What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-09 · 358 added, 198 removed, 1673 unchanged (25% of the section changed)

3 unchanged sentences

(Dollars in thousands)

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)

Unrestricted cash and cash equivalents (including $ 172.1 million and $ 202.2 million associated with variable interest entities at June 30, 2023 and December 31, 2022, respectively)

$ 342,616  

$ 384,984  

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)

Restricted cash and cash equivalents (including $ 30.3 million and $ 27.6 million associated with variable interest entities at June 30, 2023 and December 31, 2022, respectively)

51,791  

1 unchanged sentence

Loans, interest and fees receivable:

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)

Loans, interest and fees receivable, at fair value (including $ 1,868.3 million and $ 1,735.9 million associated with variable interest entities at June 30, 2023 and December 31, 2022, respectively)

1,916,063  

27 unchanged sentences

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)

Notes payable, net (including $ 1,595.8 million and $ 1,586.0 million associated with variable interest entities at June 30, 2023 and December 31, 2022, respectively)

1,665,246  

11 unchanged sentences

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

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

Series A preferred stock, 400,000 shares issued and outstanding at June 30, 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, 3,254,161 shares issued and outstanding at March 31, 2023 (liquidation preference - $ 81.4 million);

Series B preferred stock, no par value, 3,256,261 shares issued and outstanding at June 30, 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:

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

14,428,039 and 14,453,415 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Paid-in capital

20 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Consumer loans, including past due fees

13 unchanged sentences

Income before income taxes

Income tax (expense) benefit

Income tax expense

Net loss attributable to noncontrolling interests

8 unchanged sentences

Equity and Temporary Equity (Unaudited)

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

For the Three and Six Months Ended June 30, 2023 and June 30, 2022

(Dollars in thousands)

21 unchanged sentences

Balance at March 31, 2023

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

Stock-based compensation costs

Redemption and retirement of common shares

Net income (loss)

Balance at June 30, 2023

Series B Preferred Stock

18 unchanged sentences

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

Stock-based compensation costs

Redemption and retirement of shares

Net income (loss)

Balance at June 30, 2022

See accompanying notes.

2 unchanged sentences

(Dollars in thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Operating activities

10 unchanged sentences

Increase (decrease) in income tax liability

(Decrease) increase in accounts payable and accrued expenses

Increase in accounts payable and accrued expenses

Net cash provided by operating activities

13 unchanged sentences

Repayment of borrowings

Net cash used in financing activities

Net cash (used in) provided by 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

Net decrease in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash at beginning of period

3 unchanged sentences

Net cash income tax payments

(Decrease) increase in accrued and unpaid preferred dividends

Decrease in accrued and unpaid preferred dividends

See accompanying notes.

1 unchanged sentence

Notes to Consolidated Financial Statements

March 31, 2023 and 2022

June 30, 2023 and 2022

Description of Our Business

20 unchanged sentences

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.

None of these companies are publicly-traded and the carrying values of our investments in these companies are 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.

8 unchanged sentences

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.

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 were previously 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. 

The COVID- 19 Guidance encouraged financial institutions to work prudently with borrowers that were 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 were provided short-term payment deferrals and fee waivers.

Receivables enrolled in these short-term payment deferrals continued to accrue interest and their delinquency status was not changed through the deferment period.

The Biden administration ended the COVID- 19 national and public health emergencies on May 11, 2023.

This action ended the flexibility provided under the COVID- 19 Guidance. 

The long-term impact that the cessation of certain benefits provided under emergency relief programs will have on our consumers is uncertain although the remaining financial statement impact for those customers previously provided the aforementioned short-term payment deferrals and fee waivers is not material. 

Significant Accounting Policies and Consolidated Financial Statement Components

13 unchanged sentences

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.

We maintain unrestricted cash and cash equivalents for general operating purposes.

We maintain our cash and cash equivalents in accounts at regulated domestic financial institutions in amounts that exceed FDIC insured amounts which aggregated approximately $3.0 million based on our current banking relationships. 

