PROG Holdings, Inc. (PRG) FY 2021 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of PROG Holdings, Inc. and should be read in conjunction with the consolidated financial statements and the accompanying notes. Throughout the MD&A we refer to various notes to our Consolidated Financial Statements which appear in Item 8 of this Form 10-K. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs and involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed in these forward-looking statements. Factors that may cause or contribute to these differences include those discussed in Item 1A. Risk Factors and "Forward-Looking Statements" of this Form 10-K.

Business Overview

PROG Holdings, Inc. ("we", "our", "us", the "Company", or "PROG Holdings") is a financial technology holding company that provides leading financial solutions to empower consumers and retailers. PROG Holdings has two reportable segments: (i) Progressive Leasing, an e-commerce, app-based, and in-store point-of-sale lease-to-own solutions provider; and (ii) Vive Financial ("Vive"), an omnichannel provider of second-look revolving credit products.

Our Progressive Leasing segment provides consumers with lease-purchase solutions through its point-of-sale partner locations and e-commerce website partners (collectively, "POS partners") in 49 states, the District of Columbia and Puerto Rico. It does so by purchasing the merchandise from the POS partners desired by customers and, in turn, leasing that merchandise to the customers through a cancellable lease-to-own transaction. Progressive Leasing has no stores of its own, but rather offers lease-purchase solutions to the customers of traditional and e-commerce retailers. The Progressive Leasing segment comprised approximately 98% of our consolidated revenues for the year ended December 31, 2021.

Our Vive segment primarily serves customers that may not qualify for traditional prime lending offers who desire to purchase goods and services from participating merchants. Vive offers customized programs with services that include revolving loans through private label and Vive-branded credit cards. Vive's current network of POS partner locations and e-commerce websites includes furniture, mattresses, home exercise equipment, and home improvement retailers, as well as medical and dental service providers. The Vive segment comprised approximately 2% of our consolidated revenues for the year ended December 31, 2021.

On June 25, 2021, the Company completed the acquisition of Four Technologies, Inc. ("Four"), an innovative Buy Now, Pay Later company that allows shoppers to pay for merchandise through four interest-free installments. Four’s proprietary platform capabilities and its base of customers and retailers expand PROG Holdings’ ecosystem of financial technology offerings by introducing a payment solution that further diversifies the Company's consumer financial technology offerings. Shoppers use Four to purchase furniture, clothing, electronics, health and beauty products, footwear, jewelry, and other consumer goods from retailers across the United States. Four is not a reportable segment for the year ended December 31, 2021 as its revenues, loss before income taxes, and assets are not material to the Company's consolidated financial results. Four's financial results are reported within "Other" for segment reporting purposes.

Separation and Distribution of the Aaron's Business segment

On November 30, 2020, PROG Holdings (previously "Aaron's Holdings Company, Inc.") completed the separation of its Aaron's Business segment from its Progressive Leasing and Vive segments. The separation was effected through a tax-free distribution of all outstanding shares of common stock of The Aaron's Company, Inc. ("The Aaron's Company") to the PROG Holdings shareholders of record as of the close of business on November 27, 2020 (referred to as the "separation and distribution transaction"). Through that distribution, shareholders of PROG Holdings received one share of The Aaron's Company for every two shares of PROG Holdings common stock. Upon completion of the separation and distribution transaction on November 30, 2020, The Aaron's Company became an independent, publicly traded company under the symbol "AAN" on the New York Stock Exchange, while PROG Holdings continued to be listed on the New York Stock Exchange under the new symbol "PRG".

Prior to the separation and distribution transaction, the Company's operating segments were Progressive Leasing, the Aaron's Business, and Vive. All direct revenues and expenses of the Aaron's Business operations have been classified within discontinued operations, net of income tax, within our consolidated statements of earnings (loss) for all periods through the separation and distribution date of November 30, 2020. Certain corporate expenses that have previously been reported as expenses of the Aaron's Business segment in 2020 and 2019 did not qualify for classification within discontinued operations and are reported as unallocated corporate expenses for segment purposes within continuing operations. These unallocated corporate expenses are in addition to corporate overhead costs allocated to the Progressive Leasing and Vive segments for

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periods through the separation and distribution date of November 30, 2020. We have focused our discussion in the MD&A on our continuing operations of Progressive Leasing and Vive.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. Since then, the COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels. Although the temporary showroom and/or store closures or reduced hours and scope of operations that many of our POS partners experienced during portions of 2020 have eased, other pandemic-related factors continue to unfavorably impact many of our POS partners, including supply chain disruptions resulting in shortages of available products at certain POS partners, primarily in the appliance, electronics and furniture categories. While customer demand and gross merchandise volume ("GMV") was strong during most of 2021, these pandemic-related developments may have an unfavorable impact on Progressive Leasing’s generation of new lease agreements, Vive's generation of new loans, GMV, and revenues in future periods. During December 2021 and January 2022, we experienced an unfavorable impact to our GMV due to a resurgence of COVID-19, from the Omicron variant in particular, that resulted in store closures, reduced hours of operation, significant increases in employee absenteeism, and a decline in customer traffic for many of our POS partners.

The COVID-19 pandemic may adversely impact our business, results of operations, financial condition, liquidity and/or cash flow in future periods. The extent of any such adverse impacts will depend on future developments, which are highly uncertain and cannot be predicted, including (i) the length and severity of the pandemic, including, for example, the emergence of more contagious and harmful variants of COVID-19 and localized outbreaks or additional waves of COVID-19 cases; (ii) the impact of any such outbreaks on our customers, POS partners, and employees; (iii) the nature of any government orders issued in response to such outbreaks; (iv) the effectiveness, availability and level of use of vaccines; and (v) whether there is any additional government stimulus in response to the pandemic, as well as the nature, timing and amount of such stimulus payments.

In response to COVID-19, the United States government enacted certain fiscal stimulus measures in several phases to assist in counteracting the economic disruptions caused by the pandemic. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. A second round of stimulus benefits was enacted and paid in December 2020. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, providing a third round of stimulus payments to individuals and extending supplemental unemployment assistance through September 6, 2021, while exempting the first $10,200 of unemployment benefits from income tax. We believe all of those government stimulus measures provided economic support to many of our customers, resulting in an increase in payment activity and early lease buyouts, as well as lease merchandise, accounts receivable, and loan receivable write-offs trending lower during 2020 and the first half of 2021. We believe a significant portion of our Progressive Leasing and Vive customers received stimulus payments and/or federally supplemented unemployment payments during 2020 and the first half of 2021, which enabled them to continue making payments to us under their lease-to-own or credit card agreements, despite the economically challenging times resulting from the COVID-19 pandemic.

