What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-06 compared with 2026-05-07 · 111 added, 90 removed, 658 unchanged (23% of the section changed)

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Credit as a Service Segment

Currently, within our CaaS segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing approximately $52 billion in consumer loans over more than 30 years of operating history, to support lenders in offering more inclusive financial services.

Currently, within our CaaS segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing over $53 billion in consumer loans over more than 30 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.

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Our bank partners work with both us and with our 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 are paid to us by our retail partners to facilitate transactions between our retail partners and its consumers by connecting our bank partners with the retail partners’ consumers.

These financing options vary by retail partner and consist of a range in APRs of 0% - 36% and a range in merchant fees of 0% - 65%.

Merchant fees are paid to us by our retail partners to facilitate transactions between our retail partners and their consumers by connecting our bank partners with the retail partners’ consumers.

The merchant fees vary by retail partner and are based on the value of the goods purchased from our retail partners and consider factors such as the consumer’s credit risk and the terms of our bank partners' related product offering.

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

As of March 31, 2026, our CAR operations served 700 dealers in 34 states and two U.S.

As of June 30, 2026, our CAR operations served 724 dealers in 34 states and two U.S.

The core operations continue to achieve profitability and generate positive cash flows.

CONSOLIDATED RESULTS OF OPERATIONS

For the Three Months Ended March 31,

For the Three Months Ended June 30,

Increases (Decreases)

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Total operating expenses:

Net (income) loss attributable to noncontrolling interests

Net loss attributable to noncontrolling interests

Net income attributable to controlling interests

Net income attributable to common shareholders

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

For the Six Months Ended June 30,

Increases (Decreases)

(In Thousands)

from 2025 to 2026

Total operating revenue and other income

Other non-operating income

Interest expense

Provision for credit losses

Changes in fair value of loans at fair value

Operating expenses:

Salaries and benefits

Card and loan servicing

Marketing and solicitation

Depreciation and amortization

Total operating expenses:

Net loss attributable to noncontrolling interests

Net income attributable to controlling interests

Net income attributable to common shareholders

Three and Six Months Ended June 30, 2026 Compared to Three and Six Months Ended June 30, 2025

Total operating revenue and other income.

Total operating revenue and other income consists of:

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

Period-over-period results primarily relate to growth in private label credit and general purpose credit card products, the receivables of which increased to $6,724.9 million as of March 31, 2026, from $2,706.3 million as of March 31, 2025.

Growth in these receivables includes general purpose credit card receivables associated with our acquisition of Mercury, which totaled $3,078.7 million in receivables as of March 31, 2026.

Excluding the receivables acquired pursuant to this acquisition, receivables were $3,646.2 million as of March 31, 2026.

We experienced growth in total operating revenues and other income for both our general purpose credit card and our private label credit receivables for the three months ended March 31, 2026, when compared to the same period in 2025.

These increases were primarily due to quarterly growth in both new credit card and private label customers serviced, the total active accounts of which increased by over 900,000 as of March 31, 2026 when compared to March 31, 2025 (excluding those serviced accounts added as part of our acquisition of Mercury).

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

Period-over-period results primarily relate to growth in private label credit and general purpose credit card products, the receivables of which increased to $6,891.2 million as of June 30, 2026, from $3,046.5 million as of June 30, 2025.

Growth in these receivables includes general purpose credit card receivables associated with our acquisition of Mercury, which totaled $3,054.3 million in receivables as of June 30, 2026.

Excluding the receivables acquired pursuant to this acquisition, receivables were $3,836.9 million as of June 30, 2026.

We experienced growth in total operating revenues and other income for both our general purpose credit card and our private label credit receivables for the six months ended June 30, 2026, when compared to the same period in 2025.

These increases were primarily due to continued growth in both new credit card and private label customers serviced as total active accounts increased by over 1.0 million as of June 30, 2026 compared to June 30, 2025 (excluding those serviced accounts added as part of our acquisition of Mercury).

This growth in customers served resulted in an increase in substantially all finance and fee categories from the same period in 2025.

Our acquisition of Mercury contributed an additional $224.4 million to our quarter-over-quarter growth in Total Operating revenue and other income.

Our acquisition of Mercury contributed an additional $464.3 million to the period-over-period growth in Total Operating revenue and other income.

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.

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We currently expect our private label credit receivable balance to increase modestly in 2026 as volumes of receivables acquisitions, for which we have limited loss exposure due to agreements with retail partners, are expected to slow.

Additionally, as part of our acquisition of Mercury, we have and continue to enact a number of product, policy and pricing changes on the newly acquired portfolio of general purpose credit card receivables.

Additionally, as part of our acquisition of Mercury, we continue to enact a number of product, policy and pricing changes on the newly acquired portfolio of general purpose credit card receivables.

