What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-02-07 · 103 added, 137 removed, 151 unchanged (61% of the section changed)

29 unchanged sentences

changes in the Company’s markets and general changes in the economy (particularly in the markets served by the Company).

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.

These and other risks are discussed in more detail in Part I, Item 1A “Risk Factors” in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2024 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, except to the extent required by law.

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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 December 31, Nine months ended December 31,

2023 2022 2023 2022

Three months ended June 30,

(Dollars in thousands)

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_______________________________________________________

(1) Average gross loans receivable has been determined by averaging month-end gross loans receivable over the indicated period, excluding tax advances.

(1) Average gross loans receivable has been determined by averaging month-end gross loans receivable over the indicated period, excluding TALs.

(2) Net loans receivable is defined as gross loans receivable less unearned interest and deferred fees.

(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.

(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 TALs.

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

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It does not include loans purchased through acquisitions.

Comparison of three months ended December 31, 2023 versus three months ended December 31, 2022

Gross loans outstanding decreased to $1.40 billion as of December 31, 2023, a 9.9% decrease from the $1.55 billion of gross loans outstanding as of December 31, 2022.

During the most recent quarter, gross loans outstanding increased sequentially 1.5%, or $21.1 million, from $1.38 billion as of September 30, 2023, compared to a decrease of 2.8%, or $44.4 million, in the comparable quarter of the prior year.

Additionally, we saw an increase in borrowing from new, former, and refinance customers compared to the same quarter of fiscal 2023 as we took incremental steps to ease the historically stringent underwriting standards implemented in prior quarters.

We also continued to improve the gross yield to expected loss ratio for all new, former, and refinance customer originations.

During the three months ended December 31, 2023 our unique borrowers increased by 2.4% compared to a decrease of 4.9% during the three months ended December 31, 2022.

Net income for the three months ended December 31, 2023 increased to $16.7 million, a 187.1% increase from net income of $5.8 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 $9.2 million, or 42.0%, compared to the same period of the prior fiscal year.

Revenues for the three months ended December 31, 2023 decreased by $8.8 million, or 6.0%, to $137.7 million from $146.5 million for the same period of the prior year.

Interest and fee income for the three months ended December 31, 2023 decreased by $7.5 million, or 6.0%, from the same period of the prior year due to a decrease in loans outstanding.

The large loan portfolio decreased from 56.4% of the overall portfolio as of December 31, 2022, to 55.2% as of December 31, 2023.

Insurance and other income for the three months ended December 31, 2023 decreased by $1.2 million, or 6.1%, from the same period of the prior year.

Insurance income decreased by approximately $2.7 million, or 15.9%, during the three months ended December 31, 2023 when compared to the three months ended December 31, 2022.

Comparison of three months ended June 30, 2024 versus three months ended June 30, 2023

Gross loans outstanding decreased to $1.275 billion as of June 30, 2024, an 8.8% decrease from the $1.398 billion of gross loans outstanding as of June 30, 2023.

During the most recent quarter, gross loans outstanding decreased sequentially 0.2%, from $1.277 million as of March 31, 2024, compared to an increase of 0.6%, or $8.0 million, in the comparable quarter of the prior year.

Our customer base decreased by 2.6% during the twelve-month period ended June 30, 2024, compared to a decrease of 14.8% for the comparable period ended June 30, 2023.

During the three months ended June 30, 2024 our unique borrowers increased by 0.5% compared to an increase of 1.5% during the three months ended June 30, 2023.

We continued to improve the gross yield to expected loss ratio for all new, former and refinance customer originations and will continue to monitor performance indicators and intend to adjust underwriting accordingly.

Net income for the three months ended June 30, 2024 increased to $9.9 million, a 4.3% increase from net income of $9.5 million for the same period of the prior year.

Operating income, which is revenue less provision for credit losses and general and administrative expenses, decreased by $1.9 million, or 7.7%, compared to the same period of the prior year.

Revenues for the three months ended June 30, 2024 decreased by $9.8 million, or 7.0%, to $129.5 million from $139.3 million for the same period of the prior year.

