What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 301 added, 303 removed, 474 unchanged (56% of the section changed)

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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, 2024, we have originated a total of approximately $22.1 billion of automobile

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

by automobiles directly with consumers.

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

and acquisitions in 2002, 2003, 2004 and 2011.

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

Contract Purchases and

Outstanding Managed Portfolio

We were incorporated and

began our operations in March 1991.

From inception through September 30, 2024, we have originated a total of approximately $22.6 billion

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

loans secured by automobiles directly with consumers.

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

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

Recent contract purchase volumes and managed portfolio levels are

shown in the table below:

Contract Purchases and Outstanding Managed Portfolio

$ in thousands

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Managed Portfolio at Period End

Six months ended June 30, 2024

Nine months ended September 30, 2024

In May 2021 we began purchasing

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in the third-party portfolio.

For the six months ended June 30, 2024, we originated $23.4 million under this third-party program.

June 30, 2024, our managed portfolio includes $205.6 million of such third-party receivables.

For the nine months ended September 30, 2024, we originated $29.5 million under this third-party program.

As of September 30, 2024, our managed portfolio includes $191.5 million of such third-party receivables.

Our principal executive offices

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103 term securitizations of automobile contracts that we originated.

As of June 30, 2024, 18 of those securitizations are active and all

are structured as secured financings.

We generally conduct our securitizations on a quarterly basis, near the beginning of each calendar

quarter, resulting in four securitizations per calendar year.

As of September 30, 2024, 18 of those securitizations are active

and all are structured as secured financings.

We generally conduct our securitizations on a quarterly basis, near the beginning of each

calendar quarter, resulting in four securitizations per calendar year.

However, we completed only three securitizations in 2020.

In April 2020

we postponed our planned securitization due to the onset of the pandemic and the effective closure of the capital markets in which our

securitizations are executed.

Subsequently we successfully completed securitizations in June and September 2020, and then on a regular

quarterly schedule from January 2021 through June 2024.

2020 we postponed our planned securitization due to the onset of the pandemic and the effective closure of the capital markets in which

our securitizations are executed.

Subsequently we successfully completed securitizations in June and September 2020.

Our recent history of term securitizations

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, 2024

Nine months ended September 30, 2024

Generally, prior to a securitization

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

As of June 30, 2024, we were in compliance

As of September 30, 2024, we were in compliance

with all such covenants.

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Comparison of Operating Results

for the three months ended June 30, 2024 with the three months ended June 30, 2023

the three months ended June 30, 2024, our revenues were $95.9 million, an increase of $11.0 million, or 13.0%, from the prior year revenue

of $84.9 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 June 30, 2024 include a

$5.5 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 $5.5 million.

There was no mark up or mark down

to the fair value portfolio in the prior year period.

for the three months ended September 30, 2024 with the three months ended September 30, 2023

the three months ended September 30, 2024, our revenues were $100.6 million, an increase of $8.5 million, or 9.2%, from the prior year

revenue of $92.1 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, 2024

include a $5.5 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 $5.5 million.

a $6.0 million mark up to the fair value portfolio in the prior year period.

Interest income for the three

months ended June 30, 2024 increased $5.7 million, or 6.9%, to $88.4 million from $82.6 million in the prior year.

months ended September 30, 2024 increased $9.9 million, or 11.9%, to $93.2 million from $83.3 million in the prior year.

The primary reason

for the increase in interest income is the 11.7% increase in the average balance of our loan portfolio over the prior year period.

interest yield on our total loan portfolio decreased from 11.4% in the prior year period to 11.3% in the current year period.

interest yield on our total loan portfolio increased from 11.3% in the prior year period to 11.4% in the current year period.

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

The table below shows the average balance and interest yield of our loan portfolio for the three months ended September

30, 2024 and 2023:

Three Months Ended June 30,

Three Months Ended September 30,

(Dollars in thousands)

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Loan Portfolio

Other income was $2.0 million for the three months ended June

Other income was $1.9 million for the three months ended September

30, 2024 compared to $2.8 million for the comparable period in 2023.

