What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-10 · 166 added, 401 removed, 481 unchanged (54% of the section changed)

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our operations in March 1991.

From inception through September 30, 2021, we have originated a total of approximately $17.8 billion of

automobile contracts, primarily by purchasing retail installment sales contracts from dealers, and to a lesser degree, by originating

loans secured by automobiles directly with consumers.

In addition, we acquired a total of approximately $822.3 million of automobile contracts

in mergers and acquisitions in 2002, 2003, 2004 and 2011.

Recent contract purchase volumes and managed portfolio levels are shown in the

From inception through March 31, 2022, we have originated a total of approximately $18.5 billion of automobile

contracts, primarily by purchasing retail installment sales contracts from dealers, and to a lesser degree, by originating loans secured

by automobiles directly with consumers.

In addition, we acquired a total of approximately $822.3 million of automobile contracts in mergers

and acquisitions in 2002, 2003, 2004 and 2011.

Recent contract purchase volumes and managed portfolio levels are shown in the table below:

Contract Purchases

and Outstanding Managed Portfolio

$ in thousands

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Managed Portfolio at Period End

Nine months ended September 30, 2021

In May 2021, we entered into

arrangements with two non-affiliated entities for whom we originate certain receivables with the intention of selling them to the respective

non-affiiliates.

Depending on the program, we may or may not continue to service receivables after they are sold.

Under these programs,

we earn fees for originating the receivable and also servicing fees in the case where we retain the servicing.

For the nine months ended

September 30, 2021, we originated $23.7 million under these third-party programs.

As of September 30, 2021, our managed portfolio includes

$22.6 million of such third-party receivables.

Three months ended March 31, 2022

In May 2021 we began purchasing

some contracts for immediate sale to a third-party to whom we refer applications that don’t meet our lending criteria.

all such contracts on behalf of the third-party.

We earn fees for originating the receivable and also servicing fees on active accounts

in the third-party portfolio.

For the three months ended March 31, 2022, we originated $--20.6 million under this third-party program.

As of March 31, 2022, our managed portfolio includes $57.2 million of such third-party receivables.

Our principal executive offices

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92 term securitizations of automobile contracts that we originated.

As of September 30, 2021, 20 of those securitizations are active and

all are structured as secured financings.

As of March 31, 2022, 19 of those securitizations are active and all

are structured as secured financings.

Since September 2010 we have utilized senior subordinated structures without any financial guarantees.

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per calendar year.

However, in 2015 and 2020, we closed only three term securitization transactions in each calendar year rather than

However, in 2020, we closed only three term securitization transactions in that calendar year rather than four.

Our recent history of term securitizations

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Number of Term Securitizations

Receivables Pledged in Term Securitizations

Nine months ended September 30, 2021

Pledged in Term Securitizations

Three months ended March 31, 2022

Generally, prior to a securitization

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such other event of default were to be accompanied by acceleration of such other indebtedness.

As of September 30, 2021, we were in compliance

As of March 31, 2022, we were in compliance

with all such covenants.

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Comparison of Operating Results for the

three months ended September 30, 2021 with the three months ended September 30, 2020

the three months ended September 30, 2021, our revenues were $68.6 million, a decrease of $2.1 million, or 3.0%, from the prior year revenue

three months ended March 31, 2022 with the three months ended March 31, 2021

the three months ended March 31, 2022, our revenues were $74.4 million, an increase of $11.3 million, or 17.8%, from the prior year revenue

of $63.1 million.

The primary reason for the decrease in revenues is a decrease in interest income.

Interest income for the three months

ended September 30, 2021 decreased $5.6 million, or 7.7%, to $67.0 million from $72.6 million in the prior year.

The primary reason for

the decrease in interest income is the continued runoff of our legacy portfolio of finance receivables originated prior to January 2018,

the average balance of which decreased by 51.0% from the prior period.

The decrease in interest from that legacy portion of our portfolio

was partially offset by the increase in our portfolio of receivables measured at fair value, which are those originated since January

The interest yield on receivables measured at fair value is reduced to take account of expected losses and is therefore less than

the yield on other finance receivables.

The table below shows the average balances and interest yields of the two components of our loan

portfolio for the three months ended September 30, 2021 and 2020:

Three Months Ended September 30,

The primary reason for the increase in revenues are the marks to the finance receivables measured at fair value and

the increase in the average outstanding balance of finance receivables measured at fair value.

Revenues for the three months ended March

31, 2022 include a $2.4 million mark up to the recorded value of the finance receivables measured at fair value.

This compares to a $4.4

million mark down in the prior year period.

The marks are estimates based on our evaluation of the appropriate fair value and future earnings

rate of existing receivables compared to recently acquired receivables and increases or decreases in our estimates of future net losses.

During the three months ended March 31, 2022, we reduced our estimate for expected future losses in finance receivables measured at fair

value as we have observed that our previous estimates for increased losses due to the pandemic hand not materialized.

The change in estimated

losses resulted in the $2.4 million mark up for the three months ended March 31, 2022.

Interest income for the three

months ended March 31, 2022 increased $4.0 million, or 6.0%, to $70.1 million from $66.1 million in the prior year.

The primary reason

for the increase in interest income is the 22.5% increase in the average balance of finance receivables measured at fair value over the

prior year period.

The table below shows the average balances and interest yields of the two components of our loan portfolio for the

three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(Dollars in thousands)

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Finance receivables measured at fair value

Revenues for the three months ended September 30, 2020 are net of a mark down of $3.2 million

to the recorded value of the finance receivables measured at fair value.

The mark downs are estimates based on our evaluation of the appropriate

fair value and future earnings rate of existing receivables compared to recently acquired receivables and our assessment of potential

additional future net losses arising from the pandemic.

Our evaluation of these finance receivables measured at fair value for the three

months ended September 30, 2021 indicated that no adjustment was required for the period.

Other income was $1.9 million

for the three months ended September 30, 2021 compared to $1.2 million for the comparable period in 2020.

This 24.9% increase was primarily driven by the origination and servicing fees we earned from third party receivables that began in May

These fees were $495,000 for the quarter ended September 30, 2021.

for the three months ended March 31, 2022 compared to $1.4 million for the comparable period in 2021.

32.7% increase was primarily driven by the origination and servicing fees we earned from third party receivables that began in May 2021.

These fees were $844,000 for the quarter ended March 31, 2022.

Our operating expenses

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Total operating expenses were

$49.0 million for the three months ended September 30, 2021, compared to $64.8 million for the prior period, a decrease of $15.8 million,

$45.0 million for the three months ended March 31, 2022, compared to $55.2 million for the prior period, a decrease of $10.1 million,

The decrease is primarily due to decreases in interest expense and provisions for credit losses.

Employee costs were $22.2 million

during the three months ended September 30, 2021 compared to $19.2 million for the same quarter in the prior year.

during the three months ended March 31, 2022 compared to $20.2 million for the same quarter in the prior year.

The table below summarizes

our employees by category as well as contract purchases and units in our managed portfolio as of, and for the three-month periods ended,

September 30, 2021 and 2020:

Three Months Ended September 30,

March 31, 2022 and 2021:

Three Months Ended March 31,

(Dollars in millions)

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Interest expense for the three

months ended September 30, 2021 were $18.3 million and represented 37.4% of total operating expenses, compared to $24.9 million in the

previous year, when it was 38.4% of total operating expenses.

months ended March 31, 2022 were $16.4 million and represented 36.4% of total operating expenses, compared to $20.9 million in the previous

year, when it was 38.0% of total operating expenses.

Interest on securitization trust

debt decreased by $6.3 million for the three months ended September 30, 2021 compared to the prior period.

debt decreased by $4.9 million for the three months ended March 31, 2022 compared to the prior period.

The average balance of securitization

trust debt decreased to $1,819.8 million for the three months ended September 30, 2021 compared to $1,979.5 million for the three months

ended September 30, 2020.

In addition, the blended interest rates on new term securitizations have declined in 2020 and 2021.

The annualized

average rate on our securitization trust debt was 3.4% for the three months ended September 30, 2021 compared to 4.4% in the prior year

For each quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including the

market interest rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks

that investors are willing to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization.

These and other factors have resulted in fluctuations in our securitization trust debt interest costs.

The blended interest rates of our

recent securitizations are summarized in the table below:

Blended Cost of Funds

on Recent Asset-Backed Term Securitizations

trust debt decreased to $1,808.5 million for the three months ended March 31, 2022 compared to $1,876.8 million for the three months ended

March 31, 2021.

In addition, the blended interest rates on new term securitizations have declined since 2020.

The annualized average rate

on our securitization trust debt was 3.0% for the three months ended March 31, 2022 compared to 3.9% in the prior year period.

quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including the market interest

rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks that investors

are willing to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization.

These and other

factors have resulted in fluctuations in our securitization trust debt interest costs.

The blended interest rates of our recent securitizations

are summarized in the table below:

Blended Cost of Funds on Recent Asset-Backed

Term Securitizations

Blended Cost of Funds

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Interest expense on warehouse

credit line debt decreased by $928,000 to $929,000 for the three months ended September 30, 2021 compared to $1.9 million in the prior

The decrease was due to the lower utilization of our credit lines during the quarter compared to last year.

The average balance

of our warehouse debt was $39.4 million during the three months ended September 30, 2021 compared to $90.7 million for the same period

credit line debt increased by $156,000 to $1.2 million for the three months ended March 31, 2022 compared to $1.3 million in the prior

The increase was due to the higher utilization of our credit lines during the quarter compared to last year.

balance of our warehouse debt was $66.5 million during the three months ended March 31, 2022 compared to $50.3 million for the same period

Interest expense on subordinated

renewable notes increased by $137,000.

The average balance of the outstanding subordinated debt increased 36.1% to $26.9 million for the

three months ended September 30, 2021 compared to $19.7 million for the three months ended September 30, 2020.

renewable notes was $620,000 for the three months ended March 31, 2022.

The average balance of the outstanding subordinated debt increased

19.6% to $26.5 million for the three months ended March 31, 2022 compared to $22.2 million for the prior year.

The average yield of subordinated

notes decreased to 10.4% in the three-month period ended September 30, 2021 compared to 11.4% in the prior period.

notes decreased to 9.3% compared to 11.0% in the prior period.

In May 2018 and June 2021, we

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and $50.0 million, respectively.

Interest expense on these residual interest financings was $1.4 million for the three months ended September

Interest expense on these residual interest financings was $1.1 million for the three months ended March

31, 2022 compared to $566,000 in the prior year period.

The following table presents

the components of interest income and interest expense and a net interest yield analysis for the three-month periods ended September 30,

2021 and 2020:

Three Months Ended September 30,

(Dollars in thousands)

the components of interest income and interest expense and a net interest yield analysis for the three-month periods ended March 31, 2022

Three Months Ended March 31,

Interest Earning Assets

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Ratio of average interest earning assets to average interest bearing liabilities

(1) Average balances are based on month end balances except for warehouse lines of credit, which

are based on daily balances.

(2) Net of deferred fees and direct costs.

(3) Annualized net interest income divided by average interest earning assets.

Three Months Ended September 30, 2021

Compared to September 30, 2020

_______________

balances are based on month end balances except for warehouse lines of credit, which are

based on daily balances

of deferred fees and direct costs

(3) Annualized

net interest income divided by average interest earning assets

Three Months Ended March 31, 2022

Compared to March 31, 2021

(In thousands)

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Net interest income/spread

The reduction in the annualized

yield on our finance receivables for the three months ended September 30, 2021 compared to the prior year period is the result of the

lower interest yield on the receivables measured at fair value.

The interest yield on receivables measured at fair value is reduced to

take account of expected losses and is therefore less than the yield on other finance receivables.

The average balance of these receivables

was $1,837.1 million for the three months ended September 30, 2021 compared to $1,646.0 million in the prior year period.

The reduction in the annualized yield on our finance receivables for the three months ended March 31, 2022 compared

to the prior year period is the result of the lower interest yield on the receivables measured at fair value.

The interest yield on receivables

measured at fair value is reduced to take account of expected losses and is therefore less than the yield on other finance receivables.

The average balance of these receivables was $2,067.3 million for the three months ended March 31, 2022 compared to $1,687.2 million in

the prior year period.

Effective January 1, 2020, the Company adopted

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receivable portfolio that was originated prior to January 2018.

The Company recorded an addition to its allowance for finance credit losses

of $127.0 million upon its adoption of CECL in January 2020.

In accordance with the rules for adopting CECL, the offset to the addition

to the allowance for finance credit losses was a tax affected reduction to retained earnings using the modified retrospective method.

For the three months ended September 30, 2021,

we recorded a reduction to provision for credit losses on finance receivables in the amount of $1.6 million.

The reserve decrease was

primarily due to a decrease in lifetime expected credit losses resulting from improved credit performance.

Provision for credit losses

was $7.4 million for the three months ended September 30, 2020.

That provision represented our estimate in 2020 of additional forecasted

losses that might be incurred as a result of the pandemic in our portfolio of finance receivables.

Such losses were not considered in

our initial estimate of remaining lifetime losses that we recorded upon our adoption of CECL in January 2020.

The Company recorded an addition to its allowance for finance credit

losses of $127.0 million upon its adoption of CECL in January 2020.

In accordance with the rules for adopting CECL, the offset to the

addition to the allowance for finance credit losses was a tax affected reduction to retained earnings using the modified retrospective

For the three months ended March 31, 2022, we

recorded a reduction to provision for credit losses on finance receivables in the amount of $9.4 million.

The reserve decrease was primarily

due to a decrease in lifetime expected credit losses resulting from improved credit performance as our previous estimates for future losses

exceeded actual incurred losses.

There were no additions or reductions to provision for credit losses for the three months ended March

Our evaluation of the allowance for credit losses

indicated that the reserves against future losses are adequate as of September 30, 2021.

Although we have not yet seen a deterioration

in the credit performance for these receivables as a result of the pandemic, we expect that the absence of any additional government stimulus

indicated that the reserves against future losses are adequate as of March 31, 2022.

Although we have not yet seen a deterioration in

the credit performance for these receivables as a result of the pandemic, we expect that the absence of any additional government stimulus

payments, the expiration of the eviction moratorium and a reversion to the mean for used car pricing could negatively affect credit performance

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internet lead sales, and direct mail products.

Sales expense increased by $1.1 million to $4.3 million during the three months ended September

Sales expense increased by $1.4 million to $5.4 million during the three months ended March

31, 2022 and represented 12.0% of total operating expenses.

We purchased $410.0 million of new contracts during the three months ended

September 30, 2021 compared to $174.0 million in the prior year period.

In our second quarter of 2020, we experienced a significant reduction

in contract purchases due to the pandemic and partial shutdown of the economy.

Since then, our contract purchase volumes have gradually

increased to pre-pandemic levels.

March 31, 2022 compared to $205.5 million in the prior year period.

Occupancy expenses was $1.9

million for the three months ending September 30, 2021 compared to $1.8 million in the prior year period.

million for the three months ending March 31, 2022 and 2021.

Depreciation and amortization

expenses decreased to $417,000 compared to $428,000 in the previous year and represented 0.9% of total operating expenses.

For the three months ended September 30, 2021,

we recorded income tax expense of $5.9 million, representing a 30% effective tax rate.

For the three months ended March 31, 2022, we

recorded income tax expense of $8.2 million, representing a 28% effective tax rate.

In the prior period, our income tax expense was $2.9

million, representing a 35% effective tax rate.

Comparison of Operating Results for the

nine months ended September 30, 2021 with the nine months ended September 30, 2020

the nine months ended September 30, 2021, our revenues were $198.4 million, a decrease of $10.3 million, or 4.9%, from the prior year

revenue of $208.7 million.

The primary reason for the decrease in revenues is a decrease in interest income.

Interest income for the nine

months ended September 30, 2021 decreased $28.7 million, or 12.6%, to $198.6 million from $227.3 million in the prior year.

reason for the decrease in interest income is the continued runoff of our legacy portfolio of finance receivables originated prior to

January 2018, the average balance of which decreased by 44.4% from the prior period.

The decrease in interest from that legacy portion

of our portfolio was partially offset by the increase in our portfolio of receivables measured at fair value, which are those originated

since January 2018.

The interest yield on receivables measured at fair value is reduced to take account of expected losses and is therefore

less than the yield on other finance receivables.

The table below shows the average balances and interest yields of the two components

of our loan portfolio for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

(Dollars in thousands)

Interest Earning Assets

Finance receivables

Finance receivables measured at fair value

Revenues for the nine months ended September 30, 2021 and 2020 are net of a mark downs of $4.4

million and $23.1 million, respectively, to the recorded value of the finance receivables measured at fair value.

The mark downs are estimates

based on our evaluation of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables

and our assessment of potential additional future net losses arising from the pandemic.

Other income was $4.3 million

for the nine months ended September 30, 2021 compared to $4.5 million for the nine months ended September

Our operating expenses

consist largely of interest expense, provision for credit losses, employee costs, sales and general and administrative expenses.

for credit losses is affected by the balance and credit performance of our portfolio of finance receivables (other than our portfolio

of finance receivables measured at fair value, as to which expected credit losses have the effect of reducing the internal rate of return

or the recorded value applicable to such receivables).

Interest expense is significantly affected by the volume of automobile contracts

we purchased during the trailing 12-month period and the use of our warehouse facilities and asset-backed securitizations to finance those

Employee costs and general and administrative expenses are incurred as applications and automobile contracts are received,

processed and serviced.

Factors that affect margins and net income include changes in the automobile and automobile finance market environments,

and macroeconomic factors such as interest rates and changes in the unemployment level.

Employee costs include base

salaries, commissions and bonuses paid to employees, and certain expenses related to the accounting treatment of outstanding stock options

and are one of our most significant operating expenses.

These costs (other than those relating to stock options) generally fluctuate with

the level of applications and automobile contracts purchased and serviced.

Other operating expenses consist

largely of facilities expenses, telephone and other communication services, credit services, computer services, sales and advertising

expenses, and depreciation and amortization.

Total operating expenses were

$157.1 million for the nine months ended September 30, 2021, compared to $195.1 million for the prior period, a decrease of $38.0 million,

The decrease is primarily due to decreases in interest expense, provisions for credit losses and employee costs.

Employee costs decreased by

$3.0 million or 5.0%, to $57.8 million during the nine months ended September 30, 2021, representing 36.8% of operating expenses, from

$60.8 million for the prior year.

The table below summarizes our employees by category as well as contract purchases and units in our

managed portfolio as of, and for the nine-month periods ended, September 30, 2021 and 2020:

Nine Months Ended September 30,

(Dollars in millions)

Contracts purchased (dollars)

Contracts purchased (units)

Managed portfolio outstanding (dollars)

Managed portfolio outstanding (units)

Number of Originations staff

Number of Sales staff

Number of Servicing staff

Number of other staff

Total number of employees

General and administrative expenses

include costs associated with purchasing and servicing our portfolio of finance receivables, including expenses for facilities, credit

services, and telecommunications.

General and administrative expenses were $23.0 million, a decrease from $24.4 million in the previous

year and represented 14.7% of total operating expenses.

Interest expense for the nine

months ended September 30, 2021 were $58.3 million and represented 37.1% of total operating expenses, compared to $78.4 million in the

previous year, when it was 40.2% of total operating expenses.

Interest on securitization trust

debt decreased by $17.2 million for the nine months ended September 30, 2021 compared to the prior period.

The average balance of securitization

trust debt decreased to $1,842.7 million for the nine months ended September 30, 2021 compared to $2,058.1 million for the nine months

ended September 30, 2020.

In addition, the blended interest rates on new term securitizations have declined in 2020 and 2021.

The annualized

average rate on our securitization trust debt was 3.7% for the nine months ended September 30, 2021 compared to 4.4% in the prior year

For each quarterly securitization transaction, the blended cost of funds is ultimately the result of many factors including the

market interest rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks

that investors are willing to accept, which in turn, is influenced by investor demand for our bonds at the time of the securitization.

These and other factors have resulted in fluctuations in our securitization trust debt interest costs.

The blended interest rates of our

recent securitizations are summarized in the table below:

Blended Cost of Funds

on Recent Asset-Backed Term Securitizations

Blended Cost of Funds

September 2020

Interest expense on warehouse

credit line debt decreased by $3.0 million to $3.3 million for the nine months ended September 30, 2021 compared to $6.3 million in the

prior year period.

The decrease was primarily due to the lower utilization of our credit lines during the quarter compared to last year.

The average balance of our warehouse debt was $46.7 million during the nine months ended September 30, 2021 compared to $107.4 million

for the same period in 2020.

Interest expense on subordinated

renewable notes increased by $401,000.

The average balance of the outstanding subordinated debt increased 30.7% to $24.6 million for the

nine months ended September 30, 2021 compared to $18.8 million for the nine months ended September 30, 2020.

The average yield of subordinated

notes decreased to 10.7% in the nine-month period ended September 30, 2021 compared to 11.2% in the prior period.

In May 2018 and June 2021, we

completed two residual interest financings of our residual interests from previously issued securitizations in the amounts of $40.0 million

and $50.0 million, respectively.

Interest expense on these residual interest financings was $2.4 million for the nine months ended September

30, 2021 compared to $2.7 million in the prior year period.

The following table presents

the components of interest income and interest expense and a net interest yield analysis for the nine-month periods ended September 30,

2021 and 2020:

Nine Months Ended September 30,

(Dollars in thousands)

Interest Earning Assets

Finance receivables gross (2)

Finance receivables at fair value

Interest Bearing Liabilities

Warehouse lines of credit

Residual interest financing

Securitization trust debt

Subordinated renewable notes

Net interest income/spread

Net interest yield (3)

Ratio of average interest earning assets to average interest bearing liabilities

(1) Average balances are based on month end balances except for warehouse lines of credit, which

are based on daily balances.

(2) Net of deferred fees and direct costs.

(3) Annualized net interest income divided by average interest earning assets.

Nine Months Ended September 30, 2021

Compared to September 30, 2020

(In thousands)

Interest Earning Assets

Finance receivables gross

Finance receivables at fair value

Interest Bearing Liabilities

Warehouse lines of credit

Residual interest financing

Securitization trust debt

Subordinated renewable notes

Net interest income/spread

The reduction in the annualized

yield on our finance receivables for the nine months ended September 30, 2021 compared to the prior year period is the result of the

lower interest yield on the receivables measured at fair value.

The interest yield on receivables measured at fair value is reduced to

take account of expected losses and is therefore less than the yield on other finance receivables.

The average balance of these receivables

was $1,757.8 million for the nine months ended September 30, 2021 compared to $1,619.4 million in the prior year period.

Effective January 1, 2020, the Company adopted

Accounting Standards Update 2016-13 - Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments.

The amendment introduces a new credit reserving model known as the Current Expected Credit Loss model, generally referred to as CECL.

Adoption of CECL required the establishment of an allowance for the remaining expected lifetime credit losses on the portion of the Company’s

receivable portfolio that was originated prior to January 2018.

The Company recorded an addition to its allowance for finance credit losses

of $127.0 million upon its adoption of CECL in January 2020.

In accordance with the rules for adopting CECL, the offset to the addition

to the allowance for finance credit losses was a tax affected reduction to retained earnings using the modified retrospective method.

For the nine months ended September 30, 2021,

we recorded a reduction to provision for credit losses on finance receivables in the amount of $1.6 million.

The reserve decrease was

primarily due to a decrease in lifetime expected credit losses resulting from improved credit performance.

Provision for credit losses

was $14.1 million for the nine months ended September 30, 2020.

That provision represented our estimate in 2020 of additional forecasted

losses that might be incurred as a result of the pandemic on our portfolio of finance receivables.

Such losses were not considered in

our initial estimate of remaining lifetime losses that we recorded upon our adoption of CECL in January 2020.

Our evaluation of the allowance for credit losses

indicated that the reserves against future losses are adequate as of September 30, 2021.

Although we have not yet seen a deterioration

in the credit performance for these receivables as a result of the pandemic, we expect that the absence of any additional government stimulus

payments, the expiration of the eviction moratorium and a reversion to the mean for used car pricing could negatively affect credit performance

in the future.

The allowance applies only to our finance receivables

originated through December 2017, which we refer to as our legacy portfolio.

Finance receivables that we have originated since

January 2018 are accounted for at fair value.

Under the fair value method of accounting, we recognize interest income net of expected

credit losses.

Thus, no provision for credit loss expense is recorded for finance receivables measured at fair value.

Sales expense consists primarily

of commission-based compensation paid to our employee sales representatives.

Our sales representatives earn a salary plus commissions

based on volume of contract purchases and sales of ancillary products and services that we offer our dealers, such as training programs,

internet lead sales, and direct mail products.

Sales expense increased by $1.8 million to $12.5 million during the nine months ended September

30, 2021 and represented 7.9% of total operating expenses.

We purchased $818.3 million of new contracts during the nine months ended September

30, 2021 compared to $575.9 million in the prior year period.

In our second quarter of 2020, we experienced a significant reduction in

contract purchases due to the pandemic and partial shutdown of the economy.

Since then, our contract purchase volumes have gradually increased

to pre-pandemic levels.

Occupancy expenses was $5.9

million for the nine months ending September 30, 2021 compared to $5.4 million in the prior year period.

Depreciation and amortization

expenses decreased by $90,000 to $1.3 million and represented 0.8% of total operating expenses.

For the nine months ended September 30, 2021 we

recorded income tax expense of $12.8 million, representing a 31% effective tax rate.

For the nine months ended September 30, 2020, we

recorded a net income tax benefit of $3.9 million.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”)

Act was passed into law, providing wide ranging economic relief for individuals and businesses.

One component of the CARES Act provides

the Company with an opportunity to carry back net operating losses (“NOLs”) arising from 2018, 2019 and 2020 to the prior

five tax years.

The Company has previously valued its NOLs at the federal corporate income tax rate of 21%.

However, the CARES Act provides

for NOL carryback claims to be calculated based on a rate of 35%, which was the federal corporate tax rate in effect for the carryback

The result of the revaluation of NOLs and other tax adjustments is a net tax benefit of $8.8 million.

Excluding the tax benefit,

income tax expense for the nine months ended September 30, 2020 would have been $4.9 million, representing an effective income tax rate

Credit Experience

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contracts that we originated or own an interest in as of the respective dates shown.

Recent effects of the pandemic include higher volumes

of payment extensions requested by our customers and, in some states, temporary suspension of our rights to repossess automobiles.

pandemic may have a negative effect on our delinquency and charge off experience in the future, which is not yet reflected in the tables

Delinquency, Repossession and Extension Experience

Total Owned Portfolio

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

December 31, 2021

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Delinquencies as a percentage of gross servicing portfolio

Total delinquencies and amount in repossession as a percentage of gross servicing portfolio

Total delinquencies and amount in repossession as a percentage of

gross servicing portfolio

Extension Experience

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Finance Receivables Portfolio

September 30,

(Dollars in thousands)

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Fair Value Receivables Portfolio

September 30,

(Dollars in thousands)

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Annualized net charge-offs as a percentage of average servicing portfolio (2)

Total Managed Portfolio

September 30,

Total Owned Portfolio

(Dollars in thousands)

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the principal amount scheduled to be paid on each automobile contract, net of unearned income on pre-computed automobile contracts.

(2) Net charge-offs include the remaining

principal balance, after the application of the net proceeds from the liquidation of the vehicle (excluding accrued and unpaid interest)

and amounts collected subsequent to the date of charge-off, including some recoveries which have been classified as other income in the

accompanying interim consolidated financial statements.

September 30, 2021 and September 30, 2020 percentages represent three months

ended September 30, 2021 and September 30, 2020 annualized.

(2) Net charge-offs include the remaining principal

balance, after the application of the net proceeds from the liquidation of the vehicle (excluding accrued and unpaid interest) and amounts

collected subsequent to the date of charge-off, including some recoveries which have been classified as other income in the accompanying

interim consolidated financial statements.

March 31, 2022 and March 31, 2021 percentages represent three months ended March 31, 2022 and

March 31, 2021 annualized.

December 31, 2021 represents 12 months ended December 31, 2021.

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believe that a prudent extension program is an integral component to mitigating losses in our portfolio of sub-prime automobile receivables.

The table below summarizes the status, as of September 30, 2021, for accounts that received extensions from 2008 through 2020:

The table below summarizes the status, as of March 31, 2022, for accounts that received extensions from 2008 through 2020:

Period of Extension

# Extensions Granted

Active or Paid Off at September 30, 2021

% Active or Paid Off at September 30, 2021

Active or Paid Off at March 31, 2022

% Active or Paid Off at March 31, 2022

Charged Off > 6 Months After Extension

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For example, of the accounts granted extensions in

2018, 59.2% were either paid in full or active and performing September 30, 2021.

Each of these successful accounts represent continued

payments of interest and principal (including payment in full in many cases), where without the extension we likely would have incurred

a substantial loss and no interest revenue after the extension.

2018, 56.7% were either paid in full or active and performing March 31, 2022.

Each of these successful accounts represent continued payments

of interest and principal (including payment in full in many cases), where without the extension we likely would have incurred a substantial

loss and no interest revenue after the extension.

For the extension accounts that

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about our extensions is provided in the tables below:

Nine Months Ended September 30,

Year Ended December 31,

Nine Months Ended September 30,

Three Months Ended

Average number of extensions granted per month

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and owned by third parties

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

December 31, 2021

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Net cash provided by operating

activities for the nine-month period ended September 30, 2021 was $163.1 million, a decrease of $27.5 million, compared to net cash provided

by operating activities for the nine-month period ended September 30, 2020 of $190.6 million.

activities for the three-month period ended March 31, 2022 was $68.3 million, an increase of $2.9 million, compared to net cash provided

by operating activities for the three-month period ended March 31, 2021 of $65.4 million.

Net cash from operating activities is generally

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Net cash used in investing activities

was $50.2 million for the nine months ended September 30, 2021.

Net cash provided by investing activities for the nine-month period ended

September 30, 2020 was $45.4 million.

Cash provided by investing activities primarily results from principal payments and other proceeds

received on finance receivables.

was $139.5 million for the three months ended March 31, 2022.

Net cash provided by investing activities for the three-month period ended

March 31, 2021 was $23.9 million.

Cash provided by investing activities primarily results from principal payments and other proceeds received

on finance receivables.

Cash used in investing activities generally relates to purchases of automobile contracts.

finance receivables excluding acquisition fees were $818.3 million and $572.9 million during the first nine months of 2021 and 2020, respectively.

Net cash used in financing activities

for the nine months ended September 30, 2021 was $83.3 million compared to $164.6 million in the prior year period.

Cash provided by financing

activities is primarily related to the issuance of securitization trust debt, reduced by the amount of repayment of securitization trust

debt and net proceeds or repayments on our warehouse lines of credit and other debt.

In the first nine months of 2021, we issued $761.5

million in new securitization trust debt compared to $714.5 million in the same period of 2020.

We repaid $861.0 million in securitization

trust debt in the nine months ended September 30, 2021 compared to repayments of securitization trust debt of $764.1 million in the prior

In the nine months ended September 30, 2021, we had net repayments on warehouse lines of credit of $22.1 million, compared

to $104.7 million in the prior year’s period.

Purchases of finance

receivables excluding acquisition fees were $393.4 million and $205.5 million during the first three months of 2022 and 2021, respectively.

Net cash provided by financing

activities for the three months ended March 31, 2022 was $80.9 million compared to net cash used in financing activities of $64.8 million

in the prior year period.

Cash provided by financing activities is primarily related to the issuance of securitization trust debt, reduced

by the amount of repayment of securitization trust debt and net proceeds or repayments on our warehouse lines of credit and other debt.

In the first three months of 2022, we issued $316.8 million in new securitization trust debt compared to $230.5 million in the same period

We repaid $262.7 million in securitization trust debt in the three months ended March 31, 2022 compared to repayments of securitization

trust debt of $242.5 million in the prior year period.

In the three months ended March 31, 2022, we had net advances on warehouse lines

of credit of $42.2 million, compared to net repayments of $48.3 million in the prior year’s period.

We purchase automobile contracts

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be limited in our ability to purchase automobile contracts due to limits on our capital.

As of September 30, 2021, we had unrestricted

cash of $28.8 million and $102.2 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability

As of March 31, 2022, we had unrestricted cash

of $21.7 million and $53.0 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability

of sufficient eligible collateral).

As of September 30, 2021, we had approximately $95.6 million of such eligible collateral.

to manage our liquidity include maintaining our rate of automobile contract purchases at a level that matches our available capital, and,

As of March 31, 2022, we had approximately $93.9 million of such eligible collateral.

manage our liquidity include maintaining our rate of automobile contract purchases at a level that matches our available capital, and,

as appropriate, minimizing our operating costs.

During the nine-month period ended September 30, 2021, we completed three securitizations

aggregating $761.5 million of notes sold.

During the three-month period ended March 31, 2022, we completed one securitizations aggregating

$316.8 million of notes sold.

Our liquidity will also be

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accompanied by acceleration of such other indebtedness.

As of September 30, 2021, we were in compliance with all such financial covenants.

As of March 31, 2022, we were in compliance with all such financial covenants.

We have and will continue to

have a substantial amount of indebtedness.

At September 30, 2021, we had approximately $1,893.3 million of debt outstanding.

consisted primarily of $1,703.5 million of securitization trust debt and $97.8 million of debt from warehouse lines of credit.

At March 31, 2022, we had approximately $2,036.7 million of debt outstanding.

Such debt consisted

primarily of $1,813.5 million of securitization trust debt and $147.0 million of debt from warehouse lines of credit.

Our securitization

trust debt has decreased by $100.2 million while our warehouse lines of credit debt has decreased by $21.2 million since December 31,

trust debt has increased by $53.5 million while our warehouse lines of credit debt has increased by $41.4 million since December 31, 2021

(each net of deferred financing costs).

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We had $26.8 million and $26.5 million in subordinated renewable

notes outstanding at September 30, 2021 and December 31, 2020, respectively.

On May 16, 2018, we completed a $40.0 million securitization

of residual interests from previously issued securitizations.

At September 30, 2021, $15.3 million of this residual interest financing

debt remains outstanding.

On June 30, 2021, we completed a $50.0 million securitization of residual interests from other previously issued

securitizations.

As of September 30, 2021, $50.0 million of this debt remains outstanding.

notes outstanding at March 31, 2022 and December 31, 2021, respectively.

On June 30, 2021, we completed a $50.0 million securitization

of residual interests from other previously issued securitizations.

As of March 31, 2022, $50.0 million of this debt remains outstanding.

Although we believe we are

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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