CREDIT ACCEPTANCE CORP
For the period ended Jun 30, 2024. Filed Jul 31, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Jul 31, 2024
CACC$529.56+1.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-30.
0000885550-24-000069
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-31.
0000885550-24-000092
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 133 previous paragraphs and 185 current paragraphs.
94 unchanged; 32 reworded; 40 added; 7 removed; 0 previous and 19 current paragraphs rearranged.
Tables are not compared: 17 previous and 25 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (40)
Current report
•A larger decrease in forecasted collection rates
Current report
•Loss on sale of building
Current report
We recognized a $23.7 million loss during the second quarter of 2024 related to the sale of one of our two office buildings. The building was sold to reduce excess office space and eliminate the associated annual operating costs of approximately $2.1 million.
Current report
•A larger decrease in forecasted collection rates
Current report
The decrease in forecasted collection rates decreased forecasted net cash flows from our Loan portfolio by $220.1 million, or 2.2%, compared to a decrease in forecasted collection rates during the first six months of 2023 that decreased forecasted net cash flows from our Loan portfolio by $79.9 million, or 0.9%. The $220.1 million decrease in forecasted net cash flows for the first six months of 2024 was comprised of an ordinary decrease in forecasted net cash flows of $72.9 million, or 0.8%, and an adjustment applied to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $147.2 million, or 1.4%. The $79.9 million decrease in forecasted net cash flows for the first six months of 2023 was comprised of an ordinary decrease in forecasted net cash flows of $35.4 million, or 0.4%, and an adjustment to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $44.5 million, or 0.5%.
Current report
Unit and dollar volumes grew 22.6% and 18.3%, respectively, as compared to the first six months of 2023. The average balance of our Loan portfolio, which is our largest-ever, increased 12.7% as compared to the first six months of 2023.
Current report
Our average cost of debt increased from 5.0% to 7.1%, primarily a result of higher interest rates on recently-completed or -extended secured financings and recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.
Current report
•Loss on sale of building
Current report
We recognized a $23.7 million loss during the second quarter of 2024 as described above.
Current report
(2)The forecasted collection rate for 2024 Consumer Loans as of June 30, 2024 includes both Consumer Loans that were in our portfolio as of March 31, 2024 and Consumer Loans assigned during the most recent quarter. The following table provides forecasted collection rates for each of these segments:
Current report
During the second quarter of 2024, we applied an adjustment to our estimate of future net cash flows from our Loan portfolio, which reduced the forecasted collection rates for Consumer Loans assigned in 2022 through 2024. Consumer Loans assigned in 2022 have continued to underperform our expectations for the past several quarters. More recently, Consumer Loans assigned in 2023 have also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022. During the second quarter of 2024, we determined that we had sufficient Consumer Loan performance experience to estimate the magnitude by which we expect Consumer Loans assigned in 2022 through 2024 will likely underperform our historical collection rates on Consumer Loans with similar characteristics. Accordingly, we applied an adjustment to Consumer Loans assigned in 2022 through 2024 to reduce forecasted collection rates to what we believe the ultimate collection rates will be based on these trends. Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses. The implementation of this forecast adjustment during the second quarter of 2024 reduced forecasted net cash flows by $147.2 million, or 1.4%, and increased provision for credit losses by $127.5 million.
Current report
During the second quarter of 2023, we adjusted our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data. We had experienced a decrease in Consumer Loan prepayments to below-average levels and as a result, slowed our forecasted net cash flow timing. Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit. Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses. The implementation of the adjustment to our forecasting methodology during the second quarter of 2023 reduced forecasted net cash flows by $44.5 million, or 0.5%, and increased provision for credit losses by $71.3 million.
Current report
(4)The averages for 2024 Consumer Loans include both Consumer Loans that were in our portfolio as of March 31, 2024 and Consumer Loans assigned during the most recent quarter. The following table provides averages for each of these segments:
Current report
(3)The forecasted collection rate, advance rate and spread for 2024 Consumer Loans as of June 30, 2024 include both Consumer Loans that were in our portfolio as of March 31, 2024 and Consumer Loans assigned during the most recent quarter. The following table provides forecasted collection rates, advance rates, and spreads for each of these segments:
Current report
Operating Expenses. The increase of $7.4 million, or 6.3%, was primarily due to:
Current report
•An increase in salaries and wages expense of $5.6 million, or 8.0%, primarily due to an increase in the number of team members as we are investing in our business with the goal of increasing the speed at which we enhance our product for Dealers and consumers.
Current report
•An increase in general and administrative expense of $2.7 million, or 13.2%, primarily due to an increase in technology systems expenses.
Current report
Provision for Credit Losses. The increase of $70.1 million, or 28.0%, was primarily due to an increase in provision for credit losses on forecast changes.
Current report
The increase in provision for credit losses related to forecast changes was primarily due to a greater decline in Consumer Loan performance during the second quarter of 2024 compared to the second quarter of 2023.
Current report
During the second quarter of 2024, we decreased our estimate of future net cash flows by $189.3 million, or 1.7%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments, which remain at below-average levels. Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit. The $189.3 million decrease in forecasted net cash flows for the second quarter of 2024 was comprised of an ordinary decrease in forecasted net cash flows of $42.1 million, or 0.3%, and an adjustment applied to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $147.2 million, or 1.4%, and increased our provision for credit losses by $127.5 million. Consumer Loans assigned in 2022 have continued to underperform our expectations for the past several quarters. More recently, Consumer Loans assigned in 2023 have also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022. During the second quarter of 2024, we determined that we had sufficient Consumer Loan performance experience to estimate the magnitude by which we expect Consumer Loans assigned in 2022 through 2024 will likely underperform our historical collection rates on Consumer Loans with similar characteristics. Accordingly, we applied an adjustment to Consumer Loans assigned in 2022 through 2024 to reduce forecasted collection rates to what we believe the ultimate collection rates will be based on these trends.
Current report
During the second quarter of 2023, we decreased our estimate of future net cash flows by $89.3 million, or 0.9%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments to below-average levels. The $89.3 million decrease in forecasted net cash flows for the second quarter of 2023 was comprised of an ordinary decrease in forecasted net cash flows of $44.8 million, or 0.4%, and an adjustment to our forecasting methodology, which upon implementation, decreased our estimate of future net cash flows by $44.5 million, or 0.5%, and increased our provision for credit losses by $71.3 million. We adjusted our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data.
Current report
•An increase in our average cost of debt, which increased interest expense by $27.3 million. The increase in our cost of debt was primarily a result of higher interest rates on recently-completed or -extended secured financings and recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.
Current report
Loss on Sale of Building. For the three months ended June 30, 2024, we recognized a loss on sale of a building of $23.7 million. For additional information, see Note 7 to the consolidated financial statements contained in Part I - Item 1 of this Form 10-Q, which is incorporated herein by reference.
Current report
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Current report
Finance Charges. The increase of $104.8 million, or 12.2%, was primarily a result of an increase in the average net Loans receivable balance, as follows:
Current report
Operating Expenses. The increase of $16.2 million, or 6.9%, was primarily due to:
Current report
•An increase in salaries and wages expense of $6.9 million, or 4.7%, primarily due to an increase in the number of team members as we are investing in our business with the goal of increasing the speed at which we enhance our product for Dealers and consumers.
Current report
Provision for Credit Losses. The increase of $118.7 million, or 30.6%, was primarily due to an increase in provision for credit losses on forecast changes.
Current report
The increase in provision for credit losses related to forecast changes was primarily due to a greater decline in Consumer Loan performance during the first six months of 2024 compared to the first six months of 2023.
Current report
During the first six months of 2024, we decreased our estimate of future net cash flows by $220.1 million, or 2.2%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments, which remain at below-average levels. Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit. The $220.1 million decrease in forecasted net cash flows for the first six months of 2024 was comprised of an ordinary decrease in forecasted net cash flows of $72.9 million, or 0.8%, and an adjustment applied to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $147.2 million, or 1.4%, and increased our provision for credit losses by $127.5 million. Consumer Loans assigned in 2022 have continued to underperform our expectations for the past several quarters. More recently, Consumer Loans assigned in 2023 have also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022. During the second quarter of 2024, we determined that we had sufficient Consumer Loan performance experience to estimate the magnitude by which we expect Consumer Loans assigned in 2022 through 2024 will likely underperform our historical collection rates on Consumer Loans with similar characteristics. Accordingly, we applied an adjustment to Consumer Loans assigned in 2022 through 2024 to reduce forecasted collection rates to what we believe the ultimate collection rates will be based on these trends.
Current report
During the first six months of 2023, we decreased our estimate of future net cash flows by $79.9 million, or 0.9%, to reflect a decline in Consumer Loan prepayments to below-average levels. The $79.9 million decrease in forecasted net cash flows for the first six months of 2023 was comprised of an ordinary decrease in forecasted net cash flows of $35.4 million, or 0.4%, and an adjustment to our forecasting methodology, which upon implementation, decreased our estimate of future net cash flows by $44.5 million, or 0.5%, and increased our provision for credit losses by $71.3 million. We adjusted our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data.
Current report
Interest. The increase in interest expense of $79.8 million, or 68.1%, was due to:
Current report
•An increase in our average cost of debt, which increased interest expense by $57.2 million. The increase in our cost of debt was primarily a result of higher interest rates on recently-completed or -extended secured financings and recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.
Current report
•An increase in our average outstanding debt balance, which increased interest expense by $22.6 million. The increase in our average outstanding debt balance was primarily due to borrowings used to fund the growth of our Loan portfolio and stock repurchases.
Current report
Loss on Sale of Building. For the six months ended June 30, 2024, we recognized a loss on the sale of a building of $23.7 million. For additional information, see Note 7 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Current report
Provision for Income Taxes. For the six months ended June 30, 2024, our effective income tax rate increased to 44.7% from 21.3% for the six months ended June 30, 2023. The increase was primarily due to a decrease in pre-tax income, which increased the impact of an adjustment to an uncertain tax position for state income taxes recorded in the second quarter of 2024 and non-deductible executive compensation expense on our 2024 effective income tax rate. For additional information, see Note 12 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Current report
As the vast majority of our team members now work remotely, we had significant excess space in the two office buildings that we owned in Southfield, Michigan. During the second quarter of 2024, we sold the larger building for net sales proceeds of $3.2 million, and recognized a loss on sale of the building of $23.7 million. The loss on sale of the building represented the amount by which the$26.9 million carrying value of the building and its improvements, the related land and land improvements, and office furniture and equipment exceeded the net sales proceeds of $3.2 million.
Current report
On June 17, 2024, we extended the maturity of our revolving secured line of credit facility from June 22, 2026 to June 22, 2027. The interest rate on borrowings under the facility has changed from BSBY plus 187.5 basis points to SOFR plus 197.5 basis points.
Current report
On June 21, 2024, we increased the financing amount on the Term ABS 2022-2 financing from $200.0 million to $300.0 million and extended the date on which the financing will cease to revolve from December 15, 2025 to June 15, 2027.
Current report
During the second quarter of 2024, we applied an adjustment to our methodology for forecasting the amount of future net cash flows from our Loan portfolio, which reduced the forecasted collection rates for Consumer Loans assigned in 2022 through 2024. Consumer Loans assigned in 2022 have continued to underperform our expectations for the past several quarters. More recently, Consumer Loans assigned in 2023 have also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022. During the second quarter of 2024, we determined that we had sufficient Consumer Loan performance experience to estimate the magnitude by which we expect Consumer Loans assigned in 2022 through 2024 will likely underperform our historical collection rates on Consumer Loans with similar characteristics. Accordingly, we applied an adjustment to Consumer Loans assigned in 2022 through 2024 to reduce forecasted collection rates to what we believe the ultimate collection rates will be based on these trends. Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses. The implementation of this forecast adjustment during the second quarter of 2024 reduced forecasted net cash flows by $147.2 million, or 1.4%, and increased provision for credit losses by $127.5 million.
Removed paragraphs (7)
Previous report
The decrease in forecasted collection rates decreased forecasted net cash flows from our Loan portfolio by $30.8 million, or 0.3%, compared to stable forecasted collection rates during the first quarter of 2023 that increased forecasted net cash flows from our Loan portfolio by $9.4 million, or 0.1%.
Previous report
Provision for Credit Losses. The increase of $48.6 million, or 35.4%, was due to increases in provision for credit losses on forecast changes and provision for credit losses on new Consumer Loan assignments.
Previous report
The increase in provision for credit losses related to forecast changes was due to a decline in Consumer Loan performance and slower net cash flow timing during the first quarter of 2024 compared to the first quarter of 2023. During the first quarter of 2024, we decreased our estimate of future net cash flows by $30.8 million, or 0.3%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments, which remain at below-average levels. Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit. During the first quarter of 2023, we increased our estimate of future net cash flows by $9.4 million, or 0.1%, to reflect stable forecasted collection rates during the period; however, we slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments.
Previous report
•An increase in our average cost of debt, which was primarily a result of higher interest rates on recently-completed or -extended secured financings and recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.
Previous report
(1) Includes the unamortized debt discount.
Previous report
As a result of the “remote first” strategy, we have significant excess space in the two office buildings that we own, which are located in Southfield, Michigan. After exploring options to reduce our office space, we have made the preliminary decision to sell the larger building and consolidate into the smaller building that has served as our headquarters since 1993.
Previous report
The building that we intend to sell is currently scheduled for auction in mid-May 2024. As there is currently a significant amount of unoccupied office space in our region, we do not know whether the auction will result in a sale of the building. Additionally, we believe the market value of the building and its improvements, together with the related land and land improvements and office furniture and equipment, is significantly less than the carrying value of $27.5 million. We have evaluated the facts and circumstances of the potential auction sale, and we do not believe that the building currently meets all of the criteria necessary for us to reclassify it as held for sale. If we were to reclassify the building as held for sale, we would record an impairment charge to reduce its carrying value to its estimated market value less costs to sell.
Reworded paragraphs (32)
Previous wording
For the three months ended March 31, 2024, consolidated net income was $64.3 million, or $5.08 per diluted share, compared to consolidated net income of $99.5 million, or $7.61 per diluted share, for the same period in 2023, primarily due to increases in provision for credit losses and interest expense, partially offset by an increase in finance charges. Our results for the three months ended March 31, 2024 included:
Current wording
For the three months ended June 30, 2024, consolidated net loss was $47.1 million, or $3.83 per diluted share, compared to consolidated net income of $22.2 million, or $1.69 per diluted share, for the same period in 2023, primarily due to increases in provision for credit losses on forecast changes and interest expense, partially offset by an increase in finance charges. Our results for the three months ended June 30, 2024 included:
Previous wording
•A decrease in forecasted collection rates
Current wording
The decrease in forecasted collection rates decreased forecasted net cash flows from our Loan portfolio by $189.3 million, or 1.7%, compared to a decrease in forecasted collection rates during the second quarter of 2023 that decreased forecasted net cash flows from our Loan portfolio by $89.3 million, or 0.9%. The $189.3 million decrease in forecasted net cash flows for the second quarter of 2024 was comprised of an ordinary decrease in forecasted net cash flows of $42.1 million, or 0.3%, and an adjustment applied to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $147.2 million, or 1.4%. The $89.3 million decrease in forecasted net cash flows for the second quarter of 2023 was comprised of an ordinary decrease in forecasted net cash flows of $44.8 million, or 0.4%, and an adjustment to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $44.5 million, or 0.5%.
Previous wording
Forecasted profitability was lower than our estimates at March 31, 2023, due to a decline in forecasted collection rates since the first quarter of 2023 and slower forecasted net cash flow timing during 2023 and the first quarter of 2024, primarily as a result of a decrease in Consumer Loan prepayments, which remain at below-average levels.
Current wording
Forecasted profitability was lower than our estimates at June 30, 2023, due to a decline in forecasted collection rates since the second quarter of 2023 and slower forecasted net cash flow timing during 2023 and the first six months of 2024, primarily as a result of a decrease in Consumer Loan prepayments, which remain at below-average levels.
Previous wording
Unit and dollar volumes grew 24.1% and 20.2%, respectively, as compared to the first quarter of 2023. The average balance of our Loan portfolio, which is our largest-ever, increased 11.7% as compared to the first quarter of 2023.
Current wording
Unit and dollar volumes grew 20.9% and 16.3%, respectively, as compared to the second quarter of 2023. The average balance of our Loan portfolio, which is our largest-ever, increased 13.7% as compared to the second quarter of 2023.
Previous wording
The initial spread increased to 22.0% compared to 21.0% on Consumer Loans assigned in the first quarter of 2023.
Current wording
The initial spread increased to 22.0% compared to 21.2% on Consumer Loans assigned in the second quarter of 2023.
Previous wording
Our average cost of debt increased from 4.7% to 7.0%, primarily a result of higher interest rates on recently-completed or -extended secured financings and recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.
Current wording
Our average cost of debt increased from 5.3% to 7.2%, primarily a result of higher interest rates on recently-completed or -extended secured financings and recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.
Previous wording
Since the first quarter of 2023, we have repurchased approximately 728,000 shares, or 5.7% of the shares outstanding as of March 31, 2023.
Current wording
Since the second quarter of 2023, we have repurchased approximately 822,000 shares, or 6.4% of the shares outstanding as of June 30, 2023.
Previous wording
We use a statistical model to estimate the expected collection rate for each Consumer Loan at the time of assignment. We continue to evaluate the expected collection rate for each Consumer Loan subsequent to assignment. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast. By comparing our current expected collection rate for each Consumer Loan with the rate we projected at the time of assignment, we are able to assess the accuracy of our initial forecast. The following table compares our aggregated forecast of Consumer Loan collection rates as of March 31, 2024, with the aggregated forecasts as of December 31, 2023 and at the time of assignment, segmented by year of assignment:
Current wording
We use a statistical model to estimate the expected collection rate for each Consumer Loan at the time of assignment. We continue to evaluate the expected collection rate for each Consumer Loan subsequent to assignment. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast. By comparing our current expected collection rate for each Consumer Loan with the rate we projected at the time of assignment, we are able to assess the accuracy of our initial forecast. The following table compares our aggregated forecast of Consumer Loan collection rates as of June 30, 2024, with the aggregated forecasts as of March 31, 2024, as of December 31, 2023, and at the time of assignment, segmented by year of assignment:
Previous wording
Consumer Loans assigned in 2018 through 2020 have yielded forecasted collection results significantly better than our initial estimates, while Consumer Loans assigned in 2015, 2016, 2021, and 2022 have yielded forecasted collection results significantly worse than our initial estimates. For all other assignment years presented, actual results have been close to our initial estimates. For the three months ended March 31, 2024, forecasted collection rates declined for Consumer Loans assigned in 2021 through 2023 and were generally consistent with expectations at the start of the period for all other assignment years presented.
Current wording
Consumer Loans assigned in 2018 through 2020 have yielded forecasted collection results significantly better than our initial estimates, while Consumer Loans assigned in 2015, 2016, and 2021 through 2023 have yielded forecasted collection results significantly worse than our initial estimates. For all other assignment years presented, actual results have been close to our initial estimates. For the three months ended June 30, 2024, forecasted collection rates declined for Consumer Loans assigned in 2021 through 2024 and were generally consistent with expectations at the start of the period for all other assignment years presented. For the six months ended June 30, 2024, forecasted collection rates improved for Consumer Loans assigned in 2019, declined for Consumer Loans assigned in 2021 through 2024, and were generally consistent with expectations at the start of the period for all other assignment years presented.
Previous wording
The changes in forecasted collection rates for the three months ended March 31, 2024 and 2023 impacted forecasted net cash flows (forecasted collections less forecasted Dealer Holdback payments) as follows:
Current wording
The changes in forecasted collection rates for the three and six months ended June 30, 2024 and 2023 impacted forecasted net cash flows (forecasted collections less forecasted Dealer Holdback payments) as follows:
Previous wording
We have experienced increased levels of uncertainty associated with our estimate of the amount and timing of future net cash flows from our Loan portfolio since the beginning of 2020, with realized collections underperforming our expectations during the early stages of the COVID-19 pandemic, outperforming our expectations following the distribution of federal stimulus payments and enhanced unemployment benefits, and underperforming our expectations during the current economic environment. Forecasting collection rates accurately is challenging, so we have designed our business model to produce acceptable levels of profitability across our portfolio, even if Loan performance is less than forecasted in the aggregate. For the period from January 1, 2020 through March 31, 2024, the cumulative change to our forecast of future net cash flows from our Loan portfolio has been a decrease of $17.0 million, or 0.2%, as shown in the following table:
Current wording
We have experienced increased levels of uncertainty associated with our estimate of the amount and timing of future net cash flows from our Loan portfolio since the beginning of 2020, with realized collections underperforming our expectations during the early stages of the COVID-19 pandemic, outperforming our expectations following the distribution of federal stimulus payments and enhanced unemployment benefits, and underperforming our expectations during the current economic environment. For the period from January 1, 2020 through June 30, 2024, the cumulative change to our forecast of future net cash flows from our Loan portfolio has been a decrease of $206.3 million, or 2.3%, as shown in the following table:
Previous wording
(3)Represents activity for the three months ended March 31, 2024. Information in this table for each of the years prior to 2024 represents activity for all 12 months of that year.
Current wording
(3)Represents activity for the six months ended June 30, 2024. Information in this table for each of the years prior to 2024 represents activity for all 12 months of that year.
Previous wording
The spread between the forecasted collection rate as of March 31, 2024 and the advance rate ranges from 14.7% to 23.8%, on an annual basis, for Consumer Loans assigned over the last 10 years. The spreads with respect to 2019 and 2020 Consumer Loans have been positively impacted by Consumer Loan performance, which has exceeded our initial estimates by a greater margin than the other years presented. The spread with respect to 2022 Consumer Loans has been negatively impacted by Consumer Loan performance, which has been lower than our initial estimates by a greater margin than the other years presented. The higher spread for 2024 Consumer Loans relative to 2023 Consumer Loans as of March 31, 2024 was primarily a result of a higher initial spread on 2024 Consumer Loans, which was due to a decrease in the advance rate, partially offset by a lower initial forecast. Additionally, the performance of 2023 Consumer Loans has been lower than our initial estimates.
Current wording
The spread between the forecasted collection rate as of June 30, 2024 and the advance rate ranges from 13.7% to 23.8%, on an annual basis, for Consumer Loans assigned over the last 10 years. The spreads with respect to 2019 and 2020 Consumer Loans have been positively impacted by Consumer Loan performance, which has exceeded our initial estimates by a greater margin than the other years presented. The spread with respect to 2022 Consumer Loans has been negatively impacted by Consumer Loan performance, which has been lower than our initial estimates by a greater margin than the other years presented. The higher spread for 2024 Consumer Loans relative to 2023 Consumer Loans as of June 30, 2024 was primarily a result of Consumer Loan performance, as the performance of 2023 Consumer Loans has been lower than our initial estimates by a greater margin than 2024 Consumer Loans. Additionally, 2024 Consumer Loans had a higher initial spread, which was due to a decrease in the advance rate, partially offset by a lower initial forecast.
Previous wording
The spread as of March 31, 2024 on 2024 Dealer Loans was 22.0%, as compared to a spread of 21.3% on 2023 Dealer Loans. The increase was due to Consumer Loan performance, as the performance of 2023 Dealer Loans has been lower than our initial estimates.
Current wording
The spread as of June 30, 2024 on 2024 Dealer Loans was 21.3%, as compared to a spread of 18.5% on 2023 Dealer Loans. The increase was due to Consumer Loan performance, as the performance of 2023 Dealer Loans has been lower than our initial estimates by a greater margin than 2024 Dealer Loans.
Previous wording
The spread as of March 31, 2024 on 2024 Purchased Loans was 21.7%, as compared to a spread of 20.2% on 2023 Purchased Loans. The increase was primarily a result of a higher initial spread on 2024 Purchased Loans, due to a lower advance rate and higher initial forecast. The increase was partially offset by Consumer Loan performance, as the performance of 2023 Purchased Loans has exceeded our initial estimates.
Current wording
The spread as of June 30, 2024 on 2024 Purchased Loans was 21.3%, as compared to a spread of 17.9% on 2023 Purchased Loans. The increase was primarily a result of a higher initial spread on 2024 Purchased Loans, due to a higher initial forecast and lower advance rate. Additionally, the performance of 2023 Purchased Loans has been lower than our initial estimates by a greater margin than 2024 Purchased Loans.
Previous wording
Our strategy for accessing capital on acceptable terms needed to maintain and grow the business is to: (1) maintain consistent financial performance; (2) maintain modest financial leverage; and (3) maintain multiple funding sources. Our funded debt to equity ratio was 3.4 to 1 as of March 31, 2024. We currently utilize the following primary forms of debt financing: (1) our revolving secured line of credit facility; (2) Warehouse facilities; (3) Term ABS financings; and (4) senior notes.
Current wording
Our strategy for accessing capital on acceptable terms needed to maintain and grow the business is to: (1) maintain consistent financial performance; (2) maintain modest financial leverage; and (3) maintain multiple funding sources. Our funded debt to equity ratio was 3.8 to 1 as of June 30, 2024. We currently utilize the following primary forms of debt financing: (1) our revolving secured line of credit facility; (2) Warehouse facilities; (3) Term ABS financings; and (4) senior notes.
Previous wording
The following table summarizes changes in Consumer Loan assignment volume in each of the last five quarters as compared to the same period in the previous year:
Current wording
The following table summarizes changes in Consumer Loan assignment volume in each of the last six quarters as compared to the same period in the previous year:
Previous wording
Unit and dollar volumes grew 24.1% and 20.2%, respectively, during the first quarter of 2024 as the number of active Dealers grew 10.5% and the average unit volume per active Dealer increased 12.0%. Dollar volume increased less than unit volume during the first quarter of 2024 due to a decrease in the average advance paid, due to decreases in the average advance rate and the average size of Consumer Loans assigned. Unit volume for the 28-day period ended April 28, 2024 grew 11.4% compared to the same period in 2023.
Current wording
Unit and dollar volumes grew 20.9% and 16.3%, respectively, during the second quarter of 2024 as the number of active Dealers grew 8.9% and the average unit volume per active Dealer increased 10.7%. Dollar volume increased less than unit volume during the second quarter of 2024 due to a decrease in the average advance paid, due to decreases in the average advance rate and the average size of Consumer Loans assigned. Unit volume for the 28-day period ended July 28, 2024 grew 27.7% compared to the same period in 2023.
Previous wording
The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last five quarters:
Current wording
The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last six quarters:
Previous wording
As of March 31, 2024 and December 31, 2023, the net Dealer Loans receivable balance was 69.2% and 67.7%, respectively, of the total net Loans receivable balance.
Current wording
As of June 30, 2024 and December 31, 2023, the net Dealer Loans receivable balance was 70.5% and 67.7%, respectively, of the total net Loans receivable balance.
Previous wording
Due to the GAAP treatment of contractual net cash flows we do not expect to realize at the time of loan assignment (i.e. significant expense at the time of loan assignment, which is offset by higher revenue in subsequent periods), we do not believe the GAAP methodology we employ provides sufficient transparency into the economics of our business. For additional information, see Note 3 and Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Current wording
Due to the GAAP treatment of contractual net cash flows we do not expect to realize at the time of loan assignment (i.e. significant expense at the time of loan assignment, which is offset by higher revenue in subsequent periods), we do not believe the GAAP methodology we employ provides sufficient transparency into the economics of our business, including our results of operations, financial condition, and financial leverage. For additional information, see Note 3 and Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Previous wording
Finance Charges. The increase of $48.1 million, or 11.4%, was primarily due to an increase in the average net Loans receivable balance, as follows:
Current wording
Finance Charges. The increase of $56.7 million, or 12.9%, was primarily due to an increase in the average net Loans receivable balance, as follows:
Previous wording
Premiums Earned. The increase of $4.5 million, or 25.9%, was primarily due to growth in the size of our reinsurance portfolio, which resulted from growth in new Consumer Loan assignments and an increase in the average premium written per reinsured vehicle service contract in recent periods.
Current wording
Premiums Earned. The increase of $4.5 million, or 22.7%, was primarily due to growth in the size of our reinsurance portfolio, which resulted from growth in new Consumer Loan assignments and an increase in the average premium written per reinsured vehicle service contract in recent periods.
Previous wording
The increase in provision for credit losses related to new Consumer Loan assignments was primarily due to a 24.1% increase in Consumer Loan assignment unit volume, partially offset by a 14.5% decrease in the average provision per Consumer Loan assignment. The decrease in the average provision per Consumer Loan assignment was primarily due to a decrease in the average advance rate for 2024 Consumer Loans.
Current wording
The increase in provision for credit losses related to new Consumer Loan assignments was primarily due to a 20.9% increase in Consumer Loan assignment unit volume, partially offset by a 16.2% decrease in the average provision per Consumer Loan assignment. The decrease in the average provision per Consumer Loan assignment was primarily due to a decrease in the average advance rate for 2024 Consumer Loans.
Previous wording
Interest. The increase in interest expense of $38.1 million, or 70.0%, was due to:
Current wording
Interest. The increase in interest expense of $41.7 million, or 66.4%, was due to:
Previous wording
•An increase in the average outstanding debt principal balance, which was primarily due to borrowing used to fund the growth of our loan portfolio and stock repurchases.
Current wording
•An increase in our average outstanding debt balance, which increased interest expense by $14.4 million. The increase in our average outstanding debt balance was primarily due to borrowings used to fund the growth of our Loan portfolio and stock repurchases.
Previous wording
The following table presents the change in interest expense, average outstanding debt principal balance, and average cost of debt for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023:
Current wording
The following table presents the change in interest expense, average outstanding debt balance, and average cost of debt for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023:
Previous wording
Provision for Income Taxes. For the three months ended March 31, 2024, the effective income tax rate increased to 25.6% from 21.5% for the same period in 2023. The increase was primarily due to the impact of tax benefits recognized in 2023 related to our stock-based compensation plan. For additional information, see Note 12 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Current wording
Provision for Income Taxes. For the three months ended June 30, 2024, the effective income tax rate decreased to 14.8% from 20.4% for the same period in 2023. The decrease was primarily due to the impact of non-deductible executive compensation expense, which in the second quarter of 2024 reduced, rather than increased, our effective income tax rate, as we had a pre-tax loss in the period, compared to pre-tax income in the second quarter of 2023. For additional information, see Note 12 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Previous wording
Operating Expenses. The increase of $8.8 million, or 7.5%, was primarily due to an increase in general and administrative expenses of $5.7 million, or 31.7%, primarily due to increases in legal and technology systems expenses.
Current wording
•An increase in general and administrative expense of $8.4 million, or 21.8%, primarily due to increases in legal and technology systems expenses.
Previous wording
On February 16, 2024, we extended the $100.0 million Term ABS financing that we entered into on January 29, 2021 and to which we refer as Term ABS 2021-1. Under the amendment effecting the extension, the date on which the financing will cease to revolve has been extended from December 16, 2024 to February 17, 2026.
Current wording
On February 16, 2024, we extended the $100.0 million Term ABS 2021-1 financing and extended the date on which the financing will cease to revolve from December 16, 2024 to February 17, 2026.
Previous wording
Cash and cash equivalents were $8.4 million as of March 31, 2024 and $13.2 million as of December 31, 2023. As of March 31, 2024 and December 31, 2023, we had $1,355.5 million and $1,505.8 million, respectively, in unused and available lines of credit. Our total balance sheet indebtedness increased to $5,611.5 million as of March 31, 2024 from $5,067.5 million as of December 31, 2023.
Current wording
Cash and cash equivalents were $8.3 million as of June 30, 2024 and $13.2 million as of December 31, 2023. As of June 30, 2024 and December 31, 2023, we had $1,440.7 million and $1,505.8 million, respectively, in unused and available lines of credit. Our total balance sheet indebtedness increased to $5,946.6 million as of June 30, 2024 from $5,067.5 million as of December 31, 2023, primarily due to the growth in new Consumer Loan assignments and stock repurchases.
Previous wording
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we review our accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 discusses several critical accounting estimates, which we believe involve a high degree of judgment and complexity. There have been no material changes to the estimates and assumptions associated with these accounting estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Current wording
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we review our accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 discusses several critical accounting estimates, which we believe involve a high degree of judgment and complexity. There have been no material changes to the estimates and assumptions associated with these accounting estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023, except as described below.
Rearranged current paragraphs (19)
Current report — wording carried from elsewhere
For the six months ended June 30, 2024, consolidated net income was $17.2 million, or $1.37 per diluted share, compared to consolidated net income of $121.7 million, or $9.30 per diluted share, for the same period in 2023, primarily due to increases in provision for credit losses on forecast changes and interest expense, partially offset by an increase in finance charges. Our results for the six months ended June 30, 2024 included:
Current report — wording carried from elsewhere
•A decrease in forecasted profitability for Consumer Loans assigned in 2021 through 2024
Current report — wording carried from elsewhere
Forecasted profitability was lower than our estimates at June 30, 2023, due to a decline in forecasted collection rates since the first six months of 2023 and slower forecasted net cash flow timing during 2023 and the first six months of 2024, primarily as a result of a decrease in Consumer Loan prepayments, which remain at below-average levels.
Current report — wording carried from elsewhere
•Growth in Consumer Loan assignment volume and the average balance of our Loan portfolio
Current report — wording carried from elsewhere
•An increase in the initial spread on Consumer Loan assignments
Current report — wording carried from elsewhere
The initial spread increased to 22.0% compared to 21.1% on Consumer Loans assigned in the first six months of 2023.
Current report — wording carried from elsewhere
•An increase in our average cost of debt
Current report — wording carried from elsewhere
•A decrease in common shares outstanding due to stock repurchases
Current report — wording carried from elsewhere
Since the second quarter of 2023, we have repurchased approximately 822,000 shares, or 6.4% of the shares outstanding as of June 30, 2023.
Current report — wording carried from elsewhere
For additional information, see Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Current report — wording carried from elsewhere
The following is a discussion of our results of operations and income statement data on a consolidated basis.
Current report — wording carried from elsewhere
The following table summarizes the impact each component had on the overall increase in finance charges for the six months ended June 30, 2024:
Current report — wording carried from elsewhere
The increase in the average net Loans receivable balance was primarily due to the dollar volume of new Consumer Loan assignments exceeding the principal collected on Loans receivable.
Current report — wording carried from elsewhere
Premiums Earned. The increase of $9.0 million, or 24.2%, was primarily due to growth in the size of our reinsurance portfolio, which resulted from growth in new Consumer Loan assignments and an increase in the average premium written per reinsured vehicle service contract in recent periods.
Current report — wording carried from elsewhere
We recognize provision for credit losses on new Consumer Loan assignments for contractual net cash flows that are not expected to be realized at the time of assignment. We also recognize provision for credit losses on forecast changes in the amount and timing of expected future net cash flows subsequent to assignment. The following table summarizes the provision for credit losses for each of these components:
Current report — wording carried from elsewhere
For additional information, see Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Current report — wording carried from elsewhere
The increase in provision for credit losses related to new Consumer Loan assignments was due to a 22.6% increase in Consumer Loan assignment unit volume, partially offset by a 15.3% decrease in the average provision per Consumer Loan assignment. The decrease in the average provision per Consumer Loan assignment was primarily due to a decrease in the average advance rate for 2024 Consumer Loans.
Current report — wording carried from elsewhere
The following table presents the change in interest expense, average outstanding debt balance, and average cost of debt for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023:
Current report — wording carried from elsewhere
On June 20, 2024, we completed a $550.0 million Term ABS financing, which was used to repay outstanding indebtedness and for general corporate purposes. The financing has an expected average annualized cost of 6.5% (including initial purchasers’ fees and other costs), and it will revolve for 24 months, after which it will amortize based upon the cash flows on the underlying Loans.