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and servicing fees we earned from third party receivables.

These fees were $1.7 million for the quarter ended June 30, 2024 compared to

$1.9 million in the prior year period.

These fees were $1.6 million for the quarter ended September 30, 2024 compared

to $2.5 million in the prior year period.

Our operating expenses

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Total operating expenses were

$89.2 million for the three months ended June 30, 2024, compared to $66.3 million for the prior period, an increase of $22.9 million,

The increase is primarily due to increases in interest expense and a decrease in the reduction to provision for credit losses.

To a lesser extent, increases to employee costs and general and administrative expenses also contributed to the increase in operating

expenses during the period.

$93.7 million for the three months ended September 30, 2024, compared to $77.9 million for the prior period, an increase of $15.8 million,

The increase is primarily due to increases in interest expense and to a lesser extent, increases to employee costs.

Employee costs were $24.2 million

during the three months ended June 30, 2024 compared to $21.1 million for the same quarter in the prior year, an increase of $2.6 million,

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, 2024 and 2023:

Three Months Ended June 30,

during the three months ended September 30, 2024 compared to $21.8 million for the same quarter in the prior year, an increase of $2.4

million, or 10.8%.

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, 2024 and 2023:

Three Months Ended September 30,

(Dollars in millions)

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services, and telecommunications.

General and administrative expenses was $13.3 million, an increase of $1.5 million from $11.8 million

in the prior year period.

General and administrative expenses was $13.3 million, an increase of $231,000 from $13.0 million in

the prior year period.

Interest expense for the three

months ended June 30, 2024 was $46.7 million and represented 52.4% of total operating expenses, compared to $35.7 million in the previous

year, when it was 53.9% of total operating expenses.

months ended September 30, 2024 was $50.1 million and represented 53.4% of total operating expenses, compared to $37.9 million in the

previous year, when it was 48.7% of total operating expenses.

Interest on securitization trust

debt increased by $8.8 million for the three months ended June 30, 2024 compared to the prior period.

debt increased by $11.3 million for the three months ended September 30, 2024 compared to the prior period.

The average balance of securitization

trust debt increased to $2,555.2 million for the three months ended June 30, 2024 compared to $2,333.0 million for the three months ended

June 30, 2023.

The annualized average rate on our securitization trust debt was 5.9% for the three months ended June 30, 2024 compared

to 5.0% in the prior year period.

trust debt increased to $2,706.3 million for the three months ended September 30, 2024 compared to $2,349.7 million for the three months

ended September 30, 2023.

The annualized average rate on our securitization trust debt was 6.4% for the three months ended September 30,

2024 compared to 5.4% 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

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

Blended Cost of Funds

September 2024

Interest expense on warehouse

credit line debt increased by $694,000 to $5.7 million for the three months ended June 30, 2024 compared to $5.0 million in the prior

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

average balance of our warehouse debt was $215.4 million during the three months ended June 30, 2024 compared to $193.4 million for the

same period in 2023.

The annualized average rate on our credit line debt was 10.6% for the three months ended June 30, 2024 compared to

10.4% in the prior year period.

credit line debt decreased by $665,000 to $4.0 million for the three months ended September 30, 2024 compared to $4.7 million in the prior

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

average balance of our warehouse debt was $132.3 million during the three months ended September 30, 2024 compared to $170.9 million for

the same period in 2023.

The annualized average rate on our credit line debt was 12.1% for the three months ended September 30, 2024 compared

to 10.9% in the prior year period.

Interest expense on subordinated

renewable notes was $542,000 for the three months ended June 30, 2024.

renewable notes was $581,000 for the three months ended September 30, 2024.

The average balance of the outstanding subordinated debt was

million for the three months ended June 30, 2024 compared to $22.2 million for the prior year period.

The average yield of subordinated

notes increased to 9.7% compared to 8.6% in the prior period.

$23.2 million for the three months ended September 30, 2024 compared to $19.9 million for the prior year period.

The average yield of

subordinated notes increased to 10.0% compared to 8.8% in the prior period.

