method investee reflect a small and diminishing portion of our overall receivables base, we do not believe their inclusion or exclusion in the overall results is material.

Additionally, we calculate average managed receivables based on the quarter-end balances. 

The comparison of non-GAAP managed receivables to our GAAP financial statements requires an understanding that managed receivables reflect the face value of loans, interest and fees receivable without any consideration for potential loan losses or other adjustments to reflect fair value.

Additionally, we calculate average managed receivables based on the quarter-end balances.

The comparison of non-GAAP managed receivables to our GAAP financial statements requires an understanding that managed receivables reflect the face value of loans, interest and fees receivable without any adjustment for potential credit losses to reflect fair value.

Below are (i) the reconciliation of Loans, interest and fees receivable, at fair value to Loans, interest and fees receivable, at face value and (ii) the calculation of managed receivables:

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Loans, interest and fees receivable, at face value

As discussed in more detail above in "—Overview," 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.

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.

Fair value to face value ratio (3)

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.

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.

See Note 6, “Fair Value of Assets and Liabilities”

to our consolidated financial statements included herein for further discussion on assumptions underlying this calculation.

to our consolidated financial statements included herein for further discussion of assumptions underlying this calculation.

(3) The Fair value to face value ratio is calculated using Loans, interest and fees receivable, at fair value as the numerator, and Loans, interest and fees receivable, at face value, as the denominator

At or for the Three Months Ended

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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) and expenses (such as marketing expenses) associated with our Fair Value Receivables over the expected life of the corresponding receivable and recognize other 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 and marketing expenses are recognized when incurred.

Third, managed receivables data excludes the impacts of equity in income of equity method investees.

As of January 1, 2022, we changed the names 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 is 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 (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 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

Our delinquency and charge-off data at any point in time reflect the credit performance of our managed receivables.

Combined principal net charge-offs

As discussed in more detail above in "—Overview," on January 1, 2022, we elected 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.

Finance charge-offs are included as a component of our Provision for losses on loans, interest and fees receivable recorded at amortized cost 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.

The average age of the accounts underlying our receivables, the timing and size of portfolio purchases, the success of our collection and recovery efforts and general economic conditions all affect our delinquency and charge-off rates.

The average age of the accounts underlying our receivables portfolio also affects the stability of our delinquency and loss rates.

We consider this delinquency and charge-off data in our allowance for uncollectible loans, interest and fees receivable for our other credit product receivables that we report at net realizable value.

We consider this delinquency and charge-off data in our allowance for uncollectible loans, interest and fees receivable for our other credit product receivables that we report at amortized cost.

Our strategy for managing delinquency and receivables losses consists of account management throughout the life of the receivable.

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See also our discussion of collection strategy under “Collection Strategy”

in Item 1, “Business”.

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): 

in Item 1, “Business”.

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):

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

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Total managed yield ratio, annualized (2)

Combined net charge-off ratio, annualized (2)

Combined principal net charge-off ratio, annualized (3)

Interest expense ratio, annualized (4)

Net interest margin ratio, annualized (5)

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

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Total managed yield ratio, annualized (2)

Combined net charge-off ratio, annualized (2)

Combined principal net charge-off ratio, annualized (3)

Interest expense ratio, annualized (4)

Net interest margin ratio, annualized (5)

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 private label credit (“Private Label Credit”) and general purpose credit card (“General Purpose Credit Card”) operations (dollars in thousands).

Results of our legacy credit card receivables portfolios are excluded: 

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.

Interest expense ratio, annualized is calculated using the annualized interest expense associated with the CaaS segment (See Note 3, "Segment Reporting" to our consolidated financial statements) as the numerator and period-end average managed receivables as the denominator.

Net interest margin ratio, annualized is calculated using the Total managed yield ratio, annualized less the Combined principal net charge-off ratio, annualized less the Interest expense ratio, annualized.

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:

Private Label Credit - 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

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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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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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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 $523.9 million in net receivables growth associated with the private label credit and general purpose credit card products offered by our bank partners during 2021.

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 $167.3 million and $146.5 million in the years ended December 31, 2021 and 2020, respectively.

Our general purpose credit card acquisitions grew by over $356.5 million and $31.0 million, net during the years ended December 31, 2021 and 2020, respectively.

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 and related 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). 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 private label credit period-end managed receivables outstanding as of December 31, 2021. 

 We have continued to experience overall period-over-period quarterly receivables growth with over $509.5 million in net receivables growth associated with the private label credit and general purpose credit card products offered by our bank partners from December 31, 2021 to December 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 $126.8 million in the twelve months ended December 31, 2022.

Our general purpose credit card receivables grew by $382.8 million, net during the twelve months ended December 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 2023, although we expect the pace of growth to slow when compared to earlier periods.

These expectations are 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. 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.

Similarly, 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 December 31, 2022.

Delinquencies.

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We intend for the receivables management strategies we use on our portfolios to manage and, to the extent possible, reduce the higher delinquency rates that can be expected with the younger average age of the newer receivables in our managed portfolio.

These management strategies include conservative credit line management and collection strategies intended to optimize the effective account-to-collector ratio across delinquency categories.

These management strategies include conservative credit line management and collection strategies intended to optimize the effective account-to-collector ratio across delinquency categories.

We measure the success of these efforts by reviewing delinquency rates.

These rates exclude receivables that have been charged off.

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.

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 historical delinquency rates have been 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, and previously (prior to 2020), a robust economic landscape that resulted in receivables outperforming internal expectations.

Beginning in 2020, the aforementioned positive impacts related to government stimulus programs served to increase consumer payment rates beyond expectations.

The impact on delinquency rates due to growth in the receivable base can be seen in periods of large growth in the charts above, resulting in lower delinquency rates.

We have experienced increased delinquency rates in conjunction with slower receivables growth, higher energy costs and rising inflation and its negative impact on consumers.

We expect this increase in delinquencies to return to levels similar to those experienced in periods prior to COVID-19 and the related government stimulus programs.

This expected decline in delinquencies in 2023 is predicated on the assumption that recent government efforts to curb inflation will be successful and our recent tightened underwriting standards implemented in the second quarter (and subsequent quarters) of 2022, will prove effective at reducing account delinquencies.

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 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.

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 part of our overall receivable base.

In 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.

We expect to continue to see seasonal payment patterns on these receivables that impact our delinquencies in line with prior periods (albeit at higher levels when compared to those prior periods in 2021).

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 tax refunds for many consumers. These expectations are 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.

Total managed yield ratio, annualized .

 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.

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 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 third and fourth quarter of 2021. 

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

 During 2021 and much of 2022, we experienced growth in newer, higher yielding receivables, including private label credit and general purpose credit card receivables.

While this growth has contributed to higher overall 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.

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 are primarily a result of declines in general purpose credit card receivables, results in slightly lower total managed yield ratios.

With tightened underwriting standards implemented in the second quarter (and subsequent quarters) of 2022, we currently expect slightly lower managed yield ratios (and correspondingly lower delinquency rates) associated with these newer receivables.

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 general purpose credit card 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 related government stimulus programs).

Notwithstanding the improvements we have recently experienced in delinquency rates, we expect the continued growth in private label credit and general purpose credit card receivables to result in higher charge-offs than those experienced in 2021.

This expectation is based on the following:

(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 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.

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-offs over time.

Improvements in our delinquency rates throughout 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, annualized is a reflection of the increased delinquencies noted in the latter part of 2021 and in 2022 as consumer behavior reverted to more historical norms and inflation, particularly as it relates to higher gas prices, negatively impacted some consumers' ability to make payments on outstanding loans and fees receivable.

As delinquency rates continue to be elevated relative 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 to continue to increase, when compared to comparable prior periods since the onset of COVID-19.

These increased charge-off rates are expected to continue through the third quarter of 2023 before returning to historically normalized levels.

This expectation is predicated on the assumption that recent actions by the federal government to reduce inflation will be successful.

Our charge-off ratio has also been impacted due to (and will continue to be impacted by):

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 leads to periodic increases in combined principal net charge offs, (3) recent vintages reaching peak charge-off periods, (4) our receivables growth during 2021 and early 2022, (5) the aforementioned tightened underwriting standards implemented in the second quarter (and subsequent quarters) of 2022 that will slow the pace of growth in our receivables base, and (6) 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.

