What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-01 compared with 2022-05-02 · 189 added, 61 removed, 330 unchanged (43% of the section changed)

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and from sales to customers responding to advertisements for our financing programs, but who actually end up qualifying for traditional financing.

For the three months ended March 31, 2022, consolidated net income w as $214.3 million, or $14.94 per di luted share, compared to consolidated net income of $202.1 million, or $11.82 per diluted share, for the same period in 2021 primarily due to a decrease in operating expenses, a decrease in interest expense and an increase in other income.

Our results for the three months ended March 31, 2022 included:

• An increase in forecasted collection rates for Consumer Loans assigned in 2016, 2017 and 2019 through 2021, which increased forecasted net cash flows from our loan portfolio by $110.2 million.

For the three months ended June 30, 2022, consolidated net income was $107.4 million, or $7.94 per diluted share, compared to consolidated net income of $288.6 million, or $17.18 per diluted share, for the same period in 2021, primarily due to increases in provision for credit losses and operating expenses and a decrease in finance charges.

Our results for the three months ended June 30, 2022 included:

• A decrease in forecasted collection rates for Consumer Loans assigned in 2020 through 2022, which decreased forecasted net cash flows from our Loan portfolio by $43.4 million.

• Forecasted profitability per Consumer Loan assignment that has significantly exceeded our initial estimates for Consumer Loans assigned in 2018 through 2021.

• A decline in Consumer Loan assignment volume, as unit and dollar volumes declined 22.1% and 10.5%, respectively, as compared to the first quarter of 2021.

• Growth in Consumer Loan assignment volume, as unit and dollar volumes grew 5.1% and 22.0%, respectively, as compared to the second quarter of 2021.

• Stock repurchases of approximately 404,000 shares, which represented 3.0% of the shares outstanding at the beginning of the quarter.

• A $12.0 million expense related to an agreement in principle to settle a previously-disclosed putative class action lawsuit, and a $20.0 million increase in stock-based compensation expense primarily due to the retirement of our former Chief Executive Officer in May 2021 and the timing of shareholder approval for 2020 and 2021 stock option grants.

For the six months ended June 30, 2022, consolidated net income was $321.7 million, or $23.10 per diluted share, compared to consolidated net income of $490.7 million, or $28.96 per diluted share, for the same period in 2021, primarily due to increases in provision for credit losses and operating expenses and a decrease in finance charges.

Our results for the six months ended June 30, 2022 included:

• An increase in forecasted collection rates for Consumer Loans assigned in 2014, 2016, 2017 and 2019 through 2021 and a decrease in forecasted collection rates for Consumer Loans assigned in 2022, which increased forecasted net cash flows from our Loan portfolio by $66.8 million.

• Forecasted profitability per Consumer Loan assignment that has significantly exceeded our initial estimates for Consumer Loans assigned in 2018 through 2021.

• A decline in Consumer Loan assignment unit volume of 10.5%, while dollar volume grew 3.7%, as compared to the same period in 2021.

• Stock repurchases of approximately 1.2 million shares, which represented 8.5% of the shares outstanding at the beginning of the year.

• A $12.0 million expense compared to a $27.2 million expense in the prior year related to previously-disclosed legal matters, and a $28.0 million increase in stock-based compensation expense primarily due to the retirement of our former Chief Executive Officer in May 2021 and the timing of shareholder approval for 2020 and 2021 stock option grants.

Critical Success Factors

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By comparing our current expected collection rate for each Consumer Loan with the rate we projected at the time of assignment, we are able to assess the accuracy of our initial forecast.

The following table compares our forecast of Consumer Loan collection rates as of March 31, 2022 with the forecasts as of December 31, 2021 and at the time of assignment, segmented by year of assignment:

The following table compares our forecast of Consumer Loan collection rates as of June 30, 2022 with the forecasts as of March 31, 2022, as of December 31, 2021 and at the time of assignment, segmented by year of assignment:

Forecasted Collection Percentage as of (1) Current Forecast Variance from

Consumer Loan Assignment Year March 31, 2022 December 31, 2021 Initial Forecast December 31, 2021 Initial Forecast

Consumer Loan Assignment Year June 30, 2022 March 31, 2022 December 31, 2021 Initial Forecast March 31, 2022 December 31, 2021 Initial Forecast

2013 73.4 % 73.4 % 73.4 % 72.0 % 0.0 % 0.0 % 1.4 %

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Forecasted collection rates are negatively impacted by canceled Consumer Loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates in the table.

(2) The forecasted collection rate for 2022 Consumer Loans as of June 30, 2022 includes both Consumer Loans that were in our portfolio as of March 31, 2022 and Consumer Loans assigned during the most recent quarter.

The following table provides forecasted collection rates for each of these segments:

Forecasted Collection Percentage as of Current Forecast Variance from

2022 Consumer Loan Assignment Period June 30, 2022 March 31, 2022 Initial Forecast March 31, 2022 Initial Forecast

January 1, 2022 through March 31, 2022 66.4 % 66.9 % 67.2 % -0.5 % -0.8 %

April 1, 2022 through June 30, 2022 67.8 % — 68.0 % — -0.2 %

Consumer Loans assigned in 2013 and 2018 through 2021 have yielded forecasted collection results significantly better than our initial estimates, while Consumer Loans assigned in 2015 and 2016 have yielded forecasted collection results significantly worse than our initial estimates.

For all other assignment years presented, actual results have been close to our initial estimates.

For the three months ended March 31, 2022, forecasted collection rates improved for Consumer Loans assigned in 2016, 2017 and 2019 through 2021 and were generally consistent with expectations at the start of the period for all other assignment years presented.

The changes in forecasted collection rates for the three months ended March 31, 2022 and 2021 impacted forecasted net cash flows (forecasted collections less forecasted Dealer Holdback payments) as follows:

(In millions) For the Three Months Ended March 31,

Increase in Forecasted Net Cash Flows 2022 2021

For the three months ended June 30, 2022, forecasted collection rates declined for Consumer Loans assigned in 2020 through 2022 and were generally consistent with expectations at the start of the period for all other assignment years presented.

For the six months ended June 30, 2022, forecasted collection rates improved for Consumer Loans assigned in 2014, 2016, 2017 and 2019 through 2021, declined for Consumer Loans assigned in 2022, and were generally consistent with expectations at the start of the period for all other assignment years presented.

The changes in forecasted collection rates for the three and six months ended June 30, 2022 and 2021 impacted forecasted net cash flows (forecasted collections less forecasted Dealer Holdback payments) as follows:

(In millions) For the Three Months Ended June 30, For the Six Months Ended June 30,

Increase (Decrease) in Forecasted Net Cash Flows 2022 2021 2022 2021

Dealer Loans $ (14.0) $ 32.9 $ 19.9 $ 59.6

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Under CECL, changes in the amount and timing of forecasted net cash flows are recorded as a provision for credit losses in the period of change.

The removal of the COVID forecast adjustment and the implementation of the enhanced forecasting methodology impacted forecasted net cash flows and provision for credit losses as follows:

The removal of the COVID forecast adjustment and the implementation of the enhanced forecasting methodology during the first quarter of 2022 impacted forecasted net cash flows and provision for credit losses as follows:

(In millions) Increase / (Decrease) in

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Payments of Dealer Holdback and accelerated Dealer Holdback are not included.

(3) The averages for 2022 Consumer Loans include both Consumer Loans that were in our portfolio as of March 31, 2022 and Consumer Loans assigned

during the most recent quarter.

The following table provides averages for each of these segments:

2022 Consumer Loan Assignment Period Consumer Loan Advance Initial Loan Term (in months)

January 1, 2022 through March 31, 2022 $ 26,504 $ 12,677 58

April 1, 2022 through June 30, 2022 27,731 13,312 60

Forecasting collection rates accurately at Loan inception is difficult.

With this in mind, we establish advance rates that are intended to allow us to achieve acceptable levels of profitability, even if collection rates are less than we initially forecast.

The following table presents forecasted Consumer Loan collection rates, advance rates, the spread (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of March 31, 2022.

All amounts, unless otherwise noted, are presented as a percentage of the initial balance of the Consumer Loan (principal + interest).

The table includes both Dealer Loans and Purchased Loans.

As of March 31, 2022

As of June 30, 2022

Consumer Loan Assignment Year Forecasted Collection % Advance % (1) Spread % % of Forecast Realized (2)

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(2) Presented as a percentage of total forecasted collections.

