What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-08 · 251 added, 263 removed, 584 unchanged (47% of the section changed)

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our operations in March 1991.

From inception through June 30, 2022, we have originated a total of approximately $19.1 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:

From inception through September 30, 2022, we have originated a total of approximately $19.6 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

Contract Purchases and Outstanding Managed Portfolio

$ in thousands

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Managed Portfolio at Period End

Six months ended June 30, 2022

Nine months ended September 30, 2022

In May 2021 we began purchasing

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in the third-party portfolio.

For the six months ended June 30, 2022, we originated $63.6 million under this third-party program.

June 30, 2022, our managed portfolio includes $96.1 million of such third-party receivables.

For the nine months ended September 30, 2022, we originated $126.8 million under this third-party program.

As of September 30, 2022, our managed portfolio includes $151.5 million of such third-party receivables.

Our principal executive offices

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94 term securitizations of automobile contracts that we originated.

As of June 30, 2022, 19 of those securitizations are active and all

are structured as secured financings.

As of September 30, 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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$ in thousands

Number of Term

Securitizations

Receivables Pledged

in Term Securitizations

Six months ended June 30, 2022

Number of Term Securitizations

Receivables Pledged in Term Securitizations

Nine months ended September 30, 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 June 30, 2022, we were in compliance

As of September 30, 2022, we were in compliance

with all such covenants.

1 unchanged sentence

Comparison of Operating Results for the

three months ended June 30, 2022 with the three months ended June 30, 2021

the three months ended June 30, 2022, our revenues were $82.0 million, an increase of $15.2 million, or 22.8%, from the prior year revenue

of $66.8 million.

The primary reasons for the increase in revenues are the mark ups 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

June 30, 2022 include a $4.7 million mark up to the recorded value of the finance receivables measured at fair value.

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

three months ended September 30, 2022 with the three months ended September 30, 2021

the three months ended September 30, 2022, our revenues were $90.3 million, an increase of $21.7 million, or 31.7%, from the prior year

revenue of $68.6 million.

The primary reason for the increase in revenues is the increase in interest income resulting from the increase

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

In addition, mark ups to the finance receivables measured

at fair value also contributed to the increase in revenues during the quarter.

Revenues for the three months ended September 30, 2022

include an $8.2 million mark up to the recorded value of the finance receivables measured at fair value.

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 June 30, 2022, we reduced our estimate

During the three months ended September 30, 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

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The change in estimated losses resulted in the $8.2 million mark up for the three months

ended June 30, 2022.

ended September 30, 2022.

There was no mark up or mark down to the fair value portfolio in the prior year period.

Interest income for the three

months ended June 30, 2022 increased $10.2 million, or 15.6%, to $75.7 million from $65.4 million in the prior year.

The primary reason

for the increase in interest income is the 31.8% 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 June 30, 2022 and 2021:

Three Months Ended June 30,

months ended September 30, 2022 increased $12.8 million, or 19.1%, to $79.8 million from $67.0 million in the prior year.

reason for the increase in interest income is the 37.0% 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 September 30, 2022 and 2021:

Three Months Ended September 30,

(Dollars in thousands)

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Finance receivables measured at fair value

Other income was $1.6 million

for the three months ended June 30, 2022 compared to $1.3 million for the comparable period in 2021.

24.0% increase was primarily driven by the origination and servicing fees we earned from third party receivables that began in May 2021.

These fees were $1.2 million for the quarter ended June 30, 2022.

Other income was $2.3 million for the three months ended September 30, 2022 compared

to $1.5 million for the comparable period in 2021.

This 49.0% increase was primarily driven by the origination and servicing fees we earned

from third party receivables that began in May 2021.

These fees were $2.0 million for the quarter ended September 30, 2022.

Our operating expenses

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Total operating expenses were

$47.8 million for the three months ended June 30, 2022, compared to $52.9 million for the prior period, a decrease of $5.1 million, or

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

$56.0 million for the three months ended September 30, 2022, compared to $49.0 million for the prior period, an increase of $7.0 million,

The increase is primarily due to increases in interest expense, employee costs and general and administrative expenses.

