What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-02-04 · 99 added, 139 removed, 141 unchanged (63% of the section changed)

2 unchanged sentences

This report on Form 10-Q, including "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contains various "forward-looking statements," within the meaning of The Private Securities Litigation Reform Act of 1995, that are based on management’s beliefs and assumptions, as well as information currently available to management.

Statements other than those of historical fact, as well as those identified by the words “anticipate,” “estimate,” “intend,” “plan,” “expect,” “believe,” “may,” “will,” “should,” "would," "could," "continue," "forecast," and any variation of the foregoing and similar expressions are forward-looking statements.

Statements other than those of historical fact, including those identified by words such as “anticipate,” “estimate,” “intend,” “plan,” “expect,” “believe,” “may,” “will,” “should,” "would," "could," "continue," "forecast," and any variation of the foregoing and similar expressions are forward-looking statements.

Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.

24 unchanged sentences

The following table sets forth certain information derived from the Company's consolidated statements of operations and balance sheets (unaudited), as well as operating data and ratios, for the periods indicated:

Three months ended December 31, Nine months ended December 31,

2021 2020 2021 2020

Three months ended June 30,

(Dollars in thousands)

10 unchanged sentences

Interest expense 7.1 % 4.2 %

Operating income as a % of total revenue (4)

Operating income (loss) as a % of total revenue (4)

(0.7) % 20.1 %

10 unchanged sentences

(3) Average net loans receivable has been determined by averaging month-end gross loans receivable less unearned interest and deferred fees over the indicated period, excluding tax advances.

(4) Operating income is computed as total revenue less provision for credit losses and general and administrative expenses.

(4) Operating income (loss) is computed as total revenue less provision for credit losses and general and administrative expenses.

(5) Loan volume includes all loan balances originated by the Company.

It does not include loans purchased through acquisitions.

Comparison of three months ended December 31, 2021 versus three months ended December 31, 2020

Gross loans outstanding increased to $1.61 billion as of December 31, 2021, a 27.0% increase from the $1.26 billion of gross loans outstanding as of December 31, 2020.

During the three months ended December 31, 2021 our unique borrowers increased by 7.7% compared to a decrease of 8.4% during the three months ended December 31, 2020.

Net income for the three months ended December 31, 2021 decreased to $7.3 million, a 49.4% decrease from $14.5 million for the same period of the prior year.

Operating income (revenue less provision for credit losses and general and administrative expenses) decreased by $6.3 million, or 26.1%.

Revenues for the three months ended December 31, 2021 increased by $17.6 million, or 13.5%, to $148.6 million from $130.9 million for the same period of the prior year.

The increase was primarily due to an increase in average net loans outstanding.

Interest and fee income for the three months ended December 31, 2021 increased by $13.3 million, or 11.5%, from the same period of the prior year.

Interest and fee income was impacted by a shift to larger lower interest rate loans.

Net loans outstanding at December 31, 2021 increased by 26.2% over the balance at December 31, 2020.

Average net loans outstanding increased by 26.4% for the three months ended December 31, 2021 compared to the three-month period ended December 31, 2020.

Insurance commissions and other income for the three months ended December 31, 2021 increased by $4.4 million, or 27.2%, from the same period of the prior year.

Insurance commissions increased by approximately $2.9 million, or 24.9%, during the three months ended December 31, 2021 when compared to the three months ended December 31, 2020.

Comparison of three months ended June 30, 2022 versus three months ended June 30, 2021

Gross loans outstanding increased to $1.64 billion as of June 30, 2022, a 34.2% increase from the $1.22 billion of gross loans outstanding as of June 30, 2021.

During the three months ended June 30, 2022 our unique borrowers increased by 0.2% compared to a decrease of 1.0% during the three months ended June 30, 2021.

Net income (loss) for the three months ended June 30, 2022 decreased to a net loss of $8.8 million, a 155.8% decrease from a net income of $15.8 million for the same period of the prior year.

Operating income (loss), which is revenue less provision for credit losses and general and administrative expenses, decreased by $27.1 million, or 104.1%, compared to the same period of the prior fiscal year.

Net loss for three months ended June 30, 2022 was significantly impacted by an increase in the provision for credit losses under CECL that is directly related to the growth and the impact of seasonality on the expected loss rates.

Revenues for the three months ended June 30, 2022 increased by $27.9 million, or 21.5%, to $157.6 million from $129.7 million for the same period of the prior year.

The increase was primarily due to a 29.7% increase in average gross earning loans (total gross loans less gross loans 60 days contractually past due and tax advances).

Interest and fee income for the three months ended June 30, 2022 increased by $21.0 million, or 19.3%, from the same period of the prior year due to an increase in loans outstanding.

Net loans outstanding at June 30, 2022 increased by 32.7% over the balance at June 30, 2021.

