Regional Management(RM) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements, including Balance Sheets, Income, Equity, and Cash Flow statements, for specified periods Consolidated Balance Sheets Total assets and net finance receivables slightly decreased, while cash and stockholders' equity increased from December 2022 to June 2023 | Metric | June 30, 2023 (Unaudited) (in thousands) | December 31, 2022 (in thousands) | | :---------------------------------------------------------------- | :--------------------------------------- | :----------------------------------- | | Cash | $10,330 | $3,873 | | Net finance receivables | $1,688,937 | $1,699,393 | | Allowance for credit losses | $(181,400) | $(178,800) | | Total assets | $1,723,616 | $1,724,987 | | Debt | $1,344,855 | $1,355,359 | | Total liabilities | $1,402,114 | $1,416,354 | | Total stockholders' equity | $321,502 | $308,633 | - Total assets decreased slightly from $1,724,987 thousand at December 31, 2022, to $1,723,616 thousand at June 30, 2023[9] - Total stockholders' equity increased from $308,633 thousand at December 31, 2022, to $321,502 thousand at June 30, 2023[9] Consolidated Statements of Comprehensive Income Net income significantly decreased for both periods ended June 30, 2023, due to increased interest expense and provision for credit losses | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | :------------------------------------ | :------------------------------------ | | Total revenue | $133,484 | $122,871 | $268,862 | $243,719 | | Provision for credit losses | $52,551 | $45,400 | $100,219 | $76,258 | | Total general and administrative expenses | $56,896 | $54,121 | $116,219 | $109,221 | | Interest expense | $16,224 | $7,564 | $33,006 | $7,505 | | Net income | $6,023 | $11,982 | $14,712 | $38,765 | | Basic EPS | $0.64 | $1.29 | $1.57 | $4.13 | | Diluted EPS | $0.63 | $1.24 | $1.53 | $3.94 | - Net income for the three months ended June 30, 2023, decreased by 49.7% to $6,023 thousand from $11,982 thousand in the prior-year period[11] - Interest expense for the six months ended June 30, 2023, significantly increased to $33,006 thousand from $7,505 thousand in the prior-year period, a 339.8% increase[11] Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from December 2022 to June 2023, driven by net income and share-based compensation | Metric | Balance, December 31, 2022 (in thousands) | Balance, June 30, 2023 (in thousands) | | :-------------------------------- | :-------------------------------------- | :------------------------------------ | | Common Stock (Shares) | 14,330 | 14,636 | | Common Stock (Amount) | $1,433 | $1,464 | | Additional Paid-In Capital | $112,384 | $116,202 | | Retained Earnings | $345,545 | $354,346 | | Accumulated Other Comprehensive Loss | $(586) | $(367) | | Treasury Stock | $(150,143) | $(150,143) | | Total Stockholders' Equity | $308,633 | $321,502 | - Cash dividends paid for the six months ended June 30, 2023, totaled $5,911 thousand[14] - Share-based compensation contributed $4,440 thousand to additional paid-in capital for the six months ended June 30, 2023[14] Consolidated Statements of Cash Flows Net cash from operations increased, investing activities used less cash, and financing activities shifted to a net outflow | Cash Flow Activity | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net cash provided by operating activities | $114,725 | $109,423 | | Net cash used in investing activities | $(84,774) | $(161,915) | | Net cash provided by (used in) financing activities | $(20,288) | $56,033 | | Net change in cash and restricted cash | $9,663 | $3,541 | | Cash and restricted cash at end of period | $141,462 | $152,730 | - Originations of finance receivables decreased from $755,416 thousand in 2022 to $706,642 thousand in 2023, while repayments increased from $597,679 thousand to $628,078 thousand[19] - The company made no repurchases of common stock in the six months ended June 30, 2023, compared to $20,613 thousand in the prior-year period[19] Notes to Consolidated Financial Statements These notes detail the company's business, accounting policies, financial instruments, debt, equity, and other significant items Note 1. Nature of Business Regional Management Corp. is a consumer finance company in 19 states, focusing on small and large loans after ceasing retail loan applications - The Company operates under the name "Regional Finance" online and in branch locations in 19 states across the United States as of June 30, 2023[22] - The Company ceased accepting applications for retail loan products effective November 2022 to focus on small and large loans[22] - Loan demand is typically highest in Q2, Q3, and Q4, and lowest in Q1, while delinquencies generally rise in the second half of the year, though macroeconomic factors have recently altered these seasonal trends[24] Note 2. Basis of Presentation and Significant Accounting Policies Financial statements adhere to GAAP, consolidating the company and its VIEs, with key policies on ASU 2022-02, finance receivables, credit losses, and share-based compensation - The Company adopted ASU 2022-02 on January 1, 2023, eliminating separate accounting for troubled debt restructurings (TDRs) and incorporating their impact into the overall portfolio assessment for credit losses[34][35][48] - The allowance for credit losses is estimated using a Probability of Default (PD) / Loss Given Default (LGD) model, segmented by product type, FICO score, and delinquency status[41][42] - Accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent[49] Note 3. Finance Receivables, Credit Quality Information, and Allowance for Credit Losses This note details net finance receivables by product, FICO, and origination year, highlighting the shift to large loans, credit loss allowance, and delinquency trends | Product Type | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------- | :----------------------------- | :------------------------------- | | Small loans | $444,590 | $481,605 | | Large loans | $1,238,031 | $1,208,185 | | Retail loans | $6,316 | $9,603 | | Total net finance receivables | $1,688,937 | $1,699,393 | | Delinquency Status | June 30, 2023 (in thousands) | June 30, 2023 (%) | December 31, 2022 (in thousands) | December 31, 2022 (%) | | :-------------------- | :----------------------------- | :---------------- | :------------------------------- | :-------------------- | | Current | $1,433,787 | 84.9% | $1,431,502 | 84.2% | | 1 to 29 days past due | $138,810 | 8.2% | $148,048 | 8.7% | | Total delinquency (30+ days) | $116,340 | 6.9% | $119,843 | 7.1% | | Net finance receivables in nonaccrual status | $61,403 | 3.6% | $60,061 | 3.5% | | Allowance for Credit Losses | June 30, 2023 (in thousands) | June 30, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Beginning balance (Jan 1) | $178,800 | $159,300 | | Provision for credit losses | $100,219 | $76,258 | | Credit losses | $(102,218) | $(71,038) | | Recoveries | $4,599 | $2,980 | | Ending balance (June 30) | $181,400 | $167,500 | | Allowance as % of net finance receivables | 10.7% | 11.0% | - Loan modifications for borrowers experiencing financial difficulty for the six months ended June 30, 2023, included $150 thousand in principal forgiveness and reduced weighted-average contractual interest rates by 13.5% for small loans and 11.3% for large loans[66] Note 4. Restricted Available-for-Sale Investments Restricted available-for-sale investments, primarily U.S. Treasuries, are carried at fair value, showing unrealized losses due to rising interest rates | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Amortized Cost | $20,762 | $21,158 | | Gross Unrealized Losses | $(464) | $(742) | | Estimated Fair Value | $20,298 | $20,416 | - The restricted available-for-sale investments consist of U.S. Treasuries, which are highly rated securities backed by the U.S. federal government[70] - Changes in fair value are primarily due to recent increases in interest rates by the Federal Reserve[70] Note 5. Interest Rate Caps The company no longer maintained interest rate cap protections as of September 30, 2022, resulting in no balance or fair value adjustment for interest rate caps - The Company no longer maintained interest rate cap protections as of September 30, 2022[73] | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | | :------------------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Balance at beginning of period | $0 | $16,744 | | Fair value adjustment included as a decrease in interest expense | $0 | $3,024 | | Balance at end of period | $0 | $5,081 | Note 6. Debt Total debt slightly decreased from December 2022 to June 2023, detailing various debt instruments, including senior and warehouse credit facilities and securitizations | Debt Type | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Senior revolving credit facility | $105,426 | $147,547 | | RMR II revolving warehouse credit facility | $0 | $189 | | RMR IV revolving warehouse credit facility | $3,074 | $18,144 | | RMR V revolving warehouse credit facility | $22,236 | $286 | | RMR VI revolving warehouse credit facility | $20,512 | $0 | | RMR VII revolving warehouse credit facility | $4,414 | $0 | | RMIT 2020-1 securitization | $180,214 | $180,214 | | RMIT 2021-1 securitization | $248,916 | $248,916 | | RMIT 2021-2 securitization | $200,192 | $200,192 | | RMIT 2021-3 securitization | $125,202 | $125,202 | | RMIT 2022-1 securitization | $250,374 | $250,374 | | RMIT 2022-2B securitization | $184,295 | $184,295 | | Total Debt | $1,344,855 | $1,355,359 | | Unused amount of revolving credit facilities | $640,723 | $555,117 | - The RMR II Revolving Warehouse Credit Facility was terminated in March 2023 after an optional principal repayment in full[84] - New revolving warehouse credit facilities, RMR VI ($75 million) and RMR VII ($75 million), were entered into in February and April 2023, respectively[89][90] - The company was in compliance with all debt covenants as of June 30, 2023[98] Note 7. Stockholders' Equity The company completed stock repurchase programs in 2021 and 2022, but made no repurchases in H1 2023, while declaring a $0.30 per share quarterly cash dividend - The Company completed a $20.0 million stock repurchase program in May 2022, repurchasing 426 thousand shares[100] | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Common stock repurchased (shares in thousands) | 0 | 253 | 0 | 437 | | Total cost of common stock repurchased (in thousands) | $0 | $11,582 | $0 | $20,613 | | Dividends declared per common share | $0.30 | $0.30 | $0.60 | $0.60 | Note 8. Disclosure About Fair Value of Financial Instruments Fair value of financial instruments is estimated using Level 1 (cash), Level 2 (investments), and Level 3 (receivables and debt) methodologies - Cash and restricted cash are recorded at cost, approximating fair value (Level 1)[101][103] - Restricted available-for-sale investments are valued using an external pricing service (Level 2)[102][104] - Net finance receivables and debt are valued using discounted cash flow methodologies, classified as Level 3 due to unobservable inputs[102][103][104] Note 9. Income Taxes Income taxes decreased for both periods ended June 30, 2023, due to lower pre-tax income, with the effective tax rate decreasing to 22.9% due to a favorable state earnings mix | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------- | :-------------------------------------- | :-------------------------------------- | :------------------------------------ | :------------------------------------ | | Provision for corporate taxes | $1,758 | $3,855 | $4,660 | $12,418 | | Discrete tax (benefits) deficiencies | $32 | $(51) | $46 | $(448) | | Total income taxes | $1,790 | $3,804 | $4,706 | $11,970 | - The effective tax rate for the three months ended June 30, 2023, was 22.9%, compared to 24.1% in the prior-year period[187] - The decrease in the effective tax rate is primarily related to a favorable state earnings mix, offset by a decrease in discrete tax benefits related to share-based award payouts[187] Note 10. Earnings Per Share Basic and diluted earnings per share significantly decreased for both periods ended June 30, 2023, reflecting lower net income | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (in thousands) | $6,023 | $11,982 | $14,712 | $38,765 | | Basic EPS | $0.64 | $1.29 | $1.57 | $4.13 | | Diluted EPS | $0.63 | $1.24 | $1.53 | $3.94 | | Weighted-average common shares outstanding (basic, in thousands) | 9,399 | 9,261 | 9,363 | 9,396 | | Weighted-average shares adjusted for dilutive securities (in thousands) | 9,566 | 9,669 | 9,595 | 9,845 | - Approximately 0.6 million and 0.2 million shares of common stock were anti-dilutive and excluded from diluted EPS computation for the three and six months ended June 30, 2023, respectively[109] Note 11. Share-Based Compensation The company recognized $2.3 million and $4.4 million in share-based compensation expense for the three and six months ended June 30, 2023 | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | :------------------------------------ | :------------------------------------ | | Share-based compensation expense | $2,336 | $2,747 | $4,440 | $4,853 | - As of June 30, 2023, unrecognized share-based compensation expense approximated $19.2 million, to be recognized over a weighted-average period of 2.0 years[111] - The company no longer issues non-qualified stock options as part of its annual long-term incentive program, starting in 2022[120] Note 12. Commitments and Contingencies The company is involved in various legal actions, which management believes will not materially adversely affect its financial condition or operations - The Company is a defendant in various legal actions in the ordinary course of business[125] - Management accrues estimated losses when probable and reasonably estimable, but many legal actions are difficult to assess due to early stages or indeterminate damages[126][127] - The Company does not believe current legal matters will have a material adverse effect on its financial condition, liquidity, or results of operations[128] Note 13. Subsequent Events In August 2023, the Board declared a quarterly cash dividend of $0.30 per share, payable on September 14, 2023 - In August 2023, the Board declared a quarterly cash dividend of $0.30 per share[130] - The dividend is payable on September 14, 2023, to shareholders of record on August 23, 2023[130] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance and condition, covering key drivers, trends, future outlook, revenue, expenses, asset quality, liquidity, and capital resources Overview Regional Management Corp. is a diversified consumer finance company in 19 states, focusing on small and large installment loans after ceasing retail loan applications - The Company operates in 19 states with 347 branch locations, serving 508,100 active accounts as of June 30, 2023[133] - Small and large installment loans are the core products and drivers of future growth; retail loan applications ceased in November 2022[135] | Loan Product | Outstanding Loans (thousands) | Net Finance Receivables (in millions) | | :-------------------- | :---------------------------- | :------------------------------------ | | Small Loans (≤$2,500) | 268.3 | $444.6 | | Large Loans (>$2,500) | 236.2 | $1.2 billion | | Retail Loans | 3.6 | $6.3 | Outlook The company is tightening credit models due to economic uncertainties, maintaining strong liquidity and expanding digital capabilities - The Company proactively tightened credit models in Q4 2021, focusing on higher-risk customer segments, and maintained this tightening through H1 2023 due to inflationary pressures and rising interest rates[138] | Metric | June 30, 2023 | | :-------------------------------- | :------------ | | Allowance for credit losses as % of net finance receivables | 10.7% | | Contractual delinquency as % of net finance receivables | 6.9% | | Available liquidity | $147.2 million | | Unused capacity on revolving credit facilities | $640.7 million | - The Company continues to expand its end-to-end online and mobile origination and servicing capabilities to enhance market reach, increase average branch receivables, and improve operating efficiencies[141] Factors Affecting Our Results of Operations Operating results are influenced by seasonal trends and macroeconomic factors, with loan portfolio growth, product mix, asset quality, and variable interest rates impacting performance - Seasonal trends in loan volume and contractual delinquency are impacted by macroeconomic factors like inflation, rising interest rates, and geopolitical conflict[142] - Average net finance receivables grew to $1.7 billion for H1 2023 from $1.5 billion in the prior-year period, driven by expansion into new states like Arizona and increasing loans per branch[143] - The credit quality of the loan portfolio, and thus the provision for credit losses, is highly dependent on underwriting standards, diligent servicing, and changing economic conditions[145][146] - 88% of total debt was held at a fixed rate as of June 30, 2023, as part of the strategy to manage interest rate risk on variable-rate debt[147] Components of Results of Operations Revenue streams include interest, fee, insurance, and other income, while expenses comprise provision for credit losses, general and administrative costs, and interest expense - Interest and fee income is primarily earned on outstanding loans, with accrual suspended when an account is 90 days delinquent[149] - Insurance income, net, includes earned premiums from optional payment and collateral protection insurance, net of direct costs like claims paid and reserves[151] - Provision for credit losses is charged to income to maintain an allowance for lifetime expected credit losses, influenced by credit experience, economic forecasts, and portfolio growth[154] - General and administrative expenses, the largest component of which is personnel, are measured as a percentage of average net finance receivables (operating expense ratio)[155][156] Results of Operations Net income significantly decreased for both periods ended June 30, 2023, due to increased interest expense and provision for credit losses Comparison of the Three Months Ended June 30, 2023, Versus the Three Months Ended June 30, 2022 Net income decreased by 49.7% to $6.0 million, primarily due to increased interest expense and provision for credit losses, despite an 8.6% rise in total revenue | Metric | 2Q 23 (in thousands) | 2Q 22 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :-------------------------------- | :------------------- | :------------------- | :------------------------ | :------------- | | Net income | $6,023 | $11,982 | $(5,959) | (49.7)% | | Total revenue | $133,484 | $122,871 | $10,613 | 8.6% | | Interest and fee income | $118,083 | $109,771 | $8,312 | 7.6% | | Insurance income, net | $11,203 | $10,220 | $983 | 9.6% | | Other income | $4,198 | $2,880 | $1,318 | 45.8% | | Provision for credit losses | $52,551 | $45,400 | $7,151 | 15.8% | | Total general and administrative expenses | $56,896 | $54,121 | $2,775 | 5.1% | | Interest expense | $16,224 | $7,564 | $8,660 | 114.5% | | Income taxes | $1,790 | $3,804 | $(2,014) | (52.9)% | | Loan Product | 2Q 23 (in thousands) | 2Q 22 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :-------------------- | :------------------- | :------------------- | :------------------------ | :------------- | | Small loans | $444,590 | $455,253 | $(10,663) | (2.3)% | | Large loans | $1,238,031 | $1,059,523 | $178,508 | 16.8% | | Retail loans | $6,316 | $10,883 | $(4,567) | (42.0)% | | Total net finance receivables | $1,688,937 | $1,525,659 | $163,278 | 10.7% | - Total originations decreased by 6.4% to $399.0 million, primarily due to credit tightening and reallocation of labor to collections[172] - Annualized net credit losses as a percentage of average net finance receivables increased to 13.1% from 10.0%[178] Comparison of the Six Months Ended June 30, 2023, Versus the Six Months Ended June 30, 2022 Net income decreased by 62.0% to $14.7 million, driven by increased interest expense and provision for credit losses, despite a 10.3% rise in total revenue | Metric | YTD 23 (in thousands) | YTD 22 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :-------------------------------- | :-------------------- | :-------------------- | :------------------------ | :------------- | | Net income | $14,712 | $38,765 | $(24,053) | (62.0)% | | Total revenue | $268,862 | $243,719 | $25,143 | 10.3% | | Interest and fee income | $238,490 | $217,402 | $21,088 | 9.7% | | Insurance income, net | $22,162 | $20,764 | $1,398 | 6.7% | | Other income | $8,210 | $5,553 | $2,657 | 47.8% | | Provision for credit losses | $100,219 | $76,258 | $23,961 | 31.4% | | Total general and administrative expenses | $116,219 | $109,221 | $6,998 | 6.4% | | Interest expense | $33,006 | $7,505 | $25,501 | 339.8% | | Income taxes | $4,706 | $11,970 | $(7,264) | (60.7)% | | Loan Product | YTD 23 (in thousands) | YTD 22 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :-------------------- | :-------------------- | :-------------------- | :------------------------ | :------------- | | Small loans | $258,944 | $308,375 | $(49,431) | (16.0)% | | Large loans | $443,085 | $438,851 | $4,234 | 1.0% | | Retail loans | $146 | $5,061 | $(4,915) | (97.1)% | | Total loans originated | $702,175 | $752,287 | $(50,112) | (6.7)% | - Annualized net credit losses as a percentage of average net finance receivables increased to 11.6% from 9.4%[198] - The annualized operating expense ratio decreased by 1.2% to 13.8% due to loan portfolio growth and controlled expense growth[204] Liquidity and Capital Resources Liquidity and capital needs are met through operations and debt facilities, with $10.3 million cash, $136.9 million immediate liquidity, and $640.7 million unused credit capacity | Metric | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :-------------------------- | :------------------------------ | | Cash and cash equivalents | $10.3 | $3.9 | | Immediate availability to draw down cash | $136.9 | $97.6 | | Unused capacity on revolving credit facilities | $640.7 | $555.1 | | Total debt | $1,344.9 | $1,355.4 | | Funded debt-to-equity ratio | 4.2 to 1.0 | N/A | | Stockholders' equity ratio | 18.7% | N/A | - Net cash provided by operating activities increased by $5.3 million to $114.7 million for the six months ended June 30, 2023[214] - Net cash used in investing activities decreased by $77.1 million to $84.8 million, primarily due to increased repayments and decreased originations of finance receivables[215] - Net cash used in financing activities was $20.3 million, a $76.3 million increase in cash used compared to the prior-year period, mainly due to decreased net advances on debt and no common stock repurchases[216] Financing Arrangements Financing arrangements include a $420 million senior revolving credit facility and several VIE debt facilities, all secured by finance receivables, with all debt covenants in compliance - The senior revolving credit facility has $105.4 million in debt outstanding as of June 30, 2023, and matures in September 2024[217] - The RMR II Revolving Warehouse Credit Facility was terminated in March 2023[226] - New revolving warehouse credit facilities, RMR VI ($75 million) and RMR VII ($75 million), were established in February and April 2023, respectively[231][232] - The company's debt arrangements, including securitizations (RMIT series), are subject to covenants, all of which were in compliance as of June 30, 2023[240] Restricted Cash Reserve Accounts The company maintains restricted cash reserve accounts for its revolving warehouse credit facilities and RMIT securitization trusts, typically requiring a 1% cash reserve - RMR IV, V, VI, and VII revolving warehouse credit facilities each require a 1% cash reserve based on the ending finance receivables balance[241][242][243][244] - RMIT securitization trusts had specific cash proceeds deposited into restricted cash reserve accounts at closing, ranging from $1.5 million to $2.6 million[245][246][247][248][249][250] - RMC Reinsurance, Ltd. maintains $3.0 million in cash reserves for life insurance policies as of June 30, 2023[251] Critical Accounting Policies and Estimates The allowance for credit losses is a critical estimate, using a PD/LGD model based on historical data, current conditions, and macroeconomic forecasts - The allowance for credit losses is a critical accounting estimate, determined using a PD/LGD model that considers historical experience, current conditions, and reasonable and supportable economic forecasts[253][255] - The model segments the finance receivable portfolio by product type, FICO score, and delinquency status[256] - A hypothetical 10% increased weighting towards a moderate recession scenario would have increased reserves by $1.2 million as of June 30, 2023, highlighting sensitivity to macroeconomic forecasts[260] Regulatory Developments The CFPB notified the company of its intent to establish supervisory authority due to potential consumer risks, which the company disputes - The CFPB notified the Company on March 7, 2023, of its intent to establish supervisory authority due to potential risks to consumers[262] - The Company disagrees with the CFPB's assessment and has submitted a response, awaiting resolution[262] - If the CFPB establishes supervisory authority, the Company would be subject to examination by the CFPB[262] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from fixed-rate receivables and variable-rate borrowings; a 100 basis point increase in variable rates would raise annual interest expense by $1.6 million - The Company's finance receivables are fixed-rate, while certain borrowings (senior and warehouse credit facilities) are variable-rate, exposing it to interest rate risk[264] - As of June 30, 2023, 88.4% of the Company's debt was fixed-rate[265] - A 100 basis point increase in variable interest rates would result in approximately $1.6 million of increased interest expense annually on current variable-rate borrowings[265] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures as of June 30, 2023, concluding they were effective, with no material changes identified - The company's disclosure controls and procedures were evaluated as effective as of June 30, 2023[268] - No material changes in internal control over financial reporting were identified during the period covered by this report[269] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, which management believes will not materially adversely affect its financial condition or operations - The Company is involved in various legal proceedings that have arisen in the ordinary course of its business[270] - Management does not believe these matters will have a material adverse effect on the Company's financial condition, liquidity, or results of operations[270] Item 1A. Risk Factors No material changes to risk factors have occurred since the Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - No material changes to risk factors have occurred since the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[271] - Readers should consider the risk factors discussed in the Annual Report on Form 10-K, as well as additional unknown or currently immaterial risks[271] Item 5. Other Information No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2023 - No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2023[272] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including credit agreements, severance plans, certifications, and XBRL-related documents - Exhibits include Credit Agreements, Executive Severance and Change in Control Plan, Rule 13a-14(a) / 15(d)-14(a) Certifications, Section 1350 Certifications, and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[273][274] SIGNATURE The report was signed by Harpreet Rana, Executive Vice President and Chief Financial Officer, on August 4, 2023 - The report was signed by Harpreet Rana, Executive Vice President and Chief Financial Officer, on August 4, 2023[278]