Interest expense ratio, annualized.

Our interest expense ratio, annualized reflects interest costs associated with our CaaS segment.

This includes both direct receivables funding costs as well as general unsecured lending.

Recent impacts to this ratio primarily relate to the timing and size of outstanding debt.

In general, we have obtained lower cost financing with fixed interest rates, resulting in lower interest expense ratios when compared to corresponding prior periods.

Recent increases in the federal funds borrowing rate have led to an increase in spreads for newly-originated debt.

As such, we expect the interest expense ratio to increase when compared to prior quarters as we replace existing financing arrangements with new ones.

Net interest margin ratio, annualized.

Our Net interest margin ratio, annualized represents the difference between our Total managed yield ratio, annualized, our Combined principal net charge-off ratio, annualized and our Interest expense ratio, annualized.

Recent declines in this ratio when compared to corresponding prior periods relate primarily to recent increases in our principal net charge-offs as noted above.

Given recent increases in delinquency rates, we expect this ratio to continue to fall relative to corresponding prior periods for the remainder of 2022.

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%.

The APRs for receivables originated through our private label credit platform range from 0% to 36.0%.

For general purpose credit card receivables, APRs range 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 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%.

For those receivables that did not contain fixed APRs we have seen some increases in rates charged, as the underlying rates are tied to the federal funds borrowing rate which has increased throughout 2022.

We currently expect our average APRs in 2023 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 do not acquire or service receivables that have an APR above 36.0%

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.

Receivables purchased during 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 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:

the loss of one or more retail partners;

seasonal purchase activity by consumers;

labor shortages and supply chain disruptions;

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 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.

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 during 2022.

the loss of one or more retail partners;

seasonal purchase activity by consumers;

labor shortages and supply chain disruptions;

or the timing of new customer originations by our issuing bank partners.

We currently expect to see increases in receivable acquisitions when compared to the same period in prior years, although we expect the pace of acquisitions to slow.

Our general purpose credit card receivable acquisitions tend to have more volatility based on the issuance of new credit card accounts by our issuing bank 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 during 2023.

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 December 31, 2021, we served more than 600 dealers through our Auto Finance segment in 34 states, the District of Columbia and two U.S.

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 December 31, 2022, we served more than 610 dealers through our Auto Finance segment in 32 states and two U.S.

Non-GAAP Financial Measures

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.

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.

A reconciliation of our operating revenues to comparable amounts used in our calculation of Total managed yield ratios follows (in millions):

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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 amortized cost 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)

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.

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 Combined principal net charge-off ratio, annualized is calculated using the annualized Combined principal net chargeoffs as the numerator and Period-end average managed receivables as the denominator.

The Recovery ratio, annualized is calculated using annualized Recoveries as the numerator and Period-end average managed receivables as the denominator.

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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. 

We continually evaluate bulk purchases of receivables and have experienced good growth in our receivables base throughout 2022 resulting from several bulk purchases however the timing and size of the purchases are difficult to predict.

Delinquencies. 

Current delinquency levels are consistent with our expectations for levels in the near term with some improvement noted in the first quarter of 2021 and in 2020 periods due to stronger than anticipated customer payment behavior.

Delinquency rates also tend to fluctuate based on seasonal trends and historically are lower in the first quarter of each year as seen above due to the benefits of strong payment patterns associated with year-end tax refunds for most consumers.

As discussed, elsewhere in this Report, recent delinquency rates have benefitted from government stimulus programs that have resulted in customer payments in excess of historical experience.

We are not concerned with modest fluctuations in delinquency rates and do not believe they will have a significantly positive or adverse impact on our results of operations;

even at slightly elevated rates, we earn significant yields on CAR’s receivables and have significant dealer reserves (i.e., retainages or holdbacks on the amount of funding CAR provides to its dealer customers) to protect against meaningful credit losses.

As discussed elsewhere in this Report, 2021 and early 2022 delinquency rates benefitted from government stimulus programs that resulted in customer payments in excess of historical experience.

