What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-30 compared with 2023-10-30 · 128 added, 247 removed, 296 unchanged (56% of the section changed)

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The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in Item 8 - Financial Statements and Supplementary Data, of our 2023 Annual Report on Form 10-K, as well as Part I - Item 1 - Financial Statements, of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

We offer financing programs that enable automobile dealers to sell vehicles to consumers, regardless of their credit history.

We make vehicle ownership possible by providing innovative financing solutions that enable automobile dealers to sell vehicles to consumers regardless of their credit history.

Our financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing;

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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 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.

For the three months ended March 31, 2024, consolidated net income was $64.3 million, or $5.08 per diluted share, compared to consolidated net income of $99.5 million, or $7.61 per diluted share, for the same period in 2023, primarily due to increases in provision for credit losses and interest expense, partially offset by an increase in finance charges.

Our results for the three months ended March 31, 2024 included:

• A decrease in forecasted collection rates

The decrease in forecasted collection rates decreased forecasted net cash flows from our Loan portfolio by $30.8 million, or 0.3%, compared to stable forecasted collection rates during the first quarter of 2023 that increased forecasted net cash flows from our Loan portfolio by $9.4 million, or 0.1%.

• A decrease in forecasted profitability for Consumer Loans assigned in 2020 through 2022

Forecasted profitability was lower than our estimates at March 31, 2023, due to a decline in forecasted collection rates since the first quarter of 2023 and slower forecasted net cash flow timing during 2023 and the first quarter of 2024, primarily as a result of a decrease in Consumer Loan prepayments, which remain at below-average levels.

• Growth in Consumer Loan assignment volume and the average balance of our Loan portfolio

Unit and dollar volumes grew 24.1% and 20.2%, respectively, as compared to the first quarter of 2023.

The average balance of our Loan portfolio, which is our largest-ever, increased 11.7% as compared to the first quarter of 2023.

• An increase in the initial spread on Consumer Loan assignments

The initial spread increased to 22.0% compared to 21.0% on Consumer Loans assigned in the first quarter of 2023.

• An increase in our average cost of debt

Our average cost of debt increased from 4.7% to 7.0%, primarily a result of higher interest rates on recently-completed or -extended secured financings and recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.

• A decrease in common shares outstanding due to stock repurchases

Since the first quarter of 2023, we have repurchased approximately 728,000 shares, or 5.7% of the shares outstanding as of March 31, 2023.

Critical Success Factors

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We use a statistical model to estimate the expected collection rate for each Consumer Loan at the time of assignment.

We continue to evaluate the expected collection rate of each Consumer Loan subsequent to assignment.

We continue to evaluate the expected collection rate for each Consumer Loan subsequent to assignment.

Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast.

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 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:

The following table compares our aggregated forecast of Consumer Loan collection rates as of March 31, 2024, with the aggregated forecasts as of December 31, 2023 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, 2023 June 30, 2023 December 31, 2022 Initial Forecast June 30, 2023 December 31, 2022 Initial Forecast

Consumer Loan Assignment Year March 31, 2024 December 31, 2023 Initial Forecast December 31, 2023 Initial Forecast

2015 65.3 % 65.2 % 67.7 % 0.1 % -2.4 %

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Contractual repayments include both principal and interest.

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 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 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 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

For the three months ended March 31, 2024, forecasted collection rates declined for Consumer Loans assigned in 2021 through 2023 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 months ended March 31, 2024 and 2023 impacted forecasted net cash flows (forecasted collections less forecasted Dealer Holdback payments) as follows:

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

Increase (Decrease) in Forecasted Net Cash Flows 2024 2023

Dealer loans $ (27.0) $ (7.2)

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% change from forecast at beginning of period -0.3 % 0.1 %

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 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:

Consumer Loan Assignment Year Consumer Loan (1) Advance (2) Initial Loan Term (in months)

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

For the period from January 1, 2020 through March 31, 2024, the cumulative change to our forecast of future net cash flows from our Loan portfolio has been a decrease of $17.0 million, or 0.2%, as shown in the following table:

