CREDIT ACCEPTANCE CORP [CACC] Filings

10-Q 1 cacc-20240930.htm 10-Q cacc-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2024


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

For the transition period from to

Commission file number 000-20202

CREDIT ACCEPTANCE CORPORATION

(Exact name of registrant as specified in its charter)


Michigan		38-1999511
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
25505 W. Twelve Mile Road
Southfield,	Michigan	48034-8339
(Address of principal executive offices)		(Zip Code)

(248) 353-2700

(Registrant’s telephone number, including area code)


			Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

CACC

The Nasdaq Stock Market LLC

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 þ No o

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

The number of shares of Common Stock, $.01 par value, outstanding on October 23, 2024 was 12,112,144.

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TABLE OF CONTENTS


PART I. — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Balance Sheets - As of September 30, 2024 and December 31, 2023			1

Consolidated Statements of Income - Three and nine months ended September 30, 2024 and 2023			2

Consolidated Statements of Comprehensive Income - Three and nine months ended September 30, 2024 and 2023			3

Consolidated Statements of Shareholders’ Equity - Three and nine months ended September 30, 2024 and 2023			4

Consolidated Statements of Cash Flows - Nine months ended September 30, 2024 and 2023			5

Notes to Consolidated Financial Statements			6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			46

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			65

ITEM 4. CONTROLS AND PROCEDURES			65

PART II. — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS			66



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			67

ITEM 5. OTHER INFORMATION			67

ITEM 6. EXHIBITS			68

SIGNATURES			70

Table of Contents

PART I. - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CREDIT ACCEPTANCE CORPORATION

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(Dollars in millions, except per share data)	As of
	September 30, 2024		December 31, 2023
ASSETS:
Cash and cash equivalents	$	159.7	$	13.2
Restricted cash and cash equivalents	556.6		457.7
Restricted securities available for sale	113.9		93.2

Loans receivable	11,197.6		10,020.1
Allowance for credit losses	(3,416.1)		(3,064.8)
Loans receivable, net	7,781.5		6,955.3

Property and equipment, net	15.2		46.5
Income taxes receivable	26.4		4.3
Other assets	29.9		40.0
Total assets	$	8,683.2	$	7,610.2

LIABILITIES AND SHAREHOLDERS’ EQUITY:
Liabilities:
Accounts payable and accrued liabilities	$	364.4	$	318.8
Revolving secured lines of credit	1.0		79.2
Secured financing	5,257.1		3,990.9
Senior notes	990.8		989.0
Mortgage note	—		8.4
Deferred income taxes, net	423.2		389.2
Income taxes payable	0.2		81.0
Total liabilities	7,036.7		5,856.5

Commitments and Contingencies - See Note 16
Shareholders’ Equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued	—		—
Common stock, $.01 par value, 80,000,000 shares authorized, 12,111,600 and 12,522,397 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	0.1		0.1
Paid-in capital	324.5		279.0
Retained earnings	1,321.0		1,475.6
Accumulated other comprehensive income (loss)	0.9		(1.0)
Total shareholders’ equity	1,646.5		1,753.7
Total liabilities and shareholders’ equity	$	8,683.2	$	7,610.2

See accompanying notes to consolidated financial statements.

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CREDIT ACCEPTANCE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


(Dollars in millions, except per share data)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue:
Finance charges	$	507.6	$	441.7	$	1,474.5	$	1,303.8
Premiums earned	25.1		20.8		71.3		58.0
Other income	17.6		16.1		50.7		48.5
Total revenue	550.3		478.6		1,596.5		1,410.3
Costs and expenses:
Salaries and wages	77.3		66.7		231.6		214.1
General and administrative	29.0		21.3		75.9		59.8
Sales and marketing	23.1		22.5		72.4		70.9
Total operating expenses	129.4		110.5		379.9		344.8

Provision for credit losses on forecast changes	105.9		106.3		430.9		319.4
Provision for credit losses on new Consumer Loan assignments	78.8		78.3		260.4		253.1
Total provision for credit losses	184.7		184.6		691.3		572.5

Interest	111.2		70.5		308.2		187.7
Provision for claims	18.5		16.5		55.8		54.1

Loss on sale of building	—		—		23.7		—
Total costs and expenses	443.8		382.1		1,458.9		1,159.1
Income before provision for income taxes	106.5		96.5		137.6		251.2
Provision for income taxes	27.7		25.7		41.6		58.7
Net income	$	78.8	$	70.8	$	96.0	$	192.5
Net income per share:
Basic	$	6.42	$	5.47	$	7.78	$	14.79
Diluted	$	6.35	$	5.43	$	7.68	$	14.73
Weighted average shares outstanding:
Basic	12,274,685		12,933,377		12,345,739		13,013,344
Diluted	12,415,143		13,039,638		12,494,011		13,068,998

See accompanying notes to consolidated financial statements.