In June 2021, we completed a

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$50.0 million.

Interest expense for these residual interest financings was $2.5 million for the three months ended June 30, 2024 compared

to $1.1 for the same period in 2023.

Interest expense for these residual interest financings was $2.5 million for the three months ended September 30, 2024

compared to $1.1 for the same period in 2023.

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, 2024

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,

2024 and 2023:

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, 2024

Compared to June 30, 2023

Change Due to

(2) Annualized

net interest income divided by average interest earning assets.

Three Months Ended September 30, 2024

Compared to September 30, 2023

(In thousands)

Interest Earning Assets

Interest Earning

Loan Portfolio

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Net interest income/spread

Our evaluation of the allowance

for credit losses indicated that the reserves against future losses are adequate as of June 30, 2024.

The allowance applies only to our

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

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.

the three months ended June 30, 2024, 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 better than expected recovery rates and 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 $9.7 million in reductions to provision for credit losses for the three months ended June 30, 2023.

Our evaluation of the allowance for credit losses indicated that the reserves against future losses are adequate

as of September 30, 2024.

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.

For the three months ended September

30, 2024, we recorded a reduction to provision for credit losses on finance receivables in the amount of $994,000.

The reserve decrease

was primarily due to better than expected recovery rates and 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 $2.0 million in reductions to

provision for credit losses for the three months ended September 30, 2023.

Sales expenses consist primarily

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based on volume of contract purchases.

Sales expense increased to $5.9 million during the three months ended June 30, 2024 from $5.5

Sales expense increased to $5.7 million during the three months ended September 30, 2024 from $5.3

million for the same quarter in 2023.

We purchased $431.9 million of new contracts during the three months ended June 30, 2024 compared

We purchased $445.9 million of new contracts during the three months ended September 30, 2024 compared

to $322.4 million in the prior year period.

Occupancy expenses was $1.3

million for the three months ending June 30, 2024, which is down from the $1.6 million in the second quarter of 2023.

million for the three months ending September 30, 2024, which is down from the $1.6 million in the third quarter of 2023.

Depreciation and amortization

expenses increased to $214,000 compared to $199,000 in the previous year.

For the three months ended June 30, 2024, we recorded

income tax expense of $2.0 million, representing a 30% effective tax rate.

In the prior period, our income tax expense was $4.6 million,

representing a 25% effective tax rate.

For the three months ended September 30, 2024,

we recorded income tax expense of $2.1 million, representing a 30% effective tax rate.

In the prior period, our income tax expense was

$3.8 million, representing a 27% effective tax rate.

Comparison of Operating Results for the

six months ended June 30, 2024 with the six months ended June 30, 2023

the six months ended June 30, 2024, our revenues were $187.6 million, an increase of $19.7 million, or 11.7%, from the prior year revenue

of $168.0 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 three months ended June 30, 2024 include a

$10.5 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 $10.5 million.

There was no mark up or mark

down to the fair value portfolio in the prior year period.

Interest income for the six

months ended June 30, 2024 increased $10.0 million, or 6.1%, to $172.7 million from $162.7 million in the prior year.

The primary reason

for the increase in interest income is the 6.2% increase in the average balance of our loan portfolio over the prior year period.

interest yield on our total loan portfolio is 11.3% in the current year period and prior year period.

nine months ended September 30, 2024 with the nine months ended September 30, 2023

the nine months ended September 30, 2024, our revenues were $288.2 million, an increase of $28.2 million, or 10.8%, from the prior year

revenue of $260.0 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 nine months ended September 30, 2024

include a $16.0 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 $16.0 million.

$6.0 mark up to the fair value portfolio in the prior year period.

Interest income for the nine

months ended September 30, 2024 increased $19.8 million, or 8.1%, to $265.8 million from $246.0 million in the prior year.

reason for the increase in interest income is the 8.0% increase in the average balance of our loan portfolio over the prior year period.

The interest yield on our total loan portfolio is 11.3% in the current year period and prior year period.