Interest and fee income for the three months ended June 30, 2024 decreased by $5.5 million, or 4.7%, from the same period of the prior year due to a decrease in loans outstanding.

The large loan portfolio decreased from 57.4% of the overall portfolio as of June 30, 2023, to 54.5% as of June 30, 2024.

Insurance and other income for the three months ended June 30, 2024 decreased by $4.3 million, or 19.1%, from the same period of the prior year.

Insurance income decreased by approximately $3.1 million, or 19.4%, during the three months ended June 30, 2024 when compared to the three months ended June 30, 2023.

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

Other income increased by $1.5 million.

The provision for credit losses decreased $19.0 million, or 31.8%, to $40.6 million from $59.6 million when comparing the third quarter of fiscal 2024 to the third quarter of fiscal 2023.

Other income decreased by $1.2 million, primarily due to a decrease in revenue from the Company's motor club product and tax preparations.

The provision for credit losses decreased $1.2 million, or 2.5%, to $45.4 million from $46.6 million when comparing the first quarter of fiscal 2025 to the first quarter of fiscal 2024.

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 $128.9 $155.9 $(27.0)

CECL Allowance and Provision (Dollars in millions) Q1 FY 2025 Q1 FY 2024 Difference Reconciliation

Beginning Allowance - March 31 $103.0 $125.5 $(22.5)

Change due to Growth $(0.2) $0.7 $(0.9) $(0.9)

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Change due to 90 day past due $0.1 $(0.4) $0.5 $0.5

Ending Allowance - December 31 $121.1 $144.5 $(23.4) $3.6

Ending Allowance - June 30 $109.7 $129.3 $(19.6) $2.9

Net Charge-offs $38.7 $42.8 $(4.1) $(4.1)

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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 substantially lower charge-offs and smaller increases in loans 90 days past due.

Net charge-offs for the quarter decreased 22.6 million, from $71.0 million in the third quarter of fiscal 2023 to $48.4 million in the third quarter of fiscal 2024.

Net charge-offs as a percentage of average net loan receivables on an annualized basis decreased from 25.1% in the third quarter of fiscal 2023 to 19.1% in the third quarter of fiscal 2024.

Net charge-offs during the period include $3.7 million in proceeds related to the sale of charge-offs, for which $0.8 million relates to bulk sales of charge-offs from prior periods and $2.9 million relates to recurring sales of charge-offs.

The Company's allowance for credit losses as a percentage of net loans was 11.8% at December 31, 2023 compared to 12.9% at December 31, 2022.

Accounts that were 61 days or more past due on a recency basis were 5.8% of the portfolio at December 31, 2023 and 7.4% of the portfolio at December 31, 2022.

We experienced significant improvement in recency delinquency on accounts at least 90 days past due, improving from 4.9% at December 31, 2022, to 3.7% at December 31, 2023.

G&A expenses for the three months ended December 31, 2023 increased by $1.0 million, or 1.5%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses increased from 44.3% during the three months ended December 31, 2022 to 47.8% during the three months ended December 31, 2023.

The provision benefited from lower net charge-offs during the current quarter.

This was partially offset by a seasonally driven increase in expected loss rates.

Net charge-offs for the quarter decreased $4.1 million, from $42.8 million in the first quarter of fiscal 2024 to $38.7 million in the first quarter of fiscal 2025.

Net charge-offs as a percentage of average net loan receivables on an annualized basis decreased from 16.9% in the first quarter of fiscal 2024 to 16.4% in the first quarter of fiscal 2025.

Net charge-offs during the current quarter include $2.6 million in proceeds related to recurring sales of charge-offs.

The Company's allowance for credit losses as a percentage of net loans was 11.6% at June 30, 2024 compared to 12.7% at June 30, 2023.

Accounts that were 61 days or more past due on a recency basis remained flat at 5.6% at June 30, 2024 and June 30, 2023.

We experienced a slight improvement in recency delinquency on accounts at least 90 days past due, improving from 3.5% at June 30, 2023, to 3.4% at June 30, 2024.

G&A expenses for the three months ended June 30, 2024 decreased by $6.7 million, or 9.9%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses decreased from 48.9% during the three months ended June 30, 2023 to 47.4% during the three months ended June 30, 2024.

G&A expenses per average open branch increased by 8.6% when comparing the two three-month periods.

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

Personnel expense totaled $39.9 million for the three months ended December 31, 2023, a $0.8 million, or 2.0%, decrease over the three months ended December 31, 2022.

Benefit expense increased approximately $0.6 million, or 8.1%, when comparing the quarterly periods ended December 31, 2023 and 2022.

Personnel expense totaled $37.0 million for the three months ended June 30, 2024, a $4.8 million, or 11.5%, decrease over the three months ended June 30, 2023.

Salary expense decreased approximately $0.3 million, or 0.9%, during the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023.

Our headcount as of June 30, 2024, decreased 5.4% compared to June 30, 2023.

Benefit expense decreased approximately $0.9 million, or 11.1%, when comparing the quarterly periods ended June 30, 2024 and 2023.

Incentive expense decreased $3.5 million, or 54.8%.

Salary expense totaled $32.0 million staying relatively flat, when comparing the two quarterly periods ended December 31, 2023 and 2022.

The decrease in incentive expense is mostly due to a decrease in bonuses paid.

Occupancy and equipment expense totaled $12.1 million for the three months ended December 31, 2023, a $0.8 million, or 6.5%, decrease over the three months ended December 31, 2022.

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

The prior year's third quarter includes $0.4 million in expense related to the merger of branches during the quarter.

For the three months

ended December 31, 2023, the average open branches decreased 3.8% compared to the three months ended December 31, 2022.

Advertising expense increased $2.4 million, or 181.1%, in the third quarter of fiscal 2024 compared to the third 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 December 31, 2023, a $63.6 thousand, or 5.7%, decrease over the three months ended December 31, 2022.

Other expense totaled $9.2 million for the three months ended December 31, 2023, a $0.3 million, or 3.1%, increase over the three months ended December 31, 2022.

Interest expense for the three months ended December 31, 2023 decreased by $2.4 million, or 16.9%, from the corresponding three months of the previous year.

The decrease in interest expense was due to a 22.8% decrease in the average debt outstanding from $734.3 million to $567.1 million partially offset by a 12.5% increase in the effective interest rate from 7.6% to 8.6%.

The Company’s debt-to-equity ratio decreased from 2.0:1 at December 31, 2022 to 1.4:1 at December 31, 2023.

The Company repurchased and extinguished $4.75 million of its Notes, net of $48.0 thousand unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $4.1 million.

Other key return ratios for the three months ended December 31, 2023 included a 6.0% return on average assets and a return on average equity of 17.3% (both on a trailing 12-month basis), as compared to a 1.2% return on average assets and a return on average equity of 4.1% (both on a trailing 12-month basis) for the three months ended December 31, 2022.

The Company’s effective income tax rate decreased to 14.6% for the three months ended December 31, 2023 compared to 26.5% for the corresponding period of the previous year.

The decrease is primarily due to the permanent tax benefit related to non-qualified stock option exercises and vesting of restricted stock along with provision to return adjustments as discrete items in the current quarter.

Comparison of nine months ended December 31, 2023 versus nine months ended December 31, 2022

Gross loans outstanding decreased to $1.40 billion as of December 31, 2023, a 9.9% decrease from the $1.55 billion of gross loans outstanding as of December 31, 2022.

During the twelve months ended December 31, 2023 our number of unique borrowers in the portfolio decreased by 2.4% compared to a decrease of 13.7% during the twelve months ended December 31, 2022.

Net income for the nine months ended December 31, 2023 increased to $42.3 million from the $3.4 million loss reported for the same period of the prior year.

Operating income (revenue less provision for credit losses and general and administrative expenses) increased by $53.9 million, or 152.4%.

Revenues decreased by $41.8 million, or 9.2%, to $413.9 million during the nine months ended December 31, 2023 from $455.7 million for the same period of the prior year.

The decrease was primarily due to a decrease in average net loans outstanding.