While we have experienced recent increases in our delinquency rates (and related charge-offs), we do not believe they will have a significantly adverse impact on our results of operations;

Total managed yield ratio, annualized.

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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.

These variations would be based on the relative mix of receivables in our various product offerings.

These variations depend on the relative mix of receivables in our various product offerings.

Additionally, our product offerings in the U.S.

territories tend to have slightly lower yields than those offered in the U.S.

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.

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.

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 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 principal net charge-off ratios in the above table reflect the lower delinquency rates we have recently experienced.

Increases in our Combined principal net charge-off ratios for the fourth quarter of 2022 is indicative of our charge off levels returning to historically normalized levels (i.e., those periods prior to COVID-19 and the related government stimulus programs). 

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 principal net charge-off ratio.

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 2) credit card fees (including over-limit fees, cash advance fees, returned check fees and interchange income), earned, amortized amounts of annual membership fees with respect to certain credit card receivables, collectively included in our fees and related income on earning assets category on our consolidated statements of income;

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.

plus 3) servicing, other income and other activities collectively included in our other operating income category on our consolidated statements of income;

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 is 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.

 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. 

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. 

Recoveries typically have represented less than 2% of average managed receivables.

Interest expense ratio, annualized.

Represents an annualized fraction, the numerator of which is the annualized interest expense associated with the CaaS segment (See Note 3, "Segment Reporting" to our consolidated financial statements) and the denominator of which is average managed receivables.

Net interest margin ratio, annualized.

Represents the Total managed yield ratio, annualized less the Combined principal net charge-off ratio, annualized less the Interest expense ratio, annualized.

LIQUIDITY, FUNDING AND CAPITAL RESOURCES

As discussed elsewhere in this Report, we are closely monitoring the impacts of the COVID-19 pandemic across our business, including the resulting uncertainties around consumer spending, credit quality, levels of liquidity, labor availability and supply chain management.

The ultimate impact of COVID-19 on our business, financial condition, liquidity and results of operations is dependent on future developments, which are highly uncertain.

As discussed elsewhere in this Report, we are closely monitoring the impacts of the COVID-19 pandemic across our business, including the resulting uncertainties around consumer spending, credit quality, levels of liquidity, labor availability, supply chain management disruptions and inflation.

The ultimate impact of COVID-19 on our business, financial condition, liquidity and results of operations is dependent on future developments, which are uncertain.

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 private label credit and general purpose credit card receivables and generate revenues from these investments that will allow us to maintain consistent profitability.

Our primary focus is expanding the reach of our financial technology in order to 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.

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) growing general purpose credit card receivables, (iv) effectively managing costs, and (v) repurchasing outstanding shares of our common and preferred shares.

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 December 31, 2021 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

Facilities that could represent near-term significant refunding or refinancing needs (within the next 24 months) as of December 31, 2022 are those associated with the following notes payable in the amounts indicated (in millions):

Revolving credit facility (expiring April 21, 2023) that is secured by certain receivables and restricted cash

Revolving credit facility (expiring July 15, 2023) that is secured by certain receivables and restricted cash

Unsecured term debt (expiring August 26, 2024)

Revolving credit facility (expiring October 30, 2024) that is secured by certain receivables and restricted cash

Revolving credit facility (expiring November 1, 2023) that is secured by financial and operating assets of our CAR subsidiary

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.

Revolving credit facility (expiring November 1, 2024) that is secured by certain assets of our CAR subsidiary

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

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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.

The senior notes 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 repurchased $22.1 million in face amount of our outstanding convertible senior notes during the year ended December 31, 2021 for $30.4 million in cash (including accrued interest).

On August 10, 2022, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) providing for the sale by the Company of up to an aggregate offering price of $100,000,000 of our (i) Series B Preferred Stock and (ii) senior notes, from time to time through a sales agent, in connection with the Company’s “at-the-market”

offering program (the “ATM Program”).

During the third and fourth quarters of 2022, we sold an aggregate 19,607 shares of our Series B Preferred Stock under the ATM Program.

We received $0.4 million in net proceeds from sales under the ATM Program. During the year ended December 31, 2022, we repurchased and contemporaneously retired 3,500 shares of Series B Preferred Stock at an aggregate cost of $70,000.