Average net loans outstanding increased by 35.8% for the three months ended June 30, 2022 compared to the three-month period ended June 30, 2021.

Insurance commissions and other income for the three months ended June 30, 2022 increased by $6.9 million, or 33.7%, from the same period of the prior year.

Insurance commissions increased by approximately $4.6 million, or 37.2%, during the three months ended June 30, 2022 when compared to the three months ended June 30, 2021.

Insurance revenue increased due to a shift to larger loans during the quarter.

The sale of insurance products are limited to large loans in several of our states.

The large loan portfolio increased from 39.5% of the overall portfolio as of December 31, 2020 to 49.5% as of December 31, 2021.

The large loan portfolio increased from 46.0% of the overall portfolio as of June 30, 2021 to 53.4% as of June 30, 2022.

Other income increased by $2.3 million.

Sales of our motor club product increased by $1.5 million as sales opportunities increased, similar to our insurance products, with the increase in large loan originations.

On April 1, 2020, the Company replaced its incurred loss methodology with a current expected credit loss ("CECL") methodology to accrue for expected losses.

The provision for credit losses increased $27.6 million, or 95.6%, to $56.5 million from $28.9 million when comparing the third quarter of fiscal 2022 to the third quarter of fiscal 2021.

The provision for credit losses increased during the most recent quarter primarily due to significant loan growth and the increase in loans 90 days past due.

The same quarter in the prior year also included a $6.5 million release of a pandemic related reserve.

Net charge-offs as a percentage of average net loans receivable on an annualized basis increased from 11.6% in the third quarter of fiscal 2021 to 13.8% in the third quarter of fiscal 2022.

The increases in delinquency and charge-offs were expected due to the increase in new and shorter tenured customers in the most recent fiscal second and third quarters.

The Company's allowance for credit losses as a percentage of net loans was 11.4% at December 31, 2021 compared to 12.2% at December 31, 2020.

Accounts that were 61 days or more past due on a recency basis were 6.4% of the portfolio at December 31, 2021 and 5.2% of the portfolio at December 31, 2020.

Accounts that were 61 days or more past due on a contractual basis were 7.8% of the portfolio at December 31, 2021 compared to 6.6% of the portfolio at December 31, 2020.

G&A expenses for the three months ended December 31, 2021 decreased by $3.6 million, or 4.7%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses decreased from 59.5% during the three months ended December 31, 2020 to 50.0% during the three months ended December 31, 2021.

G&A expenses per average open branch decreased by 2.4% when comparing the two three-month periods.

Other income includes a $3.1 million bargain purchase gain, net of $917.4 thousand income tax, during the current quarter.

The provision for credit losses increased $55.6 million, or 183.6%, to $85.8 million from $30.3 million when comparing the first quarter of fiscal 2023 to the first quarter of fiscal 2022.

The table below itemizes the key components of the CECL allowance and provision impact during the quarter.

CECL Allowance and Provision (Dollars in millions) FY 2023 FY 2022 Difference

Beginning Allowance - March 31 $134.2 $91.7 $42.5

Change due to Growth $10.5 $9.8 $0.7

Change due to Expected Loss Rate on Performing Loans $16.8 $2.5 $14.3

Change due to 90 day past due $(5.9) $(6.2) $0.3

Ending Allowance - June 30 $155.6 $97.8 $57.8

Net Charge-offs $64.4 $24.1 $40.3

Provision $85.8 $30.3 $55.5

The change in allowance for the quarter plus net charge-offs for the quarter equals the provision for the quarter.

The change in the allowance during the quarter was significantly impacted by both growth and changes in expected loss rates on our performing loans.

The three most important factors impacting the expected loss rates on performing loans are recent actual loss performance, changes in mix of the portfolio tenure, and a seasonality factor.

The seasonality factor had the most significant impact on the expected loss rates during the quarter, resulting in a 14.5% increase in the portfolio expected loss rates or approximately $13.4 million.

The table below includes the seasonality factor for each quarter end.

Quarter End Seasonality Factor

March 31 0.943738

June 30 1.080301

September 30 1.047518

December 31 0.938281

Expected loss rates by tenure bucket also increased due to actual loss rates increasing as credit normalizes.

This was offset to some degree by a shift in portfolio mix to more tenured customers.

Net charge-offs for the quarter increased $40.3 million, from $24.1 million in the first quarter of fiscal 2022 to $64.4 million in the first quarter of fiscal 2023.

Net charge-offs as a percentage of average net loan receivables on an annualized basis increased from 11.4% in the first quarter of fiscal 2022 to 22.3% in the first quarter of fiscal 2023.

Annualized net charge-offs were 18.3% for the first quarter of fiscal 2021.

