10-Q 1 atlc20240630_10q.htm FORM 10-Q atlc20240630_10q.htm
0001464343 Atlanticus Holdings Corp false --12-31 Q2 2024 146.0 158.0 33.0 20.5 2,168.0 2,128.6 2.4 1.8 18.1 17.9 1,816.7 1,795.9 10,000,000 10,000,000 400,000 400,000 400,000 400,000 40 40 0 0 3,300,704 3,300,704 82.5 3,256,561 3,256,561 81.4 0 0 150,000,000 150,000,000 14,748,938 14,748,938 14,603,563 14,603,563 2 0 0 0 0 0 7.0 6.3 2,304.4 2,252.9 65 65 December 1, 2026 December 1, 2026 50 50 October 30, 2025 October 30, 2025 100 100 December 15, 2025 December 15, 2025 50 50 July 20, 2025 July 20, 2025 20 20 December 11, 2024 December 11, 2024 250.0 May 31, 2024 35.0 35.0 July 31, 2026 July 31, 2026 300.0 300.0 December 15, 2026 December 15, 2026 75.0 75.0 September 1, 2025 September 1, 2025 300.0 300.0 May 15, 2026 May 15, 2026 325.0 325.0 November 15, 2028 November 15, 2028 100.0 100.0 August 5, 2024 August 5, 2024 100.0 100.0 March 15, 2027 March 15, 2027 20.0 20.0 May 26, 2026 May 26, 2026 300.0 300.0 February 15, 2028 February 15, 2028 150.0 150.0 May 17, 2027 May 17, 2027 250.0 250.0 November 15, 2028 November 15, 2028 August 26, 2024 August 26, 2024 8.0 8.0 4 3 5 3 5 0.1 0.1 4.0 4.0 4.0 0 0 0 0 0 0 false false false false 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. 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. Shares related to unvested share-based payment awards included in our basic and diluted share counts were 293,578 for the three months ended March 31, 2024 compared to 188,384 for the three months ended March 31, 2023. 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. Loans are associated with VIEs. See Note 7, "Variable Interest Entities" for more information. As of June 30, 2024, the Prime Rate was 8.50% and the Secured Overnight Financing Rate ("SOFR") was 5.33%. Interchange revenue is presented net of customer reward expense. See below for additional information. Creditors do not have recourse against the general assets of the Company but only to the collateral within the VIEs. Shares related to unvested share-based payment awards included in our basic and diluted share counts were 390,096 and 341,837 for the three and six months ended June 30, 2024, respectively, compared to 246,994 and 217,851 for the three and six months ended June 30, 2023, respectively. For cash, deposits and investments in equity securities, the carrying amount is a reasonable estimate of fair value. 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Table of Contents

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2024

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______

 

of

atlanticuscur.jpg

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

(770828-2000

 

 Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the "Act") 
   
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, no par value per shareATLCNASDAQ Global Select Market
7.625% Series B Cumulative Perpetual Preferred Stock, no par value per shareATLCPNASDAQ Global Select Market
6.125% Senior Notes due 2026ATLCLNASDAQ Global Select Market
9.25% Senior Notes due 2029ATLCZNASDAQ Global Select Market

 

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.    Yes  ☒    No  ☐

 

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).    Yes  ☒    No  ☐

 

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

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).      Yes    ☒  No

 

As of July 31, 2024, 14,744,679 shares of common stock, no par value, of Atlanticus were outstanding.

 

 

 

 

Table of Contents

Page

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

 

Condensed Consolidated Balance Sheets

1

 

 

Condensed Consolidated Statements of Income

2

 

 

Condensed Consolidated Statement of Shareholders’ Equity and Temporary Equity

3

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

Notes to Condensed Consolidated Financial Statements

6

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

22

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

 

Item 4.

Controls and Procedures

39

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

40

 

Item 1A.

Risk Factors

40

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

 

Item 3.

Defaults Upon Senior Securities

55

 

Item 4.

Mine Safety Disclosures

55

 

Item 5.

Other Information

56

 

Item 6.