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’

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Upon acquisition, the notes were retired.

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

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.

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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).

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

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.

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 carry a 16% preferred return 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.

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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.

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.

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The use of the London Interbank Offered Rate (“LIBOR”) is expected to be phased out by mid-2023.

Currently, LIBOR is used as a reference rate for certain of our financial instruments.

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.

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.

Currently, LIBOR is used as a reference rate for one of our financial instruments.

Recently, we replaced LIBOR with the Secured Overnight Financing Rate ("SOFR") for certain of our facilities.

We currently do not expect the phase out of LIBOR to be material to the Company.

At December 31, 2022, we had $385.0 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.

Because the characteristics of our assets and liabilities change, liquidity management is 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 years ended December 31, 2021 and 2020 are as follows:

During the year ended December 31, 2021, we generated $212.4 million of cash flows from operations compared to our generation of $212.7 million of cash flows from operations during the year ended December 31, 2020.

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 year ended December 31, 2021, we used $475.0 million of cash from our investing activities, compared to use of $292.6 million of cash from investing activities during the year ended December 31, 2020. 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 2020. Net investments in 2020 were lower than expected due to reduced consumer spending patterns as a result of the COVID-19 outbreak and the associated economic shutdowns. These spending patterns, while still somewhat lower than we would otherwise expect, increased significantly throughout 2021. Increases in spending were offset somewhat by strong customer payments noted in the first and second quarters of 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. 

Details concerning our cash flows for the years ended December 31, 2022 and 2021 are as follows:

During the year ended December 31, 2022, we generated $346.1 million of cash flows from operations compared to our generation of $212.4 million of cash flows from operations during the year ended December 31, 2021.

Collections on receivables have generally benefited from increased consumer payments as a result of government stimulus payments. As the impact of these stimulus payments has largely diminished, consumer payments have returned to historical levels. 

During the year ended December 31, 2022, we used $680.8 million of cash from our investing activities, compared to use of $475.0 million of cash from investing activities during the year ended December 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 year ended December 31, 2022, we generated $261.3 million of cash from financing activities, compared to our generating $510.3 million of cash from financing activities during the year ended December 31, 2021.

In both periods, the data reflect borrowings associated with private label credit and general purpose credit card receivables (including $600 million from two asset-backed securitizations associated with our 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 second and third quarters of 2021, we issued Series B Preferred Stock, which resulted in net proceeds (after associated expenses) of $75.3 million.

During November 2021 we issued $150.0 million aggregate principal amount of senior notes which resulted in net proceeds (after associated expenses) of $142.8 million. Offsetting capital raised through the preferred stock issuance and senior note 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) and purchases of $25.2 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.

Impacting cash generated from financing activities during the year ended December 31, 2020, a wholly-owned subsidiary issued 50.0 million Class B preferred units at a purchase price of $1.00 per unit.

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.

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 (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. 

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 share repurchase plans authorized by our Board of Directors, we are authorized to repurchase up to 5,000,000 shares of our common stock and 500,000 shares of our Series B Preferred Stock through June 30, 2024.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE-SHEET ARRANGEMENTS

Commitments and Contingencies

We do not currently have any off-balance-sheet arrangements;

however, we do have certain contractual arrangements that would require us to make payments or provide funding if certain circumstances occur;

We do not currently have any off-balance-sheet arrangements;

however, we do have certain contractual arrangements that would require us to make payments or provide funding if certain circumstances occur;

we refer to these arrangements as contingent commitments.

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We have summarized our significant accounting policies in the notes to our consolidated financial statements.

In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances.

In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances.

A variance in the estimates used or a variance in the application or interpretation of GAAP could yield a materially different accounting result.

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On a quarterly basis, we review our significant accounting policies and the related assumptions, in particular, those mentioned below, with the audit committee of the Board of Directors.

Revenue Recognition

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.

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

Finance charges and fees, 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.

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 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.

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, 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.

Measurements for Loans, Interest and Fees Receivable at Fair Value and Notes Payable Associated with Structured Financings at Fair Value

Our valuation of loans, interest and fees receivable, at fair value 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.

