Atlanticus Holdings Corp 10-Q for FY2025 Q1
Atlanticus Holdings Corp (ATLC)
About this 10-Q
Atlanticus Holdings Corp filed this 10-Q on May 8, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $345.17M
- up 18.7% from $290.71M a year earlier
- Net income
- $31.52M
- up 20.4% from net income of $26.17M a year earlier
- Diluted EPS
- $1.49
- up 36.7% from $1.09 a year earlier
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
of
ATLANTICUS HOLDINGS CORPORATION
a
IRS Employer Identification No.
SEC File Number
(
| Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the "Act") | ||
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | | ☒ |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b- 2).
As of April 30, 2024,
| Page |
|||
| PART I. FINANCIAL INFORMATION |
|||
|
|
Item 1. |
||
|
|
|
||
|
|
|
||
|
|
|
Condensed Consolidated Statements of Shareholders’ Equity and Temporary Equity |
|
|
|
|
||
|
|
|
||
|
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
|
|
|
Item 3. |
||
|
|
Item 4. |
||
|
|
|||
| PART II. OTHER INFORMATION |
|||
|
|
Item 1. |
||
|
|
Item 1A. |
||
|
|
Item 2. |
||
|
|
Item 3. |
||
|
|
Item 4. |
||
|
|
Item 5. |
||
|
|
Item 6. |
||
|
|
|
||
| ITEM 1. |
FINANCIAL STATEMENTS |
Atlanticus Holdings Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Assets | ||||||||
| Unrestricted cash and cash equivalents (including $ million and $ million associated with variable interest entities at March 31, 2025 and December 31, 2024, respectively) | $ | $ | ||||||
| Restricted cash and cash equivalents (including $ million and $ million associated with variable interest entities at March 31, 2025 and December 31, 2024, respectively) | ||||||||
| Loans at fair value (including $ million and $ million associated with variable interest entities at March 31, 2025 and December 31, 2024, respectively) | ||||||||
| Loans at amortized cost, net (including $ million and $ million of allowance for credit losses at March 31, 2025 and December 31, 2024, respectively; and $ million and $ million of deferred revenue at March 31, 2025 and December 31, 2024, respectively) | ||||||||
| Property at cost, net of depreciation | ||||||||
| Operating lease right-of-use assets | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Operating lease liabilities | ||||||||
| Notes payable, net (including $ million and $ million associated with variable interest entities at March 31, 2025 and December 31, 2024, respectively) | ||||||||
| Senior notes, net | ||||||||
| Income tax liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Preferred stock, no par value, shares authorized: | ||||||||
| Series A preferred stock, shares issued and outstanding (liquidation preference - $ million) at March 31, 2025 and December 31, 2024 (Note 5) (1) | ||||||||
| Class B preferred units issued to noncontrolling interests (Note 5) | ||||||||
| Shareholders' Equity | ||||||||
| Series B preferred stock, par value, shares issued and outstanding at March 31, 2025 (liquidation preference - $ million); shares issued and outstanding at December 31, 2024 (liquidation preference - $ million) (1) | ||||||||
| Common stock, par value, shares authorized: and shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively | ||||||||
| Paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total shareholders’ equity attributable to Atlanticus Holdings Corporation | ||||||||
| Noncontrolling interests | ( | ) | ( | ) | ||||
| Total equity | ||||||||
| Total liabilities, shareholders' equity and temporary equity | $ | $ | ||||||
(1) Both the Series A preferred stock and the Series B preferred stock have no par value and are part of the same aggregate 10,000,000 shares authorized.
See accompanying notes.
Atlanticus Holdings Corporation and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue and other income: | ||||||||
| Consumer loans, including past due fees | $ | $ | ||||||
| Fees and related income on earning assets | ||||||||
| Other revenue | ||||||||
| Total operating revenue and other income | ||||||||
| Other non-operating income | ||||||||
| Total revenue and other income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Provision for credit losses | ( | ) | ( | ) | ||||
| Changes in fair value of loans | ( | ) | ( | ) | ||||
| Net margin | ||||||||
| Operating expenses: | ||||||||
| Salaries and benefits | ( | ) | ( | ) | ||||
| Card and loan servicing | ( | ) | ( | ) | ||||
| Marketing and solicitation | ( | ) | ( | ) | ||||
| Depreciation | ( | ) | ( | ) | ||||
| Other | ( | ) | ( | ) | ||||
| Total operating expenses | ( | ) | ( | ) | ||||
| Income before income taxes | ||||||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net income | ||||||||
| Net loss attributable to noncontrolling interests | ||||||||
| Net income attributable to controlling interests | ||||||||
| Preferred stock and preferred unit dividends and discount accretion | ( | ) | ( | ) | ||||
| Net income attributable to common shareholders | $ | $ | ||||||
| Net income attributable to common shareholders per common share—basic | $ | $ | ||||||
| Net income attributable to common shareholders per common share—diluted | $ | $ | ||||||
See accompanying notes.
Atlanticus Holdings Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity and Temporary Equity (Unaudited)
For the Three Months Ended March 31, 2025 and March 31, 2024
(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, 2025 | $ | — | $ | — | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Series A preferred stock dividends ($ dividend per share) | — | — | — | — | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||
| Series B preferred stock dividends ($ dividend per share) | — | — | — | — | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||
| Class B preferred units dividends ($ dividend per share) | — | — | — | — | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||
| Stock option exercises and proceeds related thereto | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Compensatory stock issuances, net of forfeitures | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Issuance of series B preferred stock, net | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Contributions by owners of noncontrolling interests | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation costs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Redemption and retirement of preferred shares and preferred units | — | — | — | — | — | — | — | — | — | ( | ) | |||||||||||||||||||||||||||||
| Redemption and retirement of common shares | — | — | ( | ) | — | ( | ) | — | — | ( | ) | — | — | |||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ( | ) | — | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | — | $ | — | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| 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 | $ | — | $ | — | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Accretion of discount associated with issuance of subsidiary equity | — | — | — | — | — | (75 | ) | — | ( | ) | — | |||||||||||||||||||||||||||||
| Series A preferred stock dividends ($ dividend per share) | — | — | — | — | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||
| Series B preferred stock dividends ($ dividend per share) | — | — | — | — | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||
| Class B preferred units dividends ($ dividend per share) | — | — | — | — | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||
| Compensatory stock issuances, net of forfeitures | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of series B preferred stock, net | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Distributions to owners of noncontrolling interests | — | — | — | — | — | — | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||
| Contributions by owners of noncontrolling interests | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation costs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Redemption and retirement of common shares | — | — | ( | ) | — | ( | ) | — | — | ( | ) | — | — | |||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ( | ) | — | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | — | $ | — | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
See accompanying notes.
Atlanticus Holdings Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
| For the Three Months Ended March 31, |
||||||||
| 2025 |
2024 |
|||||||
| Operating activities |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation, amortization and accretion, net |
||||||||
| Provision for credit losses |
||||||||
| Deferred income tax expense |
||||||||
| Income from accretion of discount associated with Loans at amortized cost, net |
( |
) | ( |
) | ||||
| Income from merchant fees associated with Loans at fair value |
( |
) | ( |
) | ||||
| Changes in fair value of loans |
||||||||
| Change in bank partner fees carried at fair value |
||||||||
| Amortization of debt issuance costs |
||||||||
| Stock-based compensation costs |
||||||||
| Changes in assets and liabilities: |
||||||||
| Decrease in lease liability |
( |
) | ( |
) | ||||
| Increase in uncollected fees on earning assets |
( |
) | ( |
) | ||||
| Increase in income tax liability |
||||||||
| Increase (decrease) in accounts payable and accrued expenses |
( |
) | ||||||
| Other |
( |
) | ( |
) | ||||
| Net cash provided by operating activities |
||||||||
| Investing activities |
||||||||
| Proceeds from recoveries on charged off receivables |
||||||||
| Investments in earning assets |
( |
) | ( |
) | ||||
| Proceeds from earning assets |
||||||||
| Purchases and development of property |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Financing activities |
||||||||
| Noncontrolling interests contributions |
||||||||
| Noncontrolling interests distributions |
( |
) | ||||||
| Proceeds from issuance of common stock |
||||||||
| Proceeds from issuance of Series B preferred stock, net of issuance costs |
||||||||
| Preferred stock and preferred unit dividends |
( |
) | ( |
) | ||||
| Proceeds from exercise of stock options |
||||||||
| Purchase and retirement of outstanding stock and preferred units |
( |
) | ( |
) | ||||
| Proceeds from issuance of Senior notes, net of issuance costs |
||||||||
| Proceeds from borrowings |
||||||||
| Repayment of borrowings |
( |
) | ( |
) | ||||
| Net cash (used in) provided by financing activities |
( |
) | ||||||
| Net (decrease) increase in cash and cash equivalents and restricted cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents and restricted cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents and restricted cash equivalents at end of period |
$ | $ | ||||||
| Cash and cash equivalents, and restricted cash and cash equivalents at end of period |
||||||||
| Unrestricted cash and cash equivalents |
$ | $ | ||||||
| Restricted cash and cash equivalents |
||||||||
| Cash and cash equivalents, and restricted cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental cash flow information |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Cash paid for income taxes, net of refunds |
$ | $ | ( |
) | ||||
| Accretion of discount associated with issuance of subsidiary equity |
$ | $ | ||||||
| Decrease in accrued and unpaid preferred stock and preferred unit dividends |
$ | ( |
) | $ | ( |
) | ||
See accompanying notes.
Atlanticus Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2025 and 2024
| 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. We provide technology and other support services to lenders who offer an array of financial products and services, including private label and general purpose card products, to consumers who may have been declined by other providers of credit. Private label and general purpose card products are originated by The Bank of Missouri and WebBank (collectively, our “bank partners”). Our bank partners originate these accounts through multiple channels, including retail and healthcare point-of-sale locations, direct mail solicitation, digital marketing and partnerships with 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 other third parties.
We are principally engaged as a program manager, providing a technology platform and corresponding services to lenders in the U.S. to assist those lenders with offering products to consumers. These lenders pay us a fee and, in most circumstances, the lenders are then obligated to sell us the receivables they generate from these products. We acquire these receivables for the principal amount of the loan. For certain of our receivables, we also receive merchant fees from our retail partners that are used to enhance our returns for those receivables.
We compensate our bank partners monthly for the regulatory oversight they provide associated with our acquired receivables, the underlying accounts of which they continue to own and service. This compensation is based on both fixed and variable components dependent on the underlying performance of the acquired receivables (collectively, "Bank partner fees"). As we are obligated to compensate our bank partners for the duration of the underlying account, we recognize the fair value of these Bank partner fees within Card and loan servicing on the accompanying condensed consolidated statements of income on the date we acquire the underlying receivable.
We service the underlying receivables on behalf of our bank partners by providing and/or managing the ongoing customer service activities in the form of processing payments, providing regular notices of statement activity, and resolving customer complaints, billing disputes, and fraud claims. Our bank partners continue to own the underlying consumer accounts that they originate and provide regulatory oversight in the form of reviewing, approving the development of consumer finance programs and approving all related marketing materials, establishing the policies and procedures that govern the operation of the consumer finance programs, reviewing and approving customer complaint correspondence, performing ongoing compliance monitoring and testing and audits of the consumer finance programs, and providing settlement services between us and our retail partners. From time to time, we also purchase receivables portfolios from third parties other than our bank partners. These products and services are reported through two reportable segments, Credit as a Service ("CaaS") and Auto Finance.
Within our CaaS segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing $43 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 cards using the Fortiva and Curae brand names as well as merchant associated brands. Private label credit products associated with the healthcare space are generally issued under the Curae brand while all other retail partnerships, including those in consumer electronics, furniture, elective medical procedures, and home-improvement use the Fortiva brand or use our retail partners’ brands. Our general purpose credit cards use the Aspire, Imagine and Fortiva brand names. 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 that focus exclusively on consumers with higher FICO scores. Atlanticus’ decisioning platform 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 notes receivable and equity investments previously made in consumer 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.
Rules enacted by the Consumer Financial Protection Bureau ("CFPB") which could limit the late fees charged to consumers were vacated in April 2025. The Courts determined that the CFPB violated the Credit Card Accountability and Disclosure Act's and the Administrative Procedure Act requirement that penalty fees be "reasonable and proportional" to the violation. In order to mitigate these impacts and continue to serve consumers, our bank partners took 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) which are included in our fair value calculations. See Note 6 "Fair Values of Assets and Liabilities" for more information on our fair value measurements.
| 2. | Significant Accounting Policies and Condensed Consolidated Financial Statement Components |
The following is a summary of significant accounting policies we follow in preparing our condensed consolidated financial statements, as well as a description of significant components of our condensed consolidated financial statements. The condensed consolidated financial statements furnished have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 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. Certain estimates, such as credit losses, payment rates, servicing costs, discount rates and yields earned on credit card receivables, significantly 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.
In the fourth quarter of 2024, we revised our methodology to correct the cumulative impact of an error in the discounted cash flow analysis used in the calculation of our Loans at fair value. This revision removed the impacts of cash flows associated with subsequent purchases associated with consumer receivables and cash flows on related merchant fees. These changes in the calculation of our Loans at fair value did not result in a restatement of our condensed consolidated financial statements in prior periods due to the immateriality of this error on prior period results. We revised the presentation of our condensed consolidated statement of shareholders’ equity and temporary equity to present the preferred stock and preferred unit dividends on an individual instrument basis, including the dividends per share. We also revised the presentation of our condensed consolidated statement of cash flows to (1) present the income from accretion of discounts associated with loans from amortized cost, net separate from the income from merchant fees associated with loans at fair value, (2) include a reconciliation of the unrestricted cash and cash equivalents and restricted cash and cash equivalents to arrive at the ending cash and cash equivalents and restricted cash at end of period, 3) reclassify lease liability payments to Decrease in lease liability below changes in assets and liabilities and 4) present deferred income tax expense separate from changes in income tax liability. These changes in presentation had no effect on our consolidated total equity or consolidated net cash provided by operating activities or ending cash and cash equivalents and restricted cash, and our historical condensed consolidated statement of shareholders’ equity and temporary equity and condensed consolidated statement of cash flows were revised for consistent presentation. Certain disclosures have been revised to conform to current year presentation.
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".
Unrestricted Cash and Cash Equivalents. Unrestricted cash and cash equivalents consist of cash, money market investments and overnight deposits. We consider all highly liquid cash investments with low interest rate risk and original maturities of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value. We maintain unrestricted cash and cash equivalents for general operating purposes. We maintain our cash and cash equivalents in accounts at regulated domestic financial institutions in amounts that exceed FDIC insured amounts. All cash balances are maintained at well capitalized institutions.
Restricted Cash and Cash Equivalents. Restricted cash includes certain collections on loans, interest and fees receivable, the cash balances of which are required to be distributed to noteholders under our debt facilities. Our restricted cash balances also include minimum cash balances held in accounts at the request of certain of our business partners.
Loans, Interest and Fees Receivable 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). For our Loans at fair value (within our CaaS segment), interest and fees are discontinued when the receivable becomes contractually 90 or more days past due. For our Loans at amortized cost (within our Auto Finance segment), we continue interest and fee billings until the time of charge-off if there is adequate value associated with the underlying asset serving as collateral for the receivable. Once a loan discontinues accruing interest and fees it is ineligible to return to accrual status. We charge off receivables underlying our Loans at fair value, against our Changes in fair value of loans, when they become contractually more than 180 days past due, or 120 days past due if they are enrolled in an installment loan product. We charge off our Loans at amortized cost receivables, against our Allowance for credit losses, when they become contractually between 120 and 180 days past due. For all of our receivables portfolios, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or estate large enough to pay the debt in full.
Loans at fair value. Loans at fair value represent receivables for which we have elected the fair value option (the "Fair Value Receivables"). The Fair Value Receivables are held by entities that qualify as VIEs, and are consolidated onto our condensed consolidated balance sheets, some portfolios of which are unencumbered and some of which are still encumbered under structured or other financing facilities. Loans and finance receivables include accrued and unpaid interest and fees. All receivables associated with our private label credit and general purpose credit cards are included within this category of receivables.
Under the fair value option, fees such as annual fees are taken into income when billed to the consumer or upon loan acquisition and any cost associated with the loan acquisition are expensed in the period incurred. The Company estimates the fair value of the loans using a discounted cash flow model, which considers various unobservable inputs such as credit losses, payment rates, servicing costs, discount rates and yields earned on credit card receivables. The Company reevaluates the fair value of loans receivable at the close of each measurement period. Changes in the fair value of loans are recorded as a component of "Changes in fair value of loans" in the condensed consolidated statements of income in the period of the fair value changes. Changes in the fair value of loans include the impact of current period charge-offs associated with these receivables.
Further details concerning our loans at fair value are presented within Note 6, "Fair Values of Assets and Liabilities."
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 $
We show an allowance for credit losses for our loans at amortized cost. A considerable amount of judgment is required to assess the ultimate amount of expected losses on loans at amortized cost, and we regularly evaluate and update our methodologies to determine the most appropriate allowance necessary. Our loans at amortized cost consist of smaller-balance, homogeneous loans in our Auto Finance segment. These loans are further divided into pools based on common characteristics such as contract or acquisition channel. For each pool, we determine the necessary allowance for credit losses using reasonable and supportable forecasts that analyze some or all of the following attributes unique to each type of receivable pool: historical loss rates on similar loans; current delinquency and roll-rate trends which may indicate consumer loss rates in excess or less than those which historical trends might suggest; the effects of changes in the economy on consumers such as inflation or other macroeconomic changes; changes in underwriting criteria; unfunded commitments (to the extent they are unconditional), and estimated recoveries. The aforementioned inputs are calculated using historical trends over the most recent two year period, and adjusted as needed for current trends and reasonable and supportable forecasts. We may individually evaluate a receivable or pool of receivables for credit losses if circumstances indicate that the receivable or pool of receivables may be at higher risk for non-performance than other receivables (e.g., if a particular retail or auto-finance partner has indications of nonperformance (such as a bankruptcy) that could impact the underlying pool of receivables we purchased from the partner).
Certain of our loans at amortized cost also contain components of deferred revenue related to loan discounts on the purchase of our auto finance receivables. As of March 31, 2025 and December 31, 2024, the weighted average remaining accretion period for the $
A roll-forward (in millions) of our allowance for credit losses by class of receivable is as follows:
| For the Three Months Ended March 31, | 2025 | 2024 | ||||||||||||||||||||||
| Notes Receivable | Auto Finance | Total | Notes Receivable | Auto Finance | Total | |||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||
| Balance at beginning of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Provision for credit losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||
| Recoveries | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Balance at end of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||
| March 31, | December 31, | |||||||
| As of | 2025 | 2024 | ||||||
| Allowance for credit losses: | ||||||||
| Balance of Notes Receivable at end of period individually evaluated for impairment | $ | ( | ) | $ | ( | ) | ||
| Balance of Auto Finance at end of period individually evaluated for impairment | $ | ( | ) | $ | ( | ) | ||
| Balance of Auto Finance at end of period collectively evaluated for impairment | $ | ( | ) | $ | ( | ) | ||
| Loans at amortized cost: | ||||||||
| Loans at amortized cost | $ | $ | ||||||
| Loans at amortized cost individually evaluated for impairment | $ | $ | ||||||
| Loans at amortized cost collectively evaluated for impairment | $ | $ | ||||||
Recoveries, noted above, consist of amounts received from the efforts of third-party collectors. All proceeds received, associated with charged-off accounts, are credited to the allowance for credit losses.
Delinquent loans at amortized cost reflect the principal, fee and interest components of loans we did not collect on or prior to the contractual due date and are considered "past due". Amounts we believe we will not ultimately collect are included as a component in our overall allowance for credit losses.
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 March 31, 2025 and December 31, 2024 is as follows:
| March 31, | December 31, | |||||||
| As of | 2025 | 2024 | ||||||
| 30-59 days past due | $ | $ | ||||||
| 60-89 days past due | ||||||||
| 90 or more days past due | ||||||||
| Delinquent loans at amortized cost | ||||||||
| Current loans at amortized cost | ||||||||
| Total loans at amortized cost | $ | $ | ||||||
| Balance of loans greater than 90-days delinquent still accruing interest and fees | $ | $ | ||||||
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 three months ended March 31, 2025 and 2024, no Loans at amortized cost qualified as a FDM.
Income Taxes
We experienced effective tax rates of
We report interest expense associated with our income tax liabilities (including accrued liabilities for uncertain tax positions) within our income tax line item on our consolidated statements of 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. Such interest expense was de minimis in both the three months ended March 31, 2025, and 2024.
Revenue Recognition and Revenue from Contracts with Customers
Consumer Loans, Including Past Due Fees
Consumer loans, including past due fees reflect interest income, including finance charges, and late fees on loans in accordance with the terms of the related customer agreements. These fees are recognized when assessed based upon the contractual terms of the loans. Discounts received associated with auto loans that are not included as part of our Fair Value Receivables are deferred and amortized over the average life of the related loans using the effective interest method. Finance charges and fees, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable and revenue when the fees are earned based upon the contractual terms of the loans. Retail partner incentives such as fee reductions or rebates are recorded as a reduction to revenue over the period the incentives are earned.
Merchant fees paid or received associated with the acquisition of Fair Value Receivables are recognized when the merchant confirms the transaction with us, which fulfills the terms of the associated merchant agreement. Our merchant agreements are defined at the transaction level and do not extend beyond the service already provided (i.e., each transaction is separate). We independently negotiate each agreement with separate counterparties and consider ourselves the principal in each agreement with our bank partners and retail partners. As such, we view the economic substance of our relationship with our retail partners as a service contract. The merchant fee is derived based on the value of the goods purchased from our retail partners and considers factors such as the consumer’s credit risk and the terms of our bank partners' related product offering.
Our service comprises a single performance obligation to facilitate the transaction between the retail partner and its consumer and the merchant fee is recognized into income when the retail partner successfully confirms the transaction, as no remaining obligations exist under the contract.
Fees and Related Income on Earning Assets
Fees and related income on earning assets primarily include fees associated with credit products such as annual fees, cash advance fees, and other fees. These fees are assessed based upon the contractual terms of the loans.
We recognize these fees as income when they are billed to the customers’ accounts. Fees and related income on earning assets, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable and revenue when the fees are earned based upon the contractual terms of the loans.
Other revenue
Other revenue includes revenue from contracts with customers, which includes interchange revenues, servicing income, service charges and other customer related fees. We recognize these fees as income in the period earned.
Other non-operating revenue
Other non-operating income includes income (or loss) associated with investments in non-core businesses or other items not directly associated with our ongoing operations. None of these companies are publicly-traded and there are no material pending liquidity events. We will continue to carry the investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes.
Revenue from Contracts with Customers
The majority of our revenue is earned from financial instruments and is not included within the scope of Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers". We have determined that revenue from contracts with customers would primarily consist of merchant fees and interchange revenues in our CaaS segment and servicing revenue and other customer-related fees in both our CaaS segment and our Auto Finance segment. Interchange fees are earned when our customers’ cards are used over established card networks. We earn a portion of the interchange fee the card networks charge merchants for the transaction and these fees are settled daily. Servicing revenue is generated by meeting contractual performance obligations related to the collection of amounts due on receivables, and is settled with the customer net of our fee, which can be settled daily or monthly. Service charges and other customer related fees are earned from customers based on the occurrence of specific services and are paid by customers per the terms of their credit agreement. Merchant fees paid or received associated with the acquisition of Fair Value Receivables are recognized when the merchant confirms the transaction with us, which fulfills the terms of the associated merchant agreement. None of these revenue streams result in an ongoing obligation beyond what has already been rendered. Revenue from these contracts with customers is included in Consumer loans, including past due fees and Other revenue on our condensed consolidated statements of income. Components (in thousands) of our revenue from contracts with customers is as follows:
| For the Three Months Ended March 31, 2025 | CaaS | Auto Finance | Total | |||||||||
| Interchange revenues, net (1) | $ | $ | $ | |||||||||
| Servicing income | ||||||||||||
| Service charges and other customer related fees | ||||||||||||
| Total Other revenue | ||||||||||||
| Merchant fees (2) | ||||||||||||
| Total revenue from contracts with customers | $ | $ | $ | |||||||||
| For the Three Months Ended March 31, 2024 | CaaS | Auto Finance | Total | |||||||||
| Interchange revenues, net (1) | $ | $ | $ | |||||||||
| Servicing income | ||||||||||||
| Service charges and other customer related fees | ||||||||||||
| Total Other revenue | ||||||||||||
| Merchant fees (2) | ||||||||||||
| Total revenue from contracts with customers | $ | $ | $ | |||||||||
(1) Interchange revenue is presented net of customer reward expense.
(2) Merchant fees are included in Consumer loans, including past due fees on our condensed consolidated statements of income.
Recent Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures" which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement. Instead, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027 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.
In December 2023, the FASB issued 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.
On 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. The adoption of this guidance did not have a material impact on the Company's financial results and accompanying disclosures. See Note 3, "Segment Reporting" to our condensed consolidated financial statements for additional information.
| 3. | Segment Reporting |
We operate primarily within one industry consisting of
Our CaaS segment includes the operations of two operating segments aggregated into one reportable segment which includes our private label credit and general purpose credit cards, which, through our bank partners, provide financing solutions to consumers. Our Auto Finance reportable segment purchases and/or service loans secured by automobiles and provides other financing options to independent automotive dealers and automotive finance companies. These reportable segments were determined by management based on the characteristics of the underlying products, management structures and expected returns.
We have no material amounts of long lived assets located outside of the U.S. and all revenue is generated within the U.S.
We measure the profitability of our reportable segments based on their income after allocation of specific costs and corporate overhead (Income before income taxes); however, our segment results do not reflect any charges for internal capital allocations among our segments. Company revenues, expenses and profitability are aggregated into these segments and presented to the CODM as detailed below. Overhead costs are allocated based on headcounts and other applicable measures to better align costs with the associated revenues. Income taxes are allocated to the individual segments whereby each operating segment determines income tax expense or benefit as if it filed a separate tax return.
Reportable segment information (in thousands) is as follows:
| Three Months Ended March 31, 2025 | CaaS | Auto Finance | Total | |||||||||
| Revenue and other income: | ||||||||||||
| Consumer loans, including past due fees | $ | $ | $ | |||||||||
| Fees and related income on earning assets | ||||||||||||
| Other revenue | ||||||||||||
| Total operating revenue and other income | ||||||||||||
| Other non-operating income | ||||||||||||
| Total revenue and other income | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Provision for credit losses | ( | ) | ( | ) | ( | ) | ||||||
| Changes in fair value of loans | ( | ) | ( | ) | ||||||||
| Net margin | ||||||||||||
| Operating expenses: | ||||||||||||
| Salaries and benefits | ( | ) | ( | ) | ( | ) | ||||||
| Card and loan servicing | ( | ) | ( | ) | ( | ) | ||||||
| Marketing and solicitation | ( | ) | ( | ) | ( | ) | ||||||
| Depreciation | ( | ) | ( | ) | ( | ) | ||||||
| Other | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Income before income taxes | $ | $ | $ | |||||||||
| Total assets | $ | $ | $ | |||||||||
| Three Months Ended March 31, 2024 | CaaS | Auto Finance | Total | |||||||||
| Revenue and other income: | ||||||||||||
| Consumer loans, including past due fees | $ | $ | $ | |||||||||
| Fees and related income on earning assets | ||||||||||||
| Other revenue | ||||||||||||
| Total operating revenue and other income | ||||||||||||
| Other non-operating income | ||||||||||||
| Total revenue and other income | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Provision for credit losses | ( | ) | ( | ) | ||||||||
| Changes in fair value of loans | ( | ) | ( | ) | ||||||||
| Net margin | ||||||||||||
| Operating expenses: | ||||||||||||
| Salaries and benefits | ( | ) | ( | ) | ( | ) | ||||||
| Card and loan servicing | ( | ) | ( | ) | ( | ) | ||||||
| Marketing and solicitation | ( | ) | ( | ) | ( | ) | ||||||
| Depreciation | ( | ) | ( | ) | ( | ) | ||||||
| Other | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Income before income taxes | $ | $ | $ | |||||||||
| Total assets | $ | $ | $ | |||||||||
| 4. | Shareholders’ Equity and Preferred Stock |
During the three months ended March 31, 2025 and 2024, we repurchased and contemporaneously retired
Preferred Stock
Our preferred stock consists of
ATM Programs
On August 10, 2022, we entered into an At Market Issuance Sales Agreement (the "Preferred Stock Sales Agreement") providing for the sale by the Company of up to an aggregate offering price of $
During the three months ended March 31, 2025 and 2024, we sold
During the three months ended March 31, 2025 and 2024, we sold
| 5. | Redeemable Preferred Stock |
On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove Ventures, LLC, a Nevada limited liability company ("Dove"). The agreement provided for a senior secured term loan facility in an amount of up to $
Dove is a limited liability company owned by three trusts. David G. Hanna is the sole shareholder and the President of the corporation that serves as the sole trustee of one of the trusts, and David G. Hanna and members of his immediate family are the beneficiaries of this trust. Frank J. Hanna, III is the sole shareholder and the President of the corporation that serves as the sole trustee of the other two trusts, and Frank J. Hanna, III and members of his immediate family are the beneficiaries of these other two trusts.
On November 14, 2019, a wholly-owned subsidiary issued
| 6. | Fair Values of Assets and Liabilities |
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
We update our fair value analysis each quarter, with changes since the prior reporting period reflected as a component of "Changes in fair value of loans" in the condensed consolidated statements of income. Changes in yields, purchase and payment rates, servicing rates, realized and projected credit loss rates and discount rates will lead to changes in the fair value of loans and therefore impact earnings. Further, our retail asset typically has seasonal growth during the summer months, impacting the fair value of assets.
Fair value differs from amortized cost accounting in the following ways:
| • | Receivables are recorded at their fair value, not their principal and fee balance or cost basis; | |
| • | The fair value of the loans takes into consideration net charge-offs for the remaining life of the loans with no separate allowance for credit loss calculation; | |
| • | Certain fee billings (such as annual fees) and expenses of loans are no longer deferred but recognized (when billed or incurred) in income or expense, respectively; | |
| • | The net present value of cash flows associated with future fee billings on existing receivables are included in fair value; | |
| • | Changes in the fair value of loans impact net margins; and | |
| • | Net charge-offs are recognized as they occur rather than through the establishment of an allowance and provision for credit losses for those loans, interest and fees receivable carried at amortized cost. |
For receivables that are carried at net amortized cost, we include disclosures of the fair value of such receivables to the extent practicable within the disclosures below.
Where applicable, we account for our financial assets and liabilities at fair value based upon a three-tiered valuation system. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Where inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input that is significant to the fair value measurement in its entirety.
Valuations and Techniques for Assets
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The table below summarizes (in thousands) by fair value hierarchy the March 31, 2025 and December 31, 2024 fair values and carrying amounts of (1) our assets that are carried at fair value in our condensed consolidated financial statements and (2) our assets not carried at fair value, but for which fair value disclosures are required:
| Assets – As of March 31, 2025 (1) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Carrying Amount of Assets | ||||||||||||
| Loans at amortized cost, net for which it is practicable to estimate fair value and which are carried at net amortized cost | $ | $ | $ | $ | ||||||||||||
| Loans at fair value | $ | $ | $ | $ | ||||||||||||
| (1) | For cash, deposits and investments in equity securities, the carrying amount is a reasonable estimate of fair value. |
| Assets – As of December 31, 2024 (1) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Carrying Amount of Assets | ||||||||||||
| Loans at amortized cost, net for which it is practicable to estimate fair value and which are carried at net amortized cost | $ | $ | $ | $ | ||||||||||||
| Loans at fair value | $ | $ | $ | $ | ||||||||||||
| (1) | For cash, deposits and investments in equity securities, the carrying amount is a reasonable estimate of fair value. |
For those asset classes above that are carried at fair value in our condensed consolidated financial statements, gains and losses associated with fair value changes are detailed on our condensed consolidated statements of income as a component of Changes in fair value of loans. Variations in the three month U.S. Treasury bill rate over the measurement period are used to determine the portion of change in fair value considered to be attributable to changes in instrument-specific credit risk. These variations are applied to the period end discount rate we use to determine fair value. For our loans included in the above table, we assess the fair value of these assets based on our estimate of future cash flows net of servicing costs. For the three months ended March 31, 2025 and 2024, we estimate the portion of fair value changes considered to be attributable to changes in instrument-specific credit risk to be $
For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the three months ended March 31, 2025 and 2024:
| Loans at Fair Value | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Balance at January 1, | $ | $ | ||||||||||||||
| Changes in fair value of loans at fair value, included in earnings | ||||||||||||||||
| Changes in fair value due to current period principal charge-offs, net of recoveries (1) | ( | ) | ( | ) | ||||||||||||
| Changes in fair value due to current period finance and fee charge-offs (1) | ( | ) | ( | ) | ||||||||||||
| (2) | ( | ) | ( | ) | ||||||||||||
| Purchases | ||||||||||||||||
| Finance and fees, added to the account balance | ||||||||||||||||
| Settlements | ( | ) | ( | ) | ||||||||||||
| Balance at March 31,(3) | $ | $ | ||||||||||||||
| Aggregate unpaid gross balance of loans carried at fair value | $ | $ | ||||||||||||||
| for the period included in earnings (or changes in net assets) for assets held at the end of the period | $ | $ | ||||||||||||||
| (1) | Reflects the current period charge-offs (net of recoveries) of loans at fair value. |
| (2) | Total Changes in fair value of loans is included in our condensed consolidated statements of income. |
| (3) | As of March 31, 2025 and March 31, 2024, the aggregate unpaid principal balance included within loans at fair value was $ |
The unrealized gains and losses for assets within the Level 3 category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs.
Loans at Fair Value. The fair value of Loans at fair value is based on the present value of future cash flows using a valuation model of expected cash flows and the estimated cost to service and collect those cash flows. We estimate the present value of these future cash flows using internally-developed estimates of assumptions third-party market participants would use in determining fair value, including estimates of credit losses, payment rates, servicing costs, discount rates and yields earned on private label credit and general purpose credit card receivables. We forecast the cash flows underlying our fair value assessment based on the individual offer type (in the case of general purpose credit cards) or by specific offers at our retail partners (for private label credit). While overall product return requirements among the offer types may be similar, the individual product offerings necessary to achieve those returns is often unique to each offer and retailer based on several factors, including acceptance rates of the offers by consumers and underlying consumer performance data which varies by offer type.
Our fair value models include market degradation to reflect the possibility of delinquency rates increasing in the near term (and the corresponding increase in charge-offs and decrease in payments) above the level that current trends would suggest.
The fair value of loans we acquire associated with our retail partners are typically lower than the aggregate unpaid gross balance of the underlying loans due to loan originations by our bank partners that contain below market interest rates or fees charged to consumers. Under agreements with our bank partners, we are required to purchase these receivables for amounts that may be in excess of fair value. In these instances, a fair value assessment that is less than the purchase price of the receivable can occur on the date we initially acquire the receivable, resulting in a loss on acquisition of the receivable. This negative fair value assessment is included in Changes in fair value of loans on our condensed consolidated statements of income.
In cases where we acquire these below market receivables, we charge merchant fees to our retail partners to facilitate the transaction and ensure we earn adequate returns. These merchant fees are based on the value of the goods purchased from our retail partners, the consumer’s credit risk and the terms of our bank partners' related product offering. These fees are recognized upon completion of our services, which coincides with the funding of the loan by our bank partners, in Consumer loans, including past due fees on our condensed consolidated statements of income. These merchant fees often offset the negative impact of the initial acquisition of the underlying receivable. As such, it is not always necessary for us to collect the aggregate unpaid gross balance of the underlying receivable to achieve desired returns.
Valuations and Techniques for Liabilities
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the liability. The table below summarizes (in thousands) by fair value hierarchy the March 31, 2025 and December 31, 2024 fair values and carrying amounts of our liabilities not carried at fair value, but for which fair value disclosures are required:
| Liabilities – As of March 31, 2025 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Carrying Amount of Liabilities | ||||||||||||
| Loan purchase commitment | $ | $ | $ | $ | ||||||||||||
| Bank partner fees carried at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities not carried at fair value | ||||||||||||||||
| Revolving credit facilities | $ | $ | $ | $ | ||||||||||||
| Amortizing debt facilities | $ | $ | $ | $ | ||||||||||||
| Senior notes, net | $ | $ | $ | $ | ||||||||||||
| Liabilities – As of December 31, 2024 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Carrying Amount of Liabilities | ||||||||||||
| Loan purchase commitment | $ | $ | $ | $ | ||||||||||||
| Bank partner fees carried at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities not carried at fair value | ||||||||||||||||
| Revolving credit facilities | $ | $ | $ | $ | ||||||||||||
| Amortizing debt facilities | $ | $ | $ | $ | ||||||||||||
| Senior notes, net | $ | $ | $ | $ | ||||||||||||
Bank partner fees carried at fair value in accordance with ASC 815, "Derivatives and Hedging", reflect the estimated fair value of future compensation we owe our bank partners associated with the regulatory oversight and other services they provide on our acquired receivables, the underlying accounts of which they continue to own and service. This compensation is based on both a fixed and variable component, dependent on the underlying performance of the acquired receivables. We estimate the present value of this compensation using internally-developed estimates of payment rates and discount rates. We recognize the fair value of these Bank partner fees within Card and loan servicing on the accompanying condensed consolidated statements of income on the date we acquire the underlying receivable.
For our credit and debt facilities where market prices are not available, we assess the fair value of these liabilities based on our estimate of future cash flows generated from their underlying credit card receivables collateral, net of servicing compensation required under the note facilities. We have evaluated the fair value of our third party debt by analyzing repayment terms and credit spreads included in our recent financing arrangements to those of our existing facilities. See Note 9, "Notes Payable," for further discussion on our other notes payable.
Other Relevant Data
Other relevant data (in thousands) as of March 31, 2025 and December 31, 2024 concerning certain assets we carry at fair value are as follows:
| Loans at Fair Value Pledged as Collateral under Structured Financings | ||||||||
| As of March 31, 2025 | As of December 31, 2024 | |||||||
| Aggregate unpaid gross balance of loans carried at fair value | $ | $ | ||||||
| Aggregate unpaid principal balance included within loans at fair value | $ | $ | ||||||
| Aggregate fair value of loans at fair value | $ | $ | ||||||
| Aggregate fair value of loans at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) | $ | $ | ||||||
| Unpaid principal balance of loans at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans, interest and fees receivable | $ | $ | ||||||
| 7. |
Variable Interest Entities |
The Company contributes the vast majority of receivables to VIEs. These entities are sometimes established to facilitate third party financing. When assets are contributed to a VIE, they serve as collateral for the debt securities issued by that VIE. The evaluation of whether the entity qualifies as a VIE is based upon the sufficiency of the equity at risk in the legal entity. This evaluation is generally a function of the level of excess collateral in the legal entity. We consolidate VIEs when we hold a variable interest and we have exposure to loss that has the potential to be significant and therefore, are the primary beneficiary. Through our role as servicer, we have the responsibility to service the receivables (in accordance with defined servicing procedures on behalf of our bank partner), and as such, have the ability to significantly impact the economic performance of those VIEs. In certain circumstances we guarantee the performance of the underlying debt or agree to contribute additional collateral when necessary, which results in retention of exposure to loss that has the potential to be significant. As a result, the Company is the primary beneficiary and consolidates the VIEs. When collateral is pledged, it is not available for the general use of the Company and can only be used to satisfy the related debt obligation. The results of operations and financial position of consolidated VIEs are included in our condensed consolidated financial statements. The Company consolidates all VIEs.