We expect these changes to result in increased yield for this portfolio and result in additions to our Total operating revenue and other income in 2026 and beyond.

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Growth in customer related fees was largely due to the use of new marketing channels which increased customer engagement with these products.

When coupled with increases in interchange revenues, which are largely impacted by growth in our receivables, this resulted in an increase in this category of revenues for the three months ended March 31, 2026, when compared to the same period in 2025.

When coupled with increases in interchange revenues, which are largely impacted by growth in our receivables, this resulted in an increase in this category of revenues for the three and six months ended June 30, 2026, when compared to the same period in 2025.

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.

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This growth was partially 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 (including those associated with the Mercury acquisition) increased to $5,606.7 million as of March 31, 2026, from $2,137.6 million as of March 31, 2025.

This growth, period-over-period, included notes payable of $2,747.6 million associated with our Mercury acquisition as of March 31, 2026.

Interest expense increased $75.2 million for the three months ended March 31, 2026, when compared to the three months ended March 31, 2025.

Outstanding notes payable, net of unamortized debt issuance costs and discounts, associated with our private label credit and general purpose credit card platform (including those associated with the Mercury acquisition) increased to $5,553.6 million as of June 30, 2026, from $2,431.0 million as of June 30, 2025.

This growth, period-over-period, included notes payable of $2,711.4 million associated with our Mercury acquisition as of June 30, 2026.

Interest expense increased $69.7 million and $145.0 million for the three and six months ended June 30, 2026, respectively, compared to the corresponding periods in 2025.

The majority of this increase in interest expense relates to the addition of multiple credit facilities in 2025 associated with growth in our card and loan receivables, coupled with the issuance of $400.0 million aggregate principal amount of 9.750% Senior Notes due 2030 (the "2030 Senior Notes").

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All proceeds received associated with charged-off accounts, are credited to the allowance for credit losses.

We have experienced a period-over-period increase of $0.5 million in our provision for credit losses (when comparing the three months ended March 31, 2026 to the same period in 2025) as losses remained relatively modest between periods and estimates for our receivables future losses have remained consistent, with no significant changes in receivable balances.

We have experienced a period-over-period decrease of $0.3 million in our provision for credit losses (when comparing the three months ended June 30, 2026 to the same period in 2025) as losses decreased between periods while estimates for our receivables future losses have remained consistent, with no significant changes in receivable balances.

Most risk of loss in our Auto Finance segment is widely diversified with consumer auto loans across the U.S.

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Changes in fair value of loans.

We experienced losses in our total Changes in fair value of loans of $365.5 million for the three months ended March 31, 2026.

This compares to losses of $178.3 million for the three months ended March 31, 2025.

Changes in fair value of loans includes 1) current period principal and finance charge-offs of fair value receivables, 2) the normal accretion (or amortization) of fair value related to prior period finance charges and fees less than (or in excess of) the contractual amounts billed, which is recognized in revenue during the period, and offset by gains typically recognized in current period earnings as the fair value of finance charges and fees is greater than the contractual amounts billed during a period, 3) losses on acquisitions of our private label credit receivables, 4) the impact of changes in the fair value assumptions underlying receivables at the end of the measurement period and 5) the impact of changes in the fair value of Contingent consideration on our acquired portfolio of receivables from our acquisition of Mercury.

The increase in losses in Changes in fair value of loans for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025, was largely due to increases in charge-offs on our underlying receivables.

Additionally we experienced a slight decrease in the net positive impacts of Changes in fair value of loans at fair value, included in earnings, which offset charge-offs incurred during the period.

These impacts totaled $40.9 million for the three months ended March 31, 2026, compared to $55.2 million for the three months ended March 31, 2025.

Results impacting the $40.9 million and $55.2 million in Changes in fair value of loans at fair value, included in earnings for the three months ended March 31, 2026 and 2025, respectively, are as follows:

1) net gains of $24.6 million for the three months ended March 31, 2026, associated with the normal (net) accretion of fair value related to finance charges and fees, which is recognized in revenue during the period, and gains typically recognized in earnings as the fair value of certain finance charges and fees is greater than the contractual amounts billed during a period (compared to $31.4 million of such gains for the three months ended March 31, 2025), 2) net losses of $25.8 million for the three months ended March 31, 2026, on the acquisition of private label credit receivables, which often have below market pricing and for which we often receive merchant fees which ensure we earn adequate returns (compared to $37.7 million of such losses for the three months ended March 31, 2025), 3) net gains of $29.1 million for the three months ended March 31, 2026 (compared to $61.5 million of such gains for the three months ended March 31, 2025) related to favorable changes for the quarter ended March 31, 2026 and 2025 in fair value assumptions.

These favorable assumption changes for the first quarter of 2026 were largely due to improvements in new customers served which were added in the third and fourth quarters of 2025.