Interest and fee income for the nine months ended December 31, 2023 decreased by $34.6 million, or 9.0%, from the same period of the prior year.

Net loans outstanding at December 31, 2023 decreased by 8.4% over the balance at December 31, 2022.

Average net loans outstanding decreased by 12.0% for the nine months ended December 31, 2023 compared to the nine-month period ended December 31, 2022.

Insurance commissions and other income for the nine months ended December 31, 2023 decreased by $7.1 million, or 10.4%, from the same period of the prior year.

Insurance commissions decreased by approximately $5.1 million, or 9.9%, during the nine months ended December 31, 2023 when compared to the nine months ended December 31, 2022.

Other income decreased by $2.1 million.

Sales of our motor club product decreased by $1.5 million as sales opportunities decreased with lower originations.

The provision for credit losses decreased $86.4 million, or 40.3%, to $127.7 million from $214.1 million when comparing the first three quarters of fiscal 2024 to the first three quarters of fiscal 2023.

This decrease was primarily driven by a $71.6 million decrease in net charge-offs.

Net charge-offs as a percentage of average net loans receivable on an annualized basis decreased from 23.6% in the first three quarters of fiscal 2023 to 17.4% in the first three quarters of fiscal 2024.

Net charge-offs during the period include $16.2 million in proceeds related to the sales of charge-offs, for which $5.7 million relates to bulk sales of charge-offs from prior periods and $10.5 million relates to recurring sales of charge-offs.

G&A expenses for the nine months ended December 31, 2023 decreased by $9.3 million, or 4.5%, from the corresponding period of the previous year.

As a percentage of revenues, G&A expenses increased from 45.3% during the first nine months of fiscal 2023 to 47.6% during the first nine months of fiscal 2024.

G&A expenses per average open branch increased by 1.8% when comparing the two nine-month periods.

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

Personnel expense totaled $120.1 million for the nine months ended December 31, 2023, a $11.1 million, or 8.4%, decrease over the nine months ended December 31, 2022.

Salary expense increased approximately $0.4 million, or 0.4%, when comparing the two nine month periods ended December 31, 2023 and 2022.

Our headcount as of December 31, 2023, decreased 6.9% compared to December 31, 2022.

Benefit expense increased approximately $0.1 million, or 0.4%, when comparing the nine month periods ended December 31, 2023 and 2022.

Incentive expense decreased $11.7 million, or 53.9%, mostly due to the reversal of the expense associated with the Performance Option performance target, and a decrease in stock-based compensation expense.

Occupancy and equipment expense totaled $37.1 million for the nine months ended December 31, 2023, a $2.5 million, or 6.4%, decrease over the nine months ended December 31, 2022.

The decrease in incentive expense is mostly due to a decrease in share-based compensation.

Occupancy and equipment expense totaled $12.2 million for the three months ended June 30, 2024, a $0.5 million, or 3.6%, decrease over the three months ended June 30, 2023.

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, 2023, the average occupancy and equipment expense per branch totaled $35.2 thousand, staying relatively flat when compared to the nine months ended December 31, 2022.

The prior year period includes $1.5 million in expense related to the merger of branches during the period.

Advertising expense totaled $8.7 million for the nine months ended December 31, 2023, a $4.2 million, or 91.8%, increase over the nine months ended December 31, 2022 due to increased spending on customer acquisition programs.

Amortization of intangible assets totaled $3.2 million for the nine months ended December 31, 2023, a $0.2 million, or 5.1%, decrease over the nine months ended December 31, 2022.

Other expense totaled $27.8 million for the nine months ended December 31, 2023, a $0.3 million, or 0.9% increase over the nine months ended December 31, 2022.

Interest expense for the nine months ended December 31, 2023 decreased by $1.8 million, or 4.7%, from the corresponding nine months of the previous year.

The prior year's first quarter includes $0.3 million in expense related to the merger of branches during the quarter.

For the three months ended June 30, 2024, the average open branches decreased 1.4% compared to the three months ended June 30, 2023.

Advertising expense decreased $1.1 million, or 39.8%, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 due to decreased spending on customer acquisition programs.