The following table presents a summary of VIEs in which we had continuing involvement and held a variable interest (in millions):
| As of |
||||||||
| March 31, 2025 |
December 31, 2024 |
|||||||
| Unrestricted cash and cash equivalents |
$ | $ | ||||||
| Restricted cash and cash equivalents |
||||||||
| Loans at fair value |
||||||||
| Total Assets held by VIEs |
$ | $ | ||||||
| Notes Payable, net held by VIEs |
$ | $ | ||||||
| 8. | Leases |
We have operating leases primarily associated with our corporate offices and regional service centers as well as for certain equipment. Our leases have remaining lease terms of
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Operating lease cost, gross | $ | $ | ||||||
| Sublease income | ( | ) | ( | ) | ||||
| Net Operating lease cost | $ | $ | ||||||
| Cash paid under operating leases, gross | $ | $ | ||||||
| Weighted average remaining lease term - months | ||||||||
| Weighted average discount rate | % | % | ||||||
As of March 31, 2025, scheduled payments of lease liabilities were as follows (in thousands):
| Gross Lease Payment | Payments received from Sublease | Net Lease Payment | ||||||||||
| 2025 (Remainder of 2025) | $ | $ | ( | ) | $ | |||||||
| 2026 | ( | ) | ||||||||||
| 2027 | ||||||||||||
| 2028 | ||||||||||||
| 2029 | ||||||||||||
| Thereafter | ||||||||||||
| Total lease payments | ( | ) | ||||||||||
| Less imputed interest | ( | ) | ||||||||||
| Operating lease liabilities | $ | |||||||||||
In August 2021, we entered into an operating lease agreement for our corporate headquarters in Atlanta, Georgia (the "Headquarters lease") with an unaffiliated third party. This Headquarters lease initially covered approximately
We exercised an expansion right under the Headquarters lease to add an additional 26,133 square feet (the "Expansion space") at our corporate headquarters. The Expansion space term commenced on December 23, 2024. The Expansion space co-terminates with the Headquarters lease. The other lease terms for the Expansion space are the same as those for the initial space leased under the Headquarters lease. The total remaining commitment under this lease is approximately $
In addition, we occasionally lease certain equipment under cancelable and non-cancelable leases, which are accounted for as capital leases in our condensed consolidated financial statements. As of March 31, 2025, we had no material non-cancelable capital leases with initial or remaining terms of more than one year.
| 9. | Notes Payable |
Notes Payable, at Face Value
Other notes payable outstanding as of March 31, 2025 and December 31, 2024 that are secured by the financial and operating assets of either the borrower, another of our subsidiaries or both, include the following, scheduled (in millions); except as otherwise noted, the assets of our holding company (Atlanticus Holdings Corporation) are subject to creditor claims under these scheduled facilities:
| As of | ||||||||
| March 31, 2025 | December 31, 2024 | |||||||
| Revolving credit facilities at a weighted average interest rate equal to % as of March 31, 2025 (% as of December 31, 2024) secured by the financial and operating assets of CAR and/or certain receivables and restricted cash with a combined aggregate carrying amount of $ million as of March 31, 2025 ($ million as of December 31, 2024) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (1) (2) (3) | $ | $ | ||||||
| Revolving credit facility, not to exceed $ million (expiring ) (2) (3) (4) (5) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (2) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (2) (3) (4) (5) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (2) (3) (4) (5) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (2) (3) (4) (5) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (2) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (2) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (2) (3) (4) (5) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expired ) (2) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expired ) (2) (3) (4) | 30.0 | |||||||
| Revolving credit facility, not to exceed $ million (expiring ) (3) (4) (5) (6) | ||||||||
| Revolving credit facility, not to exceed $ million (expiring ) (3) (4) (5) (6) | — | |||||||
| Revolving credit facility, not to exceed $ million (expiring ) (3) (4) (5) (6) | — | |||||||
| Other facilities | ||||||||
| Other debt | ||||||||
| Total notes payable before unamortized debt issuance costs and discounts | ||||||||
| Unamortized debt issuance costs and discounts | ( | ) | ( | ) | ||||
| Total notes payable outstanding, net | $ | $ | ||||||
| (1) | Loan is subject to certain affirmative covenants, including a coverage ratio, a leverage ratio and a collateral performance test, the failure of which could result in required early repayment of all or a portion of the outstanding balance by our CAR Auto Finance operations. |
| (2) | These notes reflect modifications to either extend the maturity date, increase the loan amount or both, and are treated as accounting modifications. |
| (3) | See below for additional information. |
| (4) | Loans are subject to certain affirmative covenants tied to default rates and other performance metrics the failure of which could result in required early repayment of the remaining unamortized balances of the notes. |
| (5) | Loans are associated with VIEs. See Note 7, "Variable Interest Entities" for more information. |
| (6) | Creditors do not have recourse against the general assets of the Company but only to the collateral within the VIEs. |
As of March 31, 2025, the Prime Rate was
In October 2015, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $
In October 2016, we (through a wholly owned subsidiary) entered a revolving credit facility available to the extent of outstanding eligible principal receivables of our CAR subsidiary (of which $
In December 2017, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $
In 2018, we (through a wholly owned subsidiary) entered a revolving credit facility to sell up to an aggregate $
In June 2019, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $
In January 2021, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $
In June 2021, we (through a wholly owned subsidiary) sold $
In November 2021, we (through a wholly owned subsidiary) sold $
In May 2022, we (through a wholly owned subsidiary) entered a (as subsequently amended) $
In August 2022, we (through a wholly owned subsidiary) entered a (as subsequently amended) $
In September 2022, we (through a wholly owned subsidiary) sold $
In May 2023, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as subsequently amended) $
In September 2023, we (through a wholly owned subsidiary) sold $
In November 2023, we (through a wholly owned subsidiary) sold $
In May 2024, we (through a wholly owned subsidiary) sold $
In July 2024, we (through a wholly owned subsidiary) sold $
In December 2024, we (through a wholly owned subsidiary) sold $
In March 2025, we (through a wholly owned subsidiary) sold $
In March 2025, we (through a wholly owned subsidiary) entered a $
As of March 31, 2025, we were in compliance with the covenants underlying our various notes payable and credit facilities.
Senior Notes, net
In November 2021, we issued $
In January and February 2024, we issued an aggregate of $
The 2026 Senior Notes and 2029 Senior Notes are collectively included on our condensed consolidated balance sheet as "Senior Notes, net." See Note 4 "Shareholders' Equity and Preferred Stock" for more information.
| 10. | Commitments and Contingencies |
General
Under finance products available in the private label credit and general purpose credit card channels, consumers have the ability to borrow up to the maximum credit limit assigned to each individual’s account. Unfunded commitments under these products aggregated $
Additionally, our CAR operations provide floor-plan financing for a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here used car business. The floor plan financing allows dealers and finance companies to borrow up to the maximum pre-approved credit limit allowed in order to finance ongoing inventory needs. These loans are secured by the underlying auto inventory and, in certain cases where we have other lending products outstanding with the dealer, are secured by the collateral under those lending arrangements as well, including any outstanding dealer reserves. As of March 31, 2025, CAR had unfunded outstanding floor-plan financing commitments totaling $
Under agreements with third-party originating and other financial institutions, we have pledged security (collateral) related to their issuance of consumer credit and purchases thereunder, of which $
Under agreements with third-party originating and other financial institutions, we have agreed to indemnify the financial institutions for certain liabilities associated with the services we provide on behalf of the financial institutions—such indemnification obligations generally being limited to instances in which we either (a) have been afforded the opportunity to defend against any potentially indemnifiable claims or (b) have reached agreement with the financial institutions regarding settlement of potentially indemnifiable claims. As of March 31, 2025, we have assessed the likelihood of any potential payments related to the aforementioned contingencies as remote. We would accrue liabilities related to these contingencies in any future period when we assess the likelihood of an estimable payment as probable.
Under the account terms, consumers have the option of enrolling with our issuing bank partners in a credit protection program, which would make the minimum payments owed on their accounts for a period of up to six months upon the occurrence of an eligible event. Eligible events typically include loss of life, job loss, disability, or hospitalization. As an acquirer of receivables, our potential exposure under this program, if all eligible participants applied for this benefit, was $
Concentrations
We acquire all of our fair value receivables under agreements with two third-party originating institutions.
Our top retail partnerships accounted for over
| Gross Purchases | |||||||||
| For the Three Months Ended March 31, | |||||||||
| Largest Retail Partners | 2025 | 2024 | |||||||
| 1 | $ | $ | |||||||
| 2 | $ | $ | |||||||
| 3 | $ | $ | |||||||
| 4 | $ | $ | |||||||
| 5 | $ | $ | |||||||
Our general purpose credit card and private label credit receivables base is spread across individual consumers in the U.S. As of March 31, 2025, only one state (Texas) had receivables concentration in excess of 10% of our total pool of receivables.
Litigation
We are involved in various legal proceedings that are incidental to the conduct of our business. There are currently no pending legal proceedings that are expected to be material to us.
| 11. | Net Income Attributable to Controlling Interests Per Common Share |
We compute net income attributable to controlling interests per common share by dividing net income attributable to controlling interests by the weighted average number of shares of common stock (including participating securities) outstanding during the period, as discussed below. Diluted computations applicable in financial reporting periods in which we report income use the treasury stock method to reflect the potential dilution to the basic income per share of common stock computations that could occur if securities or other contracts to issue common stock were exercised, were converted into common stock or were to result in the issuance of common stock that would share in our results of operations. In performing our net income attributable to controlling interests per share of common stock computations, we apply accounting rules that require us to include all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding in our basic and diluted calculations. Common stock and certain unvested share-based payment awards earn dividends equally, and we have included all outstanding restricted stock awards in our basic and diluted calculations for current and prior periods.
The following table sets forth the computations of net income attributable to controlling interests per share of common stock (in thousands, except per share data):
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Numerator: | ||||||||
| Net income attributable to controlling interests | $ | $ | ||||||
| Preferred stock and preferred unit dividends and discount accretion | ( | ) | ( | ) | ||||
| Net income attributable to common shareholders—basic | ||||||||
| Effect of dilutive preferred stock dividends and discount accretion | ||||||||
| Net income attributable to common shareholders—diluted | $ | $ | ||||||
| Denominator: | ||||||||
| Basic (including unvested share-based payment awards) (1) | ||||||||
| Effect of dilutive stock compensation arrangements and exchange of preferred stock | ||||||||
| Diluted (including unvested share-based payment awards) (1) | ||||||||
| Net income attributable to common shareholders per share—basic | $ | $ | ||||||
| Net income attributable to common shareholders per share—diluted | $ | $ | ||||||
| (1) | Shares related to unvested share-based payment awards included in our basic and diluted share counts were |
As their effects were anti-dilutive, we excluded stock options to purchase
For the three months ended March 31, 2025 and 2024, we included
| 12. | Stock-Based Compensation |
We currently have two stock-based compensation plans, the Second Amended and Restated Employee Stock Purchase Plan (the "ESPP") and the Fourth Amended and Restated 2014 Equity Incentive Plan (the "Fourth Amended 2014 Plan"). Our ESPP provides that we may issue up to
Exercises and vesting under our stock-based compensation plans resulted in
Restricted Stock and Restricted Stock Units
During the three months ended March 31, 2025 and 2024, we granted
The table below includes additional information about outstanding restricted stock and restricted stock units:
| Number of Shares | Weighted Average Grant Date Fair Value | |||||||
| Outstanding at December 31, 2024 | $ | |||||||
| Issued | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Outstanding at March 31, 2025 | $ | |||||||
Stock Options
The exercise price per share of the options awarded under the Fourth Amended 2014 Plan must be equal to or greater than the market price on the date the option is granted. The option period may not exceed
| Number of Shares | Weighted Average Exercise Price | Weighted Average of Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2024 | $ | |||||||||||||||
| Issued | $ | |||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Expired/Forfeited | $ | |||||||||||||||
| Outstanding at March 31, 2025 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2025 | $ | $ | ||||||||||||||
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes included therein and our Annual Report on Form 10-K for the year ended December 31, 2024, where certain terms have been defined.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We base these forward-looking statements on our current plans, expectations and beliefs about future events. There are risks, including the factors discussed in "Risk Factors" in Part II, Item 1A and elsewhere in this Report, that our actual experience will differ materially from these expectations. For more information, see "Cautionary Notice Regarding Forward-Looking Statements" below.
In this Report, except as the context suggests otherwise, the words "Company," "Atlanticus Holdings Corporation," "Atlanticus," "we," "our," "ours," and "us" refer to Atlanticus Holdings Corporation and its subsidiaries and predecessors.
OVERVIEW
Atlanticus is a financial technology company powering more inclusive financial solutions for everyday Americans. We leverage data, analytics, and innovative technology to unlock access to financial solutions for the millions of Americans who would otherwise be underserved. According to data published by Experian, 40% of Americans had FICO® scores of less than 700. We believe this equates to a population of over 100 million everyday Americans in need of access to credit. These consumers often have financial needs that are not effectively met by larger financial institutions. By facilitating appropriately priced consumer credit and financial service alternatives with value-added features and benefits curated for the unique needs of these consumers, we endeavor to empower better financial outcomes for everyday Americans. We provide technology and other support services to lenders who offer an array of financial products and services to consumers. Both private label and general purpose card products are originated by The Bank of Missouri and WebBank (collectively, our “bank partners”). Our bank partners originate these accounts through multiple channels, including retail and healthcare point-of-sale locations, 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 which focus exclusively on consumers with higher FICO scores. Atlanticus’ decisioning platform is enhanced by machine learning, enabling lenders to make fast, sound decisions when it matters most.
We are principally engaged in providing products and services to lenders in the U.S. for which these lenders pay us a fee and in most circumstances, the lenders are then obligated to sell us the receivables they generate from these products and services. We acquire these receivables for the principal amount of the loan. We compensate our bank partners monthly for the regulatory oversight they provide associated with our acquired receivables, the underlying accounts of which they continue to own and service, and also based on variable levels of the underlying performance of the acquired receivables (collectively, "Bank partner fees"). From time to time, we also purchase receivables portfolios from third parties other than our bank partners. In this Report, "receivables" or "loans" typically refer to receivables we have purchased from our bank partners or from other third parties.
Credit as a Service Segment
Currently, within our CaaS segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing $43 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 cards using the Fortiva and Curae brand names as well as merchant associated brands. Private label credit products associated with the healthcare space are generally issued under the Curae brand while all other retail partnerships, including those in consumer electronics, furniture, elective medical procedures, and home-improvement use the Fortiva brand or use our retail partners’ brands. Our general purpose credit cards use the Aspire, Imagine and Fortiva brand names. 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 infrastructure and technology, we also provide loan servicing, including risk management and customer service outsourcing, for third parties. Also, through our CaaS segment, we engage in testing and limited investment in consumer technology platforms as we seek to capitalize on our expertise and infrastructure. Additionally, we report within our CaaS segment: 1) servicing income; and 2) gains or losses associated with notes receivable and equity investments previously made in consumer 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 value of our investment in these companies is not material. One of these companies, Fintiv Inc., has sued Apple, Inc., Walmart, Inc., and PayPal Holdings, Inc. for patent infringement. Fintiv Inc. has approximately 150 patents related to secure money transfer on computer and mobile devices. The transaction volume in these areas has increased dramatically over the last five years. If Fintiv Inc. is successful in the patent litigation, there could be large exposure, including treble damages for these companies. The claimed losses sustained by this patent infringement are substantial and could be measured in the billions of dollars. We believe on a diluted basis that we will own over 10% of the company. Apple has vigorously contested the claims, and we expect it to continue doing so. In light of the uncertainty around these lawsuits, we will continue to carry these investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes.
All finance charges, fees and merchant fees are recognized into earnings through our Consumer loans, including past due fees (consisting of interest income, including finance charges, late payment fees on loans and merchant fees), Fees and related income on earning assets (consisting of annual or monthly maintenance fees, cash advance fees and other fees directly associated with the extension of credit) and Other revenue (consisting of servicing income, service charges and other customer related fees), on our condensed consolidated statements of income when they are billed to consumers or, in the case of merchant fees, upon completion of our services, which coincides with the funding of the loan by our bank partners. We value these loans and fee receivables within Changes in fair value of loans on our condensed consolidated statements of income to reflect our best estimate of ongoing economics and cash flows associated with existing consumer accounts including future estimates of finance and fee billings and consumer payment rates typical of the assumptions a market participant would use to calculate fair value.
Our credit and other operations are heavily regulated, potentially causing us to change how we conduct our operations either in response to regulation or in keeping with our goal of leading the industry in adherence to consumer-friendly practices. We have made meaningful changes to our practices over the past several years, and because our account management practices are evolutionary and dynamic, it is possible that we may make further changes to these practices, some of which may produce positive, and others of which may produce adverse, effects on our operating results and financial position. Customers at the lower end of the credit score range intrinsically have higher loss rates than do customers at the higher end of the credit score range. As a result, the products we support are priced to reflect expected loss rates for our various risk categories. See "Consumer and Debtor Protection Laws and Regulations—CaaS Segment" in Part I, Item 1 of our Annual Report on Form 10-K and "We operate in a heavily regulated industry" in Part II, Item 1A, "Risk Factors" contained in this Report.
Subject to possible disruptions caused by the uncertain economic environment, we believe that our private label credit and general purpose credit card receivables are generating, and will continue to generate, attractive returns on assets, thereby facilitating debt financing under terms and conditions (including advance rates and pricing) that will support attractive returns on equity, and we continue to pursue growth in this area.
The recurring cash flows we receive within our CaaS segment principally include those associated with (1) private label credit and general purpose credit card receivables, (2) servicing compensation and (3) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility.
Private Label Credit
Our bank partners work with both us and with our retail partners to provide financing options to retail consumers. These financing options vary by retail partner and consists of a range in APRs of 0% - 36% and a range in merchant fees of 0% - 65%. Merchant fees are paid to us by our retail partners to facilitate transactions between our retail partners and its consumers by connecting our bank partners with the retail partners’ consumers. The merchant fees vary by retail partner, and are based on the value of the goods purchased from our retail partners and consider factors such as the consumer’s credit risk and the terms of our bank partners' related product offering. Merchant fees are paid to us by our retail partners at the time our bank partners remit funds to the retail partner for a consumer transaction. These merchant fees are used to enhance the overall return on receivables we acquire when contractual APRs or other terms are insufficient due to promotional or other below market pricing retail merchants may offer to consumers (such as 0% APR offers). These fees are recognized upon completion of our services, which coincides with the funding of the loan by our bank partners, in Consumer loans, including past due fees on our condensed consolidated statements of income. These merchant fees often offset the loss associated with the initial acquisition of the underlying receivable. As such, it is not always necessary for us to collect the aggregate unpaid gross balance of the underlying receivable to achieve desired returns.
Financing arrangements may include fees to enhance yields on a product including annual and/or monthly maintenance fees. Additionally, terms of these products offered by our bank partners to consumers may include deferred interest options whereby consumers pay no interest on their purchases over periods ranging from 6-12 months. Terms of these products can range from 12 months to 84 months based on the retail merchant partner. Each offer is customized for retail clients based on the expected performance of the underlying receivables, receivable purchase volumes and overall return requirements. Our flexible technology allows retail partners to present financing offers to their customers through a variety of delivery options including retail point of sale locations, online transactions, or through in home sales. These financing arrangements are based on underwriting standards tailored to each retail partner and are the result of a close collaboration between our bank partners and us to ensure all products are compliant with regulatory requirements and to ensure they provide attractive terms to consumers. When a consumer accepts the terms of a financing arrangement for the purchase of a good or service and completes the underlying transaction, our bank partners forward the net purchase price (net of merchant or other fees remitted to us) to the retail partner. Our bank partners are then obligated to sell, and we are obligated to purchase, the receivable (along with rights to all future finance and fee billings associated with the receivable) from our bank partners under similar terms.
General Purpose Credit Cards
We work closely with our bank partners to assist them in creating general purpose credit card offers. These offers have varying lines of credit ranging from $350 to $3,000, annual percentage rates (“APRs”) ranging from 19.99% to 36%, annual fees ranging from $0 to $175 and monthly maintenance fees ranging from $0 to $15. Working collaboratively with our bank partners, each offer our bank partners extend to a consumer is tailored based on the consumer’s individual risk profile. These offers include finance and fee structures designed to provide us with an adequate return on invested capital upon acquisition of any associated receivable. As a result, at the time an offer is extended to a consumer, the offer reflects market value and, when combined with other pooled receivables that have similar characteristics, would result in earnings associated with any upfront fees (such as annual or monthly maintenance fees) on the date of acquisition, net of any fair value assessment that may value the receivables at less than the gross amount of the receivable.
Our agreements with our bank partners obligate them to sell and for us to acquire the receivables associated with underlying purchases and subsequent fee and finance billings. We acquire these receivables for the principal amount of any related purchase which best reflects the receivables fair value at the time of acquisition with no gain or loss recognized beyond those described above. As discussed above, our bank partners continue to provide ongoing account management and oversight for both our private label credit and general purpose credit card receivables, for which we compensate the bank partners monthly.
Auto Finance Segment
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 generate revenues on purchased loans through interest earned on the face value of the installment agreements combined with the accretion of discounts on loans purchased. We generally earn discount income over the life of the applicable loan. Additionally, we generate revenues from servicing loans on behalf of dealers for a portion of actual collections and by providing back-up servicing for similar quality assets owned by unrelated third parties. We offer a number of other products to our network of buy-here, pay-here dealers (including our floor-plan financing offering), but the majority of our activities are represented by our purchases of auto loans at discounts and our servicing of auto loans for a fee. As of March 31, 2025, our CAR operations served over 670 dealers in 33 states and two U.S. territories. The core operations continue to achieve profitability and generate positive cash flows.
CONSOLIDATED RESULTS OF OPERATIONS
| For the Three Months Ended March 31, |
Increases (Decreases) |
|||||||||||
| (In Thousands) |
2025 |
2024 |
from 2024 to 2025 |
|||||||||
| Total operating revenue and other income |
$ | 344,873 | $ | 290,174 | $ | 54,699 | ||||||
| Other non-operating income |
293 | 532 | (239 | ) | ||||||||
| Interest expense |
(47,530 | ) | (35,063 | ) | 12,467 | |||||||
| Provision for credit losses |
(1,068 | ) | (2,944 | ) | (1,876 | ) | ||||||
| Changes in fair value of loans at fair value |
(178,345 | ) | (159,171 | ) | 19,174 | |||||||
| Net margin |
118,223 | 93,528 | 24,695 | |||||||||
| Operating expenses: |
||||||||||||
| Salaries and benefits |
(15,503 | ) | (13,312 | ) | 2,191 | |||||||
| Card and loan servicing |
(32,152 | ) | (26,822 | ) | 5,330 | |||||||
| Marketing and solicitation |
(20,334 | ) | (10,428 | ) | 9,906 | |||||||
| Depreciation |
(797 | ) | (654 | ) | 143 | |||||||
| Other |
(8,569 | ) | (9,491 | ) | (922 | ) | ||||||
| Total operating expenses: |
(77,355 | ) | (60,707 | ) | 16,648 | |||||||
| Net income |
$ | 31,122 | $ | 25,819 | $ | 5,303 | ||||||
| Net loss attributable to noncontrolling interests |
398 | 351 | 47 | |||||||||
| Net income attributable to controlling interests |
$ | 31,520 | $ | 26,170 | $ | 5,350 | ||||||
| Net income attributable to controlling interests to common shareholders |
$ | 27,946 | $ | 19,878 | $ | 8,068 | ||||||
Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
Total operating revenue and other income. Total operating revenue and other income consists of: 1) interest income, finance charges and late fees on consumer loans, 2) other fees on credit products including annual and merchant fees and 3) interchange and servicing income on loan portfolios and other customer related fees.
Period-over-period results primarily relate to growth in private label credit and general purpose credit card products, the receivables of which increased to $2,706.3 million as of March 31, 2025, from $2,317.6 million as of March 31, 2024. We experienced growth in total operating revenues for both our general purpose credit card and our private label credit receivables for the three months ended March 31, 2025, when compared to the same period in 2024. These increases were primarily due to quarterly growth in both new credit card and private label customers serviced, the total accounts of which increased over 230,000 as of March 31, 2025 when compared to March 31, 2024 and also due to the recognition of merchant fees associated with new private label receivable acquisitions, which increased $9.3 million quarter over quarter. Growth also reflected increased fee and finance pricing requirements for all new receivable acquisitions in response to increased costs of capital used to finance these receivable acquisitions.
The relative mix of receivable acquisitions can lead to some variation in our corresponding revenue as general purpose credit card receivables typically generate higher gross yields than private label credit receivables do. We are currently experiencing continued period-over-period growth in private label credit and general purpose credit card receivables—growth that we expect to result in net period-over-period growth in our total interest income and related fees for these operations throughout 2025. During 2024 we experienced higher growth rates for our private label credit receivables than for our general purpose credit card receivables. As discussed above, these private label receivables typically generate lower gross yields than our general purpose credit card receivables. This growth in private label credit receivables, relative to growth in general purpose credit card receivables offset some of the increased fee and finance pricing requirements discussed above. We expect growth in our private label credit receivables to exceed growth in our general purpose receivables through the second quarter of 2025.
Future periods’ growth is dependent on the addition of new retail partners to expand the reach of private label credit operations as well as growth within existing partnerships and the level of marketing investment for the general purpose credit card operations. Other revenue on our condensed consolidated statements of income consists of servicing income, service charges and other customer related fees. Growth in customer related fees was largely due to the use of new marketing channels which increased customer engagement with these products. When coupled with increases in interchange revenues which are largely impacted by growth in our receivables, this resulted in an increase in this category of revenues for the quarter ended March 31, 2025, when compared to the same period in 2024. See Note 2, "Significant Accounting Policies and Condensed Consolidated Financial Statement Components" to our condensed consolidated financial statements for additional information related to this revenue from contracts with customers. Interchange fees are earned when customers we serve use their cards over established card networks. We earn a portion of the interchange fee the card networks charge merchants for the transaction. We earn servicing income by servicing loan portfolios for third parties. Unless and/or until we grow the number of contractual servicing relationships we have with third parties or our current relationships grow their loan portfolios, we will not experience significant growth and income within this category. The above discussions on expectations for finance, fee and other income are based on our current expectations.
Other non-operating revenue. Included within our Other non-operating income category is income (or loss) associated with investments in non-core businesses or other items not directly associated with our ongoing operations. None of these companies are publicly-traded and there are no material pending liquidity events. We will continue to carry the investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes.
Interest expense. Variations in interest expense are due to new borrowings and increased costs of capital associated with growth in private label credit and general purpose credit card receivables and CAR operations as evidenced within Note 9, "Notes Payable," to our condensed consolidated financial statements, offset by our debt facilities being repaid commensurate with net liquidations of the underlying credit card, auto finance and installment loan receivables that serve as collateral for the facilities. Outstanding notes payable, net of unamortized debt issuance costs and discounts, associated with our private label credit and general purpose credit card platform increased to $2,137.6 million as of March 31, 2025, from $1,795.4 million as of March 31, 2024. Interest expense increased $12.5 million for the three months ended March 31, 2025, when compared to the three months ended March 31, 2024. The majority of this increase in outstanding debt relates to the addition of multiple credit facilities in 2024 and 2025 associated with growth in our card and loan receivables, coupled with the issuances of 9.25% Senior Notes due 2029 (the "2029 Senior Notes"). Recent increases in the effective interest rates on debt have increased our interest expense as we have raised additional capital (or replaced existing facilities) over the last two years. We anticipate additional debt financing over the next few quarters as we continue to grow coupled with higher effective interest rates on new debt compared to rates on maturing debt. As such, we expect our quarterly interest expense for these operations to increase compared to prior periods.
Provision for credit losses. Our provision for credit losses covers, with respect to such receivables, changes in estimates regarding our aggregate loss exposures on (1) principal receivable balances, (2) finance charges and late fees receivable underlying income amounts included within our total interest income category, and (3) other fees and notes receivable. Recoveries of charged off receivables, consist of amounts received from the efforts of third-party collectors and through the sale of charged-off accounts to unrelated third parties. All proceeds received associated with charged-off accounts, are credited to the allowance for credit losses.
We have experienced a period-over-period decrease of $1.9 million in our provision for credit losses (when comparing the three months ended March 31, 2025 to the same period in 2024) primarily associated with lower receivable balances and decreases in loss estimates associated with our Auto Finance segment's floorplan loans. Most risk of loss in our Auto Finance segment is widely diversified with consumer auto loans across the U.S. Floorplan loans offered to dealers to finance auto inventory increase our exposure to loss not only for the amount of a floorplan loan but also for specific dealer related consumer loans. We take several steps to mitigate this risk including holding title to the underlying collateral, ongoing reassessments of collateral value and regular audits at participating dealer locations. Nevertheless, the timing of losses is difficult to predict. Recent stress noted at some dealer locations is incorporated into our loss estimates for floorplan and consumer loans and resulted in increased provisions for credit losses during 2024. With these increased loss rates incorporated in our current allowance for credit losses, we do not expect to see increases in year over year amounts absent significant growth in the associated receivables. See Note 2, "Significant Accounting Policies and Condensed Consolidated Financial Statement Components," to our condensed consolidated financial statements for further credit quality statistics and analysis.
Changes in fair value of loans. We experienced losses in our total Changes in fair value of loans of $178.3 million for the three months ended March 31, 2025. This compares to losses of $159.2 million for the three months ended March 31, 2024. Changes in fair value of loans includes 1) current period principal and finance charge-offs of fair value receivables, 2) the normal accretion of fair value related to finance charges and fees in excess of the contractual amounts billed, which is recognized in revenue during the period, and gains typically recognized in earnings as the fair value of finance charges and fees is greater than the contractual amounts billed during a period, 3) losses on acquisitions of our private label receivables and 4) the impact of changes in the assumptions underlying receivables at the end of the measurement period. The increase in losses in Changes in fair value of loans for the three months ended March 31, 2025 when compared to the three months ended March 31, 2024, were largely due to a decrease in the Changes in fair value of loans at fair value, included in earnings, which totaled $55.2 million for the three months ended March 31, 2025 compared to $72.5 million for the three months ended March 31, 2024. Results impacting the $55.2 million and $72.5 million of Changes in fair value of loans at fair value, included in earnings for the three months ended March 31, 2025 and 2024, respectively, are as follows: 1) net gains of $31.4 million associated with the normal accretion of fair value related to finance charges and fees in excess of the contractual amounts billed, which is recognized in revenue during the period, and gains typically recognized in earnings as the fair value of finance charges and fees is greater than the contractual amounts billed during a period (compared to $34.9 million of such gains for the three months ended March 31, 2024), 2) net losses of $37.7 million on the acquisition of private label credit receivables, which often have below market pricing and for which we often receive merchant fees which ensure we earn adequate returns (compared to $28.7 million of such losses for the three months ended March 31, 2024) and 3) net gains of $61.5 million (compared to $66.3 million of such increase for the three months ended March 31, 2024) related to favorable changes in fair value assumptions due to improvements in the underlying performance in the form of improved delinquencies and improved net returns. Marginally contributing to this decline in Changes in fair value of loans were slight increases in principal and finance charge-offs (net of recoveries), which totaled $233.5 million for the three months ended March 31, 2025, compared to $231.7 million for the three months ended March 31, 2024. These charge-offs increased period over period primarily due to overall increases in our acquisition and relative mix of receivables and not due to specific changes in the underlying performance of the receivables (see additional discussion related to delinquencies and charge-offs below).
For all periods presented, we included asset performance degradation in our forecasts to reflect both changes in assumed asset level economics and the possibility of delinquency rates increasing in the near term (and the corresponding increase in charge-offs and decrease in payments) above the level that current trends would suggest. In recent periods we have removed some of this expected degradation based on observed asset stabilization, implementation of product, policy, and pricing changes and an improved inflation environment. See Note 6 "Fair Values of Assets and Liabilities" to our condensed consolidated financial statements included herein for further discussion of this calculation. We may, however, adjust our forecasts to reflect observed macroeconomic events. Thus, the fair values are subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if there are significant changes in market valuation factors (e.g., interest rates and spreads) in the future. Tightened underwriting standards shifted new receivable acquisitions to consumers at the higher end of the FICO bands in which our bank partners participate, presumably resulting in improved overall credit performance of our acquired receivables. When coupled with those existing assets negatively impacted by inflation gradually becoming a smaller percentage of the outstanding portfolio, we expect to see overall improvements in the measured fair value of our portfolios of acquired receivables. As part of our analysis to determine the fair value of our receivables, we look at several key factors that influence the overall fair value. Qualitative discussion of these factors is as follows:
Gross yield, net of finance charge charge-offs – We utilize gross yield, net of finance charge charge-offs in our fair value assessments to best reflect the expected net collected yield on fee billings on our receivables. As the size and composition of our portfolio fluctuates, or as we experience periods of growth or decline in our acquisition of new receivables, this rate can fluctuate. We have experienced marginal increases in our weighted-average, Gross yield, net of finance charge charge-offs rate used in our fair value calculations as of March 31, 2025, when compared to rates used as of March 31, 2024 largely due to a shift in the overall portfolio mix towards private label credit receivables acquired that tend to have lower effective yields but also for which we have limited loss exposure due to agreements with retail partners. Our general purpose credit card receivables experienced an increase in this same rate for the noted periods due to the aforementioned product, policy, and pricing changes which contributed to the $55.2 million of net gains noted above for the three months ended March 31, 2025. As these product policy and pricing changes continue to further positively impact both newly acquired and existing private label credit receivables and general purpose credit card receivables, we expect our gross yield, net of finance charge charge-offs rate to increase over time although the pace and timing of purchases for new general purpose credit card receivables, relative to those of private label credit receivables, could result in near term declines in this rate. The acquisition of private label credit receivables, particularly those noted above, is largely seasonal in nature, peaking in the second and third quarters of each year. As a result, we would expect this weighted average rate to decrease in those periods absent the offset of our higher yielding general purpose credit card receivables acquired during the same period. While our bank partners have enacted product, policy, and pricing changes on our existing receivables (and all newly acquired receivables), some of these changes will take several quarters to be fully realized.
Payment Rate – Our total portfolio payment rate has declined marginally over time largely due to the increased relative weight of acquisitions of private label credit receivables to our overall pool of receivables and did not contribute meaningfully to shifts in the fair value of receivables noted above. These receivables tend to include less finance and fee billings that factor into monthly payment amounts (due to associated merchant fee billings that provide us adequate returns on the receivables) and have payment terms that extend over longer periods. As a result, payment rates on private label credit receivables are naturally lower than those associated with our general purpose credit card receivables. This was particularly influenced by strong growth in the aforementioned private label credit receivables acquired during the second and third quarters of 2024 that have limited loss exposure and tend to have longer associated terms and lower effective payment rates. This decline in payment rates is not evident in our credit card portfolio, which maintained relatively stable payment rates for the quarters ended March 31, 2025 and 2024.
Servicing Rate – Our servicing rate has fluctuated marginally over time as we continue to implement processes and strategies to more efficiently and effectively service the accounts underlying our outstanding receivables portfolios. As delinquent accounts tend to have a higher cost of servicing, recent trending declines in our receivables that are 90 or more days past due also has resulted in lower expected future costs. We expect our servicing rate will remain relatively consistent over the next several quarters and as such, do not expect changes in our Servicing Rate to create a meaningful impact in our fair value calculations.
Expected Net Principal Credit Loss Rate – Our Expected net principal credit loss rate is chiefly impacted by the relative makeup of receivables within our pools rather than changes in expected performance of those underlying pools. As we have acquired a higher number of receivables associated with our private label credit accounts for which we have limited loss exposure due to agreements with retail partners, particularly in the second and third quarters of 2024, our Expected net principal credit loss rate has decreased. Additionally, we have noted reductions in the Expected net principal credit loss rate associated with our general purpose credit card receivables, which have shown continued overall improvements in delinquency rates. With growth in the acquisition of our private label credit receivables, particularly those noted above with limited loss exposure, and growth in better performing general purpose credit card receivables, we expect this weighted average rate to decrease over the next several quarters (when compared to similar periods in prior years) before stabilizing. As changes in expected losses for receivables at the individual pool level did not change meaningfully, the overall impact on our fair value calculation was not meaningful although the positive impact of the improvement noted in delinquencies is included as a component of the $55.2 million of net gains noted above.
Discount Rate – Our weighted average discount rate has remained relatively consistent over the past several quarters (and is expected to continue to remain consistent or go down). Primarily impacting modest changes in our weighted average discount rate are mix shifts in the type of receivables acquired, as different receivable types (general purpose credit card receivables versus private label credit receivables) have different expected return requirements used by third-party market participants. As we have acquired a higher number of receivables associated with our private label credit accounts for which we have limited loss exposure due to agreements with retail partners that reimburse us for credit losses, our weighted average discount rate has decreased marginally. While changes in this mix do impact the weighted average discount rate, they do not have a direct impact on the calculation of fair value for our individual pools. We have assigned a lower discount rate when assessing the fair value of these receivables to reflect the significantly lower risk and return characteristics. As a result, our weighted average discount rate has decreased marginally. We consider asset specific financing costs associated with our receivables (coupled with our internal cost of equity capital in agreements that require credit enhancements) as the best indicator of return requirements used by third-party market participants. If the Federal Reserve continues to decrease interest rates or we observe a corresponding decrease in return requirements used by third-party market participants, we may further reduce our weighted average discount rate.
Total operating expenses. Total operating expenses variances for the three months ended March 31, 2025, relative to the three months ended March 31, 2024, reflect the following:
| • |
increases in salaries and benefit costs related to both the growth in the number of employees and inflationary compensation pressure. We expect some continued increase in this cost in 2025 compared to 2024 as we expect to continue to invest in technology, risk underwriting and compliance and as a result we expect to increase our number of employees; |
| • |
increases in card and loan servicing expenses due to growth in receivables associated with our investments in private label credit and general purpose credit card receivables, which grew to $2,706.3 million outstanding from $2,317.6 million outstanding at March 31, 2025 and March 31, 2024, respectively, and costs associated with the implementation of product, policy, and pricing changes discussed above. As many of the expenses associated with our card and loan servicing efforts are now variable based on the amount of underlying receivables, we would expect this number to continue to grow in 2025 commensurate with growth in our receivables. Offsetting a portion of this increase are significant reductions in our servicing costs per account, resulting from the realization of greater economies of scale and increased use of automation as our receivables have grown; |
| • |
increases in marketing and solicitation costs for the three months ended March 31, 2025, when compared to the same period in 2024, primarily due to quarterly growth in both new credit card and private label customers serviced, the total accounts of which increased over 230,000 as of March 31, 2025 when compared to March 31, 2024. These increases in marketing and solicitation costs are a direct result of the increased costs associated with assisting our bank partners to acquire new consumers. As we continue to adjust our underwriting standards to reflect changes in fee and finance assumptions on new receivables, and allow for overall increases in the cost to successfully market to consumers, we expect period over period marketing costs for 2025 to increase relative to those experienced in 2024, although the frequency and timing of increased marketing efforts could vary and are dependent on macroeconomic factors such as national unemployment rates and federal funds rates; and | |
| • |
slight decreases in other expenses primarily relate to costs associated with occupancy or other third party expenses that are largely fixed in nature. Some costs including occupancy, legal and travel expenses can be variable based on growth and have grown as we expand our marketing and growth efforts. Decreases in this category for the three months ended March 31, 2025, when compared to the same period in 2024 primarily relate to certain nonrecurring costs associated with accounting and legal expenditures experienced in the first quarter of 2024. While we expect some increase in these costs as we continue to grow our receivable portfolios, we do not anticipate the increase to be meaningful. |
Certain operating costs are variable based on the levels of accounts and receivables we service (both for our own receivables and for others) and the pace and breadth of our growth in receivables. However, a number of our operating costs are fixed. As we have significantly grown our managed receivables levels over the past two years with minimal increase in the fixed portion of our card and loan servicing expenses as well as our salaries and benefits costs, we have realized greater operating efficiency.
Notwithstanding our cost management activities, we expect increased levels of expenditures associated with anticipated growth in private label credit and general purpose credit card operations. These expenses will primarily relate to the variable costs of marketing efforts and card and loan servicing expenses associated with new receivable acquisitions. Unknown ongoing potential impacts related to the aforementioned inflation and other global disruptions could result in more variability in these expenses and could impair our ability to acquire new receivables, resulting in increased costs despite our efforts to manage costs effectively.
Noncontrolling interests. We reflect the ownership interests of noncontrolling holders of equity in our majority-owned subsidiaries as noncontrolling interests in our condensed consolidated statements of income. In November 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $1.00 per unit to an unrelated third party. The units carried a 16% preferred return paid quarterly. The units had both call and put rights and were also subject to various covenants including a minimum book value. In March 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms. During the year ended December 31, 2024, we redeemed 50.5 million of the Class B preferred units at $1.00 per unit plus accrued but unpaid interest thereon. In March 2025, we redeemed the remaining 50.0 million of Class B preferred units at $1.00 per unit plus accrued but unpaid interest thereon. In periods where present, we include the Class B preferred units as temporary noncontrolling interests on the condensed consolidated balance sheets and the associated dividends are included as a reduction of our net income attributable to common shareholders on the condensed consolidated statements of income.
Income Taxes. We experienced effective tax rates of 23.6% and 21.1% for the three months ended March 31, 2025, and 2024, respectively. These effective tax expense rates were 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 Section 162(m) of the Internal Revenue Code of 1986, as amended, with respect to compensation paid to our covered employees. Offsetting the foregoing items were deductions associated with the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’ grant date values. Another offsetting item of a greater magnitude in the three months ended March 31, 2024, versus the three months ended March 31, 2025, was our deduction of income tax expense on debt for tax purposes that was repaid in the three months ended March 31, 2025, such financial instrument which was characterized in our consolidated financial statements as dividend-paying preferred stock.
We report interest expense associated with our income tax liabilities (including accrued liabilities for uncertain tax positions) within our income tax line item on our consolidated statements of 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. Such interest expense was de minimis in both the three months ended March 31, 2025, and 2024.
Non-GAAP Financial Measures
In addition to financial measures presented in accordance with GAAP, we present managed receivables, total managed yield, total managed yield ratio, combined principal net charge-off ratio, percent of managed receivables 30-59 days past due, percent of managed receivables 60-89 days past due and percent of managed receivables 90 or more days past due, all of which are non-GAAP financial measures. These non-GAAP financial measures aid in the evaluation of the performance of our credit portfolios, including our risk management, servicing and collection activities and our valuation of purchased receivables. The credit performance of our managed receivables provides information concerning the quality of loan originations and the related credit risks inherent with the portfolios. Management relies heavily upon financial data and results prepared on the "managed basis" in order to manage our business, make planning decisions, evaluate our performance and allocate resources.
These non-GAAP financial measures are presented for supplemental informational purposes only. These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, GAAP financial measures. These non-GAAP financial measures may differ from the non-GAAP financial measures used by other companies. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures or the calculation of the non-GAAP financial measures are provided below for each of the fiscal periods indicated.
These non-GAAP financial measures include only the performance of those receivables underlying consolidated subsidiaries (for receivables carried at amortized cost basis and fair value). Additionally, we calculate average managed receivables based on the quarter-end balances.
The comparison of non-GAAP managed receivables to our GAAP financial statements requires an understanding that managed receivables reflect the face value of loans, interest and fees receivable without any adjustment for potential credit losses to reflect fair value.
CaaS Segment
Our CaaS segment includes our activities related to our servicing of and our investments in the private label credit and general purpose credit card operations, our various credit card receivables portfolios, as well as other product testing and investments that generally utilize much of the same infrastructure. The types of revenues we earn from our investments in receivables portfolios and services primarily include fees and finance charges, merchant fees or annual fees associated with the private label credit and general purpose credit card receivables.
We record (i) the finance charges, merchant fees and late fees assessed on our CaaS segment receivables in the Revenue - Consumer loans, including past due fees category on our condensed consolidated statements of income, (ii) the annual, monthly maintenance, returned-check, cash advance and other fees in the Revenue - Fees and related income on earning assets category on our condensed consolidated statements of income, and (iii) the charge-offs (and recoveries thereof) as a component within our Changes in fair value of loans on our condensed consolidated statements of income. Additionally, we show the effects of fair value changes for those credit card receivables for which we have elected the fair value option as a component of Changes in fair value of loans in our condensed consolidated statements of income.
We historically have invested in receivables portfolios through subsidiary entities. If we control through direct ownership or exert a controlling interest in the entity, we consolidate it and reflect its operations as noted above.
Below is the reconciliation of Loans at fair value to Total managed receivables:
| At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||
| (in Millions) |
Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
||||||||||||||||||||||||
| Loans at fair value |
$ | 2,668.5 | $ | 2,630.3 | $ | 2,511.6 | $ | 2,277.4 | $ | 2,150.6 | $ | 2,173.8 | $ | 2,050.0 | $ | 1,916.1 | ||||||||||||||||
| Fair value mark against receivable (1) |
37.8 | 94.5 | 142.5 | 137.7 | 167.5 | 237.5 | 265.2 | 257.9 | ||||||||||||||||||||||||
| Total managed receivables (2) |
$ | 2,706.3 | $ | 2,724.8 | $ | 2,654.1 | $ | 2,415.1 | $ | 2,318.1 | $ | 2,411.3 | $ | 2,315.2 | $ | 2,174.0 | ||||||||||||||||
| Fair value to Total managed receivables ratio (3) |
98.6 | % | 96.5 | % | 94.6 | % | 94.3 | % | 92.8 | % | 90.2 | % | 88.5 | % | 88.1 | % | ||||||||||||||||
| (1) |
The fair value mark against receivables reflects the difference between the face value of a receivable and the net present value of the expected cash flows associated with that receivable. See Note 6, "Fair Values of Assets and Liabilities" to our condensed consolidated financial statements included herein for further discussion of assumptions underlying this calculation. |
| (2) | Total managed receivables are equal to the Aggregate unpaid gross balance of loans carried at fair value. See Note 6, "Fair Value of Assets and Liabilities" to our condensed consolidated financial statements included herein for further discussion of the Aggregate unpaid gross balance of loans carried at fair value. |
| (3) |
The Fair value to Total managed receivables ratio is calculated using Loans at fair value as the numerator, and Total managed receivables as the denominator. |
As discussed above, our managed receivables data differ in certain aspects from our GAAP data. First, managed receivables data include the undiscounted contractual amounts due on the underlying consumer receivable plus fee billings (including fees and finance charges), less actual charge-offs.
A reconciliation of our operating revenues and other income, net of finance and fee charge-offs, to comparable amounts used in our calculation of Total managed yield ratios is as follows:
| At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||
| (in Millions) |
Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
||||||||||||||||||||||||
| Consumer loans, including past due fees |
$ | 238.5 | $ | 242.1 | $ | 245.3 | $ | 232.1 | $ | 220.0 | $ | 214.6 | $ | 214.6 | $ | 210.3 | ||||||||||||||||
| Fees and related income on earning assets |
78.3 | 83.8 | 78.5 | 59.5 | 47.9 | 71.7 | 59.8 | 62.9 | ||||||||||||||||||||||||
| Other revenue |
18.7 | 17.5 | 16.8 | 13.6 | 11.7 | 12.0 | 10.2 | 7.6 | ||||||||||||||||||||||||
| Total operating revenue and other income - CaaS Segment |
335.5 | 343.4 | 340.6 | 305.2 | 279.6 | 298.3 | 284.6 | 280.8 | ||||||||||||||||||||||||
| Adjustments due to acceleration of merchant fee discount amortization under fair value accounting |
0.1 | 0.7 | (15.1 | ) | (12.6 | ) | 4.0 | 6.5 | (6.8 | ) | (10.6 | ) | ||||||||||||||||||||
| Adjustments due to acceleration of annual fees recognition under fair value accounting |
(4.2 | ) | (10.5 | ) | (8.0 | ) | 1.1 | 10.1 | (12.6 | ) | (3.1 | ) | (9.8 | ) | ||||||||||||||||||
| Removal of finance charge-offs |
(70.0 | ) | (64.9 | ) | (60.6 | ) | (62.9 | ) | (63.7 | ) | (59.5 | ) | (47.1 | ) | (54.2 | ) | ||||||||||||||||
| Total managed yield |
$ | 261.4 | $ | 268.7 | $ | 256.9 | $ | 230.8 | $ | 230.0 | $ | 232.7 | $ | 227.6 | $ | 206.2 | ||||||||||||||||
The calculation of Combined principal net charge-offs used in our Combined principal net charge-off ratio, annualized is as follows:
| At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||
| (in Millions) |
Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
||||||||||||||||||||||||
| Charge-offs on loans at fair value |
$ | 233.5 | $ | 213.1 | $ | 201.5 | $ | 217.0 | $ | 231.7 | $ | 215.2 | $ | 173.5 | $ | 180.0 | ||||||||||||||||
| Finance charge-offs (1) |
(70.0 | ) | (64.9 | ) | (60.6 | ) | (62.9 | ) | (63.7 | ) | (59.5 | ) | (47.1 | ) | (54.2 | ) | ||||||||||||||||
| Combined principal net charge-offs |
$ | 163.5 | $ | 148.2 | $ | 140.9 | $ | 154.1 | $ | 168.0 | $ | 155.7 | $ | 126.4 | $ | 125.8 | ||||||||||||||||
| (1) |
Finance charge-offs are included as a component of our Changes in fair value of loans in the accompanying condensed consolidated statements of income. |
Our delinquency and charge-off data at any point in time reflect the credit performance of our managed receivables. The average age of the accounts underlying our receivables, the timing and size of receivable purchases, the success of our collection and recovery efforts and general economic conditions all affect our delinquency and charge-off rates. The average age of the accounts underlying our portfolios of receivables also affects the stability of our delinquency and loss rates. Our strategy for managing delinquency and receivables losses consists of account management throughout the life of the receivable. This strategy includes credit line management and pricing based on the risks. See also our discussion of collection strategy under "Collection Strategy" in Item 1, "Business" of our Annual Report on Form 10-K for the year ended December 31, 2024.
The following table presents the delinquency trends of the receivables we manage within our CaaS segment, as well as charge-off data and other non-GAAP managed receivables statistics (in thousands; percentages of total):
| At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||
| Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
|||||||||||||||||||||||||||||
| Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
|||||||||||||||||||||||||
| Period-end managed receivables |
$ | 2,706,264 | $ | 2,724,782 | $ | 2,654,112 | $ | 2,415,092 | ||||||||||||||||||||||||
| 30-59 days past due |
$ | 89,132 | 3.3 | % | $ | 104,022 | 3.8 | % | $ | 106,303 | 4.0 | % | $ | 99,620 | 4.1 | % | ||||||||||||||||
| 60-89 days past due |
$ | 84,559 | 3.1 | % | $ | 97,953 | 3.6 | % | $ | 96,673 | 3.6 | % | $ | 88,544 | 3.7 | % | ||||||||||||||||
| 90 or more days past due |
$ | 233,205 | 8.6 | % | $ | 253,511 | 9.3 | % | $ | 227,418 | 8.6 | % | $ | 218,215 | 9.0 | % | ||||||||||||||||
| Average managed receivables |
$ | 2,715,523 | $ | 2,689,447 | $ | 2,534,602 | $ | 2,366,598 | ||||||||||||||||||||||||
| Total managed yield ratio, annualized (1) |
38.5 | % | 40.0 | % | 40.5 | % | 39.0 | % | ||||||||||||||||||||||||
| Combined principal net charge-off ratio, annualized (2) |
24.1 | % | 22.0 | % | 22.2 | % | 26.0 | % | ||||||||||||||||||||||||
| Interest expense ratio, annualized (3) |
6.9 | % | 6.5 | % | 6.6 | % | 6.3 | % | ||||||||||||||||||||||||
| Net interest margin ratio, annualized (4) |
7.5 | % | 11.5 | % | 11.7 | % | 6.7 | % | ||||||||||||||||||||||||
| At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||
| Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
|||||||||||||||||||||||||||||
| Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
|||||||||||||||||||||||||
| Period-end managed receivables |
$ | 2,318,104 | $ | 2,411,255 | $ | 2,315,206 | $ | 2,174,001 | ||||||||||||||||||||||||
| 30-59 days past due |
$ | 94,389 | 4.1 | % | $ | 110,465 | 4.6 | % | $ | 101,822 | 4.4 | % | $ | 96,670 | 4.4 | % | ||||||||||||||||
| 60-89 days past due |
$ | 87,761 | 3.8 | % | $ | 98,377 | 4.1 | % | $ | 92,361 | 4.0 | % | $ | 81,477 | 3.7 | % | ||||||||||||||||
| 90 or more days past due |
$ | 243,830 | 10.5 | % | $ | 247,621 | 10.3 | % | $ | 217,136 | 9.4 | % | $ | 170,274 | 7.8 | % | ||||||||||||||||
| Average managed receivables |
$ | 2,364,680 | $ | 2,363,231 | $ | 2,244,604 | $ | 2,114,840 | ||||||||||||||||||||||||
| Total managed yield ratio, annualized (1) |
38.9 | % | 39.4 | % | 40.6 | % | 39.0 | % | ||||||||||||||||||||||||
| Combined principal net charge-off ratio, annualized (2) |
28.4 | % | 26.4 | % | 22.5 | % | 23.8 | % | ||||||||||||||||||||||||
| Interest expense ratio, annualized (3) |
5.8 | % | 5.4 | % | 4.9 | % | 4.4 | % | ||||||||||||||||||||||||
| Net interest margin ratio, annualized (4) |
4.7 | % | 7.6 | % | 13.2 | % | 10.8 | % | ||||||||||||||||||||||||
| (1) | The Total managed yield ratio, annualized is calculated using the annualized total managed yield as the numerator and period-end average managed receivables as the denominator. |
| (2) |
The Combined principal net charge-off ratio, annualized is calculated using the annualized combined principal net charge-offs as the numerator and period-end average managed receivables as the denominator. |
| (3) |
Interest expense ratio, annualized is calculated using the annualized interest expense associated with the CaaS segment (See Note 3, "Segment Reporting" to our condensed consolidated financial statements) as the numerator and period-end average managed receivables as the denominator. |
| (4) |
Net interest margin ratio, annualized is calculated using the Total managed yield ratio, annualized less the Combined principal net charge-off ratio, annualized less the Interest expense ratio, annualized. |
The following table presents additional trends and data with respect to our private label credit and general purpose credit card receivables (dollars in thousands). Results of our legacy credit card receivables portfolios are excluded:
| Private Label Credit - At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||
| Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
|||||||||||||||||||||||||||||
| Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
|||||||||||||||||||||||||
| Period-end managed receivables |
$ | 1,253,215 | $ | 1,231,750 | $ | 1,205,714 | $ | 1,013,529 | ||||||||||||||||||||||||
| 30-59 days past due |
$ | 27,166 | 2.2 | % | $ | 33,664 | 2.7 | % | $ | 34,658 | 2.9 | % | $ | 36,477 | 3.6 | % | ||||||||||||||||
| 60-89 days past due |
$ | 23,938 | 1.9 | % | $ | 29,297 | 2.4 | % | $ | 30,216 | 2.5 | % | $ | 29,766 | 2.9 | % | ||||||||||||||||
| 90 or more days past due |
$ | 67,414 | 5.4 | % | $ | 75,294 | 6.1 | % | $ | 70,190 | 5.8 | % | $ | 67,368 | 6.6 | % | ||||||||||||||||
| Average APR |
11.9 | % | 12.9 | % | 13.3 | % | 15.8 | % | ||||||||||||||||||||||||
| Receivables purchased during period |
$ | 265,360 | $ | 241,442 | $ | 396,900 | $ | 316,304 | ||||||||||||||||||||||||
| Private Label Credit - At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||
| Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
|||||||||||||||||||||||||||||
| Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
|||||||||||||||||||||||||
| Period-end managed receivables |
$ | 907,367 | $ | 939,389 | $ | 944,197 | $ | 892,387 | ||||||||||||||||||||||||
| 30-59 days past due |
$ | 32,209 | 3.5 | % | $ | 36,540 | 3.9 | % | $ | 35,830 | 3.8 | % | $ | 31,597 | 3.5 | % | ||||||||||||||||
| 60-89 days past due |
$ | 27,094 | 3.0 | % | $ | 31,284 | 3.3 | % | $ | 29,387 | 3.1 | % | $ | 24,776 | 2.8 | % | ||||||||||||||||
| 90 or more days past due |
$ | 74,414 | 8.2 | % | $ | 79,056 | 8.4 | % | $ | 71,200 | 7.5 | % | $ | 56,209 | 6.3 | % | ||||||||||||||||
| Average APR |
17.1 | % | 17.1 | % | 16.2 | % | 17.0 | % | ||||||||||||||||||||||||
| Receivables purchased during period |
$ | 191,106 | $ | 202,168 | $ | 244,571 | $ | 260,281 | ||||||||||||||||||||||||
| General Purpose Credit Card - At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||
| Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
|||||||||||||||||||||||||||||
| Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
|||||||||||||||||||||||||
| Period-end managed receivables |
$ | 1,453,049 | $ | 1,493,032 | $ | 1,448,060 | $ | 1,401,168 | ||||||||||||||||||||||||
| 30-59 days past due |
$ | 61,966 | 4.3 | % | $ | 70,358 | 4.7 | % | $ | 71,645 | 4.9 | % | $ | 63,141 | 4.5 | % | ||||||||||||||||
| 60-89 days past due |
$ | 60,621 | 4.2 | % | $ | 68,656 | 4.6 | % | $ | 66,454 | 4.6 | % | $ | 58,777 | 4.2 | % | ||||||||||||||||
| 90 or more days past due |
$ | 165,791 | 11.4 | % | $ | 178,216 | 11.9 | % | $ | 157,222 | 10.9 | % | $ | 150,839 | 10.8 | % | ||||||||||||||||
| Average APR |
28.7 | % | 28.6 | % | 28.9 | % | 27.4 | % | ||||||||||||||||||||||||
| Receivables purchased during period |
$ | 347,550 | $ | 370,269 | $ | 373,231 | $ | 360,425 | ||||||||||||||||||||||||
| General Purpose Credit Card - At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||
| Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
|||||||||||||||||||||||||||||
| Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
Managed Receivables |
% of Period-end managed receivables |
|||||||||||||||||||||||||
| Period-end managed receivables |
$ | 1,410,281 | $ | 1,471,358 | $ | 1,370,445 | $ | 1,280,979 | ||||||||||||||||||||||||
| 30-59 days past due |
$ | 62,173 | 4.4 | % | $ | 73,918 | 5.0 | % | $ | 65,987 | 4.8 | % | $ | 65,067 | 5.1 | % | ||||||||||||||||
| 60-89 days past due |
$ | 60,664 | 4.3 | % | $ | 67,088 | 4.6 | % | $ | 62,969 | 4.6 | % | $ | 56,698 | 4.4 | % | ||||||||||||||||
| 90 or more days past due |
$ | 169,402 | 12.0 | % | $ | 168,555 | 11.5 | % | $ | 145,927 | 10.6 | % | $ | 114,046 | 8.9 | % | ||||||||||||||||
| Average APR |
27.1 | % | 27.4 | % | 27.3 | % | 27.2 | % | ||||||||||||||||||||||||
| Receivables purchased during period |
$ | 342,834 | $ | 426,939 | $ | 402,978 | $ | 380,509 | ||||||||||||||||||||||||
The following discussion relates to the tables above.
Managed receivables levels. We continue to experience overall period-over-period quarterly receivables growth with over $388.7 million in net receivables growth associated with the private label credit and general purpose credit card products offered by our bank partners from March 31, 2025 to March 31, 2024. The addition of large private label credit retail partners and ongoing purchases of receivables arising in accounts issued by our bank partners to customers of our existing retail partners helped grow our private label credit receivables by $345.8 million in the twelve months ended March 31, 2025. Our general purpose credit card receivables grew by $42.8 million during the twelve months ended March 31, 2025. While some of our merchant partners continue to face year-over-year growth challenges, others are benefiting from continued consumer spending and a growing economy and have expanded their relationship with us. We currently expect continued period-over-period quarterly receivables growth in our general purpose credit card and private label credit receivables. Growth in future periods receivables is dependent on the addition of new retail partners to the private label credit origination platform, the timing and size of solicitations within the general purpose credit card platform by our bank partners, as well as purchase activity of consumers. Similarly, the loss of existing retail partner relationships could adversely affect new loan acquisition levels. Our top five retail partnerships accounted for over 75% of our private label receivables outstanding as of March 31, 2025. The volume of receivables purchased each period varies based on a number of factors, including seasonal consumer purchase patterns and growth (or contraction) within merchant retail locations. Further impacting receivable purchase amounts in a period are consumer application volumes that retail partners may direct to our bank partners versus competitors who offer similar financing products to those retail merchant partners. See Note 10, "Commitments and Contingencies," to our condensed consolidated financial statements included herein for further discussion of these concentrations.
Delinquencies and charge-offs. Delinquent loans reflect the principal, fee and interest components of loans we did not collect on or prior to the contractual due date and are considered "past due". Delinquencies have the potential to impact net income in the form of net credit losses. Delinquencies also are costly in terms of the personnel and resources dedicated to resolving them. We intend for the receivables management strategies we use on our portfolios to manage and, to the extent possible, reduce the higher delinquency rates that can be expected with the younger average age of the newer receivables in our managed portfolio. These management strategies include conservative credit line management and collection strategies intended to optimize the effective account-to-collector ratio across delinquency categories. We measure the success of these efforts by reviewing delinquency rates. These rates exclude receivables that have been charged off.
Increases in delinquencies in the first and second quarters of 2024 in our private label credit receivables were largely due to a mix shift in receivables acquired to certain receivables that have higher observed delinquencies but correspondingly higher yields. Late in the second quarter of 2024 and early in the third quarter of 2024, we additionally acquired receivables that have higher observed delinquencies, but for which we have limited loss exposure due to agreements with retail partners. As a result of these limited loss exposures, these receivables are not included in our delinquency rates for private label credit receivables. Our delinquency rates for our general purpose credit cards receivables were higher in the first quarter of 2024 due to both a reduction in the growth of our managed receivables and accounts that were enrolled in short-term payment deferrals, due to hardship claims resulting from COVID-19. Receivables enrolled in these short-term payment deferrals continued to accrue interest and their delinquency status did not change through their respective deferment periods. The remainder of these accounts were removed from hardship status with the end of the COVID-19 national and public health emergencies in May 2023. While these accounts resulted in higher than normal reported delinquency rates for the first quarter of 2024 (and correspondingly higher charge-offs in the first and second quarters of 2024), the charge-offs did not result in a further economic impact to us as the majority of these accounts were already considered in our changes in fair value in prior periods. As these accounts were largely charged off by the end of the first quarter of 2024, we saw some modest improvement in our second quarter 2024 delinquencies offset by slower net receivables growth during this period. Delinquency rates in the third and fourth quarter of 2024 remained largely consistent with those noted in the same period of prior year. For the first quarter of 2025 we have observed lower overall delinquency rates in both our general purpose credit card receivables and our private label credit receivables. The lower delinquency rates should result in lower overall charge-off rates in the second and third quarter of 2025 when compared to rates in the second and third quarters of 2024.
As we continue to acquire newer private label credit and general purpose credit card receivables, we expect our delinquency rates to marginally increase when compared to the same periods in prior years due to a planned shift in our general purpose and private label credit receivables originated as our bank partners expand product offerings to a broader range of consumers. This expected increase in delinquencies will be offset somewhat by using more restrictive product, policy, and pricing changes which we believe will result in a more profitable asset overall. We also expect continued seasonal payment patterns on these receivables that impact our delinquencies in line with prior periods. For example, delinquency rates historically are lower in the second quarter of each year due to the benefits of seasonally strong payment patterns associated with tax refunds for many consumers. Included in this expected decrease in delinquencies is continued growth in the portfolio which will also mute delinquency metrics. Our beliefs for future delinquency rates are predicated on the assumption that the slowing rate of inflation will continue and our recent tightened underwriting standards will prove effective at reducing account delinquencies.
Total managed yield ratio, annualized. As discussed above, growth in higher yielding assets has resulted in higher charge-off and delinquency rates in some periods. General purpose credit card receivables tend to have higher total yields than private label credit receivables (and corresponding higher charge-off rates). As a result, in periods where we have declines in rates of growth of these general purpose credit card receivables, as was noted in 2024 (relative to growth in private label credit receivables), we expect to have slightly lower total managed yield ratios. We currently expect increases in the rates of acquisition of our general purpose credit card receivables relative to private label credit receivables and correspondingly higher period-over-period operating revenue and other income for 2025 (and a correspondingly higher Total managed yield ratio) although the timing of these acquisitions could result in some fluctuations of our Total managed yield ratio, annualized when comparing quarterly rates in 2025 to corresponding quarterly periods in 2024. This growth also includes an expected seasonal shift in our mix of acquired private label receivables to higher FICO receivables that have lower gross yields (and correspondingly lower charge-off expectations) in the third quarter of each year, which may result in marginally lower managed yield ratios when compared to the corresponding periods in prior years.
Combined principal net charge-off ratio, annualized. We charge off our CaaS segment receivables when they become contractually more than 180 days past due or 120 days past due if they are enrolled in an installment loan product. For all of our products, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or an estate large enough to pay the debt in full. When the principal of an outstanding loan is charged off, the related finance charges and fees are simultaneously charged off, resulting in a reduction to our Total managed yield.
Growth within our general purpose credit card receivables (as a percent of outstanding receivables) has resulted in increases in our charge-offs over time. The increase in the combined principal net charge-off ratio, annualized in the first two quarters of 2024 is a reflection of increased delinquencies noted as consumer behavior reverted to historical norms (similar to those experienced in periods prior to COVID-19) and decreases in the acquisition of new general purpose credit card receivables. Additionally, inflation, particularly as it relates to higher gas prices, negatively impacted some consumers' ability to make payments on outstanding loans and fees receivable. We noted improvements in this rate in the fourth quarter of 2024 and into the first quarter of 2025 as delinquencies continued to improve and noted improvements in consumer payment behavior and strong growth in our receivables base.
Despite expected marginal increases in delinquency rates as discussed above, we expect our overall combined principal net charge-off ratios to continue to decrease for 2025, when compared to the comparable prior periods. These charge-off rates are expected to return to historically normalized levels, adjusted for the mix shift discussed above, and will benefit from planned growth in the underlying receivables which we expect will further reduce our combined principal net charge-off ratio. Our charge-off ratio has also been impacted due to (and will continue to be impacted by): 1) higher expected charge-off rates on the private label credit and general purpose credit card receivables corresponding with higher yields on these receivables, (2) continued testing of receivables with higher risk profiles, leading to periodic increases in combined principal net charge offs, (3) the aforementioned tightened underwriting standards that will slow the pace of growth in our receivables base, and (4) negative impacts on some consumers' ability to make payments on outstanding loans and fees receivable as a result of inflation pressures. While charge-offs associated with previously mentioned accounts enrolled in short-term payment deferrals had a negative impact on our Combined principal net charge-off ratio, annualized through the second quarter of 2024, they did not have a material impact on our condensed consolidated statements of income as the majority of these accounts were already considered in our changes in fair value. Further impacting our charge-off rates are the timing and size of solicitations that serve to minimize charge-off rates in periods of high receivable acquisitions but also exacerbate charge-off rates in periods of lower receivable acquisitions.
Interest expense ratio, annualized. Our interest expense ratio, annualized reflects interest costs associated with our CaaS segment. This includes both direct receivables funding costs as well as general unsecured lending. Recent impacts to this ratio primarily relate to the timing and size of outstanding debt as well as the addition of new funding facilities. Historically, we obtained lower cost financing with fixed interest rates, resulting in lower interest expense ratios. Increases in the federal funds borrowing rate in 2022 and 2023 have led to an increase in interest rates for newly-originated debt and for that portion of debt which does not have fixed rates. As such, we have seen our Interest expense ratio, annualized increase throughout 2024 and into 2025 and we expect the Interest expense ratio to increase when compared to prior quarters for the remainder of 2025 as we replace existing financing arrangements with new ones at a higher cost of capital.
Net interest margin ratio, annualized. Our Net interest margin ratio, annualized represents the difference between our Total managed yield ratio, annualized, our Combined principal net charge-off ratio, annualized and our Interest expense ratio, annualized. Recent declines in this ratio, when compared to corresponding prior periods, relate primarily to recent increases in our principal net charge-offs as noted above. This trend reversed in the first quarter of 2025 as we realized improvements in delinquencies. We currently expect continued marginal improvements in our Combined principal net charge-off ratio, annualized, relative to corresponding periods in 2024. Changes in the mix shift of acquired receivables, noted above, will also lead to increases in the Net interest margin, annualized as the higher yielding receivables become a larger component of our total portfolio.
Average APR. The average annual percentage rate ("APR") charged to customers varies by receivable type, credit history and other factors. The APRs for receivables originated through our private label credit platform range from 0% to 36.0%. For general purpose credit card receivables, APRs range from 19.99% to 36.0%. We have experienced minor fluctuations in our average APR based on the relative product mix of receivables purchased during a period. For those receivables that did not contain fixed APRs we have seen some increases in rates charged, as the underlying rates are tied to the federal funds borrowing rate which increased in 2022 and 2023. Our average APRs for general purpose credit card receivables remained largely consistent throughout 2024 with some increases noted as new product, policy, and pricing changes were implemented which raised the APRs associated with new receivable acquisitions. We expect some continued improvements in our average APRs as newly acquired receivables with higher APRs become a larger part of our overall portfolio of receivables. Our average APRs for private label credit fell throughout 2024 and into the first quarter of 2025 due to a shift in the overall portfolio mix towards private label credit receivables acquired that tend to have lower effective yields but also for which we have limited loss exposure due to agreements with retail partners. We expect this declining trend to continue, however, the timing and relative mix of receivables acquired could cause some minor fluctuations. We do not acquire or service receivables that have an APR above 36.0%.
Receivables purchased during period. Receivables purchased during period reflect the gross amount of investments we have made in a given period, net of any credits issued to consumers during that same period. For the first quarter of 2025 we noted slight increases in the amount of receivables purchased associated with our General Purpose Credit Card receivables and also a larger increase in receivables purchased associated with our Private Label Credit receivables. This growth in Private Label Credit Receivables purchased primarily relates to growth in purchases associated with our largest retail partner, growth which we expect to continue to produce quarter over quarter growth in the second quarter of 2025. For most periods presented in 2024, our private label credit receivable purchases experienced overall growth, when compared to the same periods in 2023, largely based on the addition of new private label credit retail partners as well as growth within existing retail partnerships, as previously discussed. We may experience periodic declines in these acquisitions due to: the loss of one or more retail partners; seasonal purchase activity by consumers; labor shortages and supply chain disruptions; or the timing of new customer originations by our issuing bank partners. We currently expect private label credit receivable acquisitions in the third and fourth quarters of 2025 to be consistent with those in the same periods of 2024, although the timing of the receivable acquisitions may vary based on seasonal spending patterns by consumers and our retail partners overall sales cycles. Our general purpose credit card receivable acquisitions tend to have more volatility based on the issuance of new credit card accounts by our issuing bank partners. As a result, the timing of new receivable acquisitions, particularly as it relates to general purpose credit cards, could be impacted in the short term. Nonetheless, we expect continued growth in the acquisition of these general purpose credit card receivables throughout 2025.
Auto Finance Segment
CAR, our auto finance platform acquired in April 2005, principally purchases and/or services loans secured by automobiles from or for, and also provides floorplan financing for, a prequalified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here used car business. We have expanded these operations to also include certain installment lending products in addition to our traditional loans secured by automobiles both in the U.S. and U.S. territories.
Non-GAAP Financial Measures
For reasons set forth above within our CaaS segment discussion, we also provide managed receivables-based financial, operating and statistical data for our Auto Finance segment. Reconciliation of the auto finance managed receivables data to GAAP data requires an understanding that our managed receivables data are based on billings and actual charge-offs as they occur, without regard to any changes in our allowance for credit losses. Similar to the managed calculation above, the average managed receivables used in the ratios below is calculated based on the quarter ending balances of consolidated receivables.
A reconciliation of our operating revenues and other income to comparable amounts used in our calculation of Total managed yield ratios follows (in millions):
| At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||
| Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
|||||||||||||||||||||||||
| Consumer loans, including past due fees |
$ | 9.2 | $ | 9.6 | $ | 10.0 | $ | 10.4 | $ | 10.3 | $ | 10.1 | $ | 10.1 | $ | 9.7 | ||||||||||||||||
| Fees and related income on earning assets |
— | — | 0.1 | — | — | 0.1 | — | — | ||||||||||||||||||||||||
| Other income |
0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | ||||||||||||||||||||||||
| Total operating revenue and other income |
9.4 | 9.8 | 10.3 | 10.6 | 10.5 | 10.4 | 10.3 | 9.9 | ||||||||||||||||||||||||
| Finance charge-offs |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Total managed yield |
$ | 9.4 | $ | 9.8 | $ | 10.3 | $ | 10.6 | $ | 10.5 | $ | 10.4 | $ | 10.3 | $ | 9.9 | ||||||||||||||||
The calculation of Combined principal net charge-offs used in our Combined principal net charge-off ratio, annualized follows (in millions):
| At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||
| Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
Mar. 31 |
Dec. 31 |
Sep. 30 |
Jun. 30 |
|||||||||||||||||||||||||
| Gross charge-offs |
$ | 1.8 | $ | 1.5 | $ | 3.1 | $ | 3.5 | $ | 1.8 | $ | 1.1 | $ | 0.9 | $ | 0.8 | ||||||||||||||||
| Finance charge-offs (1) |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Recoveries |
(0.6 | ) | (0.6 | ) | (0.7 | ) | (0.7 | ) | (0.5 | ) | (0.5 | ) | (0.5 | ) | (0.5 | ) | ||||||||||||||||
| Combined principal net charge-offs |
$ | 1.2 | $ | 0.9 | $ | 2.4 | $ | 2.8 | $ | 1.3 | $ | 0.6 | $ | 0.4 | $ | 0.3 | ||||||||||||||||
| (1) |
Finance charge-offs are included as a component of our Provision for credit losses in the accompanying condensed consolidated statements of income. |
Financial, operating and statistical metrics for our Auto Finance segment are detailed (in thousands; percentages of total) in the following table:
| At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||
| Mar. 31 |
% of Period-end managed receivables |
Dec. 31 |
% of Period-end managed receivables |
Sep. 30 |
% of Period-end managed receivables |
Jun. 30 |
% of Period-end managed receivables |
|||||||||||||||||||||||||
| Period-end managed receivables (1) |
$ | 106,099 | $ | 108,982 | $ | 110,638 | $ | 117,951 | ||||||||||||||||||||||||
| 30-59 days past due |
$ | 6,344 | 6.0 | % | $ | 7,590 | 7.0 | % | $ | 8,873 | 8.0 | % | $ | 9,200 | 7.8 | % | ||||||||||||||||
| 60-89 days past due |
$ | 2,061 | 1.9 | % | $ | 3,217 | 3.0 | % | $ | 3,801 | 3.4 | % | $ | 3,834 | 3.3 | % | ||||||||||||||||
| 90 or more days past due |
$ | 4,221 | 4.0 | % | $ | 4,723 | 4.3 | % | $ | 5,305 | 4.8 | % | $ | 4,944 | 4.2 | % | ||||||||||||||||
| Average managed receivables |
$ | 107,541 | $ | 109,810 | $ | 114,295 | $ | 120,136 | ||||||||||||||||||||||||
| Total managed yield ratio, annualized (2) |
35.0 | % | 35.7 | % | 36.0 | % | 35.3 | % | ||||||||||||||||||||||||
| Combined principal net charge-off ratio, annualized (3) |
4.5 | % | 3.3 | % | 8.4 | % | 9.3 | % | ||||||||||||||||||||||||
| Recovery ratio, annualized (4) |
2.2 | % | 2.2 | % | 2.4 | % | 2.3 | % | ||||||||||||||||||||||||
| At or for the Three Months Ended |
||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||
| Mar. 31 |
% of Period-end managed receivables |
Dec. 31 |
% of Period-end managed receivables |
Sep. 30 |
% of Period-end managed receivables |
Jun. 30 |
% of Period-end managed receivables |
|||||||||||||||||||||||||
| Period-end managed receivables (1) |
$ | 122,321 | $ | 118,045 | $ | 118,007 | $ | 115,055 | ||||||||||||||||||||||||
| 30-59 days past due |
$ | 7,796 | 6.4 | % | $ | 9,421 | 8.0 | % | $ | 8,627 | 7.3 | % | $ | 8,070 | 7.0 | % | ||||||||||||||||
| 60-89 days past due |
$ | 3,031 | 2.5 | % | $ | 3,373 | 2.9 | % | $ | 3,278 | 2.8 | % | $ | 3,047 | 2.6 | % | ||||||||||||||||
| 90 or more days past due |
$ | 3,220 | 2.6 | % | $ | 3,542 | 3.0 | % | $ | 2,607 | 2.2 | % | $ | 1,699 | 1.5 | % | ||||||||||||||||
| Average managed receivables |
$ | 120,183 | $ | 118,026 | $ | 116,531 | $ | 114,211 | ||||||||||||||||||||||||
| Total managed yield ratio, annualized (2) |
34.9 | % | 35.2 | % | 35.4 | % | 34.7 | % | ||||||||||||||||||||||||
| Combined principal net charge-off ratio, annualized (3) |
4.3 | % | 2.0 | % | 1.7 | % | 1.1 | % | ||||||||||||||||||||||||
| Recovery ratio, annualized (4) |
1.7 | % | 1.7 | % | 1.7 | % | 1.8 | % | ||||||||||||||||||||||||
| (1) | Period-end managed receivables equal the corresponding amount of loans at amortized cost included in Note 2 "Significant Accounting Policies and Condensed Consolidated Financial Statement Components" in our condensed consolidated financial statements. |
| (2) |
The total managed yield ratio, annualized is calculated using the annualized Total managed yield as the numerator and Period-end average managed receivables as the denominator. |
| (3) |
The Combined principal net charge-off ratio, annualized is calculated using the annualized Combined principal net charge-offs as the numerator and Period-end average managed receivables as the denominator. |
| (4) |
The Recovery ratio, annualized is calculated using annualized Recoveries as the numerator and Period-end average managed receivables as the denominator. |
Managed receivables. Recent stress noted at some dealer locations has resulted in higher than anticipated credit losses associated with floorplan loans during 2024. When coupled with increased delinquencies associated with the underlying consumers loans, we have experienced period over period declines in our managed receivables for the third and fourth quarter of 2024 and first quarter of 2025. We expect modest growth in the level of our managed receivables throughout 2025 although we may continue to be below managed receivables levels (when compared to the same periods in prior years ) for the next few quarters as we rebuild our receivables base and CAR expands within its current geographic footprint and continues plans for service area expansion. Although we continue to expand our CAR operations, the Auto Finance segment faces strong competition from other specialty finance lenders, as well as the indirect effects on us of our buy-here, pay-here dealership partners’ competition with other franchise dealerships for consumers interested in purchasing automobiles. We continually evaluate bulk purchases of receivables and experienced good growth in our receivables base throughout 2023 resulting from several bulk purchases; however, the timing and size of such purchases are difficult to predict.
Delinquencies and charge-offs. Delinquent loans reflect the principal, fee and interest components of loans we did not collect on or prior to the contractual due date and are considered "past due". While we have experienced recent increases in our delinquency rates (and related charge-offs), we do not believe they will have a significantly adverse impact on our results of operations in 2025 as we have established appropriate reserves for these losses. Even at slightly elevated rates, we earn significant yields on CAR’s receivables and have significant dealer reserves (i.e., retainages or holdbacks on the amount of funding CAR provides to its dealer customers) and other collateral to protect against meaningful credit losses. Delinquency rates also tend to fluctuate based on inflationary pressures and seasonal trends and historically are lower in the second quarter of each year as seen above due to the benefits of strong payment patterns associated with tax refunds for many consumers.
Total managed yield ratio, annualized. We have experienced modest fluctuations in our total managed yield ratio largely impacted by the relative mix of receivables in various products offered by CAR as some shorter-term product offerings tend to have higher yields. Yields on our CAR products over the last few quarters are consistent with our expectations over the coming quarters. Further, we expect our total managed yield ratio to remain in line with current experience, with moderate fluctuations based on relative growth or declines in average managed receivables for a given quarter. These variations depend on the relative mix of receivables in our various product offerings.
Combined principal net charge-off ratio, annualized and recovery ratio, annualized. We charge off auto finance receivables when they are between 120 and 180 days past due, unless the collateral is repossessed and sold before that point, in which case we will record a charge-off when the proceeds are received. Combined principal net charge-off ratios in the above table reflect the lower delinquency rates we have recently experienced. Increases in our Combined principal net charge-off ratios throughout 2023 are indicative of our charge off levels returning to historically normalized levels (i.e., those periods prior to COVID-19 and the related government stimulus programs). While we anticipate our charge-offs to be incurred ratably across our portfolio of dealers, specific dealer-related losses are difficult to predict and can negatively influence our combined principal net charge-off ratio as was evidenced throughout 2024. We continually re-assess our dealers and will take appropriate action if we believe a particular dealer’s risk characteristics adversely change. While we have appropriate dealer reserves to mitigate losses across the majority of our pool of receivables, the timing of recognition of these reserves as an offset to charge-offs is largely dependent on various factors specific to each of our dealer partners including ongoing purchase volumes, outstanding balances of receivables and current performance of outstanding loans. As such, the timing of charge-off offsets is difficult to predict; however, we believe that these reserves are adequate to offset any loss exposure we may incur. Additionally, the products we issue in the U.S. territories do not have dealer reserves with which we can offset losses. We also expect our recovery rate to fluctuate modestly from quarter to quarter due to the timing of the sale of repossessed autos.
Definitions of Certain Non-GAAP Financial Measures
Total managed yield ratio, annualized. Represents an annualized fraction, the numerator of which includes (as appropriate for each applicable disclosed segment) the: 1) finance charge and late fee income billed on all consolidated outstanding receivables and the amortization of merchant fees, collectively included in the consumer loans, including past due fees category on our condensed consolidated statements of income; plus 2) credit card fees (including over-limit fees, cash advance fees, returned check fees and interchange income), earned, amortized amounts of annual membership fees with respect to certain credit card receivables, collectively included in our fees and related income on earning assets category on our condensed consolidated statements of income; plus 3) servicing, other income and other activities collectively included in our other revenue category on our condensed consolidated statements of income; minus 4) finance charge and fee losses from consumers unwilling or unable to pay their receivables balances, as well as from bankrupt and deceased consumers. The denominator is our average managed receivables.
Combined principal net charge-off ratio, annualized. Represents an annualized fraction, the numerator of which is the aggregate consolidated amounts of principal losses from consumers unwilling or unable to pay their receivables balances, as well as from bankrupt and deceased consumers, less current-period recoveries (including recoveries from dealer reserve offsets for our CAR operations), as reflected in Note 2 "Significant Accounting Policies and Condensed Consolidated Financial Statement Components" and Note 6 "Fair Values of Assets and Liabilities" and the denominator of which is average managed receivables. Recoveries on managed receivables represent all amounts received related to managed receivables that previously have been charged off, including payments received directly from consumers and proceeds received from the sale of those charged-off receivables. Recoveries typically have represented less than 2% of average managed receivables.
Interest expense ratio, annualized. Represents an annualized fraction, the numerator of which is the annualized interest expense associated with the CaaS segment (See Note 3, "Segment Reporting" to our condensed consolidated financial statements) and the denominator of which is average managed receivables.
Net interest margin ratio, annualized. Represents the Total managed yield ratio, annualized less the Combined principal net charge-off ratio, annualized less the Interest expense ratio, annualized.
LIQUIDITY, FUNDING AND CAPITAL RESOURCES
Our primary focus is expanding the reach of our financial technology in order to grow our private label credit and general purpose credit card receivables and generate revenues from these investments that will allow us to maintain consistent profitability. Increases in new and existing retail partnerships and the expansion of our investments in general purpose credit card finance products have resulted in year-over-year growth of total managed receivables levels, and we expect growth to continue in the coming quarters.
Accordingly, we will continue to focus on (i) obtaining the funding necessary to meet capital needs required by the growth of our receivables, (ii) adding new retail partners to our platform to continue growth of the private label credit receivables, (iii) growing general purpose credit card receivables, (iv) effectively managing costs, and (v) repurchasing outstanding shares of our common and preferred stock. We believe our unrestricted cash, future cash provided by operating activities, availability under our debt facilities, and access to the capital markets will provide adequate resources to fund our operating and financing needs.
All of our CaaS segment’s structured financing facilities are expected to amortize down with collections on the receivables within their underlying trusts and should not represent significant refunding or refinancing risks to our condensed consolidated balance sheets. Facilities that could represent near-term and longer-term refunding or refinancing needs as of March 31, 2025 are those associated with the following notes payable in the amounts indicated (in millions):
| Revolving credit facility (expiring July 20, 2026) that is secured by certain receivables and restricted cash |
$ | 66.8 | ||
| Revolving credit facility (expiring October 30, 2026) that is secured by certain receivables and restricted cash |
49.8 | |||
| Revolving credit facility (expiring December 1, 2026) that is secured by certain assets |
31.6 | |||
| Revolving credit facility (expiring July 15, 2027) that is secured by certain receivables and restricted cash |
49.7 | |||
| Revolving credit facility (expiring August 30, 2027) that is secured by certain receivables and restricted cash |
12.5 | |||
| Revolving credit facility (expiring April 7, 2028) that is secured by certain receivables and restricted cash |
12.5 | |||
| Total long term refinancing needs (in excess of 12 months) |
$ | 222.9 |
Based on the state of the debt capital markets, the performance of our assets that serve as security for the above facilities, and our relationships with lenders, we view imminent refunding or refinancing risks with respect to the above facilities as moderate in the current environment. We believe that the quality of our new receivables should allow us to raise more capital through increasing the size of our facilities with our existing lenders and attracting new lending relationships, albeit at increased costs due to the aforementioned recent interest rate increases. Further details concerning the above debt facilities and other debt facilities we use to fund the acquisition of receivables are provided in Note 9, "Notes Payable," to our condensed consolidated financial statements included herein.
In November 2021, we issued $150.0 million aggregate principal amount of 6.125% Senior Notes due 2026 (the "2026 Senior Notes"). The 2026 Senior Notes are general unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured and unsubordinated indebtedness, and will rank senior in right of payment to the Company’s future subordinated indebtedness, if any. The 2026 Senior Notes are effectively subordinated to all of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, and the 2026 Senior Notes are structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries (excluding any amounts owed by such subsidiaries to the Company). The 2026 Senior Notes bear interest at the rate of 6.125% per annum. Interest on the 2026 Senior Notes is payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year. The 2026 Senior Notes will mature on November 30, 2026. We are amortizing fees associated with the issuance of the 2026 Senior Notes into interest expense over the expected life of such notes. Amortization of these fees for the three months ended March 31, 2025 and 2024 totaled $0.4 million and $0.4 million, respectively. We repurchased $0.0 million and $0.4 million of the outstanding principal amount of these 2026 Senior Notes in the three months ended March 31, 2025 and 2024, respectively.
In January and February 2024, we issued an aggregate of $57.2 million aggregate principal amount of 2029 Senior Notes. In July 2024, we issued an additional $60.0 million aggregate principal amount of the 2029 Senior Notes. The 2029 Senior Notes are general unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured and unsubordinated indebtedness, and will rank senior in right of payment to the Company’s future subordinated indebtedness, if any. The 2029 Senior Notes are effectively subordinated to all of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, and the 2029 Senior Notes are structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries (excluding any amounts owed by such subsidiaries to the Company). The 2029 Senior Notes bear interest at the rate of 9.25% per annum. Interest on the 2029 Senior Notes is payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The 2029 Senior Notes will mature on January 31, 2029. We are amortizing fees associated with the issuance of the 2029 Senior Notes into interest expense over the expected life of such notes. Amortization of these fees for the three months ended March 31, 2025 and 2024 totaled $0.3 million and $0.1 million, respectively.
In June and July 2021, we issued an aggregate of 3,188,533 shares of 7.625% Series B Cumulative Perpetual Preferred Stock, liquidation preference of $25.00 per share (the "Series B preferred stock"), for net proceeds of approximately $76.5 million after deducting underwriting discounts and commissions, but before deducting expenses and the structuring fee. We pay cumulative cash dividends on the Series B preferred stock, when and as declared by our Board of Directors, in the amount of $1.90625 per share each year, which is equivalent to 7.625% of the $25.00 liquidation preference per share.
On August 10, 2022, the Company entered into an At Market Issuance Sales Agreement (the "Preferred Stock Sales Agreement") providing for the sale by the Company of up to an aggregate offering price of $100.0 million of our (i) Series B preferred stock and (ii) 2026 Senior Notes, from time to time through a sales agent, in connection with the Company's "at-the-market" offering program (the "Preferred Stock ATM Program"). On August 26, 2024, we amended and restated the Preferred Stock Sales Agreement to remove our 2026 Senior Notes and to include our 2029 Senior Notes under the Preferred Stock ATM Program. Further, on December 29, 2023, the Company entered into an At-The-Market Sales Agreement (the "Common Stock Sales Agreement") providing for the sale by the Company of its common stock, no par value per share (the "common stock"), up to an aggregate offering price of $50.0 million, from time to time to or through a sales agent, in connection with the Company’s Common Stock "at-the-market" offering program (the "Common Stock ATM Program"). Sales pursuant to both the Preferred Stock Sales Agreement and Common Stock Sales Agreement, if any, may be made in transactions that are deemed to be "at-the-market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on or through the NASDAQ Global Select Market. The sales agents will make all sales using commercially reasonable efforts consistent with their normal trading and sales practices up to the amount specified in, and otherwise in accordance with the terms of, the placement notices.
During the three months ended March 31, 2025 and 2024, we sold 13,661 shares and 44,143 shares, respectively, of our Series B preferred stock under our Preferred Stock ATM Program for net proceeds of $0.3 million and $1.1 million, respectively. During the three months ended March 31, 2025 and 2024, no 2026 Senior Notes were sold under the Company's Preferred Stock ATM Program. During the three months ended March 31, 2025 and 2024, we sold $17.7 million and $0, respectively, principal amount of our 2029 Senior Notes under our Preferred Stock ATM Program for net proceeds of $17.4 million and $0, respectively.
During the three months ended March 31, 2025 and 2024, we sold 200,000 and 0 common shares, respectively, under the Company’s Common Stock ATM Program for net proceeds of $11.6 million and $0, respectively.
On November 14, 2019, a wholly-owned subsidiary issued 50.5 million Class B preferred units at a purchase price of $1.00 per unit to an unrelated third party. The units carried a 16% preferred return to be paid quarterly. The units had both call and put rights and were subject to various covenants including a minimum book value. In March 2020, the subsidiary issued an additional 50.0 million Class B preferred units under the same terms. The proceeds from the transaction were used for general corporate purposes. During the year ended December 31, 2024, we redeemed 50.5 million of the Class B preferred units at $1.00 per unit plus accrued but unpaid interest thereon. In March 2025, we redeemed the remaining 50.0 million of Class B preferred units at $1.00 per unit plus accrued but unpaid interest thereon. In periods where present, we have included the issuance of these Class B preferred units as temporary noncontrolling interest on the condensed consolidated balance sheets. Dividends paid on the Class B preferred units were deducted from Net income attributable to controlling interests to derive Net income attributable to common shareholders. See Note 11, "Net Income Attributable to Controlling Interests Per Common Share" for more information.
On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove Ventures, LLC, a Nevada limited liability company ("Dove"). The agreement provided for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding. On December 27, 2019, the Company issued 400,000 shares of its Series A Preferred Stock with an aggregate initial liquidation preference of $40.0 million, in exchange for full satisfaction of the $40.0 million that the Company owed Dove under the Loan and Security Agreement. Dividends on the preferred stock are 6% per annum (cumulative, non-compounding) and are payable as declared, and in preference to any common stock dividends, in cash. The Series A preferred stock is perpetual and has no maturity date. The Company may, at its option, redeem the shares of Series A preferred stock on or after January 1, 2025 at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends. At the request of the holders of a majority of the shares of the Series A preferred stock, the Company is required to offer to redeem all of the Series A preferred stock at a redemption price equal to $100 per share, plus any accumulated and unpaid dividends, at the option of the holders thereof, on or after January 1, 2024. Upon the election by the holders of a majority of the shares of Series A preferred stock, each share of the Series A preferred stock is convertible into the number of shares of the Company’s common stock as is determined by dividing (i) the sum of (a) $100 and (b) any accumulated and unpaid dividends on such share by (ii) an initial conversion price equal to $10 per share, subject to adjustment in certain circumstances to prevent dilution.
At March 31, 2025, we had $350.4 million in unrestricted cash held by our various business subsidiaries. Because the characteristics of our assets and liabilities change, liquidity management is a dynamic process for us, driven by the pricing and maturity of our assets and liabilities. We historically have financed our business through cash flows from operations, asset-backed structured financings and the issuance of debt and equity. Details concerning our cash flows for the three months ended March 31, 2025 and 2024 are as follows:
| • |
During the three months ended March 31, 2025, we generated $131.6 million of cash flows from operations compared to our generation of $118.8 million of cash flows from operations during the three months ended March 31, 2024. While payment rates for our consumers stayed consistent period over period, we experienced an increase in cash provided by operating activities principally related to finance and fee collections associated with growing private label credit and general purpose credit card receivables and increased recoveries on charged-off receivables. Most of this change was due to growth in the underlying receivables (and collections thereon) along with the implementation of product, policy and pricing changes, which effectively increased the minimum payment amounts required by consumers. |
| • |
During the three months ended March 31, 2025, we used $114.9 million of cash from our investing activities, compared to use of $67.5 million of cash from investing activities during the three months ended March 31, 2024. This increase in cash used is primarily due to marginal increases in the level of net investments in private label credit and general purpose credit card receivables relative to the same period in 2023. For the three months ended March 31, 2025, we purchased $621 million in private label and general purpose credit card receivables compared to $560 million for the three months ended March 31, 2024. As we continue to grow our receivables base, we would expect for purchases of new receivables to outpace payments thereon throughout 2025. |
| • |
During the three months ended March 31, 2025, we used $54.9 million of cash from financing activities, compared to our generating $47.5 million of cash from financing activities during the three months ended March 31, 2024. The increase in cash used in financing activities is primarily due to the redemption of the remaining 50.0 million of Class B preferred units at $1.00 per unit plus accrued but unpaid interest thereon during the three months ended March 31, 2025 coupled with the sale of $57.2 million of 2029 Senior Notes during the three months ended March 31, 2024 compared to sales of $17.7 million for the three months ended March 31, 2025. In both periods, the data reflect borrowings associated with private label credit and general purpose credit card receivables offset by net repayments of amortizing debt facilities as payments are made on the underlying receivables that serve as collateral. For the quarter ended March 31, 2025, compared to the quarter ended March 31, 2024, these net repayments on debt facilities increased $26.4 million. These increases in cash used in financing activities was partially offset by proceeds from the issuance of 200,000 shares of common stock for net proceeds of $11.6 million. As discussed above, we expect to have continued growth in our receivables base and as a result, expect to continue raising additional capital to fund these acquisitions. |
Beyond our immediate financing efforts discussed throughout this Report, we will continue to evaluate debt and equity issuances as a means to fund our investment opportunities. We expect to take advantage of any opportunities to raise additional capital if terms and pricing are attractive to us. Any proceeds raised under these efforts or additional liquidity available to us could be used to fund (1) additional investments in private label credit and general purpose credit card finance receivables as well as the acquisition of credit card receivables portfolios and (2) further repurchases or redemptions of preferred and common stock. Pursuant to share repurchase plans authorized by our Board of Directors, we are authorized to repurchase up to 2,000,000 shares of our common stock and 500,000 shares of our Series B preferred stock through June 30, 2026.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE-SHEET ARRANGEMENTS
Commitments and Contingencies
We do not currently have any off-balance-sheet arrangements; however, we do have certain contractual arrangements that would require us to make payments or provide funding if certain circumstances occur; we refer to these arrangements as contingent commitments. We do not currently expect that these contingent commitments will result in any material amounts being paid by us. See Note 11, "Commitments and Contingencies," to our condensed consolidated financial statements included herein for further discussion of these matters.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2, "Significant Accounting Policies and Condensed Consolidated Financial Statement Components," to our condensed consolidated financial statements included herein for a discussion of recent accounting pronouncements.
CRITICAL ACCOUNTING ESTIMATES
We have prepared our condensed consolidated financial statements in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of certain assets and liabilities, and in some instances, the reported amounts of revenues and expenses during the period. We base our assumptions, estimates, and judgments on historical experience, current events, and other factors that management believes to be relevant at the time our condensed consolidated financial statements are prepared. However, because future events are inherently uncertain and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. For a description of the Company’s critical accounting estimates, refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations–Critical Accounting Estimates" in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC on March 13, 2025. There have been no material changes to the information on critical accounting estimates described in our Annual Report on Form 10‑K for the year ended December 31, 2024.
On a quarterly basis, we review our significant accounting policies and the related assumptions, in particular, those mentioned below, with the audit committee of the Board of Directors.
RELATED PARTY TRANSACTIONS
Under a shareholders’ agreement which we entered into with certain shareholders, including David G. Hanna, Frank J. Hanna, III and certain trusts that were Hanna affiliates (1) if one or more of the shareholders accepts a bona fide offer from a third party to purchase more than 50% of the outstanding common stock, each of the other shareholders that is a party to the agreement may elect to sell his shares to the purchaser on the same terms and conditions, and (2) if shareholders that are a party to the agreement owning more than 50% of the common stock propose to transfer all of their shares to a third party, then such transferring shareholders may require the other shareholders that are a party to the agreement to sell all of the shares owned by them to the proposed transferee on the same terms and conditions.
In June 2007, we entered into a sublease for 1,000 square feet (as later amended to 600 square feet) of excess office space at our Atlanta headquarters with HBR Capital, Ltd. ("HBR"), a company co-owned by David G. Hanna and his brother Frank J. Hanna, III. We entered into a new lease for our Atlanta headquarters that commenced in June 2022. In connection with this new prime lease, we entered into a new sublease with HBR. The sublease rate per square foot is the same as the rate that we pay under the prime lease. Under the sublease, HBR paid us $0.1 million for both 2024 and 2023. The aggregate amount of payments required under the sublease from January 1, 2025 to the expiration of the sublease in May 2026 is $141,000.
In January 2013, HBR began leasing the services of certain employees from us. HBR reimburses us for the full cost of the employees, based on the amount of time devoted to HBR. In the three months ended March 31, 2025 and 2024, we received $0.2 million and $0.2 million, respectively, of reimbursed costs from HBR associated with these leased employees.
On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove. The agreement provided for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding. On December 27, 2019, the Company issued 400,000 shares of its Series A preferred stock with an aggregate initial liquidation preference of $40.0 million, in exchange for full satisfaction of the $40.0 million that the Company owed Dove under the Loan and Security Agreement. Dove is a limited liability company owned by three trusts. David G. Hanna is the sole shareholder and the President of the corporation that serves as the sole trustee of one of the trusts, and David G. Hanna and members of his immediate family are the beneficiaries of this trust. Frank J. Hanna, III is the sole shareholder and the President of the corporation that serves as the sole trustee of the other two trusts, and Frank J. Hanna, III and members of his immediate family are the beneficiaries of these other two trusts. See Note 5, "Redeemable Preferred Stock," to our condensed consolidated financial statements for more information.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING INFORMATION
We make forward-looking statements in this Report and in other materials we file with the Securities and Exchange Commission ("SEC") or otherwise make public. In addition, our senior management might make forward-looking statements to analysts, investors, the media and others. Statements with respect to the macroeconomic environment; monetary policy by the Federal Reserve; expected revenue; income; receivables; income ratios; net interest margins; long-term shareholder returns; acquisitions of financial assets and other growth opportunities; divestitures and discontinuations of businesses; loss exposure and loss provisions; delinquency and charge-off rates; inflation; energy prices; the developing metaverse; the use of large language models; changes in the credit quality and fair value of our credit card receivables, interest and fees receivable and the fair value of their underlying structured financing facilities; the impact of actions by the Federal Deposit Insurance Corporation ("FDIC"), Federal Reserve Board, Federal Trade Commission ("FTC"), Consumer Financial Protection Bureau ("CFPB") and other regulators on both us, banks that issue credit cards and other credit products on our behalf, and merchants that participate in our retail and healthcare private label credit operations; account growth; the performance of investments that we have made, including in technology; operating expenses; marketing plans and expenses; the performance of our Auto Finance segment; expansion by our Auto Finance segment within its current service area and into new markets; the impact of our credit card receivables on our financial performance; the sufficiency of available capital; future interest costs; sources of funding operations and acquisitions; growth and profitability of our private label credit operations; our ability to raise funds or renew financing facilities; share repurchases, share issuances or dividends; debt retirement; our servicing income levels; gains and losses from investments in securities; experimentation with new products; and other statements of our plans, beliefs or expectations are forward-looking statements. These and other statements using words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would" and similar expressions also are forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. The forward-looking statements we make are not guarantees of future performance, and we have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or historical earnings levels.
Although it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially from our expectations are the risks and uncertainties described under "Risk Factors" set forth in Part I, Item 1A, and the risk factors and other cautionary statements in other documents we file with the SEC, including the following:
| • | general economic and business conditions, including conditions affecting interest rates, tariffs, consumer income, creditworthiness, consumer confidence, spending and savings levels, employment levels, our revenue, and our defaults and charge-offs; | |
| • | an increase or decrease in credit losses, or increased delinquencies, including increases due to a worsening of general economic conditions in the credit environment; | |
| • | our reliance on proprietary and third-party technology; | |
| • | security breaches involving our files and infrastructure could lead to unauthorized disclosure of confidential information or result in a temporary or permanent shutdown of our services; | |
|
|
• | the availability of adequate financing to support growth; |
|
|
• | the extent to which federal, state, local and foreign governmental regulation of our various business lines and the products we service for others limits or prohibits the operation of our businesses; |
|
|
• | current and future litigation and regulatory proceedings against us; |
| • | hallucinations in our models; | |
| • | competition from various sources providing similar financial products, or other alternative sources of credit, to consumers; | |
|
|
• | the adequacy of our allowances for credit losses and estimates of loan losses used within our risk management and analyses; |
|
|
• | the possible impairment of assets; |
|
|
• | our ability to manage costs in line with the expansion or contraction of our various business lines; |
|
|
• | our relationship with (i) the merchants that participate in private label credit operations and (ii) the banks that issue credit cards and provide certain other credit products utilizing our technology platform and related services; |
|
|
• | our business, financial condition and results of operations may be adversely affected by merchants’ increasing focus on the fees charged by credit and debit card networks and by legislation and regulation impacting such fees; |
| • | any decline in the use of cards as a payment mechanism or other adverse developments with respect to the credit card industry in general; | |
| • | increases or decreases in interest rates and uncertainty with respect to the interest rate environment; and | |
|
|
• | theft and employee errors. |
Most of these factors are beyond our ability to predict or control. Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of our forward-looking statements. There also are other factors that we may not describe (because we currently do not perceive them to be material) that could cause actual results to differ materially from our expectations.
We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a "smaller reporting company," as defined by Item 10 of Regulation S-K, we are not required to provide this information.
| CONTROLS AND PROCEDURES |
Evaluation of disclosure controls and procedures
As of December 31, 2024, the Company’s management, including the principal executive officer and principal financial officer, in consultation with the Company’s independent registered public accounting firm, Deloitte & Touche LLP (“Deloitte”), concluded that our disclosure controls and procedures were not effective as of December 31, 2024 because a material weakness in our internal control over financial reporting existed related to management’s failure to adequately design and implement internal controls to determine whether or not each of the inputs into the Company’s valuation model for its Loans at fair value consistent with U.S. GAAP.
Management, with the participation and supervision of our principal executive officer and our principal financial officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Act) as of March 31, 2025, the end of the period covered by this Form 10-Q. The Company’s disclosure controls and procedures are designed to ensure that information the Company is required to disclose in reports that it files or submits under the Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2025 because of the material weakness described above.
Notwithstanding this material weakness, the Company has concluded that no material misstatements exist in the condensed consolidated financial statements as filed in this Form 10-Q, and such condensed consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three months ended March 31, 2025 and 2024, in conformity with accounting principles generally accepted in the United States of America. Accordingly, there are no changes to the Company’s previously reported consolidated financial statements.
Remediation Plan
The Company’s management is committed to maintaining a strong internal control environment. In response to the material weakness identified above, management, with the oversight of the Audit Committee of the Board of Directors, evaluated the material weakness described above and designed a remediation plan to enhance the Company’s internal control environment. To remediate the material weakness, the Company’s management implemented a new control designed to evaluate the appropriateness in accordance with U.S. GAAP of all inputs used in the Company’s valuation model for its Loans at fair value. We will assess the ongoing operating effectiveness of the newly designed control in future periods. The material weakness cannot be considered remediated until the applicable control has operated for a sufficient period of time and we have concluded, through testing, that this control is operating effectively. These enhanced procedures were implemented as of March 31, 2025, and will be monitored for effectiveness.
Changes in internal control over financial reporting
Other than changes related to the remediation of the material weakness described above, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the quarter ended March 31, 2025, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Limitations on Controls
The Company’s management, including its principal executive officer and principal financial officer, do not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
| LEGAL PROCEEDINGS |
We are involved in various legal proceedings that are incidental to the conduct of our business. There are currently no pending legal proceedings that are expected to be material to us.
| RISK FACTORS |
An investment in our common stock, preferred stock or other securities involves a number of risks. You should carefully consider each of the risks described below, among others, before deciding to invest in our securities. If any of the following risks develops into actual events, our business, financial condition or results of operations could be negatively affected, the market prices of our securities could decline and you may lose all or part of your investment.
Our Cash Flows and Net Income Are Dependent Upon Payments from Our Investments in Receivables
The collectability of our investments in receivables is a function of many factors including the criteria used to select who is issued credit, the pricing of the credit products, the lengths of the relationships, general economic conditions, the rate at which consumers repay their accounts or become delinquent, and the rate at which consumers borrow funds. Deterioration in these factors would adversely impact our business. In addition, to the extent we have over-estimated collectability, in all likelihood we have over-estimated our financial performance. Some of these concerns are discussed more fully below.
Our portfolio of receivables is not diversified and primarily originates from consumers whose creditworthiness is considered less than prime. Historically, we have invested in receivables in one of two ways—we have either (i) invested in receivables originated by lenders who utilize our services or (ii) invested in or purchased pools of receivables from other issuers. In either case, substantially all of our receivables are from borrowers represented by credit risks that regulators classify as less than prime. Our reliance on these receivables may in the future negatively impact our performance.
Economic slowdowns increase our credit losses. During periods of economic slowdown, recession or rapidly rising inflation rates, we generally experience an increase in rates of delinquencies and frequency and severity of credit losses. Our actual rates of delinquencies and frequency and severity of credit losses may be comparatively higher during periods of economic slowdown or recession or rapidly rising inflation rates.
Because a significant portion of our reported income is based on management’s estimates of the future performance of receivables, differences between actual and expected performance of the receivables may cause fluctuations in net income. Significant portions of our reported income (or losses) are based on management’s estimates of cash flows we expect to receive on receivables, particularly for such assets that we report based on fair value. The expected cash flows are based on management’s estimates of credit losses, payment rates, servicing costs, discount rates and yields earned on credit card receivables. These estimates are based on a variety of factors, many of which are not within our control. Substantial differences between actual and expected performance of the receivables will occur and cause fluctuations in our net income. For instance, higher than expected rates of delinquencies and losses could cause our net income to be lower than expected. Similarly, levels of loss and delinquency can result in our being required to repay lenders earlier than expected, thereby reducing funds available to us for future growth.
We Are Substantially Dependent Upon Borrowed Funds to Fund Receivables We Purchase
We finance receivables that we acquire in large part through financing facilities. All of our financing facilities are of finite duration (and ultimately will need to be extended or replaced) and contain financial covenants and other conditions that must be fulfilled in order for funding to be available. The cost and availability of equity and borrowed funds is dependent upon our financial performance, the performance of our industry overall and general economic and market conditions, and at times equity and borrowed funds have been both expensive and difficult to obtain.
If additional financing facilities are not available in the future on terms we consider acceptable, we will not be able to purchase additional receivables and those receivables may contract in size.
Capital markets may experience periods of disruption and instability, potentially limiting our ability to grow our receivables. From time-to-time, capital markets may experience periods of disruption and instability. For example, from 2008 to 2009, the global capital markets were unstable as evidenced by the lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. These events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. If similar adverse and volatile market conditions repeat in the future, we and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital in order to grow our receivables.
Moreover, the re-appearance of market conditions similar to those experienced from 2008 through 2009 for any substantial length of time or worsened market conditions could make it difficult for us to borrow money or to extend the maturity of or refinance any indebtedness we may have under similar terms and any failure to do so could have a material adverse effect on our business. Unfavorable economic and political conditions, including future recessions, political instability, geopolitical turmoil and foreign hostilities, energy disruptions, inflation, disease, pandemics and other serious health events, also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.
We may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may cause us to reduce the volume of receivables we purchase or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our Financial Performance Is, in Part, a Function of the Aggregate Amount of Receivables That Are Outstanding
The aggregate amount of outstanding receivables is a function of many factors including purchase rates, payment rates, interest rates, seasonality, general economic conditions, competition from credit card issuers and other sources of consumer financing, access to funding, and the timing and extent of our receivable purchases
The recent growth of our investments in private label credit and general purpose credit card receivables may not be indicative of our ability to grow such receivables in the future. Our period-end managed receivables balance for private label credit and general purpose credit card receivables grew to $2,706.3 million at March 31, 2025, from $2,317.6 million at March 31, 2024. The amount of such receivables has fluctuated significantly over the course of our operating history. Furthermore, even if such receivables continue to increase, the rate of such growth could decline. If we cannot manage the growth in receivables effectively, it could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.
Reliance upon relationships with a few large retailers in the private label credit operations may adversely affect our revenues and operating results from these operations. Our five largest retail partners accounted for over 75% of our outstanding private label credit receivables as of December 31, 2024. Although we are adding new retail partners on a regular basis, it is likely that we will continue to derive a significant portion of this operations’ receivables base and corresponding revenue from a relatively small number of partners in the future. If a significant partner reduces or terminates its relationship with us, these operations’ revenue could decline significantly and our operating results and financial condition could be harmed.
We Operate in a Heavily Regulated Industry
Changes in bankruptcy, privacy or other consumer protection laws, or to the prevailing interpretation thereof, may expose us to litigation, adversely affect our ability to collect receivables, or otherwise adversely affect our operations. Similarly, regulatory changes could adversely affect the ability or willingness of lenders who utilize our technology platform and related services to market credit products and services to consumers. Also, the accounting rules that apply to our business are exceedingly complex, difficult to apply and in a state of flux. As a result, how we value our receivables and otherwise account for our business is subject to change depending upon the changes in, and interpretation of, those rules. Some of these issues are discussed more fully below.
Reviews and enforcement actions by regulatory authorities under banking and consumer protection laws and regulations may result in changes to our business practices, may make collection of receivables more difficult or may expose us to the risk of fines, restitution and litigation. Our operations and the operations of the issuing banks through which the credit products we service are originated are subject to the jurisdiction of federal, state and local government authorities, including the SEC, the FDIC, the Office of the Comptroller of the Currency, the FTC, state regulators having jurisdiction over financial institutions and debt origination and collection and state attorneys general. Our business practices and the practices of issuing banks, including the terms of products, servicing and collection practices, are subject to both periodic and special reviews by these regulatory and enforcement authorities. These reviews can range from investigations of specific consumer complaints or concerns to broader inquiries. If as part of these reviews the regulatory authorities conclude that we or issuing banks are not complying with applicable law, they could request or impose a wide range of remedies including requiring changes in advertising and collection practices, changes in the terms of products (such as decreases in interest rates or fees), the imposition of fines or penalties, or the paying of restitution or the taking of other remedial action with respect to affected consumers. They also could require us or issuing banks to stop offering some credit products or obtain licenses to do so, either nationally or in select states. To the extent that these remedies are imposed on the issuing banks that originate credit products using our platform, under certain circumstances we are responsible for the remedies as a result of our indemnification obligations with those banks. We or our issuing banks also may elect to change practices that we believe are compliant with law in order to respond to regulatory concerns. Furthermore, negative publicity relating to any specific inquiry or investigation could hurt our ability to conduct business with various industry participants or to generate new receivables and could negatively affect our stock price, which would adversely affect our ability to raise additional capital and would raise our costs of doing business.
If any deficiencies or violations of law or regulations are identified by us or asserted by any regulator or require us or issuing banks to change any practices, the correction of such deficiencies or violations, or the making of such changes, could have a material adverse effect on our financial condition, results of operations or business. In addition, whether or not these practices are modified when a regulatory or enforcement authority requests or requires, there is a risk that we or other industry participants may be named as defendants in litigation involving alleged violations of federal and state laws and regulations, including consumer protection laws. Any failure to comply with legal requirements by us or the banks that originate credit products utilizing our platform in connection with the issuance of those products, or by us or our agents as the servicer of our accounts, could significantly impair our ability to collect the full amount of the account balances. The institution of any litigation of this nature, or any judgment against us or any other industry participant in any litigation of this nature, could adversely affect our business and financial condition in a variety of ways.
The regulatory landscape in which we operate is continually changing due to new rules, regulations and interpretations, as well as various legal actions that have been brought against others that have sought to re-characterize certain loans made by federally insured banks as loans made by third parties. If litigation on similar theories were brought against us when we work with a federally insured bank that makes loans and were such an action successful, we could be subject to state usury limits and/or state licensing requirements, loans in such states could be deemed void and unenforceable, and we could be subject to substantial penalties in connection with such loans.
The case law involving whether an originating lender, on the one hand, or a third party, on the other hand, is the "true lender" of a loan is still developing and courts have come to different conclusions and applied different analyses. The determination of whether a third-party service provider is the "true lender" is significant because third parties risk having the loans they service becoming subject to a consumer’s state usury limits. A number of federal courts that have opined on the "true lender" issue have looked to who is the lender identified on the borrower’s loan documents. A number of state courts and at least one federal district court have considered a number of other factors when analyzing whether the originating lender or a third party is the "true lender," including looking at the economics of the transaction to determine, among other things, who has the predominant economic interest in the loan being made. If we were re-characterized as a "true lender" with respect to the receivables originated by the banks that utilize our technology platform and other services, such receivables could be deemed to be void and unenforceable in some states, the right to collect finance charges could be affected, and we could be subject to fines and penalties from state and federal regulatory agencies as well as claims by borrowers, including class actions by private plaintiffs. Even if we were not required to change our business practices to comply with applicable state laws and regulations or cease doing business in some states, we could be required to register or obtain lending licenses or other regulatory approvals that could impose a substantial cost on us. If the banks that originate loans utilizing our technology platform were subject to such a lawsuit, they may elect to terminate their relationships with us voluntarily or at the direction of their regulators, and if they lost the lawsuit, they could be forced to modify or terminate such relationships.
We support banks that market general purpose credit cards and certain other credit products directly to consumers. We acquire interests in and service the receivables originated by these banks. The banks could determine not to continue the relationship for various business reasons, or their regulators could limit their ability to issue credit cards utilizing our technology platform or to originate some or all of the other products that we service or require the banks to modify those products significantly and could do either with little or no notice. Any significant interruption or change of our bank relationships would result in our being unable to acquire new receivables or develop certain other credit products. Unless we were able to timely replace our bank relationships, such an interruption would prevent us from acquiring newly-originated credit card receivables and growing our investments in private label credit and general purpose credit card receivables. In turn, it would materially adversely impact our business.
The FDIC has issued guidance affecting the banks that utilize our technology platform to market general purpose credit cards and certain other credit products and these or subsequent new rules and regulations could have a significant impact on such credit products. The banks that utilize our technology platform and other services to market general purpose credit cards and certain other credit products are supervised and examined by both the state that charters them and the FDIC. If the FDIC or a state supervisory body considers any aspect of the products originated utilizing our technology platform to be inconsistent with its guidance, the banks may be required to alter or terminate some or all of these products.
Changes to consumer protection laws or changes in their interpretation may impede collection efforts or otherwise adversely impact our business practices. Federal and state consumer protection laws regulate the creation and enforcement of consumer credit card receivables and other loans. Many of these laws (and the related regulations) are focused on non-prime lenders and are intended to prohibit or curtail industry-standard practices as well as non-standard practices. For instance, Congress enacted legislation that regulates loans to military personnel through imposing interest rate and other limitations and requiring new disclosures, all as regulated by the Department of Defense. Similarly, in 2009 Congress enacted legislation that required changes to a variety of marketing, billing and collection practices, and the Federal Reserve adopted significant changes to a number of practices through its issuance of regulations. While our practices are in compliance with these changes, some of the changes (e.g., limitations on the ability to assess up-front fees) have significantly affected the viability of certain credit products within the U.S. Changes in the consumer protection laws could result in the following:
| • | receivables not originated in compliance with law (or revised interpretations) could become unenforceable and uncollectible under their terms against the obligors; | |
| • | we may be required to credit or refund previously collected amounts; | |
| • | certain fees and finance charges could be limited, prohibited or restricted, reducing the profitability of certain investments in receivables; | |
| • | certain collection methods could be prohibited, forcing us to revise our practices or adopt more costly or less effective practices; | |
| • | limitations on our ability to recover on charged-off receivables regardless of any act or omission on our part; | |
| • | some credit products and services could be banned in certain states or at the federal level; | |
| • | federal or state bankruptcy or debtor relief laws could offer additional protections to consumers seeking bankruptcy protection, providing a court greater leeway to reduce or discharge amounts owed to us; and | |
| • | a reduction in our ability or willingness to invest in receivables arising under loans to certain consumers, such as military personnel. |
Material regulatory developments may adversely impact our business and results from operations.
Our Automobile Lending Activities Involve Risks in Addition to Others Described Herein
Automobile lending exposes us not only to most of the risks described above but also to additional risks, including the regulatory scheme that governs installment loans and those attendant to relying upon automobiles and their repossession and liquidation value as collateral. In addition, our Auto Finance segment operation acquires loans on a wholesale basis from used car dealers, for which we rely upon the legal compliance and credit determinations by those dealers.
Funding for automobile lending may become difficult to obtain and expensive. In the event we are unable to renew or replace any Auto Finance segment credit facilities that bear refunding or refinancing risks when they become due, our Auto Finance segment could experience significant constraints and diminution in reported asset values as lenders retain significant cash flows within underlying structured financings or otherwise under security arrangements for repayment of their loans. If we cannot renew or replace future facilities or otherwise are unduly constrained from a liquidity perspective, we may choose to sell part or all of our auto loan portfolios, possibly at less than favorable prices.
Our automobile lending business is dependent upon referrals from dealers. Currently we provide substantially all of our automobile loans only to or through used car dealers. Providers of automobile financing have traditionally competed based on the interest rate charged, the quality of credit accepted and the flexibility of loan terms offered. In order to be successful, we not only need to be competitive in these areas, but also need to establish and maintain good relations with dealers and provide them with a level of service greater than what they can obtain from our competitors.
The financial performance of our automobile loan portfolio is in part dependent upon the liquidation of repossessed automobiles. In the event of certain defaults, we may repossess automobiles and sell repossessed automobiles at wholesale auction markets located throughout the U.S. Auction proceeds from these types of sales and other recoveries generally are not sufficient to cover the outstanding balances of the contracts; where we experience these shortfalls, we will experience credit losses.
Repossession of automobiles entails the risk of litigation and other claims. Although we have contracted with reputable repossession firms to repossess automobiles on defaulted loans, it is not uncommon for consumers to assert that we were not entitled to repossess an automobile or that the repossession was not conducted in accordance with applicable law. These claims increase the cost of our collection efforts and, if successful, can result in awards against us.
We Routinely Explore Various Opportunities to Grow Our Business, to Make Investments and to Purchase and Sell Assets
We routinely consider acquisitions of, or investments in, portfolios and other assets as well as the sale of portfolios and portions of our business. There are a number of risks attendant to any acquisition, including the possibility that we will overvalue the assets to be purchased and that we will not be able to produce the expected level of profitability from the acquired business or assets. Similarly, there are a number of risks attendant to sales, including the possibility that we will undervalue the assets to be sold. As a result, the impact of any acquisition or sale on our future performance may not be as favorable as expected and actually may be adverse.
Portfolio purchases may cause fluctuations in our reported CaaS segment’s managed receivables data, possibly reducing the usefulness of this data in evaluating our business. Our reported CaaS segment managed receivables data may fluctuate substantially from quarter to quarter as a result of recent and future credit card portfolio acquisitions.
Receivables included in purchased portfolios are likely to have been originated using credit criteria different from the criteria of issuing bank partners that have originated accounts utilizing our technology platform. Receivables included in any particular purchased portfolio may have significantly different delinquency rates and charge-off rates than the receivables previously originated and purchased by us. These receivables also may earn different interest rates and fees as compared to other similar receivables in our receivables portfolio. These variables could cause our reported managed receivables data to fluctuate substantially in future periods making the evaluation of our business more difficult.
Any acquisition or investment that we make will involve risks different from and in addition to the risks to which our business is currently exposed. These include the risks that we will not be able to integrate and operate successfully new businesses, that we will have to incur substantial indebtedness and increase our leverage in order to pay for the acquisitions, that we will be exposed to, and have to comply with, different regulatory regimes and that we will not be able to apply our traditional analytical framework (which is what we expect to be able to do) in a successful and value-enhancing manner.
Risks Related to Our Financial Reporting and Accounting
We are remediating a material weakness in our internal control over financial reporting. If we experience additional material weaknesses in the future, our business may be harmed. Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on the effectiveness of our system of internal control. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles in the United States (“GAAP”). As a public company, we are required to comply with the Sarbanes-Oxley Act and other rules that govern public companies. In particular, we are required to certify our compliance with Section 404 of the Sarbanes-Oxley Act, which requires us to furnish annually a report by management on the effectiveness of our internal control over financial reporting.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024 and concluded that our internal control over financial reporting was not effective as of December 31, 2024 due to a material weakness described under Part II, Item 9A “Controls and Procedures” on our Form 10-K for the fiscal year ended December 31, 2024.
Remediation efforts place a significant burden on management and add increased pressure on our financial resources and processes. If we identify material weaknesses in our internal control over financial reporting in the future, our business may be harmed. Such harm may include: (i) failure to accurately report our financial results, to prevent fraud or to meet our SEC reporting obligations in a timely basis or at all; (ii) material misstatements in our condensed consolidated financial statements and harm to our operating results and investor confidence; and (iii) a material adverse effect on the trading prices of our securities. In addition, the foregoing could subject us to sanctions or investigations by the NASDAQ, the SEC or other regulatory authorities, and result in the breach of covenants in our debt agreements, any of which could have a material adverse impact on our operations, financial condition, results of operations, liquidity and our securities’ trading prices.
Further, there are inherent limitations in the effectiveness of any control system, including the potential for human error and the possible circumvention or overriding of controls and procedures. Additionally, judgments in decision-making can be faulty and breakdowns can occur because of a simple error or mistake. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.
Other Risks of Our Business
We operate in a highly competitive industry, and our inability to compete successfully would materially and adversely affect our business, results of operations, financial condition, and future prospects.
We operate in a highly competitive and dynamic industry. We face competition from a variety of players, including those who enable transactions and commerce via digital payments and consumer loans. Our primary competition consists of facilitators and providers of legacy payment and consumer loan methods, such as credit and debit cards, including those provided by card issuing banks; technology solutions, including those provided by financial technology or payment companies; mobile wallets, such as Apple and PayPal; and pay-over-time solutions providers, including Block and Klarna. Consumer lending is a broad and competitive market, and we compete to varying degrees with various platform providers or sources of consumer credit. This can include banks, non-bank lenders, including retail-based lenders, and other financial technology companies.
Some of our competitors, particularly credit issuing banks, are substantially larger than we are and have longer operating histories than we do, which gives those competitors advantages we do not have, such as more diversified products, a broader consumer and merchant base, greater brand recognition and brand loyalty, the ability to reach more consumers, the ability to cross sell their products, operational efficiencies, the ability to cross-subsidize their offerings through their other business lines, more versatile technology platforms, broad-based local distribution capabilities, and lower-cost funding. In addition, because many of our competitors are large financial institutions that fund themselves through low-cost insured deposits and continue to own the loans that they originate, they have certain revenue and funding opportunities not available to us. Furthermore, our current or potential competitors may be better at developing new products due to their large and experienced data science and engineering teams, who are able to respond more quickly to new technologies.
Additionally, merchants are increasingly offering other credit and payment options to customers. We expect competition to intensify in the future, both as emerging technologies continue to enter the marketplace and as large financial incumbents increasingly seek to innovate the services that they offer to compete with us. Technological advances and the continued growth of e-commerce activities have increased consumers’ accessibility to products and services and led to the expansion of competition in digital payment and consumer loan options such as pay-over-time solutions.
We face competition in areas such as compliance capabilities, commercial financing terms and costs of capital, interest rates and fees (and other financing terms) available to consumers from our bank partners, approval rates, model efficiency, speed and simplicity of loan origination, ease-of-use, marketing expertise, service levels, products and services, technological capabilities and integration, borrower experience, brand and reputation. Furthermore, our existing and potential competitors may decide to modify their pricing and business models to compete more directly with us. Our ability to compete will also be affected by our ability to provide our bank partners with a commensurate or more extensive suite of products than those offered by our competitors. In addition, current or potential competitors, including financial technology lending platforms and existing or potential bank partners, may also acquire or form strategic alliances with one another, which could result in our competitors being able to offer more competitive loan terms due to their access to lower-cost capital. Such acquisitions or strategic alliances among our competitors or potential competitors could also make our competitors more adaptable to a rapidly evolving regulatory environment. To stay competitive, we may need to increase our regulatory compliance expenditures or our ability to compete may be adversely affected.
Our industry is driven by constant innovation. We utilize machine learning, which is characterized by extensive research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological developments, our ability to operate profitably could suffer.
Research, data accumulation and development by other companies may result in AI models that are superior to our AI models or result in products superior to those we develop. Further, technologies, products or services we develop may not be preferred to any existing or newly-developed technologies, products or services. If we are unable to compete with such companies or fail to meet the need for innovation in our industry, the use of our platform could stagnate or substantially decline, or our products could fail to maintain or achieve more widespread market acceptance, which would materially and adversely affect our business, results of operations, financial condition, and future prospects.
Our business and operations may be negatively affected by rising prices and interest rates. Our financial performance and consumers’ ability to repay indebtedness may be affected by uncertain economic conditions, including inflation, government shutdowns and changing interest rates. In recent months, there have been significant changes to U.S. trade policies, treaties and tariffs. Although trade negotiations are ongoing, sustained higher tariffs likely would accelerate inflation. Higher inflation increases the costs of goods and services, reduces consumer spending power and may negatively affect our ability to purchase receivables. In 2022, inflation reached a four-decade high and continues to adversely impact the economy.
The Federal Reserve has raised interest rates to combat inflation. Increased interest rates adversely impact the spending levels of consumers and their ability and willingness to borrow money. Higher interest rates often lead to higher payment obligations, which may reduce the ability of consumers to remain current on their obligations and, therefore, lead to increased delinquencies, defaults, customer bankruptcies and charge-offs, and decreased recoveries, all of which could have an adverse effect on our business.
We are a holding company with no operations of our own. As a result, our cash flow and ability to service our debt is dependent upon distributions from our subsidiaries. The distribution of subsidiary earnings, or advances or other distributions of funds by subsidiaries to us, all of which are subject to statutory and could be subject to contractual restrictions, are contingent upon the subsidiaries’ cash flows and earnings and are subject to various business and debt covenant considerations.
We are party to litigation. We are party to certain legal proceedings which include litigation customary for a business of our nature. In each case we believe that we have meritorious defenses or that the positions we are asserting otherwise are correct. However, adverse outcomes are possible in these matters, and we could decide to settle one or more of our litigation matters in order to avoid the ongoing cost of litigation or to obtain certainty of outcome. Adverse outcomes or settlements of these matters could require us to pay damages, make restitution, change our business practices or take other actions at a level, or in a manner, that would adversely impact our business.
The failure of financial institutions or transactional counterparties could adversely affect our current and projected business operations and our financial condition and results of operations. During 2023, multiple financial institutions were closed and placed in receivership. Although we did not have any funds deposited with the affected banks, we regularly maintain cash balances with other financial institutions in excess of the FDIC insurance limit. A failure of a depository institution to return deposits could impact access to our invested cash or cash equivalents and could adversely impact our operating liquidity and financial performance.
Because we outsource account-processing functions that are integral to our business, any disruption or termination of these outsourcing relationships could harm our business. We generally outsource account and payment processing. If these outsourcing relationships were not renewed or were terminated or the services provided to us were otherwise disrupted, we would have to obtain these services from alternate providers. There is a risk that we would not be able to enter into similar outsourcing arrangements with alternate providers on terms that we consider favorable or in a timely manner without disruption of our business.
Failure to keep up with the rapid technological changes in financial services and e-commerce could harm our business. The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial and lending institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of consumers by using technology to support products and services that will satisfy consumer demands for convenience, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services as quickly as some of our competitors. Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete with our competitors. Any such failure to adapt to changes could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.
If we are unable to protect our information systems against service interruption, our operations could be disrupted and our reputation may be damaged. We rely heavily on networks and information systems and other technology, that are largely hosted by third parties to support our business processes and activities, including processes integral to the origination and collection of loans and other financial products, and information systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory, financial reporting, legal and tax requirements. Because information systems are critical to many of our operating activities, our business may be impacted by hosted system shutdowns, service disruptions or security breaches. These incidents may be caused by failures during routine operations such as system upgrades or user errors, as well as network or hardware failures, malicious or disruptive software, computer hackers, rogue employees or contractors, cyber-attacks by criminal groups, geopolitical events, natural disasters, pandemics, failures or impairments of telecommunications networks, or other catastrophic events. If our information systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, and we may lose revenue and profits as a result of our inability to collect payments in a timely manner. We also could be required to spend significant financial and other resources to repair or replace networks and information systems.
Unauthorized or unintentional disclosure of sensitive or confidential customer data could expose us to protracted and costly litigation, and civil and criminal penalties. To conduct our business, we are required to manage, use, and store large amounts of personally identifiable information, consisting primarily of confidential personal and financial data regarding consumers across all operations areas. We also depend on our IT networks and systems, and those of third parties, to process, store, and transmit this information. As a result, we are subject to numerous U.S. federal and state laws designed to protect this information. Security breaches involving our files and infrastructure could lead to unauthorized disclosure of confidential information.
We take a number of measures to ensure the security of our hardware and software systems and customer information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect data being breached or compromised. In the past, banks and other financial service providers have been the subject of sophisticated and highly targeted attacks on their information technology. An increasing number of websites have reported breaches of their security.
If any person, including our employees or those of third-party vendors, negligently disregards or intentionally breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to costly litigation, monetary damages, fines, and/or criminal prosecution. Any unauthorized disclosure of personally identifiable information could subject us to liability under data privacy laws. Further, under credit card rules and our contracts with our card processors, if there is a breach of credit card information that we store, we could be liable to the credit card issuing banks for their cost of issuing new cards and related expenses. In addition, if we fail to follow credit card industry security standards, even if there is no compromise of customer information, we could incur significant fines. Security breaches also could harm our reputation, which could potentially cause decreased revenues, the loss of existing merchant credit partners, or difficulty in adding new merchant credit partners.
Internet and data security breaches also could impede our bank partners from originating loans over the Internet, cause us to lose consumers or otherwise damage our reputation or business. Consumers generally are concerned with security and privacy, particularly on the Internet. As part of our growth strategy, we have enabled lenders to originate loans over the Internet. The secure transmission of confidential information over the Internet is essential to maintaining customer confidence in such products and services offered online.
Advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology used by us to protect our client or consumer application and transaction data transmitted over the Internet. In addition to the potential for litigation and civil penalties described above, security breaches could damage our reputation and cause consumers to become unwilling to do business with our clients or us, particularly over the Internet. Any publicized security problems could inhibit the growth of the Internet as a means of conducting commercial transactions. Our ability to service our clients’ needs over the Internet would be severely impeded if consumers become unwilling to transmit confidential information online.
Also, a party that is able to circumvent our security measures could misappropriate proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and business.
Regulation in the areas of privacy and data security could increase our costs. We are subject to various regulations related to privacy and data security/breach, and we could be negatively impacted by these regulations. For example, we are subject to the Safeguards guidelines under the Gramm-Leach-Bliley Act. The Safeguards guidelines require that each financial institution develop, implement and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities and the sensitivity of any customer information at issue. Broad-ranging data security laws that affect our business also have been adopted by several states.
The California Consumer Privacy Act (the "CCPA") became effective on January 1, 2020. The CCPA requires, among other things, covered companies to provide new disclosures to California consumers and afford such consumers with expanded protections and control over the collection, maintenance, use and sharing of personal information. The CCPA continues to be subject to new regulations and legislative amendments. Although we have implemented a compliance program designed to address obligations under the CCPA, it remains unclear what future modifications will be made or how the CCPA will be interpreted in the future. The CCPA provides for civil penalties for violations and a private right of action for data breaches.
In addition, in November 2020, California voters approved the California Privacy Rights Act of 2020 (the "CPRA") ballot initiative, which became effective on January 1, 2023. The CPRA established the California Privacy Protection Agency to implement and enforce the CCPA and CPRA. We anticipate that the CPRA and certain regulations promulgated by the California Privacy Protection Agency will apply to our business and we will work to ensure compliance with such laws and regulations by their effective dates.
Compliance with these laws regarding the protection of consumer and employee data could result in higher compliance and technology costs for us, as well as potentially significant fines and penalties for noncompliance. Further, there are various other statutes and regulations relevant to the direct email marketing, debt collection and text-messaging industries including the Telephone Consumer Protection Act. The interpretation of many of these statutes and regulations is evolving in the courts and administrative agencies and an inability to comply with them may have an adverse impact on our business.
In addition to the foregoing enhanced data security requirements, various federal banking regulatory agencies, and all 50 states, the District of Columbia, Puerto Rico and the Virgin Islands, have enacted data security regulations and laws requiring varying levels of consumer notification in the event of a security breach. Also, federal legislators and regulators are increasingly pursuing new guidelines, laws and regulations that, if adopted, could further restrict how we collect, use, share and secure consumer information, possibly impacting some of our current or planned business initiatives.
Unplanned system interruptions or system failures could harm our business and reputation. Any interruption in the availability of our transactional processing services due to hardware, operating system failures, or system conversion will reduce our revenues and profits. Any unscheduled interruption in our services results in an immediate, and possibly substantial, reduction in our ability to serve our customers, thereby resulting in a loss of revenues. Frequent or persistent interruptions in our services could cause current or potential consumers to believe that our systems are unreliable, leading them to switch to our competitors or to avoid our websites or services, and could permanently harm our reputation.
Although our systems have been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, computer viruses, computer denial-of-service attacks, and similar events or disruptions. Some of our systems are not fully redundant, and our disaster recovery planning may not be sufficient for all eventualities. Our systems also are subject to break-ins, sabotage, and intentional acts of vandalism. Despite any precautions we may take, the occurrence of a natural disaster, pandemic, a decision by any of our third-party hosting providers to close a facility we use without adequate notice for financial or other reasons or other unanticipated problems at our hosting facilities could cause system interruptions, delays, and loss of critical data, and result in lengthy interruptions in our services. Our business interruption insurance may not be sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures.
Climate change and related regulatory responses may impact our business. Climate change as a result of emissions of greenhouse gases is a significant topic of discussion and has generated and may continue to generate federal and other regulatory responses. We are uncertain of the ultimate impact, either directionally or quantitatively, of climate change and related regulatory responses on our business. The most direct impact is likely to be an increase in energy costs, adversely impacting consumers and their ability to incur and repay indebtedness.
We elected the fair value option for newly originated assets, effective as of January 1, 2020, and for all remaining assets associated with our private label credit and general purpose credit card platform as of January 1, 2022. We use estimates in determining the fair value of our loans. If our estimates prove incorrect, we may be required to write down the value of these assets, adversely affecting our results of operations. Our ability to measure and report our financial position and results of operations is influenced by the need to estimate the impact or outcome of future events on the basis of information available at the time of the issuance of the financial statements. Further, most of these estimates are determined using Level 3 inputs for which changes could significantly impact our fair value measurements. A variety of factors including, but not limited to, estimated yields on consumer receivables, customer default rates, the timing of expected payments, estimated costs to service the portfolio, interest rates, and valuations of comparable portfolios may ultimately affect the fair values of our loans and finance receivables. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows. Management has processes in place to monitor these judgments and assumptions, but these processes may not ensure that our judgments and assumptions are accurate.
Our allowance for credit losses are determined based upon both objective and subjective factors and may not be adequate to absorb credit losses. We face the risk that customers will fail to repay their loans in full. Through our analysis of loan performance, delinquency data, charge-off data, economic trends and the potential effects of those economic trends on consumers, we establish allowance for credit losses as an estimate of the expected credit losses inherent within those loans, interest and fees receivable that we do not report at fair value. We determine the necessary allowance for credit losses by analyzing some or all of the following attributes unique to each type of receivable pool: historical loss rates; current delinquency and roll-rate trends; the effects of changes in the economy on consumers; changes in underwriting criteria; and estimated recoveries. These inputs are considered in conjunction with (and potentially reduced by) any unearned fees and discounts that may be applicable for an outstanding loan receivable. Actual losses are difficult to forecast, especially if such losses are due to factors beyond our historical experience or control. As a result, our allowance for credit losses may not be adequate to absorb all credit losses or prevent a material adverse effect on our business, financial condition and results of operations. Losses are the largest cost as a percentage of revenues across all of our products. Fraud and customers not being able to repay their loans are both significant drivers of loss rates. If we experienced rising credit or fraud losses this would significantly reduce our earnings and profit margins and could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.
Risks Relating to an Investment in Our Securities
The prices of our securities may fluctuate significantly, and this may make it difficult for you to resell our securities when you want or at prices you find attractive. The prices of our securities on the NASDAQ Global Select Market constantly change. We expect that the market prices of our securities will continue to fluctuate. The market prices of our securities may fluctuate in response to numerous factors, many of which are beyond our control. These factors include the following:
| • | actual or anticipated fluctuations in our operating results; | |
| • | changes in expectations as to our future financial performance, including financial estimates and projections by Atlanticus, securities analysts and investors; | |
| • | the overall financing environment, which is critical to our value; | |
| • | changes in interest rates; | |
| • | inflation and supply chain disruptions; | |
| • | the operating and stock performance of our competitors; | |
| • | announcements by us or our competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; | |
| • | the announcement of enforcement actions or investigations against us or our competitors or other negative publicity relating to us or our industry; | |
| • | changes in generally accepted accounting principles in the U.S. ("GAAP"), laws, regulations or the interpretations thereof that affect our various business activities and segments; | |
| • | general domestic or international economic, market and political conditions; | |
| • | changes in ownership by executive officers, directors and parties related to them who control a majority of our common stock; | |
| • | additions or departures of key personnel; | |
| • | the annual yield from distributions on the Series B preferred stock or interest on the 2026 Senior Notes and the 2029 Senior Notes as compared to yields on other financial instruments; and | |
| • | global pandemics (such as the COVID-19 pandemic). |
In addition, the stock markets from time to time experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the trading prices of our securities, regardless of our actual operating performance.
Future sales of our common stock or equity-related securities in the public market could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings. Sales of significant amounts of our common stock or equity-related securities in the public market or the perception that such sales will occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. Future sales of shares of common stock or the availability of shares of common stock for future sale, including sales of our common stock in short sale transactions, may have a material adverse effect on the trading price of our common stock.
The shares of Series A preferred stock and Series B preferred stock are senior obligations, rank prior to our common stock with respect to dividends, distributions and payments upon liquidation and have other terms, such as a redemption right, that could negatively impact the value of shares of our common stock. In December 2019, we issued 400,000 shares of Series A preferred stock. The rights of the holders of our Series A preferred stock with respect to dividends, distributions and payments upon liquidation rank senior to similar obligations to our holders of common stock. Holders of the Series A preferred stock are entitled to receive dividends on each share of such stock equal to 6% per annum on the liquidation preference of $100. The dividends on the Series A preferred stock are cumulative and non-compounding and must be paid before we pay any dividends on the common stock.
Further, the holders of the Series A preferred stock have the right to require us to purchase outstanding shares of Series A preferred stock for an amount equal to $100 per share plus any accrued but unpaid dividends. This redemption right could expose us to a liquidity risk if we do not have sufficient cash resources at hand or are not able to find financing on sufficiently attractive terms to comply with our obligations to repurchase the Series A preferred stock upon exercise of such redemption right.
In June and July 2021, we issued 3,188,533 shares of Series B preferred stock, for net proceeds of approximately $76.5 million after deducting underwriting discounts and commissions, but before deducting expenses and the structuring fee. Additionally, the Company has in the past, and may in the future, issue additional shares of Series B preferred stock pursuant to our "at-the-market" offering program. The rights of the holders of our Series B preferred stock with respect to dividends, distributions and payments upon liquidation rank junior to similar obligations to our holders of Series A preferred stock and senior to similar obligations to our holders of common stock. Holders of the Series B preferred stock are entitled to receive dividends on each share of such stock equal to 7.625% per annum on the liquidation preference of $25.00 per share. The dividends on the Series B preferred stock are cumulative and non-compounding and must be paid before we pay any dividends on the common stock.
In the event of our liquidation, dissolution or the winding up of our affairs, the holders of our Series A preferred stock and Series B preferred stock have the right to receive a liquidation preference entitling them to be paid out of our assets generally available for distribution to our equity holders and before any payment may be made to holders of our common stock.
Our obligations to the holders of Series A preferred stock and Series B preferred stock also could limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition and the value of our common stock.
Our outstanding Series A preferred stock has anti-dilution protection that, if triggered, could cause substantial dilution to our then-existing holders of common stock, which could adversely affect our stock price. The document governing the terms of our outstanding Series A preferred stock contains anti-dilution provisions to benefit the holders of such stock. As a result, if we, in the future, issue common stock or other derivative securities, subject to specified exceptions, for a per share price less than the then existing conversion price of the Series A preferred stock, an adjustment to the then current conversion price would occur. This reduction in the conversion price could result in substantial dilution to our then-existing holders of common stock, adversely affecting the price of our common stock.
In the past, we have not paid cash dividends on our common stock on a regular basis, and an increase in the market price of our common stock, if any, may be the sole source of gain on an investment in our common stock. With the exception of dividends payable on our Series A preferred stock and Series B preferred stock, we currently plan to retain any future earnings for use in the operation and expansion of our business and may not pay any dividends on our common stock in the foreseeable future. The declaration and payment of all future dividends on our common stock, if any, will be at the sole discretion of our board of directors, which retains the right to change our dividend policy at any time. Any decision by our board of directors to declare and pay dividends in the future will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions, restrictions on dividends imposed by the documents governing the terms of the Series A preferred stock and Series B preferred stock and other factors that our board of directors may deem relevant. Consequently, appreciation in the market price of our common stock, if any, may be the sole source of gain on an investment in our common stock for the foreseeable future. Holders of the Series A preferred stock and Series B preferred stock are entitled to receive dividends on such stock that are cumulative and non-compounding and must be paid before we pay any dividends on the common stock.
We have the ability to issue additional preferred stock, warrants, convertible debt and other securities without shareholder approval. Our common stock may be subordinate to additional classes of preferred stock issued in the future in the payment of dividends and other distributions made with respect to common stock, including distributions upon liquidation or dissolution. Our Amended and Restated Articles of Incorporation (the "Articles of Incorporation") permit our board of directors to issue preferred stock without first obtaining shareholder approval, which we did in December 2019 when we issued the Series A preferred stock and in June and July 2021 when we issued the Series B preferred stock. Additionally, the Company has in the past, and may in the future, issue additional shares of Series B preferred stock pursuant to our "at-the-market" offering program. If we issue additional classes of preferred stock, these additional securities may have dividend or liquidation preferences senior to the common stock. If we issue additional classes of convertible preferred stock, a subsequent conversion may dilute the current common shareholders’ interests. We have similar abilities to issue convertible debt, warrants and other equity securities.
Our executive officers, directors and parties related to them, in the aggregate, control a majority of our common stock and may have the ability to control matters requiring shareholder approval. Our executive officers, directors and parties related to them own a large enough share of our common stock to have an influence on, if not control of, the matters presented to shareholders. As a result, these shareholders may have the ability to control matters requiring shareholder approval, including the election and removal of directors, the approval of significant corporate transactions, such as any reclassification, reorganization, merger, consolidation or sale of all or substantially all of our assets and the control of our management and affairs. Accordingly, this concentration of ownership may have the effect of delaying, deferring or preventing a change of control of us, impede a merger, consolidation, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, adversely affecting the market price of our common stock.
The Series B preferred stock rank junior to our Series A preferred stock and all of our indebtedness and other liabilities and are effectively junior to all indebtedness and other liabilities of our subsidiaries. In the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations on the Series B preferred stock only after all of our indebtedness and other liabilities have been paid and the liquidation preference of the Series A preferred stock has been satisfied. The rights of holders of the Series B preferred stock to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors, the Series A preferred stock and any future series or class of preferred stock we may issue that ranks senior to the Series B preferred stock. Our Articles of Incorporation authorize us to issue up to 10,000,000 shares of preferred stock in one or more series on terms determined by our board of directors, and as of March 31, 2025, we had outstanding 400,000 shares of Series A preferred stock and 3,314,840 shares of Series B preferred stock. As of March 31, 2025, we could issue up to 6,285,160 additional shares of preferred stock.
In addition, the Series B preferred stock effectively ranks junior to all existing and future indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries. Our existing subsidiaries are, and any future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series B preferred stock. If we are forced to liquidate our assets to pay our creditors and holders of our Series A preferred stock, we may not have sufficient assets to pay amounts due on any or all of the Series B preferred stock then outstanding. We and our subsidiaries have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series B preferred stock. We may incur additional indebtedness and become more highly leveraged in the future, harming our financial position and potentially limiting our cash available to pay dividends. As a result, we may not have sufficient funds remaining to satisfy our dividend obligations relating to our Series B preferred stock if we incur additional indebtedness or issue additional preferred stock that ranks senior to the Series B preferred stock.
Future offerings of debt or senior equity securities may adversely affect the market price of the Series B preferred stock. If we decide to issue debt or senior equity securities in the future, it is possible that these securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of the Series B preferred stock and may result in dilution to holders of the Series B preferred stock. We and, indirectly, our shareholders will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we do not know the amount, timing or nature of any future offerings. Thus, holders of the Series B preferred stock bear the risk of our future offerings reducing the market price of the Series B preferred stock and diluting the value of their holdings in us.
We may issue additional shares of the Series B preferred stock and additional series of preferred stock that rank on a parity with the Series B preferred stock as to dividend rights, rights upon liquidation or voting rights. We are allowed to issue additional shares of Series B preferred stock and additional series of preferred stock that would rank on a parity with the Series B preferred stock as to dividend payments and rights upon our liquidation, dissolution or winding up of our affairs pursuant to our Articles of Incorporation and the Amended and Restated Articles of Amendment Establishing the Series B preferred stock without any vote of the holders of the Series B preferred stock. Our Articles of Incorporation authorize us to issue up to 10,000,000 shares of preferred stock in one or more series on terms determined by our board of directors, and as of March 31, 2025, we had outstanding 400,000 shares of Series A preferred stock and 3,314,840 shares of Series B preferred stock. As of March 31, 2025, we could issue up to 6,285,160 additional shares of preferred stock. The issuance of additional shares of Series B preferred stock and additional series of parity preferred stock could have the effect of reducing the amounts available to the holders of Series B preferred stock upon our liquidation or dissolution or the winding up of our affairs. It also may reduce dividend payments on the Series B preferred stock if we do not have sufficient funds to pay dividends on all Series B preferred stock outstanding and other classes of stock with equal priority with respect to dividends.
In addition, although holders of the Series B preferred stock are entitled to limited voting rights with respect to such matters, the holders of the Series B preferred stock will vote separately as a class along with all other outstanding series of our preferred stock that we may issue upon which like voting rights have been conferred and are exercisable. As a result, the voting rights of holders of the Series B preferred stock may be significantly diluted, and the holders of such other series of preferred stock that we may issue may be able to control or significantly influence the outcome of any vote.
Future issuances and sales of parity preferred stock, or the perception that such issuances and sales could occur, may cause prevailing market prices for the Series B preferred stock and our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us. Such issuances may also reduce or eliminate our ability to pay dividends on our common stock.
Holders of Series B preferred stock have extremely limited voting rights. Holders of Series B preferred stock have limited voting rights. Our common stock is the only class of our securities that carries full voting rights. Voting rights for holders of Series B preferred stock exist primarily with respect to the ability to elect (together with the holders of other outstanding series of our preferred stock, or additional series of preferred stock we may issue in the future and upon which similar voting rights have been or are in the future conferred and are exercisable) two additional directors to our board of directors in the event that six quarterly dividends (whether or not declared or consecutive) payable on the Series B preferred stock are in arrears, and with respect to voting on amendments to our Articles of Incorporation or Amended and Restated Articles of Amendment Establishing the Series B preferred stock (in some cases voting together with the holders of other outstanding series of our preferred stock as a single class) that materially and adversely affect the rights of the holders of Series B preferred stock (and other series of preferred stock, as applicable) or create additional classes or series of our stock that are senior to the Series B preferred stock, provided that in any event adequate provision for redemption has not been made. Other than in limited circumstances, holders of Series B preferred stock do not have any voting rights.
The conversion feature of the Series B preferred stock may not adequately compensate holders of such stock, and the conversion and redemption features of the Series B preferred stock may make it more difficult for a party to take over our company and may discourage a party from taking over the Company. Upon the occurrence of a Delisting Event or Change of Control (as defined in the document governing the terms of the Series B preferred stock), holders of the Series B preferred stock will have the right (unless, prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, we have provided or provide notice of our election to redeem the Series B preferred stock) to convert some or all of the Series B preferred stock into our common stock (or equivalent value of alternative consideration), and under these circumstances we will also have a special optional redemption right to redeem the Series B preferred stock. Upon such a conversion, the holders will be limited to a maximum number of shares of our common stock equal to the Share Cap (as defined in the document governing the terms of the Series B preferred stock) multiplied by the number of shares of Series B preferred stock converted. If the common stock price is less than $19.275, subject to adjustment, the holders will receive a maximum of 1.29702 shares of our common stock per share of Series B preferred stock, which may result in a holder receiving value that is less than the liquidation preference of the Series B preferred stock. In addition, those features of the Series B preferred stock may have the effect of inhibiting a third party from making an acquisition proposal for our Company or of delaying, deferring or preventing a change of control of the Company under circumstances that otherwise could provide the holders of our common stock and Series B preferred stock with the opportunity to realize a premium over the then-current market price or that shareholders may otherwise believe is in their best interests.
Holders of Series B preferred stock may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to "qualified dividend income." Distributions paid to corporate U.S. holders on the Series B preferred stock may be eligible for the dividends-received deduction, and distributions paid to non-corporate U.S. holders on the Series B preferred stock may be subject to tax at the preferential tax rates applicable to "qualified dividend income," if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Although we presently have accumulated earnings and profits, we may not have sufficient current or accumulated earnings and profits during future fiscal years for the distributions on the Series B preferred stock to qualify as dividends for U.S. federal income tax purposes. If any distributions on the Series B preferred stock with respect to any fiscal year fail to be treated as dividends for U.S. federal income tax purposes, corporate U.S. holders would be unable to use the dividends-received deduction and non-corporate U.S. holders may not be eligible for the preferential tax rates applicable to "qualified dividend income" and generally would be required to reduce their tax basis in the Series B preferred stock by the extent to which the distribution is not treated as a dividend.
Holders of Series B preferred stock may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the Series B preferred stock even though such holders do not receive a corresponding cash dividend. The conversion rate for the Series B preferred stock is subject to adjustment in certain circumstances. A failure to adjust (or to adjust adequately) the conversion rate after an event that increases the proportionate interest of the Series B preferred stockholders in us could be treated as a deemed taxable dividend to you. If a holder is a non-U.S. holder, any deemed dividend may be subject to U.S. federal withholding tax at a 30% rate, or such lower rate as may be specified by an applicable treaty, which may be set off against subsequent payments on the Series B preferred stock. In April 2016, the U.S. Treasury issued proposed income tax regulations in regard to the taxability of changes in conversion rights that will apply to the Series B preferred stock when published in final form and may be applied to us before final publication in certain instances.
The indenture governing the 2026 Senior Notes and the 2029 Senior Notes does not prohibit us from incurring additional indebtedness. If we incur any additional indebtedness that ranks equally with the 2026 Senior Notes and 2029 Senior Notes, the holders of that debt will be entitled to share ratably with holders of the 2026 Senior Notes and 2029 Senior Notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization or dissolution. This may have the effect of reducing the amount of proceeds paid to holders of 2026 Senior Notes and 2029 Senior Notes. Incurrence of additional debt would also further reduce the cash available to invest in operations, as a result of increased debt service obligations. If new debt is added to our current debt levels, the related risks that we now face could intensify.
Our level of indebtedness could have important consequences to holders of the 2026 Senior Notes and 2029 Senior Notes, because:
| • | it could affect our ability to satisfy our financial obligations, including those relating to the 2026 Senior Notes and 2029 Senior Notes; | |
| • | a substantial portion of our cash flows from operations would have to be dedicated to interest and principal payments and may not be available for operations, capital expenditures, expansion, acquisitions or general corporate or other purposes; | |
| • | it may impair our ability to obtain additional debt or equity financing in the future; | |
| • | it may limit our ability to refinance all or a portion of our indebtedness on or before maturity; | |
| • | it may limit our flexibility in planning for, or reacting to, changes in our business and industry; and | |
| • | it may make us more vulnerable to downturns in our business, our industry or the economy in general. |
Our operations may not generate sufficient cash to enable us to service our debt. If we fail to make a payment on the 2026 Senior Notes and 2029 Senior Notes, we could be in default on the 2026 Senior Notes and 2029 Senior Notes, and this default could cause us to be in default on other indebtedness, to the extent outstanding. Conversely, a default under any other indebtedness, if not waived, could result in acceleration of the debt outstanding under the related agreement and entitle the holders thereof to bring suit for the enforcement thereof or exercise other remedies provided thereunder. In addition, such default or acceleration may result in an event of default and acceleration of other indebtedness, entitling the holders thereof to bring suit for the enforcement thereof or exercise other remedies provided thereunder. If a judgment is obtained by any such holders, such holders could seek to collect on such judgment from the assets of Atlanticus. If that should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us.
However, no event of default under the 2026 Senior Notes and 2029 Senior Notes would result from a default or acceleration of, or suit, other exercise of remedies or collection proceeding by holders of, our other outstanding debt, if any. As a result, all or substantially all of our assets may be used to satisfy claims of holders of our other outstanding debt, if any, without the holders of the 2026 Senior Notes and 2029 Senior Notes having any rights to such assets.
The 2026 Senior Notes and 2029 Senior Notes are unsecured and therefore are effectively subordinated to any secured indebtedness that we currently have or that we may incur in the future. The 2026 Senior Notes and 2029 Senior Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, the 2026 Senior Notes and 2029 Senior Notes are effectively subordinated to any secured indebtedness that we or our subsidiaries have currently outstanding or may incur in the future to the extent of the value of the assets securing such indebtedness. The indenture governing the 2026 Senior Notes and 2029 Senior Notes does not prohibit us or our subsidiaries from incurring additional secured (or unsecured) indebtedness in the future. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness and may consequently receive payment from these assets before they may be used to pay other creditors, including the holders of the 2026 Senior Notes and 2029 Senior Notes.
The 2026 Senior Notes and 2029 Senior Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries. The 2026 Senior Notes and 2029 Senior Notes are obligations exclusively of Atlanticus and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the 2026 Senior Notes and 2029 Senior Notes, and the 2026 Senior Notes and 2029 Senior Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. Therefore, in any bankruptcy, liquidation or similar proceeding, all claims of creditors (including trade creditors) of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the 2026 Senior Notes and 2029 Senior Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the 2026 Senior Notes and 2029 Senior Notes are structurally subordinated to all indebtedness and other liabilities (including trade payables) of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise. The indenture governing the 2026 Senior Notes and 2029 Senior Notes does not prohibit us or our subsidiaries from incurring additional indebtedness in the future or granting liens on our assets or the assets of our subsidiaries to secure any such additional indebtedness. In addition, future debt and security agreements entered into by our subsidiaries may contain various restrictions, including restrictions on payments by our subsidiaries to us and the transfer by our subsidiaries of assets pledged as collateral.
The indenture governing the 2026 Senior Notes and 2029 Senior Notes contains limited protection for holders of the 2026 Senior Notes and 2029 Senior Notes. The indenture under which the 2026 Senior Notes and 2029 Senior Notes were issued offers limited protection to holders of the 2026 Senior Notes and 2029 Senior Notes. The terms of the indenture and the 2026 Senior Notes and 2029 Senior Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on the 2026 Senior Notes and 2029 Senior Notes. In particular, the terms of the indenture and the 2026 Senior Notes and 2029 Senior Notes do not place any restrictions on our or our subsidiaries’ ability to:
| • | issue debt securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the 2026 Senior Notes and 2029 Senior Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the 2026 Senior Notes and 2029 Senior Notes to the extent of the value of the assets securing such indebtedness or other obligations, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore would be structurally senior to the 2026 Senior Notes and 2029 Senior Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the 2026 Senior Notes and 2029 Senior Notes with respect to the assets of our subsidiaries; | |
| • | pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities subordinated in right of payment to the 2026 Senior Notes and 2029 Senior Notes; | |
| • | sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); | |
| • | enter into transactions with affiliates; | |
| • | create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; | |
| • | make investments; or | |
| • | create restrictions on the payment of dividends or other amounts to us from our subsidiaries. |
In addition, the indenture does not include any protection against certain events, such as a change of control, a leveraged recapitalization or "going private" transaction (which may result in a significant increase of our indebtedness levels), restructuring or similar transactions. Furthermore, the terms of the indenture and the 2026 Senior Notes and 2029 Senior Notes do not protect holders of the 2026 Senior Notes and 2029 Senior Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity. Also, an event of default or acceleration under our other indebtedness would not necessarily result in an "event of default" under the 2026 Senior Notes and 2029 Senior Notes.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the indenture may have important consequences for holders of the 2026 Senior Notes and 2029 Senior Notes, including making it more difficult for us to satisfy our obligations with respect to the 2026 Senior Notes and 2029 Senior Notes or negatively affecting the trading value of the 2026 Senior Notes and 2029 Senior Notes.
Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the 2026 Senior Notes and 2029 Senior Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the 2026 Senior Notes and 2029 Senior Notes.
We may not be able to generate sufficient cash to service all of our debt, and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful. Our ability to make scheduled payments on, or to refinance our obligations under, our debt will depend on our financial and operating performance and that of our subsidiaries, which, in turn, will be subject to prevailing economic and competitive conditions and to financial and business factors, many of which may be beyond our control.
We may not maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our debt. In the future, our cash flow and capital resources may not be sufficient for payments of interest on, and principal of, our debt, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. We may not be able to refinance any of our indebtedness or obtain additional financing. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those sales, or if we do, at an opportune time, the proceeds that we realize may not be adequate to meet debt service obligations when due. Repayment of our indebtedness, to a certain degree, is also dependent on the generation of cash flows by our subsidiaries (none of which are guarantors of the 2026 Senior Notes and 2029 Senior Notes) and their ability to make such cash available to us, by dividend, loan, debt repayment, or otherwise. Our subsidiaries may not be able to, or be permitted to, make distributions or other payments to enable us to make payments in respect of our indebtedness. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, applicable U.S. and foreign legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions or other payments from our subsidiaries, we may be unable to make required payments on our indebtedness.
An increase in market interest rates could result in a decrease in the value of the 2026 Senior Notes and 2029 Senior Notes. In general, as market interest rates rise, notes bearing interest at a fixed rate decline in value. Consequently, if market interest rates increase, the market value of the 2026 Senior Notes and 2029 Senior Notes may decline.
We may issue additional notes. Under the terms of the indenture governing the 2026 Senior Notes and 2029 Senior Notes, we may from time to time without notice to, or the consent of, the holders of the 2026 Senior Notes and 2029 Senior Notes, create and issue additional notes which may rank equally with the 2026 Senior Notes and 2029 Senior Notes. If any such additional notes are not fungible with the 2026 Senior Notes and 2029 Senior Notes initially offered hereby for U.S. federal income tax purposes, such additional notes will have one or more separate CUSIP numbers.
The ratings for the 2026 Senior Notes and 2029 Senior Notes could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. Ratings only reflect the views of the issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation to purchase, sell or hold the 2026 Senior Notes and 2029 Senior Notes. Ratings do not reflect market prices or suitability of a security for a particular investor and the ratings of the 2026 Senior Notes and 2029 Senior Notes may not reflect all risks related to us and our business, or the structure or market value of the 2026 Senior Notes and 2029 Senior Notes. We may elect to issue other securities for which we may seek to obtain a rating in the future. If we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of the 2026 Senior Notes and 2029 Senior Notes.
Note Regarding Risk Factors
The risk factors presented above are all of the ones that we currently consider material. However, they are not the only ones facing our company. Additional risks not presently known to us, or which we currently consider immaterial, also may adversely affect us. There may be risks that a particular investor views differently from us, and our analysis might be wrong. If any of the risks that we face actually occurs, our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements that we have made or might make. In such case, the trading price of our common stock or other securities could decline, and you could lose part or all of your investment. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth information with respect to our repurchases of common stock during the three months ended March 31, 2025.
| Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (2) |
|||||||||||||
| January 1 - January 31 |
— | $ | — | — | 1,941,950 | |||||||||||
| February 1 - February 28 |
148 | $ | 57.27 | — | 1,941,950 | |||||||||||
| March 1 - March 31 |
27,104 | $ | 45.67 | — | 1,941,950 | |||||||||||
| Total |
27,252 | $ | 45.74 | — | 1,941,950 | |||||||||||
| (1) | Because withholding tax-related stock repurchases are permitted outside the scope of our 5,000,000 share Board-authorized repurchase plan, these amounts exclude shares of stock returned to us by employees in satisfaction of withholding tax requirements on exercised stock options and vested stock grants. There were 27,252 such shares returned to us during the three months ended March 31, 2025. |
| (2) |
Pursuant to a share repurchase plan authorized by our Board of Directors on May 7, 2024, we are authorized to repurchase 2,000,000 shares of our common stock through June 30, 2026. |
The following table sets forth information with respect to our repurchases of Series B preferred stock during the three months ended March 31, 2025.
| Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (1) |
|||||||||||||
| January 1 - January 31 |
— | $ | — | — | 500,000 | |||||||||||
| February 1 - February 28 |
— | $ | — | — | 500,000 | |||||||||||
| March 1 - March 31 |
— | $ | — | — | 500,000 | |||||||||||
| Total |
— | $ | — | — | 500,000 | |||||||||||
| (1) |
On May 7, 2024, our Board of Directors authorized the Company to repurchase up to 500,000 shares of our Series B preferred stock through June 30, 2026. |
We will continue to evaluate our common stock price and Series B preferred stock price relative to other investment opportunities and, to the extent we believe that the repurchase of our common stock or Series B preferred stock represents an appropriate return of capital, we will repurchase shares of our common stock or Series B preferred stock.
Dividends
We have no current plans to pay dividends to holders of our common stock. As we continue to pursue our growth strategy, we will assess our cash flow, the long-term capital needs of our business and other uses of cash. Payment of any cash dividends in the future will depend upon, among other things, our results of operations, financial condition, cash requirements and contractual restrictions. Furthermore, dividends on our Series A preferred stock and Series B preferred stock are payable in preference to any common stock dividends. We pay cumulative cash dividends on the Series A preferred stock, when and as declared by our Board of Directors, in the amount of 6% of the $100.00 liquidation preference per share annually. We pay cumulative cash dividends on the Series B preferred stock, when and as declared by our Board of Directors, in the amount of $1.90625 per share each year, which is equivalent to 7.625% of the $25.00 liquidation preference per share. For additional information, see Part I, Item 2 "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, Funding and Capital Resources."
| DEFAULTS UPON SENIOR SECURITIES |
None.
| MINE SAFETY DISCLOSURES |
None.
| OTHER INFORMATION |
During the three months ended March 31, 2025, of our directors or officers (as defined in Rule 16a-1(f) of the Act) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act).
| EXHIBITS |
| Exhibit Number |
|
Description of Exhibit |
|
Incorporated by Reference from Atlanticus’ SEC Filings Unless Otherwise Indicated |
| 10.1* |
Amended and Restated Program Management Agreement, dated January 1, 2025, between The Bank of Missouri and Atlanticus Services Corporation | Field herewith | ||
| 10.1(a)* | Amended and Restated Receivable Sales Agreement, dated January 1, 2025, between The Bank of Missouri and Fortiva Funding, LLC | Field herewith | ||
| 10.1(b)* | Field herewith | |||
| 31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) | Filed herewith | ||
| 31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) | Filed herewith | ||
| 32.1 |
|
|
Filed herewith |
|
| 101.INS |
|
Inline XBRL Instance Document |
|
Filed herewith |
| 101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
Filed herewith |
| 101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
Filed herewith |
| 101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
Filed herewith |
| 101.PRE |
|
Inline XBRL Taxonomy Presentation Linkbase Document |
|
Filed herewith |
| 101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
Filed herewith |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | Filed herewith |
* Certain portions of this document have been omitted because they are both not material and are the type that the Company treats as private or confidential.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Atlanticus Holdings Corporation |
|||
|
|
|
||
| May 8, 2025 | By: |
/s/ William R. McCamey |
|
|
|
William R. McCamey Chief Financial Officer (duly authorized officer and principal financial officer) |
||
CERTAIN INFORMATION, IDENTIFIED BY [*****], HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED.
Exhibit 10.1
AMENDED AND RESTATED PROGRAM MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED PROGRAM MANAGEMENT AGREEMENT (this “Agreement”), dated as of January 1, 2025 (“Effective Date”), is made by and between THE BANK OF MISSOURI, a Missouri state-chartered bank, having its principal location in Perryville, Missouri (“Bank”), and ATLANTICUS SERVICES CORPORATION, a Georgia corporation, having its principal location in Atlanta, Georgia (“Program Manager”). This Agreement amends and restates that earlier agreement, dated April 1, 2020, as amended, between Program Manager and Bank.
WHEREAS, Bank is in the business of marketing and issuing various types of consumer loans;
WHEREAS, Program Manager is in the business of providing brand development, administering loan programs and servicing consumer loans on behalf of financial institutions; and
WHEREAS, Bank desires to utilize Program Manager’s expertise to process consumer applications, and to administer and service loans issued by Bank, subject at all times to Bank’s oversight, direction, supervision and control and in accordance with Bank’s Procedures;
NOW, THEREFORE, in consideration of the foregoing, and the terms, conditions and mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Program Manager mutually agree as follows:
1. |
Definitions, Schedules and Exhibits. |
The capitalized terms used in this Agreement shall have the meaning set forth in the attached Schedule 1. In addition to those definitions in Schedule 1, this Agreement includes the following Exhibits and Schedule:
Exhibit A Product Lines
Exhibit B Bank Credit Policy
Exhibit C Sample Bank Loan Account Documentation
Exhibit D Compliance Plan
Exhibit E Sample Funding Statement
Exhibit F Funding Account Information
Exhibit G Insurance Requirements
Exhibit H Bank Procedures
Exhibit I Tasks to be Performed by Program Manager
2. |
Establishment of Loan Accounts; Program Materials; Brand Development. |
(a) |
Program Manager acknowledges that Bank shall have the sole and exclusive right to determine, and shall exercise continuing control over, all policies and procedures, and all modifications thereof for the establishment and maintenance of the Program, including, without limitation, the Credit Policy, pricing terms and fee structures. Program Manager will provide all services under this Agreement in the name, under the direction, for the benefit and on behalf, of Bank on a “first party” basis, referencing, as directed by Bank, either the name of Bank or the applicable Brand. Without limiting the duties of Program Manager set forth on Exhibit I, Program Manager shall develop one or more Brands and obtain or convey, as applicable, the rights for Bank to use such Brands for the Loan Accounts and the Program. Bank shall have final approval of each Brand used in the Program. |
(b) |
Under Bank’s control, supervision and direction, and subject to the audit, examination and monitoring rights of Bank and any applicable Regulatory Authority, Program Manager shall facilitate the Bank’s marketing of the Program as directed by Bank. Program Manager shall use only form(s) of media, content and copy approved by Bank. Program Manager shall assist Bank in developing the form(s) of media to be used, including direct mail solicitations, promotional materials, television advertisements, telemarketing scripts, internet advertising and websites. Program Manager shall propose for consideration and submit to Bank all materials that Bank requests from Program Manager, or that Program Manager develops for Bank, for Bank to use, 1) in marketing the Program (“Promotional Materials”), 2) as Program disclosures (“Disclosures”), 3) as forms of Loan Account materials such as applications, privacy notices, scripts, training materials and procedures related to the Program (collectively, the “Program Materials”), in each case, for Bank’s prior review and approval. Additionally, Program Manager will use its best efforts to ensure that such Promotional Materials and the Brands do not infringe upon the registered or common law trademarks of any third parties, and will indemnify Bank to the extent specified in section 10(b) below against any Lanham Act, or common law infringement claims of any kind, related to the use of the Promotional Materials or the Brands. Program Manager’s responsibilities include, but are not limited to, identifying and engaging, directly or through Affiliates, merchants and other parties to participate in Bank’s Program. |
(c) |
The following documents, terms and procedures that have been established and approved by Bank for the Program (collectively, “Consumer Finance Materials”) and that Program Manager shall use on behalf of Bank for Bank’s Loan Accounts are attached to this Agreement: description of terms and conditions of loans offered by Bank under Loan Accounts as Exhibit A (Product Lines); Bank Credit Policy as Exhibit B; and form of Loan Account Agreement, privacy notice and, monthly Loan Account statement as Exhibit C. The Consumer Finance Materials, including any change, revision, or amendment to them, shall not be used by Program Manager unless they are approved by Bank in accordance with the Compliance Plan attached as Exhibit D. Program Manager shall comply with Bank’s approval process for all Promotional Materials and Program Materials. In providing the services hereunder, Program Manager shall use its best efforts to avoid the promotion of the Program in any Internet forum, publication, or broadcast that is of an offensive, controversial or scandalous nature. Without limiting the foregoing, if at any time Bank determines any promotional channel is not acceptable to Bank, Program Manager shall discontinue the use of such channel at the direction of Bank. |
(d) |
Program Manager shall ensure that prior to submission and approval and adoption by Bank all Promotional Materials shall be accurate in all material respects and not misleading, all Promotional Materials include, where applicable, the agreed upon Disclosures, and all Promotional Materials and promotional strategies comply with Applicable Laws. |
(e) |
In providing the services set forth in this Agreement, Program Manager shall comply with 1) all policies, processes and procedures established by Bank applicable to Program Manager’s responsibilities hereunder; and 2) all Applicable Laws, including without limitation the Bank Secrecy Act, Anti-Money Laundering, and Bank’s Customer Identification programs. Program Manager shall not amend or otherwise modify the Procedures without the prior written consent of Bank. |
3. |
Extension of Credit. |
Program Manager acknowledges that Bank’s approval of an Application, offering a Loan Account, the making of loans and the provision of funding, create a creditor-borrower relationship between Bank and a Borrower. Each Loan Account Agreement and all other documents referring to the creditor on the Loan Accounts shall identify Bank as the creditor at the time of each advance under the Loan Account. Program Manager shall take no action, or provide any communication, that is inconsistent with Bank’s ownership of the Program, Bank’s status as the issuer of credit, or Bank’s roles as the originator of the Loan Account. Program Manager acknowledges that all extensions of credit pursuant to the Program shall be made in accordance with Bank’s Credit Policy, attached hereto as Exhibit B, and shall be made in the Bank’s sole discretion. Program Manager acknowledges that Bank will not extend credit to an Applicant, and Bank will not make an advance on a Loan Account, if Bank determines that doing so would be an unsafe or unsound banking practice.
4. |
Application Processing. |
(a) |
On behalf of Bank, and at all times in compliance with Bank’s Credit Policy, Program Manager shall process Applications from Applicants, and submit such Applications for automated decisioning (including, but not limited to, obtaining credit reports on behalf of Bank) to determine whether the Applicant satisfies the Bank’s eligibility criteria for the establishment of a Loan Account. |
(b) |
Program Manager will maintain for Bank the name, address, social security number, date of birth and any other information required by the Bank, regarding each Applicant who meets the eligibility criteria set forth in Bank’s Credit Policy. Program Manager shall have no discretion to override Bank’s Credit Policy with respect to any Applications. |
(c) |
Program Manager shall ensure that the subvendors approved by Bank (“Approved Subvendors”) process all Authorization Requests in accordance with Bank’s Credit Policy. Program Manager shall have no discretion to override Bank’s Credit Policy with respect to any Authorization Request. |
(d) |
Program Manager or its Approved Subvendors shall on Bank’s behalf respond to inquiries from Applicants regarding the Application process, provide to Applicants and Borrowers all notices and documents required by Applicable Laws, including, but not limited to adverse action notices with regard to Applications that do not meet Bank’s Credit Policy or are otherwise denied by Bank, Bank’s Loan Account Agreements with regard to Applications that are approved by Bank and Bank’s privacy notices, and provide in the name of the Bank any other customer communications in accordance with the Procedures. |
(e) |
Subject to the terms of this Agreement, if an Applicant qualifies for a Loan Account or a Borrower qualifies for an Authorization Request under the objectively applied criteria of Bank’s Credit Policy, Bank shall establish a Loan Account for the Applicant, and extend credit and fund loans to the Applicant or Borrower. |
(f) |
Program Manager shall hold and maintain all Bank documents pertaining to Loan Accounts in accordance with Bank’s prescribed retention timeframes. Program Manager will take all commercially reasonable steps to preserve all original documents pertaining to the Loan Accounts, and adhere to all Federal guidance on customer identification regulations. Program Manager shall provide Bank with copies of such documents within a reasonable period of time following Bank’s request. |
(g) |
Program Manager shall cooperate and assist Bank in implementing programs and procedures necessary to meet all Bank Secrecy Act, Anti Money Laundering and Customer Identification Program standards. The programs and policies shall include a detailed action plan to be implemented and followed by the Program Manager and its Approved Subvendors, including but not limited to, data collection, retention and reporting standards, training standards, delegation of duties and responsibilities, audit procedures, testing, and other independent review procedures, and policies and programs necessary to comply with Applicable Laws. |
(h) |
Program Manager and its Approved Subvendors shall perform all of its obligations described in this Section and the services set forth in Exhibit I hereto on Bank’s behalf under Bank’s supervision, control and direction, and deliver or provide any customer communications to Applicants and Borrowers as necessary to carry on the Program, all in accordance with the Procedures. |
5. |
Servicing of Loan Accounts. |
(a) |
Program Manager shall provide the following services, either directly or through Approved Subvendors: processing Authorization Requests, preparation and mailing of account statements, undertaking collections, providing customer service (including responding to credit limit adjustment requests in accordance with Bank’s Credit Policy), crediting Loan Accounts in respect of unauthorized charges, chargebacks, refunds and adjustments, resolving customer disputes, managing merchant relationships, and providing such other services as are ordinary and customary for similar programs and the Loan Accounts, including the services set forth on Exhibit I hereto. |
(b) |
Program Manager shall either directly or through Approved Subvendors perform Loan Account servicing on behalf of Bank in accordance with the Procedures, the Compliance Plan, and Applicable Laws. |
(c) |
Program Manager shall cooperate and assist Bank in developing all forms of written communications with Borrowers, including Loan Account statements and collection letters. Prior to using written communication with a Borrower that is different in any material respect from the Bank’s form of such communication, Program Manager shall first request and obtain the approval from Bank. |
(d) |
For Loan Accounts that have been charged off in accordance with the Procedures, Program Manager shall arrange for Approved Subvendors to continue to service and collect those Loan Accounts pursuant to the Procedures and any other guidance provided by Bank, and to market charged off Loan Accounts identified by Bank for sale to third parties. |
6. |
Funding and Settlement. |
Program Manager shall provide a Funding Statement to Bank by e-mail or as otherwise mutually agreed in writing by the Parties not later than 3:00 p.m. CST on each Business Day. The Funding Statement shall be substantially in the form of Exhibit E attached hereto. The Program Manager shall submit ACH files on behalf of Bank to the Bank’s payment processor to initiate the transfer of funds from the Bank’s Funding Account(s) (such Funding Account or Funding Accounts as initially identified on Exhibit F hereto) to the Borrower, Merchant, or third party, as appropriate.
7. |
Program Compliance and Parameters. |
(a) |
Program Manager shall comply with Applicable Laws, the Procedures and the Compliance Plan in its performance of its obligations as set forth in this Agreement, Program Manager will also stay appraised of all changes to the Applicable Laws that may affect the Program, and will at all times follow direction from Bank in connection with such changes. |
(b) |
In providing services for the Program, Program Manager shall ensure that it and all Affiliates and Approved Subvendors represent themselves as acting in the name of Bank or the applicable Brand when processing Applications, providing the services for Loan Accounts, and performing any other obligations pursuant to this Agreement. In accordance with Applicable Laws, Program Manager shall comply with the Bank’s privacy notice with respect to Applicants and Borrowers and will take such steps as necessary and as further described herein to assure that all third parties necessary to the Program, including employees, agents, Affiliates, and Approved Subvendors and assigns, observe the Bank’s privacy notice. |
(c) |
With reasonable advance notice and during business hours, Program Manager shall make available its personnel to meet with Bank’s personnel on a regular basis to discuss Program Manager’s administering and servicing of the Program, Program Manager’s servicing performance and any questions about or changes to the Program that Bank may request. |
(d) |
With reasonable advance notice and during business hours, Program Manager shall make available its personnel to meet with the appropriate Regulatory Authority to whom Bank is subject to discuss Program Manager’s administering and servicing of the Program, Program Manager’s servicing performance and any questions about or changes to the Program that any such Regulatory Authority may request. |
8. |
Representations and Warranties. |
(a) |
Bank hereby represents and warrants to Program Manager as of the Effective Date that: |
(1) |
Bank is a corporation duly organized, validly existing under the laws of Missouri; |
(2) |
Bank is a FDIC insured, Missouri state-chartered, non-member bank that accepts insured deposits from affiliated and non-affiliated companies, and is a federally insured state-chartered depository institution for the purposes of section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980, 12 U.S.C. § 1831(d); |
(3) |
Bank has full corporate power and authority to execute, deliver, and perform its obligations under this Agreement, including, but not limited to, the authority to make the extensions of credit contemplated by this Agreement to Borrowers in all United States jurisdictions; the execution, delivery and performance of this Agreement have been duly authorized and are not in conflict with and do not violate the terms of the charter or bylaws of Bank and will not result in a material breach of or constitute a default under, or require any consent under, any indenture, loan or agreement to which Bank is a party; |
(4) |
All approvals, authorizations, licenses, registrations, consents, and other actions by notices to, and filings with, any Person that may be required in connection with the execution, delivery, and performance of this Agreement by Bank, have been obtained (other than those required to be made to or received from Borrowers and Applicants); |
(5) |
This Agreement constitutes a legal, valid, and binding obligation of Bank, enforceable against Bank in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship or other similar laws now or hereafter in effect, including the rights and obligations of receivers and conservators under 12 U.S.C. §§ 1821(d) and (e) which may affect the enforcement of creditors rights in general, and as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); |
(6) |
Bank is a member in good standing of Visa U.S.A., Inc. and MasterCard International Incorporated, and in compliance with their operating rules; |
(7) |
Bank is not Insolvent; |
(8) |
Bank is, and shall remain throughout the Term, adequately capitalized; |
(9) |
There are no proceedings or investigations pending or, to the best knowledge of Bank, threatened against Bank asserting the invalidity of this Agreement, seeking to prevent the consummation of any of the transactions contemplated by the Bank pursuant to this Agreement, seeking any determination or ruling that, in the reasonable judgment of Bank, would materially and adversely affect the performance by Bank of its obligations under this Agreement, seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement or would have a materially adverse financial effect on Bank or its operations if resolved adversely to it; |
(10) |
The Proprietary Materials licensed by Bank to Program Manager pursuant to Section 14, and their use as contemplated by this Agreement, do not violate or infringe upon, or constitute an infringement or misappropriation of, any U.S. patent, copyright or U.S. trademark, service mark, trade name or trade secret of any person or entity and Bank has the right to grant the licenses set forth in Sections 14(a) and below; and |
(11) Bank has established and will maintain an information security program that meets the objectives of the interagency Guidelines Establishing Information Security Standards and that is designed to (i) ensure the security and confidentiality of Borrower Data, (ii) protect against unauthorized access to or use of Borrower Data that could result in substantial harm or inconvenience to Customer or any of its customers, and (iv) ensure the proper disposal of Borrower Data. Bank will (1) take appropriate action to address any incident of unauthorized access to Borrower Data and (2) notify Program Manager as soon as possible of any incident of unauthorized access to Sensitive Customer Information and any other breach in Customer’s security that materially affects Program Manager or confidential customer information.
(b) |
Program Manager hereby represents and warrants to Bank as of the Effective Date that: |
(1) |
Program Manager is a corporation, duly organized and validly existing in good standing under the laws of the State of Georgia, and has full power and authority to execute, deliver, and perform its obligations under this Agreement; the execution, delivery, and performance of this Agreement have been duly authorized, and are not in conflict with and do not violate the terms of the articles of incorporation of Program Manager and will not result in a material breach of or constitute a default under or require any consent under any material indenture, loan, or agreement to which Program Manager is a party; |
(2) |
All approvals, authorizations, consents, and other actions by, notices to, and filings with any Person required to be obtained for the execution, delivery, and performance of this Agreement by Program Manager, have been obtained or will be acquired prior to engaging in the Program activity or activities giving rise to the need for such a license; |
(3) |
This Agreement constitutes a legal, valid, and binding obligation of Program Manager, enforceable against Program Manager in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect, which may affect the enforcement of creditors’ rights in general, and as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); |
(4) |
There are no proceedings or investigations pending or, to the best knowledge of Program Manager, threatened against Program Manager asserting the invalidity of this Agreement, seeking to prevent the consummation of any of the transactions contemplated by the parties pursuant to this Agreement, seeking any determination or ruling that, in the reasonable judgment of Program Manager, would materially and adversely affect Program Manager’s ability to perform this Agreement, seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement, or would have a materially adverse financial effect on Program Manager or its operations if resolved adversely to it; |
(5) |
Program Manager is not Insolvent; |
(6) |
The execution, delivery and performance of this Agreement by Program Manager complies with Applicable Laws; |
(7) |
The Proprietary Materials Program Manager licenses to Bank pursuant to Section 14, and their use as contemplated by this Agreement, do not violate or infringe upon, or constitute an infringement or misappropriation of, any U.S. patent, copyright or U.S. trademark, service mark, trade name or trade secret of any person or entity and Program Manager has the right to grant the license set forth in Section 14(a) below; and |
(8) |
Program Manager has established and will maintain an |
information security program that meets the objectives of the interagency Guidelines Establishing Information Security Standards and that is designed to (i) ensure the security and confidentiality of Borrower Data, (ii) protect against unauthorized access to or use of Borrower Data that could result in substantial harm or inconvenience to Customer or any of its customers, and (iv) ensure the proper disposal of Borrower Data. Program Manager will also take such steps as necessary and as further described herein to assure that all third parties necessary to the Program, including employees, agents, affiliates, subvendors and assigns, observe all standards described in this subsection (8). Program Manager will (1) take appropriate action to address any incident of unauthorized access to Borrower Data and (2) notify Bank as soon as possible of any incident of unauthorized access to Sensitive Customer Information and any other breach in Customer’s security that materially affects Bank or Bank’s customers.
(c) |
Program Manager hereby represents and warrants to Bank that: |
(1) |
For each Loan Account and each Loan Account Advance: to the best of Program Manager 's knowledge, all information in the related Application is true and correct; Program Manager has delivered all required disclosures to Borrowers in compliance with Applicable Laws; the Loan Account Agreement and all other Loan Account documents conform to the requirements of the Program and were prepared in conformity with the Procedures; all necessary approvals required to be obtained from Bank by Program Manager have been obtained; |
(2) |
Each Application reflected on a Funding Statement has been submitted by a verified person and satisfies Bank’s Credit Policy for a Loan Account or the requested Loan Account Advance; and |
(3) |
The information on each Funding Statement is true and correct in all material respects. |
(d) |
The representations and warranties of Bank and Program Manager contained in this Section 8, except those representations and warranties contained in Sections 8 (a)(9) and 8(b)(4), are made continuously throughout the term of this Agreement. In the event that any investigation or proceeding of the nature described in Sections 8(a)(9) and 8(b)(4) is instituted or threatened against either Party, such Party shall promptly notify the other Party of the pending or threatened investigation or proceeding. |
9. |
Compensation to Program Manager. |
As compensation for the program administration and all other services provided by Program Manager on behalf of Bank pursuant to the terms hereof, Bank shall pay to Program Manager a monthly program management fee in an amount determined in accordance with Schedule 2 hereto (the “Program Management Fee”). The Program Management Fee shall be in consideration for all direct, indirect and out of pocket costs and expenses incurred by Program Manager to provide the services as set forth herein and shall be paid no later than the fifteenth day following the end of each calendar month.
10. |
Indemnification. |
(a) |
Bank agrees to indemnify, defend and hold harmless Program Manager and its Affiliates, and the officers, directors, employees, representatives, shareholders, agents and attorneys of such entities (the “Program Manager Indemnified Parties”) from and against any and all third-party claims or actions and related liability, judgments, damages, costs and expenses, including reasonable attorneys’ fees (“Losses”), that may arise from the negligence or willful misconduct of Bank or its agents or representatives (other than Program Manager); the breach by Bank or its agents or representatives (other than Program Manager) of any of Bank’s covenants, obligations, representations, warranties or undertakings under this Agreement; or violation by Bank or any of its agents or representatives (other than Program Manager) of Applicable Laws. |
(b) |
Program Manager agrees to indemnify, defend and hold harmless Bank and its Affiliates and the officers, directors, employees, representatives, shareholders, agents and attorneys of such entities (the “Bank Indemnified Parties”) from and against any and all Losses, that may arise from the gross negligence or willful misconduct of Program Manager or its agents or representatives in connection with its performance of its obligations under this Agreement; breach by Program Manager or its agents or representatives of any of Program Manager’s covenants, obligations, representations, warranties or undertakings under this Agreement; a violation by Program Manager, any Approved Subvendors, employees, agents, representatives or any other third-party acting on Program Manager’s behalf, of any Applicable Laws; or any and all claims, demands and proceedings of any kind, related to, arising from or otherwise concerning prior issuing relationships or intellectual property use before the Effective Date. For the avoidance of doubt, the Bank’s approval of any Materials as set forth in Sections 2-5 above, shall not be viewed or interpreted by either Party as waiver of Program Manager’s obligations under Sections 7 and 8(b) herein, or Program Manager’s associated indemnity obligations under this Section 10(b). |
(c) |
The Program Manager Indemnified Parties and the Bank Indemnified Parties are sometimes referred to herein as the “Indemnified Parties,” and Program Manager or Bank, as an indemnitor hereunder, is sometimes referred to herein as the “Indemnifying Party.” |
(d) |
Any Indemnified Party seeking indemnification hereunder shall promptly notify the Indemnifying Party, in writing, of any notice of the assertion by any third party of any claim or of the commencement by any third party of any legal or regulatory proceeding, arbitration or action, or if the Indemnified Party determines the existence of any such claim or the commencement by any third party of any such legal or regulatory proceeding, arbitration or action, whether or not the same shall have been asserted or initiated, in any case with respect to which the Indemnifying Party is or may be obligated to provide indemnification (an “Indemnifiable Claim”), specifying in reasonable detail the nature of the Loss, and, if known, the amount, or an estimate of the amount, of the Loss, provided that failure to promptly give such notice shall only limit the liability of the Indemnifying Party to the extent of the actual prejudice, if any, suffered by such Indemnifying Party as a result of such failure. The Indemnified Party shall provide to the Indemnifying Party as promptly as practicable thereafter information and documentation reasonably requested by such Indemnifying Party to defend against the claim asserted. |
(e) |
The Indemnifying Party shall have thirty (30) days after receipt of any notification of an Indemnifiable Claim (a “Claim Notice”) to assume the defense of the Indemnifiable Claim and, through counsel of its own choosing, and at its own expense, to commence the settlement or defense thereof, and the Indemnified Party shall cooperate with the Indemnifying Party in connection therewith. The Indemnifying Party shall not settle any Indemnifiable Claim without the Indemnified Party’s consent, which consent shall not be unreasonably withheld or delayed for any reason if the settlement involves only payment of money, and which consent may be withheld for any reason if the settlement involves more than the payment of money, including any admission by the Indemnified Party. The Indemnified Party shall not pay or settle such claim without the Indemnifying Party’s consent, which consent shall not be unreasonably withheld or delayed. For the avoidance of doubt, the Indemnifying Party shall not be entitled to seek reimbursement from the Indemnified Party as a result of the successful judgment or resolution of a Loss. |
11. |
Term and Termination. |
(a) |
This Agreement shall have an initial term beginning on the Effective Date and ending at midnight on March 31, 2030 (the "Initial Term”), and shall renew automatically for successive terms of one (1) year each (each a "Renewal Term") unless either Party provides notice of non-renewal to the other Party, at least one hundred and eighty (180) days prior to the end of the Initial Term or any Renewal Term. The Initial Term together with all Renewal Terms are referred to as the "Term.” |
(b) |
A Party shall have a right to terminate this Agreement immediately upon written notice to the other Party in any of the following circumstances: |
(1) |
any representation or warranty made by the other Party in this Agreement shall be incorrect in any material respect and shall not have been corrected within thirty (30) Business Days after written notice thereof has been given to such other Party; |
(2) |
the other Party shall default in the performance of any obligation or undertaking under this Agreement and such default shall continue for thirty (30) Business Days after written notice thereof has been given to such other Party; |
(3) |
the other Party shall commence a voluntary case or other proceeding seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, receivership, conservatorship or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, conservator, custodian, or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of a trustee, receiver, liquidator, conservator, custodian, or other similar official or to any involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; |
(4) |
an involuntary case or other proceeding, whether pursuant to banking regulations or otherwise, shall be commenced against the other Party seeking liquidation, reorganization, or other relief with respect to it or its debts under any bankruptcy, insolvency, receivership, conservatorship or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, conservator, custodian, or other similar official of it or any substantial part of its property; or an order for relief shall be entered against either Party under the federal bankruptcy laws as now or hereafter in effect; |
(c) |
In the event that Bank has any basis under this Agreement to terminate this Agreement: |
(1) |
Bank may notify Program Manager that, in lieu of terminating this entire Agreement, Bank may terminate this Agreement only with respect to the establishment of new Loan Accounts. Any such notice must be in writing and must be included in the written notice of termination provided by Bank to Program Manager. |
(2) |
If, pursuant to Section 11(c)(1) the Parties agree to terminate this Agreement only with respect to the establishment of new Loan Accounts, this Agreement, and all services necessary for the continued performance of the Program, shall remain in full force and effect with respect to all Loan Accounts established prior to such agreement to terminate, including, but not limited to, processing services made under such Loan Accounts after such agreement to terminate. |
(d) |
The expiration or termination of this Agreement and any Transition Period either in part or in whole shall not discharge any Party from any obligation incurred prior to such expiration or termination. |
(e) |
Program Manager acknowledges that Bank’s obligation to operate the Program, establish Loan Accounts or make advances on any Loan Accounts subsequent to a notice of termination or termination of this Agreement shall in all cases be subject to Applicable Laws and/or regulatory requirements. |
(f) |
Sections 10, 11(c), 11(f), 12, 13, 14(b), 19, 20, 21, 24, 25, 26, 27, 29, of this Agreement, shall survive expiration or termination of this Agreement. |
12. |
Transition and Wind Down. |
Program Manager and Bank shall take those actions and cooperate with one another in good faith as reasonably required to wind-down the Program and transition such Party’s specific tasks, rights and obligations to third parties.
13. |
Confidentiality. |
(a) |
Each Party agrees that Confidential Information of the other Party shall be used by such Party solely in the performance of its obligations and exercise of its rights pursuant to the terms hereof. Except as required by Applicable Laws or legal process, neither Party (the “Restricted Party”) shall disclose Confidential Information of the other Party to third parties; provided, however, that the Restricted Party may disclose Confidential Information of the other Party to the Restricted Party's Affiliates, agents, representatives, subvendors or subcontractors for the sole purpose of fulfilling the Restricted Party’s obligations under this Agreement (as long as the Restricted Party exercises reasonable efforts to prohibit any further disclosure by its Affiliates, agents, representatives, subvendors or subcontractors), provided that in all events, the Restricted Party shall be responsible for any breach of the confidentiality obligations hereunder by any of its Affiliates, agents, representatives, subvendors or subcontractors, to the Restricted Party’s auditors, accountants and other professional advisors, or to a Regulatory Authority or to any other third party as mutually agreed by the Parties. |
(b) |
Confidential Information that consists of Borrower Data shall only be used or disclosed as permitted by Applicable Laws, and then only by Program Manager to fulfill its obligations pursuant to this Agreement and to perform those tasks listed on Exhibit I. |
(c) |
A Party's Confidential Information shall not include information that: |
(1) |
is generally available to the public; |
(2) |
has become publicly known, without fault on the part of the Party who now seeks to disclose such information (the “Disclosing Party”), subsequent to the Disclosing Party acquiring the information; |
(3) |
was otherwise known by, or available to, the Disclosing Party prior to entering into this Agreement; or |
(4) |
becomes available to the Disclosing Party on a non-confidential basis from a Person, other than a Party to this Agreement, who is not known by the Disclosing Party after reasonable inquiry to be bound by a confidentiality agreement with the non-Disclosing Party or otherwise prohibited from transmitting the information to the Disclosing Party. |
(d) |
Upon written request or upon the expiration or termination of this Agreement and any Transition Period, each Party shall, within thirty (30) days, return to the other Party all Confidential Information of the other Party in its possession that is in written form, including by way of example, but not limited to, reports, plans, and manuals; provided, however, that either Party may maintain in its possession all such Confidential Information of the other Party required to be maintained under Applicable Laws relating to the retention of records for the period of time required thereunder. |
(e) |
Each Party shall require its subcontractors having access to Confidential Information of the other Party to agree in writing to be bound by provisions materially similar to this Section 13 prior to disclosure of any such Confidential Information to such subcontractors. |
(f) |
In the event that a Restricted Party is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information of the other Party, the Restricted Party will provide the other Party with prompt notice of such request(s) so that the other Party may seek an appropriate protective order or other appropriate remedy and/or waive the Restricted Party’s compliance with the provisions of this Agreement. In the event that the other Party does not seek such a protective order or other remedy, or such protective order or other remedy is not obtained, or the other Party grants a waiver hereunder, the Restricted Party may furnish that portion (and only that portion) of the Confidential Information of the other Party which the Restricted Party is legally compelled to disclose and will exercise such efforts to obtain reasonable assurance that confidential treatment will be accorded any Confidential Information of the other Party so furnished as the Restricted Party would exercise in assuring the confidentiality of any of its own confidential information. |
14. |
Licensing of Proprietary Material. |
(a) |
Each Party (“Licensing Party”) hereby provides the other Party (“Licensee”) with a non-exclusive right and license to use and reproduce the Licensing Party’s name, logo, registered trademarks, service marks and, where Licensing Party is Program Manager, the Brand (collectively, “Proprietary Material”) on the Applications, Loan Account Agreements, Promotional Materials, and otherwise in connection with the fulfillment of Licensee's obligations under this Agreement; provided, however, that Licensee shall at all times comply with written instructions provided by Licensing Party regarding the use of its Proprietary Material, and Licensee acknowledges that, except as specifically provided in this Agreement, it will acquire no interest in Licensing Party’s Proprietary Material. Upon expiration or termination of this Agreement and any Transition Period, Licensee will cease using Licensing Party's Proprietary Material. |
(b) |
Program Manager does hereby grant to Bank a non-exclusive license in and to Program Manager’s Platform to be used for the Program. Such license shall be used only for the Program and for no other purpose, and only for so long as this Agreement is in force and effect, and has not expired or been terminated by either Party for any reason whatsoever. |
(c) |
With the exception of Bank’s Proprietary Material, all material and branding created or generated by Program Manager in connection with this Agreement or the Program, including, but not limited to, all URLs, IP Addresses and program names, shall be the property of Program Manager, and Program Manager shall retain all rights in and to such material, including all intellectual property rights in such material. |
15. |
Relationship of Parties. |
Except for the services or functions performed for or on behalf of or in the name of Bank by Program Manager under this Agreement, including those pursuant to 12 U.S.C. § 1867 (c), the Parties agree that in performing their separate responsibilities and for purposes of internal corporate operations and governance, they are in the position of independent contractors. This Agreement is not intended to create, nor does it create and shall not be construed to create, a relationship of partner or joint venturer or any association for profit between Bank and Program Manager.
16. |
Expenses. |
(a) |
Program Manager agrees to pay directly or reimburse Bank annually, the cost of a compliance audit of the Program, the scope, content and results of which shall be made available to Program Manager. The firm conducting such audit shall be selected by Bank, subject to the consent of Program Manager, which consent shall not be unreasonably conditioned, withheld or delayed. |
(b) |
Except as set forth herein, each Party shall bear the costs and expenses of performing its obligations under this Agreement. |
(c) |
Each Party shall be responsible for payment of any federal, state, or local taxes or assessments associated with the performance of its obligations under this Agreement and for compliance with all filing, registration and other requirements with regard thereto. |
17. |
Examination. |
Program Manager agrees to timely submit to any examination that may be required by a Regulatory Authority having jurisdiction over Bank, during regular business hours and upon reasonable prior notice, and to otherwise provide reasonable cooperation to Bank in responding to such Regulatory Authorities’ inquiries and requests relating to the Program.
18. |
Inspection; Reports. |
(a) |
Program Manager, upon reasonable prior notice from Bank, agrees to submit to a timely and prompt inspection of its books, records, accounts, and facilities relevant to the Program, from time to time, during regular business hours subject in each case, to any requirements under Applicable Laws, for the purpose of auditing Program Manager’s compliance with this Agreement. |
(b) |
Program Manager shall store all documentation and electronic data relevant and material to its performance under this Agreement and shall make such documentation and data available during any inspection by Bank or its designee. With such frequency and in such manner as mutually agreed by the Parties, Program Manager shall timely report to Bank regarding the performance of its obligations. Program Manager shall provide Bank on-line access to the systems used to service the Loan Accounts. |
19. |
Governing Law. |
This Agreement shall be interpreted and construed in accordance with the laws of the State of Missouri, without giving effect to the rules, policies, or principles thereof with respect to conflicts of laws.
20. |
Jurisdiction; Venue. |
The Parties consent to the personal jurisdiction and venue of the federal and state courts in Missouri, for any court action or proceeding.
21. |
Severability. |
Any provision of this Agreement which is deemed invalid, illegal or unenforceable in any jurisdiction, shall, as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining portions hereof in such jurisdiction or rendering such provision or any other provision of this Agreement invalid, illegal, or unenforceable in any other jurisdiction.
22. |
Assignment. |
This Agreement and the rights and obligations created under it shall be binding upon and inure solely to the benefit of the Parties and their respective successors, and permitted assigns. Neither Party shall be entitled to assign or transfer any interest under this Agreement without the prior written consent of the other Party.
23. |
Subvendors. |
Program Manager may use subvendors in the performance of its obligations in accordance with the terms of this Agreement upon written notice and approval by Bank which shall not be unreasonably withheld or delayed. Program Manager shall be permitted, solely with notice to Bank, to delegate any of its obligations under this Agreement to its Affiliates. Program Manager agrees to be fully responsible for the acts and omissions of all subvendors, including the subvendors’ and Program Manager’s Affiliates’ compliance with the terms of this Agreement and all Applicable Laws. Program Manager’s rights as provided herein include contracting with one or more of its Affiliates to delegate its obligations, subject to the requirements, limitations, and conditions. Bank may contract separately with any such Program Manager Affiliate, and the terms of that separate agreement shall deemed within the scope of services provided by Program Manager pursuant to this Agreement; provided, however, if there is any conflict between any such separate agreement and the terms of this Agreement, the terms of this Agreement shall control. In addition to the foregoing, Program Manager agrees to provide reasonable cooperation to Bank to assist in establishing contingency agreements, continuity plans or similar direct agreements with critical subvendors, which would permit the Bank to maintain the Program, or otherwise comply with record retention and other Applicable Laws, in the event of termination of this Agreement.
24. |
Third-Party Beneficiaries. |
Nothing contained herein shall be construed as creating a third-party beneficiary relationship between either Party and any other Person.
25. |
Notices. |
All notices and other communications that are required or may be given in connection with this Agreement shall be in writing and shall be deemed received on the day delivered, if delivered by hand; on the day transmitted, if transmitted by facsimile or e-mail with receipt confirmed; or three (3) business days after the date of mailing to the other Party, if mailed first-class postage prepaid, at the following address, or such other address as either Party shall specify in a notice to the other:
To Bank: The Bank of Missouri
916 North Kingshighway
Perryville, Missouri
Attn: Mr. Mark J Barker
Executive Vice President
With a copy to:
The Bank of Missouri
916 North Kingshighway
Perryville, Missouri
Attn: Kim Moore, Esq.
Vice President: General Counsel
and Compliance
To Program Manager:
Five Concourse Parkway Suite 300
Atlanta, Georgia 30328 Attn: President
With a copy to:
Five Concourse Parkway
Suite 300
Atlanta, GA 30328
Attn: General Counsel
26. |
Amendment and Waiver. |
This Agreement may be amended only by a written instrument signed by each of the Parties. The failure of a Party to require the performance of any term of this Agreement or the waiver by a Party of any default under this Agreement shall not prevent a subsequent enforcement of such term and shall not be deemed a waiver of any subsequent breach. All waivers must be in writing and signed by the Party against whom the waiver is to be enforced.
27. |
Entire Agreement. |
This Agreement including schedules and exhibits, constitutes the entire agreement between the Parties with respect to the subject matter hereof, and supersedes any prior or contemporaneous negotiations or oral or written agreements with regard to the same subject matter.
28. |
Counterparts. |
This Agreement may be executed and delivered by the Parties in any number of counterparts, and by different parties on separate counterparts, each of which counterpart shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument.
29. |
Interpretation. |
The Parties acknowledge that each Party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments thereto, and the same shall be construed neither for nor against either Party, but shall be given a reasonable interpretation in accordance with the plain meaning of its terms and the intent of the Parties.
30. |
Insurance. |
Program Manager agrees to maintain insurance coverages on the terms and conditions specified in Exhibit G at all times during the term of this Agreement, and to notify Bank promptly of any cancellation or lapse of any such insurance coverage. Program Manager further agrees to provide such evidence confirming the agreed insurance policies are in force and effecting, including a true and correct copies of all policies and declaration pages.
31. |
Notice of Regulatory Matters. |
Each Party shall notify the other Party if it becomes aware of any investigations or proceedings by any governmental authority relating to any aspect of the Program upon becoming aware of such investigation or proceeding, and each Party shall provide the other Party with all related documentation thereof, subject to any legal prohibitions on disclosure of such investigation or proceeding. Each Party shall maintain a log of any Borrower complaints and shall share that log with the other Party at least monthly.
32. |
Headings. |
Captions and headings in this Agreement are for convenience only, and are not to be deemed part of this Agreement.
33. |
Manner of Payments. |
Unless the manner of payment is expressly provided herein, all payments under this Agreement shall be made by ACH transfer to the bank accounts designated by the respective Parties. Notwithstanding anything to the contrary contained herein, neither Party shall fail to make any payment required of it under this Agreement as a result of a breach or alleged breach by the other Party of any of its obligations under this Agreement or any other agreement, provided that the making of any payment hereunder shall not constitute a waiver by the Party making the payment of any rights it may have under this Agreement or by law.
34. |
Referrals. |
Neither Party has agreed to pay any fee or commission to any agent, broker, finder, or other person for or on account of such person’s services rendered in connection with this Agreement that would give rise to any valid claim against the other Party for any commission, finder’s fee or like payment.
35. |
Audited Financial Statements. |
Within ninety (90) days following the end of Program Manager’s fiscal year, Program Manager shall deliver to Bank a copy of the audited financial statements of Program Manager, if available, and if not, then Program Manager’s parent, Atlanticus Holdings Corporation, prepared by an independent certified public accountant in accordance with generally accepted accounting principles consistently applied, to the extent publicly available. Program Manager also agrees to deliver to Bank a copy of Program Manager’s unaudited financial statements on a quarterly basis within forty-five (45) days of the completion of each applicable quarter.
Signature block on next page
IN WITNESS WHEREOF, the Parties have entered into this Agreement on the date set forth above.
THE BANK OF MISSOURI
By: /s/ Mark Barker
Name: Mark Barker
Title: Chief Contract Services Officer
Date: January 15, 2025
ATLANTICUS SERVICES CORPORATION
By: /s/ Jeffrey A. Howard
Name: Jeffrey A. Howard
Title: President
Date: January 16, 2025
Schedule 1
Definitions
(a) |
“ACH” means the Automated Clearinghouse. |
(b) |
“Affiliate” means, with respect to a Party, a Person who directly or indirectly controls, is controlled by or is under common control with the Party. For the purpose of this definition, the term “control” (including with correlative meanings, the terms controlling, controlled by and under common control with) means the power to direct the management or policies of such Person, directly or indirectly, through the ownership of twenty-five percent (25%) or more of a class of voting securities of such Person. |
(c) |
“Applicable Laws” means all federal, state and local laws, statutes, regulations and orders applicable to a Party or relating to or affecting any aspect of the Program including, without limitation, the Loan Accounts, the Promotional Materials and the Consumer Finance Materials, all requirements of any Regulatory Authority having jurisdiction over a Party, as any such laws, statutes, regulations, orders and requirements may be amended and in effect from time to time during the term of this Agreement. |
(d) |
“Applicant” means an individual who is a consumer who requests a Loan Account from Bank as part of the Program. |
(e) |
“Application” means any request from an Applicant for a Loan Account in the form required by Bank as part of the Program. |
(f) |
“Approved Subvendors” shall have the meaning set forth in Section 4(c). |
(g) |
“Authorization Request” means a request by a Borrower for an advance on a Loan Account. |
(h) |
“Bank” shall have the meaning set forth in the introductory paragraph of this Agreement. |
(i) |
“Bank Indemnified Parties” shall have the meaning set forth in Section 10(b). |
(j) |
“Borrower” means an Applicant or other Person to whom Bank has established a Loan Account and/or who is liable, jointly or severally, for amounts owing with respect to a Loan Account. |
(k) |
“Borrower Data” means information that is provided to or obtained by a Party in the performance of its obligations under this Agreement or otherwise regarding Applicants and Borrowers, including, but not limited to name, postal address, social security number, email address, telephone number, date of birth, Account number, security codes, valid to and from dates, as well as information and demographic data, data generated and/or created in connection with Account processing and maintenance activities, Account statementing and customer service, telephone logs and records and other documents and information necessary for the processing and maintenance of Accounts, and all “Nonpublic Personal Information” and “Personally Identifiable Financial Information” (as defined in 12 C.F.R. §§ 40.3(n) and (o), respectively). |
(l) |
“Brand” means any combination of a name, logo, mark or other distinguishing feature for the Program, whether designated by Bank or that Program Manager develops or obtains for the Bank’s use, as directed and approved by the Bank, and as provided in the Agreement. |
(m) |
“Business Day” means any day, other than a Saturday or Sunday, or a day on which banking institutions in the State of Missouri are authorized or obligated by law or executive order to be closed. |
(n) |
“Claim Notice” shall have the meaning set forth in Section 10(e). |
(o) |
“Confidential Information” means the terms and conditions of this Agreement, and any proprietary information or non-public information of a Party, including a Party’s proprietary marketing plans and objectives, the Merchants and the terms of the agreement between Merchants and Program Manager, that is furnished to the other Party in connection with this Agreement. |
(p) |
“Consumer Finance Materials” shall have the meaning set forth in Section 2(c). |
(q) |
“Credit Policy” means Bank’s credit criteria that Bank uses to approve or deny an Application, establish a Loan Account, and to authorize or decline a Loan Account Advance or modify any terms of a Loan Account (e.g. a credit line adjustment), as set forth in Exhibit B hereto. |
(r) |
“Disclosing Party” shall have the meaning set forth in Section 13(c)(2). |
(s) |
“Disclosures” shall have the meaning set forth in Section 2(b). |
(t) |
“Effective Date” shall have the meaning set forth in the introductory paragraph of this Agreement. |
(u) |
"Funding Account" means the banking account to be used for receipt of the applicable Funding Amount, as initially identified on Exhibit F attached hereto. |
(v) |
“Funding Amount” means the aggregate amount of all Loan Account Advance proceeds, less any discount or fee pursuant to agreements between Program Manager and any Merchant or third parties, adjusted by debits and credits pursuant to such agreements, and less any initial fees assessed to a Borrower in connection with a Loan Account, to be disbursed by Bank to Program Manager or, at Program Manager’s direction, to Merchant or a Borrower, on each Funding Date, as listed on a Funding Statement. |
(w) |
“Funding Date” means the Business Day on which any new Loan Account Advance proceeds are disbursed by Bank to a Merchant or Borrower. |
(x) |
“Funding Institution” means the depository institution at which the Funding Account is established, which shall initially be The Bank of Missouri and may be changed by Bank upon ten (10) days prior written notice to Program Manager. |
(y) |
“Funding Statement” means the statement prepared by Program Manager on a Business Day that contains the computation of the Funding Amount, and all information necessary for the transfer of Loan Account Advance proceeds to the Funding Account and such other information as shall be reasonably requested by Bank and mutually agreed by the Parties in writing. |
(z) |
“Indemnifiable Claim” shall have the meaning set forth in Section 10(d). |
(aa)“ Indemnified Parties” shall have the meaning set forth in Section 10(c).
(bb)“ Indemnifying Party” shall have the meaning set forth in Section 10(c).
(cc) |
“Initial Term” shall have the meaning set forth in Section 11(a). |
(dd) |
“Insolvent” means the failure to pay debts in the ordinary course of business, the inability to pay its debts as they come due or the condition whereby the sum of an entity’s debts is greater than the sum of its assets. |
(ee) |
“IP Address” means an Internet protocol address. |
(ff) |
“Licensee” shall have the meaning set forth in Section 14(a). |
(gg) |
“Licensing Party” shall have the meaning set forth in Section 14(a). |
(hh) |
“Loan Account” means an open- or close-ended loan account established by Bank pursuant to this Agreement. |
(ii) |
“Loan Account Advance” means a draw down on a line of credit or installment loan established by Bank to Borrower pursuant to the Program. |
(jj) |
“Loan Account Agreement” means the document containing the terms and conditions of a Loan Account including all disclosures required by Applicable Laws. |
(kk) |
“Losses” shall have the meaning set forth in Section 10(a). |
(ll) |
“Merchant” shall mean a person, firm or entity providing goods and/or services to a Borrower in connection with a Loan Account. |
(mm) |
“Party” means either Program Manager or Bank and “Parties” means Program Manager and Bank. |
(nn) |
“Person” means any legal person, including any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, governmental entity, or other entity of similar nature. |
(oo) |
“Platform” means the technology, systems, website(s), interfaces, analytics, criteria, scoring, data attributes and processes used and applied to Applications and Loan Accounts to decision, service or otherwise manage them in accordance with the Bank’s Procedures. |
(pp) |
“Procedures” means the policies and procedures for the solicitation and receipt of Applications, the underwriting of Loan Accounts and processing of Applications, the provision of adverse action notices and Loan Account Agreements to Applicants and the servicing and collection of Loan Accounts, including Loan Accounts that have been charged off in accordance with those policies and procedures. |
(qq) |
“Program” means the loan program pursuant to which Bank will establish Loan Accounts pursuant to this Agreement; and make Loan Account Advances to Borrowers pursuant to the terms of this Agreement, initially as described in Exhibit A attached hereto. |
(rr) |
Program Management Fee” shall have the meaning set forth in Section 9(a). |
(ss) |
“Program Manager Indemnified Parties” shall have the meaning set forth in Section 10(a). |
(tt) |
“Program Materials” shall have the meaning set forth in Section 2(b). |
(uu) |
“Promotional Materials” shall have the meaning set forth in Section 2(b). |
(vv) |
“Proprietary Material” shall have the meaning set forth in Section 14(a). |
(ww) |
“Regulatory Authority” means any federal, state or local regulatory agency or other governmental agency or authority having jurisdiction over a Party or any aspect of the Program. |
(xx) |
“Restricted Party” shall have the meaning set forth in Section 13(a). |
(yy) |
“Term” shall have the meaning set forth in Section 11(a). |
(zz) |
“URL” means a uniform resource locator. |
Schedule 2
During the term of this Agreement, Bank shall pay Program Manager on a monthly basis a Program Management Fee for the services performed pursuant to and in accordance with the terms of the Agreement computed as follows:
An amount equal to [*****] of all payments in good funds made by or on behalf of Borrowers during each calendar month in respect of amounts owing under Loan Accounts that have not been sold, charged-off, or transferred to another party.
CERTAIN INFORMATION, IDENTIFIED BY [*****], HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED.
Exhibit 10.1(a)
AMENDED AND RESTATED RECEIVABLE SALES AGREEMENT
THIS AMENDED AND RESTATED RECEIVABLE SALES AGREEMENT (this “Agreement”), dated as of January 1, 2025 (“Effective Date”), is made by and between THE BANK OF MISSOURI, a Missouri state-chartered bank, having its principal location in Perryville, Missouri (“Bank”), Fortiva Funding, LLC a Georgia limited liability company (“Receivables Purchaser”), having its principal location in Atlanta, Georgia. This Agreement amends and restates that earlier amended and restated agreement, dated April 1, 2020, as amended, between Receivables Purchaser and Bank.
WHEREAS, Bank is in the business of issuing various types of loans to consumers; and
WHEREAS, Bank desires to fund additional loans by selling to Receivables Purchaser or its designee, and Receivables Purchaser or such designee desires to purchase from Bank, interests in the receivables arising from loan accounts marketed and originated by Bank under certain Brands (such interests in the receivables, the “Receivables”).
NOW, THEREFORE, in consideration of the foregoing and the terms, conditions and mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Receivables Purchaser agree as follows:
1. |
Definitions. |
The capitalized terms used in this Agreement, intended by their context to be defined terms, shall have the meaning set forth in Schedule 1.
2. |
Purchase of Receivables; Payment to Bank; Reporting to Bank. |
(a) |
Bank hereby agrees to sell, transfer, assign, set-over, and otherwise convey to Receivables Purchaser, without recourse (except as expressly provided herein) but with servicing obligations retained, one hundred percent (100%) of the Receivables generated by Bank and funded by Bank during the Term, on the second Business Day after the day on which such Receivables were originated by Bank. The parties intend “Receivables” to include any and all amounts owing from time to time with respect to a Loan Account whether or not billed, including, without limitation, any unpaid balance, finance charges, and fees as applicable. All of the foregoing shall be in accordance with the procedures set forth in this Section 2. In consideration for Bank’s agreement to sell, transfer, assign, set-over and convey to Receivables Purchaser one hundred percent (100%) of the Receivables during the Term, Receivables Purchaser agrees to purchase such Receivables from Bank, and Receivables Purchaser shall pay to Bank the Purchase Price on each Closing Date in accordance with Section 2(b) below. |
(b) |
Bank shall prepare and deliver, or cause to be prepared and delivered, to Receivables Purchaser, by e-mail or as otherwise mutually agreed by the Parties in writing, a Daily Purchase Statement, in a form to be agreed to by the Parties in writing, no later than 3pm CST on each Business Day, which statement shall relate to the Receivables Bank is selling to Receivables Purchaser on such Business Day consistent with Section 2(a) of this Agreement. No later than 4pm CST on the same Business Day that the Daily Purchase Statement is provided, Receivables Purchaser shall effect payment to Bank of the Purchase Price as described on the applicable Daily Purchase Statement. The payment of the Purchase Price shall be made by wire or other transfer in immediately available funds to an account designated by Bank (the “Purchase Price Account”). Prior to the first Closing Date, Bank shall provide to Receivables Purchaser the designated Purchase Price Account name and number. Failure to strictly adhere to the times referenced in this paragraph, provided that payment is made on the same Business Day, shall not constitute a breach of this Agreement. |
(c) |
In the event Receivables Purchaser does not pay the Purchase Price on any given Closing Date, Bank shall have the right to withdraw from the Collateral Account an amount equal to the Purchase Price. In the event of a withdrawal from the Collateral Account, Receivables Purchaser shall replenish, or cause to be replenished, all amounts withdrawn from the Collateral Account within the cure provisions set forth in Section 10(c) below. |
(d) |
Upon Receivables Purchaser’s request, Bank agrees to cause to be delivered to Receivables Purchaser, at Receivables Purchaser’s cost, copies of loan files on all Receivables purchased by Receivables Purchaser pursuant to this Agreement. Such copies of loan files may include the Application for the Loan Account, the Loan Account Agreement, confirmation of delivery of the Loan Account Agreement to the Borrower, and such other materials as Receivables Purchaser may reasonably require (all of which may be in electronic form). |
(e) |
The parties hereto intend that the conveyances to Receivables Purchaser by Bank of Receivables pursuant to this Agreement shall constitute a sale and not a secured borrowing. Without detracting from that intent in any way, Bank hereby grants to Receivables Purchaser a first priority security interest in all of Bank’s right, title, and interest, if any and whether now owned or hereafter acquired, in, to and under all Receivables purchased by Receivables Purchaser pursuant to this Agreement and the proceeds thereof, to secure the obligations of Bank under this Agreement. |
(f) |
Both parties agree to meet on a regular basis to discuss the Program and its performance and to discuss any desired changes to this Agreement. The purchase and sale of Receivables pursuant to the terms hereof is referred to herein as the “Receivables Funding Program.” |
(g) |
From the Effective Date through and including March 31, 2025, (i) the definitions of Active Loan Account and Purchase Price, (ii) Schedule 2, and (iii) Section 33 shall be as provided in the Amended and Restated Receivable Sales Agreement effective as of April 1, 2020. Thereafter, beginning on April 1, 2025, and continuing through the Initial Term and any Renewal Term, the provisions identified above shall be as set forth in this Agreement unless modified as provided herein. |
3. |
Ownership of Loan Accounts and Receivables. |
(a) |
Receivables Purchaser acknowledges and agrees that Bank shall retain ownership of, and title to, the Loan Accounts, and shall remain as the issuer and creditor under the Loan Account Agreement. Bank does not assume and shall not have any liability to Receivables Purchaser for the repayment of any Receivable ; provided that Bank shall make the payments , in respect of the Receivables received by it, as provided in Section 4(c). |
(b) |
On and after each Closing Date, Receivables Purchaser shall be the sole owner for all purposes (e.g., tax, accounting and legal) of the Receivables purchased from Bank on such date. Bank and Receivables Purchaser intend that each transfer of Receivables satisfy the conditions for sale accounting treatment under generally accepted accounting principles. Bank agrees to make entries on its books and records to clearly indicate the sale of the Receivables to Receivables Purchaser as of each Closing Date. Receivables Purchaser agrees to make entries on its books and records to clearly indicate the purchase of the Receivables as of each Closing Date. |
(c) |
Bank and Receivables Purchaser each intend the transfer of the Receivables under this Agreement to be a true sale by Bank to Receivables Purchaser that is absolute and irrevocable. At any time and from time-to-time, Bank will promptly and duly execute and deliver or will promptly cause to be executed and delivered, such further instruments and documents and take such further actions as are reasonably requested by Receivables Purchaser to confirm the sale of the Receivables and/or for the purpose of obtaining or preserving the full benefits of this Agreement, including, the filing of any financing or continuation statements under the UCC or other Applicable Law in effect in any jurisdiction with respect to the transfer of ownership of the Receivables. At any time and from time-to-time, Bank and Receivables Purchaser will promptly and duly execute and deliver or will promptly cause to be executed or delivered, such further instruments and documents and take such further actions as are reasonably requested by Bank or Receivables Purchaser, as applicable, for the purpose of obtaining or preserving the full benefits of this Agreement. |
4. |
Covenants of Bank. Bank hereby covenants that: |
(a) |
Bank will take no action to cause any Loan Account or Receivable to be evidenced by any “instrument” (as defined in the UCC as in effect in any relevant jurisdiction). Bank will take all actions reasonably requested by Receivables Purchaser for the purpose of ensuring that each Loan Account will not be classified as anything other than an “account,” a “general intangible” or a “payment intangible” (as those terms are defined in the UCC as in effect in any relevant jurisdiction). |
(b) |
With the exception of a termination of this Agreement arising out of Section 10(b)-(d) below, Bank shall not sell, pledge, assign or transfer to any Person, any Loan Account, or any interest therein without the consent of Receivables Purchaser. |
(c) |
If Bank receives or collects any funds in repayment of a Receivable sold hereunder, Bank shall promptly send an e-mail notice of any such receipt to Receivables Purchaser and simultaneously send such funds by wire transfer (or other means as agreed to by Parties) to a bank account designated for this purpose by Receivables Purchaser. Bank hereby agrees and acknowledges that any payments so collected by Bank shall be held in trust for Receivables Purchaser and shall be delivered immediately to Receivables Purchaser. |
(d) |
Bank shall be responsible for establishing and maintaining an information security program that meets the objectives of the interagency Guidelines Establishing Information Security Standards and that is designed to (i) ensure the security and confidentiality of Borrower Data, (ii) protect against unauthorized access to or use of Borrower Data that could result in substantial harm or inconvenience to Customer or any of its customers, and (iii) ensure the proper disposal of Borrower Data. Bank will (1) take appropriate action to address any incident of unauthorized access to Borrower Data and (2) notify Receivables Purchaser as soon as possible of any incident of unauthorized access to Borrower Data Information and any other breach in Customer’s security that materially affects Receivables Purchaser or confidential customer information. |
(e) |
Except as necessary to carry out its rights and responsibilities under this Agreement, Bank shall not use Borrower Data and shall not provide or disclose any Borrower Data to any Person, except to the extent required to do so under Applicable Law or legal process; provided, however: |
(1) |
Bank may make solicitations for goods and services to the public, which may include one or more Applicants or Borrowers; provided that Bank shall not, directly or indirectly, market or provide to any Borrower, whose corresponding Receivable has been purchased by Receivables Purchaser and has not been paid in full, any product or services that is competitive with the corresponding Loan Account; and further provided that, for the avoidance of doubt, nothing in Section 4(e) shall restrict or prohibit Bank from soliciting and issuing loans to a Borrower through open-channel marketing; and |
(2) |
Bank shall not be obligated to redact the names of Applicants and/or Borrowers from marketing lists acquired from third parties (e.g., subscription lists) that Bank uses for solicitations. |
(f) |
Other than as is required by Applicable Law, Bank shall not without 30 days prior written notice to Receivables Purchaser (i) make any change to its Credit Policy, decisioning criteria, pricing terms or other criteria used by Bank to underwrite any Loan Account all or any portion of the Receivables of which have been or will be sold to the Receivables Purchaser or (ii) make any change to its servicing policies with respect to any Loan Account all or any portion of the Receivables of which have been or will be sold to the Receivables Purchaser in each case where the effect of which is reasonably likely to change the timing or amount of payments made by applicable borrowers under such Loan Accounts or the collectability of the Receivables. |
(g) |
Bank shall maintain in good standing its membership in, and comply with the Operating Rules applicable to, the card association or associations of which it is a member for the issuance of any Loan Account. |
(h) |
Bank acknowledges that Receivables Purchaser may from time to time securitize the Receivables (or a portion thereof). Bank agrees that it shall cooperate with and assist Receivables Purchaser and its representatives in obtaining access to information to assist Receivables Purchaser in securitizing the Receivables (or any portion thereof), or entering into a contingency funding agreement, or other third party agreement as Receivables Purchaser may reasonably request with respect to the disposition of Receivables; provided, however, that Receivables Purchaser shall compensate Bank for its reasonable administrative costs, out-of-pocket expenses, and significant management time in connection with performing its obligations under this subsection in an amount not to exceed $40,000 annually. Further, Bank agrees that it shall cooperate with any securitization investor, lender, trustee, agent or other relevant party (a “Securitization Counterparty”) in connection with any such Securitization Counterparty’s exercise of its rights and remedies under the applicable securitization transaction documents, including, without limitation, any right any such Securitization Counterparty may have to transfer servicing of the securitized Receivables to a back-up servicer or other servicing entity following a servicing default under or as otherwise contemplated by the securitization transaction documents. In addition, Bank will cooperate with any Securitization Counterparty in obtaining information or documentation, including loan file items, as reasonably requested by such Securitization Party in connection with its exercise of rights and remedies under the applicable securitization transaction documents, and reasonable administrative costs, out-of-pocket expenses, and significant management time incurred by Bank in that connection will be subject to compensation by Receivables Purchaser as described above. |
5. |
General Representations and Warranties of Bank. |
(a) |
Bank hereby represents and warrants as of the Effective Date of this Agreement that: |
(1) |
Bank is duly organized and validly existing under the laws of Missouri; |
(2) |
Bank is a FDIC insured, Missouri state-chartered, non-member bank that accepts insured deposits from affiliated and non-affiliated companies, and is a federally insured state-chartered depository institution for the purposes of section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980, 12 U.S.C. § 1831(d); |
(3) |
Bank has full corporate power and authority to execute, deliver, and perform its obligations under this Agreement; the execution, delivery and performance of this Agreement and the transfer of the Receivables have been and will continue to be duly authorized and are not and will not be in conflict with and do not violate the terms of the charter or bylaws of Bank and will not result in a material breach of or constitute a default under, or require any consent under, any indenture, loan or agreement to which Bank is a party; |
(4) |
All approvals, authorizations, licenses, registrations, consents, and other actions by notices to, and filings with, any Person that may be required in connection with the execution, delivery, and performance of this Agreement by Bank, have been obtained (other than those required to be made to or received from Borrowers and Applicants); |
(5) |
This Agreement constitutes a legal, valid, and binding obligation of Bank, enforceable against Bank in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship or other similar laws now or hereafter in effect, including the rights and obligations of receivers and conservators under 12 U.S.C. §§ 1821(d) and (e) which may affect the enforcement of creditors rights in general, and as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); |
(6) |
There are no proceedings or investigations pending or, to the best knowledge of Bank, threatened against Bank asserting the invalidity of this Agreement, seeking to prevent the consummation of any of the transactions contemplated by this Agreement, seeking any determination or ruling that, in the reasonable judgment of Bank, would materially and adversely affect the performance by Bank of its obligations under this Agreement, seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement or would have a materially adverse financial effect on Bank or its operations if resolved adversely to it; |
(7) |
Bank is, and shall remain throughout the Term, adequately capitalized; |
(8) |
Bank is not Insolvent; |
(9) |
The Receivables were originated, and continue to exist, pursuant to the Bank’s Credit Policy, and the Bank’s Credit Policy has not been modified in any material manner; |
; and
(10) |
The execution, delivery and performance of this Agreement by Bank shall comply with all Applicable Laws. |
(b) |
With the exception of those representations and warranties contained in Section 5(a)(6), the representations and warranties set forth in this Section 5 shall be made continuously throughout the Term. In the event that any investigation or proceeding of the nature described in Section 5(a)(6) is instituted or threatened against Bank, Bank shall promptly notify Receivables Purchaser of such pending or threatened investigation or proceeding. |
6. |
Additional Representations and Warranties of Bank. |
(a) |
Bank hereby represents and warrants that, as of the Effective Date or such other date as specified below in a specific representation: |
(1) |
As of each Closing Date, each Receivable conveyed to Receivables Purchaser on such date was originated by Bank and such conveyance constitutes a valid sale, transfer, assignment, set-over and conveyance to Receivables Purchaser of all of Bank’s right, title, and interest in and to such Receivable; |
(2) |
As of each Closing Date, Bank was the legal and beneficial owner of all right, title and interest in and to each Receivable conveyed to Receivables Purchaser on such date, and no Receivable was subject to an encumbrance, immediately prior to the transfer of the Receivable to Receivables Purchaser pursuant hereto; |
(3) |
As of the Effective Date and each Closing Date, Bank was adequately capitalized; |
(4) |
There are no proceedings or investigations pending or, to the best knowledge of Bank, threatened against Bank asserting the invalidity of this Agreement, seeking to prevent the consummation of any of the transactions contemplated by the parties pursuant to this Agreement, seeking any determination or ruling that, in the reasonable judgment of Bank, would materially and adversely affect Bank’s ability to perform this Agreement, seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement, or would have a materially adverse financial effect on Bank or its operations if resolved adversely to it; |
(5) |
Bank shall maintain its membership in, and be in compliance with the Operating Rules applicable to, the card association or associations of which it is a member for the issuance of any Loan Account; |
(6) |
Bank shall maintain its records in a manner to clearly and unambiguously reflect the ownership of Receivables Purchaser in each of the Receivables transferred hereunder; and |
(7) |
As of the Closing Date, with respect to each Receivable: Bank has done nothing that would alter the terms and conditions or the amount of the Receivable or impair its enforceability; and there is no limit on Bank's authority to assign the Receivable. |
(b) |
With the exception of those representations and warranties contained in Section 6(a)(4), the representations and warranties set forth in this Section 6 shall be made continuously throughout the Term of this Agreement. In the event that any investigation or proceeding of the nature described in Section 6 is instituted or threatened against Receivables Purchaser, Receivables Purchaser shall promptly notify Bank of such pending or threatened investigation or proceeding. |
7. |
Representations, Warranties and Covenants of Receivables Purchaser. |
(a) |
Receivables Purchaser hereby represents and warrants to Bank, as of the Effective Date that: |
(1) |
Receivables Purchaser is a limited liability company, duly organized and validly existing in good standing under the laws of Georgia, and has full power and authority to execute, deliver, and perform its obligations under this Agreement; the execution, delivery, and performance of this Agreement have been duly authorized, and are not in conflict with and do not violate the terms of the Receivables Purchaser’s operating agreement or other organizational documents and will not result in a material breach of or constitute a default under or require any consent under any indenture, loan, or agreement to which Receivables Purchaser is a party; |
(2) |
All approvals, authorizations, consents, and other actions by, notices to, and filings with any Person required to be obtained for the execution, delivery, and performance of this Agreement by Receivables Purchaser, have been obtained or will be acquired prior to engaging in the activity or activities under this Agreement giving rise to the need for such approvals, authorizations or consents; |
(3) |
This Agreement constitutes a legal, valid, and binding obligation of Receivables Purchaser, enforceable against Receivables Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect, which may affect the enforcement of creditors’ rights in general, and as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); |
(4) |
There are no proceedings or investigations pending or, to the best knowledge of Receivables Purchaser, threatened against Receivables Purchaser asserting the invalidity of this Agreement, seeking to prevent the consummation of any of the transactions contemplated by the parties pursuant to this Agreement, seeking any determination or ruling that, in the reasonable judgment of Receivables Purchaser, would materially and adversely affect Receivables Purchaser’s ability to perform this Agreement, seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement, or would have a materially adverse financial effect on Receivables Purchaser or its operations if resolved adversely to it; |
(5) |
Receivables Purchaser is not Insolvent; and |
(6) |
The execution, delivery and performance of this Agreement by Receivables Purchaser, shall comply with Applicable Laws. |
(b) |
With the exception of those representations and warranties contained in Section 7(a)(4), the representations and warranties set forth in this Section 7 shall be made continuously throughout the Term. In the event that any investigation or proceeding of the nature described in Section 7(a)(4) is instituted or threatened against Receivables Purchaser, Receivables Purchaser shall promptly notify Bank of such pending or threatened investigation or proceeding. |
8. |
Conditions Precedent to the Obligations of Receivables Purchaser. |
The obligations of Receivables Purchaser under this Agreement are subject to the satisfaction of the following conditions precedent on or prior to each Closing Date:
(a) |
As of each Closing Date, no action or proceeding shall have been instituted or threatened against Receivables Purchaser or Bank to prevent or restrain the consummation of the transactions contemplated hereby, and, on each Closing Date, there shall be no injunction, decree, or similar restraint preventing or restraining such consummation; |
(b) |
The representations and warranties of Bank set forth in Sections 5 and 6 shall be true and correct in all material respects on each Closing Date as though made on and as of such date; |
(c) |
The obligations of Bank set forth in this Agreement to be performed on or before each Closing Date shall have been performed in all material respects as of such date by Bank; and |
(d) |
Bank shall be in compliance with Section 4(f), Bank shall not have made any changes described in that Subsection nor given the notice described in that Subsection; provided, however, that Receivables Purchaser shall be permitted to waive Bank’s obligations in Section 4(f). |
9. |
Conditions Precedent to the Obligations of Bank. |
The obligations of Bank in this Agreement are subject to the satisfaction of the following conditions precedent on or prior to each Closing Date:
(a) |
As of each Closing Date, no action or proceeding shall have been instituted or threatened against Receivables Purchaser or Bank to prevent or restrain the consummation of the purchase or other transactions contemplated hereby, and, on each Closing Date, there shall be no injunction, decree, or similar restraint preventing or restraining such consummation; |
(b) |
The representations and warranties of Receivables Purchaser set forth in this Agreement shall be true and correct in all material respects on each Closing Date as though made on and as of such date; and |
(c) |
The obligations of Receivables Purchaser set forth in this Agreement to be performed on or before each Closing Date shall have been performed in all material respects as of such date by Receivables Purchaser. |
10. |
Term and Termination; Transition and Wind-Down. |
(a) |
This Agreement shall have an initial term beginning on the Effective Date and ending at midnight on March 31, 2030 (the "Initial Term”), and shall renew automatically for successive terms of one (1) year each (each a "Renewal Term") unless either Party provides notice of non-renewal to the other Party, at least one hundred and eighty (180) days prior to the end of the Initial Term or any Renewal Term. The Initial Term together with all Renewal Terms are referred to as the "Term." |
(b) |
A Party shall have the right to terminate this Agreement immediately upon written notice to the other Party in any of the following circumstances: |
(1) |
any representation or warranty made by the other Party in this Agreement shall be incorrect in any material respect and shall not have been corrected within thirty (30) Business Days after written notice thereof has been given to such other Party; |
(2) |
the other Party shall default in the performance of any material obligation or undertaking under this Agreement and such default shall continue for thirty (30) Business Days after written notice thereof has been given to such other Party; |
(3) |
the other Party shall commence a voluntary case or other proceeding seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, receivership, conservatorship or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, conservator, custodian, or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of a trustee, receiver, liquidator, conservator, custodian, or other similar official or to any involuntary case or such proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; |
(4) |
an involuntary case or other proceeding, whether pursuant to banking regulations or otherwise, shall be commenced against the other Party seeking liquidation, reorganization, or other relief with respect to it or its debts under any bankruptcy, insolvency, receivership, conservatorship or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, conservator, custodian, or other similar official of it or any substantial part of its property or an order for relief shall be entered against either Party under the federal bankruptcy laws as now or hereafter in effect. |
(c) |
In addition to the foregoing termination rights, Bank may terminate this Agreement: immediately if Receivables Purchaser defaults on its obligation to make a payment to Bank as provided in Section 2 hereof and fails to cure such default within two Business Days of receiving notice of such default from Bank; or immediately upon written notice to Receivables Purchaser if Receivables Purchaser (A) fails to maintain the Required Balance in the Collateral Account as required by Section 33 hereof; or (B) defaults on its obligation to make a payment to Bank as provided in Section 2 hereof on more than three Business Days in any two week period or five or more Business Days during any six month period, notwithstanding, in each case, that such defaults may be cured by Receivables Purchaser on the next Business Day. |
(d) |
Either Party may terminate this Agreement as provided in Section 19(a)(3) or 19(b)(3). |
(e) |
The expiration or termination of this Agreement and of any post-termination transition period under Section 10(g) shall not discharge any Party from any obligation incurred prior to such expiration or termination, including any obligation with respect to Receivables sold prior to such expiration or termination. |
(f) |
Following the expiration or termination of this Agreement and of any post-termination transition period under Section 10(g), Receivables Purchaser shall purchase any Receivables arising in Active Loan Accounts originated by Bank prior to and on the date of the expiration or termination of this Agreement and any Transition Period that have not already been purchased by Receivables Purchaser. |
(g) |
Transition and Wind-Down. |
(i) General Obligations. Upon the expiration or termination of this Agreement, A) Receivables Purchaser may require Bank to transfer the Loan Accounts to a Person designated by Receivables Purchaser (any such Person, a “Successor”) in accordance with Applicable Law and pursuant to Section 10 (g) (iv) or B) the Program shall be wound down in accordance with Applicable Law and pursuant to Section 10 (g) (v).
(ii) Transition Period.
A. |
Unless this Agreement terminates upon notice from Bank under Sections 10 (b) (1), 10 (b) (2), 10 (b) (3) or 10 (b) (4), upon termination or expiration of the Agreement, there shall be a post-termination transition period established pursuant to this Section 10 (the “Transition Period”). In the case of any termination of this Agreement upon notice from Bank under Sections 10 (b) (1), 10 (b) (2), 10 (b) (3) or 10 (b) (4), Bank may suspend or terminate Loan Accounts and cease funding Loan Accounts immediately except to the extent Applicable Law requires prior notice to the related Borrowers, in which case such Loan Accounts shall be wound down in accordance herewith as soon as possible under such Applicable Law. |
B. |
Each Party acknowledges that the goals of the Transition Period include benefitting the Borrowers by minimizing any possible burdens or confusion, and protecting and enhancing the names and reputations of Bank, the Receivables Purchaser, the Brands and other Program-specific features. |
(iii) Transition Process. Within fifteen (15) Business Days following expiration of this Agreement or receipt or delivery of a termination notice, other than termination for by Bank under Sections 10 (b) (1), 10 (b) (2), 10 (b) (3) or 10 (b) (4), Receivables Purchaser shall provide to Bank in writing a proposed transition plan, detailing A) whether the Loan Accounts should be transferred to a Successor; and B) a proposed Transition Period, which shall designate a date as of which the Loan Accounts shall be transferred from Bank to a Successor (“Switchover Date”). The Parties shall meet promptly thereafter to finalize a mutually agreed transition plan and Switchover Date. The Transition Period shall not exceed one-hundred and eighty (180) days after expiration of this Agreement or the date the termination notice is received; provided, however, that the Transition Period may be extended as required under Applicable Law.
(iv) Transfer. In the event that Receivables Purchaser elects to require Bank to transfer the Loan Accounts to a Successor, Bank’s obligations with respect to such transfer shall be limited to executing and delivering an account transfer agreement to transfer the Loan Accounts to a Successor without recourse to Bank. Upon the execution of the transfer agreement, and in consideration of the Bank’s transfer of the Loan Accounts to a Successor, Receivables Purchaser will (i) pay to Bank an amount that is [*****].
(v) No Transfer. If Receivables Purchaser elects not to require Bank to transfer the Loan Accounts to a Successor, or if a Successor previously identified as provided herein is unable to acquire the Loan Accounts by the Switchover Date, Receivables Purchase acknowledges and agrees that Bank may close any open Loan Accounts as soon as permitted under Applicable Law.
(vi) Press Releases. In no event shall a Party make any public statement or customer communication regarding the termination, any actual or potential transfer of the Loan Accounts to a Successor, or wind-down of this Agreement without the express prior written approval of the other Party, which approval shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, A) each Party may communicate the termination or expiration of this Agreement or of the applicable Transition Period of this Agreement to (1) any third party with which it has contracted to provide services for the Loan Accounts and (2) any Regulatory Authority, and to any Person to the extent required by Applicable Laws or the directions of a Regulatory Authority, and B) Receivables Purchaser may communicate the termination or expiration of this Agreement or of the applicable Transition Period to any third party with which it desires to negotiate to serve as the Successor for the Loan Accounts.
(vii) Further Assurances. Each Party shall A) give such further assurances to the Successor and shall execute, acknowledge and deliver all such acknowledgments, assignments and other instruments and take such further action as may be reasonably necessary and appropriate to effectively vest in the Successor the full legal and equitable title to the Loan Accounts acquired by the Successor in the transition of the Program and B) make commercially reasonable efforts to assist the Successor in the orderly transition of the operations being acquired by the Successor. The Parties agree to work in good faith to assure a smooth transition of the Program and continuity of operations with respect to the Program.
(h) |
Sections 5, 6, 7, 10 (g), 11, 12, 15, 16, 17, 18, 23, 24, 27, 28, 29, 30, 31 and 33 of this Agreement shall survive the expiration or termination of this Agreement and any post-termination transition period under Section 10 (g). |
11. |
Confidentiality. |
(a) |
Each Party agrees that Confidential Information of the other Party shall be used by such Party solely in the performance of its obligations and exercise of its rights pursuant to this Agreement. Except as required by Applicable Laws or legal process, neither Party (the “Restricted Party”) shall disclose Confidential Information of the other Party to third parties; provided, however, that the Restricted Party may disclose Confidential Information of the other Party to the Restricted Party's Affiliates, agents, representatives or subcontractors for the sole purpose of fulfilling the Restricted Party’s obligations under this Agreement (as long as the Restricted Party exercises reasonable efforts to prohibit any further disclosure by its Affiliates, agents, representatives or subcontractors), provided that in all events, the Restricted Party shall be responsible for any breach of the confidentiality obligations hereunder by and of its Affiliates, agents (other than Receivables Purchaser as agent for Bank), representatives or subcontractors, to the Restricted Party’s auditors, accountants and other professional advisors, or to a Regulatory Authority, or to any other third party as mutually agreed by the Parties. |
(b) |
A Party's Confidential Information shall not include information that: |
(1) |
is generally available to the public; |
(2) |
has become publicly known, without fault on the part of the Party who now seeks to disclose such information (the “Disclosing Party”), subsequent to the Disclosing Party acquiring the information; |
(3) |
was otherwise known by, or available to, the Disclosing Party prior to entering into this Agreement; or |
(4) |
becomes available to the Disclosing Party on a non-confidential basis from a Person, other than a Party to this Agreement, who is not known by the Disclosing Party after reasonable inquiry to be bound by a confidentiality agreement with the non-Disclosing Party or otherwise prohibited from transmitting the information to the Disclosing Party. |
(c) |
Upon written request or upon the expiration or termination of this Agreement and of any post-termination transition period under Section 10(g), each Party shall return to the other Party all Confidential Information of the other Party in its possession that is in written form, including by way of example, but not limited to, reports, plans, and manuals; provided, however, that either Party may maintain in its possession all such Confidential Information of the other Party required to be maintained under Applicable Laws relating to the retention of records for the period of time required thereunder. |
(d) |
In the event that a Restricted Party is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information of the other Party, the Restricted Party will provide the other Party with prompt notice of such request(s) so that the other Party may seek an appropriate protective order or other appropriate remedy and/or waive the Restricted Party’s compliance with the provisions of this Agreement. In the event that the other Party does not seek such a protective order or other remedy, or such protective order or other remedy is not obtained, or the other Party grants a waiver hereunder, the Restricted Party may furnish that portion (and only that portion) of the Confidential Information of the other Party which the Restricted Party is legally compelled to disclose and will exercise such efforts to obtain reasonable assurance that confidential treatment will be accorded any Confidential Information of the other Party so furnished as the Restricted Party would exercise in assuring the confidentiality of any of its own confidential information. |
12. |
Indemnification. |
(a) |
Bank agrees to indemnify, defend and hold harmless Receivables Purchaser and its Affiliates, and the officers, directors, employees, representatives, shareholders, agents and attorneys of such entities (the “Receivables Purchaser Indemnified Parties”) from and against any and all third-party claims or actions and related liability, judgments, damages, costs and expenses, including reasonable attorneys’ fees (“Losses”), that may arise from the gross negligence or willful misconduct of Bank or its agents or representatives; the breach by Bank or its agents or representatives of any of Bank’s covenants, obligations, representations, warranties or undertakings under this Agreement; or violation by Bank or any of its agents or representatives of Applicable Law. |
(b) |
Receivables Purchaser agrees to indemnify, defend and hold harmless Bank and its Affiliates and the officers, directors, employees, representatives, shareholders, agents and attorneys of such entities (the “Bank Indemnified Parties”) from and against any and all Losses, that may arise from the gross negligence or willful misconduct of Receivables Purchaser or its agents or representatives in connection with its performance of its obligations under this Agreement; breach by Receivables Purchaser or its agents or representatives of any of Receivables Purchaser covenants, obligations, representations, warranties or undertakings under this Agreement; or a violation by Receivables Purchaser or its agents or representatives or any other third-party acting on Receivables Purchaser’s behalf, of any Applicable Laws. |
(c) |
The Receivables Purchaser Indemnified Parties and the Bank Indemnified Parties are sometimes referred to herein as the “Indemnified Parties,” and Receivables Purchaser or Bank, as indemnitor hereunder, is sometimes referred to herein as the “Indemnifying Party.” |
(d) |
Any Indemnified Party seeking indemnification hereunder shall promptly notify the Indemnifying Party, in writing, of any notice of the assertion by any third party of any claim or of the commencement by any third party of any legal or regulatory proceeding, arbitration or action, or if the Indemnified Party determines the existence of any such claim or the commencement by any third party of any such legal or regulatory proceeding, arbitration or action, whether or not the same shall have been asserted or initiated, in any case with respect to which the Indemnifying Party is or may be obligated to provide indemnification (an “Indemnifiable Claim”), specifying in reasonable detail the nature of the Loss, and, if known, the amount, or an estimate of the amount, of the Loss, provided that failure to promptly give such notice shall only limit the liability of the Indemnifying Party to the extent of the actual prejudice, if any, suffered by such Indemnifying Party as a result of such failure. The Indemnified Party shall provide to the Indemnifying Party as promptly as practicable thereafter information and documentation reasonably requested by such Indemnifying Party to defend against the claim asserted. |
(e) |
The Indemnifying Party shall have thirty (30) days after receipt of any notification of an Indemnifiable Claim (a “Claim Notice”) to assume the defense of the Indemnifiable Claim and, through counsel of its own choosing, and at its own expense, to commence the settlement or defense thereof, and the Indemnified Party shall cooperate with the Indemnifying Party in connection therewith. The Indemnifying Party shall not settle any Indemnifiable Claim without the Indemnified Party’s consent, which consent shall not be unreasonably withheld or delayed for any reason if the settlement involves only payment of money, and which consent may be withheld for any reason if the settlement involves more than the payment of money, including any admission by the Indemnified Party. The Indemnified Party shall not pay or settle such claim without the Indemnifying Party’s consent, which consent shall not be unreasonably withheld or delayed. |
13. |
Assignment. |
This Agreement and the rights and obligations created under it shall be binding upon and inure solely to the benefit of the Parties and their respective successors, and permitted assigns. Neither Party shall not be entitled to assign or transfer any rights or obligations under this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. For the avoidance of doubt, nothing in this Agreement shall affect Receivables Purchaser right to sell or otherwise transfer Receivables purchased by Receivables Purchaser under this Agreement to any other Person.
14. |
Servicing. |
(a) |
During the Term and the Transition Period, Bank shall service and collect Active Loan Accounts in accordance with Bank’s usual standards for servicing and collecting Bank loan accounts. Bank shall not be obligated to use separate servicing procedures, offices, employees or accounts for servicing the Receivables from the servicing procedures, offices, employees and accounts used by Bank in connection with servicing other loan accounts originated by Bank. |
(b) |
Bank may at any time delegate its servicing obligations hereunder with respect to the Active Loan Accounts in the ordinary course of business. |
(c) |
Within twenty-one (21) days of the end of each calendar month, Receivables Purchaser shall pay Bank the Servicing Fees as defined and set forth in Schedule 2 hereto. |
(d) |
Any rebates, fees (however designated), discounts, revenues, interchange, compensation, incentives, payment, and any other direct or indirect distribution in cash or in kind, however designated, that are paid, credited, issued, granted, or otherwise given or by VISA, Inc., MasterCard Incorporated, or any other applicable card association or credit card sponsoring entity, or any of their affiliated entities, to Bank with respect, or apportionable, to the Loan Accounts shall be paid over to Purchaser as additional consideration under this Agreement net of any likewise corresponding billings, fees and similar costs or expenses due and owing by Bank with respect, or apportionable, to the Loan Accounts to Accounts. Any payments due Purchaser as provided herein shall be paid or credited to Purchaser within ten (10) days of the end of each calendar month. |
15. |
Third-Party Beneficiaries. |
Nothing contained herein shall be construed as creating a third-party beneficiary relationship between either Party and any other Person.
16. |
Notices. |
All notices and other communications that are required or may be given in connection with this Agreement shall be in writing and shall be deemed received on the day delivered, if delivered by hand; or the day transmitted, if transmitted by facsimile or e-mail with receipt confirmed; or three (3) Business Days after the date of mailing to the other party, if mailed first-class mail postage prepaid, at the following address, or such other address as either party shall specify in a notice to the other:
To Bank: The Bank of Missouri
916 North Kingshighway
Perryville, Missouri
Attn: Mr. Mark J Barker
Executive Vice President
With a copy to:
The Bank of Missouri
916 North Kingshighway
Perryville, Missouri
Attn: Kim Moore, Esq.
Vice President: General Counsel and
Compliance
To Receivables Purchaser:
Five Concourse Parkway Suite 300
Atlanta, Georgia 30328 Attn: President
With a copy to:
Five Concourse Parkway
Suite 300
Atlanta, GA 30328
Attn: General Counsel
17. |
Relationship of Parties. |
Bank and Receivables Purchaser agree that in performing their responsibilities pursuant to this Agreement, they are in the position of independent contractors. This Agreement is not intended to create, nor does it create and shall not be construed to create, a relationship of partner or joint venture or any association for profit between and among Bank and Receivables Purchaser
18. |
Retention of Records. |
Any Records with respect to Receivables purchased by Receivables Purchaser pursuant hereto retained by Bank shall be held as custodian for the benefit of Bank and of Receivables Purchaser as owner of the Receivables. Bank shall provide copies of Records to Receivables Purchaser upon reasonable request of Receivables Purchaser.
19. |
Agreement Subject to Applicable Laws. |
(a) |
Determination by Regulatory Authority. |
(1) |
If either Party receives a request of any Regulatory Authority having jurisdiction over such Party, including any letter or directive of any kind from any such Regulatory Authority, that prohibits or restricts such Party from carrying out its obligations under this Agreement: the Party receiving such request shall promptly notify the other Party; and the Parties shall meet and consider in good faith any modifications, changes or additions to the Program or this Agreement that may be necessary to eliminate such result. |
(2) |
During the period that the Parties are engaged in the discussions required under Section 19 (a)(1)(B), either Party may suspend performance of the obligations that are prohibited or restricted as a result of the request from the Regulatory Authority, by providing the other Party with advance written notice of such suspension. |
(3) |
If the Parties are unable to reach agreement regarding modifications, changes or additions to the Program or this Agreement to eliminate the prohibition or restrictions resulting from the request from the Regulatory Authority within twenty (20) Business Days after the Parties initially meet, either Party may terminate this Agreement upon ten (10) Business Days’ prior written notice to the other Party. |
(b) |
Advice of a Party’s Counsel. |
(1) |
If either Party has been advised in writing by legal counsel of a change in Applicable Laws or any judicial decision of a court having jurisdiction over such Party or any interpretation of a Regulatory Authority that, in the view of such legal counsel, would have a materially adverse effect on the rights or obligations of such Party under this Agreement or the financial condition of such Party, or either Party has been advised in writing by legal counsel that there is a material risk that such Party’s or the other Party’s continued performance under this Agreement would violate Applicable Laws, the Party receiving such written advice shall promptly notify the other Party and provide such written communication to the other party. |
(2) |
The Parties shall meet and discuss in good faith whether they mutually agree with such advice and any modifications, changes or additions to the Program or this Agreement that may be necessary to eliminate the result contemplated by such advice. |
(3) |
If both Parties agree with the advice described in Section 19 (b)(1), but are unable to reach agreement regarding the modifications, changes or additions to the Program or this Agreement described in Section 19 (b)(2)(B) within twenty (20) Business Days after the Parties initially meet, either Party may terminate this Agreement upon ten (10) Business Days’ prior written notice to the other Party. |
20. |
Expenses. |
Each Party shall be responsible for payment of any federal, state, or local taxes or assessments associated with the performance of its obligations under this Agreement. Unless expressly provided herein otherwise, each Party shall bear the costs and expenses of performing its obligations under this Agreement.
21. |
Examination. |
Each Party agrees to timely submit to any examination that may be required by a Regulatory Authority having jurisdiction over the other Party, during regular business hours and upon reasonable prior notice, and to otherwise provide reasonable cooperation to the other Party in responding to such Regulatory Authorities’ inquiries and requests relating to the Program.
22. |
Inspection; Reports. |
(a) |
Each Party, upon reasonable prior notice from the other Party, agrees to promptly and timely submit to an inspection of its books, records, accounts, and facilities relevant to the Program, from time to time, during regular business hours subject, in the case of Bank, to the duty of confidentiality it owes to its customers and banking secrecy and confidentiality requirements otherwise applicable under Applicable Laws, for the limited purpose of auditing the other Party’s compliance with this Agreement. All expenses of inspection shall be borne by the Party conducting the inspection. |
(b) |
Receivables Purchaser shall provide to Bank relevant financial statement data reasonably requested by Bank, including all quarterly financial statements. Receivables Purchaser will provide such quarterly financial statements to Bank within 45 days of the completion of each applicable quarter. |
23. |
Governing Law. |
Except as preempted or controlled by federal law, this Agreement shall be interpreted and construed in accordance with the laws of the State of Missouri, without giving effect to the rules, policies, or principles thereof with respect to conflicts of laws.
24. |
Jurisdiction; Venue. |
The Parties consent to the personal jurisdiction and venue of the federal and state courts in Missouri for any court action or proceeding.
25. |
Manner of Payments. |
Unless the manner of payment is expressly provided herein, all payments under this Agreement shall be made by ACH transfer to the bank accounts designated by the respective Parties. The parties agree that ACH entries will be governed by the NACHA Operating Rules. Notwithstanding anything to the contrary contained herein, neither Party shall be excused from making any payment required of it under this Agreement as a result of a breach or alleged breach by the other Party of any of its obligations under this Agreement or any other agreement, provided that the making of any payment hereunder shall not constitute a waiver by the Party making the payment of any rights it may have under this Agreement or by law.
26. |
Brokers. |
Neither Party has agreed to pay any fee or commission to any agent, broker, finder, or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the transactions contemplated hereby that would give rise to any valid claim against the other Party for any brokerage commission or finder’s fee or like payment.
27. |
Entire Agreement. |
This Agreement, including schedules and exhibits, constitute the entire agreement between the Parties with respect to the subject matter hereof, and supersedes any prior or contemporaneous negotiations or oral or written agreements with regard to the same subject matter.
28. |
Amendment and Waiver. |
This Agreement may not be amended orally, but only by a written instrument signed by all Parties. The failure of any Party to require the performance of any term of this Agreement or the waiver by any Party of any default under this Agreement shall not prevent a subsequent enforcement of such term and shall not be deemed a waiver of any subsequent breach. All waivers must be in writing and signed by the Party against whom the waiver is to be enforced.
29. |
Severability. |
Any provision of this Agreement which is deemed invalid, illegal or unenforceable in any jurisdiction, shall, as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining portions hereof in such jurisdiction or rendering such provision or any other provision of this Agreement invalid, illegal, or unenforceable in any other jurisdiction.
30. |
Interpretation. |
The Parties acknowledge that each Party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments thereto, and the same shall be construed neither for nor against either Party, but shall be given a reasonable interpretation in accordance with the plain meaning of its terms and the intent of the Parties.
31. |
Headings. |
Captions and headings in this Agreement are for convenience only and are not to be deemed part of this Agreement.
32. |
Counterparts. |
This Agreement may be executed and delivered by the Parties in any number of counterparts, and by different parties on separate counterparts, each of which counterpart shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument.
33. |
Collateral Account. |
(a) |
Establishment of Collateral Account. Receivables Purchaser shall maintain cash collateral in a deposit account at the Bank for Receivables Purchaser’s obligations under this Agreement (“Collateral Account”). The Collateral Account shall be a segregated deposit account that shall hold only the funds provided by Receivables Purchaser to Bank (and adjusted, as provided herein) as collateral. |
(i) [*****].
(ii) [*****].
(iii) Adjustments to the Required Balance. If the Required Balance for any Monday (or, the next Business Day, if that Monday is not a Business Day) is greater than the immediately preceding Required Balance (or, in the case of the initial amount of the Collateral Account as provided for in Subsection 33 (a) (i), above, greater than the then-current balance in the Collateral Account), Receivables Purchaser shall initiate a wire transfer to the Collateral Account in an amount equal to the difference between the new Required Balance, and the previous week’s Required Balance. If the Required Balance for any Monday (or, the next Business Day, if that Monday is not a Business Day) is less than the immediately preceding Required Balance (or, in the case of the initial amount of the Collateral Account as provided for in subsection 33 (a) (i), above, less than the then-current balance in the Collateral Account), Bank shall initiate a wire transfer to Receivables Purchaser in an amount equal to the difference between the previous week’s Required Balance and the new Required Balance.
(iv) Shortfall. In the event the actual balance in the Collateral Account is less than the Required Balance after the adjustments provided for in Subsection 33 (a) (iii), Receivables Purchaser shall, within one (1) Business Day following notice of such deficiency, make a payment into the Collateral Account in an amount equal to the difference between the Required Balance and the actual balance in the Collateral Account.
(v) Reporting. Bank shall provide that reporting and data reasonably required by Receivables Purchaser for the adjustments provided for in Subsection 33 (a) (iii), above, on or before 11:00 a.m. Eastern Time each Monday (or, the next Business Day, if that Monday is not a Business Day).
Security Interest. Receivables Purchaser hereby grants Bank a security interest in the funds to be delivered to the Collateral Account, and any rights of Receivables Purchaser in the Collateral Account and the funds therein, and agrees to take such steps as Bank may reasonably require to perfect or protect the first position priority of such collateral for Receivables Purchaser’s obligations to Bank under this Agreement. Bank shall have all of the rights and remedies of a secured party under Applicable Laws with respect to the Collateral Account and the funds therein, and shall be entitled to exercise those rights and remedies in its discretion. Subject to maintaining its security interest in the Collateral Account, Bank agrees, that said security interest in the Collateral Account shall not restrict nor impair Receivables Purchaser’s right to securitize the Receivables.
(b) |
[*****]. |
(c) |
Withdrawals. |
(1) |
Bank shall have the right to withdraw amounts from the Collateral Account to fulfill any payment obligations of Receivables Purchaser under this Agreement on which Receivables Purchaser has defaulted, either during the Term or following expiration or termination of this Agreement and any post-termination transition period under Section 10(g). |
(2) |
Receivables Purchaser shall not have any right to withdraw amounts from the Collateral Account. |
(3) |
In the event the actual balance in the Collateral Account is more than the Required Balance, then, within one (1) Business Day, at Receivables Purchaser’s option, Receivables Purchaser may provide to Bank a report setting forth the calculation for the Required Balance and the extent to which the actual amount held in the Collateral Account at such time exceeds the Required Balance. Within two (2) Business Days after receipt of such a report from Receivables Purchaser, Bank shall withdraw from the Collateral Account any amount held therein that exceeds the Required Balance as of the date of such report and pay such amount to an account designated by Receivables Purchaser. |
(d) |
Termination of Collateral Account. Bank shall release any funds remaining in the Collateral Account [*****] days after the expiration or termination of this Agreement and any post-termination transition period under Section 10(g). |
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized officers as of the date first written above.
THE BANK OF MISSOURI
By: /s/ Mark Barker
Name: Mark Barker
Title: Chief Contract Services Officer
Date: January 15, 2025
FORTIVA FUNDING, LLC
By: /s/ Bettie Lass
Name: Bettie Lass
Title: Treasurer
Date: January 16, 2025
Schedule 1
Definitions
(a) |
"ACH" means Automated Clearinghouse. |
(b) |
“Active Loan Account” means a Loan Account [*****]. |
(c) |
“Affiliate” means, with respect to a Party, a Person who directly or indirectly controls, is controlled by or is under common control with the Party. For the purpose of this definition, the term “control” (including with correlative meanings, the terms controlling, controlled by and under common control with) means the power to direct the management or policies of such Person, directly or indirectly, through the ownership of twenty-five percent (25%) or more of a class of voting securities of such Person. |
(d) |
“Agreement” means this Amended and Restated Receivables Sale Agreement. |
(e) |
“Applicable Laws” means all federal, state and local laws, statutes, regulations and orders applicable to a Party or relating to or affecting any aspect of the Receivables Funding Program including, without limitation, the Loan Accounts and Receivables, all requirements of any Regulatory Authority having jurisdiction over a Party, as any such laws, statutes, regulations, orders and requirements may be amended and in effect from time to time during the term of this Agreement. |
(f) |
“Applicant” means an individual who is a consumer who requests a Loan Account from Bank as part of the Program. |
(g) |
“Bank Indemnified Parties” shall have the meaning set forth in Section 12(b). |
(h) |
“Borrower” means a Person for whom Bank has established or taken assignment of a Loan Account and/or who is liable, jointly or severally, for amounts owing with respect to a Loan Account. |
(i) |
“Borrower Data” means information that is provided to or obtained by Bank in the Program or otherwise regarding Applicants and Borrowers, including, but not limited to name, postal address, social security number, email address, telephone number, date of birth, Account number, security codes, valid to and from dates, as well as information and demographic data, data generated and/or created in connection with Account processing and maintenance activities, Account statementing and customer service, telephone logs and records and other documents and information necessary for the processing and maintenance of Accounts, and all “Nonpublic Personal Information” and “Personally Identifiable Financial Information” (as defined in 12 C.F.R. §§ 1016.3(p) and (q). |
(j) |
“Brand” means the Fortiva Brand, the Aspire Brand and any other brand adopted by the Bank for the Loan Accounts. |
(k) |
“Business Day” means any day, other than a Saturday or Sunday, or a day on which banking institutions in the State of Missouri are authorized or obligated by law or executive order to be closed. |
(l) |
“Claim Notice” shall have the meaning set forth in Section 12(e). |
(m) |
“Closing Date” means each date on which Receivables Purchaser pays Bank the Purchase Price for a Receivable and, pursuant to Section 2 hereof, acquires such Receivable from Bank. |
(n) |
“Collateral Account” has the meaning set forth in Section 33 (a). |
(o) |
“Confidential Information” means the terms and conditions of this Agreement, and any proprietary information or non-public information of a Party, including a Party’s proprietary analytical strategies, that is furnished to the other Party in connection with this Agreement. |
(p) |
“Credit Policy” means Bank’s credit criteria that Bank uses to approve or deny an Application, establish a Loan Account, and to authorize or decline a Loan Account Advance or modify any terms of a Loan Account (e.g. a credit line adjustment). |
(q) |
“Daily Purchase Statement” means the statement prepared by Receivables Purchaser each Business Day that contains the computation of the Purchase Price to be forwarded by Receivables Purchaser to Bank. |
(r) |
“Disclosing Party” shall have the meaning set forth in Section 11(b)(2). |
(s) |
“Effective Date” shall have the meaning set forth in the introductory paragraph of this Agreement. |
(t) |
“Eligible Loan Account” means, for the purposes of Schedule 2, a retail credit Loan Account, or a general purpose credit card account, in either case, a Loan Account that has not been sold, charged-off, or transferred to another party. |
(u) |
“Federal Funds Rate” means an interest rate, adjusted on the first day of each month, and equal to the Effective Federal Funds Rate, as published by the St. Louis Federal Reserve Bank’s FRED (Federal Reserve Economic Database) online database (available at: https://fred.stlouisfed.org/series/EFFR) for such first day of a month |
(v) |
“Indemnifiable Claim” shall have the meaning set forth in Section 12(d). |
(w) |
“Indemnified Parties” shall have the meaning set forth in Section 12(c). |
(x) |
“Indemnifying Party” shall have the meaning set forth in Section 12(c). |
(y) |
“Initial Term” shall have the meaning set forth in Section 10(a). |
(z) |
“Insolvent” means the failure to pay debts in the ordinary course of business, the inability to pay its debts as they come due or the condition whereby the sum of an entity’s debts is greater than the sum of its assets. |
(aa) |
“Interim Interest” means, for any Receivable, the interest that accrues between the time that such Receivable is generated and funded by Bank, and the time that Receivables Purchaser purchases that Receivable pursuant to Section 2, where the annual rate of such interest is five percent (5%) based on a 365 day year. |
(bb) |
“IP Address” means an Internet protocol address. |
(cc) |
“Loan Account” means an open- or close-ended loan account established by Bank, for which all or a portion of the Receivables have been conveyed by Bank to Receivables Purchaser pursuant to the terms hereof. |
(dd) |
“Loan Account Agreement” means the document containing the terms and conditions of a Loan Account including all disclosures required by Applicable Law. |
(ee) |
“Losses” shall have the meaning set forth in Section 12(a). |
(ff) |
“Operating Rules” means the by-laws, rules and regulations of Visa U.S.A., Inc. and MasterCard International Incorporated, and any other credit card association or credit card sponsoring entity whose credit cards are included in the Program. |
(gg) |
“Party” means either Receivables Purchaser or Bank and “Parties” means Receivables Purchaser and Bank. |
(hh) |
“Person” means any legal person, including any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, governmental entity, or other entity of similar nature. |
(ii) |
“Purchase Price” means as to each Closing Date and as to each Receivable, the principal amount of such Receivable which remains outstanding in accordance with the terms of the related Loan Agreement less any up-front fees, any third party fees and any discounts in respect of such outstanding principal amount, plus Interim Interest. |
(jj) |
“Purchase Price Account” shall have the meaning set forth in Section 2(b). |
(kk) |
“Receivable” shall have the meaning set forth in the second “Whereas” clause. |
(ll) |
“Receivables Funding Program” or “Program” shall have the meaning set forth in Section 2(f). |
(mm) |
“Receivables Purchaser Indemnified Parties” shall have the meaning set forth in Section 12(a). |
(nn) |
“Records” means any Loan Account Agreements, applications, change-of-terms notices, credit files, credit bureau reports, transaction data, records, or other documentation (including computer tapes, magnetic files, and information in any other format). |
(oo) |
“Regulatory Authority” means any federal, state or local regulatory agency or other governmental agency or authority having jurisdiction over a Party or any Loan Account or any other aspect of this Agreement. |
(pp) |
“Required Balance” shall have the meaning set forth in Section 33 (a). |
(qq) |
“Restricted Party” shall have the meaning set forth in Section 11 (a). |
(rr) |
“Servicing Fees” shall have the meaning set forth in Schedule 3. |
(ss) |
“Successor” shall have the meaning set forth in Section 10 (g). |
(tt) |
“Term” shall have the meaning set forth in Section 10(a). |
(uu) |
“Transition Period” has the meaning set forth in Section 10 (g). |
(vv) |
“URL” means a uniform resource locator. |
Schedule 2
Servicing Fees
Within twenty-one (21) days of the end of each calendar month, Receivables Purchaser shall pay Bank the following service fees (“Servicing Fees”):
Receivables Purchaser shall pay Bank a monthly servicing fee in the amount equal to:
(i) (a) the number of Active Loan Accounts existing as of the last business day of the immediately preceding calendar month, up to [*****], multiplied by [*****]; plus (b) the number of Active Loan Accounts existing as of the last business day of the immediately preceding calendar month, in excess of [*****], if any, multiplied by [*****]; plus
(ii) the sum of:
(a) (1) [*****] of payments made by Borrowers with respect to any Receivables arising in any retail credit Eligible Loan Accounts, for payments [*****]; plus (2) [*****]of payments made by Borrowers with respect to any Receivables arising in any retail credit Eligible Loan Accounts for any payments [*****]; (3) [*****] of payments made by Borrowers with respect to any Receivables arising in any retail credit Eligible Loan Accounts for any payments [*****]; and in each such case in (1), (2), and (3), for the payments received in good funds during the immediately preceding calendar month; plus
(b) (1) [*****]of payments made by Borrowers with respect to any Receivables arising in any general purpose Eligible Loan Accounts for payments [*****]; plus (2) [*****] of payments made by Borrowers with respect to any Receivables arising in any general purpose Eligible Loan Accounts for any payments [*****]; plus (3) [*****] of payments made by Borrowers with respect to any Receivables arising in any general purpose Eligible Loan Accounts for any payments [*****]; plus (4) [*****]of payments made by Borrowers with respect to any Receivables arising in any general purpose Eligible Loan Accounts for any payments [*****]; and in each such case in (1), (2), (3), and (4), for the payments received in good funds during the immediately preceding calendar month.
CERTAIN INFORMATION, IDENTIFIED BY [*****], HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED.
Exhibit 10.1(b)
FIRST AMENDMENT TO AMENDED AND RESTATED
RECEIVABLE SALES AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED RECEIVABLE SALES AGREEMENT (“First Amendment”) dated as January 1, 2025 is made by and between The Bank of Missouri a Missouri, state-chartered bank, having its principal location in Perryville, MO (“Bank”), and Fortiva Funding, LLC, (“Fortiva”), a Georgia limited liability company, having its principal location in Atlanta, Georgia.
WHEREAS, Bank and Fortiva are parties to the Amended and Restated Receivable Sales Agreement (the “Agreement”) dated as of January 1, 2025, and mutually desire to amend it as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, Bank and Fortiva agree as follows:
1. Amendment to Correct Misnaming of Parties in Section 6 (b).
The Parties acknowledge that the references to the Parties in Section 6 (b) of the Agreement are not consistent with the references to the Parties in Section 6 (a) of the Agreement. Accordingly, the Parties agree that Section 6 (b) of the Agreement shall be deleted in its entirety, and replaced with the following:
“With the exception of those representations and warranties contained in Section 6(a)(4), the representations and warranties set forth in this Section 6 shall be made continuously throughout the Term of this Agreement. In the event that any investigation or proceeding of the nature described in Section 6 is instituted or threatened against Bank, Bank shall promptly notify Receivables Purchaser of such pending or threatened investigation or proceeding.”
2. Amendment to Correct allocation of Collateral Account Interest in Section 33(b).
The Parties agree that Section 33(b) of the Agreement shall be deleted in its entirety, and replaced with the following:
[*****]
3. Miscellaneous
a. Effect of Amendment. This First Amendment is hereby incorporated into and made a part of the Agreement. Except as amended by this First Amendment, all of the terms of the Agreement shall remain in full force and effect.
b. Headings and Defined Terms. Captions and headings used in this First Amendment are for convenience only and are not to be deemed to amend the Agreement. Defined terms shall have the meaning specified herein, or, if not so specified, the meaning ascribed to them in the Agreement.
c. Governing Law. This First Amendment shall be interpreted and construed in accordance with the laws of the State of Missouri, without giving effect to the rules, policies or principles thereof with respect to conflicts of laws.
d. Counterparts. This First Amendment may be executed and delivered in any number of counterparts, and by different parties on separate counterparts, each of which counterpart shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this First Amendment to be executed as of the date indicated below.
THE BANK OF MISSOURI By: /s/ Mark Barker Name: Mark Barker Title: Chief Contract Services Officer Date: March 28, 2025 |
FORTIVA FUNDING, LLC By: /s/ Brian Stone Name: Brian Stone Title: President Date: __March 28, 2025 |
Exhibit 31.1
CERTIFICATIONS
I, Jeffrey A. Howard, certify that:
1. I have reviewed this Report on Form 10-Q of Atlanticus Holdings Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report; and
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the fourth fiscal period in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 8, 2025
|
|
/s/ JEFFREY A. HOWARD |
|
|
Jeffrey A. Howard |
|
|
President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, William R. McCamey, certify that:
1. I have reviewed this Report on Form 10-Q of Atlanticus Holdings Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report; and
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the fourth fiscal period in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 8, 2025
|
|
/s/ WILLIAM R. McCAMEY |
|
|
William R. McCamey |
|
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
The undersigned, as the President and Chief Executive Officer, and as the Chief Financial Officer, respectively, of Atlanticus Holdings Corporation, certify that, to the best of their knowledge and belief, the Quarterly Report on Form 10-Q for the period ended March 31, 2025, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Atlanticus Holdings Corporation at the dates and for the periods indicated. The foregoing certifications are made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) and shall not be relied upon for any other purpose.
This 8th day of May, 2025
|
|
/s/ JEFFREY A. HOWARD |
|
|
Jeffrey A. Howard |
|
|
President and Chief Executive Officer |
|
|
|
|
|
/s/ WILLIAM R. McCAMEY |
|
|
William R. McCamey |
|
|
Chief Financial Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Atlanticus Holdings Corporation and will be retained by Atlanticus Holdings Corporation and furnished to the Securities and Exchange Commission or its staff upon request.