What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-03 compared with 2022-11-04 · 105 added, 104 removed, 186 unchanged (53% of the section changed)

30 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 September 30, Six months ended September 30,

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

2022 2021 2022 2021

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Interest expense 9.6 % 6.8 % 8.4 % 5.4 %

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

Operating income as a % of total revenue (4)

14.0 % 12.0 % 6.8 % 15.6 %

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

(4) Operating income 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 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 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 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.

Comparison of three months ended December 31, 2022 versus three months ended December 31, 2021

Gross loans outstanding increased to $1.55 billion as of December 31, 2022, a 3.2% decrease from the $1.61 billion of gross loans outstanding as of December 31, 2021.

During the three months ended December 31, 2022 our unique borrowers decreased by 4.9% compared to an increase of 7.7% during the three months ended December 31, 2021.

Net income for the three months ended December 31, 2022 decreased to net income of $5.8 million, a 21.4% decrease from a net income of $7.3 million for the same period of the prior year.

Operating income, which is revenue less provision for credit losses and general and administrative expenses, increased by $2.6 million, or 14.3%, compared to the same period of the prior fiscal year.

Revenues for the three months ended December 31, 2022 decreased by $2.1 million, or 1.4%, to $146.5 million from $148.6 million for the same period of the prior year.

The decrease was primarily due to a 4.8% decrease in average gross earning loans (total gross loans less gross loans 60 days or more contractually past due and tax advances).

Interest and fee income for the three months ended December 31, 2022 decreased by $1.9 million, or 1.5%, from the same period of the prior year due to a decrease in loans outstanding.

The decrease was primarily due to a 4.8% decrease in average gross earning loans (total gross loans less gross loans 60 days or more contractually past due and tax advances).

Insurance and other income for the three months ended December 31, 2022 decreased by $0.1 million, or 0.6%, from the same period of the prior year.

Insurance income increased by approximately $2.8 million, or 19.5%, during the three months ended December 31, 2022 when compared to the three months ended December 31, 2021.

Insurance income increased due to a shift to larger loans over the twelve months ending December 31, 2022.

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

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.

The large loan portfolio increased from 49.5% of the overall portfolio as of December 31, 2021 to 56.4% as of December 31, 2022.

Other income decreased by $2.9 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 provision for credit losses increased $3.1 million, or 5.6%, to $59.6 million from $56.5 million when comparing the third quarter of fiscal 2023 to the third 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 - June 30 $155.7 $97.9 $57.8

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

Beginning Allowance - September 30 $155.9 $114.7 $41.2

Change due to Growth $(4.3) $17.4 $(21.7) $(21.7)

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Change due to 90 day past due $0.4 $12.2 $(11.8) $(11.8)

Ending Allowance - September 30 $155.9 $114.7 $41.2

Ending Allowance - December 31 $144.5 $133.4 $11.1 $(30.1)

Net Charge-offs $71.0 $37.8 $33.2 $33.2

Provision $59.6 $56.5 $3.1 $3.1

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 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 change in allowance for the quarter plus net charge-offs for the quarter equals the provision for the quarter (see above reconciliation).

The provision benefited from 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 Customer Tenure mix, and a seasonality factor.

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

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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 $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.

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

Actual loss rates increased at substantially lower rates in the third quarter compared to the first and second quarter.

This was offset by a decreasing seasonality factor and by a shift in portfolio mix to more tenured customers.

Net charge-offs for the quarter increased 33.2 million, from $37.8 million in the third quarter of fiscal 2022 to $71.0 million in the third quarter of fiscal 2023.

Net charge-offs as a percentage of average net loan receivables on an annualized basis increased from 13.8% in the third quarter of fiscal 2022 to 25.1% in the third quarter of fiscal 2023.

Net charge-offs during the period include $11.4 million in proceeds related to the sale of charge-offs, for which $8.4 million relates to bulk sales of charge-offs from prior periods and $3 million relates to recurring sales of charge-offs during the three months ended December 31, 2022.

