What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2022-11-08 · 595 added, 948 removed, 1276 unchanged (55% of the section changed)

3 unchanged sentences

(Dollars in thousands)

September 30,

Unrestricted cash and cash equivalents (including $ 186.6 million and $ 209.5 million associated with variable interest entities at September 30, 2022 and December 31, 2021, respectively)

Unrestricted cash and cash equivalents (including $ 186.8 million and $ 202.2 million associated with variable interest entities at March 31, 2023 and December 31, 2022, respectively)

$ 389,835  

$ 384,984  

Restricted cash and cash equivalents (including $ 15.8 million and $ 75.9 million associated with variable interest entities at September 30, 2022 and December 31, 2021, respectively)

Restricted cash and cash equivalents (including $ 27.9 million and $ 27.6 million associated with variable interest entities at March 31, 2023 and December 31, 2022, respectively)

44,677  

1 unchanged sentence

Loans, interest and fees receivable:

Loans, interest and fees receivable, at fair value (including $ 1,618.2 million and $ 925.5 million associated with variable interest entities at September 30, 2022 and December 31, 2021, respectively)

Loans, interest and fees receivable, at fair value (including $ 1,735.3 million and $ 1,735.9 million associated with variable interest entities at March 31, 2023 and December 31, 2022, respectively)

1,795,589  

1,817,976  

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

Loans, interest and fees receivable, gross

113,367  

105,267  

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

Allowances for uncollectible loans, interest and fees receivable

( 1,737 )  

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

Deferred revenue

( 18,207 )  

3 unchanged sentences

Property at cost, net of depreciation

12,160  

10,013  

Operating lease right-of-use assets

11,614  

11,782  

Prepaid expenses and other assets

8 unchanged sentences

20,363  

Notes payable, net (including $ 1,473.0 million and $ 1,223.4 million associated with variable interest entities at September 30, 2022 and December 31, 2021, respectively)

20,112  

Notes payable, net (including $ 1,543.7 million and $ 1,586.0 million associated with variable interest entities at March 31, 2023 and December 31, 2022, respectively)

1,614,575  

1,653,306  

Senior notes, net

9 unchanged sentences

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

Series A preferred stock, 400,000 shares issued and outstanding at September 30, 2022 (liquidation preference - $ 40.0 million);

Series A preferred stock, 400,000 shares issued and outstanding at March 31, 2023 (liquidation preference - $ 40.0 million);

400,000 shares issued and outstanding at December 31, 2022 (Note 5) (1)

5 unchanged sentences

Shareholders' Equity

Series B preferred stock, no par value, 3,193,262 shares issued and outstanding at September 30, 2022 (liquidation preference - $ 79.8 million);

Series B preferred stock, no par value, 3,254,161 shares issued and outstanding at March 31, 2023 (liquidation preference - $ 81.4 million);

3,204,640 shares issued and outstanding at December 31, 2022 (1)

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

14,445,295 and 14,804,408 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

14,528,546 and 14,453,415 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Paid-in capital

20 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30,

Consumer loans, including past due fees

5 unchanged sentences

Interest expense

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

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

Operating expense:

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

Changes in fair value of loans, interest and fees receivable recorded at fair value

Operating expenses:

Salaries and benefits

1 unchanged sentence

Marketing and solicitation

Total operating expense

Loss on repurchase and redemption of convertible senior notes

Total operating expenses

Income before income taxes

Income tax expense

Net loss (income) attributable to noncontrolling interests

Income tax (expense) benefit

Net loss attributable to noncontrolling interests

Net income attributable to controlling interests

7 unchanged sentences

Equity and Temporary Equity (Unaudited)

For the Three and Nine Months Ended September 30, 2022 and September 30, 2021

For the Three Months Ended March 31, 2023 and March 31, 2022

(Dollars in thousands)

9 unchanged sentences

Balance at December 31, 2022

Cumulative effects from adoption of the CECL standard

Accretion of discount associated with issuance of subsidiary equity

Preferred dividends

Stock option exercises and proceeds related thereto

Compensatory stock issuances, net of forfeitures

Contributions by owners of noncontrolling interests

Deferred stock-based compensation costs

Redemption and retirement of shares

Balance at March 31, 2022

Accretion of discount associated with issuance of subsidiary equity

Preferred dividends

Stock option exercises and proceeds related thereto

Compensatory stock issuances, net of forfeitures

Deferred stock-based compensation costs

Redemption and retirement of shares

Balance at June 30, 2022

Accretion of discount associated with issuance of subsidiary equity

Discount associated with repurchase of preferred stock

3 unchanged sentences

Issuance of series B preferred stock, net

Deferred stock-based compensation costs

Redemption and retirement of shares

Balance at September 30, 2022

Contributions by owners of noncontrolling interests

Stock-based compensation costs

Redemption and retirement of preferred shares

Redemption and retirement of common shares

Net income (loss)

Balance at March 31, 2023

Series B Preferred Stock

8 unchanged sentences

Balance at December 31, 2021

Accretion of discount associated with issuance of subsidiary equity

Preferred dividends

Stock option exercises and proceeds related thereto

Compensatory stock issuances, net of forfeitures

Deferred stock-based compensation costs

Redemption and retirement of shares

Balance at March 31, 2021

Cumulative effects from adoption of the CECL standard

Accretion of discount associated with issuance of subsidiary equity

2 unchanged sentences

Compensatory stock issuances, net of forfeitures

Issuance of series B preferred stock, net

Contributions by owners of noncontrolling interests

Deferred stock-based compensation costs

Redemption and retirement of shares

Balance at June 30, 2021

Accretion of discount associated with issuance of subsidiary equity

Preferred dividends

Stock option exercises and proceeds related thereto

Compensatory stock issuances, net of forfeitures

Issuance of series B preferred stock, net

Deferred stock-based compensation costs

Stock-based compensation costs

Redemption and retirement of shares

Balance at September 30, 2021

Net income (loss)

Balance at March 31, 2022

See accompanying notes.

2 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Operating activities

2 unchanged sentences

Provision for losses on loans, interest and fees receivable

Interest expense from accretion of discount on notes

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

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

Changes in fair value of loans, interest and fees receivable recorded at fair value

Amortization of deferred loan costs

Income from equity-method investments

Loss on repurchase and redemption of convertible senior notes

Deferred stock-based compensation costs

Stock-based compensation costs

Lease liability payments

Gain on sale of property

Changes in assets and liabilities:

Increase in uncollected fees on earning assets

Increase in income tax liability

Increase in accounts payable and accrued expenses

Increase (decrease) in income tax liability

(Decrease) increase in accounts payable and accrued expenses

Net cash provided by operating activities

Investing activities

Investments in equity-method investee

Proceeds from equity-method investee

Proceeds from recoveries on charged off receivables

1 unchanged sentence

Proceeds from earning assets

Sale of property

Purchases and development of property, net of disposals

5 unchanged sentences

Proceeds from exercise of stock options

Purchase and retirement of outstanding stock

Purchase and retirement of outstanding common and preferred stock

Proceeds from borrowings

Repayment of borrowings

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net decrease in cash and cash equivalents and restricted cash

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents and restricted cash

Net increase (decrease) in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash at beginning of period

7 unchanged sentences

Notes to Consolidated Financial Statements

September 30, 2022 and 2021

March 31, 2023 and 2022

Description of Our Business

9 unchanged sentences

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

Within our Credit 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 26 -year operating history, to support lenders in offering more inclusive financial services.

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 retailers and healthcare providers, direct mail solicitation, digital marketing and partnerships with third parties.

5 unchanged sentences

We also report within our CaaS segment:

1 ) servicing income;

1 ) servicing income;

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

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

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

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.

3 unchanged sentences

The COVID- 19 pandemic has negatively impacted global supply chains and business operations.

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

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

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

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

however, fiscal support of businesses and individuals has declined.

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.

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

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

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

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

our bank partner, merchants and consumers –

as well as our employees.

We continue to monitor the ongoing pandemic, have modified certain business practices, transitioned to a distributed work model and are offering consumers greater payment flexibility.

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

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

The duration and severity of the effects of these impacts on our financial condition, results of operations and liquidity remain uncertain. 

As a result of the COVID- 19 pandemic and subsequent declaration of a national emergency and the associated government policy responses and corresponding inflation, certain consumers have been offered the ability to defer their payment without penalty during the national emergency period.

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

("COVID- 19 Guidance").

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

In accordance with the COVID- 19 Guidance, 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.

Through March 31, 2023 

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

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

The Biden administration has indicated that the COVID- 19 national and public health emergencies will end on May 11, 2023.

The impact that the cessation of certain benefits provided under emergency relief programs will have on our consumers is uncertain although the financial statement impact is not expected to be material. 

Significant Accounting Policies and Consolidated Financial Statement Components

1 unchanged sentence

Basis of Presentation and Use of Estimates

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

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

(“GAAP”).

2 unchanged sentences

Actual results could differ materially from these estimates.

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

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

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

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

Unrestricted Cash and Cash Equivalents

Unrestricted cash and cash equivalents consist of cash, money market investments and overnight deposits.

We consider all highly liquid cash investments with low interest rate risk and original maturities of three months or less to be cash equivalents.

Cash equivalents are carried at cost, which approximates market.

We maintain unrestricted cash and cash equivalents for general operating purposes and to meet our longer term debt obligations.

We maintain our cash and cash equivalents in accounts at regulated domestic financial institutions in amounts that exceed FDIC insured amounts of approximately $4.5 million based on our current banking relationships.

Loans, Interest and Fees Receivable

2 unchanged sentences

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

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

We charge off our CaaS receivables, against our Changes in fair value of loans, interest and fees receivable recorded at fair value, when they become contractually more than 180 days past due. We charge off our Auto Finance segment receivables, against our Allowance for uncollectible loans, interest and fees receivable, when they become contractually more than 180 days past due.

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

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

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

January 1, 2022.

We adopted Accounting Standards Update ("ASU") 2016 - 13, Measurement of Credit Losses on Financial Instruments on January 1, 2022.

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

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

Upon adoption, we elected the fair value option for all remaining loans receivable associated with our private label credit and general purpose credit card platform previously measured at amortized cost and recorded an increase to our allowance for loan losses for our remaining Loans, interest and fees receivable associated with our Auto Finance segment. The adoption of CECL resulted in an increase to our opening balance of retained earnings of $ 8.6 million.

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.

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

Loans, Interest and Fees Receivable, at Fair Value.

6 unchanged sentences

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

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

Changes in the fair value of loans, interest and fees receivable are recorded as a component of “Changes in fair value of loans, interest and fees receivable recorded at fair value”

in the consolidated statements of income in the period of the fair value changes.

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

2 unchanged sentences

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

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

We purchased auto loans with outstanding principal of $ 56.3  million, $ 165.6  million, $ 47.8 million and $ 146.1 million for the three and nine months ended September 30, 2022 

We purchased auto loans with outstanding principal of $ 65.0 million and $ 56.5 million for the three months ended March 31, 2023 

and 2022, respectively, through our pre-qualified network of independent automotive dealers and automotive finance companies.