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CREDIT ACCEPTANCE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


(In millions)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Net income	$	78.8	$	70.8	$	96.0	$	192.5
Other comprehensive gain (loss), net of tax:
Unrealized gain (loss) on securities, net of tax	2.1		(0.2)		1.9		—
Other comprehensive gain (loss)	2.1		(0.2)		1.9		—
Comprehensive income	$	80.9	$	70.6	$	97.9	$	192.5

See accompanying notes to consolidated financial statements.

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CREDIT ACCEPTANCE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)


(Dollars in millions)	For the Three Months Ended September 30, 2024
	Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
	Number of Shares	Amount
Balance, beginning of period	12,111,128	$	0.1	$	313.8	$	1,242.2	$	(1.2)	$	1,554.9
Net income	—	—		—		78.8		—		78.8
Other comprehensive income	—	—		—		—		2.1		2.1
Stock-based compensation	—	—		10.7		—		—		10.7
Repurchase of common stock	(86)	—		—		—		—		—
Restricted stock units settled in common stock	558	—		—		—		—		—

Balance, end of period	12,111,600	$	0.1	$	324.5	$	1,321.0	$	0.9	$	1,646.5

(Dollars in millions)	For the Three Months Ended September 30, 2023
	Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
	Number of Shares	Amount
Balance, beginning of period	12,821,681	$	0.1	$	261.7	$	1,487.9	$	(2.7)	$	1,747.0
Net income	—	—		—		70.8		—		70.8
Other comprehensive loss	—	—		—		—		(0.2)		(0.2)
Stock-based compensation	—	—		9.3		—		—		9.3
Repurchase of common stock	(256,232)	—		—		(126.3)		—		(126.3)

Stock options exercised	770	—		0.3		—		—		0.3
Balance, end of period	12,566,219	$	0.1	$	271.3	$	1,432.4	$	(2.9)	$	1,700.9


(Dollars in millions)	For the Nine Months Ended September 30, 2024
	Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
	Number of Shares	Amount
Balance, beginning of period	12,522,397	$	0.1	$	279.0	$	1,475.6	$	(1.0)	$	1,753.7
Net income	—	—		—		96.0		—		96.0
Other comprehensive income	—	—		—		—		1.9		1.9
Stock-based compensation	—	—		32.2		—		—		32.2
Repurchase of common stock	(462,131)	—		(1.3)		(250.6)		—		(251.9)
Restricted stock units settled to common stock	8,908	—		—		—		—		—
Stock options exercised	42,426	—		14.6		—		—		14.6
Balance, end of period	12,111,600	$	0.1	$	324.5	$	1,321.0	$	0.9	$	1,646.5

(Dollars in millions)	For the Nine Months Ended September 30, 2023
	Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
	Number of Shares	Amount
Balance, beginning of period	12,756,885	$	0.1	$	245.7	$	1,381.1	$	(2.9)	$	1,624.0
Net income	—	—		—		192.5		—		192.5

Stock-based compensation	—	—		29.0		—		—		29.0
Repurchase of common stock	(305,493)	—		(7.8)		(141.2)		—		(149.0)
Restricted stock units settled to common stock	101,757	—		—		—		—		—
Stock options exercised	13,070	—		4.4		—		—		4.4
Balance, end of period	12,566,219	$	0.1	$	271.3	$	1,432.4	$	(2.9)	$	1,700.9

See accompanying notes to consolidated financial statements.

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CREDIT ACCEPTANCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


(In millions)	For the Nine Months Ended September 30,
	2024		2023
Cash Flows From Operating Activities:
Net income	$	96.0	$	192.5
Adjustments to reconcile cash provided by operating activities:
Provision for credit losses	691.3		572.5
Depreciation	5.5		6.6
Amortization	15.4		13.3
Provision for deferred income taxes	33.4		35.1
Stock-based compensation	32.2		29.0
Loss on sale of building	23.7		—
Other	0.5		0.5
Change in operating assets and liabilities:
Increase in accounts payable and accrued liabilities	26.7		14.6
Increase in income taxes receivable	(22.1)		(5.5)
Increase (decrease) in income taxes payable	(80.8)		7.0
Decrease in other assets	9.9		27.0
Net cash provided by operating activities	831.7		892.6
Cash Flows From Investing Activities:
Purchases of restricted securities available for sale	(51.7)		(34.7)
Proceeds from sale of restricted securities available for sale	25.8		12.3
Maturities of restricted securities available for sale	7.4		8.1
Principal collected on Loans receivable	2,409.6		2,330.8
Advances to Dealers	(2,858.3)		(2,202.9)
Purchases of Consumer Loans	(833.8)		(970.6)
Accelerated payments of Dealer Holdback	(46.9)		(35.3)
Payments of Dealer Holdback	(188.1)		(177.3)
Purchases of property and equipment	(1.1)		(2.3)
Proceeds from sale of building	3.2		—
Net cash used in investing activities	(1,533.9)		(1,071.9)
Cash Flows From Financing Activities:
Borrowings under revolving secured lines of credit	5,988.3		5,529.1
Repayments under revolving secured lines of credit	(6,066.5)		(5,457.9)
Proceeds from secured financing	2,865.4		2,004.0
Repayments of secured financing	(1,594.7)		(1,722.9)


