What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-30 compared with 2023-08-01 · 134 added, 111 removed, 409 unchanged (37% of the section changed)

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

For the three months ended June 30, 2023, consolidated net income was $22.2 million, or $1.69 per diluted share, compared to consolidated net income of $107.4 million, or $7.94 per diluted share, for the same period in 2022, primarily due to increases in provision for credit losses on forecast changes and interest expense.

Our results for the three months ended June 30, 2023 included:

• A decrease in forecasted collection rates during the second quarter of 2023, which decreased forecasted net cash flows from our Loan portfolio by $89.3 million, or 0.9%, compared to a decrease in forecasted collection rates during the second quarter of 2022, which decreased forecasted net cash flows from our Loan portfolio by $43.4 million, or 0.5%.

The $89.3 million decrease in forecasted net cash flows for the second quarter of 2023 included the impact of an adjustment to our forecasting methodology, which upon implementation, decreased our estimate of future net cash flows by $44.5 million, or 0.5%.

In addition, forecasted net cash flow timing slowed during the second quarter of 2023, primarily as a result of a decrease in Consumer Loan prepayments to below-average levels.

Changes in the amount and timing of forecasted net cash flows are recognized in the period of change through provision for credit losses.

• Forecasted profitability per Consumer Loan assignment for Consumer Loans assigned in 2020 through 2022 that was lower than our estimates at June 30, 2022, due to a decline in forecasted collection rates since the second quarter of 2022 and slower forecasted net cash flow timing during 2023, primarily as a result of a decrease in Consumer Loan prepayments to below-average levels.

• Growth in Consumer Loan assignment volume, as unit and dollar volumes grew 12.8% and 8.3%, respectively, as compared to the second quarter of 2022.

The average balance of our Loan portfolio for the second quarter of 2023 increased 4.3% as compared to the second quarter of 2022.

• Initial spread on Consumer Loans assigned in the second quarter of 2023 increased to 21.2% compared to 20.0% on Consumer Loans assigned in the second quarter of 2022.

For the six months ended June 30, 2023, consolidated net income was $121.7 million, or $9.30 per diluted share, compared to consolidated net income of $321.7 million, or $23.10 per diluted share, for the same period in 2022, primarily due to increases in provision for credit losses on forecast changes and interest expense.

Our results for the six months ended June 30, 2023 included:

• A decrease in forecasted collection rates during the first six months of 2023, which decreased forecasted net cash flows from our Loan portfolio by $79.9 million, or 0.9%, compared to an increase in forecasted collection rates during the first six months of 2022, which increased forecasted net cash flows from our Loan portfolio by $66.8 million, or 0.7%.

The $79.9 million decrease in forecasted net cash flows for the first six months of 2023 included the impact of an adjustment to our forecasting methodology, which upon implementation, decreased our estimate of future net cash flows by $44.5 million, or 0.5%.

In addition, forecasted net cash flow timing slowed during the first six months of 2023, primarily as a result of a decrease in Consumer Loan prepayments to below-average levels.

Changes in the amount and timing of forecasted net cash flows are recognized in the period of change through provision for credit losses.

• Growth in Consumer Loan assignment volume, as unit and dollar volumes grew 17.8% and 13.3%, respectively, as compared to the first six months of 2022.

The average balance of our Loan portfolio for the first six months of 2023 increased 2.5% as compared to the first six months of 2022.

• Initial spread on Consumer Loans assigned in the first six months of 2023 increased to 21.1% compared to 19.7% on Consumer Loans assigned in the first six months of 2022.

For the three months ended September 30, 2023, consolidated net income was $70.8 million, or $5.43 per diluted share, compared to consolidated net income of $86.8 million, or $6.49 per diluted share, for the same period in 2022, primarily due to increases in interest expense and operating expenses and a decrease in other income.

Our results for the three months ended September 30, 2023 included:

• A decrease in forecasted collection rates during the third quarter of 2023 that decreased forecasted net cash flows from our Loan portfolio by $69.4 million, or 0.7%, compared to a decrease in forecasted collection rates during the third quarter of 2022 that decreased forecasted net cash flows from our Loan portfolio by $85.4 million, or 0.9%.

• Forecasted profitability for Consumer Loans assigned in 2020 through 2022 that was lower than our estimates at September 30, 2022, due to a decline in forecasted collection rates since the third quarter of 2022 and slower forecasted net cash flow timing during 2023, primarily as a result of a decrease in Consumer Loan prepayments to below-average levels.

