Regional Management Corp. - Quarter Report: 2023 September (Form 10-Q)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2023


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

For the transition period ended

Commission File Number: 001-35477

Regional Management Corp.

(Exact name of registrant as specified in its charter)


Delaware	57-0847115
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

979 Batesville Road, Suite B Greer, South Carolina	29651
(Address of principal executive offices)	(Zip Code)

(864) 448-7000

(Registrant’s telephone number, including area code)

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.10 par value

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of October 27, 2023, the registrant had outstanding 9,834,739 shares of Common Stock, $0.10 par value.


		Page No.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets Dated September 30, 2023 and December 31, 2022	3

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022	5

	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022	6

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	8

	Notes to Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	51

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	52

Item 1A.	Risk Factors	52

Item 5.	Other Information	52

Item 6.	Exhibits	53

SIGNATURE		54

ITEM 1. FINANCIAL STATEMENTS.

Regional Management Corp. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except par value amounts)


	September 30, 2023
	(Unaudited)			December 31, 2022
Assets
Cash	$	7,413		$	3,873
Net finance receivables		1,751,009			1,699,393
Unearned insurance premiums		(48,764	)		(51,008	)
Allowance for credit losses		(184,900	)		(178,800	)
Net finance receivables, less unearned insurance premiums and allowance for credit losses		1,517,345			1,469,585
Restricted cash		117,029			127,926
Lease assets		34,864			34,521
Restricted available-for-sale investments		22,510			20,416
Intangible assets		15,048			12,122
Property and equipment		14,157			14,526
Deferred tax assets, net		14,140			13,810
Other assets		22,834			28,208
Total assets	$	1,765,340		$	1,724,987
Liabilities and Stockholders’ Equity
Liabilities:
Debt	$	1,372,748		$	1,355,359
Unamortized debt issuance costs		(5,647	)		(9,512	)
Net debt		1,367,101			1,345,847
Lease liabilities		37,095			36,712
Accounts payable and accrued expenses		30,559			33,795
Total liabilities		1,434,755			1,416,354
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock ($0.10 par value, 100,000 shares authorized, none issued or outstanding)		—			—
Common stock ($0.10 par value, 1,000,000 shares authorized, 14,642 shares issued and 9,835 shares outstanding at September 30, 2023 and 14,330 shares issued and 9,523 shares outstanding at December 31, 2022)		1,464			1,433
Additional paid-in capital		119,507			112,384
Retained earnings		360,155			345,545
Accumulated other comprehensive loss		(398	)		(586	)
Treasury stock (4,807 shares at September 30, 2023 and December 31, 2022)		(150,143	)		(150,143	)
Total stockholders’ equity		330,585			308,633
Total liabilities and stockholders’ equity	$	1,765,340		$	1,724,987

The following table presents the assets and liabilities of our consolidated variable interest entities:


Assets
Cash	$	379		$	439
Net finance receivables		1,330,377			1,296,078
Allowance for credit losses		(138,058	)		(134,708	)
Restricted cash		116,767			126,017
Other assets		3,119			1,706
Total assets	$	1,312,584		$	1,289,532
Liabilities
Net debt	$	1,236,580		$	1,199,404
Accounts payable and accrued expenses		202			167
Total liabilities	$	1,236,782		$	1,199,571

See accompanying notes to consolidated financial statements.

Regional Management Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenue
Interest and fee income	$	125,018		$	116,020		$	363,508		$	333,422
Insurance income, net		11,382			11,987			33,544			32,751
Other income		4,478			3,445			12,688			8,998
Total revenue		140,878			131,452			409,740			375,171

Expenses
Provision for credit losses		50,930			48,071			151,149			124,329

Personnel		39,832			36,979			114,848			106,574
Occupancy		6,315			5,848			18,761			17,812
Marketing		4,077			3,940			11,300			11,139
Other		11,880			11,397			33,414			31,860
Total general and administrative expenses		62,104			58,164			178,323			167,385

Interest expense		16,947			11,863			49,953			19,368
Income before income taxes		10,897			13,354			30,315			64,089
Income taxes		2,077			3,286			6,783			15,256

Net income	$	8,820		$	10,068		$	23,532		$	48,833
Net income per common share:
Basic	$	0.94		$	1.09		$	2.51		$	5.23
Diluted	$	0.91		$	1.06		$	2.45		$	5.01
Weighted-average common shares outstanding:
Basic		9,429			9,195			9,385			9,329
Diluted		9,650			9,526			9,613			9,738

Other comprehensive income (loss), net of tax
Unrealized income (loss) on restricted available-for-sale investments		(39	)		(577	)		238			(577	)
Other comprehensive income (loss), before tax		(39	)		(577	)		238			(577	)
Income taxes related to items of other comprehensive income (loss)		8			121			(50	)		121
Other comprehensive income (loss), net of tax		(31	)		(456	)		188			(456	)
Total comprehensive income	$	8,789		$	9,612		$	23,720		$	48,377

See accompanying notes to consolidated financial statements.

Regional Management Corp. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands)


	Three Months Ended September 30, 2023
													Accumulated
	Common Stock						Additional Paid-In			Retained			Other Comprehensive			Treasury
	Shares			Amount			Capital			Earnings			Loss			Stock			Total
Balance, June 30, 2023		14,636		$	1,464		$	116,202		$	354,346		$	(367	)	$	(150,143	)	$	321,502
Cash dividends		—			—			—			(3,011	)		—			—			(3,011	)
Issuance of restricted stock awards		8			1			(1	)		—			—			—			—
Shares withheld related to net share settlement		(2	)		(1	)		(52	)		—			—			—			(53	)
Share-based compensation		—			—			3,358			—			—			—			3,358
Net income		—			—			—			8,820			—			—			8,820
Other comprehensive loss		—			—			—			—			(31	)		—			(31	)
Balance, September 30, 2023		14,642		$	1,464		$	119,507		$	360,155		$	(398	)	$	(150,143	)	$	330,585


	Three Months Ended September 30, 2022
												Accumulated
	Common Stock					Additional Paid-In			Retained			Other Comprehensive			Treasury
	Shares			Amount		Capital			Earnings			Loss			Stock			Total
Balance, June 30, 2022		14,390		$	1,439	$	108,345		$	338,943		$	—		$	(150,143	)	$	298,584
Cash dividends		—			—		—			(2,928	)		—			—			(2,928	)
Issuance of restricted stock awards		3			—		—			—			—			—			—
Shares withheld related to net share settlement		(2	)		—		(101	)		—			—			—			(101	)
Share-based compensation		—			—		3,286			—			—			—			3,286
Net income		—			—		—			10,068			—			—			10,068
Other comprehensive loss		—			—		—			—			(456	)		—			(456	)
Balance, September 30, 2022		14,391		$	1,439	$	111,530		$	346,083		$	(456	)	$	(150,143	)	$	308,453


	Nine Months Ended September 30, 2023
													Accumulated
	Common Stock						Additional Paid-In			Retained			Other Comprehensive			Treasury
	Shares			Amount			Capital			Earnings			Loss			Stock			Total
Balance, December 31, 2022		14,330		$	1,433		$	112,384		$	345,545		$	(586	)	$	(150,143	)	$	308,633
Cash dividends		—			—			—			(8,922	)		—			—			(8,922	)
Issuance of restricted stock awards		330			33			(33	)		—			—			—			—
Exercise of stock options		18			2			287			—			—			—			289
Shares withheld related to net share settlement		(36	)		(4	)		(929	)		—			—			—			(933	)
Share-based compensation		—			—			7,798			—			—			—			7,798
Net income		—			—			—			23,532			—			—			23,532
Other comprehensive income		—			—			—			—			188			—			188
Balance, September 30, 2023		14,642		$	1,464		$	119,507		$	360,155		$	(398	)	$	(150,143	)	$	330,585


	Nine Months Ended September 30, 2022
													Accumulated
	Common Stock						Additional Paid-In			Retained			Other Comprehensive			Treasury
	Shares			Amount			Capital			Earnings			Loss			Stock			Total
Balance, December 31, 2021		14,157		$	1,416		$	104,745		$	306,105		$	—		$	(129,530	)	$	282,736
Cash dividends		—			—			—			(8,855	)		—			—			(8,855	)
Issuance of restricted stock awards		221			22			(22	)		—			—			—			—
Exercise of stock options		61			6			—			—			—			—			6
Repurchase of common stock		—			—			—			—			—			(20,613	)		(20,613	)
Shares withheld related to net share settlement		(48	)		(5	)		(1,332	)		—			—			—			(1,337	)
Share-based compensation		—			—			8,139			—			—			—			8,139
Net income		—			—			—			48,833			—			—			48,833
Other comprehensive loss		—			—			—			—			(456	)		—			(456	)
Balance, September 30, 2022		14,391		$	1,439		$	111,530		$	346,083		$	(456	)	$	(150,143	)	$	308,453

See accompanying notes to consolidated financial statements.

Regional Management Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities:
Net income	$	23,532		$	48,833
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		151,149			124,329
Depreciation and amortization		11,200			9,149
Amortization of deferred origination fees and costs		(10,996	)		(12,005	)
Loss on disposal of intangibles, property, and equipment		632			96
Share-based compensation		7,798			8,139
Deferred income taxes, net		(380	)		1,705
Changes in operating assets and liabilities:
Increase (decrease) in unearned insurance premiums		(2,244	)		1,952
Increase in lease assets		(343	)		(1,432	)
(Increase) decrease in other assets		4,187			(3,678	)
Decrease in accounts payable and accrued expenses		(2,645	)		(14,593	)
Increase in lease liabilities		383			1,768
Net cash provided by operating activities		182,273			164,263
Cash flows from investing activities:
Originations of finance receivables		(1,133,780	)		(1,174,257	)
Repayments of finance receivables		950,765			905,944
Purchases of intangible assets		(5,626	)		(3,896	)
Purchases of property and equipment		(3,629	)		(2,644	)
Purchase of restricted available-for-sale investments		(5,900	)		(23,974	)
Proceeds from sale of restricted available-for-sale investments		—			3,130
Proceeds from maturities of restricted available-for-sale investments		4,061			—
Net cash used in investing activities		(194,109	)		(295,697	)
Cash flows from financing activities:
Advances on revolving credit facilities		1,243,468			1,364,443
Payments on revolving credit facilities		(1,226,431	)		(1,372,670	)
Advances on securitizations		—			250,000
Payments on securitizations		—			(109,228	)
Payments for debt issuance costs		(2,764	)		(2,760	)
Taxes paid related to net share settlement of equity awards		(1,036	)		(1,332	)
Cash dividends		(9,047	)		(8,590	)
Repurchases of common stock		—			(20,613	)
Proceeds from exercise of stock options		289			—
Net cash provided by financing activities		4,479			99,250
Net change in cash and restricted cash		(7,357	)		(32,184	)
Cash and restricted cash at beginning of period		131,799			149,189
Cash and restricted cash at end of period	$	124,442		$	117,005
Supplemental cash flow information:
Interest paid	$	44,310		$	28,013
Income taxes paid	$	2,784		$	26,763
Operating leases paid	$	7,367		$	4,253
Non-cash lease assets and liabilities acquired	$	6,387		$	7,226

The following table reconciles cash and restricted cash from the Consolidated Balance Sheets to the statements above:


	September 30, 2023		December 31, 2022		September 30, 2022
Cash	$	7,413	$	3,873	$	3,140
Restricted cash		117,029		127,926		113,865
Total cash and restricted cash	$	124,442	$	131,799	$	117,005

See accompanying notes to consolidated financial statements.

Regional Management Corp. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Nature of Business

Regional Management Corp. (the “Company”) was incorporated and began operations in 1987. The Company is engaged in the consumer finance business, offering small loans, large loans, and related payment and collateral protection insurance products. The Company formerly offered retail loans but ceased accepting applications for retail loan products effective November 2022. The Company continues to own and service its existing portfolio of retail loans. As of September 30, 2023, the Company operated under the name “Regional Finance” online and in branch locations in 19 states across the United States.

The Company’s small loan portfolio is comprised of branch small loan receivables and convenience check receivables. Branch small loan receivables are direct loans to customers and are secured by non-essential household goods and, in some instances, an automobile. Convenience checks are direct loans originated by mailing checks to customers based on a pre-screening process that includes a review of the prospective customer’s credit profile provided by national credit reporting bureaus or data aggregators. A recipient of a convenience check is able to enter into a loan by endorsing and depositing or cashing the check. Large loan receivables are direct loans to customers, some of which are convenience check receivables and the vast majority of which are secured by non-essential household goods, automobiles, and/or other vehicles. Retail loan receivables consist principally of retail installment sales contracts collateralized by the purchased furniture, appliances, and other retail items and are initiated by and purchased from retailers, subject to the Company’s credit approval.

The Company’s loan volume and contractual delinquency follow seasonal trends. Demand for the Company’s loans is typically highest during the second, third, and fourth quarters, which the Company believes is largely due to customers borrowing money for vacation, back-to-school, and holiday spending. Loan demand has generally been the lowest during the first quarter, which the Company believes is largely due to the timing of income tax refunds. Delinquencies generally reach their lowest point in the first half of the year and rise in the second half of the year. Changes in quarterly growth or liquidation could result in larger allowance for credit loss releases in periods of portfolio liquidation and larger provisions for credit losses in periods of portfolio growth. Consequently, the Company experiences seasonal fluctuations in its operating results. However, changes in macroeconomic factors, including inflation, rising interest rates, and geopolitical conflict, have impacted the Company’s typical seasonal trends for loan volume and delinquency.

Note 2. Basis of Presentation and Significant Accounting Policies

Basis of presentation: The consolidated financial statements of the Company have been prepared in accordance with the Securities and Exchange Commission (the “SEC”) regulations and U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and, accordingly, do not include all information and note disclosures required by GAAP for complete financial statements. The interim financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (United States), but in the opinion of management, the interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows in accordance with GAAP. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC.

Significant accounting policies: The following is a description of significant accounting policies used in preparing the financial statements. The accounting and reporting policies of the Company are in accordance with GAAP.

Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company operates through a separate wholly owned subsidiary in each state. The Company also consolidates variable interest entities (each, a “VIE”) when it is considered to be the primary beneficiary of the VIE because it has (i) power over the significant activities of the VIE and (ii) the obligation to absorb losses or the right to receive returns that could be significant to the VIE.

Variable interest entities: The Company transfers pools of loans to wholly owned, bankruptcy-remote, special purpose entities (each, an “SPE”) to secure debt for general funding purposes. These entities have the limited purpose of acquiring finance receivables and holding and making payments on the related debts. Assets transferred to each SPE are legally isolated from the Company and its affiliates, as well as the claims of the Company’s and its affiliates’ creditors. Further, the assets of each SPE are owned by such SPE and are not available to satisfy the debts or other obligations of the Company or any of its affiliates. The

Company continues to service the finance receivables transferred to the SPEs. The lenders and investors in the debt issued by the SPEs generally only have recourse to the assets of the SPEs and do not have recourse to the general credit of the Company.

The SPEs’ debt arrangements are structured to provide credit enhancements to the lenders and investors, which may include overcollateralization, subordination of interests, excess spread, and reserve funds. These enhancements, along with the isolated finance receivables pools, increase the creditworthiness of the SPEs above that of the Company as a whole. This increases the marketability of the Company’s collateral for borrowing purposes, leading to more favorable borrowing terms, improved interest rate risk management, and additional flexibility to grow the business.

The SPEs are considered VIEs under GAAP and are consolidated into the financial statements of their primary beneficiary. The Company is considered to be the primary beneficiary of the SPEs because it has (i) power over the significant activities through its role as servicer of the finance receivables under each debt arrangement, (ii) the obligation to absorb losses that could be significant through note investment, if applicable, and (iii) the obligation to absorb losses or the right to receive returns that could be significant through the Company’s interest in the monthly residual cash flows of the SPEs.

Consolidation of VIEs results in these transactions being accounted for as secured borrowings; therefore, the pooled receivables and the related debts remain on the consolidated balance sheet of the Company. Each debt is secured solely by the assets of the VIEs and not by any other assets of the Company. The assets of the VIEs are the only source of funds for repayment on each debt, and restricted cash held by the VIEs can only be used to support payments on the debt. The Company recognizes revenue and provision for credit losses on the finance receivables of the VIEs and interest expense on the related secured debt.

Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities for the periods indicated in the financial statements. Actual results could differ from those estimates.

Estimates that are susceptible to change relate to the determination of the allowance for credit losses, the valuation of deferred tax assets and liabilities, and the fair value of financial instruments.

Recent accounting pronouncements: In March 2022, the Financial Accounting Standards Board (“FASB”) issued an accounting update ("ASU 2022-02") eliminating the accounting for troubled debt restructurings (each, a “TDR”) by creditors while enhancing the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The amendment also requires disclosure of gross credit losses by year of origination for finance receivables. The amendments in this update are effective for annual and interim periods beginning after December 15, 2022. The elimination of the TDR guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses.

The Company adopted the new standard on January 1, 2023 and elected to apply the new measurement and recognition guidance for TDRs under the modified retrospective transition method. Adoption did not have a material impact on the Company's consolidated financial statements.

Net finance receivables: The Company’s small loan portfolio is comprised of branch small loan receivables and convenience check receivables. Branch small loan receivables are direct loans to customers and are secured by non-essential household goods and, in some instances, an automobile. Convenience checks are direct loans originated by mailing checks to customers based on a pre-screening process that includes a review of the prospective customer’s credit profile provided by national credit reporting bureaus or data aggregators. A recipient of a convenience check is able to enter into a loan by endorsing and depositing or cashing the check. Large loan receivables are direct loans to customers, some of which are convenience check receivables and the vast majority of which are secured by non-essential household goods, automobiles, and/or other vehicles. Retail loan receivables consist principally of retail installment sales contracts collateralized by the purchased furniture, appliances, and other retail items and are initiated by and purchased from retailers, subject to the Company’s credit approval.

Loan renewals are a significant piece of new volume and are considered a terminal event of the previous loan. The Company may renew delinquent secured or unsecured loan accounts if the customer meets the Company’s underwriting criteria and it does not appear the cause of past delinquency will affect the customer’s ability to repay the renewed loan.

Generally, the Company classifies finance receivables as held for investment based on management’s intent at the time of origination. The Company determines classification on a receivable-by-receivable basis. The Company classifies finance receivables as held for investment due to its ability and intent to hold them until their contractual maturities. Net finance receivables consist of

the Company’s installment loans. The Company carries net finance receivables at amortized cost, which includes remaining principal balance, accrued interest, and net unamortized deferred origination costs and unamortized fees.

Allowance for credit losses: The allowance for credit losses is based on historical credit experience, current conditions, and reasonable and supportable economic forecasts. The historical loss experience is adjusted for quantitative and qualitative factors that are not fully reflected in the historical data. In determining its estimate of expected credit losses, the Company evaluates information related to credit metrics, changes in its lending strategies and underwriting practices, and the current and forecasted direction of the economic and business environment. These metrics include, but are not limited to, loan portfolio mix and growth, unemployment, credit loss trends, delinquency trends, changes in underwriting, and operational risks.

The Company selected a Probability of Default ("PD") / Loss Given Default ("LGD") model to estimate its base allowance for credit losses, in which the estimated loss is equal to the product of PD and LGD. Historical net finance receivables are tracked over the term of the pools to identify the instances of loss (PDs) and the average severity of losses (LGDs).

To enhance the precision of the allowance for credit loss estimate, the Company evaluates its finance receivable portfolio on a pool basis and segments each pool of finance receivables with similar credit risk characteristics. As part of its evaluation, the Company considers loan portfolio characteristics such as product type, loan size, loan term, internal or external credit scores, delinquency status, geographical location, and vintage. Based on analysis of historical loss experience, the Company selected the following segmentation: product type, Fair Isaac Corporation (“FICO”) score, and delinquency status.

As finance receivables are originated, provisions for credit losses are recorded in amounts sufficient to maintain an allowance for credit losses at an adequate level to provide for estimated losses over the contractual life of the finance receivables (considering the effect of prepayments). Subsequent changes to the contractual terms that are a result of re-underwriting are not included in the finance receivable’s contractual life (considering the effect of prepayments). The Company uses its segmentation loss experience to forecast expected credit losses. Historical information about losses generally provides a basis for the estimate of expected credit losses. The Company also considers the need to adjust historical information to reflect the extent to which current conditions differ from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature.

Reasonable and supportable macroeconomic forecasts are required for the Company’s allowance for credit loss model. The Company engaged a major rating service to assist with compiling a reasonable and supportable forecast. The Company reviews macroeconomic forecasts to use in its allowance for credit losses. The Company adjusts the historical loss experience by relevant qualitative factors for these expectations. The Company does not require reversion adjustments, as the contractual lives of its portfolio are shorter than its available forecast periods.

The Company charges credit losses against the allowance for all products when an account reaches 180 days contractually delinquent, subject to certain exceptions. The Company’s customer accounts without a lien on a vehicle in a confirmed bankruptcy are charged off in the month following the bankruptcy notification or at 60 days contractually delinquent, subject to certain exceptions. Deceased borrower accounts are charged off in the month following the proper notification of passing, with the exception of borrowers with credit life insurance. Subsequent recoveries of amounts charged off, if any, are credited to the allowance.

Troubled debt restructurings: Prior to January 1, 2023, the Company classified a finance receivable as a TDR when the Company modified the finance receivable’s contractual terms for economic or other reasons related to the borrower’s financial difficulties and granted a concession that it would not have otherwise considered. Modifications primarily included an interest rate reduction and/or term extension to reduce the borrower’s monthly payment. Once a loan was classified as a TDR, it remained a TDR for the purpose of calculating the allowance for credit losses for the remainder of its contractual term.

The Company established its allowance for credit losses related to its TDRs by calculating the present value of all expected cash flows (discounted at the finance receivable’s effective interest rate prior to modification) less the amortized costs of the aggregated pool. The Company used the modified interest rates and certain assumptions, including expected credit losses and recoveries, to estimate the expected cash flows from its TDRs.

Following the adoption of ASU 2022-02 on January 1, 2023, as discussed above, the Company no longer separately measures the allowance for credit losses on TDRs, and the impact to the allowance for credit losses of loan modifications made to borrowers experiencing financial difficulties is incorporated into the overall portfolio assessment as further described in the allowance for credit losses significant accounting policy.

Nonaccrual status: Accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent. If the account is charged off, the accrued interest income is reversed as a reduction of interest and fee income. Interest received on such loans is accounted for on the cash-basis method, until qualifying for return to accrual. Under the cash-basis method, interest income is recorded when the payment is received. Loans resume accruing interest when the past due status is brought below 90 days. The Company made a policy election to not record an allowance for credit losses related to accrued interest because it has nonaccrual and charge-off policies that result in the timely suspension and reversal of accrued interest.

Finance receivable origination fees and costs: Non-refundable fees received and direct costs (personnel and digital loan origination costs) incurred for the origination of finance receivables are deferred and recognized to interest income over their contractual lives using the constant yield method. Unamortized amounts are recognized in interest income at the time that finance receivables are paid in full, renewed, or charged off.

Restricted cash: Restricted cash includes cash and cash equivalents for which the Company’s ability to withdraw funds is contractually limited. The Company’s restricted cash consists of cash reserves that are maintained as collateral for potential credit life insurance claims and cash restricted for debt servicing of the Company’s revolving warehouse credit facilities and securitizations.

Restricted available-for-sale investments: The Company classifies its investments in debt securities that were purchased with the Company’s restricted cash as restricted available-for-sale investments and carries the investments at fair value. Unrealized gains and losses, net of taxes, are excluded from earnings and reported in other comprehensive income or loss until realized. The unrealized gains and losses, net of taxes, are recorded on the consolidated balance sheet in accumulated other comprehensive income or loss in stockholders’ equity. Realized gains and losses from the sale of available-for-sale investments are specifically identified and reclassified from accumulated other comprehensive income or loss and included within earnings on the consolidated statement of income.

Offsetting assets and liabilities: GAAP permits entities to present derivative receivables and derivative payables with the same counterparty and the related cash collateral receivables and payables on a net basis on the Consolidated Balance Sheet when a legally enforceable master netting agreement exists. GAAP also permits securities financing activities to be presented on a net basis when specified conditions are met, including the existence of a legally enforceable master netting agreement. The Company has elected to net such balances where it has determined that the specified conditions are met.

Share-based compensation: The Company measures compensation cost for share-based awards at estimated fair value and recognizes compensation expense over the service period for awards expected to vest. The Company uses the closing stock price on the date of grant as the fair value of restricted stock awards and performance-contingent restricted stock units. The fair value of stock options is determined using the Black-Scholes valuation model, and the fair value of performance restricted stock units is determined using the Monte Carlo valuation model. The Black-Scholes and Monte Carlo models require the input of assumptions, including expected volatility, expected dividends, expected term, risk-free interest rate, and a discount associated with post-vest holding restrictions, changes to which can affect the fair value estimate. Expected volatility is based on the Company’s historical stock price volatility. Expected dividends are calculated using the expected dividend yield (annualized dividends divided by the grant date stock price). The expected term is calculated by using the simplified method (average of the vesting and original contractual terms) due to insufficient historical data to estimate the expected term. The risk-free rate is based on the zero-coupon U.S. Treasury bond rate over the expected term of the awards. The estimated discount associated with post-vest holding restrictions is calculated using a blend of the Finnerty and Chaffe models. In addition, the estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.

Note 3. Finance Receivables, Credit Quality Information, and Allowance for Credit Losses

Net finance receivables for the periods indicated consisted of the following:


Dollars in thousands	September 30, 2023		December 31, 2022
Small loans	$	474,181	$	481,605
Large loans		1,271,891		1,208,185
Retail loans		4,937		9,603
Net finance receivables	$	1,751,009	$	1,699,393

Net finance receivables included net deferred origination fees and costs of $14.9 million and $16.0 million as of September 30, 2023 and December 31, 2022, respectively.

The credit quality of the Company’s finance receivable portfolio is dependent on the Company’s ability to enforce sound underwriting standards, maintain diligent servicing of the portfolio, and respond to changing economic conditions as it grows its portfolio. The allowance for credit losses uses FICO scores and delinquency as key data points in estimating the allowance. The Company uses six FICO band categories to assess FICO scores. The first three FICO band categories include subprime FICO scores below 620. The fourth and fifth FICO band categories include near-prime FICO scores ranging from 620 to 659. The sixth FICO band category includes prime FICO scores of 660 or higher.

Net finance receivables by product, FICO band at origination, and origination year as of September 30, 2023 are as follows:


	Net Finance Receivables by Origination Year
Dollars in thousands	2023 (1)		2022		2021		2020		2019		Prior		Total Net Finance Receivables
Small Loans:
FICO Band
1	$	55,068	$	18,207	$	2,777	$	301	$	96	$	25	$	76,474
2		27,381		10,642		1,324		93		16		10		39,466
3		42,614		14,490		1,346		65		11		1		58,527
4		53,057		18,008		1,382		64		12		4		72,527
5		59,174		23,638		1,498		44		5		3		84,362
6		97,676		42,355		2,705		77		10		2		142,825
Total small loans	$	334,970	$	127,340	$	11,032	$	644	$	150	$	45	$	474,181
Current period credit losses (2)	$	2,665	$	46,163	$	9,095	$	550	$	51	$	6	$	58,530
Large Loans:
FICO Band
1	$	67,059	$	35,799	$	12,575	$	3,318	$	1,351	$	507	$	120,609
2		37,257		22,255		7,180		1,583		428		107		68,810
3		69,692		60,238		20,014		3,239		608		84		153,875
4		97,016		84,368		27,268		4,962		1,045		68		214,727
5		104,816		87,340		30,098		5,733		918		45		228,950
6		234,568		178,760		59,137		10,907		1,478		70		484,920
Total large loans	$	610,408	$	468,760	$	156,272	$	29,742	$	5,828	$	881	$	1,271,891
Current period credit losses (2)	$	2,662	$	56,303	$	28,070	$	4,197	$	1,216	$	218	$	92,666
Retail Loans:
FICO Band
1	$	1	$	3	$	3	$	5	$	1	$	5	$	18
2		—		269		47		—		1		—		317
3		1		783		282		13		1		1		1,081
4		—		820		466		66		—		5		1,357
5		—		640		382		51		—		5		1,078
6		—		653		371		58		3		1		1,086
Total retail loans	$	2	$	3,168	$	1,551	$	193	$	6	$	17	$	4,937
Current period credit losses (2)	$	—	$	552	$	325	$	68	$	25	$	3	$	973
Total Loans:
FICO Band
1	$	122,128	$	54,009	$	15,355	$	3,624	$	1,448	$	537	$	197,101
2		64,638		33,166		8,551		1,676		445		117		108,593
3		112,307		75,511		21,642		3,317		620		86		213,483
4		150,073		103,196		29,116		5,092		1,057		77		288,611
5		163,990		111,618		31,978		5,828		923		53		314,390
6		332,244		221,768		62,213		11,042		1,491		73		628,831
Total loans	$	945,380	$	599,268	$	168,855	$	30,579	$	5,984	$	943	$	1,751,009
Current period credit losses (2)	$	5,327	$	103,018	$	37,490	$	4,815	$	1,292	$	227	$	152,169

(1)

Includes loans originated during the nine months ended September 30, 2023.

(2)

Represents credit losses for the nine months ended September 30, 2023.

Net finance receivables by product, FICO band at origination, and origination year as of December 31, 2022 are as follows:


	Net Finance Receivables by Origination Year
Dollars in thousands	2022		2021		2020		2019		2018		Prior		Total Net Finance Receivables
Small Loans:
FICO Band
1	$	63,362	$	10,842	$	1,388	$	246	$	47	$	7	$	75,892
2		41,683		6,785		664		56		26		2		49,216
3		53,444		7,659		520		39		—		1		61,663
4		62,609		8,980		544		33		—		1		72,167
5		71,448		10,650		505		22		—		—		82,625
6		119,199		19,886		929		28		—		—		140,042
Total small loans	$	411,745	$	64,802	$	4,550	$	424	$	73	$	11	$	481,605
Large Loans:
FICO Band
1	$	60,836	$	20,653	$	7,219	$	3,286	$	826	$	539	$	93,359
2		41,174		15,955		4,044		1,409		111		121		62,814
3		112,336		44,805		8,637		2,811		172		137		168,898
4		150,559		57,913		12,063		3,931		152		67		224,685
5		150,793		59,154		13,060		3,735		172		37		226,951
6		290,648		109,931		24,038		6,552		263		46		431,478
Total large loans	$	806,346	$	308,411	$	69,061	$	21,724	$	1,696	$	947	$	1,208,185
Retail Loans:
FICO Band
1	$	8	$	7	$	28	$	12	$	4	$	3	$	62
2		475		92		9		10		—		—		586
3		1,310		599		71		14		1		3		1,998
4		1,389		979		263		28		2		4		2,665
5		1,083		775		218		27		3		5		2,111
6		1,123		802		224		31		—		1		2,181
Total retail loans	$	5,388	$	3,254	$	813	$	122	$	10	$	16	$	9,603
Total Loans:
FICO Band
1	$	124,206	$	31,502	$	8,635	$	3,544	$	877	$	549	$	169,313
2		83,332		22,832		4,717		1,475		137		123		112,616
3		167,090		53,063		9,228		2,864		173		141		232,559
4		214,557		67,872		12,870		3,992		154		72		299,517
5		223,324		70,579		13,783		3,784		175		42		311,687
6		410,970		130,619		25,191		6,611		263		47		573,701
Total loans	$	1,223,479	$	376,467	$	74,424	$	22,270	$	1,779	$	974	$	1,699,393

The contractual delinquency of the net finance receivables portfolio by product and aging for the periods indicated are as follows:


	September 30, 2023
	Small					Large					Retail					Total
Dollars in thousands	$		%			$		%			$		%			$		%
Current	$	384,549		81.1	%	$	1,084,894		85.3	%	$	3,488		70.7	%	$	1,472,931		84.2	%
1 to 29 days past due		44,194		9.3	%		104,741		8.2	%		713		14.4	%		149,648		8.5	%
Delinquent accounts
30 to 59 days		12,431		2.6	%		23,872		1.9	%		199		4.1	%		36,502		2.1	%
60 to 89 days		10,381		2.2	%		17,624		1.4	%		125		2.5	%		28,130		1.6	%
90 to 119 days		8,182		1.7	%		15,129		1.2	%		109		2.2	%		23,420		1.3	%
120 to 149 days		7,401		1.6	%		13,759		1.1	%		149		3.0	%		21,309		1.2	%
150 to 179 days		7,043		1.5	%		11,872		0.9	%		154		3.1	%		19,069		1.1	%
Total delinquency	$	45,438		9.6	%	$	82,256		6.5	%	$	736		14.9	%	$	128,430		7.3	%
Total net finance receivables	$	474,181		100.0	%	$	1,271,891		100.0	%	$	4,937		100.0	%	$	1,751,009		100.0	%
Net finance receivables in nonaccrual status	$	25,435		5.4	%	$	46,900		3.7	%	$	454		9.2	%	$	72,789		4.2	%


	December 31, 2022
	Small					Large					Retail					Total
Dollars in thousands	$		%			$		%			$		%			$		%
Current	$	388,978		80.7	%	$	1,034,981		85.7	%	$	7,543		78.6	%	$	1,431,502		84.2	%
1 to 29 days past due		48,924		10.2	%		97,855		8.1	%		1,269		13.2	%		148,048		8.7	%
Delinquent accounts
30 to 59 days		13,144		2.8	%		22,712		1.8	%		352		3.7	%		36,208		2.2	%
60 to 89 days		12,251		2.5	%		18,828		1.6	%		273		2.8	%		31,352		1.8	%
90 to 119 days		8,714		1.8	%		15,427		1.3	%		152		1.6	%		24,293		1.4	%
120 to 149 days		5,572		1.2	%		10,675		0.9	%		10		0.1	%		16,257		1.0	%
150 to 179 days		4,022		0.8	%		7,707		0.6	%		4		0.0	%		11,733		0.7	%
Total delinquency	$	43,703		9.1	%	$	75,349		6.2	%	$	791		8.2	%	$	119,843		7.1	%
Total net finance receivables	$	481,605		100.0	%	$	1,208,185		100.0	%	$	9,603		100.0	%	$	1,699,393		100.0	%
Net finance receivables in nonaccrual status	$	20,810		4.3	%	$	39,039		3.2	%	$	212		2.2	%	$	60,061		3.5	%

The accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent. If a loan is charged off, the accrued interest is reversed as a reduction of interest and fee income. During the three months ended September 30, 2023 and 2022, the Company reversed $5.4 million and $4.3 million of accrued interest as reductions of interest and fee income, respectively. The Company reversed $16.4 million and $12.4 million of accrued interest as reductions of interest and fee income for the nine months ended September 30, 2023 and 2022, respectively.

The following is a reconciliation of the allowance for credit losses by product for the three and nine months ended September 30, 2023 and 2022:


Dollars in thousands	Small			Large			Retail			Total
Beginning balance at July 1, 2023	$	58,468		$	121,873		$	1,059		$	181,400
Provision for credit losses		17,714			33,127			89			50,930
Credit losses		(18,702	)		(30,908	)		(341	)		(49,951	)
Recoveries		1,012			1,493			16			2,521
Ending balance at September 30, 2023	$	58,492		$	125,585		$	823		$	184,900
Net finance receivables at September 30, 2023	$	474,181		$	1,271,891		$	4,937		$	1,751,009
Allowance as percentage of net finance receivables at September 30, 2023		12.3	%		9.9	%		16.7	%		10.6	%


Dollars in thousands	Small			Large			Retail			Total
Beginning balance at July 1, 2022	$	58,176		$	107,760		$	1,564		$	167,500
Provision for credit losses		20,463			27,200			408			48,071
Credit losses		(16,909	)		(20,099	)		(368	)		(37,376	)
Recoveries		684			900			21			1,605
Ending balance at September 30, 2022	$	62,414		$	115,761		$	1,625		$	179,800
Net finance receivables at September 30, 2022	$	480,199		$	1,116,455		$	10,944		$	1,607,598
Allowance as percentage of net finance receivables at September 30, 2022		13.0	%		10.4	%		14.8	%		11.2	%


Dollars in thousands	Small			Large			Retail			Total
Beginning balance at January 1, 2023	$	57,915		$	119,592		$	1,293		$	178,800
Provision for credit losses		56,292			94,392			465			151,149
Credit losses		(58,530	)		(92,666	)		(973	)		(152,169	)
Recoveries		2,815			4,267			38			7,120
Ending balance at September 30, 2023	$	58,492		$	125,585		$	823		$	184,900
Net finance receivables at September 30, 2023	$	474,181		$	1,271,891		$	4,937		$	1,751,009
Allowance as percentage of net finance receivables at September 30, 2023		12.3	%		9.9	%		16.7	%		10.6	%


Dollars in thousands	Small			Large			Retail			Total
Beginning balance at January 1, 2022	$	61,294		$	96,494		$	1,512		$	159,300
Provision for credit losses		50,580			72,720			1,029			124,329
Credit losses		(51,536	)		(55,891	)		(987	)		(108,414	)
Recoveries		2,076			2,438			71			4,585
Ending balance at September 30, 2022	$	62,414		$	115,761		$	1,625		$	179,800
Net finance receivables at September 30, 2022	$	480,199		$	1,116,455		$	10,944		$	1,607,598
Allowance as percentage of net finance receivables at September 30, 2022		13.0	%		10.4	%		14.8	%		11.2	%

The Company uses certain loan modification programs for borrowers experiencing financial difficulties as a loss mitigation strategy to improve collectability of the loans and assist customers through financial setbacks. Programs consist of offering payment deferrals, refinancing, and, in limited instances, settlements. Customers may also pursue financial assistance through external sources, such as filing for bankruptcy protection. Modification programs available to our customers are described in more detail below:

•

Customers with temporary hardships may be offered payment deferrals related to past due payments. Such deferrals extend the customer’s maturity date and are generally considered insignificant delays. During the second quarter of 2023, the Company enhanced its policy for determining an insignificant delay in payment. The Company’s previous policy for an insignificant delay in payment was two or fewer deferrals in a rolling twelve-month period, which was updated to be three or fewer deferrals in a rolling twelve-month period. Such change had no material impact to the Company's disclosures.

•

Customers with delinquent loans who have made recent payments and have verified current employment are allowed to refinance their loan with a reduced interest rate and/or term extension, making the monthly payments more affordable.

•

The Company may also agree to settle a past-due loan by accepting less than the full principal balance owed in certain limited cases once it is determined that collection of the entire outstanding balance is unlikely.

•

Customers who receive bankruptcy protection may receive principal forgiveness, interest rate reductions, and/or term extensions.

The information relating to modifications made to borrowers experiencing financial difficulty for the periods indicated are as follows:


	As of and for the Three Months Ended September 30, 2023
	Principal Forgiveness, Interest Rate Reduction, & Term Extension				Interest Rate Reduction & Term Extension					Total
Dollars in thousands	Amortized Cost Basis		% of Net Finance Receivables		Amortized Cost Basis		% of Net Finance Receivables			Amortized Cost Basis		% of Net Finance Receivables
Small loans	$	17		—	$	831		0.2	%	$	848		0.2	%
Large loans		117		—		4,438		0.3	%		4,555		0.4	%
Total	$	134		—	$	5,269		0.3	%	$	5,403		0.3	%


	As of and for the Nine Months Ended September 30, 2023
	Principal Forgiveness, Interest Rate Reduction, & Term Extension				Interest Rate Reduction & Term Extension					Total
Dollars in thousands	Amortized Cost Basis		% of Net Finance Receivables		Amortized Cost Basis		% of Net Finance Receivables			Amortized Cost Basis		% of Net Finance Receivables
Small loans	$	34		—	$	2,196		0.5	%	$	2,230		0.5	%
Large loans		244		—		11,480		0.9	%		11,724		0.9	%
Total	$	278		—	$	13,676		0.8	%	$	13,954		0.8	%

The financial effects of the modifications made to borrowers experiencing financial difficulty for the periods indicated are as follows:


	Three Months Ended September 30, 2023
Loan Modification	Product	Financial Effect
Principal forgiveness	Small loans	Reduced the amortized cost basis of the loans by $0.1 million.
	Large loans	Reduced the amortized cost basis of the loans by $0.3 million.
Interest rate reduction	Small loans	Reduced the weighted-average contractual interest rate by 12.7%.
	Large loans	Reduced the weighted-average contractual interest rate by 9.8%.
Term extension	Small loans	Added a weighted-average 1.3 years to the life of loans.
	Large loans	Added a weighted-average 1.3 years to the life of loans.


	Nine Months Ended September 30, 2023
Loan Modification	Product	Financial Effect
Principal forgiveness	Small loans	Reduced the amortized cost basis of the loans by $0.4 million.
	Large loans	Reduced the amortized cost basis of the loans by $0.8 million.
Interest rate reduction	Small loans	Reduced the weighted-average contractual interest rate by 13.3%.
	Large loans	Reduced the weighted-average contractual interest rate by 10.8%.
Term extension	Small loans	Added a weighted-average 1.3 years to the life of loans.
	Large loans	Added a weighted-average 1.4 years to the life of loans.

The following table provides the amortized cost basis for modifications made to borrowers experiencing financial difficulty on or after January 1, 2023 that subsequently defaulted. The Company defines payment default as 90 days past due for this disclosure. The respective amounts for each modification for the periods indicated are as follows:


	As of and for the Three Months Ended September 30, 2023
Dollars in thousands	Principal Forgiveness, Interest Rate Reduction, & Term Extension		Interest Rate Reduction & Term Extension		Total
Small loans	$	1	$	280	$	281
Large loans		—		1,059		1,059
Total	$	1	$	1,339	$	1,340


	As of and for the Nine Months Ended September 30, 2023
Dollars in thousands	Principal Forgiveness, Interest Rate Reduction, & Term Extension		Interest Rate Reduction & Term Extension		Total
Small loans	$	1	$	311	$	312
Large loans		—		1,123		1,123
Total	$	1	$	1,434	$	1,435

The contractual delinquencies of loans that were modified to borrowers experiencing financial difficulty on or after January 1, 2023 for the period indicated are as follows:


	September 30, 2023
Dollars in thousands	Current		30 - 89 Days Past Due		90+ Days Past Due		Total
Small loans	$	1,745	$	252	$	233	$	2,230
Large loans		9,753		1,146		825		11,724
Total	$	11,498	$	1,398	$	1,058	$	13,954

Prior to January 1, 2023, the Company classified a loan as a TDR finance receivable when the Company modified a loan’s contractual terms for economic or other reasons related to the borrower’s financial difficulties and granted a concession that it would not have otherwise considered.

The amount of TDR net finance receivables and the related TDR allowance for credit losses for the period indicated are as follows:


	September 30, 2022
Dollars in thousands	TDR Net Finance Receivables		TDR Allowance for Credit Losses
Small loans	$	3,999	$	1,121
Large loans		16,379		4,473
Retail loans		44		15
Total	$	20,422	$	5,609

The following tables provide the number and amount of net finance receivables modified and classified as TDRs during the periods presented:


	Three Months Ended				Nine Months Ended
	September 30, 2022				September 30, 2022
Dollars in thousands	Number of Loans		TDR Net Finance Receivables (1)		Number of Loans		TDR Net Finance Receivables (1)
Small loans		1,124	$	2,101		2,633	$	4,990
Large loans		1,040		6,297		2,537		14,623
Retail loans		4		9		8		17
Total		2,168	$	8,407		5,178	$	19,630

(1)

Represents the post-modification net finance receivables balance of loans that have been modified during the period and resulted in a TDR.

The following tables provide the number of accounts and amortized cost basis of finance receivables that subsequently defaulted within the periods indicated (that were modified as a TDR in the preceding 12 months). The Company defines payment default as 90 days past due for this disclosure. The respective amounts and activity for the periods indicated are as follows:


	Three Months Ended				Nine Months Ended
	September 30, 2022				September 30, 2022
Dollars in thousands	Number of Loans		TDR Net Finance Receivables (1)		Number of Loans		TDR Net Finance Receivables (1)
Small loans		473	$	977		925	$	1,839
Large loans		472		2,739		890		5,162
Retail loans		1		3		5		15
Total		946	$	3,719		1,820	$	7,016

(1)

Only includes defaults occurring within 12 months of a loan being designated as a TDR. Represents the corresponding balance of TDR net finance receivables at the end of the month in which they defaulted.

Note 4. Restricted Available-for-Sale Investments

The following tables reconcile the amortized cost, gross unrealized gains and losses included in accumulated other comprehensive income or loss, and estimated fair value of the Company’s restricted available-for-sale investments as of the periods indicated:


	September 30, 2023
Dollars in thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Restricted investments	$	23,014	$	—	$	(504	)	$	22,510


	December 31, 2022
Dollars in thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Restricted investments	$	21,158	$	—	$	(742	)	$	20,416

The following tables include the gross unrealized losses and estimated fair values of restricted available-for-sale investments that were in a continuous unrealized loss position, for which no allowance for credit loss has been recorded, as of the periods indicated:


	September 30, 2023
	Less than 12 Months				12 Months or Longer					Total
Dollars in thousands	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
Restricted investments	$	4,051	$	—	$	18,459	$	(504	)	$	22,510	$	(504	)


	December 31, 2022
	Less than 12 Months					12 Months or Longer				Total
Dollars in thousands	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Restricted investments	$	20,416	$	(742	)	$	—	$	—	$	20,416	$	(742	)

The restricted available-for-sale investments consist of U.S. Treasuries which are measured at fair value and include accrued interest receivables of $0.1 million and $0.3 million as of September 30, 2023 and December 31, 2022, respectively. The investments consist of highly rated securities backed by the U.S. federal government. As a result, the Company has not recorded an allowance for credit losses related to the restricted available-for-sale investments. Changes in fair value are the result of recent increases in interest rates by the Federal Reserve that occurred after the purchase of the investments.

The following table includes the amortized cost and estimated fair values of restricted available-for-sale investments by contractual maturity as of the periods indicated:


	September 30, 2023
Dollars in thousands	Amortized Cost		Estimated Fair Value
Due in one year	$	20,854	$	20,430
Due within one year to five years		2,160		2,080
Due within five years to ten years		—		—
Due after ten years		—		—
Total restricted available-for-sale investments	$	23,014	$	22,510

The following table includes the proceeds from sold restricted available-for-sale investments for the periods indicated:


	Three Months Ended				Nine Months Ended
Dollars in thousands	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Sales of restricted available-for-sale investments	$	—	$	3,130	$	—	$	3,130

The Company had no gross realized gains or losses during the three and nine months ended September 30, 2023 and 2022, respectively. For additional information on the Company's restricted available-for-sale investments, see Note 8, "Disclosure About Fair Value of Financial Instruments."

Note 5. Interest Rate Caps

The Company previously purchased interest rate cap contracts to manage the risk associated with LIBOR-based borrowings. Each contract was collateralizable and contained a strike rate against the one-month LIBOR. When the one-month LIBOR exceeded the strike rate, the counterparty remitted to the Company for the excess over the strike rate. No payment was required by the Company or the counterparty when the one-month LIBOR was below the strike rate.

As of September 30, 2022, the Company no longer maintained interest rate cap protections.

The following is a summary of changes in fair value of the interest rate caps for the periods indicated:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
Dollars in thousands	2023		2022			2023		2022
Balance at beginning of period	$	—	$	5,081		$	—	$	6,586
Purchases		—		—			—		—
Sales		—		(5,033	)		—		(19,720	)
Fair value adjustment included as an (increase) decrease in interest expense		—		(48	)		—		13,134
Balance at end of period	$	—	$	—		$	—	$	—

Note 6. Debt

The following is a summary of the Company’s debt as of the periods indicated:


	September 30, 2023							December 31, 2022
Dollars in thousands	Debt		Unamortized Debt Issuance Costs (1)			Net Debt		Debt		Unamortized Debt Issuance Costs (1)			Net Debt
Senior revolving credit facility	$	131,325	$	(804	)	$	130,521	$	147,547	$	(1,104	)	$	146,443
RMR II revolving warehouse credit facility		—		—			—		189		—			189
RMR IV revolving warehouse credit facility		3,152		—			3,152		18,144		(338	)		17,806
RMR V revolving warehouse credit facility		26,628		—			26,628		286		—			286
RMR VI revolving warehouse credit facility		18,123		—			18,123		—		—			—
RMR VII revolving warehouse credit facility		4,327		—			4,327		—		—			—
RMIT 2020-1 securitization		180,214		—			180,214		180,214		(618	)		179,596
RMIT 2021-1 securitization		248,916		(353	)		248,563		248,916		(985	)		247,931
RMIT 2021-2 securitization		200,192		(1,213	)		198,979		200,192		(1,534	)		198,658
RMIT 2021-3 securitization		125,202		(942	)		124,260		125,202		(1,178	)		124,024
RMIT 2022-1 securitization		250,374		(1,204	)		249,170		250,374		(1,841	)		248,533
RMIT 2022-2B securitization		184,295		(1,131	)		183,164		184,295		(1,914	)		182,381
Total	$	1,372,748	$	(5,647	)	$	1,367,101	$	1,355,359	$	(9,512	)	$	1,345,847
Unused amount of revolving credit facilities (subject to borrowing base)	$	613,080						$	555,117

(1) Unamortized debt issuance costs related to the revolving warehouse credit facilities are presented within other assets in the consolidated balance sheets. These credit facilities had $2.6 million and $1.3 million in such costs as of September 30, 2023 and December 31, 2022, respectively.

Senior Revolving Credit Facility: In November 2022, the Company amended and restated its senior revolving credit facility to, among other things, decrease the availability under the facility from $500 million to $420 million. The senior revolving credit facility matures in September 2024. Excluding the receivables held by the Company’s VIEs, the senior revolving credit facility is secured by substantially all of the Company’s finance receivables and equity interests of the majority of its subsidiaries. Advances on the senior revolving credit facility are capped at 83% of eligible finance receivables (77% of eligible finance receivables as of September 30, 2023).

In September 2022, the Company amended and restated its senior revolving credit facility to replace LIBOR as the benchmark rate for the calculation of interest with a forward-looking term rate based on the secured overnight financing rate ("SOFR") or, in certain limited circumstances, another alternative benchmark rate. The one-month LIBOR was replaced on October 1, 2022 by one-month SOFR with a floor of not less than 0.50%, plus a 3.00% margin and a benchmark adjustment. The effective interest rate was 8.43% at

September 30, 2023. The Company pays an unused commitment fee between 0.50% and 1.00% based upon the average outstanding balance. As of September 30, 2023, the Company had $135.0 million of immediate available liquidity to draw down cash under the facility and held $7.4 million in unrestricted cash.

Variable Interest Entity Debt: As part of its overall funding strategy, the Company has transferred certain finance receivables to affiliated VIEs for asset-backed financing transactions, including securitizations. The following debt arrangements are issued by the Company’s wholly-owned, bankruptcy-remote SPEs, which are considered VIEs under GAAP and are consolidated into the financial statements of their primary beneficiary.

These debts are supported by the expected cash flows from the underlying collateralized finance receivables. Collections on these finance receivables are remitted to restricted cash collection accounts, which totaled $102.6 million and $112.2 million as of September 30, 2023 and December 31, 2022, respectively. Cash inflows from the finance receivables are distributed to the lenders/investors, the service providers, and/or the residual interest that the Company owns in accordance with a monthly contractual priority of payments. The SPEs pay a servicing fee to the Company, which is eliminated in consolidation. Distributions from the SPEs to the Company are permitted under the debt arrangements.

At each sale of receivables from the Company’s affiliates to the SPEs, the Company makes certain representations and warranties about the quality and nature of the collateralized receivables. The debt arrangements require the Company to repurchase the receivables in certain circumstances, including circumstances in which the representations and warranties made by the Company concerning the quality and characteristics of the receivables are inaccurate. Assets transferred to each SPE are legally isolated from the Company and its affiliates, as well as the claims of the Company’s and its affiliates’ creditors. Further, the assets of each SPE are owned by such SPE and are not available to satisfy the debts or other obligations of the Company or any of its affiliates.

RMR II Revolving Warehouse Credit Facility: In April 2021, the Company and its wholly-owned SPE, Regional Management Receivables II, LLC (“RMR II”), amended and restated the credit agreement that provides for a revolving warehouse credit facility to RMR II to, among other things, extend the date at which the facility converts to an amortizing loan and the termination date to March 2023 and March 2024, respectively, decrease the total facility from $125 million to $75 million, increase the cap on facility advances from 80% to 83% of eligible finance receivables, and increase the rate at which borrowings under the facility bore interest, payable monthly, at a rate equal to three-month LIBOR, with a LIBOR floor of 0.25%, plus a blended margin of 2.35% (2.15% prior to the April 2021 amendment).

In September 2022, the Company and RMR II amended and restated the credit agreement that provides for a revolving warehouse credit facility to RMR II to replace LIBOR as the benchmark rate for calculation of interest rate with a forward-looking term rate based on SOFR or, in certain limited circumstances, another alternative benchmark rate. The three-month LIBOR was replaced on October 1, 2022 by three-month SOFR with a floor of 0.25%, plus a 2.35% margin, and a benchmark adjustment.

In March 2023, the Company and RMR II exercised the right to make an optional principal repayment in full, and in connection with such repayment, the facility terminated.

RMR IV Revolving Warehouse Credit Facility: In April 2021, the Company and its wholly-owned SPE, Regional Management Receivables IV, LLC (“RMR IV”), entered into a credit agreement that provides for a $125 million revolving warehouse credit facility to RMR IV. The facility was to convert to an amortizing loan in April 2023 and terminate in April 2024. In April and May 2023, the Company and its wholly-owned SPE, RMR IV, amended and restated the credit agreement that provides for a revolving warehouse credit facility to (i) extend the amortizing loan conversion date from April 2023 to May 2025 and the termination date from April 2024 to May 2026; (ii) decrease the capped advances on the facility from 81% to 77% of eligible finance receivables; and (iii) increase the margin from 2.35% to 2.80%. The debt is secured by finance receivables and other related assets that the Company purchased from its affiliates, which the Company then sold and transferred to RMR IV.

In September 2022, the Company RMR IV amended and restated the credit agreement that provides for a revolving warehouse credit facility to RMR IV to replace LIBOR as the benchmark rate for calculation of interest rate with a forward-looking term rate based on SOFR or, in certain limited circumstances, another alternative benchmark rate. The one-month LIBOR was replaced on October 1, 2022 by one-month SOFR with a margin of 2.35% and a benchmark adjustment. The effective interest rate was 8.23% as of September 30, 2023. RMR IV pays an unused commitment fee between 0.35% and 0.70% based upon the average daily utilization of the facility. RMR IV had $18.3 million of immediate availability to draw down cash under the facility and held $0.3 million in restricted cash reserves as of September 30, 2023 to satisfy provisions of the credit agreement.

RMR V Revolving Warehouse Credit Facility: In September 2022, the Company and its wholly owned SPE, Regional Management Receivables V, LLC (“RMR V”), amended and restated the credit agreement that provides for a $100 million revolving warehouse

credit facility to RMR V to extend the date at which the facility converts to an amortizing loan and the termination date to November 2022 and November 2023, respectively (October 2022 and October 2023, respectively, prior to the September 2022 amendment). Following a subsequent amendment in November 2022, the amortizing loan conversion date and termination date were extended to November 2024 and November 2025, respectively. The debt is secured by finance receivables and other related assets that the Company purchased from its affiliates, which the Company then sold and transferred to RMR V. Advances on the facility are capped at 80% of eligible finance receivables. Borrowings under the facility bear interest, payable monthly, at a per annum rate, which in the case of a conduit lender is the commercial paper rate, plus a margin of 2.75% (2.20% prior to the November 2022 amendment). The effective interest rate was 8.31% as of September 30, 2023. RMR V pays an unused commitment fee between 0.45% and 0.75% based upon the average daily utilization of the facility. RMR V had $18.6 million of immediate availability to draw down cash under the facility and held $0.6 million in restricted cash reserves as of September 30, 2023 to satisfy provisions of the credit agreement.

RMR VI Revolving Warehouse Credit Facility: In February 2023, the Company and its wholly-owned SPE, Regional Management Receivables VI, LLC (“RMR VI”), entered into a credit agreement that provides for a $75 million revolving warehouse credit facility to RMR VI. The facility converts to an amortizing loan in February 2025 and terminates in February 2026. The debt is secured by finance receivables and other related assets that the Company purchased from its affiliates, which the Company then sold and transferred to RMR VI. Advances on the facility are capped at 80% of eligible finance receivables. Borrowings under the facility bear interest, payable monthly, at a rate equal to one-month SOFR, plus (i) 0.10% per annum, (ii) a margin of 2.50%, and (iii) the applicable step-up margin (0.00% during the revolving period). The effective interest rate was 7.93% as of September 30, 2023. RMR VI pays a monthly unused commitment fee of 0.50%. RMR VI had no immediate availability to draw down cash under the facility and held $0.2 million in restricted cash reserves as of September 30, 2023 to satisfy provisions of the credit agreement.

RMR VII Revolving Warehouse Credit Facility: In April 2023, the Company and its wholly-owned SPE, Regional Management Receivables VII, LLC (“RMR VII”), entered into a credit agreement that provides for a $75 million revolving warehouse credit facility to RMR VII. The facility converts to an amortizing loan in October 2024 and terminates in October 2025. The debt is secured by finance receivables and other related assets that the Company purchased from its affiliates, which the Company then sold and transferred to RMR VII. Advances on the facility are capped at 80% of eligible finance receivables. Borrowings under the facility bear interest, payable monthly, at a rate equal to one-month SOFR, plus (i) 0.10% per annum, (ii) a margin of 3.00%, and (iii) the applicable step-up margin (0.00% during the revolving period). The effective interest rate was 8.43% as of September 30, 2023. RMR VII pays a monthly unused commitment fee ranging between 0.45% and 0.65%. RMR VII had no immediate availability to draw down cash under the facility and held $0.1 million in restricted cash reserves as of September 30, 2023 to satisfy provisions of the credit agreement.

RMIT 2020-1 Securitization: In September 2020, the Company, its wholly-owned SPE, Regional Management Receivables III, LLC (“RMR III”), and the Company’s indirect wholly-owned SPE, Regional Management Issuance Trust 2020-1 (“RMIT 2020-1”), completed a private offering and sale of $180 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes by RMIT 2020-1. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from the Company, which RMR III then sold and transferred to RMIT 2020-1. The notes had a revolving period ending in September 2023, with a final maturity date in October 2030. RMIT 2020-1 held $1.9 million in restricted cash reserves as of September 30, 2023 to satisfy provisions of the transaction documents. Borrowings under the RMIT 2020-1 securitization bear interest, payable monthly, at an effective interest rate of 2.85% as of September 30, 2023. Prior to maturity in October 2030, the Company may redeem the notes in full, but not in part. No payments of principal of the notes were made during the revolving period.

RMIT 2021-1 Securitization: In February 2021, the Company, its wholly-owned SPE, RMR III, and the Company’s indirect wholly-owned SPE, Regional Management Issuance Trust 2021-1 (“RMIT 2021-1”), completed a private offering and sale of $249 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes by RMIT 2021-1. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from the Company, which RMR III then sold and transferred to RMIT 2021-1. The notes have a revolving period ending in February 2024, with a final maturity date in March 2031. RMIT 2021-1 held $2.6 million in restricted cash reserves as of September 30, 2023 to satisfy provisions of the transaction documents. Borrowings under the RMIT 2021-1 securitization bear interest, payable monthly, at an effective interest rate of 2.08% as of September 30, 2023. Prior to maturity in March 2031, the Company may redeem the notes in full, but not in part, at its option on any business day on or after the payment date occurring in March 2024. No payments of principal of the notes will be made during the revolving period.

RMIT 2021-2 Securitization: In July 2021, the Company, its wholly-owned SPE, RMR III, and the Company’s indirect wholly-owned SPE, Regional Management Issuance Trust 2021-2 (“RMIT 2021-2”), completed a private offering and sale of $200 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes by RMIT 2021-2. The

asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from the Company, which RMR III then sold and transferred to RMIT 2021-2. The notes have a revolving period ending in July 2026, with a final maturity date in August 2033. RMIT 2021-2 held $2.1 million in restricted cash reserves as of September 30, 2023 to satisfy provisions of the transaction documents. Borrowings under the RMIT 2021-2 securitization bear interest, payable monthly, at an effective interest rate of 2.30% as of September 30, 2023. Prior to maturity in August 2033, the Company may redeem the notes in full, but not in part, at its option on any business day on or after the payment date occurring in August 2026. No payments of principal of the notes will be made during the revolving period.

RMIT 2021-3 Securitization: In October 2021, the Company, its wholly-owned SPE, RMR III, and the Company’s indirect wholly-owned SPE, Regional Management Issuance Trust 2021-3 (“RMIT 2021-3”), completed a private offering and sale of $125 million of asset-backed notes. The transaction consisted of the issuance of fixed-rate, asset-backed notes by RMIT 2021-3. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from the Company, which RMR III then sold and transferred to RMIT 2021-3. The notes have a revolving period ending in September 2026, with a final maturity date in October 2033. RMIT 2021-3 held $1.5 million in restricted cash reserves as of September 30, 2023 to satisfy provisions of the transaction documents. Borrowings under the RMIT 2021-3 securitization bear interest, payable monthly, at an effective interest rate of 3.88% as of September 30, 2023. Prior to maturity in October 2033, the Company may redeem the notes in full, but not in part, at its option on any business day on or after the payment date occurring in October 2024. No payments of principal of the notes will be made during the revolving period.

RMIT 2022-1 Securitization: In February 2022, the Company, its wholly-owned SPE, RMR III, and the Company’s indirect wholly-owned SPE, Regional Management Issuance Trust 2022-1 (“RMIT 2022-1”), completed a private offering and sale of $250 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes by RMIT 2022-1. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from the Company, which RMR III then sold and transferred to RMIT 2022-1. The notes have a revolving period ending in February 2025, with a final maturity date in March 2032. RMIT 2022-1 held $2.6 million in restricted cash reserves as of September 30, 2023 to satisfy provisions of the transaction documents. Borrowings under the RMIT 2022-1 securitization bear interest, payable monthly, at an effective interest rate of 3.59% as of September 30, 2023. Prior to maturity in March 2032, the Company may redeem the notes in full, but not in part, at its option on any note payment date on or after the payment date occurring in March 2025. No payments of principal of the notes will be made during the revolving period.

RMIT 2022-2B Securitization: In October 2022, the Company, its wholly-owned SPE, RMR III, and its indirect wholly-owned SPE, Regional Management Issuance Trust 2022-2B (“RMIT 2022-2B”), completed a private offering and sale of $200 million of asset-backed notes. The transaction consisted of the issuance of three classes of fixed-rate, asset-backed notes by RMIT 2022-2B. The asset-backed notes were secured by finance receivables and other related assets that RMR III purchased from the Company and have a revolving period ending in October 2024, with a final maturity date in November 2031. RMR III sold two classes of the asset-backed notes and transferred them to RMIT 2022-2B. RMIT 2022-2B held $2.3 million in restricted cash reserves as of September 30, 2023 to satisfy provisions of the transaction documents. Borrowings under the sold notes bear interest, payable monthly, at an effective interest rate of 7.51% as of September 30, 2023. The $16.3 million class of the fixed-rate, asset-backed notes was retained by RMR III on the closing date but may be sold in whole or in part. Prior to maturity in November 2031, the Company may redeem the notes in full, but not in part, at its option on any note payment date on or after the payment date occurring in November 2024. No payments of principal of the notes will be made during the revolving period.

The Company’s debt arrangements are subject to certain covenants, including monthly and annual reporting, maintenance of specified interest coverage and debt ratios, restrictions on distributions, limitations on other indebtedness, and certain other restrictions. As of September 30, 2023, the Company was in compliance with all debt covenants.

Note 7. Stockholders’ Equity

Stock repurchase program: In May 2021, the Company announced that its Board of Directors (the "Board") had authorized a $30.0 million stock repurchase program. In August 2021, the Company announced that the Board had approved a $20.0 million increase in the amount authorized under the stock repurchase program, from $30.0 million to $50.0 million. In January 2022, the Company completed the stock repurchase program, having repurchased a total of 945 thousand shares of common stock.

In February 2022, the Company announced that the Board had authorized a new $20.0 million stock repurchase program. In May 2022, the Company completed the stock repurchase program, having repurchased a total of 426 thousand shares of common stock.

The following is a summary of the Company’s repurchased shares of common stock for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars and shares in thousands, except per share amounts	2023		2022		2023		2022
Common stock repurchased		—		—		—		437
Weighted-average cost per share	$	—	$	—	$	—	$	47.14
Total cost of common stock repurchased	$	—	$	—	$	—	$	20,613

Quarterly cash dividend: The Board may in its discretion declare and pay cash dividends on the Company’s common stock. The following table presents the dividends declared per share of common stock for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Dividends declared per common share	$	0.30	$	0.30	$	0.90	$	0.90

See Note 13, “Subsequent Events,” for information regarding the Company’s cash dividend following the end of the fiscal quarter.

Note 8. Disclosure About Fair Value of Financial Instruments

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

Cash and restricted cash: Cash and restricted cash is recorded at cost, which approximates fair value due to its highly liquid nature.

Restricted available-for-sale investments: The fair value of U.S. Treasury securities is priced using an external pricing service which the Company corroborates using a secondary external vendor. For additional information on the Company's restricted available-for-sale investments, see Note 4, "Restricted Available-for-Sale Investments."

Net finance receivables: The Company determines the fair value of net finance receivables using a discounted cash flows methodology. The application of this methodology requires the Company to make certain estimates and judgments. These estimates and judgments include, but are not limited to, prepayment rates, default rates, loss severity, and risk-adjusted discount rates.

Debt: The Company estimates the fair value of debt using estimated credit marks based on an index of similar financial instruments (credit facilities) and projected cash flows from the underlying collateralized finance receivables (securitizations), each discounted using a risk-adjusted discount rate.

Certain of the Company’s assets estimated fair value are classified and disclosed in one of the following three categories:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Unobservable inputs that are not corroborated by market data.

In determining the appropriate levels, the Company performs an analysis of the assets and liabilities that are estimated at fair value. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.

The following table includes the carrying amounts and estimated fair values of financial assets and liabilities disclosed but not carried at fair value:


	September 30, 2023				December 31, 2022
Dollars in thousands	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Level 1
Cash	$	7,413	$	7,413	$	3,873	$	3,873
Restricted cash		117,029		117,029		127,926		127,926
Level 3
Net finance receivables, less unearned insurance premiums and allowance for credit losses		1,517,345		1,587,596		1,469,585		1,554,794
Liabilities
Level 3
Debt		1,372,748		1,256,419		1,355,359		1,219,832

The following table includes the carrying amounts and estimated fair values of amounts the Company measures at fair value on a recurring basis:

September 30, 2023

December 31, 2022

Dollars in thousands

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

Assets

Level 2

Restricted available-for-sale investments

22,510

20,416

As of the periods indicated above, there were no financial assets or liabilities measured at fair value on a non-recurring basis.

Note 9. Income Taxes

The Company records interim provisions for income taxes based on an estimated annual effective tax rate. The Company recognizes discrete tax benefits or deficiencies in the income tax line of the consolidated statements of income. Generally, these discrete benefits or deficiencies are primarily the result of exercises or vestings of share-based awards. However, during the three months ended September 30, 2023, the Company also re-established deferred tax assets for certain state net operating losses.

The following table summarizes the components of income taxes for the periods indicated:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
Dollars in thousands	2023			2022		2023			2022
Provision for corporate taxes	$	2,465		$	3,285	$	7,125		$	15,702
Discrete tax (benefits) deficiencies		(388	)		1		(342	)		(446	)
Total income taxes	$	2,077		$	3,286	$	6,783		$	15,256

Note 10. Earnings Per Share

The following schedule reconciles the computation of basic and diluted earnings per share for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in thousands, except per share amounts	2023		2022		2023		2022
Numerator:
Net income	$	8,820	$	10,068	$	23,532	$	48,833
Denominator:
Weighted-average shares outstanding for basic earnings per share		9,429		9,195		9,385		9,329
Effect of dilutive securities		221		331		228		409
Weighted-average shares adjusted for dilutive securities		9,650		9,526		9,613		9,738
Earnings per share:
Basic	$	0.94	$	1.09	$	2.51	$	5.23
Diluted	$	0.91	$	1.06	$	2.45	$	5.01

The Company excluded outstanding shares of common stock totaling 0.3 million and 0.2 million for the three months ended September 30, 2023 and 2022, respectively, and 0.4 million and 0.2 million for the nine months ended September 30, 2023 and 2022, respectively, from the computation of diluted earnings per share because they were anti-dilutive. These anti-dilutive awards include Non-Qualified Stock Options, Restricted Stock Awards, Performance-Contingent Restricted Stock Units, and Performance Restricted Stock Units.

Note 11. Share-Based Compensation

The Company previously adopted the 2007 Management Incentive Plan (the “2007 Plan”) and the 2011 Stock Incentive Plan (the “2011 Plan”). On April 22, 2015, the stockholders of the Company approved the 2015 Long-Term Incentive Plan (the “2015 Plan”), and on each of April 27, 2017 and May 20, 2021, the stockholders of the Company re-approved the 2015 Plan, as amended and restated on each respective date. As of September 30, 2023, subject to adjustments as provided in the 2015 Plan, the maximum aggregate number of shares of the Company’s common stock that could be issued under the 2015 Plan could not exceed the sum of (i) 2.6 million shares (such amount reflecting an increase of 1.05 million additional or “new” shares in connection with the May 20, 2021 re-approval of the 2015 Plan) plus (ii) any shares remaining available for the grant of awards as of the 2015 Plan effective date (April 22, 2015) under the 2007 Plan or the 2011 Plan, plus (iii) any shares subject to an award granted under the 2007 Plan or the 2011 Plan, which award is forfeited, cash-settled, cancelled, terminated, expires, or lapses for any reason without the issuance of shares or pursuant to which such shares are forfeited. As of the effective date of the 2015 Plan (April 22, 2015), there were 0.9 million shares available for grant under the 2015 Plan, inclusive of shares previously available for grant under the 2007 Plan and the 2011 Plan that were rolled over to the 2015 Plan. No further grants will be made under the 2007 Plan or the 2011 Plan. However, awards that are outstanding under the 2007 Plan and the 2011 Plan will continue in accordance with their respective terms. As of September 30, 2023, there were 0.3 million shares available for grant under the 2015 Plan.

For the three months ended September 30, 2023 and 2022, the Company recorded share-based compensation expense of $3.4 million and $3.3 million, respectively. The Company recorded $7.8 million and $8.1 million in share-based compensation for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, unrecognized share-based compensation expense to be recognized over future periods approximated $16.0 million. This amount will be recognized as expense over a weighted-average period of 1.8 years. Share-based compensation expenses are recognized on a straight-line basis over the requisite service period of the agreement. All share-based compensation is classified as equity awards.

The Company allows for the settlement of share-based awards on a net share basis. With net share settlement, the employee does not surrender any cash or shares upon the exercise of stock options or the vesting of stock awards or stock units. Rather, the Company withholds the number of shares with a value equivalent to the option exercise price (for stock options) and the statutory tax withholding (for all share-based awards). Net share settlements have the effect of reducing the number of shares that would have otherwise been issued as a result of exercise or vesting.

Long-term incentive program: The Company issues performance restricted stock units (“PRSUs”) and restricted stock awards (“RSAs”) to certain members of senior management under a long-term incentive program (“LTIP”). Recurring annual grants are made at the discretion of the Board. The annual grants are subject to cliff- and graded-vesting, generally concluding at the end of the third calendar year and subject to continued employment or as otherwise provided in the underlying award agreements. Vested PRSUs are subject to an additional one-year holding period following the vesting date. The actual value of the PRSUs that may be earned

can range from 0% to 150% of target based on positive or negative cumulative total shareholder return concluding at the end of the third calendar year.

Prior to 2022, the Company issued non-qualified stock options, performance-contingent restricted stock units (“RSUs”), cash-settled performance units (“CSPUs”), and RSAs to certain members of senior management under the LTIP. The CSPUs are cash incentive awards, and the associated expense is not based on the market price of the Company’s common stock. The annual grants are subject to cliff- and graded-vesting, generally concluding at the end of the third calendar year and subject to continued employment or as otherwise provided in the underlying award agreements. The actual value of the RSUs and CSPUs that may be earned can range from 0% to 150% of target based on the percentile ranking of the Company’s compound annual growth rate of pre-provision net income and pre-provision net income per share compared to a public company peer group over a three-year performance period.

Key team member incentive program: The Company also has a key team member incentive program for certain other members of senior management. Recurring annual participation in the program is at the discretion of the Board and executive management. Each participant in the program is eligible to earn an RSA, subject to performance over a one-year period. Payout under the program can range from 0% to 150% of target based on the achievement of five Company performance metrics and individual performance goals (subject to continued employment and certain other terms and conditions of the program). If earned, the RSA is issued following the one-year performance period and vests ratably over a subsequent two-year period (subject to continued employment or as otherwise provided in the underlying award agreement).

Inducement and retention program: From time to time, the Company issues stock awards and other long-term incentive awards in conjunction with employment offers to select new employees and retention grants to select existing employees. The Company issues these awards to attract and retain talent and to provide market competitive compensation. The grants have various vesting terms, including fully-vested awards at the grant date, cliff-vesting, and graded-vesting over periods of up to five years (subject to continued employment or as otherwise provided in the underlying award agreements).

Non-employee director compensation program: The Company awards its non-employee directors a cash retainer and shares of restricted common stock. The RSAs are granted on the fifth business day following the Company’s annual meeting of stockholders and fully vest upon the earlier of the first anniversary of the grant date or the completion of the directors’ annual service to the Company (so long as the period between the date of the annual stockholders’ meeting related to the grant date and the date of the next annual stockholders’ meeting is not less than 50 weeks).

The following are the terms and amounts of the awards issued under the Company’s share-based incentive programs:

Non-qualified stock options: The exercise price of all stock options is equal to the Company’s closing stock price on the date of grant. Stock options are subject to various vesting terms, including graded- and cliff-vesting over periods of up to five years. In addition, stock options vest and become exercisable in full or in part under certain circumstances, including following the occurrence of a change of control (as defined in the option award agreements). Participants who are awarded options must exercise their options within a maximum of ten years of the grant date.

The fair value of option grants was estimated on the grant date using the Black-Scholes option-pricing model. Beginning in 2022, the Company no longer issues non-qualified stock options as part of its annual long-term incentive program.

The following table summarizes the stock option activity for the nine months ended September 30, 2023:


Dollars and shares in thousands, except per share amounts	Number of Shares			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Options outstanding at January 1, 2023		527		$	23.07
Granted		—			—
Exercised		(18	)		16.09
Forfeited		—			—
Expired		—			—
Options outstanding at September 30, 2023		509		$	23.32		5.2	$	2,657
Options exercisable at September 30, 2023		459		$	22.57		5.0	$	2,657

The following table provides additional stock option information for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in thousands, except per share amounts	2023		2022		2023		2022
Weighted-average grant date fair value per share	$	—	$	—	$	—	$	—
Intrinsic value of options exercised	$	—	$	—	$	277	$	2,142
Fair value of stock options that vested	$	20	$	8	$	20	$	8

Performance restricted stock units: Compensation expense for PRSUs is based on the fair value of the award estimated on the grant date using the Monte Carlo valuation model. The following are the weighted-average assumptions for the PRSU grants during the periods indicated below:


	Nine Months Ended September 30,
	2023			2022
Expected volatility		40.18	%		39.24	%
Expected dividends		2.24	%		—
Risk-free rate		5.21	%		1.05	%
Discount for post-vesting restrictions		8.48	%		11.93	%

The following table summarizes PRSU activity during the nine months ended September 30, 2023:


Dollars and units in thousands, except per unit amounts	Units		Weighted-Average Grant Date Fair Value Per Unit
Non-vested units at January 1, 2023		70	$	52.07
Granted		118		32.40
Achieved performance adjustment		—		—
Vested		—		—
Forfeited		—		—
Non-vested units at September 30, 2023		188	$	39.72

The following table provides additional PRSU information for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in thousands, except per unit amounts	2023		2022		2023		2022
Weighted-average grant date fair value per unit	$	—	$	—	$	32.40	$	52.07
Fair value of PRSUs that vested	$	—	$	—	$	—	$	—

Performance-contingent restricted stock units: Compensation expense for RSUs is based on the Company’s closing stock price on the date of grant and the probability that certain financial goals will be achieved over the performance period. Compensation expense is estimated based on expected performance and is adjusted at each reporting period.

The following table summarizes RSU activity during the nine months ended September 30, 2023:


Dollars and units in thousands, except per unit amounts	Units			Weighted-Average Grant Date Fair Value Per Unit
Non-vested units at January 1, 2023		108		$	21.87
Granted (target)		—			—
Achieved performance adjustment		28			15.86
Vested		(91	)		15.86
Forfeited		—			—
Non-vested units at September 30, 2023		45		$	30.22

The following table provides additional RSU information for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in thousands, except per unit amounts	2023		2022		2023		2022
Weighted-average grant date fair value per unit	$	—	$	—	$	—	$	—
Fair value of RSUs that vested	$	—	$	—	$	1,445	$	513

Restricted stock awards: The fair value and compensation expense of the primary portion of the Company’s RSAs are calculated using the Company’s closing stock price on the date of grant. These RSAs include director awards, inducement awards, and RSAs granted pursuant to the Company’s long-term incentive program.

The fair value and compensation expense of RSAs granted pursuant to the Company’s performance-based key team member incentive program are calculated using the Company’s closing stock price on the date of grant and the probability that certain financial goals will be achieved over the performance period. Compensation expense is estimated based on expected performance and is adjusted at each reporting period.

The following table summarizes RSA activity during the nine months ended September 30, 2023:


Dollars and shares in thousands, except per share amounts	Shares			Weighted-Average Grant Date Fair Value Per Share
Non-vested shares at January 1, 2023		198		$	38.99
Granted		248			34.25
Vested		(34	)		45.37
Forfeited		(9	)		39.34
Non-vested shares at September 30, 2023		403		$	35.53

The following table provides additional RSA information for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in thousands, except per share amounts	2023		2022		2023		2022
Weighted-average grant date fair value per share	$	30.43	$	37.93	$	34.25	$	40.90
Fair value of RSAs that vested	$	259	$	338	$	1,540	$	1,501

Note 12. Commitments and Contingencies

In the normal course of business, the Company has been named as a defendant in legal actions in connection with its activities. Some of the actual or threatened legal actions include claims for compensatory damages or claims for indeterminate amounts of damages. The Company contests liability and the amount of damages, as appropriate, in each pending matter.

Where available information indicates that it is probable that a liability has been incurred and the Company can reasonably estimate the amount of that loss, the Company accrues the estimated loss by a charge to net income.

However, in many legal actions, it is inherently difficult to determine whether any loss is probable, or even reasonably possible, or to estimate the amount of loss. This is particularly true for actions that are in their early stages of development or where plaintiffs seek indeterminate damages. In addition, even where a loss is reasonably possible or an exposure to loss exists in excess of the liability already accrued, it is not always possible to reasonably estimate the size of the possible loss or range of loss. Before a loss, additional loss, range of loss, or range of additional loss can be reasonably estimated for any given action, numerous issues may need to be resolved, including through lengthy discovery, following determination of important factual matters, and/or by addressing novel or unsettled legal questions.

For certain other legal actions, the Company can estimate reasonably possible losses, additional losses, ranges of loss, or ranges of additional loss in excess of amounts accrued, but the Company does not believe, based on current knowledge and after consultation with counsel, that such losses will have a material adverse effect on the consolidated financial statements.

While the Company will continue to identify legal actions where it believes a material loss to be reasonably possible and reasonably estimable, there can be no assurance that material losses will not be incurred from claims that the Company has not yet been notified of or are not yet determined to be probable, or reasonably possible and reasonable to estimate.

The Company expenses legal costs as they are incurred.

Note 13. Subsequent Events

Quarterly cash dividend: In November 2023, the Company announced that the Board declared a quarterly cash dividend of $0.30 per share. The dividend will be paid on December 13, 2023 to shareholders of record at the close of business on November 22, 2023. The declaration, amount, and payment of any future cash dividends on shares of the Company’s common stock will be at the discretion of the Board.

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

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. These discussions contain forward-looking statements that reflect our current expectations and that include, but are not limited to, statements concerning our strategies, future operations, future financial position, future revenues, projected costs, expectations regarding demand and acceptance for our financial products, growth opportunities and trends in the market in which we operate, prospects, and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “predicts,” “will,” “would,” “should,” “could,” “potential,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements involve risks and uncertainties that could cause actual results, events, and/or performance to differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements. Such risks and uncertainties include, without limitation, the risks set forth in our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (which was filed with the SEC on February 24, 2023), our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023 (which was filed with the SEC on May 5, 2023), our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (which was filed with the SEC on August 4, 2023), and this Quarterly Report on Form 10-Q. The forward-looking information we have provided in this Quarterly Report on Form 10-Q pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or revise such statements, except as required by the federal securities laws.

Overview

We are a diversified consumer finance company that provides installment loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other lenders. As of September 30, 2023, we operate under the name “Regional Finance” online and in 347 branch locations in 19 states across the United States, serving 530,400 active accounts. Most of our loan products are secured, and each is structured on a fixed-rate, fixed-term basis with fully amortizing equal monthly installment payments, repayable at any time without penalty. We source our loans through our omni-channel platform, which includes our branches, centrally-managed direct mail campaigns, digital partners, and our consumer website. We operate an integrated branch model in which nearly all loans, regardless of origination channel, are serviced through our branch network with the support of centralized sales, underwriting, service, collections, and administrative teams. This model provides us with frequent contact with our customers, which we believe improves our credit performance and customer loyalty. Our goal is to consistently grow our finance receivables and to soundly manage our portfolio risk, while providing our customers with attractive and easy-to-understand loan products that serve their varied financial needs.

Our products include:

•

Small Loans (≤$2,500) – As of September 30, 2023, we had 282.6 thousand small installment loans outstanding, representing $474.2 million in net finance receivables. This included 142.7 thousand small loan convenience checks, representing $206.4 million in net finance receivables.

•

Large Loans (>$2,500) – As of September 30, 2023, we had 244.8 thousand large installment loans outstanding, representing $1.3 billion in net finance receivables. This included 59.4 thousand large loan convenience checks, representing $191.9 million in net finance receivables.

•

Retail Loans – As of September 30, 2023, we had 3.0 thousand retail purchase loans outstanding, representing $4.9 million in net finance receivables.

•

Optional Insurance Products – We offer optional payment and collateral protection insurance to our direct loan customers.

Small and large installment loans are our core products and will be the drivers of future growth. We ceased accepting applications for our retail loan product offering in November 2022, to focus on growing our core loan portfolio. We continue to own and service our existing portfolio of retail loans. Our primary sources of revenue are interest and fee income from our loan products, of which interest and fees relating to small and large installment loans are the largest component. In addition to interest and fee income from loans, we derive revenue from optional insurance products purchased by customers of our direct loan products.

Outlook

We continually assess the macroeconomic environment in which we operate in order to appropriately and timely adapt to current market conditions. Macroeconomic factors, including, but not limited to, inflationary pressures, rising interest rates, and impacts from current geopolitical events outside the U.S., may affect our business, liquidity, financial condition, and results of operations.

Current inflationary pressures and rising interest rates have created economic uncertainty. Recent geopolitical events outside of the U.S. have also contributed to volatility in U.S. markets. As inflation accelerated and geopolitical stability began to deteriorate in the fourth quarter of 2021, we began to proactively tighten our credit models. We have principally focused on tightening certain higher-risk, higher-rate customer segments that have been particularly adversely impacted by a more challenging economic environment. We have maintained such tightening through the first nine months of 2023.

Our allowance for credit losses was 10.6% of net finance receivables as of September 30, 2023. Our contractual delinquency as a percentage of net finance receivables was 7.3% as of September 30, 2023, up from 7.2% as of September 30, 2022. Going forward, we may experience changes to the macroeconomic assumptions within our forecast and to our credit loss performance outlook, either of which could lead to further changes in our allowance for credit losses, reserve rate, and provision for credit losses expense.

We proactively diversified our funding over the past few years and continue to maintain a strong liquidity profile. As of September 30, 2023, we had $179.2 million of available liquidity, comprised of unrestricted cash on hand and immediate availability to draw down cash from our revolving credit facilities. In addition, we had $613.1 million of unused capacity on our revolving credit facilities (subject to the borrowing base) as of September 30, 2023. We believe our liquidity position provides substantial runway to support the fundamental operations of our business and to fund future growth.

Factors Affecting Our Results of Operations

Our business is impacted by several factors affecting our revenues, costs, and results of operations, including the following:

Quarterly Information and Seasonality. Our loan volume and contractual delinquency follow seasonal trends. Demand for our loans is typically highest during the second, third, and fourth quarters, which we believe is largely due to customers borrowing money for vacation, back-to-school, and holiday spending. Loan demand has generally been the lowest during the first quarter, which we believe is largely due to the timing of income tax refunds. Delinquencies generally reach their lowest point in the first half of the year and rise in the second half of the year. Changes in quarterly growth or liquidation could result in larger allowance for credit loss releases in periods of portfolio liquidation and larger provisions for credit losses in periods of portfolio growth. Consequently, we experience seasonal fluctuations in our operating results. However, changes in macroeconomic factors, including inflation, rising interest rates, and geopolitical conflict, have impacted our typical seasonal trends for loan volume and delinquency.

Growth in Loan Portfolio. The revenue that we derive from interest and fees is largely driven by the balance of loans that we originate. Average net finance receivables were $1.7 billion for the first nine months of 2023 and $1.5 billion for the prior-year period. We source our loans through our branches, centrally managed direct mail program, digital partners, and our consumer website. The majority of our loans, regardless of origination channel, are serviced through our branches. Increasing the number of loans per branch and growing our state footprint allows us to increase the number of customers we are able to serve. We grew our state footprint from 18 to 19 states in March 2023, expanding our operations to Arizona. We continue to assess our legacy branch network for clear opportunities to consolidate operations into larger branches within close geographic proximity. This branch optimization is consistent with our omni-channel strategy and builds upon our recent successes in entering new states with a lighter branch footprint, while still providing customers with best-in-class service. We plan to add additional branches in new and existing states where it is favorable for us to conduct business.

Product Mix. We are exposed to different credit risks and charge different interest rates and fees with respect to the various types of loans we offer. Our product mix also varies to some extent by state, and we may further diversify our product mix in the future. The interest rates and fees vary from state to state, depending on the competitive environment and relevant laws and regulations.

Asset Quality and Allowance for Credit Losses. Our results of operations are highly dependent upon the credit quality of our loan portfolio. The credit quality of our loan portfolio is the result of our ability to enforce sound underwriting standards, maintain diligent servicing of the portfolio, and respond to changing economic conditions as we grow our loan portfolio.

The primary underlying factors driving the provision for credit losses for each loan type are our underwriting standards, delinquency trends, the general economic conditions in the areas in which we conduct business, loan portfolio growth, and the

effectiveness of our servicing and collection efforts. We monitor these factors, and the amount and past due status of all loans, to identify trends that might require us to modify the allowance for credit losses.

Interest Rates. Our costs of funds are affected by changes in interest rates, as the interest rates that we pay on certain of our credit facilities are variable. As a component of our strategy to manage the interest rate risk associated with future interest payments on our variable-rate debt, a majority of our funding was held at a fixed rate as of September 30, 2023, representing 87% of total debt.

Operating Costs. Our financial results are impacted by the costs of operations and head office functions. Those costs are included in general and administrative expenses within our consolidated statements of comprehensive income.

Components of Results of Operations

Interest and Fee Income. Our interest and fee income consists primarily of interest earned on outstanding loans. Accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent. If the account is charged off, the accrued interest income is reversed as a reduction of interest and fee income.

Most states allow certain fees in connection with lending activities, such as loan origination fees, acquisition fees, and maintenance fees. Some states allow for higher fees while keeping interest rates lower. Loan fees are additional charges to the customer and generally are included in the annual percentage rate shown in the Truth in Lending disclosure that we make to our customers. The fees may or may not be refundable to the customer in the event of an early payoff, depending on state law. Fees are recognized as income over the life of the loan on the constant yield method.

Insurance Income, Net. Our insurance operations are a material part of our overall business and are integral to our lending activities. Insurance income, net consists primarily of earned premiums, net of certain direct costs, from the sale of various optional payment and collateral protection insurance products offered to customers who obtain loans directly from us. Insurance income, net also includes the earned premiums and direct costs associated with the non-file insurance that we purchase to protect us from credit losses where, following an event of default, we are unable to take possession of personal property collateral because our security interest is not perfected. We do not sell insurance to non-borrowers. Direct costs included in insurance income, net are claims paid, claims reserves, ceding fees, and premium taxes paid. We do not allocate to insurance income, net, any other head office or branch administrative costs associated with management of insurance operations, management of our captive insurance company, marketing and selling insurance products, legal and compliance review, or internal audits.

As reinsurer, we maintain restricted reserves comprised of restricted cash and restricted available-for-sale investments for life insurance claims in an amount determined by the unaffiliated insurance company. As of September 30, 2023, the restricted reserves consisted of $21.7 million of unearned premium reserves and $1.1 million of unpaid claims reserves. The unaffiliated insurance company maintains the reserves for non-life claims.

Other Income. Our other income consists primarily of late charges assessed on customers who fail to make a payment within a specified number of days following the due date of the payment. In addition, fees for extending the due date of a loan, returned check charges, commissions earned from the sale of an auto club product, interest income from restricted cash, and investment income from restricted available-for-sale securities are included in other income.

Provision for Credit Losses. Provisions for credit losses are charged to income in amounts that we estimate as sufficient to maintain an allowance for credit losses at an adequate level to provide for lifetime expected credit losses on the related finance receivable portfolio. Credit loss experience, current conditions, reasonable and supportable economic forecasts, delinquency of finance receivables, loan portfolio growth, the value of underlying collateral, and management’s judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses. Substantial adjustments to the allowance may be necessary if there are significant changes in forecasted economic conditions or loan portfolio performance.

General and Administrative Expenses. Our financial results are impacted by the costs of operations and head office functions. Those costs are included in general and administrative expenses within our consolidated statements of comprehensive income. Our general and administrative expenses are comprised of four categories: personnel, occupancy, marketing, and other. We measure our general and administrative expenses as a percentage of average net finance receivables, which we refer to as our operating expense ratio.

Our personnel expenses are the largest component of our general and administrative expenses and consist primarily of the salaries and wages, overtime, contract labor, relocation costs, incentives, benefits, and related payroll taxes associated with all of our operations and head office employees.

Our occupancy expenses consist primarily of the cost of renting our facilities, all of which are leased, and the utility, depreciation of leasehold improvements and furniture and fixtures, communication services, data processing, and other non-personnel costs associated with operating our business.

Our marketing expenses consist primarily of costs associated with our direct mail campaigns (including postage and costs associated with selecting recipients), digital marketing, maintaining our consumer website, and local marketing by branches. These costs are expensed as incurred.

Other expenses consist primarily of legal, compliance, audit, and consulting costs, as well as software maintenance and support, non-employee director compensation, electronic payment processing costs, bank service charges, office supplies, credit bureau charges, and the amortization of software, software licenses, and implementation costs. We frequently experience fluctuations in other expenses as we grow our loan portfolio and expand our market footprint. For a discussion regarding how risks and uncertainties associated with the current regulatory environment may impact our future expenses, net income, and overall financial condition, see Part II, Item 1A, “Risk Factors.”

Interest Expense. Our interest expense consists primarily of paid and accrued interest for debt, unused line fees, and amortization of debt issuance costs on debt. Interest expense also includes changes in the fair value of interest rate caps.

Income Taxes. Income taxes consist of state and federal income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The change in deferred tax assets and liabilities is recognized in the period in which the change occurs, and the effects of future tax rate changes are recognized in the period in which the enactment of new rates occurs.

Results of Operations

The following table summarizes our results of operations, both in dollars and as a percentage of average net finance receivables (annualized):


	3Q 23					3Q 22					YTD 23					YTD 22
Dollars in thousands	Amount		% of Average Net Finance Receivables			Amount		% of Average Net Finance Receivables			Amount		% of Average Net Finance Receivables			Amount		% of Average Net Finance Receivables
Revenue
Interest and fee income	$	125,018		29.0	%	$	116,020		29.6	%	$	363,508		28.6	%	$	333,422		29.8	%
Insurance income, net		11,382		2.6	%		11,987		3.1	%		33,544		2.6	%		32,751		2.9	%
Other income		4,478		1.1	%		3,445		0.9	%		12,688		1.0	%		8,998		0.8	%
Total revenue		140,878		32.7	%		131,452		33.6	%		409,740		32.2	%		375,171		33.5	%
Expenses
Provision for credit losses		50,930		11.8	%		48,071		12.3	%		151,149		11.9	%		124,329		11.1	%

Personnel		39,832		9.3	%		36,979		9.4	%		114,848		9.0	%		106,574		9.5	%
Occupancy		6,315		1.5	%		5,848		1.5	%		18,761		1.5	%		17,812		1.6	%
Marketing		4,077		0.9	%		3,940		1.0	%		11,300		0.9	%		11,139		1.0	%
Other		11,880		2.7	%		11,397		3.0	%		33,414		2.6	%		31,860		2.9	%
Total general and administrative		62,104		14.4	%		58,164		14.9	%		178,323		14.0	%		167,385		15.0	%

Interest expense		16,947		4.0	%		11,863		3.0	%		49,953		3.9	%		19,368		1.7	%
Income before income taxes		10,897		2.5	%		13,354		3.4	%		30,315		2.4	%		64,089		5.7	%
Income taxes		2,077		0.5	%		3,286		0.8	%		6,783		0.6	%		15,256		1.3	%
Net income	$	8,820		2.0	%	$	10,068		2.6	%	$	23,532		1.8	%	$	48,833		4.4	%

Information explaining the changes in our results of operations from year-to-year is provided in the following pages.

The following tables summarize the quarterly trends of our financial results:


	Income Statement Quarterly Trend
In thousands, except per share amounts	3Q 22			4Q 22			1Q 23			2Q 23			3Q 23			QoQ $ B(W)			YoY $ B(W)
Revenue
Interest and fee income	$	116,020		$	117,432		$	120,407		$	118,083		$	125,018		$	6,935		$	8,998
Insurance income, net		11,987			10,751			10,959			11,203			11,382			179			(605	)
Other income		3,445			3,833			4,012			4,198			4,478			280			1,033
Total revenue		131,452			132,016			135,378			133,484			140,878			7,394			9,426
Expenses
Provision for credit losses		48,071			60,786			47,668			52,551			50,930			1,621			(2,859	)

Personnel		36,979			34,669			38,597			36,419			39,832			(3,413	)		(2,853	)
Occupancy		5,848			5,997			6,288			6,158			6,315			(157	)		(467	)
Marketing		3,940			4,239			3,379			3,844			4,077			(233	)		(137	)
Other		11,397			10,238			11,059			10,475			11,880			(1,405	)		(483	)
Total general and administrative		58,164			55,143			59,323			56,896			62,104			(5,208	)		(3,940	)

Interest expense		11,863			14,855			16,782			16,224			16,947			(723	)		(5,084	)
Income before income taxes		13,354			1,232			11,605			7,813			10,897			3,084			(2,457	)
Income taxes		3,286			(1,159	)		2,916			1,790			2,077			(287	)		1,209
Net income	$	10,068		$	2,391		$	8,689		$	6,023		$	8,820		$	2,797		$	(1,248	)
Net income per common share:
Basic	$	1.09		$	0.26		$	0.93		$	0.64		$	0.94		$	0.30		$	(0.15	)
Diluted	$	1.06		$	0.25		$	0.90		$	0.63		$	0.91		$	0.28		$	(0.15	)
Weighted-average shares outstanding:
Basic		9,195			9,199			9,325			9,399			9,429			(30	)		(234	)
Diluted		9,526			9,411			9,622			9,566			9,650			(84	)		(124	)

	Balance Sheet Quarterly Trend
Dollars in thousands	3Q 22			4Q 22			1Q 23			2Q 23			3Q 23			QoQ $ Inc (Dec)			YoY $ Inc (Dec)
Total assets	$	1,606,550		$	1,724,987		$	1,701,114		$	1,723,616		$	1,765,340		$	41,724		$	158,790
Net finance receivables	$	1,607,598		$	1,699,393		$	1,676,230		$	1,688,937		$	1,751,009		$	62,072		$	143,411
Allowance for credit losses	$	179,800		$	178,800		$	183,800		$	181,400		$	184,900		$	3,500		$	5,100
Debt	$	1,241,039		$	1,355,359		$	1,329,677		$	1,344,855		$	1,372,748		$	27,893		$	131,709

	Other Key Metrics Quarterly Trend
	3Q 22			4Q 22			1Q 23			2Q 23			3Q 23			QoQ Inc (Dec)			YoY Inc (Dec)
Interest and fee yield (annualized)		29.6	%		28.5	%		28.5	%		28.2	%		29.0	%		0.8	%		(0.6	)%
Efficiency ratio (1)		44.2	%		41.8	%		43.8	%		42.6	%		44.1	%		1.5	%		(0.1	)%
Operating expense ratio (2)		14.9	%		13.4	%		14.0	%		13.6	%		14.4	%		0.8	%		(0.5	)%
30+ contractual delinquency		7.2	%		7.1	%		7.2	%		6.9	%		7.3	%		0.4	%		0.1	%
Net credit loss ratio (3)		9.1	%		15.0	%		10.1	%		13.1	%		11.0	%		(2.1	)%		1.9	%
Book value per share	$	32.18		$	32.41		$	33.06		$	32.71		$	33.61		$	0.90		$	1.43

(1) Annualized general and administrative expenses as a percentage of total revenue

(2) Annualized general and administrative expenses as a percentage of average net finance receivables

(3) Annualized net credit losses as a percentage of average net finance receivables

Comparison of September 30, 2023, Versus September 30, 2022

The following discussion and table describe the changes in finance receivables by product type:

•

Small Loans (≤$2,500) – Small loans outstanding decreased by $6.0 million, or 1.3%, to $474.2 million at September 30, 2023, from $480.2 million at September 30, 2022. The decrease was due to credit tightening for disciplined growth and the transition of small loan customers to large loans, partially offset by the growth of receivables in branches opened during 2022 and the nine months ended September 30, 2023.

•

Large Loans (>$2,500) – Large loans outstanding increased by $155.4 million, or 13.9%, to $1.3 billion at September 30, 2023, from $1.1 billion at September 30, 2022. The increase was due to the growth of receivables in branches opened during 2022 and the nine months ended September 30, 2023, and from the transition of small loan customers to large loans, partially offset by credit tightening for disciplined growth.

•

Retail Loans – Retail loans outstanding decreased $6.0 million, or 54.9%, to $4.9 million at September 30, 2023, from $10.9 million at September 30, 2022. We ceased accepting applications for our retail loan product offering as of November 2022 to focus on growing our core loan portfolio.


	Net Finance Receivables
Dollars in thousands	3Q 23		3Q 22		YoY $ Inc (Dec)			YoY % Inc (Dec)
Small loans	$	474,181	$	480,199	$	(6,018	)		(1.3	)%
Large loans		1,271,891		1,116,455		155,436			13.9	%
Retail loans		4,937		10,944		(6,007	)		(54.9	)%
Total net finance receivables	$	1,751,009	$	1,607,598	$	143,411			8.9	%
Number of branches at period end		347		338		9			2.7	%
Net finance receivables per branch	$	5,046	$	4,756	$	290			6.1	%

Comparison of the Three Months Ended September 30, 2023, Versus the Three Months Ended September 30, 2022

Net Income. Net income decreased $1.2 million, or 12.4%, to $8.8 million during the three months ended September 30, 2023, from $10.1 million during the prior-year period. The decrease was due to an increase in interest expense of $5.1 million, an increase in general and administrative expenses of $3.9 million, and an increase in provision for credit losses of $2.9 million, partially offset by an increase in revenue of $9.4 million and a decrease in income taxes of $1.2 million.

Revenue. Total revenue increased $9.4 million, or 7.2%, to $140.9 million during the three months ended September 30, 2023, from $131.5 million during the prior-year period. The components of revenue are explained in greater detail below.

Interest and Fee Income. Interest and fee income increased $9.0 million, or 7.8%, to $125.0 million during the three months ended September 30, 2023, from $116.0 million during the prior-year period. The increase was primarily due to a 10.0% increase in average net finance receivables, partially offset by a 0.6% decrease in annualized average yield. The decrease in yield was due to continued mix shift towards larger, higher-quality loans and the credit impact from macroeconomic conditions on revenue reversals and non-accrual loans, partially offset by price increases.

The following table sets forth the average net finance receivables balance and average yield for our loan products:


	Average Net Finance Receivables for the Three Months Ended							Average Yields for the Three Months Ended (1)
Dollars in thousands	3Q 23		3Q 22		YoY % Inc (Dec)			3Q 23			3Q 22			YoY % Inc (Dec)
Small loans	$	459,320	$	466,087		(1.5	)%		36.6	%		35.5	%		1.1	%
Large loans		1,257,168		1,089,225		15.4	%		26.3	%		27.2	%		(0.9	)%
Retail loans		5,647		10,935		(48.4	)%		16.9	%		18.5	%		(1.6	)%
Total interest and fee yield	$	1,722,135	$	1,566,247		10.0	%		29.0	%		29.6	%		(0.6	)%

(1)

Annualized interest and fee income as a percentage of average net finance receivables.

Total originations increased to $425.1 million during the three months ended September 30, 2023, from $418.7 million during the prior-year period. Quarterly origination volume was higher than the prior-year period due to selective growth programs concentrated on present and former borrowers. The following table represents the principal balance of loans originated and refinanced:


	Loans Originated for the Three Months Ended
Dollars in thousands	3Q 23		3Q 22		YoY $ Inc (Dec)			YoY % Inc (Dec)
Small loans	$	173,074	$	173,269	$	(195	)		(0.1	)%
Large loans		251,999		243,259		8,740			3.6	%
Retail loans		—		2,145		(2,145	)		(100.0	)%
Total loans originated	$	425,073	$	418,673	$	6,400			1.5	%

The following table summarizes the components of the increase in interest and fee income:


	Components of Increase in Interest and Fee Income 3Q 23 Compared to 3Q 22 Increase (Decrease)
Dollars in thousands	Volume			Rate			Volume & Rate			Net
Small loans	$	(601	)	$	1,260		$	(18	)	$	641
Large loans		11,428			(2,428	)		(375	)		8,625
Retail loans		(245	)		(45	)		22			(268	)
Product mix		965			(1,106	)		141			—
Total increase in interest and fee income	$	11,547		$	(2,319	)	$	(230	)	$	8,998

Insurance Income, Net. Insurance income, net decreased $0.6 million, or 5.0%, to $11.4 million during the three months ended September 30, 2023, from $12.0 million during the prior-year period. During both the three months ended September 30, 2023 and the prior-year period, personal property insurance premiums represented the largest component of aggregate earned insurance premiums, and life insurance claims expense represented the largest component of direct insurance expenses.

The following table summarizes the components of insurance income, net:


	Insurance Premiums and Direct Expenses for the Three Months Ended
Dollars in thousands	3Q 23			3Q 22			YoY $ B(W)			YoY % B(W)
Earned premiums	$	15,039		$	15,513		$	(474	)		(3.1	)%
Claims, reserves, and certain direct expenses		(3,657	)		(3,526	)		(131	)		(3.7	)%
Insurance income, net	$	11,382		$	11,987		$	(605	)		(5.0	)%

Earned premiums decreased by $0.5 million primarily due to fewer active policies, and claims, reserves, and certain direct expenses increased by $0.1 million compared to the prior-year period.

Other Income. Other income increased $1.0 million, or 30.0%, to $4.5 million during the three months ended September 30, 2023, from $3.4 million during the prior-year period, primarily due to higher interest earned on restricted cash reserves of $0.9 million.

Provision for Credit Losses. Our provision for credit losses increased $2.9 million, or 5.9%, to $50.9 million during the three months ended September 30, 2023, from $48.1 million during the prior-year period. The increase was due to an increase in net credit losses of $11.7 million, partially offset by a lower build in the allowance for credit losses of $8.8 million, in each case compared to the prior-year period. The increase in the provision for credit losses is explained in greater detail below.

Allowance for Credit Losses. We evaluate delinquency and losses in each of our loan products in establishing the allowance for credit losses. During the three months ended September 30, 2023, and the prior-year period, the allowance for credit losses included builds of $3.5 million and $12.3 million, respectively. Loan loss reserves increased due to portfolio growth, offset by a lower reserve rate which resulted in a net increase in the reserve. The allowance for credit losses as a percentage of finance

receivables decreased to 10.6% as of September 30, 2023, from 11.2% as of the prior-year period due to changes in estimated future macroeconomic impacts on credit losses.

Net Credit Losses. Net credit losses increased $11.7 million, or 32.6%, to $47.4 million during the three months ended September 30, 2023, from $35.8 million during the prior-year period. The increase was primarily due to higher average net finance receivables and the macroeconomic environment. Annualized net credit losses as a percentage of average net finance receivables were 11.0% during the three months ended September 30, 2023, compared to 9.1% during the prior-year period.

Delinquency Performance. Our contractual delinquency as a percentage of net finance receivables increased to 7.3% as of September 30, 2023, from 7.2% in the prior-year period.

The following tables include delinquency balances by aging category and by product:


	Contractual Delinquency by Aging
Dollars in thousands	3Q 23				3Q 22
Current	$	1,472,931	84.2	%	$	1,356,134	84.4	%
1 to 29 days past due		149,648	8.5	%		135,468	8.4	%
Delinquent accounts:
30 to 59 days		36,502	2.1	%		32,295	2.0	%
60 to 89 days		28,130	1.6	%		25,375	1.6	%
90 to 119 days		23,420	1.3	%		21,720	1.3	%
120 to 149 days		21,309	1.2	%		17,503	1.1	%
150 to 179 days		19,069	1.1	%		19,103	1.2	%
Total contractual delinquency	$	128,430	7.3	%	$	115,996	7.2	%
Total net finance receivables	$	1,751,009	100.0	%	$	1,607,598	100.0	%


	Contractual Delinquency by Product
Dollars in thousands	3Q 23				3Q 22
Small loans	$	45,438	9.6	%	$	49,906	10.4	%
Large loans		82,256	6.5	%		64,922	5.8	%
Retail loans		736	14.9	%		1,168	10.7	%
Total contractual delinquency	$	128,430	7.3	%	$	115,996	7.2	%

General and Administrative Expenses. Our general and administrative expenses increased $3.9 million, or 6.8%, to $62.1 million during the three months ended September 30, 2023, from $58.2 million during the prior-year period. The absolute dollar increase in general and administrative expenses is explained in greater detail below.

Personnel. The largest component of general and administrative expenses was personnel expense, which increased $2.9 million, or 7.7%, to $39.8 million during the three months ended September 30, 2023, from $37.0 million during the prior-year period. Labor expenses increased $3.4 million compared to the prior-year period. This increase was partially offset by higher capitalized loan origination costs, which reduce personnel expenses, of $0.8 million.

Occupancy. Occupancy expenses increased by $0.5 million, or 8.0%, to $6.3 million during the three months ended September 30, 2023, from $5.8 million during the prior-year period. The increase was primarily due to the growth of our state footprint and the addition of new branches since the prior-year period.

Marketing. Marketing expenses increased $0.1 million, or 3.5%, to $4.1 million during the three months ended September 30, 2023, from $3.9 million during the prior-year period due to higher digital marketing costs of $0.1 million.

Other Expenses. Other expenses increased $0.5 million, or 4.2%, to $11.9 million during the three months ended September 30, 2023, from $11.4 million during the prior-year period. The increase was primarily due to an increase in our investment in digital and technological capabilities of $0.7 million, compared to the prior-year period.

Operating Expense Ratio. Our annualized operating expense ratio decreased by 0.5% to 14.4% during the three months ended September 30, 2023, from 14.9% during the prior-year period. Our operating expense ratio has improved as we have grown our loan portfolio and controlled expense growth.

Interest Expense. Interest expense increased $5.1 million, or 42.9%, to $16.9 million during the three months ended September 30, 2023, from $11.9 million during the prior-year period. The increase was primarily due to an increase in our average

cost of debt as well as an increase in the average balance of our debt facilities. An increase in variable rate funding costs increased our annualized average cost of debt 1.07% to 5.00% during the three months ended September 30, 2023, from 3.93% as of the prior-year-period. The average balance of our debt facilities increased to $1.4 billion during the three months ended September 30, 2023, from $1.2 billion during the prior-year period.

Income Taxes. Income taxes decreased $1.2 million, or 36.8%, to $2.1 million during the three months ended September 30, 2023, from $3.3 million during the prior-year period. The decrease was primarily due to a $2.5 million decrease in income before income taxes compared to the prior-year period. Our effective tax rates were 19.1% and 24.6% for the three months ended September 30, 2023 and the prior-year period, respectively. The decrease in the effective tax rate relates to an increase in discrete tax benefits, as a result of the re-establishment of deferred tax assets for certain state net operating losses.

Comparison of the Nine Months Ended September 30, 2023, Versus the Nine Months Ended September 30, 2022

Net Income. Net income decreased $25.3 million, or 51.8%, to $23.5 million during the nine months ended September 30, 2023, from $48.8 million during the prior-year period. The decrease was due to an increase in interest expense of $30.6 million, an increase in provision for credit losses of $26.8 million, and an increase in general and administrative expenses of $10.9 million, partially offset by an increase in revenue of $34.6 million and a decrease in income taxes of $8.5 million.

Revenue. Total revenue increased $34.6 million, or 9.2%, to $409.7 million during the nine months ended September 30, 2023, from $375.2 million during the prior-year period. The components of revenue are explained in greater detail below.

Interest and Fee Income. Interest and fee income increased $30.1 million, or 9.0%, to $363.5 million during the nine months ended September 30, 2023, from $333.4 million during the prior-year period. The increase was primarily due to a 13.8% increase in average net finance receivables, partially offset by a 1.2% decrease in annualized average yield. The decrease in yield was due to continued mix shift towards larger, higher-quality loans and the credit impact from macroeconomic conditions on revenue reversals and non-accrual loans, partially offset by price increases. The nine months ended September 30, 2023 included a reduction in revenue reversals of an estimated $1.9 million attributable to the loan sale that occurred during the fourth quarter of 2022.

The following table sets forth the average net finance receivables balance and average yield for our loan products:


	Average Net Finance Receivables for the Nine Months Ended							Average Yields for the Nine Months Ended (1)
Dollars in thousands	YTD 23		YTD 22		YoY % Inc (Dec)			YTD 23			YTD 22			YoY % Inc (Dec)
Small loans	$	456,893	$	448,175		1.9	%		35.4	%		35.8	%		(0.4	)%
Large loans		1,232,170		1,032,273		19.4	%		26.1	%		27.4	%		(1.3	)%
Retail loans		7,252		10,796		(32.8	)%		17.5	%		18.4	%		(0.9	)%
Total interest and fee yield	$	1,696,315	$	1,491,244		13.8	%		28.6	%		29.8	%		(1.2	)%

(1)

Annualized interest and fee income as a percentage of average net finance receivables.

Total originations decreased to $1.1 billion during the nine months ended September 30, 2023, from $1.2 billion during the prior-year period. Origination volume decreased during the nine months ended September 30, 2023 compared to the prior-year period due to credit tightening actions and the reallocation of labor to collections, both of which impacted origination levels during the period. The following table represents the principal balance of loans originated and refinanced:


	Loans Originated for the Nine Months Ended
Dollars in thousands	YTD 23		YTD 22		YoY $ Inc (Dec)			YoY % Inc (Dec)
Small loans	$	432,018	$	481,644	$	(49,626	)		(10.3	)%
Large loans		695,084		682,110		12,974			1.9	%
Retail loans		146		7,206		(7,060	)		(98.0	)%
Total loans originated	$	1,127,248	$	1,170,960	$	(43,712	)		(3.7	)%

The following table summarizes the components of the increase in interest and fee income:


	Components of Increase in Interest and Fee Income YTD 23 Compared to YTD 22 Increase (Decrease)
Dollars in thousands	Volume			Rate			Volume & Rate			Net
Small loans	$	2,338		$	(1,208	)	$	(24	)	$	1,106
Large loans		41,004			(9,624	)		(1,864	)		29,516
Retail loans		(488	)		(71	)		23			(536	)
Product mix		2,997			(2,956	)		(41	)		—
Total increase in interest and fee income	$	45,851		$	(13,859	)	$	(1,906	)	$	30,086

Insurance Income, Net. Insurance income, net increased $0.8 million, or 2.4%, to $33.5 million during the nine months ended September 30, 2023, from $32.8 million during the prior-year period. The nine months ended September 30, 2023 were inclusive of a reduction of revenue reversals of an estimated $0.3 million attributable to the loan sale that occurred in the fourth quarter of 2022. During both the nine months ended September 30, 2023 and the prior-year period, personal property insurance premiums represented the largest component of aggregate earned insurance premiums. Life insurance claims expense represented the largest component of direct insurance expenses for both the nine months ended September 30, 2023 and the prior-year period.

The following table summarizes the components of insurance income, net:


	Insurance Premiums and Direct Expenses for the Nine Months Ended
Dollars in thousands	YTD 23			YTD 22			YoY $ B(W)		YoY % B(W)
Earned premiums	$	45,202		$	45,096		$	106		0.2	%
Claims, reserves, and certain direct expenses		(11,658	)		(12,345	)		687		5.6	%
Insurance income, net	$	33,544		$	32,751		$	793		2.4	%

Earned premiums increased by $0.1 million and claims, reserves, and certain direct expenses decreased by $0.7 million, each compared to the prior-year period, primarily due to portfolio growth and a decrease in claims reserves.

Other Income. Other income increased $3.7 million, or 41.0%, to $12.7 million during the nine months ended September 30, 2023, from $9.0 million during the prior-year period, primarily due to higher interest earned on restricted cash reserves and investment income from securities of $3.3 million and $0.4 million, respectively.

Provision for Credit Losses. Our provision for credit losses increased $26.8 million, or 21.6%, to $151.1 million during the nine months ended September 30, 2023, from $124.3 million during the prior-year period. The increase was due to an increase in net credit losses of $41.2 million, partially offset by a lower build in the allowance for credit losses of $14.4 million, in each case compared to the prior-year period. The increase in the provision for credit losses is explained in greater detail below.

Allowance for Credit Losses. We evaluate delinquency and losses in each of our loan products in establishing the allowance for credit losses. During the nine months ended September 30, 2023, and the prior-year period, the allowance for credit losses included builds of $6.1 million and $20.5 million, respectively. Loan loss reserves increased due to portfolio growth, partially offset by a lower reserve rate which resulted in a net increase in the reserve. The allowance for credit losses as a percentage of finance receivables decreased to 10.6% as of September 30, 2023, from 11.2% as of the prior-year period due to changes in estimated future macroeconomic impacts on credit losses.

Net Credit Losses. Net credit losses increased $41.2 million, or 39.7%, to $145.0 million during the nine months ended September 30, 2023, from $103.8 million during the prior-year period. The increase was primarily due to higher average net finance receivables and the macroeconomic environment. Annualized net credit losses as a percentage of average net finance receivables were 11.4% during the nine months ended September 30, 2023, compared to 9.3% during the prior-year period. Our net credit loss ratio during the nine months ended September 30, 2023 was inclusive of an estimated 100 basis point benefit from accelerated charge-offs in the fourth quarter of 2022 attributable to the loan sale.

Delinquency Performance. Our contractual delinquency as a percentage of net finance receivables increased to 7.3% as of September 30, 2023, from 7.2% in the prior-year period.

General and Administrative Expenses. Our general and administrative expenses increased $10.9 million, or 6.5%, to $178.3 million during the nine months ended September 30, 2023, from $167.4 million during the prior-year period. The absolute dollar increase in general and administrative expenses is explained in greater detail below.

Personnel. The largest component of general and administrative expenses was personnel expense, which increased $8.3 million, or 7.8%, to $114.8 million during the nine months ended September 30, 2023, from $106.6 million during the prior-year period. We had several offsetting increases and decreases in personnel expenses during the nine months ended September 30, 2023. Labor expenses increased $12.4 million compared to the prior-year period, partially offset by lower incentive expenses of $1.8 million, higher capitalized loan origination costs, which reduce personnel expenses, of $1.5 million, and lower recruiting fees of $0.7 million.

Occupancy. Occupancy expenses increased $0.9 million, or 5.3%, to $18.8 million during the nine months ended September 30, 2023, from $17.8 million during the prior-year period. The increase was primarily due to the growth of our state footprint and the addition of new branches since the prior-year period.

Marketing. Marketing expenses increased by $0.2 million to $11.3 million during the nine months ended September 30, 2023, from $11.1 million during the prior-year period primarily due to higher digital marketing costs of $0.2 million.

Other Expenses. Other expenses increased $1.6 million, or 4.9%, to $33.4 million during the nine months ended September 30, 2023, from $31.9 million during the prior-year period. The increase was primarily due to an increase in our investment in digital and technological capabilities of $1.9 million, compared to the prior-year period. Additionally, we often experience increases in other expenses including legal expenses, collections expense, bank fees, and certain professional expenses as we grow our loan portfolio and expand our market footprint. These increases were offset by a $1.0 million insurance settlement payment to us during the nine months ended September 30, 2023.

Operating Expense Ratio. Our annualized operating expense ratio decreased by 1.0% to 14.0% during the nine months ended September 30, 2023, from 15.0% during the prior-year period. Our operating expense ratio has improved as we have grown our loan portfolio and controlled expense growth.

Interest Expense. Interest expense increased $30.6 million, or 157.9%, to $50.0 million during the nine months ended September 30, 2023, compared to $19.4 million during the prior-year period. The increase was primarily due to an increase in our average cost of debt as well as an increase in the average balance of our debt facilities. The annualized average cost of debt increased 2.73% to 4.98% during the nine months ended September 30, 2023, from 2.25% during the prior-year-period. The year-over-year increase was due to an increase in variable rate funding costs, inclusive of a prior-year increase in the fair value of our interest rate caps of $13.1 million. The average balance of our debt facilities increased to $1.3 billion during the nine months ended September 30, 2023, from $1.1 billion during the prior-year period.

Income Taxes. Income taxes decreased $8.5 million, or 55.5%, to $6.8 million during the nine months ended September 30, 2023, from $15.3 million during the prior-year period. The decrease was primarily due to a $33.8 million decrease in income before income taxes compared to the prior-year period. Our effective tax rates were 22.4% and 23.8% for the nine months ended September 30, 2023 and the prior-year period, respectively. The decrease in the effective tax rate relates to an increase in discrete tax benefits, including the re-establishment of deferred tax assets for certain state net operating losses.

Liquidity and Capital Resources

Our primary cash needs relate to the funding of our lending activities and, to a lesser extent, expenditures relating to improving our technology infrastructure and expanding and maintaining our branch locations. We have historically financed, and plan to continue to finance, our short-term and long-term operating liquidity and capital needs through a combination of cash flows from operations and borrowings under our debt facilities, including our senior revolving credit facility, revolving warehouse credit facilities, and asset-backed securitization transactions, all of which are described below. We continue to seek ways to diversify our funding sources. As of September 30, 2023, we had a funded debt-to-equity ratio (debt divided by total stockholders’ equity) of 4.2 to 1.0 and a stockholders’ equity ratio (total stockholders’ equity as a percentage of total assets) of 18.7%.

Cash and cash equivalents increased to $7.4 million as of September 30, 2023, from $3.9 million as of the prior year-end. As of September 30, 2023 and the prior year-end, we had $171.8 million and $97.6 million, respectively, of immediate availability to draw down cash from our revolving credit facilities. Our unused capacity on our revolving credit facilities (subject to the borrowing base) was $613.1 million and $555.1 million as of September 30, 2023, and the prior year-end, respectively. Our total debt was $1.4 billion as of both September 30, 2023 and the prior year-end.

Based upon anticipated cash flows, we believe that cash flows from operations and our various financing alternatives will provide sufficient financing for debt maturities and operations over the next twelve months, as well as into the future.

From time to time, we have extended the maturity date of and increased the borrowing limits under our senior revolving credit facility. While we have successfully obtained such extensions and increases in the past, there can be no assurance that we will be able to do so if and when needed in the future. In addition, the revolving period maturities of our securitizations and warehouse credit facilities (each as described below within “Financing Arrangements”) range from September 2023 to September 2026. There can be no assurance that we will be able to secure an extension of the warehouse credit facilities or close additional securitization transactions if and when needed in the future.

Dividends.

The Board may in its discretion declare and pay cash dividends on our common stock. The following table sets forth the dividends declared and paid for the nine months ended September 30, 2023:


Period	Declaration Date	Record Date	Payment Date	Dividends Declared Per Common Share
1Q 23	February 8, 2023	February 22, 2023	March 15, 2023	$	0.30
2Q 23	May 3, 2023	May 24, 2023	June 14, 2023	$	0.30
3Q 23	August 2, 2023	August 23, 2023	September 14, 2023	$	0.30
Total				$	0.90

The Board declared and paid $8.9 million of cash dividends on our common stock during the nine months ended September 30, 2023. See Note 13, “Subsequent Events” of the Notes to Consolidated Financial Statements in Part I, Item 1, “Financial Statements,” for information regarding our cash dividend following the end of the quarter.

While we intend to pay our quarterly dividend for the foreseeable future, all subsequent dividends will be reviewed and declared at the discretion of the Board and will depend on many factors, including our financial condition, earnings, cash flows, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends, and other considerations that the Board deems relevant. Our dividend payments may change from time to time, and the Board may choose not to continue to declare dividends in the future.

Cash Flow.

Operating Activities. Net cash provided by operating activities during the nine months ended September 30, 2023 was $182.3 million, compared to $164.3 million during the prior-year period, a net increase of $18.0 million. The increase was primarily due to the growth in our loan portfolio.

Investing Activities. Investing activities consist of originations and repayments of finance receivables, purchases of intangible assets, and purchases of property and equipment for new and existing branches. Net cash used in investing activities during the nine months ended September 30, 2023 was $194.1 million, compared to $295.7 million during the prior-year period, a net decrease in cash used of $101.6 million. The decrease was primarily due to decreased originations of finance receivables.

Financing Activities. Financing activities consist of borrowings and payments on our outstanding indebtedness. Net cash provided by financing activities during the nine months ended September 30, 2023 was $4.5 million, compared to $99.3 million during the prior-year period, a net decrease in cash provided of $94.8 million. The net decrease in cash provided was primarily due to a decrease in the net advances on debt instruments of $115.5 million, partially offset by a decrease in the repurchases of common stock of $20.6 million.

Financing Arrangements.

Senior Revolving Credit Facility. In November 2022, we amended and restated our senior revolving credit facility to, among other things, decrease the availability under the facility from $500 million to $420 million. Our debt under the senior revolving credit facility was $131.3 million as of September 30, 2023, and the facility matures in September 2024. Excluding the receivables held by our VIEs, the senior revolving credit facility is secured by substantially all of our finance receivables and equity interests of the majority of our subsidiaries. Advances on the senior revolving credit facility are capped at 83% of eligible secured finance receivables (77% of eligible finance receivables as of September 30, 2023).

In September 2022, we amended and restated our senior revolving credit facility to replace LIBOR as the benchmark rate for the calculation of interest with a forward-looking term rate based on SOFR or, in certain limited circumstances, another

alternative benchmark rate. The one-month LIBOR was replaced on October 1, 2022 by one-month SOFR with a floor of not less than 0.50%, plus a 3.00% margin and a benchmark adjustment. The effective interest rate was 8.43% at September 30, 2023. We pay an unused line fee between 0.50% and 1.00% based on the outstanding balance. As of September 30, 2023, we had $135.0 million of immediate availability to draw down cash under the facility and held $7.4 million in unrestricted cash.

In advance of its September 2024 maturity date, we intend to extend the maturity date of the amended and restated senior revolving credit facility or take other appropriate action to address repayment upon maturity. See Part II, Item 1A, “Risk Factors,” and the filings referenced therein for a discussion of risks related to our amended and restated senior revolving credit facility, including refinancing risk.

Variable Interest Entity Debt. As part of our overall funding strategy, we have transferred certain finance receivables to affiliated VIEs for asset-backed financing transactions, including securitizations. The debt arrangements described below are issued by our wholly-owned, bankruptcy-remote SPEs, which are considered VIEs under GAAP and are consolidated into the financial statements of their primary beneficiary.

These debts are supported by the expected cash flows from the underlying collateralized finance receivables. Collections on these finance receivables are remitted to restricted cash collection accounts, which totaled $102.6 million and $112.2 million as of September 30, 2023 and December 31, 2022, respectively. Cash inflows from the finance receivables are distributed to the lenders/investors, the service providers, and/or the residual interest that we own in accordance with a monthly contractual priority of payments. The SPEs pay a servicing fee to us, which is eliminated in consolidation.

At each sale of receivables from our affiliates to the SPEs, we make certain representations and warranties about the quality and nature of the collateralized receivables. The debt arrangements require us to repurchase the receivables in certain circumstances, including circumstances in which the representations and warranties made by us concerning the quality and characteristics of the receivables are inaccurate. Assets transferred to SPEs are legally isolated from us and our affiliates, and the claims of our and our affiliates’ creditors. Further, the assets of each SPE are owned by such SPE and are not available to satisfy the debts or other obligations of us or any of our affiliates. See Part II, Item 1A, “Risk Factors,” and the filings referenced therein for a discussion of risks related to our variable interest entity debt.

RMR II Revolving Warehouse Credit Facility. In April 2021, we and our wholly-owned SPE, RMR II, amended and restated the credit agreement that provides for a revolving warehouse credit facility to RMR II to, among other things, extend the date at which the facility converts to an amortizing loan and the termination date to March 2023 and March 2024, respectively, decrease the total facility from $125 million to $75 million, increase the cap on facility advances from 80% to 83% of eligible finance receivables, and increase the rate at which borrowings under the facility bore interest, payable monthly, at a rate equal to three-month LIBOR, with a LIBOR floor of 0.25%, plus a blended margin of 2.35% (2.15% prior to the April 2021 amendment).

In September 2022, we and RMR II amended and restated the credit agreement that provides for a revolving warehouse credit facility to RMR II to replace LIBOR as the benchmark rate for calculation of interest rate with a forward-looking term rate based on SOFR or, in certain limited circumstances, another alternative benchmark rate. The three-month LIBOR was replaced on October 1, 2022 by three-month SOFR with a floor of 0.25%, plus a 2.35% margin, and a benchmark adjustment.

In March 2023, we and RMR II exercised the right to make an optional principal repayment in full, and in connection with such repayment, the facility terminated.

RMR IV Revolving Warehouse Credit Facility. In April 2021, we and our wholly-owned SPE, RMR IV, entered into a credit agreement that provides for a $125 million revolving warehouse credit facility to RMR IV. The facility was to convert to an amortizing loan in April 2023 and terminate in April 2024. In April and May 2023, we and our wholly-owned SPE, RMR IV, amended and restated the credit agreement that provides for a revolving warehouse credit facilities to (i) extend the amortizing loan conversion date from April 2023 to May 2025 and the termination date from April 2024 to May 2026; (ii) decrease the capped advances on the facility from 81% to 77% of eligible finance receivables; and (iii) increase the margin from 2.35% to 2.80%. The debt is secured by finance receivables and other related assets that we purchased from our affiliates, which we then sold and transferred to RMR IV.

In September 2022, we and RMR IV amended and restated the credit agreement that provides for a revolving warehouse credit facility to RMR IV to replace LIBOR as the benchmark rate for calculation of interest rate with a forward-looking term rate based on SOFR or, in certain limited circumstances, another alternative benchmark rate. The one-month LIBOR was replaced on October 1, 2022 by one-month SOFR with a margin of 2.35% and a benchmark adjustment. The effective interest rate was 8.23% at September 30, 2023. RMR IV pays an unused commitment fee between 0.35% and 0.70% based upon the average daily utilization of the facility. As of September 30, 2023, our debt under the credit facility was $3.2 million.

RMR V Revolving Warehouse Credit Facility. In September 2022, we and our wholly-owned SPE, RMR V amended and restated the credit agreement that provides for a $100 million revolving warehouse credit facility to RMR V to extend the date at which the facility converts to an amortizing loan and the termination date to November 2022 and November 2023, respectively (October 2022 and October 2023, respectively, prior to the September 2022 amendment). Following a subsequent amendment in November 2022, the amortizing loan conversion date and termination date were extended to November 2024 and November 2025, respectively. The debt is secured by finance receivables and other related assets that we purchased from our affiliates, which we then sold and transferred to RMR V. Advances on the facility are capped at 80% of eligible finance receivables. Borrowings under the facility bear interest, payable monthly, at a per annum rate, which in the case of a conduit lender is the commercial paper rate, plus a margin of 2.75% (2.20% prior to the November 2022 amendment). The effective interest rate was 8.31% as of September 30, 2023. RMR V pays an unused commitment fee between 0.45% and 0.75% based upon the average daily utilization of the facility. As of September 30, 2023, our debt under the credit facility was $26.6 million.

RMR VI Revolving Warehouse Credit Facility. In February 2023, we and our wholly-owned SPE, RMR VI, entered into a credit agreement that provides for a $75 million revolving warehouse credit facility to RMR VI. The facility converts to an amortizing loan in February 2025 and terminates in February 2026. The debt is secured by finance receivables and other related assets that we purchased from our affiliates, which we then sold and transferred to RMR VI. Advances on the facility are capped at 80% of eligible finance receivables. Borrowings under the facility bear interest, payable monthly, at a rate equal to one-month SOFR, plus (i) 0.10% per annum, (ii) a margin of 2.50%, and (iii) the applicable step-up margin (0.00% during the revolving period). The effective interest rate was 7.93% as of September 30, 2023. RMR VI pays an unused commitment fee of 0.50%. As of September 30, 2023, our debt under the credit facility was $18.1 million.

RMR VII Revolving Warehouse Credit Facility. In April 2023, we and our wholly-owned SPE, RMR VII, entered into a credit agreement that provides for a $75 million revolving warehouse credit facility to RMR VII. The facility converts to an amortizing loan in October 2024 and terminates in October 2025. The debt is secured by finance receivables and other related assets that we purchased from our affiliates, which we then sold and transferred to RMR VII. Advances on the facility are capped at 80% of eligible finance receivables. Borrowings under the facility bear interest, payable monthly, at a rate equal to one-month SOFR, plus (i) 0.10% per annum, (ii) a margin of 3.00%, and (iii) the applicable step-up margin (0.00% during the revolving period). The effective interest rate was 8.43% as of September 30, 2023. RMR VII pays an unused commitment fee ranging between 0.45% and 0.65%. As of September 30, 2023, our debt under the credit facility was $4.3 million.

RMIT 2020-1 Securitization. In September 2020, we, our wholly-owned SPE, RMR III, and our indirect wholly-owned SPE, RMIT 2020-1, completed a private offering and sale of $180 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes by RMIT 2020-1. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred to RMIT 2020-1. The notes had a revolving period ending in September 2023, with a final maturity date in October 2030. Borrowings under the RMIT 2020-1 securitization bear interest, payable monthly, at an effective interest rate of 2.85% as of September 30, 2023. Prior to maturity in October 2030, we may redeem the notes in full, but not in part. No payments of principal of the notes were made during the revolving period. As of September 30, 2023, our debt under the securitization was $180.2 million.

RMIT 2021-1 Securitization. In February 2021, we, our wholly-owned SPE, RMR III, and our indirect wholly-owned SPE, RMIT 2021-1, completed a private offering and sale of $249 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes by RMIT 2021-1. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred to RMIT 2021-1. The notes have a revolving period ending in February 2024, with a final maturity date in March 2031. Borrowings under the RMIT 2021-1 securitization bear interest, payable monthly, at an effective interest rate of 2.08% as of September 30, 2023. Prior to maturity in March 2031, we may redeem the notes in full, but not in part, at our option on any business day on or after the payment date occurring in March 2024. No payments of principal of the notes will be made during the revolving period. As of September 30, 2023, our debt under the securitization was $248.9 million.

RMIT 2021-2 Securitization. In July 2021, we, our wholly-owned SPE, RMR III, and our indirect wholly-owned SPE, RMIT 2021-2, completed a private offering and sale of $200 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes by RMIT 2021-2. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred to RMIT 2021-2. The notes have a revolving period ending in July 2026, with a final maturity date in August 2033. Borrowings under the RMIT 2021-2 securitization bear interest, payable monthly, at an effective interest rate of 2.30% as of September 30, 2023. Prior to maturity in August 2033, we may redeem the notes in full, but not in part, at our option on any business day on or after the payment date occurring in August 2026. No

payments of principal of the notes will be made during the revolving period. As of September 30, 2023, our debt under the securitization was $200.2 million.

RMIT 2021-3 Securitization. In October 2021, we, our wholly-owned SPE, RMR III, and our indirect wholly-owned SPE, RMIT 2021-3, completed a private offering and sale of $125 million of asset-backed notes. The transaction consisted of the issuance of fixed-rate asset-backed notes by RMIT 2021-3. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred to RMIT 2021-3. The notes have a revolving period ending in September 2026, with a final maturity date in October 2033. Borrowings under the RMIT 2021-3 securitization bear interest, payable monthly, at an effective interest rate of 3.88% as of September 30, 2023. Prior to maturity in October 2033, we may redeem the notes in full, but not in part, at our option on any business day on or after the payment date occurring in October 2024. No payments of principal of the notes will be made during the revolving period. As of September 30, 2023, our debt under the securitization was $125.2 million.

RMIT 2022-1 Securitization. In February 2022, we, our wholly-owned SPE, RMR III, and our indirectly wholly-owned SPE, RMIT 2022-1, completed a private offering and sale of $250 million of asset-backed notes. The transaction consisted of the issuance of four classes of fixed-rate asset-backed notes by RMIT 2022-1. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred to RMIT 2022-1. The notes have a revolving period ending in February 2025, with a final maturity date in March 2032. Borrowings under the RMIT 2022-1 securitization bear interest, payable monthly, at an effective interest rate of 3.59% as of September 30, 2023. Prior to maturity in March 2032, we may redeem the notes in full, but not in part, at our option on any business day on or after the payment date occurring in March 2025. No payments of principal of the notes will be made during the revolving period. As of September 30, 2023, our debt under the securitization was $250.4 million.

RMIT 2022-2B Securitization. In October 2022, we, our wholly-owned SPE, RMR III, and our indirectly wholly-owned SPE, RMIT 2022-2B, completed a private offering and sale of $200 million of asset-backed notes. The transaction consisted of the issuance of three classes of fixed-rate, asset-backed notes by RMIT 2022-2B. The asset-backed notes are secured by finance receivables and other related assets that RMR III purchased from us, which RMR III then sold and transferred to RMIT 2022-2B. The notes have a revolving period ending in October 2024, with a final maturity date in November 2031. RMR III sold two classes of the asset-backed notes and transferred them to RMIT 2022-2B. The $16.3 million class of fixed-rate, asset-backed notes was retained by RMR III on the closing date but may be sold in whole or in part. Borrowings under the sold notes bear interest, payable monthly, at an effective interest rate of 7.51% as of September 30, 2023. Prior to maturity in November 2031, we may redeem the sold notes in full, but not in part, at our option on any business day on or after the payment date occurring in November 2024. No payments of principal of the notes will be made during the revolving period. As of September 30, 2023, our debt under the securitization was $184.3 million.

Our debt arrangements are subject to certain covenants, including monthly and annual reporting, maintenance of specified interest coverage and debt ratios, restrictions on distributions, limitations on other indebtedness, and certain other restrictions. As of September 30, 2023, we were in compliance with all debt covenants.

Restricted Cash Reserve Accounts.

RMR IV Revolving Warehouse Credit Facility. The credit agreement governing the RMR IV revolving warehouse credit facility requires that we maintain a 1% cash reserve based upon the ending finance receivables balance of the facility. As of September 30, 2023, the warehouse facility cash reserve requirement totaled $0.3 million. The warehouse facility is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled $1.8 million as of September 30, 2023.

RMR V Revolving Warehouse Credit Facility. The credit agreement governing the RMR V revolving warehouse credit facility requires that we maintain a 1% cash reserve based upon the ending finance receivables balance of the facility. As of September 30, 2023, the warehouse facility cash reserve requirement totaled $0.6 million. The warehouse facility is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled $3.2 million as of September 30, 2023.

RMR VI Revolving Warehouse Credit Facility. The credit agreement governing the RMR VI revolving warehouse credit facility requires that we maintain a 1% cash reserve based upon the ending finance receivables balance of the facility. As of September 30, 2023, the warehouse facility cash reserve requirement totaled $0.2 million. The warehouse facility is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled $1.5 million as of September 30, 2023.

RMR VII Revolving Warehouse Credit Facility. The credit agreement governing the RMR VII revolving warehouse credit facility requires that we maintain a 1% cash reserve based upon the ending finance receivables balance of the facility. As of September 30, 2023, the warehouse facility cash reserve requirement totaled $0.1 million. The warehouse facility is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled $0.4 million as of September 30, 2023.

RMIT 2020-1 Securitization. As required under the transaction documents governing the RMIT 2020-1 securitization, we deposited $1.9 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled $12.3 million as of September 30, 2023.

RMIT 2021-1 Securitization. As required under the transaction documents governing the RMIT 2021-1 securitization, we deposited $2.6 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled $18.9 million as of September 30, 2023.

RMIT 2021-2 Securitization. As required under the transaction documents governing the RMIT 2021-2 securitization, we deposited $2.1 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled $14.6 million as of September 30, 2023.

RMIT 2021-3 Securitization. As required under the transaction documents governing the RMIT 2021-3 securitization, we deposited $1.5 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled $15.1 million as of September 30, 2023.

RMIT 2022-1 Securitization. As required under the transaction documents governing the RMIT 2022-1 securitization, we deposited $2.6 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled $18.8 million as of September 30, 2023.

RMIT 2022-2B Securitization. As required under the transaction documents governing the RMIT 2022-2B securitization, we deposited $2.3 million of cash proceeds into a restricted cash reserve account at closing. The securitization is supported by the expected cash flows from the underlying collateralized finance receivables. Collections are remitted to a restricted cash collection account, which totaled $15.9 million as of September 30, 2023.

RMC Reinsurance. Our wholly-owned subsidiary, RMC Reinsurance, Ltd., is required to maintain reserves against life insurance policies ceded to it, as determined by the ceding company. As of September 30, 2023, cash reserves for reinsurance were $0.3 million.

Critical Accounting Policies and Estimates.

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP and conform to general practices within the consumer finance industry. The preparation of these financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities for the periods indicated in the financial statements. Management bases estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Allowance for Credit Losses.

The allowance for credit losses is based on historical credit experience, current conditions, and reasonable and supportable economic forecasts. The historical loss experience is adjusted for quantitative and qualitative factors that are not fully reflected in the historical data. In determining our estimate of expected credit losses, we evaluate information related to credit metrics, changes in our lending strategies and underwriting practices, and the current and forecasted direction of the economic and business environment. These metrics include, but are not limited to, loan portfolio mix and growth, unemployment, credit loss trends, delinquency trends, changes in underwriting, and operational risks.

We selected a Probability of Default (“PD”) / Loss Given Default (“LGD”) model to estimate our base allowance for credit losses, in which the estimated loss is equal to the product of PD and LGD. Historical net finance receivables are tracked over the term of the pools to identify the instances of loss (PDs) and the average severity of losses (LGDs).

To enhance the precision of the allowance for credit loss estimate, we evaluate our finance receivable portfolio on a pool basis and segment each pool of finance receivables with similar credit risk characteristics. As part of our evaluation, we consider loan portfolio characteristics such as product type, loan size, loan term, internal or external credit scores, delinquency status, geographical location, and vintage. Based on analysis of historical loss experience, we selected the following segmentation: product type, Fair Isaac Corporation score, and delinquency status.

As finance receivables are originated, provisions for credit losses are recorded in amounts sufficient to maintain an allowance for credit losses at an adequate level to provide for estimated losses over the contractual life of the finance receivables (considering the effect of prepayments). Subsequent changes to the contractual terms that are a result of re-underwriting are not included in the finance receivable’s contractual life (considering the effect of prepayments). We use our segmentation loss experience to forecast expected credit losses. Historical information about losses generally provides a basis for the estimate of expected credit losses. We also consider the need to adjust historical information to reflect the extent to which current conditions differ from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature.

Macroeconomic forecasts are required for our allowance for credit loss model and require significant judgment and estimation uncertainty. We consider key economic factors, most notably unemployment rates, to incorporate into our estimate of the allowance for credit losses. We engaged a major rating service provider to assist with compiling a reasonable and supportable forecast which we use to support the adjustments of our historical loss experience.

Due to the judgment and uncertainty in estimating the expected credit losses, we may experience changes to the macroeconomic assumptions within our forecast, as well as changes to our credit loss performance outlook, both of which could lead to further changes in our allowance for credit losses, allowance as a percentage of net finance receivables, and provision for credit losses. Potential macroeconomic changes have created conditions that increase the level of uncertainty associated with our estimate of the amount and timing of future credit losses from our loan portfolio.

Macroeconomic Sensitivity. To demonstrate the sensitivity of forecasting macroeconomic conditions, we stressed our macroeconomic model with 10% increased weighting towards slower near-term growth that would have increased our reserves as of September 30, 2023 by $1.1 million.

The macroeconomic scenarios are highly influenced by timing, severity, and duration of changes in the underlying economic factors. This makes it difficult to estimate how potential changes in economic factors affect the estimated credit losses. Therefore, this hypothetical analysis is not intended to represent our expectation of changes in our estimate of expected credit losses due to a change in the macroeconomic environment, nor does it consider management’s judgment of other quantitative and qualitative information which could increase or decrease the estimate.

Regulatory Developments.

On March 7, 2023, the Consumer Financial Protection Bureau (the “CFPB”) provided the Company with notice that it is seeking to establish supervisory authority over the Company pursuant to section 1024(a)(1)(C) of the Consumer Financial Protection Act of 2010. Under that provision, the CFPB may establish supervisory authority over any non-bank covered person that it has reasonable cause to determine is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. The Company disagrees that the CFPB has reasonable cause to supervise the Company, and has, therefore, submitted a response to the CFPB pursuant to the process outlined in 12 C.F.R. § 1091. At this time, the Company is awaiting the resolution of this matter. If the CFPB decides that it has reasonable cause to determine that the Company is a non-bank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services, the CFPB will have supervisory authority over the Company subjecting the Company to, among other things, examination by the CFPB. See “Government Regulation” in Part I, Item 1 “Business” and “Risks Related to Regulation and Legal Proceedings” in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a further discussion of the regulation and regulatory risks to which the Company is subject.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

Interest rate risk arises from the possibility that changes in interest rates will affect our results of operations and financial condition. We originate finance receivables either at prevailing market rates or at statutory limits. Our finance receivables are structured on a fixed-rate, fixed-term basis. Accordingly, subject to statutory limits, our ability to react to changes in prevailing market rates is dependent upon the speed at which our customers pay off or renew loans in our existing loan portfolio, which allows us to originate new loans at prevailing market rates. Because our large loans have longer maturities than our small loans and typically renew at a slower rate than our small loans, our reaction time to changes may be affected as our large loans change as a percentage of our portfolio.

We also are exposed to changes in interest rates as a result of certain borrowing activities. As of September 30, 2023, the interest rates on 86.6% of our debt (the securitizations) were fixed. We maintain liquidity and fund our business operations in part through variable-rate borrowings under a senior revolving credit facility and three revolving warehouse credit facilities. As of September 30, 2023, the balances and key terms of the credit facilities were as follows:


Revolving Credit Facility	Balance (in thousands)		Interest Payment Frequency	Rate Type	Floor			Margin			Effective Interest Rate
Senior	$	131,325	Monthly	1-month SOFR		0.50	%		3.00	%		8.43	%
RMR IV Warehouse		3,152	Monthly	1-month SOFR		—			2.80	%		8.23	%
RMR V Warehouse		26,628	Monthly	Conduit		—			2.75	%		8.31	%
RMR VI Warehouse		18,123	Monthly	1-month SOFR		—			2.50	%		7.93	%
RMR VII Warehouse		4,327	Monthly	1-month SOFR		—			3.00	%		8.43	%
Total	$	183,555

Based on the underlying rates and the outstanding balances as of September 30, 2023, an increase of 100 basis points in the rates of our revolving credit facilities would result in approximately $1.8 million of increased interest expense on an annual basis, in the aggregate, under these borrowings.

The nature and amount of our debt may vary as a result of future business requirements, market conditions, and other factors.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost–benefit relationship of possible controls and procedures.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other information

ITEM 1. LEGAL PROCEEDINGS.

The Company is involved in various legal proceedings and related actions that have arisen in the ordinary course of its business that have not been fully adjudicated. The Company’s management does not believe that these matters, when ultimately concluded and determined, will have a material adverse effect on its financial condition, liquidity, or results of operations.

ITEM 1A. RISK FACTORS.

There have been no material changes to our risk factors from those included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. In addition to the other information set forth in this report and in our other reports and statements that we file with the SEC, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (which was filed with the SEC on February 24, 2023), which could materially affect our business, financial condition, and/or future operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially and adversely affect the Company’s business, financial condition, and/or operating results.

ITEM 5. OTHER INFORMATION.

During the three months ended September 30, 2023, none of the Company’s officers or directors adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as such terms are defined in Item 408(a) of Regulation S-K.

ITEM 6. EXHIBITS.

Incorporated by Reference

Exhibit

Number

Exhibit Description

Filed

Herewith

Form

File

Number

Exhibit

Filing Date

31.1

Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer

31.2

Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer

32.1

Section 1350 Certifications

101.INS

XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File—the cover page XBRL tags are embedded within the Inline XBRL document contained in Exhibit 101

SIGNATURE

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.


	REGIONAL MANAGEMENT CORP.

Date: November 3, 2023	By:	/s/ Harpreet Rana
		Harpreet Rana, Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)