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Item 1. Financial Statements

2023-05-01 compared with 2022-11-01 · 207 added, 332 removed, 1153 unchanged (32% of the section changed)

3 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Cash and cash equivalents $ 8.1 $ 7.7

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, 12,924,711 and 14,145,888 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Common stock, $ .01 par value, 80,000,000 shares authorized, 12,836,907 and 12,756,885 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Paid-in capital 252.1 245.7

Retained earnings 1,473.3 1,381.1

Accumulated other comprehensive income (loss) ( 3.4 ) 0.2

Accumulated other comprehensive loss ( 2.1 ) ( 2.9 )

Total Shareholders' Equity 1,723.4 1,624.0

4 unchanged sentences

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

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

Finance charges $ 421.1 $ 424.1

6 unchanged sentences

Sales and marketing 22.1 19.2

Provision for credit losses 180.3 ( 8.3 ) 351.1 ( 17.5 )

Total operating expenses 117.3 102.5

Provision for credit losses on forecast changes 44.3 ( 79.3 )

Provision for credit losses on new Consumer Loan assignments 93.1 102.6

Total provision for credit losses 137.4 23.3

Interest 54.4 36.5

14 unchanged sentences

(In millions) For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 99.5 $ 214.3

Other comprehensive loss, net of tax:

Unrealized loss on securities, net of tax ( 1.2 ) ( 0.2 ) ( 3.6 ) ( 0.9 )

Other comprehensive loss ( 1.2 ) ( 0.2 ) ( 3.6 ) ( 0.9 )

Other comprehensive gain (loss), net of tax:

Unrealized gain (loss) on securities, net of tax 0.8 ( 1.7 )

Other comprehensive gain (loss) 0.8 ( 1.7 )

Comprehensive income $ 100.3 $ 212.6

2 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

(Dollars in millions) For the Three Months Ended March 31, 2023

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

2 unchanged sentences

Net income — — — 99.5 — 99.5

Other comprehensive loss — — — — ( 1.2 ) ( 1.2 )

Other comprehensive income — — — — 0.8 0.8

Stock-based compensation — — 9.9 — — 9.9

1 unchanged sentence

( 33,035 ) — ( 7.6 ) ( 7.3 ) — ( 14.9 )

Restricted stock units converted to common stock

100,757 — — — — —

Stock options exercised 12,300 — 4.1 — — 4.1

Balance, end of period 12,836,907 $ 0.1 $ 252.1 $ 1,473.3 $ ( 2.1 ) $ 1,723.4

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

(Dollars in millions) For the Three Months Ended March 31, 2022

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

4 unchanged sentences

Stock-based compensation — — 9.1 — — 9.1

Restricted stock forfeitures ( 26 ) — — — — —

Repurchase of common stock

( 803,735 ) — ( 0.7 ) ( 422.3 ) — ( 423.0 )

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

(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

Number Amount

Balance, beginning of period 14,145,888 $ 0.1 $ 197.2 $ 1,626.7 $ 0.2 $ 1,824.2

Net income — — — 408.5 — 408.5

Other comprehensive loss — — — — ( 3.6 ) ( 3.6 )

Stock-based compensation — — 26.9 — — 26.9

Repurchase of common stock ( 1,261,457 ) — ( 0.7 ) ( 678.5 ) — ( 679.2 )

Restricted stock units converted to common stock

3,980 — — — — —

Stock options exercised 17,650 — 5.9 — — 5.9

Balance, end of period 13,363,783 $ 0.1 $ 211.5 $ 1,418.7 $ ( 1.5 ) $ 1,628.8

(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

Number Amount

Balance, beginning of period 17,092,432 $ 0.2 $ 161.9 $ 2,138.8 $ 1.6 $ 2,302.5

Net income — — — 740.7 — 740.7

Other comprehensive loss — — — — ( 0.9 ) ( 0.9 )

Stock-based compensation — — 5.4 — — 5.4

Restricted stock forfeitures ( 109,054 ) — — — — —

Repurchase of common stock ( 2,277,817 ) ( 0.1 ) ( 1.3 ) ( 1,092.5 ) — ( 1,093.9 )

Restricted stock units converted to common stock 11,416 — — — — —

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

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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

Cash Flows From Operating Activities:

4 unchanged sentences

Amortization 4.2 4.3

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

Provision for deferred income taxes 24.2 11.0

Stock-based compensation 9.9 9.1

1 unchanged sentence

Change in operating assets and liabilities:

Increase in accounts payable and accrued liabilities 44.4 65.5

Decrease in income taxes receivable 80.2 122.0

Increase (decrease) in accounts payable and accrued liabilities ( 6.0 ) 43.1

Decrease (increase) in income taxes receivable ( 2.3 ) 56.3

Decrease in income taxes payable ( 0.2 ) —

Decrease in other assets 27.3 12.3

10 unchanged sentences

Purchases of property and equipment ( 0.9 ) ( 1.7 )

Net cash provided by (used in) investing activities ( 339.1 ) 214.2

Net cash used in investing activities ( 344.2 ) ( 18.5 )

Cash Flows From Financing Activities:

7 unchanged sentences

Other 2.6 4.8

Net cash used in financing activities ( 651.6 ) ( 1,106.4 )

Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents ( 38.8 ) 46.1

Net cash provided by (used in) financing activities 118.1 ( 293.1 )

Net increase in cash and cash equivalents and restricted cash and cash equivalents 70.4 64.5

Cash and cash equivalents and restricted cash and cash equivalents beginning of period 417.7 434.2

15 unchanged sentences

Actual results could differ from those estimates.

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.

We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of March 31, 2023 for items that could potentially be recognized or disclosed in these financial statements.

For additional information regarding subsequent events, see Note 16.

DESCRIPTION OF BUSINESS

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

For the Three Months Ended March 31,

Consumer Loan Assignment Volume 2023 2022

1 unchanged sentence

84.5 % 87.9 %

In 2020, we began piloting an option that expanded our financing programs to consumers with higher credit ratings.