• Growth in Consumer Loan assignment volume, as unit and dollar volumes grew 13.0% and 10.5%, respectively, as compared to the third quarter of 2022.

The average balance of our Loan portfolio for the third quarter of 2023 increased 5.9% as compared to the third quarter of 2022.

• An increase in the initial spread on Consumer Loan assignments to 21.4% on Consumer Loans assigned in the third quarter of 2023 compared to 20.2% on Consumer Loans assigned in the third quarter of 2022.

• An increase in our average cost of debt, which was primarily a result of higher interest rates on recently-completed or extended secured financings and the repayment of older secured financings with lower interest rates.

For the nine months ended September 30, 2023, consolidated net income was $192.5 million, or $14.73 per diluted share, compared to consolidated net income of $408.5 million, or $29.74 per diluted share, for the same period in 2022, primarily due to increases in provision for credit losses on forecast changes and interest expense.

Our results for the nine months ended September 30, 2023 included:

• A decrease in forecasted collection rates during the first nine months of 2023 that decreased forecasted net cash flows from our Loan portfolio by $149.3 million, or 1.7%, compared to a decrease in forecasted collection rates during the first nine months of 2022 that decreased forecasted net cash flows from our Loan portfolio by $18.6 million, or 0.2%.

The $149.3 million decrease in forecasted net cash flows for the first nine months of 2023 included the impact of an adjustment to our forecasting methodology during the second quarter of 2023, which, upon implementation, decreased our estimate of future net cash flows by $44.5 million, or 0.5%.

• Growth in Consumer Loan assignment volume, as unit and dollar volumes grew 16.2% and 12.4%, respectively, as compared to the first nine months of 2022.

The average balance of our Loan portfolio for the first nine months of 2023 increased 3.7% as compared to the first nine months of 2022.

• An increase in the initial spread on Consumer Loan assignments to 21.2% on Consumer Loans assigned in the first nine months of 2023 compared to 19.8% on Consumer Loans assigned in the first nine months of 2022.

Critical Success Factors

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

The following table compares our forecast of Consumer Loan collection rates as of June 30, 2023, with the forecasts as of March 31, 2023, as of December 31, 2022, and at the time of assignment, segmented by year of assignment:

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

Consumer Loan Assignment Year September 30, 2023 June 30, 2023 December 31, 2022 Initial Forecast June 30, 2023 December 31, 2022 Initial Forecast

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

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

(2) The forecasted collection rate for 2023 Consumer Loans as of June 30, 2023 includes both Consumer Loans that were in our portfolio as of March 31, 2023 and Consumer Loans assigned during the most recent quarter.

(2) The forecasted collection rate for 2023 Consumer Loans as of September 30, 2023 includes both Consumer Loans that were in our portfolio as of June 30, 2023 and Consumer Loans assigned during the most recent quarter.

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

Forecasted Collection Percentage as of Current Forecast Variance from

2023 Consumer Loan Assignment Period June 30, 2023 March 31, 2023 Initial Forecast March 31, 2023 Initial Forecast

January 1, 2023 through March 31, 2023 67.4 % 67.2 % 67.1 % 0.2 % 0.3 %

April 1, 2023 through June 30, 2023 67.7 % — 67.9 % — -0.2 %

2023 Consumer Loan Assignment Period September 30, 2023 June 30, 2023 Initial Forecast June 30, 2023 Initial Forecast

January 1, 2023 through June 30, 2023 67.6 % 67.5 % 67.5 % 0.1 % 0.1 %

July 1, 2023 through September 30, 2023 67.7 % — 67.7 % — 0.0 %

Consumer Loans assigned in 2018 through 2020 have yielded forecasted collection results significantly better than our initial estimates, while Consumer Loans assigned in 2015, 2016, 2021, 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 three months ended June 30, 2023, forecasted collection rates 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 six months ended June 30, 2023, forecasted collection rates improved for Consumer Loans assigned in 2018 and 2019, 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.

The changes in forecasted collection rates for the three and six months ended June 30, 2023 and 2022 impacted forecasted net cash flows (forecasted collections less forecasted Dealer Holdback payments) as follows:

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

Increase (Decrease) in Forecasted Net Cash Flows 2023 2022 2023 2022

For the three months ended September 30, 2023, forecasted collection rates declined for Consumer Loans assigned in 2020 through 2022 and were generally consistent with expectations at the start of the period for all other assignment years presented.