Amortization of intangible assets totaled $1.0 million for the three months ended June 30, 2024, a $63.6 thousand, or 5.9%, decrease over the three months ended June 30, 2023.

Other expense totaled $9.6 million for the three months ended June 30, 2024, a $0.3 million, or 2.9%, decrease over the three months ended June 30, 2023.

Interest expense for the three months ended June 30, 2024 decreased by $2.5 million, or 20.2%, from the corresponding three months of the previous year.

The decrease in interest expense was due to a 17.5% decrease in the average debt outstanding from $593.2 million to $489.2 million partially offset by a 1.4% increase in the effective interest rate from 8.5% to 8.6%.

The Company repurchased and extinguished $8.25 million of its Notes, net of $88.1 thousand unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $7.0 million.

Other key return ratios for the first nine months of fiscal 2024 included a 6.0% return on average assets and a return on average equity of 17.3% (both on a trailing 12-month basis), as compared to a 1.2% return on average assets and a return on average equity of 4.1% (both on a trailing 12-month basis) for the first nine months of fiscal 2023.

The Company’s effective income tax rate increased to 19.9% for the nine months ended December 31, 2023 compared to (16.6)% for the corresponding period of the previous year.

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

This was partially offset by the permanent tax benefit related to non-qualified stock option exercises and vesting of restricted stock along with provision to return adjustments as discrete items in the current year.

The Company’s debt-to-equity ratio decreased from 1.5:1 at June 30, 2023 to 1.2:1 at June 30, 2024.

The Company repurchased and extinguished $21.8 million of its Notes, net of $0.2 million unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $21.0 million during the first quarter of fiscal 2025.

Other key return ratios for the three months ended June 30, 2024 included a 7.1% return on average assets and a return on average equity of 18.9% (both on a trailing 12-month basis), as compared to a 3.3% return on average assets and a return on average equity of 10.7% (both on a trailing 12-month basis) for the three months ended June 30, 2023.

The Company’s effective income tax rate increased to 23.1% for the three months ended June 30, 2024 compared to 22.8% for the corresponding period of the previous year.

The effective tax rate remained substantially unchanged from the prior year quarter with the slight increase related to return to provision adjustments recorded as discrete items in the prior year quarter.

Regulatory Matters

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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 was 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”).

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

Ass’n of Am., Ltd.

Consumer Fin.

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

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

On this ground, it vacated the Rule.

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.

The Supreme Court heard 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.

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

In July 2020, the CFPB rescinded provisions of the Rule governing the ability to repay requirements.

The payment requirements were scheduled to take effect in June 2022.

However, on October 19, 2022, a three-judge panel of the U.S.

Court of Appeals for the Fifth Circuit ruled, in Community Financial Services Association of America v.

Consumer Financial Protection Bureau, that the funding mechanism for the CFPB violates the appropriations clause of the U.S.

Constitution, and as a result, vacated the Rule.

On October 3, 2023, the U.S.

Supreme Court held oral argument to decide the constitutionality of the CFPB's funding mechanism.

On May 16, 2024, the Supreme Court held that the funding mechanism for the CFPB complies with the appropriations clause of the U.S.

Constitution, reversing the judgment of the Court of Appeals, and remanding the cause for further proceedings.

To the extent that the Rule is reinstated and takes effect, any regulatory changes could have effects beyond those currently contemplated that could further materially and adversely impact our business and operations.

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

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

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

However, this initiative was classified as “inactive” on the CFPB’s Spring 2018 rulemaking, and its Fall 2023 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.

While the CFPB has not yet initiated rulemaking for defining larger participants in the installment lending market, its Fall 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.

The CFPB has determined under its dormant authority that the Company is subject to its supervisory authority, and therefore is subject to reporting obligations to, and on-site examinations by, the CFPB.

In light of this, we expect a supervisory review by the CFPB in the near future.

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.

The CFPB also has stated that it expects to conduct separate rulemaking to identify larger participants in the installment lending market for purposes of its supervision program.

This initiative was classified as “inactive” on the CFPB’s Spring 2018 rulemaking agenda and has remained inactive since, but the CFPB indicated that such action was not a decision on the merits.

subject the Company to reporting obligations to, and on-site compliance examinations by, the CFPB.

In addition, 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).

In 2022, the CFPB announced that it had begun using this “dormant authority” to examine nonbank entities and the CFPB is attempting to expand the number of nonbank entities it currently supervises.

Specifically, the CFPB previously notified the Company that it was seeking to establish such supervisory authority over the Company.

Since then, the CFPB issued a public designation order setting forth its determination that the Company has met the legal requirements for supervision (the "Order").

Pursuant to the terms of the Order, the CFPB has supervisory authority over the Company pursuant to section 1024(a)(1)(C) of the Consumer Financial Protection Act of 2010 until such time as the Order is terminated consistent with 12 C.F.R.

Importantly, while the Order establishes that the CFPB has supervisory authority over the Company, it does not constitute a finding that the Company has engaged in wrongdoing, nor does it require any immediate action on the part of the Company.

However, the outcome of such supervision could result in operational changes which could reduce our ability to operate profitably or increase compliance costs.

The supervision could also result in additional examinations, investigations, litigation, consent orders or administrative proceedings, which could require considerable resources, time, effort and attention from our management, and may result in operational changes, monetary penalties or declines in our stock price.

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 each case, in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024 for more information regarding these regulatory and related risks.

Liquidity and Capital Resources

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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, 2023 was $182.0 million.

Net cash provided by operating activities for the three months ended June 30, 2024 was $48.4 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 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.

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

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

The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Company’s existing and certain of its future subsidiaries that guarantee the revolving credit facility.

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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 the fourth quarter of 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 nine months of fiscal 2024, the Company repurchased and extinguished $8.25 million of its Notes, net of $88.1 thousand unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $7.0 million.

For the three and nine months ended December 31, 2023, the Company recognized a $0.6 million and $1.2 million gain on extinguishment, respectively.

During the first quarter of fiscal 2025, the Company repurchased and extinguished $21.8 million of its Notes, net of $0.2 million unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $21.0 million.

During fiscal 2024, the Company repurchased and extinguished $15.7 million of its Notes, net of $0.2 million unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $14.1 million.

For the three months ended June 30, 2024 and 2023, the Company recognized a $0.8 million and $0.4 million gain on extinguishment, respectively.

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

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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, 2023, subject to further approval from our Board of Directors, we could repurchase approximately $33.2 million of shares under the terms of our debt facilities.

As of June 30, 2024, subject to further approval from our Board of Directors, we could repurchase approximately $23.6 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.

The revolving credit facility provides for revolving borrowings of up to the lesser of (a) the aggregate commitments under the facility and (b) a borrowing base, and it includes a $524.0 thousand letter of credit under a $1.5 million subfacility.

The revolving credit facility provides for revolving borrowings of up to the lesser of (a) the aggregate commitments under the facility and (b) a borrowing base, and it includes $725.8 thousand in outstanding standby letters of credit.

Subject to a borrowing base formula, the Company may borrow at the rate of one month SOFR plus 0.10% and an applicable margin of 3.5% with a minimum rate of 4.5%.

At December 31, 2023, the aggregate commitments under the revolving credit facility were $580.0 million.

The $524.0 thousand letter of credit outstanding under the subfacility expires on December 31, 2024 and automatically extends for one year on the expiration date.

At June 30, 2024, the aggregate commitments under the revolving credit facility were $580.0 million.

The Company had $725.8 thousand in outstanding standby letters of credit which include (i) $300.0 thousand related to worker's compensation expiring on December 31, 2024 and (ii) $425.8 thousand related to the Company's investment in captive insurance expiring on April 12, 2025.

Both letters of credit automatically extend for one year on their expiration dates.

The borrowing base limitation is equal to the product of (a) the Company’s eligible finance receivables, less unearned finance charges, insurance premiums and insurance commissions applicable to such eligible finance receivables, and (b) an advance rate percentage that ranges from 70% to 80% based on a collateral performance indicator, as more completely described below.

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, 2023 and fiscal year ended March 31, 2023, the Company’s effective interest rate, including the commitment fee and amortization of debt issuance costs, as it relates to the revolving credit facility was 9.8% annualized and 7.0%, respectively.

At December 31, 2023, the unused amount available under the revolving credit facility was $274.4 million and borrowings under the revolving credit facility mature on June 7, 2026.

For the three months ended June 30, 2024 and fiscal year ended March 31, 2024, the Company’s effective interest rate, including the commitment fee and amortization of debt issuance costs, as it relates to the revolving credit facility was 10.1% annualized and 9.9%, respectively.

At June 30, 2024, the unused amount available under the revolving credit facility was $337.5 million.

Borrowings under the revolving credit facility mature on June 7, 2026.

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's financial covenants include (i) a minimum consolidated net worth of $325 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 2.25 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, other than for the fiscal quarter ending September 30, 2023, in order for the Company to declare dividends or purchase any class or series of its capital stock or other equity.

(ii) a maximum ratio of total debt to consolidated adjusted net worth of 2.25 to 1.0 for the fiscal quarter ended December 31, 2023 and each fiscal quarter thereafter;

(iii) a maximum collateral performance indicator of 26.0% as of the end of each calendar month;

and (iv) a minimum fixed charges coverage ratio of 2.0 to 1.0 for the fiscal quarters ending December 31, 2023 through December 31, 2024, and 2.25 to 1.0 for each fiscal quarter thereafter, where the ratio for the most recent four consecutive fiscal quarters (other than for the fiscal quarter ended September 30, 2023) 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, 2023 and does not believe that these covenants will materially limit its business and expansion strategy.

The Company was in compliance with these covenants at June 30, 2024 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.

As of December 31, 2023, the Company's debt outstanding was $585.0 million, net of $2.7 million unamortized debt issuance costs related to the unsecured senior notes payable, and its shareholders' equity was $407.0 million resulting in a debt-to-equity ratio of 1.4:1.0.

As of June 30, 2024, the Company's debt outstanding was $492.7 million, net of $2.0 million unamortized debt issuance costs related to the unsecured senior notes payable, and its shareholders' equity was $422.6 million resulting in a debt-to-equity ratio of 1.2:1.0.

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

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).

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

Except as otherwise discussed in this report including, but not limited to, any discussions in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2024 (as supplemented by any subsequent disclosures in information the Company files with or furnishes to the SEC from time to time), management is not currently aware of any trends, demands, commitments, events or uncertainties that it believes will or could result in, or are or could be reasonably likely to result in, any material adverse effect on the Company’s liquidity.

Share Repurchase Program

On November 9, 2023, the Board of Directors authorized the Company to repurchase up to $20.0 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, 2023, the Company had $2.8 million in aggregate remaining repurchase capacity under its current share repurchase program.

On May 15, 2024, the Board of Directors authorized the Company to repurchase up to $20.0 million of the Company’s outstanding common stock, inclusive of the amount that remained available for repurchase under prior repurchase authorizations.

As of June 30, 2024, the Company had $20.0 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, 2023, subject to further approval from our Board of Directors, we could repurchase approximately $33.2 million of shares under the terms of our debt facilities.

As of June 30, 2024, subject to further approval from our Board of Directors, we could repurchase approximately $23.6 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.

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

The Company does not believe that inflation will have a materially adverse effect on its financial condition, unless changes in inflation are particularly severe and sudden in nature.

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.

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Quarterly Information and Seasonality

See Note 2 to the unaudited Consolidated Financial Statements.

See Note 2 to the Consolidated Financial Statements.

Recently Adopted Accounting Pronouncements

See Note 2 to the unaudited Consolidated Financial Statements.

There were no new accounting pronouncements recently adopted.

See Note 2 to the Consolidated Financial Statements for information regarding recently issued accounting standards not yet adopted.

Critical Accounting Policies

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The Company measures compensation cost for share-based awards at fair value and recognizes compensation over the service period for awards expected to vest.

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 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 assumptions, including expected volatility, risk-free interest rate and expected life.

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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