What changed in this filing

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Item 1. Financial Statements

2022-11-01 compared with 2022-08-01 · 131 added, 113 removed, 1354 unchanged (15% of the section changed)

3 unchanged sentences

(Dollars in millions, except per share data) As of

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Cash and cash equivalents $ 10.7 $ 23.3

21 unchanged sentences

Preferred stock, $ .01 par value, 1,000,000 shares authorized, none issued

Common stock, $ .01 par value, 80,000,000 shares authorized, 12,975,455 and 14,145,888 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

Common stock, $ .01 par value, 80,000,000 shares authorized, 12,924,711 and 14,145,888 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Paid-in capital 235.8 197.2

7 unchanged sentences

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

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

24 unchanged sentences

(In millions) For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

7 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Dollars in millions) For the Three Months Ended June 30, 2022

(Dollars in millions) For the Three Months Ended September 30, 2022

Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

8 unchanged sentences

Balance, end of period 12,924,711 $ 0.1 $ 235.8 $ 1,356.7 $ ( 3.4 ) $ 1,589.2

(Dollars in millions) For the Three Months Ended June 30, 2021

(Dollars in millions) For the Three Months Ended September 30, 2021

Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

2 unchanged sentences

Net income — — — 250.0 — 250.0

Other comprehensive loss — — — — ( 0.2 ) ( 0.2 )

Stock-based compensation — — 15.2 — — 15.2

3 unchanged sentences

Balance, end of period 14,716,977 $ 0.1 $ 166.0 $ 1,787.0 $ 0.7 $ 1,953.8

(Dollars in millions) For the Six Months Ended June 30, 2022

(Dollars in millions) For the Nine Months Ended September 30, 2022

Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

8 unchanged sentences

Balance, end of period 12,924,711 $ 0.1 $ 235.8 $ 1,356.7 $ ( 3.4 ) $ 1,589.2

(Dollars in millions) For the Six Months Ended June 30, 2021

(Dollars in millions) For the Nine Months Ended September 30, 2021

Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

11 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(In millions) For the Nine Months Ended September 30,

Cash Flows From Operating Activities:

4 unchanged sentences

Amortization 12.5 12.5

Provision for deferred income taxes 5.7 11.0

Provision/(Benefit) for deferred income taxes 3.8 ( 4.1 )

Stock-based compensation 26.9 5.4

44 unchanged sentences

Actual results could differ from those estimates.

We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of June 30, 2022 for items that could potentially be recognized or disclosed in these financial statements.

We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2022 for items that could potentially be recognized or disclosed in these financial statements.

We did not identify any items that would require disclosure in or adjustment to the consolidated financial statements.

12 unchanged sentences

The following table shows the percentage of Consumer Loans assigned to us with either FICO ® scores below 650 or no FICO ® scores:

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,

Consumer Loan Assignment Volume 2022 2021 2022 2021

10 unchanged sentences

Dealer Loans and Purchased Loans are collectively referred to as “Loans”.

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:

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

Unit Volume Dollar Volume (1)

6 unchanged sentences

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

September 30, 2022 74.3 % 25.7 % 70.5 % 29.5 %

(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.

46 unchanged sentences

Cash equivalents consist of readily marketable securities with original maturities at the date of acquisition of three months or less.

As of June 30, 2022 and December 31, 2021, we had $ 3.8 million and $ 22.9 million, respectively, in cash and cash equivalents that were not insured by the Federal Deposit Insurance Corporation (“FDIC”).

As of September 30, 2022 and December 31, 2021, we had $ 10.4 million and $ 22.9 million, respectively, in cash and cash equivalents that were not insured by the Federal Deposit Insurance Corporation (“FDIC”).

Restricted cash and cash equivalents consist of cash pledged as collateral for secured financings and cash held in a trust for future vehicle service contract claims.

As of June 30, 2022 and December 31, 2021, we had $ 423.2 million and $ 407.9 million, respectively, in restricted cash and cash equivalents that were not insured by the FDIC.

As of September 30, 2022 and December 31, 2021, we had $ 381.2 million and $ 407.9 million, respectively, in restricted cash and cash equivalents that were not insured by the FDIC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

1 unchanged sentence

(In millions) As of

June 30, 2022 December 31, 2021 June 30, 2021 December 31, 2020

September 30, 2022 December 31, 2021 September 30, 2021 December 31, 2020

Cash and cash equivalents $ 10.7 $ 23.3 $ 13.3 $ 16.0

99 unchanged sentences

For additional information, see Note 6.

For the three and six months ended June 30, 2022 and 2021, we did not make any other methodology changes for Loans that had a material impact on our financial statements.

For the three and nine months ended September 30, 2022 and 2021, we did not make any other methodology changes for Loans that had a material impact on our financial statements.

Finance Charges

86 unchanged sentences

A comparison of the carrying amount and estimated fair value of these financial instruments is as follows:

(In millions) As of June 30, 2022 As of December 31, 2021

(In millions) As of September 30, 2022 As of December 31, 2021

Amount Estimated Fair

19 unchanged sentences

The following table provides the level of measurement used to determine the fair value for each of our financial instruments measured or disclosed at fair value:

(In millions) As of June 30, 2022

(In millions) As of September 30, 2022

Level 1 Level 2 Level 3 Total Fair Value

22 unchanged sentences

Restricted securities available for sale consist of the following:

(In millions) As of June 30, 2022

(In millions) As of September 30, 2022

Amortized Cost Gross Unrealized

17 unchanged sentences

The fair value and gross unrealized losses for restricted securities available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

(In millions) Securities Available for Sale with Gross Unrealized Losses as of June 30, 2022

(In millions) Securities Available for Sale with Gross Unrealized Losses as of September 30, 2022

Less than 12 Months 12 Months or More

3 unchanged sentences

Fair Value Total

Government and agency securities

$ 24.2 $ ( 1.0 ) $ — $ — $ 24.2 $ ( 1.0 )

Corporate bonds $ 23.5 $ ( 1.6 ) $ 4.3 $ ( 0.6 ) $ 27.8 $ ( 2.2 )

Government and agency securities 25.4 ( 1.8 ) — — 25.4 ( 1.8 )

Asset-backed securities

11.6 ( 0.3 ) 1.1 ( 0.1 ) 12.7 ( 0.4 )

Commercial paper 1.7 — — — 1.7 —

Mortgage-backed securities 0.3 — — — 0.3 —

7 unchanged sentences

Fair Value Total

Government and agency securities

$ 10.1 $ ( 0.1 ) $ — $ — $ 10.1 $ ( 0.1 )

Corporate bonds $ 15.0 $ ( 0.2 ) $ 1.3 $ — $ 16.3 $ ( 0.2 )

Government and agency securities 10.1 ( 0.1 ) — — 10.1 ( 0.1 )

Asset-backed securities 8.4 ( 0.1 ) — — 8.4 ( 0.1 )

6 unchanged sentences

(In millions) As of

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Contractual Maturity Amortized Cost Estimated Fair

8 unchanged sentences

Loans receivable and allowance for credit losses consist of the following:

(In millions) As of June 30, 2022

(In millions) As of September 30, 2022

Dealer Loans Purchased Loans Total

9 unchanged sentences

A summary of changes in Loans receivable and allowance for credit losses is as follows:

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

(In millions)

28 unchanged sentences

$ 5,978.2 $ 3,208.2 $ 9,186.4 $ ( 1,932.7 ) $ ( 942.1 ) $ ( 2,874.8 ) $ 4,045.5 $ 2,266.1 $ 6,311.6

For the Three Months Ended June 30, 2021

For the Three Months Ended September 30, 2021

(In millions)

29 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

(In millions) Loans Receivable Allowance for Credit Losses Loans Receivable, Net

12 unchanged sentences

Balance, end of period $ 5,978.2 $ 3,208.2 $ 9,186.4 $ ( 1,932.7 ) $ ( 942.1 ) $ ( 2,874.8 ) $ 4,045.5 $ 2,266.1 $ 6,311.6

For the Six Months Ended June 30, 2021

For the Nine Months Ended September 30, 2021

(In millions) Loans Receivable Allowance for Credit Losses Loans Receivable, Net

24 unchanged sentences

(In millions)

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

Provision for Credit Losses

5 unchanged sentences

$ 95.2 $ 85.1 $ 180.3

(In millions) For the Three Months Ended June 30, 2021

(In millions) For the Three Months Ended September 30, 2021

Provision for Credit Losses Dealer Loans Purchased Loans Total

3 unchanged sentences

(In millions)

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

Provision for Credit Losses

5 unchanged sentences

$ 170.0 $ 181.1 $ 351.1

(In millions) For the Six Months Ended June 30, 2021

(In millions) For the Nine Months Ended September 30, 2021

Provision for Credit Losses Dealer Loans Purchased Loans Total

6 unchanged sentences

(In millions)

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

New Consumer Loan Assignments

14 unchanged sentences

(In millions)

For the Three Months Ended June 30, 2021

For the Three Months Ended September 30, 2021

New Consumer Loan Assignments

12 unchanged sentences

$ 180.1 $ 90.7 $ 270.8

(In millions) For the Six Months Ended June 30, 2022

(In millions) For the Nine Months Ended September 30, 2022

New Consumer Loan Assignments Dealer Loans Purchased Loans Total

5 unchanged sentences

Expected net Loan income at the time of assignment (5) $ 764.5 $ 307.5 $ 1,072.0

(In millions) For the Six Months Ended June 30, 2021

(In millions) For the Nine Months Ended September 30, 2021

New Consumer Loan Assignments Dealer Loans Purchased Loans Total

17 unchanged sentences

(In millions)

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

Expected Future Net Cash Flows

13 unchanged sentences

(In millions)

For the Three Months Ended June 30, 2021

For the Three Months Ended September 30, 2021

Expected Future Net Cash Flows

12 unchanged sentences

$ 5,459.4 $ 3,868.8 $ 9,328.2

(In millions) For the Six Months Ended June 30, 2022

(In millions) For the Nine Months Ended September 30, 2022

Expected Future Net Cash Flows Dealer Loans Purchased Loans Total

5 unchanged sentences

Balance, end of period $ 5,591.1 $ 3,467.7 $ 9,058.8

(In millions) For the Six Months Ended June 30, 2021

(In millions) For the Nine Months Ended September 30, 2021

Expected Future Net Cash Flows Dealer Loans Purchased Loans Total

15 unchanged sentences

For additional information regarding credit quality, see Note 3.

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:

Total Loans as of June 30, 2022

The following table compares our forecast of Consumer Loan collection rates as of September 30, 2022 with the forecasts as of June 30, 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 June 30, 2022 March 31, 2022 December 31, 2021 Initial

Forecast March 31, 2022 December 31, 2021 Initial

Assignment Year September 30, 2022 June 30, 2022 December 31, 2021 Initial

Forecast June 30, 2022 December 31, 2021 Initial

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

8 unchanged sentences

2022 66.5 % 67.1 % — 67.4 % - 0.6 % — - 0.9 %

Dealer Loans as of June 30, 2022

Forecasted Collection Percentage as of (1) (2) Current Forecast Variance from

Consumer Loan

Assignment Year June 30, 2022 March 31, 2022 December 31, 2021 Initial

Forecast March 31, 2022 December 31, 2021 Initial

Assignment Year September 30, 2022 June 30, 2022 December 31, 2021 Initial

Forecast June 30, 2022 December 31, 2021 Initial

2013 73.4 % 73.4 % 73.3 % 72.1 % 0.0 % 0.1 % 1.3 %

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Purchased Loans as of June 30, 2022

Purchased Loans

Forecasted Collection Percentage as of (1) (2) Current Forecast Variance from

Consumer Loan

Assignment Year June 30, 2022 March 31, 2022 December 31, 2021 Initial

Forecast March 31, 2022 December 31, 2021 Initial

Assignment Year September 30, 2022 June 30, 2022 December 31, 2021 Initial

Forecast June 30, 2022 December 31, 2021 Initial

2013 74.3 % 74.3 % 74.2 % 71.6 % 0.0 % 0.1 % 2.7 %

13 unchanged sentences

We evaluate and adjust the expected collection rate of each Consumer Loan subsequent to assignment primarily through the monitoring of consumer payment behavior.

The following table summarizes the past-due status of Consumer Loan assignments as of June 30, 2022 and December 31, 2021, segmented by year of assignment:

The following table summarizes the past-due status of Consumer Loan assignments as of September 30, 2022 and December 31, 2021, segmented by year of assignment:

(In millions)

Total Loans as of June 30, 2022 (1) (2)

Total Loans as of September 30, 2022 (1) (2)

Pre-term Consumer Loans (3)

9 unchanged sentences

(In millions)

Dealer Loans as of June 30, 2022 (1)

Dealer Loans as of September 30, 2022 (1)

Pre-term Consumer Loans (3)

10 unchanged sentences

(In millions)

Purchased Loans as of June 30, 2022 (2)

Purchased Loans as of September 30, 2022 (2)

Pre-term Consumer Loans (3)

64 unchanged sentences

(In millions) For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

5 unchanged sentences

(In millions) As of

Balance Sheet location June 30, 2022 December 31, 2021

Balance Sheet location September 30, 2022 December 31, 2021

Trust assets Restricted cash and cash equivalents $ 1.5 $ 0.3

5 unchanged sentences

Other income consists of the following:

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

(In millions) For the Three Months Ended September 30, For the Nine Months Ended September 30,

2022 2021 2022 2021

1 unchanged sentence

Remarketing fees 7.1 1.9 11.0 6.0

Dealer enrollment fees 0.7 0.7 1.1 1.1

Interest 1.9 0.2 2.9 0.9

Dealer enrollment fees 0.3 0.5 1.4 1.6

Dealer support products and services 0.3 0.2 0.9 0.9

6 unchanged sentences

VRS recognizes income from the retained fees at the time of the sale and does not retain a fee if a repossessed vehicle is redeemed by the consumer prior to the sale.

Interest consists of income earned on cash and cash equivalents, restricted cash and cash equivalents, and restricted securities available for sale.

Interest income is generally recognized over time as it is earned.

Interest income on restricted securities available for sale is recognized over the life of the underlying financial instruments using the interest method.

Dealer enrollment fees include fees from Dealers that enrolled in our Portfolio Program prior to August 5, 2019.

Depending on the enrollment option selected by the Dealer, Dealers may have enrolled by paying us an upfront, one-time fee, or by agreeing to allow us to retain 50 % of their accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan assignments.

Depending on the enrollment option selected by the Dealer, Dealers may have enrolled by paying us an upfront, one-time fee of $9,850, or by agreeing to allow us to retain 50 % of their accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan assignments.

For additional information regarding program enrollment, see Note 2 to the consolidated financial statements.

A portion of the $ 9,850 upfront, one-time fee is considered to be Dealer support products and services revenue.

The remaining portion of the $ 9,850 fee is considered to be a Dealer enrollment fee, which is amortized on a straight-line basis over the estimated life of the Dealer relationship.

The 50 % portion of the accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan assignments is also considered to be a Dealer enrollment fee.

A portion of the $ 9,850 upfront, one-time fee was considered to be Dealer support products and services revenue.

The remaining portion of the $ 9,850 fee was considered to be a Dealer enrollment fee, which was amortized on a straight-line basis over the estimated life of the Dealer relationship.

In the case of Dealers that enrolled by agreeing to allow us to retain 50% of their accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan assignments, the 50 % portion we retain is considered to be a Dealer enrollment fee.

We do not recognize any of this Dealer enrollment fee until the Dealer has met the eligibility requirements to receive the accelerated Dealer Holdback payment(s) and the amount(s) of the payment(s), if any, have been calculated.

Once the accelerated Dealer Holdback payment(s) have been calculated, we defer the 50 % portion that we keep and recognize it on a straight-line basis over the remaining estimated life of the Dealer relationship.

Beginning August 5, 2019, Dealers may enroll in our Portfolio Program without incurring an enrollment fee.

Interest consists of income earned on cash and cash equivalents, restricted cash and cash equivalents, and restricted securities available for sale.

Interest income is generally recognized over time as it is earned.

Interest income on restricted securities available for sale is recognized over the life of the underlying financial instruments using the interest method.

Since August 5, 2019, Dealers have enrolled in our Portfolio Program without incurring an enrollment fee.

Dealer support products and services consist of income earned from products and services provided to Dealers to assist with their operations, including sales and marketing, purchasing supplies and materials and acquiring vehicle inventory.

2 unchanged sentences

The following table disaggregates our other income by major source of income and timing of the revenue recognition:

(In millions) For the Three Months Ended June 30, 2022

Ancillary product profit sharing Remarketing fees Dealer enrollment fees Interest Dealer support products and services Total Other Income

(In millions) For the Three Months Ended September 30, 2022

Ancillary product profit sharing Remarketing fees Interest Dealer enrollment fees Dealer support products and services Total Other Income

Source of income

6 unchanged sentences

Total $ 13.7 $ 7.1 $ 1.9 $ 0.3 $ 0.3 $ 23.3

(In millions) For the Six Months Ended June 30, 2022

Ancillary product profit sharing Remarketing fees Dealer enrollment fees Interest Dealer support products and services Total Other Income

(In millions) For the Nine Months Ended September 30, 2022

Ancillary product profit sharing Remarketing fees Interest Dealer enrollment fees Dealer support products and services Total Other Income

Source of income

8 unchanged sentences

Debt consists of the following:

(In millions) As of June 30, 2022

(In millions) As of September 30, 2022

Principal Outstanding Unamortized Debt Issuance Costs Carrying

11 unchanged sentences

Total debt $ 4,642.7 $ ( 26.4 ) $ 4,616.3

(1) Excludes deferred debt issuance cost s of $ 4.7 million and $ 3.6 million as of June 30, 2022 and December 31, 2021, respectively, which are included in other assets.

(1) Excludes deferred debt issuance cost s of $ 4.3 million and $ 3.6 million as of September 30, 2022 and December 31, 2021, respectively, which are included in other assets.

(2) Warehouse facilities and Term ABS.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

General information for each of our financing transactions in place as of June 30, 2022 is as follows:

General information for each of our financing transactions in place as of September 30, 2022 is as follows:

(Dollars in millions)

2 unchanged sentences

Amount Interest Rate Basis as of

June 30, 2022

September 30, 2022

Revolving Secured Line of Credit n/a 06/22/2025 $ 410.0 (1) At our option, either the Bloomberg Short-Term Bank Yield Index rate (BSBY) plus 187.5 basis points or the prime rate plus 87.5 basis points

1 unchanged sentence

Warehouse Facility IV (2) CAC Warehouse Funding LLC IV 05/20/2025 (3) 300.0 The Secured Overnight Financing Rate (SOFR) plus 221.4 basis points (4)

Warehouse Facility V (2) CAC Warehouse Funding LLC V 12/18/2023 (5) 125.0 LIBOR plus 225 basis points (4)

Warehouse Facility VI (2) CAC Warehouse Funding LLC VI 09/30/2024 (3) 75.0 LIBOR plus 200 basis points

Warehouse Facility VIII (2) CAC Warehouse Funding LLC VIII 09/01/2024 (3) 200.0 LIBOR plus 190 basis points (4)

Warehouse Facility V (2) CAC Warehouse Funding LLC V 12/18/2023 (5) 125.0 SOFR plus 235 basis points (4)

Warehouse Facility VI (2) CAC Warehouse Funding LLC VI 09/30/2024 (3) 75.0 BSBY plus 200 basis points

Warehouse Facility VIII (2) CAC Warehouse Funding LLC VIII 09/01/2024 (3) 200.0 SOFR plus 201.4 basis points (4)

Term ABS 2019-2 (2) Credit Acceptance Funding LLC 2019-2 08/15/2025 (6) 500.0 Fixed rate

3 unchanged sentences

Term ABS 2020-3 (2) Credit Acceptance Funding LLC 2020-3 10/17/2022 (3) 600.0 Fixed rate

Term ABS 2021-1 (2) Credit Acceptance Funding LLC 2021-1 02/15/2023 (3) 100.0 LIBOR plus 198.5 basis points (4)

Term ABS 2021-1 (2) Credit Acceptance Funding LLC 2021-1 02/15/2023 (6) 100.0 SOFR plus 208.5 basis points (4)

Term ABS 2021-2 (2) Credit Acceptance Funding LLC 2021-2 02/15/2023 (3) 500.0 Fixed rate

18 unchanged sentences

(In millions) For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

19 unchanged sentences

(Dollars in millions) As of

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Revolving Secured Line of Credit

174 unchanged sentences

Debt Covenants

As of June 30, 2022, we were in compliance with our covenants under the revolving secured line of credit facility and our Warehouse facilities, including those that require the maintenance of certain financial ratios and other financial conditions.

As of September 30, 2022, we were in compliance with our covenants under the revolving secured line of credit facility and our Warehouse facilities, including those that require the maintenance of certain financial ratios and other financial conditions.

These covenants require a minimum ratio of (1) our net earnings, adjusted for specified items, before income taxes, depreciation, amortization and fixed charges to (2) our fixed charges, as defined in the agreements.

4 unchanged sentences

Our Term ABS financings also contain covenants that measure the performance of the contributed assets.

As of June 30, 2022, we were in compliance with all such covenants.

As of September 30, 2022, we were in compliance with all such covenants.

As of the end of the quarter, we were also in compliance with our covenants under the senior notes indentures.

3 unchanged sentences

We utilize interest rate cap agreements to manage the interest rate risk on certain secured financings.

The following tables provide the terms of our interest rate cap agreements that were in effect as of June 30, 2022 and December 31, 2021:

The following tables provide the terms of our interest rate cap agreements that were in effect as of September 30, 2022 and December 31, 2021:

(Dollars in millions)

As of June 30, 2022

As of September 30, 2022

Facility Amount Facility Name Purpose Start End Notional Cap Interest Rate (1)

3 unchanged sentences

200.0 Warehouse Facility VIII Cap Floating Rate 08/2019 08/2023 166.7 5.50 %

Cap Floating Rate 09/2022 09/2025 33.3 5.50 %

100.0 Term ABS 2021-1 Cap Floating Rate 02/2021 06/2024 100.0 5.50 %

9 unchanged sentences

The interest rate caps have not been designated as hedging instruments.

As of June 30, 2022 and December 31, 2021, the interest rate caps had a fair value of $ 1.6 million and $ 0.2 million, respectively, as the capped rates were significantly above market rates.

As of September 30, 2022 and December 31, 2021, the interest rate caps had a fair value of $ 2.6 million and $ 0.2 million, respectively.

The increase in fair value from December 31, 2021 was the result of an increase in market rates.

3 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

federal statutory income tax rate 21.0 % 21.0 % 21.0 % 21.0 %

State income taxes 3.0 % 3.0 % 3.0 % 2.9 %

State and local income taxes 6.9 % 3.3 % 3.9 % 3.1 %

Excess tax benefits from stock-based compensation — % — % - 0.1 % - 0.1 %

1 unchanged sentence

Effective income tax rate 28.9 % 24.7 % 25.6 % 24.1 %

Other items impacting our effective income tax rate primarily consist of non-deductible executive compensation expenses.

The impact of other items on our effective income tax rate for the three and six months ended June 30, 2022 increased from the same periods in 2021 primarily due to an increase in non-deductible executive compensation, which was primarily the result of stock options granted under our Amended and Restated Incentive Compensation Plan (the “Incentive Plan”).

State and local income taxes

The increase was primarily due to changes in state and local tax laws that were enacted during the third quarter of 2022, which are expected to increase our long-term effective income tax rate by approximately 20 basis points.

The enactment of these tax law changes increased our effective income tax rate by:

• approximately 280 basis points basis points for the three months ended September 30, 2022, of which 240 basis points related to the impact of tax law changes that are effective for future periods and 40 basis points related to the impact of tax law changes that were effective retroactively to the beginning of 2022;

• approximately 60 basis points for the nine months ended September 30, 2022, of which 50 basis points related to the impact of tax law changes that are effective for future periods and 10 basis points related to the impact of tax law changes that were effective retroactively to the beginning of 2022.

Other items impacting our effective income tax rate primarily consist of non-deductible executive compensation expense.

The impact of non-deductible expense on our effective income tax rate for the three months ended September 30, 2022 increased in magnitude from the same period in 2021 primarily due to a decrease in pre-tax income.

The impact of other items on our effective income tax rate for the nine months ended September 30, 2022 increased from the same period in 2021 primarily due to an increase in non-deductible executive compensation expense, which was primarily the result of stock options granted under our Amended and Restated Incentive Compensation Plan (the “Incentive Plan”).

Additionally, the impact of non-deductible expenses on our effective income tax rate also increased in magnitude from 2021 to 2022 due to a decrease in pre-tax income.

For additional information, see Note 14.

5 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

5 unchanged sentences

Dilutive number of weighted average shares outstanding 13,364,160 15,829,166 13,737,871 16,559,639

For the three and six months ended June 30, 2022, there were 67,264 and 56,492 stock options outstanding, respectively, that were excluded from the computation of diluted net income per share because t heir inclusion would have been anti-dilutive.

For th e three and six months ended June 30, 2022, there w ere no shares of res tricted stock or restricted stock units outstanding that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For th e three and six months ended June 30, 2021, t here were no stock options, shares of restricted stock or restricted stock units outstanding that were excluded from the computation of diluted net in come per share because their inclusion would have been anti-dilutive.

For the three and nine months ended September 30, 2022, there were 63,875 and 56,321 stock options outstanding, respectively, that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the three and nine months ended September 30, 2022, there were 4,000 and 2,432 restricted stock units outstanding, respectively, that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the three and nine months ended September 30, 2022, there were no shares of restricted stock outstanding that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the three and nine months ended September 30, 2021, there were 120,217 and 204,557 stock options outstanding, respectively, that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the three and nine months ended September 30, 2021, there were no s hares of restricted stock or restricted stock units outstanding that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

STOCK REPURCHASES

The following table summarizes our stock repurchases for the three and six months ended June 30, 2022 and 2021:

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

The following table summarizes our stock repurchases for the three and nine months ended September 30, 2022 and 2021:

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

Number of Shares Repurchased Cost Number of Shares Repurchased Cost

Open Market (1) 53,769 $ 26.5 1,286,246 $ 704.1

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

(Dollars in millions) For the Nine Months Ended September 30,

Stock Repurchases Number of Shares Repurchased Cost Number of Shares Repurchased Cost

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On September 28, 2021, the board of directors authorized the repurchase of up to two million shares of our common stock in addition to the board’s prior authorizations.

As of June 30, 2022, we had authorization to repurchase 419,607 shares of our common stock.

As of September 30, 2022, we had authorization to repurchase 365,838 shares of our common stock.

(2) Represents shares of common stock released to us by team members as payment of tax withholdings upon the vesting of restricted stock and restricted stock units and the conversion of restricted stock units to common stock.

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(In millions) For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

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Accordingly, the accounting grant date of the 770,500 previously-awarded stock options is July 21, 2021, and no expense was recognized for stock options prior to that date.

The reversal of stock-based compensation expense for the three and six months ended June 30, 2021 was primarily due to the forfeiture of unvested restricted stock and restricted stock units upon the retirement of our former Chief Executive Officer in May 2021, which resulted in an $ 11.5 million reversal of stock-based compensation expense.

During the second quarter of 2021, we recognized an $ 11.5 million reversal of stock-based compensation expense due to the forfeiture of unvested restricted stock and restricted stock units upon the retirement of our former Chief Executive Officer in May 2021.

We expect to recognize the future stock-based compensation expense as follows:

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On October 2, 2020, a shareholder filed a putative class action complaint against the Company, its Chief Executive Officer (now former Chief Executive Officer), and its Chief Financial Officer (now Chief Executive Officer) in the United States District Court for the Eastern District of Michigan, Southern Division, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, based on alleged false and/or misleading statements or omissions regarding the Company and its business, and seeking class certification, unspecified damages plus interest and attorney and expert witness fees and other costs on behalf of a purported class consisting of all persons and entities (subject to specified exceptions) that purchased or otherwise acquired Credit Acceptance common stock from November 1, 2019 through August 28, 2020.

On May 28, 2021, the court issued an opinion and order appointing lead plaintiff and lead counsel.

On May 28, 2021, the court issued an opinion and order appointing lead plaintiffs and lead counsel.

On July 22, 2021, the lead plaintiffs filed an amended complaint asserting similar violations, seeking similar relief and expanding the putative class to include all persons and entities (subject to specified exceptions) that purchased or otherwise acquired Credit Acceptance common stock from May 4, 2018 through August 28, 2020.

On June 14, 2022, the Company reached an agreement in principle to settle this putative class action.

The agreement in principle contemplates an aggregate cash payment by the Company of $ 12.0 million to settle claims brought on behalf of all persons and entities that purchased or otherwise acquired Credit Acceptance common stock from May 4, 2018 through August 28, 2020.

The parties have agreed to negotiate in good faith to execute a definitive stipulation of settlement to be filed with the court, which the Company anticipates will provide for a full release of all claims against all defendants, including the Company and its officers, and expressly deny any liability, wrongdoing or responsibility by any of the defendants.

The definitive stipulation of settlement will be subject to approval by the court, which process may take several months.

Upon final approval of the settlement, the litigation would be dismissed with prejudice.

There can be no assurance that the litigation will be finally resolved in accordance with the agreement in principle.

We have estimated a probable loss of $ 12.0 million, all of which was recognized as a contingent loss during the second quarter of 2022.

The agreement in principle contemplated an aggregate cash payment by the Company of $ 12.0 million to settle claims brought on behalf of all persons and entities that purchased or otherwise acquired Credit Acceptance common stock from May 4, 2018 through August 28, 2020.

On August 24, 2022, the parties executed and filed with the court a definitive stipulation and agreement of settlement, referred to herein as the settlement agreement, which was consistent with the agreement in principle and provides for a full release of all claims against all defendants, including the Company and its officers.

The settlement agreement provides that the defendants expressly deny any liability, wrongdoing or responsibility.

On September 19, 2022, the court entered an order preliminarily approving the settlement agreement and scheduled for December 7, 2022, a hearing to consider final approval.

The settlement agreement provides that, upon final court approval of the settlement agreement, the litigation would be dismissed with prejudice.

At this time, there can be no assurance that the court will grant final approval of the settlement agreement and that the litigation will be finally resolved in accordance with the settlement agreement.

We have estimated a probable loss of $ 12.0 million, all of which was recognized as a contingent loss during the second quarter of 2022, in connection with this litigation.

On May 7, 2019, we received a subpoena from the Consumer Frauds and Protection Bureau of the Office of the New York State Attorney General, relating to the Company’s origination and collection policies and procedures in the state of New York.

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On November 16, 2020, we received an additional subpoena for documents from the Office of the New York State Attorney General.

On November 19, 2020, the Company received a letter from the Office of the New York State Attorney General stating that the New York State Attorney General is considering bringing claims against the Company under the Dodd-Frank Wall Street Reform and Consumer Protection Act, New York Executive Law § 63(12), the New York Martin Act and New York General Business Law § 349 in connection with the Company’s origination and securitization practices.

On November 19, 2020, the Company received a letter from the Office of the New York State Attorney General stating that the New York State Attorney General was considering bringing claims against the Company under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), New York Executive Law § 63(12), the New York Martin Act and New York General Business Law § 349 in connection with the Company’s origination and securitization practices.

On December 9, 2020, we responded to the New York State Attorney General’s letter disputing the assertions contained therein.

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On February 24 and April 30, 2021, we received additional subpoenas from the Office of the New York State Attorney General seeking information relating to its investigation.

We are cooperating with the investigation and cannot predict its eventual scope, duration or outcome at this time.

As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this investigation.

On August 23, 2022, we received a letter from the Consumer Frauds and Protection Bureau of the Office of the New York State Attorney General stating that the Office of the New York State Attorney General intends to commence litigation against the Company asserting violations of New York Executive Law § 63(12) and New York General Business Law §§ 349 and 352 et seq.

and applicable federal laws, including but not limited to claims that the Company engaged in unfair and deceptive trade practices in auto lending, debt collection and asset-backed securitizations in the State of New York in violation of the Dodd-Frank Act, New York Executive Law § 63(12), the New York Martin Act and New York General Business Law § 349, and seeking to obtain injunctive relief, restitution, civil penalties, damages, disgorgement, reformation, rescission, costs and such other relief as the court may deem just and proper.

We cannot predict the eventual scope, duration or outcome of this investigation or the scope, duration or outcome of any such litigation at this time.

As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this investigation or any such litigation.

The Company intends to vigorously defend itself in any such litigation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONCLUDED)

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

What changed 10-Q

Item 1. Financial Statements