What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-08 · 325 added, 310 removed, 464 unchanged (58% 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 June 30, 2023, we have originated a total of approximately $20.7 billion of

We were incorporated and began

our operations in March 1991.

From inception through September 30, 2023, we have originated a total of approximately $21.0 billion of

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

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

Contract Purchases and Outstanding Managed Portfolio

Contract Purchases and

Outstanding Managed Portfolio

$ in thousands

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Managed Portfolio at Period End

Six months ended June 30, 2023

Nine months ended September 30, 2023

In May 2021 we began purchasing

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in the third-party portfolio.

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.

For the nine months ended September 30, 2023, we originated $92.0 million under this third-party program.

As of September 30, 2023, our managed portfolio includes $238.4 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.

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.

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.

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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98 term securitizations of automobile contracts that we originated.

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

are structured as secured financings.

As of September 30, 2023, 18 of those securitizations are active and

all are structured as secured financings.

We have generally conducted our securitizations on a quarterly basis, near the end of each calendar

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is summarized in the table below:

Recent Asset-Backed Term Securitizations

Recent Asset-Backed Term

Securitizations

$ in thousands

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Receivables Pledged in Term Securitizations

Six months ended June 30, 2023

Nine months ended September 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.

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

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 June 30, 2023, we were in compliance

As of September 30, 2023, we were in compliance

with all such covenants.

of Operations

Comparison of Operating Results for the

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.

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 $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,

Comparison of Operating Results

for the three months ended September 30, 2023 with the three months ended September 30, 2022

the three months ended September 30, 2023, our revenues were $92.1 million, an increase of $1.8 million, or 2.0%, from the prior year

revenue of $90.3 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 three months ended September 30, 2023

include a $6.0 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.

In the current period, our re-evaluation of the fair values of these

receivables resulted in a mark up for certain older receivables and a mark down to the fair values of newer receivables.

The fair value

mark up on the older receivables exceeded the mark down to the newer receivables resulting in a net mark up of $6.0 million.

for the prior year period include an $8.2 million mark up to the fair value portfolio.

Interest income for the three

months ended September 30, 2023 increased $3.4 million, or 4.3%, to $83.3 million from $79.8 million in the prior year.

The primary reason

for the increase in interest income is the 10.8% increase in the average balance of our loan portfolio over the prior year period.

interest yield on our total loan portfolio decreased from 12.1% in the prior year period to 11.3% in the current year period.

The receivables

measured at fair value makes up a larger portion of our total loan portfolio in the current year period 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 September 30, 2023 and 2022:

Three Months Ended September 30,

(Dollars in thousands)

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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.

Other income was $2.8 million for the three months ended September 30, 2023 compared

to $2.3 million for the comparable period in 2022.

This 22.3% 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

These fees were $2.5 million for the quarter ended September 30, 2023 compared to $2.0 million

in the prior year period.

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Total operating expenses were

$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,

$77.9 million for the three months ended September 30, 2023, compared to $56.0 million for the prior period, an increase of $21.9 million,

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

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,

Employee costs were $21.8 million

during the three months ended September 30, 2023 compared to $20.7 million for the same quarter in the prior year.

The table below summarizes

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

September 30, 2023 and 2022:

Three Months Ended September 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 $11.8 million, an increase of $3.5 million from $8.3

million in the prior year period.

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 $13.0 million, an increase of $3.6 million from $9.4 million

in the prior year period.

Interest expense for the three

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

months ended September 30, 2023 was $37.9 million and represented 48.7% of total operating expenses, compared to $23.5 million in the

previous year, when it was 42.0% of total operating expenses.

Interest on securitization trust

debt increased by $13.2 million for the three months ended September 30, 2023 compared to the prior period.

The average balance of securitization

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.

trust debt increased to $2,349.7 million for the three months ended September 30, 2023 compared to $2,032.5 million for the three months

ended September 30, 2022.

The annualized average rate on our securitization trust debt was 5.4% for the three months ended September 30,

2023 compared to 3.6% 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:

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.

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

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Interest expense on warehouse

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.

credit line debt increased by $1.4 million to $4.7 million for the three months ended September 30, 2023 compared to $3.3 million in the

prior year period.

The increase was due to the higher rates on credit line debt during the quarter compared to last year.

balance of our warehouse debt was $170.9 million during the three months ended September 30, 2023 compared to $172.9 million for the same

period in 2022.

The annualized average rate on our credit line debt was 10.9% for the three months ended September 30, 2023 compared to

7.7% in the prior year period.

Interest expense on subordinated

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

renewable notes was $440,000 for the three months ended September 30, 2023.

The average balance of the outstanding subordinated debt decreased

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.

by $7.6 million to $19.9 million for the three months ended September 30, 2023 compared to $27.5 million for the prior year.

yield of subordinated notes increased to 8.8% compared to 8.3% 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 September 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 June 30, 2023

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,

2023 and 2022:

Three Months Ended September 30,

(Dollars in thousands)

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(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

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

Three Months Ended September 30, 2023

Compared to September 30, 2022

(In thousands)

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Net interest income/spread

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.

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

losses on finance receivables in the amount of $2.0 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 $6.0 million in reductions to provision for credit losses for the three months ended September 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

indicated that the reserves against future losses are adequate as of September 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 value.

Sales expenses consist primarily

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

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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.

to $5.3 million during the three months ended September 30, 2023 from $6.0 million in the same quarter in 2022.

We purchased $322.4 million

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

of new contracts during the three months ended September 30, 2023 compared to $468.2 million in the prior year period.

Occupancy expenses was $1.6

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

million for the three months ending September 30, 2023, which is down from the $2.0 million in the third quarter of 2022.

Depreciation and amortization

expenses decreased to $199,000 compared to $406,000 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.

For the three months ended September 30, 2023,

we recorded income tax expense of $3.8 million, representing a 27% effective tax rate.

In the prior period, our income tax expense was

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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,

nine months ended September 30, 2023 with the nine months ended September 30, 2022

the nine months ended September 30, 2023, our revenues were $260.0 million, an increase of $13.3 million, or 5.4%, from the prior year

revenue of $246.7 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, 2023 include

a $6.0 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.

For the nine months ended September 30, 2023, our re-evaluation of the fair values

of these receivables resulted in a mark up for certain older receivables and a mark down to the fair values of newer receivables.

fair value mark up on the older receivables exceeded the mark down to the newer receivables resulting in a net mark up of $6.0 million.

Revenues for the prior year period include a $15.3 million mark up to the fair value portfolio.

Interest income for the nine

months ended September 30, 2023 increased $20.4 million, or 9.1%, to $246.0 million from $225.5 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 period.

The interest yield on our total loan portfolio decreased from 12.2% in the prior year period to 11.3% in the current year period.

receivables measured at fair value makes up a larger portion of our total loan portfolio in the current year period 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 nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

(Dollars in thousands)

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Other income was $8.1 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.

for the nine months ended September 30, 2023 compared to $5.9 million for the comparable period in 2022.

This 37.8% increase was primarily

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

These fees were $7.2 million for the

nine months ended September 30, 2023 compared to $4.3 million in the prior year period.

Our operating expenses

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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

$208.8 million for the nine months ended September 30, 2023, compared to $148.8 million for the prior period, an increase of $60.0 million,

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

Employee costs were $65.0 million

during the six months ended June 30, 2023 compared to $42.7 million for the same period in the prior year.

during the nine months ended September 30, 2023 compared to $63.4 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,

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, 2023 and 2022:

Nine Months Ended September 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 $23.2 million for the six months ended June 30, 2023,

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 $36.2 million for the nine months ended September 30, 2023,

an increase of $10.3 million from $25.9 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.

Interest expense for the nine

months ended September 30, 2023 was $106.4 million, compared to $58.7 million in the previous year, an increase of $47.7 million.

Interest on securitization trust

debt increased by $39.5 million for the nine months ended September 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.

trust debt increased to $2,322.0 million for the nine months ended September 30, 2023 compared to $1,959.5 million for the nine months

ended September 30, 2022.

The annualized average rate on our securitization trust debt was 5.0% for the nine months ended September 30,

2023 compared to 3.3% 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:

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.

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 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.

credit line debt increased by $8.6 million to $14.5 million for the nine months ended September 30, 2023 compared to $5.9 million in the

prior year period.

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

nine month period compared to last year.

The average balance of our warehouse debt was $186.3 million during the nine months ended September

30, 2023 compared to $108.7 million for the same period in 2022.

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

nine months ended September 30, 2023 compared to 7.2% 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.

renewable notes was $1.4 million for the nine months ended September 30, 2023.

The average balance of the outstanding subordinated debt

decreased by $4.8 million to $22.1 million for the nine months ended September 30, 2023 compared to $26.9 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 $3.2 million for the nine months ended September 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,

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

2023 and 2022:

Nine Months Ended September 30,

(Dollars in thousands)

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(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

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

Nine Months Ended September 30, 2023

Compared to September 30, 2022

(In thousands)

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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.

For the nine months ended September 30, 2023, we recorded a reduction to provision for credit

losses on finance receivables in the amount of $20.7 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 $23.4 million in reductions to provision for credit losses for the nine months ended September 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

indicated that the reserves against future losses are adequate as of September 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 value.

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 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.

Sales expenses were $16.5

million for the nine months ended September 30, 2023, and represented 7.9% of total operating expenses.

This compares to $17.2 million

in the previous year.

We purchased $1,056.0 million of new contracts during the nine months ended September 30, 2023 compared to $1,426.3

million in the prior year period.

Occupancy expenses was $4.8

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

million for the nine months ending September 30, 2023, which is down from $5.8 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.

expenses decreased to $642,000 compared to $1.2 million in the previous year.

For the nine months ended September 30, 2023,

we recorded income tax expense of $13.1 million, representing a 26% effective tax rate.

In the prior period, our income tax expense was

$26.0 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

June 30, 2023

June 30, 2022

September 30, 2023

September 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.

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

when an obligor fails to make at least 90% of a contractually due payment by the following due date, which date may have been extended

within limits specified in the Servicing Agreements.

The period of delinquency is based on the number of days payments are contractually

(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 risk.

(2) We consider

an automobile contract delinquent when an obligor fails to make at least 90% of a contractually due payment by the following due date,

which date may have been extended within limits specified in the Servicing Agreements.

The period of delinquency is based on the number

of days payments are contractually past due.

Automobile contracts less than 31 days delinquent are not included.

The delinquency aging categories shown in the tables reflect

the effect of extensions.

(3) Amount in repossession represents financed

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.

The delinquency aging

categories shown in the tables reflect the effect of extensions.

(3) Amount in

repossession represents financed 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

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Finance Receivables Portfolio

September 30,

(Dollars in thousands)

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_________________________

(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

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

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

interim consolidated financial statements.

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

June 30, 2022 annualized.

(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 balance, after the application of the net proceeds from the liquidation of the vehicle (excluding accrued

and unpaid interest) and amounts collected subsequent to the date of charge-off, including some recoveries which have been classified

as other income in the accompanying interim consolidated financial statements.

September 30, 2023 and September 30, 2022 percentages

represent three months ended September 30, 2023 and September 30, 2022 annualized.

December 31, 2022 represents 12 months ended December

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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, 2023, for accounts that received extensions from 2010 through 2022:

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

Period of Extension

# Extensions Granted

Active or Paid Off at June 30, 2023

% Active or Paid Off at June 30, 2023

Active or Paid Off at September 30, 2023

% Active or Paid Off at September 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, 69.1% were either paid in full or active and performing as of June 30, 2023.

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

Each of these successful accounts represent continued

1 unchanged sentence

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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of principal and interest.

information about our extensions is provided in the tables below:

Six Months Ended June 30,

Additional information

about our extensions is provided in the tables below:

Nine Months Ended September 30,

Year Ended December 31,

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____________________

Table excludes portfolios originated

and owned by third parties

June 30, 2023

June 30, 2022

Table excludes

portfolios originated and owned by third parties

September 30, 2023

September 30, 2022

December 31, 2022

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___________________

Table excludes portfolios originated

and owned by third parties

Table excludes

portfolios originated and owned by third parties

Since 2019, we have been able to reduce extensions

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Net cash provided by operating

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.

activities for the nine-month period ended September 30, 2023 was $181.9 million, a decrease of $17.2 million, compared to net cash provided

by operating activities for the nine-month period ended September 30, 2022 of $164.7 million.

Net cash from operating activities is generally

1 unchanged sentence

receivables measured at fair value.

Net cash used in investing

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

Net cash used in investing activities

was $275.8 million for the nine months ended September 30, 2023 compared to $566.5 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 period.

Purchases of finance receivables excluding acquisition fees were $958.6 million and $1,311.7 million during the first

six months of 2023 and 2022, respectively.

nine months of 2023 and 2022, respectively.

Net cash provided by financing

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

activities for the nine months ended September 30, 2023 was $73.1 million compared to $397.9 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 six months of 2023, we issued

In the first nine months of 2023, we issued

$949.4 million in new securitization trust debt compared to $1,104.0 million for the same period in 2022.

We repaid $541.0 million in securitization

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.

We repaid $814.5 million in

securitization trust debt in the nine months ended September 30, 2023 compared to repayments of securitization trust debt of $804.8 million

in the prior year period.

In the nine months ended September 30, 2023, we had net repayments on warehouse lines of credit of $46.4 million,

compared to net advances from warehouse lines of credit of $139.5 million in the prior year’s period.

We purchase automobile contracts

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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 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

As of September 30, 2023, we had unrestricted

cash of $8.3 million and $159.6 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability

of sufficient 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 of September 30, 2023, we had approximately $19.6 million of such eligible collateral.

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

as appropriate, minimizing our operating costs.

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.

During the nine-month period ended September 30, 2023, we completed three securitizations

aggregating $949.4 million of notes sold.

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 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

primarily of $2,225.1 million of securitization trust debt and $245.3 million of debt from warehouse lines of credit.

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

We have and will continue to

have a substantial amount of indebtedness.

At September 30, 2023, we had approximately $2,552.6 million of debt outstanding.

consisted primarily of $2,243.3 million of securitization trust debt and $240.4 million of debt from warehouse lines of credit.

Our securitization

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We had $19.2 million and $25.3 million in subordinated renewable

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

notes outstanding at September 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.

As of September 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