In the fourth quarter of 2021, we made this option available to all Dealers.

A portion of the reduction in the percentage of total unit volume with FICO ® scores below 650 or no FICO ® scores relates to Consumer Loans assigned under this option.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

4 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 seven quarters:

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

Unit Volume Dollar Volume (1)

5 unchanged sentences

March 31, 2023 72.1 % 27.9 % 68.1 % 31.9 %

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.

32 unchanged sentences

Program Enrollment

Dealers may enroll in our Portfolio Program without incurring an enrollment fee.

Dealers are granted access to our Portfolio Program upon enrollment.

Access to the Purchase Program is typically only granted to Dealers that meet one of the following:

11 unchanged sentences

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

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”).

As of March 31, 2023 and December 31, 2022, we had $ 7.8 million and $ 7.1 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 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.

As of March 31, 2023 and December 31, 2022, we had $ 476.5 million and $ 406.5 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

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

March 31, 2023 December 31, 2022 March 31, 2022 December 31, 2021

Cash and cash equivalents $ 8.1 $ 7.7 $ 17.6 $ 23.3

46 unchanged sentences

The initial allowance for credit losses is recognized as provision for credit losses expense.

The effective interest rate and initial allowance for credit losses are significantly higher for Consumer Loans assigned under the Purchase Program than for Consumer Loans assigned under the Portfolio Program, as contractual net cash flows exceed expected net cash flows by a significantly greater margin under the Purchase Program.

Under the Purchase Program, we retain all contractual collections that exceed our initial expectations.

Under the Portfolio Program, contractual collections that exceed our initial expectations are substantially offset by additional Dealer Holdback payments.

Under the Originated Method, for each reporting period subsequent to assignment, we:

51 unchanged sentences

For additional information, see Note 6.

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.

For the three months ended March 31, 2023 and 2022, we did not make any other methodology changes for Loans that had a material impact on our financial statements.

Finance Charges

39 unchanged sentences

VSC Re Company (“VSC Re”), our wholly owned subsidiary, is engaged in the business of reinsuring coverage under vehicle service contracts sold to consumers by Dealers on vehicles financed by us.

VSC Re currently reinsures vehicle service contracts that are offered through one of our third party providers.

VSC Re currently reinsures vehicle service contracts that are offered through one of our TPPs.

Vehicle service contract premiums, which represent the selling price of the vehicle service contract to the consumer, less fees and certain administrative costs, are contributed to a trust account controlled by VSC Re.

16 unchanged sentences

In addition, VSC Re has the obligation to absorb losses of the trust that could potentially be significant.

New Accounting Update Not Yet Adopted

New Accounting Updates Adopted During the Current Year

Troubled Debt Restructurings and Vintage Disclosures.

In March 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2022-02, which intends to improve the usefulness of information provided to investors about certain loan refinancings, restructurings, and write-offs.

ASU 2022-02 is effective for fiscal years, and interim periods, beginning after December 15, 2022.

Early application is permitted, but we have not yet adopted ASU 2022-02.

We are currently assessing the impact the adoption of ASU 2022-02 will have on our consolidated financial statements and related disclosures.

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, which intends to improve the usefulness of information provided to investors about certain loan refinancings, restructurings, and write-offs.

The adoption of ASU 2022-02 on January 1, 2023 expanded our write-off disclosures, but did not otherwise have a material impact on our consolidated financial statements.

Reference Rate Reform:

Deferral of the Sunset Date.

In December 2022, the FASB issued ASU 2022-06, which amends ASU 2020-04 to extend the period of time preparers can utilize the reference rate reform relief guidance during the phaseout of the London Interbank Offered Rate (“LIBOR”).

ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

The adoption of ASU 2022-06 on January 1, 2023 did not have a material impact on our consolidated financial statements or related disclosures.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

12 unchanged sentences

Secured Financing.

The fair value of our asset-backed secured financings (“Term ABS”) is determined using quoted market prices;

however, these instruments trade in a market with a low trading volume.

For our warehouse facilities, the fair values are determined by calculating the present value of each debt instrument based on current rates for debt with similar risk profiles and maturities.

The fair value of certain asset-backed secured financings (“Term ABS” financings) is determined using quoted market prices in an active market.

For our warehouse facilities and certain other Term ABS financings, the fair values are determined by calculating the present value of each debt instrument based on current rates for debt with similar risk profiles and maturities.

Senior Notes.

3 unchanged sentences

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

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

(In millions) As of March 31, 2023 As of December 31, 2022

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 September 30, 2022

(In millions) As of March 31, 2023

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 September 30, 2022

(In millions) As of March 31, 2023

Amortized Cost Gross Unrealized

4 unchanged sentences

Asset-backed securities 15.0 — ( 0.3 ) 14.7

Commercial paper 1.8 — — 1.8

Mortgage-backed securities 0.2 — — 0.2

10 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 September 30, 2022

(In millions) Securities Available for Sale with Gross Unrealized Losses as of March 31, 2023

Less than 12 Months 12 Months or More

26 unchanged sentences

(In millions) As of

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Contractual Maturity Amortized Cost Estimated Fair

8 unchanged sentences

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

(In millions) As of September 30, 2022

(In millions) As of March 31, 2023

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 September 30, 2022

For the Three Months Ended March 31, 2023

(In millions)

28 unchanged sentences

$ 6,314.4 $ 3,069.9 $ 9,384.3 $ ( 2,073.2 ) $ ( 810.8 ) $ ( 2,884.0 ) $ 4,241.2 $ 2,259.1 $ 6,500.3

For the Three Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

(In millions)

28 unchanged sentences

$ 5,689.5 $ 3,508.5 $ 9,198.0 $ ( 1,768.9 ) $ ( 1,101.9 ) $ ( 2,870.8 ) $ 3,920.6 $ 2,406.6 $ 6,327.2