The Company's allowance for credit losses as a percentage of net loans was 12.9% at December 31, 2022 compared to 11.4% at December 31, 2021.

Accounts that were 61 days or more past due on a recency basis were 7.4% of the portfolio at December 31, 2022 and 6.4% of the portfolio at December 31, 2021.

Accounts that were 61 days or more past due on a contractual basis were 9.3% of the portfolio at December 31, 2022 compared to 7.8% of the portfolio at December 31, 2021.

G&A expenses for the three months ended December 31, 2022 decreased by $7.8 million, or 10.5%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses decreased from 50.0% during the three months ended December 31, 2021 to 45.4% during the three months ended December 31, 2022.

G&A expenses per average open branch

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

decreased by 1.6% when comparing the two three-month periods.

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

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.

Personnel expense totaled $40.7 million for the three months ended December 31, 2022, a $3.7 million, or 8.3%, decrease over the three months ended December 31, 2021.

Benefit expense decreased approximately $0.1 million, or 1.7%, when comparing the quarterly periods ended December 31, 2022 and 2021.

Incentive expense decreased $6.9 million, or 62.8%.

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.

This was offset by a $2.2 million, or 7.5%, increase in salary expense when comparing the two quarterly periods ended December 31, 2022 and 2021.

The decrease in incentives expense is mostly due to a $3.1 million decrease in share based compensation related to forfeiture of shares during the third quarter of fiscal 2023.

Additionally, o n 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.

The increase in salary expense is mostly due to the increased based wages for our Financial Service Representatives as mentioned above and our headcount as of December 31, 2022, increased 0.8% compared to December 30, 2021.

Occupancy and equipment expense totaled $12.9 million for the three months ended December 31, 2022, a $0.3 million, or 2.5%, increase over the three months ended December 31, 2021.

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

The current year includes $0.4 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.

For the three months ended December 31, 2022, the average open branches decreased 9.1% compared to the three months ended December 31, 2021.

Advertising expense decreased $5.5 million, or 80.7%, in the third quarter of fiscal 2023 compared to the third 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 December 31, 2022, a $161.2 thousand, or 12.6%, decrease over the three months ended December 31, 2021.

Other expense totaled $10.4 million for the three months ended December 31, 2022, a $1.3 million, or 13.8%, increase over the three months ended December 31, 2021.

Interest expense for the three months ended December 31, 2022 increased by $3.9 million, or 38.4%, from the corresponding three months of the previous year.

The increase in interest expense was due to a 14.6% increase in the average debt outstanding, from $640.8 million to $734.3 million, and a 21.4% increase in the effective interest rate from 6.3% to 7.6%.

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.

The Company’s senior debt-to-equity ratio increased from 1.8:1 at December 31, 2021 to 2.0:1 at December 31, 2022.

Other key return ratios for the three months ended December 31, 2022 included a 1.1% return on average assets and a return on average equity of 3.8% (both on a trailing 12-month basis), as compared to a 7.4% return on average assets and a return on average equity of 20.1% (both on a trailing 12-month basis) for the three months ended December 31, 2021.

The Company’s effective income tax rate increased to 9.7% for the three months ended December 31, 2022 compared to 5.1% for the corresponding period of the previous year.

The increase is primarily due to the permanent benefit related to non-qualified stock option exercises and vesting of restricted stock as discrete items in the prior year quarter.

This was partially offset by the effects of pretax book earnings relative to the effects of various permanent items including a decrease in the disallowed executive compensation under Section 162(m) and the recognition of additional Federal Historic Tax Credits when compared to the prior year quarter.

Comparison of nine months ended December 31, 2022 versus nine months ended December 31, 2021

Gross loans outstanding increased to $1.55 billion as of December 31, 2022, a 3.2% decrease from the $1.61 billion of gross loans outstanding as of December 31, 2021.

During the nine months ended December 31, 2022 our number of unique borrowers in the portfolio decreased by 13.7% compared to an increase of 4.4% during the nine months ended December 31, 2021.

Net income (loss) for the nine months ended December 31, 2022 decreased to a net loss of $4.4 million, a 112.4% decrease from a net income of $35.5 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 $33.9 million, or 52.4%.

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.

Revenues increased by $39.3 million, or 9.4%, to $455.3 million during the nine months ended December 31, 2022 from $416.1 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 for the nine months ended December 31, 2022 increased by $31.4 million, or 8.8%, 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.

Average net loans outstanding increased by 18.8% for the nine months ended December 31, 2022 compared to the nine-month period ended December 31, 2021.

Insurance and other income for the nine months ended December 31, 2022 increased by $7.8 million, or 12.9%, from the same period of the prior year.

Insurance income increased by approximately $10.5 million, or 25.7%, during the nine months ended December 31, 2022 when compared to the nine months ended December 31, 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.

Other income decreased by $2.6 million due to a decreases in the sale of our motor club product and tax preparation business revenue, offset by a $3.7 million bargain purchase gain during the nine months ended December 31, 2022.

G&A expenses for the nine months ended December 31, 2022 decreased by $12.1 million, or 5.4%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses decreased from 53.5% during the first nine months of fiscal 2022 to 46.2% during the first nine months of fiscal 2023.

G&A expenses per average open branch increased by 1.1% when comparing the two nine-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.

Personnel expense totaled $131.2 million for the nine months ended December 31, 2022, a $5.2 million, or 3.8%, decrease over the nine months ended December 31, 2021.

Salary expense increased approximately $7.1 million, or 8.2%, when comparing the two nine month periods ended December 31, 2022 and 2021.

Our headcount as of December 31, 2022, increased 0.8% compared to December 31, 2021.

Benefit expense decreased approximately $1.2 million, or 4.7%, when comparing the nine month periods ended December 31, 2022 and 2021.

Incentive expense decreased $12.6 million, or 36.8% mostly due to a decrease in share based compensation related to forfeiture of shares and a reduction in branch level bonuses.

Occupancy and equipment expense totaled $39.7 million for the nine months ended December 31, 2022, a $0.5 million, or 1.3%, increase over the nine months ended December 31, 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.

For the nine months ended December 31, 2022, the average occupancy and equipment expense per branch increased to $35.2 thousand, up from $32.5 thousand for the nine months ended December 31, 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 nine-month periods.

The current year includes $1.5 million in expense related to the merger of branches during the nine months ended December 31, 2022.

Advertising expense totaled $4.5 million for the nine months ended December 31, 2022, a $11.4 million, or 71.4%, decrease over the nine months ended December 31, 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.

Amortization of intangible assets totaled $3.4 million for the nine months ended December 31, 2022, a $383.4 thousand, or 10.3%, decrease over the nine months ended December 31, 2021.

Other expense totaled $31.7 million for the nine months ended December 31, 2022, a $4.3 million, or 15.8%, increase over the nine months ended December 31, 2021.

Interest expense for the nine months ended December 31, 2022 increased by $15.9 million, or 71.0%, from the corresponding nine months of the previous year.

The increase in interest expense was due to a 41.0% increase in the average debt outstanding, from $530.0 million to $747.4 million, offset by a 23.1% increase in the effective interest rate from 5.5% to 6.8%.

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.

Other key return ratios for the first nine months of fiscal 2023 included a 1.1% return on average assets and a return on average equity of 3.8% (both on a trailing 12-month basis), as compared to a 7.4% return on average assets and a return on average equity of 20.1% (both on a trailing 12-month basis) for the first nine months of fiscal 2022.

The Company’s effective income tax rate increased to 41.1% for the nine months ended December 31, 2022 compared to 16.1% for the corresponding period of the previous year.

The increase is primarily due to the permanent benefit related to non-qualified stock option exercises and vesting of restricted stock as discrete items in the prior year.

Regulatory Matters

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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.

The CFPB has filed a certiorari petition asking the U.S.

Supreme Court to review the Fifth Circuit’s panel decision and hear arguments in April 2023.

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.

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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.

However, this initiative was classified as “inactive” on the CFPB’s Spring 2018 rulemaking, and its Fall 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.

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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 six months ended September 30, 2022 was $136.7 million.

Net cash provided by operating activities for the nine months ended December 31, 2022 was $205.9 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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At any time on or after November 1, 2023, the Company may redeem the Notes at redemption prices set forth in the indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

In addition, at any time prior to November 1, 2023, the Company may use the proceeds of certain equity offerings to redeem up to 40% of the aggregate principal amount of the Notes issued under the indenture at a redemption price equal to 107.0% of the principal amount of Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

In addition, at any time

prior to November 1, 2023, the Company may use the proceeds of certain equity offerings to redeem up to 40% of the aggregate principal amount of the Notes issued under the indenture at a redemption price equal to 107.0% of the principal amount of Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

We used the net proceeds from this offering to repay a portion of the outstanding indebtedness under our revolving credit facility and for general corporate purposes.

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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 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.

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

As of December 31, 2022, subject to further approval from our Board of Directors, we could repurchase approximately $16.4 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 September 30, 2022, the aggregate commitments under the revolving credit facility were $685.0 million.

At December 31, 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 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.

For the nine months ended December 31, 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 6.8% annualized and 5.5%, respectively, and the unused amount available under the revolving credit facility at December 31, 2022 was $258.2 million.

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

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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;

(ii) a maximum ratio of total debt to consolidated adjusted net worth as further discussed below;

(iii) a maximum collateral performance indicator as further discussed below;

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

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.

As further discussed in Note 10 to the Consolidated Financial Statements, on November 23, 2022, the Company entered into the Ninth Amendment to, among other things, (1) change the required ratio for net income available for fixed charges to fixed charges to 1.25 to 1.0 for the fiscal quarter ending December 31, 2022, 1.15 to 1.0 for the fiscal quarters ending March 31, 2023 and June 30, 2023, 1.50 to 1.0 for the fiscal quarter September 30, 2023, 2.0 to 1.0 for the fiscal quarter ending December 31, 2023, and 2.75 to 1.0 for each fiscal quarter thereafter, where the most recent four consecutive fiscal quarters must be at least 2.0 to 1.0 in order for the Company to declare dividends or purchase any class or series of its capital stock or other equity;

(2) change the ratio of total debt to consolidated adjusted net worth to 2.5 to 1.0 for the fiscal quarter ending December 31, 2022, 2.25 to 1.0 for the fiscal quarters ending March 31, 2023 and June 30, 2023, 2.0 to 1.0 for the fiscal quarter ending September 30, 2023, 2.25 to 1.0 for the fiscal quarter ending December 31, 2023, and 2.5 to 1.0 for each fiscal quarter thereafter;

(3) require a collateral performance indicator of less than or equal to 28% for the calendar months ending October 31, 2022 through June 30, 2023 and 26% thereafter;

and (4) decrease the advance rate to as low as 62% from 74% for the calendar months ending October 31, 2022 through June 30, 2023.

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, 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.

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.

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).

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

As of December 31, 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 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.

As of December 31, 2022, subject to further approval from our Board of Directors, we could repurchase approximately $16.4 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 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.

As of December 31, 2022, the Company's debt outstanding was $722.5 million, net of $3.9 million unamortized debt issuance costs related to the unsecured senior notes payable, and its shareholders' equity was $359.6 million resulting in a debt-to-equity ratio of 2.0:1.0.

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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The Company is subject to potential adverse adjustments, including but not limited to:

an increase in the statutory federal or state income tax rates, the permanent non-deductibility of amounts currently considered deductible either now or in future periods, and the dependency on the generation of future taxable income in order to ultimately realize deferred income tax assets.

an increase in the statutory federal or state income tax rates, the permanent non-deductibility of amounts currently considered

deductible either now or in future periods, and the dependency on the generation of future taxable income in order to ultimately realize deferred income tax assets.

Under FASB ASC Topic 740, the Company will include the current and deferred tax impact of its tax positions in the financial statements when it is more likely than not (likelihood of greater than 50%) that such positions will be sustained by taxing authorities, with full knowledge of relevant information, based on the technical merits of the tax position.

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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