What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-01 · 109 added, 127 removed, 392 unchanged (38% 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 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.

For the three months ended September 30, 2022, consolidated net income was $86.8 million, or $6.49 per diluted share, compared to consolidated net income of $250.0 million, or $15.79 per diluted share, for the same period in 2021, primarily due to an increase in provision for credit losses and a decrease in finance charges.

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

• A decrease in forecasted collection rates for Consumer Loans assigned in 2019 through 2022, which decreased forecasted net cash flows from our Loan portfolio by $85.4 million, or 0.9%.

• Forecasted profitability per Consumer Loan assignment that has significantly exceeded our initial estimates for Consumer Loans assigned in 2018 through 2020.

• 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.

• Growth in Consumer Loan assignment volume, as unit and dollar volumes grew 29.3% and 32.1%, respectively, as compared to the third quarter of 2021.

• Stock repurchases of approximately 54,000 shares, which represented 0.4% 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.

For the nine months ended September 30, 2022, consolidated net income was $408.5 million, or $29.74 per diluted share, compared to consolidated net income of $740.7 million, or $44.73 per diluted share, for the same period in 2021, primarily due to an increase in provision for credit losses, an increase in operating expenses and a decrease in finance charges.

Our results for the nine months ended September 30, 2022 included:

• A decrease in forecasted collection rates for Consumer Loans assigned in 2022 and an increase in forecasted collection rates for Consumer Loans assigned in 2014, 2016, 2017 and 2021, which decreased forecasted net cash flows from our Loan portfolio by $18.6 million, or 0.2%.

• Forecasted profitability per Consumer Loan assignment that has significantly exceeded our initial estimates for Consumer Loans assigned in 2018 through 2020.

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• Stock repurchases of approximately 1.3 million shares, which represented 8.9% 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.

• A $12.0 million expense in the second quarter of 2022, compared to a $27.2 million expense in the first quarter of 2021, related to previously-disclosed legal matters, and a $21.6 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 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:

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 Forecast

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

(2) The forecasted collection rate for 2022 Consumer Loans as of September 30, 2022 includes both Consumer Loans that were in our portfolio as of June 30, 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 %

2022 Consumer Loan Assignment Period September 30, 2022 June 30, 2022 Initial Forecast June 30, 2022 Initial Forecast

January 1, 2022 through June 30, 2022 66.3 % 67.1 % 67.6 % -0.8 % -1.3 %

July 1, 2022 through September 30, 2022 66.9 % — 67.1 % — -0.2 %

Consumer Loans assigned in 2013 and 2018 through 2020 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 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,

For the three months ended September 30, 2022, forecasted collection rates declined for Consumer Loans assigned in 2019 through 2022 and were generally consistent with expectations at the start of the period for all other assignment years presented.

For the nine months ended September 30, 2022 , forecasted collection rates improved for Consumer Loans assigned in 2014, 2016, 2017 and 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 nine months ended September 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 September 30, For the Nine Months Ended September 30,

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

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Total $ (85.4) $ 82.3 $ (18.6) $ 294.2

The COVID-19 pandemic created conditions that increased the level of uncertainty associated with our estimate of the amount and timing of future net cash flows from our Loan portfolio.

During the first quarter of 2020, we applied a subjective adjustment to our forecasting model to reflect our best estimate of the future impact of the COVID-19 pandemic on future net cash flows (“COVID forecast adjustment”), which reduced our estimate of future net cash flows by $162.2 million.

We continued to apply the COVID forecast adjustment through the end of 2021 as it continued to represent our best estimate.

During the first quarter of 2022, we determined that we had sufficient Consumer Loan performance experience since the lapse of federal stimulus payments and enhanced unemployment benefits to refine our estimate of future net cash flows.

Accordingly, during the first quarter of 2022, we removed the COVID forecast adjustment and enhanced 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.

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 during the first quarter of 2022 impacted forecasted net cash flows and provision for credit losses as follows:

(In millions) Increase / (Decrease) in

Forecasting Methodology Changes Forecasted Net Cash Flows Provision for Credit Losses

Removal of COVID forecast adjustment $ 149.5 $ (118.5)

Implementation of enhanced forecasting methodology (53.8) 47.9

Total $ 95.7 $ (70.6)

Total realized collections for October 2022 were consistent with our expectations at the start of the month.

However, we have not yet completed our analysis of the collection results to determine the impact on forecasted net cash flows.

The following table presents information on the average Consumer Loan assignment for each of the last 10 years:

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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.

(3) The averages for 2022 Consumer Loans include both Consumer Loans that were in our portfolio as of June 30, 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

January 1, 2022 through June 30, 2022 $ 27,118 $ 12,995 59

July 1, 2022 through September 30, 2022 27,357 12,820 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 June 30, 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 June 30, 2022

As of September 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.

(3) The forecasted collection rate, advance rate and spread for 2022 Consumer Loans as of September 30, 2022 include both Consumer Loans that were in our portfolio as of June 30, 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

As of September 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 %

January 1, 2022 through June 30, 2022 66.3 % 47.9 % 18.4 %

July 1, 2022 through September 30, 2022 66.9 % 46.9 % 20.0 %

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

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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:

The decrease in the spread from 2021 to 2022 was primarily due to Consumer Loan performance, as the performance of 2021 Consumer Loans has 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 increase in the spread from the first six months of 2022 to the third quarter of 2022 was primarily due to Consumer Loan performance, as the performance of Consumer Loans assigned during the first six months of 2022 has been significantly lower than our initial estimates, and a higher initial spread on Consumer Loans assigned during the third quarter of 2022 due to the advance rate decreasing by a greater margin than the initial forecast.

The following table compares our forecast of Consumer Loan collection rates as of September 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 June 30, 2022 Initial

Forecast Variance June 30, 2022 Initial

Consumer Loan Assignment Year September 30, 2022 Initial

Forecast Variance September 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 June 30, 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 September 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 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.

The spread on Dealer Loans decreased from 21.5% in 2021 to 19.6% in 2022 primarily as a result of Consumer Loan performance, as the performance of 2021 Consumer Loans in our Dealer Loan portfolio has exceeded our initial estimates while the performance of 2022 Consumer Loans in our Dealer Loan portfolio has been significantly 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 19.6% in 2021 to 17.2% in 2022 primarily as a result of Consumer Loan performance, as the performance of the 2021 Consumer Loans in our Purchased Loan portfolio has significantly exceeded our initial estimates while the performance of 2022 Consumer Loans in our Purchased Loan portfolio has been lower than 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.

Access to Capital

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and (3) maintain multiple funding sources.

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

Our funded debt to equity ratio was 2.9 to 1 as of September 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 six 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 seven quarters as compared to the same period in the previous year:

Year over Year Percent Change

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June 30, 2022 5.1 % 22.0 %

September 30, 2022 29.3 % 32.1 %

(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 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.

Unit and dollar volumes grew 29.3% and 32.1%, respectively, during the third quarter of 2022 as the number of active Dealers grew 12.6% and the average unit volume per active Dealer grew 15.1%.

Unit volume for October 2022 grew 21.2% compared to unit volume for October 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 June 30, For the Six Months Ended June 30,

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

2022 2021 % Change 2022 2021 % Change

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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 June 30, For the Six Months Ended June 30,

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

2022 2021 % Change 2022 2021 % Change

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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 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)

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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.

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

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.

As of September 30, 2022 and December 31, 2021, the net Dealer Loans receivable balance was 64.1% 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 June 30, 2022 Compared to Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 Compared to Three Months Ended September 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 Three Months Ended

September 30,

2022 2021 $ Change % Change

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Finance Charges.

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 June 30,

The decrease of $21.5 million, or 4.9%, was primarily the result of a decrease in the average net Loans receivable balance, as follows:

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

2022 2021 Change

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Average yield on our Loan portfolio 26.6 % 26.5 % 0.1 %

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

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

(In millions) Year over Year Change

Impact on finance charges:

For the Three Months Ended June 30, 2022

Due to an increase in the average yield $ 14.5

For the Three Months Ended September 30, 2022

Due to a decrease in the average net Loans receivable balance $ (23.9)

Due to an increase in the average yield 2.4

Total decrease in finance charges $ (21.5)

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 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 .

The increase of $5.9 million, or 56.2%, was primarily due to an increase in ancillary product profit sharing income primarily due to a decrease in average claim rates on Guaranteed Asset Protection contracts.

The increase of $10.7 million, or 84.9%, was primarily due to:

• A $5.2 million increase in remarketing fee income for fees related to the repossession and remarketing of vehicles, which included $4.5 million of fees charged to dealers for repossession activity that occurred from August 2020 through June 2022.

• A $4.1 million increase in ancillary product profit sharing income primarily due to a decrease in average claim rates on Guaranteed Asset Protection (“GAP”) contracts.

Operating Expenses.

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• An increase in salaries and wages expense of $3.7 million, or 5.9%, primarily due to:

• 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.

• An increase of $10.1 million, excluding stock-based compensation expense, primarily related to an increase in the number of team members in our technology department .

• A decrease of $6.4 million in stock-based compensation expense, 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 $7.0 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.

Accordingly, the first annual vesting installment was recognized over the period from July 2021 through the first anniversary of the date on which the options were granted, resulting in a higher expense during the third quarter of 2021.

• An increase in sales and marketing expense of $3.4 million, or 20.9%, primarily due to a change in the compensation plan for our sales force in September 2021, an increase in the size of our sales force, and growth in Consumer Loan assignment unit volume.

Provision for Credit Losses .

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

The increase of $188.6 million 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 June 30,

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

Provision for Credit Losses 2022 2021 Change

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Total $ 180.3 $ (8.3) $ 188.6

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 June 30,

2022 2021 Change

Interest expense $ 38.9 $ 42.0 $ (3.1)

Average outstanding debt principal balance (1) 4,795.4 4,780.7 14.7

Average cost of debt 3.2 % 3.5 % -0.3 %

(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.

