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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-02-03 · 84 added, 132 removed, 159 unchanged (58% of the section changed)

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Among the key factors that could cause our actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements are the following:

the ongoing impact of the COVID-19 pandemic and the mitigation efforts by governments and related effects on our financial condition, business operations and liquidity, our customers, our employees, and the overall economy;

recently enacted, proposed or future legislation and the manner in which it is implemented;

changes in the U.S.

the nature and scope of regulatory authority, particularly discretionary authority, that may be exercised by regulators, including, but not limited to, the Securities and Exchange Commission (SEC), Department of Justice, U.S.

the nature and scope of regulatory authority, particularly discretionary authority, that may be exercised by regulators, including, but not limited to, the U.S.

Consumer Financial Protection Bureau, and individual state regulators having jurisdiction over the Company;

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risks inherent in making loans, including repayment risks and value of collateral;

cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption;

cybersecurity threats or incidents, including the potential or actual misappropriation of assets or sensitive information, corruption of data or operational disruption and the costs of the associated response thereto;

our dependence on debt and the potential impact of limitations in the Company’s amended revolving credit facility or other impacts on the Company's ability to borrow money on favorable terms, or at all;

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These and other risks are discussed in more detail in Part I, Item 1A “Risk Factors” in the Company's most recent annual report on Form 10-K for the fiscal year ended March 31, 2023 filed with the SEC, and in the Company’s other reports filed with, or furnished to, the SEC from time to time.

The Company does not undertake any obligation to update any forward-looking statements it may make.

The Company does not undertake any obligation to update any forward-looking statements it may make, except to the extent required by law.

Results of Operations

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,

2022 2021 2022 2021

The following table sets forth certain information derived from the Company's Consolidated Statements of Operations and Consolidated Balance Sheets (unaudited), as well as operating data and ratios, for the periods indicated:

Three months ended June 30,

(Dollars in thousands)

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Operating income as a % of total revenue (4)

14.0 % 12.0 % 6.8 % 15.6 %

Loan volume (5)

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It does not include loans purchased through acquisitions.

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.

Comparison of three months ended June 30, 2023 versus three months ended June 30, 2022

Gross loans outstanding decreased to $1.40 billion as of June 30, 2023, a 14.9% decrease from the $1.64 billion of gross loans outstanding as of June 30, 2022.

During the most recent quarter, we saw a decrease in borrowing from new, former, and refinance customers compared to the same quarter of the prior year due to the tighter underwriting standards implemented in prior quarters.

During the three months ended June 30, 2023 our unique borrowers increased by 1.5% compared to an increase of 0.2% during the three months ended June 30, 2022.

Net income for the three months ended June 30, 2023 increased to $9.5 million, a 211.3% increase from a net loss of $8.6 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 $24.2 million, or 5,419.6%, 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.

Revenues for the three months ended June 30, 2023 decreased by $18.6 million, or 11.8%, to $139.3 million from $157.9 million for the same period of the prior year.

Interest and fee income for the three months ended June 30, 2023 decreased by $13.6 million, or 10.4%, from the same period of the prior year due to a decrease in loans outstanding.

The decrease was primarily due to a 14.0% 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 49.5% of the overall portfolio as of December 31, 2021 to 56.4% as of December 31, 2022.

Insurance and other income for the three months ended June 30, 2023 decreased by $5.0 million, or 18.1%, from the same period of the prior year.

Insurance income decreased by approximately $1.0 million, or 5.9%, during the three months ended June 30, 2023 when compared to the three months ended June 30, 2022.

Insurance commissions decreased primarily due to a decrease in loans where our insurance products are available to our customer.

Other income decreased by $4.0 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 $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.

Other income in the prior year's first quarter includes a $3.1 million bargain purchase gain related to an acquisition.

The provision for credit losses decreased $39.2 million, or 45.7%, to $46.6 million from $85.8 million when comparing the first quarter of fiscal 2024 to the first quarter of fiscal 2023.

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 2024 FY 2023 Difference Reconciliation

Beginning Allowance - September 30 $155.9 $114.7 $41.2

Beginning Allowance - March 31 $125.5 $134.2 $(8.7)

Change due to Growth $0.7 $10.5 $(9.8) $(9.8)

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Change due to 90 day past due $(0.4) $(5.9) $5.5 $5.5

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

Ending Allowance - June 30 $129.3 $155.6 $(26.3) $(17.6)

Net Charge-offs $42.8 $64.4 $(21.6) $(21.6)

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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.

Quarter End Seasonality Factor

March 31 0.943738

June 30 1.080301

September 30 1.047518

December 31 0.938281

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

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

The provision benefited from substantially lower charge-offs, smaller increases in expected loss rates, and slower growth in the

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.

