For the quarterly period ended ~~September~~June 30, ~~2017~~2020

ATLANTICUS HOLDINGS CORPORATION

a Georgia Corporation

IRS Employer Identification No. 58-2336689

SEC File Number 0-53717

Five Concourse Parkway, Suite 300

Atlanta, Georgia 30328

(770) 828-2000

Atlanticus’ common stock, no par value per share, is registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Act”) and ~~is listed~~trades on the NASDAQ Global Select ~~Market.~~

~~Atlanticus is not a well-known seasoned issuer, as defined in Rule 405 of~~Market under the ~~Securities Act of 1933.~~

ticker symbol "ATLC".

Atlanticus (1) is required to file reports pursuant to Section 13 of the Act, (2) has filed all reports required to be filed by Section 13 of the Act during the preceding 12 months and (3) has been subject to such filing requirements for the past 90 days.

Atlanticus has submitted electronically ~~and posted on its corporate Web site~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

Atlanticus is a smaller reporting company and is not a shell company or an emerging growth company.

As of ~~November 2, 2017, 13,867,972~~August 7, 2020, 15,997,173 shares of common stock, no par value, of Atlanticus were ~~outstanding. This excludes~~outstanding, including 1,459,233 loaned shares to be returned.

Table of Contents

Table of Contents

Page

~~Page~~
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)	1
		Consolidated Balance Sheets	1
		Consolidated Statements of Operations	2
		Consolidated Statements of Comprehensive ~~Loss~~Income (Loss)	3
		Consolidated Statement of Shareholders’ Equity (Deficit)	4
		Consolidated Statements of Cash Flows	5
		Notes to Consolidated Financial Statements	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2529
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4245
	Item 4.	Controls and Procedures	4245

~~Part~~ PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	4346
	Item 1A.	Risk Factors	4346
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5156
	Item 3.	Defaults Upon Senior Securities	5156
	Item 4.	Mine Safety Disclosure	5156
	Item 5.	Other Information	5256
	Item 6.	Exhibits	5256
		Signatures	5357

Table of Contents

~~PART I—FINANCIAL INFORMATION~~

PART I--FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

Atlanticus Holdings Corporation and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)

	June 30,			December 31,
	2020			2019

Assets
Unrestricted cash and cash equivalents (including $86.0 million and $78.7 million associated with variable interest entities at June 30, 2020 and December 31, 2019, respectively)	$	139,179		$	135,379
Restricted cash and cash equivalents (including $28.8 million and $25.9 million associated with variable interest entities at June 30, 2020 and December 31, 2019, respectively)		38,864			41,015
Loans, interest and fees receivable:
Loans, interest and fees receivable, at fair value (including $110.3 million and $3.9 million associated with variable interest entities at June 30, 2020 and December 31, 2019, respectively)		177,886			4,386
Loans, interest and fees receivable, gross (including $648.0 million and $857.2 million associated with variable interest entities at June 30, 2020 and December 31, 2019, respectively)		769,230			998,209
Allowances for uncollectible loans, interest and fees receivable (including $147.6 million and $168.8 million associated with variable interest entities at June 30, 2020 and December 31, 2019, respectively)		(158,091	)		(186,329	)
Deferred revenue (including $14.5 million and $40.7 million associated with variable interest entities at June 30, 2020 and December 31, 2019, respectively)		(50,610	)		(90,307	)
Net loans, interest and fees receivable		738,415			725,959
Property at cost, net of depreciation		2,848			2,738
Investments in equity-method investee		1,424			1,957
Deposits		102			104
Operating lease right-of-use assets		11,742			14,091
Prepaid expenses and other assets		11,675			15,023
Total assets	$	944,249		$	936,266
Liabilities
Accounts payable and accrued expenses	$	34,169		$	41,617
Operating lease liabilities		18,159			22,259
Notes payable, at face value (including $636.2 million and $701.1 million associated with variable interest entities at June 30, 2020 and December 31, 2019, respectively)		691,860			749,209
Notes payable associated with structured financings, at fair value (associated with variable interest entities)		3,440			3,920
Convertible senior notes		24,235			24,091
Income tax liability		11,769			5,785
Total liabilities		783,632			846,881

Commitments and contingencies (Note 11)

Preferred stock, no par value, 10,000,000 shares authorized:
Series A preferred stock, 400,000 shares issued and outstanding at June 30, 2020 (liquidation preference - $40.0 million); 400,000 shares issued and outstanding at December 31, 2019 (Note 4)		40,000			40,000
Class B preferred units issued to noncontrolling interests (Note 4)		99,200			49,050

Shareholders' Equity
Common stock, no par value, 150,000,000 shares authorized: 15,904,173 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at June 30, 2020; and 15,885,314 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at December 31, 2019		—			—
Paid-in capital		205,295			212,692
Accumulated other comprehensive income		—			—
Retained deficit		(183,196	)		(211,786	)
Total shareholders’ equity		22,099			906
Noncontrolling interests		(682	)		(571	)
Total equity		21,417			335
Total liabilities, preferred stock and shareholders' equity	$	944,249		$	936,266

September 30,
2017 December 31,
2016
Assets
Unrestricted cash and cash equivalents $ 68,582
$ 76,052
Restricted cash and cash equivalents 28,659
16,589
Loans and fees receivable:

Loans and fees receivable, at fair value 12,019
15,648
Loans and fees receivable, gross 359,823
290,697
Allowances for uncollectible loans and fees receivable (52,118 ) (43,275 )
Deferred revenue (35,881 ) (23,639 )
Net loans and fees receivable 283,843
239,431
Rental merchandise, net of depreciation —
27
Property at cost, net of depreciation 3,296
3,829
Investment in equity-method investee 4,745
6,725
Deposits 306
505
Prepaid expenses and other assets 39,636
19,389
Total assets $ 429,067
$ 362,547
Liabilities

Accounts payable and accrued expenses $ 114,883
$ 86,768
Notes payable, at face value, net 208,980
141,166
Notes payable to related parties 40,000
40,000
Notes payable associated with structured financings, at fair value 9,769
12,276
Convertible senior notes 61,238
60,791
Income tax liability 11,059
15,769
Total liabilities 445,929
356,770
Commitments and contingencies (Note 9)

Equity

Common stock, no par value, 150,000,000 shares authorized: 15,335,468 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at September 30, 2017; and 15,348,086 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at December 31, 2016 —
—
Additional paid-in capital 212,618
211,646
Accumulated other comprehensive loss (1,096 ) —
Retained deficit (228,382 ) (205,859 )
Total shareholders’ equity (16,860 ) 5,787
Noncontrolling interests (2 ) (10 )
Total equity (16,862 ) 5,777
Total liabilities and equity $ 429,067
$ 362,547

See accompanying notes.

Table of Contents

Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share data)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Interest income:
Consumer loans, including past due fees	$	100,046		$	55,091		$	203,102		$	105,481
Other		67			109			158			178
Total interest income		100,113			55,200			203,260			105,659
Interest expense		(12,252	)		(12,014	)		(25,836	)		(23,160	)
Net interest income before fees and related income on earning assets and provision for losses on loans, interest and fees receivable		87,861			43,186			177,424			82,499
Changes in fair value of loans, interest and fees receivable recorded at fair value		(25,211	)		371			(40,698	)		370
Fees and related income on earning assets		32,562			14,766			67,825			26,031
Net losses upon impairment of loans, interest and fees receivable recorded at fair value		(374	)		(271	)		(640	)		(525	)
Provision for losses on loans, interest and fees receivable recorded at net realizable value		(32,530	)		(48,414	)		(99,866	)		(83,012	)
Net interest income, fees and related income on earning assets		62,308			9,638			104,045			25,363
Other operating income:
Servicing income		488			375			1,092			1,061
Other income		2,422			28,570			4,544			45,414
Equity in income of equity-method investee		79			225			13			452
Total other operating income		2,989			29,170			5,649			46,927
Other operating expense:
Salaries and benefits		6,508			6,435			14,018			13,026
Card and loan servicing		15,601			11,527			31,438			21,971
Marketing and solicitation		10,190			9,110			19,507			15,497
Depreciation		320			283			605			572
Other		4,586			4,021			9,387			7,899
Total other operating expense		37,205			31,376			74,955			58,965
Income before income taxes		28,092			7,432			34,739			13,325
Income tax expense		(4,975	)		(2,250	)		(6,260	)		(2,488	)
Net income		23,117			5,182			28,479			10,837
Net loss attributable to noncontrolling interests		48			62			111			120
Net income attributable to controlling interests	$	23,165		$	5,244		$	28,590		$	10,957
Preferred dividends	$	(4,736	)	$	—		$	(7,495	)	$	—
Net income attributable to common shareholders	$	18,429		$	5,244		$	21,095		$	10,957
Net income attributable to common shareholders per common share—basic	$	1.28		$	0.36		$	1.46		$	0.76
Net income attributable to common shareholders per common share—diluted	$	0.93		$	0.35		$	1.12		$	0.74

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Interest income:
Consumer loans, including past due fees $ 28,985
$ 24,053
$ 81,457
$ 63,663
Other 34
36
178
188
Total interest income 29,019
24,089
81,635
63,851
Interest expense (7,268 ) (5,257 ) (19,504 ) (14,693 )
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable 21,751
18,832
62,131
49,158
Fees and related income on earning assets 4,166
75
10,938
13,840
Net recovery of charge off of loans and fees receivable recorded at fair value 2,393
1,556
10,763
12,607
Provision for losses on loans and fees receivable recorded at net realizable value (24,087 ) (17,470 ) (50,484 ) (33,012 )
Net interest income, fees and related income on earning assets 4,223
2,993
33,348
42,593
Other operating income:

Servicing income 1,034
885
2,984
3,313
Other income 590
69
939
214
Gain on repurchase of convertible senior notes —
—
—
1,037
Equity in income of equity-method investee 164
629
902
1,956
Total other operating income 1,788
1,583
4,825
6,520
Other operating expense:

Salaries and benefits 5,296
6,329
16,314
18,242
Card and loan servicing 8,687
7,027
23,866
23,300
Marketing and solicitation 2,072
587
6,731
2,374
Depreciation 236
794
789
7,049
Other 4,210
3,570
16,842
6,199
Total other operating expense 20,501
18,307
64,542
57,164
Loss before income taxes (14,490 ) (13,731 ) (26,369 ) (8,051 )
Income tax benefit 22
4,666
3,847
3,811
Net loss (14,468 ) (9,065 ) (22,522 ) (4,240 )
Net (income) loss attributable to noncontrolling interests 1
—
(1 ) 5
Net loss attributable to controlling interests $ (14,467 ) $ (9,065 ) $ (22,523 ) $ (4,235 )
Net loss attributable to controlling interests per common share—basic $ (1.04 ) $ (0.65 ) $ (1.61 ) $ (0.31 )
Net loss attributable to controlling interests per common share—diluted $ (1.04 ) $ (0.65 ) $ (1.61 ) $ (0.31 )

See accompanying notes.

Table of Contents

Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Comprehensive ~~Loss~~Income (Unaudited)

(Dollars in thousands)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net income	$	23,117	$	5,182	$	28,479	$	10,837
Other comprehensive income (loss):
Foreign currency translation adjustment		—		2,011		—		498
Comprehensive income		23,117		7,193		28,479		11,335
Comprehensive loss attributable to noncontrolling interests		48		62		111		120
Comprehensive income attributable to controlling interests	$	23,165	$	7,255	$	28,590	$	11,455
Comprehensive income attributable to controlling interests to common shareholders	$	18,429	$	7,255	$	21,095	$	11,455

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Net loss $ (14,468 ) $ (9,065 ) $ (22,522 ) $ (4,240 )
Other comprehensive income:

Foreign currency translation adjustment (1,721 ) —
(1,721 ) —
Reclassifications of foreign currency translation adjustment to consolidated statements of operations —
—
—
600
Income tax expense related to other comprehensive income 625
—
625
—
Comprehensive loss (15,564 ) (9,065 ) (23,618 ) (3,640 )
Comprehensive (income) loss attributable to noncontrolling interests 1
—
(1 ) 5
Comprehensive loss attributable to controlling interests $ (15,563 ) $ (9,065 ) $ (23,619 ) $ (3,635 )

See accompanying notes.

Table of Contents

Atlanticus Holdings Corporation and Subsidiaries

Consolidated ~~Statement~~Statements of Shareholders’ Equity

(Deficit) (Unaudited)

For the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017 (Unaudited)~~

2020 and June 30, 2019

(Dollars in thousands)

	Common Stock																			Temporary Equity
	Shares Issued			Amount		Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Deficit			Noncontrolling Interests			Total Equity (Deficit)			Class B Preferred Units		Series A Preferred Stock
Balance at December 31, 2019		15,885,314		$	—	$	212,692		$	—	$	(211,786	)	$	(571	)	$	335		$	49,050	$	40,000
Accretion of discount associated with issuance of subsidiary equity		—			—		(75	)		—		—			—			(75	)		75		—
Preferred dividends		—			—		(2,684	)		—		—			—			(2,684	)		—		—
Stock option exercises and proceeds related thereto		2,000			—		6			—		—			—			6			—		—
Compensatory stock issuances, net of forfeitures		64,915			—		—			—		—			—			—			—		—
Contributions by preferred unit holders		—			—		—			—		—			—			—			50,000		—
Deferred stock-based compensation costs		—			—		368			—		—			—			368			—		—
Redemption and retirement of shares		(74,724	)		—		(559	)		—		—			—			(559	)		—		—
Comprehensive income		—			—		—			—		5,425			(63	)		5,362			—		—
Balance at March 31, 2020		15,877,505		$	—	$	209,748		$	—	$	(206,361	)	$	(634	)	$	2,753		$	99,125	$	40,000
Accretion of discount associated with issuance of subsidiary equity		—			—		(75	)		—		—			—			(75	)		75		—
Preferred dividends		—			—		(4,661	)		—		—			—			(4,661	)		—		—
Stock option exercises and proceeds related thereto		37,667			—		114			—		—			—			114			—		—
Deferred stock-based compensation costs		—			—		281			—		—			—			281			—		—
Redemption and retirement of shares		(10,999	)		—		(112	)		—		—			—			(112	)		—		—
Comprehensive income		—			—		—			—		23,165			(48	)		23,117			—		—
Balance at June 30, 2020		15,904,173		$	—	$	205,295		$	—	$	(183,196	)	$	(682	)	$	21,417		$	99,200	$	40,000

	Common Stock																				Temporary Equity
	Shares Issued			Amount		Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Deficit			Noncontrolling Interests			Total Equity (Deficit)			Class B Preferred Units		Series A Preferred Stock
Balance at December 31, 2018		15,563,574		$	—	$	213,435		$	3,558		$	(238,784	)	$	(338	)	$	(22,129	)	$	—	$	—
Cumulative effects from adoption of new lease standard		—			—		—			—			555			—			555			—		—
Stock option exercises and proceeds related thereto		419,500			—		1,065			—			—			—			1,065			—		—
Deferred stock-based compensation costs		—			—		412			—			—			—			412			—		—
Redemption and retirement of shares		(5,944	)		—		(21	)		—			—			—			(21	)		—		—
Comprehensive income		—			—		—			(1,513	)		5,713			(58	)		4,142			—		—
Balance at March 31, 2019		15,977,130		$	—	$	214,891		$	2,045		$	(232,516	)	$	(396	)	$	(15,976	)	$	—	$	—
Stock option exercises and proceeds related thereto		6,000			—		18			—			—			—			18			—		—
Compensatory stock issuances, net of forfeitures		205,000			—		—			—			—			—			—			—		—
Deferred stock-based compensation costs		—			—		440			—			—			—			440			—		—
Redemption and retirement of shares		(64,845	)		—		(238	)		—			—			—			(238	)		—		—
Comprehensive income		—			—		—			2,011			5,244			(62	)		7,193			—		—
Balance at June 30, 2019		16,123,285		$	—	$	215,111		$	4,056		$	(227,272	)	$	(458	)	$	(8,563	)	$	—	$	—

Common Stock
Shares Issued Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Deficit Noncontrolling Interests Total Equity
Balance at December 31, 2016 15,348,086
$ —
$ 211,646
$ —
$ (205,859 ) $ (10 ) $ 5,777
Compensatory stock issuances, net of forfeitures 102,000
—
—
—
—
—
—
Contributions from owners of noncontrolling interests —
—
—
—
—
7
7
Amortization of deferred stock-based compensation costs —
—
1,258
—
—
—
1,258
Redemption and retirement of shares (114,618 ) —
(286 ) —
—
—
(286 )
Other comprehensive (loss) income —
—
—
(1,096 ) (22,523 ) 1
(23,618 )
Balance at September 30, 2017 15,335,468
$ —
$ 212,618
$ (1,096 ) $ (228,382 ) $ (2 ) $ (16,862 )

See accompanying notes.

Table of Contents

Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

	For the Six Months Ended June 30,
	2020			2019
Operating activities
Net income	$	28,479		$	10,837
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion, net		3,955			3,775
Losses upon impairment of loans, interest and fees receivable recorded at fair value		640			525
Provision for losses on loans, interest and fees receivable		99,866			83,012
Interest expense from accretion of discount on notes		288			470
Income from accretion of merchant fees and discount associated with receivables purchases		(66,526	)		(48,316	)
Unrealized losses (gains) on loans, interest and fees receivable and underlying notes payable held at fair value		40,218			(1,697	)
Amortization of deferred loan costs		2,583			1,417
Income from equity-method investments		(13	)		(452	)
Deferred stock-based compensation costs		649			440
Lease liability payments		(5,101	)		(4,999	)
Changes in assets and liabilities:
(Increase) decrease in uncollected fees on earning assets		(19,847	)		1,171
Increase in income tax liability		5,984			2,252
Decrease in deposits		2			20
Decrease in accounts payable and accrued expenses		(10,605	)		(6,462	)
Other		3,387			(2,264	)
Net cash provided by operating activities		83,959			39,729

Investing activities
Proceeds from equity-method investee		546			875
Investments in earning assets		(570,651	)		(433,277	)
Proceeds from earning assets		503,365			290,936
Purchases and development of property, net of disposals		(714	)		(94	)
Net cash used in investing activities		(67,454	)		(141,560	)

Financing activities
Proceeds from issuance of preferred units		50,000			—
Preferred dividends		(4,187	)		—
Proceeds from exercise of stock options		121			1,083
Purchase and retirement of outstanding stock		(671	)		(259	)
Proceeds from borrowings		104,209			349,701
Repayment of borrowings		(164,284	)		(245,043	)
Net cash (used in) provided by financing activities		(14,812	)		105,482
Effect of exchange rate changes on cash		(44	)		(311	)
Net increase in cash and cash equivalents		1,649			3,340
Cash and cash equivalents and restricted cash at beginning of period		176,394			141,754
Cash and cash equivalents and restricted cash at end of period	$	178,043		$	145,094
Supplemental cash flow information
Cash paid for interest	$	23,802		$	20,890
Net cash income tax payments	$	276		$	236

For the Nine Months Ended September 30,
2017 2016
Operating activities
Net loss $ (22,522 ) $ (4,240 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation of rental merchandise 27
5,172
Depreciation, amortization and accretion, net 762
1,877
Losses upon charge off of loans and fees receivable recorded at fair value 2,973
4,647
Provision for losses on loans and fees receivable 50,484
33,012
Interest expense from accretion of discount on convertible senior notes 406
385
Income from accretion of discount associated with receivables purchases (41,961 ) (30,662 )
Unrealized gain on loans and fees receivable and underlying notes payable held at fair value (4,504 ) (2,931 )
Income from equity-method investments (902 ) (1,956 )
Gain on repurchase of convertible senior notes —
(1,037 )
Changes in assets and liabilities:

Increase in uncollected fees on earning assets (1,530 ) (2,782 )
Decrease in income tax liability (4,084 ) (4,521 )
Decrease in deposits 199
295
Increase in accounts payable and accrued expenses 22,032
28,555
Additions to rental merchandise —
(634 )
Other (13,395 ) (475 )
Net cash (used in) provided by operating activities (12,015 ) 24,705
Investing activities

(Increase) decrease in restricted cash (12,049 ) 3,252
Proceeds from equity-method investee 2,882
4,396
Investments in earning assets (335,664 ) (286,654 )
Proceeds from earning assets 282,064
222,606
Purchases and development of property, net of disposals (229 ) (244 )
Net cash used in investing activities (62,996 ) (56,644 )
Financing activities

Noncontrolling interests contributions, net 7
4
Purchase and retirement of outstanding stock (286 ) (869 )
Proceeds from borrowings 243,945
156,869
Repayment of borrowings (176,417 ) (115,245 )
Net cash provided by financing activities 67,249
40,759
Effect of exchange rate changes on cash 292
(1,133 )
Net (decrease) increase in unrestricted cash (7,470 ) 7,687
Unrestricted cash and cash equivalents at beginning of period 76,052
51,033
Unrestricted cash and cash equivalents at end of period $ 68,582
$ 58,720
Supplemental cash flow information

Cash paid for interest $ 19,214
$ 15,390
Net cash income tax payments $ 238
$ 710
Supplemental non-cash information

Issuance of stock options and restricted stock $ 1,364
$ 2,310

See accompanying notes.

Table of Contents

Atlanticus Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September~~

June 30, ~~2017~~2020 and ~~2016~~

2019

1.
1.	Description of Our Business

Our accompanying consolidated financial statements include the accounts of Atlanticus Holdings Corporation (the “Company”) and those entities we control. We are primarily focused on ~~providing~~facilitating consumer credit through the use of our financial technology and related services. Through our subsidiaries, we provide technology and other support services to lenders who offer an array of financial products and services to consumers who may have been declined under traditional financing options.

In most cases, we invest in the receivables originated by lenders who utilize our technology platform and other related services. From time to time, we also purchase receivables portfolios from third parties. References to "receivables" include receivables purchased from our bank partners and from third parties. As discussed further below, we reflect our business lines within two reportable segments: Credit and Other ~~Investments;~~Investments; and Auto Finance. See also Note 3, “Segment Reporting,” for further details.

Within our Credit and Other Investments segment, we facilitate consumer finance programs offered by our bank ~~partners~~partner to originate consumer loans through multiple channels, including retail point-of-sale, direct mail solicitation, ~~on-line~~digital marketing and ~~partnerships.~~through partner relationships. In the retail credit (the “point-of-sale” operations) channel, we partner with retailers and service providers in various industries across the United States (“U.S.”) to enable them to provide credit to their customers for the purchase of goods and services. These services of our ~~lending partners~~bank partner are often extended to consumers who may have been declined under traditional financing options. We specialize in supporting this “second look” credit service in various ~~industries~~market segments across the U.S. Additionally, we support lenders who market general purpose ~~personal loans and~~ credit cards directly to consumers (collectively, the “direct-to-consumer” operations) through additional channels enabling them to reach consumers through a diverse origination platform ~~which~~that includes retail point-of-sale, direct mail ~~Internet-based~~solicitation, digital marketing and ~~through partnerships.~~partnerships with third parties. Using our infrastructure and technology platform, we also provide loan servicing, ~~activities,~~ including risk management and customer service outsourcing, for third parties.

Beyond these activities within our Credit and Other Investments segment, we continue to service portfolios of credit card receivables. One of our portfolios of credit card receivables is encumbered by non-recourse structured financing, and for this portfolio our principal remaining economic interest is the servicing compensation we receive as an offset against our servicing costs given that the likely future collections on the portfolio are insufficient to allow for full repayment of the financing.

Additionally, we report within our Credit and Other Investments ~~segment~~segment: 1) the servicing income from our legacy credit card receivables, 2) the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the ~~servicer.~~

~~Lastly, we report within our Credit~~servicer; and ~~Other Investments segment~~3) gains or losses associated with investments previously made in consumer finance technology platforms. These include investments in companies engaged in mobile technologies, marketplace lending and other financial technologies. These investments are carried at the lower of cost or market ~~valuation as of September 30, 2017. Some of these investees have in the past raised capital at valuations substantially in excess of our associated book value. However, none~~valuation. None of these companies are publicly-traded and there are no material pending liquidity ~~events, and ascribing value to these investments at this time would be speculative.~~

events.

Within our Auto Finance segment, our CAR subsidiary operations principally purchase ~~and~~and/or service loans secured by automobiles from or for, and also provide floor plan financing for, a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here, used car business. We purchase auto loans at a discount and with dealer retentions or holdbacks that provide risk protection. Also within our Auto Finance segment, we are providing certain installment lending products in addition to our traditional loans secured by automobiles.

On March 13, 2020, President Trump declared a national emergency under the National Emergencies Act due to the novel coronavirus pandemic (referred to as “COVID-19”). Nationwide responses to the COVID-19 pandemic have included restrictions on “non-essential” businesses imposed by state and local governments. Consumer spending behavior has been significantly impacted by the COVID-19 pandemic, principally due to the restrictions on “non-essential” businesses, issuances of stay-at-home orders, increased unemployment and uncertainties about the extent and duration of the pandemic.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which provides relief to taxpayers affected by COVID-19. The CARES Act provides direct benefits to certain consumers in the form of one-time stimulus payments, supplemental unemployment assistance and rent relief among others. The CARES Act also provides tax relief, access to short term capital and deferrals of certain tax payments to assist companies with meeting obligations in the near term. The Company has accounted for immediately applicable benefits under the Cares Act.

The duration and severity of the effects of COVID-19 on our financial condition, results of operations and liquidity remain highly uncertain. Likewise, we do not know the duration and severity of the impact of COVID-19 on all members of the Company’s ecosystem – our bank partner, merchants and consumers – as well as our employees. We continue to monitor the ongoing pandemic and have modified certain business practices including minimizing employee travel and executing on a company-wide remote work program. These practices have also been adopted by certain of our third party service partners.

2.
2.	Significant Accounting Policies and Consolidated Financial Statement Components

The following is a summary of significant accounting policies we follow in preparing our consolidated financial statements, as well as a description of significant components of our consolidated financial statements.

Basis of Presentation and Use of Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during each reporting

period. We base these estimates on information available to us as of the date of the financial statements. Actual results could differ materially from these estimates. Certain estimates, such as credit losses, payment rates, costs of funds, discount rates and the yields earned on credit card receivables, significantly affect the reported amount of credit card receivables that we report at fair value and our notes payable associated with structured financings, at fair value; these estimates likewise affect the changes in these amounts reflected within our fees and related income on earning assets line item on our consolidated statements of operations. Additionally, estimates of future credit losses have a significant effect on loans, interest and fees receivable, net, as shown on our consolidated balance sheets, as well as on the provision for losses on loans, interest and fees receivable within our consolidated statements of operations.

We have eliminated all significant intercompany balances and transactions for financial reporting purposes.

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Loans, Interest and Fees Receivable

~~Our loans~~

We maintain two categories of Loans, Interest and ~~fees receivable include loans~~Fees Receivable on our consolidated balance sheet: those that are carried at fair value (Loans, interest and fees receivable, at fair ~~value~~value) and ~~loans~~those that are carried at net amortized cost (Loans, interest and fees receivable, ~~gross.~~

gross). For both categories of loans, interest and fees receivable, other than our Auto Finance receivables, interest and fees are discontinued when loans, interest and fees receivable become contractually 90 or more days past due. We charge off our Credit and Other Investments and Auto Finance segment receivables when they become contractually more than 180 days past due. For all of our products, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or estate large enough to pay the debt in full.

Loans, Interest and Fees Receivable, at Fair Value. Loans, interest and fees receivable held at fair value represent both the receivables underlying credit card securitization trusts (the "Securitized Receivables") and those receivables for which we elected the fair value option on January 1, 2020 (the "Fair Value Receivables"). Both the Securitized Receivables and the Fair Value Receivables are held by entities that qualify as variable interest entities ("VIE"), and are consolidated onto our consolidated balance sheets, some portfolios of which are unencumbered and some of which are still encumbered under structured or other financing facilities.

Under the fair value option for both our Securitized Receivables and our Fair Value Receivables, direct loan origination fees (such as annual and merchant fees) are taken into income when billed to the consumer or upon loan acquisition and direct loan origination costs are expensed in the period incurred. The Company estimates the fair value of the loans using a discounted cash flow model, which considers various unobservable inputs such as remaining cumulative charge-offs, remaining cumulative prepayments, average life and discount rate. The Company re-evaluates the fair value of loans receivable at the close of each measurement period. Changes in fair value are recorded in "Changes in fair value of loans, interest and fees receivable recorded at fair value" in the consolidated statements of operations in the period of the fair value changes. Changes in the fair value of loans, interest and fees receivable recorded at fair value exclude the impact of current period charge offs associated with these receivables which are separately stated in Net losses upon impairment of loans, interest and fees receivable recorded at fair value on our consolidated statements of operations.

Further details concerning our loans, interest and fees receivable held at fair value are presented within Note 6, “Fair Values of Assets and Liabilities.”

Loans, Interest and Fees Receivable Gross. Our loans, interest and fees receivable, gross, currently consist of receivables associated with (a) a portion (those which are not part of our Fair Value Receivables) of our U.S. point-of-sale and direct-to-consumer financing and other credit products platform within our Credit and Other Investments segment and (b) our Auto Finance segment’s operations. Our Credit and Other Investments segment loans, interest and fees receivable generally are unsecured, while our Auto Finance segment loans, interest and fees receivable generally are secured by the underlying automobiles in which we hold the vehicle title. We purchased auto loans with outstanding principal of $45.2 million, $92.6 million, $43.8 million and $93.2 million for the three and six months ended June 30, 2020 and 2019, respectively, through our pre-qualified network of independent automotive dealers and automotive finance companies.

We show both an allowance for uncollectible loans, interest and fees receivable and unearned fees (or “deferred revenue”) for our loans, interest and fees receivable that are not carried at fair value. Our loans, interest and fees receivable consist of smaller-balance, homogeneous loans, divided into two portfolio segments: Credit and Other Investments; and Auto Finance. While each of these categories has unique features, they share many of the same credit risk characteristics and thus share a similar approach to the establishment of an allowance for loan losses. Each portfolio segment is divided into pools based on common characteristics such as contract or acquisition channel. For each pool, we determine the necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the following unique attributes for each type of receivable pool: historical loss rates; current delinquency and roll-rate trends; vintage analyses based on the number of months an account has been in existence; the effects of changes in the economy on a consumer; changes in underwriting criteria; and estimated recoveries. For our Auto Finance segment we may further reduce the expected charge-off, taking into consideration specific dealer level reserves which may allow us to offset our losses and, in the case of secured loans, the impact of collateral available to offset a potential loss. Conversely, for receivables in our Credit and Other Investments segment, which generally do not have a secured interest in collateral, we look to reserve for the gross expected exposure to charge-offs.

These reserves are considered in conjunction with (and potentially reduced by) any unearned fees and discounts that may be applicable for an outstanding loan receivable. A considerable amount of judgment is required to assess the ultimate amount of uncollectible loans, interest and fees receivable, and we continuously evaluate and update our methodologies to determine the most appropriate allowance necessary. We may individually evaluate a receivable or pool of receivables for impairment if circumstances indicate that the receivable or pool of receivables may be at higher risk for non-performance than other receivables (e.g., if a particular retail or auto-finance partner has indications of non-performance (such as a bankruptcy) that could impact the underlying pool of receivables we purchased from the partner).

Certain of our loans, interest and fees receivable also contain components of deferred revenue including merchant fees on the purchases of receivables for our point-of-sale receivables and annual fee billings for our direct-to-consumer credit card receivables. Our point-of-sale and auto finance loans, interest and fees receivable include principal balances and associated fees and interest due from customers which are earned each period a loan is outstanding, net of the unearned portion of merchant fees and loan discounts. Additionally, many of our direct-to-consumer credit card receivables have an annual membership fee that is billed to the consumer on card activation and on each anniversary of that date thereafter. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the weighted average remaining accretion period for the ~~$35.9~~$50.6 million and ~~$23.6~~$90.3 million of deferred revenue reflected in the consolidated balance sheets was 13 months and 11 ~~months.~~months, respectively. Included within deferred revenue, are merchant fees and discounts on purchased loans of $35.2 million and $48.1 million as of June 30, 2020 and December 31, 2019, respectively.

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As a result of the recent COVID-19 pandemic and subsequent declaration of a national emergency by the President on March 13, 2020 under the National Emergencies Act, certain consumers have been offered the ability to defer their payment without penalty during the national emergency period. On March 22, 2020, the federal bank regulatory agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus”, ("COVID-19 Guidance"). This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. In accordance with the prescribed guidance, certain consumers negatively impacted by COVID-19 have been offered short-term payment deferrals and fee waivers. Receivables enrolled in these short-term payment deferrals continue to accrue interest and their delinquency status will not change through the deferment period. As of June 30, 2020, approximately 1.4% of accounts and their associated receivables were actively enrolled in a short-term payment deferral (representing $16.9 million of gross receivables outstanding). Nearly all of these customers are current and thus excluded from the delinquency data in the below tables. In order to establish appropriate reserves for this population we looked at various factors such as subsequent payment behavior and additional requests by the consumer for further deferrals or hardship claims.

