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 six-month period ended June 30, 2020 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, 2019.

Finance Receivables Measured at Fair Value

Finance Receivables Measured at Fair Value

Effective January 1, 2018, we adopted the fair value method of accounting for finance receivables acquired on or after that date. For each finance receivable acquired after 2017, we consider the price paid on the purchase date as the fair value for such receivable. We estimate the cash to be received in the future with respect to such receivables, based on our experience with similar receivables acquired in the past. We then compute the internal rate of return that results in the present value of those estimated cash receipts being equal to the purchase date fair value. Thereafter, we recognize interest income on such receivables on a level yield basis using that internal rate of return as the applicable interest rate. Cash received with respect to such receivables is applied first against such interest income, and then to reduce the recorded value of the receivables.

We re-evaluate the fair value of such receivables at the close of each measurement period. If the reevaluation were to yield a value materially different from the recorded value, an adjustment would be required. Results for the second quarter include the estimated potential effect on credit performance resulting from the COVID-19 pandemic. We recorded a $9.5 million mark down to the recorded value of the portion of the receivables portfolio accounted for at fair value in the second quarter and $10.4 million in the first quarter. The mark down is reflected as a reduction in revenue for each period.

Anticipated credit losses are included in our estimation of cash to be received with respect to receivables. Because such credit losses are included in our computation of the appropriate level yield, we do not thereafter make periodic provision for credit losses, as our best estimate of the lifetime aggregate of credit losses is included in that initial computation. Also, because we include anticipated credit losses in our computation of the level yield, the computed level yield is materially lower than the average contractual rate applicable to the receivables. Because our initial recorded value is fixed as the price we pay for the receivable, rather than as the contractual principal balance, we do not record acquisition fees as an amortizing asset related to the receivables, nor do we capitalize costs of acquiring the receivables. Rather we recognize the costs of acquisition as expenses in the period incurred

Leases

Leases

The Company has operating leases for corporate offices, equipment, software and hardware. The Company has entered into operating leases for the majority of its real estate locations, primarily office space. These leases are generally for periods of three to seven years with various renewal options. The depreciable life of leased assets is limited by the expected lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.

The following table presents the supplemental balance sheet information related to leases:

June 30, December 31,

2020 2019

(In thousands)

Operating Leases

Operating lease right-of-use assets $ 23,735 $ 23,735

Less: Accumulated amortization right-of-use assets (9,729 ) (6,600 )

Operating lease right-of-use assets, net $ 14,006 $ 17,135

Operating lease liabilities $ (15,308 ) $ (18,527 )

Finance Leases

Property and equipment, at cost $ 3,224 $ 876

Less: Accumulated depreciation (672 ) (150 )

Property and equipment, net $ 2,552 $ 726

Finance lease liabilities $ (2,586 ) $ (718 )

Weighted Average Discount Rate

Operating lease 5.0 % 5.0 %

Finance lease 6.6 % 6.4 %

Maturities of lease liabilities were as follows:

Maturities of leases
(In thousands)	Operating			Finance
Year Ending December 31,	Lease			Lease
2020 (excluding the six months ended June 30, 2020)	$	3,903		$	587
2021		7,458			1,170
2022		6,066			992
2023		1,397			42
2024		419			14
Thereafter		282			–
Total undiscounted lease payments		19,525			2,805
Less amounts representing interest		(4,524	)		(219	)
Lease Liability	$	15,308		$	2,586

The following table presents the lease expense included in General and administrative and Occupancy expense on our Unaudited Condensed Consolidated Statement of Operations:

Lease information
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands)				(In thousands)
Operating lease cost	$	1,885	$	1,886	$	3,769	$	3,775
Finance lease cost		293		44		572		44
Total lease cost	$	2,178	$	1,930	$	4,341	$	3,819

The following table presents the supplemental cash flow information related to leases:

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Cash paid for amounts included in the measurement of lease liabilities: (In thousands) (In thousands)

Operating cash flows from operating leases $ 1,932 $ 1,890 $ 3,858 $ 3,776

Operating cash flows from finance leases 248 36 481 36

Financing cash flows from finance leases 45 8 91 8

Purchases of Company Stock

Purchases of Company Stock

The table below describes the purchase of our common stock for the six-month ended June 30, 2020 and 2019:

Schedule of purchases of company stock Six Months Ended

June 30, 2020 June 30, 2019

Shares Avg. Price Shares Avg. Price

Open market purchases 25,113 $ 2.85 335,546 $ 3.95

Shares redeemed upon net exercise of stock options 46,909 2.86 18,424 3.76

Other purchases – – 24,500 4.20

Total stock purchases 72,022 $ 2.85 378,470 $ 3.97

Financial Covenants

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, 2020, we were in compliance with all such covenants. In addition, certain of our debt agreements other than our term securitizations contain cross-default provisions. Such cross-default provisions would allow the respective creditors to declare a default if an event of default occurred with respect to other indebtedness of ours, but only if such other event of default were to be accompanied by acceleration of such other indebtedness.

Adoption of New Accounting Standards

Adoption of New Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-13, which changes the criteria under which credit losses on financial instruments (such as the Company’s finance receivables) are measured. ASU 2016-3 introduces a new credit reserving model known as the Current Expected Credit Loss (“CECL”) model, which replaces the incurred loss impairment methodology previously used under U.S. GAAP with a methodology that records currently the expected lifetime credit losses on financial instruments. To establish such lifetime credit loss estimates, consideration of a broadened range of reasonable and supportable information to establish credit loss estimates is required. ASU 2016-13 was initially scheduled to become effective for interim and annual reporting periods beginning after December 15, 2019, however on October 16, 2019, the FASB changed the effective date for smaller reporting companies to interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted.

Effective January 1, 2020, the Company adopted the CECL model. The adoption of CECL required that we establish an allowance for the remaining expected lifetime credit losses on the portion of the Company’s receivable portfolio for which the Company was not already using fair value accounting. We refer to that portion, which is those receivables that were originated prior to January 2018, as our “legacy portfolio”. To comply with CECL, the Company recorded an addition to its allowance for finance credit losses of $127.0 million. In accordance with the rules for adopting CECL, the offset to the addition to the allowance for finance credit losses was a tax affected reduction to retained earnings using the modified retrospective method, and not a current period expense.