For the nine months ended September 30, 2023, forecasted collection rates improved for Consumer Loans assigned in 2018 and 2019, declined for Consumer Loans assigned in 2020 through 2022, and were generally consistent with expectations at the start of the period for all other assignment years presented.

The changes in forecasted collection rates for the three and nine months ended September 30, 2023 and 2022 impacted forecasted net cash flows (forecasted collections less forecasted Dealer Holdback payments) as follows:

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

Decrease in Forecasted Net Cash Flows 2023 2022 2023 2022

Dealer Loans $ (40.3) $ (37.3) $ (89.3) $ (17.4)

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Total $ (69.4) $ (85.4) $ (149.3) $ (18.6)

% change from forecast at beginning of period -0.7 % -0.9 % -1.7 % -0.2 %

During the second quarter of 2023, we adjusted our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data.

During the first half of 2023, we experienced a decrease in Consumer Loan prepayments to below-average levels and, as a result, slowed our forecasted net cash flow timing.

The below-average levels of Consumer Loan prepayments continued through the third quarter of 2023.

Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit.

Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses.

Changes in the amount and timing of forecasted net cash flows are recognized in the period of change through provision for credit losses.

The implementation of the adjustment to our forecasting methodology during the second quarter of 2023 reduced forecasted net cash flows by $44.5 million, or 0.5%, and increased provision for credit losses by $71.3 million.

We have experienced increased levels of uncertainty associated with our estimate of the amount and timing of future net cash flows from our Loan portfolio since the beginning of 2020, with realized collections underperforming our expectations during the early stages of the COVID-19 pandemic, outperforming our expectations following the distribution of federal stimulus payments and enhanced unemployment benefits, and underperforming our expectations during the current economic environment.

For the period from January 1, 2020 through September 30, 2023, the cumulative change to our forecast of future net cash flows from our Loan portfolio has been an increase of $70.8 million, or 0.8%.

Forecasting collection rates accurately is challenging, so we have designed our business model to produce acceptable levels of profitability, even if Loan performance is less than forecasted.

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

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

(3) The averages for 2023 Consumer Loans include both Consumer Loans that were in our portfolio as of March 31, 2023 and Consumer Loans assigned during the most recent quarter.

(3) The averages for 2023 Consumer Loans include both Consumer Loans that were in our portfolio as of June 30, 2023 and Consumer Loans assigned during the most recent quarter.

The following table provides averages for each of these segments:

2023 Consumer Loan Assignment Period Consumer Loan Advance Initial Loan Term (in months)

January 1, 2023 through March 31, 2023 $ 26,592 $ 12,268 61

April 1, 2023 through June 30, 2023 27,260 12,726 61

January 1, 2023 through June 30, 2023 $ 26,912 $ 12,488 61

July 1, 2023 through September 30, 2023 27,157 12,564 61

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.

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

The following table presents forecasted Consumer Loan collection rates, advance rates, the spread (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of June 30, 2023, as well as the forecasted collection rates and spread at the time of assignment.

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 September 30, 2023, as well as the forecasted collection rates and spread at the time of assignment.

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

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Forecasted Collection % as of Spread % as of

Consumer Loan Assignment Year June 30, 2023 Initial Forecast Advance % (1) June 30, 2023 Initial Forecast % of Forecast Realized (2)

Consumer Loan Assignment Year September 30, 2023 Initial Forecast Advance % (1) September 30, 2023 Initial Forecast % of Forecast Realized (2)

2014 71.7 % 71.8 % 47.7 % 24.0 % 24.1 % 99.7 %

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

(3) The forecasted collection rate, advance rate and spread for 2023 Consumer Loans as of June 30, 2023 include both Consumer Loans that were in our portfolio as of March 31, 2023 and Consumer Loans assigned during the most recent quarter.

(3) The forecasted collection rate, advance rate and spread for 2023 Consumer Loans as of September 30, 2023 include both Consumer Loans that were in our portfolio as of June 30, 2023 and Consumer Loans assigned during the most recent quarter.