A roll-forward (in millions) of our allowance for uncollectible loans, interest and fees receivable by class of receivable is as follows:

For the Three Months Ended June 30, 2020	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans, interest and fees receivable:
Balance at beginning of period	$	(128.4	)	$	(1.8	)	$	(56.7	)	$	(186.9	)
Provision for loan losses		(30.2	)		(0.6	)		(1.8	)		(32.6	)
Charge offs		48.8			0.8			23.0			72.6
Recoveries		(2.7	)		(0.2	)		(8.3	)		(11.2	)
Balance at end of period	$	(112.5	)	$	(1.8	)	$	(43.8	)	$	(158.1	)

For the Six Months Ended June 30, 2020	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans, interest and fees receivable:
Balance at beginning of period	$	(121.3	)	$	(1.6	)	$	(63.4	)	$	(186.3	)
Provision for loan losses		(81.2	)		(1.4	)		(17.3	)		(99.9	)
Charge offs		95.0			1.7			47.3			144.0
Recoveries		(5.0	)		(0.5	)		(10.4	)		(15.9	)
Balance at end of period	$	(112.5	)	$	(1.8	)	$	(43.8	)	$	(158.1	)

As of June 30, 2020	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans, interest and fees receivable:
Balance at end of period individually evaluated for impairment	$	—		$	(0.4	)	$	(0.1	)	$	(0.5	)
Balance at end of period collectively evaluated for impairment	$	(112.5	)	$	(1.4	)	$	(43.7	)	$	(157.6	)
Loans, interest and fees receivable:
Loans, interest and fees receivable, gross	$	404.4		$	89.6		$	275.2		$	769.2
Loans, interest and fees receivable individually evaluated for impairment	$	—		$	0.9		$	0.1		$	1.0
Loans, interest and fees receivable collectively evaluated for impairment	$	404.4		$	88.7		$	275.1		$	768.2

For the Three Months Ended June 30, 2019	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans, interest and fees receivable:
Balance at beginning of period	$	(43.1	)	$	(1.6	)	$	(40.6	)	$	(85.3	)
Provision for loan losses		(28.9	)		(1.1	)		(18.4	)		(48.4	)
Charge offs		17.1			1.5			17.1			35.7
Recoveries		(0.4	)		(0.4	)		(1.4	)		(2.2	)
Balance at end of period	$	(55.3	)	$	(1.6	)	$	(43.3	)	$	(100.2	)

For the Three Months Ended September 30, 2017
Credit Cards
Auto Finance
Other Unsecured Lending Products
Total
Allowance for uncollectible loans and fees receivable:

Balance at beginning of period
$ (3.2 )
$ (2.0 )
$ (36.0 )
$ (41.2 )
Provision for loan losses
(6.2 )
(0.2 )
(17.7 )
(24.1 )
Charge offs
0.7

0.5

13.2

14.4
Recoveries
(0.1 )
(0.3 )
(0.8 )
(1.2 )
Balance at end of period
$ (8.8 )
$ (2.0 )
$ (41.3 )
$ (52.1 )

For the Nine Months Ended September 30, 2017
Credit Cards
Auto Finance
Other Unsecured Lending Products
Total
Allowance for uncollectible loans and fees receivable:

Balance at beginning of period
$ (1.4 )
$ (2.1 )
$ (39.8 )
$ (43.3 )
Provision for loan losses
(8.1 )
(1.0 )
(41.4 )
(50.5 )
Charge offs
1.9

2.1

42.2

46.2
Recoveries
(1.2 )
(1.0 )
(2.3 )
(4.5 )
Balance at end of period
$ (8.8 )
$ (2.0 )
$ (41.3 )
$ (52.1 )

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As of September 30, 2017 Credit Cards Auto Finance Other Unsecured Lending Products Total
Allowance for uncollectible loans and fees receivable:
Balance at end of period individually evaluated for impairment $ —
$ —
$ (0.2 ) $ (0.2 )
Balance at end of period collectively evaluated for impairment $ (8.8 ) $ (2.0 ) $ (41.1 ) $ (51.9 )
Loans and fees receivable:

Loans and fees receivable, gross $ 61.8
$ 75.5
$ 222.5
$ 359.8
Loans and fees receivable individually evaluated for impairment $ —
$ 0.2
$ 0.2
$ 0.4
Loans and fees receivable collectively evaluated for impairment $ 61.8
$ 75.3
$ 222.3
$ 359.4


For the Three Months Ended September 30, 2016	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans and fees receivable:
For the Six Months Ended June 30, 2019													Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans, interest and fees receivable:
Balance at beginning of period	$	(1.1	)	$	(2.0	)	$	(21.1	)	$	(24.2	)	$	(35.4	)	$	(1.3	)	$	(42.5	)	$	(79.2	)
Provision for loan losses	0.1			(0.7		)	(16.9		)	(17.5		)		(48.6	)		(2.0	)		(32.4	)		(83.0	)
Charge offs	0.5			0.8			6.9			8.2				29.4			2.4			34.2			66.0
Recoveries	(0.5		)	(0.2		)	(0.4		)	(1.1		)		(0.7	)		(0.7	)		(2.6	)		(4.0	)
Balance at end of period	$	(1.0	)	$	(2.1	)	$	(31.5	)	$	(34.6	)	$	(55.3	)	$	(1.6	)	$	(43.3	)	$	(100.2	)

For the Nine Months Ended September 30, 2016	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans and fees receivable:
Balance at beginning of period	$	(1.2	)	$	(1.7	)	$	(18.6	)	$	(21.5	)
Provision for loan losses	0.7			(2.1		)	(31.6		)	(33.0		)
Charge offs	1.5			2.5			20.1			24.1
Recoveries	(2.0		)	(0.8		)	(1.4		)	(4.2		)
Balance at end of period	$	(1.0	)	$	(2.1	)	$	(31.5	)	$	(34.6	)

As of December 31, 2019	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans, interest and fees receivable:
Balance at end of period individually evaluated for impairment	$	—		$	(0.4	)	$	(0.1	)	$	(0.5	)
Balance at end of period collectively evaluated for impairment	$	(121.3	)	$	(1.2	)	$	(63.3	)	$	(185.8	)
Loans, interest and fees receivable:
Loans, interest and fees receivable, gross	$	509.2		$	89.8		$	399.2		$	998.2
Loans, interest and fees receivable individually evaluated for impairment	$	—		$	2.1		$	0.1		$	2.2
Loans, interest and fees receivable collectively evaluated for impairment	$	509.2		$	87.7		$	399.1		$	996.0

As of December 31, 2016 Credit Cards Auto Finance Other Unsecured Lending Products Total
Allowance for uncollectible loans and fees receivable:
Balance at end of period individually evaluated for impairment $ —
$ (0.3 ) $ (0.3 ) $ (0.6 )
Balance at end of period collectively evaluated for impairment $ (1.4 ) $ (1.8 ) $ (39.5 ) $ (42.7 )
Loans and fees receivable:

Loans and fees receivable, gross $ 11.0
$ 77.1
$ 202.6
$ 290.7
Loans and fees receivable individually evaluated for impairment $ —
$ 0.7
$ 0.3
$ 1.0
Loans and fees receivable collectively evaluated for impairment $ 11.0
$ 76.4
$ 202.3
$ 289.7

An aging of our delinquent loans, interest and fees receivable, gross (in millions) by class of receivable as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 is as follows:

As of June 30, 2020	Credit Cards		Auto Finance		Other Unsecured Lending Products		Total
30-59 days past due	$	7.9	$	5.9	$	4.9	$	18.7
60-89 days past due		10.9		1.9		4.7		17.5
90 or more days past due		41.6		2.0		17.2		60.8
Delinquent loans, interest and fees receivable, gross		60.4		9.8		26.8		97.0
Current loans, interest and fees receivable, gross		344.0		79.8		248.4		672.2
Total loans, interest and fees receivable, gross	$	404.4	$	89.6	$	275.2	$	769.2
Balance of loans greater than 90-days delinquent still accruing interest and fees	$	—	$	1.3	$	—	$	1.3

As of December 31, 2019	Credit Cards		Auto Finance		Other Unsecured Lending Products		Total
30-59 days past due	$	21.7	$	8.1	$	14.0	$	43.8
60-89 days past due		18.5		3.0		11.5		33.0
90 or more days past due		46.6		2.6		27.2		76.4
Delinquent loans, interest and fees receivable, gross		86.8		13.7		52.7		153.2
Current loans, interest and fees receivable, gross		422.4		76.1		346.5		845.0
Total loans, interest and fees receivable, gross	$	509.2	$	89.8	$	399.2	$	998.2
Balance of loans greater than 90-days delinquent still accruing interest and fees	$	—	$	1.9	$	—	$	1.9

Balance at September 30, 2017 Credit Cards Auto Finance Other Unsecured Lending Products Total
30-59 days past due $ 1.7
$ 6.3
$ 9.3
$ 17.3
60-89 days past due 0.8
2.2
7.1
10.1
90 or more days past due 1.4
1.7
14.2
17.3
Delinquent loans and fees receivable, gross 3.9
10.2
30.6
44.7
Current loans and fees receivable, gross 57.9
65.3
191.9
315.1
Total loans and fees receivable, gross $ 61.8
$ 75.5
$ 222.5
$ 359.8
Balance of loans 90 or more days past due and still accruing interest and fees $ —
$ 1.3
$ —
$ 1.3

Balance at December 31, 2016 Credit Cards Auto Finance Other Unsecured Lending Products Total
30-59 days past due $ 0.2
$ 7.0
$ 8.2
$ 15.4
60-89 days past due 0.2
2.4
6.7
9.3
90 or more days past due 0.4
1.9
11.4
13.7
Delinquent loans and fees receivable, gross 0.8
11.3
26.3
38.4
Current loans and fees receivable, gross 10.2
65.8
176.3
252.3
Total loans and fees receivable, gross $ 11.0
$ 77.1
$ 202.6
$ 290.7
Balance of loans 90 or more days past due and still accruing interest and fees $ —
$ 1.5
$ —
$ 1.5

~~Prepaid Expenses~~

Troubled Debt Restructurings.As part of ongoing collection efforts, once an account, the receivable of which is included in our Credit and Other ~~Assets~~

~~Prepaid expenses~~Investments segment, is 90 days or more past due, the related receivable is placed on a non-accrual status. Placement on a non-accrual status results in the use of programs under which the contractual interest associated with a receivable may be reduced or eliminated, or a certain amount of accrued fees is waived, provided a minimum number or amount of payments have been made. Following this adjustment, if a customer demonstrates a willingness and ~~other assets~~ability to resume making monthly payments and meets certain additional criteria, we will re-age the customer’s account. When we re-age an account, we adjust the status of the account to bring a delinquent account current, but generally do not make any further modifications to the payment terms or amount owed. Once an account is placed on a non-accrual status, it is closed for further purchases. Accounts that are placed on a non-accrual status and thereafter make at least one payment qualify as troubled debt restructurings (“TDR”)s. The above referenced COVID-19 Guidance issued by federal bank regulatory agencies, in consultation with the FASB staff concluded that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were impacted by COVID-19 and who were less than 30 days past due as of the implementation date of a relief program are not TDRs. Although we are not a financial institution, we believe this constitutes an interpretation of GAAP and therefore should be applied to our accounting circumstances. As a result, the below tables exclude accounts that are included under that guidance.

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The following table details by class of receivable, the number and amount of modified loans, including TDRs that have been re-aged, as of June 30, 2020 and December 31, 2019:

	As of
	June 30, 2020				December 31, 2019
	Point-of-sale		Direct-to-consumer		Point-of-sale		Direct-to-consumer
Number of TDRs		14,247		36,984		10,682		14,553
Number of TDRs that have been re-aged		3,143		5,760		2,788		2,854
Amount of TDRs on non-accrual status (in thousands)	$	17,755	$	29,034	$	14,468	$	13,037
Amount of TDRs on non-accrual status above that have been re-aged (in thousands)	$	5,576	$	5,531	$	5,118	$	3,104
Carrying value of TDRs (in thousands)	$	12,999	$	18,898	$	8,864	$	7,312
TDRs - Performing (carrying value, in thousands)*	$	10,973	$	17,195	$	6,754	$	6,106
TDRs - Nonperforming (carrying value, in thousands)*	$	2,026	$	1,703	$	2,110	$	1,206

*“TDRs - Performing” include ~~amounts paid to third parties for marketing and other services as well as~~accounts that are current on all amounts owed, ~~to us by third parties. Prepaid~~while “TDRs - Nonperforming” include all accounts with past due amounts are expensed as the underlying related services are performed. Also included are (1) commissions paid associated with our various office leases which we amortize into expense over the lease terms, (2) amounts due associated with reimbursements in respect of oneowed.

We do not separately reserve or impair these receivables outside of our ~~portfolios~~general reserve process.

The Company modified 62,040 and ~~(3) ongoing deferred costs associated with service contracts.~~22,408 accounts in the amount of $74.4 million and $33.5 million during the twelve month periods ended June 30, 2020 and June 30, 2019, respectively, that qualified as TDRs. The following table details by class of receivable, the number of accounts and balance of loans that completed a modification (including those that were classified as TDRs) within the prior twelve months and subsequently defaulted.

	Twelve Months Ended
	June 30, 2020				June 30, 2019
	Point-of-sale		Direct-to-consumer		Point-of-sale		Direct-to-consumer
Number of accounts		4,065		6,744		2,539		2,347
Loan balance at time of charge off (in thousands)	$	5,764	$	6,208	$	3,964	$	2,561

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Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses reflect both the billed and unbilled amounts owed at the end of a period for services rendered. ~~Also included within~~Commencing in July 2019, accounts payable and accrued expenses ~~are amounts which may be~~includes payments owed ~~in respect of one~~under a deferred payment program started with an unrelated third-party for a portion of our ~~portfolios.~~

marketing expenditures. As a result of this agreement, we were able to extend the payment terms associated with our growing marketing spend between 10-37 months.

Income Taxes

We experienced effective ~~income~~ tax ~~benefit~~ rates of ~~0.2%~~17.7% and ~~14.6%~~18.0%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2020, compared to effective ~~income~~ tax ~~benefit~~ rates of ~~34.0%~~30.3% and ~~47.3%~~18.7%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~2019. Our effective ~~income~~ tax ~~benefit~~ rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 are below the statutory rate principally due to (1) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes and ~~penalties that we accrued~~(2) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’ grant date values. Partially offsetting such effects on our effective tax rates are the effects of accruals of interest on unpaid federal tax liabilities and ~~(2) our establishment of,~~uncertain tax positions and ~~increases in, our valuation allowances~~state and foreign income taxes during ~~such periods against our net federal deferred tax assets that arose during such periods associated with our net loss incurred during such periods.~~ the three and six months ended June 30, 2020.

Our effective ~~income~~ tax ~~benefit~~ rate for the three months ended ~~September~~June 30, 2016 was below the statutory rate principally due to our accruals of interest and penalties on unpaid tax liabilities relative to our $13.7 million of pre-tax loss during that period. Our effective income tax benefit rate for the nine months ended September 30, 20162019 was above the statutory rate principally due to (1) interest accruals on unpaid federal tax liabilities and uncertain tax positions and (2) state and foreign income tax accruals. However, it was below the statutory rate for the six months ended June 30, 2019, principally due to reductions in our valuation allowances against net federal deferred tax assets during ~~that period~~such period—the effect of ~~our U.K. subsidiary that was not subject to tax in the U.S. and the U.K. tax on which was fully~~such reductions being partially offset by ~~the release of U.K. valuation allowances in that~~interest accruals on unpaid federal tax liabilities and uncertain tax positions and state and foreign income tax accruals during such period.

We report income tax-related interest and penalties (including those associated with both our accrued liabilities for uncertain tax positions and unpaid tax liabilities) within our income tax ~~benefit or expense~~ line item on our consolidated statements of operations. We likewise report the reversal of ~~such~~income tax-related interest and penalties within ~~the income tax benefit or expense~~such line item to the extent ~~that~~ we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals therefor. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, our income tax benefits were offset by $0.2 million and $0.5 million of~~2020, however, net income tax-related interest and penalties charges. During the three and nine months ended September 30, 2016, we included $0.2 million and $0.6 million of net income tax-related interest and penalties within those periods’ respective income tax expense line items.

were negligible.

In December 2014, we reached a settlement with the IRS concerning the tax treatment of net operating losses ~~that~~ we incurred in 2007 and 2008 and carried back to obtain refunds of federal income taxes paid in earlier years dating back to 2003. Our net unpaid income tax assessment associated with that settlement was $7.4 million at September 30, 2017; this amount excludes unpaid interest and penalties on the tax assessment, the accruals for which aggregated $3.9 million at September 30, 2017. Prior to our filingIn 2015, we filed an amended return ~~claims~~claim that, if accepted, would have eliminated the $7.4 million assessment (and corresponding interest and penalties) under a negotiated provision of the December 2014 IRS ~~settlement, the~~settlement. The IRS filed a lien (as is customarily the case) associated with the assessment. Subsequently, an IRS examination team denied our amended return claims, and we filed a protest with IRS Appeals. ~~In October 2017, we attended an~~Following correspondence and conferences held with IRS Appeals, ~~conference~~we received and accepted a settlement offer from IRS Appeals in June 2018 that reduced our $7.4 million net unpaid income tax assessment referenced above to $3.7 million (such $3.7 million remaining unpaid assessment relating to the 2006 year to which we had originally carried back the aforementioned net operating losses). In July 2018, we paid $5.4 million to the IRS to cover the $3.7 million unpaid income tax assessment and most of the interest that had accrued thereon. Subsequently, during the three months ended September 30, 2018, the IRS refunded $0.5 million of our $5.4 million payment, and in 2019, we paid $0.7 million to the IRS to cover the interest on the 2006 income tax liability. Although we have paid all assessed income taxes related to this matter, we still have an outstanding accrued liability for failure-to-pay penalties (and accrued interest thereon) related to this matter. We are pursuing complete abatement of the ~~subject~~failure-to-pay penalties of $0.9 million, and once this matter ~~underlying our amended return claims, and~~is resolved through either abatement or payment, we ~~are in the process of preparing a supplemental submission to address matters on which~~expect the IRS ~~Appeals Officer needed additional support.~~

to remove the aforementioned lien in due course.

Revenue Recognition and Revenue from Contracts with Customers

Consumer Loans, Including Past Due Fees

Consumer loans, including past due fees reflect interest income, including finance charges, and late fees on loans in accordance with the terms of the related customer agreements. Premiums, discounts and merchant fees paid or received associated with installment or auto loans that are not included as part of our Fair Value Receivables are deferred and amortized over the average life of the related loans using the effective interest method. Premiums, discounts and merchant fees paid or received associated with Fair Value Receivables are recognized upon receivable acquisition. Finance charges and fees, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable and revenue when the fees are earned based upon the contractual terms of the loans.

Fees and Related Income on Earning Assets

Fees and related income on earning assets primarily include: (1) fees associated with the credit products, including the receivables underlying our U.S. point-of-sale finance and direct-to-consumer platform, and our legacy credit card receivables which include the recognition of annual fee billings and cash advance fees among others; (2) changes in fair value of notes payable associated with structured financings recorded at fair value; and (3) gains or losses associated with our investments in securities.

We assess fees on credit card accounts underlying our credit card receivables according to the terms of the related cardholder agreements and, except for annual membership fees, we recognize these fees as income when they are charged to the customers’ accounts. We accrete annual membership fees associated with our credit card receivables into income on a straight-line basis over the cardholder privilege period which is generally 12 months for receivables that are not included as part of our Fair Value Receivables, and when billed for those receivables that are included as part of our Fair Value Receivables. Similarly, fees on our other credit products are recognized when earned, which coincides with the time they are charged to the customer’s account. Fees and related income on earning assets, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable and revenue when the fees are earned based upon the contractual terms of the loans. The election of the fair value option to account for certain loans receivable that are acquired on or after January 1, 2020 resulted in increased fees recognized on credit products for the first quarter of 2020.

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The components (in thousands) of our fees and related income on earning assets are as follows:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020			2019		2020		2019
Fees on credit products	$	32,399		$	14,308	$	67,044	$	24,604
Changes in fair value of notes payable associated with structured financings recorded at fair value		(82	)		452		480		1,327
Other		245			6		301		100
Total fees and related income on earning assets	$	32,562		$	14,766	$	67,825	$	26,031

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Fees on credit products $ 3,248
$ 944
$ 6,351
$ 2,599
Changes in fair value of loans and fees receivable recorded at fair value 1,153
(1,857 ) 2,718
568
Changes in fair value of notes payable associated with structured financings recorded at fair value 259
259
1,786
2,363
Rental revenue —
758
148
8,091
Other (494 ) (29 ) (65 ) 219
Total fees and related income on earning assets $ 4,166
$ 75
$ 10,938
$ 13,840

~~The above changes~~

Other income

Other income includes revenues associated with ancillary product offerings and interchange revenues. We recognize these fees as income in the ~~fair value of loans~~period earned. Included in Other income for the three and ~~fees receivable recorded at fair value category exclude the impact of charge offs~~six months ended June 30, 2019 is $26.0 and $41.4 million, respectively, associated with reductions in accruals related to one of our portfolios. The accrual was based upon our estimate of the amount that may be claimed by customers and was based upon several factors including customer claims volume, average claim amount and a determination of the amount, if any, which may be offered to resolve such claims. The assumptions used in the accrual estimate were subjective, mainly due to uncertainty associated with future claims volumes and the resolution costs, if any, per claim.

Revenue from Contracts with Customers

The majority of our revenue is earned from financial instruments and is not included within the scope of ASU No. 2014-09, "Revenue from Contracts with Customers". We have determined that revenue from contracts with customers would primarily consist of interchange revenues in our Credit and Other Investments segment and servicing revenue and other customer-related fees in both our Credit and Other Investments segment and our Auto Finance segment. Servicing revenue is generated by meeting contractual performance obligations related to the collection of amounts due on receivables, and is settled with the customer net of our fee. Revenue from these ~~receivables which are separately stated in Net recovery~~contracts with customers is included as a component of ~~charge off of loans and fees~~

~~receivable recorded at fair value~~Other income on our consolidated statements of operations. ~~See Note 6, “Fair Values~~Service charges and other customer related fees are earned from customers based on the occurrence of ~~Assets and Liabilities,” for further discussion~~specific services that do not result in an ongoing obligation beyond what has already been rendered. Components (in thousands) of ~~these receivables and their effects on~~ our ~~consolidated statements~~revenue from contracts with customers is as follows:

	Credit and
For the Three Months Ended June 30, 2020	Other Investments		Auto Finance		Total
Interchange revenues, net (1)	$	1,842	$	—	$	1,842
Servicing income		240		248		488
Service charges and other customer related fees		564		16		580
Total revenue from contracts with customers	$	2,646	$	264	$	2,910

(1) Interchange revenue is presented net of ~~operations.~~customer reward expense.

	Credit and
For the Six Months Ended June 30, 2020	Other Investments		Auto Finance		Total
Interchange revenues, net (1)	$	3,822	$	—	$	3,822
Servicing income		624		468		1,092
Service charges and other customer related fees		689		33		722
Total revenue from contracts with customers	$	5,135	$	501	$	5,636

(1) Interchange revenue is presented net of customer reward expense.

	Credit and
For the Three Months Ended June 30, 2019	Other Investments		Auto Finance		Total
Interchange revenues, net (1)	$	1,912	$	—	$	1,912
Servicing income		135		240		375
Service charges and other customer related fees		679		16		695
Total revenue from contracts with customers	$	2,726	$	256	$	2,982

(1) Interchange revenue is presented net of customer reward expense.

	Credit and
For the Six Months Ended June 30, 2019	Other Investments		Auto Finance		Total
Interchange revenues, net (1)	$	2,840	$	—	$	2,840
Servicing income		554		507		1,061
Service charges and other customer related fees		1,108		33		1,141
Total revenue from contracts with customers	$	4,502	$	540	$	5,042

(1) Interchange revenue is presented net of customer reward expense.

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Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update ~~(“ASU”~~("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments. The guidance requires an assessment of credit losses based on expected rather than incurred ~~losses.~~losses (known as the current expected credit loss model). This generally will result in the recognition of allowances for losses earlier than under current accounting guidance for trade and other receivables, held to maturity debt securities and other instruments. The FASB has added several technical amendments (ASU 2018-19, 2019-04, 2019-10 and 2019-11) to clarify technical aspects of the guidance and applicability to specific financial instruments or transactions. In May 2019 the FASB issued ASU 2019-05 which allows entities to measure assets in the scope of ASC 326-20, except held to maturity securities, using the fair value option when they adopt the new credit impairment standard. The election can be made on an instrument by instrument basis. The standard will be adopted on a prospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 is(and ASU 2019-05) was initially effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. ~~While we~~The FASB recently delayed the effective date of this standard until annual and interim periods beginning after December 15, 2022 for non-accelerated and smaller reporting company filers, with early adoption permitted for smaller reporting companies (among others). We are ~~continuing~~currently in the process of reviewing accounting interpretations, including the recently added fair value option, expected data requirements and necessary changes to ~~evaluate the effect that ASU 2016-13 will have on~~ our ~~consolidated financial statements~~loss estimation methods, processes and ~~related disclosures, this~~systems. This standard is expected to result in an increase to our allowance for loan losses (unless the fair value option is elected) given the change to expected losses for the estimated life of the financial asset. If the fair value option is elected for some or all of our eligible receivables, we would expect more potential volatility in the recorded value of the assets as these receivables are remeasured each period. The extent of the ~~increase~~financial statement impact will depend on the asset quality of the portfolio, and economic conditions and forecasts at adoption.

In March 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting. The ASU eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively, as if the equity method had been in effect during all previous periods that the investment had been held. The ASU requires that the cost of acquiring the additional interest in the investee should be combined with the current basis of the investor’s previously held interest and the equity method of accounting should be adopted as of the date the investment becomes qualified for equity method accounting. No retroactive adjustment of the investment is required. The ASU also requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings, the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The ASU was effective January 1, 2017. The impact of adoption of this authoritative guidance did not result in a material impact on our consolidated financial statements.

~~In February 2016,~~August 2018, the FASB issued ASU No. ~~2016-02, Leases,~~2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which ~~requires lessees to recognize assets and liabilities~~amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for ~~most leases, changing~~fair value measurements by removing, modifying, or adding certain ~~aspects of current lessor accounting, among other things.~~disclosures. The ASU ~~2016-02~~ is effective for ~~annual and interim periods~~all entities for fiscal years beginning after December 15, ~~2018, with early adoption permitted.~~2019. The amendments address changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty and should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The adoption of this ASU 2016-02 will result in the Company recognizing a right-of-use asset and lease liability on the consolidated balance sheet based on the present value of remaining operating lease payments. We do not expect the adoption of ASU 2016-02 to have a material impact on our consolidated financial statements due to the limited lease activity we are involved in.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 establishes a principles-based model under which revenue from a contract is allocated to the distinct performance obligations within the contract and recognized in income as each performance obligation is satisfied. Additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract is also required. In August 2015, the FASB delayed the effective date by one year and the guidance will now be effective for annual and interim periods beginning January 1, 2018 and early adoption is permitted. We do not plan to early adopt the guidance. The scope of ASU 2014-09 excludes interest and fee income on loans and as a result, the majority of our revenue will not be affected. As such the adoption of this standard, outside of the additional disclosures required under the standard, willdid not have a material ~~impact~~effect on ~~our~~the Company’s consolidated financial statements.

Subsequent Events

We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated financial statements are issued. There are two types of subsequent events: ~~(1)~~(1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements; and ~~(2)~~(2) nonrecognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. We have evaluated subsequent events occurring after ~~September~~June 30, ~~2017,~~ 2020, and based on our evaluation we did not identify any recognized or nonrecognized subsequent events that would have required further adjustments to our consolidated financial statements.

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3.	~~Segment Reporting~~

3.	Segment Reporting

We operate primarily within one industry consisting of two reportable segments by which we manage our business. Our two reportable segments are: Credit and Other Investments, and Auto Finance.

As of both ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019, we did not have a material amount of long-lived assets located outside of the U.S., and only a negligible portion of our revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 were generated outside of the U.S.

We measure the profitability of our reportable segments based on their income after allocation of specific costs and corporate overhead; however, our segment results do not reflect any charges for internal capital allocations among our segments. Overhead costs are allocated based on headcounts and other applicable measures to better align costs with the associated revenues.

Summary operating segment information (in thousands) is as follows:

Three Months Ended June 30, 2020	Credit and Other Investments			Auto Finance			Total
Interest income:
Consumer loans, including past due fees	$	92,140		$	7,906		$	100,046
Other		67			—			67
Total interest income		92,207			7,906			100,113
Interest expense		(11,977	)		(275	)		(12,252	)
Net interest income before fees and related income on earning assets and provision for losses on loans, interest and fees receivable	$	80,230		$	7,631		$	87,861
Changes in fair value of loans, interest and fees receivable recorded at fair value	$	(25,211	)	$	—		$	(25,211	)
Fees and related income on earning assets	$	32,539		$	23		$	32,562
Servicing income	$	240		$	248		$	488
Equity in income of equity-method investee	$	79		$	—		$	79
Income before income taxes	$	25,924		$	2,168		$	28,092
Income tax expense	$	(4,403	)	$	(572	)	$	(4,975	)

Six Months Ended June 30, 2020	Credit and Other Investments			Auto Finance			Total
Interest income:
Consumer loans, including past due fees	$	187,302		$	15,800		$	203,102
Other		158			—			158
Total interest income		187,460			15,800			203,260
Interest expense		(25,152	)		(684	)		(25,836	)
Net interest income before fees and related income on earning assets and provision for losses on loans, interest and fees receivable	$	162,308		$	15,116		$	177,424
Changes in fair value of loans, interest and fees receivable recorded at fair value	$	(40,698	)	$	—		$	(40,698	)
Fees and related income on earning assets	$	67,781		$	44		$	67,825
Servicing income	$	624		$	468		$	1,092
Equity in income of equity-method investee	$	13		$	—		$	13
Income before income taxes	$	30,991		$	3,748		$	34,739
Income tax expense	$	(5,279	)	$	(981	)	$	(6,260	)
Total assets	$	864,557		$	79,692		$	944,249

Three months ended September 30, 2017 Credit and Other Investments Auto Finance Total
Interest income:
Consumer loans, including past due fees $ 21,901
$ 7,084
$ 28,985
Other 34
—
34
Total interest income 21,935
7,084
29,019
Interest expense (6,998 ) (270 ) (7,268 )
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable $ 14,937
$ 6,814
$ 21,751
Fees and related income on earning assets $ 4,137
$ 29
$ 4,166
Servicing income $ 831
$ 203
$ 1,034
Depreciation of rental merchandise $ —
$ —
$ —
Equity in income of equity-method investee $ 164
$ —
$ 164
(Loss) income before income taxes $ (16,547 ) $ 2,057
$ (14,490 )
Income tax benefit (expense) $ 655
$ (633 ) $ 22

Nine months ended September 30, 2017 Credit and Other Investments Auto Finance Total
Interest income:
Consumer loans, including past due fees $ 60,320
$ 21,137
$ 81,457
Other 178
—
178
Total interest income 60,498
21,137
81,635
Interest expense (18,758 ) (746 ) (19,504 )
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable $ 41,740
$ 20,391
$ 62,131
Fees and related income on earning assets $ 10,859
$ 79
$ 10,938
Servicing income $ 2,332
$ 652
$ 2,984
Depreciation of rental merchandise $ (27 ) $ —
$ (27 )
Equity in income of equity-method investee $ 902
$ —
$ 902
(Loss) income before income taxes $ (32,071 ) $ 5,702
$ (26,369 )
Income tax benefit (expense) $ 5,677
$ (1,830 ) $ 3,847
Total assets $ 363,526
$ 65,541
$ 429,067

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Three months ended September 30, 2016 Credit and Other Investments Auto Finance Total
Interest income:
Consumer loans, including past due fees $ 16,701
$ 7,352
$ 24,053
Other 36
—
36
Total interest income 16,737
7,352
24,089
Interest expense (4,944 ) (313 ) (5,257 )
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable $ 11,793
$ 7,039
$ 18,832
Fees and related income on earning assets $ 92
$ (17 ) $ 75
Servicing income $ 645
$ 240
$ 885
Gain on repurchase of convertible senior notes $ —
$ —
$ —
Depreciation of rental merchandise $ (458 ) $ —
$ (458 )
Equity in income of equity-method investee $ 629
$ —
$ 629
(Loss) income before income taxes $ (15,709 ) $ 1,978
$ (13,731 )
Income tax benefit (expense)
$ 5,296
$ (630 ) $ 4,666

Nine months ended September 30, 2016 Credit and Other Investments Auto Finance Total
Interest income:
Consumer loans, including past due fees $ 42,018
$ 21,645
$ 63,663
Other 188
—
188
Total interest income 42,206
21,645
63,851
Interest expense (13,735 ) (958 ) (14,693 )
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable $ 28,471
$ 20,687
$ 49,158
Fees and related income on earning assets $ 13,761
$ 79
$ 13,840
Servicing income $ 2,569
$ 744
$ 3,313
Gain on repurchase of convertible senior notes $ 1,037

$ —

$ 1,037
Depreciation of rental merchandise $ (5,172 ) $ —
$ (5,172 )
Equity in income of equity-method investee $ 1,956
$ —
$ 1,956
(Loss) income before income taxes
$ (13,047 ) $ 4,996
$ (8,051 )
Income tax benefit (expense) $ 5,500
$ (1,689 ) $ 3,811
Total assets $ 267,390
$ 68,440
$ 335,830


4.	~~Shareholders’ Equity~~

During the three and nine months ended September 30, 2017, we repurchased and contemporaneously retired 107,916 and 114,618 shares of our common stock at an aggregate cost of $268,000 and $286,000, respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations. During the three and nine months ended September 30, 2016, we repurchased and contemporaneously retired 39,580 and 286,223 shares of our common stock at an aggregate cost of $124,000 and $869,000, respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations.

~~We had 1,459,233 loaned shares outstanding at~~ ~~September 30, 2017~~ ~~and December 31, 2016, which were originally lent in connection with our November 2005 issuance of convertible senior notes. We retire lent shares as they are returned to us.~~


5.	~~Investment in Equity-Method Investee~~

~~Our equity-method investment outstanding at September 30, 2017 consists of our 66.7% interest in a joint venture formed to purchase a credit card receivable portfolio.~~

~~In the following tables, we summarize (in thousands) balance sheet and results of operations data for our equity-method investee:~~

As of
September 30, 2017 December 31, 2016
Loans and fees receivable, at fair value $ 6,833
$ 9,650
Total assets $ 7,145
$ 10,291
Total liabilities $ 28
$ 204
Members’ capital $ 7,117
$ 10,087

Three Months Ended June 30, 2019	Credit and Other Investments			Auto Finance			Total
Interest income:
Consumer loans, including past due fees	$	47,168		$	7,923		$	55,091
Other		109			—			109
Total interest income		47,277			7,923			55,200
Interest expense		(11,583	)		(431	)		(12,014	)
Net interest income before fees and related income on earning assets and provision for losses on loans, interest and fees receivable	$	35,694		$	7,492		$	43,186
Changes in fair value of loans, interest and fees receivable recorded at fair value	$	371		$	—		$	371
Fees and related income on earning assets	$	14,682		$	84		$	14,766
Servicing income	$	135		$	240		$	375
Equity in income of equity-method investee	$	225		$	—		$	225
Income before income taxes	$	5,958		$	1,474		$	7,432
Income tax expense	$	(1,914	)	$	(336	)	$	(2,250	)

Six Months Ended June 30, 2019	Credit and Other Investments			Auto Finance			Total
Interest income:
Consumer loans, including past due fees	$	89,840		$	15,641		$	105,481
Other		178			—			178
Total interest income		90,018			15,641			105,659
Interest expense		(22,352	)		(808	)		(23,160	)
Net interest income before fees and related income on earning assets and provision for losses on loans, interest and fees receivable	$	67,666		$	14,833		$	82,499
Changes in fair value of loans, interest and fees receivable recorded at fair value	$	370		$	—		$	370
Fees and related income on earning assets	$	25,919		$	112		$	26,031
Servicing income	$	554		$	507		$	1,061
Equity in income of equity-method investee	$	452		$	—		$	452
Income before income taxes	$	10,165		$	3,160		$	13,325
Income tax expense	$	(1,675	)	$	(813	)	$	(2,488	)
Total assets	$	630,985		$	79,373		$	710,358

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Net interest income, fees and related income on earning assets $ 247
$ 949
$ 1,358
$ 2,957
Net income $ 159
$ 822
$ 1,067
$ 2,537
Net income attributable to our equity investment in investee $ 164
$ 629
$ 902
$ 1,956

4.
6.	~~Fair Values of Assets~~ Shareholders’ Equity and ~~Liabilities~~Preferred Stock

~~Valuations and Techniques for Assets~~

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The table below summarizes (in thousands) by fair value hierarchy the ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ fair values and carrying amounts of (1) our assets that are required to be carried at fair value in our consolidated financial statements and (2) our assets not carried at fair value, but for which fair value disclosures are required:

Assets – As of September 30, 2017 (1) Quoted Prices in Active
Markets for Identical Assets (Level 1) Significant Other
Observable Inputs (Level 2) Significant
Unobservable Inputs (Level 3) Carrying Amount of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value $ —
$ —
$ 310,557
$ 271,824
Loans and fees receivable, at fair value $ —
$ —
$ 12,019
$ 12,019

Assets – As of December 31, 2016 (1) Quoted Prices in Active
Markets for Identical Assets (Level 1) Significant Other
Observable Inputs (Level 2) Significant
Unobservable Inputs (Level 3) Carrying Amount of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value $ —
$ —
$ 248,171
$ 223,783
Loans and fees receivable, at fair value $ —
$ —
$ 15,648
$ 15,648


~~(1)~~	~~For cash, deposits and other short-term investments, the carrying amount is a reasonable estimate of fair value.~~

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the nine months ended September 30, 2017 and 2016:

Loans and Fees Receivable, at
Fair Value
2017 2016
Balance at January 1, $ 15,648
$ 26,706
Total gains—realized/unrealized:

Net revaluations of loans and fees receivable, at fair value 2,718
568
Settlements (6,398 ) (8,590 )
Impact of foreign currency translation 51
(239 )
Balance at September 30, $ 12,019
$ 18,445

The unrealized gains and losses for assets within the Level 3 category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs. Impacts related to foreign currency translation are included as a component of other operating expense on the consolidated statements of operations.

~~Net Revaluation of Loans and Fees Receivable.~~ We record the net revaluation of loans and fees receivable (including those pledged as collateral) in the fees and related income on earning assets category in our consolidated statements of operations, specifically as changes in fair value of loans and fees receivable recorded at fair value.

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of ~~September 30, 2017~~ ~~and December 31, 2016:~~

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements Fair Value at September 30, 2017 Valuation Technique Unobservable Input Range (Weighted Average)
Loans and fees receivable, at fair value $ 12,019
Discounted cash flows Gross yield 16.3% to 26.7% (24.9%)

Principal payment rate 1.7% to 2.8% (2.4%)

Expected credit loss rate 11.2% to 13.4% (11.6%)

Servicing rate 9.6% to 11.6% (9.8%)

Discount rate 5.8% to 14.0% (12.7%)

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements Fair Value at December 31, 2016 Valuation Technique Unobservable Input Range (Weighted Average)
Loans and fees receivable, at fair value $ 15,648
Discounted cash flows Gross yield 24.2% to 35.8% (26.1%)

Principal payment rate 2.2% to 3.5% (2.4%)

Expected credit loss rate 11.8% to 18.0% (12.9%)

Servicing rate 8.6% to 9.6% (8.8%)

Discount rate 5.8% to 13.6% (12.5%)

~~Valuations and Techniques for Liabilities~~

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the liability. The table below summarizes (in thousands) by fair value hierarchy the ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ fair values and carrying amounts of (1) our liabilities that are required to be carried at fair value in our consolidated financial statements and (2) our liabilities not carried at fair value, but for which fair value disclosures are required:

Liabilities – As of September 30, 2017 Quoted Prices in Active
Markets for Identical Assets (Level 1) Significant Other
Observable Inputs (Level 2) Significant
Unobservable Inputs (Level 3) Carrying Amount of Liabilities
Liabilities not carried at fair value
Revolving credit facilities $ —
$ —
$ 143,834
$ 143,834
Amortizing debt facilities $ —
$ —
$ 66,191
$ 66,191
Senior secured term loan $ —
$ —
$ 40,000
$ 40,000
5.875% convertible senior notes $ —
$ 39,064
$ —
$ 61,238
Liabilities carried at fair value

Notes payable associated with structured financings, at fair value $ —
$ —
$ 9,769
$ 9,769

Liabilities - As of December 31, 2016 Quoted Prices in Active
Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Carrying Amount of Liabilities
Liabilities not carried at fair value

Revolving credit facilities $ —
$ —
$ 83,399
$ 83,399
Amortizing debt facilities $ —
$ —
$ 58,190
$ 58,190
Senior secured term loan $ —
$ —
$ 40,000
$ 40,000
5.875% convertible senior notes $ —
$ 40,609
$ —
$ 60,791
Liabilities carried at fair value

Notes payable associated with structured financings, at fair value $ —
$ —
$ 12,276
$ 12,276

For our material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the nine months ended September 30, 2017 and 2016.

Notes Payable Associated with
Structured Financings, at Fair Value
2017 2016
Beginning balance, January 1 $ 12,276
$ 20,970
Total (gains) losses—realized/unrealized:

Net revaluations of notes payable associated with structured financings, at fair value (1,786 ) (2,363 )
Repayments on outstanding notes payable, net (721 ) (4,240 )
Ending balance, September 30, $ 9,769
$ 14,367

The unrealized gains and losses for liabilities within the Level 3 category presented in the table above include changes in fair value that are attributable to both observable and unobservable inputs. We provide below a brief description of the valuation techniques used for Level 3 liabilities.

~~Net Revaluation of Notes Payable Associated with Structured Financings, at Fair Value.~~ We record the net revaluations of notes payable associated with structured financings, at fair value, in the changes in fair value of notes payable associated with structured financings line item within the fees and related income on earning assets category of our consolidated statements of operations.

For material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of ~~September 30, 2017~~ ~~and December 31, 2016:~~

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements Fair Value at September 30, 2017 Valuation Technique Unobservable Input Weighted Average
Notes payable associated with structured financings, at fair value $ 9,769
Discounted cash flows Gross yield 26.7 %

Principal payment rate 2.6 %

Expected credit loss rate 11.2 %

Discount rate 14.0 %

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements Fair Value at December 31, 2016 Valuation Technique Unobservable Input Weighted Average
Notes payable associated with structured financings, at fair value $ 12,276
Discounted cash flows Gross yield 24.6 %

Principal payment rate 2.2 %

Expected credit loss rate 11.8 %

Discount rate 13.6 %

~~Other Relevant Data~~

~~Other relevant data (in thousands) as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~concerning certain assets and liabilities we carry at fair value are as follows:~~

As of September 30, 2017 Loans and Fees
Receivable at
Fair Value Loans and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value $ 4,810
$ 12,473
Aggregate fair value of loans and fees receivable that are reported at fair value $ 2,250
$ 9,769
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) $ 5
$ 24
Aggregate excess of balance of unpaid principal receivables within loans and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans and fees receivable $ 110
$ 347

As of December 31, 2016 Loans and Fees
Receivable at
Fair Value Loans and Fees
Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value $ 6,251
$ 16,614
Aggregate fair value of loans and fees receivable that are reported at fair value $ 3,484
$ 12,164
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) $ 6
$ 22
Aggregate excess of balance of unpaid principal receivables within loans and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans and fees receivable $ 204
$ 562

Notes Payable Notes Payable Associated with Structured Financings, at Fair Value as of September 30, 2017 Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2016
Aggregate unpaid principal balance of notes payable $ 101,314
$ 102,035
Aggregate fair value of notes payable $ 9,769
$ 12,276


7.	~~Notes Payable~~

~~Notes Payable Associated with Structured Financings, at Fair Value~~

~~Scheduled (in millions) in the table below are (1) the carrying amount of our structured financing note secured by certain credit card receivables and reported at fair value as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, (2) the outstanding face amount of our structured financing note secured by certain credit card receivables and reported at fair value as of~~ ~~September 30, 2017~~, and (3) the carrying amount of the credit card receivables and restricted cash that provide the exclusive means of repayment for the note (i.e., lenders have recourse only to the specific credit card receivables and restricted cash underlying each respective facility and cannot look to our general credit for repayment) as of ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~.

Carrying Amounts at Fair Value as of
September 30, 2017 December 31, 2016
Amortizing securitization facility (stated maturity of December 2021), outstanding face amount of $101.3 million as of September 30, 2017 ($102.0 million as of December 31, 2016) bearing interest at a weighted average 6.5% interest rate at September 30, 2017 (6.1% at December 31, 2016), which is secured by credit card receivables and restricted cash aggregating $9.8 million as of September 30, 2017 ($12.3 million as of December 31, 2016) in carrying amount $ 9.8
$ 12.3

Contractual payment allocations within this credit card receivables structured financing provide for a priority distribution of cash flows to us to service the credit card receivables, a distribution of cash flows to pay interest and principal due on the notes, and a distribution of all excess cash flows (if any) to us. The structured financing facility in the above table is amortizing down along with collections of the underlying receivables and there are no provisions within the debt agreement that allow for acceleration or bullet repayment of the facility prior to its scheduled expiration date. The aggregate carrying amount of the credit card receivables and restricted cash that provide security for the $9.8 million in fair value of the structured financing note in the above table is ~~$9.8 million, which means that we have no aggregate exposure to pre-tax equity loss associated with the above structured financing arrangement at~~ ~~September 30, 2017~~.

Beyond our role as servicer of the underlying assets within the credit cards receivables structured financing, we have provided no other financial or other support to the structure, and we have no explicit or implicit arrangements that could require us to provide financial support to the structure.

~~Notes Payable, at Face Value and Notes Payable to Related Parties~~

~~Other notes payable outstanding as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ that are secured by the financial and operating assets of either the borrower, another of our subsidiaries or both, include the following, scheduled (in millions); except as otherwise noted, the assets of our holding company (Atlanticus Holdings Corporation) are subject to creditor claims under these scheduled facilities:

As of
September 30, 2017 December 31, 2016
Revolving credit facilities at a weighted average interest rate equal to 7.1% at September 30, 2017 (4.8% at December 31, 2016) secured by the financial and operating assets of CAR and/or certain receivables and restricted cash with a combined aggregate carrying amount of $194.2 million as of September 30, 2017 ($127.9 million at December 31, 2016)
Revolving credit facility, not to exceed $40.0 million (expiring November 1, 2018) (3) 26.2

29.2
Revolving credit facility, not to exceed $50.0 million (expiring October 30, 2019) (1) (2) 49.2
34.7
Revolving credit facility, not to exceed $20.0 million (expiring December 31, 2019) (1) (2) 19.7
19.5
Revolving credit facility, not to exceed $90.0 million (expiring February 8, 2022) (1) (4) 50.0
—
Amortizing facilities at a weighted average interest rate equal to 5.8% at September 30, 2017 (5.4% at December 31, 2016) secured by certain receivables and restricted cash with a combined aggregate carrying amount of $76.6 million as of September 30, 2017 ($69.9 million as of December 31, 2016)
Amortizing debt facility (repaid in June 2017) (1) (2) (5) —

20.4
Amortizing debt facility (repaid in September 2017) (1) (2) —
9.7
Amortizing debt facility (expiring March 31, 2018) (1) (2) (5) 7.3
14.6
Amortizing debt facility (expiring June 30, 2018) (1) (2) (5) 27.5
—
Amortizing debt facility (expiring August 15, 2018) (1) (2) 5.4
6.0
Amortizing debt facility (expiring September 14, 2018) (1) (2) 10.0
7.5
Amortizing debt facility (expiring November 30, 2018) (1) (2) (5) 16.0

—
Other facilities
Senior secured term loan from related parties (expiring November 22, 2017) that is secured by certain assets of the Company with an annual interest rate equal to 9.0% (4) 40.0
40.0
Total notes payable before unamortized debt issuance costs and discounts 251.3
181.6
Unamortized debt issuance costs and discounts 2.3
0.4
Total notes payable outstanding, net $ 249.0
$ 181.2


~~(1)~~	Loans are subject to certain affirmative covenants tied to default rates and other performance metrics the failure of which could result in required early repayment of the remaining unamortized balances of the notes.


~~(2)~~	~~These notes reflect modifications to either extend the maturity date, increase the loaned amount or both.~~


~~(3)~~	Loan is subject to certain affirmative covenants, including a coverage ratio, a leverage ratio and a collateral performance test, the failure of which could result in required early repayment of all or a portion of the outstanding balance by our CAR Auto Finance operations.


~~(4)~~	~~See below for additional information.~~


~~(5)~~	~~Loans are comprised of three tranches with the same lenders. Terms and conditions are substantially identical with the exception of maturity date as indicated in the table above.~~

On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove Ventures, LLC, a Nevada limited liability company (“Dove”). The agreement ~~provides~~provided for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding. ~~The~~On December 27, 2019, the Company issued 400,000 shares of its Series A Preferred Stock (10,000,000 shares authorized, 400,000 shares outstanding) with an aggregate initial liquidation preference of $40.0 million, in exchange for full satisfaction of the $40.0 million that the Company owed Dove under the Loan and Security ~~Agreement~~Agreement. Dividends on the preferred stock are 6% per annum (cumulative, non-compounding) and are payable as declared, and in preference to any common stock dividends, in cash. The Series A Preferred Stock is ~~fully drawn with $40.0 million outstanding as~~perpetual and has no maturity date. The Company may, at its option, redeem the shares of ~~September 30, 2017. In November 2016,~~Series A Preferred Stock on or after January 1, 2025 at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends. At the ~~agreement was amended to extend the maturity date~~request of a majority of the ~~term loan~~holders of the Series A Preferred Stock, the Company shall offer to ~~November 22, 2017. All other terms remain unchanged.~~

~~Our obligations under~~redeem all of the ~~agreement are guaranteed by certain subsidiary guarantors~~Series A Preferred Stock at a redemption price equal to $100 per share, plus any accumulated and ~~secured by a pledge of certain assets of ours and the subsidiary guarantors. The loans bear interest~~unpaid dividends, at the ~~rate~~option of ~~9.0%~~the holders thereof, on or after January 1, 2024. Upon the election by the holders of a majority of the Series A Preferred Stock, each share of the Series A Preferred Stock is convertible into the number of shares of the Company’s common stock as is determined by dividing (i) the sum of (a) $100 and (b) any accumulated and unpaid dividends on such share by (ii) an initial conversion price equal to $10 per annum, payable monthly in arrears. The principal amount of these loans is payable in a single installment on November 22, 2017 (as amended). The agreement includes customary affirmative and negative covenants, as well as customary representations, warranties and events of default. Subjectshare, subject to certain ~~conditions,~~adjustment in certain circumstances to prevent dilution. Given the redemption rights contained within the Series A Preferred Stock, we ~~can prepay~~account for the ~~principal amounts~~outstanding preferred stock as temporary equity in the consolidated balance sheets. Dividends paid on the Series A Preferred Stock are deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders—basic. The assumed redemption of ~~these loans without premium or penalty.~~

Series A Preferred Stock in exchange for shares of common stock is included in our calculation of diluted EPS as part of the Net income attributable to common shareholders per share—diluted. See Note 12, “Net Income Attributable to Controlling Interests Per Common Share” for more information.

Dove is a limited liability company owned by three trusts. David G. Hanna is the sole shareholder and the President of the corporation that serves as the sole trustee of one of the trusts, and David G. Hanna and members of his immediate family are the beneficiaries of this trust. Frank J. Hanna, III is the sole shareholder and the President of the corporation that serves as the sole trustee of the other two trusts, and Frank J. Hanna, III and members of his immediate family are the beneficiaries of these other two trusts.

During the three and six months ended June 30, 2020, we repurchased and contemporaneously retired 10,999 and 85,723 shares of our common stock at an aggregate cost of $112,000 and $671,000, respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations. During the three and six months ended June 30, 2019, we repurchased and contemporaneously retired 64,845 and 70,789 shares of our common stock at an aggregate cost of $238,000 and $259,000, respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations.

We had 1,459,233 loaned shares outstanding at June 30, 2020 and December 31, 2019, which were originally lent in connection with our November 2005 issuance of convertible senior notes. We retire lent shares as they are returned to us.

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On November 14, 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $1.00 per unit to an unrelated third party. The units carry a 16% preferred return to be paid quarterly, with up to 6 percentage points of the preferred return to be paid through the issuance of additional units or cash, at our election. The units have both call and put rights and are also subject to various covenants including a minimum book value, which if not satisfied, could allow for the securities to be put back to the subsidiary. On March 30, 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms. The proceeds from the transaction will be used for general corporate purposes. We have included the issuance of these Class B preferred units as temporary noncontrolling interest on the consolidated balance sheets. Dividends paid on the Class B preferred units are deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders—basic. See Note 12, “Net Income Attributable to Controlling Interests Per Common Share” for more information.

5.	Investment in Equity-Method Investee

Our equity-method investment outstanding at June 30, 2020consists of our 66.7% interest in a joint venture formed to purchase a credit card receivable portfolio.

In the following tables, we summarize (in thousands) balance sheet and results of operations data for our equity-method investee:

	As of
	June 30, 2020		December 31, 2019
Loans, interest and fees receivables, at fair value	$	1,983	$	2,757
Total assets	$	2,120	$	2,922
Total liabilities	$	11	$	13
Members’ capital	$	2,109	$	2,909

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net interest income, fees and related income on earning assets	$	153	$	338	$	92	$	680
Net income	$	118	$	290	$	19	$	579
Net income attributable to our equity investment investee	$	79	$	225	$	13	$	452

6.	Fair Values of Assets and Liabilities

As previously discussed, as of January 1, 2020, we elected the fair value option to account for certain loans receivable associated with our point-of-sale and direct-to-consumer platform that are acquired on or after January 1, 2020. We estimate the fair value of these receivables using a discounted cash flow model, and reevaluate the fair value of our Fair Value Receivables at the end of each quarter. Additionally, we may adjust our models to reflect macro events that we believe market participants would consider relevant. With the aforementioned market impacts of COVID-19 and related government stimulus and relief measures, we have included some expected market degradation in our model to reflect the possibility of delinquency rates increasing in the near term (and the corresponding increase in chargeoffs and decrease in payments) above what historical trends would suggest.

We previously elected the fair value option with respect to our investments in equity securities, included in other assets, as well as our credit card loans, interest and fees receivable portfolios, the retained interests in which we historically recorded at fair value under securitization structures that were off balance sheet prior to accounting rules changes requiring their consolidation into our financial statements.

Fair value differs from amortized cost accounting in various ways. Under the fair value option credit losses are recognized through income as they are incurred rather than through the establishment of an allowance and provision for losses. We update our fair value analysis each quarter, with changes since the prior reporting period reflected as a component of Fees and related income on earning assets in the consolidated statements of operations. Changes in interest rates, credit spreads, realized and projected credit losses and cash flow timing will lead to changes in the fair value of our Loans, interest and fees receivable, at fair value and therefore impact earnings.

The primary differences between fair value and amortized cost accounting are:

	•	Receivables and notes are recorded at their fair value, not their principal and fee balance or cost basis;
	•	The fair value of the loans takes into consideration net charge-offs for the remaining life of the loans with no separate allowance for loan loss calculation;
	•	Certain fee billings (such as annual or merchant fees) and expenses of loans and notes are no longer deferred but recognized (when billed or incurred) in income or expense, respectively;
	•	Changes in the fair value of loans and notes impact recorded revenues; and
	•	Net charge-offs are recognized as they occur.

For all of our other debt (other than the notes payable underlying our formerly off-balance sheet credit card securitization structures), we have not elected the fair value option. Nevertheless, pursuant to applicable requirements, we include disclosures of the fair value of this other debt to the extent practicable within the disclosures below. Additionally, we have other liabilities, associated with consolidated legacy credit card securitization trusts, that we are required to carry at fair value in our consolidated financial statements, and they also are addressed within the disclosures below.

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Where applicable as noted above, we account for our financial assets and liabilities at fair value based upon a three-tiered valuation system. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Where inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input that is significant to the fair value measurement in its entirety.

Valuations and Techniques for Assets

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The table below summarizes (in thousands) by fair value hierarchy the June 30, 2020 and December 31, 2019 fair values and carrying amounts of (1) our assets that are required to be carried at fair value in our consolidated financial statements and (2) our assets not carried at fair value, but for which fair value disclosures are required:

Assets – As of June 30, 2020 (1)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Assets
Loans, interest and fees receivable, net for which it is practicable to estimate fair value	$	—	$	—	$	666,536	$	560,529
Loans, interest and fees receivable, at fair value	$	—	$	—	$	177,886	$	177,886

Assets – As of December 31, 2019 (1)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Assets
Loans, interest and fees receivable, net for which it is practicable to estimate fair value	$	—	$	—	$	781,208	$	721,573
Loans, interest and fees receivable, at fair value	$	—	$	—	$	4,386	$	4,386

(1)

For cash, deposits and investments in equity securities, the carrying amount is a reasonable estimate of fair value.

For those asset classes above that are required to be carried at fair value in our consolidated financial statements, gains and losses associated with fair value changes are detailed on our fees and related income on earning assets table within Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components.” For our loans, interest and fees receivable included in the above tables, we assess the fair value of these assets based on our estimate of future cash flows net of servicing costs, and to the extent that such cash flow estimates change from period to period, any such changes are considered to be attributable to changes in instrument-specific credit risk.

	Loans, Interest and Fees Receivables, at Fair Value
	2020			2019
Balance at January 1,	$	4,386		$	6,306
Total gains—realized/unrealized:
Net revaluations of loans, interest and fees receivable, at fair value		(40,698	)		370
Purchases		252,563			—
Settlements		(68,568	)		(1,772	)
Finance and fees		30,203			—
Balance at June 30,	$	177,886		$	4,904

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Net Revaluation of Loans, Interest and Fees Receivable. We record the net revaluation of loans, interest and fees receivable (including those pledged as collateral) within "Changes in fair value of loans, interest and fees receivable recorded at fair value" in the consolidated statements of operations in the period of the fair value changes. The net revaluation of loans, interest and fees receivable is based on the present value of future cash flows using a valuation model of expected cash flows and the estimated cost to service and collect those cash flows. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions third-party market participants would use in determining fair value, including estimates of gross yield, payment rates, expected credit loss rates, servicing costs, and discount rates. Interest income on receivables underlying our asset classes that are carried at fair value in our consolidated financial statements is recorded in Interest income - Consumer loans, including past due fees in our consolidated statements of operations.

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurement	Fair Value at June 30, 2020 (in thousands)		Valuation Technique	Unobservable Input	Range (Weighted Average)
Loans, interest and fees receivable, at fair value	$	177,886	Discounted cash flows	Gross yield, net of finance charge charge-offs		26.5% to 55.3% (40.2%)
				Payment rate		4.7% to 11.3% (8.6%)
				Expected principal credit loss rate		11.2% to 30.0% (23.2%)
				Servicing rate		3.2% to 24.6% (4.5%)
				Discount rate		12.7% to 13.5% (13.3%)

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurement	Fair Value at December 31, 2019 (in thousands)		Valuation Technique	Unobservable Input	Range (Weighted Average)
Loans, interest and fees receivable, at fair value	$	4,386	Discounted cash flows	Gross yield, net of finance charge charge-offs		25.5% to 53.7% (28.6%)
				Payment rate		4.0% to 9.5% (4.6%)
				Expected principal credit loss rate		10.5% to 41.7% (14.0%)
				Servicing rate		11.3% to 16.9% (11.9%)
				Discount rate		14.3% to 14.3% (14.3%)

Valuations and Techniques for Liabilities

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the liability. The table below summarizes (in thousands) by fair value hierarchy the June 30, 2020 and December 31, 2019 fair values and carrying amounts of (1) our liabilities that are required to be carried at fair value in our consolidated financial statements and (2) our liabilities not carried at fair value, but for which fair value disclosures are required:

Liabilities – As of June 30, 2020	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Liabilities
*Liabilities not carried at fair value*
Revolving credit facilities	$	—	$	—	$	656,025	$	656,025
Amortizing debt facilities	$	—	$	—	$	35,835	$	35,835
Notes payable to related parties	$	—	$	—	$	—	$	—
Convertible senior notes	$	—	$	19,965	$	—	$	24,235
*Liabilities carried at fair value*
Notes payable associated with structured financings, at fair value	$	—	$	—	$	3,440	$	3,440

Liabilities – As of December 31, 2019	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Liabilities
*Liabilities not carried at fair value*
Revolving credit facilities	$	—	$	—	$	720,687	$	720,687
Amortizing debt facilities	$	—	$	—	$	28,522	$	28,522
Notes payable to related parties	$	—	$	—	$	—	$	—
Convertible senior notes	$	—	$	16,920	$	—	$	24,091
*Liabilities carried at fair value*
Notes payable associated with structured financings, at fair value	$	—	$	—	$	3,920	$	3,920

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For our notes payable, we assess the fair value of these liabilities based on our estimate of future cash flows generated from their underlying credit card receivables collateral, net of servicing compensation required under the note facilities, and to the extent that such cash flow estimates change from period to period, any such changes are considered to be attributable to changes in instrument-specific credit risk. Gains and losses associated with fair value changes for our notes payable associated with structured financing liabilities that are carried at fair value are detailed on our fees and related income on earning assets table within Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components.” For our 5.875% convertible senior notes due 2035 (“convertible senior notes”), we assess fair value based upon the most recent trade data available from third-party providers. We have evaluated the fair value of our third party debt by analyzing the expected repayment terms and credit spreads included in our recent financing arrangements obtained with similar terms. These recent financing arrangements provide positive evidence that the underlying data used in our assessment of fair value has not changed relative to the general market and therefore the fair value of our debt continues to be the same as the carrying value. See Note 9, “Notes Payable,” for further discussion on our other notes payable.

	Notes Payable Associated with Structured Financings, at Fair Value
	2020			2019
Balance at January 1,	$	3,920		$	5,651
Total (gains) losses—realized/unrealized:
Net revaluations of notes payable associated with structured financings, at fair value		(480	)		(1,327	)
Repayments on outstanding notes payable, net		—			—
Balance at June 30,	$	3,440		$	4,324

Net Revaluation of Notes Payable Associated with Structured Financings, at Fair Value. We record the net revaluations of notes payable associated with structured financings, at fair value, in the changes in fair value of notes payable associated with structured financings line item within the fees and related income on earning assets category of our consolidated statements of operations. The legal entity associated with the securitization transaction is consolidated as a VIE as the Company is deemed the primary beneficiary of the entity. The Company is not liable for the full face value of the liability in the VIE so it is carried at fair value based upon amounts the borrower will receive from the legal entity. The net revaluation of these notes is based on the present value of future cash flows utilized in repayment of the outstanding principal and interest under the facilities using a valuation model of expected cash flows net of the contractual service expenses within the facilities. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions third-party market participants would use in determining fair value, including: estimates of gross yield, payment rates, expected credit loss rates, servicing costs, and discount rates on the credit card receivables that secure the non-recourse notes payable; costs of funds; discount rates; and contractual servicing fees. Accrued interest expense on notes payable underlying our notes payable associated with structured financings, at fair value is recorded in Interest expense in our consolidated statements of operations.

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurement	Fair Value at June 30, 2020 (in thousands)		Valuation Technique	Unobservable Input	Weighted Average
Notes payable associated with structured financings, at fair value	$	3,440	Discounted cash flows	Gross yield, net of finance charge charge-offs		26.5	%
				Payment rate		4.7	%
				Expected principal credit loss rate		12.4	%
				Discount rate		13.2	%

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurement	Fair Value at December 31, 2019 (in thousands)		Valuation Technique	Unobservable Input	Weighted Average
Notes payable associated with structured financings, at fair value	$	3,920	Discounted cash flows	Gross yield, net of finance charge charge-offs		25.5	%
				Payment rate		4.0	%
				Expected principal credit loss rate		10.5	%
				Discount rate		14.3	%

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Other Relevant Data

Other relevant data (in thousands) as of June 30, 2020 and December 31, 2019 concerning certain assets and liabilities we carry at fair value are as follows:

As of June 30, 2020	Loans, Interest and Fees Receivable at Fair Value		Loans, Interest and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance included within loans, interest and fees receivable that are reported at fair value	$	448	$	207,591
Aggregate fair value of loans, interest and fees receivable that are reported at fair value	$	392	$	177,494
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)	$	1	$	343
Unpaid principal balance of receivables within loans, interest and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans, interest and fees receivable	$	14	$	2,005

As of December 31, 2019	Loans, Interest and Fees Receivable at Fair Value		Loans, Interest and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance included within loans, interest and fees receivable that are reported at fair value	$	644	$	5,280
Aggregate fair value of loans, interest and fees receivable that are reported at fair value	$	466	$	3,920
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)	$	1	$	8
Unpaid principal balance of receivables within loans, interest and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans, interest and fees receivable	$	28	$	185

Notes Payable	Notes Payable Associated with Structured Financings, at Fair Value as of June 30, 2020		Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2019
Aggregate unpaid principal balance of notes payable	$	101,314	$	101,314
Aggregate fair value of notes payable	$	3,440	$	3,920

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7.	Variable Interest Entities

The Company contributes certain receivables to VIEs. These entities are sometimes established to facilitate third party financing. When assets are contributed to the VIE, they serve as collateral for the debt securities issued by the VIE. The evaluation of whether the entity qualifies as a VIE is based upon the sufficiency of the equity at risk in the legal entity. This evaluation is generally a function of the level of excess collateral in the legal entity. We consolidate VIEs when we hold a variable interest and are the primary beneficiary. We are the primary beneficiary when we have the power to direct activities that most significantly affect the economic performance and have the obligation to absorb the majority of the losses or benefits. In certain circumstances we guarantee the performance of the underlying debt or agree to contribute additional collateral when necessary. When collateral is pledged it is not available for the general use of the Company and can only be used to satisfy the related debt obligation. The results of operations and financial position of consolidated VIEs are included in our consolidated financial statements.

The following table presents a summary of VIEs in which we had continuing involvement or held a variable interest (in millions):

	As of
	June 30, 2020			December 31, 2019
Unrestricted cash and cash equivalents	$	86.0		$	78.7
Restricted cash and cash equivalents	$	28.8		$	25.9
Loans, interest and fees receivable, at fair value	$	110.3		$	3.9
Loans, interest and fees receivable, gross	$	648.0		$	857.2
Allowances for uncollectible loans, interest and fees receivable	$	(147.6	)	$	(168.8	)
Deferred revenue	$	(14.5	)	$	(40.7	)
Total Assets held by VIEs	$	711.0		$	756.2
Notes Payable, at face value held by VIEs	$	636.2		$	701.1
Notes Payable, at fair value held by VIEs	$	3.4		$	3.9
Maximum exposure to loss due to involvement with VIEs	$	603.1		$	654.3

Leases

We have operating leases primarily associated with our corporate offices and regional service centers as well as for certain equipment. Our leases have remaining lease terms of 1 to 5 years, some of which include options, at our discretion, to extend the leases for additional periods generally on one-year revolving periods. Other leases allow for us to terminate the lease based on appropriate notification periods. For certain of our leased offices, we sublease a portion of the unoccupied space. The terms of the sublease arrangement generally coincide with the underlying lease. The components of lease expense associated with our lease liabilities and supplemental cash flow information related to those leases were as follows (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Operating lease cost, gross	$	1,725		$	1,727		$	3,445		$	3,436
Sublease income		(1,282	)		(1,282	)		(2,567	)		(2,565	)
Net Operating lease cost	$	443		$	445		$	878		$	871
Cash paid under operating leases, gross	$	2,561		$	2,507		$	5,101		$	4,999

Weighted average remaining lease term - months		24
Weighted average discount rate		6.9	%

As of June 30, 2020, maturities of lease liabilities were as follows (in thousands):

	Gross Lease Payment			Payments received from Sublease			Net Lease Payment
2020 (excluding the six months ended June 30, 2020)	$	5,155		$	(3,581	)	$	1,574
2021		10,265			(7,315	)		2,950
2022		4,448			(3,112	)		1,336
2023		172			—			172
2024		77			—			77
Thereafter		24			—			24
Total lease payments		20,141			(14,008	)		6,133
Less imputed interest		(1,982	)
Total	$	18,159

In addition, we occasionally lease certain equipment under cancelable and non-cancelable leases, which are accounted for as capital leases in our consolidated financial statements. As of June 30, 2020, we had no material non-cancelable capital leases with initial or remaining terms of more than one year.

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9.	Notes Payable

Notes Payable Associated with Structured Financings, at Fair Value

Scheduled (in millions) in the table below are (1) the carrying amount of our structured financing note secured by certain credit card receivables and reported at fair value as of June 30, 2020 and December 31, 2019, (2) the outstanding face amount of our structured financing note secured by certain credit card receivables and reported at fair value as of June 30, 2020 and December 31, 2019, and (3) the carrying amount of the credit card receivables and restricted cash that provide the exclusive means of repayment for the note (i.e., lenders have recourse only to the specific credit card receivables and restricted cash underlying each respective facility and cannot look to our general credit for repayment) as of June 30, 2020 and December 31, 2019.

	Carrying Amounts at Fair Value as of
	June 30, 2020		December 31, 2019
Securitization facility (stated maturity of December 2021), outstanding face amount of $101.3 million as of June 30, 2020 ($101.3 million as of December 31, 2019) bearing interest at a weighted average 5.7% interest rate, based upon LIBOR, at June 30, 2020 (6.9% at December 31, 2019), which is secured by credit card receivables and restricted cash aggregating $3.4 million as of June 30, 2020 ($3.9 million as of December 31, 2019) in carrying amount	$	3.4	$	3.9

Contractual payment allocations within this credit card receivables structured financing provide for a priority distribution of cash flows to us to service the credit card receivables, a distribution of cash flows to pay interest and principal due on the notes, and a distribution of all excess cash flows (if any) to us. The structured financing facility included in the above table is amortizing down along with collections of the underlying receivables and there are no provisions within the debt agreement that allow for acceleration or bullet repayment of the facility prior to its scheduled expiration date. The aggregate carrying amount of the credit card receivables and restricted cash that provide security for the $3.4 million in fair value of the structured financing facility indicated in the above table is $3.4 million, which means that we have no aggregate exposure to pre-tax equity loss associated with the above structured financing arrangement at June 30, 2020.

As discussed elsewhere, the legal entity holding the securitization facility discussed in the table above, is a VIE. Beyond our role as servicer of the underlying assets within the credit cards receivables structured financing, we have provided no other financial or other support to the structure, and we have no explicit or implicit arrangements that could require us to provide financial support to the structure.

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Notes Payable, at Face Value and Notes Payable to Related Parties

Other notes payable outstanding as of June 30, 2020 and December 31, 2019 that are secured by the financial and operating assets of either the borrower, another of our subsidiaries or both, include the following, scheduled (in millions); except as otherwise noted, the assets of our holding company (Atlanticus Holdings Corporation) are subject to creditor claims under these scheduled facilities:

	As of
	June 30, 2020			December 31, 2019
Revolving credit facilities at a weighted average interest rate equal to 5.3% at June 30, 2020 (6.0% at December 31, 2019) secured by the financial and operating assets of CAR and/or certain receivables and restricted cash with a combined aggregate carrying amount of $648.6 million as of June 30, 2020 ($740.4 million at December 31, 2019)
Revolving credit facility, not to exceed $55.0 million (expiring November 1, 2021) (1) (2) (3)	$	35.5		$	39.1
Revolving credit facility, not to exceed $50.0 million (expiring October 30, 2022) (2) (3) (4) (5)		31.1			40.5
Revolving credit facility, not to exceed $70.0 million (expiring February 8, 2022) (3) (4) (5) (6)		5.7			25.8
Revolving credit facility, not to exceed $100.0 million (expiring June 11, 2021) (3) (4) (5) (6)		—			—
Revolving credit facility, not to exceed $15.0 million (expiring July 15, 2021) (2) (4) (5)		9.6			14.6
Revolving credit facility, not to exceed $100.0 million (expiring November 16, 2020) (3) (4) (5) (6)		3.8			—
Revolving credit facility, not to exceed $167.3 million (expiring November 15, 2023) (3) (4) (5) (6)		167.3			167.3
Revolving credit facility, not to exceed $200.0 million (expiring December 15, 2022) (3) (4) (5) (6)		200.0			200.0
Revolving credit facility, not to exceed $200.0 million (expiring May 15, 2024) (3) (4) (5) (6)		200.0			200.0
Revolving credit facility, not to exceed $15.0 million (expiring December 21, 2020) (2) (3) (4) (5)		4.9			8.6
Revolving credit facility, not to exceed $50.0 million (expiring September 19, 2021) (2) (3) (4) (5)		5.5			15.0
Other facilities
Other debt with a weighted annual rate equal to 2.7%		3.2			1.2
Unsecured term debt (expiring August 26, 2024) with an annual rate equal to 8.0% (3)		17.4			17.4
Amortizing debt facility (expiring December 31, 2020) (2) (4) (5)	7.8				19.4
Amortizing debt facility (expiring September 30, 2021) with an annual rate equal to 4.7% (2) (3) (4) (5)		7.5			10.0
Total notes payable before unamortized debt issuance costs and discounts		699.3			758.9
Unamortized debt issuance costs and discounts		(7.4	)		(9.7	)
Total notes payable outstanding	$	691.9		$	749.2

(1)	Loan is subject to certain affirmative covenants, including a coverage ratio, a leverage ratio and a collateral performance test, the failure of which could result in required early repayment of all or a portion of the outstanding balance by our CAR Auto Finance operations.

(2)	These notes reflect modifications to either extend the maturity date, increase the loan amount or both, and are treated as accounting modifications.

(3)	See below for additional information.
(4)	Loans are subject to certain affirmative covenants tied to default rates and other performance metrics the failure of which could result in required early repayment of the remaining unamortized balances of the notes.

(5)	Loans are associated with VIEs.

(6)	Creditors do not have recourse against the general assets of the Company but only to the collateral within the VIEs.
*	As of June 30, 2020, the LIBOR rate was 0.16% and the prime rate was 3.25%.

In October 2015, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $50.0 million revolving borrowing limit that can be drawn to the extent of outstanding eligible principal receivables (of which $31.1 million was drawn as of June 30, 2020). This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to LIBOR plus 3.0%. The facility matures on October 30, 2022 and is subject to certain affirmative covenants, including a liquidity test and an eligibility test, the failure of which could result in required early repayment of all or a portion of the outstanding balance. The facility is guaranteed by Atlanticus who is required to maintain certain minimum liquidity levels.

In October 2016, we (through a wholly owned subsidiary) entered a revolving credit facility with an initial $40.0 million borrowing limit available to the extent of outstanding eligible principal receivables of our CAR subsidiary (of which $35.5 million was drawn as of June 30, 2020). This facility is secured by the financial and operating assets of CAR and accrues interest at an annual rate equal to LIBOR plus a range between 2.4% and 3.0% based on certain ratios. The loan is subject to certain affirmative covenants, including a coverage ratio, a leverage ratio and a collateral performance test, the failure of which could result in required early repayment of all or a portion of the outstanding balance. In periods subsequent to October 2016, we amended the original agreement to either extend the maturity date and/or expand the capacity of this revolving credit facility. As of June 30, 2020, the borrowing limit was $55.0 million and the maturity was November 1, 2021. There were no other material changes to the existing terms or conditions as a result of these amendments and the new maturity date and borrowing limit are reflected in the table above.