Exhibits

56

 

 

Signatures

57

 

 

 

PART I--FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

 

 

Atlanticus Holdings Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)

 

  

June 30,

  

December 31,

 
  

2024

  

2023

 
         

Assets

        

Unrestricted cash and cash equivalents (including $146.0 million and $158.0 million associated with variable interest entities at June 30, 2024 and December 31, 2023, respectively)

 $350,907  $339,338 

Restricted cash and cash equivalents (including $33.0 million and $20.5 million associated with variable interest entities at June 30, 2024 and December 31, 2023, respectively)

  56,256   44,315 

Loans at fair value (including $2,168.0 million and $2,128.6 million associated with variable interest entities at June 30, 2024 and December 31, 2023, respectively)

  2,277,379   2,173,759 

Loans at amortized cost, net (including $2.4 million and $1.8 million of allowance for credit losses at June 30, 2024 and December 31, 2023, respectively; and $18.1 million and $17.9 million of deferred revenue at June 30, 2024 and December 31, 2023, respectively)

  97,469   98,425 

Property at cost, net of depreciation

  10,269   11,445 

Operating lease right-of-use assets

  11,111   11,310 

Prepaid expenses and other assets

  33,870   27,853 

Total assets

 $2,837,261  $2,706,445 

Liabilities

        

Accounts payable and accrued expenses

 $70,579  $61,634 

Operating lease liabilities

  19,679   20,180 

Notes payable, net (including $1,816.7 million and $1,795.9 million associated with variable interest entities at June 30, 2024 and December 31, 2023, respectively)

  1,879,071   1,861,685 

Senior notes, net

  199,496   144,453 

Income tax liability

  97,128   85,826 

Total liabilities

  2,265,953   2,173,778 
         

Commitments and contingencies (Note 10)

          
         

Preferred stock, no par value, 10,000,000 shares authorized:

        

Series A preferred stock, 400,000 shares issued and outstanding (liquidation preference - $40.0 million) at June 30, 2024 and December 31, 2023 (Note 5) (1)

  40,000   40,000 

Class B preferred units issued to noncontrolling interests (Note 5)

  100,400   100,250 
         

Shareholders' Equity

        

Series B preferred stock, no par value, 3,300,704 shares issued and outstanding at June 30, 2024 (liquidation preference - $82.5 million); 3,256,561 shares issued and outstanding at December 31, 2023 (liquidation preference - $81.4 million) (1)

      

Common stock, no par value, 150,000,000 shares authorized: 14,748,938 and 14,603,563 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

      

Paid-in capital

  88,705   87,415 

Retained earnings

  345,110   307,260 

Total shareholders’ equity

  433,815   394,675 

Noncontrolling interests

  (2,907)  (2,258)

Total equity

  430,908   392,417 

Total liabilities, shareholders' equity and temporary equity

 $2,837,261  $2,706,445 

 

(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

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

June 30,

   

June 30,

 
   

2024

   

2023

   

2024

   

2023

 

Revenue:

                               

Consumer loans, including past due fees

  $ 242,349     $ 220,042     $ 472,723     $ 429,743  

Fees and related income on earning assets

    59,506       62,874       107,411       107,231  

Other revenue

    13,786       7,835       25,681       14,759  

Total operating revenue

    315,641       290,751       605,815       551,733  

Other non-operating revenue

    382       87       914       146  

Total revenue

    316,023       290,838       606,729       551,879  
                                 

Interest expense

    (37,948 )     (24,215 )     (73,011 )     (48,449 )

Provision for credit losses

    (1,746 )     (309 )     (4,690 )     (1,013 )

Changes in fair value of loans

    (186,251 )     (177,829 )     (345,422 )     (327,651 )

Net margin

    90,078       88,485       183,606       174,766  
                                 

Operating expenses:

                               

Salaries and benefits

    (11,973 )     (10,629 )     (25,285 )     (21,233 )

Card and loan servicing

    (27,698 )     (23,814 )     (54,520 )     (48,149 )

Marketing and solicitation

    (13,572 )     (14,486 )     (24,000 )     (24,892 )

Depreciation

    (653 )     (643 )     (1,307 )     (1,261 )