The increase in delinquency and charge-offs were expected due to the increase in new and shorter tenured customers over the last twelve months.

The Company's allowance for credit losses as a percentage of net loans was 13.0% at June 30, 2022 compared to 10.9% at June 30, 2021.

Accounts that were 61 days or more past due on a recency basis were 6.9% of the portfolio at June 30, 2022 and 4.0% of the portfolio at June 30, 2021.

Accounts that were 61 days or more past due on a contractual basis were 8.5% of the portfolio at June 30, 2022 compared to 5.2% of the portfolio at June 30, 2021.

G&A expenses for the three months ended June 30, 2022 decreased by $0.5 million, or 0.7%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses decreased from 56.6% during the three months ended June 30,

2021 to 46.2% during the three months ended June 30, 2022.

G&A expenses per average open branch increased by 3.3% when comparing the two three-month periods.

The change in G&A expense is explained in greater detail below.

Personnel expense totaled $44.4 million for the three months ended December 31, 2021, a $2.3 million, or 5.0%, decrease over the three months ended December 31, 2020.

Salary expense decreased approximately $0.1 million, or 0.2%, when comparing the two quarterly periods ended December 31, 2021and 2020.

Our headcount as of December 30, 2021, decreased 5.9% compared to December 30, 2020.

Benefit expense decreased approximately $2.1 million, or 20.5%, when comparing the quarterly periods ended December 31, 2021 and 2020.

Personnel expense totaled $45.2 million for the three months ended June 30, 2022, a $1.1 million, or 2.3%, decrease over the three months ended June 30, 2021.

Benefit expense decreased approximately $0.4 million, or 4.0%, when comparing the quarterly periods ended June 30, 2022 and 2021.

Incentive expense decreased $2.1 million, or 17.4%.

Occupancy and equipment expense totaled $12.6 million for the three months ended December 31, 2021, a $2.4 million, or 16.2%, decrease over the three months ended December 31, 2020.

This was offset by a $1.6 million, or 5.6%, increase in salary expense when comparing the two quarterly periods ended June 30, 2022 and 2021.

Our headcount as of June 30, 2022, increased 3.3% compared to June 30, 2021.

Occupancy and equipment expense totaled $13.2 million for the three months ended June 30, 2022, a $0.4 million, or 2.7%, decrease over the three months ended June 30, 2021.

Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the period.

For the three months ended December 31, 2021, the average occupancy and equipment expense per branch decreased to $10.5 thousand, down from $12.2 thousand for the three months ended December 31, 2020.

The prior year includes a $2.1 million write down of signage as a result of rebranding our offices in the prior year quarter and we did not have any similar expense this year.

Advertising expense remained flat in the third quarter of fiscal 2022 compared to the second quarter of fiscal 2021.

The Company anticipated an increase in demand during the quarter and increased marketing accordingly.

Marketing spend remained neutral as the Company shifted to lower cost channels.

Amortization of intangible assets totaled $1.3 million for the three months ended December 31, 2021, a $101.5 thousand, or 7.4%, decrease over the three months ended December 31, 2020.

Other expense totaled $9.1 million for the three months ended December 31, 2021, a $1.0 million, or 12.7%, increase over the three months ended December 31, 2020.

For the three months ended June 30, 2022, the average open branches decreased 3.8% compared to the three months ended June 30, 2021

Advertising expense decreased $1.6 million, or 41.3%, in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 due to decreased spending on new customer acquisition programs.

Amortization of intangible assets totaled $1.1 million for the three months ended June 30, 2022, an $82.7 thousand, or 6.8%, decrease over the three months ended June 30, 2021.

Other expense totaled $11.1 million for the three months ended June 30, 2022, a $2.6 million, or 30.0%, increase over the three months ended June 30, 2021.

Other expense increased $0.9 million due to an increase in software subscriptions and $0.6 million due to an increase in office supplies.

Interest expense for the three months ended December 31, 2021 increased by $2.9 million, or 39.2%, from the corresponding three months of the previous year.

Interest expense for the three months ended June 30, 2022 increased by $5.7 million, or 103.1%, from the corresponding three months of the previous year.

The increase in interest expense was due to a 76.5% increase in the average debt outstanding, from $420.2 million to $741.7 million, and a 20.0% increase in the effective interest rate from 5.0% to 6.0%.

The Company’s senior debt-to-equity ratio increased from at 1.5:1 at December 31, 2020 to 1.8:1 at December 31, 2021.

Other key return ratios for the three months ended December 31, 2021 included a 7.4% return on average assets and a return on average equity of 20.1% (both on a trailing 12-month basis), as compared to a 6.6% return on average assets and a return on average equity of 17.4% (both on a trailing 12-month basis) for the three months ended December 31, 2020.

The Company’s effective income tax rate decreased to 5.1% for the three months ended December 31, 2021 compared to 14.3% for the corresponding period of the previous year.

The decrease is primarily due to the permanent tax benefit related to non-qualified stock option exercises and vesting of restricted stock as discrete items in the current quarter, the recognition of Federal Historic Tax Credits in the current quarter and lower than estimated Federal Historic Tax Credits for fiscal 2020 with the provision to return adjustment being treated as a discrete item in the prior year quarter.

This was partially offset by an increase in the disallowed executive compensation under Section 162(m) in the current quarter.

Comparison of nine months ended December 31, 2021 versus nine months ended December 31, 2020

Gross loans outstanding increased to $1.61 billion as of December 31, 2021, a 27.0% increase from the $1.26 billion of gross loans outstanding as of December 31, 2020.

During the nine months ended December 31, 2021 our number of unique borrowers in the portfolio increased by 15.4% compared to a decrease of 10.2% during the nine months ended December 31, 2020.

Net income for the nine months ended December 31, 2021 decreased to $35.5 million, a 18.1% decrease from the $43.4 million reported for the same period of the prior year.

Operating income (revenue less provision for credit losses and general and administrative expenses) decreased by $9.1 million, or 12.4%.

Revenues increased by $36.8 million, or 9.7%, to $416.1 million during the nine months ended December 31, 2021 from $379.3 million for the same period of the prior year.

The increase was primarily due to an increase in average net loans outstanding.

Interest and fee income for the nine months ended December 31, 2021 increased by $21.8 million, or 6.5%, from the same period of the prior year.

Interest and fee income was impacted by a shift to larger, lower interest rate loans.

Net loans outstanding at December 31, 2021 increased by 26.2% over the balance at December 31, 2020.

Average net loans outstanding increased by 15.7% for the nine months ended December 31, 2021 compared to the nine-month period ended December 31, 2020.

Insurance commissions and other income for the nine months ended December 31, 2021 increased by $15.0 million, or 32.9%, from the same period of the prior year.

Insurance commissions increased by approximately $8.0 million, or 24.6%, during the nine months ended December 31, 2021 when compared to the nine months ended December 31, 2020.

Insurance commissions benefited from the shift to larger loans mentioned above.

Other income increased by $7.0 million.

Sales of our motor club product increased by $6.1 million as sales opportunities increased, similar to our insurance products, with the increase in large loan originations.

Revenue from our tax preparation business increased by $1.3 million during the first three quarters of fiscal 2022 from $3.0 million during the first three quarters of fiscal 2021, or 43.5%.

This was largely driven by a delay in the individual income tax filing season which resulted in a higher number of tax preparations being completed in the first quarter of fiscal 2022.

On April 1, 2020, the Company replaced its incurred loss methodology with a current expected credit loss ("CECL") methodology to accrue for expected losses.

The provision for credit losses increased $48.2 million, or 59.7%, to $128.8 million from $80.6 million when comparing the first three quarters of fiscal 2022 to the first three quarters of fiscal 2021.

The provision increased during the first three quarters of the year primarily due to significant loan growth during the period.

CECL requires expected losses to be accrued at the time of origination.

This increase was offset by a $5.0 million decrease in net charge-offs.

Net charge-offs as a percentage of average net loans receivable on an annualized basis decreased from 14.7% in the first three quarters of fiscal 2021 to 12.0% in the first three quarters of fiscal 2022.

The charge-off rate during the period benefited from the increased average tenure and reduced credit risk of customers in the portfolio as of March 31, 2021.

We are experiencing lower losses on loans that were in the portfolio as of January 1, 2021 than initially predicted under our CECL methodology through December 31, 2021.

G&A expenses for the nine months ended December 31, 2021 decreased by $2.2 million, or 1.0%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses decreased from 59.3% during the first nine months of

fiscal 2021 to 53.5% during the first nine months of fiscal 2022.

G&A expenses per average open branch increased by 1.7% when comparing the two nine-month periods.

The change in G&A expense is explained in greater detail below.

Personnel expense totaled $136.4 million for the nine months ended December 31, 2021, a $1.8 million, or 1.3%, decrease over the nine months ended December 31, 2020.

Salary expense decreased approximately $2.1 million, or 2.3%, when comparing the two nine month periods ended December 31, 2021 and 2020.

Our headcount as of December 31, 2021, decreased 5.9% compared to December 31, 2020.

Benefit expense increased approximately $0.1 million, or 0.3%, when comparing the nine month periods ended December 31, 2021 and 2020.

Incentive expense increased $1.3 million, or 3.9% due to an increase in branch level bonuses offset by a decrease in share-based compensation.

Occupancy and equipment expense totaled $39.2 million for the nine months ended December 31, 2021, a $2.6 million, or 6.2%, decrease over the nine months ended December 31, 2020.

Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the period.

For the nine months ended December 31, 2021, the average occupancy and equipment expense per branch decreased to $32.5 thousand, down from $33.8 thousand for the nine months ended December 31, 2020.

The prior year includes $1.6 million more in write down of signage as a result of rebranding our offices when comparing the two nine-month periods.

Advertising expense totaled $15.9 million for the nine months ended December 31, 2021, a $1.4 million, or 9.5%, increase over the nine months ended December 31, 2020.

The Company anticipated an increase in demand during the period and increased marketing spend accordingly.

Amortization of intangible assets totaled $3.7 million for the nine months ended December 31, 2021, a $309.4 thousand, or 7.6%, decrease over the nine months ended December 31, 2020.

Other expense totaled $27.4 million for the nine months ended December 31, 2021, a $1.1 million, or 4.3%, increase over the nine months ended December 31, 2020.

Interest expense for the nine months ended December 31, 2021 increased by $3.6 million, or 19.3%, from the corresponding nine months of the previous year.

The increase in interest expense was due to a 25.8% increase in the average debt outstanding, from $421.2 million to $530.0 million offset by a 5.7% decrease in the effective interest rate from 5.8% to 5.5%.

Other key return ratios for the first nine months of fiscal 2022 included a 7.4% return on average assets and a return on average equity of 20.1% (both on a trailing 12-month basis), as compared to a 6.6% return on average assets and a return on average equity of 17.4% (both on a trailing 12-month basis) for the first nine months of fiscal 2021.

The Company’s effective income tax rate decreased to 16.1% for the nine months ended December 31, 2021 compared to 21.3% for the corresponding period of the previous year.

The decrease is primarily due to the permanent tax benefit related to non-qualified stock option exercises and vesting of restricted stock in the current period, the recognition of Federal Historic Tax Credits in the current period and lower than estimated Federal Historic Tax Credits for fiscal 2020 with the provision to return adjustment recorded in the prior year.

This was partially offset by an increase in the disallowed executive compensation under Section 162(m) in the current period and the recognition of the permanent tax benefit related to the exclusion of life insurance proceeds in the prior year.

The Company’s senior debt-to-equity ratio increased from at 1.2:1 at June 30, 2021 to 2.2:1 at June 30, 2022.

Other key return ratios for the three months ended June 30, 2022 included a 2.5% return on average assets and a return on average equity of 7.5% (both on a trailing 12-month basis), as compared to a 9.1% return on average assets and a return on average equity of 23.0% (both on a trailing 12-month basis) for the three months ended June 30, 2021.

The Company’s effective income tax rate increased to 28.2% for the three months ended June 30, 2022 compared to 23.2% for the corresponding period of the previous year.

The increase is primarily due to the effects of pretax book earnings relative to the effects of various permanent items including an increase in the disallowed executive compensation under Section 162(m) in the current quarter and partially offset by the recognition of additional Federal Historic Tax Credits when compared to the prior year quarter.

Regulatory Matters

1 unchanged sentence

On October 5, 2017, the CFPB issued a final rule (the "Rule") imposing limitations on (i) short-term consumer loans, (ii) longer-term consumer installment loans with balloon payments, and (iii) higher-rate consumer installment loans repayable by a payment authorization.

The Rule requires lenders originating short-term loans and longer-term balloon payment loans to evaluate whether each consumer has the ability to repay the loan along with current obligations and expenses (“ability to repay requirements”).

The Rule originally required lenders originating short-term loans and longer-term balloon payment loans to evaluate whether each consumer has the ability to repay the loan along with current obligations and expenses (“ability to repay requirements”), however the ability to repay requirements were rescinded in July 2020.

The Rule also curtails repeated unsuccessful attempts to debit consumers’ accounts for short-term loans, balloon payment loans, and installment loans that involve a payment authorization and an annual percentage rate over 36% (“payment requirements”);

The the Company does not believe that it will have a material impact on the Company’s existing lending procedures, because the Company currently does not make short-term consumer loans or longer-term consumer installment loans with balloon payments that would subject the Company to the Rule’s ability to repay requirements.

The Company also currently underwrites all its loans (including those secured by a vehicle title that would fall within the scope of these proposals) by reviewing the customer’s ability to repay based on the Company’s standards.

However, implementation of

the Rule’s payment requirements may require changes to the Company’s practices and procedures for such loans, which could affect the Company’s ability to make such loans, the cost of making such loans, the Company’s ability to, or frequency with which it could, refinance any such loans, and the profitability of such loans.

Further, on June 6, 2019, the CFPB amended the Rule to delay the August 19, 2019 compliance date for part of the Rule’s provisions, including the ability to repay requirements.

In addition, on February 6, 2019, the CFPB issued a notice of proposed rulemaking proposing to rescind provisions of the Rule governing the ability to repay requirements.

There were also lawsuits filed challenging various provisions of these Rules, as well as the constitutionality of the CFPB’s structure, and the court stayed the compliance date of the Rule while the litigation was pending.

The Supreme Court handed down its decision on the constitutional challenge in June 2020, and in July 2020, the CFPB issued a final Rule, which revoked the underwriting provisions of the prior Rule.

However, additional lawsuits were filed challenging the payment provisions of the Rule issued in 2020.

In August 2021, the court found for the CFPB and dismissed the remaining challenges.

As a result, the compliance date for the payments provisions of the Rule is now June 13, 2022 Unless rescinded or otherwise amended, the Company will have to comply with the Rule’s payment requirements if it continues to allow consumers to set up future recurring payments online for certain covered loans such that it meets the definition of having a “leveraged payment mechanism” under the Rule.

however, there is an appeal pending that is challenging the payments requirements, and the Fifth Circuit Court of Appeals has granted a stay of the compliance date for until 286 days after resolution of the appeal.

Implementation of the Rule’s payment requirements may require changes to the Company’s practices and procedures for such loans, which could materially and adversely affect the Company’s ability to make such loans, the cost of making such loans, the Company’s ability to, or frequency with which it could, refinance any such loans, and the profitability of such loans.

Unless rescinded or otherwise amended, the Company will have to comply with the Rule’s payment requirements if it continues to allow consumers to set up future recurring payments online for certain covered loans such that it meets the definition of

having a “leveraged payment mechanism” under the Rule.

If the payment provisions of the Rule apply, the Company will have to modify its loan payment procedures to comply with the required notices and mandated timeframes set forth in the final rule.

In its Fall 2015 rulemaking agenda, the CFPB stated that it expected to conduct a rulemaking to identify larger participants in the installment lending market for purposes of its supervision program.

However, this initiative was classified as “inactive” on the CFPB’s Spring 2018 rulemaking, and its Spring 2022 rulemaking agenda showed no planned activity in this area.

Though the likelihood and timing of any such rulemaking is uncertain, the Company believes that the implementation of such rules would likely bring the Company’s business under the CFPB’s supervisory authority which, among other things, would subject the Company to reporting obligations to, and on-site compliance examinations by, the CFPB.

See Part I, Item 1, “Business - Government Regulation - Federal legislation,” for a further discussion of these matters and the federal regulations to which the Company’s operations are subject and Part I, Item 1A, “Risk Factors,” in the Company’s Form 10-K for the year ended March 31, 2021 for more information regarding these regulatory and related risks.

3 unchanged sentences

The Company has generally applied its cash flows from operations to fund its loan volume, fund acquisitions, repay long-term indebtedness, and repurchase its common stock.

Net cash provided by operating activities for the nine months ended December 31, 2021 was $171.1 million.

Net cash provided by operating activities for the three months ended June 30, 2022 was $58.2 million.

The Company believes that attractive opportunities to acquire new branches or receivables from its competitors or to acquire branches in communities not currently served by the Company will continue to become available as conditions in local economies and the financial circumstances of owners change.

17 unchanged sentences

The Company continues to believe stock repurchases are a viable component of the Company’s long-term financial strategy and an excellent use of excess cash when the opportunity arises.

Under the terms of our revolving credit facility and the Notes we have, subject to certain restrictions, the ability to make share repurchases of up to $90.0 million through June 30, 2022.

However, our revolving credit facility and the Notes limit share repurchases to $90.0 million from March 26, 2021 through June 30, 2022 plus up to 50% of consolidated adjusted net income for the period commencing January 1, 2019.

As of June 30, 2022, subject to further approval from our Board of Directors, we could repurchase approximately $14.2 million of shares under the terms of our debt facilities.

A dditional share repurchases can be made subject to compliance with, among other things, applicable restricted payment covenants under the revolving credit facility and the Notes.

The Company has a revolving credit facility with a syndicate of banks.

The revolving credit facility provides for revolving borrowings of up to the lesser of (a) the aggregate commitments under the facility and (b) a borrowing base, and it includes a $300,000 letter of credit under a $1.5 million subfacility.

Subject to a borrowing base formula, the Company may borrow at the rate of LIBOR plus 3.5% with a minimum rate of 4.5%.

The Company’s amended and restated revolving credit agreement provides procedures for determining a replacement or alternative rate in the event LIBOR is unavailable or discontinued or if the administrative agent elects to replace LIBOR prior to its discontinuation.

There can be no assurances as to whether such replacement or alternative rate will be more or less favorable than LIBOR.

We intend to monitor the developments with respect to the phasing out of LIBOR and will work to limit any negative impacts that could result during the transition away from LIBOR.