(Dollars in millions) Increase (Decrease) in Forecasted Net Cash Flows

Three Months Ended Total Loans % Change from Forecast at Beginning of Period

March 31, 2020 $ (206.5) -2.3 %

June 30, 2020 24.4 0.3 %

September 30, 2020 138.5 1.5 %

December 31, 2020 (2.7) 0.0 %

March 31, 2021 107.4 1.1 %

June 30, 2021 104.5 1.1 %

September 30, 2021 82.3 0.9 %

December 31, 2021 31.9 0.3 %

March 31, 2022 110.2 1.2 %

June 30, 2022 (43.4) -0.5 %

September 30, 2022 (85.4) -0.9 %

December 31, 2022 (41.1) -0.5 %

March 31, 2023 9.4 0.1 %

June 30, 2023 (89.3) -0.9 %

September 30, 2023 (69.4) -0.7 %

December 31, 2023 (57.0) -0.6 %

March 31, 2024 (30.8) -0.3 %

Total $ (17.0) -0.2 %

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

Average Total Assignment Volume

Consumer Loan Assignment Year Consumer Loan (1) Advance (2) Initial Loan Term (in months) Unit Volume Dollar Volume (2)

(in millions)

2015 $ 16,354 $ 7,272 50 298,288 $ 2,167.0

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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 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 June 30, 2023 $ 26,912 $ 12,488 61

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

(3) Represents activity for the three months ended March 31, 2024.

Information in this table for each of the years prior to 2024 represents activity for all 12 months of that year.

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

Forecasting collection rates accurately at Loan inception is difficult.

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

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

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

The following table presents aggregate forecasted Consumer Loan collection rates, advance rates, and spreads (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of March 31, 2024, as well as forecasted collection rates and spreads 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 September 30, 2023 Initial Forecast Advance % (1) September 30, 2023 Initial Forecast % of Forecast Realized (2)

Consumer Loan Assignment Year March 31, 2024 Initial Forecast Advance % (1) March 31, 2024 Initial Forecast % of Forecast Realized (2)

2015 65.3 % 67.7 % 44.5 % 20.8 % 23.2 % 99.5 %

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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 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 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 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 spread between the forecasted collection rate as of March 31, 2024 and the advance rate ranges from 14.7% to 23.8%, 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 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:

The higher spread for 2024 Consumer Loans relative to 2023 Consumer Loans as of March 31, 2024 was primarily a result of a higher initial spread on 2024 Consumer Loans, which was due to a decrease in the advance rate, partially offset by a lower initial forecast.

Additionally, the performance of 2023 Consumer Loans has been lower than our initial estimates.

The following table compares our forecast of aggregate Consumer Loan collection rates as of March 31, 2024 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 September 30, 2023 Initial

Forecast Variance September 30, 2023 Initial

Consumer Loan Assignment Year March 31, 2024 Initial

Forecast Variance March 31, 2024 Initial

Forecast Variance

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Contractual repayments include both principal and interest.

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.

The following table presents aggregate forecasted Consumer Loan collection rates, advance rates, and spreads (the forecasted collection rate less the advance rate) as of March 31, 2024 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 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 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.

Additionally, 2023 Purchased Loans had a higher initial spread, due to a higher initial forecast and a lower advance rate.

The spread as of March 31, 2024 on 2024 Dealer Loans was 22.0%, as compared to a spread of 21.3% on 2023 Dealer Loans.

The increase was due to Consumer Loan performance, as the performance of 2023 Dealer Loans has been lower than our initial estimates.

The spread as of March 31, 2024 on 2024 Purchased Loans was 21.7%, as compared to a spread of 20.2% on 2023 Purchased Loans.

The increase was primarily a result of a higher initial spread on 2024 Purchased Loans, due to a lower advance rate and higher initial forecast.

The increase was partially offset by Consumer Loan performance, as the performance of 2023 Purchased Loans has exceeded our initial estimates.

Access to Capital

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and (3) maintain multiple funding sources.

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

Our funded debt to equity ratio was 3.4 to 1 as of March 31, 2024.

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 seven 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 five quarters as compared to the same period in the previous year:

Year over Year Percent Change

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March 31, 2024 24.1 % 20.2 %

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 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.

Unit and dollar volumes grew 24.1% and 20.2%, respectively, during the first quarter of 2024 as the number of active Dealers grew 10.5% and the average unit volume per active Dealer increased 12.0%.

Dollar volume increased less than unit volume during the first quarter of 2024 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 28-day period ended April 28, 2024 grew 11.4% compared to the same period in 2023.

