SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
of
ATLANTICUS HOLDINGS CORPORATION
a
IRS Employer Identification No.
SEC File Number
(
| Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the "Act") | ||
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | | ☒ |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b- 2).
As of May 3, 2022,
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| PART I. FINANCIAL INFORMATION |
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Item 1. |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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| PART II. OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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| ITEM 1. |
FINANCIAL STATEMENTS |
Atlanticus Holdings Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Unrestricted cash and cash equivalents (including $ million and $209.5 million associated with variable interest entities at March 31, 2022 and December 31, 2021, respectively) | $ | $ | ||||||
| Restricted cash and cash equivalents (including $ million and $ million associated with variable interest entities at March 31, 2022 and December 31, 2021, respectively) | ||||||||
| Loans, interest and fees receivable: | ||||||||
| Loans, interest and fees receivable, at fair value (including $ million and $ million associated with variable interest entities at March 31, 2022 and December 31, 2021, respectively) | ||||||||
| Loans, interest and fees receivable, gross (including $ million associated with variable interest entities at December 31, 2021) | ||||||||
| Allowances for uncollectible loans, interest and fees receivable (including $ million associated with variable interest entities at December 31, 2021) | ( | ) | ( | ) | ||||
| Deferred revenue (including $ million associated with variable interest entities at December 31, 2021) | ( | ) | ( | ) | ||||
| Net loans, interest and fees receivable | ||||||||
| Property at cost, net of depreciation | ||||||||
| Operating lease right-of-use assets | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Operating lease liabilities | ||||||||
| Notes payable, net (including $ million and $ million associated with variable interest entities at March 31, 2022 and December 31, 2021, respectively) | ||||||||
| Senior notes, net | ||||||||
| Income tax liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Preferred stock, par value, shares authorized: | ||||||||
| Series A preferred stock, shares issued and outstanding at March 31, 2022 (liquidation preference - $ million); shares issued and outstanding at December 31, 2021 (Note 4) (1) | ||||||||
| Class B preferred units issued to noncontrolling interests (Note 4) | ||||||||
| Shareholders' Equity | ||||||||
| Series B preferred stock, par value, shares issued and outstanding at March 31, 2022 (liquidation preference - $ million); shares issued and outstanding at December 31, 2021 (1) | ||||||||
| Common stock, par value, shares authorized: and shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | ||||||||
| Paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total shareholders’ equity | ||||||||
| Noncontrolling interests | ( | ) | ( | ) | ||||
| Total equity | ||||||||
| Total liabilities, preferred stock and equity | $ | $ | ||||||
(1) Both the Series A preferred stock and the Series B preferred stock have no par value and are part of the same aggregate 10,000,000 shares authorized.
See accompanying notes.
Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
| For the Three Months Ended |
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| March 31, |
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| 2022 |
2021 |
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| Revenue: |
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| Consumer loans, including past due fees |
$ | $ | ||||||
| Fees and related income on earning assets |
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| Other revenue |
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| Total operating revenue, net |
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| Other non-operating revenue |
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| Total revenue |
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| Interest expense |
( |
) | ( |
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| Provision for losses on loans, interest and fees receivable recorded at net realizable value |
( |
) | ( |
) | ||||
| Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value |
( |
) | ( |
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| Net margin |
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| Operating expense: |
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| Salaries and benefits |
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| Card and loan servicing |
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| Marketing and solicitation |
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| Depreciation |
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| Other |
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| Total operating expense |
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| Loss on repurchase and redemption of convertible senior notes |
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| Income before income taxes |
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| Income tax benefit (expense) |
( |
) | ||||||
| Net income |
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| Net loss attributable to noncontrolling interests |
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| Net income attributable to controlling interests |
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| Preferred dividends and discount accretion |
( |
) | ( |
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| Net income attributable to common shareholders |
$ | $ | ||||||
| Net income attributable to common shareholders per common share—basic |
$ | $ | ||||||
| Net income attributable to common shareholders per common share—diluted |
$ | $ | ||||||
See accompanying notes.
Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Unaudited)
For the Three Months Ended March 31, 2022 and March 31, 2021
(Dollars in thousands)
| Series B Preferred Stock |
Common Stock |
Temporary Equity |
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| Shares Issued |
Amount |
Shares Issued |
Amount |
Paid-In Capital |
Retained Earnings |
Noncontrolling Interests |
Total Equity |
Class B Preferred Units |
Series A Preferred Stock | |||||||||||||||||||||||||||||||
| Balance at December 31, 2021 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||||||||
| Cumulative effects from adoption of the CECL standard |
— | — | ||||||||||||||||||||||||||||||||||||||
| Accretion of discount associated with issuance of subsidiary equity |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Preferred dividends |
— | — | ( |
) | ( |
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| Stock option exercises and proceeds related thereto |
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| Compensatory stock issuances, net of forfeitures |
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| Contributions by owners of noncontrolling interests |
— | — | ||||||||||||||||||||||||||||||||||||||
| Deferred stock-based compensation costs |
— | — | ||||||||||||||||||||||||||||||||||||||
| Redemption and retirement of shares |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Net income |
— | — | ( |
) | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||||||||
| Series B Preferred Stock |
Common Stock |
Temporary Equity |
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| Shares Issued |
Amount |
Shares Issued |
Amount |
Paid-In Capital |
Retained Earnings |
Noncontrolling Interests |
Total Equity |
Class B Preferred Units |
Series A Preferred Stock |
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| Balance at December 31, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||||||
| Accretion of discount associated with issuance of subsidiary equity |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Preferred dividends |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Stock option exercises and proceeds related thereto |
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| Compensatory stock issuances, net of forfeitures |
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| Deferred stock-based compensation costs |
— | — | ||||||||||||||||||||||||||||||||||||||
| Redemption and retirement of shares |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Net income |
— | — | ( |
) | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||||||
See accompanying notes.
Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
| For the Three Months Ended March 31, |
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| 2022 |
2021 |
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| Operating activities |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation, amortization and accretion, net |
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| Provision for losses on loans, interest and fees receivable |
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| Interest expense from accretion of discount on notes |
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| Income from accretion of merchant fees and discount associated with receivables purchases |
( |
) | ( |
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| Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value |
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| Amortization of deferred loan costs |
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| Income from equity-method investments |
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| Loss on repurchase and redemption of convertible senior notes |
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| Deferred stock-based compensation costs |
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| Lease liability payments |
( |
) | ( |
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| Changes in assets and liabilities: |
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| Increase in uncollected fees on earning assets |
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) | ( |
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| (Decrease) increase in income tax liability |
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| Increase in accounts payable and accrued expenses |
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| Other |
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| Net cash provided by operating activities |
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| Investing activities |
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| Proceeds from equity-method investee |
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| Proceeds from recoveries on charged off receivables |
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| Investments in earning assets |
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| Proceeds from earning assets |
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| Purchases and development of property, net of disposals |
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| Net cash used in investing activities |
( |
) | ( |
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| Financing activities |
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| Noncontrolling interests contributions |
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| Preferred dividends |
( |
) | ( |
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| Proceeds from exercise of stock options |
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| Purchase and retirement of outstanding stock |
( |
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| Proceeds from borrowings |
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| Repayment of borrowings |
( |
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| Net cash used in financing activities |
( |
) | ( |
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| Effect of exchange rate changes on cash |
( |
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| Net decrease in cash and cash equivalents and restricted cash |
( |
) | ( |
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| Cash and cash equivalents and restricted cash at beginning of period |
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| Cash and cash equivalents and restricted cash at end of period |
$ | $ | ||||||
| Supplemental cash flow information |
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| Cash paid for interest |
$ | $ | ||||||
| Net cash income tax payments |
$ | $ | ||||||
| Increase (decrease) in accrued and unpaid preferred dividends |
$ | $ | ( |
) | ||||
See accompanying notes.
Atlanticus Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2022 and 2021
| 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 a purpose driven financial technology company. We are primarily focused on facilitating consumer credit through the use of our financial technology and related services. Through our subsidiaries, we provide technology and other support services to lenders who offer an array of financial products and services to consumers who may have been declined by other providers of credit.
We are principally engaged in providing products and services to lenders in the U.S. and, in most cases, we invest in the receivables originated by lenders who utilize our technology platform and other related services. From time to time, we also purchase receivables portfolios from third parties. In these Notes to Consolidated Financial Statements, “receivables” or “loans” typically refer to receivables we have purchased from our bank partners or from third parties.
Within our Credit as a Service ("CaaS") segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing over $27 billion in consumer loans over our 25-year operating history, to support lenders in offering more inclusive financial services. These products include private label credit and general purpose credit cards originated by lenders through multiple channels, including retailers and healthcare providers, direct mail solicitation, digital marketing and partnerships with third parties. The services of our bank partners are often extended to consumers who may not have access to financing options with larger financial institutions. We specialize in supporting this “second-look” credit service. Our flexible technology solutions allow our bank partners to integrate our paperless process and instant decisioning platform with the existing infrastructure of participating retailers and service providers. Using our technology and proprietary predictive analytics, lenders can make instant credit decisions utilizing hundreds of inputs from multiple sources and thereby offer credit to consumers overlooked by many providers of financing who focus exclusively on consumers with higher FICO scores. Atlanticus’ underwriting process is enhanced by artificial intelligence and machine learning, enabling fast, sound decision-making when it matters most.
We also report within our CaaS segment: 1) servicing income; and 2) gains or losses associated with investments previously made in consumer finance technology platforms. These include investments in companies engaged in mobile technologies, marketplace lending and other financial technologies. These investments are carried at lower of cost or market valuation. None of these companies are publicly-traded and there are no material pending liquidity events.
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.
In March 2020, a national emergency was declared under the National Emergencies Act due to a new strain of coronavirus ("COVID-19"). The COVID-19 pandemic has negatively impacted global supply chains and business operations as suppliers continue to experience difficulties keeping up with strong demand for factory goods, which is being driven by low business inventories. In addition, rising inflation in 2021 and 2022 has resulted in increasing costs for many goods and services. As a result of persistently high inflation, interest rates have been on the rise and are expected to continue rising in the near term. The combination of rising inoculation rates in the U.S. population and the federal COVID-19 relief package contributed to increased economic recovery in 2021; however, fiscal support of business and personal incomes has declined. Russia’s invasion of Ukraine has intensified supply chain disruptions and heightened uncertainty surrounding the near-term outlook for the broader economy. The impacts of new COVID-19 variants, responses to the COVID-19 pandemic by both consumers and governments, rising energy costs, inflation, rising interest rates, and the unresolved geopolitical tensions relating to Russia’s invasion of Ukraine could significantly affect the sustainability of current economic growth. 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 transitioning to a hybrid distributed work model. 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 period. We base these estimates on information available to us as of the date of the financial statements. Actual results could differ materially from these estimates. Certain estimates, such as credit losses, payment rates, costs of funds, discount rates and the yields earned on credit card receivables, significantly affect the reported amount (and changes thereon) of our Loans, interest and fees receivables, at fair value and Notes payable associated with structured financings recorded at fair value on our consolidated balance sheets and consolidated statements of income. Additionally, estimates of credit losses have a significant effect on loans, interest and fees receivable, net, as shown on our consolidated balance sheets, as well as on the provision for losses on loans, interest and fees receivable within our consolidated statements of income.
We have eliminated all significant intercompany balances and transactions for financial reporting purposes.
Loans, Interest and Fees Receivable
We maintain two categories of Loans, Interest and Fees Receivable on our consolidated balance sheets: those that are carried at fair value (Loans, interest and fees receivable, at fair value) and those that are carried at net amortized cost (Loans, interest and fees receivable, gross). For both categories of loans, interest and fees receivable, other than our Auto Finance receivables, interest and fees are discontinued when loans, interest and fees receivable become contractually 90 or more days past due. We charge off our CaaS and Auto Finance segment receivables when they become contractually more than 180 days past due. For all of our receivables portfolios, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or estate large enough to pay the debt in full.
We adopted Accounting Standards Update ("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments on January 1, 2022. This ASU requires the use of an impairment model (the current expected credit loss (“CECL”) model) that is based on expected rather than incurred losses. The ASU also allows for a one-time fair value election for receivables. Upon adoption, we elected the fair value option for all remaining loans receivable associated with our private label credit and general purpose credit card platform previously measured at amortized cost and recorded an increase to our allowance for loan losses for our remaining Loans, interest and fees receivable associated with our Auto Finance Segment. The adoption of CECL resulted in an increase to our opening balance of retained earnings of $
Loans, Interest and Fees Receivable, at Fair Value. Loans, interest and fees receivable held at fair value represent receivables for which we have elected the fair value option (the "Fair Value Receivables"). 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. Loans and finance receivables include accrued and unpaid interest and fees. As discussed above, as of March 31, 2022 all receivables associated with our private label credit and general purpose credit cards are included within this category of receivables.
