What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 113 added, 63 removed, 177 unchanged (50% of the section changed)

17 unchanged sentences

changes in interest rates;

the impact of inflation;

risks relating to the acquisition or sale of assets or businesses or other strategic initiatives, including increased loan delinquencies or net charge-offs, the loss of key personnel, integration or migration issues, the failure to achieve anticipated synergies, increased costs of servicing, incomplete records, and retention of customers;

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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 June 30,

Three months ended September 30, Six months ended September 30,

2022 2021 2022 2021

(Dollars in thousands)

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It does not include loans purchased through acquisitions.

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.

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

Gross loans outstanding increased to $1.60 billion as of September 30, 2022, a 14.6% increase from the $1.39 billion of gross loans outstanding as of September 30, 2021.

During the three months ended September 30, 2022 our unique borrowers decreased by 5.1% compared to an increase of 8.2% during the three months ended September 30, 2021.

Net income (loss) for the three months ended September 30, 2022 decreased to a net loss of $1.4 million, a 111.0% decrease from a net income of $12.4 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 $9.4 million, or 45.1%, 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.

Net loss for three months ended September 30, 2022 was significantly impacted by an increase in the provision for credit losses under CECL.

Revenues for the three months ended September 30, 2022 increased by $13.4 million, or 9.7%, to $151.2 million from $137.8 million for the same period of the prior year.

The increase was primarily due to a 9.9% 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.

Interest and fee income for the three months ended September 30, 2022 increased by $12.3 million, or 10.5%, from the same period of the prior year due to an increase in loans outstanding.

Net loans outstanding at September 30, 2022 increased by 13.1% over the balance at September 30, 2021.

Average net loans outstanding increased by 23.0% for the three months ended September 30, 2022 compared to the three-month period ended September 30, 2021.

Insurance and other income for the three months ended September 30, 2022 increased by $1.1 million, or 5.3%, from the same period of the prior year.

Insurance income increased by approximately $3.0 million, or 21.9%, during the three months ended September 30, 2022 when compared to the three months ended September 30, 2021.

Insurance income increased due to a shift to larger loans over the twelve months ending September 30, 2022.

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

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.

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 large loan portfolio increased from 47.6% of the overall portfolio as of September 30, 2021 to 55.4% as of September 30, 2022.

Other income decreased by $2.0 million.

Other income decreased due to a decrease in sales of our motor club product as a result of lower originations during the quarter.

The provision for credit losses increased $26.6 million, or 63.2%, to $68.6 million from $42.0 million when comparing the second quarter of fiscal 2023 to the second 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

Beginning Allowance - June 30 $155.7 $97.9 $57.8

Change due to Growth $(4.1) $13.7 $(17.8)

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Change due to 90 day past due $7.9 $3.3 $4.6

Ending Allowance - June 30 $155.6 $97.8 $57.8

Ending Allowance - September 30 $155.9 $114.7 $41.2

Net Charge-offs $68.4 $25.2 $43.2

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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 change in the allowance during the quarter was significantly impacted by an increase in accounts 90 days past due.

This was partially offset by a decrease in the portfolio 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.

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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.

Net charge-offs for the quarter increased $43.1 million, from $25.2 million in the second quarter of fiscal 2022 to $68.4 million in the second quarter of fiscal 2023.

Net charge-offs as a percentage of average net loan receivables on an annualized basis increased from 10.5% in the second quarter of fiscal 2022 to 23.0% in the second quarter of fiscal 2023.

The increase in delinquency and charge-offs were expected, in part, 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 13.5% at September 30, 2022 compared to 11.2% at September 30, 2021.

Accounts that were 61 days or more past due on a recency basis were 8.0% of the portfolio at September 30, 2022 and 5.0% of the portfolio at September 30, 2021.

Accounts that were 61 days or more past due on a contractual basis were 10.1% of the portfolio at September 30, 2022 compared to 6.2% of the portfolio at September 30, 2021.

G&A expenses for the three months ended September 30, 2022 decreased by $3.8 million, or 5.1%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses decreased from 54.4% during the three months ended September 30, 2021 to 47.1% during the three months ended September 30, 2022.

G&A expenses per average open branch

increased by 1.4% when comparing the two three-month periods.

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

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.

Personnel expense totaled $45.3 million for the three months ended September 30, 2022, a $0.5 million, or 1.0%, decrease over the three months ended September 30, 2021.

Benefit expense decreased approximately $0.7 million, or 8.2%, when comparing the quarterly periods ended September 30, 2022 and 2021.

Incentive expense decreased $3.6 million, or 31.8%.

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.

This was offset by a $3.3 million, or 11.4%, increase in salary expense when comparing the two quarterly periods ended September 30, 2022 and 2021.

On July 1, 2022, we increased base wages for our Financial Service Representatives to a minimum of approximately $15 an hour and eliminated the monthly bonus for the same position.

Our headcount as of September 30, 2022, increased 1.8% compared to September 30, 2021.

Occupancy and equipment expense totaled $13.5 million for the three months ended September 30, 2022, a $0.6 million, or 4.3%, increase over the three months ended September 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 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 June 30, 2022 increased by $5.7 million, or 103.1%, from the corresponding three months of the previous year.

The current year includes $0.7 million in expense related to the merger of branches during the quarter.

For the three months ended September 30, 2022, the average open branches decreased 6.4% compared to the three months ended September 30, 2021.

Advertising expense decreased $4.3 million, or 80.9%, in the second quarter of fiscal 2023 compared to the second 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 September 30, 2022, a $139.5 thousand, or 11.2%, decrease over the three months ended September 30, 2021.

Other expense totaled $10.3 million for the three months ended September 30, 2022, a $0.5 million, or 5.3%, increase over the three months ended September 30, 2021.

Interest expense for the three months ended September 30, 2022 increased by $6.3 million, or 94.1%, from the corresponding three months of the previous year.

The increase in interest expense was due to a 47.8% increase in the average debt outstanding, from $524.7 million to $775.6 million, and a 32.6% increase in the effective interest rate from 5.0% to 6.7%.

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 Company’s senior debt-to-equity ratio increased from 1.4:1 at September 30, 2021 to 2.1:1 at September 30, 2022.

Other key return ratios for the three months ended September 30, 2022 included a 1.3% return on average assets and a return on average equity of 4.1% (both on a trailing 12-month basis), as compared to a 8.6% return on average assets and a return on average equity of 22.4% (both on a trailing 12-month basis) for the three months ended September 30, 2021.

The Company’s effective income tax rate increased to 15.3% for the three months ended September 30, 2022 compared to 11.7% 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.

Comparison of six months ended September 30, 2022 versus six months ended September 30, 2021

Gross loans outstanding increased to $1.60 billion as of September 30, 2022, a 14.6% increase from the $1.39 billion of gross loans outstanding as of September 30, 2021.

During the six months ended September 30, 2022 our number of unique borrowers in the portfolio decreased by 2.3% compared to an increase of 5.0% during the six months ended September 30, 2021.

Net income (loss) for the six months ended September 30, 2022 decreased to a net loss of $10.2 million, a 136.0% decrease from a net income of $28.2 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 $36.5 million, or 77.9%.

Revenues increased by $41.3 million, or 15.5%, to $308.8 million during the six months ended September 30, 2022 from $267.5 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 six months ended September 30, 2022 increased by $33.4 million, or 14.7%, 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 September 30, 2022 increased by 13.1% over the balance at September 30, 2021.

Average net loans outstanding increased by 28.4% for the six months ended September 30, 2022 compared to the six-month period ended September 30, 2021.

Insurance and other income for the six months ended September 30, 2022 increased by $8.0 million, or 19.8%, from the same period of the prior year.

Insurance income increased by approximately $7.6 million, or 29.1%, during the six months ended September 30, 2022 when compared to the six months ended September 30, 2021.

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

Other income increased by $0.3 million due to a $3.7 million bargain purchase gain during the six months ended September 30, 2022, offset by decreases in the sale of our motor club product and tax preparation business revenue.

G&A expenses for the six months ended September 30, 2022 decreased by $4.3 million, or 2.9%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses decreased from 55.5% during the first six months of fiscal 2022 to 46.6% during the first six months of fiscal 2023.

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

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

Personnel expense totaled $90.5 million for the six months ended September 30, 2022, a $1.5 million, or 1.6%, decrease over the six months ended September 30, 2021.

Salary expense increased approximately $4.9 million, or 8.5%, when comparing the two six month periods ended September 30, 2022 and 2021.

Our headcount as of September 30, 2022, increased 1.8% compared to September 30, 2021.

Benefit expense decreased approximately $1.1 million, or 6.0%, when comparing the six month periods ended September 30, 2022 and 2021.

Incentive expense decreased $5.7 million, or 24.5% mostly due to a reduction in branch level bonuses.

Occupancy and equipment expense totaled $26.7 million for the six months ended September 30, 2022, a $0.2 million, or 0.7%, increase over the six months ended September 30, 2021.

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

For the six months ended September 30, 2022, the average occupancy and equipment expense per branch increased to $23.4 thousand, up from $22.0 thousand for the six months ended September 30, 2021.

The prior year includes $0.4 million more in write down of signage as a result of rebranding our offices when comparing the two six-month periods.

The current year includes $1.1 million in expense related to the merger of branches during the six months ended September 30, 2022.

Advertising expense totaled $3.2 million for the six months ended September 30, 2022, a $5.8 million, or 64.5%, decrease over the six months ended September 30, 2021.

The decrease is due to decreased spending on new customer acquisition programs during the period.

Amortization of intangible assets totaled $2.2 million for the six months ended September 30, 2022, a $222.2 thousand, or 9.0%, decrease over the six months ended September 30, 2021.

Other expense totaled $21.4 million for the six months ended September 30, 2022, a $3.1 million, or 16.8%, increase over the six months ended September 30, 2021.

Interest expense for the six months ended September 30, 2022 increased by $12.0 million, or 98.2%, from the corresponding six months of the previous year.

The increase in interest expense was due to a 59.7% increase in the average debt outstanding, from $473.1 million to $755.4 million, offset by a 27.2% increase in the effective interest rate from 5.0% to 6.4%.

Other key return ratios for the first six months of fiscal 2023 included a 1.3% return on average assets and a return on average equity of 4.1% (both on a trailing 12-month basis), as compared to a 8.6% return on average assets and a return on average equity of 22.4% (both on a trailing 12-month basis) for the first six months of fiscal 2022.

The Company’s effective income tax rate increased to 26.7% for the six months ended September 30, 2022 compared to 18.5% 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

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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”).

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.

However, on October 19, 2022, a three-judge panel of the Fifth Circuit Court of Appeals held in Cmty.

Ass’n of Am., Ltd.

Consumer Fin.

Bureau , that the CFPB’s funding structure violated the U.S.

Constitution’s Appropriations Clause, which requires that all expenditures of federal funds be approved by Congress.

On this ground, it vacated the Rule.

It is unclear whether the CFPB will seek en banc review, attempt to appeal the decision to the Supreme Court, or seek a legislative fix.

The decision will be binding in the Fifth Circuit’s jurisdiction, covering Louisiana, Texas and Mississippi, and persuasive in other circuits until there’s a competing case to contradict it.

Implementation of the Rule’s payment requirements is uncertain, but if it were to take effect it could 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.

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.

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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 three months ended June 30, 2022 was $58.2 million.

Net cash provided by operating activities for the six months ended September 30, 2022 was $136.7 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.

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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.

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.

However, our revolving credit facility and the Notes limit share repurchases up to 50% of consolidated adjusted net income for the period commencing January 1, 2019.

As of September 30, 2022, subject to further approval from our Board of Directors, we could repurchase approximately $13.5 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.

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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.

At September 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;

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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 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.

For the six months ended September 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 6.4% annualized and 5.0%, respectively, and the unused amount available under the revolving credit facility at September 30, 2022 was $233.8 million.

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

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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.

As further discussed in Note 10 to the Consolidated Financial Statements, on July 26th, 2022, the Company entered into the Eighth Amendment to the 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 31, 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 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).

On October 25, 2022, the Company became aware that it was not in compliance with Section 8.7(b) of the revolving credit agreement (Net Income Available for Fixed Charges to Fixed Charges) for the fiscal quarter ending September 30, 2022 and Section 8.7(e) of the revolving credit agreement (Collateral Performance Indicator) for the calendar month ending September 30, 2022 (collectively, the "Existing Non-Compliance").

Specifically, the Fixed Charge Coverage ratio for the fiscal quarter ending September 30, 2022 was 2.14 to 1.0 and the Collateral Performance Indicator for the month ending September 30, 2022 was 24.48%.

On October 26, 2022, the Company entered into a waiver letter with its lenders named in the revolving credit agreement, pursuant to which its lenders agreed to waive the Existing Non-Compliance.

The Company has not received a notice of default, a notice of termination or declaration of acceleration of amounts due with respect to the outstanding balance of the loan from the lenders.

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.

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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.

As of September 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.

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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.

As of September 30, 2022, subject to further approval from our Board of Directors, we could repurchase approximately $13.5 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 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.

As of September 30, 2022, the Company's debt outstanding was $746.7 million, net of $4.2 million unamortized debt issuance costs related to the unsecured senior notes payable, and its shareholders' equity was $356.6 million resulting in a debt-to-equity ratio of 2.1:1.0.

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.

The Company does not believe that inflation, within reasonably anticipated rates, will have a material, adverse effect on its financial condition.

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.

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.

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.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis