1. Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Description of Business

We were formed in California on March 8, 1991. We specialize in purchasing and servicing retail automobile installment sale contracts (“automobile contracts” or “finance receivables”) originated by licensed motor vehicle dealers located throughout the United States (“dealers”) in the sale of new and used automobiles, light trucks and passenger vans. Through our purchases, we provide indirect financing to dealer customers for borrowers with limited credit histories or past credit problems (“sub-prime customers”). We serve as an alternative source of financing for dealers, allowing sales to customers who otherwise might not be able to obtain financing. In addition to purchasing installment purchase contracts directly from dealers, we have also (i) acquired installment purchase contracts in four merger and acquisition transactions, (ii) purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders, and (iii) lent money directly to consumers for an immaterial amount of loans secured by vehicles. In this report, we refer to all of such contracts and loans as "automobile contracts."

Basis of Presentation

Our Unaudited Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America, with the instructions to Form 10-Q and with Article 10 of Regulation S-X of the Securities and Exchange Commission, and include all adjustments that are, in management’s opinion, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are, in the opinion of management, of a normal recurring nature. Results for the three and six month periods ended June 30, 2015 are not necessarily indicative of the operating results to be expected for the full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these Unaudited Condensed Consolidated Financial Statements. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods.

Other Income

The following table presents the primary components of Other Income for the three-month and six-month periods ending June 30, 2015 and 2014:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2015		2014			2015		2014
	(In thousands)					(In thousands)
Direct mail revenues	$	2,382	$	2,171		$	4,519	$	4,023
Convenience fee revenue		530		800			1,480		1,610
Recoveries on previously charged-off contracts		141		48			333		83
Sales tax refunds		144		129			150		231
Other		202		(142	)		399		(304	)
Other income for the period	$	3,399	$	3,006		$	6,881	$	5,643

Stock-based Compensation

We recognize compensation costs in the financial statements for all share-based payments based on the grant date fair value estimated in accordance with the provisions of ASC 718 “Stock Compensation”.

For the three and six months ended June 30, 2015, we recorded stock-based compensation costs in the amount of $1.1 million and $2.2 million, respectively. These stock-based compensation costs were $0.7 million and $1.5 million for the three and six months ended June 30, 2014. As of June 30, 2015, unrecognized stock-based compensation costs to be recognized over future periods equaled $16.7 million. This amount will be recognized as expense over a weighted-average period of 3.02 years.

The following represents stock option activity for the six months ended June 30, 2015:

	Number of		Weighted	Weighted Average
	Shares		Average	Remaining
	(in thousands)		Exercise Price	Contractual Term
Options outstanding at the beginning of period	10,828	$	4.05	6.01 years
Granted	1,965		6.11	N/A
Exercised	(971)		1.38	N/A
Forfeited	(271)		5.12	N/A
Options outstanding at the end of period	11,551	$	4.60	5.93 years
Options exercisable at the end of period	5,763	$	3.15	5.05 years

At June 30, 2015, the aggregate intrinsic value of options outstanding and exercisable was $22.9 million and $19.5 million, respectively. There were 971,000 options exercised for the six months ended June 30, 2015 compared to 978,000 for the comparable period in 2014. The total intrinsic value of options exercised was $5.4 million and $6.7 million for the six-month periods ended June 30, 2015 and 2014. There were 5.4 million shares available for future stock option grants under existing plans as of June 30, 2015.

Purchases of Company Stock

During the six-month period ended June 30, 2015, we purchased 361,046 shares of our common stock, at an average price of $6.39. We purchased 285,473 shares of our stock in the open market at an average price of $6.21. The remaining purchases of 75,573 shares were related to net exercises of outstanding options and warrants. In transactions during the six-month period ended June 30, 2015, the holders of options and warrants to purchase 392,200 shares of our common stock paid the aggregate $535,000 exercise price by surrender to us of 75,573 of such 392,200 shares.

During the six-month period ended June 30, 2014, we purchased 73,788 shares of our common stock, at an average price of $7.91. The purchases were related to net exercises of outstanding options and warrants. In transactions during the six-month period ended June 30, 2014, the holder of options and warrants to purchase 395,000 shares of our common stock paid the aggregate $583,000 exercise price by surrender to us of 73,788 of such 395,000 shares.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or total shareholders’ equity.

Financial Covenants

Certain of our securitization transactions, our warehouse credit facilities and our residual interest financing contain various financial covenants requiring minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. As of June 30, 2015, we were in compliance with all such covenants. In addition, certain securitization and non-securitization related debt agreements contain cross-default provisions that would allow certain creditors to declare a default if a default occurred under a different facility.

Provision for Contingent Liabilities

We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices, both continuing and discontinued. Our legal counsel has advised us on such matters where, based on information available at the time of this report, there is an indication that it is both probable that a liability has been incurred and the amount of the loss can be reasonably determined.

We have recorded a liability as of June 30, 2015, which represents our best estimate of probable incurred losses for legal contingencies. The amount of losses that may ultimately be incurred cannot be estimated with certainty.