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, 2024 and 2023:

Six Months Ended June 30,

The table below shows the average balance and interest yield of our loan portfolio for the nine months ended September 30, 2024 and 2023:

Nine Months Ended September 30,

(Dollars in thousands)

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Other income was $6.4 million

for the six months ended June 30, 2024 compared to $5.3 million for the comparable period in 2023.

15.0% decrease was primarily driven by the decrease in origination and servicing fees we earned from third party receivables.

were $3.8 million for the six months ended June 30, 2024 compared to $4.6 million in the prior year period.

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

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

than our portfolio of finance receivables measured at fair value, as to which expected credit losses have the effect of reducing the

internal rate of return or the recorded value applicable to such receivables).

Interest expense is significantly affected by the volume

of automobile contracts we purchased during the trailing 12-month period and the use of our warehouse facilities and asset-backed securitizations

to finance those contracts.

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

are received, processed and serviced.

Factors that affect profit 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.

for the nine months ended September 30, 2024 compared to $8.1 million for the comparable period in 2023.

This 20.9% decrease was primarily driven by the decrease in origination and servicing fees we earned from third party receivables.

fees were $5.5 million for the nine months ended September 30, 2024 compared to $7.2 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 profit 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

1 unchanged sentence

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

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 $174.4 million for the six months ended June 30, 2024, compared to $130.9 million for the prior period, an increase of $43.5 million,

Total operating expenses were

$268.1 million for the nine months ended September 30, 2024, compared to $208.8 million for the prior period, an increase of $59.3 million,

The increase is primarily due to increases in interest expense and a decrease in the reduction to provision for credit losses.

1 unchanged sentence

expenses during the period.

Employee costs were $48.1 million during the six months ended June 30, 2024 compared to $43.2 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, 2024 and 2023:

Six Months Ended June 30,

Employee costs were $72.3 million

during the nine months ended September 30, 2024 compared to $65.0 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 nine-month periods ended,

September 30, 2024 and 2023:

Nine Months Ended September 30,

(Dollars in millions)

11 unchanged sentences

services, and telecommunications.

General and administrative expenses was $27.0 million for the six months ended June 30, 2024, an increase

of $3.8 million from $23.2 million in the prior year period.

Interest expense for the six

months ended June 30, 2024 was $88.7 million, compared to $68.5 million in the previous year, an increase of $20.2 million.

General and administrative expenses was $40.3 million for the nine months ended September 30, 2024,

an increase of $4.1 million from $36.2 million in the prior year period.

Interest expense for the nine

months ended September 30, 2024 was $138.7 million, compared to $106.4 million in the previous year, an increase of $32.3 million.

Interest on securitization trust

debt increased by $18.3 million for the six months ended June 30, 2024 compared to the prior period.

debt increased by $29.6 million for the nine months ended September 30, 2024 compared to the prior period.

The average balance of securitization

trust debt increased to $2,471.7 million for the six months ended June 30, 2024 compared to $2,308.1 million for the six months ended

June 30, 2023.

The annualized average rate on our securitization trust debt was 6.0% for the six months ended June 30, 2024 compared to

4.8% in the prior year period.

trust debt increased to $2,549.9 million for the nine months ended September 30, 2024 compared to $2,322.0 million for the nine months

ended September 30, 2023.

The annualized average rate on our securitization trust debt was 6.1% for the nine months ended September 30,

2024 compared to 5.0% 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

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

Blended Cost of Funds

September 2024

Interest expense on warehouse

credit line debt increased by $166,000 to $10.0 million for the six months ended June 30, 2024 compared to $9.9 million in the prior year

The increase was due to higher rates on the debt during the six month period compared to last year.

The average balance of our

warehouse debt was $190.1 million during the six months ended June 30, 2024 compared to $194.2 million for the same period in 2023.

annualized average rate on our credit line debt was 10.5% for the six months ended June 30, 2024 compared to 10.2% in the prior year period.

credit line debt decreased by $499,000 to $14.0 million for the nine months ended September 30, 2024 compared to $14.5 million in the

prior year period.

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

The average balance of our warehouse debt was $170.7 million during the nine months ended September 30, 2024 compared to $186.3 million

for the same period in 2023.