Employee costs were $20.7 million

during the three months ended June 30, 2022 compared to $19.4 million for the same quarter in the prior year.

during the three months ended September 30, 2022 compared to $18.2 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,

June 30, 2022 and 2021:

Three Months Ended June 30,

September 30, 2022 and 2021:

Three Months Ended September 30,

(Dollars in millions)

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services, and telecommunications.

General and administrative expenses was $8.3 million, a decrease from $7.8 million in the previous year

and represented 17.3% of total operating expenses.

General and administrative expenses was $9.4 million, an increase from $7.5 million in the previous

year and represented 16.8% of total operating expenses.

Interest expense for the three

months ended June 30, 2022 were $18.8 million and represented 39.3% of total operating expenses, compared to $19.0 million in the previous

year, when it was 35.9% of total operating expenses.

Interest on securitization trust

debt decreased by $1.1 million for the three months ended June 30, 2022 compared to the prior period.

The average balance of securitization

trust debt increased to $2,037.3 million for the three months ended June 30, 2022 compared to $1,831.5 million for the three months ended

June 30, 2021.

The annualized average rate on our securitization trust debt was 3.1% for the three months ended June 30, 2022 compared

to 3.7% in the prior year period.

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.

months ended September 30, 2022 were $23.5 million and represented 42.0% of total operating expenses, compared to $18.3 million in the

previous year, when it was 37.4% of total operating expenses.

Interest on securitization

trust debt increased by $3.2 million for the three months ended September 30, 2022 compared to the prior period.

The average balance

of securitization trust debt increased to $2,032.5 million for the three months ended September 30, 2022 compared to $1,819.8 million

for the three months ended September 30, 2021.

The annualized average rate on our securitization trust debt was 3.6% for the three months

ended September 30, 2022 compared to 3.4% in the prior year period.

The blended interest rates on new term securitizations have been

increasing in 2022.

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.

blended interest rates of our recent securitizations are summarized in the table below:

The blended interest

rates of our recent securitizations are summarized in the table below:

Blended Cost of Funds on Recent Asset-Backed Term Securitizations

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Interest expense on warehouse

credit line debt increased by $366,000 to $1.4 million for the three months ended June 30, 2022 compared to $1.0 million in the prior

credit line debt increased by $2.4 million to $3.3 million for the three months ended September 30, 2022 compared to $929,000 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 $85.6 million during the three months ended June 30, 2022 compared to $50.5 million for the same period

balance of our warehouse debt was $172.9 million during the three months ended September 30, 2022 compared to $39.4 million for the same

period in 2021.

Interest expense on subordinated

renewable notes was $590,000 for the three months ended June 30, 2022.

renewable notes was $572,000 for the three months ended September 30, 2022.

The average balance of the outstanding subordinated debt increased

7.6% to $26.7 million for the three months ended June 30, 2022 compared to $24.8 million for the prior year.

The average yield of subordinated

notes decreased to 8.8% compared to 10.8% in the prior period.

2.4% to $27.5 million for the three months ended September 30, 2022 compared to $26.9 million for the prior year.

The average yield of

subordinated notes decreased to 8.3% compared to 10.4% 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 $1.1 million for the three months ended June

30, 2022 compared to $467,000 in the prior year period.

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

30, 2022 compared to $1.4 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 three-month periods ended June 30, 2022

Three Months Ended June 30,

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

30, 2022 and 2021:

Three Months Ended September 30,

(Dollars in thousands)

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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.

(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 June 30, 2022

Compared to June 30, 2021

Three Months Ended September 30, 2022

Compared to September 30, 2021

(In thousands)

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Net interest income/spread

The annualized yield on our finance receivables was 12.3% for the three months ended June 30, 2022 and 2021.

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 fair value receivables was $2,305.6 million for the three months ended

June 30, 2022 compared to $1,749.0 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 three months ended June 30, 2022, we recorded

a reduction to provision for credit losses on finance receivables in the amount of $8.0 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 June

The annualized yield on our finance receivables was 12.1% for the three months ended September 30, 2022 and 12.5%

for the same period in 2021.