Similarly, our valuation of notes payable associated with structured financings, at fair value is based on the present value of future cash flows utilized in repayment of the outstanding principal and interest under the facilities using a valuation model of expected cash flows net of the contractual service expenses within the facilities.

estimates of gross yield, payment rates, expected credit loss rates, servicing costs, and discount rates.

Our valuation of loans, interest and fees receivable, at fair value 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 gross yield billed by our bank partner, payment rates by consumers, expected credit loss rates due to non-payment on the receivables, expected servicing costs to collect cashflows, and discount rates which approximate required returns by a purchaser of expected cash flows.

These valuation models are calculated by combining similarly priced loans and vintages to determine a stream of expected cash flows. The individual pools of cash flows are then aggregated to determine the total expected cash flows on the outstanding receivable at a given measurement period. Similarly, our valuation of notes payable associated with structured financings, at fair value (in periods when these notes were outstanding) is based on the present value of future cash flows utilized in repayment of the outstanding principal and interest under the facilities using a valuation model of expected cash flows net of the contractual service expenses within the facilities. 

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 income.

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:

CaaS and Auto Finance.

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

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 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:

historical loss rates;

current delinquency and roll-rate trends;

historical loss rates on similar loans;

current delinquency and roll-rate trends which may indicate consumer loss rates in excess or less than those which historical trends might suggest;

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

the effects of changes in the economy on consumers;

the effects of changes in the economy on consumers such as inflation or other macro-economic changes;

changes in underwriting criteria;

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These inputs are considered in conjunction with (and potentially reduced by) any unearned fees and discounts that may be applicable for an outstanding loan receivable.

To the extent that actual results differ from our estimates of uncollectible loans, interest and fees receivable, our results of operations and liquidity could be materially affected.

ITEM 7A.

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. 

Interest Rate Sensitivity and Market Risk  

In the ordinary course of business, we are exposed to various risks, particularly related to our private label credit and general purpose credit cards as well as our Auto Finance segment. 

These risks primarily relate to interest rate risk, credit risk, market return risk, payment risk and counterparty risk, each of which is described below.

Interest Rate Risk

Interest rate risk reflects the risk that, as interest rates rise on secured debt, we are unable to reprice the underlying assets that serve as collateral for that debt. 

Certain of our financing facilities are priced at spreads over floating interest rates (such as SOFR or the Prime Rate) and, as such, increases in those rates could have a negative impact on our results of operations.

We mitigate this risk by minimizing the amount of debt subject to interest rate fluctuations with the significant majority of our debt facilities bearing fixed interest rates. 

To the extent interest rates on our non-fixed interest rate facilities increase, our margin (between a floating cost of funds and a fixed rate interest income stream on the underlying collateral) may become compressed to the extent we are unable to reprice those assets.

All of our Auto Finance segment’s loans receivable are fixed rate amortizing loans and typically are not eligible to be repriced.

As such, we incur interest rate risks within our Auto Finance segment because funding under our structured financing facilities is priced at a spread over a floating rate benchmark.

In a rising rate environment, our net interest margin between a floating cost of funds and a fixed rate interest income stream may become compressed.

We believe we are able to effectively mitigate this risk due to the short term nature of many of our receivables and the ability to adjust pricing on new receivable purchases.

The following table summarizes the potential effect on pre-tax earnings over the next 12 months from interest expense, assuming we are unable to reprice the underlying assets that serve as collateral, on that portion of notes payable subject to interest rate volatility. 

The sensitivity analysis performed by management assumes an immediate hypothetical increase and decrease in market interest rates of 100 basis points (dollars in millions). Actual results could differ materially from these estimates:

Impact on Pre-Tax earnings if Interest Rates:

As of December 31, 2022

Increase 100 Basis Points

Decrease 100 Basis Points

Notes payable subject to interest rate risk

Credit risk is the risk of default that results from a consumer who is unwilling or unable to pay his or her receivable balance. 

Most receivables associated with our private label credit and general purpose credit cards serve as collateral on debt for which creditors do not have recourse against the general assets of the Company.

