What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-10 · 371 added, 221 removed, 403 unchanged (59% of the section changed)

Management’s Discussion and

Analysis of Financial Condition and Results of Operations

Management’s Discussion

and Analysis of Financial Condition and Results of Operations

We are a specialty finance

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In this report, we refer to all of such contracts and loans as "automobile contracts."

We were incorporated and began

our operations in March 1991.

From inception through March 31, 2023, we have originated a total of approximately $20.4 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:

We were incorporated and

began our operations in March 1991.

From inception through June 30, 2023, we have originated a total of approximately $20.7 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

Three months ended March 31, 2023

Six months ended June 30, 2023

In May 2021 we began purchasing

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in the third-party portfolio.

For the three months ended March 31, 2023, we originated $60.0 million under this third-party program.

of March 31, 2023, our managed portfolio includes $249.0 million of such third-party receivables.

Our principal executive offices

are in Las Vegas, Nevada.

For the six months ended June 30, 2023, we originated $70.8 million under this third-party program.

June 30, 2023, our managed portfolio includes $239.8 million of such third-party receivables.

Our principal executive

offices are in Las Vegas, Nevada.

Most of our operational and administrative functions take place in Irvine, California.

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We service our automobile contracts from our California, Nevada, Virginia, Florida and Illinois branches.

The programs we offer to dealers

and consumers are intended to serve a wide range of sub-prime customers, primarily through franchised new car dealers.

We originate automobile

contracts with the intention of financing them on a long-term basis through securitizations.

Securitizations are transactions in which

we sell a specified pool of contracts to a special purpose subsidiary of ours, which in turn issues asset-backed securities to fund the

purchase of the pool of contracts from us.

The programs we offer to

dealers and consumers are intended to serve a wide range of sub-prime customers, primarily through franchised new car dealers.

automobile contracts with the intention of financing them on a long-term basis through securitizations.

Securitizations are transactions

in which we sell a specified pool of contracts to a special purpose subsidiary of ours, which in turn issues asset-backed securities to

fund the purchase of the pool of contracts from us.

Securitization and Warehouse Credit Facilities

Throughout the period for which

information is presented in this report, we have purchased automobile contracts with the intention of financing them on a long-term basis

through securitizations, and on an interim basis through warehouse credit facilities.

Throughout the period for

which information is presented in this report, we have purchased automobile contracts with the intention of financing them on a long-term

basis through securitizations, and on an interim basis through warehouse credit facilities.

All such financings have involved identification

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2017 we take account of estimated credit losses in our computation of a level yield used to determine recognition of interest on the contracts.

For contracts acquired before 2018, we adopted CECL on January 1, 2020 and we may, as circumstances warrant, record as expense provisions

for credit losses.

For contracts acquired before 2018, we adopted CECL on January 1, 2020 and we may, as circumstances warrant, record or reverse expense

provisions for credit losses.

Since 1994 we have conducted

97 term securitizations of automobile contracts that we originated.

As of March 31, 2023, 18 of those securitizations are active and all

As of June 30, 2023, 18 of those securitizations are active and all

are structured as secured financings.

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Receivables Pledged in Term Securitizations

Three months ended March 31, 2023

Six months ended June 30, 2023

Generally, prior to a securitization

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$200 million.

In a securitization and in

our warehouse credit facilities, we are required to make certain representations and warranties, which are generally similar to the representations

and warranties made by dealers in connection with our purchase of the automobile contracts.

If we breach any of our representations or

warranties, we will be obligated to repurchase the automobile contract at a price equal to the principal balance plus accrued and unpaid

In a securitization and

in our warehouse credit facilities, we are required to make certain representations and warranties, which are generally similar to the

representations and warranties made by dealers in connection with our purchase of the automobile contracts.

If we breach any of our representations

or warranties, we will be obligated to repurchase the automobile contract at a price equal to the principal balance plus accrued and unpaid

We may then be entitled under the terms of our dealer agreement to require the selling dealer to repurchase the contract at

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bear the risk of loss on repossession and resale of vehicles under automobile contracts that we repurchase.

In a securitization, the related

special purpose subsidiary may be unable to release excess cash to us if the credit performance of the securitized automobile contracts

falls short of pre-determined standards.

In a securitization, the

related special purpose subsidiary may be unable to release excess cash to us if the credit performance of the securitized automobile

contracts falls short of pre-determined standards.

Such releases represent a material portion of the cash that we use to fund our operations.

unexpected deterioration in the performance of securitized automobile contracts could therefore have a material adverse effect on both

An unexpected deterioration in the performance of securitized automobile contracts could therefore have a material adverse effect on both

our liquidity and results of operations.

Receivables we originate and

service for third-parties are not pledged to our warehouse facilities or included in our securitizations.

Receivables we originate

and service for third-parties are not pledged to our warehouse facilities or included in our securitizations.

Financial Covenants

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

As of March 31, 2023, we were in compliance

As of June 30, 2023, we were in compliance

with all such covenants.

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Comparison of Operating Results for the

three months ended March 31, 2023 with the three months ended March 31, 2022

the three months ended March 31, 2023, our revenues were $83.1 million, an increase of $8.7 million, or 11.7%, from the prior year revenue

three months ended June 30, 2023 with the three months ended June 30, 2022

the three months ended June 30, 2023, our revenues were $84.9 million, an increase of $2.9 million, or 3.5%, from the prior year revenue

of $82.0 million.

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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.

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.

Based on this evaluation, there was no mark up or mark down to the fair value portfolio

in the current year period.

During the three months ended March 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 $2.4 million mark up for the prior year period.

Interest income for the three

months ended March 31, 2023 increased $10.0 million, or 14.3%, to $80.1 million from $70.1 million in the prior year.

The primary reason

for the increase in interest income is the 34.4% 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, 2023 and 2022:

Three Months Ended March 31,

Revenues for the prior year period 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 and increases or decreases in our

estimates of future net losses.

Our evaluation of the finance receivables measured at fair value resulted in no mark up or mark down to

the fair value portfolio in the current year period.

Interest income for the

three months ended June 30, 2023 increased $7.0 million, or 9.2%, to $82.6 million from $75.7 million in the prior year.

reason for the increase in interest income is the 17.6% increase in the average balance of our loan portfolio over the prior year

The interest yield on our total loan portfolio decreased from 12.3% in the prior year period to 11.4% in the current year

The receivables measured at fair value make up a larger portion of our total loan portfolio in the current year period and

this is the primary reason for the decrease in total interest yield.

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 balance and interest yield of our loan portfolio for the three months ended June 30, 2023 and 2022:

Three Months Ended June 30,

(Dollars in thousands)

Interest Earning Assets

Finance receivables

Finance receivables measured at fair value

Other income was $3.0 million for the three months ended March 31, 2023 compared

to $1.9 million for the comparable period in 2022.

This 59.4% increase was primarily driven by the origination and servicing fees we earned

from third party receivables.

These fees were $2.7 million for the quarter ended March 31, 2023 compared to $844,000 in the prior year

Loan Portfolio

Other income was $2.2 million for the three months ended June 30, 2023 compared to

$1.6 million for the comparable period in 2022.

This 34.8% increase was primarily driven by the increase in origination and servicing

fees we earned from third party receivables.

These fees were $1.9 million for the quarter ended June 30, 2023 compared to $1.2 million

in the prior year period.

Our operating expenses

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Total operating expenses were

$64.7 million for the three months ended March 31, 2023, compared to $45.0 million for the prior period, an increase of $19.6 million,

$66.3 million for the three months ended June 30, 2023, compared to $47.8 million for the prior period, an increase of $18.5 million,

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

Employee costs were $22.0 million

during the three months ended March 31, 2023 compared to $22.2 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,

March 31, 2023 and 2022:

Three Months Ended March 30,

Employee costs were $21.1

million during the three months ended June 30, 2023 compared to $20.6 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, 2023 and 2022:

Three Months Ended June 30,

(Dollars in millions)

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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 was $11.4 million, an increase from $8.2 million in the previous

year and represented 17.6% of total operating expenses.

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 was $11.8 million, an increase of $3.5 million from $8.3

million in the prior year period.

Interest expense for the three

months ended March 31, 2023 was $32.8 million and represented 50.7% of total operating expenses, compared to $16.4 million in the previous

months ended June 30, 2023 was $35.7 million and represented 53.9% of total operating expenses, compared to $18.8 million in the previous

year, when it was 39.3% of total operating expenses.

Interest on securitization trust

debt increased by $10.7 million for the three months ended March 31, 2023 compared to the prior period.

Interest on securitization

trust debt increased by $13.4 million for the three months ended June 30, 2023 compared to the prior period.

The average balance of securitization

trust debt increased to $2,283.3 million for the three months ended March 31, 2023 compared to $1,808.5 million for the three months ended

March 31, 2022.

The annualized average rate on our securitization trust debt was 4.2% for the three months ended March 31, 2023 compared

trust debt increased to $2,333.0 million for the three months ended June 30, 2023 compared to $2,037.3 million for the three months ended

June 30, 2022.

The annualized average rate on our securitization trust debt was 5.0% for the three months ended June 30, 2023 compared

to 3.1% in the prior year period.

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Interest expense on warehouse

credit line debt increased by $3.1 million to $4.3 million for the three months ended March 31, 2023 compared to $1.2 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 $194.9 million during the three months ended March 31, 2023 compared to $66.5 million for the same period

credit line debt increased by $3.6 million to $5.0 million for the three months ended June 30, 2023 compared to $1.4 million in the prior

The increase was due to the higher utilization of our credit lines and higher rates on credit line debt during the quarter

compared to last year.

The average balance of our warehouse debt was $193.4 million during the three months ended June 30, 2023 compared

to $85.6 million for the same period in 2022.

The annualized average rate on our credit line debt was 10.4% for the three months ended

June 30, 2023 compared to 6.5% in the prior year period.

Interest expense on subordinated

renewable notes was $508,000 for the three months ended March 31, 2023.

renewable notes was $477,000 for the three months ended June 30, 2023.

The average balance of the outstanding subordinated debt decreased

9.1% to $24.1 million for the three months ended March 31, 2023 compared to $26.5 million for the prior year.

The average yield of subordinated

notes decreased to 8.4% compared to 9.3% 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 $983,000 for the three months ended March

31, 2023 compared to $1.1 million in the prior year period.

by $4.5 million to $22.2 million for the three months ended June 30, 2023 compared to $26.7 million for the prior year.

The average yield

of subordinated notes decreased to 8.6% compared to 8.8% in the prior period.

In June 2021, we completed

a residual interest financing of our residual interests from previously issued securitizations in the amount of $50.0 million.

expense on this residual interest financing was $1.1 million for the three months ended June 30, 2023 and 2022.

The following table presents

the components of interest income and interest expense and a net interest yield analysis for the three-month periods ended March 31, 2023

Three Months Ended March 31,

the components of interest income and interest expense and a net interest yield analysis for the three-month periods ended June 30, 2023

Three Months Ended June 30,

(Dollars in thousands)

Interest Earning Assets

Finance receivables gross (2)

Finance receivables at fair value

Loan Portfolio

Interest Bearing Liabilities

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Net interest yield (2)

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 March 31, 2023

Compared to March 31, 2022

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) Annualized

net interest income divided by average interest earning assets.

Three Months Ended June 30, 2023

Compared to June 30, 2022

(In thousands)

Interest Earning Assets

Finance receivables gross

Finance receivables at fair value

Loan Portfolio

Interest Bearing Liabilities

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Net interest income/spread

The annualized yield on our finance receivables was 11.2% for the three months ended March 31, 2023 and 12.3%

for the same period in 2022.

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 $2,777.9 million

for the three months ended March 31, 2023 compared to $2,067.3 million in the prior year period.

For the three months ended March 31, 2023, we

recorded a reduction to provision for credit losses on finance receivables in the amount of $9.0 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 $9.4 million in reductions to provision for credit losses for the three months ended

March 31, 2022.

For the three months ended June 30, 2023, we recorded a reduction to provision for credit losses

on finance receivables in the amount of $9.7 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 $8.0 million in reductions to provision for credit losses for the three months ended June 30, 2022.

Our evaluation of the allowance for credit losses

indicated that the reserves against future losses are adequate as of March 31, 2023.

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

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.

indicated that the reserves against future losses are adequate as of June 30, 2023.

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

Sales expense consists primarily

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based on volume of contract purchases and sales of ancillary products and services that we offer our dealers.

Sales expense increased

to $5.7 million during the three months ended March 31, 2023 from $5.4 million in the same quarter in 2022.

Sales expense decreased

to $5.5 million during the three months ended June 30, 2023 from $5.8 million in the same quarter in 2022.

We purchased $318.4 million

of new contracts during the three months ended March 31, 2023 compared to $410.0 million in the prior year period.

of new contracts during the three months ended June 30, 2023 compared to $548.1 million in the prior year period.

Occupancy expenses was $1.6

million for the three months ending March 31, 2023, which is down from the $1.9 million in the first quarter of 2022.

million for the three months ending June 30, 2023, which is down from the $1.9 million in the first quarter of 2022.

Depreciation and amortization

expenses decreased to $231,000 compared to $417,000 in the previous year and represented 0.4% of total operating expenses.

For the three months ended March 31, 2023, we

expenses decreased to $211,000 compared to $385,000 in the previous year.

For the three months ended June 30, 2023, we

recorded income tax expense of $4.6 million, representing a 25% effective tax rate.

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million, representing a 26% effective tax rate.

Comparison of Operating Results for the

six months ended June 30, 2023 with the six months ended June 30, 2022

the six months ended June 30, 2023, our revenues were $168.0 million, an increase of $11.6 million, or 7.4%, from the prior year revenue

of $156.4 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.

Revenues for the prior year period include a $7.1 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.

Our evaluation of the finance receivables measured at fair value resulted in no mark up or mark down to

the fair value portfolio in the current year period.

Interest income for the

six months ended June 30, 2023 increased $17.0 million, or 11.6%, to $162.7 million from $145.7 million in the prior year.

primary reason for the increase in interest income is the 21.4% increase in the average balance of our loan portfolio over the prior

The interest yield on our total loan portfolio decreased from 12.3% in the prior year period to 11.3% in the current

The receivables measured at fair value make up a larger portion of our total loan portfolio in the current year period

and this is the primary reason for the decrease in total interest yield.

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 balance and interest yield of our loan portfolio for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

(Dollars in thousands)

Interest Earning Assets

Loan Portfolio

Other income was $5.3 million

for the six months ended June 30, 2023 compared to $3.6 million for the comparable period in 2022.

48.0% increase was primarily driven by the increase in origination and servicing fees we earned from third party receivables.

were $4.6 million for the six months ended June 30, 2023 compared to $2.3 million in the prior year period.

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

$130.9 million for the six months ended June 30, 2023, compared to $92.8 million for the prior period, an increase of $38.1 million, or

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

Employee costs were $43.2 million

during the six months ended June 30, 2023 compared to $42.7 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, 2023 and 2022:

Six Months Ended June 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 was $23.2 million for the six months ended June 30, 2023,

an increase of $6.7 million from $16.5 million in the prior year period.

Interest expense for the six

months ended June 30, 2023 was $68.5 million, compared to $35.2 million in the previous year, an increase of $33.3 million.

Interest on securitization

trust debt increased by $26.3 million for the six months ended June 30, 2023 compared to the prior period.

The average balance of securitization

trust debt increased to $2,308.0 million for the six months ended June 30, 2023 compared to $1,922.9 million for the six months ended

June 30, 2022.

The annualized average rate on our securitization trust debt was 4.8% for the six months ended June 30, 2023 compared to

3.0% in the prior year period.

The blended interest rates on new term securitizations have been increasing since 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.

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 increased by $7.3 million to $9.9 million for the six months ended June 30, 2023 compared to $2.5 million in the prior

The increase was due to the higher utilization of our credit lines and higher rates on the debt during the six month period

compared to last year.

The average balance of our warehouse debt was $194.2 million during the six months ended June 30, 2023 compared

to $76.1 million for the same period in 2022.

The annualized average rate on our credit line debt was 10.2% for the six months ended June

30, 2023 compared to 6.7% in the prior year period.

Interest expense on subordinated

renewable notes was $985,000 for the six months ended June 30, 2023.

The average balance of the outstanding subordinated debt decreased

by $3.5 million to $23.2 million for the six months ended June 30, 2023 compared to $26.6 million for the prior year.

The average yield

of subordinated notes decreased to 8.5% compared to 9.1% in the prior period.

In June 2021, we completed

a residual interest financing of our residual interests from previously issued securitizations in the amount of $50.0 million.

expense on this residual interest financing was $2.1 million for the six months ended June 30, 2023 and 2022.

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, 2023

Six Months Ended June 30,

(Dollars in thousands)

Interest Earning Assets

Loan portfolio

Interest Bearing Liabilities

Warehouse lines of credit

Residual interest financing

Securitization trust debt

Subordinated renewable notes

Net interest income/spread

Net interest yield (2)

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) Annualized

net interest income divided by average interest earning assets.

Six Months Ended June 30, 2023

Compared to June 30, 2022

(In thousands)

Interest Earning Assets

Loan portfolio

Interest Bearing Liabilities

Warehouse lines of credit

Residual interest financing

Securitization trust debt

Subordinated renewable notes

Net interest income/spread

For the six months ended June 30, 2023, we recorded a reduction to provision for credit losses on

finance receivables in the amount of $18.7 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 $17.4 million in reductions to provision for credit losses for the six months ended June 30, 2022.

Our evaluation of the allowance for credit losses

indicated that the reserves against future losses are adequate as of June 30, 2023.

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

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.

Sales expense was $11.2

million for the six months ended June 30, 2023 and 2022.

We purchased $733.5 million of new contracts during the six months ended June

30, 2023 compared to $958.1 million in the prior year period.

Occupancy expenses was $3.2

million for the six months ending June 30, 2023, which is down from $3.8 million for the same period in 2022.

Depreciation and amortization

expenses decreased to $442,000 compared to $802,000 in the previous year.

For the six months ended June 30, 2023, we recorded

income tax expense of $9.3 million, representing a 25% effective tax rate.

In the prior period, our income tax expense was $17.1 million,

representing a 27% effective tax rate.

Credit Experience

Our financial results are dependent

on the performance of the automobile contracts in which we retain an ownership interest.

Broad economic factors such as recession and

significant changes in unemployment levels influence the credit performance of our portfolio, as does the weighted average age of the

receivables at any given time.

The tables below document the delinquency, repossession and net credit loss experience of all such automobile

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

Our financial results are

dependent on the performance of the automobile contracts in which we retain an ownership interest.

Broad economic factors such as recession

and significant changes in unemployment levels influence the credit performance of our portfolio, as does the weighted average age of

the receivables at any given time.

The tables below document the delinquency, repossession and net credit loss experience of all such

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

Delinquency, Repossession and Extension Experience

Total Owned Portfolio

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

December 31, 2022

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____________________________________

(1) All amounts and percentages are based

on the amount remaining to be repaid on each automobile contract, including, for pre-computed automobile contracts, any unearned interest.

The information in the table represents the gross principal amount of all automobile contracts we have purchased, including automobile

contracts subsequently sold in securitization transactions that we continue to service.

The table does not include certain contracts

we have serviced for third parties on which we earn servicing fees only and have no credit risk.

(1) All amounts and percentages are based on the

amount remaining to be repaid on each automobile contract.

The information in the table represents the gross principal amount of all automobile

contracts we have purchased, including automobile contracts subsequently sold in securitization transactions that we continue to service.

The table does not include certain contracts we have serviced for third parties on which we earn servicing fees only and have no credit

(2) We consider an automobile contract delinquent

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vehicles that have been repossessed but not yet liquidated.

(4) Amount in repossession and accounts past

due more than 90 days are on non-accrual.

Net Charge-Off

Experience (1)

(4) Amount in repossession and accounts past due

more than 90 days are on non-accrual.

Net Charge-Off Experience

Total Owned Portfolio

Finance Receivables Portfolio

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_________________________

(1) All amounts and percentages are based

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

(1) All amounts and percentages are based on the

principal amount scheduled to be paid on each automobile contract.

(2) Net charge-offs include the remaining principal

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interim consolidated financial statements.

March 31, 2023 and March 31, 2022 percentages represent three months ended March 31, 2023 and

March 31, 2022 annualized.

June 30, 2023 and June 30, 2022 percentages represent three months ended June 30, 2023 and

June 30, 2022 annualized.

December 31, 2022 represents 12 months ended December 31, 2022.

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such as a reduction in interest rate, forgiveness of principal or of accrued interest.

Accordingly, we consider such extensions to be

insignificant delays in payments rather than troubled debt restructurings.

Because financial regulatory authorities have encouraged obligors

to expect payment deferrals as a response to the pandemic, we may seek amendments or waivers of our securitization agreements to relax

the limits on extensions;

however, we have not sought such changes in terms as of the date of this report, and if we do seek such changes,

there can be no assurance that the other parties to our securitization agreements will agree to such amendments or waivers, nor as to

the effect on credit performance that may result if such amendments or waivers are agreed to.

basic question in deciding to grant an extension is whether or not we will (a) be delaying the inevitable repossession and liquidation

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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 March 31, 2023, for accounts that received extensions from 2008 through 2021:

The table below summarizes the status, as of June 30, 2023, for accounts that received extensions from 2010 through 2022:

Period of Extension

# Extensions Granted

Active or Paid Off at March 31, 2023

% Active or Paid Off at March 31, 2023

Active or Paid Off at June 30, 2023

% Active or Paid Off at June 30, 2023

Charged Off > 6 Months After Extension

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______________________

Table excludes extensions on portfolios

serviced for third parties

Table excludes extensions on portfolios serviced

for third parties

view these results as a confirmation of the effectiveness of our extension program.

For example, of the accounts granted extensions in

2019, 69.9% were either paid in full or active and performing as of March 31, 2023.

2019, 69.1% were either paid in full or active and performing as of June 30, 2023.

Each of these successful accounts represent continued

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a substantial loss and no interest revenue after the extension.

For the extension accounts that

ultimately charge off, we consider any that charged off more than six months after the extension to be at least partially successful.

For the extension accounts

that ultimately charge off, we consider any that charged off more than six months after the extension to be at least partially successful.

For example, of the accounts granted extensions in 2012 that subsequently charged off, such charge offs occurred, on average, 18 months

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information about our extensions is provided in the tables below:

Three Months Ended March 31,

Six Months Ended June 30,

Year Ended December 31,

Average number of extensions granted per month

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and owned by third parties

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

December 31, 2022

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Net cash provided by operating

activities for the three-month period ended March 31, 2023 was $65.1 million, a decrease of $3.2 million, compared to net cash provided

by operating activities for the three-month period ended March 31, 2022 of $68.3 million.

activities for the six-month period ended June 30, 2023 was $120.7 million, a decrease of $1.0 million, compared to net cash provided

by operating activities for the six-month period ended June 30, 2022 of $119.7 million.

Net cash from operating activities is generally

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receivables measured at fair value.

Net cash used in investing activities

was $121.2 million for the three months ended March 31, 2023 compared to $139.5 million in the prior year period.

Net cash used in investing

activities generally relates to new purchases of automobile contracts net of principal payments and other proceeds received during the

Purchases of finance receivables excluding acquisition fees were $353.9 million and $393.4 million during the first three months

of 2023 and 2022, respectively.

activities was $193.1 million for the six months ended June 30, 2023 compared to $398.4 million in the prior year period.

Net cash used

in investing activities generally relates to new purchases of automobile contracts net of principal payments and other proceeds received

during the period.

Purchases of finance receivables excluding acquisition fees were $658.0 million and $904.5 million during the first

six months of 2023 and 2022, respectively.

Net cash provided by financing

activities for the three months ended March 31, 2023 was $62.3 million compared to $80.9 million in the prior year period.

activities for the six months ended June 30, 2023 was $64.8 million compared to $270.5 million in the prior year period.

Cash provided

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

In the first three months of 2023, we issued

In the first six months of 2023, we issued

$657.7 million in new securitization trust debt compared to $712.4 million for the same period in 2022.

We repaid $541.0 million in securitization

trust debt in the three months ended March 31, 2023 compared to repayments of securitization trust debt of $262.7 million in the prior

In the three months ended March 31, 2023, we had net repayments on warehouse lines of credit of $7,000, compared to net proceeds

trust debt in the six months ended June 30, 2023 compared to repayments of securitization trust debt of $536.8 million in the prior year

In the six months ended June 30, 2023, we had net repayments on warehouse lines of credit of $41.0 million, compared to net advances

from warehouse lines of credit of $124.6 million in the prior year’s period.

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if any, and increase credit enhancement levels when those transactions take place, results in a continuing need for capital.

of capital required is most heavily dependent on the rate of our automobile contract purchases, the required level of initial credit enhancement

in securitizations, and the extent to which the previously established trusts and their related spread accounts either release cash to

us or capture cash from collections on securitized automobile contracts.

Of those, the factor most subject to our control is the rate

at which we purchase automobile contracts.

of capital required is most heavily dependent on the rate of our automobile contract purchases, the required level of initial credit

enhancement in securitizations, and the extent to which the previously established trusts and their related spread accounts either release

cash to us or capture cash from collections on securitized automobile contracts.

Of those, the factor most subject to our control is

the rate at which we purchase automobile contracts.

We are and may in the future

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

As of March 31, 2023, we had unrestricted cash

As of June 30, 2023, we had unrestricted cash

of $7.1 million and $154.7 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability

of sufficient eligible collateral).

As of March 31, 2023, we had approximately $26.4 million of such eligible collateral.

As of June 30, 2023, we had approximately $23.5 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 three-month period ended March 31, 2023, we completed one securitization aggregating

During the six-month period ended June 30, 2023, we completed two securitizations aggregating

$657.7 million of notes sold.

Our liquidity will also be

affected by releases of cash from the trusts established with our securitizations.

Our liquidity will also

be affected by releases of cash from the trusts established with our securitizations.

While the specific terms and mechanics of each spread

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accompanied by acceleration of such other indebtedness.

As of March 31, 2023, we were in compliance with all such financial covenants.

We have and will continue to

have a substantial amount of indebtedness.

At March 31, 2023, we had approximately $2,534.0 million of debt outstanding.

As of June 30, 2023, we were in compliance with all such financial covenants.

We have and will continue

to have a substantial amount of indebtedness.

At June 30, 2023, we had approximately $2,541.3 million of debt outstanding.

Such debt consisted

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Our securitization

trust debt has increased by $66.3 million while our warehouse lines of credit debt has increased by $481,000 since December 31, 2022 (each

net of deferred financing costs).

Since 2005, we have offered renewable subordinated notes to the public on a continuous basis, and such

notes have maturities that range from six months to 10 years.

We had $23.4 million and $25.3 million in subordinated renewable notes outstanding

at March 31, 2023 and December 31, 2022, respectively.

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

from other previously issued securitizations.

As of March 31, 2023, all $50.0 million of this debt remains outstanding.

trust debt has increased by $116.3 million while our warehouse lines of credit debt has decreased by $40.0 million since December 31,

2022 (each net of deferred financing costs).

Since 2005, we have offered renewable subordinated notes to the public on a continuous basis,

and such notes have maturities that range from six months to 10 years.

We had $21.2 million and $25.3 million in subordinated renewable

notes outstanding at June 30, 2023 and December 31, 2022, respectively.

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

of residual interests from other previously issued securitizations.

As of June 30, 2023, 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