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 fair value receivables was $2,517.7 million

for the three months ended September 30, 2022 compared to $1,837.1 million in the prior year period.

For the three months ended September 30, 2022,

we recorded a reduction to provision for credit losses on finance receivables in the amount of $6.0 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.

This compares to $1.6 million in reductions to provision for credit losses for the three

months ended September 30, 2021.

Our evaluation of the allowance for credit losses

indicated that the reserves against future losses are adequate as of June 30, 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, worsening economic conditions, inflation and a reversion to the mean for used car

pricing could negatively affect credit performance in the future.

indicated that the reserves against future losses are adequate as of September 30, 2022.

Although we have not yet seen a meaningful deterioration

in the credit performance for these receivables, worsening economic conditions, inflation and a reversion to the mean for used car pricing

could negatively affect credit performance in the future.

The allowance applies only to

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internet lead sales, and direct mail products.

Sales expense increased by $1.6 million to $5.8 million during the three months ended June

Sales expense increased by $1.7 million to $6.0 million during the three months ended September

30, 2022 and represented 10.7% of total operating expenses.

We purchased $468.2 million of new contracts during the three months ended

June 30, 2022 compared to $286.0 million in the prior year period.

September 30, 2022 compared to $326.8 million in the prior year period.

Occupancy expenses was $2.0

million for the three months ending June 30, 2022 which is down from $2.0 million for the same period in 2021.

million for the three months ending September 30, 2022 and 2021.

Depreciation and amortization

expenses decreased to $406,000 compared to $409,000 in the previous year and represented 0.8% of total operating expenses.

For the three months ended June 30, 2022, we recorded

income tax expense of $8.9 million, representing a 26% effective tax rate.

In the prior period, our income tax expense was $4.2 million,

representing a 30% effective tax rate.

For the three months ended September 30, 2022,

we recorded income tax expense of $8.9 million, representing a 26% effective tax rate.

In the prior period, our income tax expense was

$5.9 million, representing a 30% effective tax rate.

Comparison of Operating Results for the

six months ended June 30, 2022 with the six months ended June 30, 2021

the six months ended June 30, 2022, our revenues were $156.4 million, an increase of $26.5 million, or 20.4%, from the prior year revenue

of $129.9 million.

The primary reasons for the increase in revenues are the mark ups 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 six months ended June

30, 2022 include a $7.1 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 six months ended June 30, 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 had not materialized.

The change in estimated

losses resulted in the $7.1 million mark up for the six months ended June 30, 2022.

Interest income for the six

months ended June 30, 2022 increased $14.2 million, or 10.8%, to $145.7 million from $131.5 million in the prior year.

The primary reason

for the increase in interest income is the 27.3% 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

six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

nine months ended September 30, 2022 with the nine months ended September 30, 2021

the nine months ended September 30, 2022, our revenues were $246.7 million, an increase of $48.2 million, or 24.3%, from the prior year

revenue of $198.4 million.

The primary reason for the increase in revenues is the increase in interest income resulting from the increase

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

In addition, mark ups to the finance receivables measured

at fair value also contributed to the increase in revenues during the period.

Revenues for the nine months ended September 30, 2022 include

a $15.3 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.

the nine months ended September 30, 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 had not materialized.

These changes resulted

in the $15.3 million mark up for the nine months ended September 30, 2022.

Interest income for the nine

months ended September 30, 2022 increased $27.0 million, or 13.6%, to $225.5 million from $198.6 million in the prior year.

reason for the increase in interest income is the 30.7% 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 nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

(Dollars in thousands)

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Finance receivables measured at fair value

Other income was $3.6 million for the six months ended June

This marks a decrease of $789,000 from other income of $2.8 million for the six months ended June 30, 2021.

Our operating

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

Provision 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 contracts.

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.

Other income was $5.9 million for the nine months ended September

This marks a decrease of $1.5 million from other income of $4.3 million for the nine months ended September 30, 2021.

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

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Total operating expenses were

$92.8 million for the six months ended June 30, 2022, compared to $108.1 million for the prior period, a decrease of $15.3 million, or

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

$148.8 million for the nine months ended September 30, 2022, compared to $157.1 million for the prior period, a decrease of $8.3 million,

The decrease is primarily due to larger provision for credit loss reversals in 2022.

Employee costs were $63.4 million

during the six months ended June 30, 2022 compared to $39.6 million for the same period in the prior year.

during the nine months ended September 30, 2022 compared to $57.8 million for the same period 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 six-month periods ended,

June 30, 2022 and 2021:

Six Months Ended June 30,

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, 2022 and 2021:

Nine Months Ended September 30,

(Dollars in millions)

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year and represented 17.4% of total operating expenses.

Interest expense for the six

months ended June 30, 2022 were $35.2 million and represented 37.9% of total operating expenses, compared to $39.9 million in the previous

year, when it was 36.9% of total operating expenses.

Interest on securitization trust

debt decreased by $6.0 million for the six months ended June 30, 2022 compared to the prior period.

The average balance of securitization

trust debt increased to $1,922.9 million for the six months ended June 30, 2022 compared to $1,854.1 million for the six months ended

June 30, 2021.

However, the blended interest rates on new term securitizations have declined in 2022.

The annualized average rate on our

securitization trust debt was 3.0% for the six months ended June 30, 2022 compared to 3.8% in the prior year period.

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:

Interest expense for the nine

months ended September 30, 2022 were $58.7 million and represented 39.4% of total operating expenses, compared to $58.3 million in the

previous year, when it was 37.1% of total operating expenses.

Interest on securitization

trust debt decreased by $2.8 million for the nine months ended September 30, 2022 compared to the prior period.

The average balance of

securitization trust debt increased to $1,959.5 million for the nine months ended September 30, 2022 compared to $1,842.7 million for

the nine months ended September 30, 2021.

The annualized average rate on our securitization trust debt was 3.3% for the nine months ended

September 30, 2022 compared to 3.7% in the prior year period.

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

2 unchanged sentences

Interest expense on warehouse

credit line debt was $2.5 million for the six months ended June 30, 2022 compared to $2.3 million in the prior year period.

were mostly offset by higher utilization of our credit lines during the quarter compared to last year.

credit line debt was $5.9 million for the nine months ended September 30, 2022 compared to $3.3 million in the prior year period.

rates were offset by higher utilization of our credit lines during the quarter compared to last year.

The average balance of our warehouse

debt was $76.1 million during the six months ended June 30, 2022 compared to $50.4 million for the same period in 2021.

debt was $108.7 million during the nine months ended September 30, 2022 compared to $46.7 million for the same period in 2021.

Interest expense on subordinated

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The average balance of the outstanding subordinated debt increased 9.2% to $26.9 million for the

six months ended June 30, 2022 compared to $23.5 million for the six months ended June 30, 2021.

The average yield of subordinated notes

decreased to 9.1% in the six-month period ended June 30, 2022 compared to 10.9% in the prior period.

nine months ended September 30, 2022 compared to $24.6 million for the nine months ended September 30, 2021.

The average yield of subordinated

notes decreased to 8.8% in the nine-month period ended September 30, 2022 compared to 10.7% in the prior period.

On May 16, 2018, we completed

3 unchanged sentences

Interest expense on these residual interest financings were $3.2

million for the six months ended June 30, 2022 compared to $1.0 million in the prior year period.

million for the nine months ended September 30, 2022 compared to $2.4 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 six-month periods ended June 30, 2022

Six Months Ended June 30,

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

2022 and 2021:

Nine Months Ended September 30,

(Dollars in thousands)

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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.

(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.

Six Months Ended June 30, 2022

Compared to June 30, 2021

Nine Months Ended September 30, 2022

Compared to September 30, 2021

(In thousands)

8 unchanged sentences

Net interest income/spread

The annualized yield on our finance receivables was 12.3% for the six months ended June

The annualized yield on our finance receivables was 12.2% for the nine months ended September

30, 2022 and 12.4% for the same period in 2021.

2 unchanged sentences

The average balance of these fair value receivables

was $2,186.4 million for the six months ended June 30, 2022 compared to $1,718.1 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 at the 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 six months ended June 30, 2022, we recorded

a reduction to provision for credit losses on finance receivables in the amount of $17.4 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 six months ended June 30,

was $2,296.8 million for the nine months ended September 30, 2022 compared to $1,757.8 million in the prior year period.

For the nine months ended September 30, 2022,

we recorded a reduction to provision for credit losses on finance receivables in the amount of $23.4 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.

In the prior year period, reductions to provision for credit losses were $1.6 million.

Our evaluation of the allowance for credit losses

indicated that the reserves against future losses are adequate as of June 30, 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

in the future.

indicated that the reserves against future losses are adequate as of September 30, 2022.

Although we have not yet seen a meaningful deterioration

in the credit performance for these receivables, worsening economic conditions, inflation and a reversion to the mean for used car pricing

could negatively affect credit performance in the future.

The allowance applies only to

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internet lead sales, and direct mail products.

Sales expense increased by $3.0 million to $11.2 million during the six months ended June

Sales expense increased by $4.7 million to $17.2 million during the nine months ended September

30, 2022 and represented 11.5% of total operating expenses.

We purchased $958.1 million of new contracts during the six months ended June

30, 2022 compared to $491.5 million in the prior year period.

We purchased $1,426.3 million of new contracts during the nine months ended

September 30, 2022 compared to $818.3 million in the prior year period.

Occupancy expenses was $5.8

million for the six months ending June 30, 2022 compared to $3.9 million for the same period in 2021.

million for the nine months ending September 30, 2022 compared to $5.9 million for the same period in 2021.

Depreciation and amortization

expenses decreased to $802,000 compared to $845,000 in the previous year and represented 0.8% of total operating expenses.

For the six months ended June 30, 2022, we recorded

income tax expense of $17.1 million, representing a 27% effective tax rate.

In the prior period, our income tax expense was $6.9 million,

representing a 32% effective tax rate.

expenses decreased to $1.2 million compared to $1.3 million in the previous year and represented 0.8% of total operating expenses.

For the nine months ended September 30, 2022,

we recorded income tax expense of $26.0 million, representing a 27% effective tax rate.

In the prior period, our income tax expense was

$12.8 million, representing a 31% effective tax rate.

Credit Experience

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Total Owned Portfolio

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

December 31, 2021

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Gross servicing portfolio (1)

Period of delinquency (2)

Period of delinquency (2) 31-60 days

Total delinquencies (2)

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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)

2 unchanged sentences

Total Owned Portfolio

September 30,

(Dollars in thousands)

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interim consolidated financial statements.

June 30, 2022 and June 30, 2021 percentages represent three months ended June 30, 2022 and

June 30, 2021 annualized.

September 30, 2022 and September 30, 2021 percentages represent three months ended September

30, 2022 and September 30, 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 June 30, 2022, for accounts that received extensions from 2008 through 2020:

The table below summarizes the status, as of September 30, 2022, for accounts that received extensions from 2008 through 2020:

Period of Extension

# Extensions Granted

Active or Paid Off at June 30, 2022

% Active or Paid Off at June 30, 2022

Active or Paid Off at September 30, 2022

% Active or Paid Off at September 30, 2022

Charged Off > 6 Months After Extension

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For example, of the accounts granted extensions in

2018, 56.4% were either paid in full or active and performing as of June 30, 2022.

2018, 55.1% were either paid in full or active and performing as of September 30, 2022.

Each of these successful accounts represent continued

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about our extensions is provided in the tables below:

Three Months Ended June 30,

Nine Months Ended September 30,

Year Ended December 31,

Six Months Ended June 30,

Nine Months Ended September 30,

Average number of extensions granted per month

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and owned by third parties

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

December 31, 2021

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and owned by third parties

Since January of 2019, we have attempted to reduce

extensions by working with our servicing staff to be more selective in granting extensions including, where appropriate, to exhaust all

possibilities of payment by the customer before granting an extension.

Since 2019, we have been able to reduce extensions

by working with our servicing staff to be more selective in granting extensions including, where appropriate, to exhaust all possibilities

of payment by the customer before granting an extension.

However, as delinquency rates have risen, so has the average number of extensions

granted for the nine month period ended September 30, 2022.

Non-Accrual Receivables

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Net cash provided by operating

activities for the six-month period ended June 30, 2022 was $119.7 million, an increase of $7.3 million, compared to net cash provided

by operating activities for the six-month period ended June 30, 2021 of $112.4 million.

activities for the nine-month period ended September 30, 2022 was $164.7 million, an increase of $1.6 million, compared to net cash provided

by operating activities for the nine-month period ended September 30, 2021 of $163.1 million.

Net cash from operating activities is generally

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Net cash used in investing activities

was $398.4 million for the six months ended June 30, 2022.

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

30, 2021 was $12.7 million.

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

on finance receivables.

was $566.5 million for the nine months ended September 30, 2022.

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

September 30, 2021 was $50.2 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.

Purchases of finance

receivables excluding acquisition fees were $904.5 million and $485.1 million during the first six months of 2022 and 2021, respectively.

finance receivables excluding acquisition fees were $1,426.3 million and $818.3 million during the first nine months of 2022 and 2021,

respectively.

Net cash provided by financing

activities for the six months ended June 30, 2022 was $270.5 million compared to net cash used in financing activities of $70.4 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 six months of 2022, we issued $712.4 million in new securitization trust debt compared to $470.5 million in the same period

We repaid $536.8 million in securitization trust debt in the six months ended June 30, 2022 compared to repayments of securitization

trust debt of $541.1 million in the prior year period.

In the six months ended June 30, 2022, we had net advances on warehouse lines of

credit of $124.6 million, compared to net repayments of $42.6 million in the prior year’s period.

activities for the nine months ended September 30, 2022 was $397.9 million compared to net cash used in financing activities of $83.3

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

In the first nine months of 2022, we issued $1,104.0 million in new securitization trust debt compared to $761.5 million in the

same period of 2021.

We repaid $804.8 million in securitization trust debt in the nine months ended September 30, 2022 compared to repayments

of securitization trust debt of $861.0 million in the prior year period.

In the nine months ended September 30, 2022, we had net advances

on warehouse lines of credit of $139.5 million, compared to net repayments of $22.1 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 June 30, 2022, we had unrestricted cash

of $11.3 million and $171.1 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability

As of September 30, 2022, we had unrestricted

cash of $12.9 million and $157.6 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability

of sufficient eligible collateral).

As of June 30, 2022, we had approximately $82.0 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 of September 30, 2022, we had approximately $40.3 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 appropriate, minimizing our operating costs.

During the six-month period ended June 30, 2022, we completed two securitizations aggregating

$712.4 million of notes sold.

During the nine-month period ended September 30, 2022, we completed three securitizations

aggregating $1,104.0 million of notes sold.

Our liquidity will also be

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accompanied by acceleration of such other indebtedness.

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

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

We have and will continue to

have a substantial amount of indebtedness.

At June 30, 2022, we had approximately $2,239.8 million of debt outstanding.

Such debt consisted

primarily of $1,934.2 million of securitization trust debt and $228.9 million of debt from warehouse lines of credit.

At September 30, 2022, we had approximately $2,376.4 million of debt outstanding.

consisted primarily of $2,057.1 million of securitization trust debt and $242.4 million of debt from warehouse lines of credit.

Our securitization

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We had $27.2 million and $26.5 million in subordinated renewable

notes outstanding at June 30, 2022 and December 31, 2021, respectively.

notes outstanding at September 30, 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 June 31, 2022, all $50.0 million of this debt remains outstanding.

As of September 30, 2022, all $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