As new accounts served tend to have lower initial fair values until the associated receivables have seasoned through peak charge off periods, the maturation of these accounts, and seasonal declines in new receivables acquisitions in the first quarter of 2026, led to an expected increase in the fair value of the associated receivables.

Additionally, our Changes in fair value of loans at fair value in the first quarter of 2026 were impacted by $13.0 million in gains related to a reduction in the fair value of Contingent consideration associated with our acquisition of Mercury.

As we account for the purchase of Mercury as an asset acquisition, this reduction in Contingent consideration resulted in an adjustment to the allocated value (and fair value thereon) of the acquired receivables.

Offsetting these improvements in Changes in fair value of loans were increases in principal and finance charge-offs (net of recoveries), which totaled $406.4 million for the three months ended March 31, 2026 compared to $233.5 million for the three months ended March 31, 2025.

These charge-offs increased period-over-period primarily due to increases in our period end managed receivables although the increase was offset due to the improved performance in both our private label credit and general purpose credit card delinquencies rates over the past several quarters as well as changes to our relative mix of receivables that include significant increases in the acquisition of private label credit receivables for which we have limited loss exposure due to agreements with retail partners (see additional discussion related to delinquencies and charge-offs below).

We experienced losses in our total Changes in fair value of loans of $396.3 million and $761.8 million for the three and six months ended June 30, 2026.

This compares to losses of $216.8 million and $395.1 million for the three and six months ended June 30, 2025.

Changes in fair value of loans includes 1) current period principal and finance charge-offs of fair value receivables, 2) the normal accretion (or amortization) of fair value related to prior period finance charges and fees less than (or in excess of) the contractual amounts billed, which is recognized in revenue during the period, and offset by gains typically recognized in current period earnings as the fair value of finance charges and fees is greater than the contractual amounts billed during a period, 3) losses on acquisitions of our private label credit receivables, 4) the impact of changes in the fair value assumptions underlying receivables at the end of the measurement period and 5) the impact of changes in the fair value of Contingent consideration and other purchase price adjustments on our acquired portfolio of receivables from our acquisition of Mercury.

The increase in losses in Changes in fair value of loans for the three and six months ended June 30, 2026 when compared to the three and six months ended June 30, 2025, was largely due to increases in charge-offs on our underlying receivables.

Additionally, we experienced a slight increase in the net positive impacts of Changes in fair value of loans at fair value, included in earnings, which offset charge-offs incurred during the period.

These impacts totaled $37.0 million and $77.9 million for the three and six months ended June 30, 2026, compared to ($5.1) million and $50.1 million for the three and six months ended June 30, 2025.

Results impacting the $37.0 million and $77.9 million in Changes in fair value of loans at fair value, included in earnings for the three and six months ended June 30, 2026 compared to ($5.1) million and $50.1 million for the three and six months ended June 30, 2025, are as follows:

1) net gains of $27.7 million and $52.3 million for the three and six months ended June 30, 2026, associated with the normal (net) accretion of fair value related to finance charges and fees, which is recognized in revenue during the period, and gains typically recognized in earnings as the fair value of certain finance charges and fees is greater than the contractual amounts billed during a period (compared to $25.8 million and $57.2 million of such gains for the three and six months ended June 30, 2025), 2) net losses of $37.6 million and $63.4 million for the three and six months ended June 30, 2026, on the acquisition of private label credit receivables, which often have below market pricing and for which we often receive merchant fees which ensure we earn adequate returns (compared to $48.0 million and $85.7 million of such losses for the three and six months ended June 30, 2025), 3) net gains of $41.4 million and $70.5 million for the three and six months ended June 30, 2026 (compared to $17.1 million and $78.6 million of such gains for the three and six months ended June 30, 2025) related to favorable changes for the quarter ended June 30, 2026 and 2025 in fair value assumptions.

These favorable assumption changes for the second quarter of 2026 were largely due to improvements in customers served and continued favorable performance of our Mercury portfolio which was acquired at a lower fair value than our existing portfolio of credit card receivables.

Additionally, our Changes in fair value of loans at fair value in the second quarter of 2026 were impacted by an additional $5.5 million and $18.5 million in gains related to reductions in the fair value of Contingent consideration and other purchase price adjustments associated with our acquisition of Mercury for the three and six months ended June 30, 2026, respectively.

As we account for the purchase of Mercury as an asset acquisition, this reduction in Contingent consideration and other purchase price adjustments resulted in an adjustment to the allocated value (and fair value thereon) of the acquired receivables.

Offsetting these improvements in Changes in fair value of loans were increases in principal and finance charge-offs (net of recoveries), which totaled $433.3 million and $839.7 million for the three and six months ended June 30, 2026, respectively compared to $211.8 million and $445.3 million for the three and six months ended June 30, 2025, respectively.