Loans, Interest and Fees Receivable

24 unchanged sentences

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

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

We purchased auto loans with outstanding principal of $ 55.3 million, $ 120.3 million, 

$ 52.8 million and $ 109.3 million for the three and six months ended June 30, 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.

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

A considerable amount of judgment is required to assess the ultimate amount of uncollectible loans, interest and fees receivable, and we regularly 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 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.

As of June 30, 2023 

and December 31, 2022, the weighted average remaining accretion period for the $ 18.9 million and $ 16.2 million of deferred revenue reflected in the consolidated balance sheets was 27  months for both periods.

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

For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2023

Allowance for uncollectible loans, interest and fees receivable:

2 unchanged sentences

Balance at end of period

As of March 31, 2023

For the Six Months Ended June 30, 2023

Allowance for uncollectible loans, interest and fees receivable:

Balance at beginning of period

Provision for credit losses

Balance at end of period

As of June 30, 2023

Allowance for uncollectible loans, interest and fees receivable:

Balance at end of period individually evaluated for impairment

6 unchanged sentences

$ 115.1  

For the Three Months Ended March 31, 2022

For the Three Months Ended June 30, 2022

Other Unsecured Lending Products

1 unchanged sentence

Balance at beginning of period

$ ( 1.6 ) $ —

Provision for credit losses

( 0.2 )  

Balance at end of period

$ ( 1.6 ) $ —

For the Six Months Ended June 30, 2022

Other Unsecured Lending Products

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

21 unchanged sentences

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

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

An aging of our delinquent loans, interest and fees receivable, gross (in millions) by class of receivable as of June 30, 2023 

and December 31, 2022 

is as follows:

As of March 31, 2023

As of June 30, 2023

30-59 days past due

54 unchanged sentences

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

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.

The Company modified 98,880 accounts in the amount of $ 106.7 million during the twelve month period ended June 30, 2022  that qualified as TDRs.

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

1 unchanged sentence

Twelve Months Ended

March 31, 2022

June 30, 2022

Private label credit

5 unchanged sentences

$ 12,358  

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.

We experienced effective tax rates of 22.3 % and 23.1 % for the three and six months ended June 30, 2023, compared to 20.4 % and 2.0 % for the three and six months ended June 30, 2022.

Our effective tax rates for the three and six months ended June 30, 2023, 

are 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.

Our effective tax rates for the three and six months ended June 30, 2022, 

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

grant date values 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 were the effects of state and foreign income tax expense.

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

On the basis described above, we reported interest expense of $ 1.1 million for the six months ended June 30, 2023, and de minimis interest expense for the six months ended June 30, 2022.

Revenue from Contracts with Customers

9 unchanged sentences

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

For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2023

Interchange revenues, net (1)

7 unchanged sentences

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

For the Three Months Ended March 31, 2022

For the Six Months Ended June 30, 2023

Interchange revenues, net (1)

7 unchanged sentences

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

For the Three Months Ended June 30, 2022

Interchange revenues, net (1)

$ 7,381  

Servicing income

Service charges and other customer related fees

Total revenue from contracts with customers

$ 12,169  

$ 12,410  

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

For the Six Months Ended June 30, 2022

Interchange revenues, net (1)

$ 13,079  

Servicing income

Service charges and other customer related fees

Total revenue from contracts with customers

$ 22,167  

$ 22,676  

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

Recent Accounting Pronouncements

24 unchanged sentences

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.

Additionally, the ASU requires disclosure of current period gross write-offs 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. 

4 unchanged sentences

CaaS and Auto Finance.

As of both March 31, 2023 

As of both June 30, 2023 

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

3 unchanged sentences

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

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Consumer loans, including past due fees

10 unchanged sentences

10,002  

290,838  

Interest expense

15 unchanged sentences

$ ( 853 )  

Six Months Ended June 30, 2023

Consumer loans, including past due fees

$ 410,797  

1 unchanged sentence

$ 429,743  

Three Months Ended March 31, 2022

Fees and related income on earning assets

107,191  

107,231  

Other revenue

14,342  

14,759  

Other non-operating revenue

Total revenue

532,433  

19,446  

551,879  

Interest expense

( 46,823 )  

( 1,626 )  

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

( 1,013 )  

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

( 327,651 )  

$ 157,959  

$ 16,807  

$ 174,766  

Income before income taxes

$ 60,736  

$ 5,359  

$ 66,095  

Income tax expense

$ ( 13,913 )  

$ ( 1,474 )  

$ 2,355,177  

$ 99,525  

$ 2,454,702  

Three Months Ended June 30, 2022

Consumer loans, including past due fees

7 unchanged sentences

12,169  

12,410  

Other non-operating revenue

19 unchanged sentences

$ ( 643 )  

Six Months Ended June 30, 2022

Consumer loans, including past due fees

$ 339,293  

1 unchanged sentence

$ 356,353  

Fees and related income on earning assets

120,499  

120,537  

Other revenue

22,167  

22,676  

Other non-operating revenue

Total revenue

482,222  

17,644  

499,866  

Interest expense

( 35,715 )  

( 620 )  

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

( 329 )  

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

( 251,239 )  

$ 195,268  

$ 16,695  

$ 211,963  

Income before income taxes

$ 83,577  

$ ( 3,403 )  

$ 80,174  

Income tax (expense) benefit

$ ( 2,582 )  

$ 2,025,867  

$ 90,587  

$ 2,116,454  

Shareholders’

Equity and Preferred Stock

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.

During the three and six months ended June 30, 2023 

and 2022, we repurchased and contemporaneously retired 105,447 shares, 177,801 shares, 355,036 shares and 1,360,248 shares of our common stock at an aggregate cost of $ 2,988,000 , $ 4,935,000 , $ 12,861,000 and $ 78,075,000 , 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 six months ended 

June 30, 

2023 and 2022, we sold 2,100 shares, 53,427 shares, 0 shares and 0  shares of our Series B Preferred Stock under our “at-the-market”

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

During the three and six months ended June 30, 2023 and 2022, we repurchased and contemporaneously retired 0 shares, 1,806 shares, 0 shares and 0  shares of Series B Preferred Stock at an aggregate cost of $ 0 , $ 29,000 , $ 0 and $ 0 , respectively.

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

21 unchanged sentences

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, 2024.

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 or after October 14, 2024.

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

24 unchanged sentences

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

March 31, 2023 and 

June 30, 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 March 31, 2023 (1)

As of June 30, 2023 (1)

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

23 unchanged sentences

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 three months ended March 31, 2023  and 2022 :

Loans, Interest and Fees Receivables, at Fair Value

16 unchanged sentences

( 1,185,341 )  

Balance at March 31,

( 1,139,647 )

Balance at June 30,

$ 1,916,063  

7 unchanged sentences

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  

March 31, 2023 and December 31, 2022.

June 30, 2023 and December 31, 2022.

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.

2 unchanged sentences

Fair Value Measurement

Fair Value at March 31, 2023 (in thousands)

Fair Value at June 30, 2023 (in thousands)

Valuation Technique

33 unchanged sentences

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

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

The table below summarizes (in thousands) by fair value hierarchy the June 30, 2023 

and December 31, 2022 

1 unchanged sentence

Liabilities –

As of March 31, 2023

As of June 30, 2023

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

34 unchanged sentences

Other Relevant Data

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

Other relevant data (in thousands) as of June 30, 2023 and 

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

As of March 31, 2023

As of June 30, 2023

Loans, Interest and Fees Receivable at Fair Value

36 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

21 unchanged sentences

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

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Operating lease cost, gross

$ 1,373  

$ 1,276  

$ 3,097  

Sublease income

( 23 )  

( 807 )  

( 47 )  

Net Operating lease cost

$ 1,229  

Cash paid under operating leases, gross

$ 1,000  

$ 3,635  

Weighted average remaining lease term - months

Weighted average discount rate

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

As of June 30, 2023 , maturities of lease liabilities were as follows (in thousands):

Gross Lease Payment

1 unchanged sentence

Net Lease Payment

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

2023 (excluding the six months ended June 30, 2023)

$ 1,315  

3 unchanged sentences

17,338  

Total lease payments

11 unchanged sentences

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

As of June 30, 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 March 31, 2023 and 

Other notes payable outstanding as of June 30, 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:

March 31, 2023

June 30, 2023

December 31, 2022

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 facilities at a weighted average interest rate equal to 5.3 % as of June 30, 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 $ 1,998.2 million as of June 30, 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)

4 unchanged sentences

Revolving credit facility, not to exceed $ 50.0 million (expiring July 20, 2025 ) (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 $ 20.0 million (expiring September 15, 2023 ) (2) (3) (4) (5)

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

8 unchanged sentences

Revolving credit facility, not to exceed $ 100.0 million (expiring March 15, 2028 ) (3) (4) (5) (6)

Revolving credit facility, not to exceed $ 20.0 million (expiring May 26, 2026 ) (3) (4) (5)

Other facilities

15 unchanged sentences

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

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

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 $ 49.2 million was drawn as of March 31, 2023).

* As of June 30, 2023 , the Prime Rate was 8.25 % and the Secured Overnight Financing Rate ("SOFR") was 5.09 %.

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 %.

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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 $ 47.7 million was drawn as of March 31, 2023).

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.

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

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

As of June 30, 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 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 $ 18.7 million was drawn as of March 31, 2023).

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.

In December 2017, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $ 50.0 million revolving borrowing limit that is available to the extent of outstanding eligible principal receivables (of which $ 12.8  million was drawn as of June 30, 2023).

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 3.6 %.

An amendment was completed in July 2023 that extended the maturity to July 20, 2025.

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.

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.

2018, we (through a wholly owned subsidiary) entered 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 $ 80.0 million was outstanding as of June 30, 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.

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 $ 7.7 million was drawn as of March 31, 2023).

As of June 30, 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.

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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).

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

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

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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.

In July 2020, we (through a wholly owned subsidiary) sold $ 100.0 million of ABS secured by certain private label credit receivables.

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

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

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

In October 2020, we (through a wholly owned subsidiary) 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 March 31, 2023) 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 June 30, 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 note is guaranteed by Atlanticus, which is required to maintain certain minimum liquidity levels.

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

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

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

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

In September 2021, we entered a term facility with a $ 75.0 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.

In September 2021, we (through a wholly owned subsidiary) entered a term facility with a $ 75.0 million limit (of which $ 0.0 million was outstanding as of June 30, 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 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.

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

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

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

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

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).

In May 2022, we (through a wholly owned subsidiary) entered a $ 250.0 million ABS agreement (of which $ 250.0 million was drawn as of June 30, 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.

In August 2022, we (through a wholly owned subsidiary) entered a $ 100.0 million ABS agreement secured by certain credit card receivables (of which $ 0.0 million was outstanding as of June 30, 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.

In September 2022, we (through a wholly owned subsidiary) 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 March 31, 2023, we were in compliance with the covenants underlying our various notes payable and credit facilities.

In May 2023, we (through a wholly owned subsidiary) entered a revolving credit facility with a $ 20.0 million revolving borrowing limit that is available to the extent of outstanding eligible principal receivables (of which $ 10.0 million was drawn as of June 30, 2023).

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 Term SOFR plus 3.75 %.

The facility matures on May 26, 2026 

and is subject to certain covenants and restrictions of which the failure could result in required early repayment of all or a portion of the outstanding balance.

The note is guaranteed by Atlanticus.

As of June 30, 2023, we were in compliance with the covenants underlying our various notes payable and credit facilities.

Senior Notes, net

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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 months ended March 31, 2023 and 2022  totaled $ 0.4 million and $ 0.4  million, respectively.

Amortization of these fees for the three and six months ended June 30, 2023 and 2022  totaled $ 0.3  million $ 0.7 million, $ 0.4 million and $ 0.7  million, respectively.

We repurchased $ 786,000 of the outstanding principal amount of these senior notes for the for the three and six months ended June 30, 2023.

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 $ 2.3 billion at March 31, 2023.

Unfunded commitments under these products aggregated $2.5  billion at June 30, 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 March 31, 2023, CAR had unfunded outstanding floor-plan financing commitments totaling $ 11.5  million.

As of June 30, 2023, CAR had unfunded outstanding floor-plan financing commitments totaling $ 10.3 million.

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

Under agreements with third -party originating and other financial institutions, we have pledged security (collateral) related to their issuance of consumer credit and purchases thereunder, of which $ 16.8 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 pledged security (collateral) related to their issuance of consumer credit and purchases thereunder, of which $ 21.4 million remains pledged as of June 30, 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 March 31, 2023, we have assessed the likelihood of any potential payments related to the aforementioned contingencies as remote.

As of June 30, 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 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.

Under the account terms, consumers have the option of enrolling in a credit protection program with our issuing bank partners 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 $ 68.2 million as of March 31, 2023.

As an acquirer of receivables, our potential exposure under this program, if all eligible participants applied for this benefit, was $ 65.0 million as of June 30, 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 the Three Months Ended

For the Six Months Ended

Net income attributable to controlling interests

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$ 34,025  

$ 51,301  

$ 79,035  

Preferred stock and preferred unit dividends and accretion

( 6,289 )  

( 6,257 )  

( 12,516 )  

Net income attributable to common shareholders—basic

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27,768  

38,785  

66,572  

Effect of dilutive preferred stock dividends and accretion

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$ 28,366  

$ 39,975  

$ 67,762  

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

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14,744  

14,457  

14,783  

Effect of dilutive stock compensation arrangements and exchange of preferred stock

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19,480  

18,970  

19,769  

Net income attributable to common shareholders per share—basic

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$ 1.88  

$ 2.68  

$ 4.50  

Net income attributable to common shareholders per share—diluted

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$ 1.46  

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, 

$ 2.11  

$ 3.43  

Shares related to unvested share-based payment awards included in our basic and diluted share counts were 246,994 and 217,851 for the three and six months ended June 30, 2023  compared to 153,650 and 127,138 for the three and six months ended June 30, 2022, respectively.

As their effects were anti-dilutive, we excluded stock options to purchase 0.1 million and 0.1 million shares from our net income attributable to controlling interests per share of common stock calculations for the three and six months ended June 30, 2023 and we excluded stock options to purchase 0.1  and 0.0  million shares from our net income attributable to controlling interests per share of common stock calculations for the three and six months ended June 30, 2022

For the three and six months ended June 30, 

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.

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

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 

As of June 30, 2023, 48,660 shares remained available for issuance under the ESPP and 1,929,821 shares remained available for issuance under the Fourth Amended 2014 Plan.

Exercises and vestings under our stock-based compensation plans resulted in no  income tax-related charges to paid-in capital during the three and six months ended June 30, 2023 

Restricted Stock and Restricted Stock Units

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 

During the 

six months ended June 30, 2023 and 2022, we granted 146,007 shares and 106,315 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 $ 1.5 million and $ 1.3 million during the 

six months ended June 30, 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 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.

As of June 30, 2023, our unamortized deferred compensation costs associated with non-vested restricted stock awards were $ 5.4 million with a weighted average remaining amortization period of 2.7 years.

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

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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 

We had expense of $ 0.2  million, $ 0.4 million, $ 0.5 million and $ 1.0 million related to stock option-related compensation costs during the three and six months ended June 30, 2023 

and 2022, respectively.

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$ 15.30  

Outstanding at March 31, 2023

Outstanding at June 30, 2023

794,746  

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$ 23,654,540  

Exercisable at March 31, 2023

Exercisable at June 30, 2023

685,050  

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$ 22,402,009  

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.

No options were issued during the three and six months ended June 30, 2023 

We had $ 0.4 million and $ 0.8 million of unamortized deferred compensation costs associated with non-vested stock options as of June 30, 2023 

and December 31, 2022, respectively, with a weighted average remaining amortization period of 0.8  years as of June 30, 2023.

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

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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 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.

We have evaluated subsequent events occurring after June 30, 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.

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

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

The case against Apple, Inc.

is scheduled for Court imposed mediation in June 2023.

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

In light of the uncertainty around these lawsuits, we will continue to carry these investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

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

financing facility.

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

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

As of June 30, 2023, our CAR operations served more than 630 dealers in 32 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).

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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. 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.

Borrowers impacted by COVID-19 requesting hardship assistance may have received temporary relief from payments or fee waivers.

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 ended the COVID-19 national and public health emergencies on May 11, 2023.

The long term impact that the cessation of certain benefits provided under emergency relief programs will have on our consumers is uncertain although the remaining financial statement impact for those customers previously provided the aforementioned short-term payment deferrals and fee waivers is not material. 

The Company remains committed to serving our bank partners, merchant partners and consumers, while caring for the health and safety of our employees and their families.

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

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CONSOLIDATED RESULTS OF OPERATIONS

For the Three Months Ended March 31,

For the Three Months Ended June 30,

Increases (Decreases)

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Net income attributable to controlling interests to common shareholders

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

For the Six Months Ended June 30,

Increases (Decreases)

(In Thousands)

from 2022 to 2023

Total operating revenue

Other non-operating revenue

Interest 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

Card and loan servicing

Marketing and solicitation

Total operating expenses:

Net loss attributable to noncontrolling interests

Net income attributable to controlling interests

Net income attributable to controlling interests to common shareholders

Three and Six Months Ended June 30, 2023, Compared to Three and Six Months Ended June 30, 2022

Total operating revenue.

 Total operating revenue consists of:

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

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

Period-over-period results primarily relate to growth in private label credit and general purpose credit card products, the receivables of which increased from $1,908.9 million as of June 30, 2022 to $2,173.4 million as of June 30, 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.

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

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

The potential impacts COVID-19 and related economic impacts may have on our ability to acquire new receivables or the impact they may have on consumers' ability to make payments on outstanding loans and fees receivable could result in changes in these assumptions in the near term. See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components-Recent Accounting Pronouncements”

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

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

Outstanding notes payable, net of unamortized debt issuance costs and discounts, associated with our private label credit and general purpose credit card platform increased from $1,206.6 million as of March 31, 2022 to $1,543.8 million as of March 31, 2023.

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 $1,359.7 million as of June 30, 2022 to $1,595.8 million as of June 30, 2023.

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

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

We have experienced a period-over-period increase in this category primarily reflecting growth in the underlying receivables subject to this provision as well as slight increases in delinquency rates, similar to those experienced in periods prior to COVID-19 and the related government stimulus programs. 

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

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 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.

Fee billings on our fair value receivables increased from $412.4 million for the six months ended June 30, 2022 to $453.8 million for the six months ended June 30, 2023.

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.

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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 $1,677.6 million outstanding to $2,055.0 million outstanding at March 31, 2022 and March 31, 2023, respectively.

Total operating expenses variances for the three and six months ended June 30, 2023, relative to the three and six months ended June 30, 2022, reflect the following:

slight 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 $1,908.9 million outstanding to $2,173.4 million outstanding at June 30, 2022 and June 30, 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.

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;

decreases in marketing and solicitation costs primarily due to significant decreases in origination and brand marketing support for the three and six months ended June 30, 2023 when compared to the three and six months ended June 30, 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 some increases in period over period results for the remainder of 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.

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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 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.

Income Taxes.

We experienced effective tax rates of 22.3% and 23.1% for the three and six months ended June 30, 2023, compared to 20.4% and 2.0% for the three and six months ended June 30, 2022.

Our effective tax rates for the three and six months ended June 30, 2023, are 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.

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

grant date values 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 were the effects of state and foreign income tax expense.

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.

On the basis described above, we reported interest expense of $1.1 million for the six months ended June 30, 2023, and de minimis interest expense for the six months ended June 30, 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.

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Total managed receivables

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 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.

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Fair Value Receivables

Amortized Cost Receivables (1)