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Note 2 - Significant Accounting Policies and Consolidated Financial Statement Components | 6 Months Ended
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Jun. 30, 2022
Notes to Financial Statements |
Significant Accounting Policies [Text Block] |
2. | Significant Accounting Policies and Consolidated Financial Statement Components
The following is a summary of significant accounting policies we follow in preparing our consolidated financial statements, as well as a description of significant components of our consolidated financial statements. Basis of Presentation and Use of Estimates We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during each reporting period. We base these estimates on information available to us as of the date of the financial statements. Actual results could differ materially from these estimates. Certain estimates, such as credit losses, payment rates, costs of funds, discount rates and the yields earned on credit card receivables, significantly affect the reported amount (and changes thereon) of our Loans, interest and fees receivables, at fair value and Notes payable associated with structured financings recorded at fair value on our consolidated balance sheets and consolidated statements of income. Additionally, estimates of credit losses have a significant effect on loans, interest and fees receivable, net, as shown on our consolidated balance sheets, as well as on the provision for losses on loans, interest and fees receivable within our consolidated statements of income. We have eliminated all significant intercompany balances and transactions for financial reporting purposes. Loans, Interest and Fees Receivable We maintain two categories of Loans, Interest and Fees Receivable on our consolidated balance sheets: those that are carried at fair value (Loans, interest and fees receivable, at fair value) and those that are carried at net amortized cost (Loans, interest and fees receivable, gross). For both categories of loans, interest and fees receivable, other than our Auto Finance receivables, interest and fees are discontinued when loans, interest and fees receivable become contractually 90 or more days past due. We charge off our CaaS and Auto Finance segment receivables when they become contractually more than 180 days past due. For all of our receivables portfolios, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or estate large enough to pay the debt in full. We adopted Accounting Standards Update ("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments on January 1, 2022. This ASU requires the use of an impairment model (the current expected credit loss (“CECL”) model) that is based on expected rather than incurred losses. The ASU also allows for a one-time fair value election for receivables. Upon adoption, we elected the fair value option for all remaining loans receivable associated with our private label credit and general purpose credit card platform previously measured at amortized cost and recorded an increase to our allowance for loan losses for our remaining Loans, interest and fees receivable associated with our Auto Finance Segment. The adoption of CECL resulted in an increase to our opening balance of retained earnings of $8.6 million. Loans, Interest and Fees Receivable, at Fair Value. Loans, interest and fees receivable held at fair value represent receivables for which we have elected the fair value option (the "Fair Value Receivables"). The Fair Value Receivables are held by entities that qualify as variable interest entities ("VIE"), and are consolidated onto our consolidated balance sheets, some portfolios of which are unencumbered and some of which are still encumbered under structured or other financing facilities. Loans and finance receivables include accrued and unpaid interest and fees. As discussed above, as of January 1, 2022 all receivables associated with our private label credit and general purpose credit cards are included within this category of receivables. Under the fair value option, direct loan origination fees (such as annual and merchant fees) are taken into income when billed to the consumer or upon loan acquisition and direct loan origination costs are expensed in the period incurred. The Company estimates the fair value of the loans using a discounted cash flow model, which considers various unobservable inputs such as remaining cumulative charge-offs, remaining cumulative prepayments, average life and discount