Payments of debt issuance costs	(19.1)		(16.0)
Repurchase of common stock	(251.9)		(149.0)
Proceeds from stock options exercised	14.6		4.4
Other	11.5		8.1
Net cash provided by financing activities	947.6		199.8
Net increase in cash and cash equivalents and restricted cash and cash equivalents	245.4		20.5
Cash and cash equivalents and restricted cash and cash equivalents beginning of period	470.9		417.7
Cash and cash equivalents and restricted cash and cash equivalents end of period	$	716.3	$	438.2
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest	$	280.0	$	172.7
Cash paid during the period for income taxes, net of refunds	$	102.0	$	19.7

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of actual results achieved for full fiscal years. The consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023 for Credit Acceptance Corporation (the “Company”, “Credit Acceptance”, “we”, “our” or “us”).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2024 for items that could potentially be recognized or disclosed in these financial statements. We did not identify any items that would require disclosure in or adjustment to the consolidated financial statements.

Reclassification

Certain amounts for prior periods have been reclassified to conform to the current presentation.

2. DESCRIPTION OF BUSINESS

We make vehicle ownership possible by providing innovative financing solutions that enable automobile dealers to sell vehicles to consumers regardless of their credit history. Our financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same customers; and from sales to customers responding to advertisements for our financing programs, but who actually end up qualifying for traditional financing.

Without our financing programs, consumers are often unable to purchase vehicles or they purchase unreliable ones. Further, as we report to the three national credit reporting agencies, an important ancillary benefit of our programs is that we provide consumers with an opportunity to improve their lives by improving their credit score and move on to more traditional sources of financing.

We refer to automobile dealers who participate in our programs and who share our desire to provide an opportunity to consumers to improve their lives as “Dealers.” Upon enrollment in our financing programs, the Dealer enters into a Dealer servicing agreement with us that defines the legal relationship between Credit Acceptance and the Dealer. The Dealer servicing agreement assigns the responsibilities for administering, servicing, and collecting the amounts due on retail installment contracts (referred to as “Consumer Loans”) from the Dealers to us. We are an indirect lender from a legal perspective, meaning the Consumer Loan is originated by the Dealer and assigned to us.

The majority of the Consumer Loans assigned to us are made to consumers with impaired or limited credit histories. The following table shows the percentage of Consumer Loans assigned to us with either FICO® scores below 650 or no FICO® scores:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Consumer Loan Assignment Volume	2024		2023		2024		2023
Percentage of total unit volume with either FICO® scores below 650 or no FICO® scores	79.1	%	78.6	%	81.0	%	81.5	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

We have two programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, we advance money to Dealers (referred to as a “Dealer Loan”) in exchange for the right to service the underlying Consumer Loans. Under the Purchase Program, we buy the Consumer Loans from the Dealers (referred to as a “Purchased Loan”) and keep all amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as “Loans.” The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last seven quarters:


	Unit Volume				Dollar Volume (1)
Three Months Ended	Dealer Loans		Purchased Loans		Dealer Loans		Purchased Loans
March 31, 2023	72.1	%	27.9	%	68.1	%	31.9	%
June 30, 2023	72.4	%	27.6	%	68.6	%	31.4	%
September 30, 2023	74.8	%	25.2	%	71.7	%	28.3	%
December 31, 2023	77.2	%	22.8	%	75.0	%	25.0	%
March 31, 2024	78.2	%	21.8	%	76.6	%	23.4	%
June 30, 2024	78.5	%	21.5	%	77.3	%	22.7	%
September 30, 2024	79.5	%	20.5	%	78.4	%	21.6	%

(1)Represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program. Payments of Dealer Holdback (as defined below) and accelerated Dealer Holdback are not included.

Portfolio Program

As payment for the vehicle, the Dealer generally receives the following:

•a down payment from the consumer;

•a non-recourse cash payment (“advance”) from us; and

•after the advance balance (cash advance and related Dealer Loan fees and costs) has been recovered by us, the cash from payments made on the Consumer Loan, net of certain collection costs and our servicing fee (“Dealer Holdback”).