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

For the Nine Months Ended September 30, 2022

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

Dealer Loans Purchased Loans Total Dealer Loans Purchased Loans Total Dealer Loans Purchased Loans Total

Balance, beginning of period $ 5,655.1 $ 3,694.7 $ 9,349.8 $ ( 1,767.8 ) $ ( 1,245.7 ) $ ( 3,013.5 ) $ 3,887.3 $ 2,449.0 $ 6,336.3

Finance charges 1,030.9 764.3 1,795.2 ( 324.3 ) ( 200.6 ) ( 524.9 ) 706.6 563.7 1,270.3

Provision for credit losses — — — ( 170.0 ) ( 181.1 ) ( 351.1 ) ( 170.0 ) ( 181.1 ) ( 351.1 )

New Consumer Loan assignments (1) 1,971.9 851.4 2,823.3 — — — 1,971.9 851.4 2,823.3

Collections (2) ( 2,488.0 ) ( 1,459.7 ) ( 3,947.7 ) — — — ( 2,488.0 ) ( 1,459.7 ) ( 3,947.7 )

Accelerated Dealer Holdback payments 35.2 — 35.2 — — — 35.2 — 35.2

Dealer Holdback payments 138.7 — 138.7 — — — 138.7 — 138.7

Transfers (3) ( 57.0 ) 57.0 — 14.2 ( 14.2 ) — ( 42.8 ) 42.8 —

Write-offs ( 315.8 ) ( 701.8 ) ( 1,017.6 ) 315.8 701.8 1,017.6 — — —

Recoveries (4) 0.6 2.3 2.9 ( 0.6 ) ( 2.3 ) ( 2.9 ) — — —

Deferral of Loan origination costs 6.6 — 6.6 — — — 6.6 — 6.6

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 Nine Months Ended September 30, 2021

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

Dealer Loans Purchased Loans Total Dealer Loans Purchased Loans Total Dealer Loans Purchased Loans Total

Balance, beginning of period $ 5,869.6 $ 4,255.2 $ 10,124.8 $ ( 1,702.1 ) $ ( 1,634.8 ) $ ( 3,336.9 ) $ 4,167.5 $ 2,620.4 $ 6,787.9

Finance charges 1,043.4 844.8 1,888.2 ( 308.7 ) ( 267.1 ) ( 575.8 ) 734.7 577.7 1,312.4

Provision for credit losses — — — 36.8 ( 19.3 ) 17.5 36.8 ( 19.3 ) 17.5

New Consumer Loan assignments (1) 1,626.2 905.3 2,531.5 — — — 1,626.2 905.3 2,531.5

Collections (2) ( 2,633.9 ) ( 1,592.5 ) ( 4,226.4 ) — — — ( 2,633.9 ) ( 1,592.5 ) ( 4,226.4 )

Accelerated Dealer Holdback payments 36.0 — 36.0 — — — 36.0 — 36.0

Dealer Holdback payments 117.2 — 117.2 — — — 117.2 — 117.2

Transfers (3) ( 87.7 ) 87.7 — 27.3 ( 27.3 ) — ( 60.4 ) 60.4 —

Write-offs ( 201.9 ) ( 593.2 ) ( 795.1 ) 201.9 593.2 795.1 — — —

Recoveries (4) 1.2 1.9 3.1 ( 1.2 ) ( 1.9 ) ( 3.1 ) — — —

Deferral of Loan origination costs 6.5 — 6.5 — — — 6.5 — 6.5

Balance, end of period $ 5,776.6 $ 3,909.2 $ 9,685.8 $ ( 1,746.0 ) $ ( 1,357.2 ) $ ( 3,103.2 ) $ 4,030.6 $ 2,552.0 $ 6,582.6

(1) The Dealer Loans amount represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program.

10 unchanged sentences

(In millions)

For the Three Months Ended September 30, 2022

Provision for Credit Losses

Purchased Loans

New Consumer Loan assignments

$ 37.6 $ 45.8 $ 83.4

Forecast changes

57.6 39.3 96.9

$ 95.2 $ 85.1 $ 180.3

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

Provision for Credit Losses Dealer Loans Purchased Loans Total

New Consumer Loan assignments $ 32.0 $ 43.5 $ 75.5

Forecast changes ( 41.5 ) ( 42.3 ) ( 83.8 )

Total $ ( 9.5 ) $ 1.2 $ ( 8.3 )

(In millions)

For the Nine Months Ended September 30, 2022

For the Three Months Ended March 31, 2023

Provision for Credit Losses

5 unchanged sentences

$ 74.7 $ 62.7 $ 137.4

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

(In millions) For the Three Months Ended March 31, 2022

Provision for Credit Losses Dealer Loans Purchased Loans Total

6 unchanged sentences

(In millions)

For the Three Months Ended September 30, 2022

For the Three Months Ended March 31, 2023

New Consumer Loan Assignments

12 unchanged sentences

$ 318.2 $ 139.4 $ 457.6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(In millions)

For the Three Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

New Consumer Loan Assignments

12 unchanged sentences

$ 245.6 $ 101.6 $ 347.2

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

New Consumer Loan Assignments Dealer Loans Purchased Loans Total

Contractual net cash flows at the time of assignment (1) $ 3,015.3 $ 1,698.3 $ 4,713.6

Expected net cash flows at the time of assignment (2) 2,736.4 1,158.9 3,895.3

Loans receivable at the time of assignment (3) 1,971.9 851.4 2,823.3

Provision for credit losses expense at the time of assignment $ ( 130.7 ) $ ( 152.8 ) $ ( 283.5 )

Expected future finance charges at the time of assignment (4) 895.2 460.3 1,355.5

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

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

New Consumer Loan Assignments Dealer Loans Purchased Loans Total

Contractual net cash flows at the time of assignment (1) $ 2,538.8 $ 1,919.0 $ 4,457.8

Expected net cash flows at the time of assignment (2) 2,283.6 1,272.6 3,556.2

Loans receivable at the time of assignment (3) 1,626.2 905.3 2,531.5

Provision for credit losses expense at the time of assignment $ ( 123.2 ) $ ( 175.7 ) $ ( 298.9 )

Expected future finance charges at the time of assignment (4) 780.6 543.0 1,323.6

Expected net Loan income at the time of assignment (5) $ 657.4 $ 367.3 $ 1,024.7

(1) The Dealer Loans amount represents repayments that we were contractually owed at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related Dealer Holdback payments that we would be required to make if we collected all of the contractual repayments.