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

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

2023 2022 % Change 2023 2022 % Change

For the Three Months Ended March 31,

2024 2023 % Change

Consumer Loan unit volume 111,488 89,821 24.1 %

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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 September 30, For the Nine Months Ended September 30,

2023 2022 % Change 2023 2022 % Change

For the Three Months Ended March 31,

2024 2023 % Change

Consumer Loan unit volume from new active Dealers

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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 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)

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March 31, 2024 78.2 % 21.8 % 76.6 % 23.4 %

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 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.

As of March 31, 2024 and December 31, 2023, the net Dealer Loans receivable balance was 69.2% and 67.7% , respectively, of the total net Loans receivable balance.

Results of Operations

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We believe the economics of our business are best exhibited by recognizing net Loan income on a level-yield basis over the life of the Loan based on expected future net cash flows.

We do not believe the GAAP methodology we employ (known as CECL) provides sufficient transparency into the economics of our business due to its asymmetry requiring us to recognize a significant provision for credit losses expense at the time of assignment for contractual net cash flows we never expect to realize and to recognize in subsequent periods finance charge revenue that is significantly in excess of our expected yields.

Under the GAAP methodology we employ, which is known as the current expected credit loss model, or CECL, we are required to recognize:

• a significant provision for credit losses expense at the time of the Loan’s assignment to us for contractual net cash flows we do not expect to realize;

• finance charge revenue in subsequent periods that is significantly in excess of our expected yield.

Due to the GAAP treatment of contractual net cash flows we do not expect to realize at the time of loan assignment (i.e.

significant expense at the time of loan assignment, which is offset by higher revenue in subsequent periods), we do not believe the GAAP methodology we employ provides sufficient transparency into the economics of our business.

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

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

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,

2024 2023 $ Change % Change

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The increase of $48.1 million, or 11.4%, 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,

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

2024 2023 Change

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Average yield on our Loan portfolio 26.4 % 26.5 % -0.1 %

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

The following table summarizes the impact each component had on the overall increase in finance charges for the three months ended March 31, 2024:

(In millions) Year over Year Change

Impact on finance charges:

For the Three Months Ended September 30, 2023

For the Three Months Ended March 31, 2024

Due to an increase in the average net Loans receivable balance $ 49.4

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The increase of $4.5 million, or 25.9%, 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 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.

The increase of $8.8 million, or 7.5%, was primarily due to an increase in general and administrative expenses of $5.7 million, or 31.7%, primarily due to increases in legal and technology systems expenses.

Provision for Credit Losses .

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.

The increase of $48.6 million, or 35.4%, was due to increases in provision for credit losses on forecast changes and 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 September 30,

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

Provision for Credit Losses 2024 2023 Change

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Total $ 186.0 $ 137.4 $ 48.6

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.

The increase in provision for credit losses related to forecast changes was due to a decline in Consumer Loan performance and slower net cash flow timing during the first quarter of 2024 compared to the first quarter of 2023.

During the first quarter of 2024, we decreased our estimate of future net cash flows by $30.8 million, or 0.3%, 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, which remain at below-average levels.

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

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.

During the first quarter of 2023, we increased our estimate of future net cash flows by $9.4 million, or 0.1%, to reflect stable forecasted collection rates during the period;

however, we slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments.

The increase in provision for credit losses related to new Consumer Loan assignments was primarily due to a 24.1% increase in Consumer Loan assignment unit volume, partially offset by a 14.5% decrease in the average provision per Consumer Loan assignment.

The decrease in the average provision per Consumer Loan assignment was primarily due to a decrease in the average advance rate for 2024 Consumer Loans.

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,

The increase in interest expense of $38.1 million, or 70.0%, was 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 recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.

• An increase in the average outstanding debt principal balance, which was primarily due to borrowing used to fund the growth of our loan portfolio and stock repurchases.

The following table presents the change in interest expense, average outstanding debt principal balance, and average cost of debt for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023:

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

2024 2023 Change

Interest expense $ 92.5 $ 54.4 $ 38.1

Average outstanding debt principal balance (1) 4,855.9 4,728.5 127.4

Average outstanding debt balance (1) 5,306.8 4,594.7 712.1

Average cost of debt 7.0 % 4.7 % 2.3 %

(1) Includes the unamortized debt discount and excludes deferred debt issuance costs.

Provision for Claims.

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 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.

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 Nine Months Ended

September 30,

2023 2022 $ Change % Change

Finance charges $ 1,303.8 $ 1,270.3 $ 33.5 2.6 %

Premiums earned 58.0 45.6 12.4 27.2 %

Other income 48.5 57.5 (9.0) -15.7 %

Total revenue 1,410.3 1,373.4 36.9 2.7 %

Costs and expenses:

Salaries and wages 214.1 196.7 17.4 8.8 %

General and administrative 59.8 67.8 (8.0) -11.8 %

Sales and marketing 70.9 57.9 13.0 22.5 %

Total operating expenses 344.8 322.4 22.4 6.9 %

Provision for credit losses on forecast changes 319.4 67.6 251.8 372.5 %

Provision for credit losses on new Consumer Loan assignments 253.1 283.5 (30.4) -10.7 %

Total provision for credit losses 572.5 351.1 221.4 63.1 %

Interest 187.7 117.2 70.5 60.2 %

Provision for claims 54.1 34.0 20.1 59.1 %

Total costs and expenses 1,159.1 824.7 334.4 40.5 %

Income before provision for income taxes 251.2 548.7 (297.5) -54.2 %

(1) Includes the unamortized debt discount.

Provision for Income Taxes .

Net income $ 192.5 $ 408.5 $ (216.0) -52.9 %

Net income per share:

Basic $ 14.79 $ 29.90 $ (15.11) -50.5 %

Diluted $ 14.73 $ 29.74 $ (15.01) -50.5 %

Weighted average shares outstanding:

Basic 13,013,344 13,662,178 (648,834) -4.7 %

Diluted 13,068,998 13,737,871 (668,873) -4.9 %

Finance Charges.

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

Average net Loans receivable balance $ 6,547.8 $ 6,316.9 $ 230.9

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 nine months ended September 30, 2023:

(In millions) Year over Year Change

Impact on finance charges:

For the Nine Months Ended September 30, 2023

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

Due to a decrease in the average yield (12.9)

Total increase in finance charges $ 33.5

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 $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 $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 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 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 .

The increase of $221.4 million, or 63.1%, 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.

We also recognize provision for credit losses on forecast changes in the amount and timing of expected future net cash flows subsequent to assignment.

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

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

Provision for Credit Losses 2023 2022 Change

Forecast changes $ 319.4 $ 67.6 $ 251.8

New Consumer Loan assignments 253.1 283.5 (30.4)

Total $ 572.5 $ 351.1 $ 221.4

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.

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.

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 the three months ended March 31, 2024, the effective income tax rate increased to 25.6% from 21.5% for the same period in 2023.

The increase was primarily due to the impact of tax benefits recognized in 2023 related to our stock-based compensation plan.

For additional information, see Note 12 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 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 $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

Interest expense $ 187.7 $ 117.2 $ 70.5

Average outstanding debt principal balance (1) 4,742.0 4,712.7 29.3

Average cost of debt 5.3 % 3.3 % 2.0 %

(1) Includes the unamortized debt discount and excludes deferred debt issuance costs.

Provision for Claims.

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 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.

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 i s incorporated herein by reference.

The COVID-19 pandemic had a significant impact on our work environment, as the vast majority of our team members began working remotely.

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Additionally, we have various on-site meetings, events, and team building activities for which in-person attendance is encouraged.

Therefore, we believe we will always have a need for some amount of office space.

As a result of the “remote first” strategy, we have excess space in the two office buildings that we own in Southfield, Michigan.

We are actively exploring options to reduce our office space, which could result in the sale of one or both of our buildings.

As there is currently a significant amount of unoccupied office space in Southfield, we believe the market value of our buildings and improvements, land and land improvements, and office furniture and equipment is significantly less than their combined carrying value of $35.3 million.

If we were to reclassify one or both of these buildings as held for sale, we would be required to record an impairment charge to reduce the carrying value of the buildings held for sale to their estimated market value less costs to sell.

Therefore, we believe we have a continuing need for some amount of office space.

As a result of the “remote first” strategy, we have significant excess space in the two office buildings that we own, which are located in Southfield, Michigan.

After exploring options to reduce our office space, we have made the preliminary decision to sell the larger building and consolidate into the smaller building that has served as our headquarters since 1993.

The building that we intend to sell is currently scheduled for auction in mid-May 2024.

As there is currently a significant amount of unoccupied office space in our region, we do not know whether the auction will result in a sale of the building.

Additionally, we believe the market value of the building and its improvements, together with the related land and land improvements and office furniture and equipment, is significantly less than the carrying value of $27.5 million.

We have evaluated the facts and circumstances of the potential auction sale, and we do not believe that the building currently meets all of the criteria necessary for us to reclassify it as held for sale.

If we were to reclassify the building as held for sale, we would record an impairment charge to reduce its carrying value to its estimated market value less costs to sell.

Liquidity and Capital Resources

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and (4) senior notes.

There are various restrictive covenants to which we are subject under each financing arrangement and we were in compliance with those covenants as of September 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 March 31, 2024.

For information regarding these financings and the covenants included in the related documents, see Note 10 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.

On February 16, 2024, we extended the $100.0 million Term ABS financing that we entered into on January 29, 2021 and to which we refer as Term ABS 2021-1.

Under the amendment effecting the extension, the date on which the financing will cease to revolve has been extended from December 16, 2024 to February 17, 2026.

On February 27, 2024, we completed a $200.0 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 7.8% (including placement agent fees and other costs), and it will revolve for 36 months, after which it will amortize based upon the cash flows on the underlying Loans.

On March 28, 2024, we completed a $500.0 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 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.

On May 25, 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 6.8% (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 June 22, 2023, we extended the maturity of our revolving secured line of credit facility from June 22, 2025 to June 22, 2026.

Prior to this amendment, the amount of the facility was set to decrease by $25.0 million on June 22, 2023;

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.

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.

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:

The financing has an expected average annualized cost of 6.4% (including 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.

Cash and cash equivalents were $8.4 million as of March 31, 2024 and $13.2 million as of December 31, 2023.

As of March 31, 2024 and December 31, 2023, we had $1,355.5 million and $1,505.8 million, respectively, in unused and available lines of credit.

Our total balance sheet indebtedness increased to $5,611.5 million as of March 31, 2024 from $5,067.5 million as of December 31, 2023.

A summary of our scheduled principal debt maturities as of March 31, 2024 is as follows:

(In millions)

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Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 discusses several critical accounting estimates, which we believe involve a high degree of judgment and complexity.

There have been no material changes to the estimates and assumptions associated with these accounting estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2022, except as described below:

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.

Forward-Looking Statements

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• Due to competition from traditional financing sources and non-traditional lenders, we may not be able to compete successfully.

• An outbreak of contagious disease, such as the COVID-19 pandemic, or other public health emergency could materially and adversely affect our business, financial condition, liquidity, and results of operations.

• Adverse changes in economic conditions, the automobile or finance industries, or the non-prime consumer market could adversely affect our financial position, liquidity, and results of operations, the ability of key vendors that we depend on to supply us with services, and our ability to enter into future financing transactions.

• Reliance on third parties to administer our ancillary product offerings could adversely affect our business and financial results.

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• Our reputation is a key asset to our business, and our business may be affected by how we are perceived in the marketplace.

• The concentration of our dealers in several states could adversely affect us.

• An outbreak of contagious disease or other public health emergency could materially and adversely affect our business, financial condition, liquidity, and results of operations.

• The concentration of Dealers in several states could adversely affect us.

• Reliance on our outsourced business functions could adversely affect our business.

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• We may be unable to execute our business strategy due to current economic conditions.

• Natural disasters, climate change, military conflicts, acts of war, terrorist attacks and threats, or the escalation of military activity in response to terrorist attacks or otherwise may negatively affect our business, financial condition, and results of operations.

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• Interest rate fluctuations may adversely affect our borrowing costs, profitability, and liquidity.

• The phaseout of the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with a different reference rate, could result in a material adverse effect on our business.

• Reduction in our credit rating could increase the cost of our funding from, and restrict our access to, the capital markets and adversely affect our liquidity, financial condition, and results of operations.

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• Our dependence on technology could have a material adverse effect on our business.

• We depend on secure information technology, and a breach of our systems or those of our third-party service providers could result in our experiencing significant financial, legal, and reputational exposure and could materially adversely affect our business, financial condition, and results of operations.

• Our use of electronic contracts could impact our ability to perfect our ownership or security interest in Consumer Loans.

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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