We record the amount advanced to the Dealer as a Dealer Loan, which is classified within Loans receivable in our consolidated balance sheets. Cash advanced to the Dealer is automatically assigned to the Dealer’s open pool of advances. Dealers make an election as to how many Consumer Loans (either 50 or 100) will be assigned to an open pool before it is closed, and subsequent advances are assigned to a new pool. Unless we receive a request from the Dealer to keep a pool open, we automatically close each pool based on the Dealer’s election. All advances within a Dealer’s pool are secured by the future collections on the related Consumer Loans assigned to the pool. For Dealers with more than one pool, the pools are cross-collateralized so the performance of other pools is considered in determining eligibility for Dealer Holdback. We perfect our security interest with respect to the Dealer Loans by obtaining control or taking possession of the Consumer Loans, which list us as lien holder on the vehicle title.

The Dealer servicing agreement provides that collections received by us during a calendar month on Consumer Loans assigned by a Dealer are applied on a pool-by-pool basis as follows:

•first, to reimburse us for certain collection costs;

•second, to pay us our servicing fee, which generally equals 20% of collections;

•third, to reduce the aggregate advance balance and to pay any other amounts due from the Dealer to us; and

•fourth, to the Dealer as payment of Dealer Holdback.

If the collections on Consumer Loans from a Dealer’s pool are not sufficient to repay the advance balance and any other amounts due to us, the Dealer will not receive Dealer Holdback. Certain events may also result in Dealers forfeiting their rights to Dealer Holdback, including becoming inactive before assigning 100 Consumer Loans.

Dealers have an opportunity to receive an accelerated Dealer Holdback payment each time a pool of Consumer Loans is closed. The amount paid to the Dealer is calculated using a formula that considers the number of Consumer Loans assigned to the pool and the related forecasted collections and advance balance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

Since typically the combination of the advance and the consumer’s down payment provides the Dealer with a cash profit at the time of sale, the Dealer’s risk in the Consumer Loan is limited. We cannot demand repayment of the advance from the Dealer except in the event the Dealer is in default of the Dealer servicing agreement. Advances are made only after the consumer and Dealer have signed a Consumer Loan contract, we have received the executed Consumer Loan contract and supporting documentation in either physical or electronic form, and we have approved all of the related stipulations for funding.

For accounting purposes, the transactions described under the Portfolio Program are not considered to be loans to consumers. Instead, our accounting reflects that of a lender to the Dealer. The classification as a Dealer Loan for accounting purposes is primarily a result of (1) the Dealer’s financial interest in the Consumer Loan and (2) certain elements of our legal relationship with the Dealer.

Purchase Program

The Purchase Program differs from our Portfolio Program in that the Dealer receives a one-time payment from us at the time of assignment to purchase the Consumer Loan instead of a cash advance at the time of assignment and future Dealer Holdback payments. For accounting purposes, the transactions described under the Purchase Program are considered to be originated by the Dealer and then purchased by us.

Program Enrollment

Dealers are granted access to our Portfolio Program upon enrollment. Access to the Purchase Program is typically only granted to Dealers that meet one of the following:

•assigned at least 50 Consumer Loans under the Portfolio Program;

•franchise dealership; or

•independent dealership that meets certain criteria upon enrollment.

Seasonality

Our business is seasonal with peak Consumer Loan assignments and collections occurring during the first quarter of the year. This seasonality has a material impact on our interim results, as we are required to recognize a significant provision for credit losses expense at the time of assignment. For additional information, see Note 3.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Segment Information

We currently operate in one reportable segment which represents our core business of offering innovative financing solutions that enable automobile dealers to sell vehicles to consumers regardless of their credit history. The consolidated financial statements reflect the financial results of our one reportable operating segment.

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

Cash equivalents consist of readily marketable securities with original maturities at the date of acquisition of three months or less. As of September 30, 2024 and December 31, 2023, we had $158.6 million and $12.8 million, respectively, in cash and cash equivalents that were not insured by the Federal Deposit Insurance Corporation (“FDIC”).

Restricted cash and cash equivalents consist of cash pledged as collateral for secured financings and cash held in a trust for future vehicle service contract claims. As of September 30, 2024 and December 31, 2023, we had $551.8 million and $453.7 million, respectively, in restricted cash and cash equivalents that were not insured by the FDIC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents reported in our consolidated balance sheets to the total shown in our consolidated statements of cash flows:


(In millions)	As of
	September 30, 2024		December 31, 2023		September 30, 2023		December 31, 2022
Cash and cash equivalents	$	159.7	$	13.2	$	3.1	$	7.7
Restricted cash and cash equivalents	556.6		457.7		435.1		410.0
Total cash and cash equivalents and restricted cash and cash equivalents	$	716.3	$	470.9	$	438.2	$	417.7

Restricted Securities Available for Sale

Restricted securities available for sale consist of amounts held in a trust for future vehicle service contract claims. We determine the appropriate classification of our investments in debt securities at the time of purchase and reevaluate such determinations at each balance sheet date. Debt securities for which we do not have the intent or ability to hold to maturity are classified as available for sale, and stated at fair value with unrealized gains and losses, net of income taxes included in the determination of comprehensive income and reported as a component of shareholders’ equity.