Under the fair value option, 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 the fair value of loans, interest and fees receivable are recorded as a component of "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value" in the consolidated statements of income in the period of the fair value changes. Changes in the fair value of loans, interest and fees receivable recorded at fair value include the impact of current period charge-offs associated with these receivables.
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 our Auto Finance segment’s operations. Prior to January 1, 2022 this category of receivable also included a portion (those which are not part of our Fair Value Receivables) of our private label credit and general purpose credit card receivables within our CaaS segment. Our CaaS 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 for which we hold the vehicle title. We purchased auto loans with outstanding principal of $
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. Upon adoption of CECL, the allowance is an estimate of the expected losses (rather than incurred losses) inherent within loans, interest and fees receivable that the Company does not report at fair value. Our loans, interest and fees receivable consist of smaller-balance, homogeneous loans. 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 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 consumers; changes in underwriting criteria; and estimated recoveries. 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.
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 (including those receivables associated with our private label credit and general purpose credit card receivables prior to their adoption of fair value accounting) also contain components of deferred revenue including merchant fees on the purchases of receivables for our private label credit receivables and annual fee billings for our general purpose credit card receivables. Our private label credit 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 general purpose 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 March 31, 2022 and December 31, 2021, the weighted average remaining accretion period for the $
As a result of the COVID-19 pandemic and subsequent declaration of a national emergency in March 2020 under the National Emergencies Act, certain consumers have been offered the ability to defer their payment without penalty during the national emergency period. In March 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"). The COVID-19 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 COVID-19 Guidance, certain consumers negatively impacted by COVID-19 have been provided 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. Through March 31, 2022 we continued to actively work with consumers that indicated hardship as a result of COVID-19; however, the number of impacted consumers is a small and diminishing part of our overall receivable base. In order to establish appropriate reserves for this population, we considered various factors such as subsequent payment behavior and additional requests by the consumer for further deferrals or hardship claims.
Our CaaS segment consists of two classes of receivable: credit cards and other unsecured lending products. 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 March 31, 2022 | Credit Cards | Auto Finance | Other Unsecured Lending Products | Total | ||||||||||||
| Allowance for uncollectible loans, interest and fees receivable: | ||||||||||||||||
| Balance at beginning of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Cumulative effects from adoption of fair value under the CECL standard | ||||||||||||||||
| Cumulative effects from adoption of the CECL standard | ( | ) | ( | ) | ||||||||||||
| Provision for loan losses | ( | ) | ( | ) | ||||||||||||
| Charge-offs | ||||||||||||||||
| Recoveries | ( | ) | ( | ) | ||||||||||||
| Balance at end of period | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| As of March 31, 2022 | 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 | $ | $ | $ | $ | ||||||||||||
| Balance at end of period collectively evaluated for impairment | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Loans, interest and fees receivable: | ||||||||||||||||
| Loans, interest and fees receivable, gross | $ | $ | $ | $ | ||||||||||||
| Loans, interest and fees receivable individually evaluated for impairment | $ | $ | $ | $ | ||||||||||||
| Loans, interest and fees receivable collectively evaluated for impairment | $ | $ | $ | $ | ||||||||||||
| For the Three Months Ended March 31, 2021 | Credit Cards | Auto Finance | Other Unsecured Lending Products | Total | ||||||||||||
| Allowance for uncollectible loans, interest and fees receivable: | ||||||||||||||||
| Balance at beginning of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Provision for loan losses | ( | ) | ( | ) | ( | ) | ||||||||||
| Charge-offs | ||||||||||||||||
| Recoveries | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at end of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| As of December 31, 2021 | 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 | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Balance at end of period collectively evaluated for impairment | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loans, interest and fees receivable: | ||||||||||||||||
| Loans, interest and fees receivable, gross | $ | $ | $ | $ | ||||||||||||
| Loans, interest and fees receivable individually evaluated for impairment | $ | $ | $ | $ | ||||||||||||
| Loans, interest and fees receivable collectively evaluated for impairment | $ | $ | $ | $ | ||||||||||||
Delinquent loans, interest and fees receivable reflect the principal, fee and interest components of loans we did not collect on or prior to the contractual due date. Amounts we believe we will not ultimately collect are included as a component in our overall allowance for uncollectible loans, interest and fees receivable.
Recoveries, noted above, consist of amounts received from the efforts of third-party collectors we employ and through the sale of charged-off accounts to unrelated third-parties. All proceeds received, associated with charged-off accounts, are credited to the allowance for uncollectible loans, interest and fees receivable and effectively offset our provision for losses on loans, interest and fees receivable recorded at net realizable value on our consolidated statements of income. For the three months ended March 31, 2022, $
We consider loan delinquencies a key indicator of credit quality because this measure provides the best ongoing estimate of how a particular class of receivable is performing. An aging of our delinquent loans, interest and fees receivable, gross (in millions) by class of receivable as of March 31, 2022 and December 31, 2021 is as follows:
| As of March 31, 2022 | Credit Cards | Auto Finance | Other Unsecured Lending Products | Total | ||||||||||||
| 30-59 days past due | $ | $ | $ | $ | ||||||||||||
| 60-89 days past due | ||||||||||||||||
| 90 or more days past due | ||||||||||||||||
| Delinquent loans, interest and fees receivable, gross | ||||||||||||||||
| Current loans, interest and fees receivable, gross | ||||||||||||||||
| Total loans, interest and fees receivable, gross | $ | $ | $ | $ | ||||||||||||
| Balance of loans greater than 90-days delinquent still accruing interest and fees | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2021 | Credit Cards | Auto Finance | Other Unsecured Lending Products | Total | ||||||||||||
| 30-59 days past due | $ | $ | $ | $ | ||||||||||||
| 60-89 days past due | ||||||||||||||||
| 90 or more days past due | ||||||||||||||||
| Delinquent loans, interest and fees receivable, gross | ||||||||||||||||
| Current loans, interest and fees receivable, gross | ||||||||||||||||
| Total loans, interest and fees receivable, gross | $ | $ | $ | $ | ||||||||||||
| Balance of loans greater than 90-days delinquent still accruing interest and fees | $ | $ | $ | $ | ||||||||||||
Troubled Debt Restructurings
The following table details by class of receivable, the number and amount of modified loans, including TDRs that have been re-aged, as of March 31, 2022 and December 31, 2021:
| As of | ||||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||||
| Private label credit | General purpose credit card | Private label credit | General purpose credit card | |||||||||||||
| Number of TDRs | ||||||||||||||||
| Number of TDRs that have been re-aged | ||||||||||||||||
| Amount of TDRs on non-accrual status (in thousands) | $ | $ | $ | $ | ||||||||||||
| Amount of TDRs on non-accrual status above that have been re-aged (in thousands) | $ | $ | $ | $ | ||||||||||||
| Carrying value of TDRs (in thousands) | $ | $ | $ | $ | ||||||||||||
| TDRs - Performing (carrying value, in thousands)* | $ | $ | $ | $ | ||||||||||||
| TDRs - Nonperforming (carrying value, in thousands)* | $ | $ | $ | $ | ||||||||||||
*“TDRs - Performing” include accounts that are current on all amounts owed, while “TDRs - Nonperforming” include all accounts with past due amounts owed.
We do not separately reserve or impair these receivables outside of our general reserve process.
The Company modified and
| Twelve Months Ended | ||||||||||||||||
| March 31, 2022 | March 31, 2021 | |||||||||||||||
| Private label credit | General purpose credit card | Private label credit | General purpose credit card | |||||||||||||
| Number of accounts | ||||||||||||||||
| Loan balance at time of charge off (in thousands) | $ | $ | $ | $ | ||||||||||||
Income Taxes
We experienced a negative effective tax rate of for the three months ended March 31, 2022, compared to an effective tax rate of
Our negative effective tax rate for the three months ended March 31, 2022 (i.e., versus the statutory rate) resulted from (1) 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 and (2) 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. Partially offsetting these two items are the effects of state and foreign income tax expense.
Our effective tax rate for the three months ended March 31, 2021 was below the statutory rate due to (1) 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, (2) 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 (3) our release of state tax valuation allowances. Partially offsetting the foregoing items were the effects of (1) executive compensation deduction limits under Section 162(m) of the Internal Revenue Code of 1986, as amended, and (2) state and foreign income tax expense.
We report interest expense associated with our income tax liabilities (including accrued liabilities for uncertain tax positions) within our income tax line item on our consolidated statements of operations. We likewise report within such line item the reversal of interest expense associated with our accrued liabilities for uncertain tax positions to the extent we resolve such liabilities in a manner favorable to our accruals therefor. We had de minimis interest expense or reversals thereof during the three months ended March 31, 2022, and 2021.
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. Discounts received associated with 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 fees associated with the credit products, including the receivables underlying our private label credit and general purpose credit card platform, and our legacy credit card receivables which include the recognition of annual fee billings and cash advance fees among others.
Fees are assessed on credit card accounts underlying our credit card receivables according to the terms of the related cardholder agreements and we recognize these fees as income when they are charged to the customers’ accounts. 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 resulted in increased fees recognized on credit products throughout the periods presented.
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 CaaS segment and servicing revenue and other customer-related fees in both our CaaS segment and our Auto Finance segment. Interchange fees are earned when our customer's cards are used over established card networks. We earn a portion of the interchange fee the card networks charge merchants for the transaction. 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. Service charges and other customer related fees are earned from customers based on the occurrence of specific services. None of these revenue streams result in an ongoing obligation beyond what has already been rendered. Revenue from these contracts with customers is included as a component of Other revenue on our consolidated statements of income. Components (in thousands) of our revenue from contracts with customers is as follows:
| For the Three Months Ended March 31, 2022 | CaaS | Auto Finance | Total | |||||||||
| Interchange revenues, net (1) | $ | $ | $ | |||||||||
| Servicing income | ||||||||||||
| Service charges and other customer related fees | ||||||||||||
| Total revenue from contracts with customers | $ | $ | $ | |||||||||
(1) Interchange revenue is presented net of customer reward expense.
| For the Three Months Ended March 31, 2021 | CaaS | Auto Finance | Total | |||||||||
| Interchange revenues, net (1) | $ | $ | $ | |||||||||
| Servicing income | ||||||||||||
| Service charges and other customer related fees | ||||||||||||
| Total revenue from contracts with customers | $ | $ | $ | |||||||||
(1) Interchange revenue is presented net of customer reward expense.
Loss on repurchase and redemption of convertible senior notes
In periods where we repurchased or redeemed
Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update ("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 (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. We adopted ASU 2016-13 beginning January 1, 2022, using the modified retrospective method of adoption. We elected the fair value option for all receivables in our CaaS segment previously measured at amortized cost. For all other receivables, we recorded an increase to our allowance for loan losses using the current expected credit loss model. As a result of our adoption, we increased our Loans, interest and fees receivable (net of the related revaluation), at fair value by $
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance provides an optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ASU can be adopted no later than December 1, 2022, with early adoption permitted. In January 2021, FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of ASC 848 and clarifies some of its guidance as part of the FASB’s monitoring of global reference rate reform. We have not yet adopted this ASU and are evaluating the effect of adopting this new accounting guidance. Based on our preliminary analysis, the London Interbank Offered Rate ("LIBOR") impacts us in limited circumstances primarily related to our existing debt agreements.
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) 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) 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 March 31, 2022. Based on our evaluation, we included an accrual for a $
| 3. | Segment Reporting |
We operate primarily within one industry consisting of two reportable segments by which we manage our business. Our
As of both March 31, 2022 and December 31, 2021, we did not have a material amount of long-lived assets located outside of the U.S.
We measure the profitability of our reportable segments based on their income after allocation of specific costs and corporate overhead; however, our segment results do not reflect any charges for internal capital allocations among our segments. Overhead costs are allocated based on headcounts and other applicable measures to better align costs with the associated revenues.
Summary operating segment information (in thousands) is as follows:
| Three Months Ended March 31, 2022 | CaaS | Auto Finance | Total | |||||||||
| Revenue: | ||||||||||||
| Consumer loans, including past due fees | $ | $ | $ | |||||||||
| Fees and related income on earning assets | ||||||||||||
| Other revenue | ||||||||||||
| Other non-operating revenue | ||||||||||||
| Total revenue | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Provision for losses on loans, interest and fees receivable recorded at net realizable value | ||||||||||||