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EX-32.1 - CERT CEO CFO - Atlanticus Holdings Corpatlc-exhibit321063017.htm
EX-31.2 - CERT CFO - Atlanticus Holdings Corpatlc-exhibit312063017.htm
EX-31.1 - CERT CEO - Atlanticus Holdings Corpatlc-exhibit311063017.htm

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  
FORM 10-Q
 
For the quarterly period ended June 30, 2017
 
of
image0a05.jpg
ATLANTICUS HOLDINGS CORPORATION
 
a Georgia Corporation
IRS Employer Identification No. 58-2336689
SEC File Number 0-53717
 
Five Concourse Parkway, Suite 300
Atlanta, Georgia 30328
(770) 828-2000
 
Atlanticus’ common stock, no par value per share, is registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Act”) and is listed on the NASDAQ Global Select Market.
 
Atlanticus is not a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.
 
Atlanticus (1) is required to file reports pursuant to Section 13 of the Act, (2) has filed all reports required to be filed by Section 13 of the Act during the preceding 12 months and (3) has been subject to such filing requirements for the past 90 days.
 
Atlanticus has submitted electronically and posted on its corporate Web site every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

Atlanticus is a smaller reporting company and is not a shell company or an emerging growth company.

As of August 7, 2017, 13,984,151 shares of common stock, no par value, of Atlanticus were outstanding. This excludes 1,459,233 loaned shares to be returned.






Table of Contents

Page
PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited)
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Operations
 
 
Consolidated Statements of Comprehensive (Loss) Income
 
 
Consolidated Statements of Equity
 
 
Consolidated Statements of Cash Flows
 
 
Notes to Consolidated Financial Statements
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4.
Controls and Procedures
 
Part II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults Upon Senior Securities
 
Item 4.
Mine Safety Disclosure
 
Item 5.
Other Information
 
Item 6.
Exhibits
 
 
Signatures
 


 



i


PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Atlanticus Holdings Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
 
June 30,
2017
 
December 31,
2016
Assets
 
 
 
Unrestricted cash and cash equivalents
$
74,475

 
$
76,052

Restricted cash and cash equivalents
28,851

 
16,589

Loans and fees receivable:
 

 
 

Loans and fees receivable, at fair value
12,770

 
15,648

Loans and fees receivable, gross
323,922

 
290,697

Allowances for uncollectible loans and fees receivable
(41,175
)
 
(43,275
)
Deferred revenue
(31,352
)
 
(23,639
)
Net loans and fees receivable
264,165

 
239,431

Rental merchandise, net of depreciation

 
27

Property at cost, net of depreciation
3,382

 
3,829

Investment in equity-method investee
5,404

 
6,725

Deposits
305

 
505

Prepaid expenses and other assets
23,065

 
19,389

Total assets
$
399,647

 
$
362,547

Liabilities
 

 
 

Accounts payable and accrued expenses
$
112,400

 
$
86,768

Notes payable, at face value, net
165,746

 
141,166

Notes payable to related parties
40,000

 
40,000

Notes payable associated with structured financings, at fair value
10,031

 
12,276

Convertible senior notes
61,085

 
60,791

Income tax liability
11,729

 
15,769

Total liabilities
400,991

 
356,770

Commitments and contingencies (Note 9)


 


Equity
 

 
 

Common stock, no par value, 150,000,000 shares authorized: 15,443,384 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at June 30, 2017; and 15,348,086 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at December 31, 2016

 

Additional paid-in capital
212,572

 
211,646

Accumulated other comprehensive loss

 

Retained deficit
(213,915
)
 
(205,859
)
Total shareholders’ equity
(1,343
)
 
5,787

Noncontrolling interests
(1
)
 
(10
)
Total equity
(1,344
)
 
5,777

Total liabilities and equity
$
399,647

 
$
362,547


 
See accompanying notes.

1


Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Interest income:
 
 
 
 
 
 
 
Consumer loans, including past due fees
$
26,613

 
$
21,462

 
$
52,472

 
$
39,610

Other
43

 
60

 
144

 
152

Total interest income
26,656

 
21,522

 
52,616

 
39,762

Interest expense
(6,419
)
 
(4,792
)
 
(12,236
)
 
(9,436
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
20,237

 
16,730

 
40,380

 
30,326

Fees and related income on earning assets
3,971

 
5,878

 
6,772

 
13,765

Net recovery of charge off of loans and fees receivable recorded at fair value
519

 
6,140

 
8,370

 
11,051

Provision for losses on loans and fees receivable recorded at net realizable value
(15,744
)
 
(10,811
)
 
(26,397
)
 
(15,542
)
Net interest income, fees and related income on earning assets
8,983

 
17,937

 
29,125

 
39,600

Other operating income:
 

 
 

 
 
 
 
Servicing income
861

 
981

 
1,950

 
2,428

Other income
240

 
75

 
349

 
145

Gain on repurchase of convertible senior notes

 
1,037

 

 
1,037

Equity in income of equity-method investee
404

 
325

 
738

 
1,327

Total other operating income
1,505

 
2,418

 
3,037

 
4,937

Other operating expense:
 

 
 

 
 
 
 
Salaries and benefits
5,486

 
6,181

 
11,018

 
11,913

Card and loan servicing
7,794

 
7,285

 
15,179

 
16,273

Marketing and solicitation
3,127

 
932

 
4,659

 
1,787

Depreciation
243

 
2,099

 
553

 
6,255

Other
7,062

 
2,928

 
12,632

 
2,629

Total other operating expense
23,712

 
19,425

 
44,041

 
38,857

(Loss) Income before income taxes
(13,224
)
 
930

 
(11,879
)
 
5,680

Income tax benefit (expense)
4,443

 
(657
)
 
3,825

 
(855
)
Net (loss) income
(8,781
)
 
273

 
(8,054
)
 
4,825

Net (income) loss attributable to noncontrolling interests
(3
)
 
4

 
(2
)
 
5

Net (loss) income attributable to controlling interests
$
(8,784
)
 
$
277

 
$
(8,056
)
 
$
4,830

Net (loss) income attributable to controlling interests per common share—basic
$
(0.63
)
 
$
0.02

 
$
(0.58
)
 
$
0.35

Net (loss) income attributable to controlling interests per common share—diluted
$
(0.63
)
 
$
0.02

 
$
(0.58
)
 
$
0.35


 
See accompanying notes.

2


Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
(Dollars in thousands)

 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net (loss) income
$
(8,781
)
 
$
273

 
$
(8,054
)
 
$
4,825

Other comprehensive income:
 

 
 

 
 
 
 
Foreign currency translation adjustment

 

 

 

Reclassifications of foreign currency translation adjustment to consolidated statements of operations

 
300

 

 
600

Income tax expense related to other comprehensive income

 

 

 

Comprehensive (loss) income
(8,781
)
 
573

 
(8,054
)
 
5,425

Comprehensive (income) loss attributable to noncontrolling interests
(3
)
 
4

 
(2
)
 
5

Comprehensive (loss) income attributable to controlling interests
$
(8,784
)
 
$
577

 
$
(8,056
)
 
$
5,430


 

 

 

 

 

 

 

 

 

 

 

 

 
See accompanying notes.

3


Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Equity
For the Six Months Ended June 30, 2017 (Unaudited)
(Dollars in thousands)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares Issued
 
Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Retained Deficit
 
Noncontrolling Interests
 
Total Equity
Balance at December 31, 2016
15,348,086

 
$

 
$
211,646

 
$

 
$
(205,859
)
 
$
(10
)
 
$
5,777

Compensatory stock issuances, net of forfeitures
102,000

 

 

 

 

 

 

Contributions from owners of noncontrolling interests

 

 

 

 

 
7

 
7

Amortization of deferred stock-based compensation costs

 

 
944

 

 

 

 
944

Redemption and retirement of shares
(6,702
)
 

 
(18
)
 

 

 

 
(18
)
Other comprehensive (loss) income

 

 

 

 
(8,056
)
 
2

 
(8,054
)
Balance at June 30, 2017
15,443,384

 
$

 
$
212,572

 
$

 
$
(213,915
)
 
$
(1
)
 
$
(1,344
)


See accompanying notes.

4


Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
 
For the Six Months Ended June 30,
 
2017
 
2016
Operating activities
 
 
 
Net (loss) income
$
(8,054
)
 
$
4,825

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 

 
 

Depreciation of rental merchandise
27

 
4,714

Depreciation, amortization and accretion, net
526

 
1,541

Losses upon charge off of loans and fees receivable recorded at fair value
2,324

 
3,361

Provision for losses on loans and fees receivable
26,397

 
15,542

Interest expense from accretion of discount on convertible senior notes
267

 
258

Income from accretion of discount associated with receivables purchases
(25,725
)
 
(19,867
)
Unrealized gain on loans and fees receivable and underlying notes payable held at fair value
(3,092
)
 
(4,529
)
Income from equity-method investments
(738
)
 
(1,327
)
Gain on repurchase of convertible senior notes

 
(1,037
)
Changes in assets and liabilities:
 

 
 

Increase in uncollected fees on earning assets
(1,994
)
 
(1,877
)
(Decrease) increase in income tax liability
(4,040
)
 
149

Decrease in deposits
200

 
287

Increase in accounts payable and accrued expenses
22,075

 
11,622

Additions to rental merchandise

 
(636
)
Other
2,239

 
(299
)
Net cash provided by operating activities
10,412

 
12,727

Investing activities
 

 
 

(Increase) decrease in restricted cash
(12,244
)
 
3,613

Proceeds from equity-method investee
2,059

 
3,099

Investments in earning assets
(211,523
)
 
(191,023
)
Proceeds from earning assets
185,393

 
144,461

Purchases and development of property, net of disposals
(79
)
 
(177
)
Net cash used in investing activities
(36,394
)
 
(40,027
)
Financing activities
 

 
 

Noncontrolling interests contributions, net
7

 
4

Purchase and retirement of outstanding stock
(18
)
 
(745
)
Proceeds from borrowings
141,221

 
84,659

Repayment of borrowings
(117,100
)
 
(76,332
)
Net cash provided by financing activities
24,110

 
7,586

Effect of exchange rate changes on cash
295

 
(873
)
Net decrease in unrestricted cash
(1,577
)
 
(20,587
)
Unrestricted cash and cash equivalents at beginning of period
76,052

 
51,033

Unrestricted cash and cash equivalents at end of period
$
74,475

 
$
30,446

Supplemental cash flow information
 

 
 

Cash paid for interest
$
11,342

 
$
9,209

Net cash income tax payments
$
215

 
$
705

Supplemental non-cash information
 

 
 

Issuance of stock options and restricted stock
$
1,142

 
$
1,710

See accompanying notes.

5


Atlanticus Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2017 and 2016
 
1.
Description of Our Business
 
Our accompanying consolidated financial statements include the accounts of Atlanticus Holdings Corporation (the “Company”) and those entities we control. We are primarily focused on providing financial technology and related services. Through our subsidiaries, we provide technology and other support services to lenders who offer an array of financial products and services to consumers who may have been declined under traditional financing options. In most cases, we invest in the receivables originated by lenders who utilize our technology platform and other related services. As discussed further below, we reflect our business lines within two reportable segments:  Credit and Other Investments; and Auto Finance. See also Note 3, “Segment Reporting,” for further details.

Within our Credit and Other Investments segment, we facilitate consumer finance programs offered by our bank partners to originate consumer loans through multiple channels, including retail point-of-sale, direct mail solicitation, on-line and partnerships. In the retail credit (the “point-of-sale” operations) channel, we partner with retailers and service providers in various industries across the United States (“U.S.”) to enable them to provide credit to their customers for the purchase of goods and services. These services of our lending partners, are often extended to consumers who may have been declined under traditional financing options. We specialize in supporting this “second look” credit service in various industries across the U.S. Additionally, we support lenders who market general purpose personal loans and credit cards directly to consumers (collectively, the “direct-to-consumer” operations) through additional channels enabling them to reach consumers through a diverse origination platform which includes direct mail, Internet-based marketing and through partnerships. Using our infrastructure and technology platform, we also provide loan servicing activities, including risk management and customer service outsourcing for third parties.
Beyond these activities within our Credit and Other Investments segment, we continue to service portfolios of credit card receivables. One of our portfolios of credit card receivables is encumbered by non-recourse structured financing, and for this portfolio our principal remaining economic interest is the servicing compensation we receive as an offset against our servicing costs given that the likely future collections on the portfolio are insufficient to allow for full repayment of the financing.

Additionally, we report within our Credit and Other Investments segment the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer.

Lastly, we report within our Credit and Other Investments segment gains associated with investments previously made in consumer finance technology platforms. These include investments in companies engaged in mobile technologies, marketplace lending and other financial technologies. These investments are carried at the lower of cost or market valuation as of June 30, 2017. Some of these investees have in the past raised capital at valuations substantially in excess of our associated book value. However, none of these companies are publicly-traded, there are no material pending liquidity events, and ascribing value to these investments at this time would be speculative.

Within our Auto Finance segment, our CAR subsidiary operations principally purchase and service loans secured by automobiles from or for, and also provide floor plan financing for, a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here, used car business. We purchase auto loans at a discount and with dealer retentions or holdbacks that provide risk protection. Also within our Auto Finance segment, we are providing certain installment lending products in addition to our traditional loans secured by automobiles.

2.
Significant Accounting Policies and Consolidated Financial Statement Components
 
The following is a summary of significant accounting policies we follow in preparing our consolidated financial statements, as well as a description of significant components of our consolidated financial statements.
 
Basis of Presentation and Use of Estimates
 
We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during each reporting

6


period. We base these estimates on information available to us as of the date of the financial statements. Actual results could differ materially from these estimates. Certain estimates, such as credit losses, payment rates, costs of funds, discount rates and the yields earned on credit card receivables, significantly affect the reported amount of credit card receivables that we report at fair value and our notes payable associated with structured financings, at fair value; these estimates likewise affect the changes in these amounts reflected within our fees and related income on earning assets line item on our consolidated statements of operations. Additionally, estimates of future credit losses have a significant effect on loans and fees receivable, net, as shown on our consolidated balance sheets, as well as on the provision for losses on loans and fees receivable within our consolidated statements of operations.
 
We have eliminated all significant intercompany balances and transactions for financial reporting purposes.

Loans and Fees Receivable
 
Our loans and fees receivable include loans and fees receivable, at fair value and loans and fees receivable, gross.

As of June 30, 2017 and December 31, 2016, the weighted average remaining accretion period for the $31.4 million and $23.6 million of deferred revenue reflected in the consolidated balance sheets was 12 months and 11 months, respectively.
A roll-forward (in millions) of our allowance for uncollectible loans and fees receivable by class of receivable is as follows: 
For the Three Months Ended June 30, 2017

Credit Cards

Auto Finance

Other Unsecured Lending Products

Total
Allowance for uncollectible loans and fees receivable:

 

 

 

 
Balance at beginning of period

$
(1.8
)

$
(2.0
)

$
(35.7
)

$
(39.5
)
Provision for loan losses

(1.5
)

(0.4
)

(13.8
)

(15.7
)
Charge offs

0.8


0.8


14.4


16.0

Recoveries

(0.7
)

(0.4
)

(0.9
)

(2.0
)
Balance at end of period

$
(3.2
)

$
(2.0
)

$
(36.0
)

$
(41.2
)









For the Six Months Ended June 30, 2017

Credit Cards

Auto Finance

Other Unsecured Lending Products

Total
Allowance for uncollectible loans and fees receivable:

 

 

 

 
Balance at beginning of period

$
(1.4
)

$
(2.1
)

$
(39.8
)

$
(43.3
)
Provision for loan losses

(1.9
)

(0.8
)

(23.7
)

(26.4
)
Charge offs

1.2


1.6


29.0


31.8

Recoveries

(1.1
)

(0.7
)

(1.5
)

(3.3
)
Balance at end of period

$
(3.2
)

$
(2.0
)

$
(36.0
)

$
(41.2
)

7


As of June 30, 2017
 
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
Allowance for uncollectible loans and fees receivable:
 
 
 
 
 
 
 
 
Balance at end of period individually evaluated for impairment
 
$

 
$
(0.1
)
 
$
(0.2
)
 
$
(0.3
)
Balance at end of period collectively evaluated for impairment
 
$
(3.2
)
 
$
(1.9
)
 
$
(35.8
)
 
$
(40.9
)
Loans and fees receivable:
 
 

 
 

 
 

 
 

Loans and fees receivable, gross
 
$
28.1

 
$
76.9

 
$
218.9

 
$
323.9

Loans and fees receivable individually evaluated for impairment
 
$

 
$
0.2

 
$
0.2

 
$
0.4

Loans and fees receivable collectively evaluated for impairment
 
$
28.1

 
$
76.7

 
$
218.7

 
$
323.5


For the Three Months Ended June 30, 2016

Credit Cards

Auto Finance

Other Unsecured Lending Products

Total
Allowance for uncollectible loans and fees receivable:

 

 

 

 
Balance at beginning of period

$
(1.3
)

$
(1.8
)

$
(16.8
)

$
(19.9
)
Provision for loan losses

0.4


(0.8
)

(10.4
)

(10.8
)
Charge offs

0.6


0.9


6.6


8.1

Recoveries

(0.8
)

(0.3
)

(0.5
)

(1.6
)
Balance at end of period

$
(1.1
)

$
(2.0
)

$
(21.1
)

$
(24.2
)









For the Six Months Ended June 30, 2016

Credit Cards

Auto Finance

Other Unsecured Lending Products

Total
Allowance for uncollectible loans and fees receivable:

 

 

 

 
Balance at beginning of period

$
(1.2
)

$
(1.7
)

$
(18.6
)

$
(21.5
)
Provision for loan losses

0.6


(1.4
)

(14.7
)

(15.5
)
Charge offs

1.0


1.7


13.2


15.9

Recoveries

(1.5
)

(0.6
)

(1.0
)

(3.1
)
Balance at end of period

$
(1.1
)

$
(2.0
)

$
(21.1
)

$
(24.2
)


8


As of December 31, 2016
 
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
Allowance for uncollectible loans and fees receivable:
 
 
 
 
 
 
 
 
Balance at end of period individually evaluated for impairment
 
$

 
$
(0.3
)
 
$
(0.3
)
 
$
(0.6
)
Balance at end of period collectively evaluated for impairment
 
$
(1.4
)
 
$
(1.8
)
 
$
(39.5
)
 
$
(42.7
)
Loans and fees receivable:
 
 

 
 

 
 

 
 

Loans and fees receivable, gross
 
$
11.0

 
$
77.1

 
$
202.6

 
$
290.7

Loans and fees receivable individually evaluated for impairment
 
$

 
$
0.7

 
$
0.3

 
$
1.0

Loans and fees receivable collectively evaluated for impairment
 
$
11.0

 
$
76.4

 
$
202.3

 
$
289.7

    
An aging of our delinquent loans and fees receivable, gross (in millions) by class of receivable as of June 30, 2017 and December 31, 2016 is as follows:
Balance at June 30, 2017
 
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
30-59 days past due
 
$
0.5

 
$
6.1

 
$
8.6

 
$
15.2

60-89 days past due
 
0.4

 
2.1

 
6.5

 
9.0

90 or more days past due
 
0.8

 
1.1

 
11.6

 
13.5

Delinquent loans and fees receivable, gross
 
1.7

 
9.3

 
26.7

 
37.7

Current loans and fees receivable, gross
 
26.4

 
67.6

 
192.2

 
286.2

Total loans and fees receivable, gross
 
$
28.1

 
$
76.9

 
$
218.9

 
$
323.9

Balance of loans 90 or more days past due and still accruing interest and fees
 
$

 
$
0.8

 
$

 
$
0.8


Balance at December 31, 2016
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
30-59 days past due
$
0.2

 
$
7.0

 
$
8.2

 
$
15.4

60-89 days past due
0.2

 
2.4

 
6.7

 
9.3

90 or more days past due
0.4

 
1.9

 
11.4

 
13.7

Delinquent loans and fees receivable, gross
0.8

 
11.3

 
26.3

 
38.4

Current loans and fees receivable, gross
10.2

 
65.8

 
176.3

 
252.3

Total loans and fees receivable, gross
$
11.0

 
$
77.1

 
$
202.6

 
$
290.7

Balance of loans 90 or more days past due and still accruing interest and fees
$

 
$
1.5

 
$

 
$
1.5


Accounts Payable and Accrued Expenses
    
Accounts payable and accrued expenses reflect both the billed and unbilled amounts owed at the end of a period for services rendered. Also included within accounts payable and accrued expenses are amounts which may be owed in respect of one of our portfolios.





9


Income Taxes

We experienced effective income tax benefit rates of 33.6% and 32.2% for the three and six months ended June 30, 2017, respectively, compared to effective income tax expense rates of 70.6% and 15.1% for the three and six months ended June 30, 2016, respectively.  Our effective income tax benefit rates for the three and six months ended June 30, 2017 are below the statutory rate principally due to interest that we accrued on unpaid federal tax liabilities and our establishment of a valuation allowance in the three months ended June 30, 2017 against the net federal deferred tax asset that arose during that period associated with our net loss incurred during that period. Our effective income tax expense rate for the three months ended June 30, 2016 was significantly in excess of the statutory rate principally due to the significance of our accruals of interest and penalties on unpaid tax liabilities relative to our $0.9 million of pre-tax income during that period. Our effective income tax expense rate for the six months ended June 30, 2016 was below the statutory rate principally due to income during that period of our U.K. subsidiary that was not subject to tax in the U.S. and the U.K. tax on which was fully offset by the release of U.K. valuation allowances in that period. Both of these factors also served to mute somewhat the reduction of our effective income tax benefit rate in the three months ended June 30, 2017 versus the statutory rate in that period.

We report potential accrued interest and penalties related to both our accrued liabilities for uncertain tax positions and unpaid tax liabilities, as well as any net payments of income tax-related interest and penalties, within our income tax benefit or expense line item on our consolidated statements of operations. We likewise report the reversal of such accrued interest and penalties within the income tax benefit or expense line item to the extent that we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals therefor. During the three and six months ended June 30, 2017, our income tax benefits were offset by $0.2 million and $0.4 million of net income tax-related interest and penalties charges. During the three and six months ended June 30, 2016 we included $0.2 million and $0.4 million of net income tax-related interest and penalties within those periods’ respective income tax expense line items.

In December 2014, we reached a settlement with the IRS concerning the tax treatment of net operating losses that we incurred in 2007 and 2008 and carried back to obtain refunds of federal income taxes paid in earlier years dating back to 2003. Our net unpaid income tax assessment associated with that settlement was $7.3 million at June 30, 2017; this amount excludes unpaid interest and penalties on the tax assessment, the accruals for which aggregated $3.8 million at June 30, 2017. Prior to our filing amended return claims that would have eliminated the $7.3 million assessment (and corresponding interest and penalties) under a negotiated provision of the IRS settlement, the IRS filed a lien (as is customarily the case) associated with the assessment. Subsequently, an IRS examination team has denied our amended return claims, and we have filed a protest with IRS Appeals. During the three months ended June 30, 2017, we were notified that the claims have been assigned to an IRS Appeals officer and an IRS Appeals conference has been scheduled for October 2017. To the extent we are unsuccessful in resolving this matter with IRS Appeals to our satisfaction, we plan to litigate this matter.

Fees and Related Income on Earning Assets

The components (in thousands) of our fees and related income on earning assets are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Fees on credit products
$
2,007

 
$
856

 
$
3,103

 
$
1,655

Changes in fair value of loans and fees receivable recorded at fair value
1,002

 
527

 
1,565

 
2,425

Changes in fair value of notes payable associated with structured financings recorded at fair value
821

 
939

 
1,527

 
2,104

Rental revenue

 
3,119

 
148

 
7,333

Other
141

 
437

 
429

 
248

Total fees and related income on earning assets
$
3,971

 
$
5,878

 
$
6,772

 
$
13,765


The above changes in the fair value of loans and fees receivable recorded at fair value category exclude the impact of charge offs associated with these receivables which are separately stated in Net recovery of charge off of loans and fees receivable recorded at fair value on our consolidated statements of operations.  See Note 6, “Fair Values of Assets and Liabilities,” for further discussion of these receivables and their effects on our consolidated statements of operations.

10



Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. The guidance requires an assessment of credit losses based on expected rather than incurred losses. This generally will result in the recognition of allowances for losses earlier than under current accounting guidance for trade and other receivables, held to maturity debt securities and other instruments. The standard will be adopted on a prospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. While we are continuing to evaluate the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures, this standard is expected to result in an increase to our allowance for loan losses given the change to expected losses for the estimated life of the financial asset. The extent of the increase will depend on the asset quality of the portfolio, and economic conditions and forecasts at adoption.

In March 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting. The ASU eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively, as if the equity method had been in effect during all previous periods that the investment had been held. The ASU requires that the cost of acquiring the additional interest in the investee should be combined with the current basis of the investor’s previously held interest and the equity method of accounting should be adopted as of the date the investment becomes qualified for equity method accounting. No retroactive adjustment of the investment is required. The ASU also requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings, the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The ASU was effective January 1, 2017. The impact of adoption of this authoritative guidance did not result in a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which would require lessees to recognize assets and liabilities for most leases, changing certain aspects of current lessor accounting, among other things. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The adoption of ASU 2016-02 will result in the Company recognizing a right-of-use asset and lease liability on the consolidated balance sheet based on the present value of remaining operating lease payments. We do not expect the adoption of ASU 2016-02 to have a material impact on our consolidated financial statements due to the limited lease activity we are involved in.
        
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 establishes a principles-based model under which revenue from a contract is allocated to the distinct performance obligations within the contract and recognized in income as each performance obligation is satisfied. Additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract is also required. In August 2015, the FASB delayed the effective date by one year and the guidance will now be effective for annual and interim periods beginning January 1, 2018 and early adoption is permitted. We do not plan to early adopt the guidance. The scope of ASU 2014-09 excludes interest and fee income on loans and as a result, the majority of our revenue will not be affected; however, our review is ongoing. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
    
Subsequent Events
 
We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated financial statements are issued. There are two types of subsequent events:  (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements; and (2) nonrecognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.  We have evaluated subsequent events occurring after June 30, 2017, and based on our evaluation we did not identify any recognized or nonrecognized subsequent events that would have required further adjustments to our consolidated financial statements.

3.
Segment Reporting
 
We operate primarily within one industry consisting of two reportable segments by which we manage our business. Our two reportable segments are:  Credit and Other Investments, and Auto Finance.


11


As of both June 30, 2017 and December 31, 2016, we did not have a material amount of long-lived assets located outside of the U.S., and only a negligible portion of our revenues for the six months ended June 30, 2017 and 2016 were generated outside of the U.S.

We measure the profitability of our reportable segments based on their income after allocation of specific costs and corporate overhead; however, our segment results do not reflect any charges for internal capital allocations among our segments. Overhead costs are allocated based on headcounts and other applicable measures to better align costs with the associated revenues.

Summary operating segment information (in thousands) is as follows:
Three months ended June 30, 2017
 
 Credit and Other Investments
 
Auto Finance
 
Total
Interest income:
 
 
 
 
 
 
Consumer loans, including past due fees
 
$
19,589

 
$
7,024

 
$
26,613

Other
 
43

 

 
43

Total interest income
 
19,632

 
7,024

 
26,656

Interest expense
 
(6,166
)
 
(253
)
 
(6,419
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
 
$
13,466

 
$
6,771

 
$
20,237

Fees and related income on earning assets
 
$
3,943

 
$
28

 
$
3,971

Servicing income
 
$
644

 
$
217

 
$
861

Depreciation of rental merchandise
 
$

 
$

 
$

Equity in income of equity-method investee
 
$
404

 
$

 
$
404

(Loss) income before income taxes
 
$
(15,137
)
 
$
1,913

 
$
(13,224
)
Income tax benefit (expense)
 
$
5,055

 
$
(612
)
 
$
4,443

 
 
 
 
 
 
 
Six months ended June 30, 2017
 
Credit and Other Investments
 
Auto Finance
 
Total
Interest income:
 
 
 
 
 
 
Consumer loans, including past due fees
 
$
38,419

 
$
14,053

 
$
52,472

Other
 
144

 

 
144

Total interest income
 
38,563

 
14,053

 
52,616

Interest expense
 
(11,760
)
 
(476
)
 
(12,236
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
 
$
26,803

 
$
13,577

 
$
40,380

Fees and related income on earning assets
 
$
6,722

 
$
50

 
$
6,772

Servicing income
 
$
1,501

 
$
449

 
$
1,950

Depreciation of rental merchandise
 
$
(27
)
 
$

 
$
(27
)
Equity in income of equity-method investee
 
$
738

 
$

 
$
738

(Loss) income before income taxes
 
$
(15,524
)
 
$
3,645

 
$
(11,879
)
Income tax benefit (expense)
 
$
5,022

 
$
(1,197
)
 
$
3,825

Total assets
 
$
332,001

 
$
67,646

 
$
399,647


12


Three months ended June 30, 2016
 
Credit and Other Investments
 
Auto Finance
 
Total
Interest income:
 
 
 
 
 
 
Consumer loans, including past due fees
 
$
14,132

 
$
7,330

 
$
21,462

Other
 
60

 

 
60

Total interest income
 
14,192

 
7,330

 
21,522

Interest expense
 
(4,454
)
 
(338
)
 
(4,792
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
 
$
9,738

 
$
6,992

 
$
16,730

Fees and related income on earning assets
 
$
5,840

 
$
38

 
$
5,878

Servicing income
 
$
732

 
$
249

 
$
981

Gain on repurchase of convertible senior notes
 
$
1,037

 
$

 
$
1,037

Depreciation of rental merchandise
 
$
(1,335
)
 
$

 
$
(1,335
)
Equity in income of equity-method investee
 
$
325

 
$

 
$
325

(Loss) income before income taxes
 
$
(664
)
 
$
1,594

 
$
930

Income tax expense
 
$
(113
)
 
$
(544
)
 
$
(657
)
 
 
 
 
 
 
 
Six months ended June 30, 2016
 
Credit and Other Investments
 
Auto Finance
 
Total
Interest income:
 
 
 
 
 
 
Consumer loans, including past due fees
 
$
25,317

 
$
14,293

 
$
39,610

Other
 
152

 

 
152

Total interest income
 
25,469

 
14,293

 
39,762

Interest expense
 
(8,791
)
 
(645
)
 
(9,436
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
 
$
16,678

 
$
13,648

 
$
30,326

Fees and related income on earning assets
 
$
13,669

 
$
96

 
$
13,765

Servicing income
 
$
1,924

 
$
504

 
$
2,428

Gain on repurchase of convertible senior notes
 
$
1,037


$


$
1,037

Depreciation of rental merchandise
 
$
(4,714
)
 
$

 
$
(4,714
)
Equity in income of equity-method investee
 
$
1,327

 
$

 
$
1,327

Income before income taxes
 
$
2,662

 
$
3,018

 
$
5,680

Income tax benefit (expense)
 
$
204

 
$
(1,059
)
 
$
(855
)
Total assets
 
$
228,729

 
$
71,579

 
$
300,308


4.
Shareholders’ Equity

During the six months ended June 30, 2017, we repurchased and contemporaneously retired 6,702 shares of our common stock at an aggregate cost of $18,000 pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations. No shares were repurchased during the three months ended June 30, 2017. During the three and six months ended June 30, 2016, we repurchased and contemporaneously retired 123,662 and 246,643 shares of our common stock at an aggregate cost of $374,000 and $745,000, respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations.

We had 1,459,233 loaned shares outstanding at June 30, 2017 and December 31, 2016, which were originally lent in connection with our November 2005 issuance of convertible senior notes. We retire lent shares as they are returned to us.


13



5.
Investment in Equity-Method Investee
 
Our equity-method investment outstanding at June 30, 2017 consists of our 66.7% interest in a joint venture formed to purchase a credit card receivable portfolio.

In the following tables, we summarize (in thousands) balance sheet and results of operations data for our equity-method investee:
 
As of
 
June 30, 2017
 
December 31, 2016
Loans and fees receivable, at fair value
$
7,775

 
$
9,650

Total assets
$
8,136

 
$
10,291

Total liabilities
$
31

 
$
204

Members’ capital
$
8,105

 
$
10,087


 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Net interest income, fees and related income on earning assets
$
607

 
$
496

 
$
1,111

 
$
2,008

Net income
$
511

 
$
355

 
$
908

 
$
1,715

Net income attributable to our equity investment in investee
$
404

 
$
325

 
$
738

 
$
1,327

         
6.
Fair Values of Assets and Liabilities

Valuations and Techniques for Assets
 
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The table below summarizes (in thousands) by fair value hierarchy the June 30, 2017 and December 31, 2016 fair values and carrying amounts of (1) our assets that are required to be carried at fair value in our consolidated financial statements and (2) our assets not carried at fair value, but for which fair value disclosures are required:
Assets – As of June 30, 2017 (1)
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (Level 3)
 
Carrying Amount of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value
 
$

 
$

 
$
280,365

 
$
251,395

Loans and fees receivable, at fair value
 
$

 
$

 
$
12,770

 
$
12,770


Assets – As of December 31, 2016 (1)
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (Level 3)
 
Carrying Amount of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value
 
$

 
$

 
$
248,171

 
$
223,783

Loans and fees receivable, at fair value
 
$

 
$

 
$
15,648

 
$
15,648

  
(1)
For cash, deposits and other short-term investments, the carrying amount is a reasonable estimate of fair value.


14


For those asset classes above that are required to be carried at fair value in our consolidated financial statements, gains and losses associated with fair value changes are detailed on our fees and related income on earning assets table within Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components.”

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the six months ended June 30, 2017 and 2016:
 
Loans and Fees Receivable, at
Fair Value
 
2017
 
2016
Balance at January 1,
$
15,648

 
$
26,706

Total gains—realized/unrealized:
 
 


Net revaluations of loans and fees receivable, at fair value
1,565

 
2,425

Settlements
(4,475
)
 
(8,422
)
Impact of foreign currency translation
32

 
(189
)
Balance at June 30,
$
12,770

 
$
20,520

  
The unrealized gains and losses for assets within the Level 3 category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs. Impacts related to foreign currency translation are included as a component of other operating expense on the consolidated statements of operations.
 
Net Revaluation of Loans and Fees Receivable. We record the net revaluation of loans and fees receivable (including those pledged as collateral) in the fees and related income on earning assets category in our consolidated statements of operations, specifically as changes in fair value of loans and fees receivable recorded at fair value.

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of June 30, 2017 and December 31, 2016:

15


Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at June 30, 2017
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Loans and fees receivable, at fair value
 
$
12,770

 
Discounted cash flows
 
Gross yield
 
15.5% to 29.2% (24.9%)
 
 
 

 
 
 
Principal payment rate
 
1.7% to 3.8% (2.5%)
 
 
 

 
 
 
Expected credit loss rate
 
6.3% to 14.0% (12.8%)
 
 
 

 
 
 
Servicing rate
 
9.3% to 10.7% (9.5%)
 
 
 

 
 
 
Discount rate
 
5.8% to 13.9% (12.7%)

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at December 31, 2016
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Loans and fees receivable, at fair value
 
$
15,648

 
Discounted cash flows
 
Gross yield
 
24.2% to 35.8% (26.1%)
 
 
 

 
 
 
Principal payment rate
 
2.2% to 3.5% (2.4%)
 
 
 

 
 
 
Expected credit loss rate
 
11.8% to 18.0% (12.9%)
 
 
 

 
 
 
Servicing rate
 
8.6% to 9.6% (8.8%)
 
 
 

 
 
 
Discount rate
 
5.8% to 13.6% (12.5%)




16


Valuations and Techniques for Liabilities
 
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the liability. The table below summarizes (in thousands) by fair value hierarchy the June 30, 2017 and December 31, 2016 fair values and carrying amounts of (1) our liabilities that are required to be carried at fair value in our consolidated financial statements and (2) our liabilities not carried at fair value, but for which fair value disclosures are required:
Liabilities – As of June 30, 2017
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (Level 3)
 
Carrying Amount of Liabilities
Liabilities not carried at fair value
 
 
 
 
 
 
 
 
Revolving credit facilities
 
$

 
$

 
$
109,322

 
$
109,322

Amortizing debt facilities
 
$

 
$

 
$
57,223

 
$
57,223

Senior secured term loan
 
$

 
$

 
$
40,000

 
$
40,000

5.875% convertible senior notes
 
$

 
$
39,064

 
$

 
$
61,085

Liabilities carried at fair value
 
 

 
 

 
 

 
 

Notes payable associated with structured financings, at fair value
 
$

 
$

 
$
10,031

 
$
10,031


Liabilities - As of December 31, 2016
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
 Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Carrying Amount of Liabilities
Liabilities not carried at fair value
 
 

 
 

 
 

 
 

Revolving credit facilities
 
$

 
$

 
$
83,399

 
$
83,399

Amortizing debt facilities
 
$

 
$

 
$
58,190

 
$
58,190

Senior secured term loan
 
$

 
$

 
$
40,000

 
$
40,000

5.875% convertible senior notes
 
$

 
$
40,609

 
$

 
$
60,791

Liabilities carried at fair value
 
 

 
 

 
 

 
 

Notes payable associated with structured financings, at fair value
 
$

 
$

 
$
12,276

 
$
12,276


For our material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the six months ended June 30, 2017 and 2016.
 
Notes Payable Associated with
Structured Financings, at Fair Value
 
2017
 
2016
Beginning balance, January 1
$
12,276

 
$
20,970

Total (gains) losses—realized/unrealized:
 

 
 

Net revaluations of notes payable associated with structured financings, at fair value
(1,527
)
 
(2,104
)
Repayments on outstanding notes payable, net
(718
)
 
(3,240
)
Ending balance, June 30
$
10,031

 
$
15,626


The unrealized gains and losses for liabilities within the Level 3 category presented in the table above include changes in fair value that are attributable to both observable and unobservable inputs. We provide below a brief description of the valuation techniques used for Level 3 liabilities.


17


Net Revaluation of Notes Payable Associated with Structured Financings, at Fair Value. We record the net revaluations of notes payable associated with structured financings, at fair value, in the changes in fair value of notes payable associated with structured financings line item within the fees and related income on earning assets category of our consolidated statements of operations.

For material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of June 30, 2017 and December 31, 2016:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at June 30, 2017
 
Valuation Technique
 
Unobservable Input
 
Weighted Average
Notes payable associated with structured financings, at fair value
 
$
10,031

 
Discounted cash flows
 
Gross yield
 
26.1
%
 
 
 

 
 
 
Principal payment rate
 
2.5
%
 
 
 

 
 
 
Expected credit loss rate
 
14.0
%
 
 
 

 
 
 
Discount rate
 
13.9
%

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at December 31, 2016
 
Valuation Technique
 
Unobservable Input
 
Weighted Average
Notes payable associated with structured financings, at fair value
 
$
12,276

 
Discounted cash flows
 
Gross yield
 
24.6
%
 
 
 

 
 
 
Principal payment rate
 
2.2
%
 
 
 

 
 
 
Expected credit loss rate
 
11.8
%
 
 
 

 
 
 
Discount rate
 
13.6
%

Other Relevant Data
 
Other relevant data (in thousands) as of June 30, 2017 and December 31, 2016 concerning certain assets and liabilities we carry at fair value are as follows:
As of June 30, 2017
 
Loans and Fees
Receivable at
Fair Value
 
Loans and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value
 
$
5,225

 
$
13,753

Aggregate fair value of loans and fees receivable that are reported at fair value
 
$
2,742

 
$
10,028

Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)
 
$
8

 
$
30

Aggregate excess of balance of unpaid principal receivables within loans and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans and fees receivable
 
$
164

 
$
384

 

18


As of December 31, 2016
 
Loans and Fees
Receivable at
Fair Value
 
Loans and Fees
Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value
 
$
6,251

 
$
16,614

Aggregate fair value of loans and fees receivable that are reported at fair value
 
$
3,484

 
$
12,164

Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)
 
$
6

 
$
22

Aggregate excess of balance of unpaid principal receivables within loans and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans and fees receivable
 
$
204

 
$
562


Notes Payable
 
Notes Payable Associated with Structured Financings, at Fair Value as of June 30, 2017
 
Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2016
Aggregate unpaid principal balance of notes payable
 
$
101,317

 
$
102,035

Aggregate fair value of notes payable
 
$
10,031

 
$
12,276


7.
Notes Payable
 
Notes Payable Associated with Structured Financings, at Fair Value
 
Scheduled (in millions) in the table below are (1) the carrying amount of our structured financing note secured by certain credit card receivables and reported at fair value as of June 30, 2017 and December 31, 2016, (2) the outstanding face amount of our structured financing note secured by certain credit card receivables and reported at fair value as of June 30, 2017, and (3) the carrying amount of the credit card receivables and restricted cash that provide the exclusive means of repayment for the note (i.e., lenders have recourse only to the specific credit card receivables and restricted cash underlying each respective facility and cannot look to our general credit for repayment) as of June 30, 2017 and December 31, 2016.
 
Carrying Amounts at Fair Value as of
 
June 30, 2017
 
December 31, 2016
Amortizing securitization facility (stated maturity of December 2021), outstanding face amount of $101.3 million as of June 30, 2017 ($102.0 million as of December 31, 2016) bearing interest at a weighted average 6.5% interest rate at June 30, 2017 (6.1% at December 31, 2016), which is secured by credit card receivables and restricted cash aggregating $10.0 million as of June 30, 2017 ($12.3 million as of December 31, 2016) in carrying amount
$
10.0

 
$
12.3

 
Contractual payment allocations within this credit card receivables structured financing provide for a priority distribution of cash flows to us to service the credit card receivables, a distribution of cash flows to pay interest and principal due on the notes, and a distribution of all excess cash flows (if any) to us. The structured financing facility in the above table is amortizing down along with collections of the underlying receivables and there are no provisions within the debt agreement that allow for acceleration or bullet repayment of the facility prior to its scheduled expiration date. The aggregate carrying amount of the credit card receivables and restricted cash that provide security for the $10.0 million in fair value of the structured financing note in the above table is $10.0 million, which means that we have no aggregate exposure to pre-tax equity loss associated with the above structured financing arrangement at June 30, 2017.
 

19


Beyond our role as servicer of the underlying assets within the credit cards receivables structured financing, we have provided no other financial or other support to the structures, and we have no explicit or implicit arrangements that could require us to provide financial support to the structures.

Notes Payable, at Face Value and Notes Payable to Related Parties
 
Other notes payable outstanding as of June 30, 2017 and December 31, 2016 that are secured by the financial and operating assets of either the borrower, another of our subsidiaries or both, include the following, scheduled (in millions); except as otherwise noted, the assets of our holding company (Atlanticus Holdings Corporation) are subject to creditor claims under these scheduled facilities:
 
As of
 
June 30, 2017
 
December 31, 2016
Revolving credit facilities at a weighted average interest rate equal to 6.4% at June 30, 2017 (4.8% at December 31, 2016) secured by the financial and operating assets of CAR and/or certain receivables and restricted cash with a combined aggregate carrying amount of $157.3 million as of June 30, 2017 ($127.9 million at December 31, 2016)
 
 
 
Revolving credit facility, not to exceed $20.0 million (expiring December 31, 2019) (1) (2)
19.8

 
19.5

Revolving credit facility, not to exceed $40.0 million (expiring November 1, 2018) (3)
30.4


29.2

Revolving credit facility, not to exceed $35.0 million (expiring October 29, 2017) (1) (2)
34.6

 
34.7

Revolving credit facility, not to exceed $90.0 million (expiring February 8, 2022) (1) (4)
26.0

 

Amortizing facilities at a weighted average interest rate equal to 5.8% at June 30, 2017 (5.4% at December 31, 2016) secured by certain receivables and restricted cash with a combined aggregate carrying amount of $78.4 million as of June 30, 2017 ($69.9 million as of December 31, 2016)
 
 
 
Amortizing debt facility (expiring March 31, 2018) (1) (2) (5)
11.0

 
14.6

Amortizing debt facility (repaid in June 2017) (1) (2) (5)


20.4

Amortizing debt facility (expiring June 30, 2018) (1) (2) (5)
36.7

 

Amortizing debt facility (expiring May 31, 2018) (1) (2)
4.5

 
6.0

Amortizing debt facility (expiring August 24, 2018) (1) (2)
2.5

 
9.7

Amortizing debt facility (expiring September 1, 2017) (1) (2)
2.5

 
7.5

Other facilities
 
 
 
Senior secured term loan from related parties (expiring November 22, 2017) that is secured by certain assets of the Company with an annual interest rate equal to 9.0% (4)
40.0

 
40.0

Total notes payable before unamortized debt issuance costs and discounts
208.0

 
181.6

Unamortized debt issuance costs and discounts
2.3

 
0.4

Total notes payable outstanding, net
$
205.7

 
$
181.2

 
(1)
Loans are subject to certain affirmative covenants tied to default rates and other performance metrics the failure of which could result in required early repayment of the remaining unamortized balances of the notes.
(2)
These notes reflect modifications to either extend the maturity date, increase the loaned amount or both.
(3)
Loan is subject to certain affirmative covenants, including a coverage ratio, a leverage ratio and a collateral performance test, the failure of which could result in required early repayment of all or a portion of the outstanding balance by our CAR Auto Finance operations.
(4)
See below for additional information.
(5)
Loans are comprised of three tranches with the same lender. Terms and conditions are substantially identical with the exception of maturity date as indicated in the table above.

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On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove Ventures, LLC, a Nevada limited liability company (“Dove”). The agreement provides for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding. The Loan and Security Agreement is fully drawn with $40.0 million outstanding as of June 30, 2017. In November 2016, the agreement was amended to extend the maturity date of the term loan to November 22, 2017. All other terms remain unchanged.

Our obligations under the agreement are guaranteed by certain subsidiary guarantors and secured by a pledge of certain assets of ours and the subsidiary guarantors. The loans bear interest at the rate of 9.0% per annum, payable monthly in arrears. The principal amount of these loans is payable in a single installment on November 22, 2017 (as amended). The agreement includes customary affirmative and negative covenants, as well as customary representations, warranties and events of default. Subject to certain conditions, we can prepay the principal amounts of these loans without premium or penalty.

Dove is a limited liability company owned by three trusts. David G. Hanna is the sole shareholder and the President of the corporation that serves as the sole trustee of one of the trusts, and David G. Hanna and members of his immediate family are the beneficiaries of this trust. Frank J. Hanna, III is the sole shareholder and the President of the corporation that serves as the sole trustee of the other two trusts, and Frank J. Hanna, III and members of his immediate family are the beneficiaries of these other two trusts.

In February 2017, we (through a wholly owned subsidiary) established a program under which we sell certain receivables to a consolidated trust in exchange for notes issued by the trust. The notes are secured by the receivables and other assets of the trust. Simultaneously with the establishment of the program, the trust issued a series of variable funding notes and sold an aggregate amount of up to $90.0 million (of which $26.0 million was outstanding as of June 30, 2017) to an unaffiliated third party pursuant to a facility that can be drawn upon to the extent of outstanding eligible receivables.

The facility matures on February 8, 2022 and is subject to certain affirmative covenants and collateral performance tests, the failure of which could result in required early repayment of all or a portion of the outstanding balance of notes. The facility also may be prepaid subject to payment of a prepayment fee.
 
8.
Convertible Senior Notes
 
In November 2005, we issued $300.0 million aggregate principal amount of 5.875% convertible senior notes due November 30, 2035 (“5.875% convertible senior notes”). The 5.875% convertible senior notes are unsecured, subordinate to existing and future secured obligations and structurally subordinate to existing and future claims of our subsidiaries’ creditors. These notes (net of repurchases since the issuance dates) are reflected within convertible senior notes on our consolidated balance sheets.   No put rights exist under our 5.875% convertible senior notes.  

In 2016 we repurchased $5.0 million aggregate principal amount of outstanding 5.875% convertible senior notes for $2.3 million plus accrued interest from unrelated third parties. The purchase resulted in a gain of $1.2 million (net of the notes’ applicable share of deferred costs, which were written off in connection with the repurchases). Upon acquisition, the notes were retired.

The following summarizes (in thousands) components of our consolidated balance sheets associated with our convertible senior notes:
 
As of
 
June 30, 2017
 
December 31, 2016
Face amount of 5.875% convertible senior notes
$
88,280


$
88,280

Discount
(27,195
)

(27,489
)
Net carrying value
$
61,085


$
60,791

Carrying amount of equity component included in additional paid-in capital
$
108,714


$
108,714