Net charge-offs for the quarter decreased $21.6 million, from $64.4 million in the first quarter of fiscal 2023 to $42.8 million in the first quarter of fiscal 2024.

Net charge-offs as a percentage of average net loan receivables on an annualized basis decreased from 22.3% in the first quarter of fiscal 2023 to 16.9% in the first quarter of fiscal 2024.

Net charge-offs during the period include $4.4 million in proceeds related to recurring sales of charge-offs.

The Company's allowance for credit losses as a percentage of net loans was 12.7% at June 30, 2023 compared to 13.0% at June 30, 2022.

Accounts that were 61 days or more past due on a recency basis were 5.6% of the portfolio at June 30, 2023 and 6.9% of the portfolio at June 30, 2022.

We experienced significant improvement in recency delinquency on accounts at least 90 days past due, improving from 4.1% at June 30, 2022, to 3.5% at June 30, 2023.

Recency delinquency for accounts 0-89 days past due also improved from 23.0% at June 30, 2022, to 20.2% at June 30, 2023.

G&A expenses for the three months ended June 30, 2023 decreased by $3.5 million, or 4.9%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses increased from 45.4% during the three months ended June 30, 2022 to 48.9% during the three months ended June 30, 2023.

G&A expenses per average open branch decreased by 3.8% when comparing the two three-month periods.

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

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.

Personnel expense totaled $41.8 million for the three months ended June 30, 2023, a $3.4 million, or 7.5%, decrease over the three months ended June 30, 2022.

Benefit expense decreased approximately $1.7 million, or 18.4%, when comparing the quarterly periods ended June 30, 2023 and 2022.

Incentive expense decreased $3.3 million, or 34.2%.

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.

This was offset by a $1.1 million, or 3.6%, increase in salary expense when comparing the two quarterly periods ended June 30, 2023 and 2022.

The decrease in incentive expense is mostly due to a $1.9 million decrease in share based compensation and bonus expense.

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.

The increase in salary expense is mostly due to the increased base wages for our Financial Service Representatives as mentioned above, partially offset by our headcount as of June 30, 2023, decreasing by 5.3% compared to June 30, 2022.

Occupancy and equipment expense totaled $12.6 million for the three months ended June 30, 2023, a $0.6 million, or 4.6%, decrease over the three months ended June 30, 2022.

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

The current year includes $0.3 million in expense related to the merger of branches during the quarter.

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 1.8:1 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 $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 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.

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 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 $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 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 $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 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.

For the three months ended June 30, 2023, the average open branches decreased 8.4% compared to the three months ended June 30, 2022.

Advertising expense increased $0.5 million, or 24.5%, in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 due to increased spending on customer acquisition programs.

Amortization of intangible assets totaled $1.1 million for the three months ended June 30, 2023, a $62.8 thousand, or 5.5%, decrease over the three months ended June 30, 2022.

Other expense totaled $9.9 million for the three months ended June 30, 2023, remaining relatively flat compared to the three month ended June 30, 2022.

Interest expense for the three months ended June 30, 2023 increased by $1.1 million, or 9.6%, from the corresponding three months of the previous year.

The increase in interest expense was due to a 42% increase in the effective interest rate from 6.0% to 8.5%, partially offset by a 20.0% decrease in the average debt outstanding, from $741.7 million to $593.2 million.

The Company’s senior debt-to-equity ratio decreased from 2.2:1 at June 30, 2022 to 1.5:1 at June 30, 2023.

The Company repurchased and extinguished $2.0 million of its Notes, net of $24.1 thousand unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $1.54 million.

Other key return ratios for the three months ended June 30, 2023 included a 3.3% return on average assets and a return on average equity of 10.7% (both on a trailing 12-month basis), as compared to a 2.5% return on average assets and a return on average equity of 7.5% (both on a trailing 12-month basis) for the three months ended June 30, 2022.

The Company’s effective income tax rate increased to 22.8% for the three months ended June 30, 2023 compared to 20.2% for the corresponding period of the previous year.

The increase is primarily due to the tax benefit related to the bargain purchase recorded as a discrete item in the prior year quarter.

Regulatory Matters

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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 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.

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”).

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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.

Supreme Court to review the Fifth Circuit’s panel decision.

The Supreme Court has scheduled oral arguments on October 3, 2023 and it is possible that a decision may not be issued until the end of the Court’s term in June 2024.

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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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.

While the CFPB has not yet initiated rulemaking for defining larger participants in the installment lending market, its Spring 2023 rulemaking agenda indicates that the CFPB is considering rules to define larger participants in markets for consumer payments, suggesting that the CFPB has renewed its focus on further identifying larger participants for purposes of its supervision program.

Even in the absence of a larger participant rule, the CFPB has the power to order individual nonbank financial institutions to submit to supervision where the CFPB has reasonable cause to determine that the institution is engaged in “conduct that poses risks to consumers” under 12 USC 5514(a)(1)(C).

On April 25, 2022, the CFPB announced that it has begun using this “dormant authority” to examine nonbank entities that pose risks to consumers.

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, 2023 for more information regarding these regulatory and related risks.

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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 nine months ended December 31, 2022 was $205.9 million.

Net cash provided by operating activities for the three months ended June 30, 2023 was $59.7 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.

On September 27, 2021, we issued $300.0 million in aggregate principal amount of 7.0% senior notes due 2026 (the “Notes”).

On September 27, 2021, we issued a $300 million in aggregate principal amount of 7.0% senior notes due 2026.

The Notes were sold in a private placement in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended.

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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.

During fiscal 2023, the Company repurchased and extinguished $9.1 million of its Notes, net of $0.1 million unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $7.2 million.

During the first three months of fiscal 2024.

the Company repurchased and extinguished $2.0 million of its Notes, net of $24.1 thousand unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $1.54 million.

In accordance with ASC 470, the Company recognized the $0.4 million gain on extinguishment as a component of interest expense in the Company's Consolidated Statements of Operations.

The indenture governing the Notes contains certain covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to (i) incur additional indebtedness or issue certain disqualified stock and preferred stock;

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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.

As of June 30, 2023, subject to further approval from our Board of Directors, we could repurchase approximately $34.0 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.

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

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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 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;

At June 30, 2023, the aggregate commitments under the revolving credit facility were $685.0 million.

The $524.0 thousand letter of credit outstanding under the subfacility expires on December 31, 2023;

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

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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 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.

For the three months ended June 30, 2023 and fiscal year ended March 31, 2023, the Company’s effective interest rate, including the commitment fee and amortization of debt issuance costs, was 9.6% annualized and 7.0%, respectively.

At June 30, 2023, the unused amount available under the revolving credit facility was $366.3 million and borrowings under the revolving credit facility mature on June 7, 2024.

The Company’s obligations under the revolving credit facility, together with treasury management and hedging obligations owing to any lender under the revolving credit facility or any affiliate of any such lender, are required to be guaranteed by each of the Company’s wholly-owned domestic subsidiaries.

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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 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 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 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 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 amount imposed by the financial covenants under the agreement.

The agreement's financial covenants include (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 (decreasing to 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, and 2.25 to 1.0 for the fiscal quarter ending December 31, 2023);

(iii) a maximum collateral performance indicator of 26.0% as of the end of each calendar month (increasing to 28.0% for the calendar months ending October 31, 2022 through June 30, 2023);

and (iv) a minimum fixed charges coverage ratio of 1.25 to 1.0 for the fiscal quarter ended 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 ending 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 ratio for 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.

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.

The Company was in compliance with these covenants at June 30, 2023 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 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 loans receivable 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).

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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 December 31, 2022 the Company had $1.1 million in aggregate remaining repurchase capacity under its current share repurchase program.

As of June 30, 2023 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 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.

As of June 30, 2023, subject to further approval from our Board of Directors, we could repurchase approximately $34.0 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, 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.

As of June 30, 2023, the Company's debt outstanding was $585.4 million, net of $3.2 million unamortized debt issuance costs related to the unsecured senior notes payable, and its shareholders' equity was $396.9 million resulting in a debt-to-equity ratio of 1.5:1.0.

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.

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The amount of the allowance account represents management’s best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument.

Relevant available information includes historical credit loss experience, current conditions, and reasonable and supportable forecasts.

Relevant available information includes historical credit loss experience, current conditions, qualitative factors, and reasonable and supportable forecasts.

Share-Based Compensation

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The fair value of restricted stock is based on the number of shares granted and the quoted price of the Company’s common stock at the time of grant, and the fair value of stock options is determined using the Black-Scholes valuation model.

The Black-Scholes model requires the input of highly subjective assumptions, including expected volatility, risk-free interest rate and expected life, changes to which can materially affect the fair value estimate.

Actual results and future changes in estimates may differ substantially from the Company’s current estimates.

The Black-Scholes model requires the input of assumptions, including expected volatility, risk-free interest rate and expected life.

Management uses certain assumptions and estimates in determining income taxes payable or refundable, deferred income tax liabilities and assets for events recognized differently in its financial statements and income tax returns, and income tax expense.

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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