What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-10 compared with 2022-02-11 · 102 added, 102 removed, 370 unchanged (36% of the section changed)

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For the year ended December 31, 2022, consolidated net income was $535.8 million, or $39.32 per diluted share, compared to $958.3 million, or $59.52 per diluted share, for the same period in 2021.

The decrease in consolidated net income was primarily due to an increase in provision for credit losses, a decrease in finance charges, and an increase in operating expenses.

The increase in provision for credit losses was primarily due to a decline in Consumer Loan performance.

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

The increase in operating expenses was primarily related to an increase in the number of team members in our engineering department.

Our results for the year ended December 31, 2022 included:

• A decrease in forecasted collection rates for Consumer Loans assigned in 2021 and 2022, which decreased forecasted net cash flows from our loan portfolio by $59.7 million, or 0.7%.

• Forecasted profitability per Consumer Loan assignment that significantly exceeded our initial estimates for Consumer Loans assigned in 2018 through 2020 and was significantly less than our initial estimates for Consumer Loans assigned in 2022.

• An increase in Consumer Loan assignment volume, as unit and dollar volumes increased 4.4% and 14.5%, respectively, as compared to 2021.

• Stock repurchases of approximately 1.5 million shares, which represented 10.4% of the shares outstanding at the beginning of the year.

For the year ended December 31, 2021, consolidated net income was $958.3 million, or $59.52 per diluted share, compared to $421.0 million, or $23.47 per diluted share, for the same period in 2020.

The increase in consolidated net income was primarily due to a decrease in provision for credit losses and an increase in finance charges.

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Our results for the year ended December 31, 2021 included:

• An increase in forecasted collection rates for Consumer Loans assigned in 2017 through 2021, which increased forecasted net cash flows from our loan portfolio by $326.1 million.

• An increase in forecasted collection rates for Consumer Loans assigned in 2017 through 2021, which increased forecasted net cash flows from our loan portfolio by $326.1 million, or 3.4%.

• Forecasted profitability per Consumer Loan assignment that exceeded our initial estimate for Consumer Loans assigned in 2021 and significantly exceeded our initial estimates for Consumer Loans assigned in 2018 through 2020.

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• Stock repurchases of approximately 2.9 million shares, which represented 16.8% of the shares outstanding at the beginning of the year.

For the year ended December 31, 2020, consolidated net income was $421.0 million, or $23.47 per diluted share, compared to $656.1 million, or $34.57 per diluted share, for the same period in 2019.

The decrease in consolidated net income was primarily due to an increase in provision for credit losses primarily due to the adoption of CECL on January 1, 2020.

Our results for the year ended December 31, 2020 included:

• A decrease in forecasted collection rates for Consumer Loans assigned in 2015 through 2019 and an increase in forecasted collection rates for Consumer Loans assigned in 2020, which decreased forecasted net cash flows from our loan portfolio by $46.3 million.

• Forecasted profitability per Consumer Loan assignment that exceeded our initial estimate for Consumer Loans assigned in 2018 and 2019 and significantly exceeded our initial estimates for Consumer Loans assigned in 2020.

• A decline in Consumer Loan assignment volume, as unit and dollar volumes declined 7.5% and 3.5%, respectively, as compared to 2019.

• Stock repurchases of approximately 1.3 million shares, which represented 6.9% of the shares outstanding at the beginning of the year.

Critical Success Factors

Critical success factors include our ability to accurately forecast Consumer Loan performance, access capital on acceptable terms, and maintain or grow Consumer Loan volume at the level and on the terms that we anticipate, with an objective to maximize economic profit.

Economic profit is a non-GAAP financial measure we use to evaluate our financial results and determine incentive compensation.

Economic profit is a non-GAAP financial measure we use to evaluate our financial results and determine profit-sharing for team members.

We also use economic profit as a framework to evaluate business decisions and strategies.

Economic profit measures how efficiently we utilize our total capital, both debt and equity, and is a function of the return on capital in excess of the cost of capital and the amount of capital invested in the business.

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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.

Consumer Loans assigned in 2012 and 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.

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, 2016, and 2022 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 year ended December 31, 2022, forecasted collection rates improved for Consumer Loans assigned in 2014, 2016, and 2017, declined for Consumer Loans assigned in 2021 and 2022, and were generally consistent with expectations at the start of the period for all other assignment years presented.

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

For the year ended December 31, 2020, forecasted collection rates improved for Consumer Loans assigned in 2020, declined for Consumer Loans assigned in 2015 through 2019 and were generally consistent with expectations at the start of the period for all other assignment years presented.

The changes in forecasted collection rates impacted forecasted net cash flows (forecasted collections less forecasted Dealer Holdback payments) as follows:

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Total $ (59.7) $ 326.1 $ (46.3)

During the first quarter of 2020, we reduced our estimate of future net cash flows from our Loan portfolio by $206.5 million, or 2.3% of the forecasted net cash flows at the start of the period, primarily due to the impact of the COVID-19 pandemic.

The reduction was comprised of:

(1) $44.3 million calculated by our forecasting model, which reflected lower realized collections during the first quarter of 2020 and (2) an additional $162.2 million, which represented our best estimate of the future impact of the COVID-19 pandemic on future net cash flows.

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

We have continued to apply this adjustment to our forecast through the end of 2021 as it continues to represent our best estimate of the impact of the COVID-19 pandemic on future net cash flows.

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

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.

The profitability of our loans is primarily driven by the amount and timing of the net cash flows we receive from the spread between the forecasted collection rate and the advance rate, less operating expenses and the cost of capital.

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 December 31, 2021.

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 December 31, 2021

Consumer Loan Assignment Year Forecasted

Collection % Advance % (1) Spread % % of Forecast

Forecasted Collection % as of Spread % as of

Consumer Loan Assignment Year December 31, 2022 Initial Forecast Advance % (1) December 31, 2022 Initial Forecast % of Forecast

2013 73.5 % 72.0 % 47.6 % 25.9 % 24.4 % 99.8 %

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The spread between the forecasted collection rate and the advance rate has ranged from 18.9% to 25.9% over the last 10 years.

The spread was at the high end of this range in 2012, when the competitive environment was unusually favorable, and much lower during other years (2015 through 2019 and 2021) when competition was more intense.

Despite intense competition, the spread in 2020 was higher than other recent years due to Consumer Loan performance, which has exceeded our initial estimates by a significantly greater margin than the other years presented.

The decrease in the spread from 2020 to 2021 was primarily the result of the performance of 2020 Consumer Loans, partially offset by a higher initial spread on 2021 Consumer Loans, primarily due to a higher initial forecast on 2021 Consumer Loans.

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 the result of the performance of 2022 Consumer Loans, which performed worse than our initial estimates.

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

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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 24.6% in 2020 to 21.1% in 2021 primarily as a result of the performance of the 2020 Consumer Loans in our Dealer Loan portfolio, which has significantly exceeded our initial estimates, partially offset by a higher initial spread on 2021 Consumer Loans in our Dealer Loan portfolio, primarily due to a higher initial forecast on 2021 Consumer Loans in our Dealer Loan portfolio.

The spread on Purchased Loans decreased from 22.9% in 2020 to 19.4% in 2021 primarily as a result of the performance of the 2020 Consumer Loans in our Purchased Loan portfolio, which has exceeded our initial estimates by a significantly greater margin than those assigned to us in 2021, partially offset by a higher initial spread on 2021 Consumer Loans in our Purchased Loan portfolio, primarily due to a higher initial forecast on 2021 Consumer Loans in our Purchased Loan portfolio.

The spread on Dealer Loans decreased from 20.9% in 2021 to 19.4% in 2022, primarily as a result of the performance of the 2022 Consumer Loans in our Dealer Loan portfolio, which performed worse than our initial estimates by a greater margin than those assigned to us in 2021.

The spread on Purchased Loans decreased from 19.0% in 2021 to 17.3% in 2022 primarily as a result of the performance of the 2022 Consumer Loans in our Purchased Loan portfolio, which performed worse than our initial estimates, while the performance of the Consumer Loans in our Purchased Loan portfolio assigned during 2021 has exceeded our initial estimates.

Additionally, 2022 Consumer Loans in our Purchased Loan portfolio had a lower initial spread, primarily due to the advance rate increasing by a greater margin than the initial forecast on 2022 Consumer Loans in our Purchased Loan portfolio.

Access to Capital

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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.

During 2022, unit and dollar volumes increased 4.4% and 14.5%, respectively, as the number of active Dealers increased 4.3% while average volume per active Dealer remained consistent with prior year.

Dollar volume increased more than unit volume in 2022 due to an increase in the average advance paid per unit.

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

The comparable 2021 period reflected a significant decline in unit volume, which we believe was 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.

During 2021, unit and dollar volumes decreased 21.4% and 13.0%, respectively, as the number of active Dealers declined 10.1% while average volume per active Dealer decreased 12.3%.

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This increase was the result of an increase in the average size of the Consumer Loans assigned primarily due to an increase in the average vehicle selling price.

During 2020, unit and dollar volumes decreased 7.5% and 3.5%, respectively, as the number of active Dealers declined 5.3% while average volume per active Dealer decreased 2.5%.

Dollar volume declined less than unit volume during 2020 due to an increase in the average advance paid per unit.

This increase was the result of an increase in the average size of the Consumer Loans assigned primarily due to increases in the average vehicle selling price and average initial loan term and an increase in Purchased Loans as a percentage of total unit volume.

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

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Provision for claims 46.4 38.8 7.6 19.6 %

Loss on extinguishment of debt — 7.4 (7.4) -100.0 %

Total costs and expenses 1,120.7 595.1 525.6 88.3 %

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Finance Charges.

The increase of $180.2 million, or 11.5%, was primarily the result of an increase in the average yield on our Loan portfolio, as follows:

The decrease of $56.3 million, or 3.2%, was due to a decline 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 Years Ended December 31,

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Average yield on our Loan portfolio 26.7 % 26.0 % 0.7 %

The following table summarizes the impact each component had on the overall increase in finance charges for the year ended December 31, 2021:

The following table summarizes the impact each component had on the overall decrease in finance charges for the year ended December 31, 2022:

(In millions)

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For the Year Ended December 31, 2022

Due to an increase in the average yield $ 193.8

Due to a decrease in the average net Loans receivable balance $ (99.8)

Total increase in finance charges $ 180.2

Due to an increase in the average yield 43.5

Total decrease in finance charges $ (56.3)

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 year ended December 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.

Other Income .

The increase of $30.3 million, or 57.1%, was primarily due to:

• A $20.4 million increase in ancillary product profit sharing income, primarily due to a decrease in average claim rates on GAP contracts and $5.9 million of income recognized in 2022 related to an inception-to-date adjustment to premium recognition timing based on our historical claims experience on GAP contracts.

• A $5.6 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 in 2022 for repossession activity that occurred from August 2020 through December 2021.

• A $5.4 million increase in interest income earned on restricted cash and cash equivalents primarily due to an increase in benchmark interest rates.

Operating Expenses .

The increase of $42.6 million, or 11.1%, was primarily due to:

• An increase in salaries and wages expense of $31.6 million, or 16.9%, comprised of the following:

• An increase in stock-based compensation expense of $18.6 million, due to an increase of $33.7 million related to stock options and a decrease of $15.1 million related to restricted stock and restricted stock units.

We recognized $33.7 million of expense in 2021 for stock options granted from December 2020 through August 2021 primarily due to a change in the incentive compensation program for senior management.

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.

For additional information, see Note 14 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference.

• An increase of $22.3 million, excluding stock-based compensation and cash-based incentive compensation, related to increases of $12.8 million for our support function, $9.0 million for our servicing function and $0.5 million for our originations function.

The increase in our support function was primarily related to a $7.4 million increase related to our information technology department.

• A decrease of $9.3 million in cash-based incentive compensation expense, primarily due to a change in the incentive compensation program for senior management, which eliminated annual cash awards in favor of longer-term equity awards, partially offset by an increase in profit sharing primarily due to an improvement in Company performance measures.

• An increase in general and administrative expense of $30.7 million, or 44.1%, primarily due to an increase in legal expenses, which included a $27.2 million settlement with the Commonwealth of Massachusetts to settle and fully resolve the claims asserted against the Company.

For additional information, see Note 16 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference.

• An increase in salaries and wages expense of $43.9 million, or 20.1%, primarily due to:

▪ An increase of $32.2 million, excluding stock-based compensation expense, primarily related to an increase in the number of team members in our engineering department.

▪ An increase of $11.7 million in stock-based compensation expense, primarily related to an $11.5 million reversal of expense during 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 in sales and marketing expense of $10.3 million, or 15.8%, primarily due to a change in the compensation plan for our sales force in September 2021.

▪ A decrease in general and administrative expense of $11.6 million, or 11.6%, primarily due to a decrease in legal expenses.

Legal expenses during 2021 included a $27.2 million settlement with the Commonwealth of Massachusetts to settle and fully resolve claims asserted by the Commonwealth of Massachusetts against the Company, while legal expenses during 2022 included a $12.0 million settlement to settle and fully resolve a previously-disclosed putative class action lawsuit.

Provision for Credit Losses .

The decrease of $548.5 million, or 98.5%, was due to decreases in provision for credit losses on forecast changes and provision for credit losses on new Consumer Loan assignments.

The increase of $473.0 million, or 5,631.0%, 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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Total $ 481.4 $ 8.4 $ 473.0

The decrease in provision for credit losses related to new Consumer Loan assignments was due to a 21.4% 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 2021 Consumer Loan assignments.

The decrease in provision for credit losses related to forecast changes was primarily due to an improvement in Consumer Loan performance.

For the year ended December 31, 2021, we increased our estimate of future net cash flows by $326.1 million to reflect improvements in Consumer Loan performance during the period.

For the year ended December 31, 2020, we decreased our estimate of future net cash flows by $46.3 million to reflect the estimated long-term impact of COVID-19 on Consumer Loan performance.

The decrease of $27.8 million, or 14.5%, was primarily due to a decrease in our average cost of debt, as follows:

(Dollars in millions) For the Years Ended December 31,

2021 2020 Change

Interest expense

$ 164.2 $ 192.0 $ (27.8)

Average outstanding debt principal balance (1)

4,728.9 4,712.8 16.1

Average cost of debt

3.5 % 4.1 % -0.6 %

(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 due to a decrease in the average provision for credit losses per Consumer Loan assignment primarily due to a decrease in Purchased Loans as a percentage of total unit volume, partially offset by a 4.4% increase in Consumer Loan assignment unit volume.

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

During 2022, we reduced our estimate of future net cash flows by $59.7 million, or 0.7%, to reflect a decline in Consumer Loan performance during the period.

During 2021, we increased our estimate of future net cash flows by $326.1 million, or 3.4%, to reflect improvements in Consumer Loan performance during the period.

The results for 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 (as defined below under “Critical Accounting Estimates—Finance Charge Revenue & Allowance for Credit Losses”) 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 5 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference.

Provision for Income Taxes.

For the year ended December 31, 2022, the effective income tax rate increased to 24.7% from 24.0% for the year ended December 31, 2021.

The increase was primarily due to an increase in our state income tax rate and the impact of tax benefits related to our stock-based compensation plan on our effective income tax rate.

The increase in our state income tax rate was primarily the result of the settlement of an uncertain tax position for state income taxes during 2020.

The impact of tax benefits related to our stock-based compensation plan, which reduce our effective income tax rate, decreased from 2020 to 2021 primarily due to an increase in pre-tax income.

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

The impact of non-deductible executive compensation expense on our effective income tax rate 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 Item 8 of this Form 10-K, which is incorporated herein by reference.

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We periodically adjust our statistical pricing model for new trends that we identify through our evaluation of these forecasted collection rate variances.

The reduction was comprised of:

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

We have continued to apply this adjustment to our forecast through the end of 2021 as it continues to represent our best estimate of the impact of the COVID-19 pandemic on future net cash flows.

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

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)

Our provision for credit losses for the year ended December 31, 2022, included:

• $343.7 million provision for credit losses on new Consumer Loan assignments, which reduced consolidated net income by $264.6 million, or $19.42 per diluted share;

• $356.7 million reversal of provision for credit losses on forecast changes related to changes in the amount and timing of expected future net cash flows, which increased consolidated net income by $274.7 million, or $17.06 per diluted share.

Our provision for credit losses for the year ended December 31, 2020, included:

• $518.6 million provision for credit losses on new Consumer Loan assignments related to the adoption of CECL on January 1, 2020, which reduced consolidated net income by $399.3 million, or $22.26 per diluted share;

• $137.7 million provision for credit losses on forecast changes related to changes in the amount and timing of expected future net cash flows, which reduced consolidated net income by $106.0 million, or $7.78 per diluted share.

Our provision for credit losses for the year ended December 31, 2021, included:

• $365.1 million provision for credit losses on new Consumer Loan assignments, which reduced consolidated net income by $281.1 million, or $17.46 per diluted share;

Variances in the amount and timing of future net cash flows from current estimates could materially impact earnings in future periods.

A 1% decline in the forecasted future net cash flows on Loans as of December 31, 2021 would have reduced 2021 net income by approximately $47.5 million.

A 1% decline in the forecasted future net cash flows on Loans as of December 31, 2022 would have reduced 2022 consolidated net income by approximately $45.9 million.

During periods of economic slowdown or recession, delinquencies, defaults, repossessions, and losses may increase on our Consumer Loans, and Consumer Loan prepayments may decline.

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Variances in the pattern of future claims from our current estimates would impact the timing of premiums recognized in future periods.

A 10% change in premiums earned for the year ended December 31, 2021 would have affected 2021 net income by approximately $4.6 million.

A 10% change in premiums earned for the year ended December 31, 2022 would have affected 2022 consolidated net income by approximately $4.8 million.

Contingencies

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For information regarding these financings and the covenants included in the related documents, see Note 9 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference.

On January 29, 2021, we completed a $100.0 million Term ABS financing, which was used to repay outstanding indebtedness.

The financing will revolve for 24 months, after which it will amortize based upon the cash flows on the contributed Loans.

On January 29, 2021, we extended the date on which our $300.0 million Warehouse Facility IV will cease to revolve from July 26, 2022 to November 17, 2023.

The interest rate on borrowings under the facility has been increased from LIBOR plus 200 basis points to LIBOR plus 210 basis points.

On February 3, 2021, we extended the date on which our $400.0 million Warehouse Facility II will cease to revolve from July 12, 2022 to April 30, 2024.

On February 18, 2021, we completed a $500.0 million Term ABS financing, which was used to repay outstanding indebtedness.

The financing has an expected annualized cost of approximately 1.4% (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 May 20, 2021, we completed a $450.0 million Term ABS financing, which was used to repay outstanding indebtedness and for general corporate purposes.

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 September 1, 2021, we extended the date on which our $200.0 million Warehouse Facility VIII will cease to revolve from July 26, 2022 to September 1, 2024.

On October 6, 2021, we increased the financing amount on our revolving secured line of credit facility with a commercial bank syndicate from $340.0 million to $385.0 million.

We also extended the maturity of the facility from June 22, 2023 to June 22, 2024.

The amount of the facility will decrease by $35.0 million on June 22, 2022, and will further decrease by $25.0 million on June 22, 2023.

On October 15, 2021, we extended the date on which our $75.0 million Warehouse Facility VI will cease to revolve from September 30, 2022 to September 30, 2024.

On October 28, 2021, we completed a $250.1 million Term ABS financing, which was used to repay outstanding indebtedness and for general corporate purposes.

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.

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%.

On November 3, 2022, we completed a $389.9 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 8.5% (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 November 30, 2021, we increased the financing amount on our revolving secured line of credit facility with a commercial bank syndicate from $385.0 million to $435.0 million.

As noted above, the amount of the facility will decrease by $35.0 million on June 22, 2022, and will further decrease by $25.0 million on June 22, 2023.

Cash and cash equivalents increased to $23.3 million as of December 31, 2021 from $16.0 million as of December 31, 2020.

On December 15, 2022, we completed a $200.0 million Term ABS financing, which was used to repay outstanding indebtedness.

The financing will bear interest at SOFR plus 235 basis points, and it will revolve for 36 months, after which it will amortize based upon the cash flows on the contributed Loans.

On December 27, 2022, we increased the financing amount on Warehouse Facility V from $125.0 million to $200.0 million and extended the date on which the facility will cease to revolve from December 18, 2023 to December 29, 2025.

The maturity of the facility was also extended from December 16, 2025 to December 27, 2027.

The interest rate on borrowings under the facility has been increased from SOFR plus 235 basis points to SOFR plus 245 basis points.

On December 27, 2022, we extended the $100.0 million Term ABS financing that we entered into on January 29, 2021 and to which we refer as Term ABS 2021-1.

Under the amendment effecting the extension, the date on which the financing will cease to revolve has been extended from February 15, 2023 to December 16, 2024.

The amendment also increased the interest rate under the financing from SOFR plus 208.5 basis points to SOFR plus 220 basis points.

Cash and cash equivalents decreased to $7.7 million as of December 31, 2022 from $23.3 million as of December 31, 2021.

As of December 31, 2022 and December 31, 2021, we had $1,554.1 million and $1,532.4 million, respectively, in unused and available lines of credit.

Our total balance sheet indebtedness increased to $4,616.3 million as of December 31, 2021 from $4,608.6 million as of December 31, 2020.

A summary of the future material financial obligations requiring repayments as of December 31, 2021 is as follows:

As of December 31, 2022 and December 31, 2021, we had $4,590.7 million and $4,616.3 million, respectively, of total balance sheet indebtedness.

A summary as of December 31, 2022 of our material financial obligations requiring future repayments is as follows:

(In millions) Payments Due as of December 31, 2022

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Total financial obligations $ 1,727.0 $ 3,857.9 $ 5,584.9

(1) The amounts presented consist solely of principal and do not reflect deferred debt issuance costs of $26.4 million.

(1) The amounts presented consist solely of principal and do not reflect deferred debt issuance costs of $22.4 million and unamortized debt discount of $3.4 million.

We are also obligated to make interest payments at the applicable interest rates, as discussed in Note 9 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference.

Based on the actual principal amounts outstanding under our revolving secured line of credit, our Warehouse facilities, and our senior notes as of December 31, 2021, the forecasted principal amounts outstanding on all other debt and the actual interest rates in effect as of December 31, 2021, interest is expected to be approximately $106.9 million during 2022;

Based on the actual principal amounts outstanding under our revolving secured line of credit, our Warehouse facilities, our Term ABS financings, and our senior notes as of December 31, 2022, the forecasted principal amounts outstanding on all other debt, and the actual interest rates in effect as of December 31, 2022, interest is expected to be approximately $164.5 million during 2023;

$145.7 million during 2024;

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The amounts presented represent our forecast as of December 31, 2022.

(3) A lease lia bi lity of $0.5 million is recognized within accounts payable and accrued liabilities in our consolidated balance sheets.

(3) A lease liability of $1.3 million is recognized within accounts payable and accrued liabilities in our consolidated balance sheets.

(4) Purchase obligations consist primarily of contractual obligations related to our information system and facility needs.

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If the various financing alternatives were to become limited or unavailable to us, our operations and liquidity could be materially and adversely affected.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We are exposed primarily to market risks associated with movements in interest rates.

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For every 100-basis-point increase in interest rates on Term ABS 2021-1 up to the cap rate of 5.50%, annual after-tax earnings would decrease by approximately $0.8 million, assuming we maintain a level amount of floating rate debt.

New Accounting Updates

See Note 2 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference, for information concerning the following new accounting updates and the impact of the implementation of this update on our financial statements:

• Simplifying the Accounting for Income Taxes.

As of December 31, 2022, we had $200.0 million in floating rate debt outstanding under Term ABS 2022-2, which was covered by an interest rate cap with a cap rate of 6.50% on the underlying benchmark rate.

For every 100-basis-point increase in interest rates on Term ABS 2022-2 up to the cap rate of 6.50%, annual after-tax earnings would decrease by approximately $1.5 million, assuming we maintain a level amount of floating rate debt.

New Accounting Update Not Yet Adopted

See Note 2 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference, for information concerning the following new accounting update and the impact of the implementation of this update on our financial statements:

• Troubled Debt Restructurings and Vintage Disclosures.

Forward-Looking Statements

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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-K

Item 7. Management’s Discussion and Analysis