Loans Receivable and Allowance for Credit Losses

Consumer Loan Assignment. For legal purposes, a Consumer Loan is considered to have been assigned to us after the following has occurred:

•the consumer and Dealer have signed a Consumer Loan contract; and

•we have received the executed Consumer Loan contract and supporting documentation in either physical or electronic form.

For accounting and financial reporting purposes, a Consumer Loan is considered to have been assigned to us after the following has occurred:

•the Consumer Loan has been legally assigned to us; and

•we have made a funding decision and generally have provided funding to the Dealer in the form of either an advance under the Portfolio Program or one-time purchase payment under the Purchase Program.

Portfolio Segments and Classes. Our Loan portfolio consists of two portfolio segments: Dealer Loans and Purchased Loans. Our determination is based on the following:

•We have two financing programs: the Portfolio Program and the Purchase Program. We are considered to be a lender to Dealers for Consumer Loans assigned under the Portfolio Program and a purchaser of Consumer Loans assigned under the Purchase Program.

•The Portfolio Program and the Purchase Program have different levels of risk in relation to credit losses. Under the Portfolio Program, the impact of negative variances in Consumer Loan performance is mitigated by Dealer Holdback and the cross-collateralization of Consumer Loan assignments. Under the Purchase Program, we are impacted by the full amount of negative variances in Consumer Loan performance.

•Our business model is narrowly focused on Consumer Loan assignments from one industry with expected cash flows that are significantly lower than the contractual cash flows owed to us due to credit quality. We do not believe that it is meaningful to disaggregate our Loan portfolio beyond the Dealer Loans and Purchased Loans portfolio segments.

Each portfolio segment consists of one class of Consumer Loan assignments, which is Consumer Loans originated by Dealers to finance purchases of vehicles and related ancillary products by consumers with impaired or limited credit histories. Our determination is based on the following:

•All of the Consumer Loans assigned to us have similar risk characteristics in relation to the categorization of borrowers, type of financing receivable, industry sector, and type of collateral.

•We only accept Consumer Loan assignments from Dealers located within the United States.

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Recognition and Measurement Policy. On January 1, 2020, we adopted Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, which is known as the current expected credit loss model, or CECL. Loans outstanding prior to the adoption date are no longer material to our consolidated financial statements. Consumer Loans assigned to us on or subsequent to January 1, 2020 are accounted for as originated financial assets (“Originated Method”).

Under the Originated Method, at the time of assignment, we:

•calculate the effective interest rate based on contractual future net cash flows;

•record a Loan receivable equal to the advance paid to the Dealer under the Portfolio Program or purchase price paid to the Dealer under the Purchase Program; and

•record an allowance for credit losses equal to the difference between the initial Loan receivable balance and the present value of expected future net cash flows discounted at the effective interest rate. The initial allowance for credit losses is recognized as provision for credit losses expense.

The effective interest rate and initial allowance for credit losses are significantly higher for Consumer Loans assigned under the Purchase Program than for Consumer Loans assigned under the Portfolio Program, as contractual net cash flows exceed expected net cash flows by a significantly greater margin under the Purchase Program. Under the Purchase Program, we retain all contractual collections that exceed our initial expectations. Under the Portfolio Program, contractual collections that exceed our initial expectations are substantially offset by additional Dealer Holdback payments.

Under the Originated Method, for each reporting period subsequent to assignment, we:

•recognize finance charge revenue using the effective interest rate that was calculated at the time of assignment based on contractual future net cash flows; and

•adjust the allowance for credit losses so that the net carrying amount of each Loan equals the present value of expected future net cash flows discounted at the effective interest rate. The adjustment to the allowance for credit losses is recognized as either provision for credit losses expense or a reversal of provision for credit losses expense.

Loans Receivable. Amounts advanced to Dealers for Consumer Loans assigned under the Portfolio Program are recorded as Dealer Loans and are aggregated by Dealer for purposes of recognizing revenue and measuring credit losses. Amounts paid to Dealers for Consumer Loans assigned under the Purchase Program are recorded as Purchased Loans and, for purposes of recognizing revenue and measuring credit losses, are not aggregated.

The outstanding balance of each Loan included in Loans receivable is comprised of the following:

•cash paid to the Dealer (or to third-party ancillary product providers on the Dealer’s behalf) for the Consumer Loan assignment (advance under the Portfolio Program or one-time purchase payment under the Purchase Program);

•finance charges;

•Dealer Holdback payments;

•accelerated Dealer Holdback payments;

•recoveries;

•transfers in;

•less: collections (net of certain collection costs);

•less: write-offs; and

•less: transfers out.

Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. We transfer the Dealer’s outstanding Dealer Loan balance and the related allowance for credit losses balance to Purchased Loans in the period this forfeiture occurs. We aggregate these Purchased Loans by Dealer for purposes of recognizing revenue and measuring credit losses.

Allowance for Credit Losses. The outstanding balance of the allowance for credit losses of each Loan represents the amount required to reduce net carrying amount of Loans (Loans receivable less allowance for credit losses) to the present value of expected future net cash flows discounted at the effective interest rate. Expected future net cash flows for Dealer Loans are comprised of expected future collections on the assigned Consumer Loans, less any expected future Dealer Holdback payments. Expected future net cash flows for Purchased Loans are comprised of expected future collections on the assigned Consumer Loans.

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Expected future collections are forecasted for each individual Consumer Loan based on the historical performance of Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns. Our forecast of expected future collections includes estimates for prepayments and post-contractual-term cash flows. Unless the consumer is no longer contractually obligated to pay us, we forecast future collections on each Consumer Loan for a 120 month period after the origination date. Expected future Dealer Holdback payments are forecasted for each individual Dealer based on the expected future collections and current advance balance of each Dealer Loan.

We fully write off the outstanding balances of a Loan and the related allowance for credit losses once we are no longer forecasting any expected future net cash flows on the Loan. Under our partial write-off policy, we write off the amount of the outstanding balances of a Loan and the related allowance for credit losses, if any, that exceeds 200% of the present value of expected future net cash flows on the Loan, as we deem this amount to be uncollectable.

Credit Quality. The vast majority of the Consumer Loans assigned to us are made to individuals with impaired or limited credit histories. Consumer Loans made to these individuals generally entail a higher risk of delinquency, default, and repossession and higher losses than loans made to consumers with better credit. Since most of our revenue and cash flows are generated from these Consumer Loans, our ability to accurately forecast Consumer Loan performance is critical to our business and financial results. At the time a Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan. Based on these forecasts, an advance or one-time purchase payment is made to the related Dealer at a price designed to maximize our economic profit, a non-GAAP financial measure that considers our return on capital, our cost of capital, and the amount of capital invested.

We monitor and evaluate the credit quality of Consumer Loans on a monthly basis by comparing our current forecasted collection rates to our initial expectations. We use a statistical model that considers a number of credit quality indicators to estimate the expected collection rate for each Consumer Loan at the time of assignment. The credit quality indicators considered in our model include attributes contained in the consumer’s credit bureau report, data contained in the consumer’s credit application, the structure of the proposed transaction, vehicle information and other factors. We continue to evaluate the expected collection rate for each Consumer Loan subsequent to assignment primarily through the monitoring of consumer payment behavior. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast. Since all known, significant credit quality indicators have already been factored into our forecasts and pricing, we are not able to use any specific credit quality indicators to predict or explain variances in actual performance from our initial expectations. Any variances in performance from our initial expectations are a result of Consumer Loans performing differently from historical Consumer Loans with similar characteristics. We periodically adjust our statistical pricing model for new trends that we identify through our evaluation of these forecasted collection rate variances.

When overall forecasted collection rates underperform our initial expectations, the decline in forecasted collections has a more adverse impact on the profitability of the Purchased Loans than on the profitability of the Dealer Loans. For Purchased Loans, the decline in forecasted collections is absorbed entirely by us. For Dealer Loans, the decline in the forecasted collections is substantially offset by a decline in forecasted payments of Dealer Holdback.

Methodology Changes. During the second quarter of 2024, we applied an adjustment to our methodology for forecasting the amount of future net cash flows from our Loan portfolio, which reduced the forecasted collection rates for Consumer Loans assigned in 2022 through 2024. During the second quarter of 2023, we adjusted our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data. For additional information, see Note 6. For the three and nine months ended September 30, 2024 and 2023, we did not make any other methodology changes for Loans that had a material impact on our financial statements.

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Finance Charges

Sources of Revenue. Finance charges is comprised of: (1) interest income earned on Loans; (2) administrative fees earned from ancillary products; (3) program fees charged to Dealers under the Portfolio Program; (4) Consumer Loan assignment fees charged to Dealers; and (5) direct origination costs incurred on Dealer Loans.

We provide Dealers the ability to offer vehicle service contracts to consumers through our relationships with Third-Party Providers (“TPPs”). A vehicle service contract provides the consumer protection by paying for the repair or replacement of certain components of the vehicle in the event of a mechanical failure. The retail price of the vehicle service contract is included in the principal balance of the Consumer Loan. The wholesale cost of the vehicle service contract is paid to the TPP, net of an administrative fee retained by us. The difference between the wholesale cost and the retail price to the consumer is paid to the Dealer as a commission. Under the Portfolio Program, the wholesale cost of the vehicle service contract and the commission paid to the Dealer are charged to the Dealer’s advance balance. TPPs process claims on vehicle service contracts that are underwritten by third-party insurers. We bear the risk of loss for claims on certain vehicle service contracts that are reinsured by us. We market the vehicle service contracts directly to Dealers.