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

Forecasted Collection % as of Spread % as of

2023 Consumer Loan Assignment Period June 30, 2023 Initial Forecast Advance % June 30, 2023 Initial Forecast

January 1, 2023 through March 31, 2023 67.4 % 67.1 % 46.1 % 21.3 % 21.0 %

April 1, 2023 through June 30, 2023 67.7 % 67.9 % 46.7 % 21.0 % 21.2 %

2023 Consumer Loan Assignment Period September 30, 2023 Initial Forecast Advance % September 30, 2023 Initial Forecast

January 1, 2023 through June 30, 2023 67.6 % 67.5 % 46.4 % 21.2 % 21.1 %

July 1, 2023 through September 30, 2023 67.7 % 67.7 % 46.3 % 21.4 % 21.4 %

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

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Conversely, the forecasted collection rates for more recent Consumer Loan assignments are less certain as a significant portion of our forecast has not been realized.

The spread between the forecasted collection rate as of June 30, 2023 and the advance rate ranges from 16.9% to 24.0%, on an annual basis, for Consumer Loans assigned over the last 10 years.

The spread between the forecasted collection rate as of September 30, 2023 and the advance rate ranges from 16.1% to 24.0%, on an annual basis, for Consumer Loans assigned over the last 10 years.

The spreads with respect to 2019 and 2020 Consumer Loans have been positively impacted by Consumer Loan performance, which has exceeded our initial estimates by a greater margin than the other years presented.

The spread with respect to 2022 Consumer Loans has been negatively impacted by Consumer Loan performance, which has been lower than our initial estimates by a greater margin than the other years presented.

The higher spread for 2023 Consumer Loans relative to 2022 Consumer Loans as of June 30, 2023 is primarily due to the performance of the 2022 Consumer Loans.

Additionally, 2023 Consumer Loans had a higher initial spread due to a decrease in the advance rate.

The following table compares our forecast of Consumer Loan collection rates as of June 30, 2023 with the forecasts at the time of assignment, for Dealer Loans and Purchased Loans separately:

The higher spread for 2023 Consumer Loans relative to 2022 Consumer Loans as of September 30, 2023 is primarily due to the performance of the 2022 Consumer Loans.

Additionally, 2023 Consumer Loans had a higher initial spread primarily due to a decrease in the advance rate.

The following table compares our forecast of Consumer Loan collection rates as of September 30, 2023 with the forecasts at the time of assignment, for Dealer Loans and Purchased Loans separately:

Dealer Loans Purchased Loans

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

Consumer Loan Assignment Year June 30, 2023 Initial

Forecast Variance June 30, 2023 Initial

Consumer Loan Assignment Year September 30, 2023 Initial

Forecast Variance September 30, 2023 Initial

Forecast Variance

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The following table presents forecasted Consumer Loan collection rates, advance rates, and the spread (the forecasted collection rate less the advance rate) as of June 30, 2023 for Dealer Loans and Purchased Loans separately.

The following table presents forecasted Consumer Loan collection rates, advance rates, and the spread (the forecasted collection rate less the advance rate) as of September 30, 2023 for Dealer Loans and Purchased Loans separately.

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

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

The spread as of June 30, 2023 on 2023 Dealer Loans was 21.8%, as compared to a spread of 17.3% on 2022 Dealer Loans.

The spread as of September 30, 2023 on 2023 Dealer Loans was 21.7%, as compared to a spread of 16.5% on 2022 Dealer Loans.

The increase was primarily as a result of Consumer Loan performance, as the performance of 2022 Dealer Loans has been significantly lower than our initial estimates.

Additionally, 2023 Dealer Loans had a higher initial spread, due to the advance rate decreasing by a greater margin than the initial forecast.

The spread as of June 30, 2023 on 2023 Purchased Loans was 19.5%, as compared to a spread of 15.6% on 2022 Purchased Loans.

The spread as of September 30, 2023 on 2023 Purchased Loans was 20.1%, as compared to a spread of 14.9% on 2022 Purchased Loans.

The increase was primarily as a result of Consumer Loan performance, as the performance of 2022 Purchased Loans has been significantly lower than our initial estimates, while the performance of 2023 Purchased Loans has exceeded our initial estimates.

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and (3) maintain multiple funding sources.

Our funded debt to equity ratio was 2.7 to 1 as of June 30, 2023.

Our funded debt to equity ratio was 2.9 to 1 as of September 30, 2023.

We currently utilize the following primary forms of debt financing:

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Consumer Loan Volume

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

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

Year over Year Percent Change

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June 30, 2023 12.8 % 8.3 %

September 30, 2023 13.0 % 10.5 %

(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.

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

Unit and dollar volumes grew 12.8% and 8.3%, respectively, during the second quarter of 2023 as the number of active Dealers grew 16.1% and the average unit volume per active Dealer decreased 2.3%.

Dollar volume increased less than unit volume during the second quarter of 2023 due to a decrease in the average advance paid, primarily due to a decrease in the average advance rate.

Unit volume for July 2023 grew 11.8% compared to unit volume for July 2022.

Unit and dollar volumes grew 13.0% and 10.5%, respectively, during the third quarter of 2023 as the number of active Dealers grew 14.9% and the average unit volume per active Dealer decreased 1.2%.

Dollar volume increased less than unit volume during the third quarter of 2023 due to a decrease in the average advance paid, due to decreases in the average advance rate and the average size of Consumer Loans assigned.

Unit volume for the third quarter of 2023 was 5.8% less than unit volume for the third quarter of 2019, which was the highest third quarter unit volume in our history.

Unit volume for the 28-day period ended October 28, 2023 grew 27.5% and declined 0.9% compared to the same periods in 2022 and 2019, respectively.

We believe the improvement in unit volume growth rates from the third quarter of 2023 to October 2023 was likely due to an improvement in the competitive environment.

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

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

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

2023 2022 % Change 2023 2022 % Change

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

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

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

2023 2022 % Change 2023 2022 % Change

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

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

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

Unit Volume Dollar Volume (1)

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June 30, 2023 72.4 % 27.6 % 68.6 % 31.4 %

September 30, 2023 74.8 % 25.2 % 71.7 % 28.3 %

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

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

As of June 30, 2023 and December 31, 2022, the net Dealer Loans receivable balance was 65.7% and 64.7% , respectively, of the total net Loans receivable balance.

As of September 30, 2023 and December 31, 2022, the net Dealer Loans receivable balance was 66.6% and 64.7% , respectively, of the total net Loans receivable balance.

Results of Operations

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

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

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

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

September 30,

2023 2022 $ Change % Change

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Finance Charges.

The increase of $15.4 million, or 3.6%, was the result of an increase in the average net Loans receivable balance, partially offset by a decrease in the average yield on our Loan portfolio, as follows:

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

The increase of $21.1 million, or 5.0%, was primarily due to an increase in the average net Loans receivable balance, as follows:

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

2023 2022 Change

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Average yield on our Loan portfolio 26.4 % 26.6 % -0.2 %

The following table summarizes the impact each component had on the overall increase in finance charges for the three months ended June 30, 2023:

The following table summarizes the impact each component had on the overall increase in finance charges for the three months ended September 30, 2023:

(In millions) Year over Year Change

Impact on finance charges:

For the Three Months Ended June 30, 2023

For the Three Months Ended September 30, 2023

Due to an increase in the average net Loans receivable balance $ 24.9

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

The decrease in the average yield of our Loan portfolio was primarily due to lower contractual yields on more recent Consumer Loan assignments.

Premiums Earned.

The increase of $4.4 million, or 28.6%, was primarily due to growth in the size of our reinsurance portfolio, which resulted from growth in new Consumer Loan assignments and an increase in the average premiums written in recent periods.

The increase of $4.4 million, or 26.8%, was primarily due to growth in the size of our reinsurance portfolio, which resulted from growth in new Consumer Loan assignments and an increase in the average premium written per reinsured vehicle service contract in recent periods.

Other Income.

The decrease of $7.2 million, or 30.9%, was primarily due to:

• A $5.9 million decrease in ancillary product profit sharing income primarily due to increases in average claim rates and volume of claims on Guaranteed Asset Protection (“GAP”) contracts.

• A $4.6 million decrease in remarketing fee income for fees charged to dealers related to the repossession and remarketing of vehicles.

Remarketing fee income for the three months ended September 30, 2022 included $4.5 million of fees charged to dealers for repossession activity that occurred in August 2020 through June 2022.

• A $3.4 million increase in interest income due to increases in benchmark interest rates and the average restricted cash and cash equivalents balance.

Operating Expenses.

The increase of $7.3 million, or 7.1%, was primarily due to:

• An increase in sales and marketing expense of $7.3 million, or 38.4%, primarily due to investments in our business to enhance our sales and marketing strategy, an increase in the size of our sales force, and an increase in sales commissions related to growth in Consumer Loan assignment volume.

• An increase in salaries and wages expense of $4.8 million, or 7.3%, primarily due to an increase in the number of team members in our engineering department as we are investing in our business to enhance our product and transform our technology systems to be more Dealer- and customer-focused and an increase in fringe benefits primarily due to higher medical claims.