(3) The forecasted collection rate, advance rate and spread for 2022 Consumer Loans as of June 30, 2022 include both Consumer Loans that were in our portfolio as of March 31, 2022 and Consumer Loans assigned during the most recent quarter.

The following table provides forecasted collection rates, advance rates, and spreads for each of these segments:

As of June 30, 2022

2022 Consumer Loan Assignment Period Forecasted

Collection % Advance % Spread %

January 1, 2022 through March 31, 2022 66.4 % 47.8 % 18.6 %

April 1, 2022 through June 30, 2022 67.8 % 48.0 % 19.8 %

The risk of a material change in our forecasted collection rate declines as the Consumer Loans age.

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The spread between the forecasted collection rate and the advance rate has ranged from 19.2% to 25.8%, on an annual basis, over the last 10 years.

The spreads in 2019 through 2021 were positively impacted by Consumer Loan performance, which has exceeded our initial estimates by a greater margin than the other years presented.

The decrease in the spread from 2021 to 2022 was primarily due to the performance of 2021 Consumer Loans, which has significantly exceeded our initial estimates, and a lower initial spread on 2022 Consumer Loans due to the advance rate increasing by a greater margin than the initial forecast.

The following table compares our forecast of Consumer Loan collection rates as of March 31, 2022 with the forecasts at the time of assignment, for Dealer Loans and Purchased Loans separately:

The spreads in 2019 and 2020 were positively impacted by Consumer Loan performance, which has exceeded our initial estimates by a greater margin than the other years presented.

The decrease in the spread from 2021 to 2022 was primarily due to Consumer Loan performance, as the performance of 2021 Consumer Loans has significantly exceeded our initial estimates while the performance of 2022 Consumer Loans has been lower than our initial estimates, and a lower initial spread on 2022 Consumer Loans due to the advance rate increasing by a greater margin than the initial forecast.

The following table compares our forecast of Consumer Loan collection rates as of June 30, 2022 with the forecasts at the time of assignment, for Dealer Loans and Purchased Loans separately:

Dealer Loans Purchased Loans

Forecasted Collection Percentage as of (1) Forecasted Collection Percentage as of (1)

Consumer Loan Assignment Year March 31, 2022 Initial

Forecast Variance March 31, 2022 Initial

Consumer Loan Assignment Year June 30, 2022 Initial

Forecast Variance June 30, 2022 Initial

Forecast Variance

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The following table presents forecasted Consumer Loan collection rates, advance rates, and the spread (the forecasted collection rate less the advance rate) as of March 31, 2022 for Dealer Loans and Purchased Loans separately.

The following table presents forecasted Consumer Loan collection rates, advance rates, and the spread (the forecasted collection rate less the advance rate) as of June 30, 2022 for Dealer Loans and Purchased Loans separately.

All amounts are presented as a percentage of the initial balance of the Consumer Loan (principal + interest).

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Although the advance rate on Purchased Loans is higher as compared to the advance rate on Dealer Loans, Purchased Loans do not require us to pay Dealer Holdback.

The spread on Dealer Loans decreased from 23.1% in 2021 to 20.0% in 2022 primarily as a result of the performance of the 2021 Consumer Loans in our Dealer Loan portfolio, which has significantly exceeded our initial estimates, and a lower initial spread on 2022 Consumer Loans in our Dealer Loan portfolio, due to the advance rate increasing by a greater margin than the initial forecast in our Dealer Loan portfolio.

The spread on Dealer Loans decreased from 22.3% in 2021 to 19.9% in 2022 primarily as a result of Consumer Loan performance, as the performance of 2021 Consumer Loans in our Dealer Loan portfolio has significantly exceeded our initial estimates while the performance of 2022 Consumer Loans in our Dealer Loan portfolio has been lower than our initial estimates, and a lower initial spread on 2022 Consumer Loans in our Dealer Loan portfolio, due to the advance rate increasing by a greater margin than the initial forecast in our Dealer Loan portfolio.

The spread on Purchased Loans decreased from 20.3% in 2021 to 17.3% in 2022 primarily as a result of the performance of the 2021 Consumer Loans in our Purchased Loan portfolio, which has significantly exceeded our initial estimates, and a lower initial spread on 2022 Consumer Loans in our Purchased Loan portfolio, due to the advance rate increasing by a greater margin than the initial forecast in our Purchased Loan portfolio.