These charge-offs increased period-over-period primarily due to increases in our acquisitions of managed receivables although the increase was offset due to the improved performance in both our private label credit and general purpose credit card delinquency rates over the past several quarters as well as changes to our relative mix of receivables that include significant increases in the acquisition of private label credit receivables for which we have limited loss exposure due to agreements with retail partners (see additional discussion related to delinquencies and charge-offs below).

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.

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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 charge-offs rate used in our fair value calculations of our private label credit receivables as of March 31, 2026, when compared to rates used as of March 31, 2025 largely due to increased acquisitions of receivables associated with 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.

Largely offsetting this decline in yield, our general purpose credit card receivables experienced an increase in this same rate for the noted periods due to changes in the mix of receivables acquired towards higher yielding assets which partially contributed to the net $40.9 million of net gains noted above for the three months ended March 31, 2026.

We have experienced marginal declines in our weighted-average, Gross yield, net of finance charge charge-offs rate used in our fair value calculations of our private label credit receivables as of June 30, 2026, when compared to rates used as of June 30, 2025 largely due to increased acquisitions of receivables associated with 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.

Largely offsetting this decline in yield, our general purpose credit card receivables experienced an increase in this same rate for the noted periods due to changes in the mix of receivables acquired towards higher yielding assets which partially contributed to the net $37.0 million and $77.9 million of net gains noted above for the three and six months ended June 30, 2026.

This change in mix of acquired receivables will continue to positively impact both newly acquired and existing private label credit receivables and general purpose credit card receivables throughout 2026.

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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 (as was noted during the second and third quarter of 2025) absent the offset of our higher yielding general purpose credit card receivables acquired during the same period.

As a result, we would expect this weighted average rate to decrease in those periods (as was noted during the second quarter of 2026 and the second and third quarters of 2025) absent the offset of our higher yielding general purpose credit card receivables acquired during the same period.

While our bank partners have enacted some product, policy, and pricing changes on our portfolio of receivables associated with our acquisition of Mercury, some of these changes have not yet been fully implemented and will take several quarters to be fully realized

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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 2025, our Expected net principal credit loss rate has decreased.

Offsetting this, while expected net principal credit loss rates associated with our general purpose credit card receivables have shown continued overall improvements as evidenced by delinquency rates period-over-period, recent strong growth in this portfolio of receivables associated with newer serviced accounts has resulted in an overall increase to our Expected Net Principal Credit Loss Rate as these receivables associated with newer accounts continue to season and make up a larger percentage of the overall receivables portfolio.

Offsetting this, while expected net principal credit loss rates associated with our general purpose credit card receivables have shown continued overall improvements as evidenced by delinquency rates period-over-period, recent strong growth in this portfolio of receivables associated with newer serviced accounts has offset some of the decline to our Expected Net Principal Credit Loss Rate as these receivables associated with newer accounts continue to season and make up a larger percentage of the overall receivables portfolio.

With growth in the acquisition of our general purpose credit receivables with slightly higher loss rates expected to exceed those associated with private label credit, particularly those noted above with limited loss exposure, we expect this weighted average rate to increase marginally over the next several quarters.

This decline in the Expected Net Principal Credit Loss Rate is included as a component of the net $40.9 million gains in Changes in fair value of loans at fair value noted above.

This decline in the Expected Net Principal Credit Loss Rate is included as a component of the net $37.0 million and $77.9 million gains in Changes in fair value of loans at fair value noted above.

Discount Rate – Our weighted average discount rate has remained relatively consistent over the past several quarters.

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Total operating expenses.

Total operating expenses variances for the three months ended March 31, 2026, relative to the three months ended March 31, 2025, reflect the following:

Total operating expenses variances for the three and six months ended June 30, 2026, relative to the three and six months ended June 30, 2025, reflect the following:

increases in salaries and benefit costs related to both the growth in the number of employees, including those added as part of our acquisition of Mercury, and increases in related compensation.

We expect continued increase in salaries and benefits for 2026 compared to comparable periods in 2025 due to this acquired workforce;

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 $6,724.9 million outstanding from $2,706.3 million outstanding at March 31, 2026 and March 31, 2025, respectively, and costs associated with the implementation of product, policy, and pricing changes.

increases in card and loan servicing expenses for both the three and six months ended June 30, 2026 due to growth in receivables associated with our investments in private label credit and general purpose credit card receivables, which grew to $6,891.2 million outstanding from $3,046.5 million outstanding at June 30, 2026 and June 30, 2025, respectively, and costs associated with the implementation of product, policy, and pricing changes.