rate. The Company re-evaluates the fair value of loans receivable at the close of each measurement period. Changes in the fair value of loans, interest and fees receivable are recorded as a component of "Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value" in the consolidated statements of income in the period of the fair value changes. Changes in the fair value of loans, interest and fees receivable recorded at fair value include the impact of current period charge-offs associated with these receivables. Further details concerning our loans, interest and fees receivable held at fair value are presented within Note 6, “Fair Values of Assets and Liabilities.” Loans, Interest and Fees Receivable, Gross. Our loans, interest and fees receivable, gross, currently consist of receivables associated with our Auto Finance segment’s operations. Prior to January 1, 2022 this category of receivable also included a portion (those which were not part of our Fair Value Receivables) of our private label credit and general purpose credit card receivables within our CaaS segment. Our CaaS segment loans, interest and fees receivable generally are unsecured, while our Auto Finance segment loans, interest and fees receivable generally are secured by the underlying automobiles for which we hold the vehicle title. We purchased auto loans with outstanding principal of $52.8 million, $109.3 million, $47.8 million and $98.3 million for the three and six months ended June 30, 2022 and 2021, respectively, through our pre-qualified network of independent automotive dealers and automotive finance companies. We show both an allowance for uncollectible loans, interest and fees receivable and unearned fees (or “deferred revenue”) for our loans, interest and fees receivable that are not carried at fair value. Upon adoption of CECL, the allowance is an estimate of the expected losses (rather than incurred losses) inherent within loans, interest and fees receivable that the Company does not report at fair value. Our loans, interest and fees receivable consist of smaller-balance, homogeneous loans. While each of these categories has unique features, they share many of the same credit risk characteristics and thus share a similar approach to the establishment of an allowance for loan losses. Each portfolio is divided into pools based on common characteristics such as contract or acquisition channel. For each pool, we determine the necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the following unique attributes for each type of receivable pool: historical loss rates; current delinquency and roll-rate trends; vintage analyses based on the number of months an account has been in existence; the effects of changes in the economy on consumers; changes in underwriting criteria; and estimated recoveries. We may further reduce the expected charge-off, taking into consideration specific dealer level reserves which may allow us to offset our losses and, in the case of secured loans, the impact of collateral available to offset a potential loss. A considerable amount of judgment is required to assess the ultimate amount of uncollectible loans, interest and fees receivable, and we continuously evaluate and update our methodologies to determine the most appropriate allowance necessary. We may individually evaluate a receivable or pool of receivables for impairment if circumstances indicate that the receivable or pool of receivables may be at higher risk for non-performance than other receivables (e.g., if a particular retail or auto-finance partner has indications of non-performance (such as a bankruptcy) that could impact the underlying pool of receivables we purchased from the partner). Certain of our loans, interest and fees receivable (including those receivables associated with our private label credit and general purpose credit card receivables prior to their adoption of fair value accounting) also contain components of deferred revenue including merchant fees on the purchases of receivables for our private label credit receivables, loan discounts on the purchase of our auto finance receivables and annual fee billings for our general purpose credit card receivables. Our private label credit, general purpose credit card and auto finance loans, interest and fees receivable include principal balances and associated fees and interest due from customers which are earned each period a loan is outstanding, net of the unearned portion of merchant fees, annual fees and loan discounts. As of June 30, 2022 and December 31, 2021, the weighted average remaining accretion period for the $16.7 million and $29.3 million of deferred revenue reflected in the consolidated balance sheets was 27 months and 15 months, respectively. Included within deferred revenue, are discounts on purchased auto loans of $16.7 million as of June 30, 2022 and merchant fees, annual fees and discounts of $20.4 million as of December 31, 2021. As a result of the COVID-19 pandemic and subsequent declaration of a national emergency in March 2020 under the National Emergencies Act, certain consumers have been offered the ability to defer their payment without penalty during the national emergency period. In March 2020, the federal bank regulatory agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” ("COVID-19 Guidance"). The COVID-19 Guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. In accordance with the COVID-19 Guidance, certain consumers negatively impacted by COVID-19 have been provided short-term payment deferrals and fee waivers. Receivables enrolled in these short-term payment deferrals continue to accrue interest and their delinquency status will not change through the deferment period. Through June 30, 2022 we continued to actively work with consumers that indicated hardship as a result of COVID-19; however, the number of impacted consumers is a small part of our overall receivable base. In order to establish appropriate reserves for this population, we considered various factors such as subsequent payment behavior and additional requests by the consumer for further deferrals or hardship claims. Our CaaS segment consists of two classes of receivable: credit cards and other unsecured lending products. A roll-forward (in millions) of our allowance for uncollectible loans, interest and fees receivable by class of receivable is as follows:
For the Three Months Ended June 30, 2022 |  | Credit Cards |  |  | Auto Finance |  |  | Other Unsecured Lending Products |  |  | Total |
Allowance for uncollectible loans, interest and fees receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | — |  |  | $ | (1.6 | ) |  | $ | — |  |  | $ | (1.6 | )
Provision for loan losses |  |  | — |  |  |  | (0.2 | ) |  |  | — |  |  |  | (0.2 | )
Charge-offs |  |  | — |  |  |  | 0.4 |  |  |  | — |  |  |  | 0.4 |
Recoveries |  |  | — |  |  |  | (0.2 | ) |  |  | — |  |  |  | (0.2 | )
Balance at end of period |  | $ | — |  |  | $ | (1.6 | ) |  | $ | — |  |  | $ | (1.6 | )
For the Six Months Ended June 30, 2022 |  | Credit Cards |  |  | Auto Finance |  |  | Other Unsecured Lending Products |  |  | Total |
Allowance for uncollectible loans, interest and fees receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | (43.4 | ) |  | $ | (1.4 | ) |  | $ | (12.4 | ) |  | $ | (57.2 | )
Cumulative effects from adoption of fair value under the CECL standard |  |  | 43.4 |  |  |  | — |  |  |  | 12.4 |  |  |  | 55.8 |
Cumulative effects from adoption of the CECL standard |  |  | — |  |  |  | (0.2 | ) |  |  | — |  |  |  | (0.2 | )
Provision for loan losses |  |  | — |  |  |  | (0.3 | ) |  |  | — |  |  |  | (0.3 | )
Charge-offs |  |  | — |  |  |  | 0.8 |  |  |  | — |  |  |  | 0.8 |
Recoveries |  |  | — |  |  |  | (0.5 | ) |  |  | — |  |  |  | (0.5 | )
Balance at end of period |  | $ | — |  |  | $ | (1.6 | ) |  | $ | — |  |  | $ | (1.6 | )
As of June 30, 2022 |  | Credit Cards |  |  | Auto Finance |  |  | Other Unsecured Lending Products |  |  | Total |
Allowance for uncollectible loans, interest and fees receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at end of period individually evaluated for impairment |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Balance at end of period collectively evaluated for impairment |  | $ | — |  |  | $ | (1.6 | ) |  | $ | — |  |  | $ | (1.6 | )
Loans, interest and fees receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, interest and fees receivable, gross |  | $ | — |  |  | $ | 104.6 |  |  | $ | — |  |  | $ | 104.6 |
Loans, interest and fees receivable individually evaluated for impairment |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Loans, interest and fees receivable collectively evaluated for impairment |  | $ | — |  |  | $ | 104.6 |  |  | $ | — |  |  | $ | 104.6 |
For the Three Months Ended June 30, 2021 |  | Credit Cards |  |  | Auto Finance |  |  | Other Unsecured Lending Products |  |  | Total |
Allowance for uncollectible loans, interest and fees receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | (75.1 | ) |  | $ | (1.5 | ) |  | $ | (29.3 | ) |  | $ | (105.9 | )
Provision for loan losses |  |  | (11.0 | ) |  |  | 0.2 |  |  |  | (0.3 | ) |  |  | (11.1 | )
Charge-offs |  |  | 21.2 |  |  |  | 0.2 |  |  |  | 6.4 |  |  |  | 27.8 |
Recoveries |  |  | (3.1 | ) |  |  | (0.3 | ) |  |  | (2.6 | ) |  |  | (6.0 | )
Balance at end of period |  | $ | (68.0 | ) |  | $ | (1.4 | ) |  | $ | (25.8 | ) |  | $ | (95.2 | )
For the Six Months Ended June 30, 2021 |  | Credit Cards |  |  | Auto Finance |  |  | Other Unsecured Lending Products |  |  | Total |
Allowance for uncollectible loans, interest and fees receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | (88.2 | ) |  | $ | (1.7 | ) |  | $ | (35.1 | ) |  | $ | (125.0 | )
Provision for loan losses |  |  | (15.2 | ) |  |  | 0.1 |  |  |  | (0.1 | ) |  |  | (15.2 | )
Charge-offs |  | 40.2 |  |  |  | 0.8 |  |  |  | 13.7 |  |  |  | 54.7 |
Recoveries |  |  | (4.8 | ) |  |  | (0.6 | ) |  |  | (4.3 | ) |  |  | (9.7 | )
Balance at end of period |  | $ | (68.0 | ) |  | $ | (1.4 | ) |  | $ | (25.8 | ) |  | $ | (95.2 | )
As of December 31, 2021 |  | Credit Cards |  |  | Auto Finance |  |  | Other Unsecured Lending Products |  |  | Total |
Allowance for uncollectible loans, interest and fees receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at end of period individually evaluated for impairment |  | $ | — |  |  | $ | (0.1 | ) |  | $ | — |  |  | $ | (0.1 | )
Balance at end of period collectively evaluated for impairment |  | $ | (43.4 | ) |  | $ | (1.3 | ) |  | $ | (12.4 | ) |  | $ | (57.1 | )
Loans, interest and fees receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, interest and fees receivable, gross |  | $ | 259.5 |  |  | $ | 94.6 |  |  | $ | 116.2 |  |  | $ | 470.3 |
Loans, interest and fees receivable individually evaluated for impairment |  | $ | — |  |  | $ | 0.4 |  |  | $ | — |  |  | $ | 0.4 |
Loans, interest and fees receivable collectively evaluated for impairment |  | $ | 259.5 |  |  | $ | 94.2 |  |  | $ | 116.2 |  |  | $ | 469.9 |
Delinquent loans, interest and fees receivable reflect the principal, fee and interest components of loans we did not collect on or prior to the contractual due date. Amounts we believe we will not ultimately collect are included as a component in our overall allowance for uncollectible loans, interest and fees receivable. Recoveries, noted above, consist of amounts received from the efforts of third-party collectors and through the sale of charged-off accounts to unrelated third-parties. All proceeds received, associated with charged-off accounts, are credited to the allowance for uncollectible loans, interest and fees receivable and effectively offset our provision for losses on loans, interest and fees receivable recorded at net realizable value on our consolidated statements of income. For the three and six months ended June 30, 2022, $0.2 million and $0.5 million, respectively, of our recoveries noted above related to collections from third-party collectors and $0.0 million and $0.0 million, respectively, related to sales of charged-off accounts to unrelated third-parties. For the three and six months ended June 30, 2021, $2.7 million and $5.1 million, respectively, of our recoveries noted above related to collections from third-party collectors and $3.3 million and $4.6 million, respectively, related to sales of charged-off accounts to unrelated third-parties. We consider loan delinquencies a key indicator of credit quality because this measure provides the best ongoing estimate of how a particular class of receivable is performing. An aging of our delinquent loans, interest and fees receivable, gross (in millions) by class of receivable as of June 30, 2022 and December 31, 2021 is as follows:
As of June 30, 2022 |  | Credit Cards |  |  | Auto Finance |  |  | Other Unsecured Lending Products |  |  | Total |
30-59 days past due |  | $ | — |  |  | $ | 7.2 |  |  | $ | — |  |  | $ | 7.2 |
60-89 days past due |  |  | — |  |  |  | 2.5 |  |  |  | — |  |  |  | 2.5 |
90 or more days past due |  |  | — |  |  |  | 1.2 |  |  |  | — |  |  |  | 1.2 |
Delinquent loans, interest and fees receivable, gross |  |  | — |  |  |  | 10.9 |  |  |  | — |  |  |  | 10.9 |
Current loans, interest and fees receivable, gross |  |  | — |  |  |  | 93.7 |  |  |  | — |  |  |  | 93.7 |
Total loans, interest and fees receivable, gross |  | $ | — |  |  | $ | 104.6 |  |  | $ | — |  |  | $ | 104.6 |
Balance of loans greater than 90-days delinquent still accruing interest and fees |  | $ | — |  |  | $ | 0.9 |  |  | $ | — |  |  | $ | 0.9 |
As of December 31, 2021 |  | Credit Cards |  |  | Auto Finance |  |  | Other Unsecured Lending Products |  |  | Total |
30-59 days past due |  | $ | 7.3 |  |  | $ | 7.2 |  |  | $ | 3.3 |  |  | $ | 17.8 |
60-89 days past due |  |  | 6.9 |  |  |  | 2.6 |  |  |  | 2.6 |  |  |  | 12.1 |
90 or more days past due |  |  | 17.9 |  |  |  | 2.0 |  |  |  | 6.8 |  |  |  | 26.7 |
Delinquent loans, interest and fees receivable, gross |  |  | 32.1 |  |  |  | 11.8 |  |  |  | 12.7 |  |  |  | 56.6 |
Current loans, interest and fees receivable, gross |  |  | 227.4 |  |  |  | 82.8 |  |  |  | 103.5 |  |  |  | 413.7 |
Total loans, interest and fees receivable, gross |  | $ | 259.5 |  |  | $ | 94.6 |  |  | $ | 116.2 |  |  | $ | 470.3 |
Balance of loans greater than 90-days delinquent still accruing interest and fees |  | $ | — |  |  | $ | 1.5 |  |  | $ | — |  |  | $ | 1.5 |
Troubled Debt Restructurings As part of ongoing collection efforts, once an account, the receivable of which is included in our CaaS segment, becomes 90 days or more past due, the related receivable is placed on a non-accrual status. Placement on a non-accrual status results in the use of programs under which the contractual interest associated with a receivable may be reduced or eliminated, or a certain amount of accrued fees is waived, provided a minimum number or amount of payments have been made. Following this adjustment, if a customer we serve demonstrates a willingness and ability to resume making monthly payments and meets certain additional criteria, the customer’s account is re-aged. When an account is re-aged, the status of the account is adjusted to bring a delinquent account current, but generally no further modifications to the payment terms or amounts owed are made. Once an account is placed on a non-accrual status, it is closed for further purchases. Accounts that are placed on a non-accrual status and thereafter make at least one payment qualify as troubled debt restructurings (“TDRs”). The above referenced COVID- 19 Guidance issued by federal bank regulatory agencies, in consultation with the Financial Accounting Standards Board ("FASB") staff, concluded that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were impacted by COVID- 19 and who were less than 30 days past due as of the implementation date of a relief program are not TDRs. Although we are not a financial institution and therefore not directly subject to the COVID- 19 Guidance, we believe this constitutes an interpretation of GAAP and therefore should be applied to our accounting circumstances. As a result, the below tables exclude certain accounts that are included under that guidance. The following table details by class of receivable, the number and amount of modified loans, including TDRs that have been re-aged, as of June 30, 2022 and December 31, 2021:
|  | As of |
|  | June 30, 2022 |  |  | December 31, 2021 |
|  | Private label credit |  |  | General purpose credit card |  |  | Private label credit |  |  | General purpose credit card |
Number of TDRs |  |  | 19,959 |  |  |  | 58,959 |  |  |  | 14,919 |  |  |  | 39,322 |
Number of TDRs that have been re-aged |  |  | 1,095 |  |  |  | 2,830 |  |  |  | 812 |  |  |  | 2,035 |
Amount of TDRs on non-accrual status (in thousands) |  | $ | 25,492 |  |  | $ | 39,359 |  |  | $ | 17,152 |  |  | $ | 25,154 |
Amount of TDRs on non-accrual status above that have been re-aged (in thousands) |  | $ | 2,154 |  |  | $ | 2,467 |  |  | $ | 1,205 |  |  | $ | 1,553 |
Carrying value of TDRs (in thousands) |  | $ | 15,044 |  |  | $ | 19,609 |  |  | $ | 11,173 |  |  | $ | 15,502 |
TDRs - Performing (carrying value, in thousands)* |  | $ | 11,223 |  |  | $ | 16,641 |  |  | $ | 8,797 |  |  | $ | 13,387 |
TDRs - Nonperforming (carrying value, in thousands)* |  | $ | 3,821 |  |  | $ | 2,968 |  |  | $ | 2,376 |  |  | $ | 2,115 |
*“TDRs - Performing” include accounts that are current on all amounts owed, while “TDRs - Nonperforming” include all accounts with past due amounts owed. We do not separately reserve or impair these receivables outside of our general reserve process. The Company modified 98,880 and 52,686 accounts in the amount of $106.7 million and $57.4 million during the twelve month periods ended June 30, 2022 and June 30, 2021, respectively, that qualified as TDRs. The following table details by class of receivable, the number of accounts and balance of loans that completed a modification (including those that were classified as TDRs) within the prior twelve months and subsequently defaulted.
|  | Twelve Months Ended |
|  | June 30, 2022 |  |  | June 30, 2021 |
|  | Private label credit |  |  | General purpose credit card |  |  | Private label credit |  |  | General purpose credit card |
Number of accounts |  |  | 4,971 |  |  |  | 14,991 |  |  |  | 2,162 |  |  |  | 6,204 |
Loan balance at time of charge off (in thousands) |  | $ | 7,983 |  |  | $ | 12,358 |  |  | $ | 2,779 |  |  | $ | 4,847 |
Income Taxes We experienced effective tax rates of 20.4% and 2.0%, respectively, for the three and six months ended June 30, 2022, compared to 21.6% and 18.1%, respectively, for the three and six months ended June 30, 2021. Our effective tax rates for the three and six months ended June 30, 2022 are below the statutory rate principally due to (1) deductions during such periods associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’ grant date values and (2) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes. Partially offsetting these two items are the effects of state and foreign income tax expense. Our effective tax rate for the three months ended June 30, 2021 was above the statutory rate due to state and foreign income tax expense, significantly offset, however, by (1) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes, and (2) the exclusion from taxable income of benefits received under various government stimulus programs. These same two items served to offset the effects of state and foreign income tax expense and executive compensation deduction limits experienced in the first quarter of 2021 under Section 162(m) of the Internal Revenue Code of 1986 on our effective tax rate for the six months ended June 30, 2021. Also offsetting such effects and thereby causing our effective tax rate to be below the statutory rate for the six months ended June 30, 2021, were (1) deductions in the first quarter of 2021 associated with the exercise of stock options and the vesting of restricted stock at stock fair values significantly exceeding such share-based awards’ grant date values; and (2) our release of state tax valuation allowances in the first quarter of 2021. We report interest expense associated with our income tax liabilities (including accrued liabilities for uncertain tax positions) within our income tax line item on our consolidated statements of income. We likewise report within such line item the reversal of interest expense associated with our accrued liabilities for uncertain tax positions to the extent we resolve such liabilities in a manner favorable to our accruals therefor. We had de minimis interest expense or reversals thereof during the three and six months ended June 30, 2022, and 2021. Revenue Recognition and Revenue from Contracts with Customers Consumer Loans, Including Past Due Fees Consumer loans, including past due fees reflect interest income, including finance charges, and late fees on loans in accordance with the terms of the related customer agreements. Discounts received associated with auto loans that are not included as part of our Fair Value Receivables are deferred and amortized over the average life of the related loans using the effective interest method. Premiums, discounts, annual fees and merchant fees paid or received associated with Fair Value Receivables are recognized upon receivable acquisition. Finance charges and fees, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable and revenue when the fees are earned based upon the contractual terms of the loans. Fees and Related Income on Earning Assets Fees and related income on earning assets primarily include fees associated with credit products, including the receivables underlying the private label and general purpose credit cards we service, and our legacy credit card receivables which include the recognition of annual fee billings and cash advance fees among others. Fees are assessed on credit card accounts underlying our credit card receivables according to the terms of the related cardholder agreements and we recognize these fees as income when they are charged to the customers’ accounts. Fees and related income on earning assets, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable and revenue when the fees are earned based upon the contractual terms of the loans. The election of the fair value option to account for certain loans receivable resulted in increased fees recognized on credit products throughout the periods presented. Revenue from Contracts with Customers The majority of our revenue is earned from financial instruments and is not included within the scope of ASU No. 2014-09, "Revenue from Contracts with Customers". We have determined that revenue from contracts with customers would primarily consist of interchange revenues in our CaaS segment and servicing revenue and other customer-related fees in both our CaaS segment and our Auto Finance segment. Interchange fees are earned when our customer's cards are used over established card networks. We earn a portion of the interchange fee the card networks charge merchants for the transaction. Servicing revenue is generated by meeting contractual performance obligations related to the collection of amounts due on receivables, and is settled with the customer net of our fee. Service charges and other customer related fees are earned from customers based on the occurrence of specific services. None of these revenue streams result in an ongoing obligation beyond what has already been rendered. Revenue from these contracts with customers is included as a component of Other revenue on our consolidated statements of income. Components (in thousands) of our revenue from contracts with customers is as follows:
For the Three Months Ended June 30, 2022 |  | CaaS |  |  | Auto Finance |  |  | Total |
Interchange revenues, net (1) |  | $ | 7,381 |  |  | $ | — |  |  | $ | 7,381 |
Servicing income |  |  | 804 |  |  |  | 225 |  |  |  | 1,029 |
Service charges and other customer related fees |  |  | 3,984 |  |  |  | 16 |  |  |  | 4,000 |
Total revenue from contracts with customers |  | $ | 12,169 |  |  | $ | 241 |  |  | $ | 12,410 |
(1) Interchange revenue is presented net of customer reward expense.
For the Six Months Ended June 30, 2022 |  | CaaS |  |  | Auto Finance |  |  | Total |
Interchange revenues, net (1) |  | $ | 13,079 |  |  | $ | — |  |  | $ | 13,079 |
Servicing income |  |  | 1,634 |  |  |  | 477 |  |  |  | 2,111 |
Service charges and other customer related fees |  |  | 7,454 |  |  |  | 32 |  |  |  | 7,486 |
Total revenue from contracts with customers |  | $ | 22,167 |  |  | $ | 509 |  |  | $ | 22,676 |
(1) Interchange revenue is presented net of customer reward expense.
For the Three Months Ended June 30, 2021 |  | CaaS |  |  | Auto Finance |  |  | Total |
Interchange revenues, net (1) |  | $ | 4,269 |  |  | $ | — |  |  | $ | 4,269 |
Servicing income |  |  | 349 |  |  |  | 299 |  |  |  | 648 |
Service charges and other customer related fees |  |  | 2,380 |  |  |  | 15 |  |  |  | 2,395 |
Total revenue from contracts with customers |  | $ | 6,998 |  |  | $ | 314 |  |  | $ | 7,312 |
(1) Interchange revenue is presented net of customer reward expense.
For the Six Months Ended June 30, 2021 |  | CaaS |  |  | Auto Finance |  |  | Total |
Interchange revenues, net (1) |  | $ | 6,891 |  |  | $ | — |  |  | $ | 6,891 |
Servicing income |  |  | 737 |  |  |  | 624 |  |  |  | 1,361 |
Service charges and other customer related fees |  |  | 3,609 |  |  |  | 30 |  |  |  | 3,639 |
Total revenue from contracts with customers |  | $ | 11,237 |  |  | $ | 654 |  |  | $ | 11,891 |
(1) Interchange revenue is presented net of customer reward expense. Loss on repurchase and redemption of convertible senior notes In periods where we repurchased or redeemed 5.875% convertible senior notes (“convertible senior notes”), we recorded any discount or premium paid for the repurchase or redemption (including accrued interest) relative to the amortized book value of the notes. In the three and six months ended June 30, 2021, we repurchased $6.4 million and $21.1 million, respectively, in face amount of our convertible senior notes for $10.2 million and $28.9 million in cash (including accrued interest). The repurchase resulted in a loss of approximately $5.4 million and $13.3 million (including the convertible senior notes’ applicable share of deferred costs, which were written off in connection with the repurchase, respectively). Upon acquisition, the notes were retired. Recent Accounting Pronouncements In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments. The guidance requires an assessment of credit losses based on expected rather than incurred losses (known as the current expected credit loss model). This generally will result in the recognition of allowances for losses earlier than under current accounting guidance for trade and other receivables, held to maturity debt securities and other instruments. The FASB has added several technical amendments (ASU 2018-19, 2019-04, 2019-10 and 2019-11) to clarify technical aspects of the guidance and applicability to specific financial instruments or transactions. In May 2019, the FASB issued ASU 2019-05, which allows entities to measure assets in the scope of ASC 326-20, except held to maturity securities, using the fair value option when they adopt the new credit impairment standard. The election can be made on an instrument by instrument basis. We adopted ASU 2016-13 beginning January 1, 2022, using the modified retrospective method of adoption. We elected the fair value option for all receivables in our CaaS segment previously measured at amortized cost. For all other receivables, we recorded an increase to our allowance for loan losses using the current expected credit loss model. As a result of our adoption, we increased our Loans, interest and fees receivable (net of the related revaluation), at fair value by $315.0 million (with a corresponding decrease to Loans, interest and fees receivable, gross of $375.7 million), a decrease to our Allowances for uncollectible loans, interest and fees receivable of $55.6 million, a decrease to our Deferred revenue of $15.6 million, a decrease to Accounts payable and accrued expenses of $600 thousand, an increase to our deferred tax liability of $2.5 million, and an increase to our retained earnings of $8.6 million. The aforementioned impacts associated with our adoption of ASU 2016-13 primarily relate to those assets within our CaaS segment with an immaterial impact to our Auto Finance segment receivables. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance provides an optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ASU can be adopted no later than December 1, 2022, with early adoption permitted. In January 2021, FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of ASC 848 and clarifies some of its guidance as part of the FASB’s monitoring of global reference rate reform. We have not yet adopted this ASU and are evaluating the effect of adopting this new accounting guidance. Based on our preliminary analysis, the London Interbank Offered Rate ("LIBOR") impacts us in limited circumstances primarily related to our existing debt agreements. Subsequent Events We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements; and (2) nonrecognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. We have evaluated subsequent events occurring after June 30, 2022, 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.

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