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

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

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

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

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

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

historical loss rates;

current delinquency and roll-rate trends;

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

the effects of changes in the economy on consumers;

changes in underwriting criteria;

and estimated recoveries.

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

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

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

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

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

As of September 30, 2022 

and December 31, 2021, the weighted average remaining accretion period for the $ 16.6  million and $ 29.3 million of deferred revenue reflected in the consolidated balance sheets was 27  months and 15  months, respectively.

Included within deferred revenue, are discounts on purchased auto loans of $ 16.6  million as of September 30, 2022 and merchant fees and discounts of $ 20.4 million as of December 31, 2021.

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

("COVID- 19 Guidance").

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

In accordance with the COVID- 19 Guidance, 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.

Through September 30, 2022 

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

however, the number of impacted consumers is a small 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.

Our CaaS segment consists of two classes of receivable:

credit cards and other unsecured lending products.

Certain of our loans, interest and fees receivable also contain components of deferred revenue related to loan discounts on the purchase of our auto finance receivables.

As of March 31, 2023 

and December 31, 2022, the weighted average remaining accretion period for the $ 18.2 million and $ 16.2 million of deferred revenue reflected in the consolidated balance sheets was 27  months for both.

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

For the Three Months Ended September 30, 2022

Other Unsecured Lending Products  

Allowance for uncollectible loans, interest and fees receivable:

Balance at beginning of period

$ ( 1.6 )  

Provision for loan losses

( 0.4 )  

Balance at end of period

$ ( 1.8 )  

For the Nine Months Ended September 30, 2022

Other Unsecured Lending Products  

For the Three Months Ended March 31, 2023

Allowance for uncollectible loans, interest and fees receivable:

Balance at beginning of period

$ ( 43.4 )  

$ ( 1.4 )  

$ ( 12.4 )  

Cumulative effects from adoption of fair value under the CECL standard

Cumulative effects from adoption of the CECL standard

( 0.2 )  

Provision for loan losses

( 0.7 )  

( 0.9 )  

Provision for credit losses

Balance at end of period

$ ( 1.8 )  

As of September 30, 2022

Other Unsecured Lending Products  

As of March 31, 2023

Allowance for uncollectible loans, interest and fees receivable:

1 unchanged sentence

Balance at end of period collectively evaluated for impairment

$ ( 1.8 )  

Loans, interest and fees receivable:

1 unchanged sentence

$ 113.4  

$ 107.4  

Loans, interest and fees receivable individually evaluated for impairment

1 unchanged sentence

$ 113.4  

$ 107.4  

For the Three Months Ended September 30, 2021

Other Unsecured Lending Products  

Allowance for uncollectible loans, interest and fees receivable:

Balance at beginning of period

$ ( 68.0 )  

$ ( 1.4 )  

$ ( 25.8 )  

Provision for loan losses

( 9.5 )  

( 0.1 )  

( 1.6 )  

( 0.2 )  

( 1.2 )  

Balance at end of period

$ ( 59.0 )  

$ ( 1.4 )  

$ ( 19.6 )  

For the Nine Months Ended September 30, 2021

Other Unsecured Lending Products  

For the Three Months Ended March 31, 2022

Other Unsecured Lending Products

Allowance for uncollectible loans, interest and fees receivable:

3 unchanged sentences

$ ( 12.4 )  

Provision for loan losses

( 24.8 )  

Cumulative effects from adoption of fair value under the CECL standard

Cumulative effects from adoption of the CECL standard

( 0.2 )  

Provision for credit losses

( 0.1 )  

2 unchanged sentences

$ ( 1.6 )  

$ ( 1.4 )  

$ ( 19.6 )  

As of December 31, 2022

Other Unsecured Lending Products  

Allowance for uncollectible loans, interest and fees receivable:

Balance at end of period individually evaluated for impairment

$ ( 0.1 )  

Balance at end of period collectively evaluated for impairment

$ ( 43.4 )  

$ ( 1.3 )  

$ ( 12.4 )  

Loans, interest and fees receivable:

1 unchanged sentence

$ 105.3  

$ 94.6  

$ 116.2  

$ 470.3  

Loans, interest and fees receivable individually evaluated for impairment

1 unchanged sentence

$ 105.3  

$ 94.2  

$ 116.2  

$ 469.9  

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

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

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

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

For the three and nine months ended September 30, 2022, $ 0.4  million and $ 0.9  million, respectively, of our recoveries noted above related to collections from third -party collectors and $ 0.0 million related to sales of charged-off accounts to unrelated third -parties for both periods.

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

Recoveries, noted above, consist of amounts received from the efforts of third -party collectors.

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 on our consolidated statements of income. 

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

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

30, 2022  and December 31, 2021 

An aging of our delinquent loans, interest and fees receivable, gross (in millions) by class of receivable as of March 31, 2023 

and December 31, 2022 

is as follows:

As of September 30, 2022

Other Unsecured Lending Products  

As of March 31, 2023

30-59 days past due

5 unchanged sentences

$ 113.4  

$ 107.4  

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

As of December 31, 2022

Other Unsecured Lending Products  

30-59 days past due

$ 17.8  

60-89 days past due

4 unchanged sentences

$ 105.3  

$ 94.6  

$ 116.2  

$ 470.3  

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

Troubled Debt Restructurings

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

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

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

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

As part of ongoing collection efforts, once an account, the receivable of which is included in our CaaS segment, becomes 90 days or more past due, the related receivable is placed on a non-accrual status.

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

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

When an account is re-aged, the status of the account is adjusted to bring a delinquent account current, but generally

no  further modifications to the payment terms or amounts owed are made.

When an account is re-aged, the status of the account is adjusted to bring a delinquent account current, but generally no further modifications to the payment terms or amounts owed are made.

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

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

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

The above referenced COVID-

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

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

19 and who were less than

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

Although we are

not a financial institution and therefore

not directly subject to the COVID-

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

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

Accounts that are placed on a non-accrual status and thereafter make at least one payment qualify as troubled debt restructurings (“TDRs”).

The above referenced COVID- 19 Guidance issued by federal bank regulatory agencies, in consultation with the Financial Accounting Standards Board (“FASB”) staff, concluded that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were impacted by COVID- 19 and whose accounts were less than 30 days past due as of the implementation date of a relief program are not TDRs.

Although we are not a financial institution and therefore not directly subject to the COVID- 19 Guidance, we believe this constitutes an interpretation of GAAP and therefore should be applied to our accounting circumstances.

As a result, the below tables exclude certain accounts that are included under that guidance. As of January 1, 2023, receivables accounted for using fair value are not included in our disclosure of TDRs.

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

September 30, 2022 and 

December 31, 2021 :

September 30, 2022

December 31, 2022  

Private label credit  

General purpose credit card

Private label credit  

General purpose credit card

2 unchanged sentences

171,729  

14,919  

39,322  

Number of TDRs that have been re-aged

Amount of TDRs on non-accrual status (in thousands)

28,598  

$ 58,723  

Amount of TDRs on non-accrual status (in thousands)

$ 31,350  

3 unchanged sentences

$ 24,440  

$ 1,205  

$ 1,553  

Carrying value of TDRs (in thousands)

1 unchanged sentence

$ 70,519  

$ 11,173  

$ 15,502  

TDRs - Performing (carrying value, in thousands)*

1 unchanged sentence

$ 59,735  

$ 8,797  

$ 13,387  

TDRs - Nonperforming (carrying value, in thousands)*

1 unchanged sentence

$ 10,784  

$ 2,376  

$ 2,115  

*“TDRs - Performing”

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

The Company modified 133,134 and 57,142 accounts in the amount of $ 138.4 million and $ 62.2 million during the twelve month periods ended September 30, 2022  and September 30, 2021 , respectively, that qualified as TDRs.

The Company modified 84,878 accounts in the amount of $ 89.5 million during the twelve month period ended March 31, 2022  that qualified as TDRs.

As of January 1, 2023, receivables accounted for using fair value are not included in our disclosure of TDRs.

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

Twelve Months Ended

September 30, 2022

September 30, 2021

Private label credit  

General purpose credit card

Private label credit  

March 31, 2022

Private label credit

General purpose credit card

4 unchanged sentences

$ 8,721  

$ 3,420  

$ 4,489  

We experienced effective tax rates of 17.6 % and 7.1 %, respectively, for the three and nine months ended September 30, 2022, compared to 18.7 % and 18.3 %, respectively, for the three and nine months ended September 30, 2021.

Our effective tax rates for the three and nine months ended both September 30, 2021 and 2022 are below the statutory rate principally due to ( 1 ) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’

grant date values and ( 2 ) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes. Also, certain state tax valuation allowance releases and benefits received under the Coronavirus Aid, Relief, and Economic Security (CARES) Act prior to the third quarter of 2021 contributed to our effective tax rate being lower than the statutory rate for the nine months ended September 30, 2021.

Partially offsetting the favorable rate effects discussed above in all 2021 and 2022 periods are ( 1 ) the adverse rate effects of state and foreign income tax expense and ( 2 ) executive compensation deduction limitations under Section 162 (m) of the Internal Revenue Code of 1986.

We experienced an effective tax rate of 23.8 % for the three months ended March 31, 2023, compared to a negative effective tax rate of 18.8 % for the three months ended March 31, 2022.

Our effective tax rate for the three months ended March 31, 2023, 

was above the statutory rate principally due to ( 1 ) state and foreign income tax expense, ( 2 ) interest accrued on uncertain tax positions, ( 3 ) taxes on global intangible low-taxed income, and ( 4 ) deduction disallowance under Section 162 (m) of the Internal Revenue Code of 1986, as amended, with respect to compensation paid to our covered employees.

Partially offsetting the foregoing items was our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes.

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

grant date values and ( 2 ) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes. Partially offsetting these two items are the effects of state and foreign income tax expense and taxes on global intangible low-taxed income.

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

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

We had de minimis interest expense or reversals thereof during the three and nine months ended September 30, 2022, and 2021.

Revenue Recognition and Revenue from Contracts with Customers

Consumer Loans, Including Past Due Fees

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

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

Premiums, discounts, annual fees 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 credit products, including the receivables underlying the private label and general purpose credit cards we service, and our legacy credit card receivables which include the recognition of annual fee billings and cash advance fees among others.

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

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

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

Revenue from Contracts with Customers

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

We had interest expense of $ 0.9 million during the three months ended March 31, 2023, and de minis interest expense or reversals thereof during the three months ended March 31, 2022.

Revenue from Contracts with Customers

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

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

The majority of our revenue is earned from financial instruments and is not included within the scope of Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers".

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

Interchange fees are earned when our customers’

cards are used over established card networks.

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

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

For the Three Months Ended September 30, 2022

Interchange revenues, net (1)

$ 6,194  

Servicing income

Service charges and other customer related fees

Total revenue from contracts with customers

$ 11,103  

$ 11,340  

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

For the Nine Months Ended September 30, 2022

Interchange revenues, net (1)

$ 19,273  

Servicing income

Service charges and other customer related fees

11,484  

11,538  

Total revenue from contracts with customers

$ 33,270  

$ 34,016  

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

For the Three Months Ended September 30, 2021

For the Three Months Ended March 31, 2023

Interchange revenues, net (1)

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

For the Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Interchange revenues, net (1)

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

Loss on repurchase and redemption of convertible senior notes

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

In the three and nine months ended September 30, 2021, we repurchased or redeemed $ 12.7  million and $ 33.8  million, respectively, in face amount of our convertible senior notes for $ 25.4 million and $ 54.3 million in cash (including accrued interest).

The repurchase and redemption resulted in an aggregate loss of approximately $ 16.2 million and $ 29.4 million (including the convertible senior notes’

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

Upon acquisition, the notes were retired. 

Recent Accounting Pronouncements

June 2016, the FASB issued Accounting Standards Update ("ASU") 2016 - 13, Measurement of Credit Losses on Financial Instruments.

June 2016, the FASB issued ASU 2016 - 13, Measurement of Credit Losses on Financial Instruments.

The guidance requires an assessment of credit losses based on expected rather than incurred losses (known as the current expected credit loss model).

This generally will result in the recognition of allowances for losses earlier than under current accounting guidance for trade and other receivables, held to maturity debt securities and other instruments.

The FASB has added several technical amendments (ASU 2018 - 19, 2019 - 04, 2019 - 10  and 2019 - 11 ) to clarify technical aspects of the guidance and applicability to specific financial instruments or transactions.

The FASB has added several technical amendments (ASU 2018 - 19, 2019 - 04, 2019 - 10 and 2019 - 11 ) to clarify technical aspects of the guidance and applicability to specific financial instruments or transactions.

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

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

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

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

For all other receivables, we recorded an increase to our Allowances for uncollectible loans, interest and fees receivable using the current expected credit loss model.

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

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

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

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

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

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

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

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

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

In December 2022, the FASB issued ASU 2022 - 06, “Reference Rate Reform (Topic 848 ):

Deferral of the Sunset Date of Topic 848”, to extend the temporary accounting rules under Topic 848 from December 31, 2022 to December 31, 2024.

These ASUs are effective for all entities upon their respective issuance dates through December 31, 2024.

We have reviewed all outstanding financial agreements, noting none utilize London Interbank Offered Rate ("LIBOR") as the reference rate and, as such, determined there is no impact to our consolidated financial statements.

Throughout the remaining effective period for ASU 2020 - 04, ASU 2021 - 01 and ASU 2022 - 06, we will continue to evaluate the available relief measures within each of these amendments and will determine any impact on our consolidated financial statements and disclosures, as applicable. 

On March 31, 2022, the FASB issued ASU 2022 - 02, Financial Instruments - Credit Losses (Topic 326 ):

Troubled Debt Restructurings and Vintage Disclosures.

The ASU eliminates the accounting guidance for troubled debt restructurings by creditors while adding disclosures for certain loan restructurings by creditors when a borrower is experiencing financial difficulty. 

This guidance requires an entity to determine whether a modification results in a new loan or a continuation of an existing loan. 

Additionally, the ASU requires disclosure of current period gross writeoffs by year of origination for financing receivables. 

The ASU is effective for the Company for fiscal years beginning after December 15, 2022. 

The Company does not believe the adoption of this ASU will have a material impact on its financial results or accompanying disclosures.

This guidance requires an entity to determine whether a modification results in a new loan or a continuation of an existing loan.

Additionally, the ASU requires disclosure of current period gross writeoffs by year of origination for financing receivables.

The disclosures required by this ASU are required for receivables held at amortized cost and exclude those accounted for using fair value. The Company adopted this ASU on January 1, 2023. 

As the significant majority of the Company's receivables are held at fair value, the adoption of this ASU did not have a material impact on the Company's financial results and accompanying disclosures.

Segment Reporting

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CaaS and Auto Finance.

As of both September 30, 2022 

As of both March 31, 2023 

and December 31, 2022, we did not have a material amount of long-lived assets located outside of the U.S.

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

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

Three Months Ended September 30, 2022

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

Three Months Ended March 31, 2023

Consumer loans, including past due fees

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Other revenue

11,103  

11,340  

Other non-operating revenue

5 unchanged sentences

( 774 )  

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

( 704 )  

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

Changes in fair value of loans, interest and fees receivable recorded at fair value

( 149,822 )  

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$ ( 621 )  

Nine Months Ended September 30, 2022

Consumer loans, including past due fees

$ 2,276,140  

1 unchanged sentence

$ 2,375,295  

Fees and related income on earning assets

168,992  

169,055  

Other revenue

33,270  

34,016  

Other non-operating revenue

Total revenue

750,757  

27,063  

777,820  

Interest expense

( 56,613 )  

( 1,236 )  

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

( 710 )  

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

( 414,863 )  

$ 279,281  

$ 25,117  

$ 304,398  

Income (loss) before income taxes

$ 119,740  

$ ( 250 )  

$ 119,490  

Income tax (expense) benefit

$ ( 8,637 )  

$ 2,158,183  

$ 94,148  

$ 2,252,331  

Three Months Ended September 30, 2021

Consumer loans, including past due fees

$ 132,747  

$ 8,430  

$ 141,177  

Fees and related income on earning assets

54,065  

54,085  

Other revenue

Other non-operating revenue

Total revenue

195,127  

203,949  

Interest expense

( 12,109 )  

( 261 )  

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

( 9,192 )  

( 46 )  

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

( 58,727 )  

$ 115,099  

$ 8,515  

$ 123,614  

Income before income taxes

$ 55,134  

$ 2,744  

$ 57,878  

Income tax expense

$ ( 10,117 )  

$ ( 664 )  

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Consumer loans, including past due fees

7 unchanged sentences

10,266  

20,546  

Other non-operating revenue

2 unchanged sentences

229,831  

530,789  

Interest expense

1 unchanged sentence

( 247 )  

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

( 147 )  

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

Changes in fair value of loans, interest and fees receivable recorded at fair value

( 104,680 )  

12 unchanged sentences

$ 86,482  

$ 1,921,637  

Shareholders’

Equity and Preferred Stock

During the three and nine months ended September 30, 2022, we repurchased and contemporaneously retired 313,893 and 1,674,141 shares of our common stock at an aggregate cost of $ 10,863,000 and $ 88,938,000 , respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations. During the three and nine  months ended September 30, 2021, we repurchased and contemporaneously retired 109,312 and 127,987 shares of our common stock at an aggregate cost of $ 5,193,000 and $ 5,794,000 , respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations.

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

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

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”).

Sales pursuant to the Sales Agreement, if any, may be made in transactions that are deemed to be “at-the-market offerings”

as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on or through the NASDAQ Global Select Market.

The sales agent will make all sales using commercially reasonable efforts consistent with its normal trading and sales practices up to the amount specified in, and otherwise in accordance with the terms of, the placement notice.

During the third quarter of 2022, we sold 8,229 shares of our Series B Preferred Stock under our ATM Program for net proceeds of $ 0.2 million.

During the three and nine months ended September 30, 2022, we repurchased and contemporaneously retired 3,500 shares of Series B Preferred Stock at an aggregate cost of $ 70,000 .

During the three months ended March 

31, 2023  and 2022, we repurchased and contemporaneously retired 72,354 shares and 1,005,212 shares of our common stock at an aggregate cost of $ 1,947,000  and $ 65,214,000 , respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations.

During the three months ended 

March 31, 

2023 and 2022, we sold 51,327  shares and 0  shares of our Series B Preferred Stock under our “at-the-market”

offering program (the “ATM Program”) for net proceeds of $ 1.1 million and $ 0.0  million, respectively.

During the three months ended March 31, 2023 and 2022, we repurchased and contemporaneously retired 1,806 shares and 0 shares of Series B Preferred Stock at an aggregate cost of $ 29,000  and $ 0 , respectively.

For further information regarding the ATM Program, see Note 13  “ATM Program.”

Redeemable Preferred Stock

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

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

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

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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.

A holder of the Class B Preferred Units may, at its election, require the Company to redeem part or all of such holder’s Class B Preferred Units for cash on October 14, 

A holder of the Class B Preferred Units may, at its election, require the Company to redeem part or all of such holder’s Class B Preferred Units for cash on October 14, 2024.

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

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

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

The Company has the right to redeem the Class B Preferred Units at any time with notice. We have included the issuance of these Class B preferred units as temporary noncontrolling interest on the consolidated balance sheets.

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

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for more information.

Investment in Equity-Method Investee

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

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

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

Three Months Ended September 30,

Nine months ended September 30,

Net income attributable to our equity investment investee

Fair Values of Assets and Liabilities

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

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

With the aforementioned market impacts of COVID- 19 and related economic impacts, we continue to include market degradation in our models 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.

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

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

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

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

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

Receivables and notes are recorded at their fair value, not their principal and fee balance or cost basis;

The fair value of the loans takes into consideration net charge-offs for the remaining life of the loans with no separate allowance for loan loss calculation;

Certain fee billings (such as annual or merchant fees) and expenses of loans and notes are no longer deferred but recognized (when billed or incurred) in income or expense, respectively;

Receivables are recorded at their fair value, not their principal and fee balance or cost basis;

The fair value of the loans takes into consideration net charge-offs for the remaining life of the loans with no separate allowance for credit loss calculation;

Certain fee billings (such as annual or merchant fees) and expenses of loans and notes are no longer deferred but recognized (when billed or incurred) in income or expense, respectively;

The net present value of cash flows associated with future fee billings on existing receivables are included in fair value; 

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

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

For all of our other receivables, we have not elected the fair value option.

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

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

Where applicable as noted above, we account for our financial assets and liabilities at fair value based upon a three -tiered valuation system.

Changes in the fair value of loans impact recorded revenues;

Net charge-offs are recognized as they occur rather than through the establishment of an allowance and provision for losses for those loans, interest and fees receivable carried at amortized cost.

For receivables that are carried at net amortized cost, we include disclosures of the fair value of such receivables to the extent practicable within the disclosures below. 

Where applicable, we account for our financial assets and liabilities at fair value based upon a three -tiered valuation system.

In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

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

September 30, 2022 and 

March 31, 2023 and 

December 31, 2022 fair values and carrying amounts of ( 1 ) our assets that are required to be carried at fair value in our consolidated financial statements and ( 2 ) our assets not carried at fair value, but for which fair value disclosures are required:

Assets –

As of September 30, 2022 (1)

As of March 31, 2023 (1)

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

2 unchanged sentences

Carrying Amount of Assets

Loans, interest and fees receivable, net for which it is practicable to estimate fair value

Loans, interest and fees receivable, net for which it is practicable to estimate fair value and which are carried at net amortized cost

$ 101,123  

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Carrying Amount of Assets

Loans, interest and fees receivable, net for which it is practicable to estimate fair value

Loans, interest and fees receivable, net for which it is practicable to estimate fair value and which are carried at net amortized cost

$ 94,968  

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

For those asset classes above that are required to be carried at fair value in our consolidated financial statements, gains and losses associated with fair value changes are detailed on our consolidated statements of income as a component of "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value".

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

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the nine months ended September 30, 2022  and 2021 :

Loans, Interest and Fees Receivables, at Fair Value

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( 608,756 )  

Balance at September 30,

Balance at March 31,

$ 1,795,589  

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Net Revaluation of Loans, Interest and Fees Receivable.

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

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

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

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

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of September 30, 2022 

and December 31, 2021. 

As discussed above, our fair value models include market degradation 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. 

This market degradation is included in the below quantitative information:

March 31, 2023 and December 31, 2022.

This market degradation is included in the below quantitative information: 

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurement

Fair Value at September 30, 2022 (in thousands)  

Fair Value at March 31, 2023 (in thousands)

Valuation Technique

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Gross yield, net of finance charge charge-offs

25.4% to 37.7% (32.9%)  

5.3% to 12.4% (11.0%)  

24.4% to 37.1% (31.9%)

5.4% to 11.6% (10.3%)

Expected principal credit loss rate

6.1% to 32.5% (32.3%)  

2.9% to 31.2% (30.9%)

Servicing rate

3.4% to 7.1% (3.8%)  

3.3% to 6.3% (3.3%)

Discount rate

9.9% to 10.5% (10.3%)  

9.4% to 10.5% (9.8%)

Quantitative Information about Level 3 Fair Value Measurements

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

The table below summarizes (in thousands) by fair value hierarchy the September 30, 2022 

The table below summarizes (in thousands) by fair value hierarchy the March 31, 2023 

and December 31, 2022 

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

fair values and carrying amounts of our liabilities not carried at fair value, but for which fair value disclosures are required:

Liabilities –

As of September 30, 2022

As of March 31, 2023

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

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

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

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

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

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for further discussion on our other notes payable.

For our material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the nine months ended September 30, 2021 ( no amounts were outstanding as of September 30, 2022):

Notes Payable Associated with Structured Financings, at Fair Value

Balance at January 1,

$ 2,919  

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

Balance at September 30,

$ 2,221  

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

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

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

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

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

The Company is not liable for the full face value of the liability in the VIE so it is carried at fair value based upon amounts the borrower will receive from the legal entity.

The net revaluation of these notes 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.

We estimate the present value of these future cash flows using internally-developed estimates of assumptions third -party market participants would use in determining fair value, including:

estimates of gross yield, payment rates, expected credit loss rates, servicing costs, and discount rates on the credit card receivables that secure the non-recourse notes payable;

costs of funds;

discount rates;

and contractual servicing fees.

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

Other Relevant Data

Other relevant data (in thousands) as of September 30, 2022 and 

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

As of September 30, 2022

Loans, Interest and Fees Receivable at Fair Value  

Loans, Interest and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value  

Other relevant data (in thousands) as of March 31, 2023 and 

December 31, 2022 concerning certain assets we carry at fair value are as follows:

As of March 31, 2023

Loans, Interest and Fees Receivable at Fair Value

Loans, Interest and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value

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

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As of December 31, 2022

Loans, Interest and Fees Receivable at Fair Value  

Loans, Interest and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value  

Loans, Interest and Fees Receivable at Fair Value

Loans, Interest and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value

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

$ 2,119,340  

$ 1,234,039  

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

$ 1,910,090  

$ 1,131,895  

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

$ 1,817,211  

$ 1,025,209  

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

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Variable Interest Entities

The Company contributes certain receivables to VIEs.

The Company contributes the vast majority of receivables to VIEs.

These entities are sometimes established to facilitate third party financing.

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

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

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

In all of our VIEs, we continue to service the receivables (in accordance with defined servicing procedures), and as such, have the ability to significantly impact the economic performance of those VIEs. In certain circumstances we guarantee the performance of the underlying debt or agree to contribute additional collateral when necessary.

We consolidate VIEs when we hold a variable interest and we retain significant exposure to certain receivables and therefore, are the primary beneficiary.

Through our role as servicer, we are the primary beneficiary when we have the power to direct activities that most significantly affect the economic performance and have the obligation to absorb the majority of the losses or benefits.

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

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

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

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

September 30, 2022

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

March 31, 2023

December 31, 2022

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1,735.3  

Loans, interest and fees receivable, gross

Allowances for uncollectible loans, interest and fees receivable

Deferred revenue

1,735.9  

Total Assets held by VIEs

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$ 1,756.0  

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

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

Our leases have remaining lease terms of 1 to 12 years, some of which include options, at our discretion, to extend the leases for additional periods generally on one -year revolving periods.

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

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Operating lease cost, gross

$ 1,724  

$ 3,769  

$ 5,187  

Sublease income

( 24 )  

( 1,292 )  

( 2,142 )  

Net Operating lease cost

$ 1,627  

$ 1,311  

Cash paid under operating leases, gross

$ 2,635  

$ 3,845  

$ 7,837  

Weighted average remaining lease term - months

Weighted average discount rate

As of September 30, 2022 , maturities of lease liabilities were as follows (in thousands):

As of March 31, 2023 , maturities of lease liabilities were as follows (in thousands):

Gross Lease Payment

Payments received from Sublease  

Net Lease Payment

2022 (excluding the nine months ended September 30, 2022)

2023 (excluding the three months ended March 31, 2023)

$ 1,502  

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17,338  

Total lease payments

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$ 20,363  

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

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

The total commitment under the new lease is approximately $ 27.8 million and is included in the table above.

In connection with the commencement of this new lease, we discontinued most of the subleasing arrangements with third parties for space at our corporate headquarters. A right-of-use asset and liability was recorded at the commencement date of the lease.

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

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

The total commitment under the new lease is approximately $ 27.8  million and is included in the table above.

In connection with the commencement of this new lease, we discontinued most of the subleasing arrangements with third parties for space at our corporate headquarters.

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

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

As of September 30, 2022 , we had no material non-cancelable capital leases with initial or remaining terms of more than one year.

As of March 31, 2023, we had no material non-cancelable capital leases with initial or remaining terms of more than one year.

Notes Payable

Notes Payable, at Face Value

Other notes payable outstanding as of September 30, 2022 and 

Other notes payable outstanding as of March 31, 2023 and 

December 31, 2022 that are secured by the financial and operating assets of either the borrower, another of our subsidiaries or both, include the following, scheduled (in millions);

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

September 30, 2022

March 31, 2023

December 31, 2022

Revolving credit facilities at a weighted average interest rate equal to 4.9 % as of September 30, 2022 ( 4.3 % as of December 31, 2021) secured by the financial and operating assets of CAR and/or certain receivables and restricted cash with a combined aggregate carrying amount of $ 1,728.1 million as of September 30, 2022 ($ 1,391.6 million as of December 31, 2021)

Revolving credit facilities at a weighted average interest rate equal to 5.2 % as of March 31, 2023 ( 5.1 % as of December 31, 2022) secured by the financial and operating assets of CAR and/or certain receivables and restricted cash with a combined aggregate carrying amount of $ 1,862.3 million as of March 31, 2023 ($ 1,856.2 million as of December 31, 2022)

Revolving credit facility, not to exceed $ 65.0 million (expiring November 1, 2025 ) (1) (2) (3)

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Revolving credit facility, not to exceed $ 50.0 million (expiring October 30, 2024 ) (2) (3) (4) (5)

Revolving credit facility, not to exceed $ 20.0 million (expiring July 15, 2023 ) (2) (3) (4) (5)

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

Revolving credit facility, not to exceed $ 25.0 million (expiring July 20, 2023 ) (2) (3) (4) (5)

Revolving credit facility, not to exceed $ 20.0 million (expiring July 15, 2023 ) (2) (3) (4) (5)

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

Revolving credit facility, not to exceed $ 25.0 million (expiring April 21, 2023 ) (2) (3) (4) (5)

Revolving credit facility, not to exceed $ 100.0 million (expiring January 15, 2025 ) (3) (4) (5) (6)

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

* As of September 30, 2022 , the LIBOR rate was 3.14 % and the prime rate was 6.25 %.

October 2015, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $ 50.0 million revolving borrowing limit that can be drawn to the extent of outstanding eligible principal receivables (of which $ 0.0 million was drawn as of September 30, 2022).

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

* As of March 31, 2023 , the Prime Rate was 8.00 % and the Secured Overnight Financing Rate ("SOFR") was 4.87 %.

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

The facility matures on October 30, 2024 and is subject to certain affirmative covenants, including a liquidity test and an eligibility test, the failure of which could result in required early repayment of all or a portion of the outstanding balance.

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

October 2016, we (through a wholly owned subsidiary) entered a revolving credit facility available to the extent of outstanding eligible principal receivables of our CAR subsidiary (of which $ 47.8 million was drawn as of September 30, 2022).

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

This facility is secured by the financial and operating assets of CAR and accrues interest at an annual rate equal to SOFR plus a range between 2.25 % and 2.6 % based on certain ratios.

The loan is subject to certain affirmative covenants, including a coverage ratio, a leverage ratio and a collateral performance test, the failure of which could result in required early repayment of all or a portion of the outstanding balance.

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

As of September 30, 2022, the facility's borrowing limit was $ 55.0 million and the facility matures on 

November 1, 2024.

As of March 31, 2023, the facility's borrowing limit was $ 65.0 million and the facility matures on November 1, 2025.

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

In 2018, we (through a wholly owned subsidiary) entered into a revolving credit facility to sell up to an aggregate $ 100.0  million of notes that are secured by the receivables and other assets of the trust (of which $ 30.0 million was outstanding as of September 30, 2022) 

that can be drawn upon to the extent of outstanding eligible receivables.

The interest rate on the notes equals the Secured Overnight Financing Rate ("SOFR") plus 3.1 %.

The facility matures on March 15, 2024, and is subject to certain affirmative covenants and collateral performance tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance of notes.

As of September 30, 2022, the aggregate borrowing limit was $ 100.0 million.

In December 2017, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $ 25.0 million revolving borrowing limit that is available to the extent of outstanding eligible principal receivables (of which $ 7.6  million was drawn as of September 30, 2022).

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

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

This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to SOFR plus 3.6 %.

An amendment was completed in April 2023 that extended the maturity to July 20, 2023. 

There were no other material changes to the existing terms. The facility is subject to certain affirmative covenants, including payment, delinquency and charge-off tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance.

The note is guaranteed by Atlanticus.

In June 2019, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $ 20.0 million revolving borrowing limit that is available to the extent of outstanding eligible principal receivables (of which $ 14.9 million was drawn as of September 30, 2022).

2018, we (through a wholly owned subsidiary) entered into a revolving credit facility to sell up to an aggregate $ 100.0 million of notes that are secured by the receivables and other assets of the trust (of which $ 0.0 million was outstanding as of March 31, 2023) that can be drawn upon to the extent of outstanding eligible receivables.

The interest rate on the notes equals the SOFR plus 3.1 %.

The facility matures on March 15, 2024, and is subject to certain affirmative covenants and collateral performance tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance of notes.

As of March 31, 2023, the aggregate borrowing limit was $ 100.0 million.

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

The note is guaranteed by Atlanticus.

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

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

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

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

This facility is currently in contractual scheduled amortization.

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

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

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

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

A portion of the proceeds from the sale was used to pay down our existing term ABS associated with our private label credit receivables, noted above, and the remaining proceeds were used to fund the acquisition of receivables.

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

In January 2021, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $ 25.0 million borrowing limit (of which $ 25.0 million was drawn as of September 30, 2022) that is available to the extent of outstanding eligible principal receivables.

In January 2021, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $ 25.0 million borrowing limit (of which $ 25.0 million was drawn as of March 31, 2023) that is available to the extent of outstanding eligible principal receivables.

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

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

In September 2021, we entered a term facility with a $ 75.0 million limit (of which $ 0 was drawn as of September 30, 2022) that is available to the extent of outstanding eligible principal receivables.

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

In September 2021, we entered a term facility with a $ 75.0 million limit (of which $ 0.0 million was outstanding as of March 31, 2023) that is available to the extent of outstanding eligible principal receivables.

This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to Term Secured Overnight Financing Rate ("Term SOFR") plus 2.75 %.

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

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

In May 2022, we entered a $ 250.0 million ABS agreement (of which $ 150.0 million was outstanding as of September 30, 2022) 

secured by certain credit card receivables (expiring May 15, 2030).

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

The weighted average interest rate on the securities is fixed at 6.33 %. 

In August 2022, we entered a  

$ 100.0  million ABS agreement secured by certain credit card receivables (of which $ 10.0 million was outstanding as of September 30, 2022) 

that can be drawn upon to the extent of outstanding eligible receivables.

The interest rate on the notes is based on the Term Secured Overnight Financing Rate ("Term SOFR") plus 1.8 %.

The facility matures on August 5, 2024. 

In September 

2022, we sold $ 100.0 million of ABS secured by certain private label credit receivables.

In May 2022, we entered a $ 250.0 million ABS agreement (of which $ 250.0 million was drawn as of March 31, 2023) secured by certain credit card receivables (expiring May 15, 2030).

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

The weighted average interest rate on the securities is fixed at 6.33 %.

In August 2022, we entered a $ 100.0 million ABS agreement secured by certain credit card receivables (of which $ 0.0 million was outstanding as of March 31, 2023) that can be drawn upon to the extent of outstanding eligible receivables.

The interest rate on the notes is based on the Term SOFR plus 1.8 %.

The facility matures on August 5, 2024.

In September 2022, we sold $ 100.0 million of ABS secured by certain private label credit receivables.

A portion of the proceeds from the sale was used to pay down other revolving facilities associated with our private label credit receivables, noted above, and the remaining proceeds have been invested in the acquisition of receivables.

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The weighted average interest rate on the securities is fixed at 7.3 %.

As of September 30, 2022, we were in compliance with the covenants underlying our various notes payable and credit facilities.

As of March 31, 2023, we were in compliance with the covenants underlying our various notes payable and credit facilities.

Senior Notes, net

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

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

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

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

Amortization of these fees for the three and nine months ended September 30, 2022 

totaled $ 0.4  million and $ 1.1  million, respectively.

Amortization of these fees for the three months ended March 31, 2023 and 2022  totaled $ 0.4 million and $ 0.4  million, respectively.

Commitments and Contingencies

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

Unfunded commitments under these products aggregated $ 2.2  billion at September 30, 2022.

Unfunded commitments under these products aggregated $ 2.3 billion at March 31, 2023.

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

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

As of September 30, 2022, CAR had unfunded outstanding floor-plan financing commitments totaling $ 12.2  million.

As of March 31, 2023, CAR had unfunded outstanding floor-plan financing commitments totaling $ 11.5  million.

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

Under agreements with third -party originating and other financial institutions, we have pledged security (collateral) related to their issuance of consumer credit and purchases thereunder, of which $ 17.9 million remains pledged as of September 30, 2022 

to support various ongoing contractual obligations.

Under agreements with third -party originating and other financial institutions, we have pledged security (collateral) related to their issuance of consumer credit and purchases thereunder, of which $ 16.8 million remains pledged as of March 31, 2023 to support various ongoing contractual obligations.

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

As of September 30, 2022, we have assessed the likelihood of any potential payments related to the aforementioned contingencies as remote.

As of March 31, 2023, we have assessed the likelihood of any potential payments related to the aforementioned contingencies as remote.

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

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

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

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

As an acquirer of receivables, our potential exposure under this program, if all eligible participants applied for this benefit, was $ 69.8 million as of September 30, 2022.

As an acquirer of receivables, our potential exposure under this program, if all eligible participants applied for this benefit, was $ 68.2 million as of March 31, 2023.

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

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For further information regarding these commitments, see Note 8, “Leases”.

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

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

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

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

Net Income Attributable to Controlling Interests Per Common Share

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

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

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

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For the Three Months Ended

For the Nine Months Ended

September 30,

Net income attributable to controlling interests

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$ 45,010  

$ 111,606  

$ 127,925  

Preferred stock and preferred unit dividends and accretion

( 6,227 )  

( 6,629 )  

( 18,759 )  

Net income attributable to common shareholders—basic

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38,804  

92,847  

111,871  

Effect of dilutive preferred stock dividends and accretion

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$ 39,396  

$ 94,642  

$ 113,666  

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

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14,821  

14,688  

15,104  

Effect of dilutive stock compensation arrangements and exchange of preferred stock

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20,059  

19,523  

20,936  

Net income attributable to common shareholders per share—basic

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$ 2.62  

$ 6.32  

$ 7.41  

Net income attributable to common shareholders per share—diluted

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$ 1.96  

$ 4.85  

$ 5.43  

Shares related to unvested share-based payment awards included in our basic and diluted share counts were 146,617 and 133,702 for the three and nine months ended September 30, 2022 , respectively, compared to 278,425 and 376,301 for the three and nine months ended September 

30, 2021, respectively.

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

30, 2022, respectively, and we excluded stock options to purchase 0.0 shares and 0.1 million shares from our net income attributable to controlling interests per share of common stock calculations for the three and nine months ended September 

30, 2021, respectively.

For the three months and nine months ended September 

Shares related to unvested share-based payment awards included in our basic and diluted share counts were 188,384 for the three months ended March 31, 2023  compared to 100,331 for the three  months ended March 31, 2022.

As their effects were anti-dilutive, we excluded stock options to purchase 0.1 million shares from our net income attributable to controlling interests per share of common stock calculations for the three months ended March 31, 2023.

No shares were excluded from our net income attributable to controlling interests per share of common stock calculations for the three months ended March 31, 2022.

For both of the three months ended March 31, 

2023  and 2022, we included 4.0 million shares of common stock for each period in our outstanding diluted share counts associated with our Series A Preferred Stock.

See Note 5, "Redeemable Preferred Stock", for a further discussion of these convertible securities.

For the three and nine months ended September 

30, 2021, we included 0.0 and 0.1  million shares, respectively, of common stock in the diluted net income attributable to controlling interests per share of common stock calculations associated with our convertible senior notes.

Stock-Based Compensation

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

As of September 

30, 2022, 51,727 shares remained available for issuance under the ESPP and 2,086,208 shares remained available for issuance under the Fourth Amended 2014 Plan.

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

30, 2022  and 2021.

As of March 31, 2023, 49,608 shares remained available for issuance under the ESPP and 1,928,801 shares remained available for issuance under the Fourth Amended 2014 Plan.

Exercises and vestings under our stock-based compensation plans resulted in no income tax-related charges to paid-in capital during the three months ended March 31, 2023 

Restricted Stock and Restricted Stock Units

During the nine months ended September 

30, 2022  and 2021, we granted 103,957 and 53,584 shares of restricted stock and restricted stock units (net of any forfeitures), respectively, with aggregate grant date fair values of $ 4.9 million and $ 1.7  million, respectively.

We incurred expenses of $ 1.9  million and $ 0.9  million during the nine months ended September 30, 2022 

During the three months ended March 31, 2023 

and 2022, we granted 146,227 shares and 106,498 shares of restricted stock and restricted stock units (net of any forfeitures), respectively, with aggregate grant date fair values of $ 3.6 million and $ 5.0 million, respectively.

We incurred expenses of $ 0.7 million and $ 0.6  million during the three months ended March 31, 2023 

and 2022, respectively, related to restricted stock awards.

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

As of September 30, 2022, our unamortized deferred compensation costs associated with non-vested restricted stock awards were $ 3.9 million with a weighted-average remaining amortization period of 2.9 years.

As of March 31, 2023, our unamortized deferred compensation costs associated with non-vested restricted stock awards were $ 6.3 million with a weighted average remaining amortization period of 2.8 years.

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

Stock Options

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

The option period may not exceed 10 years from the date of grant. We had expense of $ 0.3  million, $ 1.3  million, $ 0.7  million and $ 1.4  million related to stock option-related compensation costs during the three and nine months ended September 

30, 2022  and 2021, respectively.

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

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

We had expense of $ 0.2 million and $ 0.5 million related to stock option-related compensation costs during the three months ended March 31, 2023 

and 2022, respectively.

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

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Outstanding at December 31, 2022

802,163  

$ 12.23  

( 1,258 )  

$ 15.30  

Expired/Forfeited

Outstanding at September 30, 2022

Exercisable at September 30, 2022

Options issued during the three and nine months ended September 

2021  had an aggregate grant-date fair value of $ 2.1 million and $ 3.2 million, respectively.

No options were issued during the three months and nine months ended September 30, 2022. 

We had $ 1.1  million and $ 2.4 million of unamortized deferred compensation costs associated with non-vested stock options as of September 30, 2022 

and December 31, 2021, respectively, with a weighted average remaining amortization period of 1.2  years as of September 30, 2022.

( 999 )  

$ 15.30  

Outstanding at March 31, 2023

799,906  

$ 12.22  

$ 13,299,303  

Exercisable at March 31, 2023

688,544  

$ 9.25  

$ 12,840,335  

No options were issued during the three months ended March 31, 2023 

We had $0.6  million and $ 0.8 million of unamortized deferred compensation costs associated with non-vested stock options as of March 31, 2023 

and December 31, 2022, respectively, with a weighted average remaining amortization period of 0.9 years as of March 31, 2023.

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

During the third quarter of 2022, we sold 8,229 shares of our Series B Preferred Stock under the ATM Program.

We received $ 0.2 million in net proceeds from sales under the ATM Program.

Sales pursuant to the Sales Agreement, if any, may be made in transactions that are deemed to be “at-the-market offerings”

as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on or through the NASDAQ Global Select Market.

For further information regarding the ATM Program, see Note 4, “Shareholders’

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Subsequent Events

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

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

There are two types of subsequent events:

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

We have evaluated subsequent events occurring after September 30, 2022, and based on our evaluation we did not identify any recognized or nonrecognized subsequent events that would have required further adjustments to our consolidated financial statements.

We have evaluated subsequent events occurring after March 31, 2023, and based on our evaluation we did not identify any recognized or nonrecognized subsequent events that would have required further adjustments to our consolidated financial statements other than the development described below.

In April 2023, we purchased 64,242 shares of common stock, which were subsequently retired.

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

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refer to Atlanticus Holdings Corporation and its subsidiaries and predecessors.

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

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.

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

Currently, within our Credit as a Service ("CaaS") segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing over $27 billion in consumer loans over our 26-year operating history, to support lenders in offering more inclusive financial services.

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.

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

None of these companies are publicly-traded and the carrying value of our investment in these companies is not material. One of these companies has sued Apple, Inc., Walmart, Inc., and PayPal Holdings, Inc.

for patent infringement. 

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. 

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 2023. 

is scheduled for Court imposed mediation in June 2023.

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

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.

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.

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.

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

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

in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2022 and Part II, 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.

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 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.

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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 September 30, 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).

Fair Value Election

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

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

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

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

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

As of March 31, 2023, our CAR operations served more than 620 dealers in 31 states and two U.S.

The core operations continue to perform well, absent the early 2022 settlement of outstanding litigation (achieving consistent profitability and generating positive cash flows and growth).

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 has resulted in increasing costs for many goods and services.

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

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

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

however, fiscal support of businesses and individuals has declined.

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

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

our bank partner, merchants and consumers –

as well as our employees.

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

Once the severity of the pandemic declined, Atlanticus transitioned to a distributed work model.

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

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

In March 2020, a national emergency was declared under the National Emergencies Act due to a new strain of coronavirus.

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.

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

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

The duration and severity of the effects of these impacts on our financial condition, results of operations and liquidity remain uncertain. 

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

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

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

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

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 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, 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 highly uncertain.

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. The Biden administration has indicated that the COVID-19 national and public health emergencies will end on May 11, 2023.

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.

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

and, in particular, “–

and, in particular, “Other Risks of our Business –

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." 

and "Other Risks of our Business –

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

CONSOLIDATED RESULTS OF OPERATIONS

For the Three Months Ended September 30,

Increases (Decreases)

(In Thousands)

from 2021 to 2022

Total operating revenue

Other non-operating revenue

Interest expense

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

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

Operating expenses:

Salaries and benefits

Card and loan servicing

Marketing and solicitation

Total operating expenses:

Loss on repurchase and redemption of convertible senior notes

Net loss (income) attributable to noncontrolling interests

Net income attributable to controlling interests

Net income attributable to controlling interests to common shareholders

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Increases (Decreases)

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Interest expense

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

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

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

Changes in fair value of loans, interest and fees receivable recorded at fair value

Operating expenses:

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Total operating expenses:

Loss on repurchase and redemption of convertible senior notes

Net loss (income) attributable to noncontrolling interests

Net loss attributable to noncontrolling interests

Net income attributable to controlling interests

Net income attributable to controlling interests to common shareholders

Three and Nine Months Ended September 30, 2022, Compared to Three and Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

Total operating revenue.

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

Period-over-period results primarily relate to growth in private label credit and general purpose credit card products, the receivables of which increased from $1,441.5 million as of September 30, 2021 to $2,049.5 million as of September 30, 2022.

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

Period-over-period results primarily relate to growth in private label credit and general purpose credit card products, the receivables of which increased from $1,677.6 million as of March 31, 2022 to $2,055.0 million as of March 31, 2023.

We continue to experience 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, albeit at a decreased growth rate to that experienced in 2022.

Future periods’

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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.

This has 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 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.

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.

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”

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

These investments are carried at cost.

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

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Interest expense.

Variations in interest expense are due to new borrowings associated with growth in private label credit and general purpose credit card receivables and CAR operations as evidenced within Note 10, “Notes Payable,”

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

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

Outstanding notes payable, net of unamortized debt issuance costs and discounts, associated with our private label credit and general purpose credit card platform increased from $944.5 million as of September 30, 2021 to $1,473.1 million as of September 30, 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 serve to increase interest expense over prior periods.

Recent increases in the federal funds rate have thus far had a minimal 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.

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 $1,206.6 million as of March 31, 2022 to $1,543.8 million as of March 31, 2023.

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

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 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 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 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 three and nine months ended September 30, 2021 and September 30, 2022 primarily reflecting the effects of our adoption of the fair value option under ASU 2016-13 on January 1, 2022, which has resulted in a significant decline in the outstanding receivables subject to this provision.

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 our adoption of fair value accounting under ASU 2016-13 on January 1, 2022 for our private label credit and general purpose credit card products, and absent the unknown impacts COVID-19, related government stimulus and relief measures and related economic impacts may have on our ability to acquire new receivables or the impact they may have on our customers' ability to make payments on outstanding loans and fees receivable, we expect that our provision for losses on loans will continue to diminish when compared to similar periods in 2021 as the amount of underlying receivables that continue to be recorded at net realizable value has been significantly reduced.

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

 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 $234.4 million for the nine months ended September 30, 2021 to $642.2 million for the nine months ended September 30, 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 7 "Fair Values of Assets and Liabilities" included herein for further discussion of assumptions underlying this calculation.

For credit card receivables for which we use fair value accounting (including those for which we elected the fair value option on January 1, 2022), we expect our change in fair value of credit card receivables recorded at fair value to increase throughout 2022 commensurate with growth in these receivables.

We may adjust our 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 three and nine months ended September 30, 2022, relative to the three and nine months ended September 30, 2021, reflect the following:

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 recorded at fair value.

 The increase in Changes in fair value of loans, interest and fees receivable 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 $194.6 million for the three months ended March 31, 2022 to $219.7 million for the three months ended March 31, 2023.

Offsetting this increase in Changes in fair value of loans, interest and fees receivable recorded at fair value was a reduction in the discount rate applied to the net cash flows associated with these investments during the second quarter of 2022.

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

The reduction in this discount rate 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, 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, however, adjust our forecasts to reflect macroeconomic events.

Total operating expenses.

Total operating expenses variances for the three months ended March 31, 2023, relative to the three months ended March 31, 2022, 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 the remainder of 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 $1,441.5 million outstanding to $2,049.5 million outstanding at September 30, 2021 and September 30, 2022, respectively.

increases in card and loan servicing expenses due to growth in receivables associated with our investments in private label credit and general purpose credit card receivables, which grew from $1,677.6 million outstanding to $2,055.0 million outstanding at March 31, 2022 and March 31, 2023, respectively.

As many of the expenses associated with our card and loan servicing efforts are now variable based on the amount of underlying receivables, we would expect this number to continue to grow throughout the remainder of 2023.

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 primarily due to increased origination and brand marketing support for the nine months ended September 30, 2022 when compared to the nine months ended September 30, 2021;

we experienced a decrease in marketing and solicitation costs for the three months ended September 30, 2022 when compared to the three months ended September 30, 2021.

This recent decline in marketing and solicitation costs is a direct result of tightened underwriting standards adopted during the second and third quarters of 2022. 

We expect these tightened underwriting standards to result in decreases in marketing and solicitation costs during the remainder of 2022 (and to reduce our growth rate in general purpose credit card receivables) although the frequency and timing of marketing efforts varies;

decreases in marketing and solicitation costs primarily due to significant decreases in origination and brand marketing support for the three months ended March 31, 2023 when compared to the three months ended March 31, 2022.

This recent decline in marketing and solicitation costs is a direct result of tightened underwriting standards adopted during the second quarter 2022 (and subsequent quarters). We expect these tightened underwriting standards to result in decreases in marketing and solicitation costs in the first half of 2023 (when compared to the corresponding period in 2022) with some increases in period over period results later in 2023, although the frequency and timing of increased marketing efforts could vary and are dependent on macroeconomic factors such as national unemployment rates and federal funds rates;

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 an $8.5 million accrual related to a settlement of outstanding litigation associated with our Auto Finance segment. While we expect some increase in these costs (excluding the accrued litigation costs) as we continue to grow our receivable portfolios, we do not anticipate the increases to be meaningful.

Certain operating costs are variable based on the levels of accounts and receivables we service (both for our own receivables and for others) and the pace and breadth of our growth in receivables.

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, we expect increased levels of expenditures associated with anticipated growth in private label credit and general purpose credit card operations.

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.

Loss on repurchase and redemption of convertible senior notes. 

In the three and nine months ended September 30, 2021, we repurchased or redeemed $12.7 million and $33.8 million, respectively, in face amount of our convertible senior notes for $25.4 million and $54.3 million in cash (including accrued interest).

The repurchase and redemption resulted in an aggregate loss of approximately $16.2 million and $29.4 million (including the convertible senior notes’

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

Upon acquisition, the notes were retired. 

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.

 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.

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We have included the issuance of these Class B preferred units as temporary noncontrolling interests on the consolidated balance sheets and the associated dividends are included as a reduction of our net income attributable to common shareholders on the consolidated statements of income.

Income Taxes.

We experienced effective tax rates of 17.6% and 7.1%, respectively, for the three and nine months ended September 30, 2022, compared to 18.7% and 18.3%, respectively, for the three and nine months ended September 30, 2021.

Our effective tax rates for the three and nine months ended both September 30, 2021 and 2022 are below the statutory rate principally due to (1) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’

grant date values and (2) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes. Also, certain state tax valuation allowance releases and benefits received under the Coronavirus Aid, Relief, and Economic Security (CARES) Act prior to the third quarter of 2021 contributed to our effective tax rate being lower than the statutory rate for the nine months ended September 30, 2021.

Partially offsetting the favorable rate effects discussed above in all 2021 and 2022 periods are (1) the adverse rate effects of state and foreign income tax expense and (2) executive compensation deduction limitations under Section 162(m) of the Internal Revenue Code of 1986.

Income Taxes. 

We experienced an effective tax rate of 23.8% for the three months ended March 31, 2023, compared to a negative effective tax rate of 18.8% for the three months ended March 31, 2022.

Our effective tax rate for the three months ended March 31, 2023, was above the statutory rate principally due to (1) state and foreign income tax expense, (2) interest accrued on uncertain tax positions, (3) taxes on global intangible low-taxed income, and (4) deduction disallowance under Section 162(m) of the Internal Revenue Code of 1986, as amended, with respect to compensation paid to our covered employees.

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

grant date values and (2) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes. Partially offsetting these two items are the effects of state and foreign income tax expense and taxes on global intangible low-taxed income.

We had de minimis interest expense or reversals thereof during the three and nine months ended September 30, 2022, and 2021.

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.

We had interest expense of $0.9 million during the three months ended March 31, 2023, and de minis interest expense or reversals thereof during the three months ended March 31, 2022.

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 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.

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 recorded at fair value in our consolidated statements of income.

We historically have invested in receivables portfolios through subsidiary entities.

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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 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”

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 adjustment for potential loan losses 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

(1)  We elected the fair value option to account for certain loans receivable associated with our private label credit and general purpose credit card platform that were acquired on or after January 1, 2020, and, as discussed in more detail above in "—Overview," on January 1, 2022, we elected the fair value option under ASU 2016-13 for those private label credit and general purpose credit card receivables that were previously accounted for under the amortized cost method. 

(2) The fair value mark against receivables reflects the difference between the face value of a receivable and the net present value of the expected cash flows associated with that receivable.

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 elsewhere in this Report, 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 of assumptions underlying this calculation.

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

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

(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.

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. 

As discussed in more detail elsewhere in this Report.

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.

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:

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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Total managed yield

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.

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.

The calculation of Combined principal net charge-offs used in our Combined principal net charge-off ratio, annualized is as follows:

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Combined principal net charge-offs

(1) As discussed in more detail above in "—Overview," on January 1, 2022, we implemented the fair value method under ASU 2016-13 for those private label credit and general purpose credit card receivables that were previously accounted for under the amortized cost method.

(2) Finance charge-offs are included as a component of our Provision for losses on loans, interest and fees receivable recorded at net realizable value and Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value in the accompanying consolidated statements of income.

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

As discussed in more detail elsewhere in this Report, on January 1, 2022, we implemented the fair value method under ASU 2016-13 for those private label credit and general purpose credit card receivables that were previously accounted for under the amortized cost method.

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 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.

This strategy includes credit line management and pricing based on the risks. See also our discussion of collection strategy under “Collection Strategy”

in Item 1, “Business”

This strategy includes credit line management and pricing based on the risks.

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

in Item 1, “Business”

of our Annual Report on Form 10-K for the year ended December 31, 2022.

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Fair Value Receivables

Amortized Cost Receivables (1)

% of Period-end managed receivables

Fair Value Receivables

Amortized Cost Receivables (1)

% of Period-end managed receivables

Fair Value Receivables

Amortized Cost Receivables

% of Period-end managed receivables

Fair Value Receivables

Amortized Cost Receivables

% of Period-end managed receivables

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Fair Value Receivables

Amortized Cost Receivables

% of Period-end managed receivables

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Net interest margin ratio, annualized (5)

(2) The Total managed yield ratio, annualized is calculated using the annualized total managed yield as the numerator and period-end average managed receivables as the denominator.

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 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.

(4) 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.

(5) 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.

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).

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Fair Value Receivables

Amortized Cost Receivables (1)

% of Period-end managed receivables

Fair Value Receivables

Amortized Cost Receivables (1)

% of Period-end managed receivables

Fair Value Receivables

Amortized Cost Receivables

% of Period-end managed receivables

Fair Value Receivables

Amortized Cost Receivables

% of Period-end managed receivables

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Fair Value Receivables

Amortized Cost Receivables

% of Period-end managed receivables

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Fair Value Receivables

Amortized Cost Receivables (1)

% of Period-end managed receivables

Fair Value Receivables

Amortized Cost Receivables

% of Period-end managed receivables

Fair Value Receivables

Amortized Cost Receivables

% of Period-end managed receivables

Fair Value Receivables

Amortized Cost Receivables

% of Period-end managed receivables

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Fair Value Receivables

Amortized Cost Receivables

% of Period-end managed receivables

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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 $608.0 million in net receivables growth associated with the private label credit and general purpose credit card products offered by our bank partners from September 30, 2021 to September 

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 $122.8 million in the twelve months ended September 30, 2022.

Our general purpose credit card receivables grew by $485.2 million, net during the twelve months ended September 30, 2022.

We have noted recent recoveries in consumer spending behavior that have helped to increase the overall combined managed receivables levels, and we currently expect this trend to continue into 2022, although we expect the pace of growth to slow when compared to earlier periods (further unknown impacts of COVID-19, related government stimulus and relief measures and related economic consequences may impact 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.

Similarly, the loss of existing retail partner relationships could adversely affect new loan acquisition levels. Our top five retail partnerships accounted for over 70% of the above-referenced Retail period-end managed receivables outstanding as of September 30, 2022. 

 We have continued to experience overall period-over-period quarterly receivables growth with over $377.4 million in net receivables growth associated with the private label credit and general purpose credit card products offered by our bank partners from March 31, 2022 to March 31, 2023.

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 $133.1 million in the twelve months ended March 31, 2023.

Our general purpose credit card receivables grew by $244.2 million, net during the twelve months ended March 31, 2023.

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 further into 2023, although we expect the pace of growth to slow when compared to earlier periods due to tightened underwriting standards adopted during the second quarter 2022 (and subsequent quarters).

These expectations are also absent the potential ongoing 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 March 31, 2023.

Delinquencies.

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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 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 and rising inflation and its negative impact on consumers. We expect this increase in delinquencies to continue throughout the remainder of 2022 and then 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 during the second and third quarters of 2022, will prove effective at reducing account delinquencies. 

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.

Additionally, 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.

During 2023, we expect 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 2022 (and subsequent quarters), 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 part of our overall receivable base. In 2020 and early 2021, nearly all of these customers were considered current and thus the receivables underlying their accounts were not considered delinquent. The exclusion of these accounts resulted in lower delinquency rates for those periods than we would have otherwise expected.

Given this, and absent the potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable and the corresponding impact on our delinquency rates, we expect to continue to see seasonal payment patterns on these receivables that impact our delinquencies in line with prior periods (albeit at higher levels when compared to those 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.

Additionally, as the remainder of these accounts are removed from hardship status with the expected end of the COVID-19 national and public health emergencies on May 11, 2023, we expect to see some elevations in delinquency rates, albeit slight, related to those receivables.

We also 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 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 thus far in 2022 and the fourth quarter of 2021. 

 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 expected declining rates of growth of our managed receivables that are primarily a result of the slowing growth of general purpose credit card receivables, will result in slightly lower total managed yield ratios.

With tightened underwriting standards implemented in the second quarter 2022 (and subsequent quarters), 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.

 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.

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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 2020 and continuing for 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 for the remainder of 2022 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 second 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. 

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 in early 2022 periods.

The increase in the combined principal net charge-off ratio, annualized in late 2022 and the first quarter of 2023 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 during the second and third 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.

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 2022 (and subsequent quarters) 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. 

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. 

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 has led to an increase in spreads for newly-originated debt. 

Recent increases in the federal funds borrowing rate have led to an increase in spreads for newly-originated debt and for that portion of debt which does not have fixed rates.

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 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 above 36.0%.

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 in 2022.

The average annual percentage rate (“APR”) charged to customers varies by receivable type, credit history and other factors.

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.

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, 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 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 September 30, 2022, we served more than 610 dealers through our Auto Finance segment in 32 states 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 March 31, 2023, we served more than 620 dealers through our Auto Finance segment in 31 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.

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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Total managed yield

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. 

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.

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Combined principal net charge-offs

(1) Finance charge-offs are included as a component of our Provision for losses on loans, interest and fees receivable recorded at net realizable value in the accompanying consolidated statements of income.

Finance charge-offs are included as a component of our Provision for losses on loans, interest and fees receivable recorded at amortized cost value in the accompanying consolidated statements of income.

Financial, operating and statistical metrics for our Auto Finance segment are detailed (in thousands;

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Recovery ratio, annualized (3)

(1) The total managed yield ratio, annualized is calculated using the annualized Total managed yield as the numerator and Period-end average managed receivables as the denominator.

(2) The Combined principal net charge-off ratio, annualized is calculated using the annualized Combined principal net charge-offs as the numerator and Period-end average managed receivables as the denominator.

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

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

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

Managed receivables.

 Absent the potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable, we expect modest growth in the level of our managed receivables for 2023 when compared to the same periods in prior years as CAR expands within its current geographic footprint and continues plans for service area expansion.

 Absent the potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable, we expect modest growth in the level of our managed receivables for 2023 when compared to the same periods in prior years as CAR expands within its current geographic footprint and continues plans for service area expansion.

Although we are expanding our CAR operations, the Auto Finance segment faces strong competition from other specialty finance lenders, as well as the indirect effects on us of our buy-here, pay-here dealership partners’

competition with other franchise dealerships for consumers interested in purchasing automobiles.

Included in the fourth quarter of 2020 was an unplanned bulk purchase of receivables that increased our period over period growth and kept receivables levels higher in the first quarter of 2021.

While we continually evaluate bulk purchases of receivables and have experienced good growth in our receivables base throughout 2022 resulting from several bulk purchases, 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 such purchases are difficult to predict. 

Delinquencies.

 As discussed elsewhere in this Report, 2020 and 2021 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, we 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. 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, 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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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.

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. 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 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 and first quarter of 2023 are 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;

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.

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 principal net charge-off ratio, annualized .

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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. 

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.

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 .

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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.

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 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.

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, our unrestricted cash, 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 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) growing general purpose credit card receivables and (iv) effectively managing costs.

All of our CaaS segment’s structured financing facilities are expected to amortize down with collections on the receivables within their underlying trusts and should not represent significant refunding or refinancing risks to our consolidated balance sheets.

Facilities that could represent near-term significant refunding or refinancing needs (within the next 24 months) as of September 30, 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

Facilities that could represent near-term significant refunding or refinancing needs (within the next 24 months) as of March 31, 2023 are those associated with the following notes payable in the amounts indicated (in millions):

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

Revolving credit facility (expiring March 15, 2024) that is secured by certain receivables and restricted cash

Revolving credit facility (expiring August 5, 2024) that is secured by certain receivables and restricted cash

Revolving credit facility (expiring July 20, 2023) that is secured by certain receivables and restricted cash

Unsecured term debt (expiring August 26, 2024)

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 October 30, 2024) that is secured by certain receivables and restricted cash

Further details concerning the above debt facilities and other debt facilities we use to fund the acquisition of receivables are provided in Note 9, “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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In June and July 2021, we issued an aggregate of 3,188,533 shares of 7.625% Series B Cumulative Perpetual Preferred Stock, liquidation preference of $25.00 per share (the “Series B Preferred Stock”), for net proceeds of approximately $76.5 million after deducting underwriting discounts and commissions, but before deducting expenses and the structuring fee.

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

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 quarter of 2022, we sold 8,229 shares of our Series B Preferred Stock under the ATM Program.

We received $0.2 million in net proceeds from sales under the ATM Program.

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

The repurchase resulted in a loss of approximately $14.1 million (including the convertible senior notes’

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

Upon acquisition, the notes were retired.

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

Upon the redemption notice, holders were allowed to convert the convertible senior notes in lieu of the redemption consideration.

At the expiration of the conversion option, holders with $11.8 million in principal amount of the convertible senior notes had elected to convert.

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

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

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

Upon redemption, the notes were retired.

During the three months ended March 31, 2023, we sold an aggregate of 51,327 shares of our Series B Preferred Stock under the ATM Program.

We received $1.1 million in net proceeds from sales under the ATM Program. During the three months ended March 31, 2023, we repurchased and contemporaneously retired 1,806 shares of Series B Preferred Stock at an aggregate cost of $29,000.

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.

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

See Note 12, “Net Income Attributable to Controlling Interests Per Common Share”

See Note 5, "Redeemable Preferred Stock" and Note 11, “Net Income Attributable to Controlling Interests Per Common Share”

to our consolidated financial statements for more information.

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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.

Recently, we replaced LIBOR with the Secured Overnight Financing Rate ("SOFR") for certain of our facilities. We will work with our lenders to use suitable alternative reference rates for our financial instruments.

We will continue to monitor, assess and plan for the phase out of LIBOR;

however, we currently do not expect the phase out of LIBOR to be material to the Company.

At September 30, 2022, we had $352.9 million in unrestricted cash held by our various business subsidiaries.

Recently, we replaced LIBOR with the Secured Overnight Financing Rate ("SOFR") for certain of our facilities and LIBOR is no longer used as a reference rate for any of our outstanding financial instruments. 

At March 31, 2023, we had $389.8 million in unrestricted cash held by our various business subsidiaries.

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 three months ended September 30, 2022 and 2021 are as follows:

During the nine months ended September 30, 2022, we generated $245.6 million of cash flows from operations compared to our generating $139.4 million of cash flows from operations during the nine months ended September 30, 2021.

The increase in cash provided by operating activities was principally related to an increase in finance and fee collections associated with growing private label credit and general purpose credit card receivables and increased recoveries on charged-off receivables as well as decreased year-over-year payments made to pay federal and state taxes.

Details concerning our cash flows for the three months ended March 31, 2023 and 2022 are as follows:

During the three months ended March 31, 2023, we generated $101.7 million of cash flows from operations compared to our generating $80.7 million of cash flows from operations during the three months ended March 31, 2022.

decreased year-over-year payments made to pay federal and state taxes resulted in higher operating cash flows.

Collections on receivables have generally benefited from increased consumer payments as a result of government stimulus payments. As the impact of these stimulus payments declines, we expect consumer payments to return to historical levels. 

During the nine months ended September 30, 2022, we used $524.4 million of cash in our investing activities, compared to use of $293.9 million of cash in investing activities during the nine months ended September 30, 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 nine months ended September 30, 2022, we generated $158.9 million of cash in financing activities, compared to our generating $110.3 million of cash in financing activities during the nine months ended September 30, 2021.

During the three months ended March 31, 2023, we used $53.4 million of cash in our investing activities, compared to use of $102.6 million of cash in investing activities during the three months ended March 31, 2022. This decrease in cash used is primarily due to decreases in the level of net investments in the private label credit and general purpose credit card receivables relative to the same period in 2022 resulting from tightened underwriting standards. While we continue to see increases in consumer spending behavior, the impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable are unknown. 

During the three months ended March 31, 2023, we used $47.0 million of cash in financing activities, compared to use of $79.3 million of cash in financing activities during the three months ended March 31, 2022.

In both periods, the data reflect borrowings associated with private label credit and general purpose credit card receivables offset by net repayments of amortizing debt facilities as payments are made on the underlying receivables that serve as collateral.

Additionally, we purchased and retired $89.0 million of our common stock during the nine months ended September 30, 2022 pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations.  

Beyond our immediate financing efforts discussed throughout this Report, we will continue to evaluate debt and equity issuances as a means to fund our investment opportunities.

Additionally, we purchased and retired $65.2 million of our common stock during the three months ended March 31, 2022 pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations. 

Beyond our immediate financing efforts discussed throughout this Report, we will continue to evaluate debt and equity issuances as a means to fund our investment opportunities.

We expect to take advantage of any opportunities to raise additional capital if terms and pricing are attractive to us.

Any proceeds raised under these efforts or additional liquidity available to us could be used to fund (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. 

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

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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.

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.

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

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

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.

We estimate the present value of these future cash flows using internally-developed estimates of assumptions third-party market participants would use in determining fair value, including:

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

Measurements for Loans, Interest and Fees Receivable 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.

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 cash flows, 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.

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.

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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.

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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RELATED PARTY TRANSACTIONS

Under a shareholders’

Under a shareholders’

agreement which we entered into with certain shareholders, including David G.

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The sublease rate per square foot is the same as the rate that we pay under the prime lease.

Under the sublease, HBR paid us $17,299 and $16,960 for 2021 and 2020, respectively.

The aggregate amount of payments required under the sublease from January 1, 2022 to the expiration of the sublease in May 2023 is $0.1 million. 

In January 2013, HBR began leasing the services of four employees from us.

Under the sublease, HBR paid us $62,422 and $17,299 for 2022 and 2021, respectively.

The aggregate amount of payments required under the sublease from January 1, 2023 to the expiration of the sublease in May 2023 is $39,400.

In January 2013, HBR began leasing the services of certain employees from us.

HBR reimburses us for the full cost of the employees, based on the amount of time devoted to HBR.

In the nine months ended September 30, 2022 and 2021, we received $293,471 and $286,048, respectively, of reimbursed costs from HBR associated with these leased employees.

In the three months ended March 31, 2023 and 2022, we received $140,701 and $101,236, respectively, of reimbursed costs from HBR associated with these leased employees.

On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove.

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

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

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

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

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

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

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

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

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.

Dove is a limited liability company owned by three trusts.

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

See Note 5 "Redeemable Preferred Stock" for more information.

During 2022, the Company utilized Axiom Bank, NA to provide legal and other services related to various commercial opportunities.

Hanna, Frank J.

Hanna, III and members of their immediate families, control and own Axiom Bancshares, Inc., which is the bank holding company for Axiom Bank, NA.

The aggregate amount of payments made to Axiom Bank, NA during 2022 was $1.0 million.

FORWARD-LOOKING INFORMATION

We make forward-looking statements in this Report and in other materials we file with the Securities and Exchange Commission (“SEC”) or otherwise make public.

This Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”

We make forward-looking statements in this Report and in other materials we file with the Securities and Exchange Commission (“SEC”) or otherwise make public.

This Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”

contains forward-looking statements.

In addition, our senior management might make forward-looking statements to analysts, investors, the media and others.

Statements with respect to the macroeconomic environment;

monetary policy by the Federal Reserve;

expected revenue;

income ratios;

net interest margins;

long-term shareholder returns;

acquisitions of financial assets and other growth opportunities;

divestitures and discontinuations of businesses;

loss exposure and loss provisions;

delinquency and charge-off rates;

the developing metaverse;

Statements with respect to the macroeconomic environment;

monetary policy by the Federal Reserve;

expected revenue;

income;

receivables;

income ratios;

net interest margins;

long-term shareholder returns;

acquisitions of financial assets and other growth opportunities;

divestitures and discontinuations of businesses;

loss exposure and loss provisions;

delinquency and charge-off rates;

inflation;

energy prices;

the developing metaverse;

the extent and duration of the COVID-19 pandemic and its impact on the Company, our bank partners, merchant network, financing sources, borrowers, loan demand, labor markets, supply chain, legal and regulatory matters, borrower payment patterns, information security and consumer privacy, capital markets, the economy in general and changes in the U.S.

economy that could materially impact consumer spending behavior, unemployment and demand for the products we support;

changes in the credit quality and fair value of our credit card receivables, interest and fees receivable and the fair value of their underlying structured financing facilities;

the impact of actions by the Federal Deposit Insurance Corporation (“FDIC”), Federal Reserve Board, Federal Trade Commission (“FTC”), Consumer Financial Protection Bureau (“CFPB”) and other regulators on both us, banks that issue credit cards and other credit products on our behalf, and merchants that participate in our retail and healthcare private label credit operations;

account growth;

the performance of investments that we have made;

operating expenses;

marketing plans and expenses;

the performance of our Auto Finance segment;

the impact of our credit card receivables on our financial performance;

the sufficiency of available capital;

future interest costs;

sources of funding operations and acquisitions;

growth and profitability of our private label credit operations;

our ability to raise funds or renew financing facilities;

share repurchases, share issuances or dividends;

debt retirement;

our servicing income levels;

gains and losses from investments in securities;

economy that could materially impact consumer spending behavior, unemployment and demand for the products we support;

changes in the credit quality and fair value of our credit card receivables, interest and fees receivable and the fair value of their underlying structured financing facilities;

account growth;

the performance of investments that we have made;

operating expenses;

marketing plans and expenses;

the performance of our Auto Finance segment;

the impact of our credit card receivables on our financial performance;

the sufficiency of available capital;

future interest costs;

sources of funding operations and acquisitions;

growth and profitability of our private label credit operations;

our ability to raise funds or renew financing facilities;

share repurchases, share issuances or dividends;

debt retirement;

our servicing income levels;

gains and losses from investments in securities;

experimentation with new products and other statements of our plans, beliefs or expectations are forward-looking statements.

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Among the factors that could cause actual future results to differ materially from our expectations are the risks and uncertainties described under “Risk Factors”

set forth in Part II, Item 1A, and the risk factors and other cautionary statements in other documents we file with the SEC, including the following:

set forth in Part II, Item 1A, and the risk factors and other

cautionary statements in other documents we file with the SEC, including the following:

general economic and business conditions, including conditions affecting interest rates, tariffs, consumer income, creditworthiness, consumer confidence, spending and savings levels, employment levels, our revenue, and our defaults and charge-offs;

an increase or decrease in credit losses, or increased delinquencies, including increases due to a worsening of general economic conditions in the credit environment;

our reliance on proprietary and third-party technology;

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current and future litigation and regulatory proceedings against us;

the effect of adverse economic conditions on our revenues, loss rates and cash flows;

competition from various sources providing similar financial products, or other alternative sources of credit, to consumers;

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our ability to manage costs in line with the expansion or contraction of our various business lines;

our relationship with (i) the merchants that participate in private label finance operations and (ii) the banks that issue credit cards and provide certain other credit products utilizing our technology platform and related services;

our business, financial condition and results of operations may be adversely affected by merchants’

increasing focus on the fees charged by credit and debit card networks and by legislation and regulation impacting such fees;

any decline in the use of cards as a payment mechanism or other adverse developments with respect to the credit card industry in general;

increases or decreases in interest rates and uncertainty with respect to the interest rate environment;

theft and employee errors;

Most of these factors are beyond our ability to predict or control.

impact of recent proposed guidance by the Biden administration and the Consumer Financial Protection Bureau regarding late fees.

Most of these factors are beyond our ability to predict or control.

Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of our forward-looking statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements