Atlanticus Holdings Corp. Aktie

Hello, and welcome to Atlanticus's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Dan Mock. Please go ahead.

Thank you, operator, and good afternoon, everyone. Atlanticus released results for the first quarter ended March 31, 2026, this afternoon after market close. If you did not receive a copy of our earnings press release, you may obtain it from the Investor Relations section of our website at investors.atlanticus.com.

We have also posted an updated investor presentation. With me on today's call are Jeff Howard, President and Chief Executive Officer; and Bill McCamey, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website.

Today's discussion may contain forward-looking statements that reflect the company's current views with respect to, among other things, earnings growth, returns on equity, portfolio performance, the benefits of the acquisition of Mercury, including expected synergies and future financial and operating results.

These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. Please review our earnings release and the risk factors discussed in our SEC filings. The forward-looking statements speak only as of the date on which they are made and except to the extent required by federal securities laws, the company disclaims any obligation to update any forward-looking statements.

In addition, during this call, we may refer to certain non-GAAP financial measures. Please refer to our earnings release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. And with that, I'll turn the call over to Jeff.

Thanks, Dan. Good afternoon, everyone, and thank you for joining us. 2026 is off to a very good start, combining strong legacy asset performance with continued momentum from our recent acquisition of Mercury Financial. We're now 2 full quarters into the Mercury acquisition, and the integration continues to progress well.

Last quarter, we noted that we were ahead of plan, and that pace continued throughout the first quarter. We're encouraged by the early results from our portfolio management actions, which are ahead of our acquisition model as well as better-than-planned origination volumes and unit level economics. And most importantly, we are ahead of schedule on our operational integration and the creation of One Atlanticus.

As I stated in our earnings release, we are a more scaled, better resourced, more talented and capable company than we were at this time last year. And I will further add with the ability to serve an even broader customer base. We're excited about the opportunity to build on these enhancements in the periods ahead.

Aside from the Mercury acquisition, we also experienced growth in our legacy portfolios, which reinforces the underlying strength of the platform with managed receivables growth, excluding Mercury, of 35% -- this growth remains broad-based across both our private label and general purpose product lines, supported by increased customer acquisition on behalf of our bank partners and deeper customer engagement as well as retail partners' organic growth and market share gains within those partnerships.

From an overall portfolio perspective, we continue to see favorable asset level performance. Payment behavior remains consistent. Purchase activity is steady and newer customer cohorts are performing well as they season. While macro uncertainty persists, we have not observed any material change in underlying trends. In fact, we continue to see stable and rational consumer behavior across the portfolio.

Through our deep data-driven insights, we're closely monitoring our book of managed receivables for any signs of stress, particularly given the market's concern regarding recent increases in gas prices. Utilization rates, payment rates, first pay default, early delinquency trends, percent of consumers making on-time payments, percent of consumers making more than the monthly minimum payment, all exhibit normal behaviors.

Yes, spending patterns have shown some changes. The percent being spent on gas did increase in March, but remains in line with 2023 and 2024 spending levels and well below 2022 levels.

Conversely, we're actually seeing higher levels of discretionary spending and dining out expenditures. While we are mindful of the risk associated with inflation and specifically the continued rise in gas prices, we also note that the economy at large is in reasonably good shape. Unemployment rates are steady, jobless claims are at a 50-year low.

And according to published reports, deposits as a percent of disposable income and inflation-adjusted deposit levels for middle-income consumers remain substantially higher than pre-pandemic levels. As a result, we continue to feel confident in our portfolio performance and the continued achievement of our unit level return targets.

From a competitive standpoint, as mentioned last quarter, the general purpose card environment remains active with continued elevated solicitation levels across the markets we serve. As a result, we are seeing somewhat lower response rates. Despite this increased competition, we continue to see opportunities for prudent growth and attractive asset level returns, which are supported by our differentiated analytics, multiple product offerings and omnichannel origination capabilities.

Turning to financial performance. We delivered another strong quarter of earnings with net income attributable to common shareholders of $41.9 million or $2.23 per diluted share, up 50% year-over-year and 27% sequentially. We also achieved a return on average equity of 26.8% -- as we look ahead, we believe the business is better positioned than we have ever been.

We remain focused on further optimizing the Mercury portfolio, leveraging our scale, driving disciplined growth and maintaining stable credit performance as we continue to seek to serve the more than 100 million everyday Americans looking for a trusted financial partner. We are excited about the momentum we have coming out of Q1 and continue to expect to deliver earnings growth and returns on equity at or above our targets of 20%. With that, I'll turn the call over to Bill.

Awesome. Thanks, Jeff. Thank you, everyone, for joining us. I'll begin with revenue. For the first quarter, total operating revenue and other income increased 97% year-over-year to $680 million, including $224 million from the Mercury portfolio, reflecting its continued contribution along with ongoing growth in our legacy receivables and customer base.

Net margin increased over 60% year-over-year to $190 million, reflecting the earnings contribution from a larger receivable base, partially offset by higher funding costs and the higher fair value impacts associated with portfolio growth. Changes in fair value of loans were negative $366 million, an increase of 105% year-over-year, reflecting a larger receivables base and the corresponding charge-offs, particularly offset or partially offset by favorable assumption changes and continued improvement in newer customer cohorts.

First quarter seasonal dynamics, including tax-related paydowns and typical moderation in new receivable growth, along with continued portfolio seasoning provided a modest benefit to fair value. The quarter also included approximately $13 million of favorable impact related to a reduction in contingent consideration associated with the Mercury acquisition.

Delinquency and charge-off trends remained stable and consistent with our expectations. As anticipated, we are seeing the benefit of tax season in the first quarter with lower delinquency levels and corresponding improvement in charge-offs versus last year. Interest expense increased 158% year-over-year to $123 million, reflecting higher debt balances associated with receivables growth, higher borrowing costs and financing associated with the Mercury portfolio.

Total operating expenses increased 69% year-over-year to $131 million, reflecting the scale of the combined platform, higher marketing and customer acquisition activity and increased servicing costs as the portfolio continues to grow. As we continue to scale the platform, we are seeing the benefits of operating leverage begin to emerge.

Turning to the balance sheet. We ended the quarter with total assets of $7.5 billion and total equity of $644 million, along with $650 million of unrestricted cash providing ample capital to support continued growth.

The first quarter reflects continued revenue growth, stable credit performance, meaningful integration progress and solid earnings expansion. Looking ahead, we remain focused on disciplined profitable growth to most effectively deploy our capital. With that, I'll turn the call back to the operator for questions.

[Operator Instructions]

Our first question comes from the line of David Scharf with Citizens Capital Markets.

Congrats on a very strong start to the year. And I guess one of the things I was curious to get some color on, Jeff, is maybe how you define ahead of plan in so many of the aspects of the Mercury deal. You obviously were looking at this target for quite a while.

And can you provide a little more color, maybe first on why you think you're kind of performing ahead of pace on originations in that asset, whether it's something that is deliberate in terms of kind of a lean into marketing or if there was just something about the product that seems to be capturing share?

And then I guess, secondly, on the integration front, does being ahead of plan refer to just timing? Or are there potentially greater cost synergies than you originally anticipated?

Yes. Thanks, David. I'll try to go through those sequentially as you ask them, but obviously, a lot of good questions there. I really getting behind the detail of why we're so excited about what we've been able to accomplish and look forward to accomplishing with the Mercury acquisition.

You rightly point out that we had a lot of time to due diligence and build models and come up with an operating and financial plan for the Mercury acquisition. That included repricing and change in terms activities that include operational integration that include overhead reduction, a whole host of things that we had well laid out as our operating plan.

I think the biggest driver of it thus far has been the change in terms. We're able to be executed more quickly. And the adoption rate and I'll call it stickiness and response from consumers has been better than modeled. And so we're getting better financial performance on that repricing than we had originally modeled.

Additionally, we're seeing, I guess, the more rapid realization of some of the operating synergies and therefore, the leveraging of the combined infrastructure. And then we're putting the companies together from a technology and infrastructure perspective ahead of our schedule.

So across all of the metrics that you mentioned as the possibilities for areas where we say we're ahead of plan, we're checking all of those boxes. As it relates to new originations and being a bit ahead of tempo there as well, we were really conservative. I'd say we were conservative in terms of our acquisition model and the change in terms. We're also very conservative in terms of what we thought we might be able to do from an origination perspective.

And I would say having the capital to put behind the team and to lean into opportunities where we see at or above unit level target return opportunities in the market, we've been able to put capital to work there, and that supported the team to find those opportunities, bring those opportunities up and increase the mail velocity, increase some of our online partnerships and really expand at a rate that is a bit faster than we had anticipated in terms of new account origination.

Got it. I appreciate that color. And maybe just as a follow-up, this is more in the weeds. The $13 million kind of contingency release, where would we see that in the P&L?

Well, that's in our fair value mark, David.

Our next question comes from the line of Vincent Caintic with BTIG.

Congratulations on that great quarter. First, I wanted to talk about the relative competition comments. I know you talked earlier about maybe competition increasing a little bit, but it's pretty amazing to see same company managed receivables growth grow 35% year-over-year. I don't think of -- I don't cover any other company that's growing that fast.

And it seems like loan growth with other credit card and purchase finance providers are slowing down. So should we read that to mean that you're taking share as maybe some prime lenders and others are tightening? Would you attribute it to your Atlanticus' own sales efforts? I did note on the press release, there was a paragraph about expanding with one of your retail partners.

If you could maybe describe that in more detail. Is that retailer shifting away from another provider towards Atlanticus? Or is that a new kind of greenfield opportunity for expansion?

Yes. Thanks, Vincent. I appreciate the questions. On the general purpose side, I think that the competition has increased as people have realized that there's stability in the consumer segment that we market in. And I think that's indicative of not just our view, but what our competitors are seeing as well.

We had a massive amount of what I would consider irrational competition during the "fintech bubble" call that from kind of 2015 to 2021, 2022. That competition is rationalized. I think it's consolidated amongst 5 or 6 players in the space that are -- have a long history of serving this consumer. And they, like us, are seeing a good, stable consumer and are leaning into those marketing opportunities. And we're just seeing more mail volume in the direct mail channel than we've seen in a while. And as a result, we've seen slightly lower response rates.

But for the most part, it's rationally priced competition. We're all trying to serve that 100 million consumers. So it's a really, really, really big market at a time where we're seeing more rational pricing coming from fewer competitors. And I think that's really the summation of it.

I think a lot of concern or headline grabbing quotes have been made about the K-shaped economy. And I think a lot of that has more to do with the separation between the top half and the bottom half, but the bottom part of that K-shaped is really doing fine. It's stable. It's not decreasing. It's not showing any real signs of stress.

And I think the market in total is just leaning into that and continue to serve that consumer more fully. On the retail credit side, I think you hit the nail on the head. We are taking share. You might recall that we bought a portfolio from another competitor in the space back in October.

So there's some consolidation of competition there as well. The merchant partners that, that competitor served, we've grown our share within as well as continue to grow with existing merchants who are having some organic growth of their own.

So I'd say we're sort of checking the boxes across all of those variables. We are taking share. We're continuing to grow and supporting some of the organic growth that exists at our merchant partners. And as a result, we're seeing good attractive growth across the entire portfolio.

Okay. That's great. And then I wanted to kind of touch back on that Mercury acquisition update and maybe just a follow-up on David's question. But -- so it sounds like things are better relative to the guidance.

Maybe if you could help us understand because you provided a multiyear guidance framework on the acquisition slide deck when Mercury was announced. Where are we in that path? Has your view of guidance changed in the terms of are we still in line with guidance? Or are things looking better than that guidance pathway? And if you could also talk about what's left in terms of the integration pathway?

Yes. Good question. Thank you. I think we feel very good about the guidance we provided. Obviously, we've provided a range of guidance for both '26 and '27 and feel very good about our progression towards the achievement of those financial outcomes within that range.

As to what's left, there's ongoing opportunities in the portfolio to optimize it, continue to undertake portfolio management activities that we think will result in long-term value creation, whether it be continued repricing, credit line increases in some cases, APR reductions to help stimulate retention and growth with existing lower-risk account holders. And that's just an ongoing exercise that we now have a more scaled portfolio to undertake those portfolio management activities on.

And so that will be an ongoing process for us. As it relates to sort of the operational integration, there's some more technology work that needs to be done. Obviously, we had 2 disparate infrastructures that we're trying to bring together. Those are going to happen over the course of, as we had outlined before, about an 18-month time line.

We feel good about that time line. I feel like we'll probably come in before that 18-month period expires, but there's still some work to be done there. We have multiple databases, decision engine, system of records, all of that needs to get consolidated and it's work that's well underway, and we feel like we have a very thoughtful plan in place and a team that's extraordinarily adept at accomplishing those tasks.

[Operator Instructions]

Our next question comes from the line of Randy Binner with Texas Capital.

I had a couple, if I could. I guess the first one is just on the lower response rates. And so there's a lot of competition, but is it also kind of a read on your target market like not -- maybe not reaching as much for credit?

Is there another way to look at lower response rates in addition to just being a lot of competition? Is that kind of a sign of stability that they don't -- you're not getting like really high responses?

Yes. I think there's 2 ways to look at it. One, do we have a supply issue or two, do we have a demand issue. We are certainly seeing, based on third-party data, an increase of supply. We're certainly seeing more mail. But you're right to point out that if there are early signs of stress, you typically see demand from consumers, and therefore, response rates go up. And we're not seeing that across any of our channels per se.

Like we said before, we're seeing good stable performance across all of our early indicators, response rates or demand for credit being one of them. But I think it's just indicative of stability. I think we see a lot of people using the term resilience. I like the term stable better because we haven't seen anything in our data that suggests the customer is struggling against some headwind.

We know the gas prices are going up. We haven't really seen it affect credit yet. We've seen some changes in other payment behavior. And like we've seen over our 30-year history, if our consumer is given time to adjust to whatever headwind they have, they have found a way to do that. And that's what -- why we like the space that we're in, the utility they see in our products, they treat accordingly.

And therefore, we see better performance over time as long as the consumers had a chance to have time to adjust to that. I think that's what we're seeing now. They can -- we're seeing some indications that consumers are driving less because gas prices are up. We saw when food inflation was up, a shift from dining out to groceries.

So our consumer is typically going to try to find ways to adjust their lifestyle, whether it be through changing expenditures or supplementing income. to continue to meet their credit obligations. And that's the sort of steady performance we're seeing and has not led back to your original question, that we've seen as an unusual demand for credit.

All right. That's helpful. And then I guess -- and I came into the call late, so I apologize if I missed this, but just on tax refunds, that was a big -- it's been a big talking point, I guess, going into earnings, but it's broadly reported at this point that the refunds were maybe like 9% to 12% higher than last year, depends on the source you look at.

But I think I'm wondering if you saw like kind of a typical like your experience with tax refunds because of the big beautiful bill tax reforms. Did you see that? It was most of it kind of front-loaded, like meaning it was in these first quarter numbers? Or would we still see it in the second quarter? And did that help organic growth at all?

Does it affect anything on the delinquency numbers? Just kind of interested in how that came into the first quarter numbers and if it could be something to consider as we think about second quarter?

Yes. Good question. And let me answer the growth part of that question first. And that is it did not affect our growth or leaning into originations in any way, shape or form. Obviously, we've got 30 years' worth of modeling to understand how seasonality works for our consumer space and don't tend to try to play the timing game as it relates to tax season.

I will say that our portfolio now is obviously much larger than it was a year ago. We have more data in the near prime space than we did before. So we're able to see the impact of tax season across a broader subsegment of the less than prime consumer space. And what we did see was what I would consider a better tax season in the deeper subprime.

We saw a greater reduction in early delinquencies -- we saw what I would consider a longer tax season in the near prime space. But importantly is how do things look coming out of tax season. And I would say, as we look at it right now, coming out of tax season looks very much like it did last year.

Okay. And just like one -- because I feel like I've heard different accounts of this earnings season. Do you feel like a lot of that impact is before March 31 or will that can kind of continue into some of the second quarter numbers?

No, we see tax benefit that does lean into April. And like I said, particularly on the near prime portfolio, that tax season was a little bit more extended. It started a little later, ended a little later. Across our entire portfolio, we see the benefit of tax paydown through March 31 and into the early parts of first quarter -- second quarter.

I -- that's helpful.

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to turn the call back to Jeff Howard for closing remarks.

Yes. Thank you. And I want to thank everyone for their interest. We're obviously very pleased with Q1 and equally so in the positioning of our business on a go-forward basis.

We're excited about the opportunities that lie ahead for us, not just with the Mercury acquisition and integration and obviously, the leveraging of that platform and the ongoing profit growth for us, but the organic opportunities that exist across our entire platform, whether it be retail credit, general purpose, healthcare, all of our lines of business.

So we're excited about the positioning of our business, excited about what lies ahead for us, and we're certainly looking forward to sharing our results with you in the next quarter. So thank you all.

That concludes today's conference call. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Atlanticus Holdings Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, [ Dan Mock ] of Atlanticus. Please go ahead.

Thank you, operator, and good afternoon, everyone. Atlanticus released results for the fourth quarter and full year 2025 ended December 31, 2025, this afternoon after market close. If you did not receive a copy of our earnings press release, you may obtain it from the Investor Relations section of our website at investors.atlanticus.com. We have also posted an updated investor presentation.

With me on today's call are Jeff Howard, President and Chief Executive Officer; and Bill McCamey, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website.

Today's discussion may contain forward-looking statements that reflect the company's current views with respect to, among other things, the benefits of the acquisition of Mercury, including expected synergies and future financial and operating results. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. Please review our earnings release and the risk factors discussed in our SEC filings.

The forward-looking statements speak only as of the date on which they are made, and except to the extent required by federal securities laws, the company disclaims any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

In addition, during this call, we may refer to certain non-GAAP financial measures. Please refer to our earnings release and investor presentation for important disclosure regarding such measures, including reconciliations to the most comparable GAAP financial measures.

And with that, I'd like to turn the call over to Jeff.

Thanks, Dan. And again, good afternoon, everyone, and welcome to Atlanticus' first public earnings call. To state the obvious, 2025 was a transformative year for our company. Not only do we deliver sustained above-market growth across our core businesses, but we also completed the acquisition of Mercury Financial, a transaction that meaningfully enhanced the scale, capabilities and long-term earnings power of our company.

With the Mercury acquisition, we effectively doubled the size of our balance sheet to approximately $7 billion. We added more than 1.3 million customers that we serve, and we deepened and strengthened our data, analytics and product capabilities in the near-prime space. And most importantly, we added significant human resource talent.

Strategically, this acquisition expands the markets we can serve and accelerates efficiencies gained from scale. It also provides us a $3 billion portfolio to optimize with our portfolio management expertise, expertise gained from our numerous portfolio acquisitions throughout our history. As a result, we anticipate significant long-term earnings accretion driven by disciplined portfolio management, cost savings and incremental origination growth in the near-prime space.

The integration of Mercury has progressed well ahead of plan. Our team has done an exceptional job in integrating the organizations and bringing about the realization of the many value-creating opportunities that will be derived from the acquisition.

Our first priority is portfolio management, undertaking actions to properly position the Mercury portfolio. Phase 1 of those actions has been completed and is performing better than modeled. Additional phases will continue throughout 2026. At the same time, we are already realizing meaningful operating cost efficiencies across the combined company. We expect these revenue enhancements and cost benefits to contribute increasingly to earnings growth in 2027 and 2028.

During the quarter, we also acquired a $165 million retail credit portfolio from a competitor, further solidifying our leadership position in the second look point-of-sale market.

Turning to our financial performance. We once again delivered strong results in the fourth quarter and for the full year. For the fourth quarter, diluted earnings per share grew 23% year-over-year and for the full year, grew 25% over prior year. We also continue to deliver strong returns to our shareholders with return on average equity above 20%, even while maintaining more than $600 million of unrestricted cash at year-end.

And while I've highlighted the Mercury acquisition, it was our historical business that drove results in 2025. Excluding Mercury, managed receivables increased 37% year-over-year. New account originations increased 73% to more than $2.2 million for the year and were up 56% in the fourth quarter compared to the prior year period.

Purchase volume increased 54% for the quarter over last year and 32% for the year. Revenue increased 27% for the full year and 35% in the fourth quarter year-over-year. As a result, we finished 2025 with record levels of receivables, record originations and record accounts served while exceeding our earnings growth and return on capital goals.

On the consumer front, our data indicates that the consumers we serve remain stable. We're seeing consistent payment performance, steady purchase activity and stable delinquency trends. While much has been made about a K-shaped economy, we continue to see rational consumer behavior. Purchasing decisions may be shifting, but consumers are still maintaining their credit.

For those newer to our story, we have seen through multiple cycles, the utility provided by our offerings is one of the most valuable financial tools in a consumer's wallet. As a result, when given time to adjust to the macro landscape, open-ended consumer credit products like ours show less variability during downturns. We see nothing today that suggests our consumers are not managing their finances prudently.

On a different note, the competitive landscape remains robust, and we are seeing record solicitations in our space, leading to some softening in response rates and marketing efficiency. Nonetheless, given our diversified product offerings, our broad consumer reach and multiple origination channels, we are highly confident in our long-term positioning.

As we look ahead, it serves us well to look at how far we've come. Five years ago, we had $1.1 billion in managed receivables. Today, we have $7 billion, a compounded annual growth rate of 45%. Five years ago, we had $560 million in revenue. In 2025, we generated just under $2 billion in revenue, a 28% annual growth rate. And our customers served have grown from 1.2 million to approximately 6 million, a 38% annual growth rate. Importantly, we achieved our return on equity targets of greater than 20% each year, even with the inflationary bubble in 2022 and 2023.

Over the next 5 years, our long-term objectives remain unchanged. While the addition of Mercury naturally moderates our asset growth rates due to the larger base, we are targeting long-term earnings growth of 20% or more annually while delivering returns on average equity of 20% or greater.

We have a talented and experienced team, scalable technology, a proven platform and ample capital. We have a diversified product offering and marketing capability, allowing us to meet customers where they are. We operate at scale in an underserved market where we offer highly valued services to consumers on fair terms.

Consumers are experiencing modest but real wage growth, stable employment and tax policies have been enacted that favor the middle class. We are well positioned to empower better financial outcomes for even more everyday Americans and provide for durable, profitable growth and long-term value creation for our shareholders.

With that, I'll turn the call over to Bill.

Awesome. Thanks, Jeff, and thanks, everybody, for joining us. I'll begin my section with revenue. For the fourth quarter, total operating revenue and other income increased 107% year-over-year to $734 million. This growth was primarily driven by the acquisition of Mercury, continued expansion of our managed receivables and increased merchant fee recognition associated with higher origination volumes.

Our fair value mark declined modestly as we onboarded the Mercury portfolio as well as added meaningful new receivables to our existing general purpose card asset. Newly originated and newly acquired receivables typically carry lower initial fair values because lifetime loss expectations are front-loaded until the accounts season beyond peak charge-off periods.

The Mercury receivables were initially recorded at fair values below our legacy general purpose credit portfolio, reflecting both mix and acquisition accounting. As these portfolios season and as product policy and pricing adjustments Jeff referenced earlier are implemented, we expect fair value marks to improve over time.

Our year-over-year improvement in delinquency and charge-offs continued through the fourth quarter and was amplified with the addition of the Mercury assets. We expect to see the positive impact of the current tax season on delinquencies and subsequent charge-offs.

Interest expense increased consistent with receivable growth and higher funding costs, reflected expanded warehouse capacity, term securitizations and the issuance of senior notes to support our ongoing growth.