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and (3) maintain multiple funding sources.

Our funded debt to equity ratio was 2.9 to 1 as of March 31, 2022.

Our funded debt to equity ratio was 3.2 to 1 as of June 30, 2022.

We currently utilize the following primary forms of debt financing:

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Consumer Loan Volume

The following table summarizes changes in Consumer Loan assignment volume in each of the last five quarters as compared to the same period in the previous year:

The following table summarizes changes in Consumer Loan assignment volume in each of the last six quarters as compared to the same period in the previous year:

Year over Year Percent Change

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March 31, 2022 -22.1 % -10.5 %

June 30, 2022 5.1 % 22.0 %

(1) Represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program.

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Our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of capital and infrastructure constraints.

Unit and dollar volumes declined 22.1% and 10.5%, respectively, during the first quarter of 2022 as the number of active Dealers declined 9.4% and the average unit volume per active Dealer declined 14.6%.

We believe the significant decline in unit volume over the last four quarters was primarily due to low dealer inventories and elevated used vehicle prices, which we believe are primarily due to the downstream impact of supply chain disruptions in the automotive industry.

In addition, unit volume during the first four months of 2021 reflected the impact of the distribution of federal stimulus payments during that period.

Unit volume for April 2022 declined 13.8% compared to unit volume for April 2021, with the year-over-year change in unit volume improving significantly throughout the month.

Should recent trends continue for the remainder of 2022, we expect that the year-over-year change in unit volume would improve from April 2022, as the comparable 2021 period reflected a significant decline in unit volume.

Dollar volume declined less than unit volume during the first quarter of 2022 due to an increase in the average advance paid per unit.

Unit and dollar volumes grew 5.1% and 22.0%, respectively, during the second quarter of 2022 as the number of active Dealers grew 1.9% and the average unit volume per active Dealer grew 2.4% .

Unit volume for July 2022 grew 19.3% compared to unit volume for July 2021.

The comparable 2021 periods reflected significant declines in unit volume, which we believe were primarily due to low dealer inventories and elevated used vehicle prices, which we believe were primarily due to the downstream impact of supply chain disruptions in the automotive industry.

We believe low dealer inventories and elevated used car prices continue to have a negative impact on unit volumes.

Dollar volume grew more than unit volume during the second quarter of 2022 due to an increase in the average advance paid per unit.

This increase was the result of increases in both the average size of the Consumer Loans assigned, primarily due to an increase in the average vehicle selling price, and the average advance rate.

The following table summarizes the changes in Consumer Loan unit volume and active Dealers:

For the Three Months Ended March 31,

2022 2021 % Change

For the Three Months Ended June 30, For the Six Months Ended June 30,

2022 2021 % Change 2022 2021 % Change

Consumer Loan unit volume 73,340 69,809 5.1 % 146,456 163,683 -10.5 %

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The following table provides additional information on the changes in Consumer Loan unit volume and active Dealers:

For the Three Months Ended March 31,

2022 2021 % Change

For the Three Months Ended June 30, For the Six Months Ended June 30,

2022 2021 % Change 2022 2021 % Change

Consumer Loan unit volume from new active Dealers

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decrease in Consumer Loan unit volume from Dealers who have received funding for at least one Loan during the comparable period of the prior year but did not receive funding for any Loans during the current period divided by prior year comparable period Consumer Loan unit volume.

The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last five quarters:

The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last six quarters:

Unit Volume Dollar Volume (1)

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March 31, 2022 72.7 % 27.3 % 68.6 % 31.4 %

June 30, 2022 74.0 % 26.0 % 70.4 % 29.6 %

(1) Represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program.

Payments of Dealer Holdback and accelerated Dealer Holdback are not included.

As of March 31, 2022 and December 31, 2021, the net Dealer Loans receivable balance was 62.0% and 61.3% , respectively, of the total net Loans receivable balance.

As of June 30, 2022 and December 31, 2021, the net Dealer Loans receivable balance was 63.1% and 61.3% , respectively, of the total net Loans receivable balance.

Results of Operations

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For additional information, see Note 3 and Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Form 10-Q, which is incorporated herein by reference.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The following is a discussion of our results of operations and income statement data on a consolidated basis.

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The decrease of $19.8 million, or 4.4%, was the result of a decrease in the average net Loans receivable balance, partially offset by an increase in the average yield on our Loan portfolio, as follows:

(Dollars in millions) For the Three Months Ended March 31,

(Dollars in millions) For the Three Months Ended June 30,

2022 2021 Change

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Average yield on our Loan portfolio 26.9 % 26.0 % 0.9 %

The following table summarizes the impact each component had on the overall increase in finance charges for the three months ended March 31, 2022:

The following table summarizes the impact each component had on the overall decrease in finance charges for the three months ended June 30, 2022:

(In millions) Year over Year Change

Impact on finance charges:

For the Three Months Ended March 31, 2022

For the Three Months Ended June 30, 2022

Due to an increase in the average yield $ 14.5

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The decrease in the average net Loans receivable balance was primarily due to the principal collected on Loans receivable exceeding the dollar volume of new Consumer Loan assignments.

The average yield on our Loan portfolio for the three months ended March 31, 2022 increased as compared to the same period in 2021 primarily due to the adoption of CECL on January 1, 2020, which requires us to recognize finance charges on new Consumer Loan assignments using effective interest rates based on contractual future net cash flows, which are significantly in excess of our expected yields.

The average yield on our Loan portfolio for the three months ended June 30, 2022 increased as compared to the same period in 2021 primarily due to the adoption of CECL on January 1, 2020, which requires us to recognize finance charges on new Consumer Loan assignments using effective interest rates based on contractual future net cash flows, which are significantly in excess of our expected yields.

Other Income .

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Operating Expenses.

Th e decrease of $10.1 million, or 9.0%, was primarily due to:

• A decrease in general and administrative expense of $27.2 million, or 59.0%, primarily due to a decrease in legal expenses.

Legal expenses for the three months ended March 31, 2021 included a $27.2 million settlement with the Commonwealth of Massachusetts to settle and fully resolve the claims asserted against the Company.

The increase of $46.5 million, or 66.2%, was primarily due to:

• An increase in salaries and wages expense of $27.0 million, or 70.3%, primarily due to:

• An increase of $8.0 million in stock-based compensation expense, primarily related to stock options.

• An increase of $20.0 million in stock-based compensation expense, primarily due to:

• An $11.5 million reversal of expense during the second quarter of 2021 due to the forfeiture of unvested restricted stock and restricted stock units upon the retirement of our former Chief Executive Officer in May 2021.

• An increase of $8.5 million primarily related to stock options.

From December 2020 through June 2021, we granted stock options, subject to shareholder approval of an amendment to our incentive compensation plan.

Because stock-based awards subject to shareholder approval are not considered granted for accounting purposes until that approval is received, no stock-based compensation expense could be recognized with respect to those stock options until we received shareholder approval at the annual meeting on July 21, 2021.

• An increase of $7.1 million, excluding stock-based compensation expense and cash-based incentive compensation expense, primarily related to increases of $3.3 million for our servicing function and $3.1 million for our support function.

• An increase of $7.0 million, excluding stock-based compensation expense, primarily related to an increase in the number of team members in our technology department.

• An increase in general and administrative expense of $15.4 million, or 91.1%, primarily due to an increase in legal expenses, which included the recognition of a $12.0 million contingent loss during the second quarter of 2022 related to the Company reaching an agreement in principle to settle a previously-disclosed putative class action lawsuit.

Provision for Credit Losses .

The increase of $2.0 million, or 9.4%, was due to a smaller reversal of provision for credit losses on forecast changes, partially offset by a decrease in provision for credit losses on new Consumer Loan assignments.

The increase of $178.0 million, or 583.6%, was primarily due to an increase in provision for credit losses on forecast changes.

We recognize provision for credit losses on new Consumer Loan assignments for contractual net cash flows that are not expected to be realized at the time of assignment.

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The following table summarizes the provision for credit losses for each of these components:

(In millions) For the Three Months Ended March 31,

(In millions) For the Three Months Ended June 30,

Provision for Credit Losses 2022 2021 Change

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Total $ 147.5 $ (30.5) $ 178.0

The smaller reversal of provision for credit losses related to forecast changes was primarily due to changes in the estimated timing of future net cash flows.