As expected, customer payment delinquencies and uncollectible renewal payments within our Progressive Leasing segment began trending back towards normalized pre-pandemic levels during the second half of 2021, and reached those pre-pandemic levels in the fourth quarter of 2021. Customer payment delinquencies within our Vive segment were unfavorable during the second half of 2021 as compared to the first half of 2021 and 2020, but still more favorable than pre-pandemic delinquency levels. We cannot be certain that our customers will continue making their payments to us at these current levels. We may experience customer payment delinquencies and associated write-offs at levels worse than pre-pandemic trends due to the expiration of the various types of government stimulus that were implemented in response to the COVID-19 pandemic, other adverse economic impacts arising out of the pandemic, and/or the increase in inflation in recent months to levels not seen in decades. Those and other factors may adversely impact our customers' ability to make payments to us, and may have an unfavorable impact on our financial performance.

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Highlights

The following summarizes significant highlights from the year ended December 31, 2021:

•We reported revenues of $2.7 billion in 2021, an increase of 7.8% compared to 2020. The increase in revenues was primarily due to growth of the Company's portfolio of leased assets, driven by a rise in GMV generated from continued growth from large national POS partners and increased penetration in e-commerce. In 2021, GMV generated through e-commerce platforms represented 15.2% of total Progressive Leasing GMV, compared to 7.0% in 2020. These favorable increases in revenue were partially offset by customer payment delinquencies and uncollectible renewal payments trending back to normalized pre-pandemic levels in the second half of 2021, and reaching those pre-pandemic levels in the fourth quarter, as compared to the strong customer payment activity and historically low delinquencies we experienced in the first half of 2021 and in 2020. We believe a significant portion of our customers received stimulus payments and/or federally supplemented unemployment payments during 2020 and the first half of 2021, which contributed to this strong customer payment activity.

•Earnings before income taxes increased to $328.2 million compared to $271.6 million in 2020. The increase was primarily driven by overall growth and higher revenues as discussed above and $18.0 million in separation related charges in 2020 that were not recurring. The increase in earnings before income taxes was partially offset by a $23.9 million increase in operating expenses due mainly to higher personnel and advertising expenses.

•On November 4, 2021 the Company announced the commencement of a "modified Dutch auction" tender offer to purchase for cash up to $425 million of its shares of common stock. On November 26, 2021, the Company issued $600 million of senior unsecured notes ("Senior Notes") that will mature November 15, 2029, for which a portion of the net proceeds was used to fund the tender offer. On December 8, 2021 the Company announced that it had accepted for purchase 8,673,469 shares of its common stock at $49.00 per share. In addition to the shares repurchased through the tender offer, the Company repurchased 2,937,709 shares of its common stock for $142.4 million during 2021.

Key Operating Metrics

Gross Merchandise Volume. We believe GMV is a key performance indicator of our Progressive Leasing and Vive segments, as it provides the total value of new leases and loans written into our portfolio over a specified time period. GMV does not represent revenues earned by the Company, but rather is a leading indicator we use in forecasting revenues the Company may earn in the short-term. Progressive Leasing's GMV is defined as the retail price of merchandise acquired by Progressive Leasing, which it then leases to its customers. Vive and Other GMV is defined as gross loan originations.

The following table presents our GMV for the Company for the years presented:

The increase in Progressive Leasing's GMV was driven by an increase in the quantity of new leases originated in 2021, largely the result of continued growth from our largest national POS partners and increased penetration in e-commerce. E-commerce channels generated $326.5 million, or 15.2%, of Progressive Leasing's GMV in 2021 compared to $130.3 million, or 7.0%, in 2020. Vive's GMV growth was driven by an increase in new loans at both new and existing POS partners. Our Progressive Leasing and Vive GMV also improved year over year due to the unfavorable impacts of COVID-19 in 2020, including showroom and/or store closures and supply chain disruptions for our POS partners.

Active Customer Count. Our active customer count represents the total number of customers that have an active lease agreement with Progressive Leasing, or an active loan with Vive or Four. The following table presents our consolidated active customer count, which includes an immaterial number of customers that have both an active lease agreement and loan agreement, for the Company for the years presented:

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The increase in the number of Progressive Leasing and Vive customers in 2021 compared to 2020 was due to continued growth in new leases and loans, respectively, at both new and existing POS partners. The number of Progressive Leasing customers was also negatively impacted in 2020 due to the COVID-19 pandemic and related government stimulus, which led to higher levels of early lease buyouts and more customers of our POS partners purchasing products, instead of leasing them, in 2020.

Key Components of Earnings from Continuing Operations Before Income Taxes

In this MD&A section, we review our consolidated results. For the year ended December 31, 2021 and the comparable prior year periods, some of the key revenue and cost and expense items that affected earnings before income taxes were as follows:

Revenues. We separate our total revenues into two components: (i) lease revenues and fees and (ii) interest and fees on loans receivable. Lease revenues and fees include all revenues derived from lease agreements from our Progressive Leasing segment. Lease revenues are recorded net of a provision for uncollectible renewal payments. Interest and fees on loans receivable represents merchant fees, finance charges and annual and other fees earned on outstanding loans in our Vive segment and, to a lesser extent, from Four.

Depreciation of Lease Merchandise. Depreciation of lease merchandise primarily reflects the expense associated with depreciating merchandise leased to customers by Progressive Leasing.

Provision for Lease Merchandise Write-offs. The provision for lease merchandise write-offs represents the estimated merchandise losses incurred but not yet identified by management and adjustments for changes in estimates for the allowance for lease merchandise write-offs.

Operating Expenses. Operating expenses include personnel costs, stock-based compensation expense, occupancy costs, advertising, professional services expense, sales acquisition expense, computer software expense, the provision for loan losses, fixed asset depreciation expense, and intangible asset amortization, among other expenses.

Legal and Regulatory Expense, Net of Insurance Recoveries. Legal and regulatory expense includes regulatory charges and legal expenses incurred, net of insurance recoveries for certain third-party legal costs, related to Progressive Leasing's 2019 settlement of the FTC matter discussed in Note 11 in the accompanying consolidated financial statements.

Separation Related Charges. Separation related charges include stock-based compensation expense and retirement charges associated with the separation of the Aaron's Business segment.

Interest Expense. Interest expense consists of interest incurred on the Company's senior unsecured revolving credit facility (the "Revolving Facility") and on the Company's Senior Notes.

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Results of Operations

Results of Operations – Years Ended December 31, 2021 and 2020

nmf—Calculation is not meaningful

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Revenues

Information about our revenues by source and reportable segment is as follows:

The increase in Progressive Leasing revenues was due to a 15.8% increase in GMV driven by growth from large national POS partners and e-commerce platforms. GMV generated through e-commerce platforms represented 15.2% of total Progressive Leasing GMV in 2021, compared to 7.0% in 2020. Although Progressive Leasing's customer payment delinquencies and uncollectible renewal payments began trending back to normalized pre-pandemic levels in the second half of 2021, and reached those pre-pandemic levels in the fourth quarter, the unfavorable impact of that factor on revenues was more than offset by Progressive Leasing's lease portfolio growth in 2021. The increase in Vive revenues was due to continued strong customer payment performance and a 52.3% increase in GMV in the year ended December 31, 2021, compared to 2020, resulting in growth in our loans receivable portfolio and additional interest and fee revenues. We believe a significant portion of our Progressive Leasing and Vive customers received stimulus payments and/or federally supplemented unemployment payments, which contributed to the strong customer payment activity we experienced in 2020 and the first half of 2021.

Operating Expenses

Information about certain significant components of operating expenses is as follows:

1 Personnel costs excludes stock-based compensation expense, which is reported separately in the operating expense table.

2 Sales acquisition expense includes vendor incentives and rebates to POS partners, external sales commissions, amortization of initial direct costs and amounts paid to various POS partners to be their exclusive provider of lease-to-own solutions.

3 Computer software expense consists primarily of software subscription fees, licensing fees and non-capitalizable software implementation costs.

4 Progressive Leasing's sales, general and administrative expense was $316.3 million and $269.8 million during the years ended December 31, 2021 and 2020, respectively.

The increase in personnel costs of $19.3 million was driven by increases of $21.5 million and $0.9 million at Progressive Leasing and Vive, respectively, for additional hiring and promotions resulting from continued growth in the business and new personnel costs for functions associated with becoming a standalone public company effective November 30, 2020. Personnel costs increased an additional $1.8 million as a result of strategic initiatives started by the Company in 2021. These increases were partially offset by executive personnel costs incurred by the Aaron's Business segment in the year ended December 31, 2020, which did not qualify for classification within discontinued operations, and are classified within unallocated corporate costs for segment purposes.

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Advertising expenses increased $10.9 million primarily due to Progressive Leasing's efforts to continue growing GMV from existing POS partners and to further expand into e-commerce, combined with reduced marketing efforts in the same period of 2020 associated with cost cutting measures implemented in response to the COVID-19 pandemic.

Sales acquisition expense increased $2.6 million primarily due to increased rebates paid to POS partners, external sales commissions and continued efforts to grow Progressive Leasing GMV.

Computer software expense increased $7.4 million primarily due to non-capitalizable software implementation projects by Progressive Leasing during 2021 and increased software and licensing costs related to the overall growth and strategic initiatives of the Company.

Provision for loan losses decreased $16.4 million due to continued strong customer payment activity and changes to estimates in Vive's allowance for loan losses during the year ended December 31, 2021 as compared to 2020. The Company recognized an incremental $12.3 million allowance for loan losses during the year ended December 31, 2020 due to the unfavorable forecasted macroeconomic conditions resulting from the COVID-19 pandemic. In the year ended December 31, 2021, strong customer payment activity and improved forecasted macroeconomic conditions resulted in a downward change in estimate to the allowance for loan losses of $14.7 million. These changes in forecasted macroeconomic conditions and strong customer payment activity resulted in a decrease in Vive's allowance for loan losses as a percentage of gross loans receivable from 32.1% as of December 31, 2020 to 23.4% as of December 31, 2021. We believe a significant portion of our Vive customers received stimulus payments and/or federally supplemented unemployment payments, which contributed to the strong customer payment activity in 2020 and 2021. These decreases were partially offset by the establishment of new allowances due to Vive's GMV growth of 52.3% in the year ended December 31, 2021 compared to the prior year. Given the significant economic uncertainty resulting from inflation increasing in recent months to levels not seen in decades, and the impacts of the COVID-19 pandemic, including for example, adverse economic impacts resulting from additional spikes in COVID-19 infections, and the potential effects of such developments on our customers and business going forward, a high level of estimation was involved in determining the allowance for loan losses as of December 31, 2021. Actual loan losses may differ materially from the allowance.

Other Costs and Expenses

Depreciation of lease merchandise. Depreciation of lease merchandise increased due to growth in Progressive Leasing's portfolio of leased assets for the year ended December 31, 2021 compared to the year ended December 31, 2020. As a percentage of total lease revenues and fees, depreciation of lease merchandise increased to 69.5% from 69.2% in 2020, primarily due to elevated early lease buyouts in 2021 as compared to 2020, partially offset by a decrease in the provision for uncollectible renewal payments.

Provision for lease merchandise write-offs. The provision for lease merchandise write-offs decreased $4.3 million primarily due to a $14.8 million decline in write-offs, compared to the year ended December 31, 2020, as the result of continued strong payment activity from customers, and changes to estimates in our allowance for lease merchandise write-offs. At December 31, 2020, we established incremental lease merchandise allowances of $10.3 million, in response to the COVID-19 pandemic, based on management's best estimate of the potential unfavorable impacts the COVID-19 pandemic may have on our customers' ability to continue making payments on their leases. In the year ended December 31, 2021, we continued to experience strong customer payment activity and relatively low write-offs, resulting in the reversal of the full amount of the incremental COVID-19 specific allowance for write-offs. We believe a significant portion of our Progressive Leasing customers received stimulus payments and/or federally supplemented unemployment payments, which contributed to the strong customer payment activity we experience in 2020 and the second half of 2021. Given the significant economic uncertainty resulting from inflation increasing in recent months to levels not seen in decades, and the impacts of the COVID-19 pandemic, including for example, additional spikes in COVID-19 cases, and the potential effects of such developments on our customers and business going forward, a high level of estimation was involved in determining the allowance as of December 31, 2021. Actual lease merchandise write-offs may differ materially from the allowance.