As such, for these assets, our credit risk is limited to repurchase obligations due to fraud or origination defects. 

For those assets that do not serve as collateral for debt or for which creditors on collateralized debt have recourse against the general assets of the Company, we are subject to credit risk to the extent we are not able to fully recover the principal balance of the receivable. 

We minimize this risk through a robust underwriting and fraud detection process designed to minimize losses and comply with applicable laws and our standards.

In addition, we believe this risk is mitigated by our deep experience in customer service and collections from more than 25 years of operations.

The following table summarizes (in millions) the potential effect on pre-tax earnings and the potential effect on the fair values of loans on our consolidated balance sheet as of December 31, 2022, based on a sensitivity analysis performed by management assuming an immediate hypothetical change in credit loss rates by 10% for the next 12 months. 

The sensitivity does not factor in other associative impacts that could occur in such a scenario. 

This could include both active and passive account actions including limiting purchases, assessments of additional fees or increases in interest rates.

The fair value and earnings sensitivities are applied only to financial assets that existed at the balance sheet date, which included our loans, interest and fees receivable, at fair value and our loans, interest and fees receivable, gross. 

Actual results could differ materially from these estimates:

Impact if Credit Loss Rates:

As of December 31, 2022

Increase 10 Percent

Decrease 10 Percent

Loans, interest and fees receivable, at fair value

Loans, interest and fees receivable, net

Income (loss) before income taxes

Market Return Risk

We are exposed to the risk of loss that may result from changes in required market rates of return.

We are exposed to such market return risk directly through our loans, interest and fees receivable, at fair value which are measured on a recurring basis.

Loans, interest and fees receivable, at fair value rely upon unobservable inputs.

These are measured at fair value using a discounted cash flow methodology in which the discount rate represents estimates third-party market participants could use in determining fair value.

The discount rates for our Loans, interest and fees receivable, at fair value may change due to changes in expected loan performance or changes in the expected returns of similar financial instruments available in the market. 

The fair value and earnings sensitivities are applied only to financial assets that existed at the balance sheet date, which included all of our loans, interest and fees receivable, at fair value and our loans, interest and fees receivable, gross. 

Actual results could differ materially from these estimates:

Impact if Discount Rates:

As of December 31, 2022

Increase 10 Percent

Decrease 10 Percent

Loans, interest and fees receivable, at fair value

Income (loss) before income taxes

Payment risk reflects the risk that changes in the economy could result in reduced payment rates on our receivables. 

In a strong economy, consumers' incomes may increase which may lead to increased payment rates.

In a weak economy, consumers' incomes may decrease which may lead to decreased payment rates.

Likewise, the availability of government stimulus payments to consumers during a weak economy may cause payment rates to increase. 

Similar to our credit risk, we believe this risk is mitigated by our deep experience in customer service and collections from over 25 years of operations.

We may also take active and passive account actions including limiting purchases, assessments of additional fees or increases in interest rates if results indicate a possible exposure.

The sensitivity does not factor in other associative impacts that could occur in such a scenario. 

This could include both active and passive account actions including limiting purchases, assessments of additional fees or increases in interest rates.

The fair value and earnings sensitivities are applied only to financial assets that existed at the balance sheet date, which included only our loans, interest and fees receivable, at fair value. 

Actual results could differ materially from these estimates:

Impact if Payment Rates:

As of December 31, 2022

Increase 10 Percent

Decrease 10 Percent

Loans, interest and fees receivable, at fair value

Income (loss) before income taxes

Counterparty Risk

We are subject to risk if a counterparty chooses not to renew a borrowing agreement and we are unable to obtain financing to acquire loans.

We seek to mitigate this risk by ensuring that we have sufficient borrowing capacity with a variety of well-established counterparties to meet our funding needs.

As of December 31, 2022, we had total borrowings associated with our loans, interest and fees receivable, at fair value and our loans, interest and fees receivable, gross of $1.6 billion.

Refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations –

Liquidity, Funding and Capital Resources" and Note 10 “Notes Payable”

to our consolidated financial statements included herein for further information on our outstanding Notes Payable.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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What changed 10-K

Item 5. Market for Registrant’s Common Equity