During the first quarters of 2022 and 2021, we increased our estimate of future net cash flows by $110.2 million and $107.4 million, respectively, to reflect improvements in Consumer Loan performance during the periods.

The results for the first quarter of 2022 include the impact of forecasting methodology changes, which increased our estimate of future net cash flows by $95.7 million and reduced our provision for credit losses by $70.6 million.

The forecasting methodology changes included the removal of the COVID forecast adjustment from our estimate of future net cash flows and an enhancement to our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent data and new forecast variables.

For additional information, see Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Form 10-Q, which is incorporated herein by reference.

The decrease in provision for credit losses related to new Consumer Loan assignments was due to a 22.1% decrease in Consumer Loan assignment unit volume, and a decrease in the average provision for credit losses per Consumer Loan assignment primarily due to a higher initial forecast on 2022 Consumer Loan assignments.

T he increase in provision for credit losses related to forecast changes was primarily due to a decline in Consumer Loan performance during the second quarter of 2022 compared to an improvement in Consumer Loan performance during the second quarter of 2021.

During the second quarter of 2022, we reduced our estimate of future net cash flows by $43.4 million to reflect a decline in Consumer Loan performance during the period.

During the second quarter of 2021, we increased our estimate of future net cash flows by $104.5 million to reflect an improvement in Consumer Loan performance during the period.

The increase in provision for credit losses related to new Consumer Loan assignments was primarily due to a 5.1% increase in Consumer Loan assignment unit volume.

The decrease of $3.1 million, or 7.4%, was primarily due to a decrease in our average cost of debt, as follows:

(Dollars in millions) For the Three Months Ended March 31,

(Dollars in millions) For the Three Months Ended June 30,

2022 2021 Change

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Provision for Income Taxes .

For the three months ended March 31, 2022, the effective income tax rate increased to 24.7% from 23.5% for the three months ended March 31, 2021.

The increase was primarily due to an increase in non-deductible executive compensation expenses and higher effective tax rates in certain state tax jurisdictions.

For the three months ended June 30, 2022, the effective income tax rate increased to 24.4% from 24.0% for the three months ended June 30, 2021.

The increase was primarily due to an increase in non-deductible executive compensation expenses.

For additional information, see Note 11 to the consolidated financial statements contained in Part I - Item 1 of this Form 10-Q, which is incorporated herein by reference.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The following is a discussion of our results of operations and income statement data on a consolidated basis.

(Dollars in millions, except per share data) For the Six Months Ended

2022 2021 $ Change % Change

Finance charges $ 849.7 $ 870.3 $ (20.6) -2.4 %

Premiums earned 29.2 30.2 (1.0) -3.3 %

Other income 34.2 22.2 12.0 54.1 %

Total revenue 913.1 922.7 (9.6) -1.0 %

Costs and expenses:

Salaries and wages (1) 129.8 87.7 42.1 48.0 %

General and administrative (1) 51.2 63.0 (11.8) -18.7 %

Sales and marketing (1) 38.2 32.1 6.1 19.0 %

Provision for credit losses 170.8 (9.2) 180.0 -1,956.5 %

Interest 75.4 85.8 (10.4) -12.1 %

Provision for claims 21.1 19.3 1.8 9.3 %

Total costs and expenses 486.5 278.7 207.8 74.6 %

Income before provision for income taxes 426.6 644.0 (217.4) -33.8 %

Provision for income taxes 104.9 153.3 (48.4) -31.6 %

Net income $ 321.7 $ 490.7 $ (169.0) -34.4 %

Net income per share:

Basic $ 23.23 $ 28.99 $ (5.76) -19.9 %

Diluted $ 23.10 $ 28.96 $ (5.86) -20.2 %

Weighted average shares outstanding:

Basic 13,849,711 16,924,014 (3,074,303) -18.2 %

Diluted 13,927,372 16,944,900 (3,017,528) -17.8 %

(1) Operating expenses $ 219.2 $ 182.8 $ 36.4 19.9 %

Finance Charges.