Total operating expenses increased 67% year-over-year, primarily driven by increased servicing costs associated with portfolio growth, the addition of Mercury personnel and operating infrastructure and higher marketing investment. As we integrate Mercury and scale the combined platform, we continue to identify and realize operating efficiencies.

Net income attributable to common shareholders increased approximately 25% year-over-year to $32.8 million in the fourth quarter or $1.75 per diluted share. We ended the year with ample capital and continue to maintain substantial borrowing capacity across our warehouse facilities and term securitization platforms. Our funding model remains diversified across bank partners, term securitizations and corporate debt markets. We believe we are well positioned to support continued receivable growth while maintaining disciplined return thresholds.

For the quarter, we generated a return on average equity of approximately 22%. Our focus remains clear: empower the more than 5 million customers we serve by prudently deploying capital into at or above targeted return receivables, manage credit conservatively and drive long-term earnings growth while maintaining balance sheet strength.

In summary, the quarter reflects strong top line growth, disciplined credit management, improving portfolio seasoning dynamics and continued operating leverage as we scale the combined platform.

With that, I'll turn the call back to the operator for questions.

[Operator Instructions] And the first question will come from Vincent Caintic with BTIG.

Congratulations on your first earnings call. First, I wanted to talk about the integration of Mercury. It's nice to hear that it's moving ahead of schedule. Maybe if you can go into more detail where we're at, what's been achieved so far and what's left to do and how long it might take? I thought in the press release, there was discussions about the product policy and pricing changes. I'm sort of curious about what higher yields we should be expecting once all of that is said and done.

Yes. Thank you, Vincent. I appreciate the question. As we said, the integration of Mercury is well ahead of plan. Fortunately, we had ample time to plan post-acquisition for that integration given the length of time we were in negotiation with our counterparty before that acquisition. But that integration entails a number of different things. One, as I mentioned earlier, was the repricing and repositioning of the portfolio. We started that process on day 1 literally after the closing of the transaction and undertook a significant change in terms on the portfolio that was effective back in December. That was obviously a very accelerated time line that kudos to our team to really undertake what was a heavy lift to get that change in terms out in market. And that change in terms entailed a lot of different actions across the portfolio.

And we've done this 7 or 8 other times in our history. We've got a lot of experience in doing this, and we leverage that experience as well as our sort of more recent portfolio management actions undertaken in 2022 and 2023 to have a high degree of certainty in those actions. And in some instances, we added fees. In some instances, we increased APRs. In some instances, we lowered APRs and increased credit lines. It really was a risk segment-by-risk segment undertaking across the entire portfolio to better position the portfolio for longer-term profitable balance build.

And so that was effective. As I said, beginning in December, we've had a number of operational efficiencies that we're starting to realize. The integration of the 2 organizations starts with a system of record integration, which will be undertaken later this year. That will help align all of our systems and continue the cost savings and help us further along the process of gaining the benefits of scale. And in that process, we are getting the benefits from scale from many of our third-party service providers throughout the entire ecosystem of our business. So we're starting to realize those efficiencies already.

I think the entirety of our integration plan was around 18 months. So into the early part of 2027, we feel like we'll have the integration pretty much under our belt. But the realization of a lot of that integration and synergy and portfolio repositioning will continue to accrue into '27 and even '28. The way that a lot of the change in terms is undertaken post CARD Act, you can only affect the new balances with new APRs. And so it takes some time for the older protected balances to run off and to be replaced with the newer higher-yielding balances, which is why we see what I would consider a longer tailed realization of a lot of this change in terms.

Okay. Great. Second part I wanted to talk about was the funding structure of Atlanticus. I think we've heard maybe some just broader macro concerns about funding availability out there, such as with private credit and so forth. So if you could touch on that. And another thing we've seen amongst many of the fintechs out there as well as some fintechs exploring becoming a bank. And so I wanted to get your thoughts on that as part of your funding structure as well.

Yes, Vincent, happy to address that. We've got great funding partners really all over the world, and they remain very supportive. We continue to access the securitization market routinely, have seen no deterioration or widening of our spreads as we approach those markets. We have a diversified funding sources that include banks and life insurance companies and sovereign wealth funds and lots of different pools of capital, including private credit. We have not seen any lack of enthusiasm when we go to market. So we've done a number of things with the Mercury asset that we've acquired. I think we announced at least one of those in December. That's very well received. We've got good partners in the whole program. So we don't sense that there's any softening there or support for our business. We also tap the corporate debt markets and have other places where we source capital. I think we have almost $1 billion of committed and undrawn bank warehouse lines across the whole business. So we've got good capital support for our growth.

And then with regards to your question about a bank, we obviously observe others that are applying for bank acquisitions or seeking new charters. We're studying that ourselves, and that's an interesting element for the industry more broadly and something that we're considering.

And the next question will come from Alex Howell with Stephens.

Congrats on the quarter. Quick question, and some of this was touched on during the opening remarks. Curious also what you guys are thinking about or how you're rather thinking about this particular tax refund season and the implications to the portfolio and just growth of receivables over, I guess, the start of this new year?

Yes. Look, our expectation is that this was going to be a fairly robust tax season. We've not seen anything to dissuade us of that view up to this date. We obviously recognize a number of tax policies that were enacted that we believe will benefit our consumers, and we expect to see the pay down accordingly, which will obviously hurt balances a little bit and slow our growth in the quarter, not necessarily year-over-year, but certainly in sequential quarters, but also has the longer-term benefit of reducing delinquencies. And we feel very good about the way our portfolio is positioned.

Like I said, the data that we're seeing suggests that tax season is in line with expectations, and it will follow its normal seasonal trends as our expectation and consumer behavior throughout the rest of the year. Our consumers will typically pay down with their tax dollars and tax refunds and then reborrow over the course of the year and rebuild those balances through the use of our card throughout the remainder of the year. So we don't expect anything different at this point.

Okay. If I could just also sneak another one in. In your filings, you guys talked about customer concentration. I'm just curious if you could provide a little bit more context on your particular relationship with partner -- your largest partner and how that relationship has evolved and what you're doing to manage concentration risk.

Yes. Thanks for the question, Alex. We have a number of -- well, frankly, thousands of merchants that we work with in our retail point-of-sale channel. Some of them have bigger concentrations than others. Obviously, you see the table in our 10-K. We haven't disclosed who those individual partners are, but I think the scale and the way that, that's grown is reflective of how we approach that whole market. It's very technology-driven. The integration with each of our merchant partners is very sophisticated, very API-driven, maybe very mobile first. And that really enables us to make great underwriting decisions in partnership with our account owner banks at the point of sale, and it gives us a lot of defensive moat in that operating structure.

So that -- I say all that as an example, that relationship has scaled because probably at least 6 or 7 years, we've been adding great value to that partner, like we think we do with all our partners, and we've been winning more and more market share with them and others. So that's been a good growth story for us. It's not a concern from our perspective from a concentration perspective because, obviously, that one partnership is a part of a bigger portfolio, which in turn is a part of a bigger balance sheet. So we've got good underwriting of the individual consumers affected there or that we support there and good counterparty risk with that merchant as well. So it's not an area that we're concerned about.

Yes. In fact, I think it's the continuation of an ongoing strategy for us to become more strategically important to fewer, more enterprise-level clients so that we can get the full benefit of our custom solutions, our technology integrations, the breadth of underwriting and create something that's really customized to each of those enterprise-level relationships. And that's what you see as our portfolio has matured.

[Operator Instructions] And the next question will come from David Scharf with Citizens Capital Markets.

This is Zach on for David. I wanted to dig in a little bit on the macro side of things. Obviously, there's a lot going on with oil prices right now. I wanted to see if we can kind of get some more commentary on that. And also, obviously, that was -- it's a large part of your average customers' budget, and there's a lot of similar dynamics in 2022 and I wanted to see if it's a little bit too early to kind of read into what's going on right now versus then or if we can kind of draw other parallels.

Yes. Great question. Thank you. And we, like you, sort of draw the same parallel to 2022. We are not forecasting or pretending that we know how to forecast what gas prices are going to do in the coming weeks or months. But we are watching it very, very closely, and we'll react to any change in behavior that we see with our consumer, just like we did in 2022. You guys may recall that we were very early to identify a change in behavior coming out of tax season in April of 2022 and changed pretty meaningfully our underwriting, our approach to market, our pricing strategy, our origination tempo, even our existing back book pricing and undertook a meaningful change in terms and repositioning of our own portfolio because of what we saw very early on based on our -- at that point in time, 25 years' worth of data aggregation to identify deviations from expected payment performance.

And when we saw that, we changed very, very quickly. That allowed us to continue to serve our customers in a way that we felt were representative of the risk and getting an appropriate return on that capital. And as you look back at our financial performance, still enabled us to hit our target return on capital of 20-plus percent. And so we feel we're in sort of the same position today. Obviously, this inflation bubble might be more limited to gas prices, at least short term than what we experienced in April and May and June of 2022. But we're going to watch the data. And as soon as we see a change in behavior, we're going to react accordingly. We obviously have a pretty deep toolbox available to us and a lot of experience on how to make changes once we see changes in that behavior to respond to it appropriately and feel like our portfolio is very well positioned to absorb that as well.

We don't wait on changes in behavior to start pricing for that behavior. We've been doing this long enough to know that you have to price your asset for through-the-cycle performance, meaning in the good times, you have to build some buffer for when there is some stress. So we feel like we've done that and been planning for events like this. And now when we actually observe it taking place, we'll take further action based on the tool set that we've developed over our now 30 years of operating history.

Got it. I wanted to also ask a little bit on the fair value mark to see if we can kind of drill down a little bit and get a little bit more insight into it, particularly around mix versus other impacts in the numbers.

Yes, happy to talk about that. We -- as I think I mentioned in my comments earlier, we took the mark down a little bit because the Mercury portfolio is a little different asset than the one that we had traditionally acquired through our normal organic originations. And then we did a lot of organic originations in the third and fourth quarter, too. So I think as I mentioned in my comments earlier, newer receivables are new to their seasoning and their life cycle. So we have a little bit more conservative. Actually, we've had a very conservative approach to our fair value underwriting since we adopted fair value. And I think that's really what you see in this number. So I think the number is some 60 basis points or so below where we were last quarter. It's really a very conservative approach to how we think about the asset itself. And then I think as we also mentioned, as our improvements to the Mercury book and our continuing origination and tempo advances through 2026, I think we anticipate seeing that fair value mark improving.

And the next question will come from Hal Goetsch with B. Riley Securities.

One question on integration costs and one on maybe a revenue question. You mentioned maybe an 18-month time line to get everything on a similar systems of record integration. From start to finish, what kind of overall maybe dollar savings of being on a common system of record bring the company over the next year versus where we're at today?

Yes, good question. We don't disclose the specifics of those synergies. But I think as you saw when we announced the transaction, we anticipated somewhere between $2 and $4 a share in accretion on a go-forward basis. But suffice it to say, there are meaningful savings to be garnered from the full integration of what were 2-close-to-scale platforms and getting one significantly scaled platform in place. And that extends well beyond just a system of record into servicing and marketing, internal costs, et cetera. So we feel like there's a lot of levers for us to pull to continue to gain efficiencies through that scale and through that integration. And again, I would refer back to our initial transaction disclosures where we said we felt like we'd get $2 to $4 a share of accretion in 2027.

Okay. And the next question is, it sounds like you have a chance to reprice some customers, as you mentioned, the CARD Act and some protective balances are going to run off. What kind of maybe increase in overall yield might that be for some of those accounts that might be able to be repriced a little higher or better unit economics if the balances do run off? What would that be?

Yes, great question. As you can imagine, given the sophistication of our data and analytics and the experience we have in both near prime and subprime, the impact varies widely depending on where you sit in the risk spectrum. And so it's hard to sort of say at the portfolio level, what that might mean, and we haven't disclosed that. But we felt like from day 1, we could get 300 to 350 basis points of ROA improvement on this portfolio.

Okay. Okay. And I can ask one follow-up. It relates to the tuck-in acquisition of the Vive portfolio from PROG Holdings. That was a subscale kind of operation for PROG and it wasn't that profitable. And I'm just curious what can Atlanticus do with its expertise in card programs to improve the unit economics of that program that was not very large.

Yes. Another good question. Thank you. And so one of the things that we did was buy it properly and therefore, create a little bit more yield for the asset based on the purchase price. Two is our servicing costs are substantially less than the sellers just because of the scale that you referenced. And then thirdly, we also had the opportunity to get more organic originations through the partnerships that we inherited at prices that we were then able to determine worked for us. And so we felt like the combination of those 3 things got us a return profile for that acquisition that we deemed attractive.

And the next question will come from Alex Howell with Stephens.

A quick question on the private label receivables, the delinquency rates. You guys call out that you don't include certain receivables from the private label card business. Just curious if you could help me understand the thinking behind that and perhaps just for comparability's sake, help me understand what the delinquency metrics might look like if they were included?

Yes, happy to speak to that. We make that reference because we -- some of our merchant relationships have support from the merchant with regards to asset performance. So in some cases, the merchant will reimburse us for principal losses in that program. And so because there's no loss experience, no expected loss experience nor any actual loss experience with those particular receivables, we don't include them in those ratios. We're trying to here present what we think is an accurate description of how the assets are performing. And so including those receivables here would be, I think, confusing with regards to how the asset is actually performing. So those assets we don't include in that table. And I don't know how -- we haven't broken them out in terms of size or impact. So I don't know if I can directly answer your question with regards to what would they look like if they were included, but they would be -- because there's no losses there, so I guess it would be a different ratio, but that's how we think about it.

This does conclude today's question-and-answer session. I would now like to turn it back to Jeff Howard for closing remarks.

Yes. Thank you, and thank you all for your interest and support in our company. We're obviously very pleased with the quarter that we posted and obviously, the year as well. A lot took place in 2025 in terms of both organic opportunities and the transformational acquisition that we spent a good deal talking about. As much as there was to talk about in 2025, we're even more excited about what lies ahead and the opportunities for our business and the earnings power that we've created this platform over the course of the last 5 years, as we referenced in some of our prepared comments. And we look forward to sharing the results of those opportunities in the coming quarters. So thank you all again, and thank you for your interest, and we look forward to talking to you again in the next quarter.

This concludes today's conference call. Thank you for participating, and you may now disconnect.