• A decrease in general and administrative expense of $11.8 million, or 36.5%, primarily due to a decrease in legal expenses.

Legal expenses for the three months ended June 30, 2022 included a $12.0 million settlement to settle and fully resolve a previously disclosed putative class action lawsuit.

• An increase in general and administrative expense of $4.7 million, or 28.3%, primarily due to an increase in technology systems expenses.

• An increase in sales and marketing expense of $2.8 million, or 14.2%, primarily due to investments in our business to enhance our sales and marketing strategy and an increase in the size of our sales force.

Provision for Credit Losses .

The increase of $103.0 million, or 69.8%, was primarily due to an increase in provision for credit losses on forecast changes, partially offset by a decrease in provision for credit losses on new Consumer Loan assignments.

The increase of $4.3 million, or 2.4%, was due to an increase in provision for credit losses on forecast changes, partially offset by a decrease in provision for credit losses on new Consumer Loan assignments.

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

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

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

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

Provision for Credit Losses 2023 2022 Change

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Total $ 184.6 $ 180.3 $ 4.3

The increase in provision for credit losses related to forecast changes was primarily due to a decline in Consumer Loan performance during the second quarter of 2023 compared to the second quarter of 2022.

During the second quarter of 2023, we decreased our estimate of future net cash flows by $89.3 million, or 0.9%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments to below-average levels.

The increase in provision for credit losses related to forecast changes was primarily due to slower net cash flow timing during the third quarter of 2023 compared to the third quarter of 2022.

During the third quarter of 2023, we decreased our

estimate of future net cash flows by $69.4 million, or 0.7%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments to below-average levels.

Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit.

We adjusted our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data.

During the second quarter of 2022, we reduced our estimate of future net cash flows by $43.4 million, or 0.5%, to reflect a decline in Consumer Loan performance during the period.

The decrease in provision for credit losses related to new Consumer Loan assignments was primarily due to a 25.7% decrease in the average provision per Consumer Loan assignment, partially offset by a 12.8% increase in Consumer Loan assignment unit volume.

During the third quarter of 2022, we reduced our estimate of future net cash flows by $85.4 million, or 0.9%, to reflect a decline in Consumer Loan performance during the period.

The decrease in provision for credit losses related to new Consumer Loan assignments was due to a 16.9% decrease in the average provision per Consumer Loan assignment, partially offset by a 13.0% increase in Consumer Loan assignment unit volume.

The decrease in the average provision per Consumer Loan assignment was primarily due to a decrease in the average advance rate for 2023 Consumer Loans.

The increase in interest expense of $23.9 million, or 61.4%, was primarily due to an increase in our average cost of debt, which was primarily the result of higher interest rates on recently-completed secured financings, as follows:

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

The increase in interest expense of $28.7 million, or 68.7%, was primarily due to an increase in our average cost of debt, which was primarily a result of higher interest rates on recently-completed or extended secured financings and the repayment of older secured financings with lower interest rates, as follows:

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

2023 2022 Change

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Provision for Claims.

The increase in provision for claims of $7.5 million, or 61.5%, was primarily due to an increase in claims paid per reinsured vehicle service contract and an increase in the size of our reinsurance portfolio.

The increase in provision for claims of $3.6 million, or 27.9%, was due to increases in the size of our reinsurance portfolio and the average claim paid per reinsured vehicle service contract.

Provision for Income Taxes .

For the three months ended June 30, 2023, the effective income tax rate decreased to 20.4% from 24.4% for the same period in 2022.

The decrease was primarily due to the settlement of an uncertain tax position for state income taxes during the second quarter of 2023, partially offset by an increase in non-deductible executive compensation expense.

For the three months ended September 30, 2023, the effective income tax rate decreased to 26.6% from 28.9% for the same period in 2022.

The decrease was primarily due to a greater impact of state and local tax law changes recorded in the prior period.

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

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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

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

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

September 30,

2023 2022 $ Change % Change

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Finance Charges.