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 2026 commensurate with growth in our receivables;

increases in marketing and solicitation costs, primarily due to quarterly growth in both new credit card and private label customers serviced, the total accounts of which increased over 2.2 million as of March 31, 2026 when compared to March 31, 2025 (including approximately 1.2 million serviced accounts as of March 31, 2026 associated with the Mercury acquisition).

increases in marketing and solicitation costs for both the three and six months ended June 30, 2026, primarily due to quarterly growth in both new credit card and private label customers serviced, the total accounts of which increased over 2.2 million as of June 30, 2026 when compared to June 30, 2025 (including approximately 1.2 million serviced accounts as of June 30, 2026 associated with the Mercury acquisition).

These increases in marketing and solicitation costs are a direct result of the increased costs associated with assisting our bank partners to acquire new consumers.

As we continue to adjust our underwriting standards to reflect changes in fee and finance assumptions on new receivables, continue to expand under our newly acquired Mercury brand and allow for overall increases in the cost to successfully market to consumers, we expect period-over-period marketing costs for 2026 to increase relative to those experienced in 2025, 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

increases in other expenses, primarily related to costs associated with occupancy or other third party expenses that are largely fixed in nature.

increases in other expenses for both the three and six months ended June 30, 2026, primarily related to costs associated with occupancy or other third party expenses that are largely fixed in nature.

Some costs including occupancy, legal and travel expenses can be variable based on growth and have grown as we expand our marketing and growth efforts.

Increases in this category for the three months ended March 31, 2026, when compared to the same period in 2025 primarily relate to ongoing increased costs associated with accounting and legal expenses as well as certain increased costs associated with our Mercury acquisition.

Increases in this category for the three and six months ended June 30, 2026, when compared to the same period in 2025 primarily relate to ongoing increased costs associated with accounting and legal expenses as well as certain increased costs associated with our Mercury acquisition.

While we expect some continued increase in these associated costs as we continue to grow our receivable portfolios, we do not anticipate the increase to be meaningful.

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Income Taxes.

We experienced effective tax rates of 24.4% and 23.6% for the three months ended March 31, 2026, and 2025, respectively.

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

Offsetting the foregoing items were deductions associated with the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’ grant date values.

Another offsetting item in only the three months ended March 31, 2025, was our deduction of interest expense on a financial instrument classified as debt for tax purposes that was repaid in the three months ended March 31, 2025—such financial instrument which was characterized in our consolidated financial statements as dividend-paying preferred stock.

We experienced effective tax rates of 24.7%, and 24.6% for the three and six months ended June 30, 2026, respectively compared to 24.4% and 24.0% for the three and six months ended June 30, 2025.

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

Offsetting the foregoing items are the tax effects of our 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.

Another offsetting item in only the six months ended June 30, 2025, was our deduction of interest expense on a financial instrument classified as debt for tax purposes that was repaid in the six months ended June 30, 2025—such financial instrument which was characterized in our consolidated financial statements as dividend-paying preferred stock.

We report interest expense associated with our income tax liabilities (including accrued liabilities for uncertain tax positions to the extent such liabilities have not been favorably resolved thereby resulting in interest expense reversals) within our income tax line item on our consolidated statements of income.

Such interest expense was de minimis in both the three months ended March 31, 2026, and 2025.

Such interest expense was de minimis in the six months ended June 30, 2026, and was $0.1 million for the six months ended June 30, 2025.

Non-GAAP Financial Measures

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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.

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 items 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.

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If we control through direct ownership or exert a controlling interest in the entity, we consolidate it and reflect its operations as noted above.

The following discussion of our managed receivables includes the aforementioned acquisition of Mercury and its portfolio of approximately $3,078.7 million (as of March 31, 2026) in general purpose credit card receivables.

As we acquired the receivables on September 11, 2025, the financial impact of the acquisition on the quarter was limited to fees, billings and expenses subsequent to that date, however the receivables acquired are included in the denominator of the ratios calculated below for all periods subsequent to acquisition.

The following discussion of our managed receivables includes the aforementioned acquisition of Mercury and its portfolio of approximately $3,054.3 million (as of June 30, 2026) in general purpose credit card receivables.

Mercury’s operating results are included for all periods subsequent to the September 11, 2025 acquisition date, and the acquired receivables are included in the denominator of the applicable ratios for those periods.

Below is the reconciliation of Loans at fair value to Total managed receivables:

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Managed receivables levels.

Managed receivables declined from December 31, 2025 due to seasonal paydowns associated with seasonally strong payment patterns associated with tax refunds for many consumers.

We continue to experience overall period-over-period quarterly receivables growth with over $4,018.6 million in net receivables growth associated with the private label credit and general purpose credit card products offered by our bank partners between March 31, 2026 and March 31, 2025.

The increased 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 $533.8 million in the twelve months ended March 31, 2026 primarily related to seasonal expansion with one of our retail partners.

We continue to experience overall period-over-period quarterly receivables growth with over $3,844.7 million in net receivables growth associated with the private label credit and general purpose credit card products offered by our bank partners between June 30, 2026 and June 30 2025.

The increased 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 $387.1 million in the twelve months ended June 30, 2026 primarily related to seasonal expansion with one of our retail partners.

The seasonal expansion with this retail partner tends to peak in the second and third quarters of each year.

Our general purpose credit card receivables grew by $3,484.8 million during the twelve months ended March 31, 2026.

This increase included receivables added as part of the Mercury acquisition which totaled $3,078.7 million as of March 31, 2026.

Our general purpose credit card receivables grew by $3,457.6 million during the twelve months ended June 30, 2026.

This increase included receivables added as part of the Mercury acquisition which totaled $3,054.3 million as of June 30, 2026.

Some of our larger merchant partners have expanded their relationships with us and our bank partner, which resulted in an increased flow of acquired receivables.

While we currently expect continued period-over-period quarterly growth in our general purpose credit card receivables, we expect purchases associated with the above mentioned retail partner to moderate, resulting in modest increases in expected period-over-period retail receivables.

While we currently expect continued period-over-period quarterly growth in our general purpose credit card receivables (muted slightly by declines noted in our acquired Mercury portfolio), we expect purchases associated with the above mentioned retail partner to moderate, resulting in modest increases in expected period-over-period retail receivables.

Growth in future periods receivables 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 83.6% of our private label credit receivables outstanding as of March 31, 2026.

Our top five retail partnerships accounted for 85.3% of our private label credit receivables outstanding as of June 30, 2026.

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.

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Receivables added as part of the Mercury acquisition in the third quarter of 2025 have lower overall delinquency rates (and lower associated yields) than those of our existing portfolios.

The addition of these receivables resulted in a lower combined delinquency rate as of December 31, 2025 and the first quarter of 2026.

As we continue to acquire newer private label credit and general purpose credit card receivables, we expect our delinquency rates to marginally increase when compared to the same periods in prior years due to a planned shift in our general purpose and private label credit receivables originated as our bank partners continue to expand product offerings to a broader range of consumers.

The addition of these receivables resulted in a lower combined delinquency rate for all quarters in 2026 when compared to corresponding periods in 2025.

As we continue to acquire newer private label credit and general purpose credit card receivables, we expect our delinquency rates to marginally increase due to a planned shift in our general purpose and private label credit receivables originated as our bank partners continue to expand product offerings to a broader range of consumers.

This expected increase in delinquencies will be accompanied by higher yielding assets, which we believe will result in a more profitable asset overall.

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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, a trend which continued in the first quarter of 2026.

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.

Our beliefs for future delinquency rates are predicated on the assumption that the slowing rate of inflation will continue and prove effective at reducing account delinquencies.

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As previously discussed, these receivables are expected to have lower overall yields (thus negatively impacting our Total managed yield ratio), but also lower principal and finance charge-offs resulting in a similarly profitable asset.

We experienced in the first of quarter of 2026, and expect to continue to experience for the remainder of 2026, increases in the rates of acquisition of our general purpose credit card receivables relative to private label credit receivables and higher associated period-over-period operating revenue and other income for 2026 although the timing of these acquisitions and impact of the Mercury acquisition could result in some fluctuations of our Total managed yield ratio, annualized when comparing quarterly rates in 2026 to corresponding quarterly periods in 2025.

We experienced for the first and second quarters of 2026, and expect to continue to experience for the remainder of 2026, higher rates of acquisition of our general purpose credit card receivables relative to private label credit receivables.

When coupled with these increased acquisitions, we expect higher associated period-over-period operating revenue and other income for 2026 although the timing of these acquisitions and impact of the Mercury acquisition could result in some fluctuations of our Total managed yield ratio, annualized when comparing quarterly rates in 2026 to corresponding quarterly periods in 2025.

Combined principal net charge-off ratio, annualized.

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The significant improvement noted in the third quarter of 2025 was largely due to the addition of receivables associated with the Mercury acquisition which have lower delinquencies and principal charge-offs than our existing portfolios of receivables.

This improvement continued in the fourth quarter of 2025 and in the first quarter of 2026.

This improvement continued in the fourth quarter of 2025 and in the first and second quarters of 2026.

We expect to see continued year-over-year improvements in our Combined principal net charge-off ratio, annualized for 2026, assisted by higher expected growth in the third and fourth quarters of 2026 in our general purpose credit cards which will improve ratios in those periods as the receivables associated with these newer consumers will not have seasoned through peak charge off periods.

We expect our recent overall combined principal net charge-off ratios to continue to marginally improve 2026.

We expect our recent overall combined principal net charge-off ratios to continue to marginally improve in 2026.

These charge-off rates are expected to return to historically normalized levels, adjusted for the change in mix of acquired receivables 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.

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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.

Private label credit receivable acquisitions in the first quarter of 2026 were similar to those in the same period of 2025.