We provide Dealers the ability to offer Guaranteed Asset Protection (“GAP”) to consumers through our relationships with TPPs. GAP provides the consumer protection by paying the difference between the loan balance and the amount covered by the consumer’s insurance policy in the event of a total loss of the vehicle due to severe damage or theft. The retail price of GAP is included in the principal balance of the Consumer Loan. The wholesale cost of GAP is paid to the TPP, net of an administrative fee retained by us. The difference between the wholesale cost and the retail price to the consumer is paid to the Dealer as a commission. Under the Portfolio Program, the wholesale cost of GAP and the commission paid to the Dealer are charged to the Dealer’s advance balance. TPPs process claims on GAP contracts that are underwritten by third-party insurers.

Program fees represent monthly fees charged to Dealers for access to our Credit Approval Processing System (“CAPS”); administration, servicing, and collection services offered by us; documentation related to or affecting our program; and all tangible and intangible property owned by Credit Acceptance. We charge a monthly fee of $599 to Dealers participating in our Portfolio Program and we collect it from future Dealer Holdback payments.

Recognition Policy. We recognize finance charges under the interest method such that revenue is recognized on a level-yield basis over the life of the Loan. We calculate finance charges on a monthly basis by applying the effective interest rate of the Loan to the net carrying amount of the Loan (Loan receivable less the related allowance for credit losses). The effective interest rate is based on contractual future net cash flows.

We report the change in the present value of credit losses attributable to the passage of time as a reduction to finance charges. Accordingly, we allocate finance charges recognized on each Loan between the Loan receivable and the related allowance for credit losses. The amount of finance charges allocated to the Loan receivable is equal to the effective interest rate applied to the Loans receivable balance. The reduction of finance charges allocated to the allowance for credit losses is equal to the effective interest rate applied to the allowance for credit losses balance.

Reinsurance

Our wholly owned subsidiary VSC Re Company (“VSC Re”) is engaged in the business of reinsuring coverage under vehicle service contracts sold to consumers by Dealers on vehicles financed by us. VSC Re currently reinsures vehicle service contracts that are offered through one of our TPPs. Vehicle service contract premiums, which represent the selling price of the vehicle service contract to the consumer, less fees and certain administrative costs, are contributed to a trust account controlled by VSC Re. These premiums are used to fund claims covered under the vehicle service contracts. VSC Re is a bankruptcy remote entity. As such, our exposure to fund claims is limited to the trust assets controlled by VSC Re and our net investment in VSC Re.

Premiums from the reinsurance of vehicle service contracts are recognized over the life of the policy in proportion to expected costs of servicing those contracts. Expected costs are determined based on our historical claims experience. Claims are expensed through a provision for claims in the period the claim was incurred. Capitalized acquisition costs are comprised of premium taxes and are amortized as general and administrative expense over the life of the contracts in proportion to premiums earned.

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(UNAUDITED)

We have consolidated the trust within our financial statements based on our determination of the following:

•We have a variable interest in the trust. We have a residual interest in the assets of the trust, which is variable in nature, given that it increases or decreases based upon the actual loss experience of the related service contracts. In addition, VSC Re is required to absorb any losses in excess of the trust’s assets.

•The trust is a variable interest entity. The trust has insufficient equity at risk as no parties to the trust were required to contribute assets that provide them with any ownership interest.

•We are the primary beneficiary of the trust. We control the amount of premiums written and placed in the trust through Consumer Loan assignments under our Programs, which is the activity that most significantly impacts the economic performance of the trust. We have the right to receive benefits from the trust that could potentially be significant. In addition, VSC Re has the obligation to absorb losses of the trust that could potentially be significant.

New Accounting Updates Not Yet Adopted

Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”). The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. If, by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. We are currently evaluating the impact the adoption of ASU 2023-06 will have on our consolidated financial statements and related disclosures.

Improvements to Reportable Segment Disclosures. In November 2023, the FASB issued ASU 2023-07, which enhances the required disclosures for operating segments in our annual and interim consolidated financial statements. ASU 2023-07 is effective on a retrospective basis for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024. Early adoption is permitted but we have not yet adopted ASU 2023-07. We are currently evaluating the impact the adoption of ASU 2023-07 will have on our consolidated financial statements and related disclosures.

Improvements to Income Tax Disclosures. In December 2023, the FASB issued ASU 2023-09, which intends to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments intended to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted, but we have not yet adopted ASU 2023-09. We are currently evaluating the impact the adoption of ASU 2023-09 will have on our consolidated financial statements and related disclosures.

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4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate their value.

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents. The carrying amounts approximate their fair value due to the short maturity of these instruments.

Restricted Securities Available for Sale. The fair value of U.S. Government and agency securities, corporate bonds, and municipal securities is based on quoted market values in active markets. For asset-backed securities, mortgage-backed securities, and commercial paper, we use model-based valuation techniques for which all significant assumptions are observable in the market.

Loans Receivable, net. The fair value is determined by calculating the present value of expected future net cash flows estimated by us by utilizing the discount rate used to calculate the value of our Loans under our non-GAAP floating yield methodology.

Revolving Secured Lines of Credit. The fair value is determined by calculating the present value of the debt instrument based on current rates for debt with a similar risk profile and maturity.

Secured Financing. The fair value of certain asset-backed secured financings (“Term ABS” financings) is determined using quoted market prices in an active market. For our warehouse facilities and certain other Term ABS financings, the fair values are determined by calculating the present value of each debt instrument based on current rates for debt with similar risk profiles and maturities.

Senior Notes. The fair value is determined using quoted market prices in an active market.

Mortgage Note. The fair value was determined by calculating the present value of the debt instrument based on current rates for debt with a similar risk profile and maturity.

A comparison of the carrying amount and estimated fair value of these financial instruments is as follows:


(In millions)	As of September 30, 2024				As of December 31, 2023
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Cash and cash equivalents	$	159.7	$	159.7	$	13.2	$	13.2
Restricted cash and cash equivalents	556.6		556.6		457.7		457.7
Restricted securities available for sale	113.9		113.9		93.2		93.2
Loans receivable, net	7,781.5		8,882.3		6,955.3		7,759.1
Liabilities
Revolving secured lines of credit	$	1.0	$	1.0	$	79.2	$	79.2
Secured financing	5,257.1		5,360.4		3,990.9		4,025.9
Senior notes	990.8		1,042.8		989.0		1,039.8
Mortgage note	—		—		8.4		8.4

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Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We group assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:


Level 1			Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2			Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3			Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates or assumptions that market participants would use in pricing the asset or liability.

The following table provides the level of measurement used to determine the fair value for each of our financial instruments measured or disclosed at fair value:


(In millions)	As of September 30, 2024
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Cash and cash equivalents (1)	$	159.7	$	—	$	—	$	159.7
Restricted cash and cash equivalents (1)	556.6		—		—		556.6
Restricted securities available for sale (2)	90.7		23.2		—		113.9
Loans receivable, net (1)	—		—		8,882.3		8,882.3
Liabilities
Revolving secured lines of credit (1)	$	—	$	1.0	$	—	$	1.0
Secured financing (1)	4,460.2		900.2		—		5,360.4
Senior notes (1)	1,042.8		—		—		1,042.8


(In millions)	As of December 31, 2023
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Cash and cash equivalents (1)	$	13.2	$	—	$	—	$	13.2
Restricted cash and cash equivalents (1)	457.7		—		—		457.7
Restricted securities available for sale (2)	75.1		18.1		—		93.2
Loans receivable, net (1)	—		—		7,759.1		7,759.1
Liabilities
Revolving secured lines of credit (1)	$	—	$	79.2	$	—	$	79.2
Secured financing (1)	3,225.8		800.1		—		4,025.9
Senior notes (1)	1,039.8		—		—		1,039.8
Mortgage note (1)	—		8.4		—		8.4

(1)Measured at amortized cost with fair value disclosed.

(2)Measured at fair value on a recurring basis.

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5. RESTRICTED SECURITIES AVAILABLE FOR SALE

Restricted securities available for sale consist of the following:


(In millions)	As of September 30, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Corporate bonds	$	50.3	$	0.9	$	(0.3)	$	50.9
U.S. Government and agency securities	39.5		0.6		(0.3)		39.8
Asset-backed securities	21.2		0.2		—		21.4


Mortgage-backed securities	1.8		—		—		1.8
Total restricted securities available for sale	$	112.8	$	1.7	$	(0.6)	$	113.9

(In millions)	As of December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Corporate bonds	$	40.5	$	0.3	$	(0.9)	$	39.9
U.S. Government and agency securities	35.2		0.2		(0.9)		34.5
Asset-backed securities	18.0		0.1		(0.2)		17.9
Municipal securities	0.7		—		—		0.7
Mortgage-backed securities	0.2		—		—		0.2
Total restricted securities available for sale	$	94.6	$	0.6	$	(2.0)	$	93.2

The fair value and gross unrealized losses for restricted securities available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:


(In millions)	Securities Available for Sale with Gross Unrealized Losses as of September 30, 2024
	Less than 12 Months				12 Months or More
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Total Estimated Fair Value		Total Gross Unrealized Losses
Corporate bonds	$	2.9	$	—	$	9.6	$	(0.3)	$	12.5	$	(0.3)
U.S. Government and agency securities	0.5		—		10.4		(0.3)		10.9		(0.3)
Asset-backed securities	—		—		3.6		—		3.6		—

Mortgage-backed securities	—		—		0.1		—		0.1		—
Total restricted securities available for sale	$	3.4