The decrease of $20.6 million, or 2.4%, was primarily the result of a decrease in the average net Loans receivable balance, partially offset by an increase in the average yield on our Loan portfolio, as follows:

(Dollars in millions) For the Six Months Ended June 30,

2022 2021 Change

Average net Loans receivable balance $ 6,317.7 $ 6,820.6 $ (502.9)

Average yield on our Loan portfolio 26.9 % 25.5 % 1.4 %

The following table summarizes the impact each component had on the overall decrease in finance charges for the six months ended June 30, 2022:

(In millions) Year over Year Change

Impact on finance charges:

For the Six Months Ended June 30, 2022

Due to an increase in the average yield $ 43.6

Due to a decrease in the average net Loans receivable balance (64.2)

Total decrease in finance charges $ (20.6)

The decrease in the average net Loans receivable balance was primarily due to the principal collected on Loans receivable exceeding the dollar volume of new Consumer Loan assignments.

The average yield on our Loan portfolio for the six months ended June 30, 2022 increased as compared to the same period in 2021 primarily due to the adoption of CECL on January 1, 2020, which requires us to recognize finance charges on new Consumer Loan assignments using effective interest rates based on contractual future net cash flows, which are significantly in excess of our expected yields.

Operating Expenses.

The increase of $36.4 million, or 19.9%, was primarily due to:

• An increase in salaries and wages expense of $42.1 million, or 48.0%, primari ly due to:

• An increase of $28.0 million in stock-based compensation expense, primarily related to:

• An increase of $17.0 million primarily related to stock options.

From December 2020 through June 2021, we granted stock options, subject to shareholder approval of an amendment to our incentive compensation plan.

• An increase of $14.1 million, excluding stock-based compensation expense, primarily related to increases of $9.7 million for our support function and $4.4 million for our servicing function.

The increase in our support function was primarily related to an increase in the number of team members in our technology department.

• A decrease in general and administrative expense of $11.8 million, or 18.7%, primarily due to a decrease in legal expenses.

Legal expenses for the six months ended June 30, 2022 included the recognition of a $12.0 million contingent loss related to the Company reaching an agreement in principle to settle a previously-disclosed putative class action lawsuit.

Legal expenses for the six months ended June 30, 2021 included a $27.2 million settlement with the Commonwealth of Massachusetts to settle and fully resolve the claims asserted against the Company.

Provision for Credit Losses .

The increase of $180.0 million, or 1,956.5%, was due to an increase in provision for credit losses on forecast changes, partially offset by a decrease in provision for credit losses on new Consumer Loan assignments.

We recognize provision for credit losses on new Consumer Loan assignments for contractual net cash flows that are not expected to be realized at the time of assignment.

We also recognize provision for credit losses on forecast changes in the amount and timing of expected future net cash flows subsequent to assignment.

The following table summarizes the provision for credit losses for each of these components:

(In millions) For the Six Months Ended June 30,

Provision for Credit Losses 2022 2021 Change

New Consumer Loan assignments $ 200.1 $ 223.4 $ (23.3)

Forecast changes (29.3) (232.6) 203.3

Total $ 170.8 $ (9.2) $ 180.0

The smaller reversal of provision for credit losses related to forecast changes was primarily due to a smaller improvement in Consumer Loan performance.

During the first six months of 2022 and 2021, we increased our estimate of future net cash flows by $66.8 million and $211.9 million, respectively, to reflect improvements in Consumer Loan performance during the periods.

The results for the first six months of 2022 include the impact of forecasting methodology changes implemented during the first quarter, which upon implementation increased our estimate of future net cash flows by $95.7 million and reduced our provision for credit losses by $70.6 million.

For additional information, see Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Form 10-Q, which is incorporated herein by reference.

The decrease in provision for credit losses related to new Consumer Loan assignments was primarily due to a 10.5% decrease in Consumer Loan assignment unit volume.

The decrease o f $10.4 million, or 12.1%, was primarily due to a decrease in our average cost of debt, as follows:

(Dollars in millions) For the Six Months Ended June 30,

2022 2021 Change

Interest expense $ 75.4 $ 85.8 $ (10.4)

Average outstanding debt principal balance (1) 4,704.8 4,755.7 (50.9)

Average cost of debt 3.2 % 3.6 % -0.4 %

(1) Includes the unamortized debt discount and excludes deferred debt issuance costs.

The decrease in our average cost of debt was primarily the result of lower interest rates on recently-completed secured financings.

Provision for Income Taxes.

For the six months ended June 30, 2022, our effective income tax rate increased to 24.6% from 23.8% for the six months ended June 30, 2021.

