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Item 7. Management’s Discussion and Analysis

2025-05-22 compared with 2024-05-23 · 51 added, 37 removed, 210 unchanged (30% of the section changed)

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Net income for fiscal 2025 was $89.7 million, a 16.0% increase from the $77.3 million earned during fiscal 2024.

The increase in net income was primarily due to a $102.5 million decrease in the provision for credit losses partially offset by a $43.3 million decrease in revenue.

The increase in net income was primarily due to a $17.9 million decrease in personnel incentive expense, primarily due to the reversal of previously recognized stock-based compensation expense as discussed below.

Operating income (revenues less provision for credit losses and general and administrative expenses) during fiscal 2025 increased $7.1 million.

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See Note 7 to the Consolidated Financial Statements for the material components of Insurance and other income for the fiscal years ended March 31, 2025, 2024, and 2023.

Insurance revenue decreased by $7.9 million, or 11.8%, from fiscal 2023 to fiscal 2024 due to a decrease in loan volume in states where we offer our insurance products along with the shift away from larger loans.

Insurance revenue decreased by $9.8 million, or 16.5%, from fiscal 2024 to fiscal 2025 due to a shift away from larger loans.

The sale of insurance products is limited to large loans in several states in which we operate.

Other income increased by $4.8 million, or 10.6%, from fiscal 2024 to fiscal 2025 primarily due to an increase in tax preparation revenue of $7.7 million, partially offset by a decrease in revenue from the Company's motor club product of $2.4 million.

The provision for credit losses during fiscal 2024 decreased by $102.5 million, or 39.5%, from the previous year.

This decrease can mostly be attributed to a decrease in charge-off rates during the year.

The provision for credit losses during fiscal 2025 increased by $12.2 million, or 7.8%, from the previous year.

Accounts that were 91 days or more past due represented 3.7% and 3.1% of our loan portfolio on a recency basis at March 31, 2025 and March 31, 2024, respectively.

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

CECL Allowance and Provision (Dollars in millions) FY 2025

Difference Reconciliation

Beginning Allowance - March 31, 2024

$103.0 $125.6 $(22.6)

Change due to Growth $(4.1) $(10.2) $6.1 $6.1

Change due to Expected Loss Rate on Performing Loans $0.5 $(10.1) $10.6 $10.6

Change due to 90 day past due $4.0 $(2.3) $6.3 $6.3

Ending Allowance - March 31, 2025

$103.4 $103.0 $0.4 $23.0

Net Charge-offs $168.8 $179.6 $(10.8) $(10.8)

Provision $169.2 $157.0 $12.2 $12.2

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

The Company's year-over-year net charge-off ratio (net charge-offs as a percentage of average net loans receivable) decreased from 17.7% for the year ended March 31, 2024 to 17.5% for the year ended March 31, 2025.

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2015 In fiscal 2015, the Company's net charge-off rate decreased to 12.8%.

The net charge-off rate benefited from a change in branch level incentives during the year, which allowed branch managers to continue collection efforts on accounts that are 91 days or more past due without having their monthly bonus negatively impacted.

As expected, the change resulted in an increase in accounts 91 days or more past due and fewer net charge-offs during fiscal 2015.

We estimate the net charge-off rate would have been approximately 14.0% for fiscal 2015 excluding the impact of the change.

2023 In fiscal 2023, the Company's net charge-off rate increased to 23.7%.

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General and administrative expenses during fiscal 2025 decreased by $27.7 million, or 10.3%, over the previous fiscal year.

General and administrative expenses, when divided by average open branches, increased 1.6% from fiscal 2023 to fiscal 2024 and, overall, general and administrative expenses as a percent of total revenues increased to 46.9% in fiscal 2024 from 45.3% in fiscal 2023.

General and administrative expenses, when divided by average open branches, decreased 9.1% from fiscal 2024 to fiscal 2025 and, overall, general and administrative expenses as a percent of total revenues decreased to 42.7% in fiscal 2025 from 46.9% in fiscal 2024.

The change in general and administrative expense is explained in greater detail below.

Personnel expense totaled $141.1 million for fiscal 2025, a $23.4 million, or 14.2%, decrease over fiscal 2024.

The decrease was largely due to a $10.7 million decrease in stock compensation expense and a $2.2 million decrease in bonus expense.

The decrease was largely due to the $18.5 million reversal of previously recognized stock-based compensation expense associated with the $20.45 Performance Shares and the $3.5 million reversal of previously recognized expense associated with the $16.35 Performance Shares.

Occupancy and equipment expense totaled $49.1 million for fiscal 2025, a 0.6 million, or 1.3%, decrease over fiscal 2024.

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

In fiscal 2024, the expense per average open branch increased to $47.2 thousand, up from $46.7 thousand in fiscal 2023.

The expense per average open branch remained relatively flat at $47.2 thousand when comparing fiscal 2025 and 2024.

Advertising expense totaled $10.2 million for fiscal 2025, a $0.3 million, or 2.9%, increase over fiscal 2024.

The increase was primarily due to increased spending in our new customer acquisition programs.

Amortization of intangible assets totaled $4.2 million for fiscal 2024, a $0.2 million, or 5.5%, decrease over fiscal 2023, which primarily relates to a corresponding decrease in intangible assets acquired in the current fiscal year compared to the previous fiscal year.

Other expense totaled $40.2 million for fiscal 2024, a $1.1 million, or 2.8%, increase over fiscal 2023.

Interest expense decreased by $2.2 million, or 4.4%, during fiscal 2024 when compared to the previous fiscal year as a result of a 21.1% decrease in average debt outstanding, partially offset by an increase in the effective interest rate from 7.1% to 8.6%.

Amortization of intangible assets totaled $3.8 million for fiscal 2025, a $0.4 million, or 9.7%, decrease over fiscal 2024, which primarily relates to an increase in fully amortized intangible assets during the current fiscal year.

Other expense totaled $36.7 million for fiscal 2025, a $3.5 million, or 8.8%, decrease over fiscal 2024.

Interest expense decreased by $5.5 million, or 11.5%, during fiscal 2025 when compared to the previous fiscal year primarily as a result of a 10.9% decrease in average debt outstanding.

Income tax expense increased $0.2 million for fiscal 2025 compared to the prior fiscal year.

The effective tax rate increased to 22.2% for fiscal 2024 compared to 21.8% for fiscal 2023.

The effective tax rate remained substantially unchanged from prior year with the slight increase related to the effects of increased pretax book earnings relative to the effect of permanent items included in the current fiscal year.

The effective tax rate decreased to 19.9% for fiscal 2025 compared to 22.2% for fiscal 2024.

The effective tax rate decreased primarily due to pretax book earnings relative to the effects of various permanent items including a decrease in the disallowed executive compensation under Section 162(m), considering the effects of forfeitures discussed in Note 12 to the Consolidated Financial Statements and the recognition of additional HTC's when compared to prior year.

Comparison of Fiscal 2024 Versus Fiscal 2023

For a comparison of our results of operations for the years ended March 31, 2023 and March 31, 2022, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (which was filed with the SEC on June 1, 2023).

For a comparison of our results of operations for the years ended March 31, 2024 and March 31, 2023, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 (which was filed with the SEC on May 23, 2024).

Regulatory Matters

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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.

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

Subsequently, the U.S.

Court of Appeals for the Fifth Circuit set March 30, 2025 as the effective date of the Rule.

On March 28, 2025, the CFPB announced that it will not prioritize enforcement or supervision of the remaining provisions of the Rule, which took effect on March 30, 2025.

Accordingly, 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.

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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, “Description of 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,” for more information regarding these regulatory and related risks.

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

Pursuant to the terms of the Order, the CFPB had 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, on May 12, 2025, the CFPB withdrew the Order, indicating that the CFPB "is shifting its supervisory priorities to focus on pressing threats to consumers" and that supervision of the Company "is not consistent with these priorities." See Part I, Item 1, “Description of 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,” for more information regarding these regulatory and related risks.

Quarterly Information and Seasonality

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General and administrative expenses $ 61,412 $ 46,355 $ 67,223 $ 65,940 $ 68,125 $ 62,948 $ 65,909 $ 71,619

Net income (loss) $ 9,539 $ 16,082 $ 16,665 $ 35,058 $ (8,566) $ (637) $ 5,806 $ 24,632

$ 9,947 $ 22,129 $ 13,389 $ 44,278 $ 9,539 $ 16,082 $ 16,666 $ 35,058

Gross loans receivable $ 1,274,819 $ 1,295,870 $ 1,381,462 $ 1,225,636 $ 1,397,966 $ 1,379,514 $ 1,400,622 $ 1,277,149

Number of branches open 1,047 1,045 1,035 1,024 1,055 1,053 1,052 1,048

Critical Accounting Policies

Critical Accounting Policies and Estimates

The Company’s accounting and reporting policies are in accordance with GAAP and conform to general practices within the finance company industry.

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The fair value of restricted stock is based on the number of shares granted and the quoted price of our 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.

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

Actual results, and future changes in estimates, may differ substantially from our current estimates.

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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.

As the Company's gross loans receivable increased from $1.10 billion at March 31, 2021 to $1.28 billion at March 31, 2024, net cash provided by operating activities for fiscal years 2024, 2023, and 2022 was $265.8 million, $291.6 million, and $272.4 million, respectively.

the Company's gross loans receivable decreased from $1.52 billion at March 31, 2022 to $1.23 billion at March 31, 2025, net cash provided by operating activities for fiscal years 2025, 2024, and 2023 was $254.2 million, $265.8 million, and $291.6 million, respectively.

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

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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.

As a result, the Company recognized a $1.6 million and $1.8 million gain on extinguishment for the years ended March 31, 2024 and 2023, respectively.

During fiscal 2023, the Company repurchased and extinguished $9.0 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.

As a result, the Company recognized a $1.0 million, $1.6 million and $1.8 million gain on extinguishment for the years ended March 31, 2025, 2024, and 2023, 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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Subject to a borrowing base formula, the Company may borrow at the rate of one month SOFR plus a spread adjustment of 0.10% and an applicable margin of 3.5% with a minimum rate of 4.5%.

At March 31, 2024, the aggregate commitments under the revolving credit facility were $580.0 million.

At March 31, 2025, the aggregate commitments under

the revolving credit facility were $580.0 million.

The Company had $889.7 thousand in outstanding standby letters of credit which include (i) $300.0 thousand related to worker's compensation expiring on December 31, 2025 and (ii) $589.7 thousand related to the Company's investment in captive insurance expiring on April 12, 2026.

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 loans receivables, less unearned finance charges, insurance premiums and insurance commissions, and (b) an advance rate percentage that ranges from 70% (decreasing to as low as 62% for the calendar months ended October 31, 2022 through June 30, 2023) to 80% based on a collateral performance indicator, as more completely described below.

The borrowing base limitation is equal to the product of (a) the Company’s eligible loans receivables, less unearned finance charges, insurance premiums and insurance commissions, 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 revolving credit facility, 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.

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(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.

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 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.

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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 cash requirements from contractual and other obligations and 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" (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.

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 May 15, 2024, the Board of Directors of the Company approved a share repurchase program authorizing the

Company to repurchase up to $20.0 million of its outstanding common stock, inclusive of any amount that remains available

for repurchase under prior repurchase authorizations.

As of December 31, 2024, the Company had approximately $9.0 million in aggregate remaining repurchase capacity under that share repurchase program.

On February 12, 2025, the Board of Directors authorized the Company to repurchase up to $25.0 million of the Company’s outstanding common stock, inclusive of the amount that remains available for repurchase under prior repurchase authorizations.

As of March 31, 2024, the Company had $11.2 million in aggregate remaining repurchase capacity under its current share repurchase program.

As of March 31, 2025, the Company had $0.4 million in aggregate remaining repurchase capacity under such share repurchase program, and on April 30, 2025, the Board of Directors of the Company approved a share repurchase program authorizing the Company to repurchase up to $20.0 million of its outstanding common stock, inclusive of any amount that remains available for repurchase under this prior repurchase authorization.

The timing and actual number of shares of common stock repurchased will depend on a variety of factors, including the stock price, corporate and regulatory requirements, restrictions under the Company's debt agreements and other market and economic conditions.

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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-K

Item 7. Management’s Discussion and Analysis