10 unchanged sentences

(In millions)

For the Three Months Ended September 30, 2022

For the Three Months Ended March 31, 2023

Expected Future Net Cash Flows

13 unchanged sentences

(In millions)

For the Three Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Expected Future Net Cash Flows

12 unchanged sentences

$ 5,321.3 $ 3,675.9 $ 8,997.2

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

Expected Future Net Cash Flows Dealer Loans Purchased Loans Total

Balance, beginning of period $ 5,249.7 $ 3,698.6 $ 8,948.3

New Consumer Loan assignments (1) 2,736.4 1,158.9 3,895.3

Realized net cash flows (2) ( 2,314.1 ) ( 1,459.7 ) ( 3,773.8 )

Forecast changes ( 17.4 ) ( 1.2 ) ( 18.6 )

Transfers (3) ( 63.5 ) 71.1 7.6

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

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

Expected Future Net Cash Flows Dealer Loans Purchased Loans Total

Balance, beginning of period $ 5,664.3 $ 3,880.1 $ 9,544.4

New Consumer Loan assignments (1) 2,283.6 1,272.6 3,556.2

Realized net cash flows (2) ( 2,480.7 ) ( 1,592.5 ) ( 4,073.2 )

Forecast changes 79.9 214.3 294.2

Transfers (3) ( 87.7 ) 94.3 6.6

Balance, end of period $ 5,459.4 $ 3,868.8 $ 9,328.2

(1) The Dealer Loans amount represents repayments that we expected to collect at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related Dealer Holdback payments that we expected to make.

8 unchanged sentences

For additional information regarding credit quality, see Note 3.

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:

The following table compares our forecast of Consumer Loan collection rates as of March 31, 2023 with the forecasts as of December 31, 2022 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 September 30, 2022 June 30, 2022 December 31, 2021 Initial

Forecast June 30, 2022 December 31, 2021 Initial

Assignment Year March 31, 2023 December 31, 2022 Initial

Forecast December 31, 2022 Initial

2014 71.7 % 71.7 % 71.8 % 0.0 % - 0.1 %

10 unchanged sentences

Consumer Loan

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

Forecast June 30, 2022 December 31, 2021 Initial

Assignment Year March 31, 2023 December 31, 2022 Initial

Forecast December 31, 2022 Initial

2014 71.6 % 71.6 % 71.9 % 0.0 % - 0.3 %

12 unchanged sentences

Consumer Loan

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

Forecast June 30, 2022 December 31, 2021 Initial

Assignment Year March 31, 2023 December 31, 2022 Initial

Forecast December 31, 2022 Initial

2014 72.5 % 72.5 % 70.9 % 0.0 % 1.6 %

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 September 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 March 31, 2023 and December 31, 2022, segmented by year of assignment:

(In millions)

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

Total Loans as of March 31, 2023 (1) (2)

Pre-term Consumer Loans (3)

9 unchanged sentences

(In millions)

Dealer Loans as of September 30, 2022 (1)

Dealer Loans as of March 31, 2023 (1)

Pre-term Consumer Loans (3)

10 unchanged sentences

(In millions)

Purchased Loans as of September 30, 2022 (2)

Purchased Loans as of March 31, 2023 (2)

Pre-term Consumer Loans (3)

50 unchanged sentences

(5) We consider a Consumer Loan to be current for purposes of forecasting expected collection rates if contractual repayments are less than 11 days past due.

The following table summarizes the write-offs for Consumer Loan assignments for the three months ended March 31, 2023, segmented by year of assignment:

(In millions) For the Three Months Ended March 31, 2023

Write-offs by Consumer Loan Assignment Year Dealer Loans Purchased Loans Total

2018 and prior $ 31.6 $ 31.5 $ 63.1

2019 23.7 48.3 72.0

2020 23.7 28.8 52.5

2021 18.8 32.9 51.7

2022 19.0 40.3 59.3

2023 0.9 1.1 2.0

$ 117.7 $ 182.9 $ 300.6

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.

10 unchanged sentences

Total $ 95.7 $ ( 70.6 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

A summary of reinsurance activity is as follows:

(In millions) For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

Net assumed written premiums $ 25.4 $ 17.7

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(In millions) As of

Balance Sheet location September 30, 2022 December 31, 2021

Balance Sheet location March 31, 2023 December 31, 2022

Trust assets Restricted cash and cash equivalents $ 0.8 $ 0.4

3 unchanged sentences

(1) The claims reserve represents our liability for incurred-but-not-reported claims and is estimated based on historical claims experience.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Other income consists of the following:

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

2022 2021 2022 2021

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

Ancillary product profit sharing $ 7.5 $ 14.7

Remarketing fees 7.1 1.9 11.0 6.0

Interest 4.1 0.3

Dealer enrollment fees 0.3 0.5 1.4 1.6

Remarketing fees 3.0 2.0

Dealer support products and services 0.4 0.4

Other — 0.2 — 0.4

Dealer enrollment fees 0.3 0.4

Total $ 15.3 $ 17.8

Ancillary product profit sharing consists of payments received from TPPs based upon the performance of vehicle service contracts and GAP contracts, and is recognized as income over the life of the vehicle service contracts and GAP contracts.

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.

Remarketing fees consist of fees retained from the sale of repossessed vehicles by Vehicle Remarketing Services, Inc.

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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.

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.

Income is recognized in the period the product or service is provided.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Dealer enrollment fees consist of 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 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 was considered to be Dealer support products and services revenue.

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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.