At December 31, 2021, the aggregate commitments under the revolving credit facility were $685.0 million.

The $300,000 letter of credit outstanding under the subfacility expired on December 31, 2021;

The revolving credit facility provides for revolving borrowings of up to the lesser of (a) the aggregate commitments under the facility and (b) a borrowing base, and it includes a $300.0 thousand letter of credit under a $1.5 million subfacility.

Subject to a borrowing base formula, the Company may borrow at the rate of one month SOFR plus .10% and an applicable margin of 3.5% with a minimum rate of 4.5%.

At June 30, 2022, the aggregate commitments under the revolving credit facility were $685.0 million.

The $300.0 thousand letter of credit outstanding under the subfacility expired on December 31, 2021;

however, it automatically extends for one year on the expiration date.

1 unchanged sentence

Further, under the amended and restated revolving credit agreement, the administrative agent has the right to set aside reasonable reserves against the available borrowing base in such amounts as it may deem appropriate, including, without limitation, reserves with respect to certain regulatory events or any increased operational, legal, or regulatory risk of the Company and its subsidiaries.

For the nine months ended December 31, 2021 and fiscal year ended March 31, 2021, the Company’s effective interest rate, including the commitment fee and amortization of debt issuance costs, was 5.5% annualized and 5.8%, respectively, and the unused amount available under the revolving credit facility at December 31, 2021 was $259.5 million.

For the three months ended June 30, 2022 and fiscal year ended March 31, 2022, the Company’s effective interest rate, including the commitment fee and amortization of debt issuance costs, was 6.0% annualized and 5.0%, respectively, and the unused amount available under the revolving credit facility at June 30, 2022 was $203.3 million.

Borrowings under the revolving credit facility mature on June 7, 2024.

2 unchanged sentences

The agreement governing the Company’s revolving credit facility contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, pay dividends and repurchase or redeem capital stock, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, redeem or prepay subordinated debt, amend subordinated debt documents, make changes in the nature of its business, and engage in transactions with affiliates.

The agreement also contains financial covenants, including (i) a minimum consolidated net worth of $325.0 million;

(ii) a minimum fixed charge coverage ratio of 2.75 to 1.0;

(iii) a maximum ratio of total debt to consolidated adjusted net worth of 2.5 to 1.0;

and (iv) a maximum collateral performance indicator of 24% as of the end of each calendar month.

The agreement allows the Company to incur subordinated debt that matures after the termination date for the revolving credit facility and that contains specified subordination terms, subject to limitations on the amount incurred that are imposed by the financial covenants under the agreement.

The agreement also contains financial covenants, including (i) a minimum consolidated net worth of $325.0 million on and after December 31, 2020;

(ii) a maximum ratio of total debt to consolidated adjusted net worth of 2.5 to 1.0;

(iii) a maximum collateral performance indicator of 24% as of the end of each calendar month;

and (iv) a minimum fixed charges coverage ratio as further discussed below.

As further discussed in Note 13 to the Consolidated Financial Statements, on July 27th, 2022, the Company entered into the Eighth Amendment to its Amended and Restated Revolving Credit Agreement to, among other things, increase the required ratio for Net Income Available for Fixed Charges to Fixed Charges from 2.10 to 1.0 to 2.25 to 1.0 for each fiscal quarter from June 30, 2022 to December 30, 2022, with the ratio increasing to 2.50 to 1.0 for each fiscal quarter from March 31, 2023 to June 30, 2023, and increasing to 2.75 to 1.0 for each fiscal quarter thereafter.

The collateral performance indicator is equal to the sum of (a) a three-month rolling average rate of receivables at least sixty days past due and (b) an eight-month rolling average net charge-off rate.

The Company was in compliance with these covenants at December 31, 2021 and does not believe that these covenants will materially limit its business and expansion strategy.

The Company was in compliance with these covenants at June 30, 2022 and does not believe that these covenants will materially limit its business and expansion strategy.

The agreement contains events of default including, without limitation, nonpayment of principal, interest or other obligations, violation of covenants, misrepresentation, cross-default and cross-acceleration to other debt, bankruptcy and other insolvency events, judgments, certain ERISA events, actual or asserted invalidity of loan documentation, invalidity of subordination provisions of subordinated debt, certain changes of control of the Company, and the occurrence of certain regulatory events (including the entry of any stay, order, judgment, ruling or similar event related to the Company’s or any of its subsidiaries’ originating, holding, pledging, collecting or enforcing its eligible finance receivables that is material to the Company or any subsidiary) which remains unvacated, undischarged, unbonded or unstayed by appeal or otherwise for a period of 60 days from the date of its entry and is reasonably likely to cause a material adverse change.

The Company believes that cash flow from operations and borrowings under its revolving credit facility or other sources will be adequate to fund the expected cost of opening or acquiring new branches, including funding initial operating losses of new branches and funding loans receivable originated by those branches and the Company's other branches (for the next 12 months and for the foreseeable future beyond that).

and for the foreseeable future beyond that).

Except as otherwise discussed in this report including, but not limited to, any discussions in Part 1, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K (as supplemented by any subsequent disclosures in information the Company files with or furnishes to the SEC from time to time), management is not currently aware of any trends, demands, commitments, events or uncertainties that it believes will or could result in, or are or could be reasonably likely to result in, any material adverse effect on the Company’s liquidity.

Share Repurchase Program

On June 16, 2021, the Board of Directors authorized the Company to repurchase up to $30.0 million of the Company’s outstanding common stock, inclusive of the amount that remains available for repurchase under prior repurchase authorizations.

On December 7, 2021, the Board of Directors authorized the Company to repurchase up to $50.0 million of the Company's outstanding common stock inclusive of any amount that remains available for repurchase under prior repurchase authorizations.

As of December 31, 2021, the Company had $46.1 million in aggregate remaining repurchase capacity.

The timing and actual number of shares of common stock repurchased will depend on a variety of factors, including the stock price, corporate and regulatory requirements, restrictions under the revolving credit facility and other market and economic conditions.

On February 24, 2022, the Board of Directors authorized the Company to repurchase up to $30.0 million of the Company’s outstanding common stock, inclusive of the amount that remained available for repurchase under prior repurchase authorizations.

As of June 30, 2022 the Company had $1.1 million in aggregate remaining repurchase capacity under its current share repurchase program.

The timing and actual number of shares repurchased will depend on a variety of factors, including the stock price, corporate and regulatory requirements, available funds, alternative uses of capital, restrictions under the revolving credit agreement, and other market and economic conditions.

The Company’s stock repurchase program may be suspended or discontinued at any time.

The Company continues to believe stock repurchases are a viable component of the Company’s long-term financial strategy and an excellent use of excess cash when the opportunity arises.

Under the terms of our revolving credit facility and the Notes, we have, subject to certain restrictions, the ability to make total share repurchases of at least $90.0 million through June 30, 2022.

As of December 31, 2021, subject to further approval from our Board of Directors, we could repurchase approximately $84.4 million of shares under the terms of our debt facilities.

Additional share repurchases can be made subject to compliance with, among other things, applicable restricted payment covenants under the revolving credit facility and the Notes.

Our first priority is to ensure we have enough capital to fund loan growth.

As of June 30, 2022, subject to further approval from our Board of Directors, we could repurchase approximately $14.2 million of shares under the terms of our debt facilities.

To the extent we have excess capital, we may repurchase stock, if appropriate and as authorized by our Board of Directors.

As of December 31, 2021, the Company's debt outstanding was $720.3 million and its shareholders' equity was $409.4 million resulting in a debt-to-equity ratio of 1.8:1.0.

As of June 30, 2022, the Company's debt outstanding was $777.0 million, net of $4.4 million unamortized debt issuance costs related to the unsecured senior notes payable, and its shareholders' equity was $354.1 million resulting in a debt-to-equity ratio of 2.2:1.0.

Management will continue to monitor the Company's debt-to-equity ratio and is committed to maintaining a debt level that will allow the Company to continue to execute its business objectives, while not putting undue stress on its consolidated balance sheet.

1 unchanged sentence

Although inflation would increase the Company’s operating costs in absolute terms, the Company expects that the same decrease in the value of money would result in an increase in the size of loans demanded by its customer base.

We anticipate that such a change in customer preference would result in an increase in total loans receivable and an increase in absolute revenue to be generated from that larger amount of loans receivable.

That increase in absolute revenue should offset any increase in operating costs.

In addition, because the Company’s loans have a relatively short contractual term, it is unlikely that loans made at any given point in time will be repaid with significantly inflated dollars.

It is reasonable to anticipate that such a change in customer preference would result in an increase in total loans receivable and an increase in absolute revenue to be generated from that larger amount of loans receivable.

The Company believes that this increase in absolute revenue should offset any increase in operating costs.

In addition, because the Company’s loans have a relatively short contractual term and average life, it is unlikely that loans made at any given point in time will be repaid with significantly inflated dollars.

Quarterly Information and Seasonality

9 unchanged sentences

Accounting policies related to the allowance for credit losses are considered to be critical as these policies involve considerable subjective judgement and estimation by management.

As discussed in Note 3 – Summary of Significant Policies, to our unaudited Consolidated Financial Statements included in this report, our policies related to the allowances for credit losses changed on April 1, 2020 in connection with the adoption of a new accounting standard update as codified in ASC 326.

In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected.

16 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis