SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended
of
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 listedtrades on the NASDAQ Global Select Market.
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
Page | |||||||
PART I. FINANCIAL INFORMATION | |||||||
Item 1. | |||||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||||
Item 3. | |||||||
Item 4. | |||||||
PART II. OTHER INFORMATION | |||||||
Item 1. | |||||||
Item 1A. | |||||||
Item 2. | |||||||
Item 3. | |||||||
Item 4. | |||||||
Item 5. | |||||||
Item 6. | |||||||
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.
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.
Consolidated Statements of Comprehensive LossIncome (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.
Consolidated StatementStatements of Shareholders’ Equity
For the NineThree and Six Months Ended SeptemberJune 30, 2017 (Unaudited)
(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.
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.
Notes to Consolidated Financial Statements
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 providingfacilitating 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 OtherWithin our Credit and Other Investments segment, we facilitate consumer finance programs offered by our bank partnerspartner to originate consumer loans through multiple channels, including retail point-of-sale, direct mail solicitation, on-linedigital 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 partnersbank 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 industriesmarket 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 whichthat includes retail point-of-sale, direct mail Internet-basedsolicitation, 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.
Additionally, we report within our Credit and Other Investments segmentsegment: 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.
Within our Auto Finance segment, our CAR subsidiary operations principally purchase andand/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. | |
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
We have eliminated all significant intercompany balances and transactions for financial reporting purposes.
We maintain two categories of Loans, Interest and fees receivable include loansFees Receivable on our consolidated balance sheet: those that are carried at fair value (Loans, interest and fees receivable, at fair valuevalue) and loansthose that are carried at net amortized cost (Loans, interest and fees receivable, gross.
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 SeptemberJune 30, 20172020 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.
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 | ) |
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
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 |
Troubled Debt Restructurings.As part of ongoing collection efforts, once an account, the receivable of which is included in our Credit and Other Assets
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 asaccounts that are current on all amounts owed, to us by third parties. Prepaidwhile “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 portfoliosgeneral 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 |
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 withinCommencing in July 2019, accounts payable and accrued expenses are amounts which may beincludes payments owed in respect of oneunder a deferred payment program started with an unrelated third-party for a portion of our portfolios.
Income Taxes
We experienced effective income tax benefit rates of 0.2%17.7% and 14.6%18.0%, respectively, for the three and ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 2016, respectively.2019. Our effective income tax benefit rates for the three and ninesix months ended SeptemberJune 30, 20172020 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 allowancesstate 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 SeptemberJune 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 periodsuch 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 fullysuch reductions being partially offset by the release of U.K. valuation allowances in thatinterest 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 suchincome tax-related interest and penalties within the income tax benefit or expensesuch 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 ninesix months ended SeptemberJune 30, 2017, our income tax benefits were offset by $0.2 million and $0.5 million of2020, 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.
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 claimsclaim 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, thesettlement. 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 anFollowing correspondence and conferences held with IRS Appeals, conferencewe 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 subjectfailure-to-pay penalties of $0.9 million, and once this matter underlying our amended return claims, andis resolved through either abatement or payment, we are in the process of preparing a supplemental submission to address matters on whichexpect the IRS Appeals Officer needed additional support.
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.
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 |
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 loansperiod earned. Included in Other income for the three and fees receivable recorded at fair value category exclude the impact of charge offssix 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 recoverycontracts with customers is included as a component of charge off of loans and fees
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.
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 weThe 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 continuingcurrently 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 statementsloss estimation methods, processes and related disclosures, thissystems. 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 increasefinancial 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.
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 SeptemberJune 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.
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
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 |
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 |
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. | |
Shareholders’ Equity and |
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 |
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 |
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 |
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 |
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 | % |
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 |
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 |
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 |
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 providesprovided for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding. TheOn 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 AgreementAgreement. 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 asperpetual 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 daterequest of a majority of the term loanholders of the Series A Preferred Stock, the Company shall offer to November 22, 2017. All other terms remain unchanged.
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.
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.
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.
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 six months ended June 30, 2020 and 2019:
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 |
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 when recognized.
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.
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 June 30, 2020 and December 31, 2019:
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 |
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.
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 thesix months ended June 30, 2020 and 2019.
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 |
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. 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.
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 June 30, 2020 and December 31, 2019:
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 | % |
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 |
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 |
8. | 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.
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.
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.
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 SeptemberJune 30, 2017)2020) to an unaffiliated third party pursuant to a facility that can be drawn upon to the extent of outstanding eligible receivables.
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.
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. | |
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.
On August 26, 2019, we repurchased $5.0$54.4 million aggregate principalin face amount of our outstanding 5.875% convertible senior notes for $2.3$16.3 million plusin 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 purchaserepurchase resulted in a gain of $1.2approximately $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.
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 | $ | — | $ | — |
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. | |
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
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 allowfloor 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
Under agreements with third-partythird-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 SeptemberJune 30, 2017 2020to support various ongoing contractual obligations.
Under agreements with third-partythird-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
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 whichbusiness. There are currently no pending legal proceedings that are expected to be material to us.
12. | |
Net |
The following table sets forth the computations of net lossincome attributable to controlling interests per share of common sharestock (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) | Shares related to unvested share-based payment awards included in our basic and diluted share counts were |
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 |
For the three and
13. | Stock-Based Compensation |
We currently have
two stock-based compensation plans, the Second Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and theExercises and vestings under our stock-based compensation plans resulted in $0 inno income tax-related charges to additional paid-in capital during both the three and ninesix months ended
Restricted Stock and Restricted Stock Unit Awards
During the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, we granted 102,00058,248 and
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 ninethree and six months ended SeptemberJune 30, 20172020 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 optionsThe 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-vestedunvested stock options as of SeptemberJune 30, 2017 2020and 2016, December 31, 2019, respectively.
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-year23-year operating history to support lenders who originate a range of consumer loan products. These products include retail credit personal loans, and credit cards marketedoriginated 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 lendingbank 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-basedand 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 offeringsupporting 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.
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.
Additionally, we report within our Credit and Other Investments segmentsegment: (1) the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer.
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.
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.
Beyond these activities within our Credit and manageOther Investments segment, we invest in and service portfolios of credit card receivables. One of our expenses basedportfolios 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 builtthe 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.
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.”
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 | ) |
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 NineSix Months Ended
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 fromInterest 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 theFees and related income on earning assets.
The significant factors affecting our differing levels of fees and related income on earning assets include: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 carddirect-to-consumer fee income for the remainder of 2017 and into 2018throughout 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 liquidatingreceivables. For credit card receivables. Additionally, for credit card accountsreceivables 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 andto 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 theAdditionally, we expect to recognize certain fee billings (such as annual membership fees) associated with receivables and underlying debt being recorded ataccounted 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 withrelated 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 reductionslevels 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.
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 experienceOther income
.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 offimpairment of loans, interest and fees receivable recorded at fair value.
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 theTotal other operating expense.
Total other operating expense variances for the three andincreases in cardsalaries reflecting marginal growth in both the number of employees and loan servicing expensesincreases in the three and nine months ended September 30, 2017related benefit costs. We expect some marginal increase in this cost for 2020 when compared to the three2019 as we expect to maintain staffing levels and nine months ended September 30, 2016 due toalso 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 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 historicallegacy 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
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
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 effectiveOur effective income tax benefit rate for the three months ended SeptemberJune 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 periodsuch 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 fullysuch reductions being partially offset by the release of U.K. valuation allowances in thatinterest 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 suchincome tax-related interest and penalties within the income tax benefit or expensesuch 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 ninesix months ended SeptemberJune 30, 2017, our income tax benefits were offset by $0.2 million and $0.5 million of2020, 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.
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 claimsclaim 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, thesettlement. 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 anFollowing correspondence and conferences held with IRS Appeals, conferencewe 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 subjectfailure-to-pay penalties of $0.9 million, and once this matter underlying our amended return claims, andis resolved through either abatement or payment, we are in the process of preparing a supplemental submission to address matters on whichexpect the IRS Appeals Officer needed additional support.
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 discountsmerchant fees associated with the point-of-sale receivables or annual fees on our direct-to-consumer receivables.
We record (i) the finance charges, discountmerchant 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 offimpairment 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.
We make various references within our discussion of the Credit and Other Investments segment to our managed receivables. In calculatingOur managed receivables data we include within managed receivablesincludes only the performance of those receivables we manage for ourunderlying consolidated subsidiaries but we excludeand excludes from managed receivables any noncontrolling interest holders’ sharesdata 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 withincalculate average managed receivables only our economic share ofbased on the receivables that we manage for our equity-method investee.
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 revealsprovides 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 thatthat: (1) our managed receivables data are based on billings and actual charge offscharge-offs as they occur, without regard to any changes in our allowance for uncollectible loans, interest and fees receivable or any changes inreceivable; (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 loansoption; 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 offnet 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 itemsitem 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 difficultwe do not expect to determinereceive 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 effectsassets 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 anythe corresponding receivable and recognize certain costs, such reimbursements that may be received.
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 ourThe 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 | % |
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 offeringspoint-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 ourthe point-of-sale and direct-to-consumer products offered by our bank partners from SeptemberJune 30, 20162019 to SeptemberJune 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 givendirect-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. Whiletwelve 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 growthduring 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 operationsorigination 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.
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 portionyounger 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 measuringreviewing delinquency rates. These rates exclude receivables that have been charged off.
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).
Total yield ratio
. Currently, we are experiencing growth inAbsent 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 receivablestotal 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 asfluctuate 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.
Combined gross charge-off ratio and Adjusted charge-off ratio.
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 combinedCombined 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 continued2018 and first quarter of 2019 reflect the expected higher charge-off rates associated with a mix shift to negatively impacthigher 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 offerings2020 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-charge2020 further reflects the positive impacts of a bulk sale of charged off period untilreceivables 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.
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 increasingcontinued elevated charge off rates when compared to historical results. This expectation is based onresults, 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 associatedcorresponding with historical credit card receivables due to the continued liquidation ofhigher yields on these receivables, (2) continued testing of receivables with higher risk profiles, (3) the low charge-off ratios experiencedwhich 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. Offsettingperiods, (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 beexpectations.
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 underlyingsame 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 serveor 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.
CAR, our auto sales and lending activities.
Collectively, as of SeptemberJune 30, 2017,2020, we served more than
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.
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 priorDelinquencies.
Current delinquency levels are consistent with our expectations for levels in the near term with someTotal 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.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 2017the 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 offcharge-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.
Definitions of Financial, Operating and Statistical Measures
Total yield ratio.
Represents an annualized fraction, the numerator of which includesCombined 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.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 quarterlyyear-over-year growth of total managed receivables levels, and we expect thismodest 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) obtainingadding 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.
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 SeptemberJune 30, 20172020 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 |
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.
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 SeptemberJune 30, 2017
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 DecemberNovember 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 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 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.
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%.
On November 26, 2014, we reachedand certain of our subsidiaries entered into a settlementLoan and Security Agreement with the IRS concerning the tax treatmentDove 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 backup 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 interestany 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 penaltiesSecurity 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 millionshares of Series A Preferred Stock on or after January 1, 2025 at September 30, 2017. Priora 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) underrequest of a negotiated provisionmajority of the IRS settlement,holders of the IRS filedSeries A Preferred Stock, the Company is required to offer to redeem all of the Series A Preferred Stock at a lien (asredemption 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 customarilyconvertible into the case) associated withnumber 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 deniedinitial 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 relatedany event, the majority of our revolving credit facilities mature prior to the subject matter underlyingexpected 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 incurrently do not expect the processimpact to be material to the Company.
At SeptemberJune 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 ninesix months ended SeptemberJune 30, 20172020 and 2019 are as follows:
• | 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 theinvestments in point-of-sale and direct-to-consumer finance operationsreceivables 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 4,871,185up to 5,000,000 shares of our common stock through June 30, 2018.
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.
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.
Revenue Recognition
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.
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 collectedgross 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 collectedgross 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.
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 statementstatements 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.
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 20162019 and 2015,2018, respectively. The aggregate amount of payments required under the sublease from January 1, 20172020 to the expiration of the sublease in May 2022 is $150,717.
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 ninesix months ended SeptemberJune 30, 20172020 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 providesprovided for a senior secured term loan facility in
We make forward-looking statements in this reportReport 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 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.
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.
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 SeptemberJune 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.
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.
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.
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 collectibilitycollectability 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. OurEconomic 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.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.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 theWe 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 generallyoverall 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.
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.
The recent growth of our recent purchasesinvestments in point-of-sale finance and direct-to-consumer receivables may not be indicative of credit cardour ability to grow such receivables our aggregate credit cardin the future. Our period-end managed receivables contracted over the last several years.
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,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 supportsupports 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
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.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 bankssupport 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.
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. |
Material regulatory developments may adversely impact our business and results from operations.
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.
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.”
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.
We are party to litigation.
We areWe face heightened levels of economic risk associated with new investment activities.
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 paymentFailure 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 byUnauthorized 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.
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 theIn addition to the foregoing enhanced data security requirements, various federal banking regulatory agencies, and at least 48all 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.
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 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 purchasersholders of convertible senior notes, could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings.
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.
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 SeptemberJune 30, 2017,2020, Atlanticus Holdings Corporation had outstanding:
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 subsidiariesNote 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.ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth information with respect to our repurchases of common stock during the three months ended SeptemberJune 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 |
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 |
2020. | ||
(2) | Pursuant to a share repurchase plan authorized by our Board of Directors on May |
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.
None.
None.
None.
Exhibit Number | ||||
Description of Exhibit | Incorporated by Reference from Atlanticus’ SEC Filings Unless Otherwise Indicated | |||
10.1 | 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 | Filed herewith | |||
31.2 | Filed herewith | |||
32.1 | 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.
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 | |||||
August 14, 2020 | By: | /s/ William R. McCamey | |||
William R. McCamey | |||||
Chief Financial Officer | |||||
(duly authorized officer and principal financial officer) |