The increase of $12.4 million, or 1.5%, was the result of an increase in the average net Loans receivable balance, partially offset by an decrease in the average yield on our Loan portfolio, as follows:

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

The increase of $33.5 million, or 2.6%, was a result of an increase in the average net Loans receivable balance, partially offset by a decrease in the average yield on our Loan portfolio, as follows:

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

2023 2022 Change

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Average yield on our Loan portfolio 26.5 % 26.8 % -0.3 %

The following table summarizes the impact each component had on the overall increase in finance charges for the six months ended June 30, 2023:

The following table summarizes the impact each component had on the overall increase in finance charges for the nine months ended September 30, 2023:

(In millions) Year over Year Change

Impact on finance charges:

For the Six Months Ended June 30, 2023

For the Nine Months Ended September 30, 2023

Due to an increase in the average net Loans receivable balance $ 46.4

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Premiums Earned.

The increase of $8.0 million, or 27.4%, was primarily due to growth in the size of our reinsurance portfolio, which resulted from growth in new Consumer Loan assignments and an increase in the average premiums written in recent periods.

The increase of $12.4 million, or 27.2%, was primarily due to growth in the size of our reinsurance portfolio, which resulted from growth in new Consumer Loan assignments and an increase in the average premium written per reinsured vehicle service contract in recent periods.

Other Income.

The decrease of $9.0 million, or 15.7%, was primarily due to:

• A $16.9 million decrease in ancillary product profit sharing income primarily due to increases in average claim rates and volume of claims on GAP contracts.

• A $2.8 million decrease in remarketing fee income for fees charged to dealers related to the repossession and remarketing of vehicles.

Remarketing fee income for the nine months ended September 30, 2022 included $3.1 million of fees charged to dealers for repossession activity that occurred in August 2020 through December 2021.

• An $11.4 million increase in interest income due to increases in benchmark interest rates and the average restricted cash and cash equivalents balance.

Operating Expenses.

The increase of $15.1 million, or 6.9%, was primarily due to:

The increase of $22.4 million, or 6.9%, was due to:

• An increase in salaries and wages expense of $17.4 million, or 8.8%, primarily due to an increase in the number of team members in our engineering department as we are investing in our business to enhance our product and transform our technology systems to be more Dealer- and customer-focused and an increase in fringe benefits primarily due to higher medical claims.

The impact of the increases in the number of team members and in fringe benefits was partially offset by a decrease in cash-based incentive compensation expense due to a decline in Company performance measures.

The impact of the increases in the number of team members and in fringe benefits was partially offset by a decrease in cash-based incentive compensation expense primarily due to a decline in Company performance measures.

• An increase in sales and marketing expense of $13.0 million, or 22.5%, primarily due to investments in our business to enhance our sales and marketing strategy, an increase in the size of our sales force, and an increase in sales commissions related to growth in Consumer Loan assignment volume.

• A decrease in general and administrative expense of $8.0 million, or 11.8%, primarily due to a decrease in legal expenses.

Legal expenses for the six months ended June 30, 2022 included a $12.0 million settlement to settle and fully resolve a previously disclosed putative class action lawsuit.

Legal expenses for the nine months ended September 30, 2022 included a $12.0 million settlement to settle and fully resolve a previously disclosed putative class action lawsuit.

Provision for Credit Losses .

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

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

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

Provision for Credit Losses 2023 2022 Change

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Total $ 572.5 $ 351.1 $ 221.4

The increase in provision for credit losses related to forecast changes was primarily due to a decline in Consumer Loan performance during the first six months of 2023 compared to an improvement in Consumer Loan performance during the first six months of 2022.

During the first six months of 2023, we decreased our estimate of future net cash flows by $79.9 million, or 0.9%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments to below-average levels.

The increase in provision for credit losses related to forecast changes was primarily due to a greater decline in Consumer Loan performance during the first nine months of 2023 compared to the first nine months of 2022.

During the first nine months of 2023, we decreased our estimate of future net cash flows by $149.3 million, or 1.7%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments to below-average levels.

Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit.

During the first six months of 2022, we increased our estimate of future net cash flows by $66.8 million, or 0.7%, to reflect an improvement in Consumer Loan performance during the period.

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

For additional information, see

Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

During the first nine months of 2022, we decreased our estimate of future net cash flows by $18.6 million, or 0.2%, to reflect a decline in Consumer Loan performance during the period.

The $18.6 million decrease in forecasted net cash flows for the first nine months of 2022 included the impact of forecasting methodology changes during the first quarter of 2022, which, upon implementation, increased our estimate of future net cash flows by $95.7 million and reduced our provision for credit losses by $70.6 million.