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In December 2016, we (through a wholly owned subsidiary) entered a credit facility with a $20.0 million borrowing limit available to the extent of outstanding eligible principal receivables (of which $7.8 million was drawn as of June 30, 2020). In periods subsequent to December 2016, we amended the original agreement to either extend the maturity date and/or reduce the capacity of this credit facility. As of June 30, 2020, the facility matures on December 31, 2020 and the borrowing limit was $7.8 million. The facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to LIBOR plus 5.0%. The note is guaranteed by Atlanticus.

In February 2017, we (through a wholly owned subsidiary) established a program under which we sell certain receivables to a consolidated trust in exchange for notes issued by the trust. The notes are secured by the receivables and other assets of the trust. Simultaneously with the establishment of the program, the trust issued a series of variable funding notes and sold an aggregate amount of up to $90.0 million (subsequently reduced to $70.0 million) of such notes (of which ~~$50.0~~$5.7 million was outstanding as of ~~September~~June 30, ~~2017)~~2020) to an unaffiliated third party pursuant to a facility that can be drawn upon to the extent of outstanding eligible receivables.

The interest rate on the notes is fixed at 14.0%. The facility matures on February 8, 2022 and is subject to certain affirmative covenants and collateral performance tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance of notes. The facility also may be prepaid subject to payment of a prepayment or other fee.

In December 2017, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $15.0 million revolving borrowing limit that is available to the extent of outstanding eligible principal receivables (of which $4.9 million was drawn as of June 30, 2020). This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to LIBOR plus 3.5%. The facility matures on December 21, 2020 and is subject to certain affirmative covenants, including payment, delinquency and charge-off tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance. The note is guaranteed by Atlanticus.

In 2018, we (through a wholly owned subsidiary) entered into two separate facilities associated with the above mentioned program to sell up to an aggregate $200.0 million of notes which are secured by the receivables and other assets of the trust (of which $3.8 million was outstanding as of June 30, 2020) to separate unaffiliated third parties pursuant to facilities that can be drawn upon to the extent of outstanding eligible receivables. Interest rates on the notes are based on commercial paper rates plus 3.75% and LIBOR plus 4.875%, respectively. The facilities mature on June 11, 2021 and November 16, 2020, respectively, and are subject to certain affirmative covenants and collateral performance tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance of notes. The facilities also may be prepaid subject to payment of a prepayment or other fee.

In September 2018, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $50.0 million revolving borrowing limit that is available to the extent of outstanding eligible principal receivables (of which $5.5 million was drawn as of June 30, 2020). This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to LIBOR plus 6.5%. The loan is subject to certain affirmative covenants, including a charge-off and delinquency test, the failure of which could result in required early repayment of all or a portion of the outstanding balance. The note is guaranteed by Atlanticus.

In November 2018, we sold $167.3 million of asset backed securities (“ABS”) secured by certain retail point-of-sale receivables. A portion of the proceeds from the sale were used to pay-down our existing term and revolving facilities associated with our point-of-sale receivables, noted in the table above, and the remaining proceeds are available to fund the acquisition of future receivables. The terms of the ABS allow for a two-year revolving structure with a subsequent 18-month amortization period. The weighted average interest rate on the securities is fixed at 5.76%.

In June 2019, we (through a wholly owned subsidiary) entered a revolving credit facility with a $15.0 million revolving borrowing limit that is available to the extent of outstanding eligible principal receivables (of which $9.6 million was drawn as of June 30, 2020). This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to the prime rate. The note is guaranteed by Atlanticus.

In June 2019, we sold $200.0 million of ABS secured by certain credit card receivables. A portion of the proceeds from the sale was used to pay-down our existing facilities associated with our credit card receivables. The terms of the ABS allow for a two-year revolving structure with a subsequent 12-month to 18-month amortization period. The weighted average interest rate on the securities is fixed at 5.37%.

In August 2019, we repurchased $54.4 million in face amount of our outstanding convertible senior notes for $16.3 million in cash (including accrued interest) and the issuance of a $17.4 million term note, which bears interest at a fixed rate of 8.0% and is due in August 2024. See Note 10 “Convertible Senior Notes” for additional information.

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In September 2019, we (through a wholly owned subsidiary) entered a term facility with a $30.0 million revolving borrowing limit (of which $7.5 million was drawn as of June 30, 2020) that is available to the extent of outstanding eligible principal receivables. This facility is secured by the loans, interest and fees receivable and related restricted cash and accrues interest at an annual rate equal to LIBOR plus 4.5%. The facility matures on September 30, 2021 and is subject to certain affirmative covenants, including a liquidity test and an eligibility test, the failure of which could result in required early repayment of all or a portion of the outstanding balance. The note is guaranteed by Atlanticus, which is required to maintain certain minimum liquidity levels.

In November 2019, we sold $200.0 million of ABS secured by certain credit card receivables. A portion of the proceeds from the sale was used to pay-down our existing facilities associated with our credit card receivables and the remaining proceeds were available to fund the acquisition of future receivables. The terms of the ABS allow for a three-year revolving structure with a subsequent 12-month to 18-month amortization period. The weighted average interest rate on the securities is fixed at 4.91%.

In July 2020, we sold $100.0 million of ABS secured by certain retail point-of-sale receivables. A portion of the proceeds from the sale were used to pay-down some of our existing revolving facilities associated with our point-of-sale receivables, and the remaining proceeds are available to fund the acquisition of future receivables. The terms of the ABS allow for a three-year revolving structure with a subsequent 18-month amortization period. The weighted average interest rate on the securities is fixed at 5.47%.

As of June 30, 2020, we were in compliance with the covenants underlying our various notes payable.

*10.*
8.	Convertible Senior Notes

In November 2005, we issued ~~$300.0~~$300.0 million aggregate principal amount of 5.875% convertible senior notes due November 30,2035 ~~(“5.875% convertible senior notes”)~~. The ~~5.875%~~ convertible senior notes are unsecured, subordinate to existing and future secured obligations and structurally subordinate to existing and future claims of our subsidiaries’ creditors. These notes (net of repurchases since the issuance dates) are reflected within convertible senior notes on our consolidated balance sheets. No put rights exist under our ~~5.875%~~ convertible senior notes.

~~In 2016~~

On August 26, 2019, we repurchased ~~$5.0~~$54.4 million ~~aggregate principal~~in face amount of our outstanding ~~5.875%~~ convertible senior notes for ~~$2.3~~$16.3 million ~~plus~~in cash (including accrued interest) and the issuance of a $17.4 million term note, which bears interest ~~from unrelated third parties.~~at a fixed rate of 8.0% and is due in August 2024. The ~~purchase~~repurchase resulted in a gain of ~~$1.2~~approximately $5.1 million (net of the convertible senior notes’ applicable share of deferred costs, which were written off in connection with the ~~repurchases)~~repurchase). Upon acquisition, the notes were retired.

See Note 9 "Notes Payable" for further information regarding the note issuance.

The following summarizes (in thousands) components of our consolidated balance sheets associated with our convertible senior notes:

	As of
	June 30, 2020			December 31, 2019
Face amount of convertible senior notes	$	33,839		$	33,839
Discount		(9,604	)		(9,748	)
Net carrying value	$	24,235		$	24,091
Carrying amount of equity component included in paid-in capital	$	108,714		$	108,714
Excess of instruments’ if-converted values over face principal amounts	$	—		$	—

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As of
September 30, 2017 December 31, 2016
Face amount of 5.875% convertible senior notes $ 88,280

$ 88,280
Discount (27,042 )
(27,489 )
Net carrying value $ 61,238

$ 60,791
Carrying amount of equity component included in additional paid-in capital $ 108,714

$ 108,714
Excess of instruments’ if-converted values over face principal amounts $ —

$ —

*11.*
9.	Commitments and Contingencies

General

Under finance products available in the point-of-sale and direct-to-consumer channels, consumers have the ability to borrow up to the maximum credit limit assigned to each individual’s account. Unfunded commitments under these products aggregated ~~$369.9 million~~$1.4 billion at ~~September~~June 30, ~~2017~~2020. We have never experienced a situation in which all borrowers have exercised their entire available lines of credit at any given point in time, nor do we anticipate this will ever occur in the future. Moreover, there would be a concurrent increase in assets should there be any exercise of these lines of credit. We also have the effective right to reduce or cancel these available lines of credit at any time.

Additionally, our CAR operations provide floor-plan financing for a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here used car business. The ~~financings allow~~floor plan financing allows dealers and finance companies to borrow up to the maximum pre-approved credit limit allowed in order to finance ongoing inventory needs. These loans are secured by the underlying auto inventory and, in certain cases where we have other lending products outstanding with the dealer, are secured by the collateral under those lending arrangements as well, including any outstanding dealer reserves. As of ~~September~~June 30, ~~2017~~2020, CAR had unfunded outstanding floor-plan financing commitments totaling $~~7.9 million~~.11.6 million. Each draw against unused commitments is reviewed for conformity to pre-established guidelines.

Under agreements with ~~third-party~~third-party originating and other financial institutions, we have pledged security (collateral) related to their issuance of consumer credit and purchases thereunder, of which ~~$10.7~~$10.0 million remains pledged as of ~~September~~June 30, ~~2017~~ 2020to support various ongoing contractual obligations.

Under agreements with ~~third-party~~third-party originating and other financial institutions, we have agreed to indemnify the financial institutions for certain liabilities associated with the services we provide on behalf of the financial institutions—such indemnification obligations generally being limited to instances in which we either (a) have been afforded the opportunity to defend against any potentially indemnifiable claims or (b) have reached agreement with the financial institutions regarding settlement of potentially indemnifiable claims. As of ~~September~~June 30, ~~2017~~2020, we have assessed the likelihood of any potential payments related to the aforementioned contingencies as remote. We will accrue liabilities related to these contingencies in any future period if and in which we assess the likelihood of an estimable payment as probable.

Under the account terms, consumers have the option of enrolling in a credit protection program with our lending partner which would make the minimum payments owed on their accounts for a period of up to six months upon the occurrence of an eligible event. Eligible events typically include loss of life, job loss, disability, or hospitalization. As an acquirer of receivables, our potential exposure under this program was $19.0 million as of June 30, 2020 (of which we have accrued $1.3 million as of June 30, 2020 based on current claims). We have never experienced a situation in which all eligible participants have applied for this benefit at any given point in time, nor do we anticipate this will ever occur in the future.

We also are subject to certain minimum payments under cancelable and non-cancelable lease arrangements. For further information regarding these commitments, see Note 8, “Leases” ~~to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.~~

Litigation

We are involved in various legal proceedings that are incidental to the conduct of our ~~business, none of which~~business. There are currently no pending legal proceedings that are expected to be material to us.

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*12.*
~~10.~~	Net ~~Loss~~Income Attributable to Controlling Interests Per Common Share

The following table sets forth the computations of net ~~loss~~income attributable to controlling interests per share of common ~~share~~stock (in thousands, except per share data):

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2020			2019		2020			2019
Numerator:
Net income attributable to controlling interests	$	23,165		$	5,244	$	28,590		$	10,957
Preferred stock and preferred unit dividends and accretion		(4,736	)		—		(7,495	)		—
Net income attributable to common shareholders—basic		18,429			5,244		21,095			10,957
Effect of dilutive preferred stock dividends and accretion		596			—		1,193			—
Net income attributable to common shareholders—diluted	$	19,025		$	5,244	$	22,288		$	10,957
Denominator:
Basic (including unvested share-based payment awards) (1)		14,427			14,627		14,432			14,491
Effect of dilutive stock compensation arrangements and exchange of preferred stock		5,921			281		5,460			321
Diluted (including unvested share-based payment awards) (1)		20,348			14,908		19,892			14,812
Net income attributable to common shareholders per share—basic	$	1.28		$	0.36	$	1.46		$	0.76
Net income attributable to common shareholders per share—diluted	$	0.93		$	0.35	$	1.12		$	0.74

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Numerator:
Net loss attributable to controlling interests $ (14,467 ) $ (9,065 ) $ (22,523 ) $ (4,235 )
Denominator:

Basic (including unvested share-based payment awards) (1) 13,921
13,867
13,949
13,857
Effect of dilutive stock compensation arrangements (2) 10
63
19
68
Diluted (including unvested share-based payment awards) (1) 13,931
13,930
13,968
13,925
Net loss attributable to controlling interests per common share—basic $ (1.04 ) $ (0.65 ) $ (1.61 ) $ (0.31 )
Net loss attributable to controlling interests per common share—diluted $ (1.04 ) $ (0.65 ) $ (1.61 ) $ (0.31 )


~~(1)~~ (1)	Shares related to unvested share-based payment awards included in our basic and diluted share counts were ~~238,967~~418,081 and ~~318,253~~445,984, respectively, for the three and ~~nine~~six months ended~~September~~ June 30, ~~2017~~2020, compared to ~~358,970~~505,416 and ~~277,361~~451,879, respectively, for the three and ~~nine~~six months ended~~September~~ June 30, ~~2016~~2019.

~~(2)~~

~~The effect of dilutive stock compensation arrangements is shown only~~

As their effects were anti-dilutive, we excluded stock options to purchase 1.0 million shares, and 1.0 million shares from our net income attributable to controlling interests per share of common stock calculations for informational purposes where we are in a net loss position. In such situations, the effect of including outstanding options and restricted stock would be anti-dilutive, and they are thus excluded from all loss period calculations.

~~For~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019, respectively. No stock options were excluded for either the three or six months ended June 30, 2020.

For the three and ~~2016~~six months ended June 30, 2020 and 2019, there were no shares potentially issuable and thus includible in the diluted net income attributable to controlling interests per share of common ~~share~~stock calculations pursuant to our~~5.875%~~ convertible senior notes. However, in future reporting periods during which our closing stock price is above the $24.61 conversion price for the~~5.875%~~ convertible senior notes, and depending on the closing stock price at conversion, the maximum potential dilution under the conversion provisions of such notes is ~~3.6~~1.4 million shares, which could be included in diluted share counts in net income per share of common ~~share~~stock calculations. See Note 8,10, “Convertible Senior Notes,” for a further discussion of these convertible securities.

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~~11.~~	~~Stock-Based Compensation~~

13.

Stock-Based Compensation

We currently have two stock-based compensation plans, the Second Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and the ~~Second~~Fourth Amended and Restated 2014 Equity Incentive Plan (the ~~“2014~~“Fourth Amended 2014 Plan”). The Fourth Amended 2014 Plan was approved by our shareholders in May 2019. Among other things, the Fourth Amended 2014 Plan (i) increased the number of shares of Common Stock available for issuance under the plan by 2,000,000 shares and (ii) extended the term of the plan by approximately two years. As of ~~September~~June 30, ~~2017~~2020, ~~14,064~~60,085 shares remained available for issuance under the ESPP and ~~1,079,335~~1,735,430 shares remained available for issuance under the Fourth Amended 2014 Plan.

Exercises and vestings under our stock-based compensation plans resulted in ~~$0 in~~no income tax-related charges to ~~additional~~ paid-in capital during ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~ ~~with $0~~2020 and ~~$37,000 in such charges for the three and nine months ended September 30, 2016, respectively.~~

2019.

Restricted Stock and Restricted Stock ~~Unit Awards~~

Units

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, we granted ~~102,000~~58,248 and ~~321,601~~205,000 shares of restricted stock and restricted stock units (net of any forfeitures), respectively, with aggregate grant date fair values of $~~0.3~~0.6 million and $~~1.0~~0.7 million,, respectively. We incurred expenses of ~~$0.6~~$0.4 million and ~~$0.4~~$0.5 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, related to restricted stock ~~and restricted stock unit~~ awards. When we grant restricted stock and restricted stock units, we defer the grant date value of the restricted stock and restricted stock unit and amortize that value (net of the value of anticipated forfeitures) as compensation expense with an offsetting entry to the ~~additional~~ paid-in capital component of our consolidated shareholders’ equity. Our restricted stock awards typically vest over a range of 12 to 60 months (or other term as specified in the ~~grant)~~grant which may include the achievement of performance measures) and are amortized to salaries and benefits expense ratably over applicable vesting periods. As of ~~September~~June 30, ~~2017~~2020, our unamortized deferred compensation costs associated with ~~non-vested~~unvested restricted stock awards were $~~0.2~~0.8 million with a weighted-average remaining amortization period of ~~0.4 years~~.

1.4 years.

Stock Options

Our Fourth Amended 2014 Plan provides that we may grant options on or shares of our common stock (and other types of equity awards) to members of our Board of Directors, employees, consultants and advisors. The exercise price per share of the options must be equal to or greater than the market price on the date the option is granted. The option period may not exceed 10 years from the date of grant. The vesting requirements for options are determined by the Compensation Committee of the Board of Directors. We had expense of ~~$0.7~~$0.1 million, $0.2 million, $0.2 million and ~~$0.6~~$0.4 million related to stock option-related compensation costs during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. When applicable, we recognize stock option-related compensation expense for any awards with graded vesting on a straight-line basis over the vesting period for the entire award. ~~Information related to options~~The table below includes additional information about outstanding ~~is as follows:~~options:

	Number of Shares			Weighted-Average Exercise Price		Weighted-Average of Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2019		2,687,499		$	3.66
Issued		—		$	—
Exercised		(39,667	)	$	3.04
Cancelled/Forfeited		—		$	—
Outstanding at June 30, 2020		2,647,832		$	3.67		1.8	$	17,671,760
Exercisable at June 30, 2020		2,043,835		$	3.15		1.3	$	14,685,601

September 30, 2017
Number of
Shares Weighted-
Average
Exercise Price Weighted-
Average of Remaining
Contractual Life (in years) Aggregate
Intrinsic
Value
Outstanding at December 31, 2016 1,411,667
$ 3.09

Issued 1,215,000
$ 2.98

Exercised —
$ —

Cancelled/Forfeited (4,000 ) $ 3.04

Outstanding at September 30, 2017 2,622,667
$ 3.04
3.6 $ 10,653
Exercisable at September 30, 2017 792,205
$ 2.92
2.3 $ 10,653

We had ~~$1.1~~$0.3 million and ~~$1.0~~$0.5 million of unamortized deferred compensation costs associated with ~~non-vested~~unvested stock options as of ~~September~~June 30, ~~2017~~ 2020and ~~2016,~~ December 31, 2019, respectively.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the related notes included therein and our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, where certain terms ~~(including trust, subsidiary and other entity names and financial, operating and statistical measures)~~ have been defined.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We base these forward-looking statements on our current plans, expectations and beliefs about future events. There are risks, including the factors discussed in “Risk Factors” in Part II, Item 1A and elsewhere in this Report, that our actual experience will differ materially from these expectations. For more information, see ~~“Forward Looking~~“Forward-Looking Information” below.

In this Report, except as the context suggests otherwise, the words “Company,” “Atlanticus Holdings Corporation,” “Atlanticus,” “we,” “our,” “ours,” and “us” refer to Atlanticus Holdings Corporation and its subsidiaries and predecessors.

OVERVIEW

We utilize proprietary analytics and a flexible technology platform to enable financial institutions to provide various credit and related financial services and products to or associated with the financially underserved consumer credit market. According to data published by Experian, 41% of Americans had FICO® scores of less than 700 as of the second quarter of 2019, which represents a population in excess of 90 million consumers. A recent survey conducted by Charles Schwab further found that 59% of Americans lived “paycheck to paycheck” and only 38% of people have an emergency fund. These consumers often have short-term, immediate credit needs that are often not effectively met by traditional financial institutions. By facilitating fairly priced consumer credit alternatives with value added features and benefits specifically curated for the unique needs of this financially underserved consumer, we endeavor to empower consumers on a path to improved financial well-being.

Currently, within our Credit and Other Investments segment, we are applying the experiences gained and infrastructure built from servicing over ~~$25~~$26 billion in consumer loans over our ~~21-year~~23-year operating history to support lenders who originate a range of consumer loan products. These products include retail credit ~~personal loans,~~ and credit cards ~~marketed~~originated by lenders through multiple channels, including retail point-of-sale, direct mail solicitation, ~~Internet-based marketing~~ and partnerships with third parties. In the point-of-sale channel, we partner with retailers and service providers in various industries across the U.S. to allow them to provide credit to their customers for the purchase of a variety of goods and services including consumer electronics, furniture, elective medical procedures, healthcare, educational services and home-improvements. The services of our bank partners are often extended to consumers who may not have access to traditional financing options. We specialize in supporting this “second-look” credit service. Our flexible technology platform allows our ~~lending~~bank partners to integrate our paperless process and instant decision-making platform with the technology infrastructure of participating retailers and service providers. These services of our lending partners are often extended to consumers who may have been declined under traditional financing options. We specialize in supporting this “second-look” credit service. Additionally, we support lenders who market general purpose ~~personal loans and~~ credit cards directly to consumers through additional channels, which enables them to reach consumers through a diverse origination platform that includes retail point-of-sale, direct mail ~~Internet-based~~and digital marketing solicitation and ~~our retail partnerships.~~partnerships with third parties. Our technology platform and proprietary analytics enable lenders to make instant credit decisions utilizing hundreds of inputs from multiple sources and thereby offer credit to consumers overlooked by traditional providers of ~~credit.~~financing. By ~~offering~~supporting a range of products through a multitude of channels, we enable lenders to provide the right type of credit, whenever and wherever the consumer has a need.

In most cases, we invest in the receivables originated by lenders who utilize our technology platform and other related services.

From time to time, we also purchase receivables portfolios from third parties. In this report, “receivables” or “loans” typically refer to receivables we have purchased from our bank partners or from third parties.

Using our infrastructure and technology platform, we also provide loan servicing, including risk management and customer service outsourcing, for third parties. Also through our Credit and Other Investments segment, we engage in testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and infrastructure.

Beyond these activities within our Credit and Other Investments segment, we invest in and service portfolios of credit card receivables. One of our portfolios of credit card receivables is encumbered by non-recourse structured financing, and for this portfolio our principal remaining economic interest is the servicing compensation we receive as an offset against our servicing costs given that the likely future collections on the portfolio are insufficient to allow for full repayment of the financing.

Additionally, we report within our Credit and Other Investments ~~segment~~segment: (1) the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the ~~servicer.~~

~~Lastly, we report within our Credit~~servicer; and ~~Other Investments segment~~(2) gains or losses associated with investments previously made in consumer finance technology platforms. These include investments in companies engaged in mobile technologies, marketplace lending and other financial technologies. These investments are carried at the lower of cost or market valuation. ~~Some of these investees have in the past raised capital at valuations in excess of our associated book value. However, none~~None of these companies are publicly-traded and there are no material pending liquidity ~~events, and ascribing value to these investments at this time would be speculative.~~

events.

The recurring cash flows we receive within our Credit and Other Investments segment principally include those associated with (1) point-of-sale and direct-to-consumer receivables, (2) servicing compensation and (3) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility.

~~We historically financed most~~

Table of our investments in the credit card receivables originated through our platform through the asset-backed securitization markets. These markets deteriorated significantly in 2008, and the level of “advance rates,” or leverage against credit card receivable assets, in the current asset-backed securitization markets is below pre-2008 levels. We doContents

Subject to potential disruptions caused by COVID-19, we believe ~~however,~~ that our point-of-sale and direct-to-consumer receivables are generating, and will continue to generate, attractive returns on assets, thereby facilitating debt financing under terms and conditions (including advance rates and pricing) that will support attractive returns on equity, and we continue to pursue growth in this area.

Within our Auto Finance segment, our CAR subsidiary operations principally purchase and/or service loans secured by automobiles from or for, and also provide floor plan financing for, a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here, used car business. We purchase auto loans at a discount and with dealer retentions or holdbacks that provide risk protection. Also within our Auto Finance segment, we are providing certain installment lending products in addition to our traditional loans secured by automobiles.

~~We closely monitor~~

Beyond these activities within our Credit and ~~manage~~Other Investments segment, we invest in and service portfolios of credit card receivables. One of our ~~expenses based~~portfolios of credit card receivables is encumbered by non-recourse structured financing, and for this portfolio our principal remaining economic interest is the servicing compensation we receive as an offset against our servicing costs given that the likely future collections on ~~current product offerings (and in recent years have significantly reduced our overhead infrastructure which was built~~the portfolio are insufficient to accommodate higher managed receivables levels and a much greater number of accounts serviced). As such, we are maintaining our infrastructure and incurring increased overhead and other costs in order to expand point-of-sale and direct-to-consumer finance and credit solutions and new product offerings that we believe have the potential to grow into our existing infrastructure and allow for ~~long-term shareholder returns.~~

full repayment of the financing.

Subject to the availability of capital at attractive terms and pricing, we plan to continue to evaluate and pursue a variety of activities, including: (1) investments in additional financial assets associated with point-of-sale and direct-to-consumer finance and credit activities as well as the acquisition of interests in receivables portfolios; (2) investments in other assets or businesses that are not necessarily financial services assets or ~~businesses;~~businesses and (3) the repurchase of our convertible senior notes and other debt orand our outstanding common stock.

We elected the fair value option to account for certain loans receivable associated with our point-of-sale and direct-to-consumer platform that are acquired on or after January 1, 2020. We believe the use of fair value for these receivables more closely approximates the true economics of these receivables, better matching the yields and corresponding charge-offs. We believe the fair value option also enables us to report GAAP net income that provides increased transparency into our profitability and asset quality. Receivables arising in accounts originated prior to January 1, 2020 will continue to be accounted for in our 2020 and subsequent financial statements at amortized cost, net. We estimate the Fair Value Receivables using a discounted cash flow model, which considers various factors such as expected yields on consumer receivables, the timing of expected payments, customer default rates, estimated costs to service the portfolio, interest rates, and valuations of comparable portfolios. As a result of this fair value adoption, our loans, interest and fees receivable arising in accounts originated subsequent to January 1, 2020 will be carried at fair value with changes in fair value recognized directly in earnings, and certain fee billings (such as annual membership fees and merchant fees) and origination costs associated with these receivables will no longer be deferred. We reevaluate the fair value of our Fair Value Receivables at the end of each quarter.

Covid-19 Pandemic

On March 13, 2020, President Trump declared a national emergency under the National Emergencies Act due to the COVID-19 pandemic. As of the date of filing this Quarterly Report on Form 10-Q, the duration and severity of the effects of the COVID-19 pandemic remain unknown. Likewise, we do not know the duration and severity of the impact of the COVID-19 pandemic on all members of the Company’s ecosystem – our bank partner, merchants and consumers – as well as our employees. In addition to instituting a Company-wide work-at-home program to ensure the safety of all employees and their families, we are communicating to employees on a regular basis regarding such efforts as planning for contingencies related to the COVID-19 pandemic, providing updated information and policies related to the safety and health of employees, and monitoring the ongoing pandemic for new developments that may impact the Company, our work locations or our employees and are taking reasonable measures.

The following are anticipated key impacts on our business and response initiatives taken by the Company, in coordination with our partners, to mitigate such impacts:

Consumer spending behavior has been significantly impacted by the COVID-19 pandemic, principally due to restrictions on “non-essential” businesses, issuances of stay-at-home orders, and uncertainties about the extent and duration of the pandemic. To the extent this change in consumer spending behavior continues, receivables purchases could decline relative to the prior year. The extent to which our merchants have remained open for business has varied across merchant category and geographical location within the U.S.

Borrowers impacted by COVID-19 who request hardship assistance have been receiving temporary relief from payments. While we expect these measures to mitigate credit losses, we anticipate that the rising unemployment rate, while partially mitigated by the effects of government stimulus and relief measures, such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, may result in increased portfolio credit losses in the future.

As the impact of COVID-19 continues to evolve, the Company remains committed to serving our bank partner, merchants and consumers, while caring for the safety of our employees and their families. The potential impact that COVID-19 and related government stimulus and relief measures could have on our financial condition and results of operations remains highly uncertain. For more information, refer to Part II, Item 1A “Risk Factors” and, in particular, “– The global outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in the U.S. economy, and may have an adverse impact on our performance, results of operations and access to capital.”

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CONSOLIDATED RESULTS OF OPERATIONS

							Income
	For the Three Months Ended June 30,						Increases (Decreases)
(In Thousands)	2020			2019			from 2019 to 2020
Total interest income	$	100,113		$	55,200		$	44,913
Interest expense		(12,252	)		(12,014	)		(238	)
Fees and related income on earning assets:
Fees on credit products		32,399			14,308			18,091
Changes in fair value of loans, interest and fees receivable recorded at fair value		(25,211	)		371			(25,582	)
Changes in fair value of notes payable associated with structured financings recorded at fair value		(82	)		452			(534	)
Other		245			6			239
Other operating income:
Servicing income		488			375			113
Other income		2,422			28,570			(26,148	)
Equity in income of equity-method investee		79			225			(146	)
Total	$	98,201		$	87,493		$	10,708
Net losses upon impairment of loans, interest and fees receivable recorded at fair value		374			271			(103	)
Provision for losses on loans, interest and fees receivable recorded at net realizable value		32,530			48,414			15,884
Other operating expenses:
Salaries and benefits		6,508			6,435			(73	)
Card and loan servicing		15,601			11,527			(4,074	)
Marketing and solicitation		10,190			9,110			(1,080	)
Depreciation		320			283			(37	)
Other		4,586			4,021			(565	)
Net income		23,117			5,182			17,935
Net loss attributable to noncontrolling interests		48			62			(14	)
Net income attributable to controlling interests		23,165			5,244			17,921
Net income attributable to controlling interests to common shareholders		18,429			5,244			13,185

							Income
	For the Six Months Ended June 30,						Increases (Decreases)
(In Thousands)	2020			2019			from 2019 to 2020
Total interest income	$	203,260		$	105,659		$	97,601
Interest expense		(25,836	)		(23,160	)		(2,676	)
Fees and related income on earning assets:
Fees on credit products		67,044			24,604			42,440
Changes in fair value of loans, interest and fees receivable recorded at fair value		(40,698	)		370			(41,068	)
Changes in fair value of notes payable associated with structured financings recorded at fair value		480			1,327			(847	)
Other		301			100			201
Other operating income:
Servicing income		1,092			1,061			31
Other income		4,544			45,414			(40,870	)
Equity in income of equity-method investee		13			452			(439	)
Total	$	210,200		$	155,827		$	54,373
Net losses upon impairment of loans, interest and fees receivable recorded at fair value		640			525			(115	)
Provision for losses on loans, interest and fees receivable recorded at net realizable value		99,866			83,012			(16,854	)
Other operating expenses:
Salaries and benefits		14,018			13,026			(992	)
Card and loan servicing		31,438			21,971			(9,467	)
Marketing and solicitation		19,507			15,497			(4,010	)
Depreciation		605			572			(33	)
Other		9,387			7,899			(1,488	)
Net income		28,479			10,837			17,642
Net loss attributable to noncontrolling interests		111			120			(9	)
Net income attributable to controlling interests		28,590			10,957			17,633
Net income attributable to controlling interests to common shareholders		21,095			10,957			10,138

Income
For the Three Months Ended September 30, Increases (Decreases)
(In Thousands) 2017 2016 from 2016 to 2017
Total interest income $ 29,019
$ 24,089
$ 4,930
Interest expense (7,268 ) (5,257 ) (2,011 )
Fees and related income on earning assets:
Fees on credit products 3,248
944
2,304
Changes in fair value of loans and fees receivable recorded at fair value 1,153
(1,857 ) 3,010
Changes in fair value of notes payable associated with structured financings recorded at fair value 259
259
—
Rental revenue —
758
(758 )
Other (494 ) (29 ) (465 )
Other operating income:
Servicing income 1,034
885
149
Other income 590
69
521
Gain on repurchase of convertible senior notes —
—
—
Equity in income equity-method investee 164
629
(465 )
Total $ 27,705
$ 20,490
$ 7,215
Net recovery of losses upon charge off of loans and fees receivable recorded at fair value (2,393 ) (1,556 ) 837
Provision for losses on loans and fees receivable recorded at net realizable value 24,087
17,470
(6,617 )
Other operating expenses:
Salaries and benefits 5,296
6,329
1,033
Card and loan servicing 8,687
7,027
(1,660 )
Marketing and solicitation 2,072
587
(1,485 )
Depreciation, primarily related to rental merchandise 236
794
558
Other 4,210
3,570
(640 )
Net loss (14,468 ) (9,065 ) (5,403 )
Net loss attributable to noncontrolling interests 1
—
1
Net loss attributable to controlling interests (14,467 ) (9,065 ) (5,402 )

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Income
For the Nine Months Ended September 30, Increases (Decreases)
(In Thousands) 2017 2016 from 2016 to 2017
Total interest income $ 81,635
$ 63,851
$ 17,784
Interest expense (19,504 ) (14,693 ) (4,811 )
Fees and related income on earning assets:
Fees on credit products 6,351
2,599
3,752
Changes in fair value of loans and fees receivable recorded at fair value 2,718
568
2,150
Changes in fair value of notes payable associated with structured financings recorded at fair value 1,786
2,363
(577 )
Rental revenue 148
8,091
(7,943 )
Other (65 ) 219
(284 )
Other operating income:
Servicing income 2,984
3,313
(329 )
Other income 939
214
725
Gain on repurchase of convertible senior notes —
1,037
(1,037 )
Equity in income equity-method investee 902
1,956
(1,054 )
Total $ 77,894
$ 69,518
$ 8,376
Net recovery of losses upon charge off of loans and fees receivable recorded at fair value (10,763 ) (12,607 ) (1,844 )
Provision for losses on loans and fees receivable recorded at net realizable value 50,484
33,012
(17,472 )
Other operating expenses:
Salaries and benefits 16,314
18,242
1,928
Card and loan servicing 23,866
23,300
(566 )
Marketing and solicitation 6,731
2,374
(4,357 )
Depreciation, primarily related to rental merchandise 789
7,049
6,260
Other 16,842
6,199
(10,643 )
Net loss (22,522 ) (4,240 ) (18,282 )
Net (income) loss attributable to noncontrolling interests (1 ) 5
(6 )
Net loss attributable to controlling interests (22,523 ) (4,235 ) (18,288 )

Three and ~~Nine~~Six Months Ended~~September~~June 30, ~~2017~~2020, Compared to Three and ~~Nine~~Six Months Ended~~September~~June 30, ~~2016~~

2019

Total interest income. Total interest income consists primarily of finance charges and late fees earned on point-of-sale and direct-to-consumer receivables, credit card and auto finance receivables. Period-over-period results primarily relate to growth in point-of-sale finance and direct-to-consumer products, the receivables of which increased from ~~$192.5~~$602.3 million as of ~~September~~June 30, ~~2016~~2019 to ~~$284.3~~$895.1 million as of ~~September~~June 30, ~~2017. These increases were partially offset, however, by continued net liquidations of our historical credit card receivable portfolios over the past year.~~2020. We are currently experiencing continued period-over-period growth in point-of-sale and direct-to-consumer receivables and to a lesser extent in our CAR receivables—growth which we expect to result in net period-over-period growth in our total interest income for these operations ~~for the remainder of 2017 and into 2018.~~throughout 2020. Future periods’ growth is also dependent on the addition of new retail partners to expand the reach of point-of-sale operations as well as growth within existing partnerships and continued growth and marketing within the direct-to-consumer receivables. ~~Despite anticipated increases~~As discussed elsewhere in this Report, we elected the fair value option to account for certain loan receivables associated with our point-of-sale and direct-to-consumer ~~receivables, continued net liquidations of our historical credit card receivables will continue to offset some~~platform that are acquired on or after January 1, 2020. As a result, merchant fees that are associated with the acquisition of the receivable will no longer be deferred and will be recognized in the loan acquisition period. As discussed above, consumer spending behavior has been impacted negatively by COVID-19 and continues to impact our ability to acquire new receivables. Absent the continued unknown impacts of COVID-19 and related government stimulus and relief measures on future consumer spending behavior or the impact they may have on a consumer's ability to make payments on outstanding loans and fees receivable, the earlier recognition of these merchant fees is expected ~~increases and could result~~to further increase our period-over-period results in ~~overall net declines in interest income period-over-period if our investments in new receivable originations decline.~~

the near term.

Interest expense. Variations in interest expense are due to new borrowings associated with growth in point-of-sale and direct-to-consumer receivables and CAR operations as evidenced within Note 9, “Notes Payable,” to our consolidated financial statements offset by our debt facilities being repaid commensurate with net liquidations of the underlying credit card, auto finance and installment loan receivables that serve as collateral for the ~~facilities offset by new borrowings~~facilities. Outstanding notes payable associated with ~~growth in~~our point-of-sale and direct-to-consumer ~~receivables and CAR operations~~platform increased from $469.2 million as ~~evidenced within Note 7, “Notes Payable,”~~of June 30, 2019 to ~~our consolidated financial statements.~~$643.2 million as of June 30, 2020. We anticipate additional debt financing over the next few quarters as we continue to grow, and as such, we expect our quarterly interest expense to be above that experienced in the prior periods for these operations.

Fees and related income on earning assets. The significant factors affecting our differing levels of fees and related income on earning assets include:

declines in rental revenue as we significantly reduced rent-to-own operations in the fourth quarter of 2015 and for which we discontinued new acquisitions in 2016. We do not expect future revenues associated with this product offering as existing rent-to-own contracts have effectively concluded with no new acquisitions expected;

increases in fees on credit products, primarily associated with growth in direct-to-consumer products and to a lesser degree by growth in point-of-sale finance products; and ~~direct-to-consumer products offset somewhat by general net declines in historical credit card receivables; and~~

the effects of changes in the fair values of credit card receivables recorded at fair value and notes payable associated with structured financings recorded at fair value as described below.

We expect increasing levels of ~~credit card~~direct-to-consumer fee income ~~for the remainder of 2017 and into 2018~~throughout 2020 as we continue to invest in new credit card ~~receivables as part of our direct-to-consumer operations, offset somewhat by diminishing fee income associated with our existing portfolios of liquidating~~receivables. For credit card ~~receivables. Additionally, for credit card accounts~~receivables for which we use fair value accounting (including those that we elected the fair value option for on January 1, 2020), we expect our change in fair value of credit card receivables recorded at fair value ~~and~~to increase throughout the year commensurate with growth in these receivables. Inversely, we expect our change in fair value of notes payable associated with structured financings for our legacy credit card receivables recorded at fair value amounts to gradually diminish (absent significant changes in the assumptions used to determine these fair values) in the future. These amounts, however, are subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if there are significant changes in market valuation factors (e.g., interest rates and spreads) in the future. ~~Such volatility will be muted somewhat, however, by the offsetting nature of the~~Additionally, we expect to recognize certain fee billings (such as annual membership fees) associated with receivables ~~and underlying debt being recorded at~~accounted for under fair value as they are billed to the consumer (as opposed to deferred fee recognition), which, absent the unknown impacts COVID-19 and ~~with~~related government stimulus and relief measures may have on our ability to acquire new receivables or the impact they may have on a consumer's ability to make payments on outstanding loans and fees receivable, will further increase the expected ~~reductions~~levels of fee income in the face amounts of such outstanding receivables and debt as we experience further credit card receivables liquidations and associated debt amortizing repayments. Further, as discussed above, we do not expect meaningful levels of rental revenue as existing rent-to-own contracts have effectively concluded with no new acquisitions expected. This decline in rental revenues will serve to offset some of the aforementioned growth we expect in our credit card fee income.

near term.

Servicing income. We earn servicing income by servicing loan portfolios for third parties (including our equity-method investee). Unless and/or until we grow the number of contractual servicing relationships we have with third parties or our current relationships grow their loan portfolios, we will not experience significant growth and income within this category, and we currently expect to experience ~~limited growth~~continued declines in this category of revenue relative to revenue earned in prior periods.

Other income. ~~Historically included~~Included within our other income category are ancillary and interchange ~~revenues, which are now relatively insignificant for us due to previous credit card account closures and net credit card receivables portfolio liquidations.~~revenues. Given recent growth associated with new credit card ~~offerings and related~~ receivables, we expect ancillary and interchange revenues to grow ~~modestly~~ throughout the year. Also included within our other income category ~~are certain reimbursements we receive~~for the three and six months ended June 30, 2019 is $26.0 and $41.4 million associated with reductions in ~~respect of~~accruals related to one of our portfolios. The original accrual was based upon our estimate of the amount that may be claimed by customers and was based upon several factors including customer claims volume, average claim amount and a determination of the amount, if any, which may be offered to resolve such claims. The assumptions used in the accrual estimate were subjective, mainly due to uncertainty associated with future claims volumes and the resolution costs, if any, per claim.

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Equity in income of equity-method investee. Because our equity-method investee uses the fair value option to account for its financial assets and liabilities, changes in fair value estimates can cause some volatility in the earnings of this investee. Because of continued liquidations in the credit card receivables portfolio of our equity-method investee, absent additional investments in our existing or in new equity-method investees in the future, we expect gradually declining effects from our equity-method investment on our operating results.

Net ~~recovery of~~ losses upon ~~charge off~~impairment of loans, interest and fees receivable recorded at fair value. This account reflects charge offs (net of recoveries) of the face amount of credit card receivables we record at fair value on our consolidated balance ~~sheet.~~sheets. We have experienced a general trending decline in ~~and~~this category as our legacy credit card portfolios diminished. As discussed above, we expect future trending ~~declines~~increases in ~~these charge-offs~~the third and fourth quarter of 2020 due to our election of the fair value option to account for certain loans receivable that are acquired on or after January 1, 2020. These increases will be abated somewhat as we continue to liquidate our historical credit card receivables. ~~Additionally, net recovery~~Further, the unknown impacts of COVID-19 could lead to increased variability in ~~both periods reflects the effects of reimbursements received in respect of one of~~ our portfolios. In the three and nine months ended September 30, 2017 and 2016, these reimbursements exceeded the charge-offs experienced within the portfolio during the periods presented as the reimbursements are not directly associated with the timing of actualexpected charge-offs. ~~The timing of these reimbursements cannot be reliably determined and as such we may not continue to experience similar positive impacts in future quarters.~~

Provision for losses on loans, interest and fees receivable recorded at net realizable value. Our provision for losses on loans, interest and fees receivable recorded at net realizable value covers, with respect to such receivables, changes in estimates regarding our aggregate loss exposures on (1) principal receivable balances, (2) finance charges and late fees receivable underlying income amounts included within our total interest income category, and (3) other fees receivable. We have experienced a period-over-period increase in this category between the ~~three~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016 and the nine months ended September 30, 2017 and 2016~~2019 primarily reflecting the effects of volume associated with point-of-sale ~~direct-to-consumer~~ and ~~credit card~~direct-to-consumer finance receivables (i.e., growth of new product receivables and their subsequent maturation)~~, rather than specific~~. Changes in credit quality ~~changes or deterioration, which~~ also impacted our provision for losses on loans, interest and fees receivable recorded at net realizable value to a lesser ~~degree.~~degree due to specific reserves established in the second quarter of 2020 associated with accounts that have been impacted due to COVID-19. Partially offsetting this increase was a reduction in our provision for loan losses for unearned fees and discounts applicable to certain receivables which would reduce the financial impact of an actual charge-off. See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components,” to our consolidated financial statements and the discussions of our Credit and Other Investments and Auto Finance segments for further credit quality statistics and analysis.

Given our adoption of fair value accounting for certain receivables acquired on or after January 1, 2020, and absent the unknown impacts COVID-19 and related government stimulus and relief measures may have on our ability to acquire new receivables or the impact they may have on our customer's ability to make payments on outstanding loans and fees receivable, we expect that our provision for losses on loans will diminish as the underlying receivables that continue to be recorded at net realizable value liquidate.

Total other operating expense. Total other operating expense variances for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, relative to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019, reflect the following:

~~slight~~

increases in ~~card~~salaries reflecting marginal growth in both the number of employees and ~~loan servicing expenses~~increases in ~~the three and nine months ended September 30, 2017~~related benefit costs. We expect some marginal increase in this cost for 2020 when compared to ~~the three~~2019 as we expect to maintain staffing levels and ~~nine months ended September 30, 2016 due to~~also expect modest receivable growth in receivables associated with our investments in point-of-sale and direct-to-consumer receivables which grew from $192.5 million outstanding to $284.3 million outstanding at September 30, 2016 and September 30, 2017, respectively, offset by the discontinuation of acquisitions of our rent-to-own products as well as continued net liquidations in our historical credit card portfolios, the receivables of which declined from $32.5 million outstanding to $23.8 million outstanding at September 30, 2016 and September 30, 2017, respectively;

increases in other expenses due to the reversal of a £3.4 million ($5.0 million) reserve in the nine months ended September 30, 2016. This reserve related to a review in the U.K. by HM Revenue and Customs (“HMRC”) associated with filings by one of our U.K. subsidiaries to reclaim value-added-tax. Additionally impacting the higher expenses noted during the three and nine months ended September 30, 2017 are increased occupancy costs, legal costs associated with new product offerings and increased costs associated with translation impacts for U.K. liabilities;year;

increases in marketing and solicitation costs for the three and nine months ended September 30, 2017 primarily due to volume related increases in costs attributable to the growth in our retail point-of-sale and direct-to-consumer portfolios. We expect that increased origination and brand marketing support will result in overall increases in year-over-year costs during the remainder of 2017 and into 2018 although the frequency and timing of marketing efforts could result in reductions in quarter-over-quarter marketing costs; and

~~general increases in other expenses related to receivables acquisition, risk management costs and third party costs associated with ongoing information technology upgrades.~~

Offsetting these increases were decreases in depreciation primarily associated with discontinuation of acquisitions under our rent-to-own program which had no meaningful depreciation in 2017 compared to $0.5 million and $5.2 million for the three and nine months ended 2016, respectively.

•

increases in card and loan servicing expenses in the three and six months ended June 30, 2020 when compared to the three and six months ended June 30, 2019 due to growth in receivables associated with our investments in point-of-sale and direct-to-consumer receivables, which grew from $602.3 million outstanding to $895.1 million outstanding at June 30, 2019 and June 30, 2020, respectively, offset by the continued net liquidations in our legacy credit card portfolios, the receivables of which declined from $7.8 million outstanding to $5.1 million outstanding at June 30, 2019 and June 30, 2020, respectively;

	•	increases in marketing and solicitation costs for the three and six months ended June 30, 2020 primarily due to volume-related increases in costs attributable to the growth in our direct-to-consumer and (to a lesser extent) retail point-of-sale portfolios. We expect that increased origination and brand marketing support will result in overall increases in year-over-year costs during 2020 although the frequency and timing of marketing efforts could result in reductions in quarter-over-quarter marketing costs; and
	•	slight decreases in other expenses primarily related to realized translation gains and losses recognized during both periods.

Certain operating costs are variable based on the levels of accounts and receivables we service (both for our own account and for others) and the pace and breadth of our growth in receivables. However, a number of our operating costs are fixed and until recently have comprised a larger percentage of our total costs based on the ongoing contraction of our ~~historical~~legacy credit card receivables. This trend is ~~gradually~~ reversing ~~however,~~ as we continue to grow our earning assets (including loans, interest and fees receivable) based principally on growth of point-of-sale and direct-to-consumer receivables and to a lesser extent, growth within our CAR operations. This is evidenced by the growth we experienced in our managed receivables levels with minimal growth in the fixed portion of our card and loan servicing expenses as well as our salaries and benefits costs as we were able to better utilize our fixed costs to grow our asset base. ~~We continue to perform extensive reviews~~

Table of ~~all areas of our businesses for cost savings opportunities to better align our costs with our portfolio of managed receivables.~~Contents

Notwithstanding our cost-control efforts and focus, we expect increased levels of expenditures associated with anticipated growth in point-of-sale and direct-to-consumer ~~personal loan and~~ credit card-related operations. These expenses will primarily relate to the variable costs of marketing efforts and card and loan servicing expenses associated with new receivable acquisitions. While we have greater control over our variable expenses, it is difficult (as explained above) for us to appreciably reduce our fixed and other costs associated with an infrastructure (particularly within our Credit and Other Investments segment) that was built to support levels of managed receivables that are significantly higher than both our current levels and the levels that we expect to see in the near future. Additionally, the above referenced unknown potential impacts related to COVID-19 could result in more variability in these expenses. At this point, our Credit and Other Investments segment cash inflows are sufficient to cover its direct variable costs and a portion, but not all, of its share of overhead costs (including, for example, corporate-level executive and administrative costs and our convertible senior notes interest costs). As such, if we are

unable to contain overhead costs or expand revenue-earning activities to levels commensurate with such costs, then ~~depending upon the earnings generated from our Auto Finance segment and our liquidating credit card portfolios,~~ we may experience continuing pressure on our ability to achieve consistent profitability.

Additionally, as previously discussed, the unknown impacts of COVID-19 could impair our ability to acquire new receivables and could result in increased costs despite our efforts to manage costs effectively.

Noncontrolling interests. We reflect the ownership interests of noncontrolling holders of equity in our majority-owned subsidiaries as noncontrolling interests in our consolidated statements of operations. Unless we enter into significant new majority-owned subsidiary ventures with noncontrolling interest holders in the future, we expect to have negligible noncontrolling interests in our majority-owned subsidiaries and negligible allocations of income or loss to noncontrolling interest holders in future quarters.

On November 14, 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $1.00 per unit to an unrelated third party. The units carry a 16% preferred return to be paid quarterly, with up to 6 percentage points of the preferred return to be paid through the issuance of additional units or cash, at our election. The units have both call and put rights and are also subject to various covenants including a minimum book value, which if not satisfied, could allow for the securities to be put back to the subsidiary. On March 30, 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms. The proceeds from the transaction are being used for general corporate purposes. We have included the issuance of these Class B preferred units as temporary noncontrolling interests on the consolidated balance sheets.

Income Taxes.We experienced effective ~~income~~ tax ~~benefit~~ rates of ~~0.2%~~17.7% and ~~14.6%~~18.0%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2020, compared to effective ~~income~~ tax ~~benefit~~ rates of ~~34.0%~~30.3% and ~~47.3%~~18.7%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~2019. Our effective ~~income~~ tax ~~benefit~~ rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 are below the statutory rate principally due to (1) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes and ~~penalties that we accrued~~(2) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’ grant date values. Partially offsetting such effects on our effective tax rates are the effects of accruals of interest on unpaid federal tax liabilities and ~~(2) our establishment of,~~uncertain tax positions and ~~increases in, our valuation allowances~~state and foreign income taxes during ~~such periods against our net federal deferred tax assets that arose during such periods associated with our net loss incurred during such periods.~~ the three and six months ended June 30, 2020.

were negligible.

to remove the aforementioned lien in due course.

Credit and Other Investments Segment

Our Credit and Other Investments segment includes our activities relating to our servicing of and our investments in the point-of-sale, direct-to-consumer personal finance and credit card operations, our various credit card receivables portfolios, as well as other product testing and investments that generally utilize much of the same infrastructure. The types of revenues we earn from our investments in receivables portfolios and services primarily include finance charges, fees and the accretion of ~~discounts~~merchant fees associated with the point-of-sale receivables or annual fees on our direct-to-consumer receivables.

We record (i) the finance charges, ~~discount~~merchant fee accretion and late fees assessed on our Credit and Other Investments segment receivables in the interest income - consumer loans, including past due fees category on our consolidated statements of operations, (ii) the ~~rental revenue, over-limit,~~ annual, activation, monthly maintenance, returned-check, cash advance and other fees in the fees and related income on earning assets category on our consolidated statements of operations, and (iii) the charge offs (and recoveries thereof) within our provision for losses on loans, interest and fees receivable recorded at net realizable value on our consolidated statements of operations (for all credit product receivables other than those for which we have elected the fair value option) and within net losses upon ~~charge off~~impairment of loans, interest and fees receivable recorded at fair value on our consolidated statements of operations (for all of our other receivables for which we have elected the fair value option). Additionally, we show the effects of fair value changes for those credit card receivables for which we have elected the fair value option as a component of fees and related income on earning assets in our consolidated statements of operations.

We historically have invested in receivables portfolios through subsidiary entities. If we control through direct ownership or exert a controlling interest in the entity, we consolidate it and reflect its operations as noted above. If we exert significant influence but do not control the entity, we record our share of its net operating results in the equity in income of equity-method investee category on our consolidated statements of operations.

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Managed Receivables

We make various references within our discussion of the Credit and Other Investments segment to our managed receivables. ~~In calculating~~Our managed receivables data ~~we include within managed receivables~~includes only the performance of those receivables ~~we manage for our~~underlying consolidated subsidiaries ~~but we exclude~~and excludes from managed receivables ~~any noncontrolling interest holders’ shares~~data the performance of receivables held by our equity method investee. As the ~~receivables.~~receivables underlying our equity method investee reflect a small and diminishing portion of our overall receivables base, we do not believe their inclusion or exclusion in the overall results is material. Additionally, we ~~include within~~calculate average managed receivables ~~only our economic share of~~based on the ~~receivables that we manage for our equity-method investee.~~

quarter-end balances.

Financial, operating and statistical data based on aggregate managed receivables are important to any evaluation of the performance of our credit portfolios, including our risk management, servicing and collection activities and our valuing of purchased receivables. In allocating our resources and managing our business, management relies heavily upon financial data and results prepared on this “managed basis.” Analysts, investors and others also consider it important that we provide selected financial, operating and statistical data on a managed basis because this allows a comparison of us to others within the specialty finance industry. Moreover, our management, analysts, investors and others believe it is critical that they understand the credit performance of ~~the entire portfolio of~~ our managed receivables because it ~~reveals~~provides information concerning the quality of loan originations and the related credit risks inherent within the portfolios.

Reconciliation of the managed receivables data to our GAAP financial statements ~~requires: (1)~~requires an understanding ~~that~~that: (1) our managed receivables data are based on billings and actual ~~charge offs~~charge-offs as they occur, without regard to any changes in our allowance for uncollectible loans, interest and fees ~~receivable or any changes in~~receivable; (2) our managed receivables data exclude non-consolidated receivables (3) our managed receivables data amortize certain loan origination fees (such as annual and merchant fees) associated with our Fair Value Receivables (4) certain costs, such as claims made under credit deferral programs are recognized as settled (5) the period-end and average managed receivables data include the face value of receivables which are accounted for under the fair value ~~of loans~~option; and ~~fees receivable and their associated structured financing notes; (2) inclusion of our economic share of (or equity interest in) the receivables~~(6) when applicable, we manage for our equity-method investee; (3) removal of any noncontrolling interest holders’ shares of the managed receivables underlying our GAAP consolidated results; (4) adjustment of principal charge offs for the difference between the deemed face amount and the deemed discounted repurchase price of the receivables which is treated as credit quality discount to be accreted into managed earnings as a reduction of adjusted net charge offs over the remaining life of the receivables; and (5) the exclusionexclude from our managed receivables data of certain reimbursements received in respect of one of our portfolios which resulted in pre-tax income benefits within our ~~total interest income, fees and related income on earning assets, losses upon charge off~~net recovery of impairment of loans, interest and fees receivable recorded at fair value ~~net of recoveries, other income, servicing income, and equity in income of equity-method investee~~ line ~~items~~item on our consolidated statements of operations totaling approximately ~~$2.9~~$0.4 million for the three months ended September 30, 2017, $1.1 million for the three months ended June 30, 2017, $8.6 million for the three months ended March 31, 2017, $10.3 million for the three months ended December 31, 2016, $2.4 million for the three months ended September 30, 2016, $7.1 million for the three months ended June 30, 2016, $5.9 million for the three months ended March 31, 2016, and $10.7 million for the three months ended December 31, 2015.2018. This last category of reconciling items above is excluded because it does not bear on our performance in managing our credit card portfolios, including our risk management, servicing and collection activities and our valuing of purchased receivables; moreover, ~~it is difficult~~we do not expect to ~~determine~~receive any further material reimbursements with respect to this portfolio.

A reconciliation of our Securitized Receivables and our Fair Value Receivables, both within our Loans, interest and fees receivable, at fair value to the ~~future effects~~assets underlying those receivables which are included in our managed receivables are as follows (in thousands):

	At or for the Three Months Ended
	2020						2019												2018
	Jun. 30 (1)			Mar. 31 (1)			Dec. 31			Sept. 30			Jun. 30			Mar. 31			Dec. 31			Sept. 30
Loans, interest and fees receivable, gross - Securitized Receivables		5,111			5,765			6,404			7,070			7,803			8,664			9,575			10,504
Fair value adjustment - Securitized Receivables		(1,279	)		(2,080	)		(2,018	)		(2,545	)		(2,899	)		(3,270	)		(3,269	)		(3,379	)
Loans, interest and fees receivable, at fair value - Securitized Receivables		3,832			3,685			4,386			4,525			4,904			5,394			6,306			7,125
Loans, interest and fees receivable, gross - Fair Value Receivables		215,492			101,134			—			—			—			—			—			—
Fair value adjustment - Fair Value Receivables		(41,438	)		(15,425	)		—			—			—			—			—			—
Loans, interest and fees receivable, at fair value - Fair Value Receivables		174,054			85,709			—			—			—			—			—			—
Loans, interest and fees receivable, at fair value		177,886			89,394			4,386			4,525			4,904			5,394			6,306			7,125

(1) As discussed in more detail above in "—Overview," we elected the fair value option to account for certain loans receivable associated with our point-of-sale and direct-to-consumer platform that are acquired on or after January 1, 2020.

As discussed above, our managed receivables data amortize certain loan origination fees (such as annual and merchant fees) associated with our Fair Value Receivables over the expected life of ~~any~~the corresponding receivable and recognize certain costs, such ~~reimbursements that may be received.~~

as claims made under credit deferral programs are recognized as settled. Under fair value accounting, these fees are recognized when billed or upon receivable acquisition. A reconciliation of our Consumer Loans, including past due fees and our Other income–Fees on credit products to comparable amounts used in our calculation of our Total Yield Ratio below are as follows (in millions):

	At or for the Three Months Ended
	2020
	June 30			March 31
Consumer Loans, including past due fees on Fair Value Receivables	$	92.1		$	95.2
Other Fees on credit products on Fair Value Receivables		35.2			37.8
Change in fair value for Notes payable associated with structured financings, at fair value		0.1			(0.6	)
Accelerated recognition under fair value accounting for Fair Value Receivable billings		(23.1	)		(17.6	)
Total yield on Fair Value Receivables	$	104.3		$	114.8

Asset quality. Our delinquency and charge-off data at any point in time reflect the credit performance of our managed receivables. The average age of the accounts underlying our receivables, the timing of portfolio purchases, the success of our collection and recovery efforts and general economic conditions all affect our delinquency and charge-off rates. The average age of the accounts underlying our receivables portfolio also affects the stability of our delinquency and loss rates. We consider this delinquency and charge-off data in our ~~determination of the fair value of our credit card receivables underlying formerly off-balance-sheet securitization structures, as well as our~~ allowance for uncollectible loans, interest and fees receivable ~~in the case of~~for our other credit product receivables that we report at net realizable value. Our strategy for managing delinquency and receivables losses consists of account management throughout the life of the receivable. This strategy includes credit line management and pricing based on the risks. See also our discussion of collection strategies under the “How Do We Collect?” in Item 1, “Business” of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

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The following table presents the delinquency trends of the receivables we manage within our Credit and Other Investments segment, as well as charge-off data and other managed receivables statistics (in thousands; percentages of total):

At or for the Three Months Ended
2017 2016 2015
Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31
Period-end managed receivables $307,886 $272,727 $253,308 $245,007 $221,683 $201,406 $155,425 $152,528
Percent 30 or more days past due 11.6 % 10.9 % 10.9 % 11.8 % 10.9 % 8.2 % 9.7 % 11.5 %
Percent 60 or more days past due 7.9 % 7.4 % 7.8 % 8.1 % 7.3 % 5.3 % 7.1 % 7.9 %
Percent 90 or more days past due 5.3 % 4.8 % 5.2 % 5.2 % 4.7 % 3.4 % 5.1 % 5.4 %
Average managed receivables $298,128 $265,175 $250,862 $236,103 $216,951 $188,128 $152,831 $152,983
Total yield ratio 35.4 % 34.7 % 34.4 % 32.6 % 33.5 % 36.8 % 35.4 % 35.2 %
Combined gross charge-off ratio 18.1 % 21.6 % 23.6 % 21.1 % 13.3 % 14.9 % 18.2 % 16.8 %
Adjusted charge-off ratio 15.3 % 18.4 % 20.1 % 17.8 % 10.7 % 11.7 % 14.1 % 12.9 %

~~Managed receivables levels.We have experienced overall quarterly growth throughout the periods presented related~~

	At or for the Three Months Ended
	2020						2019												2018
	Jun. 30			Mar. 31			Dec. 31			Sept. 30			Jun. 30			Mar. 31			Dec. 31			Sept. 30
Period-end managed receivables	$	900,196		$	917,482		$	914,828		$	776,102		$	610,129		$	480,928		$	462,862		$	406,057
Percent 30 or more days past due		10.7	%		16.0	%		15.3	%		12.9	%		11.5	%		13.7	%		13.2	%		12.7	%
Percent 60 or more days past due		8.9	%		12.4	%		11.4	%		9.2	%		8.2	%		10.3	%		9.5	%		9.3	%
Percent 90 or more days past due		6.9	%		9.0	%		8.1	%		6.1	%		5.8	%		7.5	%		6.7	%		6.4	%
Averaged managed receivables	$	908,839		$	916,155		$	845,465		$	693,116		$	545,529		$	471,895		$	434,460		$	388,694
Total yield ratio		45.9	%		50.1	%		50.0	%		49.7	%		47.0	%		46.5	%		44.3	%		43.2	%
Combined gross charge-off ratio		26.9	%		29.0	%		22.4	%		17.6	%		23.8	%		23.6	%		21.6	%		19.7	%

The following table presents additional trends and data with respect to our current ~~product offerings~~point-of-sale (“Retail”) and direct-to-consumer (“Direct”) receivables (dollars in thousands). Results of our legacy credit card receivables portfolios are excluded:

	Retail - At or for the Three Months Ended
	2020						2019												2018
	Jun. 30			Mar. 31			Dec. 31			Sept. 30			Jun. 30			Mar. 31			Dec. 31			Sept. 30
Period-end managed receivables	$	431,118		$	406,101		$	397,690		$	365,652		$	308,382		$	255,922		$	257,772		$	238,851
Percent 30 or more days past due		7.5	%		12.2	%		13.2	%		11.6	%		10.4	%		12.7	%		13.6	%		13.4	%
Percent 60 or more days past due		5.9	%		9.3	%		9.7	%		8.2	%		7.3	%		9.8	%		9.9	%		9.8	%
Percent 90 or more days past due		4.5	%		6.8	%		6.8	%		5.6	%		5.0	%		7.2	%		7.1	%		6.9	%
Average APR		19.8	%		21.3	%		22.1	%		22.5	%		24.0	%		24.8	%		25.0	%		24.7	%
Receivables purchased during period	$	113,546		$	110,479		$	116,327		$	133,528		$	123,533		$	69,120		$	80,096		$	70,860

	Direct - At or for the Three Months Ended
	2020						2019												2018
	Jun. 30			Mar. 31			Dec. 31			Sept. 30			Jun. 30			Mar. 31			Dec. 31			Sept. 30
Period-end managed receivables	$	463,967		$	505,616		$	510,734		$	403,380		$	293,944		$	216,342		$	195,515		$	156,702
Percent 30 or more days past due		13.7	%		19.2	%		17.0	%		14.2	%		12.8	%		15.1	%		13.0	%		12.1	%
Percent 60 or more days past due		11.8	%		15.0	%		12.8	%		10.3	%		9.3	%		11.2	%		9.3	%		8.9	%
Percent 90 or more days past due		9.2	%		10.8	%		9.1	%		6.7	%		6.7	%		8.0	%		6.4	%		6.0	%
Average APR		24.6	%		26.1	%		27.0	%		28.2	%		28.5	%		27.9	%		28.1	%		27.6	%
Receivables purchased during period	$	163,432		$	127,825		$	195,243		$	174,026		$	123,776		$	60,733		$	69,585		$	48,729

The following discussion relates to the tables above.

Managed receivables levels. We have continued to experience overall period-over-period quarterly receivables growth with over ~~$91.8~~$292.8 million in net receivables growth associated with ~~our~~the point-of-sale and direct-to-consumer products offered by our bank partners from ~~September~~June 30, ~~2016~~2019 to ~~September~~June 30, ~~2017.~~2020. The addition of large point-of-sale retail partners and ongoing purchases of receivables arising in accounts issued by our bank partners to customers of our existing retail partners helped grow our point-of-sale receivables by $122.7 million and $84.5 million in the twelve months ended June 30, 2020 and 2019, respectively. Our ~~historical credit card receivables continue to decline given~~direct-to-consumer acquisitions grew by over $170.0 million and $160.3 million, net during the ~~closure of substantially all credit card accounts underlying those portfolios. While~~twelve months ended June 30, 2020 and 2019, respectively. Given recent market conditions, we currently expect ~~continued quarterly growth in~~ our managed receivables balances to remain consistent with the balances noted as of June 30, 2020 for all of our products ~~throughout 2017, this growth~~during 2020 (absent further unknown impacts COVID-19 and related government stimulus and relief measures may have on our ability to acquire new receivables or the impact they may have on a consumer's ability to make payments on outstanding loans and fees receivable). Growth in future periods largely is dependent on the addition of new retail partners to the point-of-sale ~~operations~~origination platform as well as the timing of solicitations within the direct-to-consumer ~~operations.~~platform by our bank partner. Further, the loss of existing retail partner relationships could adversely affect new loan acquisition levels. Our top five retail partnerships accounted for over 55% of the above referenced Retail period-end managed receivables outstanding as of June 30, 2020.

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Delinquencies. Delinquencies have the potential to impact net income in the form of net credit losses. Delinquencies also are costly in terms of the personnel and resources dedicated to resolving them. We intend for the receivables management strategies we use on our portfolios to manage and, to the extent possible, reduce the higher delinquency rates that can be expected inwith the ~~more mature portion~~younger average age of the newer receivables in our managed portfolio. These ~~account~~ management strategies include conservative credit line management ~~purging of inactive accounts~~ and collection strategies intended to optimize the effective account-to-collector ratio across delinquency categories. We measure the success of these efforts by ~~measuring~~reviewing delinquency rates. These rates exclude receivables that have been charged off.

~~Given that the vast majority of credit card accounts related~~

As we continue to our historical credit card receivables have been closed and there has been no significant new activity for these accounts, we generally have noted declines in delinquency statistics of this portion of managed credit card receivables (when compared to the same quarters in the prior year).

~~As our investments in~~acquire newer point-of-sale and direct-to-consumer receivables, ~~have become a larger component of our managed receivables base,~~ our delinquency rates have increased ~~(when~~when compared to the same periods ~~during which seasoned credit cards made up a larger portion of our managed receivables).~~in prior years. This is largely a result of the risk profiles (and corresponding expected

returns) for these ~~receivables being higher than that experienced under our mature credit card receivables underlying closed credit card accounts as discussed above.~~receivables. Our delinquency rates have continued to be somewhat lower than what we ultimately expect for our new point-of-sale and direct-to-consumer receivables given the continued growth and age of the related accounts. This trend can be seen in periods of large growth in the charts above which result in lower delinquency rates. If and when growth for these product lines moderates, as we currently anticipate for the remainder of 2020, we expect increased overall delinquency rates when compared to prior periods. This increase would be similar to those noted in the first quarter of 2020 when compared to the first quarter of 2019, as the existing receivables mature through their peak charge-off periods. Additionally, in accordance with prescribed guidance discussed elsewhere in this report, certain consumers negatively impacted by COVID-19 have been offered short-term payment deferrals and fee waivers. Receivables enrolled in these short-term payment deferrals continue to accrue interest and their delinquency status will not change through the deferment period. As of June 30, 2020, approximately 1.4% of accounts and their associated receivables were actively enrolled in short-term payment deferrals (representing $16.9 million of gross receivables outstanding). Nearly all of these customers are current and thus not included as delinquent receivables. The exclusion of these accounts has resulted in lower delinquency rates than we would otherwise expect. Given this, and absent the unknown impacts COVID-19 and related government stimulus and relief measures may have on our ability to acquire new receivables or the impact they may have on a consumer's ability to make payments on outstanding loans and fees receivable and the corresponding impact on our delinquency rates, we expect to continue to see seasonal payment patterns on these receivables ~~are similar to those experienced~~that impact our delinquencies in line with ~~our historical credit card receivables and we expect those patterns to continue.~~prior periods. For example, delinquency rates historically are lower in the first quarter of each year due to the benefits of seasonally strong payment patterns associated with year-end tax refunds for most consumers.

Total yield ratio. Currently, we are experiencing growth in ~~our~~ newer, higher yielding receivables, including point-of-sale receivables and direct-to-consumer ~~loans.~~receivables. While this growth has contributed to increases in our total yield ratio, we expect this growth also will continue to ~~reverse~~result in higher charge-off and delinquency rates than those experienced historically. Additionally, direct-to-consumer receivables tend to have higher total yields than point-of-sale receivables, so recent accelerated growth in direct-to-consumer receivables also has contributed to the ~~trend~~trending higher total yield ratio. Offsetting this general trending increase in the Total yield ratio was the lower delinquencies (and thus associated fee billings) noted during the second quarter of 2020 in addition to reductions in the prime rate that corresponds to lower yields charged on credit card receivables. Our fourth, third, second and first quarter 2019 total yield ratios exclude the impacts of $37.8 million, $26.7 million, $26.0 million and $15.4 million, respectively, associated with our aforementioned reduction in reserves associated with one of our ~~declining charge-off rates because~~portfolios. Similarly, our fourth quarter 2018 total yield ratio excludes the impact of $36.2 million associated with a litigation settlement in such quarter.

Absent the unknown impacts COVID-19 and related government stimulus and relief measures may have on our ability to acquire new receivables, the impact they may have on a consumer's ability to make payments on outstanding loans and fees receivable or the impact created by future decisions to waive or suspend additional consumer fees, we expect ~~these receivables~~total yield ratios to season, mature, and charge off at higher rates than we currently experience on our liquidating pool of credit card receivables associated with closed credit card accounts. We anticipate continued growth in our higher yielding point-of-sale and direct-to-consumer receivables over the next few quarters which should continue to ~~stabilize our yield (with some modest increases) consistent with what we experienced in the past several quarters. However, the timing of receivable acquisitions as well as~~fluctuate modestly based on the relative mix of growth in point-of-sale receivables ~~acquired within a given quarter may contribute to some continued minor variability in our total yield ratio.~~

and higher yielding direct-to-consumer credit card receivables.

Combined gross charge-off ~~ratio and Adjusted charge-off~~ ratio. We charge off our Credit and Other Investments segment receivables when they become contractually more than 180 days past due or 120 days past due for the direct-to-consumer personal loan receivables. We charge off rent-to-own receivables and impair associated rental merchandise if a payment has not been made within the previous 90 days. However, if a payment is made greater than or equal to two minimum payments within a monthdue. For all of ~~the charge-off date, we may reconsider whether charge-off status remains appropriate. Typically,~~our products, we charge off receivables within 30 days of notification and confirmation of a ~~consumer’s~~customer’s bankruptcy or death. However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or an estate large enough to pay the debt in full.

Given that our historical credit card portfolios now account for less than 15% of our total managed receivables, the impacts of these historical portfolios are no longer key drivers in the performance of our managed receivables. Instead, growth

Growth within point-of-sale finance and direct-to-consumer ~~receivables that have higher charge-off rates than the liquidating credit card portfolios that have historically comprised a larger portion of our managed~~ receivables has resulted in increases in our charge-off rates over time. ~~Our recent combined~~Combined gross charge-off and adjusted charge-off ratios benefited in the first few quarters of 2016 from growth we experienced in our point-of-sale operations and more directly from growth in our direct-to-consumer receivables, many of which reached peak charge off periods inrates for the fourth quarter of ~~2016 but continued~~2018 and first quarter of 2019 reflect the expected higher charge-off rates associated with a mix shift to ~~negatively impact~~higher yielding products and ongoing testing of new products throughout 2018. The combined gross charge-off ratio in the third quarter of 2019 further reflects the positive impacts of a bulk sale of charged off receivables. Absent this sale, the combined gross charge-off ratio would have been 18.6%. The first and second quarters ~~of 2017. Additionally, we made substantial investments in our personal loan offerings~~2020 gross charge-off ratios reflect receivable growth during 2019 reaching peak charge-off periods. The combined gross charge-off ratio in the second quarter of ~~2016 which did not reach their peak-charge~~2020 further reflects the positive impacts of a bulk sale of charged off ~~period until~~receivables in that period. Absent this sale, the ~~fourth quarter of 2016, thus positively impacting our second and third quarter~~ combined ~~and adjusted~~ gross charge-off ~~ratios and negatively impacting the same ratios in the fourth quarter of 2016 and the first and second quarters of 2017.~~

ratio would have been 29.1%.

The ~~continued~~ growth in the point-of-sale and direct-to-consumer receivables continues to result in higher charge-offs than those experienced historically. In the next few quarters, we expect ~~increasing~~continued elevated charge off rates when compared to historical ~~results. This expectation is based on~~results, given the following: (1) higher expected charge off rates on the point-of-sale and direct-to-consumer receivables ~~offset slightly by lower charge offs associated~~corresponding with ~~historical credit card receivables due to the continued liquidation of~~higher yields on these receivables, (2) continued testing of receivables with higher risk profiles, ~~(3) the low charge-off ratios experienced~~which could lead to periodic increases in ~~the second and third quarters of 2016 as discussed above and (4)~~combined gross charge-offs, (3) recent vintages reaching peak charge-off ~~periods. Offsetting~~periods, (4) our current expectation for modest receivables growth during the year and (5) negative impacts on some consumers ability to make payments on outstanding loans and fees receivable as a result of COVID-19. Further impacting our charge-off rates are the timing of solicitations that serve to minimize charge off rates in periods of high receivable acquisitions but also exacerbate charge-off rates in periods of lower receivable acquisitions. The unknown impacts COVID-19 and related government stimulus and relief measures may have on our ability to acquire new receivables or the impact they may have on a consumer's ability to make payments on outstanding loans and fees receivable could lead to changes in these ~~increases will be~~expectations.

Average APR. Our average annual percentage rate (“APR”) charged to customers varies by receivable type, credit history and other factors. The APR for receivables originated through our point-of-sale platform ranges from 0% to 36.0%. For direct-to-consumer receivables, APR ranges from 19.99% to 36.0%. We have experienced minor fluctuations in our average APR based on the relative product mix of receivables purchased during a period. As noted in the first quarter of 2020, shifts in the relative mix of receivables acquired caused a drop in our average APRs relative to prior quarters. We currently expect our average APRs in 2020 to remain consistent with the average APRs we have experienced over the past several quarters; however, the timing and relative mix of receivables acquired could cause some minor fluctuations.

Receivables purchased during period. Receivables purchased during the period reflect the gross amount of investments we have made in a given period, net of any credits issued to consumers during that same period. For most periods presented, our point-of-sale receivable purchases experienced overall growth throughout the periods presented largely based on the addition of new point-of-sale retail partners, as previously discussed. We may experience periodic declines in these acquisitions due to: the loss of one or more retail partners; seasonal purchase activity by consumers; or the timing of new customer originations by our bank partners. We currently expect to see decreases in the level of growth in receivable acquisitions when compared to the ~~underlying~~same period in prior years due to the rapid growth we experienced in 2019 and due to the decreased consumer spending behavior noted as a result of COVID-19. Our direct-to-consumer receivable acquisitions tend to have more volatility based on the issuance of new credit card accounts by our bank partner and the availability of capital to fund new purchases. Nonetheless, absent the unknown impacts COVID-19 and related government stimulus and relief measures may have on our ability to acquire new receivables ~~base which will serve~~or the impact they may have on a consumer's ability to ~~mute to a varying degree,~~make payments on outstanding loans and fees receivable, we expect some declines in the acquisition of ~~the aforementioned impacts as has been seen in recent quarters.~~these receivables throughout 2020.

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Auto Finance Segment

~~Our Auto Finance segment historically included a variety of~~

CAR, our auto ~~sales and lending activities.~~

~~Our original~~finance platform ~~CAR,~~ acquired in April 2005, principally purchases and/or services loans secured by automobiles from or for, and also provides floor-plan financing for, a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here used car business. We have expanded these operations to also include certain installment lending products in addition to our traditional loans secured by automobiles both in the U.S. and U.S. territories.

Collectively, as of ~~September~~June 30, ~~2017,~~2020, we served more than ~~575~~580 dealers through our Auto Finance segment in 3334 states, the District of Columbia and two U.S. territories.

Managed Receivables Background

For reasons set forth above within our Credit and Other Investments segment discussion, we also provide managed receivables-based financial, operating and statistical data for our Auto Finance segment. Reconciliation of the auto finance managed receivables data to our GAAP financial statements requires an understanding that our managed receivables data are based on billings and actual charge offs as they occur, without regard to any changes in our allowance for uncollectible loans, interest and fees receivable.

Similar to the managed calculation above, the average managed receivables used in the ratios below is calculated based on the quarter ending balances of consolidated receivables.

Analysis of Statistical Data

Financial, operating and statistical metrics for our Auto Finance segment are detailed (in thousands; percentages of total) in the following table:

At or for the Three Months Ended
2017 2016 2015
Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31
Period-end managed receivables $ 78,459
$ 80,014
$ 75,311
$ 79,683
$ 76,615
$ 80,903
$ 78,415
$ 77,833
Percent 30 or more days past due 13.0 % 11.7 % 10.0 % 14.2 % 12.7 % 12.3 % 10.2 % 14.0 %
Percent 60 or more days past due 5.0 % 4.0 % 4.2 % 5.4 % 4.5 % 3.9 % 4.2 % 5.5 %
Percent 90 or more days past due 2.2 % 1.4 % 2.1 % 2.4 % 1.8 % 1.5 % 2.2 % 2.5 %
Average managed receivables $ 78,764
$ 78,258
$ 75,986
$ 78,209
$ 78,089
$ 80,213
$ 78,122
$ 76,413
Total yield ratio 37.2 % 37.2 % 38.4 % 37.8 % 39.1 % 38.0 % 37.3 % 38.3 %
Combined gross charge-off ratio 1.1 % 2.4 % 2.4 % 2.6 % 2.8 % 3.1 % 2.7 % 3.3 %
Recovery ratio 1.6 % 1.9 % 1.6 % 1.6 % 1.0 % 1.5 % 1.3 % 1.6 %

	At or for the Three Months Ended
	2020						2019												2018
	Jun. 30			Mar. 31			Dec. 31			Sept. 30			Jun. 30			Mar. 31			Dec. 31			Sept. 30
Period-end managed receivables	$	89,637		$	90,226		$	89,785		$	89,451		$	89,490		$	90,208		$	88,057		$	85,338
Percent 30 or more days past due		11.0	%		12.5	%		15.2	%		14.5	%		13.3	%		11.4	%		14.7	%		13.3	%
Percent 60 or more days past due		4.4	%		5.0	%		6.2	%		5.9	%		5.4	%		5.3	%		5.7	%		4.3	%
Percent 90 or more days past due		2.3	%		2.7	%		2.9	%		3.1	%		2.6	%		2.9	%		2.5	%		1.7	%
Average managed receivables	$	89,932		$	90,006		$	89,618		$	89,471		$	89,849		$	89,133		$	86,698		$	84,605
Total yield ratio		36.4	%		36.2	%		36.3	%		36.4	%		36.7	%		36.0	%		36.1	%		37.9	%
Combined gross charge-off ratio		2.7	%		2.7	%		4.0	%		2.7	%		4.9	%		2.7	%		2.8	%		0.9	%
Recovery ratio		0.9	%		1.3	%		1.3	%		1.8	%		1.8	%		1.3	%		0.9	%		0.9	%

Managed receivables. We expect modest growth in the level of our managed receivables for 2020 when compared to the same periods in prior ~~years.~~years in both the U.S. and U.S. territories as CAR expands within its current geographic footprint and continues plans for service area expansion. Although we are expanding our CAR operations, the Auto Finance segment faces strong competition from other specialty finance lenders, as well as the indirect effects on us of our buy-here, pay-here dealership ~~customers’~~partners’ competition with more traditional franchise dealerships for consumers interested in purchasing automobiles. Managed receivable levels increased in each of the periods of 2019 when compared to the same period in 2018 primarily due to the acquisition of new dealer relationships, which has resulted in the ability to purchase higher levels of auto receivables. Receivable levels in the first and second quarters of 2020 were roughly equal to those as of the first quarter of 2019 reflecting strong customer payments in the first and second quarters of 2020 offsetting receivables growth when compared to the first and second quarters of 2019. We expect ~~managed~~ receivable levels towill continue to ~~grow slightly from current levels~~result in modest period over period increases, when compared to the same periods in the prior year, for the ~~remainder of 2017~~coming quarters absent the unknown impacts COVID-19 and ~~into 2018 in both~~related government stimulus and relief measures may have on our ability to acquire new receivables or the ~~U.S.~~impact they may have on a consumer's ability to make payments on outstanding loans and ~~U.S. territories.~~

fees receivable.

Delinquencies. Current delinquency levels are consistent with our expectations for levels in the near term with some ~~marginal increases~~improvement noted ~~within~~in the ~~overall buy-here pay-here market.~~second quarter of 2020 due to stronger than anticipated customer payment behavior and in the first quarter of both 2020 and 2019 due to seasonal performance improvements. Delinquency levels experienced for the second and third quarters of 2018 generally were lower than historical rates largely due to the absence of any significant dealer-related losses (as opposed to individual consumer defaults) that are typical during any given year and which tend to produce larger portfolio level defaults on receivables. These low delinquencies also contributed to lower combined gross charge-off rates during 2018. Delinquency rates also tend to fluctuate based on seasonal trends and historically are lower in the first quarter of each year as seen above due to the benefits of strong payment patterns associated with year-end tax refunds for most consumers. ~~Second quarter 2016~~While we experienced some increase in our delinquency rates ~~were positively impacted by higher than anticipated customer payments experienced~~ in 2019 when compared to the ~~first quarter of 2016. We~~same periods in 2018, we are not concerned with modest fluctuations in delinquency rates and do not believe they will have a significantly positive or adverse impact on our results of operations; even at slightly elevated rates, we earn significant yields on CAR’s receivables and have significant dealer reserves (i.e., retainages or holdbacks on the amount of funding CAR provides to its dealer customers) to protect against meaningful credit losses.

Total yield ratio. We have experienced modest fluctuations in our total yield ratio largely impacted by the relative mix of receivables in various products offered by CAR as some shorter term product offerings tend to have higher yields. Slightly depressing the overall total yield ratio in the second quarter of 2016 is the growth we experienced in the average managed receivables levels which negatively impacted the ratio ahead of the positive impacts of associated billed yield on this growth. As we experienced slight declines in our managed receivables levels in the third quarter of 2016, we realized this delayed impact. Yields on our CAR products over the last few quarters are consistent with our ~~expectations and~~expectations. Further, we expect our total

yield ratio to remain in line with current experience, with moderate fluctuations based on relative growth or declines in average managed receivables for a given ~~quarter as noted above.~~quarter. These variations would be based on the relative mix of receivables in our various product offerings. Additionally, our product offerings in the U.S. territories tend to have slightly lower yields than those offered in the U.S. As such, continued growth in that region also will serve to slightly depress our overall total yield ratio, yet we expect growth in that region to continue to generate attractive returns on assets.

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Combined gross charge-off ratio and recovery ratio. We charge off auto finance receivables when they are between 120 and 180 days past due, unless the collateral is repossessed and sold before that point, in which case we will record a charge off when the proceeds are received. Combined gross charge-off ratios in ~~2016 and 2017~~the above table reflect the lower delinquency rates we have recently experienced. While we anticipate our charge-offs to be incurred ratably across our portfolio of dealers, specific dealer-related losses are difficult to predict and can negatively influence our combined gross charge-off ratio. This is evidenced by the slightly elevated combined gross charge-off rate we experienced during 2019. We continually re-assess our dealers and will take appropriate action if we believe a particular dealer’s risk characteristics adversely change. While we have appropriate dealer reserves to mitigate losses across the majority of our pool of receivables, the timing of recognition of these reserves as an offset to charge offs is largely dependent on various factors specific to each of our dealer partners including ongoing purchase volumes, outstanding balances of receivables and current performance of outstanding loans. As such, the timing of ~~charge off~~charge-off offsets is difficult to predict; however, we believe that these reserves are adequate to offset any loss exposure we may incur. Additionally, the products we issue in the U.S. territories do not have dealer reserves with which we can offset losses. ~~As our investments in these loans grow, we expect that gross charge-off rates will climb slightly over existing rates.~~ We also expect our recovery rate to fluctuate modestly from quarter to quarter due to the timing of the sale of repossessed autos.

Given the unknown impacts COVID-19 and related government stimulus and relief measures may have on our ability to acquire new receivables or the impact they may have on a consumer's ability to make payments on outstanding loans and fees receivable we could experience variation in these expectations.

Definitions of Financial, Operating and Statistical Measures

Total yield ratio.Represents an annualized fraction, the numerator of which includes ~~all~~(as appropriate for each applicable disclosed segment) the: 1) finance charge and late fee income billed on all consolidated outstanding receivables and the amortization of merchant fees, collectively included in the consumer loans, including past due fees category on our consolidated statements of income; plus 2) credit card fees (including over-limit fees, cash advance fees, returned check fees and interchange income), ~~plus~~ earned, amortized amounts of annual membership fees and activation fees with respect to certain credit card receivables, collectively included in our fees and related income on earning assets category on our consolidated statements of income; plus ~~ancillary~~3) servicing, other income ~~plus amortization of the accretable yield component of our acquisition discounts for portfolio purchases, plus gains (or less losses) on debt repurchases~~ and other activities ~~within~~collectively included in our ~~Credit and Other Investments segment less any adjustments to finance and fee billings, and the~~other operating income category on our consolidated statements of income. The denominator ~~of which is~~used represents our average managed receivables.

Combined gross charge-off ratio.Represents an annualized fraction, the numerator of which is the aggregate consolidated amounts of finance charge, fee and principal losses from consumers unwilling or unable to pay their receivables balances, as well as from bankrupt and deceased consumers, less current-period recoveries (including recoveries from dealer reserve offsets for our CAR operations) and the related portion of unamortized fees and discounts, as reflected in Note 2 “Significant Accounting Policies and Consolidated Financial Statement Components—Loans, Interest and Fees Receivable”, and the denominator of which is average managed receivables. Recoveries on managed receivables represent all amounts received related to managed receivables that previously have been charged off, including payments received directly from consumers and proceeds received from the sale of those charged-off receivables. Recoveries typically have represented less than 2% of average managed receivables.

~~Adjusted charge-off ratio.~~ Represents an annualized fraction the numerator of which is the principal amount of losses, net of recoveries as adjusted to apply discount accretion related to the credit quality of acquired portfolios to offset a portion of the actual face amount of net charge offs, and the denominator of which is average managed receivables. (Historically, upon our acquisitions of credit card receivables, a portion of the discount reflected within our acquisition prices has related to the credit quality of the acquired receivables—that portion representing the excess of the face amount of the receivables acquired over the future cash flows expected to be collected from the receivables.)

LIQUIDITY, FUNDING AND CAPITAL RESOURCES

As discussed elsewhere in this Report, we are closely monitoring the impacts of the COVID-19 pandemic across our business, including the resulting uncertainties around consumer spending, credit quality and levels of liquidity. The ultimate impact of COVID-19 on our business, financial condition, liquidity and results of operations is dependent on future developments, which are highly uncertain.

Debt and capital markets, particularly the asset-backed securities market on which we are dependent, have been severely disrupted by COVID-19, and this has slowed down (or prevented in some instances) our ability to establish new facilities. We do not expect these markets to return to normal in the near-term. For that reason, we are implementing measures to ensure that our liquidity position is as strong as possible through the current economic cycle and expect to take advantage of opportunities to obtain additional liquidity when and as they become available.

We believe that our actions taken to date, future cash provided by operating activities, availability under our debt facilities, and possibly the capital markets or government-sponsored programs will provide adequate resources to fund our operating and financing needs.

As discussed elsewhere in this Report, we incur a significant level of costs associated with a fixed infrastructure that had been designed to support our significant legacy credit card operations. Our infrastructure costs are still somewhat elevated, and while we had in the past focused on cost reduction, our primary focus now is growing the point-of-sale and direct-to-consumer ~~personal loan and~~ credit card receivables so that our revenues from these investments can cover our infrastructure costs and return us to consistent profitability. Increases in new and existing retail partnerships and the expansion of our investments in direct-to-consumer finance products have resulted in ~~quarterly~~year-over-year growth of total managed receivables levels, and we expect ~~this~~modest levels of growth to continue in the coming quarters.

Accordingly, we will continue to focus ~~in the coming quarters~~ on (i) containing costs (as opposed to our previous focus on reducing expenses), (ii) ~~obtaining~~adding new retail partners to our platform to continue growth of the point-of-sale receivables, (iii) continuing growth in direct-to-consumer credit card receivables and (iv) obtaining the funding necessary to meet capital needs required by the growth of our ~~receivables and to cover our infrastructure costs until our receivables investments generate enough revenues and cash flows to cover such costs.~~

receivables.

All of our Credit and Other Investments segment’s structured financing facilities are expected to amortize down with collections on the receivables within their underlying trusts and should not represent significant refunding or refinancing risks to our consolidated balance ~~sheet.~~sheets. Additionally, we do not expect any imminent refunding or financing needs associated with our ~~5.875%~~ convertible senior notes given their maturity in 2035. As such, ~~the only~~ facilities that could represent near-term significant refunding or refinancing needs as of ~~September~~June 30, ~~2017~~2020 are those associated with the following notes payable in the amounts indicated (in millions):

Revolving credit facility (expiring November 1, 2021) that is secured by certain assets of our CAR subsidiary	$	35.5
Revolving credit facility (expiring February 8, 2022) that is secured by certain receivables and restricted cash		5.7
Revolving credit facility (expiring July 15, 2021) that is secured by certain receivables and restricted cash		9.6
Revolving credit facility (expiring November 16, 2020) that is secured by certain receivables and restricted cash		3.8
Revolving credit facility (expiring December 21, 2020) that is secured by certain receivables and restricted cash		4.9
Revolving credit facility (expiring September 19, 2021) that is secured by certain receivables and restricted cash		5.5
Amortizing debt facility (expiring December 31, 2020) that is secured by certain receivables and restricted cash		7.8
Amortizing debt facility (expiring September 30, 2021) that is secured by certain receivables and restricted cash		7.5
Total	$	80.3

Revolving credit facility (expiring October 30, 2019) that is secured by certain receivables and restricted cash $ 49.2
Revolving credit facility (expiring November 1, 2018) that is secured by the financial and operating assets of our CAR operations 26.2
Revolving credit facility (expiring December 31, 2019) that is secured by certain receivables and restricted cash 19.7
Senior secured term loan from related parties (expiring November 22, 2017) that is secured by certain assets of the Company with an annual interest rate equal to 9.0% 40.0
Total $ 135.1

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Further details concerning the above debt facilities and our convertible senior notes are provided in Note 7,9, “Notes Payable,” and Note 8,10, “Convertible Senior Notes,” to our consolidated financial statements included herein. Based on the state of the debt capital markets, the performance of our assets that serve as security for the above facilities, and our relationships with lenders, we view imminent refunding or refinancing risks with respectAlso see Part II, Item 1A “Risk Factors—We Are Substantially Dependent Upon Borrowed Funds to the above facilities as low in the current environment, and we believe that the quality of our new receivables should allow us to raise more capital through increasing the size of our facilities with our existing lenders and attracting new lending relationships. With respect to our senior secured term loan expiring November 22, 2017, we are in discussions with the lending party and anticipate that the loan will be extended on similar terms prior to expiration.

Fund Receivables We Purchase.”

In February 2017, we (through a wholly owned subsidiary) established a program under which we sell certain receivables to a consolidated trust in exchange for notes issued by the trust. The notes are secured by the receivables and other assets of the trust. Simultaneously with the establishment of the program, the trust issued a series of variable funding notes and sold an aggregate amount of up to ~~$90.0~~$90.0 million (subsequently reduced to $70.0 million) of such notes (of which ~~$50.0~~$5.7 million was outstanding as of ~~September~~June 30, ~~2017~~2020) to an unaffiliated third party pursuant to a facility that can be drawn upon to the extent of outstanding eligible receivables.

Interest rates on the notes are fixed at 14.0%. The facility matures on February 8,2022 and is subject to certain affirmative covenants and collateral performance tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance of notes. The facility also may be prepaid subject to payment of a prepayment or other fee.

In June 2018 and again in November 2018, we (through a wholly owned subsidiary) expanded the above-mentioned program to sell up to an additional $100.0 million of notes ($200.0 million in total notes through the June and November 2018 expansions) which are secured by the receivables and other assets of the trust (of which $3.8 million was outstanding as of June 30, 2020) to separate unaffiliated third parties pursuant to facilities that can be drawn upon to the extent of outstanding eligible receivables. Interest rates on the notes are based on commercial paper rates plus 3.75% and LIBOR plus 4.875%, respectively. The above facilities mature on June 11, 2021 and November 16, 2020, respectively, and are subject to certain affirmative covenants and collateral performance tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance of notes. The facilities also may be prepaid subject to payment of a prepayment or other fee.

In ~~December~~November 2018, we sold $167.3 million of asset backed securities (“ABS”) secured by certain retail point-of-sale receivables. A portion of the proceeds from the sale were used to pay-down our existing term and revolving facilities associated with our point-of-sale receivables. The weighted average interest rate on the securities is 5.76%.

In September 2019, we extended the maturity date of the revolving credit facility secured by the financial and operating assets of CAR to November 1, 2021, and, in October 2019, we expanded the borrowing capacity to $55.0 million. All other material terms remain unchanged.

On November 26, 2014, we ~~reached~~and certain of our subsidiaries entered into a ~~settlement~~Loan and Security Agreement with ~~the IRS concerning the tax treatment~~Dove Ventures, LLC, a Nevada limited liability company (“Dove”). The agreement provided for a senior secured term loan facility in an amount of ~~net operating losses that we incurred in 2007 and 2008 and carried back~~up to ~~obtain refunds of federal income taxes paid in earlier years dating back to 2003. Our net unpaid income tax assessment associated with that settlement was $7.4~~$40.0 million at ~~September 30, 2017; this amount excludes unpaid interest~~any time outstanding. On December 27, 2019, the Company issued 400,000 shares of its Series A Preferred Stock (10,000,000 shares authorized, 400,000 shares outstanding) with an aggregate initial liquidation preference of $40.0 million, in exchange for full satisfaction of the $40.0 million that the Company owed Dove under the Loan and ~~penalties~~Security Agreement. Dividends on the ~~tax assessment,~~preferred stock are 6% per annum (cumulative, non-compounding) and are payable as declared, and in preference to any common stock dividends, in cash. The Series A Preferred Stock is perpetual and has no maturity date. The Company may, at its option, redeem the ~~accruals for which aggregated $3.9 million~~shares of Series A Preferred Stock on or after January 1, 2025 at ~~September 30, 2017. Prior~~a redemption price equal to ~~our filing amended return claims that would have eliminated~~$100 per share, plus any accumulated and unpaid dividends. At the ~~$7.4 million assessment (and corresponding interest and penalties) under~~request of a ~~negotiated provision~~majority of the ~~IRS settlement,~~holders of the ~~IRS filed~~Series A Preferred Stock, the Company is required to offer to redeem all of the Series A Preferred Stock at a ~~lien (as~~redemption price equal to $100 per share, plus any accumulated and unpaid dividends, at the option of the holders thereof, on or after January 1, 2024. Upon the election by the holders of a majority of the Series A Preferred Stock, each share of the Series A Preferred Stock is ~~customarily~~convertible into the ~~case) associated with~~number of shares of the ~~assessment. Subsequently,~~Company’s common stock as is determined by dividing (i) the sum of (a) $100 and (b) any accumulated and unpaid dividends on such share by (ii) an ~~IRS examination team denied~~initial conversion price equal to $10 per share, subject to adjustment in certain circumstances to prevent dilution.

The use of the London Interbank Offered Rate (“LIBOR”) is expected to be phased out by the end of 2021. Currently, LIBOR is used as a reference rate for certain of our ~~amended return claims, and we filed a protest with IRS Appeals.~~financial instruments. In ~~October 2017, we attended an IRS Appeals conference related~~any event, the majority of our revolving credit facilities mature prior to the ~~subject matter underlying~~expected phase out of LIBOR. At this time, there is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. Going forward, we will work with our ~~amended return claims,~~lenders to use suitable alternative reference rates for our financial instruments. We will continue to monitor, assess and plan for the phase out of LIBOR; however, we ~~are in~~currently do not expect the ~~process~~impact to be material to the Company.

Table of ~~preparing a supplemental submission to address matters on which the IRS Appeals Officer needed additional support.~~Contents

At ~~September~~June 30, ~~2017,~~2020, we had ~~$68.6~~$139.2 million in unrestricted cash held by our various business subsidiaries. Because the characteristics of our assets and liabilities change, liquidity management has been a dynamic process for us, driven by the pricing and maturity of our assets and liabilities. We historically have financed our business through cash flows from operations, asset-backed structured financings and the issuance of debt and equity. Details concerning our cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and 2019 are as follows:

During the nine months ended September 30, 2017, we used $12.0 million of cash flows from operations compared to the generation of $24.7 million of cash flows from operations during the nine months ended September 30, 2016. The decrease in cash provided by operating activities was principally related to decreases in 1) collections associated with rental payments in the nine months ended September 30, 2017 relative to the same period in 2016, given the cessation of our rent-to-own program of approximately $8.0 million; and 2) increases in billed but

~~uncollected amounts in respect of one of our portfolios.~~

During the nine months ended September 30, 2017, we used $63.0 million of cash from our investing activities, compared to use of $56.6 million of cash from investing activities during the nine months ended ~~September 30, 2016~~. This increase is primarily due to: 1) the shrinking size of our historical credit card receivables, resulting in lower corresponding payments from consumers; 2) increasing levels of investments in the point-of-sale and direct-to-consumer receivables relative to the same period in 2016 and which we expect to continue to make throughout 2017; and 3) increased levels of restricted cash required to be maintained due to increasing levels of collections on loans and fees receivable, the cash balances of which are required to be distributed to noteholders under our debt facilities and minimum cash balances held in accounts at the request of certain of our business partners. Slightly offsetting this increase in cash used by investing activities are returns on our aforementioned investments in point-of-sale and direct-to-consumer receivables which contributed positively to our cash generated from investing activities.

~~During the~~ ~~nine months~~ ~~ended~~ ~~September 30, 2017, we~~ ~~generated$67.2 million~~ ~~of cash in financing activities, compared to our~~ ~~generating$40.8 million~~ ~~of cash in financing activities during the~~ ~~nine months~~ ~~ended~~ ~~September 30, 2016~~. In both periods, the data reflect borrowings associated with point-of-sale and direct-to-consumer receivables offset by net repayments of amortizing debt facilities as payments are made on the underlying receivables that serve as collateral.

•

During the six months ended June 30, 2020, we generated $84.0 million of cash flows from operations compared to our generating $39.7 million of cash flows from operations during the six months ended June 30, 2019. The increase in cash provided by operating activities was principally related to increases in finance and fee collections associated with growing point-of-sale and direct-to-consumer receivables as well as a bulk sale of charge-off accounts which resulted in proceeds of $5.0 million.

•

During the six months ended June 30, 2020, we used $67.5 million of cash in our investing activities, compared to use of $141.6 million of cash in investing activities during the six months ended June 30, 2019. This decrease in cash used is primarily due to significant decreases in the level of investments in the point-of-sale and direct-to-consumer receivables relative to the same period in 2019, in some cases as a result of diminished purchase activity by consumers as a result of COVID-19 market impacts. While we are seeing some increases in consumer spending behavior, the impacts COVID-19 and related government stimulus and relief measures may have on our ability to acquire new receivables or the impact they may have on a consumer's ability to make payments on outstanding loans and fees receivable are unknown. Additionally contributing to the decline in cash used by investing activities are returns on our aforementioned investments in point-of-sale and direct-to-consumer receivables which contributed positively to our cash generated from investing activities.

•

During the six months ended June 30, 2020, we used $14.8 million of cash in financing activities, compared to our generating $105.5 million of cash in financing activities during the six months ended June 30, 2019. In both periods, the data reflect borrowings associated with point-of-sale and direct-to-consumer receivables offset by net repayments of amortizing debt facilities as payments are made on the underlying receivables that serve as collateral. Further, on March 30, 2020, a wholly-owned subsidiary issued 50.0 million Class B preferred units at a purchase price of $1.00 per unit.

Beyond our immediate financing efforts discussed throughout this report, we will continue to evaluate debt and equity issuances as a means to fund our investment opportunities. We expect to take advantage of any opportunities to raise additional capital if terms and pricing are attractive to us. Any proceeds raised under these efforts or additional liquidity available to us could be used to fund (1) ~~the acquisition of~~ additional ~~financial assets associated with the~~investments in point-of-sale and direct-to-consumer finance ~~operations~~receivables as well as the acquisition of credit card receivables portfolios and (2) further repurchases of our ~~5.875%~~ convertible senior notes and common ~~stock, and (3) investments in certain financial and non-financial assets or businesses.~~stock. Pursuant to a share repurchase plan authorized by our Board of Directors on May ~~12, 2016,~~7, 2020, we are authorized ~~as of September 30, 2017~~ to repurchase ~~an additional 4,871,185~~up to 5,000,000 shares of our common stock through June 30, ~~2018.~~

2022. As of June 30, 2020 we were authorized to repurchase a remaining 5,000,000 shares under this share repurchase plan.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE-SHEET ARRANGEMENTS

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2019.

Commitments and Contingencies

We do not currently have any off-balance-sheet arrangements; however, we do have certain contractual arrangements that would require us to make payments or provide funding if certain circumstances occur, which we refer to as contingent commitments. We do not currently expect that these contingent commitments will result in any material amounts being paid by us. See Note 9,11, “Commitments and Contingencies,” to our consolidated financial statements included herein for further discussion of these matters.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components,” to our consolidated financial statements included herein for a discussion of recent accounting pronouncements.

CRITICAL ACCOUNTING ESTIMATES

We have prepared our financial statements in accordance with GAAP. These principles are numerous and complex. We have summarized our significant accounting policies in the notes to our consolidated financial statements. In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances. A variance in the estimates used or a variance in the application or interpretation of GAAP could yield a materially different accounting result. It is impracticable for us to summarize every accounting principle that requires us to use judgment or estimates in our application. Nevertheless, we describe below the areas for which we believe that the estimations, judgments or interpretations that we have made, if different, would have yielded the most significant differences in our consolidated financial statements.

On a quarterly basis, we review our significant accounting policies and the related assumptions, in particular, those mentioned below, with the audit committee of the Board of Directors.

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Revenue Recognition

Consumer Loans, Including Past Due Fees

Fees and Related Income on Earning Assets

Measurements for Loans, Interest and Fees Receivable at Fair Value and Notes Payable Associated with Structured Financings at Fair Value

Our valuation of loans, interest and fees receivable, at fair value is based on the present value of future cash flows using a valuation model of expected cash flows and the estimated cost to service and collect those cash flows. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions third-party market participants would use in determining fair value, including estimates of ~~net collected~~gross yield, ~~principal~~ payment rates, expected ~~principal~~ credit loss rates, servicing costs, ~~of funds,~~and discount ~~rates and servicing costs.~~rates. Similarly, our valuation of notes payable associated with structured financings, at fair value is based on the present value of future cash flows utilized in repayment of the outstanding principal and interest under the facilities using a valuation model of expected cash flows net of the contractual service expenses within the facilities. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions third-party market participants would use in determining fair value, including: estimates of ~~net collected~~gross yield, ~~principal~~ payment rates, ~~and~~ expected ~~principal~~ credit loss rates, ~~on the credit card receivables that secure the non-recourse notes payable;~~servicing costs, ~~of funds;~~and discount ~~rates; and contractual servicing fees.~~

rates.

The estimates for credit losses, payment rates, servicing costs, contractual servicing fees, costs of funds, discount rates and yields earned on credit card receivables significantly affect the reported amount of our loans, interest and fees receivable, at fair value and our notes payable associated with structured financings, at fair value on our consolidated balance ~~sheet,~~sheets, and they likewise affect our changes in fair value of loans, interest and fees receivable recorded at fair value and changes in fair value of notes payable associated with structured financings recorded at fair value categories within our fees and related income on earning assets line item on our consolidated ~~statement~~statements of operations.

Allowance for Uncollectible Loans, Interest and Fees

Through our analysis of loan performance, delinquency data, charge-off data, economic trends and the potential effects of those economic trends on consumers, we establish an allowance for uncollectible loans, interest and fees receivable as an estimate of the probable losses inherent within those loans, interest and fees receivable that we do not report at fair value. Our loans, interest and fees receivable consist of smaller-balance, homogeneous loans, divided into two portfolio segments: Credit and Other Investments; and Auto Finance. Each of these portfolio segments is further divided into pools based on common characteristics such as contract or acquisition channel. For each pool, we determine the necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the following unique to each type of receivable pool: historical loss rates; current delinquency and roll-rate trends; vintage analyses based on the number of months an account has been in existence; the effects of changes in the economy on ~~our customers;~~a consumer; changes in underwriting criteria; and estimated recoveries. These inputs are considered in conjunction with (and potentially reduced by) any unearned fees and discounts that may be applicable for an outstanding loan receivable. To the extent that actual results differ from our estimates of uncollectible loans, interest and fees receivable, our results of operations and liquidity could be materially affected.

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RELATED PARTY TRANSACTIONS

Under a shareholders’ agreement ~~into~~ which we entered into with certain shareholders, including David G. Hanna, Frank J. Hanna, III ~~Richard R. House, Jr., Richard W. Gilbert~~ and certain trusts that were Hanna affiliates following our initial public offering (1) if one or more of the shareholders accepts a bona fide offer from a third party to purchase more than 50% of the outstanding common stock, each of the other shareholders that is a party to the agreement may elect to sell his shares to the purchaser on the same terms and conditions, and (2) if shareholders that are a party to the agreement owning more than 50% of the common stock propose to transfer all of their shares to a third party, then such transferring shareholders may require the other shareholders that are a party to the agreement to sell all of the shares owned by them to the proposed transferee on the same terms and conditions.

In June 2007, we entered into a sublease for 1,000 square feet (as later adjusted to 600 square feet) of excess office space at our Atlanta headquarters with HBR Capital, Ltd. (“HBR”), a company co-owned by David G. Hanna and his brother Frank J. Hanna, III. The sublease rate per square foot is the same as the rate that we pay under the prime lease. Under the sublease, HBR paid us ~~$26,103~~$16,627 and ~~$25,588~~$18,089 for ~~2016~~2019 and ~~2015,~~2018, respectively. The aggregate amount of payments required under the sublease from January 1, ~~2017~~2020 to the expiration of the sublease in May 2022 is ~~$150,717.~~

$41,527.

In January 2013, HBR began leasing the services of four employees from us. HBR reimburses us for the full cost of the employees, based on the amount of time devoted to HBR. In the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, we received ~~$197,563~~$144,138 and ~~$194,155,~~$136,226, respectively, of reimbursed costs from HBR associated with these leased employees.

On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with ~~Dove Ventures, LLC, a Nevada limited liability company (“Dove”).~~Dove. The agreement ~~provides~~provided for a senior secured term loan facility in

an amount of up to $40.0 million at any time outstanding. ~~The~~On December 27, 2019, the Company issued 400,000 shares (aggregate initial liquidation preference of $40 million) of its Series A Preferred Stock in exchange for full satisfaction of the $40.0 million that the Company owed Dove under the Loan and Security ~~Agreement~~Agreement. Dividends on the preferred stock are 6% per annum (cumulative, non-compounding) and are payable in preference to any common stock dividends, in cash. The Series A Preferred Stock is ~~fully drawn with $40.0 million outstanding as~~perpetual and has no maturity date. The Company may, at its option, redeem the shares of ~~September 30, 2017.~~

~~Our obligations under~~Series A Preferred Stock on or after January 1, 2025 at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends. At the ~~agreement are guaranteed by certain subsidiary guarantors~~request of a majority of the holders of the Series A Preferred Stock, the Company shall offer to redeem all of the Series A Preferred Stock at a redemption price equal to $100 per share, plus any accumulated and ~~secured by a pledge of certain assets of ours and the subsidiary guarantors. The loans bear interest~~unpaid dividends, at the ~~rate~~option of ~~9.0%~~the holders thereof, on or after January 1, 2024. Upon the election by the holders of a majority of the Series A Preferred Stock, each share of the Series A Preferred Stock is convertible into the number of shares of the Company’s common stock as is determined by dividing (i) the sum of (a) $100 and (b) any accumulated and unpaid dividends on such share by (ii) an initial conversion price equal to $10 per annum, payable monthly in arrears. The principal amount of these loans is payable in a single installment on November 22, 2017 (as amended). The agreement includes customary affirmative and negative covenants, as well as customary representations, warranties and events of default. Subjectshare, subject to certain ~~conditions,~~adjustment in certain circumstances to prevent dilution. Given the redemption rights contained within the Series A Preferred Stock, we ~~can prepay~~account for the ~~principal amounts of these loans without premium or penalty.~~

outstanding preferred stock as temporary equity in the consolidated balance sheets. Dove is a limited liability company owned by three trusts. David G. Hanna is the sole shareholder and the President of the corporation that serves as the sole trustee of one of the trusts, and David G. Hanna and members of his immediate family are the beneficiaries of this trust. Frank J. Hanna, III is the sole shareholder and the President of the corporation that serves as the sole trustee of the other two trusts, and Frank J. Hanna, III and members of his immediate family are the beneficiaries of these other two trusts.

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FORWARD-LOOKING INFORMATION

We make forward-looking statements in this ~~report~~Report and in other materials we file with the Securities and Exchange Commission (“SEC”) or otherwise make public. This Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements. In addition, our senior management might make forward-looking statements to analysts, investors, the media and others. Statements with respect to expected revenue; income; receivables; income ratios; net interest margins; long-term shareholder returns; the impact of COVID-19 and related government stimulus and relief measures on our financial condition, results of operations and liquidity; acquisitions of financial assets and other growth opportunities; divestitures and discontinuations of businesses; loss exposure and loss provisions; delinquency and charge-off rates; ~~the effects of account actions we may take or have taken;~~ changes in collection programs and practices; changes in the credit quality and fair value of our credit card loans, interest and fees receivable and the fair value of their underlying structured financing facilities; the impact of actions by the Federal Deposit Insurance Corporation (“FDIC”), Federal Reserve Board, Federal Trade Commission (“FTC”), Consumer Financial Protection Bureau (“CFPB”) and other regulators on both us, banks that issue credit cards and other credit products on our behalf, and merchants that participate in our point-of-sale finance operations; account growth; the performance of investments that we have made; operating expenses; the impact of bankruptcy law changes; marketing plans and expenses; the performance of our Auto Finance segment; ~~our plans in the U.K.;~~ the impact of our credit card receivables on our financial performance; the sufficiency of available capital; ~~the prospect for improvements in the capital and finance markets;~~ future interest costs; sources of funding operations and acquisitions; growth and profitability of our point-of-sale finance operations; ~~our entry into international markets;~~ our ability to raise funds or renew financing facilities; share repurchases or issuances; debt retirement; the results associated with our equity-method investee; our servicing income levels; gains and losses from investments in securities; experimentation with new products and other statements of our plans, beliefs or expectations are forward-looking statements. These and other statements using words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions also are forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. The forward-looking statements we make are not guarantees of future performance, and we have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or historical earnings levels.

Although it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially from our expectations are the risks and uncertainties described under “Risk Factors” set forth in Part II, Item 1A, and the risk factors and other cautionary statements in other documents we file with the SEC, including the following:

	•	the duration and magnitude of the impact the novel coronavirus, or COVID-19, could have on credit usage and payments;
	•	the impact of COVID-19 on capital markets;
	•	the availability of adequate financing to support growth;

~~the availability of adequate financing to support growth;~~

the extent to which federal, state, local and foreign governmental regulation of our various business lines and the products we service for others limits or prohibits the operation of our businesses;

current and future litigation and regulatory proceedings against us;

the effect of adverse economic conditions on our revenues, loss rates and cash flows;

competition from various sources providing similar financial products, or other alternative sources of credit, to consumers;

the adequacy of our allowances for uncollectible loans, interest and fees receivable and estimates of loan losses used within our risk management and analyses;

the possible impairment of assets;

our ability to manage costs in line with the expansion or contraction of our various business lines;

our relationship with (i) the merchants that participate in point-of-sale finance operations and (ii) the banks that issue credit cards and provide certain other credit products utilizing our technology platform and related services; and

theft and employee errors.

Most of these factors are beyond our ability to predict or control. Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of our forward-looking statements. There also are other factors that we may not describe (because we currently do not perceive them to be material) that could cause actual results to differ materially from our expectations.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.



ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Act) was carried out on behalf of Atlanticus Holdings Corporation and our subsidiaries by our management and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer). Based upon the evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

During the quarter ended ~~September~~June 30, ~~2017,~~2020, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Act) occurred that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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PART II—OTHER INFORMATION



ITEM 1.	LEGAL PROCEEDINGS

We are involved in various legal proceedings that are incidental to the conduct of our business. There are currently no pending legal proceedings that are expected to be material to us.



ITEM 1A.	RISK FACTORS

An investment in our common stock or other securities involves a number of risks. You should carefully consider each of the risks described below before deciding to invest in our common stock or other securities. If any of the following risks develops into actual events, our business, financial condition or results of operations could be negatively affected, the market price of our common stock or other securities could decline and you may lose all or part of your investment.

Investors should be particularly cautious regarding investments in our common stock or other securities at the present time in light of uncertainties as to the profitability of our business model going forward and our inability to achieve consistent earnings from our operations in recent years.

Additionally, the impact of COVID-19 on global commercial activity and the corresponding volatility in financial markets is evolving. The global impact of the outbreak has led to many countries instituting quarantines and restrictions on travel. Such actions are creating disruption in global supply chains, and adversely impacting a number of industries, such as transportation, hospitality and entertainment. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty and risk with respect to our performance and financial results.

For additional information, see "—Other Risks of Our Business—The global outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in the U.S. economy, and may have an adverse impact on our performance, results of operations and access to capital".

Our Cash Flows and Net Income Are Dependent Upon Payments from Our Investments in Receivables

The ~~collectibility~~collectability of our investments in receivables is a function of many factors including the criteria used to select who is issued credit, the pricing of the credit products, the lengths of the relationships, general economic conditions, the rate at which consumers repay their accounts or become delinquent, and the rate at which consumers borrow funds. Deterioration in these factors would adversely impact our business. In addition, to the extent we have over-estimated ~~collectibility,~~collectability, in all likelihood we have over-estimated our financial performance. Some of these concerns are discussed more fully below.

Our portfolio of receivables is not diversified and primarily originates from consumers whose creditworthiness is considered sub-prime. Historically, we have invested in receivables in one of two ways—we have either (i) invested in receivables originated by lenders who utilize our services or (ii) invested in or purchased pools of receivables from other issuers. In either case, substantially all of our receivables are from financially underserved borrowers—borrowers represented by credit risks that regulators classify as “sub-prime.” Our reliance on sub-prime receivables has negatively impacted and may in the future negatively impact, our performance. Our ~~various~~ past ~~and current~~ losses ~~might~~may have been mitigated had our portfolios consisted of higher-grade receivables in addition to our sub-prime receivables.

Economic slowdowns increase our credit losses. During periods of economic slowdown or recession, we experience an increase in rates of delinquencies and frequency and severity of credit losses. Our actual rates of delinquencies and frequency and severity of credit losses may be comparatively higher during periods of economic slowdown or recession than those experienced by more traditional providers of consumer credit because of our focus on the financially underserved consumer market, which may be disproportionately impacted.

~~We are subject to foreign economic and exchange risks.~~ ~~Because of our operations in the U.K.,~~we have exposure to fluctuations in the U.K. economy. We also have exposure to fluctuations in the relative values of the U.S. dollar and the British pound. Because the British pound has experienced a net decline in value relative to the U.S. dollar since we commenced our most significant operations in the U.K., we have experienced significant transaction and translation losses within our financial statements.

Because a significant portion of our reported income is based on management’s estimates of the future performance of receivables, differences between actual and expected performance of the receivables may cause fluctuations in net income. Significant portions of our reported income (or losses) are based on management’s estimates of cash flows we expect to receive on receivables, particularly for such assets that we report based on fair value. The expected cash flows are based on management’s estimates of interest rates, default rates, payment rates, cardholder purchases, servicing costs, and discount rates. These estimates are based on a variety of factors, many of which are not within our control. Substantial differences between actual and expected performance of the receivables will occur and cause fluctuations in our net income. For instance, higher than expected rates of delinquencies and losses could cause our net income to be lower than expected. Similarly, levels of loss and delinquency can result in our being required to repay lenders earlier than expected, thereby reducing funds available to us for future growth. Because all of the credit card receivables structured financing facilities are now in amortization status—which for us generally means that the only meaningful cash flows that we are receiving with respect to the credit card receivables that are encumbered by such structured financing facilities are those associated with our contractually specified fee for servicing the receivables—recent payment and default trends have substantially reduced the cash flows that we receive from these receivables.

Due to our relative lack of historical experience with Internet consumers, we may not be able to evaluate their creditworthiness. We have less historical experience with respect to the credit risk and performance of receivables owed by consumers acquired over the ~~Internet.~~Internet and other digital channels. As a result, we may not be able to ~~target and~~ evaluate successfully the creditworthiness of these potential consumers. Therefore, we may encounter difficulties managing the expected delinquencies and ~~losses and appropriately pricing products.~~

losses.

We Are Substantially Dependent Upon Borrowed Funds to Fund Receivables We Purchase

We finance receivables that we acquire in large part through financing facilities. All of our financing facilities are of finite duration (and ultimately will need to be extended or replaced) and contain financial covenants and other conditions that must be fulfilled in order for funding to be available. Moreover, some of our facilities currently are in amortization stages (and are not allowing for the funding of any new loans) based on their original terms. The cost and availability of equity and borrowed funds is dependent upon our financial performance, the performance of our industry ~~generally~~overall and general economic and market conditions, and at times equity and borrowed funds have been both expensive and difficult to obtain.

If additional financing facilities are not available in the future on terms we consider ~~acceptable—an issue that has been made even more acute in the U.S. given regulatory changes that reduced asset-level returns on credit card lending—~~acceptable, we will not be able to purchase additional receivables and those receivables may contract in size.

Capital markets may experience periods of disruption and instability, which could limit our ability to grow our receivables. From time-to-time, capital markets may experience periods of disruption and instability. For example, from 2008 to 2009, the global capital markets were unstable as evidenced by the lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and various foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. If similar adverse and volatile market conditions repeat in the future, we and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital in order to grow our receivables.

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Moreover, the re-appearance of market conditions similar to those experienced from 2008 through 2009 for any substantial length of time or worsened market conditions could make it difficult for us to borrow money or to extend the maturity of or refinance any indebtedness we may have under similar terms and any failure to do so could have a material adverse effect on our business. Unfavorable economic and political conditions, including future recessions, political instability, geopolitical turmoil and foreign hostilities, and disease, pandemics and other serious health events, also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.

Recently, the outbreak of the novel coronavirus, or COVID-19, in many countries continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets. The global impact of the outbreak has been rapidly evolving, and as cases of the virus have continued to be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel. Such actions are creating disruption in global supply chains, and adversely impacting a number of industries, such as transportation, hospitality and entertainment. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the coronavirus. Nevertheless, the coronavirus presents material uncertainty and risk with respect to our performance and financial results.

We may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may cause us to reduce the volume of receivables we purchase or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our Financial Performance Is, in Part, a Function of the Aggregate Amount of Receivables That Are Outstanding

The aggregate amount of outstanding receivables is a function of many factors including purchase rates, payment rates, interest rates, seasonality, general economic conditions, competition from credit card issuers and other sources of consumer financing, access to funding, and the timing and extent of our receivable purchases.

~~Despite~~

The recent growth of our ~~recent purchases~~investments in point-of-sale finance and direct-to-consumer receivables may not be indicative of ~~credit card~~our ability to grow such receivables ~~our aggregate credit card~~in the future. Our period-end managed receivables ~~contracted over the last several years.~~balance for point-of-sale finance and direct-to-consumer receivables grew to $895.1 million at June 30, 2020 from $602.3 million at June 30, 2019. The amount of ~~our credit card~~such receivables ~~is a product of a combination of factors, many of which are not in our control. Factors include:~~

has fluctuated significantly over the ~~availability of funding on favorable terms;~~

~~our relationships with the banks that issue credit cards;~~

~~the degree to which we lose business to competitors;~~

~~the level of usage~~course of our ~~credit card products by consumers;~~

operating history. Furthermore, even if such receivables continue to increase, the ~~availability~~rate of ~~portfolios for purchase~~such growth could decline. If we cannot manage the growth in receivables effectively, it could have a material adverse effect on ~~attractive terms;~~

~~levels~~our business, prospects, results of ~~delinquencies and charge offs;~~

~~the level of costs of acquiring new receivables;~~

~~our ability to employ and train new personnel;~~

~~our ability to maintain adequate management systems, collection procedures, internal controls and automated systems; and~~

~~general economic and other factors beyond our control.~~

operations, financial condition or cash flows.

Reliance upon relationships with a few large retailers in the point-of-sale finance operations may adversely affect our revenues and operating results from these operations.Our five largest retail partners accounted for over 50% of our outstanding point-of-sale receivables as of December 31, ~~2016.~~2019. Although we are adding new retail partners on a regular basis, it is likely that we will continue to derive a significant portion of this operations’ receivables base and corresponding revenue from a relatively small number of partners in the future. If a significant partner reduces or terminates its relationship with us, these operations’ revenue could decline significantly and our operating results and financial condition could be harmed.

We Operate in a Heavily Regulated Industry

Changes in bankruptcy, privacy or other consumer protection laws, or to the prevailing interpretation thereof, may expose us to litigation, adversely affect our ability to collect receivables, or otherwise adversely affect our operations. Similarly, regulatory changes could adversely affect the ability or willingness of lenders who utilize our technology platform and related services to market credit products and services to consumers. While the ~~new~~ Presidential Administration ~~and the congressional majorities in the U.S. Senate and House of Representatives support~~supports reducing regulatory burdens, the prospects for significant modifications are uncertain. Also, the accounting rules that apply to our business are exceedingly complex, difficult to apply

and in a state of flux. As a result, how we value our receivables and otherwise account for our business is subject to change depending upon the changes in, and, interpretation of, those rules. Some of these issues are discussed more fully below.

Reviews and enforcement actions by regulatory authorities under banking and consumer protection laws and regulations may result in changes to our business practices, may make collection of receivables more difficult or may expose us to the risk of fines, restitution and litigation. Our operations and the operations of the issuing banks through which the credit products we service are originated are subject to the jurisdiction of federal, state and local government authorities, including the CFPB, the SEC, the FDIC, the Office of the Comptroller of the Currency, the FTC, U.K. banking and licensing authorities, state regulators having jurisdiction over financial institutions and debt origination and collection and state attorneys general. Our business practices and the practices of issuing banks, including the terms of products, servicing and collection practices, are subject to both periodic and special reviews by these regulatory and enforcement authorities. These reviews can range from investigations of specific consumer complaints or concerns to broader inquiries. If as part of these reviews the regulatory authorities conclude that we or issuing banks are not complying with applicable law, they could request or impose a wide range of remedies including requiring changes in advertising and collection practices, changes in the terms of products (such as decreases in interest rates or fees), the imposition of fines or penalties, or the paying of restitution or the taking of other remedial action with respect to affected consumers. They also could require us or issuing banks to stop offering some credit products or obtain licenses to do so, either nationally or in selected states. To the extent that these remedies are imposed on the issuing banks that originate credit products using our platform, under certain circumstances we are responsible for the remedies as a result of our indemnification obligations with those banks. We or our issuing banks also may elect to change practices that we believe are compliant with law in order to respond to regulatory concerns. Furthermore, negative publicity relating to any specific inquiry or investigation could hurt our ability to conduct business with various industry participants or to generate new receivables and could negatively affect our stock price, which would adversely affect our ability to raise additional capital and would raise our costs of doing business.

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If any deficiencies or violations of law or regulations are identified by us or asserted by any regulator, or if the CFPB, the FDIC, the FTC or any other regulator requires us or issuing banks to change any practices, the correction of such deficiencies or violations, or the making of such changes, could have a material adverse effect on our financial condition, results of operations or business. In addition, whether or not these practices are modified when a regulatory or enforcement authority requests or requires, there is a risk that we or other industry participants may be named as defendants in litigation involving alleged violations of federal and state laws and regulations, including consumer protection laws. Any failure to comply with legal requirements by us or the banks that originate credit products utilizing our platform in connection with the issuance of those products, or by us or our agents as the servicer of our accounts, could significantly impair our ability to collect the full amount of the account balances. The institution of any litigation of this nature, or any judgment against us or any other industry participant in any litigation of this nature, could adversely affect our business and financial condition in a variety of ways.

The regulatory landscape in which we operate is continually changing due to new rules, regulations and interpretations, as well as various legal actions that have been brought against others that have sought to re-characterize certain loans made by federally insured banks as loans made by third parties. If litigation on similar theories were brought against us when we work with a federally insured bank that makes loans and were such an action successful, we could be subject to state usury limits and/or state licensing requirements, loans in such states could be deemed void and unenforceable, and we could be subject to substantial penalties in connection with such loans.

The case law involving whether an originating lender, on the one hand, or third-parties, on the other hand, are the “true lenders” of a loan is still developing and courts have come to different conclusions and applied different analyses. The determination of whether a third-party service provider is the “true lender” is significant because third-parties risk having the loans they service becoming subject to a consumer’s state usury limits. A number of federal courts that have opined on the “true lender” issue have looked to who is the lender identified on the borrower’s loan documents. A number of state courts and at least one federal district court have considered a number of other factors when analyzing whether the originating lender or a third party is the “true lender,” including looking at the economics of the transaction to determine, among other things, who has the predominant economic interest in the loan being made. If we were re-characterized as a “true lender” with respect to the receivables originated by the bank that utilizes our technology platform and other services, such receivables could be deemed to be void and unenforceable in some states, the right to collect finance charges could be affected, and we could be subject to fines and penalties from state and federal regulatory agencies as well as claims by borrowers, including class actions by private plaintiffs. Even if we were not required to change our business practices to comply with applicable state laws and regulations or cease doing business in some states, we could be required to register or obtain lending licenses or other regulatory approvals that could impose a substantial cost on us. If the bank that originates loans utilizing our technology platform were subject to such a lawsuit, it may elect to terminate its relationship with us voluntarily or at the direction of its regulators, and if it lost the lawsuit, it could be forced to modify or terminate such relationship.

In addition to true lender challenges, a question regarding the applicability of state usury rates may arise when a loan is sold from a bank to a non-bank entity. In Madden v. Midland Funding, LLC, the U.S. Court of Appeals for the Second Circuit held that the federal preemption of state usury laws did not extend to the purchaser of a loan issued by a national bank. In its brief urging the U.S. Supreme Court to deny certiorari, the U.S. Solicitor General, joined by the Office of the Comptroller of the Currency (“OCC”), noted that the Second Circuit (Connecticut, New York and Vermont) analysis was incorrect. On remand, the U.S. District Court for the Southern District of New York concluded on February 27, 2017 that New York’s state usury law, not Delaware’s state usury law, was applicable and that the plaintiff’s claims under the FDCPA and state unfair and deceptive acts and practices could proceed. To that end, the court granted Madden’s motion for class certification. At this time, it is unknown whether Madden will be applied outside of the defaulted debt context in which it arose; however, recently two class actions, Cohen v. Capital One Funding, LLC, et al. and Petersen v. Chase Card Funding, LLC, et al., have relied on Madden to challenge the interest rate charged once debt was sold to securitization trusts. The facts in Madden are not directly applicable to our business, as we do not engage in practices similar to those at issue in Madden. However, to the extent that the holding in Madden was broadened to cover circumstances applicable to our business, or if other litigation on related theories were brought against us and were successful, or we were otherwise found to be the “true lender,” we could become subject to state usury limits and state licensing laws, in addition to the state consumer protection laws to which we are already subject, in a greater number of states, loans in such states could be deemed void and unenforceable, and we could be subject to substantial penalties in connection with such loans.

In response to the uncertainty Madden created as to the validity of interest rates of bank-originated loans sold in the secondary market, in May 2020 and June 2020, the OCC and the FDIC, respectively, issued final rules that reaffirmed the “valid when made” doctrine and clarified that when a bank sells, assigns, or otherwise transfers a loan, the interest rates permissible prior to the transfer continue to be permissible following the transfer.

In September 2019, the FDIC and the OCC jointly submitted an amicus brief to the U.S. District Court for the District of Colorado in support of a debt buyer, urging the District Court to uphold the bank’s rights to enforce that debt to the debt buyer, including the bank’s right to charge interest as authorized under the laws of its home state. The brief includes related discussions of (i) the rights of federally regulated banks to “export” their home states’ interest rates by charging those rates to borrowers nationwide, first with respect to national banks under section 85 of the National Bank Act and then with respect to state banks under section 27 of the Federal Deposit Insurance Act and (ii) federal preemption of state usury laws. The portion of the brief that discusses rate exportation strongly reaffirms the OCC and the FDIC’s complete accord that section 27 and section 85 should be mirror images of each other. At the conclusion of their brief, the agencies ask the District Court to affirm the bankruptcy court’s decision in the case on the basis that affirmation would “preserve the banks’ longstanding ability to engage in loan sales, would reaffirm the traditional protections that such loan sales have received under the law, would ensure the proper functioning of the credit markets, and would promote safety and soundness in the banking sector by supporting loan sales and securitizations, which are used to manage capital and liquidity positions.”

We ~~are dependent upon banks~~support a single bank that markets general purpose credit cards and certain other credit products directly to consumers. We acquire interests in and service the receivables originated by that bank. The bank could determine not to continue the relationship for various business reasons, or its regulators could limit its ability to issue credit cards ~~and provide certain other credit products~~ utilizing our technology platform ~~and related services.~~ ~~We acquire receivables generated by banks from credit cards that they have issued and other products, and their regulators could at any time limit their ability~~or to ~~issue~~originate some or all of ~~these~~the other products that we service or require the bank to modify those products ~~significantly.~~significantly and could do either with little or no notice. Any significant interruption or change of ~~those relationships~~our bank relationship would result in our being unable to acquire new receivables or ~~help~~ develop certain other credit products. ~~It is possible that a regulatory position or action taken with respect~~Unless we were able to ~~any of the issuing banks might result in the bank’s inability or unwillingness to originate future~~timely replace our bank relationship, such an interruption would prevent us from acquiring newly originated credit ~~products in collaboration with us. In the current state, such a disruption of our issuing bank relationships principally would adversely affect our ability to grow~~card receivables and growing our investments in ~~the~~ point-of-sale and direct-to-consumer receivables. In turn, it would materially adversely impact our business.

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The FDIC has issued examination guidance affecting the bank that utilizes our technology platform to market general purpose credit cards and certain other credit products and these or subsequent new rules and regulations could have a significant impact on such credit products. The bank that utilizes our technology platform and other services to market general purpose credit cards and certain other credit products is supervised and examined by both the state that charters it and the FDIC. If the FDIC or a state supervisory body considers any aspect of the products originated utilizing our technology platform to be inconsistent with its guidance, the bank may be required to alter or terminate some or all of these products.

On July 29, 2016, the board of directors of the FDIC released examination guidance relating to third-party lending as part of a package of materials designed to “improve the transparency and clarity of the FDIC’s supervisory policies and practices” and consumer compliance measures that FDIC-supervised institutions should follow when lending through a business relationship with a third party. The proposed guidance, if finalized, would apply to all FDIC-supervised institutions that engage in third-party lending programs, including the bank that utilizes our technology platform and other services to market general purpose credit cards and certain other credit products.

The proposed guidance elaborates on previously issued agency guidance on managing third-party risks and specifically addresses third-party lending arrangements where an FDIC-supervised institution relies on a third party to perform a significant aspect of the lending process. The types of relationships that would be covered by the guidance include (but are not limited to) relationships for originating loans on behalf of, through or jointly with third parties, or using platforms developed by third parties. If adopted as proposed, the guidance would result in increased supervisory attention of institutions that engage in significant lending activities through third parties, including at least one examination every 12 months, as well as supervisory expectations for a third-party lending risk management program and third-party lending policies that contain certain minimum requirements, such as self-imposed limits as a percentage of total capital for each third-party lending relationship and for the overall loan program, relative to origination volumes, credit exposures (including pipeline risk), growth, loan types, and acceptable credit quality. Comments on the guidance were due October 27, 2016. While the guidance has never formally been adopted, it is our understanding that the FDIC has relied upon it in its examination of third-party lending arrangements.

Changes to consumer protection laws or changes in their interpretation may impede collection efforts or otherwise adversely impact our business practices. Federal and state consumer protection laws regulate the creation and enforcement of consumer credit card receivables and other loans. Many of these laws (and the related regulations) are focused on sub-prime lenders and are intended to prohibit or curtail industry-standard practices as well as non-standard practices. For instance, Congress enacted legislation that regulates loans to military personnel through imposing interest rate and other limitations and requiring new disclosures, all as regulated by the Department of Defense. Similarly, in 2009 Congress enacted legislation that required changes to a variety of marketing, billing and collection practices, and the Federal Reserve adopted significant changes to a number of practices through its issuance of regulations. While our practices are in compliance with these changes, some of the changes (e.g., limitations on the ability to assess up-front fees) have significantly affected the viability of certain credit products within the U.S. Changes in the consumer protection laws could result in the following:

~~receivables not originated in compliance with law (or revised interpretations) could become unenforceable and uncollectible under their terms against the obligors;~~

~~we may be required to credit or refund previously collected amounts;~~

~~certain fees and finance charges could be limited, prohibited or restricted, which would reduce the profitability of certain investments in receivables;~~

~~certain collection methods could be prohibited, forcing us to revise our practices or adopt more costly or less effective practices;~~

~~limitations on our ability to recover on charged-off receivables regardless of any act or omission on our part;~~

~~some credit products and services could be banned in certain states or at the federal level;~~

federal or state bankruptcy or debtor relief laws could offer additional protections to consumers seeking bankruptcy protection, providing a court greater leeway to reduce or discharge amounts owed to us; and

~~a reduction in our ability or willingness to invest in receivables arising under loans to certain consumers, such as military personnel.~~

	•	receivables not originated in compliance with law (or revised interpretations) could become unenforceable and uncollectible under their terms against the obligors;
	•	we may be required to credit or refund previously collected amounts;
	•	certain fees and finance charges could be limited, prohibited or restricted, which would reduce the profitability of certain investments in receivables;
	•	certain collection methods could be prohibited, forcing us to revise our practices or adopt more costly or less effective practices;
	•	limitations on our ability to recover on charged-off receivables regardless of any act or omission on our part;
	•	some credit products and services could be banned in certain states or at the federal level;
	•	federal or state bankruptcy or debtor relief laws could offer additional protections to consumers seeking bankruptcy protection, providing a court greater leeway to reduce or discharge amounts owed to us; and
	•	a reduction in our ability or willingness to invest in receivables arising under loans to certain consumers, such as military personnel.

Material regulatory developments may adversely impact our business and results from operations.

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Our Automobile Lending Activities Involve Risks in Addition to Others Described Herein

Automobile lending exposes us not only to most of the risks described above but also to additional risks, including the regulatory scheme that governs installment loans and those attendant to relying upon automobiles and their repossession and liquidation value as collateral. In addition, our Auto Finance segment operation acquires loans on a wholesale basis from used car dealers, for which we rely upon the legal compliance and credit determinations by those dealers.

Funding for automobile lending may become difficult to obtain and expensive. In the event we are unable to renew or replace any Auto Finance segment facilities that bear refunding or refinancing risks when they become due, our Auto Finance segment could experience significant constraints and diminution in reported asset values as lenders retain significant cash flows within underlying structured financings or otherwise under security arrangements for repayment of their loans. If we cannot renew or replace future facilities or otherwise are unduly constrained from a liquidity perspective, we may choose to sell part or all of our auto loan portfolios, possibly at less than favorable prices.

Our automobile lending business is dependent upon referrals from dealers. Currently we provide substantially all of our automobile loans only to or through used car dealers. Providers of automobile financing have traditionally competed based on the interest rate charged, the quality of credit accepted and the flexibility of loan terms offered. In order to be successful, we not only need to be competitive in these areas, but also need to establish and maintain good relations with dealers and provide them with a level of service greater than what they can obtain from our competitors.

The financial performance of our automobile loan portfolio is in part dependent upon the liquidation of repossessed automobiles. In the event of certain defaults, we may repossess automobiles and sell repossessed automobiles at wholesale auction markets located throughout the U.S. Auction proceeds from these types of sales and other recoveries rarely are sufficient to cover the outstanding balances of the contracts; where we experience these shortfalls, we will experience credit losses. Decreased auction proceeds resulting from depressed prices at which used automobiles may be sold would result in higher credit losses for us.

Repossession of automobiles entails the risk of litigation and other claims. Although we have contracted with reputable repossession firms to repossess automobiles on defaulted loans, it is not uncommon for consumers to assert that we were not entitled to repossess an automobile or that the repossession was not conducted in accordance with applicable law. These claims increase the cost of our collection efforts and, if correct, can result in awards against us.

We Routinely Explore Various Opportunities to Grow Our Business, to Make Investments and to Purchase and Sell Assets

We routinely consider acquisitions of, or investments in, portfolios and other assets as well as the sale of portfolios and portions of our business. There are a number of risks attendant to any acquisition, including the possibility that we will overvalue the assets to be purchased and that we will not be able to produce the expected level of profitability from the acquired business or assets. Similarly, there are a number of risks attendant to sales, including the possibility that we will undervalue the assets to be sold. As a result, the impact of any acquisition or sale on our future performance may not be as favorable as expected and actually may be adverse.

Portfolio purchases may cause fluctuations in our reported Credit and Other Investments segment’s managed receivables data, which may reduce the usefulness of this data in evaluating our business. Our reported Credit and Other Investments segment managed receivables data may fluctuate substantially from quarter to quarter as a result of recent and future credit card portfolio acquisitions.

Receivables included in purchased portfolios are likely to have been originated using credit criteria different from the criteria of issuing bank partners that have originated accounts utilizing our technology platform. Receivables included in any particular purchased portfolio may have significantly different delinquency rates and charge-off rates than the receivables previously originated and purchased by us. These receivables also may earn different interest rates and fees as compared to other similar receivables in our receivables portfolio. These variables could cause our reported managed receivables data to fluctuate substantially in future periods making the evaluation of our business more difficult.

Any acquisition or investment that we make will involve risks different from and in addition to the risks to which our business is currently exposed. These include the risks that we will not be able to integrate and operate successfully new businesses, that we will have to incur substantial indebtedness and increase our leverage in order to pay for the acquisitions, that we will be exposed to, and have to comply with, different regulatory regimes and that we will not be able to apply our traditional analytical framework (which is what we expect to be able to do) in a successful and value-enhancing manner.

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Other Risks of Our Business

The global outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in the U.S. economy, and may have an adverse impact on our performance, results of operations and access to capital. On March 13, 2020, the President declared a national emergency under the National Emergencies Act due to a new strain of coronavirus, originating in Wuhan, China (the "COVID-19" outbreak) Measures taken across the U.S. and worldwide to mitigate the spread of the virus have significantly impacted the macroeconomic environment, including consumer confidence, unemployment and other economic indicators that contribute to consumer spending behavior and demand for credit. Our results of operations are impacted by the relative strength of the overall economy. As general economic conditions improve or deteriorate, the amount of consumer disposable income tends to fluctuate, which, in turn, impacts consumer spending levels and the willingness of consumers to finance purchases.

The extent to which COVID-19 will impact our business, results of operations and financial condition is dependent on many factors, which are highly uncertain, including, but not limited to, the duration and severity of the outbreak, the actions to contain the virus or mitigate its impact, and how quickly and to what extent normal economic and operating conditions will resume. If we experience a prolonged decline in purchases of receivables or increase in delinquencies, our results of operations and financial condition could be materially adversely affected.

We routinely engage in discussions with customers, some of whom have indicated that they have experienced economic hardship due to the COVID-19 pandemic and have requested payment deferral or forbearance or other modifications of their accounts. While we are addressing requests for relief, we may still experience higher instances of default. Additionally, the COVID-19 pandemic could adversely affect our liquidity position and could limit our ability to grow our business or fully execute on our business strategy. Furthermore, the COVID-19 pandemic could negatively impact our access to capital.

The COVID-19 pandemic also resulted in us modifying certain business practices, such as minimizing employee travel and executing on a company-wide remote work program. We may take further actions as required by government authorities or as we determine to be in the best interests of our employees and consumers. We may experience disruptions due to a number of operational factors, including, but not limited to:

	●	increased cyber and payment fraud risk related to COVID-19, as cybercriminals attempt to profit from the disruption, given increased e-commerce and other online activity;
	●	challenges to the security, availability and reliability of our information technology platform due to changes to normal operations, including the possibility of one or more clusters of COVID-19 cases affecting our employees or affecting the systems or employees of our partners; and
	●	an increased volume of borrower and regulatory requests for information and support, or new regulatory requirements, which could require additional resources and costs to address.

Even after the COVID-19 pandemic has subsided, our business may continue to be unfavorably impacted by the economic turmoil caused by the pandemic. There are no recent comparable events that could serve to indicate the ultimate effect the COVID-19 pandemic may have and, as such, we do not at this time know what the extent of the impact of the COVID-19 pandemic will be on our business. To the extent the COVID-19 pandemic adversely affects our business and financial results, it also may heighten other risks described in this Part II, Item 1A.

For additional discussion of the impact of COVID-19 on our business, see additional risk factors included in this Part II, Item 1A, as well as Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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We are a holding company with no operations of our own. As a result, our cash flow and ability to service our debt is dependent upon distributions from our subsidiaries. The distribution of subsidiary earnings, or advances or other distributions of funds by subsidiaries to us, all of which are subject to statutory and could be subject to contractual restrictions, are contingent upon the subsidiaries’ cash flows and earnings and are subject to various business and debt covenant considerations.

~~Unless we obtain a bank charter, we cannot issue credit cards other than through agreements with banks.~~ Because we do not have a bank charter, we currently cannot issue credit cards ourselves. Unless we obtain a bank or credit card bank charter, we will continue to rely upon banking relationships to provide for the issuance of credit cards to consumers. Even if we obtain a bank charter, there may be restrictions on the types of credit that the bank may extend. Our various issuing bank agreements have scheduled expiration dates. If we are unable to extend or execute new agreements with our issuing banks at the expirations of our current agreements with them, or if our existing or new agreements with our issuing banks were terminated or otherwise disrupted, there is a risk that we would not be able to enter into agreements with an alternate issuer on terms that we consider favorable or in a timely manner without disruption of our business.

We are party to litigation. We are ~~defendants in~~party to certain legal proceedings which include litigation customary for a business of our nature. In each case we believe that we have meritorious defenses or that the positions we are asserting otherwise are correct. However, adverse outcomes are possible in these matters, and we could decide to settle one or more of our litigation matters in order to avoid the ongoing cost of litigation or to obtain certainty of outcome. Adverse outcomes or settlements of these matters could require us to pay damages, make restitution, change our business practices or take other actions at a level, or in a manner, that would adversely impact our business.

We ~~face heightened levels of economic risk associated with new investment activities.~~ ~~We have made a number of investments in businesses that are not directly related~~may be unable to ~~our traditional servicing and receivables financing activities to, or associated with, the underserved consumer credit market. In addition,~~use some of these investments that we have made and may make in the future are or will be in debt or equity securities of businesses over which we exert little or no control, which likely exposes us to greater risks of loss than investments in activities and operations that we control. We make only those investments we believe have the potential to provide a favorable return. However, because some of the investments are outside of our core areas of expertise, they entail risks beyond those described elsewhere in this report. As occurred with respect to certain such investments in 2012 and 2011, these risks could result in the loss of part or all of our ~~investments.~~

net operating loss (“NOL”) carryforwards. At December 31, 2019, we had U.S. federal NOL carryforwards of $85.6 million the deferred tax assets on which were not offset by valuation allowances, and we had no material U.S. state and local or foreign NOLs the deferred tax assets on which were not offset by valuation allowances. Our NOLs have resulted from prior period losses and are available to offset future taxable income. If not used, $18.1 million of the NOLs will expire in 2029, and $17.8 million of the NOLs will expire in 2030. Under Section 382 of the Internal Revenue Code, our ability to use NOLs in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more shareholders or groups of shareholders, who own at least 5% of our stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. We have not completed a Section 382 analysis through December 31, 2019. If we have previously had, or have in the future, one or more Section 382 “ownership changes,” or if we do not generate sufficient taxable income, we may not be able to use a material portion of the NOLs. If we are limited in our ability to use the NOLs in future years in which we have taxable income, we will pay more taxes than if we were able to fully use our NOLs. This could materially and adversely affect our results of operations.

Because we outsource account-processing functions that are integral to our business, any disruption or termination of that outsourcing relationship could harm our business. We generally outsource account and payment ~~processing, and in 2016, we paid Total System Services, Inc. $3.8 million for these services.~~processing. If these ~~agreements~~outsourcing relationships were not renewed or were terminated or the services provided to us were otherwise disrupted, we would have to obtain these services from an alternative provider. There is a risk that we would not be able to enter into a similar ~~agreement~~outsourcing arrangement with an alternate provider on terms that we consider favorable or in a timely manner without disruption of our business.

Failure to keep up with the rapid technological changes in financial services and e-commerce could harm our business. The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial and lending institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of consumers by using technology to support products and services that will satisfy consumer demands for convenience, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services as quickly as some of our competitors. Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete with our competitors. Any such failure to adapt to changes could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.

If we are unable to protect our information systems against service interruption, our operations could be disrupted and our reputation may be damaged. We rely heavily on networks and information systems and other technology that are largely hosted by ~~third-parties~~third parties to support our business processes and activities, including processes integral to the origination and collection of loans and other financial products, and information systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting and legal and tax requirements.

Because information systems are critical to many of our operating activities, our business may be impacted by hosted system shutdowns, service disruptions or security breaches. These incidents may be caused by failures during routine operations such as system upgrades or user errors, as well as network or hardware failures, malicious or disruptive software, computer hackers, rogue employees or contractors, cyber-attacks by criminal groups, geopolitical events, natural disasters, pandemics, failures or impairments of telecommunications networks, or other catastrophic events. If our information systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, and we may lose revenue and profits as a result of our inability to collect payments in a timely manner. We also could be required to spend significant financial and other resources to repair or replace networks and information systems.

Unauthorized or unintentional disclosure of sensitive or confidential customer data could expose us to protracted and costly litigation, and civil and criminal penalties. To conduct our business, we are required to manage, use, and store large amounts of personally identifiable information, consisting primarily of confidential personal and financial data regarding consumers across all operations areas. We also depend on our IT networks and systems, and those of third parties, to process, store, and transmit this information. As a result, we are subject to numerous U.S. federal and state laws designed to protect this information. Security breaches involving our files and infrastructure could lead to unauthorized disclosure of confidential information.

We take a number of measures to ensure the security of our hardware and software systems and customer information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect data being breached or compromised. In the past, banks and other financial service providers have been the subject of sophisticated and highly targeted attacks on their information technology. An increasing number of websites have reported breaches of their security.

If any person, including our employees or those of third-party vendors, negligently disregards or intentionally breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to costly litigation, monetary damages, fines, and/or criminal prosecution. Any unauthorized disclosure of personally identifiable information could subject us to liability under data privacy laws. Further, under credit card rules and our contracts with our card processors, if there is a breach of credit card information that we store, we could be liable to the credit card issuing banks for their cost of issuing new cards and related expenses. In addition, if we fail to follow credit card industry security standards, even if there is no compromise of customer information, we could incur significant fines. Security breaches also could harm our reputation, which could potentially cause decreased revenues, the loss of existing merchant credit partners, or difficulty in adding new merchant credit partners.

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Internet and data security breaches also could impede our bank partners from originating loans over the Internet, cause us to lose consumers or otherwise damage our reputation or business.Consumers generally are concerned with security and privacy, particularly on the Internet. As part of our growth strategy, we have enabled lenders to originate loans over the Internet. The secure transmission of confidential information over the Internet is essential to maintaining customer confidence in such products and services offered online.

Advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology used by us to protect our client or consumer application and transaction data transmitted over the Internet. In addition to the potential for litigation and civil penalties described above, security breaches could damage our reputation and cause consumers to become unwilling to do business with our clients or us, particularly over the Internet. Any publicized security problems could inhibit the growth of the Internet as a means of conducting commercial transactions. Our ability to service our clients’ needs over the Internet would be severely impeded if consumers become unwilling to transmit confidential information online.

Also, a party that is able to circumvent our security measures could misappropriate proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and business.

Regulation in the areas of privacy and data security could increase our costs. We are subject to various regulations related to privacy and data security/breach, and we could be negatively impacted by these regulations. For example, we are subject to the ~~safeguards~~Safeguards guidelines under the Gramm-Leach-Bliley Act. The ~~safeguards~~Safeguards guidelines require that each financial institution develop, implement and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities and the sensitivity of any customer information at issue. Broad-ranging data security laws that affect our business also have been adopted by various states. Compliance with these laws regarding the protection of consumer and employee data could result in higher compliance and technology costs for us, as well as potentially significant fines and penalties for non-compliance.

Further, there are various other statutes and regulations relevant to the direct email marketing, debt collection and text-messaging industries including the Telephone Consumer Protection Act. The interpretation of many of these statutes and regulations is evolving in the courts and administrative agencies and an inability to comply with them may have an adverse impact on our business.

In addition to the foregoing enhanced data security requirements, various federal banking regulatory agencies, and ~~at least 48~~all 50 states, the District of Columbia, Puerto Rico and the Virgin Islands, have enacted data security regulations and laws requiring varying levels of consumer notification in the event of a security breach.

Also, federal legislators and regulators are increasingly pursuing new guidelines, laws and regulations that, if adopted, could further restrict how we collect, use, share and secure consumer information, which could impact some of our current or planned business initiatives.

Unplanned system interruptions or system failures could harm our business and reputation. Any interruption in the availability of our transactional processing services due to hardware and operating system failures will reduce our revenues and profits. Any unscheduled interruption in our services results in an immediate, and possibly substantial, loss of revenues. Frequent or persistent interruptions in our services could cause current or potential consumers to believe that our systems are unreliable, leading them to switch to our competitors or to avoid our websites or services, and could permanently harm our reputation.

Although our systems have been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, computer viruses, computer denial-of-service attacks, and similar events or disruptions. Some of our systems are not fully redundant, and our disaster recovery planning may not be sufficient for all eventualities. Our systems also are subject to break-ins, sabotage, and intentional acts of vandalism. Despite any precautions we may take, the occurrence of a natural disaster, pandemic, a decision by any of our third-party hosting providers to close a facility we use without adequate notice for financial or other reasons, or other unanticipated problems at our hosting facilities could cause system interruptions, delays, and loss of critical data, and result in lengthy interruptions in our services. Our business interruption insurance may not be sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures.

Climate change and related regulatory responses may impact our business. Climate change as a result of emissions of greenhouse gases is a significant topic of discussion and may generate federal and other regulatory responses. It is impracticable to predict with any certainty the impact on our business of climate change or the regulatory responses to it, although we recognize that they could be significant. The most direct impact is likely to be an increase in energy costs, which would adversely impact consumers and their ability to incur and repay indebtedness. However, we are uncertain of the ultimate impact, either directionally or quantitatively, of climate change and related regulatory responses on our business.

We have elected the fair value option effective as of January 1, 2020, and we use estimates in determining the fair value of our loans. If our estimates prove incorrect, we may be required to write down the value of these assets, which could adversely affect our results of operations. Our ability to measure and report our financial position and results of operations is influenced by the need to estimate the impact or outcome of future events on the basis of information available at the time of the issuance of the financial statements. Further, most of these estimates are determined using Level 3 inputs for which changes could significantly impact our fair value measurements. A variety of factors including, but not limited to, estimated yields on consumer receivables, customer default rates, the timing of expected payments, estimated costs to service the portfolio, interest rates, and valuations of comparable portfolios may ultimately affect the fair values of our loans and finance receivables. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows. Management has processes in place to monitor these judgments and assumptions, but these processes may not ensure that our judgments and assumptions are correct.

Our allowance for uncollectible loans is determined based upon both objective and subjective factors and may not be adequate to absorb loan losses.We face the risk that customers will fail to repay their loans in full. Through our analysis of loan performance, delinquency data, charge-off data, economic trends and the potential effects of those economic trends on consumers, we establish an allowance for uncollectible loans, interest and fees receivable as an estimate of the probable losses inherent within those loans, interest and fees receivable that we do not report at fair value. We determine the necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the following unique to each type of receivable pool: historical loss rates; current delinquency and roll-rate trends; vintage analyses based on the number of months an account has been in existence; the effects of changes in the economy on a consumer; changes in underwriting criteria; and estimated recoveries. These inputs are considered in conjunction with (and potentially reduced by) any unearned fees and discounts that may be applicable for an outstanding loan receivable. Actual losses are difficult to forecast, especially if such losses are due to factors beyond our historical experience or control. As a result, our allowance for uncollectible loans may not be adequate to absorb incurred losses or prevent a material adverse effect on our business, financial condition and results of operations. Losses are the largest cost as a percentage of revenues across all of our products. Fraud and customers not being able to repay their loans are both significant drivers of loss rates. If we experienced rising credit or fraud losses this would significantly reduce our earnings and profit margins and could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.

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Risks Relating to an Investment in Our Securities

The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell your shares of our common stock when you want or at prices you find attractive. The price of our common stock on the NASDAQ Global Select Market constantly changes. We expect that the market price of our common stock will continue to fluctuate. The market price of our common stock may fluctuate in response to numerous factors, many of which are beyond our control. These factors include the following:

~~actual or anticipated fluctuations in our operating results;~~

~~changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;~~

~~the overall financing environment, which is critical to our value;~~

~~the operating and stock performance of our competitors;~~

~~announcements by us or our competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;~~

~~changes in interest rates;~~

~~the announcement of enforcement actions or investigations against us or our competitors or other negative publicity relating to us or our industry;~~

~~changes in GAAP, laws, regulations or the interpretations thereof that affect our various business activities and segments;~~

~~general domestic or international economic, market and political conditions;~~

~~changes in ownership by executive officers, directors and parties related to them who control a majority of our common stock;~~

~~additions or departures of key personnel; and~~

~~future sales of our common stock and the transfer or cancellation of shares of common stock pursuant to a share lending agreement.~~

	•	actual or anticipated fluctuations in our operating results;
	•	changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
	•	the overall financing environment, which is critical to our value;
	•	the operating and stock performance of our competitors;
	•	announcements by us or our competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
	•	changes in interest rates;
	•	the announcement of enforcement actions or investigations against us or our competitors or other negative publicity relating to us or our industry;
	•	changes in generally accepted accounting principles in the U.S. ("GAAP"), laws, regulations or the interpretations thereof that affect our various business activities and segments;
	•	general domestic or international economic, market and political conditions;
	•	changes in ownership by executive officers, directors and parties related to them who control a majority of our common stock;
	•	additions or departures of key personnel; and
	•	future sales of our common stock and the transfer or cancellation of shares of common stock pursuant to a share lending agreement.

In addition, the stock markets from time to time experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.

Future sales of our common stock or equity-related securities in the public market, including sales of our common stock pursuant to share lending agreements or short sale transactions by ~~purchasers~~holders of convertible senior notes, could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings. Sales of significant amounts of our common stock or equity-related securities in the public market, including sales pursuant to share lending agreements, or the perception that such sales will occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. Future sales of shares of common stock or the availability of shares of common stock for future sale, including sales of our common stock in short sale transactions by ~~purchasers~~holders of our convertible senior notes, may have a material adverse effect on the trading price of our common stock.

The shares of Series A Convertible Preferred Stock are senior obligations, rank prior to our common stock with respect to dividends, distributions and payments upon liquidation and have other terms, such as a redemption right, that could negatively impact the value of shares of our common stock. In December 2019, we issued 400,000 shares of Series A Convertible Preferred Stock. The rights of the holders of our Series A Convertible Preferred Stock with respect to dividends, distributions and payments upon liquidation rank senior to similar obligations to our holders of common stock. Holders of the Series A Convertible Preferred Stock are entitled to receive dividends on each share of such stock equal to 6% per annum on the liquidation preference of $100. The dividends on the Series A Convertible Preferred Stock are cumulative and non-compounding and must be paid before we pay any dividends on the common stock.

In the event of our liquidation, dissolution or the winding up of our affairs, the holders of our Series A Convertible Preferred Stock have the right to receive a liquidation preference entitling them to be paid out of our assets generally available for distribution to our equity holders and before any payment may be made to holders of our common stock in an amount equal to $100 per share of Series A Convertible Preferred Stock plus any accrued but unpaid dividends.

Further, on and after January 1, 2024, the holders of the Series A Convertible Preferred Stock will have the right to require us to purchase outstanding shares of Series A Convertible Preferred Stock for an amount equal to $100 per share plus any accrued but unpaid dividends. This redemption right could expose us to a liquidity risk if we do not have sufficient cash resources at hand or are not able to find financing on sufficiently attractive terms to comply with our obligations to repurchase the Series A Convertible Preferred Stock upon exercise of such redemption right.

Our obligations to the holders of Series A Convertible Preferred Stock also could limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition and the value of our common stock.

Our outstanding Series A Convertible Preferred Stock has anti-dilution protection that, if triggered, could cause substantial dilution to our then-existing holders of common stock, which could adversely affect our stock price. The document governing the terms of our outstanding Series A Convertible Preferred Stock contains anti-dilution provisions to benefit the holders of such stock. As a result, if we, in the future, issue common stock or other derivative securities, subject to specified exceptions, for a per share price less than the then existing conversion price of the Series A Convertible Preferred Stock, an adjustment to the then current conversion price would occur. This reduction in the conversion price could result in substantial dilution to our then-existing holders of common stock, which could adversely affect the price of our common stock.

We have no current plans to pay cash dividends on our common stock for the foreseeable future, and an increase in the market price of our common stock, if any, may be the sole source of gain on your investment. With the exception of dividends payable on our Series A Convertible Preferred Stock, we currently intend to retain any future earnings for use in the operation and expansion of our business and do not expect to pay any dividends on our common stock in the foreseeable future. The declaration and payment of all future dividends on our common stock, if any, will be at the sole discretion of our board of directors, which retains the right to change our dividend policy at any time. Any decision by our board of directors to declare and pay dividends in the future will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions, restrictions on dividends imposed by the document governing the terms of the Series A Convertible Preferred Stock and other factors that our board of directors may deem relevant. Consequently, appreciation in the market price of our common stock, if any, may be the sole source of gain on your investment for the foreseeable future.

Holders of the Series A Convertible Preferred Stock are entitled to receive dividends on each share of such stock equal to 6% per annum on the liquidation preference of $100. The dividends on the Series A Convertible Preferred Stock are cumulative and non-compounding and must be paid before we pay any dividends on the common stock.

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We have the ability to issue additional preferred stock, warrants, convertible debt and other securities without shareholder approval. Our common stock may be subordinate to additional classes of preferred stock issued in the future in the payment of dividends and other distributions made with respect to common stock, including distributions upon liquidation or dissolution. Our articles of incorporation permit our Board of Directors to issue preferred stock without first obtaining shareholder ~~approval.~~approval, which we did in December 2019 when we issued the Series A Convertible Preferred Stock. If we issue additional classes of preferred stock, these additional securities may have dividend or liquidation preferences senior to the common stock. If we issue additional classes of convertible preferred stock, a subsequent conversion may dilute the current common shareholders’ interest. We have similar abilities to issue convertible debt, warrants and other equity securities.

Our executive officers, directors and parties related to them, in the aggregate, control a majority of our common stock and may have the ability to control matters requiring shareholder approval. Our executive officers, directors and parties related to them own a large enough share of our common stock to have an influence on, if not control of, the matters presented to shareholders. As a result, these shareholders may have the ability to control matters requiring shareholder approval, including the election and removal of directors, the approval of significant corporate transactions, such as any reclassification, reorganization, merger, consolidation or sale of all or substantially all of our assets and the control of our management and affairs. Accordingly, this concentration of ownership may have the effect of delaying, deferring or preventing a change of control of us, impede a merger, consolidation, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could have an adverse effect on the market price of our common stock.

The right to receive payments on our convertible senior notes is subordinate to the rights of our existing and future secured creditors. Our convertible senior notes are unsecured and are subordinate to existing and future secured obligations to the extent of the value of the assets securing such obligations. As a result, in the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding of our company, our assets generally would be available to satisfy obligations of our secured debt before any payment may be made on the convertible senior notes. To the extent that such assets cannot satisfy in full our secured debt, the holders of such debt would have a claim for any shortfall that would rank equally in right of payment (or effectively senior if the debt were issued by a subsidiary) with the convertible senior notes. In such an event, we may not have sufficient assets remaining to pay amounts on any or all of the convertible senior notes.

As of ~~September~~June 30, ~~2017,~~2020, Atlanticus Holdings Corporation had outstanding: ~~$225.1~~$683.3 million of secured indebtedness, which would rank senior in right of payment to the convertible senior notes; ~~$116.0~~$40.8 million of senior unsecured indebtedness in addition to the convertible senior notes that would rank equal in right of payment to the convertible senior notes; and no subordinated indebtedness. Included in senior secured indebtedness are certain guarantees we have executed in favor of our subsidiaries. For more information on our outstanding indebtedness, See Note 7,9, “Notes Payable,” to our consolidated financial statements included herein.

Our convertible senior notes are junior to the indebtedness of our subsidiaries. Our convertible senior notes are structurally subordinated to the existing and future claims of our subsidiaries’ creditors. Holders of the convertible senior notes are not creditors of our subsidiaries. Any claims of holders of the convertible senior notes to the assets of our subsidiaries

derive from our own equity interests in those subsidiaries. Claims of our subsidiaries’ creditors will generally have priority as to the assets of our subsidiaries over our own equity interest claims and will therefore have priority over the holders of the convertible senior notes. Consequently, the convertible senior notes are effectively subordinate to all liabilities, whether or not secured, of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. Our subsidiaries’ creditors also may include general creditors and taxing authorities. As of ~~September~~June 30, ~~2017,~~2020, our subsidiaries had total liabilities of approximately ~~$310.8~~$730.7 million (including the ~~$225.1~~$683.3 million of senior secured indebtedness mentioned above), excluding intercompany indebtedness. In addition, in the future, we may decide to increase the portion of our activities that we conduct through subsidiaries.

Note Regarding Risk Factors

The risk factors presented above are all of the ones that we currently consider material. However, they are not the only ones facing our company. Additional risks not presently known to us, or which we currently consider immaterial, also may adversely affect us. There may be risks that a particular investor views differently from us, and our analysis might be wrong. If any of the risks that we face actually occurs, our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements that we have made or might make. In such case, the trading price of our common stock or other securities could decline, and you could lose part or all of your investment. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth information with respect to our repurchases of common stock during the three months ended ~~September~~June 30, ~~2017.~~

Total Number of
Shares Purchased Average Price
Paid per Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs Maximum Number
of Shares that May
Yet Be Purchased
under the Plans or
Programs (1)(2)
July 1 - July 31 —
$ —
—
4,912,401
August 1 - August 31 84,225
$ 2.49
17,525
4,894,876
September 1 - September 30 23,691
$ 2.48
23,691
4,871,185
Total 107,916
$ 2.49
41,216
4,871,185

2020.

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (2)
April 1 - April 30		10,999	$	10.18		9,216		4,309,491
May 1 - May 31		—	$	—		—		5,000,000
June 1 - June 30		—	$	—		—		5,000,000
Total		10,999	$	10.18		9,216		5,000,000


(1)	Because withholding tax-related stock repurchases are permitted outside the scope of our 5,000,000 share Board-authorized repurchase plan, these amounts exclude shares of stock returned to us by employees in satisfaction of withholding tax requirements on vested stock grants. There were ~~66,700~~1,783 such shares returned to us during the three months ended ~~September~~June 30, ~~2017.~~

	2020.
~~(2)~~	(2)	Pursuant to a share repurchase plan authorized by our Board of Directors on May ~~12, 2016,~~7, 2020, we are authorized to repurchase 5,000,000 shares of our common stock through June 30, ~~2018.~~2022.

We will continue to evaluate our stock price relative to other investment opportunities and, to the extent we believe that the repurchase of our stock represents an appropriate return of capital, we will repurchase shares of our stock.



ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.



ITEM 4.	MINE SAFETY DISCLOSURES

None.



ITEM 5.	OTHER INFORMATION

None.



ITEM 6.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


Exhibit Number
~~Exhibit Number~~	Description of Exhibit	Incorporated by Reference from Atlanticus’ SEC Filings Unless Otherwise Indicated
10.1	~~Outside Director Compensation Package~~Amended and Restated Program Management Agreement, dated April 1, 2020, between The Bank of Missouri and Atlanticus Services Corporation	Filed herewith
10.1(a)	First Amendment to Amended and Restated Program Management Agreement, dated June 30, 2020, between The Bank of Missouri and Atlanticus Services Corporation	Filed herewith
10.2*	Amended and Restated Receivable Sales Agreement, dated April 1, 2020, between The Bank of Missouri and Fortiva Funding, LLC	Filed herewith
10.2(a)	First Amendment to Amended and Restated Receivable Sales Agreement, dated June 30, 2020, between The Bank of Missouri and Fortiva Funding, LLC	Filed herewith
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)	Filed herewith
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)	Filed herewith
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350	Filed herewith
101.INS	XBRL Instance Document	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	XBRL Taxonomy Presentation Linkbase Document	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith

* Certain portions of this document have been excluded because they are both not material and would likely cause competitive harm to the Company if publicly disclosed.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Atlanticus Holdings Corporation

		~~ATLANTICUS HOLDINGS CORPORATION~~
August 14, 2020	By:	/s/ William R. McCamey

~~November 14, 2017~~		By	~~/s/ WILLIAM R. McCAMEY~~
			William R. McCamey
			Chief Financial Officer
			(duly authorized officer and principal financial officer)



	September 30, 2017			December 31, 2016
Assets
Unrestricted cash and cash equivalents	$	68,582		$	76,052
Restricted cash and cash equivalents	28,659			16,589
Loans and fees receivable:
Loans and fees receivable, at fair value	12,019			15,648
Loans and fees receivable, gross	359,823			290,697
Allowances for uncollectible loans and fees receivable	(52,118		)	(43,275		)
Deferred revenue	(35,881		)	(23,639		)
Net loans and fees receivable	283,843			239,431
Rental merchandise, net of depreciation	—			27
Property at cost, net of depreciation	3,296			3,829
Investment in equity-method investee	4,745			6,725
Deposits	306			505
Prepaid expenses and other assets	39,636			19,389
Total assets	$	429,067		$	362,547
Liabilities
Accounts payable and accrued expenses	$	114,883		$	86,768
Notes payable, at face value, net	208,980			141,166
Notes payable to related parties	40,000			40,000
Notes payable associated with structured financings, at fair value	9,769			12,276
Convertible senior notes	61,238			60,791
Income tax liability	11,059			15,769
Total liabilities	445,929			356,770
Commitments and contingencies (Note 9)
Equity
Common stock, no par value, 150,000,000 shares authorized: 15,335,468 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at September 30, 2017; and 15,348,086 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at December 31, 2016	—			—
Additional paid-in capital	212,618			211,646
Accumulated other comprehensive loss	(1,096		)	—
Retained deficit	(228,382		)	(205,859		)
Total shareholders’ equity	(16,860		)	5,787
Noncontrolling interests	(2		)	(10		)
Total equity	(16,862		)	5,777
Total liabilities and equity	$	429,067		$	362,547



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Interest income:
Consumer loans, including past due fees	$	28,985		$	24,053		$	81,457		$	63,663
Other	34			36			178			188
Total interest income	29,019			24,089			81,635			63,851
Interest expense	(7,268		)	(5,257		)	(19,504		)	(14,693		)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable	21,751			18,832			62,131			49,158
Fees and related income on earning assets	4,166			75			10,938			13,840
Net recovery of charge off of loans and fees receivable recorded at fair value	2,393			1,556			10,763			12,607
Provision for losses on loans and fees receivable recorded at net realizable value	(24,087		)	(17,470		)	(50,484		)	(33,012		)
Net interest income, fees and related income on earning assets	4,223			2,993			33,348			42,593
Other operating income:
Servicing income	1,034			885			2,984			3,313
Other income	590			69			939			214
Gain on repurchase of convertible senior notes	—			—			—			1,037
Equity in income of equity-method investee	164			629			902			1,956
Total other operating income	1,788			1,583			4,825			6,520
Other operating expense:
Salaries and benefits	5,296			6,329			16,314			18,242
Card and loan servicing	8,687			7,027			23,866			23,300
Marketing and solicitation	2,072			587			6,731			2,374
Depreciation	236			794			789			7,049
Other	4,210			3,570			16,842			6,199
Total other operating expense	20,501			18,307			64,542			57,164
Loss before income taxes	(14,490		)	(13,731		)	(26,369		)	(8,051		)
Income tax benefit	22			4,666			3,847			3,811
Net loss	(14,468		)	(9,065		)	(22,522		)	(4,240		)
Net (income) loss attributable to noncontrolling interests	1			—			(1		)	5
Net loss attributable to controlling interests	$	(14,467	)	$	(9,065	)	$	(22,523	)	$	(4,235	)
Net loss attributable to controlling interests per common share—basic	$	(1.04	)	$	(0.65	)	$	(1.61	)	$	(0.31	)
Net loss attributable to controlling interests per common share—diluted	$	(1.04	)	$	(0.65	)	$	(1.61	)	$	(0.31	)



As of September 30, 2017	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans and fees receivable:
Balance at end of period individually evaluated for impairment	$	—		$	—		$	(0.2	)	$	(0.2	)
Balance at end of period collectively evaluated for impairment	$	(8.8	)	$	(2.0	)	$	(41.1	)	$	(51.9	)
Loans and fees receivable:
Loans and fees receivable, gross	$	61.8		$	75.5		$	222.5		$	359.8
Loans and fees receivable individually evaluated for impairment	$	—		$	0.2		$	0.2		$	0.4
Loans and fees receivable collectively evaluated for impairment	$	61.8		$	75.3		$	222.3		$	359.4



As of December 31, 2016	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans and fees receivable:
Balance at end of period individually evaluated for impairment	$	—		$	(0.3	)	$	(0.3	)	$	(0.6	)
Balance at end of period collectively evaluated for impairment	$	(1.4	)	$	(1.8	)	$	(39.5	)	$	(42.7	)
Loans and fees receivable:
Loans and fees receivable, gross	$	11.0		$	77.1		$	202.6		$	290.7
Loans and fees receivable individually evaluated for impairment	$	—		$	0.7		$	0.3		$	1.0
Loans and fees receivable collectively evaluated for impairment	$	11.0		$	76.4		$	202.3		$	289.7



Balance at September 30, 2017	Credit Cards		Auto Finance		Other Unsecured Lending Products		Total
30-59 days past due	$	1.7	$	6.3	$	9.3	$	17.3
60-89 days past due	0.8		2.2		7.1		10.1
90 or more days past due	1.4		1.7		14.2		17.3
Delinquent loans and fees receivable, gross	3.9		10.2		30.6		44.7
Current loans and fees receivable, gross	57.9		65.3		191.9		315.1
Total loans and fees receivable, gross	$	61.8	$	75.5	$	222.5	$	359.8
Balance of loans 90 or more days past due and still accruing interest and fees	$	—	$	1.3	$	—	$	1.3



Balance at December 31, 2016	Credit Cards		Auto Finance		Other Unsecured Lending Products		Total
30-59 days past due	$	0.2	$	7.0	$	8.2	$	15.4
60-89 days past due	0.2		2.4		6.7		9.3
90 or more days past due	0.4		1.9		11.4		13.7
Delinquent loans and fees receivable, gross	0.8		11.3		26.3		38.4
Current loans and fees receivable, gross	10.2		65.8		176.3		252.3
Total loans and fees receivable, gross	$	11.0	$	77.1	$	202.6	$	290.7
Balance of loans 90 or more days past due and still accruing interest and fees	$	—	$	1.5	$	—	$	1.5



	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Fees on credit products	$	3,248		$	944		$	6,351		$	2,599
Changes in fair value of loans and fees receivable recorded at fair value	1,153			(1,857		)	2,718			568
Changes in fair value of notes payable associated with structured financings recorded at fair value	259			259			1,786			2,363
Rental revenue	—			758			148			8,091
Other	(494		)	(29		)	(65		)	219
Total fees and related income on earning assets	$	4,166		$	75		$	10,938		$	13,840



Three months ended September 30, 2017	Credit and Other Investments			Auto Finance			Total
Interest income:
Consumer loans, including past due fees	$	21,901		$	7,084		$	28,985
Other	34			—			34
Total interest income	21,935			7,084			29,019
Interest expense	(6,998		)	(270		)	(7,268		)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable	$	14,937		$	6,814		$	21,751
Fees and related income on earning assets	$	4,137		$	29		$	4,166
Servicing income	$	831		$	203		$	1,034
Depreciation of rental merchandise	$	—		$	—		$	—
Equity in income of equity-method investee	$	164		$	—		$	164
(Loss) income before income taxes	$	(16,547	)	$	2,057		$	(14,490	)
Income tax benefit (expense)	$	655		$	(633	)	$	22

Nine months ended September 30, 2017	Credit and Other Investments			Auto Finance			Total
Interest income:
Consumer loans, including past due fees	$	60,320		$	21,137		$	81,457
Other	178			—			178
Total interest income	60,498			21,137			81,635
Interest expense	(18,758		)	(746		)	(19,504		)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable	$	41,740		$	20,391		$	62,131
Fees and related income on earning assets	$	10,859		$	79		$	10,938
Servicing income	$	2,332		$	652		$	2,984
Depreciation of rental merchandise	$	(27	)	$	—		$	(27	)
Equity in income of equity-method investee	$	902		$	—		$	902
(Loss) income before income taxes	$	(32,071	)	$	5,702		$	(26,369	)
Income tax benefit (expense)	$	5,677		$	(1,830	)	$	3,847
Total assets	$	363,526		$	65,541		$	429,067



Three months ended September 30, 2016	Credit and Other Investments			Auto Finance			Total
Interest income:
Consumer loans, including past due fees	$	16,701		$	7,352		$	24,053
Other	36			—			36
Total interest income	16,737			7,352			24,089
Interest expense	(4,944		)	(313		)	(5,257		)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable	$	11,793		$	7,039		$	18,832
Fees and related income on earning assets	$	92		$	(17	)	$	75
Servicing income	$	645		$	240		$	885
Gain on repurchase of convertible senior notes	$	—		$	—		$	—
Depreciation of rental merchandise	$	(458	)	$	—		$	(458	)
Equity in income of equity-method investee	$	629		$	—		$	629
(Loss) income before income taxes	$	(15,709	)	$	1,978		$	(13,731	)
Income tax benefit (expense)	$	5,296		$	(630	)	$	4,666

Nine months ended September 30, 2016	Credit and Other Investments			Auto Finance			Total
Interest income:
Consumer loans, including past due fees	$	42,018		$	21,645		$	63,663
Other	188			—			188
Total interest income	42,206			21,645			63,851
Interest expense	(13,735		)	(958		)	(14,693		)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable	$	28,471		$	20,687		$	49,158
Fees and related income on earning assets	$	13,761		$	79		$	13,840
Servicing income	$	2,569		$	744		$	3,313
Gain on repurchase of convertible senior notes	$	1,037		$	—		$	1,037
Depreciation of rental merchandise	$	(5,172	)	$	—		$	(5,172	)
Equity in income of equity-method investee	$	1,956		$	—		$	1,956
(Loss) income before income taxes	$	(13,047	)	$	4,996		$	(8,051	)
Income tax benefit (expense)	$	5,500		$	(1,689	)	$	3,811
Total assets	$	267,390		$	68,440		$	335,830



	As of
	September 30, 2017		December 31, 2016
Loans and fees receivable, at fair value	$	6,833	$	9,650
Total assets	$	7,145	$	10,291
Total liabilities	$	28	$	204
Members’ capital	$	7,117	$	10,087



Assets – As of September 30, 2017 (1)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value	$	—	$	—	$	310,557	$	271,824
Loans and fees receivable, at fair value	$	—	$	—	$	12,019	$	12,019



Assets – As of December 31, 2016 (1)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value	$	—	$	—	$	248,171	$	223,783
Loans and fees receivable, at fair value	$	—	$	—	$	15,648	$	15,648



Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements	Fair Value at September 30, 2017		Valuation Technique	Unobservable Input	Range (Weighted Average)
Loans and fees receivable, at fair value	$	12,019	Discounted cash flows	Gross yield	16.3% to 26.7% (24.9%)
				Principal payment rate	1.7% to 2.8% (2.4%)
				Expected credit loss rate	11.2% to 13.4% (11.6%)
				Servicing rate	9.6% to 11.6% (9.8%)
				Discount rate	5.8% to 14.0% (12.7%)



Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements	Fair Value at December 31, 2016		Valuation Technique	Unobservable Input	Range (Weighted Average)
Loans and fees receivable, at fair value	$	15,648	Discounted cash flows	Gross yield	24.2% to 35.8% (26.1%)
				Principal payment rate	2.2% to 3.5% (2.4%)
				Expected credit loss rate	11.8% to 18.0% (12.9%)
				Servicing rate	8.6% to 9.6% (8.8%)
				Discount rate	5.8% to 13.6% (12.5%)



Liabilities – As of September 30, 2017	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Liabilities
Liabilities not carried at fair value
Revolving credit facilities	$	—	$	—	$	143,834	$	143,834
Amortizing debt facilities	$	—	$	—	$	66,191	$	66,191
Senior secured term loan	$	—	$	—	$	40,000	$	40,000
5.875% convertible senior notes	$	—	$	39,064	$	—	$	61,238
Liabilities carried at fair value
Notes payable associated with structured financings, at fair value	$	—	$	—	$	9,769	$	9,769



Liabilities - As of December 31, 2016	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Liabilities
Liabilities not carried at fair value
Revolving credit facilities	$	—	$	—	$	83,399	$	83,399
Amortizing debt facilities	$	—	$	—	$	58,190	$	58,190
Senior secured term loan	$	—	$	—	$	40,000	$	40,000
5.875% convertible senior notes	$	—	$	40,609	$	—	$	60,791
Liabilities carried at fair value
Notes payable associated with structured financings, at fair value	$	—	$	—	$	12,276	$	12,276



As of September 30, 2017	Loans and Fees Receivable at Fair Value		Loans and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value	$	4,810	$	12,473
Aggregate fair value of loans and fees receivable that are reported at fair value	$	2,250	$	9,769
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)	$	5	$	24
Aggregate excess of balance of unpaid principal receivables within loans and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans and fees receivable	$	110	$	347



As of December 31, 2016	Loans and Fees Receivable at Fair Value		Loans and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value	$	6,251	$	16,614
Aggregate fair value of loans and fees receivable that are reported at fair value	$	3,484	$	12,164
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)	$	6	$	22
Aggregate excess of balance of unpaid principal receivables within loans and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans and fees receivable	$	204	$	562



	September 30, 2017
	Number of Shares		Weighted- Average Exercise Price		Weighted- Average of Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2016	1,411,667		$	3.09
Issued	1,215,000		$	2.98
Exercised	—		$	—
Cancelled/Forfeited	(4,000	)	$	3.04
Outstanding at September 30, 2017	2,622,667		$	3.04	3.6	$	10,653
Exercisable at September 30, 2017	792,205		$	2.92	2.3	$	10,653



Revolving credit facility (expiring October 30, 2019) that is secured by certain receivables and restricted cash	$	49.2
Revolving credit facility (expiring November 1, 2018) that is secured by the financial and operating assets of our CAR operations	26.2
Revolving credit facility (expiring December 31, 2019) that is secured by certain receivables and restricted cash	19.7
Senior secured term loan from related parties (expiring November 22, 2017) that is secured by certain assets of the Company with an annual interest rate equal to 9.0%	40.0
Total	$	135.1



	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (1)(2)
July 1 - July 31	—	$	—	—	4,912,401
August 1 - August 31	84,225	$	2.49	17,525	4,894,876
September 1 - September 30	23,691	$	2.48	23,691	4,871,185
Total	107,916	$	2.49	41,216	4,871,185