Edgar Filing: Atlanticus Holdings Corp

SEC Document

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2016

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”).

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.

As of May 6, 2016, 13,797,058 shares of common stock, no par value, of Atlanticus were outstanding. This excludes 1,459,233 loaned shares to be returned.

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Page
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)	1
		Consolidated Balance Sheets	1
		Consolidated Statements of Operations	2
		Consolidated Statements of Comprehensive Income	3
		Consolidated Statements of Equity	4
		Consolidated Statements of Cash Flows	5
		Notes to Consolidated Financial Statements	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
	Item 4.	Controls and Procedures	40

Part II. OTHER INFORMATION
	Item 1.	Legal Proceedings	40
	Item 1A.	Risk Factors	40
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
	Item 3.	Defaults Upon Senior Securities	50
	Item 4.	Mine Safety Disclosure	50
	Item 5.	Other Information	50
	Item 6.	Exhibits	51
		Signatures	52

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PART I—FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

Atlanticus Holdings Corporation and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)



	March 31, 2016			December 31, 2015
Assets
Unrestricted cash and cash equivalents	$	48,855		$	51,033
Restricted cash and cash equivalents	18,180			20,547
Loans and fees receivable:
Loans and fees receivable, net (of $17,649 and $16,721 in deferred revenue and $19,919 and $21,474 in allowances for uncollectible loans and fees receivable at March 31, 2016 and December 31, 2015, respectively)	151,661			141,949
Loans and fees receivable, at fair value	6,275			6,353
Loans and fees receivable pledged as collateral under structured financings, at fair value	17,461			20,353
Rental merchandise, net of depreciation	1,832			4,666
Property at cost, net of depreciation	4,948			5,686
Investment in equity-method investee	9,525			10,123
Deposits	620			825
Prepaid expenses and other assets	19,958			19,194
Total assets	$	279,315		$	280,729
Liabilities
Accounts payable and accrued expenses	$	57,621		$	51,722
Notes payable, at face value	80,834			90,000
Notes payable to related parties	20,000			20,000
Notes payable associated with structured financings, at fair value	18,069			20,970
Convertible senior notes	64,910			64,783
Income tax liability	22,276			22,303
Total liabilities	263,710			269,778
Commitments and contingencies (Note 9)
Equity
Common stock, no par value, 150,000,000 shares authorized: 15,331,727 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at March 31, 2016; and 15,332,041 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at December 31, 2015	—			—
Additional paid-in capital	210,881			211,083
Accumulated other comprehensive loss	(300		)	(600		)
Retained deficit	(194,971		)	(199,524		)
Total shareholders’ equity	15,610			10,959
Noncontrolling interests	(5		)	(8		)
Total equity	15,605			10,951
Total liabilities and equity	$	279,315		$	280,729

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share data)



	For the Three Months Ended March 31,
	2016			2015
Interest income:
Consumer loans, including past due fees	$	18,148		$	17,443
Other	92			32
Total interest income	18,240			17,475
Interest expense	(4,644		)	(4,557		)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable	13,596			12,918
Fees and related income on earning assets	7,887			13,219
Net recovery of charge off of loans and fees receivable recorded at fair value	4,911			10,372
Provision for losses on loans and fees receivable recorded at net realizable value	(4,731		)	(3,168		)
Net interest income, fees and related income on earning assets	21,663			33,341
Other operating income:
Servicing income	1,447			1,560
Other income	70			267
Equity in income of equity-method investee	1,002			1,075
Total other operating income	2,519			2,902
Other operating expense:
Salaries and benefits	5,732			4,120
Card and loan servicing	8,988			10,271
Marketing and solicitation	855			486
Depreciation, primarily related to rental merchandise	4,156			12,846
Other	(299		)	7,172
Total other operating expense	19,432			34,895
Income before income taxes	4,750			1,348
Income tax (expense) benefit	(198		)	618
Net income	4,552			1,966
Net loss attributable to noncontrolling interests	1			1
Net income attributable to controlling interests	$	4,553		$	1,967
Net income attributable to controlling interests per common share—basic	$	0.33		$	0.14
Net income attributable to controlling interests per common share—diluted	$	0.33		$	0.14

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)



	For the Three Months Ended March 31,
	2016		2015
Net income	$	4,552	$	1,966
Other comprehensive income (loss):
Foreign currency translation adjustment	—		(443		)
Reclassifications of foreign currency translation adjustment to consolidated statements of operations	300		1,535
Income tax (expense) benefit related to other comprehensive income (loss)	—		(319		)
Comprehensive income	4,852		2,739
Comprehensive loss attributable to noncontrolling interests	1		1
Comprehensive income attributable to controlling interests	$	4,853	$	2,740

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Equity

For the Three Months Ended March 31, 2016 (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, 2015	15,332,041		$	—	$	211,083		$	(600	)	$	(199,524	)	$	(8	)	$	10,951
Compensatory stock issuances, net of forfeitures	122,667		—		—			—			—			—			—
Contributions from owners of noncontrolling interests	—		—		—			—			—			4			4
Amortization of deferred stock-based compensation costs	—		—		206			—			—			—			206
Redemption and retirement of shares	(122,981	)	—		(371		)	—			—			—			(371		)
Tax effects of stock-based compensation plans	—		—		(37		)	—			—			—			(37		)
Other comprehensive income	—		—		—			300			4,553			(1		)	4,852
Balance at March 31, 2016	15,331,727		$	—	$	210,881		$	(300	)	$	(194,971	)	$	(5	)	$	15,605

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)



	For the Three Months Ended March 31,
	2016			2015
Operating activities
Net income	$	4,552		$	1,966
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of rental merchandise	3,379			12,253
Depreciation, amortization and accretion, net	777			529
Losses upon charge off of loans and fees receivable recorded at fair value	1,682			1,739
Provision for losses on loans and fees receivable	4,731			3,168
Interest expense from accretion of discount on convertible senior notes	127			116
Income from accretion of discount associated with receivables purchases	(9,610		)	(9,375		)
Unrealized gain on loans and fees receivable and underlying notes payable held at fair value	(3,063		)	(869		)
Income from equity-method investments	(1,002		)	(1,075		)
Changes in assets and liabilities:
Decrease (increase) in uncollected fees on earning assets	76			(16		)
Decrease in income tax liability	(64		)	(674		)
Decrease in deposits	205			563
Increase (decrease) in accounts payable and accrued expenses	6,403			(3,344		)
Additions to rental merchandise	(546		)	(8,433		)
Other	1,123			(5,720		)
Net cash provided by (used in) operating activities	8,770			(9,172		)
Investing activities
Decrease in restricted cash	2,352			5,033
Proceeds from equity-method investee	1,600			2,471
Investments in earning assets	(77,041		)	(60,586		)
Proceeds from earning assets	73,704			72,745
Purchases and development of property, net of disposals	(40		)	(359		)
Net cash provided by investing activities	575			19,304
Financing activities
Noncontrolling interests contributions (distributions), net	4			(2		)
Purchase and retirement of outstanding stock	(371		)	(54		)
Proceeds from borrowings	26,345			23,132
Repayment of borrowings	(37,249		)	(40,974		)
Net cash used in financing activities	(11,271		)	(17,898		)
Effect of exchange rate changes on cash	(252		)	(764		)
Net decrease in unrestricted cash	(2,178		)	(8,530		)
Unrestricted cash and cash equivalents at beginning of period	51,033			39,925
Unrestricted cash and cash equivalents at end of period	$	48,855		$	31,395
Supplemental cash flow information
Cash paid for interest	$	5,894		$	5,909
Net cash income tax payments	$	262		$	62
Supplemental non-cash information
Issuance of stock options and restricted stock	$	1,549		$	234

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2016 and 2015


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 services. Through our subsidiaries, we offer an array of financial products and services to consumers who may have been declined under traditional financing options. 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 originate consumer loans through multiple channels, including retail point-of-sale, direct solicitation and most recently through testing of domestic credit card originations through third-party financial institutions. These products are all offered through our Fortiva brand. In our Fortiva Retail Credit (our "point-of-sale" operations) channel, we partner with retailers and service providers in various industries across the United States ("U.S.") to provide credit to their customers for the purchase of goods and services. These services are often extended to customers who may have been declined under traditional financing options. We specialize in providing this "second look" credit service in various industries across the U.S. Additionally, we are able to market our general purpose Fortiva Personal Loans and Fortiva Credit Cards (collectively, our "direct-to-consumer" operations) directly to consumers through additional channels enabling us 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 underwriting, marketing, customer service and collections operations for third parties.

Beyond these activities within our Credit and Other Investments segment, we continue to collect on portfolios of credit card receivables. These receivables include both receivables we originated through third-party financial institutions and portfolios of receivables we purchased from third-party financial institutions. 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 March 31, 2016. Some of these investees have raised, and continue to seek, capital at valuations substantially in excess of our associated book value. However, none of these companies are publicly-traded, there are no pending liquidity events, and ascribing value to these investments at this time would be speculative. Based on the performance and/or marketability of these investments in future periods, we could have material gains for our remaining ownership in these or other investment assets.

Within our Auto Finance segment, our CAR subsidiary operations principally purchase and/or 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”), under which we are required 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 period. We base these estimates on information available to

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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: (1) loans and fees receivable, net; (2) loans and fees receivable, at fair value; and (3) loans and fees receivable pledged as collateral under structured financings, at fair value.

Components of our loans and fees receivable, net (in millions) are as follows:



	Balance at December 31, 2015			Additions			Subtractions			Balance at March 31, 2016
Loans and fees receivable, gross	$	180.1		$	91.8		$	(82.7	)	$	189.2
Deferred revenue	(16.7		)	(10.5		)	9.6			(17.6		)
Allowance for uncollectible loans and fees receivable	(21.5		)	(4.7		)	6.3			(19.9		)
Loans and fees receivable, net	$	141.9		$	76.6		$	(66.8	)	$	151.7



	Balance at December 31, 2014			Additions			Subtractions			Balance at March 31, 2015
Loans and fees receivable, gross	$	141.6		$	76.3		$	(77.7	)	$	140.2
Deferred revenue	(15.7		)	(10.5		)	9.4			(16.8		)
Allowance for uncollectible loans and fees receivable	(20.0		)	(3.2		)	7.6			(15.6		)
Loans and fees receivable, net	$	105.9		$	62.6		$	(60.7	)	$	107.8

As of March 31, 2016 and March 31, 2015, the weighted average remaining accretion period for the $17.6 million and $16.8 million, respectively, of deferred revenue reflected in the above tables was 11 months for both periods presented.

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 March 31, 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	0.2			(0.6		)	(4.3		)	(4.7		)
Charge offs	0.4			0.8			6.6			7.8
Recoveries	(0.7		)	(0.3		)	(0.5		)	(1.5		)
Balance at end of period	$	(1.3	)	$	(1.8	)	$	(16.8	)	$	(19.9	)

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As of March 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	$	—		$	(0.1	)	$	(0.8	)	$	(0.9	)
Balance at end of period collectively evaluated for impairment	$	(1.3	)	$	(1.7	)	$	(16.0	)	$	(19.0	)
Loans and fees receivable:
Loans and fees receivable, gross	$	4.5		$	76.4		$	108.3		$	189.2
Loans and fees receivable individually evaluated for impairment	$	—		$	0.1		$	0.9		$	1.0
Loans and fees receivable collectively evaluated for impairment	$	4.5		$	76.3		$	107.4		$	188.2



For the Three Months Ended March 31, 2015	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans and fees receivable:
Balance at beginning of period	$	(2.7	)	$	(1.2	)	$	(16.1	)	$	(20.0	)
Provision for loan losses	(0.5		)	(0.2		)	(2.5		)	(3.2		)
Charge offs	1.4			0.5			6.5			8.4
Recoveries	(0.1		)	(0.3		)	(0.4		)	(0.8		)
Balance at end of period	$	(1.9	)	$	(1.2	)	$	(12.5	)	$	(15.6	)



As of December 31, 2015	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	)	$	(1.3	)	$	(1.4	)
Balance at end of period collectively evaluated for impairment	$	(1.2	)	$	(1.6	)	$	(17.3	)	$	(20.1	)
Loans and fees receivable:
Loans and fees receivable, gross	$	5.2		$	76.0		$	98.9		$	180.1
Loans and fees receivable individually evaluated for impairment	$	—		$	0.2		$	1.5		$	1.7
Loans and fees receivable collectively evaluated for impairment	$	5.2		$	75.8		$	97.4		$	178.4

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The components (in millions) of loans and fees receivable, gross as of the date of each of our consolidated balance sheets are as follows:



	March 31, 2016		December 31, 2015
Current loans receivable	$	164.6	$	150.0
Current fees receivable	3.8		4.5
Delinquent loans and fees receivable	20.8		25.6
Loans and fees receivable, gross	$	189.2	$	180.1

An aging of our delinquent loans and fees receivable, gross (in millions) by class of receivable as of March 31, 2016 and December 31, 2015 is as follows:



Balance at March 31, 2016	Credit Cards		Auto Finance		Other Unsecured Lending Products		Total
30-59 days past due	$	0.2	$	4.6	$	3.2	$	8.0
60-89 days past due	0.2		1.6		2.5		4.3
90 or more days past due	0.5		1.7		6.3		8.5
Delinquent loans and fees receivable, gross	0.9		7.9		12.0		20.8
Current loans and fees receivable, gross	3.6		68.5		96.3		168.4
Total loans and fees receivable, gross	$	4.5	$	76.4	$	108.3	$	189.2
Balance of loans 90 or more days past due and still accruing interest and fees	$	—	$	1.5	$	—	$	1.5



Balance at December 31, 2015	Credit Cards		Auto Finance		Other Unsecured Lending Products		Total
30-59 days past due	$	0.2	$	6.9	$	4.4	$	11.5
60-89 days past due	0.1		2.2		3.1		5.4
90 or more days past due	0.4		1.8		6.5		8.7
Delinquent loans and fees receivable, gross	0.7		10.9		14.0		25.6
Current loans and fees receivable, gross	4.5		65.1		84.9		154.5
Total loans and fees receivable, gross	$	5.2	$	76.0	$	98.9	$	180.1
Balance of loans 90 or more days past due and still accruing interest and fees	$	—	$	1.5	$	—	$	1.5

Income Taxes

We experienced an effective income tax expense rate of 4.2% for the three months ended March 31, 2016 compared to a negative effective income tax expense rate of 45.8% for the three months ended March 31, 2015. Our effective income tax expense rate for the three months ended March 31, 2016 differs from the statutory rate principally based on income of our U.K. subsidiary that is 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. Our negative effective income tax expense rate for the three months ended March 31, 2015 resulted principally from a favorable effective settlement we reached with the Internal Revenue Service (“IRS”) in February 2015 relative to accruals for uncertain tax positions and interest accruals thereon associated with our 2012 income tax return.

We report potential accrued interest and penalties related to both our accrued liabilities for uncertain tax positions and unpaid tax liabilities 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 our unpaid tax liabilities in a manner favorable to our accruals therefor. During the three months ended March 31, 2016, our income tax expense includes $0.2 million accrued for

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income tax-related interest and penalties. During the three months ended March 31, 2015, there was no effect of income tax-related interest and penalties on our income tax expense.

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 March 31, 2016; this amount excludes unpaid interest and penalties on the tax assessment, the accruals for which aggregated $2.9 million at March 31, 2016. The IRS is currently examining amended return claims we have made, which, if ultimately approved by the IRS, would eliminate the $7.3 million assessment and cause the reversal of the $2.9 million accrual we have made for interest and penalties thereon.

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 March 31,
	2016			2015
Fees on credit products	$	799		$	2,174
Changes in fair value of loans and fees receivable recorded at fair value	1,898			1,231
Changes in fair value of notes payable associated with structured financings recorded at fair value	1,165			(362		)
Rental revenue	4,214			10,109
Other	(189		)	67
Total fees and related income on earning assets	$	7,887		$	13,219

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 (losses upon) charge off of loans and fees receivable recorded at fair value, net of recoveries 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.

Recent Accounting Pronouncements

In March 2016, the FASB issued Accounting Standards Update (“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 is effective for us January 1, 2017. The impact of adoption of this authoritative guidance is not expected to 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. We have not yet determined the potential effects of adopting ASU 2016-02 on our consolidated financial statements.

In April 2015, the FASB issued updated authoritative guidance related to debt issuance costs. The amendment modifies the presentation of unamortized debt issuance costs to present such amounts as a direct deduction from the face amount of the debt, similar to unamortized debt discounts and premiums, rather than as an asset. Amortization of the debt issuance costs continues to be reported as interest expense. The guidance was effective for us beginning January 1, 2016. The impact of adoption of this authoritative guidance did not result in a material impact on our consolidated financial statements.

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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. We have not yet determined the potential effects of the adoption of ASU 2014-09 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 March 31, 2016, 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.

As of both March 31, 2016 and December 31, 2015, we did not have a material amount of long-lived assets located outside of the U.S., and only a negligible portion of our first quarter 2016 and 2015 revenues 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 March 31, 2016	Credit and Other Investments			Auto Finance			Total
Interest income:
Consumer loans, including past due fees	$	11,185		$	6,963		$	18,148
Other	92			—			92
Total interest income	11,277			6,963			18,240
Interest expense	(4,337		)	(307		)	(4,644		)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable	$	6,940		$	6,656		$	13,596
Fees and related income on earning assets	$	7,829		$	58		$	7,887
Servicing income	$	1,192		$	255		$	1,447
Depreciation of rental merchandise	$	(3,379	)	$	—		$	(3,379	)
Equity in income of equity-method investee	$	1,002		$	—		$	1,002
Income before income taxes	$	3,326		$	1,424		$	4,750
Income tax benefit (expense)	$	317		$	(515	)	$	(198	)
Total assets	$	210,211		$	69,104		$	279,315

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Three months ended March 31, 2015	Credit and Other Investments			Auto Finance			Total
Interest income:
Consumer loans, including past due fees	$	10,720		$	6,723		$	17,443
Other	32			—			32
Total interest income	10,752			6,723			17,475
Interest expense	(4,251		)	(306		)	(4,557		)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable	$	6,501		$	6,417		$	12,918
Fees and related income on earning assets	$	13,073		$	146		$	13,219
Servicing income	$	1,359		$	201		$	1,560
Depreciation of rental merchandise	$	(12,253	)	$	—		$	(12,253	)
Equity in income of equity-method investee	$	1,075		$	—		$	1,075
(Loss) income before income taxes	$	(579	)	$	1,927		$	1,348
Income tax benefit (expense)	$	1,248		$	(630	)	$	618
Total assets	$	183,219		$	66,550		$	249,769


4.	Shareholders' Equity

Retired Shares

During the three months ended March 31, 2016 and 2015, we repurchased and contemporaneously retired 122,981 and 21,807 shares of our common stock at an aggregate cost of $371,000 and $54,000, 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 March 31, 2016 and December 31, 2015, 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.


5.	Investment in Equity-Method Investee

Our equity-method investment outstanding at March 31, 2016 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) combined balance sheet and results of operations data for our equity-method investee:



	As of
	March 31, 2016		December 31, 2015
Loans and fees receivable pledged as collateral under structured financings, at fair value	$	13,603	$	14,470
Total assets	$	14,334	$	15,237
Total liabilities	$	48	$	54
Members’ capital	$	14,286	$	15,183

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	Three months ended March 31,
	2016		2015
Net interest income, fees and related income on earning assets	$	1,512	$	1,617
Net income	$	1,360	$	1,407
Net income attributable to our equity investment in investee	$	1,002	$	1,075


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 March 31, 2016 and December 31, 2015 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 March 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	$	—	$	—	$	170,430	$	151,661
Loans and fees receivable, at fair value	$	—	$	—	$	6,275	$	6,275
Loans and fees receivable pledged as collateral, at fair value	$	—	$	—	$	17,461	$	17,461



Assets – As of December 31, 2015 (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	$	—	$	—	$	161,199	$	141,949
Loans and fees receivable, at fair value	$	—	$	—	$	6,353	$	6,353
Loans and fees receivable pledged as collateral, at fair value	$	—	$	—	$	20,353	$	20,353


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

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.”

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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 three months ended March 31, 2016 and March 31, 2015:



	Loans and Fees Receivable, at Fair Value			Loans and Fees Receivable Pledged as Collateral under Structured Financings, at Fair Value			Total
Balance at January 1, 2016	$	6,353		$	20,353		$	26,706
Total gains—realized/unrealized:
Net revaluations of loans and fees receivable pledged as collateral under structured financings, at fair value	—			316			316
Net revaluations of loans and fees receivable, at fair value	1,582			—			1,582
Settlements, net	(1,595		)	(3,208		)	(4,803		)
Impact of foreign currency translation	(65		)	—			(65		)
Balance at March 31, 2016	$	6,275		$	17,461		$	23,736
Balance at January 1, 2015	$	18,255		$	34,905		$	53,160
Total gains—realized/unrealized:
Net revaluations of loans and fees receivable pledged as collateral under structured financings, at fair value	—			1,215			1,215
Net revaluations of loans and fees receivable, at fair value	16			—			16
Settlements, net	(4,675		)	(5,377		)	(10,052		)
Impact of foreign currency translation	(449		)	—			(449		)
Balance at March 31, 2015	$	13,147		$	30,743		$	43,890

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 March 31, 2016 and December 31, 2015:

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Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements	Fair Value at March 31, 2016		Valuation Technique	Unobservable Input	Range (Weighted Average)(1)
Loans and fees receivable, at fair value	$	6,275	Discounted cash flows	Gross yield	24.4% to 27.7% (25.6%)
				Principal payment rate	2.6% to 3.0% (2.8%)
				Expected credit loss rate	11.0% to 24.0% (15.7%)
				Servicing rate	7.2% to 7.8% (7.6%)
				Discount rate	16.1% to 16.2% (16.1%)
Loans and fees receivable pledged as collateral under structured financings, at fair value	$	17,461	Discounted cash flows	Gross yield	25.3	%
				Principal payment rate	2.7	%
				Expected credit loss rate	11.6	%
				Servicing rate	7.2	%
				Discount rate	16.1	%



Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements	Fair Value at December 31, 2015		Valuation Technique	Unobservable Input	Range (Weighted Average)(1)
Loans and fees receivable, at fair value	$	6,353	Discounted cash flows	Gross yield	15.8% to 22.7% (20.0%)
				Principal payment rate	2.1% to 3.0% (2.7%)
				Expected credit loss rate	12.9% to 22.7% (16.7%)
				Servicing rate	8.4% to 12.5% (10.9%)
				Discount rate	16.0% to 16.2% (16.1%)
Loans and fees receivable pledged as collateral under structured financings, at fair value	$	20,353	Discounted cash flows	Gross yield	28.5	%
				Principal payment rate	2.9	%
				Expected credit loss rate	12.5	%
				Servicing rate	12.9	%
				Discount rate	16.0	%

(1) Our loans and fees receivable, pledged as collateral under structured financings, at fair value consist of a single portfolio with one set of assumptions. As such, no range is given.

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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 March 31, 2016 and December 31, 2015 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 March 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
CAR revolving credit facility	$	—	$	—	$	29,900	$	29,900
Amortizing debt facilities	$	—	$	—	$	50,934	$	50,934
Senior secured term loan	$	—	$	—	$	20,000	$	20,000
5.875% convertible senior notes	$	—	$	42,093	$	—	$	64,910
Liabilities carried at fair value
Economic sharing arrangement liability	$	—	$	—	$	34	$	34
Notes payable associated with structured financings, at fair value	$	—	$	—	$	18,069	$	18,069



Liabilities - As of December 31, 2015	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
CAR revolving credit facility	$	—	$	—	$	28,900	$	28,900
Amortizing debt facilities	$	—	$	—	$	61,100	$	61,100
Senior secured term loan	$	—	$	—	$	20,000	$	20,000
5.875% convertible senior notes	$	—	$	42,734	$	—	$	64,783
Liabilities carried at fair value
Economic sharing arrangement liability	$	—	$	—	$	42	$	42
Notes payable associated with structured financings, at fair value	$	—	$	—	$	20,970	$	20,970

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 three months ended March 31, 2016 and 2015.



	Notes Payable Associated with Structured Financings, at Fair Value
	2016			2015
Beginning balance, January 1	$	20,970		$	36,511
Total (gains) losses—realized/unrealized:
Net revaluations of notes payable associated with structured financings, at fair value	(1,165		)	362
Repayments on outstanding notes payable, net	(1,736		)	(4,579		)
Ending balance, March 31	$	18,069		$	32,294

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The unrealized gains and losses for liabilities within the Level 3 category presented in the tables 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.

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 March 31, 2016 and December 31, 2015:



Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements	Fair Value at March 31, 2016 (in Thousands)		Valuation Technique	Unobservable Input	Weighted Average
Notes payable associated with structured financings, at fair value	$	18,069	Discounted cash flows	Gross yield	25.3	%
				Principal payment rate	2.7	%
				Expected credit loss rate	11.6	%
				Discount rate	16.1	%



Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements	Fair Value at December 31, 2015 (in Thousands)		Valuation Technique	Unobservable Input	Weighted Average
Notes payable associated with structured financings, at fair value	$	20,970	Discounted cash flows	Gross yield	28.5	%
				Principal payment rate	2.9	%
				Expected credit loss rate	12.5	%
				Discount rate	16.0	%

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Other Relevant Data

Other relevant data (in thousands) as of March 31, 2016 and December 31, 2015 concerning certain assets and liabilities we carry at fair value are as follows:



As of March 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	$	6,989	$	22,947
Aggregate fair value of loans and fees receivable that are reported at fair value	$	6,275	$	17,461
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)	$	9	$	21
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	$	290	$	756



As of December 31, 2015	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	$	8,560	$	25,837
Aggregate fair value of loans and fees receivable that are reported at fair value	$	6,353	$	20,353
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)	$	12	$	31
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	$	374	$	889



Notes Payable	Notes Payable Associated with Structured Financings, at Fair Value as of March 31, 2016		Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2015
Aggregate unpaid principal balance of notes payable	$	105,220	$	106,956
Aggregate fair value of notes payable	$	18,069	$	20,970

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7.	Notes Payable

Notes Payable Associated with Structured Financings, at Fair Value

Scheduled (in millions) in the table below are (1) the carrying amounts of structured financing notes secured by certain credit card receivables and reported at fair value as of March 31, 2016 and December 31, 2015, (2) the outstanding face amounts of structured financing notes secured by certain credit card receivables and reported at fair value as of March 31, 2016, and (3) the carrying amounts of the credit card receivables and restricted cash that provide the exclusive means of repayment for the notes (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 March 31, 2016 and December 31, 2015.



	Carrying Amounts at Fair Value as of
	March 31, 2016		December 31, 2015
Amortizing securitization facility issued out of our upper-tier originated portfolio master trust (stated maturity of December 2021), outstanding face amount of $105.2 million ($107.0 million as of December 31, 2015) bearing interest at a weighted average 5.7% interest rate (5.6% as of December 31, 2015), which is secured by credit card receivables and restricted cash aggregating $18.1 million ($21.0 million as of December 31, 2015) in carrying amount	$	18.1	$	21.0

Contractual payment allocations within these credit cards receivable structured financings 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 $18.1 million in fair value of the structured financing note in the above table is $18.1 million, which means that we have no aggregate exposure to pre-tax equity loss associated with the above structured financing arrangement at March 31, 2016.

Beyond our role as servicer of the underlying assets within the credit cards receivable structured financings, 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.

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Notes Payable, at Face Value and Notes Payable to Related Parties

Other notes payable outstanding as of March 31, 2016 and December 31, 2015 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
	March 31, 2016		December 31, 2015
Revolving credit facilities at a weighted average rate equal to 3.9% (3.7% at December 31, 2015) secured by the financial and operating assets of CAR with a combined aggregate carrying amount of $69.1 million ($69.4 million at December 31, 2015)
Revolving credit facility (expiring October 4, 2017) (1)	$	29.9	$	28.9
Amortizing facilities at a weighted average rate equal to 5.4% (5.3% at December 31, 2015) secured by certain receivables, rental streams and restricted cash with a combined aggregate carrying amount of $61.9 million ($69.6 million as of December 31, 2015)
Amortizing debt facility (expiring July 14, 2017) (2) (3)	14.1		23.0
Amortizing debt facility (expiring August 21, 2016) (2) (3)	10.1		9.2
Amortizing debt facility (expiring August 1, 2016) (2) (3)	2.5		4.0
Amortizing debt facility (expiring October 29, 2017) (2) (3)	24.2		24.9
Other facilities
Senior secured term loan to related parties (expiring November 22, 2016) that is secured by certain assets of the Company with an annual rate equal to 9.0% (4)	20.0		20.0
Total notes payable outstanding	$	100.8	$	110.0


(1)	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.


(2)	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.


(3)	These notes reflect modifications to either extend the maturity date, increase the loaned amount or both.


(4)	See below for additional information regarding this note.

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, consisting of (i) an initial term loan of $20.0 million, and (ii) additional term loans available in the sole discretion of Dove and upon our request, provided that the aggregate amount of all outstanding term loans does not exceed $40.0 million. On November 26, 2014, Dove funded the initial term loan of $20.0 million. In November 2015, the agreement was amended to extend the maturity date of the term loan to November 22, 2016. All other terms remained 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, 2016 (as amended). Future loans under the agreement can be used for additional repurchases of our outstanding notes and other purposes approved by Dove. 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

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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.


8.	Convertible Senior Notes

In May 2005, we issued $250.0 million aggregate principal amount of 3.625% convertible senior notes due 2025 (“3.625% convertible senior notes”), and in November 2005, we issued $300.0 million aggregate principal amount of 5.875% convertible senior notes due 2035 ("5.875% convertible senior notes"). The 5.875% convertible senior notes are (and, prior to redemption, the 3.625% convertible senior notes were) 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 May 2015 we redeemed the remainder of the outstanding 3.625% convertible senior notes. Subsequent to this redemption, only our 5.875% convertible senior notes remain outstanding.

The following summarizes (in thousands) components of our consolidated balance sheets associated with our convertible senior notes:



	As of
	March 31, 2016			December 31, 2015
Face amount of 5.875% convertible senior notes	93,280			93,280
Discount	(28,370		)	(28,497		)
Net carrying value	$	64,910		$	64,783
Carrying amount of equity component included in additional paid-in capital	$	108,714		$	108,714
Excess of instruments’ if-converted values over face principal amounts	$	—		$	—


9.	Commitments and Contingencies

General

Under our point-of-sale and direct-to-consumer finance products, we give consumers the ability to borrow up to the maximum credit limit assigned to each individual’s account. Our unfunded commitments under these products aggregated $115.2 million at March 31, 2016. We have never experienced a situation in which all of our customers have exercised their entire available line of credit at any given point in time, nor do we anticipate this will ever occur in the future. Moreover, there would be a concurrent increase in assets should there be any exercise of these lines of credit. We also have the effective right to reduce or cancel these available lines of credit at any time.

Additionally our CAR operations 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. The financings allow dealers and finance companies to borrow up to the maximum pre-approved credit limit allowed in order to finance ongoing inventory needs. These loans are secured by the underlying auto inventory and, in certain cases where we have other lending products outstanding with the dealer, are secured by the collateral under those lending arrangements as well, including any outstanding dealer reserves. As of March 31, 2016, CAR had unfunded outstanding floor-plan financing commitments totaling $9.9 million. Each draw against unused commitments is reviewed for conformity to pre-established guidelines.

Under agreements with third-party originating and other financial institutions we have pledged security (collateral) related to their issuance of consumer credit and purchases thereunder, of which $7.5 million remains pledged to support various ongoing contractual obligations. Those obligations include, among other things, compliance with one of the European payment system’s operating regulations and by-laws.

Under agreements with third-party originating and other financial institutions, we have agreed to indemnify the financial institutions for certain liabilities associated with the financial institutions’ activities on our behalf—such indemnification obligations generally being limited to instances in which we either (a) have been afforded the opportunity to defend against any potentially indemnifiable claims or (b) have reached agreement with the financial institutions regarding settlement of potentially indemnifiable claims. As of March 31, 2016, we have assessed the likelihood of any potential

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payments related to the aforementioned contingencies as remote. We will accrue liabilities related to these contingencies in any future period if and in which we assess the likelihood of an estimable payment as probable.

Total System Services, Inc. provides certain services to Atlanticus Services Corporation in both the U.S. and the U.K. as a system of record provider under agreements that extend through October 2022 and April 2017, respectively. If Atlanticus Services Corporation were to terminate its U.S. or U.K. relationship with Total System Services, Inc. prior to the contractual termination period, it would incur significant penalties ($1.5 million and $1.7 million as of March 31, 2016, respectively).

At December 31, 2015, we had an accrued liability of £3.4 million ($5.0 million) within our consolidated financial statements associated with a then-ongoing review by U.K. taxing authorities (HM Revenue and Customs or “HMRC”) of value-added tax ("VAT") filings made by one of our U.K. subsidiaries. In February of 2016, we received correspondence from HMRC stating that it (1) had chosen to discontinue its review of our U.K. subsidiary’s VAT filings with no changes to the returns as filed by our U.K. subsidiary, and (2) would be refunding VAT refund claims made by our U.K. subsidiary that had been suspended during the HMRC review. We subsequently received substantially all of such refunds, and as such we reversed the £3.4 million ($5.0 million) of VAT review-related liabilities in the first quarter of 2016.

We also are subject to certain minimum payments under cancelable and non-cancelable lease arrangements. For further information regarding these commitments, see Note 8, "Leases" to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Litigation

We are involved in various legal proceedings that are incidental to the conduct of our business, none of which are material to us.


10.	Net Income Attributable to Controlling Interests Per Common Share

The following table sets forth the computations of net income per common share (in thousands, except per share data):



	For the Three Months Ended March 31,
	2016		2015
Numerator:
Net income attributable to controlling interests	$	4,553	$	1,967
Denominator:
Basic (including unvested share-based payment awards) (1)	13,898		13,923
Effect of dilutive stock compensation arrangements (2)	75		2
Diluted (including unvested share-based payment awards) (1)	13,973		13,925
Net income attributable to controlling interests per common share—basic	$	0.33	$	0.14
Net income attributable to controlling interests per common share—diluted	$	0.33	$	0.14


(1)	Shares related to unvested share-based payment awards included in our basic and diluted share counts are 222,550 for the three months ended March 31, 2016, compared to 427,474 for the three months ended March 31, 2015.


(2)	The effect of dilutive stock compensation arrangements is shown only for informational purposes where we are in a net loss position. In such situations, the effect of including outstanding options and restricted stock would be anti-dilutive, and they are thus excluded from all loss period calculations.

For the three months ended March 31, 2016 and 2015, there were no shares potentially issuable and thus includible in the diluted net income attributable to controlling interests per common share calculations pursuant to our 5.875% convertible senior notes. However, in future reporting periods during which our closing stock price is above the $24.61 conversion price for the 5.875% convertible senior notes, and depending on the closing stock price at conversion, the maximum potential dilution under the conversion provisions of such notes is 3.8 million shares, which could be included in diluted share counts in net income per common share calculations. See Note 8, “Convertible Senior Notes,” for a further discussion of these convertible securities.

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11.	Stock-Based Compensation

We currently have two stock-based compensation plans, the Employee Stock Purchase Plan (the “ESPP”) and the Amended and Restated 2014 Equity Incentive Plan (the “2014 Plan”). As of March 31, 2016, 34,781 shares remained available for issuance under the ESPP and 698,933 shares remained available for issuance under the 2014 Plan.

Exercises and vestings under our stock-based compensation plans resulted in $37,000 in income tax-related charges to additional paid-in capital during the three months ended March 31, 2016 with $75,000 in such charges for the three months ended March 31, 2015.

Restricted Stock and Restricted Stock Unit Awards

During the three months ended March 31, 2016 and 2015, we granted 122,667 and 88,934 shares of restricted stock (net of any forfeitures), respectively, with aggregate grant date fair values of $0.4 million and $0.2 million, respectively. When we grant restricted stock, we defer the grant date value of the restricted stock and amortize that value (net of the value of anticipated forfeitures) as compensation expense with an offsetting entry to the additional paid-in capital component of our consolidated shareholders’ equity. Our restricted stock awards typically vest over a range of 12 to 60 months (or other term as specified in the grant) and is amortized to salaries and benefits expense ratably over applicable vesting periods. As of March 31, 2016, our unamortized deferred compensation costs associated with non-vested restricted stock awards were $0.4 million with a weighted-average remaining amortization period of 1.1 years.

Stock Options

We had expense of $117 thousand and $70 thousand related to stock option-related compensation costs during the three months ended March 31, 2016 and 2015, respectively. When applicable, we recognize stock option-related compensation expense for any awards with graded vesting on a straight-line basis over the vesting period for the entire award. Information related to options outstanding is as follows:



	March 31, 2016
	Number of Shares	Weighted- Average Exercise Price		Weighted- Average of Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2015	551,666	$	2.80
Issued	686,000	$	3.04
Exercised	—	$	—
Cancelled/Forfeited	—	$	—
Outstanding at March 31, 2016	1,237,666	$	2.94	4.2	$	209,591
Exercisable at March 31, 2016	396,661	$	2.55	2.9	$	178,563

We had $1.3 million and $0.2 million of unamortized deferred compensation costs associated with non-vested stock options as of March 31, 2016 and 2015, respectively.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the related notes included therein and our Annual Report on Form 10-K for the year ended December 31, 2015, where certain terms (including trust, subsidiary and other entity names and financial, operating and statistical measures) have been defined.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We base these forward-looking statements on our current plans, expectations and beliefs about future events. There are risks, including the factors discussed in “Risk Factors” in Part II, Item 1A and elsewhere in this Report, that our actual experience will differ materially from these expectations. For more information, see "Forward-Looking Information" below.

In this Report, except as the context suggests otherwise, the words “Company,” “Atlanticus Holdings Corporation,” “Atlanticus,” “we,” “our,” “ours” and “us” refer to Atlanticus Holdings Corporation and its subsidiaries and predecessors.

OVERVIEW

We utilize proprietary analytics and a flexible technology platform to provide various credit and related financial services and products to or associated with the financially underserved consumer credit market. Currently, within our Credit and Other Investments segment, we are applying the experiences gained and infrastructure built from funding over $25 billion in consumer loans over our 20-year operating history to originate a range of consumer loan products through our primary consumer brand, Fortiva. As part of this brand, we market Fortiva Retail Credit, Fortiva Personal Loans and Fortiva Credit Cards through multiple channels, including retail point-of-sale, direct mail solicitation, Internet-based marketing and partnerships with third parties who have relationships with our core customers. In our point-of-sale channel, we partner with retailers and service providers in various industries across the U.S. to offer Fortiva Retail Credit to their customers for the purchase of a variety of goods and services including consumer electronics, furniture, elective medical procedures, educational services and home-improvements. Our flexible technology platform allows us to integrate our paperless process and instant decision-making capabilities with our partners' technology infrastructure. These products are often extended to customers who may have been declined under traditional financing options. We specialize in providing this "second-look" credit service. Additionally, we are able to market our general purpose Fortiva Personal Loans and Fortiva Credit Cards directly to consumers through additional channels, which enables us to reach consumers through a diverse origination platform that includes direct mail, Internet-based marketing and through partnerships. Our technology platform and proprietary analytics enable us to make instant credit decisions utilizing hundreds of inputs, from multiple sources and thereby offer credit to consumers overlooked by traditional providers of credit. By offering a range of products through a multitude of channels, we seek to provide the right type of credit, whenever and wherever the consumer has a need.

Using our infrastructure and technology platform, we also provide loan servicing, including underwriting, marketing, customer service and collections operations for third parties. Also through our Credit and Other Investments segment, we engage in testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and infrastructure.

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. Some of these investees have raised, and continue to seek, capital at valuations substantially in excess of our associated book value. However, none of these companies are publicly-traded, there are no pending liquidity events, and ascribing value to these investments at this time would be speculative. Based on the performance and/or marketability of these investments in future periods, we could have material gains for our remaining ownership in these or other investment assets.

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The recurring cash flows we receive within our Credit and Other Investments segment principally include those associated with (1) our point-of-sale and direct-to-consumer finance activities, (2) servicing compensation and (3) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility.

We historically financed most of our credit card receivables through the asset-backed securitization markets. These markets deteriorated significantly in 2008, and the level of “advance rates,” or leverage against credit card receivable assets, in the current asset-backed securitization markets is below pre-2008 levels. We do believe, however, that our point-of-sale and direct-to-consumer finance activities are generating and will continue to generate attractive returns on assets, thereby allowing us to secure debt financing under terms and conditions (including advance rates and pricing) that will allow us to achieve our desired returns on equity, and we continue to pursue growth in this area.

Subject to the availability of capital at attractive terms and pricing, we plan to continue to evaluate and pursue a variety of activities, including: (1) the expansion of our point-of-sale and direct-to-consumer finance products; (2) the acquisition of additional financial assets associated with our point-of-sale finance activities as well as the acquisition of receivables portfolios; (3) investments in other assets or businesses that are not necessarily financial services assets or businesses; (4) the repurchase of our convertible senior notes and other debt or our outstanding common stock; and (5) the servicing of receivables and related financial assets for third parties (and in which we have limited or no equity interests) to allow us to leverage our expertise and infrastructure.

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CONSOLIDATED RESULTS OF OPERATIONS



							Income
	For the Three Months Ended March 31,						Increases (Decreases)
(In Thousands)	2016			2015			from 2015 to 2016
Total interest income	$	18,240		$	17,475		$	765
Interest expense	(4,644		)	(4,557		)	(87		)
Fees and related income on earning assets:
Fees on credit products	799			2,174			(1,375		)
Changes in fair value of loans and fees receivable recorded at fair value	1,898			1,231			667
Changes in fair value of notes payable associated with structured financings recorded at fair value	1,165			(362		)	1,527
Rental revenue	4,214			10,109			(5,895		)
Other	(189		)	67			(256		)
Other operating income:
Servicing income	1,447			1,560			(113		)
Other income	70			267			(197		)
Equity in income equity-method investee	1,002			1,075			(73		)
Total	$	24,002		$	29,039		$	(5,037	)
Net recovery of losses upon charge off of loans and fees receivable recorded at fair value	(4,911		)	(10,372		)	(5,461		)
Provision for losses on loans and fees receivable recorded at net realizable value	4,731			3,168			(1,563		)
Other operating expenses:
Salaries and benefits	5,732			4,120			(1,612		)
Card and loan servicing	8,988			10,271			1,283
Marketing and solicitation	855			486			(369		)
Depreciation, primarily related to rental merchandise	4,156			12,846			8,690
Other	(299		)	7,172			7,471
Net income	4,552			1,966			2,586
Net loss attributable to noncontrolling interests	1			1			—
Net income attributable to controlling interests	4,553			1,967			2,586

Three Months Ended March 31, 2016, Compared to Three Months Ended March 31, 2015

Total interest income. Total interest income consists primarily of finance charges and late fees earned on our point-of-sale and direct-to-consumer finance products, credit card and auto finance receivables. Period-over-period results reflect continued growth in our auto finance receivables and our point-of-sale finance and direct-to-consumer products, offset, however, by continued net liquidations of our historical credit card receivable portfolios over the past year. We are currently experiencing continued growth in our point-of-sale and direct-to-consumer finance products and our CAR receivables—growth which we expect to result in net period over period growth in our total interest income for these operations over the next few quarters. Future periods' growth is also dependent on the addition of new retail partners for our point-of-sale operations as well as continued growth within existing partnerships and continued growth within our direct-to-consumer finance product. Despite anticipated increases in our point-of-sale and direct-to-consumer finance products, continued net liquidations of our historic

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credit card receivables will continue to offset expected increases and could continue to result in overall net declines in interest income period over period.

Interest expense. Variations in interest expense are due to our debt facilities being repaid commensurate with net liquidations of the underlying credit card, auto finance and installment loan receivables that serve as collateral for the facilities offset by new borrowings associated with growth in our point-of-sale and direct-to-consumer finance products and CAR operations as evidenced within Note 7, “Notes Payable,” to our consolidated financial statements. We anticipate additional debt financing over the next few quarters as we continue to grow, and as such, we expect our quarterly interest expense to be above that experienced in the prior periods for these operations.

Fees and related income on earning assets. The significant factors affecting our differing levels of fees and related income on earning assets include:


•	declines in rental revenue as we significantly reduced rent-to-own originations in the fourth quarter of 2015 and for which we have substantially discontinued new originations in 2016. We expect continued reductions in revenues associated with this product offering as existing rent-to-own contracts culminate with no new originations expected beyond the second quarter of 2016;


•	reductions in fees on credit products, associated with general net declines in credit card receivables;


•	the effects of changes in the fair values of credit card receivables recorded at fair value and notes payable associated with structured financings recorded at fair value as described below; and


•	losses in our "Other" category associated with reserves related to investments in mobile technologies, marketplace lending and other financial technologies.

We expect a diminishing level of fee income for 2016 given expected future net liquidations of our credit card receivables. Additionally, for credit card accounts for which we use fair value accounting, we expect our change in fair value of credit card receivables recorded at fair value and our change in fair value of notes payable associated with structured financings recorded at fair value amounts to gradually diminish (absent significant changes in the assumptions used to determine these fair values) in the future. These amounts, however, are subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if there are significant changes in market valuation factors (e.g., interest rates and spreads) in the future. Such volatility will be muted somewhat, however, by the offsetting nature of the receivables and underlying debt being recorded at fair value and with the expected reductions in the face amounts of such outstanding receivables and debt as we experience further credit card receivables liquidations and associated debt amortizing repayments. Further, as discussed above, significant declines are expected in our rental revenue as existing rent-to-own contracts culminate with no new originations expected beyond the second quarter of 2016. Offsetting these declines is the aforementioned growth we are currently experiencing associated with our point-of-sale, direct-to-consumer finance and credit card products with which we expect continued expansion in 2016.

Servicing income. We earn servicing income by servicing loan portfolios for third parties (including our equity-method investee). Unless and/or until we grow the number of contractual servicing relationships we have with third parties or our current relationships grow their loan portfolios, we will not experience significant growth and income within this category, and we currently expect to experience limited to no growth in this category of revenue relative to revenue earned in prior periods.

Other income. Historically included within our other income category are ancillary and interchange revenues, which are now relatively insignificant for us due to our historical credit card account closures and net credit card receivables portfolio liquidations. Absent portfolio acquisitions or continued growth with our new credit card offering, we do not expect significant ancillary and interchange revenues in the future. Also included within our other income category are certain reimbursements we receive in respect of one of our portfolios.

Equity in income of equity-method investee. Because our equity-method investee uses the fair value option to account for its financial assets and liabilities, changes in fair value estimates can cause some volatility in the earnings of this investee. Because of continued liquidations in the credit card receivables portfolio of our equity-method investee, absent additional investments in our existing or in new equity-method investees in the future, we expect gradually declining effects from our equity-method investment on our operating results.

Net recovery of losses upon charg