Other

    (7,579 )     (6,900 )     (17,070 )     (13,136 )

Total operating expenses

    (61,475 )     (56,472 )     (122,182 )     (108,671 )

Income before income taxes

    28,603       32,013       61,424       66,095  

Income tax expense

    (4,476 )     (7,199 )     (11,478 )     (15,387 )

Net income

    24,127       24,814       49,946       50,708  

Net loss attributable to noncontrolling interests

    153       275       504       593  

Net income attributable to controlling interests

    24,280       25,089       50,450       51,301  

Preferred stock and preferred unit dividends and discount accretion

    (6,308 )     (6,289 )     (12,600 )     (12,516 )

Net income attributable to common shareholders

  $ 17,972     $ 18,800     $ 37,850     $ 38,785  

Net income attributable to common shareholders per common share—basic

  $ 1.22     $ 1.30     $ 2.57     $ 2.68  

Net income attributable to common shareholders per common share—diluted

  $ 0.99     $ 1.02     $ 2.08     $ 2.11  

 

See accompanying notes.

 

 

Atlanticus Holdings Corporation and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity and Temporary Equity (Unaudited)

For the Six Months Ended June 30, 2024 and June 30, 2023

(Dollars in thousands)

 

 

   

Series B Preferred Stock

   

Common Stock

                                   

Temporary Equity

 
   

Shares Issued

   

Amount

   

Shares Issued

   

Amount

   

Paid-In Capital

   

Retained Earnings

   

Noncontrolling Interests

   

Total Equity

   

Series A Preferred Stock

   

Class B Preferred Units

 

Balance at January 1, 2024

    3,256,561     $       14,603,563     $     $ 87,415     $ 307,260     $ (2,258 )   $ 392,417     $ 40,000     $ 100,250  

Accretion of discount associated with issuance of subsidiary equity

                                  (75 )           (75 )           75  

Preferred stock and preferred unit dividends

                                  (6,217 )           (6,217 )            

Compensatory stock issuances, net of forfeitures

                206,629                                            

Issuance of series B preferred stock, net

    44,143                         1,071                   1,071              

Distributions to owners of noncontrolling interests

                                        (148 )     (148 )            

Contributions by owners of noncontrolling interests

                                        3       3              

Stock-based compensation costs

                            940                   940              

Redemption and retirement of common shares

                (18,033 )           (543 )                 (543 )            

Net income (loss)

                                  26,170       (351 )     25,819              

Balance at March 31, 2024

    3,300,704     $       14,792,159     $     $ 88,883     $ 327,138     $ (2,754 )   $ 413,267     $ 40,000     $ 100,325  

Accretion of discount associated with issuance of subsidiary equity

                                  (75 )           (75 )           75  

Preferred stock and preferred unit dividends

                                  (6,233 )           (6,233 )            

Stock option exercises and proceeds related thereto

                2,975             45                   45              

Compensatory stock issuances, net of forfeitures

                3,007                                            

Stock-based compensation costs

                            1,050                   1,050              

Redemption and retirement of common shares

                (49,203 )           (1,273 )                 (1,273 )            

Net income (loss)

                                  24,280       (153 )     24,127              

Balance at June 30, 2024

    3,300,704     $       14,748,938     $     $ 88,705     $ 345,110     $ (2,907 )   $ 430,908     $ 40,000     $ 100,400  

 

 

   

Series B Preferred Stock

   

Common Stock

                                   

Temporary Equity

 
   

Shares Issued

   

Amount

   

Shares Issued

   

Amount

   

Paid-In Capital

   

Retained Earnings

   

Noncontrolling Interests

   

Total Equity

   

Series A Preferred Stock

   

Class B Preferred Units

 

Balance at January 1, 2023

    3,204,640     $       14,453,415     $     $ 121,996     $ 204,415     $ (1,371 )   $ 325,040     $ 40,000     $ 99,950  

Accretion of discount associated with issuance of subsidiary equity

                            (75 )                 (75 )           75  

Discount associated with repurchase of preferred stock

                            16                   16              

Preferred dividends

                            (6,168 )                 (6,168 )            

Stock option exercises and proceeds related thereto

                1,258             19                   19              

Compensatory stock issuances, net of forfeitures

                146,227                                            

Issuance of series B preferred stock, net

    51,327                         1,069                   1,069              

Contributions by owners of noncontrolling interests

                                        4       4              

Stock-based compensation costs

                            931                   931              

Redemption and retirement of preferred shares

    (1,806 )                       (45 )                 (45 )            

Redemption and retirement of shares

                (72,354 )           (1,947 )                 (1,947 )            

Net income (loss)

                                  26,212       (318 )     25,894              

Balance at March 31, 2023

    3,254,161     $       14,528,546     $     $ 115,796     $ 230,627     $ (1,685 )   $ 344,738     $ 40,000     $ 100,025  

Accretion of discount associated with issuance of subsidiary equity

                            (75 )                 (75 )           75  

Preferred dividends

                            (6,214 )                 (6,214 )            

Stock option exercises and proceeds related thereto

                5,160             40                   40              

Compensatory stock issuances, net of forfeitures

                (220 )                                          

Issuance of series B preferred stock, net

    2,100                         43                   43              

Stock-based compensation costs

                            1,031                   1,031              

Redemption and retirement of shares

                (105,447 )           (2,988 )                 (2,988 )            

Net income (loss)

                                  25,089       (275 )     24,814              

Balance at June 30, 2023

    3,256,261     $       14,428,039     $     $ 107,633     $ 255,716     $ (1,960 )   $ 361,389     $ 40,000     $ 100,100  

 

See accompanying notes.

 

 

 

Atlanticus Holdings Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

   

For the Six Months Ended June 30,

 
   

2024

   

2023

 

Operating activities

               

Net income

  $ 49,946     $ 50,708  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation, amortization and accretion, net

    2,504       1,696  

Provision for credit losses

    4,690       1,013  

Income from accretion of merchant fees and discount associated with receivables purchases

    (79,666 )     (82,680 )

Changes in fair value of loans

    345,422       327,651  

Amortization of debt issuance costs

    5,289       2,904  

Stock-based compensation costs

    1,990       1,962  

Lease liability payments

    (1,499 )     (361 )

Changes in assets and liabilities:

               

Increase in uncollected fees on earning assets

    (110,557 )     (113,268 )

Increase in income tax liability

    11,302       14,951  

Increase in accounts payable and accrued expenses

    8,996       3,950  

Other

    (3,978 )     1,261  

Net cash provided by operating activities

    234,439       209,787  
                 

Investing activities

               

Proceeds from recoveries on charged off receivables

    23,449       30,101  

Investments in earning assets

    (1,238,058 )     (1,192,213 )

Proceeds from earning assets

    949,988       924,499  

Purchases and development of property

    (131 )     (3,798 )

Net cash used in investing activities

    (264,752 )     (241,411 )
                 

Financing activities

               

Noncontrolling interests contributions

    3       4  

Noncontrolling interests distributions

    (148 )      

Proceeds from issuance of Series B preferred stock, net of issuance costs

    1,071       1,112  

Preferred stock and preferred unit dividends

    (12,500 )     (12,429 )

Proceeds from exercise of stock options

    45       59  

Purchase and retirement of outstanding stock

    (1,816 )     (4,964 )

Proceeds from issuance of Senior notes, net of issuance costs

    54,559        

Proceeds from borrowings

    423,898       252,212  

Repayment of borrowings

    (411,289 )     (243,159 )

Net cash provided by (used for) financing activities

    53,823       (7,165 )

Effect of exchange rate changes on cash and cash equivalents and restricted cash

          4  

Net increase (decrease) in cash and cash equivalents and restricted cash

    23,510       (38,785 )

Cash and cash equivalents and restricted cash at beginning of period

    383,653       433,192  

Cash and cash equivalents and restricted cash at end of period

  $ 407,163     $ 394,407  

Supplemental cash flow information

               

Cash paid for interest

  $ 65,181     $ 45,501  

Net cash income tax payments

  $ 176     $ 436  

Accretion of discount associated with issuance of subsidiary equity

  $ 150     $ 150  

Decrease in accrued and unpaid preferred stock and preferred unit dividends

  $ (50 )   $ (47 )

 

See accompanying notes.

 

 

Atlanticus Holdings Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2024 and 2023

 

 

1.

Description of Our Business

 

Our accompanying condensed 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 these 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 Condensed 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 $40 billion in consumer loans over more than 25 years of 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. Our flexible technology solutions allow our bank partners to integrate our paperless process and instant decisioning platform with the existing infrastructure of participating retailers, healthcare providers and other 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. None of these companies are publicly-traded and the carrying values of our investments in these companies are not material.

 

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. 

 

2.

Significant Accounting Policies and Condensed Consolidated Financial Statement Components

 

The following is a summary of significant accounting policies we follow in preparing our interim condensed consolidated financial statements, as well as a description of significant components of our interim condensed consolidated financial statements. The unaudited condensed financial statements furnished have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. The condensed consolidated financial statements, including the condensed notes thereto, are unaudited and exclude some of the disclosures required in audited financial statements. 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 condensed 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.

 

Recent rules enacted by the Consumer Financial Protection Bureau ("CFPB"), which, if implemented, would limit the late fees charged to consumers in most instances, are expected to adversely impact the revenue recognized on our receivables. In order to mitigate these impacts, our bank partners have taken a number of steps, from modifying products and policies (such as further tightening the criteria used to evaluate new loans) to changing prices (including increasing interest rates and fees charged to consumers). We believe these product, policy and pricing changes will offset the negative impact of a reduced late fee. The changes will take several quarters to fully implement. These modifications could result in changes to certain estimates such as credit losses, payment rates, servicing costs, discount rates and yields earned on credit card receivables and affect the reported amount (and changes thereon) of our Loans at fair value on our condensed consolidated balance sheets and condensed consolidated statements of income. 

 

We maintain two categories of Loans on our condensed consolidated balance sheets: those that are carried at fair value (Loans at fair value) and those that are carried at net amortized cost (Loans at amortized cost). 

 

Consolidation The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s policy is to consolidate the financial statements of entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by evaluating whether the entity is a voting interest entity or variable interest entity ("VIE") and if the accounting guidance requires consolidation. For more information on the Company's VIEs, see Note 7 "Variable Interest Entities".

 

Loans at fair value. Loans at fair value represent receivables for which we have elected the fair value option (the "Fair Value Receivables"). 

 

Further details concerning our loans at fair value are presented within Note 6, "Fair Values of Assets and Liabilities."

 

6

 

Loans at amortized cost, net. Our loans at amortized cost, net, currently consist of receivables associated with our Auto Finance segment’s operations and are presented in the condensed consolidated balance sheets net of the related allowance for credit losses and deferred revenue. We purchased auto loans with outstanding principal of $51.2 million, $112.2 million, $55.3 million and $120.3 million for the three and six months ended June 30, 2024 and 2023, respectively, through our pre-qualified network of independent automotive dealers and automotive finance companies.

 

Certain of our loans at amortized cost, net, also contain components of deferred revenue related to loan discounts on the purchase of our auto finance receivables. As of June 30, 2024 and December 31, 2023, the weighted average remaining accretion period for the $18.1 million and $17.9 million of deferred revenue reflected in the condensed consolidated balance sheets was 24 and 26 months, respectively.

 

A roll-forward (in millions) of our allowance for credit losses by class of receivable is as follows:

 

For the Three Months Ended June 30,

 

2024

  

2023

 

Allowances for credit losses:

        

Balance at beginning of period

 $(3.4) $(1.7)

Provision for credit losses

  (1.7)  (0.3)

Charge-offs

  3.4   0.8 

Recoveries

  (0.7)  (0.5)

Balance at end of period

 $(2.4) $(1.7)

 

For the Six Months Ended June 30,

 

2024

  

2023

 

Allowances for credit losses:

        

Balance at beginning of period

 $(1.8) $(1.6)

Provision for credit losses

  (4.7)  (1.0)

Charge-offs

  5.3   1.8 

Recoveries

  (1.2)  (0.9)

Balance at end of period

 $(2.4) $(1.7)

 

  

June 30,

  

December 31,

 

As of

 

2024

  

2023

 

Allowances for credit losses:

        

Balance at end of period individually evaluated for impairment

 $(0.6) $ 

Balance at end of period collectively evaluated for impairment

 $(1.8) $(1.8)

Loans at amortized cost:

        

Loans at amortized cost

 $118.0  $118.0 

Loans at amortized cost individually evaluated for impairment

 $0.6  $ 

Loans at amortized cost collectively evaluated for impairment

 $117.4  $118.0 

 

We consider loan delinquencies a key indicator of credit quality because this measure provides the best ongoing estimate of how a particular class of receivables is performing. An aging of our delinquent loans at amortized cost (in millions) as of June 30, 2024 and December 31, 2023 is as follows:

 

  

June 30,

  

December 31,

 

As of

 

2024

  

2023

 

30-59 days past due

 $9.2  $9.4 

60-89 days past due

  3.8   3.4 

90 or more days past due

  4.9   3.5 

Delinquent loans at amortized cost

  17.9   16.3 

Current loans at amortized cost

  100.1   101.7 

Total loans at amortized cost

 $118.0  $118.0 

Balance of loans greater than 90-days delinquent still accruing interest and fees

 $2.8  $2.6 

 

Loan Modifications and Restructurings

 

We review our Loans at amortized cost, net, associated with our Auto Finance segment’s operations to determine if any modifications for borrowers experiencing financial difficulty were made that would qualify the receivable as a Financial Difficulty Modification ("FDM"). This could include a restructuring of the loan terms to alleviate the burden of the borrower's near-term cash requirements, such as a modification of terms to reduce or defer cash payments to help the borrower attempt to improve its financial condition. For the six months ended June 30, 2024, no Loans at amortized cost qualified as a FDM. 

 

Income Taxes

 

We experienced effective tax rates of 15.6% and 18.5% for the three and six months ended June 30, 2024, respectively, compared to 22.3% and 23.1% for the three and six months ended June 30, 2023, respectively.

 

Our effective tax rates for the three and six months ended June 30, 2024 are below the statutory rate principally due to our deduction for income tax purposes of (1) amounts characterized in our condensed consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes, and (2) a loss related to our unrecovered investment in a foreign subsidiary—such subsidiary which ceased operations in the three months ended June 30, 2024, and with respect to which we had used “permanently reinvested earnings” accounting in our condensed consolidated financial statements. Offsetting the foregoing items were (1) state and foreign income tax expense including the effects of law changes enacted in the three months ended June 30, 2024 in certain states in which we operate, (2) taxes on global intangible low-taxed income, and (3) deduction disallowance under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to compensation paid to our covered employees.

 

7

 

Our effective tax rates for the three and six months ended June 30, 2023 are above the statutory rate principally due to (1) state and foreign income tax expense, (2) interest accrued on uncertain tax positions, (3) taxes on global intangible low-taxed income, and (4) deduction disallowance under the Code with respect to compensation paid to our covered employees. Partially offsetting the foregoing items was our deduction for income tax purposes of amounts characterized in our condensed consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes.

 

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 condensed consolidated statements of income. 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. Our interest expense was $93 thousand for the six months ended June 30, 2024, and $1.14 million for the six months ended June 30, 2023.

 

Revenue from Contracts with Customers

 

Revenue from contracts with customers is included in Other revenue on our condensed consolidated statements of income. Components (in thousands) of our revenue from contracts with customers are as follows:

 

             

For the Three Months Ended June 30, 2024

 

CaaS

  

Auto Finance

  

Total

 

Interchange revenues, net (1)

 $4,783  $  $4,783 

Servicing income

  1,849   190   2,039 

Service charges and other customer related fees

  6,948   16   6,964 

Total revenue from contracts with customers

 $13,580  $206  $13,786 

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

 

             

For the Six Months Ended June 30, 2024

 

CaaS

  

Auto Finance

  

Total

 

Interchange revenues, net (1)

 $9,447  $  $9,447 

Servicing income

  3,184   390   3,574 

Service charges and other customer related fees

  12,627   33   12,660 

Total revenue from contracts with customers

 $25,258  $423  $25,681 

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

 

             

For the Three Months Ended June 30, 2023

 

CaaS

  

Auto Finance

  

Total

 

Interchange revenues, net (1)

 $5,003  $  $5,003 

Servicing income

  636   189   825 

Service charges and other customer related fees

  1,989   18   2,007 

Total revenue from contracts with customers

 $7,628  $207  $7,835

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

 

             

For the Six Months Ended June 30, 2023

 

CaaS

  

Auto Finance

  

Total

 

Interchange revenues, net (1)

 $9,619  $  $9,619 

Servicing income

  1,341   380   1,721 

Service charges and other customer related fees

  3,382   37   3,419 

Total revenue from contracts with customers

 $14,342  $417  $14,759 

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

 

Recent Accounting Pronouncements

 

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("Topic 740"). Topic 740 modifies the rules on income tax disclosures to require entities to disclose (i) specific categories in the rate reconciliation, (ii) the income (loss) from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (iii) income tax expense or benefit from continuing operations (separated by federal, state and foreign). Topic 740 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. This guidance should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our financial statement disclosures.

 

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segments Disclosures" ("Topic 280"). Topic 280 enhances disclosures of significant segment expenses and other segment items regularly provided to the chief operating decision maker ("CODM"), extends certain annual disclosures to interim periods and permits more than one measure of segment profit (loss) to be reported under certain conditions. The amendments are effective in fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Retrospective adoption to all periods presented is required, and early adoption of the amendments is permitted. We are currently evaluating the potential impact of adopting this new guidance on our financial statement disclosures.

 

8

 

On March 31, 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. Topic 326 eliminates the accounting guidance for troubled debt restructurings by creditors while adding disclosures for certain loan restructurings by creditors when a borrower is experiencing financial difficulty. This guidance requires an entity to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, Topic 326 requires disclosure of current period gross write-offs by year of origination for financing receivables. The disclosures required by Topic 326 are required for receivables held at amortized cost and exclude those accounted for using fair value. The Company adopted Topic 326 on January 1, 2023. As the significant majority of the Company's receivables are held at fair value, the adoption of Topic 326 did not have a material impact on the Company's financial results and accompanying disclosures.

 

 

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: CaaS and Auto Finance.

 

We have no material amounts 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 June 30, 2024

 

CaaS

  

Auto Finance

  

Total

 

Revenue:

            

Consumer loans, including past due fees

 $232,014  $10,335  $242,349 

Fees and related income on earning assets

  59,484   22   59,506 

Other revenue

  13,582   204   13,786 

Total operating revenue

  305,080   10,561   315,641 

Other non-operating revenue

  79   303   382 

Total revenue

  305,159   10,864   316,023 

Interest expense

  (37,126)  (822)  (37,948)

Provision for credit losses

     (1,746)  (1,746)

Changes in fair value of loans

  (186,251)     (186,251)

Net margin

 $81,782  $8,296  $90,078 

Income before income taxes

 $26,180  $2,423  $28,603 

Income tax expense

 $(3,836) $(640) $(4,476)

 

Six Months Ended June 30, 2024

 

CaaS

  

Auto Finance

  

Total

 

Revenue:

            

Consumer loans, including past due fees

 $452,053  $20,670  $472,723 

Fees and related income on earning assets

  107,369   42   107,411 

Other revenue

  25,259   422   25,681 

Total operating revenue

  584,681   21,134   605,815 

Other non-operating revenue

  361   553   914 

Total revenue

  585,042   21,687   606,729 

Interest expense

  (71,362)  (1,649)  (73,011)

Provision for credit losses

     (4,690)  (4,690)

Changes in fair value of loans

  (345,422)     (345,422)

Net margin

 $168,258  $15,348  $183,606 

Income before income taxes

 $57,994  $3,430  $61,424 

Income tax expense

 $(10,577) $(901) $(11,478)

Total assets

 $2,733,909  $103,352  $2,837,261 

 

9

 

Three Months Ended June 30, 2023

 

CaaS

  

Auto Finance