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

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

The decrease in provision for credit losses related to new Consumer Loan assignments was primarily due to a 25.6% decrease in the average provision per Consumer Loan assignment, partially offset by a 17.8% increase in Consumer Loan

assignment unit volume.

The decrease in provision for credit losses related to new Consumer Loan assignments was due to a 23.2% decrease in the average provision per Consumer Loan assignment, partially offset by a 16.2% increase in Consumer Loan assignment unit volume.

The decrease in the average provision per Consumer Loan assignment was primarily due to a decrease in the average advance rate for 2023 Consumer Loans.

The increase in interest expense of $41.8 million, or 55.4%, was primarily due to an increase in our average cost of debt, which was primarily the result of higher interest rates on recently-completed secured financings, as follows:

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

The increase in interest expense of $70.5 million, or 60.2%, was primarily due to an increase in our average cost of debt, which was primarily a result of higher interest rates on recently-completed or extended secured financings and the repayment of older secured financings with lower interest rates, as follows:

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

2023 2022 Change

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Provision for Claims.

The increase in provision for claims of $16.5 million, or 78.2%, was primarily due to an increase in claims paid per reinsured vehicle service contract and an increase in the size of our reinsurance portfolio.

The increase in provision for claims of $20.1 million, or 59.1%, was primarily due to increases in the size of our reinsurance portfolio and the average claim paid per reinsured vehicle service contract.

Provision for Income Taxes.

For the six months ended June 30, 2023, our effective income tax rate decreased to 21.3% from 24.6% for the six months ended June 30, 2022.

For the nine months ended September 30, 2023, our effective income tax rate decreased to 23.4% from 25.6% for the nine months ended September 30, 2022.

The decrease was primarily due to the impact of tax benefits related to our stock-based compensation plan and the settlement of an uncertain tax position for state income taxes during the second quarter of 2023, partially offset by an increase in non-deductible executive compensation expense.

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and (4) senior notes.

There are various restrictive covenants to which we are subject under each financing arrangement and we were in compliance with those covenants as of June 30, 2023.

There are various restrictive covenants to which we are subject under each financing arrangement and we were in compliance with those covenants as of September 30, 2023.

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

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however, this amendment increased the amount of the facility by $5.0 million, resulting in a net decrease of $20.0 million, from $410.0 million to $390.0 million.

Cash and cash equivalents were $3.2 million as of June 30, 2023 and $7.7 million as of December 31, 2022.

As of June 30, 2023 and December 31, 2022, we had $1,416.1 million and $1,554.1 million, respectively, in unused and available lines of credit.

Our total balance sheet indebtedness increased to $4,746.6 million as of June 30, 2023 from $4,590.7 million as of December 31, 2022.

A summary of our scheduled principal debt maturities as of June 30, 2023 is as follows:

On August 4, 2023, we extended the date on which our $75.0 million Warehouse Facility VI will cease to revolve from September 30, 2024 to September 30, 2026.

On August 24, 2023, we completed a $400.0 million Term ABS financing, which was used to repay outstanding indebtedness and for general corporate purposes.

The financing has an expected average annualized cost of 7.3% (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 underlying Loans.

On September 21, 2023, we extended the date on which our $200.0 million Warehouse Facility VIII will cease to revolve from September 1, 2024 to September 21, 2026.

The interest rate on borrowings under the facility has been increased from SOFR plus 201.4 basis points to SOFR plus 225 basis points.

Cash and cash equivalents were $3.1 million as of September 30, 2023 and $7.7 million as of December 31, 2022.

As of September 30, 2023 and December 31, 2022, we had $1,281.9 million and $1,554.1 million, respectively, in unused and available lines of credit.

Our total balance sheet indebtedness increased to $4,940.8 million as of September 30, 2023 from $4,590.7 million as of December 31, 2022.

A summary of our scheduled principal debt maturities as of September 30, 2023 is as follows:

(In millions)

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During the first half of 2023, we experienced a decrease in Consumer Loan prepayments to below-average levels and, as a result, slowed our forecasted net cash flow timing.

The below-average levels of Consumer Loan prepayments continued through the third quarter of 2023.

Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit.

Changes in the amount and timing of forecasted net cash flows are recognized in the period of change through provision for credit losses.

The implementation of the adjustment to our forecasting

methodology during the second quarter of 2023 reduced forecasted net cash flows by $44.5, or 0.5%, million and increased provision for credit losses by $71.3 million.

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-Q

Item 2. Management’s Discussion and Analysis