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

Income is recognized in the period the product or service is provided.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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

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 September 30, 2022

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

Source of income

Third Party Providers $ 13.7 $ — $ 1.9 $ — $ — $ 15.6

Dealers — 7.1 — 0.3 0.3 7.7

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

Timing of revenue recognition

Over time $ 13.7 $ — $ 1.9 $ 0.3 $ — $ 15.9

At a point in time — 7.1 — — 0.3 7.4

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

(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

(In millions) For the Three Months Ended March 31, 2023

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

Source of income

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Debt consists of the following:

(In millions) As of September 30, 2022

Principal Outstanding Unamortized Debt Issuance Costs Carrying

(In millions) As of March 31, 2023

Principal Outstanding Unamortized Debt Issuance Costs Unamortized Discount Carrying

Revolving secured line of credit (1) $ 145.1 $ — $ — $ 145.1

4 unchanged sentences

(In millions) As of December 31, 2022

Principal Outstanding Unamortized Debt Issuance Costs Carrying

Principal Outstanding Unamortized Debt Issuance Costs Unamortized Discount Carrying

Revolving secured line of credit (1) $ 30.9 $ — $ — $ 30.9

3 unchanged sentences

Total debt $ 4,616.5 $ ( 22.4 ) $ ( 3.4 ) $ 4,590.7

(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.

(1) Excludes deferred debt issuance cost s of $ 3.5 million and $ 3.9 million as of March 31, 2023 and December 31, 2022, respectively, which are included in other assets.

(2) Warehouse facilities and Term ABS financings.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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

General information for each of our financing transactions in place as of March 31, 2023 is as follows:

(Dollars in millions)

2 unchanged sentences

Amount Interest Rate Basis as of

September 30, 2022

March 31, 2023

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

8 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 12/16/2024 (6) 100.0 SOFR plus 220 basis points (4)

3 unchanged sentences

Term ABS 2022-1 (2) Credit Acceptance Funding LLC 2022-1 06/17/2024 (3) 350.0 Fixed rate

Term ABS 2022-2 (2) Credit Acceptance Funding LLC 2022-2 12/15/2025 (6) 200.0 SOFR plus 235 basis points (4)

Term ABS 2022-3 (2) Credit Acceptance Funding LLC 2022-3 10/15/2024 (3) 389.9 Fixed rate

Term ABS 2023-1 (2) Credit Acceptance Funding LLC 2023-1 03/17/2025 (3) 400.0 Fixed rate

2024 Senior Notes n/a 12/31/2024 400.0 Fixed rate

2026 Senior Notes n/a 03/15/2026 400.0 Fixed rate

Mortgage Note (2) Chapter 4 Properties, LLC 08/06/2023 12.0 LIBOR plus 150 basis points

Mortgage Note (2) Chapter 4 Properties, LLC 08/06/2028 9.0 BSBY plus 150 basis points

(1) The amount of the facility will decrease by $25.0 million on June 22, 2023.

11 unchanged sentences

(In millions) For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

Revolving Secured Line of Credit

18 unchanged sentences

(Dollars in millions) As of

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Revolving Secured Line of Credit

88 unchanged sentences

Interest rate 7.15 % 6.65 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Term ABS 2022-3

Principal balance outstanding $ 389.9 $ 389.9

Loans pledged as collateral 427.4 429.2

Restricted cash and cash equivalents pledged as collateral 31.4 27.6

Interest rate 7.68 % 7.68 %

Term ABS 2023-1

Principal balance outstanding $ 400.0 $ —

Loans pledged as collateral 582.4 —

Restricted cash and cash equivalents pledged as collateral 61.3 —

Interest rate 6.92 % — %

2024 Senior Notes

1 unchanged sentence

Interest rate 5.125 % 5.125 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

2026 Senior Notes

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Each of the facilities is with a different lender or group of lenders.

Under each Warehouse facility, we can contribute Loans to our wholly owned subsidiaries in return for cash and an increase in the value of our equity in each subsidiary.

In turn, each subsidiary pledges the Loans as collateral to lenders to secure financing that will fund the cash portion of the purchase price of the Loans.

The financing provided to each subsidiary under the applicable facility is generally limited to the lesser of 80 % of the value of the contributed Loans, as defined in the agreements, plus the restricted cash and cash equivalents pledged as collateral on such Loans or the facility limit.

Under each Warehouse facility, we can convey Loans to the applicable wholly owned subsidiary in return for cash and/or an increase in the value of our equity in such subsidiary.

In turn, each such subsidiary pledges the Loans as collateral to secure financing that will fund the cash portion of the purchase price of the Loans.

The financing provided to each such subsidiary under the applicable facility is generally limited to the lesser of 80 % of the outstanding balance of the conveyed Loans, as determined in accordance with the applicable agreement, plus certain restricted cash and cash equivalents pledged as collateral, or the facility limit.

The financings create indebtedness for which the subsidiaries are liable and which is secured by all the assets of each subsidiary.

Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the subsidiaries.

Because the subsidiaries are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors.

The subsidiaries pay us a monthly servicing fee equal to either 4 % or 6 %, depending upon the facility, of the collections received with respect to the contributed Loans.

Such indebtedness is non-recourse to us (other than customary, limited recourse to us in the form of repurchase obligations or indemnification obligations for any violations by us of our representations or obligations as seller, servicer, or custodian), even though we are consolidated for financial reporting purposes with the subsidiaries.

Because the subsidiaries are organized as bankruptcy-remote legal entities separate from us, their assets (including the conveyed Loans) are intended to be unavailable to our creditors.

The subsidiaries pay us a monthly servicing fee equal to either 4 % or 6 %, depending upon the facility, of the collections received with respect to the conveyed Loans.

The servicing fee is paid out of the collections.

Except for the servicing fee and holdback payments due to Dealers, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees, and other related costs have been paid in full.

If a facility is not amortizing, the applicable subsidiary is entitled to any collections remaining after the payment of interest, certain other transaction expenses and any amounts necessary to satisfy the borrowing base requirements of the facility.