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

During the third quarter of 2022, we reduced our estimate of future net cash flows by $85.4 million to reflect a decline in Consumer Loan performance during the period.

During the third quarter of 2021, we increased our estimate of future net cash flows by $82.3 million to reflect an improvement in Consumer Loan performance during the period.

The increase in p rovision for credit losses related to new Consumer Loan assignmen ts was primarily due to a 29.3% increase in Consumer Loan assignment unit volume, partially offset by a decrease in the average provision per Consumer Loan assignment.

Provision for Income Taxes .

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 the three months ended September 30, 2022, the effective income tax rate increased to 28.9% from 24.7% for the three months ended September 30, 2021.

The increase was primarily due to changes in state and local tax laws that were enacted during the third quarter of 2022 and the impact of non-deductible expenses on our effective income tax rate, which increased in magnitude from 2021 to 2022 primarily due to a decrease in pre-tax income.

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

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 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

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

September 30,

2022 2021 $ Change % Change

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The decrease of $42.1 million, or 3.2%, 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,

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

2022 2021 Change

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Average yield on our Loan portfolio 26.8 % 25.8 % 1.0 %

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

The following table summarizes the impact each component had on the overall decrease in finance charges for the nine months ended September 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

For the Nine Months Ended September 30, 2022

Due to a decrease in the average net Loans receivable balance $ (88.3)

Due to an increase in the average yield 46.2

Total decrease in finance charges $ (42.1)

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.

The average yield on our Loan portfolio for the nine months ended September 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 .

The increase of $22.7 million, or 65.2%, was primarily due to:

• A $16.3 million increase in ancillary product profit sharing income primarily due to a decrease in average claim rates on GAP contracts.

• A $5.0 million increase in remarketing fee income for fees related to the repossession and remarketing of vehicles, which included $3.1 million of fees charged to dealers for repossession activity that occurred from August 2020 through December 2021.

Operating Expenses.

The increase of $43.2 million, or 15.5%, was primarily due to:

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

• An increase in salaries and wages expense of $45.8 million, or 30.4%, primarily due to:

• An increase of $24.2 million, excluding stock-based compensation expense, primarily related to an increase in the number of team members in our technology department.

• An increase of $21.6 million in stock-based compensation expense, primarily related to:

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

• An increase of $10.4 million 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.

• A decrease in general and administrative expense of $12.1 million, or 15.1%, prim arily due to a decrease in legal expenses.

Legal expenses for the nine months ended September 30, 2021 included a $27.2 million settlement with the Commonwealth of Massachusetts to settle and fully resolve the claims asserted by the Commonwealth of Massachusetts against the Company, while l egal expenses for the nine months ended September 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.

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.

The increase of $368.6 million 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.

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

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

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

Provision for Credit Losses 2022 2021 Change

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Total $ 351.1 $ (17.5) $ 368.6

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.

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.

The increase in provision for credit losses related to forecast changes was primarily due to a decline in Consumer Loan performance during the first nine months of 2022 compared to an improvement in Consumer Loan performance during the same period in 2021.

During the first nine months of 2022, we reduced our estimate of future net cash flows by $18.6 million to reflect a decline in Consumer Loan performance during the period.

During the first nine months of 2021, we increased our estimate of future net cash flows by $294.2 million to reflect an improvement in Consumer Loan performance during the period.

The results for the first nine 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.

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 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.

The decrease in provision for credit losses related to new Consumer Loan assignments was primarily due to a 0.4% decrease in Consumer Loan assignment unit volume and a decrease in the average provision per Consumer Loan assignment.

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 the nine months ended September 30, 2022, our effective income tax rate increased to 25.6% from 24.1% for the nine months ended September 30, 2021.

The increase was primarily due to changes in state and local tax laws that were enacted during the third quarter of 2022 and an increase in non-deductible executive compensation expense.

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

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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.

We are currently considering options to further reduce our office space, which could result in the sale of one or both 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 $39.2 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.

If we were to reclassify one or both of these buildings as held for sale, we would be required to record an impairment charge to reduce the carrying value of the buildings held for sale to their 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 June 30, 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 September 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.

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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:

On August 12, 2022, we extended by three years the $500.0 million Term ABS financing that we entered into on August 28, 2019 and to which we refer as Term ABS 2019‑2.

Under the amendment effecting the extension, the date on which the financing will cease to revolve has been extended from August 15, 2022 to August 15, 2025.

The amendment has also increased the interest rate under the financing from 3.13% to 5.15%.

Cash and cash equivalents as of September 30, 2022 and December 31, 2021 was $10.7 million and $23.3 million, respectively.

As of September 30, 2022 and December 31, 2021, we had $1,171.1 million and $1,532.4 million, respectively, in unused and available lines of credit.

Our total balance sheet indebtedness increased to $4,625.9 million as of September 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 September 30, 2022 is as follows:

(In millions)

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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