The provision for lease merchandise write-offs as a percentage of lease revenues decreased to 4.8% for the year ended December 31, 2021 from 5.4% for the same period in 2020 due to improved customer payment activity, relatively low write-offs, and changes in estimates on the allowance as discussed above.

Separation related charges. The Company incurred $18.0 million of stock-based compensation and retirement costs in the year ended December 31, 2020 related to the Company's separation of the Aaron's Business segment.

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Earnings from Continuing Operations Before Income Taxes

Information about our earnings from continuing operations before income tax expense by reportable segment is as follows:

nmf—Calculation is not meaningful

The $11.1 million loss before income taxes within "Other" primarily relates to our Four operations. Unallocated corporate expenses represent certain expenses that had previously been reported within the Aaron's Business segment in 2020 that did not qualify for classification within discontinued operations. Factors impacting the change in earnings from continuing operations before income tax expense are discussed above.

Income Tax Expense

Income tax expense increased to $84.6 million for the year ended December 31, 2021 compared to $37.9 million in 2020. The effective tax rate of 14.0% during the year ended December 31, 2020 is primarily due to a $34.2 million discrete income tax benefit generated by the provisions of the CARES Act in 2020, which resulted from the rate differential on the carryback of the Company's 2018 net operating loss previously recorded at 21% to the 2013 tax year, where the benefit was recognized at 35%. There are no material adjustments between the Company's effective tax rate of 25.8% and the Company's statutory income tax rate for the year ended December 31, 2021.

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Results of Operations – Years Ended December 31, 2020 and 2019

nmf—Calculation is not meaningful

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Revenues

Information about our revenues by source and reportable segment is as follows:

Progressive Leasing revenues increased driven by strong customer payment activity, including higher customer early lease buyout activity, and also by a 2.1% increase in GMV and an increase in average merchandise price per lease. The increase in Vive revenues was due to a 57.3% growth in GMV in 2020.

Operating Expenses

Information about certain significant components of operating expenses is as follows:

1 Personnel costs excludes stock-based compensation expense, which is reported separately in the operating expense table.

2 Sales acquisition expense includes vendor incentives and rebates to POS partners, external sales commissions, amortization of initial direct costs and amounts paid to various POS partners to be their exclusive provider of lease-to-own solutions.

3 Computer software expense consists primarily of software subscription fees, licensing fees and non-capitalizable software implementation costs.

4 Progressive Leasing's sales, general and administrative expense was $269.8 million and $260.3 million during the years ended December 31, 2020 and 2019, respectively.

Personnel costs classified as continuing operations include costs historically attributed to the Progressive Leasing and Vive segments, as well as certain corporate personnel costs that were previously unallocated. Personnel costs for Progressive Leasing increased by $15.5 million in 2020, mainly due to continued hiring to support the growth of the business. This increase was partially offset by a $4.9 million decrease in shared corporate personnel costs. Most of these shared corporate personnel functions were retained by The Aaron's Company in the November 30, 2020 separation and distribution transaction. The reduction in these shared personnel costs was primarily driven by the inclusion of eleven months of these expenses in 2020 compared to a full year in 2019. Personnel costs for Vive remained relatively flat year over year.

The decrease in professional services relates to $3.5 million of expenses related to previous corporate strategic initiatives incurred in 2019 that are classified within unallocated corporate expenses for segment purposes.

Other sales, general and administrative expenses decreased $4.7 million as a result of management's efforts to reduce expenses through different cost cutting measures taken in response to the COVID-19 pandemic.

The increased provision for loan losses was due to growth in Vive's GMV in 2020 and an incremental allowance of $12.3 million for the forecasted adverse macroeconomic conditions stemming primarily from the COVID-19 pandemic, including higher unemployment rates and market volatility, which were used in estimating our allowance for loan losses as of December 31, 2020. The Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments ("CECL") during the first quarter of 2020, which is an "expected loss" model that generally will result in the recognition of allowances for

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losses earlier than under accounting guidance in place in 2019. The increase from these factors was partially offset by lower charge-offs as compared to 2019, driven by stronger customer payment activity in 2020, which we believe was the result of government stimulus payments and expanded unemployment benefits being provided to many of Vive's customers.

Other Costs and Expenses

Depreciation of lease merchandise. As a percentage of total lease revenues and fees, depreciation of lease merchandise increased to 69.2% in 2020 from 67.9% in the prior year, primarily due to a higher percentage of our customers exercising 90-day buyouts and other early buyout elections in 2020.

Provision for lease merchandise write-offs. The provision for lease merchandise write-offs as a percentage of lease revenues decreased to 5.4% in 2020 from 7.2% in 2019. This decrease was due to improved customer payment activity in 2020, which resulted in a $14.0 million decrease in gross write-offs when compared to 2019.

Legal and regulatory expense, net of insurance recoveries. Legal and regulatory expense, net of insurance recoveries, for the year ended December 31, 2020 relates to $0.8 million of insurance recoveries associated with the legal expenses incurred in 2019 related to Progressive Leasing's $175.0 million settlement of the FTC matter discussed in Note 11 in the accompanying consolidated financial statements.

Separation related charges. Separation related charges classified as continuing operations expense were $18.0 million in 2020, of which $15.6 million is classified as unallocated corporate expenses for segment reporting and the remaining $2.4 million is recognized as an expense of Progressive Leasing. These charges represent stock-based compensation expense associated with the modification of outstanding equity awards and executive retirement charges related to the separation and distribution transaction.

Earnings from Continuing Operations Before Income Taxes

Information about our earnings from continuing operations before income tax expense by reportable segment is as follows:

Unallocated corporate expenses represent certain expenses that had previously been reported within the Aaron's Business segment that did not qualify for classification within discontinued operations. Factors impacting the change in earnings from continuing operations before income tax expense are discussed above.

Income Tax Expense

Income tax expense from continuing operations decreased to $37.9 million in 2020 compared to $52.2 million in 2019. The effective tax rate of 14.0% in 2020 is lower than the statutory rate due to a $35.5 million tax benefit from the remeasurement of net operating loss carrybacks resulting from the CARES Act, partially offset by limitations on executive compensation deductions. Tax expense of $52.2 million in 2019 compared to earnings before income tax expense of $27.6 million was due to the $175.0 million FTC regulatory charge with no associated current or deferred tax benefit.

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Overview of Financial Position

The major changes in the consolidated balance sheet from December 31, 2020 to December 31, 2021, include:

•Cash and cash equivalents increased $133.5 million to $170.2 million primarily due to cash provided by operating activities of $246.0 million, partially offset by a net $49.9 million in cash used to fund the growth in our loan receivable portfolio, $22.8 million used for the acquisition of Four, and a net $30.3 million of cash used in financing activities. The financing activities in 2021 included the repurchase of $571.0 million of our common stock and the repayment of $50 million on our Revolving Facility, offset by the gross proceeds of $600 million from the Senior Notes that were issued on November 26, 2021, net of $8.3 million of bank fees. For additional information, refer to the "Liquidity and Capital Resources" section below.

•Lease merchandise, net of accumulated depreciation and allowances, increased $103.8 million due primarily to a 15.8% increase in GMV for Progressive Leasing compared to 2020 and a higher level of early lease buyouts in the second half of 2020 compared to the second half of 2021.

•Loans receivable, net of allowances and unamortized fees, increased $40.2 million due to growth in new loans, driven by an increase in GMV within our Vive segment.

•Goodwill increased $17.4 million as a result of the Company's acquisition of Four on June 25, 2021. Refer to Note 3 for additional information regarding the details of the acquisition and the assets acquired.

•Income tax receivable was $14.4 million as of December 31, 2021 compared to an income tax payable of $18.2 million as of December 31, 2020. The change was primarily the result of the Company's conclusion in the third quarter of 2021 that Progressive Leasing's $175.0 million settlement payment to the FTC in 2020 is deductible, but resulted in a $45.7 million increase in uncertain tax positions that is recognized within accounts payable and accrued expenses.

•Accounts payable and accrued expenses increased $57.7 million primarily due to a $45.7 million increase in uncertain tax positions, which was partially offset by an $15.4 million decrease in income taxes payable. Both of these changes resulted from the Company's conclusion in the third quarter of 2021 that Progressive Leasing's $175.0 million settlement payment to the FTC in 2020 is deductible but results in an uncertain tax position. Other increases in accrued expenses included accrued salaries and benefits and other accrued expenses and liabilities, which increased $7.7 million and $12.6 million, respectively, from December 31, 2020.

•Debt at December 31, 2021 of $589.7 million represents the Company's Senior Notes issued on November 26, 2021, net of unamortized debt issuance costs. The $50.0 million outstanding on the Revolving Facility as of December 31, 2020 was repaid during 2021 and the Company had no outstanding borrowings under the Revolving Facility as of December 31, 2021. Refer to the "Liquidity and Capital Resources" section below for further details regarding the Company’s financing arrangements.

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Liquidity and Capital Resources

General

We expect that our primary capital requirements will consist of:

•Reinvesting in our business, including buying merchandise for the operations of Progressive Leasing. Because we believe Progressive Leasing will continue to grow, we expect that the need for additional lease merchandise will remain a major capital requirement;

•Making merger and acquisition investment(s) to further broaden our product offerings; and

•Returning excess cash to shareholders through periodically repurchasing stock.

Other capital requirements include (i) expenditures related to software development; (ii) expenditures related to our corporate operating activities; (iii) personnel expenditures; (iv) income tax payments; (v) funding of loans receivable for Vive; and (vi) servicing our outstanding debt obligation.

Our capital requirements have been financed through:

•cash flows from operations;

•private debt offerings;

•bank debt; and

•stock offerings.

As of December 31, 2021, the Company had $170.2 million of cash, $350.0 million of availability under the Revolving Facility, and $600.0 million of indebtedness.

The Company's statements of cash flows for the years ended December 31, 2020 and 2019 were not required to be adjusted for discontinued operations. Accordingly, the cash flow activities for the Aaron's Business discontinued operations are included in the discussion and analysis set forth below for the comparative periods through the separation and distribution date of November 30, 2020.

Cash Provided by Operating Activities

Cash provided by operating activities was $246.0 million and $456.0 million during the years ended December 31, 2021 and 2020, respectively. The $210.0 million decrease in operating cash flows was primarily due to the separation of the Aaron's Business, which accounted for $193.3 million of the cash provided by operating activities during year ended December 31, 2020. The $16.7 million decrease in cash provided by operating activities from continuing operations when compared to 2020 was driven by an increase of lease merchandise purchases of $265.5 million during 2021. The Company also made net income tax payments of $53.6 million during 2021, compared to $29.0 million in 2020. These higher cash outflows were partially offset by stronger customer payment activity during the first half of 2021 and the $175.0 million payment of Progressive Leasing's settlement with the FTC in the second quarter of 2020. Changes in certain working capital accounts also contributed to operating cash inflows. Other changes in cash provided by operating activities are discussed above in our discussion of results for the year ended December 31, 2021.

Cash provided by operating activities was $456.0 million and $317.2 million during the years ended December 31, 2020 and 2019, respectively. The $138.8 million increase in operating cash flows was primarily driven by strong customer payment activity and $133.7 million less purchases of merchandise in 2020 compared to 2019, partially offset by a $175.0 million payment made in 2020 related to the FTC settlement discussed in more detail in Note 11 to the accompanying consolidated financial statements. The Company made net income tax payments of $29.0 million during 2020 compared to a net income tax refund of $0.7 million in 2019. Other changes in cash provided by operating activities are discussed above in our discussion of results for the year ended December 31, 2020.

Cash Used in Investing Activities

Cash used in investing activities was $82.2 million and $114.5 million during the years ended December 31, 2021 and 2020, respectively. The cash used in investing activities during the year ended December 31, 2020 included $64.5 million in cash outflows attributable to the Aaron's Business discontinued operations. The $32.2 million increase in cash used in investing activities from continuing operations when compared to the same period in 2020 was primarily due to: (i) $69.6 million increase in cash outflows for investments in Vive loans receivable due to growth in loan origination activity; and (ii) the $22.8 million cash paid, net of cash acquired, for the acquisition of Four in June 2021. These increases were partially offset by a $62.9 million increase in proceeds on loans receivable driven by strong customer payment activity and growth in the portfolio in the year ended December 31, 2021 compared to the same period of 2020.

Cash used in investing activities was $114.5 million and $106.3 million during the years ended December 31, 2020 and 2019, respectively. The $8.2 million increase in investing cash outflows in 2020 as compared to 2019 was primarily due to: (i) $42.3 million increase in cash outflows for investments in Vive loans receivable in 2020 as compared to 2019, driven by growth in loan origination activity in the second half of 2020; (ii) $16.2 million increase in proceeds on loans receivable driven by strong customer payment activity and growth in the portfolio in 2020 compared to 2019; and (iii) $28.6 million decrease in cash outflows for capital expenditures on the Aaron's Business discontinued operations for store investments prior to the separation and distribution transaction.

Cash Used in Financing Activities

Cash used in financing activities was $30.3 million during the year ended December 31, 2021 compared to $362.6 million during the year ended December 31, 2020, a decrease of $332.3 million. Cash flows used in financing activities in 2021 were primarily comprised of: (i) $425 million outflow for the tender offer, plus $3.6 million in related transaction fees, for the repurchase and retirement of our common stock; (ii) $142.4 million outflow for the acquisition of treasury stock; (iii) the repayment of $50 million on our Revolving Facility; and (iv) $600 million gross proceeds from the issuance of Senior Notes, net of $8.3 million of bank fees. Cash flows used in financing activities in 2020 is primarily comprised of: (i) $342.0 million of net repayments made to fully extinguish the Company's historical debt facilities in advance of the separation and distribution transaction; (ii) $50.0 million of borrowings on the Company's Revolving Facility; (iii) $54.2 million of cash transferred to The Aaron's Company in the separation and distribution; (iv) $13.8 million of dividends paid; and (v) $12.4 million of proceeds from stock option exercises.

Cash used in financing activities was $362.6 million and $168.6 million during the years ended December 31, 2020 and 2019, respectively, an increase of $194.0 million. Cash flows used in financing activities in 2020 is primarily comprised of: (i) $342.0 million of net repayments made to fully extinguish the Company's historical debt facilities in advance of the separation and distribution transaction; (ii) $50.0 million of borrowings on the Company's Revolving Facility; (iii) $54.2 million of cash transferred to The Aaron's Company in the separation and distribution; (iv) $13.8 million of dividends paid; and (v) $12.4 million of proceeds from stock option exercises. Cash flows used in financial activities in 2019 is primarily comprised of: (i) $84.5 million of net repayments of debt; (ii) $69.3 million of stock repurchases; (iii) $9.4 million of dividends paid; and (iv) $7.7 million of proceeds from stock option exercises.

Share Repurchases

We purchase our stock in the market from time to time as authorized by our Board of Directors. On February 22, 2021, the Company's Board of Directors terminated the share repurchase program that was in effect as of December 31, 2020 and replaced it with a repurchase program that permitted the Company to repurchase up to $300 million of the Company's outstanding common stock. On November 3, 2021, the Company announced that its Board of Directors had authorized a new $1 billion share repurchase program that replaced the previous $300 million repurchase program. As of December 31, 2021, we had the authority to purchase additional shares up to our remaining authorization limit of $560.9 million.

There were no share repurchases during the year ended December 31, 2020. The following table is a summary of the Company’s share repurchases during the year ended December 31, 2021:

As of February 22, 2022, we repurchased an additional 1,278,097 shares of common stock for $52.0 million subsequent to December 31, 2021.

Dividends

We paid no dividends during 2021 and do not currently anticipate paying any dividends. Prior to the separation and distribution transaction, we declared annual common stock dividends of $0.165 per share and $0.145 per share in 2020 and 2019, respectively, which resulted in aggregate dividend payments of $13.8 million and $9.4 million in 2020 and 2019, respectively.

Debt Financing

On November 26, 2021, the Company entered into an indenture in connection with its previously announced offering of $600 million aggregate principal amount of its senior unsecured notes due 2029. The Senior Notes were issued at 100.0% of their par value with a stated fixed annual interest rate of 6.00%. Interest will accrue on the outstanding balance and will be payable semi-annually. The Senior Notes are general unsecured obligations of the Company and will be guaranteed by certain of the Company's existing and future domestic subsidiaries.

The indenture discussed above contains various other covenants and obligations to which the Company and its subsidiaries are subject to while the Senior Notes are outstanding. The covenants in the indenture may limit the extent to which, or the ability of the Company and its subsidiaries to, among other things: (i) incur additional debt and guarantee debt; (ii) pay dividends or make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) issue certain preferred stock or similar equity securities; (v) make loans and investments; (vi) sell assets; (vii) incur liens; (viii) enter into transactions with affiliates; (ix) enter into agreements restricting the ability of the Company’s subsidiaries to pay dividends; and (x) consolidate, merge or sell all or substantially all of the Company’s assets. The indenture also contains customary events of default for transactions of this type and amount. We were in compliance with these covenants at December 31, 2021 and believe that we will continue to be in compliance in the future.

On November 24, 2020, the Company entered into a credit agreement with a consortium of lenders providing for our $350 million senior unsecured Revolving Facility, under which revolving borrowings became available at the completion of the separation and distribution date and under which all borrowings and commitments will mature or terminate on November 24, 2025.

As of December 31, 2021, the Company had no outstanding balance and $350 million remaining available for borrowings on the Revolving Facility. The Revolving Facility includes an uncommitted incremental facility increase option which, subject to certain terms and conditions, permits the Company at any time prior to the maturity date to request an increase in extensions of credit available thereunder by an aggregate additional principal amount of up to $300 million.

Our Revolving Facility contains certain financial covenants, which include requirements that the Company maintain ratios of (i) total net debt to EBITDA of no more than 2.50:1.00 and (ii) consolidated interest coverage of no less than 3.00:1.00. The Company will be in default under the Revolving Facility if it fails to comply with these covenants, and all borrowings outstanding may become due immediately. Additionally, under the Revolving Facility, if the total net debt to EBITDA, as defined by the Revolving Facility, exceeds 1.25, the revolver becomes fully secured for the remaining duration of the Revolving Facility term. The Revolving Facility is unsecured as of December 31, 2021. At December 31, 2021, we were in compliance with the financial covenants set forth in the Revolving Facility and believe that we will continue to be in compliance in the future.

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Commitments

Income Taxes. During the year ended December 31, 2021, we made net income tax payments of $53.6 million. During the year ended December 31, 2022 we anticipate making estimated cash payments of $36.3 million for United States federal and state income taxes.

Leases. We lease management and information technology space for corporate functions as well as call center space and storage space for our hub facilities under operating leases expiring at various times through 2027. Our corporate and call center leases contain renewal options for additional periods ranging from three to five years. We also lease transportation vehicles under operating leases which generally expire during the next three years. We expect that most leases will be renewed or replaced by other leases in the normal course of business.

Contractual Obligations and Commitments. Future interest payments on the Company's variable-rate debt are based on a rate per annum equal to, at our option, (i) the London Interbank Overnight ("LIBO") rate plus a margin within the range of 1.5% to 2.5% for revolving loans, based on total leverage, or the administrative agent's base rate plus a margin ranging from 0.5% to 1.5%, as specified in the Revolving Facility agreement. Future interest payments related to our Revolving Facility are based on the borrowings outstanding at that time. Future interest payments may be different depending on future borrowing activity and interest rates. The Company had no outstanding borrowings under the Revolving Facility subject to interest as of December 31, 2021.

As mentioned above, on November 26, 2021, the Company issued $600 million aggregate principal amount of Senior Notes that bear a fixed annual interest rate of 6.00%. Interest will accrue on the outstanding balance and will be payable semi-annually. The Senior Notes will mature on November 15, 2029.

The Company has no long-term commitments to purchase merchandise nor does it have significant purchase agreements that specify minimum quantities or set prices that exceed our expected requirements for three months.

Deferred income tax liabilities as of December 31, 2021 were approximately $146.3 million. Deferred income tax liabilities are calculated based on temporary differences between the tax basis of assets and liabilities and their respective book basis, which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, scheduling deferred income tax liabilities as payments due by period may be misleading, because this scheduling would not necessarily relate to liquidity needs.

Unfunded Lending Commitments. The Company, through its Vive business, has unconditionally cancellable unfunded lending commitments totaling approximately $467.6 million and $287.3 million as of December 31, 2021 and 2020, respectively, that do not give rise to revenues and cash flows. These unfunded commitments arise in the ordinary course of business from credit card agreements with individual cardholders that give them the ability to borrow, against unused amounts, up to the maximum credit limit assigned to their account. While these unfunded amounts represented the total available unused lines of credit, the Company does not anticipate that all cardholders will utilize their entire available line at any given point in time. Commitments to extend unsecured credit are agreements to lend to a cardholder so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Prior to the January 1, 2020 adoption of CECL as discussed further in Note 1 to these consolidated financial statements, the Company recorded a reserve for losses on unfunded loan commitments of $0.4 million, which was included in accounts payable and accrued expenses in the December 31, 2020 consolidated balance sheet. Upon the adoption of CECL, the Company adjusted the aforementioned reserve for losses on unfunded loan commitments and recorded a corresponding increase of $0.4 million to its January 1, 2020 retained earnings balance.

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Critical Accounting Policies

We discuss the most critical accounting policies below. For a discussion of all of the Company’s significant accounting policies, see Note 1 in the accompanying consolidated financial statements.

Revenue Recognition

All of Progressive Leasing's customer agreements are considered operating leases and are recognized in accordance with ASC 842, Leases. The Company maintains ownership of the lease merchandise until all payment obligations are satisfied under the lease ownership agreements. Progressive Leasing recognizes lease revenue on a straight-line basis over the estimated lease term. Initial lease payments made by the customer upon lease execution are initially recognized as deferred revenue and are recognized as lease revenue over the estimated lease term on a straight-line basis. All other customer billings are in arrears and, therefore, lease revenues are earned prior to the lease payment due date and are recorded in the statements of earnings net of related sales taxes as earned. Cash collected in advance of being due or earned and recognized as deferred revenue is presented within customer deposits and advance payments in the accompanying consolidated balance sheets. Progressive Leasing revenues recorded prior to the payment due date results in unbilled accounts receivable in the accompanying consolidated balance sheets. Our revenue recognition accounting policy matches the lease revenue with the corresponding costs, mainly depreciation expense, associated with lease merchandise.

At December 31, 2021 and 2020, we had deferred revenue representing cash collected in advance of being due or earned totaling $45.1 million and $46.6 million, respectively, and accounts receivable, net of an allowance for doubtful accounts based on historical collection rates, of $66.3 million and $61.3 million, respectively. Our accounts receivable allowance is estimated using historical write-off and collection experience. Other qualitative factors, such as current and forecasted customer payment trends, are considered in estimating the allowance. For customer agreements that are past due, the Company's policy is to write-off lease receivables after 120 days. The provision for uncollectible renewal payments is recorded as a reduction of lease revenues and fees in accordance with ASC 842.

Vive recognizes interest income based upon the amount of the loans outstanding, which is recognized as interest and fees on loans receivable in the billing period in which they are assessed if collectability is reasonably assured. Vive acquires loans receivable from its third-party bank partners at a discount from the face value of the loan. The discount is comprised mainly of a merchant fee discount, which represents a pre-negotiated, nonrefundable discount that generally ranges from 3.0% to 25% of the loan face value. The discount is designed to cover the risk of loss related to the portfolio of cardholder charges and Vive’s direct origination costs. The merchant fee discount, net of the origination costs, is amortized on a net basis and is recorded as interest and fee revenue on loans receivable on a straight-line basis over the initial 24-month period that the card is active.

Lease Merchandise

The Company’s Progressive Leasing segment, at which all merchandise is on lease, depreciates merchandise on a straight-line basis to a 0% salvage value generally over 12 months. We record a provision for lease merchandise write-offs using the allowance method. The allowance for lease merchandise write-offs estimates the merchandise losses incurred but not yet identified by management as of the end of the accounting period. The Company estimates its allowance for lease merchandise write-offs using historical write-off experience. Other qualitative factors, such as current and forecasted customer payment trends, are considered in estimating the allowance. For customer agreements that are past due, the Company's policy is to write-off lease merchandise after 120 days. As of December 31, 2021 and 2020, the allowance for lease merchandise write-offs was $54.4 million and $46.0 million, respectively. The provision for lease merchandise write-offs was $127.0 million and $131.3 million for the years ended December 31, 2021 and 2020, respectively.

Goodwill and Other Intangible Assets

Intangible assets are classified into one of three categories: (i) intangible assets with definite lives subject to amortization; (ii) intangible assets with indefinite lives not subject to amortization; and (iii) goodwill. For intangible assets with definite lives, tests for impairment are performed if conditions exist that indicate the carrying amount may not be recoverable. For intangible assets with indefinite lives and goodwill, tests for impairment are performed at least annually, and sooner if events or circumstances indicate that an impairment may have occurred. Factors which may necessitate an interim impairment assessment include a sustained decline in the Company’s stock price, prolonged negative industry or economic trends and significant underperformance relative to historical or projected future operating results. For the annual impairment test of intangible assets with indefinite lives and goodwill, the Company may perform a qualitative assessment for impairment if it believes it is not more likely than not that the carrying amount of a reporting unit’s net assets exceeds the reporting unit’s fair value.

Indefinite-lived intangible assets represent the value of the trade name acquired as part of the Progressive Leasing acquisition. At the date of acquisition, the Company determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful life of the trade name intangible asset and, therefore, the useful life is considered indefinite. The Company reassesses this conclusion quarterly and continues to believe the useful life of this asset is indefinite. The Company

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performed a qualitative assessment to complete its indefinite-lived intangible asset impairment test as of October 1, 2021 and determined that no impairment had occurred.

In conjunction with the purchase of Four on June 25, 2021, the Company acquired $5.2 million of definite-lived intangible assets comprised of the Four proprietary technology platform, trade name, and existing merchant relationships. The Company also recorded $17.4 million of goodwill related to the excess of the purchase price over the fair value of the net assets acquired, which represents the Company’s ability to provide a "buy now, pay later" product to the Company’s existing base of retailers, merchants and customers.

The following table presents the carrying amount of goodwill and other intangible assets, net:

1 As of December 31, 2021, goodwill for Progressive Leasing and Four was $288.8 million and $17.4 million, respectively.

2 Other indefinite-lived intangible assets represents the Progressive Leasing trade name.

As of December 31, 2021, the Company had two reporting units with goodwill: Progressive Leasing and Four. We performed our annual goodwill impairment testing as of October 1, 2021. When evaluating goodwill for impairment, the Company performs a qualitative assessment to determine whether it is more likely than not that a reporting unit or intangible asset group is impaired. The decision to perform a qualitative impairment assessment for an individual reporting unit in a given year is influenced by a number of factors, including the size of the reporting unit’s goodwill, the current and projected operating results, the significance of the excess of the reporting unit’s estimated fair value over carrying amount at the last quantitative assessment date, the Company's market capitalization, and the amount of time in between quantitative fair value assessments and the date of acquisition. As of October 1, 2021, the Company performed a qualitative assessment for the goodwill of the Progressive Leasing and Four reporting units and concluded no indications of impairment existed. The Company determined that there were no events that occurred or circumstances that changed in the fourth quarter of 2021 that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Provision for Loan Losses and Loan Loss Allowance

Prior to January 1, 2020, the Company estimated probable losses inherent in the portfolio using an "incurred loss" methodology. Effective January 1, 2020 with the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments ("CECL") as discussed within "Recent Accounting Pronouncements" in Note 1 to the consolidated financial statements in this Form 10-K, expected lifetime losses on loans receivable are recognized upon loan acquisition, which results in earlier recognition of credit losses and requires the Company to make its best estimate of probable lifetime losses at the time of acquisition. The Company segments its Vive loans receivable portfolio into homogenous pools by FICO score and by delinquency status and evaluates loans receivable collectively for impairment when similar risk characteristics exist. Our Vive credit card loans do not have contractually stated maturity dates, which requires the Company to estimate an average life of loan by analyzing historical payment trends to determine an expected remaining life of the loan balance. Our current estimate is that the average life of an outstanding credit card loan is approximately one to two years, depending on the respective FICO score segmentation.

The Company calculates the Vive allowance for loan losses based on internal historical loss information and incorporates observable and forecasted macroeconomic data over a twelve-month reasonable and supportable forecast period. Key macroeconomic factors incorporated into our forecasts include projected changes in unemployment rates, stock market volatility, projected United States treasury rates, and projected prime lending rates. Incorporating macroeconomic data could have a material impact on the measurement of the allowance to the extent that forecasted data changes significantly, such as changes in forecasted unemployment rates and the observed significant market volatility associated with the COVID-19 pandemic. For any periods beyond the twelve-month reasonable and supportable forecast period described above, the Company reverts to using historical loss information on a straight-line basis over a period of six months and utilizes historical loss information for the remaining life of the portfolio.

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The Company may also consider other qualitative factors in estimating the allowance, as necessary. For the purposes of determining the allowance as of December 31, 2021, management considered other qualitative factors such as the beneficial impact that government stimulus measures had on our customer base in 2020 and the first half of 2021, which was not fully factored into the macroeconomic forecasted data, and which likely contributed to favorable cardholder payment trends we experienced during these periods. The allowance for loan losses is maintained at a level considered appropriate to cover expected lifetime losses of principal, interest and fees on active loans in the loans receivable portfolio, and the appropriateness of the allowance is evaluated at each period end.

Delinquent loans receivable are those that are 30 days or more past due based on their contractual billing dates. The Company places loans receivable on nonaccrual status when they are greater than 90 days past due or upon notification of cardholder bankruptcy, death or fraud. The Company discontinues accruing interest and fees and amortizing merchant fee discounts and promotional fee discounts for loans receivable in nonaccrual status. Loans receivable are removed from nonaccrual status when cardholder payments resume, the loan becomes 90 days or less past due and collection of the remaining amounts outstanding is deemed probable. Payments received on nonaccrual loans are allocated according to the same payment hierarchy methodology applied to loans that are accruing interest. Loans receivable are charged off at the end of the following month after the billing cycle in which the loans receivable become 120 days past due.

The provision for loan losses was $17.7 million and $34.0 million for the years ended December 31, 2021 and 2020, respectively. The allowance for loan losses was $40.8 million and $42.1 million as of December 31, 2021 and 2020, respectively.

Recent Accounting Pronouncements

Refer to Note 1 to the Company’s consolidated financial statements for a discussion of recently issued accounting pronouncements.