The annualized average rate on our credit line debt was 11.0% for the nine months ended September 30, 2024

compared to 10.4% in the prior year period.

Interest expense on subordinated

renewable notes was $1.0 million for the six months ended June 30, 2024.

The average balance of the outstanding subordinated debt decreased

by $1.6 million to $21.6 million for the six months ended June 30, 2024 compared to $23.2 million for the prior year.

The average yield

of subordinated notes increased to 9.7% compared to 8.5% in the prior period.

renewable notes was $1.6 million for the nine months ended September 30, 2024.

The average balance of outstanding subordinated debt was

$22.1 million for the nine months ending September 30, 2024, consistent with the prior year.

The average yield of subordinated notes increased

to 9.8% compared to 8.6% in the prior period.

In June 2021, we completed a

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$50.0 million.

Interest expense on the residual interest financing was $3.7 million for the six months ended June 30, 2024 compared to

$2.1 million for the same period in 2023.

Interest expense on the residual interest financing was $6.2 million for the nine months ended September 30, 2024 compared

to $3.2 million for the same period in 2023.

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, 2024

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,

2024 and 2023:

Nine Months Ended September 30,

(Dollars in thousands)

Interest Earning Assets

Interest Earning

Loan portfolio

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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) Annualized

net interest income divided by average interest earning assets.

Six Months Ended June 30, 2024 Compared to June 30,

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.

Nine Months Ended September 30, 2024

Compared to September 30, 2023

(In thousands)

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Our evaluation of the allowance for credit losses indicated that the reserves against future losses are adequate

as of June 30, 2024.

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.

as of September 30, 2024.

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.

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for credit loss expense is recorded for finance receivables measured at fair value.

For the six months ended June

For the nine months ended September

30, 2024, we recorded a reduction to provision for credit losses on finance receivables in the amount of $4.6 million.

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This compares to $20.7 million in reductions

to provision for credit losses for the six months ended June 30, 2023.

to provision for credit losses for the nine months ended September 30, 2023.

Sales expenses consist primarily

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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 decreased

to $10.8 million during the six months ended June 30, 2024 from $11.2 million in the same period in 2023.

We purchased $778.2 million

of new contracts during the six months ended June 30, 2024 compared to $733.5 million in the prior year period.

based on volume of contract purchases.

Sales expenses remained consistent at $16.5 million for both the nine months ending September 30,

2024, and the same period last year.

We purchased $1,224.1 million of new contracts during the nine months ended September 30, 2024 compared

to $1,056.0 million in the prior year period.

Occupancy expenses was $4.3

million for the six months ending June 30, 2024, which is down from $3.2 million for the same period in 2023.

million for the nine months ending September 30, 2024, which is down from $4.8 million for the same period in 2023.

Depreciation and amortization

expenses decreased to $650,000 compared to $642,000 in the previous year.

For the six months ended June

30, 2024, we recorded income tax expense of $4.0 million, representing a 30% effective tax rate.

In the prior period, our income tax

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

nine months ended September 30, 2024, we recorded income tax expense of $6.0 million, representing a 30% effective tax rate.

period, our income tax expense was $13.1 million, representing a 26% effective tax rate.

Credit Experience

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Total Managed Portfolio (Excludes Third Party

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

December 31, 2023

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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

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 risk.

(2) We consider an automobile contract delinquent

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Net Charge-Off Experience (1)

Total Managed Portfolio

(Excludes Third Party Portfolio)

Total Managed Portfolio (Excludes Third Party Portfolio)

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.

(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.

June 30, 2024 and June 30, 2023 percentages represent three months ended June 30, 2024 and

June 30, 2023 annualized.

September 30, 2024 and September 30, 2023 percentages represent three months ended September

30, 2024 and September 30, 2023 annualized.

December 31, 2023 represents 12 months ended December 31, 2023.

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we are bound by our securitization agreements to refrain from agreeing to more than two such extensions in any 12-month period and to

more than six over the life of the contract.

more than eight over the life of the contract.

The only modification of terms is to advance the obligor’s next due date by one month

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In some cases, a two-month extension may be granted.

There are no other

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

There are no other concessions

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

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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would likely be higher than if the vehicle had been repossessed without the extension.

The benefits of granting an extension include

minimizing current losses and delinquencies, minimizing lifetime losses, getting the obligor’s account current (or close to it)

and building goodwill so that the obligor might prioritize us over other creditors on future payments.

Our servicing staff are trained

to identify when a past due obligor is facing a temporary problem that may be resolved with an extension.

In some cases, the extension

will be granted in conjunction with our receiving all or a portion of a past due payment from the obligor, thereby indicating an additional

monetary and psychological commitment to the contract on the obligor’s part.

The benefits of granting an extension include minimizing

current losses and delinquencies, minimizing lifetime losses, getting the obligor’s account current (or close to it) and building

goodwill so that the obligor might prioritize us over other creditors on future payments.

Our servicing staff are trained to identify

when a past due obligor is facing a temporary problem that may be resolved with an extension.

In some cases, the extension will be granted

in conjunction with our receiving all or a portion of a past due payment from the obligor, thereby indicating an additional monetary and

psychological commitment to the contract on the obligor’s part.

credit assessment for granting an extension is initially made by our collector, who bases the recommendation on the collector’s

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to our normal policies and procedures for interest accrual, reporting delinquency and recognizing charge-offs.

We 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, 2024, for accounts that received extensions from 2010 through 2023:

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

The table below summarizes the status, as of September 30, 2024, for accounts that received extensions from 2010 through 2023:

Period of Extension

# Extensions Granted

Active or Paid Off at June 30, 2024

% Active or Paid Off at June 30, 2024

Active or Paid Off at September 30, 2024

% Active or Paid Off at September 30, 2024

Charged Off > 6 Months After Extension

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For example, of the accounts granted extensions in

2019, 65.3% were either paid in full or active and performing as of June 30, 2024.

2019, 61.2% were either paid in full or active and performing as of September 30, 2024.

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 2018 that subsequently charged off, such charge offs occurred, on average, 20 months

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of principal and interest.

Additional information about our extensions is provided in the tables below:

Six Months Ended June 30,

Year Ended December 31,

Additional information

about our extensions is provided in the tables below:

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Average number of extensions granted per month

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and owned by third parties

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

December 31, 2023

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in order to avoid losing their vehicle to repossession.

Through our experience, we have learned that once a customer becomes greater

than 90 days past due, it is not likely that the delinquency will be resolved and will ultimately result in a charge-off.

we do not recognize any interest income for contracts that are greater than 90 days past due.

Through our experience, we have learned that once a customer becomes greater than

90 days past due, it is not likely that the delinquency will be resolved and will ultimately result in a charge-off.

As a result, we do

not recognize any interest income for contracts that are greater than 90 days past due.

a contract exceeds the 90 days past due threshold at the end of one period, and then makes the necessary payments such that it becomes

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reporting purposes.

At the time a contract is restored to full accrual in this manner, there can be no assurance that full repayment

of interest and principal will ultimately be made.

However, we monitor each obligor’s payment performance and are aware of the

severity of his delinquency at any time.

At the time a contract is restored to full accrual in this manner, there can be no assurance that full repayment of

interest and principal will ultimately be made.

However, we monitor each obligor’s payment performance and are aware of the severity

of his delinquency at any time.

The fact that the delinquency has been reduced below the 90-day threshold is a positive indicator.

Should the contract again exceed the 90-day delinquency level at the end of any reporting period, it would again be reflected as a non-accrual

Our policy for placing a contract on non-accrual status is independent of our policy to grant an extension.

In practice, it would

be an uncommon circumstance where an extension was granted and the account remained in a non-accrual status, since the goal of the extension

is to bring the contract current (or nearly current).

the contract again exceed the 90-day delinquency level at the end of any reporting period, it would again be reflected as a non-accrual

policy for placing a contract on non-accrual status is independent of our policy to grant an extension.

In practice, it would be an uncommon

circumstance where an extension was granted and the account remained in a non-accrual status, since the goal of the extension is to bring

the contract current (or nearly current).

Liquidity and Capital Resources

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Net cash provided by operating

activities for the six-month period ended June 30, 2024 was $96.0 million, a decrease of $24.7 million, compared to net cash provided

by operating activities for the six-month period ended June 30, 2023 of $120.7 million.

activities for the nine-month period ended September 30, 2024 was $165.8 million, a decrease of $16.2 million, compared to net cash provided

by operating activities for the nine-month period ended September 30, 2023 of $181.9 million.

Net cash from operating activities is generally

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Net cash used in investing activities

was $317.8 million for the six months ended June 30, 2024 compared to $193.1 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 $753.8 million and $658.0 million during the first six months

of 2024 and 2023, respectively.

was $536.8 million for the nine months ended September 30, 2024 compared to $275.8 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 $1,195.9 million and $958.6 million during the first

nine months of 2024 and 2023, respectively.

Net cash provided by financing

activities for the six months ended June 30, 2024 was $363.0 million compared to $64.8 million in the prior year period.

activities for the nine months ended September 30, 2024 was $524.7 million compared to $73.1 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 2024, we issued

In the first nine months of 2024, we issued

$1,453.9 million in new securitization trust debt compared to $949.4 million for the same period in 2023.

We repaid $840.5 million in

securitization trust debt in the six months ended June 30, 2024 compared to repayments of securitization trust debt of $541.0 million

securitization trust debt in the nine months ended September 30, 2024 compared to repayments of securitization trust debt of $814.5 million

in the prior year period.

In the six months ended June 30, 2024, we had net repayments on warehouse lines of credit of $150.7 million,

In the nine months ended September 30, 2024, we had net repayments on warehouse lines of credit of $125.6 million,

compared to net advances from warehouse lines of credit of $46.4 million in the prior year’s period.

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

As of June 30, 2024, we had unrestricted cash

of $9.8 million and $7.1 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability of

sufficient eligible collateral).

As of June 30, 2024, we had approximately $33.8 million of such eligible collateral.

Our plans 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, 2024, we completed three securitizations aggregating $1,307.1

million of notes sold.

As of September 30, 2024, we had unrestricted

cash of $8.1 million and $294.2 million aggregate available borrowings under our two warehouse credit facilities (assuming the availability

of sufficient eligible collateral).

As of September 30, 2024, we had approximately $20.9 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 nine-month period ended September 30, 2024, we completed four securitizations

aggregating $1,453.9 million of notes sold.

Our liquidity will also be

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term securitizations contain cross-default provisions.

Such cross-default provisions would allow the respective creditors to declare

a default if an event of default occurred with respect to other indebtedness of ours, but only if such other event of default were to

be accompanied by acceleration of such other indebtedness.

As of June 30, 2024, we were in compliance with all such financial covenants.

Such cross-default provisions would allow the respective creditors to declare a

default if an event of default occurred with respect to other indebtedness of ours, but only if such other event of default were to be

accompanied by acceleration of such other indebtedness.

As of September 30, 2024, we were in compliance with all such financial covenants.

We have and will continue to

have a substantial amount of indebtedness.

At June 30, 2024, we had approximately $2,939.8 million of debt outstanding.

Such debt consisted

primarily of $2,736.2 million of securitization trust debt and $82.2 million of debt from warehouse lines of credit.

At September 30, 2024, we had approximately $3,105.0 million of debt outstanding.

consisted primarily of $2,875.8 million of securitization trust debt and $105.8 million of debt from warehouse lines of credit.

Our securitization

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We had $24.3 million and $17.2 million in subordinated renewable

notes outstanding at June 30, 2024 and December 31, 2023, respectively.

notes outstanding at September 30, 2024 and December 31, 2023, respectively.

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

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residual interests from previously issued securitizations in the amount of $50.0 million.

As of June 30, 2024, all $100.0 million of this

debt remains outstanding.

As of September 30, 2024, all $100.0 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