As discussed above, we expect some retail partner programs to moderate in the second and third quarters of 2026 which will result in slower receivable acquisitions during those periods, when compared to the same periods in 2025.

Private label credit receivable acquisitions in the first quarter of 2026 were similar to those in the third quarter of 2025.

As discussed above, we expect some retail partner programs to moderate in the third quarter of 2026 which will result in slower receivable acquisitions during that period, when compared to the same period in 2025.

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.

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We noted typical seasonal declines in managed receivables in the first quarter of 2026 resulting from expected increases in payment rates associated with tax refunds for many consumers.

We expect modest growth in the level of our managed receivables for 2026 as CAR continues to rebuild its receivables base, expands within its current geographic footprint and continues plans for service area expansion.

While receivable levels continued to decline in the second quarter due to slower sales at dealer locations, we expect modest growth in the level of our managed receivables for 2026 as CAR continues to rebuild its receivables base, 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.

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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 March 31, 2026 are those associated with the following notes payable and senior notes in the amounts indicated (in millions):

Revolving credit facility (expiring July 20, 2026) that is secured by certain receivables and restricted cash

Facilities that could represent near-term and longer-term refunding or refinancing needs as of June 30, 2026 are those associated with the following notes payable and senior notes in the amounts indicated (in millions):

Revolving credit facility (expiring October 2026) that is secured by certain receivables and restricted cash

2026 Senior notes

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The 2026 Senior Notes will mature on November 30, 2026.

We repurchased $8.1 million of the outstanding principal amount of these 2026 Senior Notes in the three months ended March 31, 2026.

We repurchased $5.5 million and $13.6 million of the outstanding principal amount of these 2026 Senior Notes in the three and six months ended June 30, 2026.

There were no repurchases for the same period in 2025.

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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 months ended March 31, 2026 and 2025, we sold 515 shares and 13,661 shares, respectively, of our Series B preferred stock under our Preferred Stock ATM Program for net proceeds of $0.0 million and $0.3 million, respectively.

During the three months ended March 31, 2026 and 2025, no 2026 Senior Notes were sold under the Company's Preferred Stock ATM Program.

During the three months ended March 31, 2026 and 2025, we sold $0.5 million and $17.7 million, respectively, principal amount of our 2029 Senior Notes under our Preferred Stock ATM Program for net proceeds of $0.5 million and $17.4 million, respectively.

During the three months ended March 31, 2026 and 2025, we sold 0 common shares and 200,000 common shares, respectively, under the Company’s Common Stock ATM Program for net proceeds of $0.0 million and $11.6 million, respectively.

During the three and six months ended June 30, 2026 and 2025, we sold 0 shares, 515 shares, 142,603 shares and 156,264 shares, respectively, of our Series B preferred stock under our Preferred Stock ATM Program for net proceeds of $0.0, $0.0, $3.2 million and $3.5 million, respectively.

During the three and six months ended June 30, 2026 and 2025, no 2026 Senior Notes were sold under the Company's Preferred Stock ATM Program.

During the three and six months ended June 30, 2026 and 2025, we sold $3.9 million, $4.4 million, $8.1 million and $25.8 million, respectively, principal amount of our 2029 Senior Notes under our Preferred Stock ATM Program for net proceeds of $3.8 million, $4.3 million, $7.9 million and $25.3 million, respectively.

During the six months ended June 30, 2025, we sold 200,000 common shares under the Company’s Common Stock ATM Program for net proceeds of $11.6 million.

No shares were sold under the Company's Common Stock ATM Program for the three and six months ended June 30, 2026 or for the three months ended June 30, 2025.

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").

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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.

At March 31, 2026, we had $651.1 million in cash held by our various business subsidiaries.

At June 30, 2026, we had $645.2 million in cash held by our various business subsidiaries.

Because the characteristics of our assets and liabilities change, liquidity management is a dynamic process for us, driven by the pricing and maturity of our assets and liabilities.

We historically have financed our business through cash flows from operations, asset-backed structured financings and the issuance of debt and equity.

Details concerning our cash flows for the three months ended March 31, 2026 and 2025 are as follows:

During the three months ended March 31, 2026, we generated $286.3 million of cash flows from operations compared to our generation of $131.6 million of cash flows from operations during the three months ended March 31, 2025.

While payment rates for our consumers stayed consistent period-over-period, 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.

Details concerning our cash flows for the six months ended June 30, 2026 and 2025 are as follows:

During the six months ended June 30, 2026, we generated $563.3 million of cash flows from operations compared to our generation of $264.3 million of cash flows from operations during the six months ended June 30, 2025.

Most of this change was due to growth in the underlying receivables (and collections thereon) along with higher yielding receivables effectively increasing the minimum payment amounts required by consumers.

During the three months ended March 31, 2026, we used $51.2 million of cash in our investing activities, compared to the use of $114.9 million of cash from investing activities during the three months ended March 31, 2025.

For the three months ended March 31, 2026, we purchased $1,363.7 million in private label and general purpose credit card receivables compared to $620.9 million for the three months ended March 31, 2025.

Offsetting these purchases were collections of $1,291.5 million and $496.2 million for the three months ended March 31, 2026 and 2025, respectively.

During the six months ended June 30, 2026, we used $420.4 million of cash in our investing activities, compared to the use of $520.4 million of cash from investing activities during the six months ended June 30, 2025.

This decrease in cash used is primarily due to marginal decreases in the level of net investments in private label credit and general purpose credit card receivables relative to the same period in 2025, together with a reduction in property and equipment purchases from $4.8 million in the prior-year period to $0.3 million in the current-year period.

For the six months ended June 30, 2026, we purchased $3,059.1 million in private label and general purpose credit card receivables compared to $1,549.7 million for the six months ended June 30, 2025.

Offsetting these purchases were collections of $2,588.6 million and $1,001.9 million for the six months ended June 30, 2026 and 2025, respectively.

As we continue to grow our receivables base, we would expect for purchases of new receivables to outpace payments thereon throughout 2026.

During the three months ended March 31, 2026, we used $198.5 million of cash in financing activities, compared to our use of $54.9 million of cash from financing activities during the three months ended March 31, 2025.

The increase in cash used in financing activities is primarily due to repayments of borrowings in excess of new borrowings (proceeds from borrowings less repayment of borrowings) of $193.2 million.

Offsetting this increase in use of cash were redemptions of the remaining 50.0 million of Class B preferred units at $1.00 per unit plus accrued but unpaid interest thereon in March 2025.

During the six months ended June 30, 2026, we used $265.1 million of cash in financing activities, compared to generating $239.8 million of cash from financing activities during the six months ended June 30, 2025.

The increase in cash used in financing activities is primarily due to net repayments of borrowings in excess of new borrowings (proceeds from borrowings less repayment of borrowings) of $264.5 million compared to borrowings, in excess of repayments, of $259.9 million during the same period in 2025.

Offsetting net cash generated in 2025 was the redemption of the remaining $50.0 million of Class B preferred units at $1.00 per unit plus accrued but unpaid interest thereon in March 2025.

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.

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

Under the sublease, HBR paid us $0.1 million for both 2025 and 2024.

The aggregate amount of payments required under the sublease from January 1, 2026 to the expiration of the sublease in May 2027 is $144,000.

Under the sublease, HBR paid us $50,000 for the six months ending June 30, 2026 and 2025, respectively.

The aggregate amount of payments required under the sublease from July 1, 2026 to the expiration of the sublease in May 2027 is $94,000.

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 three months ended March 31, 2026 and 2025, we received $0.2 million and $0.2 million, respectively, of reimbursed costs from HBR associated with these leased employees.

In the six months ended June 30, 2026 and 2025, we received $0.4 million and $0.4 million, respectively, of reimbursed costs from HBR associated with these leased employees.

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

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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 use of large language models; changes in the credit quality and fair value of our credit card receivables, interest and fees receivable and the fair value of their underlying structured financing facilities; the impact of actions by the Federal Deposit Insurance Corporation ("FDIC"), Federal Reserve Board, Federal Trade Commission ("FTC"), Consumer Financial Protection Bureau ("CFPB") and other regulators on both us, banks that issue credit cards and other credit products on our behalf, and merchants that participate in our retail and healthcare private label credit operations; account growth; the performance of investments that we have made, 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.

Statements with respect to the macroeconomic environment; monetary policy by the Federal Reserve; earnings growth;

returns on equity;

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 use of large language models; changes in the credit quality and fair value of our credit card receivables, interest and fees receivable and the fair value of their underlying structured financing facilities; the impact of actions by the Federal Deposit Insurance Corporation ("FDIC"), Federal Reserve Board, Federal Trade Commission ("FTC"), Consumer Financial Protection Bureau ("CFPB") and other regulators on both us, banks that issue credit cards and other credit products on our behalf, and merchants that participate in our retail and healthcare private label credit operations; account growth; the performance of investments that we have made, including in technology; operating expenses; marketing plans and expenses; the performance of our Auto Finance segment; the impact of our credit card receivables on our financial performance; the sufficiency of available capital; future interest costs; sources of funding operations and acquisitions; growth and profitability of our private label credit operations; our ability to raise funds or renew financing facilities; share repurchases, share issuances or dividends; debt retirement; our servicing income levels; gains and losses from investments in securities; experimentation with new products; and other statements of our plans, beliefs or expectations are forward-looking statements.

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.

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

impacts due to delays or interruptions associated with ongoing system conversions;

the adequacy of our allowance for credit losses and estimates of loan losses used within our risk management and analyses;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis