Atlanticus Holdings Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and the related notes included therein and our Annual Report on Form 10-K for the year ended December 31, 2023, where certain terms have been defined. This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We base these forward-looking statements on our current plans, expectations and beliefs about future events. There are risks, including the factors discussed in "Risk Factors" in Part II, Item 1A and elsewhere in this Report, that our actual experience will differ materially from these expectations. For more information, see "Cautionary Notice Regarding Forward-Looking Information" below. In this Report, except as the context suggests otherwise, "Company," "Atlanticus Holdings Corporation," "Atlanticus," "we," "our," "ours," and "us" refer to Atlanticus Holdings Corporation and its subsidiaries and predecessors. OVERVIEW Atlanticus is a financial technology company powering more inclusive financial solutions for everyday Americans. We leverage data, analytics, and innovative technology to unlock access to financial solutions for the millions of Americans who would otherwise be underserved. According to data published by Experian, 40% of Americans had FICO® scores of less than 700. We believe this equates to a population of over 100 million everyday Americans in need of access to credit. These consumers often have financial needs that are not effectively met by larger financial institutions. By facilitating appropriately priced consumer credit and financial service alternatives with value-added features and benefits curated for the unique needs of these consumers, we endeavor to empower better financial outcomes for everyday Americans. Through our subsidiaries, we provide technology and other support services to lenders who offer an array of financial products and services to consumers who may have been declined by other providers of credit. Both private label and general purpose card products are originated by The Bank of Missouri and WebBank (collectively, our “bank partners”). Our bank partners originate these accounts through multiple channels , including retail and healthcare point-of-sale locations, direct mail solicitation, digital marketing and partnerships with third parties. The services of our bank partners are often extended to consumers who may not have access to financing options with larger financial institutions. Our flexible technology solutions allow our bank partners to integrate our paperless process and instant decisioning platform with the existing infrastructure of participating retailers, healthcare providers and other service providers. Using our technology and proprietary predictive analytics, lenders can make instant credit decisions utilizing hundreds of inputs from multiple sources and thereby offer credit to consumers overlooked by many providers of financing which focus exclusively on consumers with higher FICO scores. Atlanticus’ underwriting process is enhanced by machine learning, enabling lenders to make fast, sound decisions when it matters most. We are principally engaged in providing products and services to lenders in the U.S. for which these lenders pay us a fee and in most circumstances, the lenders are then obligated to sell us the receivables they generate from these products and services. We acquire these receivables for the principal amount of the loan less any up-front fees and any third party or merchant fees associated with the receivables. We compensate our bank partners monthly for the regulatory oversight they provide associated with our acquired receivables, the underlying accounts of which they continue to own and service, and also based on variable levels of the underlying performance of the acquired receivables. From time to time, we also purchase receivables portfolios from third parties. In this Report, "receivables" or "loans" typically refer to receivables we have purchased from our bank partners or from third parties. 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 $41 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 cards using the Fortiva and Curae brand names as well as merchant associated brands. Our general purpose credit cards use the Aspire, Imagine and Fortiva brand names. Private label credit products associated with the healthcare space are generally issued under the Curae brand while all other retail partnerships, including those in consumer electronics, furniture, elective medical procedures, and home-improvement use the Fortiva brand or use our retail partners’ brands. Our flexible technology solutions allow our bank partners to integrate our paperless process and instant decisioning platform with the existing infrastructure of participating retailers, healthcare providers and other service providers. Using our infrastructure and technology, we also provide loan servicing, including risk management and customer service outsourcing, for third parties. Also, through our CaaS segment, we engage in testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and infrastructure. Additionally, we report within our CaaS segment: 1) servicing income; and 2) gains or losses associated with investments previously made in consumer finance technology platforms. 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, Fintiv Inc., has sued Apple, Inc., Walmart, Inc., and PayPal Holdings, Inc. for patent infringement. Fintiv Inc. 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. 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. 25 Table of Contents Private label credit Our bank partners work with both us and with their retail partners to provide financing options to retail consumers. These financing options vary by retail partner and consists of a range in APRs of 0% - 36% and a range in merchant fees of 0% - 65%. Merchant fees, which vary by retail partner, offset the purchase price our bank partners remit to the retail partner on a consumer transaction. These merchant fees are used to enhance the return on products when contractual APRs or other terms are insufficient due to promotional or other below market pricing retail merchants may offer to consumers (such as 0% APR offers). Financing arrangements may include fees to enhance yields on a product including annual and/or monthly maintenance fees. Additionally, terms of these products offered to consumers may include deferred interest options whereby consumers pay no interest on their purchases over periods ranging from 6-12 months. Terms of these products can range from 12 months to 84 months based on the retail merchant partner. Each offer is customized for retail clients based on the expected performance of the underlying receivables, receivable purchase volumes and overall return requirements. Our flexible technology allows retail partners to present financing offers to their customers through a variety of delivery options including retail point of sale locations, online transactions, or through in home sales. These financing arrangements are based on underwriting standards tailored to each retail partner and are the result of a close collaboration between our bank partners and us to ensure all products are compliant with regulatory requirements and to ensure they provide attractive terms to consumers. When a consumer accepts the terms of a financing arrangement for the purchase of a good or service and completes the underlying transaction, our bank partners forward the net purchase price (net of merchant or other fees) to the retail partner. Our bank partners are then obligated to sell, and we are obligated to purchase, the receivable (along with rights to all future finance and fee billings associated with the receivable) from our bank partners under similar terms, which best reflects the receivables fair value at the time of acquisition with no gain or loss recognized. General Purpose Credit Cards We work closely with our bank partners to assist them in creating general purpose credit card offers. These offers have varying lines of credit ranging from $350 to $3,000, annual percentage rates (“APRs”) ranging from 19.99% to 36%, annual fees ranging from $0 to $175 and monthly maintenance fees ranging from $0 to $15. Our agreements with our bank partners obligate them to sell and for us to acquire the receivables associated with underlying purchases and subsequent fee and finance billings. We acquire these receivables for the principal amount of any related purchase less any up-front or third-party fees associated with the receivables which best reflects the receivables fair value at the time of acquisition with no gain or loss recognized. As discussed above, our bank partners continue to provide ongoing account management and oversight for both our Private label credit and General purpose credit card receivables, for which we compensate the bank partners monthly. For both our Private label credit and General purpose credit card purchases from our bank partners, the initial acquisition of receivables is at fair value, with no gain recognized. All finance charges, fees and merchant fees are recognized into earnings through our Consumer loans, including past due fees (interest income, including finance charges, late payment fees on loans and merchant fees), Fees and related income on earning assets (for annual or monthly maintenance fees, cash advance fees and other fees directly associated with the extension of credit) and Other revenue (for interchange and ancillary product offerings such as credit protection), on our Consolidated Statements of Income when they are billed to consumers or, in the case of merchant fees, when the receivable is assessed for fair value. We value these principal and fee receivables within Changes in fair value of loans on our Consolidated Statements of Income to reflect our best estimate of ongoing economics and cash flows associated with existing consumer accounts including future estimates of finance and fee billings and consumer payment rates typical of the assumptions a market participant would use to calculate fair value. Our credit and other operations are heavily regulated, potentially causing us to change how we conduct our operations either in response to regulation or in keeping with our goal of leading the industry in adherence to consumer-friendly practices. We have made meaningful changes to our practices over the past several years, and because our account management practices are evolutionary and dynamic, it is possible that we may make further changes to these practices, some of which may produce positive, and others of which may produce adverse, effects on our operating results and financial position. Customers at the lower end of the credit score range intrinsically have higher loss rates than do customers at the higher end of the credit score range. As a result, the products we support are priced to reflect expected loss rates for our various risk categories. See "Consumer and Debtor Protection Laws and Regulations—CaaS Segment" in Part I, Item 1 of our Annual Report on Form 10-K and Part II, Item 1A, "Risk Factors" contained in this Report. 26 Table of Contents Subject to possible disruptions caused by the uncertain economic environment, 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. We generally earn discount income over the life of the applicable loan. Additionally, we generate revenues from servicing loans on behalf of dealers for a portion of actual collections and by providing back-up servicing for similar quality assets owned by unrelated third parties. We offer a number of other products to our network of buy-here, pay-here dealers (including our floor-plan financing offering), but the majority of our activities are represented by our purchases of auto loans at discounts and our servicing of auto loans for a fee. As of September 30, 2024, our CAR operations served over 670 dealers in 34 states and two U.S. territories. The core operations continue to perform well (achieving consistent profitability and generating positive cash flows). CONSOLIDATED RESULTS OF OPERATIONS For the Three Months Ended September 30, Increases (Decreases) (In Thousands) 2024 2023 from 2023 to 2024 Total operating revenue $ 350,954 $ 294,913 $ 56,041 Other non-operating revenue 270 (6 ) 276 Interest expense (42,492 ) (28,274 ) 14,218 Provision for credit losses (4,633 ) (538 ) 4,095 Changes in fair value of loans at fair value (203,739 ) (177,854 ) 25,885 Net margin 100,360 88,241 12,119 Operating expenses: Salaries and benefits (12,299 ) (11,360 ) 939 Card and loan servicing (28,069 ) (25,864 ) 2,205 Marketing and solicitation (14,848 ) (12,599 ) 2,249 Depreciation (656 ) (647 ) 9 Other (7,202 ) (6,013 ) 1,189 Total operating expenses: (63,074 ) (56,483 ) 6,591 Net income $ 29,189 $ 24,973 $ 4,216 Net loss attributable to noncontrolling interests 354 267 87 Net income attributable to controlling interests $ 29,543 $ 25,240 $ 4,303 Net income attributable to controlling interests to common shareholders $ 23,227 $ 18,899 $ 4,328 For the Nine Months Ended September 30, Increases (Decreases) (In Thousands) 2024 2023 from 2023 to 2024 Total operating revenue $ 956,769 $ 846,646 $ 110,123 Other non-operating revenue 1,184 140 1,044 Interest expense (115,503 ) (76,723 ) 38,780 Provision for credit losses (9,323 ) (1,551 ) 7,772 Changes in fair value of loans at fair value (549,161 ) (505,505 ) 43,656 Net margin 283,966 263,007 20,959 Operating expenses: Salaries and benefits (37,584 ) (32,593 ) 4,991 Card and loan servicing (82,589 ) (74,013 ) 8,576 Marketing and solicitation (38,848 ) (37,491 ) 1,357 Depreciation (1,963 ) (1,908 ) 55 Other (24,272 ) (19,149 ) 5,123 Total operating expenses: (185,256 ) (165,154 ) 20,102 Net income $ 79,135 $ 75,681 $ 3,454 Net loss attributable to noncontrolling interests 858 860 (2 ) Net income attributable to controlling interests $ 79,993 $ 76,541 $ 3,452 Net income attributable to controlling interests to common shareholders $ 61,077 $ 57,684 $ 3,393 27 Table of Contents Three and Nine Months Ended September 30, 2024, Compared to Three and Nine Months Ended September 30, 2023 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, monthly service, 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 to $2,653.8 million as of September 30, 2024 from $2,314.6 million as of September 30, 2023. We experienced modest growth in total operating revenues for both our general purpose credit card and our private label credit receivables for the three and nine months ended September 30, 2024 when compared to the same periods in 2023. These increases were primarily due to consistent quarterly growth in new credit card customers serviced and seasonally driven growth with private label credit receivables and also reflected increased fee and finance pricing requirements for all new receivable acquisitions in response to increased costs of capital used to finance these receivable acquisitions. Additionally , g rowth within our private label credit receivables for the first and second quarters of 2024 was largely due to continued growth associated with our largest existing retail partners, growth which typically increases late in the second quarter and into the third quarter of each year based on our retail partners' seasonal sale cycles. This seasonal growth in private label credit receivables was at its highest in the third quarter of 2024 when we increased receivable purchases by $152.3 million when compared to the third quarter of 2023. The relative mix of receivable acquisitions can lead to some variation in our corresponding revenue as general purpose credit card receivables typically generate higher gross yields than private label credit receivables do. We are currently experiencing continued period-over-period growth in private label credit and general purpose credit card receivables—growth that we expect to result in net period-over-period growth in our total interest income and related fees for these operations throughout 2024. Future periods’ growth is also dependent on the addition of new retail partners to expand the reach of private label credit operations as well as growth within existing partnerships and the level of marketing investment for the general purpose credit card operations. Other revenue on our condensed consolidated statements of income consists of ancillary, interchange and servicing income. Ancillary and interchange revenues are largely impacted by growth in our receivables as discussed above , and recent new product offerings to consumers also resulted in a modest increase in this category of revenues for the three and nine months ended September 30, 2024 when compared to the same periods in 2023. See Note 2, "Significant Accounting Policies and Condensed Consolidated Financial Statement Components " to our condensed consolidated financial statements for additional information related to this revenue from contracts with customers. Interchange fees are earned when customers we serve use their cards over established card networks. We earn a portion of the interchange fee the card networks charge merchants for the transaction. We earn servicing income by servicing loan portfolios for third parties. Unless and/or until we grow the number of contractual servicing relationships we have with third parties or our current relationships grow their loan portfolios, we will not experience significant growth and income within this category. The above discussions on expectations for finance, fee and other income are based on our current expectations. Recent rules enacted by the Consumer Financial Protection Bureau ("CFPB"), which, if implemented, would further limit the late fees charged to consumers in most instances, are expected to adversely impact the revenue recognized on our receivables. In order to mitigate these impacts and continue to serve consumers, we have worked collaboratively with our bank partners to assist them in taking a number of steps, from modifying products and policies (such as further tightening the criteria used to evaluate new loans) to changing prices (including increasing interest rates and fees charged to consumers). While our bank partners have the flexibility to unilaterally make changes to program offerings and must approve all changes to existing or new program offerings, we are only obligated to acquire receivables originated by our bank partners when they utilize mutually agreed upon underwriting standards. We believe these product, policy, and pricing changes will offset the negative impact of potential reduced late fees. The changes will take several quarters to fully implement. For more information, refer to Part II, Item 1A "Risk Factors" and, in particular, " The CFPB recently issued a final rule regarding credit card late fees, which represents a significant departure from the rules that are currently in effect. The rules are currently enjoined from implementation. If implemented in the future, we expect the rule would have an adverse impact on our business, results of operations and financial condition for at least the short term and, depending on the effectiveness of our actions taken in response to the rule, potentially over the long term ." Other non-operating revenue. Included within our Other non-operating revenue category is income (or loss) associated with investments in non-core businesses or other items not directly associated with our ongoing operations. None of these companies are publicly-traded and there are no material pending liquidity events. We will continue to carry the investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes. Interest expense. Variations in interest expense are due to new borrowings and increased costs of capital 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 condensed 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 to $1,976.8 million as of September 30, 2024 from $1,719.7 million as of September 30, 2023. Corresponding interest expense increased $14.2 million and $38.8 million for the three and nine months ended September 30, 2024 when compared to the three and nine months ended September 30, 2023. The majority of this increase in outstanding debt relates to the addition of multiple credit facilities in 2023 and 2024. Recent increases in the effective interest rates on debt have increased our interest expense as we have raised additional capital (or replaced existing facilities) over the last two years. We anticipate additional debt financing over the next few quarters as we continue to grow coupled with higher effective interest rates on new debt compared to rates on maturing debt. As such, we expect our quarterly interest expense for these operations to increase compared to prior periods. Adding to interest expense in 2024, we sold approximately $73.5 million and $130.8 million aggregate principal amount of 9.25% Senior Notes due 2029 in the three and nine months ended September 30, 2024. Provision for credit losses. Our provision for credit losses 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 credit losses. We have experienced a period-over-period increase in our provision for credit losses primarily associated with increases in loss estimates associated with our Auto Finance segment's floorplan loans. Most risk of loss in our Auto Finance segment is widely diversified. Floorplan loans offered to dealers to finance auto inventory increase our exposure to loss. We take several steps to mitigate this risk including holding title to the underlying collateral, ongoing reassessments of collateral value and regular audits at participating dealer locations. Nevertheless, the timing of losses is difficult to predict. Recent stress noted at some dealer locations is incorporated into our loss estimates and resulted in increased provisions for credit losses for both the three and nine months ended September 30, 2024. See Note 2, "Significant Accounting Policies and Consolidated Financial Statement Components," to our condensed consolidated financial statements for further credit quality statistics and analysis. 28 Table of Contents Changes in fair value of loans. The increase in Changes in fair value of loans was largely driven by growth in the underlying receivables (as noted above) as well as changes in assumptions due to recent rules enacted by the CFPB, which, if implemented, would further limit the late fees charged to consumers in most instances. For all periods presented, we included asset performance degradation in our forecasts to reflect both changes in assumed asset level economics and 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 current trends would suggest. In recent periods we have removed some of this expected degradation based on observed asset stabilization, implementation of mitigants to a potential change in late fee billings and general improvements in U.S. economic expectations due to the improved inflation environment. See Note 6 "Fair Values of Assets and Liabilities" included herein for further discussion of 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 commensurate with growth in these receivables. We may, however, 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. Tightened underwriting standards adopted during the second quarter 2022 (and continued in subsequent quarters) shifted new receivable acquisitions to consumers at the higher end of the FICO band in which our bank partners participate, presumably resulting in improved overall performance of our acquired receivables. When coupled with those existing assets negatively impacted by inflation gradually becoming a smaller percentage of the outstanding portfolio, we expect to see overall improvements in the measured fair value of our portfolios of acquired receivables. As part of our analysis to determine the fair value of our receivables, we look at several key factors that influence the overall fair value. Qualitative discussion of these factors is as follows: Gross yield, net of finance charge chargeoffs – We utilize gross yield, net of finance charge chargeoffs in our fair value assessments to best reflect the expected net collected yield on fee billings on our receivables. As the size and composition of our portfolio fluctuates, or as we experience periods of growth or decline in our acquisition of new receivables, this rate can fluctuate. We have experienced marginal declines in our weighted-average, Gross yield, net of finance charge chargeoffs rate used in our fair value calculations as of September 30, 2024, when compared to rates used as of September 30, 2023 and June 30, 2024 largely due to a shift in the overall portfolio mix towards private label credit receivables acquired that tend to have lower effective yields but also for which we have limited loss exposure due to agreements with retail partners. Our general purpose credit card receivables experienced an increase in this same rate for the noted periods due to the aforementioned product, policy, and pricing changes and tightened underwriting standards. As these product policy and pricing changes continue to further impact both newly acquired and existing private label credit receivables and general purpose credit card receivables, we expect our gross yield, net of finance charge chargeoffs rate to increase over time although the pace and timing of purchases for new general purpose credit card receivables, relative to those of private label credit receivables, could result in near term declines in this rate. The acquisition of private label credit receivables, particularly those noted above, is largely seasonal in nature, peaking in the second and third quarters of each year. As a result, we would expect this weighted average rate to decrease in those periods absent the offset of our higher yielding general purpose credit card receivables acquired during the same period. While our bank partners have enacted product, policy, and pricing changes on our existing receivables (and all newly acquired receivables), these changes will take several quarters to be fully realized. As a result, if the CFPB rules related to late fees become effective, prior to full implementation of our bank partners' changes, we would expect to experience near term declines in this rate. Payment Rate – Our total portfolio payment rate has declined marginally over time largely due to the increased relative weight of acquisitions of private label credit receivables to our overall pool of receivables. These receivables tend to include less finance and fee billings that factor into monthly payment amounts (due to associated merchant fee billings that provide us adequate returns on the receivables) and have payment terms that extend over longer periods. As a result, payment rates on private label credit receivables are naturally lower than those associated with our general purpose credit card receivables. This was particularly influenced by strong growth in the aforementioned private label credit receivables acquired during the second and third quarters of 2024 that have limited loss exposure and tend to have longer associated terms and lower effective payment rates. This decline in payment rates is not evident in our credit card portfolio, which maintained relatively stable payment rates over the three and nine months ended September 30, 2024 and 2023. Servicing Rate – Our servicing rate has fluctuated marginally over time as we continue to implement processes and strategies to more efficiently and effectively service the accounts underlying our outstanding receivables portfolios. As delinquent accounts tend to have a higher cost of servicing, recent trending declines in our receivables that are 90 or more days past due also has resulted in lower expected future costs. We expect our servicing rate will remain relatively consistent over the next several quarters. Expected Net Principal Credit Loss Rate – Our Expected net principal credit loss rate is chiefly impacted by the relative makeup of receivables within our pools. As we have acquired a higher number of receivables associated with our private label credit accounts for which we have limited loss exposure due to agreements with retail partners, particularly in the second and third quarters of 2024, our Expected net principal credit loss rate has decreased. Additionally, we have noted reductions in the Expected net principal credit loss rate associated with our general purpose credit card receivables, which have shown (and are expected to continue to show) continued overall improvements in delinquency rates. With growth in the acquisition of our private label credit receivables, particularly those noted above with limited loss exposure, and growth in better performing general purpose credit card receivables, we expect this weighted average rate to decrease over the next several quarters (when compared to similar periods in prior years) before stabilizing. Discount Rate – Our weighted average discount rate has remained relatively consistent over the past several quarters (and is expected to continue to remain consistent). Primarily impacting modest shifts in our weighted average discount rate are mix shifts in the type of receivables acquired, as different receivable types (general purpose credit card receivables versus private label credit receivables) have different expected return requirements used by third-party market participants. As we have acquired a higher number of receivables associated with our private label credit accounts for which we have limited loss exposure due to agreements with retail partners, our weighted average discount rate has decreased marginally. We consider asset specific financing costs associated with our receivables (coupled with our internal cost of equity capital in agreements that require credit enhancements) as the best indicator of return requirements used by third-party market participants. Recent indications by the Federal Reserve of decreased interest rates could lead to further reductions in our weighted average discount rate if we see a corresponding decrease in return requirements used by third-party market participants. 29 Table of Contents Total operating expenses. Total operating expenses variances for the three and nine months ended September 30, 2024, relative to the three and nine months ended September 30, 2023, reflect the following: • increases in salaries and benefit costs related to both the growth in the number of employees for both the three and nine months ended September 30, 2024 and inflationary compensation pressure. We expect some continued increase in this cost for the remainder of 2024 compared to corresponding periods in 2023 as we expect our receivables to continue to grow and as a result we expect to continue 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 to $2,653.8 million outstanding from $2,314.6 million outstanding at September 30, 2024 and September 30, 2023, respectively, and costs associated with the implementation of product, policy, and pricing changes discussed above. 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 in 2024 and future periods commensurate with growth in our receivables; • modest increases in marketing and solicitation costs for both the three and nine months ended September 30, 2024 as total growth in new accounts serviced was in line with combined growth observed in the first and second quarters of 2023. These modest increases in marketing and solicitation costs for both periods is a direct result of the increased costs associated with assisting our bank partners to acquire new consumers using tightened underwriting standards resulting from the planned CFPB restrictions on late fee assessments. As we continue to adjust our underwriting standards to reflect changes in fee and finance assumptions on new receivables, and allow for overall increases in the cost to successfully market to consumers, we expect period over period marketing costs for 2024 to increase relative to those experienced 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; and • 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 and have grown as we expand our marketing and growth efforts. Increases in this category for the three and nine months ended September 30, 2024 when compared to the three and nine months ended September 30, 2023 primarily relate to certain nonrecurring costs associated with accounting and legal expenditures. While we expect some increase in these costs as we continue to grow our receivable portfolios, we do not anticipate the increase to be meaningful. Certain operating costs are variable based on the levels of accounts and receivables we service (both for our own receivables and for others) and the pace and breadth of our growth in receivables. However, a number of our operating costs are fixed. As we have significantly grown our managed receivables levels over the past two years with minimal increase in the fixed portion of our card and loan servicing expenses as well as our salaries and benefits costs, we have realized greater operating efficiency. Notwithstanding our cost management activities, we expect increased levels of expenditures associated with anticipated growth in private label credit and general purpose credit card operations. These expenses will primarily relate to the variable costs of marketing efforts and card and loan servicing expenses associated with new receivable acquisitions. Unknown ongoing potential impacts related to the aforementioned inflation and other global disruptions 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. Noncontrolling interests. We reflect the ownership interests of noncontrolling holders of equity in our majority-owned subsidiaries as noncontrolling interests in our condensed consolidated statements of income. In November 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $1.00 per unit to an unrelated third party. The units carry a 16% preferred return paid quarterly, with up to 6 percentage points of the preferred return to be paid through the issuance of additional units or cash, at our election. The units have both call and put rights and are also subject to various covenants including a minimum book value, which if not satisfied, could allow for the securities to be put back to the subsidiary. In March 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms. A holder of the Class B preferred units may, at its election and with notice, require the Company to redeem part or all of such holder’s Class B preferred units for cash at $1.00 per unit, on or after October 14, 2024. The Company has the right to redeem the Class B preferred units at any time with notice. During the three and nine months ended September 30, 2024 we redeemed 25.5 million of the Class B preferred units at $1.00 per unit plus accrued but unpaid interest thereon. We have included the issuance of these Class B preferred units as temporary noncontrolling interests on the condensed consolidated balance sheets and the associated dividends are included as a reduction of our net income attributable to common shareholders on the condensed consolidated statements of income. 30 Table of Contents Income Taxes. We experienced effective tax rates of 21.5% and 19.7% for the three and nine months ended September 30, 2024, respectively, compared to 21.2% and 22.5% for the three and nine months ended September 30, 2023, respectively. In all periods, the factors that decreased our effective tax rate relative to the statutory rate included (1) our deduction for income tax purposes of amounts characterized in our condensed consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes and (2) deductions associated with the exercises 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. Also, in all periods, the factors that increased our effective tax rate relative to the statutory rate included (1) state and foreign income tax expense, including the effects of law changes enacted in certain states in which we operate, (2) taxes on global intangible low-taxed income, and (3) 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 report interest expense associated with our income tax liabilities (including accrued liabilities for uncertain tax positions) within our income tax line item on our condensed 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. Our net interest expense reflected within our income tax line item was $140,000 for the nine months ended September 30, 2024, and $1.4 million for the nine months ended September 30, 2023. CaaS Segment 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 condensed 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 condensed consolidated statements of income, and (iii) the charge-offs (and recoveries thereof) as a component within our Changes in fair value of loans on our condensed consolidated statements of income. 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 in our condensed consolidated statements of income. We historically have invested in receivables portfolios through subsidiary entities. If we control through direct ownership or exert a controlling interest in the entity, we consolidate it and reflect its operations as noted above. 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" in order to manage our business, make planning decisions, evaluate our performance and allocate resources. These non-GAAP financial measures are presented for supplemental informational purposes only. These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, GAAP financial measures. 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). 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. 31 Table of Contents Below is the reconciliation of Loans at fair value to Total managed receivables: At or for the Three Months Ended 2024 2023 2022 (in Millions) Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Loans at fair value $ 2,511.6 $ 2,277.4 $ 2,150.6 $ 2,173.8 $ 2,050.0 $ 1,916.1 $ 1,795.6 $ 1,818.0 Fair value mark against receivable (1) 142.5 137.7 167.5 237.5 265.2 257.9 260.1 302.1 Total managed receivables (2) $ 2,654.1 $ 2,415.1 $ 2,318.1 $ 2,411.3 $ 2,315.2 $ 2,174.0 $ 2,055.7 $ 2,120.1 Fair value to Total managed receivables ratio (3) 94.6 % 94.3 % 92.8 % 90.2 % 88.5 % 88.1 % 87.3 % 85.8 % (1) 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 condensed consolidated financial statements included herein for further discussion of this calculation. (2) Total managed receivables are equal to the Aggregate unpaid gross balance of loans at fair value. See Note 6, "Fair Value of Assets and Liabilities" to our condensed consolidated financial statements included herein for further discussion of the Aggregate unpaid gross balance of loans at fair value. (3) The Fair value to Total managed receivables ratio is calculated using Loans at fair value as the numerator, and Total managed receivables as the denominator. As discussed above, our managed receivables data differ in certain aspects from our GAAP data. First, managed receivables data are based on fee billings. Fee billings include finance charges, late fee billings, annual fees, monthly maintenance fees and other ancillary product enhancements. Managed receivables data are also based on actual charge-offs as they occur and without regard to any merchant fees , changes in fair value of loans or changes in our allowances for credit losses (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. 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 2024 2023 2022 (in Millions) Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Consumer loans, including past due fees $ 245.3 $ 232.1 $ 220.0 $ 214.6 $ 214.6 $ 210.3 $ 200.5 $ 202.9 Fees and related income on earning assets 78.5 59.5 47.9 71.7 59.8 62.9 44.3 48.0 Other revenue 16.8 13.6 11.7 12.0 10.2 7.6 6.7 8.5 Total operating revenue - CaaS Segment 340.6 305.2 279.6 298.3 284.6 280.8 251.5 259.4 Adjustments due to acceleration of merchant fee discount amortization under fair value accounting (15.1 ) (12.6 ) 4.0 6.5 (6.8 ) (10.6 ) (0.5 ) 3.4 Adjustments due to acceleration of annual fees recognition under fair value accounting (8.0 ) 1.1 10.1 (12.6 ) (3.1 ) (9.8 ) 7.3 7.9 Removal of finance charge-offs (60.6 ) (62.9 ) (63.7 ) (59.5 ) (47.1 ) (54.2 ) (61.7 ) (58.3 ) Total managed yield $ 256.9 $ 230.8 $ 230.0 $ 232.7 $ 227.6 $ 206.2 $ 196.6 $ 212.4 The calculation of Combined principal net charge-offs used in our Combined principal net charge-off ratio, annualized is as follows: At or for the Three Months Ended 2024 2023 2022 (in Millions) Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Charge-offs on loans at fair value $ 201.5 $ 217.0 $ 231.7 $ 215.2 $ 173.5 $ 180.0 $ 191.9 $ 182.3 Finance charge-offs (1) (60.6 ) (62.9 ) (63.7 ) (59.5 ) (47.1 ) (54.2 ) (61.7 ) (58.3 ) Combined principal net charge-offs $ 140.9 $ 154.1 $ 168.0 $ 155.7 $ 126.4 $ 125.8 $ 130.2 $ 124.0 (1) Finance charge-offs are included as a component of our Changes in fair value of loans in the accompanying condensed consolidated statements of income. 32 Table of Contents 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 receivable 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 portfolios of receivables also affects the stability of our delinquency and loss rates. We consider this delinquency and charge-off data in our allowances for credit losses 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" of our Annual Report on Form 10-K for the year ended December 31, 2023. The following table presents the delinquency trends of the receivables we manage within our CaaS segment, as well as charge-off data and other non-GAAP managed receivables statistics (in thousands; percentages of total): At or for the Three Months Ended 2024 2023 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Period-end managed receivables $ 2,654,112 $ 2,415,092 $ 2,318,104 $ 2,411,255 30-59 days past due $ 106,303 4.0 % $ 99,620 4.1 % $ 94,389 4.1 % $ 110,465 4.6 % 60-89 days past due $ 96,673 3.6 % $ 88,544 3.7 % $ 87,761 3.8 % $ 98,377 4.1 % 90 or more days past due $ 227,418 8.6 % $ 218,215 9.0 % $ 243,830 10.5 % $ 247,621 10.3 % Average managed receivables $ 2,534,602 $ 2,366,598 $ 2,364,680 $ 2,363,231 Total managed yield ratio, annualized (1) 40.5 % 39.0 % 38.9 % 39.4 % Combined principal net charge-off ratio, annualized (2) 22.2 % 26.0 % 28.4 % 26.4 % Interest expense ratio, annualized (3) 6.6 % 6.3 % 5.8 % 5.4 % Net interest margin ratio, annualized (4) 11.7 % 6.7 % 4.7 % 7.6 % At or for the Three Months Ended 2023 2022 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Period-end managed receivables $ 2,315,206 $ 2,174,001 $ 2,055,678 $ 2,120,126 30-59 days past due $ 101,822 4.4 % $ 96,670 4.4 % $ 76,139 3.7 % $ 97,373 4.6 % 60-89 days past due $ 92,361 4.0 % $ 81,477 3.7 % $ 88,529 4.3 % $ 115,636 5.5 % 90 or more days past due $ 217,136 9.4 % $ 170,274 7.8 % $ 197,418 9.6 % $ 220,901 10.4 % Average managed receivables $ 2,244,604 $ 2,114,840 $ 2,087,902 $ 2,085,240 Total managed yield ratio, annualized (1) 40.6 % 39.0 % 37.7 % 40.7 % Combined principal net charge-off ratio, annualized (2) 22.5 % 23.8 % 24.9 % 23.8 % Interest expense ratio, annualized (3) 4.9 % 4.4 % 4.5 % 4.5 % Net interest margin ratio, annualized (4) 13.2 % 10.8 % 8.3 % 12.4 % (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) Interest expense ratio, annualized is calculated using the annualized interest expense associated with the CaaS segment (See Note 3, "Segment Reporting" to our condensed consolidated financial statements) as the numerator and period-end average managed receivables as the denominator. (4) 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. 33 Table of Contents The following table presents additional trends and data with respect to our private label credit and general purpose credit card receivables (dollars in thousands). Results of our legacy credit card receivables portfolios are excluded: Private Label Credit - At or for the Three Months Ended 2024 2023 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Period-end managed receivables $ 1,205,714 $ 1,013,529 $ 907,367 $ 939,389 30-59 days past due $ 34,658 2.9 % $ 36,477 3.6 % $ 32,209 3.5 % $ 36,540 3.9 % 60-89 days past due $ 30,216 2.5 % $ 29,766 2.9 % $ 27,094 3.0 % $ 31,284 3.3 % 90 or more days past due $ 70,190 5.8 % $ 67,368 6.6 % $ 74,414 8.2 % $ 79,056 8.4 % Average APR 13.3 % 15.8 % 17.1 % 17.1 % Receivables purchased during period $ 396,900 $ 316,304 $ 191,106 $ 202,168 Private Label Credit - At or for the Three Months Ended 2023 2022 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Period-end managed receivables $ 944,197 $ 892,387 $ 835,541 $ 838,289 30-59 days past due $ 35,830 3.8 % $ 31,597 3.5 % $ 25,774 3.1 % $ 31,426 3.7 % 60-89 days past due $ 29,387 3.1 % $ 24,776 2.8 % $ 21,036 2.5 % $ 24,993 3.0 % 90 or more days past due $ 71,200 7.5 % $ 56,209 6.3 % $ 62,609 7.5 % $ 68,517 8.2 % Average APR 16.2 % 17.0 % 17.5 % 17.5 % Receivables purchased during period $ 244,571 $ 260,281 $ 201,375 $ 192,773 General Purpose Credit Card - At or for the Three Months Ended 2024 2023 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Period-end managed receivables $ 1,448,060 $ 1,401,168 $ 1,410,281 $ 1,471,358 30-59 days past due $ 71,645 4.9 % $ 63,141 4.5 % $ 62,173 4.4 % $ 73,918 5.0 % 60-89 days past due $ 66,454 4.6 % $ 58,777 4.2 % $ 60,664 4.3 % $ 67,088 4.6 % 90 or more days past due $ 157,222 10.9 % $ 150,839 10.8 % $ 169,402 12.0 % $ 168,555 11.5 % Average APR 28.9 % 27.4 % 27.1 % 27.4 % Receivables purchased during period $ 373,231 $ 360,425 $ 342,834 $ 426,939 General Purpose Credit Card - At or for the Three Months Ended 2023 2022 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Managed Receivables % of Period-end managed receivables Period-end managed receivables $ 1,370,445 $ 1,280,979 $ 1,219,429 $ 1,281,051 30-59 days past due $ 65,987 4.8 % $ 65,067 5.1 % $ 50,355 4.1 % $ 65,940 5.1 % 60-89 days past due $ 62,969 4.6 % $ 56,698 4.4 % $ 67,486 5.5 % $ 90,639 7.1 % 90 or more days past due $ 145,927 10.6 % $ 114,046 8.9 % $ 134,799 11.1 % $ 152,375 11.9 % Average APR 27.3 % 27.2 % 26.4 % 26.1 % Receivables purchased during period $ 402,978 $ 380,509 $ 315,148 $ 383,344 34 Table of Contents 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 $339.2 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, 2023 to September 30, 2024. 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 $261.5 million in the twelve months ended September 30, 2024. Our general purpose credit card receivables grew by $77.6 million during the twelve months ended September 30, 2024. While some of our merchant partners continue to face year-over-year growth challenges, others are benefiting from continued consumer spending and a growing economy. Our general purpose credit card portfolio continues to grow in terms of total customers served and therefore we continue to experience growth in total managed receivables. We expect continued growth in our managed receivables when compared to prior periods in 2023 which were restricted due to tightened underwriting standards adopted during the second quarter 2022 (and continued in subsequent quarters). Growth in 2024 has been somewhat restricted due to our initial response to rule changes enacted by the CFPB. In order to mitigate these impacts and continue to serve consumers, our bank partners have taken a number of steps, from modifying products and policies (such as further tightening the criteria used to evaluate new loans) to changing prices (including increasing interest rates and fees charged to consumers). We believe these product, policy, and pricing changes will offset the negative impact of potential reduced late fees. The changes will take several quarters to fully implement and some changes (for private label credit receivables) will only be implemented upon an effective date for the potential CFPB rules. In the short term, these changes could impact new receivable acquisitions. Growth in future periods for our private label credit receivables 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 partners, 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 75% of our private label receivables outstanding as of September 30, 2024. The volume of receivables purchased each period varies based on a number of factors, including seasonal consumer purchase patterns and growth (or contraction) within merchant retail locations. Further impacting receivable purchase amounts in a period are consumer application volumes that retail partners may direct to our bank partners versus competitors who offer similar financing products to those retail merchant partners. See Note 10, "Commitments and Contingencies," to our condensed consolidated financial statements included herein for further discussion of these concentrations. Delinquencies. Delinquencies have the potential to impact net income in the form of net credit losses. Delinquencies also are costly in terms of the personnel and resources dedicated to resolving them. We intend for the receivables management strategies we use on our portfolios to manage and, to the extent possible, reduce the higher delinquency rates that can be expected with the younger average age of the newer receivables in our managed portfolio. These management strategies include conservative credit line management and collection strategies intended to optimize the effective account-to-collector ratio across delinquency categories. We measure the success of these efforts by reviewing delinquency rates. These rates exclude receivables that have been charged off. During 2023, we experienced increased delinquency rates, when compared to the same periods in 2022, in conjunction with slower receivables growth, higher energy costs and rising inflation and the resulting negative impact on consumers. These increases abated in the third and fourth quarters of 2023 as certain of these costs decreased and consumers adjusted to new price points for these consumer staples while simultaneously enjoying a strong employment environment. Increases in the first and second quarters of 2024 in our Private label credit receivables were largely due to a mix shift in receivables acquired to certain receivables that have higher observed delinquencies but correspondingly higher yields. In the second and third quarters of 2024, we additionally acquired receivables that have higher observed delinquencies, but for which we have limited loss exposure due to agreements with retail partners. As a result of these limited loss exposures, these receivables are not included in our delinquency rates for private label credit receivables. Our delinquency rates for our general purpose credit cards receivables were higher in the first quarter of 2024 due to both a reduction in the growth of our managed receivables and accounts that were enrolled in short-term payment deferrals, due to hardship claims resulting from COVID-19. Receivables enrolled in these short-term payment deferrals continued to accrue interest and their delinquency status did not change through their respective deferment periods. 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. The remainder of these accounts were removed from hardship status with the end of the COVID-19 national and public health emergencies in May 2023. While these accounts resulted in higher than normal reported delinquency rates for the first quarter of 2024 (and correspondingly higher chargeoffs in the first and second quarters of 2024), the charge offs did not result in a further economic impact to us as the majority of these accounts were already considered in our changes in fair value in prior periods. As these accounts were largely charged off by the end of the first quarter we saw some modest improvement in our second quarter 2024 delinquencies offset by slower net receivables growth during this period. As we continue to acquire newer private label credit and general purpose credit card receivables, we expect our delinquency rates to marginally decrease when compared to the same periods in prior years due to a planned shift in our general purpose and private label credit receivables originated using more restrictive product, policy, and pricing changes. We also expect continued seasonal payment patterns on these receivables that impact our delinquencies in line with prior periods. For example, delinquency rates historically are lower in the second quarter of each year due to the benefits of seasonally strong payment patterns associated with tax refunds for many consumers. Included in this expected decrease in delinquencies is continued growth in the portfolio which will also mute delinquency metrics. Our beliefs for future delinquency rates are predicated on the assumption that the slowing rate of inflation will continue and our recent tightened underwriting standards will prove effective at reducing account delinquencies. Total managed yield ratio, annualized. As discussed above, growth in higher yielding assets has resulted in higher charge-off and delinquency rates in some periods. General purpose credit card receivables tend to have higher total yields than private label credit receivables (and corresponding higher charge off rates). As a result, in periods where we have declines in rates of growth of these general purpose credit card receivables, as was noted in 2024 (relative to growth in private label credit receivables), we expect to have slightly lower total managed yield ratios. We currently expect increases in the acquisition of receivables and correspondingly higher period-over-period operating revenue for the remainder of 2024. This growth also includes an expected seasonal shift in our mix of acquired private label receivables to higher FICO receivables that have lower gross yields (and correspondingly lower charge-off expectations) in the third quarter of each year, which may result in marginally lower managed yield ratios when compared to the corresponding periods in prior years. Combined principal net charge-off ratio, annualized. We charge off our CaaS segment receivables when they become contractually more than 180 days past due or 120 days past due if they are enrolled in an installment loan product. For all of our products, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or an estate large enough to pay the debt in full. 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. The increase in the combined principal net charge-off ratio, annualized throughout 2023 and the first two quarters of 2024 is a reflection of increased delinquencies noted as consumer behavior reverted to historical norms (similar to those experienced in periods prior to COVID-19) and decreases in the acquisition of new general purpose credit card receivables. Additionally, inflation, particularly as it relates to higher gas prices, negatively impacted some consumers' ability to make payments on outstanding loans and fees receivable. 35 Table of Contents Despite the expected marginal increases in delinquency rates as discussed above, we expect our overall combined principal net charge-off ratios to continue to decrease for the remainder of 2024, when compared to the comparable prior period. These charge-off rates are expected to return to historically normalized levels, adjusted for the mix shift discussed above, and will benefit from planned growth in the underlying receivables which we expect will further reduce our combined principal net charge-off ratio. 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, leading to periodic increases in combined principal net charge offs, (3) the aforementioned tightened underwriting standards that will slow the pace of growth in our receivables base, and (4) negative impacts on some consumers' ability to make payments on outstanding loans and fees receivable as a result of recent inflation. While charge-offs associated with previously mentioned accounts enrolled in short-term payment deferrals had a negative impact on our Combined principal net charge-off ratio, annualized through the second quarter of 2024, they did not have a material impact on our condensed consolidated statements of income as the majority of these accounts were already considered in our changes in fair value. 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. Interest expense ratio, annualized. Our interest expense ratio, annualized reflects interest costs associated with our CaaS segment. This includes both direct receivables funding costs as well as general unsecured lending. Recent impacts to this ratio primarily relate to the timing and size of outstanding debt as well as the addition of new funding facilities. In general, we have historically obtained lower cost financing with fixed interest rates, resulting in lower interest expense ratios. Increases in the federal funds borrowing rate have led to an increase in spreads for newly-originated debt and for that portion of debt that does not have fixed rates. As such, we have seen our Interest expense ratio, annualized increase throughout 2023 and 2024 and we expect the interest expense ratio to increase when compared to prior quarters for the remainder of 2024 as we replace existing financing arrangements with new ones at a higher cost of capital. 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 the above noted expectations for marginal improvements in our Combined principal net charge-off ratio, annualized, we expect this ratio to start to improve relative to corresponding periods in 2023. Changes in the mix shift of acquired receivables, noted above, will also lead to increases in the Net interest margin, annualized as the higher yielding receivables become a larger component of our total portfolio. Average APR. 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 typically 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 increased through the first seven months of 2023. We currently expect our average APRs in 2024 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 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 well as growth within existing retail partnerships, 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 issuing bank partners. We currently expect to see increases in receivable acquisitions associated with our retail partnerships 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 partners and the availability of capital to fund new purchases. Recent product, policy, and pricing changes will take time to be fully implemented. As a result, the timing of new receivable acquisitions, particularly as it relates to general purpose credit cards, could be impacted in the short term. Nonetheless, we expect continued growth in the acquisition of these general purpose credit card receivables during 2024 and into 2025. 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 floorplan financing for, a prequalified 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. and U.S. territories. Collectively, as of September 30, 2024, we served over 670 dealers through our Auto Finance segment in 34 states and two U.S. territories. 36 Table of Contents 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 allowances for credit losses. 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): At or for the Three Months Ended 2024 2023 2022 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Consumer loans, including past due fees $ 10.0 $ 10.4 $ 10.3 $ 10.1 $ 10.1 $ 9.7 $ 9.2 $ 9.0 Fees and related income on earning assets 0.1 — — 0.1 — — — — Other revenue 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 Total operating revenue 10.3 10.6 10.5 10.4 10.3 9.9 9.4 9.3 Finance charge-offs — — — — — — — — Total managed yield $ 10.3 $ 10.6 $ 10.5 $ 10.4 $ 10.3 $ 9.9 $ 9.4 $ 9.3 The calculation of Combined principal net charge-offs used in our Combined principal net charge-off ratio, annualized follows (in millions): At or for the Three Months Ended 2024 2023 2022 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Gross charge-offs $ 3.1 $ 3.5 $ 1.8 $ 1.1 $ 0.9 $ 0.8 $ 1.0 $ 1.2 Finance charge-offs (1) — — — — — — — — Recoveries (0.7 ) (0.7 ) (0.5 ) (0.5 ) (0.5 ) (0.5 ) (0.4 ) (0.4 ) Combined principal net charge-offs $ 2.4 $ 2.8 $ 1.3 $ 0.6 $ 0.4 $ 0.3 $ 0.6 $ 0.8 (1) Finance charge-offs are included as a component of our Provision for credit losses in the accompanying condensed consolidated statements of income. 37 Table of Contents Financial, operating and statistical metrics for our Auto Finance segment are detailed (in thousands; percentages of total) in the following table: At or for the Three Months Ended 2024 2023 Sep. 30 % of Period-end managed receivables Jun. 30 % of Period-end managed receivables Mar. 31 % of Period-end managed receivables Dec. 31 % of Period-end managed receivables Period-end managed receivables (1) $ 110,638 $ 117,951 $ 122,321 $ 118,045 30-59 days past due $ 8,873 8.0 % $ 9,200 7.8 % $ 7,796 6.4 % $ 9,421 8.0 % 60-89 days past due $ 3,801 3.4 % $ 3,834 3.3 % $ 3,031 2.5 % $ 3,373 2.9 % 90 or more days past due $ 5,305 4.8 % $ 4,944 4.2 % $ 3,220 2.6 % $ 3,542 3.0 % Average managed receivables $ 114,295 $ 120,136 $ 120,183 $ 118,026 Total managed yield ratio, annualized (2) 36.0 % 35.3 % 34.9 % 35.2 % Combined principal net charge-off ratio, annualized (3) 8.4 % 9.3 % 4.3 % 2.0 % Recovery ratio, annualized (4) 2.4 % 2.3 % 1.7 % 1.7 % At or for the Three Months Ended 2023 2022 Sep. 30 % of Period-end managed receivables Jun. 30 % of Period-end managed receivables Mar. 31 % of Period-end managed receivables Dec. 31 % of Period-end managed receivables Period-end managed receivables (1) $ 118,007 $ 115,055 $ 113,367 $ 105,267 30-59 days past due $ 8,627 7.3 % $ 8,070 7.0 % $ 6,145 5.4 % $ 8,516 8.1 % 60-89 days past due $ 3,278 2.8 % $ 3,047 2.6 % $ 1,977 1.7 % $ 2,969 2.8 % 90 or more days past due $ 2,607 2.2 % $ 1,699 1.5 % $ 1,942 1.7 % $ 2,060 2.0 % Average managed receivables $ 116,531 $ 114,211 $ 109,317 $ 106,339 Total managed yield ratio, annualized (2) 35.4 % 34.7 % 34.4 % 35.0 % Combined principal net charge-off ratio, annualized (3) 1.7 % 1.1 % 2.2 % 3.0 % Recovery ratio, annualized (4) 1.7 % 1.8 % 1.5 % 1.5 % (1) Period-end managed receivables equal the corresponding amount of loans at amortized cost included in Note 2 "Significant Accounting Policies and Condensed Consolidated Financial Statement Components in our condensed consolidated financial statements. (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. (3) The Combined principal net charge-off ratio, annualized is calculated using the annualized Combined principal net charge-offs as the numerator and Period-end average managed receivables as the denominator. (4) The Recovery ratio, annualized is calculated using annualized Recoveries as the numerator and Period-end average managed receivables as the denominator. 38 Table of Contents Managed receivables. Recent stress noted at some dealer locations has resulted in higher than anticipated credit losses associated with floorplan loans. When coupled with increased delinquencies associated with the underlying consumers loans, we have experienced period over period declines in our managed receivables for the third quarter of 2024. We expect modest growth in the level of our managed receivables for the remainder of 2024 and into 2025 although we may continue to be below managed receivables levels (when compared to the same periods in prior years ) for the next few quarters as we rebuild our receivables base and CAR expands within its current geographic footprint and continues plans for service area expansion. Although we continue to expand 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. We continually evaluate bulk purchases of receivables and experienced good growth in our receivables base throughout 2023 resulting from several bulk purchases; however, the timing and size of such purchases are difficult to predict. Delinquencies. 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 beyond the third quarter of 2024 as we have established appropriate reserves for these losses; 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) and other collateral to protect against meaningful credit losses. Delinquency rates also tend to fluctuate based on seasonal trends and historically are lower in the second quarter of each year as seen above due to the benefits of strong payment patterns associated with tax refunds for many consumers. Total managed yield ratio, annualized. We have experienced modest fluctuations in our total managed yield ratio largely impacted by the relative mix of receivables in various products offered by CAR as some shorter-term product offerings tend to have higher yields. Yields on our CAR products over the last few quarters are consistent with our expectations over the coming quarters. Further, we expect our total managed yield ratio to remain in line with current experience, with moderate fluctuations based on relative growth or declines in average managed receivables for a given quarter. These variations depend on the relative mix of receivables in our various product offerings. Additionally, our product offerings in the U.S. territories tend to have slightly lower yields than those offered in the U.S. As such, growth in that region also will serve to slightly depress our overall total managed yield ratio, yet we expect growth in that region to continue to generate attractive returns on assets. Combined principal net charge-off ratio, annualized and recovery ratio, annualized. We charge off auto finance receivables when they are between 120 and 180 days past due, unless the collateral is repossessed and sold before that point, in which case we will record a charge off when the proceeds are received. Combined principal net charge-off ratios in the above table reflect the lower delinquency rates we have recently experienced. Increases in our Combined principal net charge-off ratios for the fourth quarter of 2022 and throughout 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 as was evidenced throughout 2024. We continually re-assess our dealers and will take appropriate action if we believe a particular dealer’s risk characteristics adversely change. While we have appropriate dealer reserves to mitigate losses across the majority of our pool of receivables, the timing of recognition of these reserves as an offset to charge offs is largely dependent on various factors specific to each of our dealer partners including ongoing purchase volumes, outstanding balances of receivables and current performance of outstanding loans. As such, the timing of charge-off offsets is difficult to predict; however, we believe that these reserves are adequate to offset any loss exposure we may incur. Additionally, the products we issue in the U.S. territories do not have dealer reserves with which we can offset losses. We also expect our recovery rate to fluctuate modestly from quarter to quarter due to the timing of the sale of repossessed autos. Definitions of Certain Non-GAAP Financial Measures Total managed yield ratio, annualized. Represents an annualized fraction, the numerator of which includes (as appropriate for each applicable disclosed segment) the: 1) finance charge and late fee income billed on all consolidated outstanding receivables and the amortization of merchant fees, collectively included in the consumer loans, including past due fees category on our condensed consolidated statements of income; 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 condensed consolidated statements of income; plus 3) servicing, other income and other activities collectively included in our other operating income category on our condensed 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. 39 Table of Contents Combined principal net charge-off ratio, annualized . Represents an annualized fraction, the numerator of which is the aggregate consolidated amounts of principal losses from consumers unwilling or unable to pay their receivables balances, as well as from bankrupt and deceased consumers, less current-period recoveries (including recoveries from dealer reserve offsets for our CAR operations), as reflected in Note 2 "Significant Accounting Policies and Consolidated Financial Statement Components" and Note 6 "Fair Values of Assets and Liabilities" and the denominator of which is average managed receivables. Recoveries on managed receivables represent all amounts received related to managed receivables that previously have been charged off, including payments received directly from consumers and proceeds received from the sale of those charged-off receivables. Recoveries typically have represented less than 2% of average managed receivables. 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 condensed consolidated financial statements) and the denominator of which is average managed receivables. Net interest margin ratio, annualized. Represents the Total managed yield ratio, annualized less the Combined principal net charge-off ratio, annualized less the Interest expense ratio, annualized. LIQUIDITY, FUNDING AND CAPITAL RESOURCES 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, (iv) effectively managing costs, and (v) repurchasing outstanding shares of our common and preferred stock. We believe 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. 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 condensed consolidated balance sheets. Facilities that could represent near-term and longer-term refunding or refinancing needs as of September 30, 2024 are those associated with the following notes payable in the amounts indicated (in millions): Revolving credit facility (expiring December 11, 2024) that is secured by certain receivables and restricted cash $ 16.8 Revolving credit facility (expiring March 29, 2025) that is secured by restricted cash 21.0 Revolving credit facility (expiring July 20, 2025) that is secured by certain receivables and restricted cash 24.7 Class B preferred units issued to noncontrolling interests (redeemable on or after October 14, 2024) 75.0 Total short term refinancing needs (within 12 months) $ 137.5 Revolving credit facility (expiring October 30, 2025) that is secured by certain receivables and restricted cash 49.8 Revolving credit facility (expiring December 1, 2026) that is secured by certain assets 34.4 Revolving credit facility (expiring July 15, 2027) that is secured by certain receivables and restricted cash 50.0 Revolving credit facility (expiring August 30, 2027) that is secured by certain receivables and restricted cash 12.5 Total long term refinancing needs (in excess of 12 months) $ 146.7 Total refinancing needs $ 284.2 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 moderate in the current environment. 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, albeit at increased costs due to the aforementioned recent interest rate increases. 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 condensed consolidated financial statements included herein. In November 2021, we issued $150.0 million aggregate principal amount of 6.125% Senior Notes due 2026 (the "2026 Senior Notes"). The 2026 Senior Notes are general unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured and unsubordinated indebtedness, and will rank senior in right of payment to the Company’s future subordinated indebtedness, if any. The 2026 Senior Notes are effectively subordinated to all of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, and the 2026 Senior Notes are structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries (excluding any amounts owed by such subsidiaries to the Company). The 2026 Senior Notes bear interest at the rate of 6.125% per annum. Interest on the 2026 Senior Notes is payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year. The 2026 Senior Notes will mature on November 30, 2026. We are amortizing fees associated with the issuance of the 2026 Senior Notes into interest expense over the expected life of such notes. Amortization of these fees for the three and nine months ended September 30, 2024 and 2023 totaled $0.4 million, $1.1 million, $0.4 million and $1.1 million, respectively. We repurchased $0, $0.4 million, $0.3 million and $1.1 million of the outstanding principal amount of these 2026 Senior Notes in the three and nine months ended September 30, 2024 and 2023, respectively. In January and February 2024, we issued an aggregate of $57.2 million aggregate principal amount of 9.25% Senior Notes due 2029 (the "2029 Senior Notes"). In July 2024, we issued an additional $60.0 million aggregate principal amount of the 2029 Senior Notes. The 2029 Senior Notes are general unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured and unsubordinated indebtedness, and will rank senior in right of payment to the Company’s future subordinated indebtedness, if any. The 2029 Senior Notes are effectively subordinated to all of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, and the 2029 Senior Notes are structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries (excluding any amounts owed by such subsidiaries to the Company). The 2029 Senior Notes bear interest at the rate of 9.25% per annum. Interest on the 2029 Senior Notes is payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The 2029 Senior Notes will mature on January 31, 2029. We are amortizing fees associated with the issuance of the 2029 Senior Notes into interest expense over the expected life of such notes. Amortization of these fees for the three and nine months ended September 30, 2024 totaled $0.3 million and $0.5 million, respectively. 40 Table of Contents 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 "Preferred Stock Sales Agreement") providing for the sale by the Company of up to an aggregate offering price of $100.0 million of our (i) Series B preferred stock and (ii) 2026 Senior Notes, from time to time through a sales agent, in connection with the Company's "at-the-market" offering program (the "Preferred Stock ATM Program"). On August 26, 2024 we amended and restated the Preferred Stock Sales Agreement to remove our 2026 Senior Notes and to include our 9.25% Senior Notes under the Preferred Stock ATM Program. Further, on December 29, 2023, the Company entered into an At-The-Market Sales Agreement (the "Common Stock Sales Agreement") providing for the sale by the Company of its common stock, no par value per share (the "common stock"), up to an aggregate offering price of $50.0 million, from time to time to or through a sales agent, in connection with the Company’s Common Stock "at-the-market" offering program (the "Common Stock ATM Program"). Sales pursuant to both the Preferred Stock Sales Agreement and Common Stock 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 agents will make all sales using commercially reasonable efforts consistent with their normal trading and sales practices up to the amount specified in, and otherwise in accordance with the terms of, the placement notices. During the three and nine months ended September 30, 2024 and 2023, we sold 0 shares, 44,143 shares, 300 shares and 53,727 shares, respectively, of our Series B preferred stock under our Preferred Stock ATM Program for net proceeds of $0 million, $1.1 million, $0.0 million and $1.1 million, respectively. During the three and nine months ended September 30, 2024 and 2023, no 2026 Senior Notes were sold under the Company's Preferred Stock ATM Program. During the three and nine months ended September 30, 2024, we sold $13.5 million principal amount of our 2029 Senior Notes under our Preferred Stock ATM Program for net proceeds of $13.4 million. During the three and nine months ended September 30, 2024, no common shares were sold under the Company’s Common Stock ATM Program. During the three and nine months ended September 30, 2023, we repurchased and contemporaneously retired 0 shares and 1,806 shares of Series B preferred stock at an aggregate cost of $0 and $29,000. No shares of Series B preferred stock were repurchased in the three and nine months ended September 30, 2024. On November 14, 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $1.00 per unit to an unrelated third party. The units carry a 16% preferred return to be paid quarterly, with up to 6 percentage points of the preferred return to be paid through the issuance of additional units or cash, at our election. The units have both call and put rights and are also subject to various covenants including a minimum book value, which if not satisfied, could allow for the securities to be put back to the subsidiary. In March 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms. A holder of the Class B preferred units may, at its election and with notice, require the Company to redeem part or all of such holder’s Class B preferred units for cash at $1.00 per unit, on or after October 14, 2024. The proceeds from the transaction were used for general corporate purposes. The Company has the right to redeem the Class B preferred units at any time with notice. During the three and nine months ended September 30, 2024 we redeemed 25.5 million of the Class B preferred units at $1.00 per unit plus accrued but unpaid interest thereon. We have included the issuance of these Class B preferred units as temporary noncontrolling interest on the condensed consolidated balance sheets. Dividends paid on the Class B preferred units are deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders. See Note 5, "Redeemable Preferred Stock" and Note 11, "Net Income Attributable to Controlling Interests Per Common Share" to our condensed consolidated financial statements for more information. On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove Ventures, LLC, a Nevada limited liability company ("Dove"). The agreement provided for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding. On December 27, 2019, the Company issued 400,000 shares of its Series A Preferred Stock with an aggregate initial liquidation preference of $40.0 million, in exchange for full satisfaction of the $40.0 million that the Company owed Dove under the Loan and Security Agreement. Dividends on the preferred stock are 6% per annum (cumulative, non-compounding) and are payable as declared, and in preference to any common stock dividends, in cash. The Series A preferred stock is perpetual and has no maturity date. The Company may, at its option, redeem the shares of Series A preferred stock on or after January 1, 2025 at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends. At the request of the holders of a majority of the shares of the Series A preferred stock, the Company is required to offer to redeem all of the Series A preferred stock at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends, at the option of the holders thereof, on or after January 1, 2024. Upon the election by the holders of a majority of the shares of Series A preferred stock, each share of the Series A preferred stock is convertible into the number of shares of the Company’s common stock as is determined by dividing (i) the sum of (a) $100 and (b) any accumulated and unpaid dividends on such share by (ii) an initial conversion price equal to $10 per share, subject to adjustment in certain circumstances to prevent dilution. 41 Table of Contents At September 30, 2024, we had $308.7 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 nine months ended September 30, 2024 and 2023 are as follows: • During the nine months ended September 30, 2024, we generated $346.8 million of cash flows from operations compared to our generating $326.7 million of cash flows from operations during the nine months ended September 30, 2023. While payment rates for our consumers stayed consistent, we experienced an increase in cash provided by operating activities principally related to finance and fee collections associated with growing private label credit and general purpose credit card receivables and increased recoveries on charged-off receivables. • During the nine months ended September 30, 2024, we used $571.0 million of cash in our investing activities, compared to use of $461.0 million of cash in investing activities during the nine months ended September 30, 2023. This increase in cash used is primarily due to marginal increases in the level of net investments in private label credit and general purpose credit card receivables relative to the same period in 2023. For the nine months ended September 30, 2024, we purchased $1,981 million in private label and general purpose credit card receivables compared to $1,805 million for the nine months ended September 30, 2023. As we continue to grow our receivables base, we would expect for purchases of new receivables to outpace payments thereon throughout 2025. • During the nine months ended September 30, 2024, we generated $225.3 million of cash in financing activities, compared to our generating $101.2 million of cash in financing activities during the nine months ended September 30, 2023. The increase in cash generated is primarily due to the issuance of $130.8 million of 2029 Senior Notes during the nine months ended September 30, 2024. Offsetting this increase was the repurchase and retirement of common and preferred stock and preferred stock units which totaled $14.4 million for the nine months ended September 30, 2023, compared to $27.6 million for the nine months ended September 30, 2024. 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. As discussed above, we expect to have continued growth in our receivables base and as a result, expect to continue raising additional capital to fund these acquisitions. 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 2,000,000 shares of our common stock and 500,000 shares of our Series B preferred stock through June 30, 2026. CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE-SHEET ARRANGEMENTS Commitments and Contingencies We do not currently have any off-balance-sheet arrangements; however, we do have certain contractual arrangements that would require us to make payments or provide funding if certain circumstances occur; we refer to these arrangements as contingent commitments. We do not currently expect that these contingent commitments will result in any material amounts being paid by us. See Note 10, "Commitments and Contingencies," to our condensed consolidated financial statements included herein for further discussion of these matters. RECENT ACCOUNTING PRONOUNCEMENTS See Note 2, "Significant Accounting Policies and Consolidated Financial Statement Components," to our condensed consolidated financial statements included herein for a discussion of recent accounting pronouncements. CRITICAL ACCOUNTING ESTIMATES Our condensed consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of certain assets and liabilities, and in some instances, the reported amounts of revenues and expenses during the period. We base our assumptions, estimates, and judgments on historical experience, current events, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. However, because future events are inherently uncertain and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. For a description of the Company’s critical accounting estimates, refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations–Critical Accounting Estimates" in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on March 4, 2024. There have been no material changes to the information on critical accounting estimates described in our Annual Report on Form 10‑K for the year ended December 31, 2023. RELATED PARTY TRANSACTIONS Under a shareholders’ agreement which we entered into with certain shareholders, including David G. Hanna, Frank J. Hanna, III and certain trusts that were Hanna affiliates (1) if one or more of the shareholders accepts a bona fide offer from a third party to purchase more than 50% of the outstanding common stock, each of the other shareholders that is a party to the agreement may elect to sell his shares to the purchaser on the same terms and conditions, and (2) if shareholders that are a party to the agreement owning more than 50% of the common stock propose to transfer all of their shares to a third party, then such transferring shareholders may require the other shareholders that are a party to the agreement to sell all of the shares owned by them to the proposed transferee on the same terms and conditions. In June 2007, we entered into a sublease for 1,000 square feet (as later adjusted to 3,100 square feet) of excess office space at our Atlanta headquarters with HBR Capital, Ltd. ("HBR"), a company co-owned by David G. Hanna and his brother Frank J. Hanna, III. Thereafter, we amended the sublease to reduce the subleased space to 600 square feet. We entered into a new lease for our Atlanta headquarters that commenced in June 2022. In connection with this new prime lease, we entered into a new sublease with HBR. 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 $95,653 and $62,422 for 2023 and 2022, respectively. The aggregate amount of payments required under the sublease from January 1, 2024 to the expiration of the sublease in May 2025 is $139,000. 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, 2024 and 2023, we received $584,400 and $415,800, respectively, of reimbursed costs from HBR associated with these leased employees. 42 Table of Contents 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 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. David G. Hanna is the sole shareholder and the President of the corporation that serves as the sole trustee of one of the trusts, and David G. Hanna and members of his immediate family are the beneficiaries of this trust. Frank J. Hanna, III is the sole shareholder and the President of the corporation that serves as the sole trustee of the other two trusts, and Frank J. Hanna, III and members of his immediate family are the beneficiaries of these other two trusts. See Note 5, "Redeemable Preferred Stock," to our condensed consolidated financial statements for more information. During 2022, we utilized Axiom Bank, NA to provide legal and other services related to various commercial opportunities. We continue to explore commercial opportunities with Axiom Bank, NA. David G. 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 during 2022 was $1.0 million. CAUTIONARY NOTICE REGARDING 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. 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; 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 government's response to 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"), 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, including in technology; operating expenses; marketing plans and expenses; the performance of our Auto Finance segment; expansion by our Auto Finance segment within its current service area and into new markets; 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. These and other statements using words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would" and similar expressions also are forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. The forward-looking statements we make are not guarantees of future performance, and we have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or historical earnings levels. Although it is not possible to identify all factors, we continue to face many risks and uncertainties. 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: • 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; • security breaches involving our files and infrastructure could lead to unauthorized disclosure of confidential information or result in a temporary or permanent shutdown of our services; • the availability of adequate financing to support growth; • the extent to which federal, state, local and foreign governmental regulation of our various business lines and the products we service for others limits or prohibits the operation of our businesses; • current and future litigation and regulatory proceedings against us; • competition from various sources providing similar financial products, or other alternative sources of credit, to consumers; • the adequacy of our allowances for credit losses and estimates of loan losses used within our risk management and analyses; • the possible impairment of assets; • 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 credit 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; and • impact of recent CFPB rules limiting late fees charged to consumers. 43 Table of Contents 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. There also are other factors that we may not describe (because we currently do not perceive them to be material) that could cause actual results to differ materially from our expectations. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a "smaller reporting company," as defined by Item 10 of Regulation S-K, we are not required to provide this information.