WORLD ACCEPTANCE CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Note Regarding Forward-Looking Information This report on Form 10-Q, including "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contains various "forward-looking statements," within the meaning of The Private Securities Litigation Reform Act of 1995, that are based on management’s beliefs and assumptions, as well as information currently available to management. Statements other than those of historical fact, including those identified by words such as “anticipate,” “estimate,” “intend,” “plan,” “expect,” "project," “believe,” “may,” “will,” “should,” "would," "could," "continue," "probable," "forecast," and any variation of the foregoing and similar expressions, are forward-looking statements. Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Any such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company’s actual financial results, performance or financial condition may vary materially from those anticipated, estimated or expected. Therefore, you should not rely on any of these forward-looking statements. 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: recently enacted, proposed or future legislation and the manner in which it is implemented, including pursuant to policies of the new U.S. administration; changes in the U.S. tax code; the nature and scope of regulatory authority, particularly discretionary authority, that is or 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; the unpredictable nature of regulatory examinations, proceedings and litigation; employee misconduct or misconduct by third parties; uncertainties associated with management turnover and the effective succession of senior management; media and public characterization of consumer installment loans; labor unrest; the impact of changes in accounting rules and regulations, or their interpretation or application, which could materially and adversely affect the Company’s reported consolidated financial statements or necessitate material delays or changes in the issuance of the Company’s audited consolidated financial statements; the Company's assessment of its internal control over financial reporting; changes in interest rates; the impact of inflation; risks relating to the acquisition or sale of assets or businesses or other strategic initiatives, including increased loan delinquencies or net charge-offs, the loss of key personnel, integration or migration issues, the failure to achieve anticipated synergies, increased costs of servicing, incomplete records, and retention of customers; risks inherent in making loans, including repayment risks and value of collateral; 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; the timing and amount of revenues that may be recognized by the Company; changes in current revenue and expense trends (including trends affecting delinquency and charge-offs); the impact of extreme weather events and natural disasters; 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 fiscal 2025 Annual Report, 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. Results of Operations 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: 36 Table of Contents Three months ended June 30, 2025 2024 (Dollars in thousands) Gross loans receivable $ 1,264,341 $ 1,274,819 Average gross loans receivable (1) 1,239,483 1,270,677 Net loans receivable (2) 938,126 944,485 Average net loans receivable (3) 922,484 942,603 Expenses as a percentage of total revenue: Provision for credit losses 38.1 % 35.1 % General and administrative 53.1 % 47.4 % Interest expense 7.3 % 7.5 % Operating income as a % of total revenue (4) 8.7 % 17.5 % Loan volume (5) $ 751,502 $ 682,197 Net charge-offs as percent of average net loans receivable on an annualized basis 19.4 % 16.4 % Return on average assets (trailing 12 months) 7.7 % 7.1 % Return on average equity (trailing 12 months) 19.0 % 18.9 % Branches opened or acquired (merged or closed), net (10) (1) Branches open (at period end) 1,014 1,047 _______________________________________________________ (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 TALs. (4) Operating income is computed as total revenue less provision for credit losses and general and administrative expenses. (5) Loan volume includes all loan balances originated by the Company. It does not include loans purchased through acquisitions. Comparison of three months ended June 30, 2025 versus three months ended June 30, 2024 Gross loans outstanding decreased to $1.26 billion as of June 30, 2025, a 0.8% decrease from the $1.27 billion of gross loans outstanding as of June 30, 2024, which is a substantial improvement from the 4.0% year over year decrease as of March 31, 2025. During the most recent quarter, gross loans outstanding increased sequentially 3.2%, or $38.7 million, from $1.23 billion as of March 31, 2025, compared to a decrease of 0.2%, or $2.3 million, in the comparable quarter of the prior year. During the most recent quarter, our new, former and current customer borrowing increased when comparing the same quarter of fiscal 2025. Specifically, during the quarter, new, former and refinance customer loan volume increased 30.8%, 6.3% and 9.6%, respectively, compared to the same quarter of fiscal 2025. Our customer base increased by 4.0% during the twelve-month period ended June 30, 2025, compared to a decrease of 2.6% for the comparable period ended June 30, 2024. During the three months ended June 30, 2025 our unique borrowers increased by 0.8% compared to an increase of 0.5% during the three months ended June 30, 2024. Net income for the three months ended June 30, 2025 decreased to $1.3 million, a 86.5% decrease from net income of $9.9 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 $11.1 million, or 49.0%, compared to the same period of the prior year. 37 Table of Contents Revenues for the three months ended June 30, 2025 increased by $2.9 million, or 2.3%, to $132.5 million from $129.5 million for the same period of the prior year. Interest and fee income for the three months ended June 30, 2025 increased by $4.1 million, or 3.7%, from the same period of the prior year mostly due to an increase in interest yields. Insurance and other income for the three months ended June 30, 2025 decreased by $1.2 million, or 6.6%, from the same period of the prior year. Insurance income decreased by approximately $1.4 million, or 10.8%, during the three months ended June 30, 2025 when compared to the three months ended June 30, 2024. Insurance commissions decreased primarily due to a decrease in loans where our insurance products are available to our customer. The large loan portfolio decreased from 54.5% of the overall portfolio as of June 30, 2024, to 46.6% as of June 30, 2025. