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Source: GlobeNewswire (MIL-OSI)

Southfield, Michigan, Oct. 30, 2024 (GLOBE NEWSWIRE) — Credit Acceptance Corporation (Nasdaq: CACC) (referred to as the “Company”, “Credit Acceptance”, “we”, “our”, or “us”) today announced consolidated net income of $78.8 million, or $6.35 per diluted share, for the three months ended September 30, 2024 compared to consolidated net income of $70.8 million, or $5.43 per diluted share, for the same period in 2023. Adjusted net income, a non-GAAP financial measure, for the three months ended September 30, 2024 was $109.1 million, or $8.79 per diluted share, compared to $139.5 million, or $10.70 per diluted share, for the same period in 2023. The following table summarizes our financial results:

^{(1)   Represents a non-GAAP financial measure.}

Our results for the third quarter of 2024 in comparison to the third quarter of 2023 included:

• A similar decline in forecasted collection rates
  A decline in forecasted collection rates decreased forecasted net cash flows from our loan portfolio by $62.8 million, or 0.6%, compared to a decrease in forecasted collection rates during the third quarter of 2023 that decreased forecasted net cash flows from our loan portfolio by $69.4 million, or 0.7%.

• A decrease in forecasted profitability for Consumer Loans assigned in 2021 through 2024
  Forecasted profitability was lower than our estimates at September 30, 2023, due to both a decline in forecasted collection rates and slower forecasted net cash flow timing since the third quarter of 2023. The slower forecasted net cash flow timing was primarily a result of a decrease in Consumer Loan prepayments, which remain at below-average levels.

• Growth in Consumer Loan assignment volume and the average balance of our loan portfolio
  Unit and dollar volumes grew 17.7% and 12.2%, respectively, as compared to the third quarter of 2023. The average balance of our loan portfolio, which is our largest-ever, increased 14.9% and 18.6% on a GAAP and adjusted basis, respectively, as compared to the third quarter of 2023.

• An increase in the initial spread on Consumer Loan assignments
  The initial spread increased to 21.9% compared to 21.4% on Consumer Loans assigned in the third quarter of 2023.

• An increase in our average cost of debt
  Our average cost of debt increased from 5.8% to 7.3%, primarily a result of higher interest rates on recently completed or extended secured financings and recently issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.

• A decrease in common shares outstanding due to stock repurchases
  Since the third quarter of 2023, we have repurchased approximately 566,000 shares, or 4.5% of the shares outstanding as of September 30, 2023. There were no stock repurchases during the third quarter of 2024.

Our results for the third quarter of 2024 in comparison to the second quarter of 2024 included:

• A smaller decline in forecasted collection rates
  A decline in forecasted collection rates decreased forecasted net cash flows from our loan portfolio by $62.8 million, or 0.6%, compared to a decrease in forecasted collection rates during the second quarter of 2024 that decreased forecasted net cash flows from our loan portfolio by $189.3 million, or 1.7%. The $189.3 million decrease in forecasted net cash flows for the second quarter of 2024 was composed of an ordinary decrease in forecasted net cash flows of $42.1 million, or 0.3%, and an adjustment applied to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $147.2 million, or 1.4%.

• A decrease in forecasted profitability for Consumer Loans assigned in 2021 through 2024
  Forecasted profitability was lower than our estimates at June 30, 2024, due to both the decline in forecasted collection rates and the slower forecasted net cash flow timing during the third quarter of 2024 discussed above.

• Growth in the average balance of our loan portfolio
  The average balance of our loan portfolio, which is our largest-ever, increased 2.6% and 4.3% on a GAAP and adjusted basis, respectively, as compared to the second quarter of 2024.

• Loss on sale of building
  We recognized a $23.7 million loss during the second quarter of 2024 related to the sale of one of our two office buildings, which we have excluded from our adjusted results. The building was sold to reduce excess office space and eliminate the associated annual operating costs of approximately $2.1 million.

Consumer Loan Metrics

Dealers assign retail installment contracts (referred to as “Consumer Loans”) to Credit Acceptance. At the time a Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan. Based on the amount and timing of these forecasts and expected expense levels, an advance or one-time purchase payment is made to the related dealer at a price designed to maximize economic profit, a non-GAAP financial measure that considers our return on capital, our cost of capital, and the amount of capital invested. 

We use a statistical model to estimate the expected collection rate for each Consumer Loan at the time of assignment. We continue to evaluate the expected collection rate for each Consumer Loan subsequent to assignment. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast. By comparing our current expected collection rate for each Consumer Loan with the rate we projected at the time of assignment, we are able to assess the accuracy of our initial forecast. The following table compares our aggregated forecast of Consumer Loan collection rates as of September 30, 2024, with the aggregated forecasts as of June 30, 2024, as of December 31, 2023, and at the time of assignment, segmented by year of assignment:

^{(1)   Represents the total forecasted collections we expect to collect on the Consumer Loans as a percentage of the repayments that we were contractually owed on the Consumer Loans at the time of assignment. Contractual repayments include both principal and interest. Forecasted collection rates are negatively impacted by canceled Consumer Loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates.
(2)   The forecasted collection rate for 2024 Consumer Loans as of September 30, 2024 includes both Consumer Loans that were in our portfolio as of June 30, 2024 and Consumer Loans assigned during the most recent quarter. The following table provides forecasted collection rates for each of these segments:}

Consumer Loans assigned in 2018 through 2020 have yielded forecasted collection results significantly better than our initial estimates, while Consumer Loans assigned in 2015, 2016, and 2021 through 2023 have yielded forecasted collection results significantly worse than our initial estimates. For all other assignment years presented, actual results have been close to our initial estimates. For the three months ended September 30, 2024, forecasted collection rates declined for Consumer Loans assigned in 2021 through 2024 and were generally consistent with expectations at the start of the period for all other assignment years presented. For the nine months ended September 30, 2024, forecasted collection rates improved for Consumer Loans assigned in 2019, declined for Consumer Loans assigned in 2021 through 2024, and were generally consistent with expectations at the start of the period for all other assignment years presented.

The changes in forecasted collection rates for the three and nine months ended September 30, 2024 and 2023 impacted forecasted net cash flows (forecasted collections less forecasted dealer holdback payments) as follows:

During the second quarter of 2024, we applied an adjustment to our methodology for forecasting the amount of future net cash flows from our loan portfolio, which reduced the forecasted collection rates for Consumer Loans assigned in 2022 through 2024. Consumer Loans assigned in 2022 had continued to underperform our expectations for several quarters. More recently, Consumer Loans assigned in 2023 had also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022. During the second quarter of 2024, we determined that we had sufficient Consumer Loan performance experience to estimate the magnitude by which we expected Consumer Loans assigned in 2022 through 2024 would likely underperform our historical collection rates on Consumer Loans with similar characteristics. Accordingly, we applied an adjustment to Consumer Loans assigned in 2022 through 2024 to reduce forecasted collection rates to what we believed the ultimate collection rates would be based on these trends. Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses. The implementation of this forecast adjustment during the second quarter of 2024 reduced forecasted net cash flows by $147.2 million, or 1.4%, and increased provision for credit losses by $127.5 million.

During the second quarter of 2023, we adjusted our methodology for forecasting the amount and timing of future net cash flows from our loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data. We had experienced a decrease in Consumer Loan prepayments to below-average levels and as a result, slowed our forecasted net cash flow timing. Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit. Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses. The implementation of the adjustment to our forecasting methodology during the second quarter of 2023 reduced forecasted net cash flows by $44.5 million, or 0.5%, and increased provision for credit losses by $71.3 million.

We have experienced increased levels of uncertainty associated with our estimate of the amount and timing of future net cash flows from our loan portfolio since the beginning of 2020, with realized collections underperforming our expectations during the early stages of the COVID-19 pandemic, outperforming our expectations following the distribution of federal stimulus payments and enhanced unemployment benefits, and underperforming our expectations during the current economic environment. For the period from January 1, 2020 through September 30, 2024, the cumulative change to our forecast of future net cash flows from our loan portfolio has been a decrease of $269.1 million, or 3.0%, as shown in the following table:

The following table presents information on Consumer Loan assignments for each of the last 10 years:

^{(1)   Represents the repayments that we were contractually owed on Consumer Loans at the time of assignment, which include both principal and interest.
(2)   Represents advances paid to dealers on Consumer Loans assigned under our portfolio program and one-time payments made to dealers to purchase Consumer Loans assigned under our purchase program. Payments of dealer holdback and accelerated dealer holdback are not included.
(3)   Represents activity for the nine months ended September 30, 2024. Information in this table for each of the years prior to 2024 represents activity for all 12 months of that year.
(4)   The averages for 2024 Consumer Loans include both Consumer Loans that were in our portfolio as of June 30, 2024 and Consumer Loans assigned during the most recent quarter. The following table provides averages for each of these segments:}

The profitability of our loans is primarily driven by the amount and timing of the net cash flows we receive from the spread between the forecasted collection rate and the advance rate, less operating expenses and the cost of capital. Forecasting collection rates accurately at loan inception is difficult. With this in mind, we establish advance rates that are intended to allow us to achieve acceptable levels of profitability across our portfolio, even if collection rates are less than we initially forecast.

The following table presents aggregate forecasted Consumer Loan collection rates, advance rates, and spreads (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of September 30, 2024, as well as forecasted collection rates and spreads at the time of assignment. All amounts, unless otherwise noted, are presented as a percentage of the initial balance of the Consumer Loan (principal + interest). The table includes both dealer loans and purchased loans.

^{(1)   Represents advances paid to dealers on Consumer Loans assigned under our portfolio program and one-time payments made to dealers to purchase Consumer Loans assigned under our purchase program as a percentage of the initial balance of the Consumer Loans.  Payments of dealer holdback and accelerated dealer holdback are not included.
(2)   Presented as a percentage of total forecasted collections.
(3)   The forecasted collection rate, advance rate and spread for 2024 Consumer Loans as of September 30, 2024 include both Consumer Loans that were in our portfolio as of June 30, 2024 and Consumer Loans assigned during the most recent quarter. The following table provides forecasted collection rates, advance rates, and spreads for each of these segments:}

The risk of a material change in our forecasted collection rate declines as the Consumer Loans age. For 2020 and prior Consumer Loan assignments, the risk of a material forecast variance is modest, as we have currently realized in excess of 90% of the expected collections. Conversely, the forecasted collection rates for more recent Consumer Loan assignments are less certain as a significant portion of our forecast has not been realized.

The spread between the forecasted collection rate as of September 30, 2024 and the advance rate ranges from 13.2% to 23.7%, on an annual basis, for Consumer Loans assigned over the last 10 years. The spreads with respect to 2019 and 2020 Consumer Loans have been positively impacted by Consumer Loan performance, which has exceeded our initial estimates by a greater margin than the other years presented. The spread with respect to 2022 Consumer Loans has been negatively impacted by Consumer Loan performance, which has been lower than our initial estimates by a greater margin than the other years presented. The higher spread for 2024 Consumer Loans relative to 2023 Consumer Loans as of September 30, 2024 was primarily a result of Consumer Loan performance, as the performance of 2023 Consumer Loans has been lower than our initial estimates by a greater margin than 2024 Consumer Loans. Additionally, 2024 Consumer Loans had a higher initial spread, which was primarily due to a decrease in the advance rate.

The following table compares our forecast of aggregate Consumer Loan collection rates as of September 30, 2024 with the forecasts at the time of assignment, for dealer loans and purchased loans separately:

^{(1)   The forecasted collection rates presented for dealer loans and purchased loans reflect the Consumer Loan classification at the time of assignment. The forecasted collection rates represent the total forecasted collections we expect to collect on the Consumer Loans as a percentage of the repayments that we were contractually owed on the Consumer Loans at the time of assignment. Contractual repayments include both principal and interest. Forecasted collection rates are negatively impacted by canceled Consumer Loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates.}

The following table presents aggregate forecasted Consumer Loan collection rates, advance rates, and spreads (the forecasted collection rate less the advance rate) as of September 30, 2024 for dealer loans and purchased loans separately.  All amounts are presented as a percentage of the initial balance of the Consumer Loan (principal + interest).

^{(1)   The forecasted collection rates and advance rates presented for dealer loans and purchased loans reflect the Consumer Loan classification at the time of assignment.
(2)   Represents advances paid to dealers on Consumer Loans assigned under our portfolio program and one-time payments made to dealers to purchase Consumer Loans assigned under our purchase program as a percentage of the initial balance of the Consumer Loans.  Payments of dealer holdback and accelerated dealer holdback are not included.}

Although the advance rate on purchased loans is higher as compared to the advance rate on dealer loans, purchased loans do not require us to pay dealer holdback.

The spread as of September 30, 2024 on 2024 dealer loans was 21.2%, as compared to a spread of 18.3% on 2023 dealer loans. The increase was due to Consumer Loan performance, as the performance of 2023 dealer loans has been lower than our initial estimates by a greater margin than 2024 dealer loans.

The spread as of September 30, 2024 on 2024 purchased loans was 21.5%, as compared to a spread of 17.8% on 2023 purchased loans. The increase was primarily a result of a higher initial spread on 2024 purchased loans, due to a higher initial forecast and lower advance rate. Additionally, the performance of 2023 purchased loans has been lower than our initial estimates by a greater margin than 2024 purchased loans.

Consumer Loan Volume

The following table summarizes changes in Consumer Loan assignment volume in each of the last seven quarters as compared to the same period in the previous year:

^{(1)   Represents advances paid to dealers on Consumer Loans assigned under our portfolio program and one-time payments made to dealers to purchase Consumer Loans assigned under our purchase program.  Payments of dealer holdback and accelerated dealer holdback are not included.}

Consumer Loan assignment volumes depend on a number of factors including (1) the overall demand for our financing programs, (2) the amount of capital available to fund new loans, and (3) our assessment of the volume that our infrastructure can support. Our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of capital and infrastructure constraints.

Unit and dollar volumes grew 17.7% and 12.2%, respectively, during the third quarter of 2024 as the number of active dealers grew 8.8% and the average unit volume per active dealer increased 8.4%. Dollar volume increased less than unit volume during the third quarter of 2024 due to a decrease in the average advance paid, due to decreases in the average size of Consumer Loans assigned and the average advance rate. Unit volume for the 28-day period ended October 28, 2024 grew 4.6% compared to the same period in 2023.

The following table summarizes the changes in Consumer Loan unit volume and active dealers:

^{(1)   Active dealers are dealers who have received funding for at least one Consumer Loan during the period.}

The following table provides additional information on the changes in Consumer Loan unit volume and active dealers: 

^{(1)   New active dealers are dealers who enrolled in our program and have received funding for their first dealer loan or purchased loan from us during the period.
(2)   Attrition is measured according to the following formula:  decrease in Consumer Loan unit volume from dealers who have received funding for at least one dealer loan or purchased loan during the comparable period of the prior year but did not receive funding for any dealer loans or purchased loans during the current period divided by prior year comparable period Consumer Loan unit volume.}

The following table shows the percentage of Consumer Loans assigned to us as dealer loans and purchased loans for each of the last seven quarters:

^{(1)   Represents advances paid to dealers on Consumer Loans assigned under our portfolio program and one-time payments made to dealers to purchase Consumer Loans assigned under our purchase program.  Payments of dealer holdback and accelerated dealer holdback are not included.}

As of September 30, 2024 and December 31, 2023, the net dealer loans receivable balance was 71.6% and 67.7%, respectively, of the total net loans receivable balance.

Financial Results

The increase in GAAP net income for the three months ended September 30, 2024, as compared to the same period in 2023, was primarily a result of the following:

• An increase in finance charges of 14.9% ($65.9 million), primarily due to an increase in the average balance of our loan portfolio.
• An increase in premiums earned of 20.7% ($4.3 million), primarily due to growth in the size of our reinsurance portfolio, which resulted from growth in new Consumer Loan assignments and an increase in the average premium written per reinsured vehicle service contract in recent periods.
• An increase in operating expenses of 17.1% ($18.9 million), primarily due to:
  • An increase in salaries and wages expense of 15.9% ($10.6 million), primarily due to increases in (i) the number of team members as we are investing in our business with the goal of increasing the speed at which we enhance our product for dealers and consumers and (ii) fringe benefits, primarily due to higher medical claims.
  • An increase in general and administrative expenses of 36.2% ($7.7 million), primarily due to an increase in legal expenses.
• An increase in interest expense of 57.7% ($40.7 million), due to:
  • An increase in our average cost of debt, which increased interest expense by $22.6 million, primarily as a result of higher interest rates on recently completed or extended secured financings and recently issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.
  • An increase in our average outstanding debt balance, which increased interest expense by $18.1 million, primarily due to borrowings used to fund the growth of our loan portfolio and stock repurchases.

The decrease in GAAP net income for the nine months ended September 30, 2024, as compared to the same period in 2023, was primarily a result of the following:

• An increase in interest expense of 64.2% ($120.5 million), due to:
  • An increase in our average cost of debt, which increased interest expense by $80.2 million, primarily as a result of higher interest rates on recently completed or extended secured financings and recently issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.
  • An increase in our average outstanding debt balance, which increased interest expense by $40.3 million, primarily due to borrowings used to fund the growth of our loan portfolio and stock repurchases.
• An increase in provision for credit losses of 20.8% ($118.8 million), primarily due to an increase in provision for credit losses on forecast changes of $111.5 million, due to a greater decline in Consumer Loan performance and slower net cash flow timing during the first nine months of 2024 compared to the first nine months of 2023.

During the first nine months of 2024, we decreased our estimate of future net cash flows by $282.9 million, or 2.8%, to reflect a decline in forecasted collection rates during the period, and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments, which remain at below-average levels. Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit. The $282.9 million decrease in forecasted net cash flows for the first nine months of 2024 was composed of an ordinary decrease in forecasted net cash flows of $135.7 million, or 1.4%, and an adjustment applied to our forecasting methodology during the second quarter of 2024, which upon implementation, reduced forecasted net cash flows by $147.2 million, or 1.4%, and increased our provision for credit losses by $127.5 million.

During the first nine months of 2023, we decreased our estimate of future net cash flows by $149.3 million, or 1.7%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments. The $149.3 million decrease in forecasted net cash flows for the first nine months of 2023 was composed of an ordinary decrease in forecasted net cash flows of $104.8 million, or 1.2%, and an adjustment to our forecasting methodology during the second quarter of 2023, which upon implementation, decreased our estimate of future net cash flows by $44.5 million, or 0.5%, and increased our provision for credit losses by $71.3 million.

The following table summarizes each component of provision for credit losses:

• An increase in operating expenses of 10.2% ($35.1 million), primarily due to:
  • An increase in salaries and wages expense of 8.2% ($17.5 million), primarily due to increases in (i) the number of team members as we are investing in our business with the goal of increasing the speed at which we enhance our product for dealers and consumers and (ii) fringe benefits, primarily due to higher medical claims.
  • An increase in general and administrative expense of 26.9% ($16.1 million), primarily due to increases in legal and technology systems expenses.
• A loss on sale of building of $23.7 million related to the sale of one of our two office buildings. The building was sold to reduce excess office space and eliminate the associated annual operating costs of approximately $2.1 million.
• An increase in premiums earned of 22.9% ($13.3 million), primarily due to growth in the size of our reinsurance portfolio, which resulted from growth in new Consumer Loan assignments and an increase in the average premium written per reinsured vehicle service contract in recent periods.
• A decrease in provision for income taxes of 29.1% ($17.1 million), primarily due to a decrease in pre-tax income.
• An increase in finance charges of 13.1% ($170.7 million), primarily due to an increase in the average balance of our loan portfolio.

Adjusted financial results are provided to help shareholders understand our financial performance. The financial data below is non-GAAP, unless labeled otherwise. We use adjusted financial information internally to measure financial performance and to determine certain incentive compensation. We also use economic profit as a framework to evaluate business decisions and strategies, with the objective to maximize economic profit over the long term. In addition, certain debt facilities utilize adjusted financial information for the determination of loan collateral values and to measure financial covenants. The table below shows our results following adjustments to reflect non-GAAP accounting methods. Material adjustments are explained in the table footnotes and the subsequent “Floating Yield Adjustment” and “Senior Notes Adjustment” sections. Measures such as adjusted average capital, adjusted net income, adjusted net income per diluted share, adjusted interest expense (after-tax), adjusted net income plus adjusted interest expense (after-tax), adjusted return on capital, adjusted revenue, operating expenses, adjusted loans receivable, economic profit, and economic profit per diluted share are non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP.

Adjusted financial results for the three and nine months ended September 30, 2024, compared to the same periods in 2023, include the following:

Economic profit decreased 40.1% and 27.2% for the three and nine months ended September 30, 2024, as compared to the same periods in 2023. Economic profit is a function of the return on capital in excess of the cost of capital and the amount of capital invested in the business. The following table summarizes the impact each of these components had on the changes in economic profit for the three and nine months ended September 30, 2024, as compared to the same periods in 2023:

The decrease in economic profit for the three months ended September 30, 2024, as compared to the same period in 2023, was primarily a result of the following:

• A decrease in our adjusted return on capital of 180 basis points, primarily due to a decrease in the yield used to recognize adjusted finance charges on our loan portfolio, primarily due to both a decline in forecasted collection rates and slower forecasted net cash flow timing since the second quarter of 2023. The slower forecasted net cash flow timing was primarily a result of a decrease in Consumer Loan prepayments, which remain at below-average levels.
• An increase in adjusted average capital of 19.4%, primarily due to an increase in the average balance of our loan portfolio.

The decrease in economic profit for the nine months ended September 30, 2024, as compared to the same period in 2023, was primarily a result of the following:

• A decrease in our adjusted return on capital of 90 basis points, primarily due to:
  • A decrease in the yield used to recognize adjusted finance charges on our loan portfolio decreased our adjusted return on capital by 130 basis points, primarily due to both a decline in forecasted collection rates and slower forecasted net cash flow timing since the first quarter of 2023. The slower forecasted net cash flow timing was primarily a result of a decrease in Consumer Loan prepayments, which remain at below-average levels.
  • Slower growth in operating expenses increased our adjusted return on capital by 30 basis points as operating expenses grew by 10.2% while adjusted average capital grew by 17.3%.
• An increase in our cost of capital, primarily due to an increase in our cost of debt, primarily as a result of higher interest rates on recently completed or extended secured financings and recently issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.
• An increase in adjusted average capital of 17.3%, primarily due to an increase in the average balance of our loan portfolio.

The following table shows adjusted revenue and operating expenses as a percentage of adjusted average capital, the adjusted return on capital, and the percentage change in adjusted average capital for each of the last eight quarters, compared to the same period in the prior year:

^{(1)   Annualized.}

The decrease in adjusted return on capital for the three months ended September 30, 2024, as compared to the three months ended June 30, 2024, was primarily due to a decrease in the yield used to recognize adjusted finance charges on our loan portfolio, primarily due to both a decline in Consumer Loan performance and slower forecasted net cash flow timing in the second and third quarters of 2024, which is being recorded over time as an adjustment to the yield used to recognize adjusted finance charges.

The following tables provide a reconciliation of non-GAAP measures to GAAP measures.  Certain amounts do not recalculate due to rounding.

^{(1)   The sale of one of our two office buildings in June 2024 resulted in a loss on the sale of the asset. As this transaction is both unusual and infrequent in nature, we applied this adjustment to remove the impact of the loss on sale of building from our adjusted net income.
(2)   Adjustment to record taxes at our estimated long-term effective income tax rate of 23%. 
(3)   Net income per diluted share is computed independently for each of the quarters presented. Therefore, the sum of quarterly net income per diluted share information may not equal year-to-date net income per diluted share.
(4)   The enactment of the Tax Cuts and Jobs Act in December 2017 resulted in the reversal of $118.5 million of provision for income taxes to reflect the new federal statutory income tax rate. This adjustment removes the impact of this reversal from adjusted average capital. We believe the income tax adjustment provides a more accurate reflection of the performance of our business as we are recognizing provision for income taxes at the applicable long-term effective tax rate for the period.
(5)   Annualized.}