If a facility is in its

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

revolving period, the applicable subsidiary is entitled to the portion of such collections available after the payment of interest and transaction expenses under the facility, provided that the borrowing base requirements of the facility are satisfied.

Term ABS Financings

We have wholly owned subsidiaries (the “Funding LLCs”) that have completed secured financing transactions with qualified institutional investors or lenders.

In connection with these transactions, we contributed Loans on an arms-length basis to each Funding LLC for cash and the sole membership interest in that Funding LLC.

In turn, each Funding LLC, other than those of Term ABS 2019-2 and 2021-1, contributed the Loans to the respective trusts that issued notes to qualified institutional investors.

The Funding LLCs for the Term ABS 2019-2 and 2021-1 transactions pledged the Loans to their respective lenders.

The Term ABS 2019-3, 2020-1, 2020-2, 2020-3, 2021-2, 2021-3 and 2021-4 transactions each consist of three classes of notes, while Term ABS 2022-1 consists of four classes of notes.

Each financing at the time of issuance has a specified revolving period during which we are likely to contribute additional Loans to each Funding LLC.

Each Funding LLC (other than those of Term ABS 2019-2 and 2021-1) will then contribute the Loans to its respective trust.

In connection with each of these transactions, we conveyed Loans on an arms-length basis to a Funding LLC for cash and the sole membership interest in that Funding LLC.

In turn, each Funding LLC, other than the Funding LLCs for the Term ABS 2019-2, 2021-1, and 2022-2 financings, conveyed the Loans to the respective trusts that issued notes to qualified institutional investors.

The Funding LLCs for the Term ABS 2019-2, 2021-1, and 2022-2 financings pledged the Loans for the benefit of their respective lenders.

The Term ABS 2020-1, 2020-2, 2020-3, 2021-2, 2021-3, 2021-4, and 2023-1 financings each consist of three classes of notes, while the Term ABS 2022-1 and Term ABS 2022-3 financings consist of four classes of notes.

Each Term ABS financing at the time of issuance has a specified revolving period during which we are likely to convey additional Loans to the applicable Funding LLC.

Each Funding LLC (other than the Funding LLCs of the Term ABS 2019-2, 2021-1, and 2022-2 financings) will then convey the Loans to its respective trust.

At the end of the applicable revolving period, the debt outstanding under each financing will begin to amortize.

The financings create indebtedness for which the trusts or Funding LLCs are liable and which is secured by all the assets of each trust or Funding LLC.

Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the trusts and the Funding LLCs.

Because the Funding LLCs are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors.

We receive a monthly servicing fee on each financing equal to either 4 % or 6 %, depending upon the financing, of the collections received with respect to the contributed Loans.

The Term ABS financings create indebtedness for which the applicable trust or Funding LLC is liable and which is secured by all the assets of the applicable trust or Funding LLC.

Because the trusts and the Funding LLCs are organized as bankruptcy-remote legal entities separate from us, their assets (including the conveyed Loans) are intended to be unavailable to our creditors.

We receive a monthly servicing fee on each financing equal to either 4 % or 6 %, depending upon the financing, of the collections received with respect to the conveyed Loans.

The fee is paid out of the collections.

Except for the servicing fee and Dealer Holdback payments due to Dealers, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees and other related costs have been paid in full.

If a facility is not amortizing, the applicable subsidiary may be entitled to retain any collections remaining after payment of interest, certain other transaction expenses and any amounts necessary to satisfy the borrowing base requirements of the facility.

However, in our capacity as servicer of the Loans, we do have a limited right to exercise a “clean-up call” option to purchase Loans from the Funding LLCs and/or the trusts under certain specified circumstances.

For those Funding LLCs with a trust, when the trust’s underlying indebtedness is paid in full, either through collections or through a prepayment of the indebtedness, the trust is to pay any remaining collections over to its Funding LLC as the sole beneficiary of the trust.

Except for the servicing fee and Dealer Holdback payments due to Dealers, if a Term ABS financing is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees, and other related costs have been paid in full.

If a Term ABS financing is in its revolving period, the applicable trust or Funding LLC is entitled to the portion of such collections available after application of any amounts necessary to acquire additional Loans from us and to pay accrued interest on the debt and any other transaction expenses, provided that any necessary principal payments are made to compensate for certain reductions in the balance of eligible loans or, in the case of Term ABS financings occurring after the Term ABS 2021-3 financing, certain reductions in forecasted collections.

In addition, in our capacity as servicer of the Loans, we have a limited right to exercise a “clean-up call” option to purchase Loans from the Funding LLCs and/or the trusts under certain specified circumstances.

For those Funding LLCs with a trust, when the trust’s indebtedness is paid in full, either through collections or through a prepayment of the indebtedness, the trust is to pay any remaining collections over to its Funding LLC as the sole beneficiary of the trust.

For all Funding LLCs, after the indebtedness is paid in full, any remaining collections will ultimately be available to be distributed to us as the sole member of the respective Funding LLC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The table below sets forth certain additional details regarding the outstanding Term ABS financings:

1 unchanged sentence

Term ABS Financings Close Date Net Book Value of Loans

Contributed at Closing Revolving Period

Conveyed at Closing Revolving Period

Term ABS 2019-2 August 28, 2019 $ 625.1 Through August 15, 2025

Term ABS 2019-3 November 21, 2019 439.6 Through November 15, 2021

Term ABS 2020-1 February 20, 2020 625.1 Through February 15, 2022

1 unchanged sentence

Term ABS 2020-3 October 22, 2020 750.1 Through October 17, 2022

Term ABS 2021-1 January 29, 2021 125.1 Through February 15, 2023

Term ABS 2021-1 January 29, 2021 125.1 Through December 16, 2024

Term ABS 2021-2 February 18, 2021 625.1 Through February 15, 2023

2 unchanged sentences

Term ABS 2022-1 June 16, 2022 437.6 Through June 17, 2024

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Term ABS 2022-2 December 15, 2022 250.1 Through December 15, 2025

Term ABS 2022-3 November 3, 2022 500.1 Through October 15, 2024

Term ABS 2023-1 March 16, 2023 500.2 Through March 17, 2025

On December 18, 2019, we issued $ 400.0 million aggregate principal amount of 5.125 % senior notes due 2024 (the “2024 senior notes”).

15 unchanged sentences

The indentures for the senior notes provide for a guarantor of the senior notes to be released from its obligations under its guarantee of the senior notes under specified circumstances.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Mortgage Note

On August 6, 2018 , we entered into a $ 12.0 million mortgage note with a commercial bank that is secured by a first mortgage lien on a building acquired by us and an assignment of all leases, rents, revenues and profits under all present and future leases of the building.

The note matures on August 6, 2023 , and bears interest at LIBOR plus 150 basis points.

We have a $ 9.0 million mortgage note with a commercial bank that is secured by a first mortgage lien on a building acquired by us and an assignment of all leases, rents, revenues, and profits under all present and future leases of the building.

The note matures on August 6, 2028 , and bears interest at BSBY plus 150 basis points.

Debt Covenants

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.

As of March 31, 2023, 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.

2 unchanged sentences

Some of these covenants may indirectly limit the repurchase of common stock or payment of dividends on common stock.

Our Warehouse facilities also contain covenants that measure the performance of the contributed assets.

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

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

Our Warehouse facilities also contain covenants that measure the performance of the conveyed assets.

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

As of March 31, 2023, 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.

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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 September 30, 2022 and December 31, 2021:

The following tables provide the terms of our interest rate cap agreements that were in effect as of March 31, 2023 and December 31, 2022:

(Dollars in millions)

As of September 30, 2022

As of March 31, 2023

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

5 unchanged sentences

100.0 Term ABS 2021-1 Cap Floating Rate 02/2021 06/2024 93.8 5.50 %

200.0 Term ABS 2022-2 Cap Floating Rate 12/2022 06/2024 200.0 6.50 %

(Dollars in millions)

5 unchanged sentences

200.0 Warehouse Facility VIII Cap Floating Rate 08/2019 08/2023 116.7 5.50 %

Cap Floating Rate 09/2022 09/2025 83.3 5.50 %

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

200.0 Term ABS 2022-2 Cap Floating Rate 12/2022 06/2024 200.0 6.50 %

(1) Rate excludes the spread over the corresponding benchmark rate.

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

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.

As of March 31, 2023 and December 31, 2022, the interest rate caps had a fair value of $ 1.4 million and $ 2.0 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

2 unchanged sentences

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

federal statutory income tax rate 21.0 % 21.0 %

3 unchanged sentences

Effective income tax rate 21.5 % 24.7 %

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.

Excess tax benefits from stock-based compensation

We recognize an excess tax benefit or tax deficiency when the deduction for the stock-based compensation expense of a stock award for tax purposes differs from the cumulative stock-based compensation expense recognized in the financial statements.

The excess tax benefit or tax deficiency is recognized in provision for income taxes in the period in which the amount of the deduction is determined, which is when restricted stock units are converted to common stock or stock options are exercised.

Excess tax benefits reduce our effective income tax rate, while tax deficiencies increase our effective income tax rate.

The impact of excess tax benefits on our effective income tax rate for the three months ended March 31, 2023 increased from the same period in 2022 primarily due to an increase in the number of restricted stock units that were converted to common stock during 2023 due to the timing of long-term stock award grants.

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.

The impact of non-deductible expense on our effective income tax rate for the three months ended March 31, 2023 increased in magnitude from the same period in 2022 due to an increase in non-deductible executive compensation and a decrease in pre-tax income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

Weighted average shares outstanding:

2 unchanged sentences

Basic number of weighted average shares outstanding 13,057,617 14,268,518

Dilutive effect of restricted stock, restricted stock units and stock options 70,936 33,203 75,693 16,313

Dilutive effect of restricted stock units and stock options 15,699 73,005

Dilutive number of weighted average shares outstanding 13,073,316 14,341,523

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.

The following outstanding stock awards were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive :

For the Three Months Ended

Stock options 345,585 45,600

Restricted stock units 11,409 —

Total 356,994 45,600

STOCK REPURCHASES

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 Nine Months Ended September 30,

The following table summarizes our stock repurchases for the three months ended March 31, 2023 and 2022:

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

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

4 unchanged sentences

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 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.

As of March 31, 2023, we had authorization to repurchase 158,069 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 units and the conversion of restricted stock units to common stock.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

STOCK-BASED COMPENSATION PLANS

A summary of the restricted stock unit activity is presented below:

Restricted Stock Units Number of Restricted Stock Units Weighted Average Grant-Date Fair Value Per Share

Outstanding as of December 31, 2022

341,228 $ 169.28

Granted 12,456 461.38

Converted ( 100,757 ) 229.84

Forfeited ( 279 ) 464.47

Outstanding as of March 31, 2023

252,648 $ 159.21

Stock-based compensation expense consists of the following:

(In millions) For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

Stock options $ 8.5 $ 8.5

Restricted stock units 1.4 0.6

Restricted stock — 0.1 — ( 7.8 )

Total $ 9.9 $ 9.1

From December 2020 through June 2021, we granted 770,500 stock options, subject to shareholder approval of an amendment to the Incentive Plan (“Shareholder Approval”).

Under GAAP, if a stock award is subject to shareholder approval, it is not considered granted for accounting purposes until that approval is received.

Shareholder Approval was received at our annual meeting of shareholders on July 21, 2021.

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.

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:

3 unchanged sentences

Remainder of 2023 $ 29.6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

COMMITMENTS AND CONTINGENCIES

10 unchanged sentences

The following matters include current actions to which we are a party and updates to matters that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

On December 1, 2021, we received a subpoena from the Office of the Attorney General for the State of California seeking documents and information regarding GAP products, GAP product administration, and refunds.

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

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 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 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.

On July 30, 2020, we received two additional subpoenas from the Office of the New York State Attorney General, both from the Consumer Frauds and Protection Bureau and the Investor Protection Bureau, relating to the Company’s origination and collection policies and procedures in the state of New York and its securitizations.

On August 28, 2020, we were informed that one of the two additional subpoenas was being withdrawn.

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 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.

On December 21, 2020, we received two additional subpoenas from the Office of the New York State Attorney General, one relating to data and the other seeking testimony.

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.

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.

After May 7, 2019 through April 30, 2021, we received additional subpoenas from the Office of the New York State Attorney General relating to the Company’s origination, collection, and securitization practices.

On November 19, 2020 and August 23, 2022, we received letters from the Office of the New York State Attorney General indicating that it may 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 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.

See the description below of the lawsuit commenced by the Office of the New York State Attorney General on January 4, 2023.

On April 22, 2019, we received a civil investigative demand from the Consumer Financial Protection Bureau (“Bureau”) seeking, among other things, certain information relating to the Company’s origination and collection of Consumer Loans, TPPs, and credit reporting.

After April 22, 2019 through March 7, 2022, we received additional subpoenas from the Bureau.

On December 6, 2021, we received a Notice and Opportunity to Respond and Advise letter from the Staff of the Office of Enforcement (“Staff”) of the Bureau, stating that the Staff was considering whether to recommend that the Bureau take legal action against the Company for alleged violations of the Consumer Financial Protection Act of 2010 (the “CFPA”) in connection with the Company’s consumer loan origination practices.

See the description below of the lawsuit commenced by the Bureau on January 4, 2023.

On January 4, 2023, the Office of the New York State Attorney General and the Bureau jointly filed a complaint in the United States District Court for the Southern District of New York alleging that the Company engaged in deceptive practices, fraud, illegality, and securities fraud in violation of New York Executive Law § 63(12) and New York General Business Law §§ 349 and 352, and that the Company engaged in deceptive and abusive acts and provided substantial assistance to a covered person or service provider in violation of the CFPA, 12 U.S.C.

§ 5531 and 12 U.S.C.

§ 5536(a)(1)(B).

The complaint seeks injunctive relief, an accounting of all consumers for whom the Company provided financing, restitution, damages, disgorgement, civil penalties, and payment of costs.

On March 14, 2023, the Company filed a motion to dismiss the complaint.

We cannot predict the eventual scope, duration, or outcome of this lawsuit at this time.

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

The Company intends to vigorously defend itself in this matter.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONCLUDED)

On April 22, 2019, we received a civil investigative demand from the Bureau of Consumer Financial Protection (the “Bureau”) seeking, among other things, certain information relating to the Company’s origination and collection of Consumer Loans, TPPs and credit reporting.

On May 7, 2020, we received another civil investigative demand from the Bureau seeking additional information relating to its investigation.

The Company raised various objections to the May 7, 2020 civil investigative demand, and on May 26, 2020, we were notified that it was withdrawn.

On June 1, 2020, we received another civil investigative demand that was similar to the May 7, 2020 demand, and which raised many of the same objections.

We formally petitioned the Bureau to modify the June 1, 2020 civil investigative demand.

On September 3, 2020, the Director of the Bureau denied our petition to modify the June 1, 2020 civil investigative demand.

On December 23, 2020, we received a civil investigative demand for investigational hearings in connection with the Bureau’s investigation.

The Company objected to certain portions of the civil investigative demands for hearings and, on January 19, 2021, the Bureau notified the Company that it had withdrawn such portions from the December 23, 2020 civil investigative demands.

On March 11, 2021, we received another civil investigative demand from the Bureau seeking additional information relating to its investigation and an investigational hearing.

On June 3, 2021, we received another civil investigative demand from the Bureau seeking additional information relating to its investigation.

On December 6, 2021, we received a Notice and Opportunity to Respond and Advise (“NORA”) letter from the Staff of the Office of Enforcement (“Staff”) of the Bureau, stating that Staff is considering whether to recommend that the Bureau take legal action against the Company for alleged violations of the Consumer Financial Protection Act (the “CFPA”) in connection with the Company’s consumer loan origination practices.

The NORA letter states that the Bureau may allege that the Company (i) committed abusive and unfair acts or practices in violation of 12 U.S.C.

§ 5531(c) and (d) and 12 U.S.C.

§ 5536(a)(1)(B) and (ii) substantially assisted the deceptive acts of others in violation of 12 U.S.C.

§ 5536 (a)(3).

The NORA letter also states that, in connection with any action, the Bureau may seek all remedies available under the CFPA, including civil money penalties, consumer redress and injunctive relief.

On January 18, 2022, the Company responded to the NORA letter disputing that it had committed any violations.

On March 7, 2022, we received another civil investigative demand from the Bureau seeking additional information relating to its investigation.

We cannot predict the eventual scope, duration or outcome of the investigation 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 March 18, 2016, we received a subpoena from the Attorney General of the State of Maryland, relating to the Company’s repossession and sale policies and procedures in the state of Maryland.

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Also on August 11, 2020, we received from the Attorney General of the State of New Jersey a subpoena that is essentially identical to the August 11, 2020 Maryland subpoena, both as to substance and as to the jurisdictions identified.

The Company has been informed that the State of Kansas and the State of Texas have withdrawn from the multistate investigation.

We are cooperating with these investigations and cannot predict their eventual scope, duration, or outcome at this time.

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An adverse ultimate disposition in any action to which we are a party or otherwise subject could have a material adverse impact on our financial position, liquidity, and results of operations.

SUBSEQUENT EVENTS

On April 28, 2023, we extended the date on which our $ 400.0 million Warehouse Facility II will cease to revolve from April 30, 2024 to April 30, 2026.

The interest rate on borrowings under the facility has been increased from LIBOR plus 175 basis points to SOFR plus 230 basis points.

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