Credit Acceptance Corp: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in Item 8 - Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2024, as well as Part I - Item 1 - Financial Statements, of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Overview

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

For the three months ended September 30, 2025, consolidated net income was $108.2 million, or $9.43 per diluted share, compared to consolidated net income of $78.8 million, or $6.35 per diluted share, for the same period in 2024. The increase was primarily due to a decrease in provision for credit losses and an increase in finance charges, partially offset by an increase in operating expenses. Our results and achievements for the three months ended September 30, 2025 included the following:

• A 3.9% increase in the average balance of our Loan portfolio from the third quarter of 2024 to $8.0 billion.
• A decline in Consumer Loan assignment unit and dollar volumes of 16.5% and 19.4%, respectively, as compared to the third quarter of 2024.
• A decline in forecasted collection rates, which decreased forecasted net cash flows from our Loan portfolio by $58.6 million, or 0.5%, and slower forecasted net cash flow timing.
• $107.4 million in the repurchase of approximately 230,000 shares, or 2.0% of the shares outstanding at the beginning of the quarter.
• The enrollment of 1,342 new Dealers, with 10,180 active Dealers during the quarter.
• $51.9 million in Dealer Holdback and accelerated Dealer Holdback payments to Dealers.
• $15.0 million contingent loss related to previously disclosed legal matters.
• Received the following awards:
• Financial Services Top Workplaces for the second consecutive year, with a #4 ranking in the 1,000+ employee size category.
• Crain’s Fast 50 list by Crain's Detroit Business for the ninth time.
• PEOPLE 100 Companies that Care® by PEOPLE magazine and Great Place to Work®, for the fourth consecutive year, with a #44 ranking.
• Fortune Best Workplaces in Financial Services and InsuranceTM by Great Place to Work® and Fortune for the eleventh consecutive year, with a #10 ranking in the large company category.

For the nine months ended September 30, 2025, consolidated net income was $301.9 million, or $25.50 per diluted share, compared to consolidated net income of $96.0 million, or $7.68 per diluted share, for the same period in 2024. The increase was primarily due to a decrease in provision for credit losses and an increase in finance charges, partially offset by an increase in operating expenses. Our results and achievements for the nine months ended September 30, 2025 included the following:

• A 7.1% increase in the average balance of our Loan portfolio from the first nine months of 2024 to $8.0 billion.
• A decline in Consumer Loan assignment unit and dollar volumes of 13.5% and 17.8% respectively, as compared to the first nine months of 2024.
• A decline in forecasted collection rates, which decreased forecasted net cash flows from our Loan portfolio by $135.3 million, or 1.2%, and slower forecasted net cash flow timing.
• $534.0 million in the repurchase of approximately 1,089,000 shares, or 9.0% of the shares outstanding at the beginning of the year.
• The enrollment of 4,547 new Dealers, with 14,483 active Dealers during the first nine months of 2025.
• $183.2 million in Dealer Holdback and accelerated Dealer Holdback payments to Dealers.
• $38.4 million contingent loss related to previously disclosed legal matters.
• Received awards from Great Place to Work® and Fortune magazine, PEOPLE magazine, Top Workplaces USA, and Crain's Detroit Business.

Critical Success Factors

Critical success factors include our ability to accurately forecast Consumer Loan performance, access capital on acceptable terms, and maintain or grow Consumer Loan volume at the level and on the terms that we anticipate, with the objective to maximize economic profit over the long term. Economic profit is a non-GAAP financial measure we use to evaluate our financial results and determine profit-sharing for team members. We also use economic profit as a framework to evaluate business decisions and strategies. Economic profit measures how efficiently we utilize our total capital, both debt and equity, and is a function of the return on capital in excess of the cost of capital and the amount of capital invested in the business.

Consumer Loan Metrics

At the time a Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan. Based on the amount and timing of these forecasts and expected expense levels, an advance or one-time purchase payment is made to the related Dealer at a price designed to maximize economic profit.

We use a statistical model to estimate the expected collection rate for each Consumer Loan at the time of assignment. We continue to evaluate the expected collection rate for each Consumer Loan subsequent to assignment. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast. By comparing our current expected collection rate for each Consumer Loan with the rate we projected at the time of assignment, we are able to assess the accuracy of our initial forecast. The following table compares our aggregated forecast of Consumer Loan collection rates as of September 30, 2025, with the aggregated forecasts as of June 30, 2025, December 31, 2024, and at the time of assignment, segmented by year of assignment:

(1) Represents the total forecasted collections we expect to collect on the Consumer Loans as a percentage of the repayments that we were contractually owed on the Consumer Loans at the time of assignment. Contractual repayments include both principal and interest. Forecasted collection rates are negatively impacted by canceled Consumer Loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates.

(2) The forecasted collection rate for 2025 Consumer Loans as of September 30, 2025 includes both Consumer Loans that were in our portfolio as of June 30, 2025 and Consumer Loans assigned during the most recent quarter. The following table provides forecasted collection rates for each of these segments:

For the three months ended September 30, 2025, forecasted collection rates improved for Consumer Loans assigned in 2025, declined for Consumer Loans assigned in 2022 through 2024, and were generally consistent with expectations at the start of the period for all other assignment years presented. For the nine months ended September 30, 2025, forecasted collection rates improved for Consumer Loans assigned in 2020, declined for Consumer Loans assigned in 2022 through 2024, and were generally consistent with expectations at the start of the period for all other assignment years presented.

The changes to our forecast of future net cash flows from our Loan portfolio (forecasted collections less forecasted Dealer Holdback payments) for each of the last eight quarters are shown in the following table:

(Dollars in millions)

During the second quarter of 2025, we applied an adjustment to our methodology for forecasting the amount of future net cash flows from our Loan portfolio, which reduced the forecasted collection rates for Consumer Loans assigned in 2024. Consumer Loans assigned in 2024 prior to the implementation of our scorecard adjustment during the third quarter of 2024 had underperformed relative to the forecast adjustment we implemented during the second quarter of 2024. Accordingly, in the second quarter of 2025, we applied an adjustment to that segment of the Consumer Loans assigned in 2024 to reduce forecasted collection rates to what we believed the ultimate collection rates would be based on these trends. Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses. The implementation of this forecast adjustment during the second quarter of 2025 reduced forecasted net cash flows by $18.6 million, or 0.2%, and increased provision for credit losses by $16.5 million.

During the second quarter of 2024, we applied an adjustment to our methodology for forecasting the amount of future net cash flows from our Loan portfolio, which reduced the forecasted collection rates for Consumer Loans assigned in 2022 through 2024. Consumer Loans assigned in 2022 had continued to underperform our expectations for several quarters. Consumer Loans assigned in 2023 had also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022. During the second quarter of 2024, we determined that we had sufficient Consumer Loan performance experience to estimate the magnitude by which we expected Consumer Loans assigned in 2022 through 2024 would likely underperform our historical collection rates on Consumer Loans with similar characteristics. Accordingly, we applied an adjustment to Consumer Loans assigned in 2022 through 2024 to reduce forecasted collection rates to what we believed the ultimate collection rates would be based on these trends. Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses. The implementation of this forecast adjustment during the second quarter of 2024 reduced forecasted net cash flows by $147.2 million, or 1.4%, and increased provision for credit losses by $127.5 million.

The following table presents information on Consumer Loan assignments for each of the last 10 years:

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(1) Represents the repayments that we were contractually owed on Consumer Loans at the time of assignment, which include both principal and interest.

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

(3) Represents activity for the nine months ended September 30, 2025. Information in this table for each of the years prior to 2025 represents activity for all 12 months of that year.

(4) The averages for 2025 Consumer Loans include both Consumer Loans that were in our portfolio as of June 30, 2025 and Consumer Loans assigned during the most recent quarter. The following table provides averages for each of these segments:

The profitability of our loans is primarily driven by the amount and timing of the net cash flows we receive from the spread between the forecasted collection rate and the advance rate, less operating expenses and the cost of capital. Forecasting collection rates accurately at Loan inception is difficult. With this in mind, we establish advance rates that are intended to allow us to achieve acceptable levels of profitability across our portfolio, even if collection rates are less than we initially forecast.

The following table presents aggregate forecasted Consumer Loan collection rates, advance rates, and spreads (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of September 30, 2025, as well as forecasted collection rates and spreads at the time of assignment. All amounts, unless otherwise noted, are presented as a percentage of the initial balance of the Consumer Loan (principal + interest). The table includes both Dealer Loans and Purchased Loans.

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

(2) Presented as a percentage of total forecasted collections.

(3) The forecasted collection rate, advance rate and spread for 2025 Consumer Loans as of September 30, 2025 include both Consumer Loans that were in our portfolio as of June 30, 2025 and Consumer Loans assigned during the most recent quarter. The following table provides forecasted collection rates, advance rates, and spreads for each of these segments:

The risk of a material change in our forecasted collection rate declines as the Consumer Loans age. For 2021 and prior Consumer Loan assignments, the risk of a material forecast variance is modest, as we have currently realized in excess of 90% of the expected collections. Conversely, the forecasted collection rates for more recent Consumer Loan assignments are less certain as a significant portion of our forecast has not been realized.

The spread between the forecasted collection rate as of September 30, 2025 and the advance rate ranges from 11.9% to 24.1%, on an annual basis, for Consumer Loans assigned over the last 10 years. The spreads with respect to 2019 and 2020 Consumer Loans have been positively impacted by Consumer Loan performance, which has exceeded our initial estimates by a greater margin than the other years presented. The spreads with respect to 2021 through 2023 Consumer Loans have been negatively impacted by Consumer Loan performance, which has been lower than our initial estimates by a greater margin than the other years presented. The higher spread for 2025 Consumer Loans relative to 2024 Consumer Loans as of September 30, 2025 was primarily a result of Consumer Loan performance, as the performance of 2024 Consumer Loans has been lower than our initial estimates.

The following table compares our forecast of aggregate Consumer Loan collection rates as of September 30, 2025 with the forecasts at the time of assignment, for Dealer Loans and Purchased Loans separately:

(1) The forecasted collection rates presented for Dealer Loans and Purchased Loans reflect the Consumer Loan classification at the time of assignment. The forecasted collection rates represent the total forecasted collections we expect to collect on the Consumer Loans as a percentage of the repayments that we were contractually owed on the Consumer Loans at the time of assignment. Contractual repayments include both principal and interest. Forecasted collection rates are negatively impacted by canceled Consumer Loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates.

The following table presents aggregate forecasted Consumer Loan collection rates, advance rates, and spreads (the forecasted collection rate less the advance rate) as of September 30, 2025 for Dealer Loans and Purchased Loans separately. All amounts are presented as a percentage of the initial balance of the Consumer Loan (principal + interest).

(1) The forecasted collection rates and advance rates presented for Dealer Loans and Purchased Loans reflect the Consumer Loan classification at the time of assignment.

(2) Represents advances paid to Dealers on Consumer Loans assigned under the Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under the Purchase Program as a percentage of the initial balance of the Consumer Loans. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.

Although the advance rate on Purchased Loans is higher as compared to the advance rate on Dealer Loans, Purchased Loans do not require us to pay Dealer Holdback.

The spread as of September 30, 2025 on 2025 Dealer Loans was 22.4%, as compared to a spread of 20.2% on 2024 Dealer Loans. The increase was primarily a result of Consumer Loan performance, as the performance of 2024 Dealer Loans has been lower than our initial estimates.

The spread as of September 30, 2025 on 2025 Purchased Loans was 21.3%, as compared to a spread of 21.0% on 2024 Purchased Loans, reflecting the net impact of two offsetting factors. Consumer Loan performance increased the spread from 2024 to 2025, as the performance of 2025 Purchased Loans has exceeded our initial estimates while the performance of 2024 Purchased Loans has been lower than our initial estimates. This impact of Consumer Loan performance was partially offset by the impact of a lower initial spread on 2025 Purchased Loans, due to the advance rate increasing by a greater margin than the initial forecast in our Purchased Loan portfolio.

Access to Capital

Our strategy for accessing capital on acceptable terms needed to maintain and grow the business is to: (1) maintain consistent financial performance; (2) maintain modest financial leverage; and (3) maintain multiple funding sources. Our funded debt to equity ratio was 4.0 to 1 as of September 30, 2025. We currently utilize the following primary forms of debt financing: (1) our revolving secured line of credit facility; (2) Warehouse facilities; (3) Term ABS financings; and (4) senior notes.

Consumer Loan Volume

The following table summarizes changes in Consumer Loan assignment volume in each of the last eight quarters as compared to the same period in the previous year:

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

Consumer Loan assignment volumes depend on a number of factors including (1) the overall demand for our financing programs and (2) the amount of capital available to fund new Loans. Our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of capital constraints.

Unit and dollar volumes declined 16.5% and 19.4%, respectively, during the third quarter of 2025 as the number of active Dealers declined 4.7% and the average unit volume per active Dealer declined 12.2%. Dollar volume declined by more than unit volume during the third quarter of 2025 due to a decrease in the average advance paid, primarily resulting from a decrease in the average size of Consumer Loans assigned. Unit volume for the 28-day period ended October 28, 2025 decreased 13.0% compared to the same period in 2024.

The following table summarizes the changes in Consumer Loan unit volume and active Dealers:

(1) Active Dealers are Dealers who have received funding for at least one Consumer Loan during the period.

The following table provides additional information on the changes in Consumer Loan unit volume and active Dealers:

(1) New active Dealers are Dealers who enrolled in our program and have received funding for their first Loan from us during the period.

(2) Attrition is measured according to the following formula: decrease in Consumer Loan unit volume from Dealers who have received funding for at least one Loan during the comparable period of the prior year but did not receive funding for any Loans during the current period divided by prior year comparable period Consumer Loan unit volume.

The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last eight quarters:

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

As of September 30, 2025 and December 31, 2024, the net Dealer Loans receivable balance was 72.1% and 72.3%, respectively, of the total net Loans receivable balance. In 2025, we expanded Dealer access to the Purchase Program for Consumer Loans to consumers with higher credit ratings. The higher percentage of Purchased Loans in 2025 Consumer Loan assignment volume was primarily related to Consumer Loans assigned under this expanded Dealer access.

Results of Operations

The net Loan income (finance charge revenue less provision for credit losses expense) that we recognize over the life of a Loan equals the cash we collect from the underlying Consumer Loan less the cash we pay to the Dealer. We believe the economics of our business are best exhibited by recognizing net Loan income on a level-yield basis over the life of the Loan based on expected future net cash flows. Under the GAAP methodology we employ, which is known as the current expected credit loss model, or CECL, we are required to recognize:

• a significant provision for credit losses expense at the time of the Loan’s assignment to us for contractual net cash flows we do not expect to realize; and
• finance charge revenue in subsequent periods that is significantly in excess of our expected yield.

Due to the GAAP treatment of contractual net cash flows we do not expect to realize at the time of loan assignment (i.e. significant expense at the time of loan assignment, which is offset by higher revenue in subsequent periods), we do not believe the GAAP methodology we employ provides sufficient transparency into the economics of our business, including our results of operations, financial condition, and financial leverage. For additional information, see Note 3 and Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

The following is a discussion of our results of operations and income statement data on a consolidated basis.

(Dollars in millions, except per share data)

Finance Charges. The increase of $31.8 million, or 6.3%, was the result of increases in the average net Loans receivable balance and the average yield on our Loan portfolio as follows:

(Dollars in millions)

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The following table summarizes the impact each component had on the overall increase in finance charges for the three months ended September 30, 2025:

(In millions)

The increase in the average net Loans receivable balance was primarily due to the dollar volume of new Consumer Loan assignments exceeding the principal collected on Loans receivable. The increase in the average yield of our Loan portfolio was primarily due to higher contractual yields on more recent Consumer Loan assignments.

Operating Expenses. The increase of $17.2 million, or 13.3%, was primarily due to:

• An increase in salaries and wages expense of $8.2 million, or 10.6%, primarily due to increases in (i) the number of team members as we are investing in our business with the goal of increasing the speed at which we enhance our product for Dealers and consumers and (ii) fringe benefits, primarily due to higher medical claims.
• An increase in general and administrative expense of $7.3 million, or 25.2%, primarily due to an increase in legal expenses, which included a $15.0 million contingent loss recognized during the third quarter of 2025 compared to a $7.4 million contingent loss recognized during the third quarter of 2024, both related to previously disclosed legal matters as to which we have recognized cumulative contingent losses of $46.8 million through the end of the third quarter of 2025. The cumulative amount reflects, among other things, a September 2025 offer by us to settle the previously disclosed multi-state and New York Attorney General legal matters on terms that include, among other things, a proposed cash payment of $45.0 million.

Provision for Credit Losses. The decrease of $32.7 million, or 17.7%, was due to decreases in provision for credit losses on forecast changes and provision for credit losses on new Consumer Loan assignments.

We recognize provision for credit losses on new Consumer Loan assignments for contractual net cash flows that are not expected to be realized at the time of assignment. We also recognize provision for credit losses on forecast changes in the amount and timing of expected future net cash flows subsequent to assignment. The following table summarizes the provision for credit losses for each of these components:

(In millions)

The decrease in provision for credit losses related to forecast changes in the third quarter of 2025 compared to the third quarter of 2024 reflected changes in forecasted net cash flow timing and a smaller decline in Consumer Loan performance. While we continued to experience slowing of forecasted net cash flow timing as a result of lower-than-expected Consumer Loan prepayments, it was to a lesser extent as compared to the same period in 2024. During the third quarter of 2025, we decreased our estimate of future net cash flows by $58.6 million, or 0.5%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect lower-than-expected Consumer Loan prepayments, which remained below historical averages. Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit. During the third quarter of 2024, we decreased our estimate of future net cash flows by $62.8 million, or 0.6%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments, which remained below historical averages.

The 18.9% decrease in provision for credit losses related to new Consumer Loan assignments was primarily due to a 16.5% decrease in Consumer Loan assignment unit volume.

Interest. The increase in interest expense of $5.1 million, or 4.6%, was primarily due to an increase in our average outstanding debt balance.

The following table presents the change in interest expense, average outstanding debt balance, and average cost of debt for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024:

(Dollars in millions)

Provision for Income Taxes. For the three months ended September 30, 2025, the effective income tax rate increased to 27.3% from 26.0% for the same period in 2024, primarily due to a revision of deferred tax estimates during the third quarter of 2025. For additional information, see Note 10 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

The following is a discussion of our results of operations and income statement data on a consolidated basis.

(Dollars in millions, except per share data)

Finance Charges. The increase of $132.3 million, or 9.0%, was the result of increases in the average net Loans receivable balance and the average yield on our Loan portfolio as follows:

(Dollars in millions)

56

The following table summarizes the impact each component had on the overall increase in finance charges for the nine months ended September 30, 2025:

(In millions)

The increase in the average net Loans receivable balance was primarily due to the dollar volume of new Consumer Loan assignments exceeding the principal collected on Loans receivable. The increase in the average yield of our Loan portfolio was primarily due to higher contractual yields on more recent Consumer Loan assignments.

Operating Expenses. The increase of $57.7 million, or 15.2%, was primarily due to:

• An increase in general and administrative expense of $27.7 million, or 36.5%, primarily due to an increase in legal expenses, which included a $38.4 million contingent loss recognized during the first nine months of 2025, compared to an $8.4 million contingent loss recognized during the first nine months of 2024, both related to previously disclosed legal matters as to which we have recognized cumulative contingent losses of $46.8 million through the end of the third quarter of 2025. The cumulative amount reflects, among other things, a September 2025 offer by us to settle the previously disclosed multi-state and New York Attorney General legal matters on terms that include, among other things, a proposed cash payment of $45.0 million.
• An increase in salaries and wages expense of $26.2 million, or 11.3%, primarily due to increases in (i) the number of team members as we are investing in our business with the goal of increasing the speed at which we enhance our product for Dealers and consumers, (ii) stock-based compensation expense, primarily due to equity awards granted to our executive officers and senior leaders, and (iii) fringe benefits, primarily due to higher medical claims.

Provision for Credit Losses. The decrease of $204.8 million, or 29.6%, was due to decreases in provision for credit losses on forecast changes and provision for credit losses on new Consumer Loan assignments.

We recognize provision for credit losses on new Consumer Loan assignments for contractual net cash flows that are not expected to be realized at the time of assignment. We also recognize provision for credit losses on forecast changes in the amount and timing of expected future net cash flows subsequent to assignment. The following table summarizes the provision for credit losses for each of these components:

(In millions)

The decrease in provision for credit losses related to forecast changes was primarily due to a smaller decline in Consumer Loan performance during the first nine months of 2025 compared to the first nine months of 2024.

During the first nine months of 2025, we decreased our estimate of future net cash flows by $135.3 million, or 1.2%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect lower-than-expected Consumer Loan prepayments, which remained below historical averages. Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit. The $135.3 million decrease in forecasted net cash flows for the first nine months of 2025 was composed of an ordinary decrease in forecasted net cash flows of $116.7 million, or 1.0%, and an adjustment applied to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $18.6 million, or 0.2%, and increased our provision for credit losses by $16.5 million. Consumer Loans assigned in 2024 prior to the implementation of our scorecard adjustment during the third quarter of 2024 had underperformed relative to the forecast adjustment we implemented during the second quarter of 2024. Accordingly, during the second quarter of 2025, we applied an adjustment to that segment of the Consumer Loans assigned in 2024 to reduce forecasted collection rates to what we believed the ultimate collection rates would be based on these trends.

During the first nine months of 2024, we decreased our estimate of future net cash flows by $282.9 million, or 2.8%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments, which remained below historical averages. The $282.9 million decrease in forecasted net cash flows for the first nine months of 2024 was composed of an ordinary decrease in forecasted net cash flows of $135.7 million, or 1.4%, and an adjustment applied to our forecasting methodology during the second quarter of 2024, which upon implementation, reduced forecasted net cash flows by $147.2 million, or 1.4%, and increased our provision for credit losses by $127.5 million. Consumer Loans assigned in 2022 had continued to underperform our expectations for several quarters. Consumer Loans assigned in 2023 had also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022. During the second quarter of 2024, we determined that we had sufficient Consumer Loan performance experience to estimate the magnitude by which we expected Consumer Loans assigned in 2022 through 2024 would likely underperform our historical collection rates on Consumer Loans with similar characteristics. Accordingly, we applied an adjustment to Consumer Loans assigned in 2022 through 2024 to reduce forecasted collection rates to what we believed the ultimate collection rates would be based on these trends.

For additional information, see Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

The 15.2% decrease in provision for credit losses related to new Consumer Loan assignments was primarily due to a 13.5% decrease in Consumer Loan assignment unit volume.

Interest. The increase in interest expense of $40.9 million, or 13.3%, was primarily due to an increase in our average outstanding debt balance.

The following table presents the change in interest expense, average outstanding debt balance, and average cost of debt for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024:

(Dollars in millions)

Loss on Sale of Building. For the nine months ended September 30, 2024, we recognized a loss on sale of a building of $23.7 million.

Provision for Income Taxes. For the nine months ended September 30, 2025, our effective income tax rate decreased to 26.1% from 30.2% for the nine months ended September 30, 2024. The decrease was primarily due to an increase in pre-tax income in the first nine months of 2025 compared to the same period in 2024. The lower pre-tax income in the first nine months of 2024 increased the impact of an adjustment to an uncertain tax position for state income taxes recorded in 2024 and non-deductible executive compensation expense during the prior year on our 2024 effective income tax rate.

For additional information, see Note 10 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Liquidity and Capital Resources

We need capital to maintain and grow our business. Our primary sources of capital are cash flows from operating activities, collections of Consumer Loans, and borrowings under: (1) our revolving secured line of credit facility; (2) Warehouse facilities; (3) Term ABS financings; and (4) senior notes. There are various restrictive covenants to which we are subject under each financing arrangement, and we were in compliance with those covenants as of September 30, 2025. For information regarding these financings and the covenants included in the related documents, see Note 9 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

We endeavor to run our business conservatively, with a large margin of safety in Loan pricing in the aggregate, low leverage on the balance sheet, and significant unused availability on our revolving credit facilities. Our forecasting models have performed best during relatively stable economic periods but have been less accurate during periods of volatility like we have experienced in recent years. Since forecasting collection rates is challenging, our business model is designed to produce acceptable returns in the aggregate even if Loan performance is worse than forecasted. When needed, we have made adjustments to our forecasts on both new and existing Loans, and our recent forecasts incorporate underperformance of post-pandemic vintages. We have also reduced advance rates to the Dealer on more recent vintages, which we believe increases the margin of safety in our business. Based on our current estimates, total forecasted collections for the portfolio as of September 30, 2025 are $12.3 billion, which provides over $4.5 billion of cushion to our lenders after considering $1.4 billion of estimated interest and operating expenses and $6.4 billion of outstanding debt.

Since 1998, we have completed 59 term securitizations totaling $16.6 billion of debt issued. We believe our securitization trusts contain a significant margin of safety for investors, including structural features such as overcollateralization, subordination, and reserve accounts to protect our investors against credit risk. Our securitization trusts have paid timely interest and principal of all maturing securities in full and have never experienced an early amortization event, event of default, or other adverse event that would cause early or late repayment. Our securitization transactions are generally structured to withstand a 35% decline in the forecasted collection rate before the most junior bond is at risk of taking a principal loss. Accordingly, we believe future net cash flows from collateral securing our outstanding securitization debt are more than sufficient to repay all future obligations of our outstanding securitization trusts.

On February 28, 2025, we issued $500.0 million of 6.625% senior notes due 2030 (the “2030 senior notes”). We used a portion of the net proceeds from the 2030 senior notes to redeem all of the $400.0 million outstanding principal amount of our 6.625% senior notes due 2026 (the “2026 senior notes”). We used the remaining net proceeds from the 2030 senior notes for general corporate purposes. During the first quarter of 2025, we recognized a pre-tax loss on extinguishment of debt of $1.2 million related to the redemption of the 2026 senior notes.

On March 27, 2025, we completed a $400.0 million Term ABS financing, which was used to repay outstanding indebtedness and for general corporate purposes. The financing has an expected average annualized cost of 5.6% (including upfront fees and other costs), and it will revolve for 24 months, after which it will amortize based upon the cash flows on the underlying Loans.

On June 24, 2025, we extended the maturity of our revolving secured line of credit facility from June 22, 2027 to June 22, 2028.

On July 11, 2025, we extended the date on which our $75.0 million Warehouse Facility VI will cease to revolve from September 30, 2026 to September 30, 2028. The interest rate on borrowings under the facility has been decreased from the Secured Overnight Financing Rate (“SOFR”) plus 210 basis points to SOFR plus 185 basis points. The servicing fee has also been decreased from 6.0% to 4.0% of collections on the underlying consumer loans.

On July 30, 2025, we extended the date on which our $300.0 million Warehouse Facility IV will cease to revolve from December 29, 2026 to July 30, 2028. The interest rate on borrowings under the facility has been decreased from SOFR plus 221.4 basis points to SOFR plus 205 basis points.

On September 19, 2025, we extended the date on which our $200.0 million Warehouse Facility VIII will cease to revolve from September 21, 2026 to September 19, 2028. The interest rate on borrowings under the facility has been decreased from SOFR plus 225 basis points to SOFR plus 185 basis points.

Cash and cash equivalents were $15.9 million as of September 30, 2025 and $343.7 million as of December 31, 2024. As of September 30, 2025 and December 31, 2024, we had $1,586.3 million and $1,734.9 million, respectively, in unused and available revolving lines of credit. Our total balance sheet indebtedness as of September 30, 2025 and December 31, 2024 was $6,369.0 million and $6,352.9 million, respectively.

A summary of our scheduled principal debt maturities as of September 30, 2025 is as follows:

(In millions)

(1) The principal maturities of certain financings are estimated based on forecasted collections.

Based upon anticipated cash flows, management believes that cash flows from operations and our various financing alternatives will provide sufficient financing for debt maturities and for future operations. Our ability to borrow funds may be impacted by economic and financial market conditions. If the various financing alternatives were to become limited or unavailable to us, our operations and liquidity could be materially and adversely affected.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we review our accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 discusses several critical accounting estimates, which we believe involve a high degree of judgment and complexity. There have been no material changes to the estimates and assumptions associated with these critical accounting estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2024, except as described below.

During the second quarter of 2025, we applied an adjustment to our methodology for forecasting the amount of future net cash flows from our Loan portfolio, which reduced the forecasted collection rates for Consumer Loans assigned in 2024. Consumer Loans assigned in 2024 prior to the implementation of our scorecard adjustment during the third quarter of 2024 had underperformed relative to the forecast adjustment we implemented during the second quarter of 2024. Accordingly, in the second quarter of 2025, we applied an adjustment to that segment of the Consumer Loans assigned in 2024 to reduce forecasted collection rates to what we believed the ultimate collection rates would be based on these trends. Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses. The implementation of this forecast adjustment during the second quarter of 2025 reduced forecasted net cash flows by $18.6 million, or 0.2%, and increased provision for credit losses by $16.5 million.

Forward-Looking Statements

We make forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission (“SEC”). We may also make forward-looking statements in our press releases or other public or shareholder communications. Our forward-looking statements are subject to risks and uncertainties and include information about our expectations and possible or assumed future results of operations. When we use any of the words “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “assume,” “forecast,” “estimate,” “intend,” “plan,” “target,” or similar expressions, we are making forward-looking statements.

We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. These forward-looking statements represent our outlook only as of the date of this report. While we believe that our forward-looking statements are reasonable, actual results could differ materially since the statements are based on our current expectations, which are subject to risks and uncertainties. Factors that might cause such a difference include, but are not limited to, the factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, and in Part II - Item 1A of this report, other risk factors discussed herein or listed from time to time in our reports filed with the SEC, and the following:

Industry, Operational, and Macroeconomic Risks

• Our inability to accurately forecast and estimate the amount and timing of future collections could have a material adverse effect on results of operations.
• Due to competition from traditional financing sources and non-traditional lenders, we may not be able to compete successfully.
• Adverse changes in economic conditions, the automobile or finance industries, or the non-prime consumer market could adversely affect our financial position, liquidity, and results of operations, the ability of key vendors that we depend on to supply us with services, and our ability to enter into future financing transactions.
• Reliance on third parties to administer our ancillary product offerings could adversely affect our business and financial results.
• We are dependent on our senior management, and the loss of any of these individuals or an inability to hire additional team members could adversely affect our ability to operate profitably.
• Our reputation is a key asset to our business, and our business may be affected by how we are perceived in the marketplace.
• An outbreak of contagious disease or other public health emergency could materially and adversely affect our business, financial condition, liquidity, and results of operations.
• The concentration of Dealers in several states could adversely affect us.
• Reliance on our outsourced business functions could adversely affect our business.
• Our ability to hire and retain foreign engineering personnel could be hindered by immigration restrictions.
• We may be unable to execute our business strategy due to current economic conditions.
• Natural disasters, climate change, military conflicts, acts of war, terrorist attacks and threats, or the escalation of military activity in response to terrorist attacks or otherwise may negatively affect our business, financial condition, and results of operations.
• Governmental or market responses to climate change and related environmental issues could have a material adverse effect on our business.
• A small number of our shareholders have the ability to significantly influence matters requiring shareholder approval and such shareholders have interests which may conflict with the interests of our other security holders.

Capital and Liquidity Risks

• We may be unable to continue to access or renew funding sources and obtain capital needed to maintain and grow our business.
• The terms of our debt limit how we conduct our business.
• A violation of the terms of our asset-backed secured financings or revolving secured warehouse facilities could have a material adverse impact on our operations.
• Our substantial debt could negatively impact our business, prevent us from satisfying our debt obligations, and adversely affect our financial condition.
• We may not be able to generate sufficient cash flows to service our outstanding debt and fund operations and may be forced to take other actions to satisfy our obligations under such debt.
• Interest rate fluctuations may adversely affect our borrowing costs, profitability, and liquidity.
• Reduction in our credit rating could increase the cost of our funding from, and restrict our access to, the capital markets and adversely affect our liquidity, financial condition, and results of operations.
• We may incur substantially more debt and other liabilities. This could exacerbate further the risks associated with our current debt levels.
• The conditions of the U.S. and international capital markets may adversely affect lenders with which we have relationships, causing us to incur additional costs and reducing our sources of liquidity, which may adversely affect our financial position, liquidity, and results of operations.

Technology and Cybersecurity Risks

• Our dependence on technology could have a material adverse effect on our business.
• We depend on secure information technology, and a breach of our systems or those of our third-party service providers could result in our experiencing significant financial, legal, and reputational exposure and could materially adversely affect our business, financial condition, and results of operations.
• Our use of electronic contracts could impact our ability to perfect our ownership or security interest in Consumer Loans.
• Failure to properly safeguard our proprietary business information or confidential consumer and team member personal information could subject us to liability, decrease our profitability, and damage our reputation.
• The development and use of artificial intelligence presents risks and challenges that may adversely impact our business.

Legal and Regulatory Risks

• Litigation we are involved in from time to time may adversely affect our financial condition, results of operations, and cash flows.
• Changes in tax laws and the resolution of uncertain income tax matters could have a material adverse effect on our results of operations and cash flows from operations.
• The regulations to which we are or may become subject could result in a material adverse effect on our business.

Other factors not currently anticipated by management may also materially and adversely affect our business, financial condition, and results of operations. We do not undertake, and expressly disclaim any obligation, to update or alter our statements whether as a result of new information, future events, or otherwise, except as required by applicable law.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2024 for a complete discussion of our market risk. There have been no material changes to the market risk information included in our Annual Report on Form 10-K for the year ended December 31, 2024.

(a) Disclosure Controls and Procedures. Our management, with the participation of our principal executive and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The risk factor entitled “Adverse changes in economic conditions, the automobile or finance industries, or the non-prime consumer market could adversely affect our financial position, liquidity, and results of operations, the ability of key vendors that we depend on to supply us with services, and our ability to enter into future financing transactions” included in Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2024 is amended and restated in its entirety as follows:

Adverse changes in economic conditions, the automobile or finance industries, or the non-prime consumer market could adversely affect our financial position, liquidity, and results of operations, the ability of key vendors that we depend on to supply us with services, and our ability to enter into future financing transactions.

We are subject to general economic conditions which are beyond our control. During periods of economic slowdown or recession, delinquencies, defaults, repossessions, and losses may increase on our Consumer Loans, and Consumer Loan prepayments may decline. These periods are also typically accompanied by decreased consumer demand for automobiles and declining values of automobiles securing outstanding Consumer Loans, which weakens collateral coverage and increases the amount of loss in the event of default. Significant increases in the inventory of used automobiles during periods of economic recession may also depress the prices at which repossessed automobiles may be sold or delay the timing of these sales. Additionally, inflation, higher gasoline prices, the deferral or resumption of student loan payments, increased focus on climate-related initiatives and regulation, declining stock market values, unstable real estate values, resets of adjustable rate mortgages to higher interest rates, increasing unemployment levels, general availability of consumer credit, tariffs or other factors that impact consumer confidence or disposable income could increase loss frequency and decrease consumer demand for automobiles as well as weaken collateral values of automobiles. Imposition of or increases in tariffs on U.S. imports could result in higher used car prices in the United States, leading to decreased Dealer origination of Consumer Loans and a decline in Consumer Loan assignments to us. Because our business is focused on consumers who do not qualify for conventional automobile financing, the actual rates of delinquencies, defaults, repossessions, and losses on our Consumer Loans could be higher than those experienced in the general automobile finance industry, and could be more dramatically affected by a general economic downturn.

We rely on Dealers to originate Consumer Loans for assignment under our programs. High levels of Dealer attrition, due to a general economic downturn or otherwise, could materially adversely affect our operations. In addition, we rely on vendors to provide us with services we need to operate our business. Any disruption in our operations due to the untimely or discontinued supply of these services could substantially adversely affect our operations. Finally, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in finance charge revenue. Any sustained period of increased delinquencies, defaults, repossessions, or losses or increased servicing costs could also materially adversely affect our financial position, liquidity, and results of operations and our ability to enter into future financing transactions.

Technological advancements or changes to trends in the automobile industry such as new autonomous driving technologies or car- and ride-sharing programs could decrease consumer demand for automobiles. Decreased consumer demand for automobiles could negatively impact demand for our financing programs as well as weaken collateral values of automobiles, which could materially adversely affect our financial position, liquidity, and results of operations.

The following risk factor updates and supplements, and should be read in conjunction with, the risk factors disclosed under the heading “Technology and Cybersecurity Risks” in Item 1A - Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2024.

The development and use of artificial intelligence presents risks and challenges that may adversely impact our business.

We, or Third-Party Providers, third-party service providers, automobile dealers who participate in our programs, or other third parties with which we transact or have business relationships, may develop or incorporate artificial intelligence (“AI”) technology in certain business processes, services, or products. The development and use of AI presents several potential risks and challenges to our business. The implementation by us of AI technologies may require significant additional investments in infrastructure, personnel, and training. There can be no assurance that such investments will yield the anticipated benefits or that we will be able to successfully integrate AI into our existing systems and processes without disruption. We may not be able to effectively implement or keep pace with evolutions in AI or other technology-driven products and services as quickly or with the same degree of success as our competitors. Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to maintain and expand our relationships with Dealers and otherwise adversely affect our business and our ability to compete successfully in the automobile finance market.

The legal and regulatory environment relating to AI is complex and rapidly evolving in the United States and includes both regulatory frameworks targeting AI specifically and other laws and regulations related to such matters as intellectual property, privacy, consumer protection and employment, among others, applicable to the use of AI. These evolving laws and regulations could affect our approach to AI technology and any implementation of AI technology that we may pursue and could result in significant compliance costs and risk of non-compliance.

AI models may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful. The limited transparency of AI models increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of AI models, reducing erroneous output of AI models, eliminating bias in AI models, and complying with relevant regulations. Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, which could expose us to risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility.

Whether or not we are otherwise able successfully to manage the implementation of AI in our business and address the competitive challenges AI could pose to our business, any failure by Third-Party Providers, our third-party service providers, Dealers, or other third parties with which we transact or have business relationships to adhere to our AI policies, or otherwise to use AI in an appropriate manner, could result in legal or regulatory violations, jeopardize our intellectual property rights or those of other parties, or expose us to cybersecurity threats, any of which could adversely affect our business and result in our sustaining reputational, technical, or competitive harm.

Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.