The increase was primarily due to an increase in non-deductible executive compensation expenses.

For additional information, see Note 11 to the consolidated financial statements contained in Part I - Item 1 of this Form 10-Q, which i s incorporated herein by reference.

The COVID-19 pandemic had a significant impact on our work environment, as the vast majority of our team members began working remotely.

Because our remote operations and processes proved successful early on, we now pursue a “remote first” strategy to take advantage of the national talent pool and an increased rate of team member satisfaction.

While remote work has become the primary experience for most of our team members, we do have team members that, due to their personal preference or the nature of their responsibilities, have continued to work primarily in one of our office properties.

Additionally, we have various on-site meetings, events and team building activities for which in-person attendance is encouraged.

Therefore, we believe we will always have a need for some amount of office space.

As a result of the “remote first” strategy, we have excess space in the two office buildings that we own in Southfield, Michigan and the office space that we lease in Henderson, Nevada.

Our Henderson lease, which we will not renew, expires in December 2022.

We are currently considering options to further reduce our office space, which could result in the sale of one of our buildings.

As there is currently a significant amount of unoccupied office space in Southfield, we believe the market value of our buildings and improvements, land and land improvements, and office furniture and equipment is significantly less than their combined carrying value of $40.2 million.

If we were to reclassify one of these buildings as held for sale, we would be required to record an impairment charge to reduce the carrying value of the building held for sale to its estimated market value less costs to sell.

Liquidity and Capital Resources

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and (4) senior notes.

There are various restrictive covenants to which we are subject under each financing arrangement and we were in compliance with those covenants as of March 31, 2022.

There are various restrictive covenants to which we are subject under each financing arrangement and we were in compliance with those covenants as of June 30, 2022.

For information regarding these financings and the covenants included in the related documents, see Note 9 to the consolidated financial statements contained in Part I - Item 1 of this Form 10-Q, which is incorporated herein by reference.

Cash and cash equivalents as of March 31, 2022 and December 31, 2021 was $17.6 million and $23.3 million, respectively.

As of March 31, 2022 and December 31, 2021, we had $1,229.3 million and $1,532.4 million, respectively, in unused and available lines of credit.

Our total balance sheet indebtedness as of March 31, 2022 and December 31, 2021 was $4,739.0 million and $4,616.3 million, respectively.

A summary of our scheduled principal debt maturities as of March 31, 2022 is as follows:

On June 16, 2022, we completed a $350.0 million Term ABS financing, which was used to repay outstanding indebtedness and for general corporate purposes.

The financing has an expected annualized cost of approximately 5.4% (including the initial purchasers’ fees and other costs), and it will revolve for 24 months, after which it will amortize based upon the cash flows on the contributed Loans.

On June 16, 2022, we extended the date on which our $300.0 million Warehouse Facility IV will cease to revolve from November 17, 2023 to May 20, 2025.

On June 22, 2022, we extended the maturity of our revolving secured line of credit facility from June 22, 2024 to June 22, 2025.

Prior to this amendment, the amount of the facility was set to decrease by $35.0 million on June 22, 2022;

however, this amendment increased the amount of the facility by $10.0 million, resulting in a net decrease of $25.0 million, from $435.0 million to $410.0 million.

As previously reported, the amount of the facility will further decrease by $25.0 million on June 22, 2023.

Additionally, this amendment removed the covenant that required us to maintain consolidated net income of not less than $1 for the two most recently ended fiscal quarters.

Cash and cash equivalents as of June 30, 2022 and December 31, 2021 was $4.1 million and $23.3 million, respectively.

As of June 30, 2022 and December 31, 2021, we had $1,239.3 million and $1,532.4 million, respectively, in unused and available lines of credit.

Our total balance sheet indebtedness increased to $4,792.2 million as of June 30, 2022 from $4,616.3 million as of December 31, 2021, primarily due to stock repurchases.

A summary of our scheduled principal debt maturities as of June 30, 2022 is as follows:

(In millions)

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Under CECL, changes in the amount and timing of forecasted net cash flows are recorded as a provision for credit losses in the period of change.

The removal of the COVID forecast adjustment and the implementation of the enhanced forecasting methodology impacted forecasted net cash flows and provision for credit losses as follows:

(In millions) Increase / (Decrease) in

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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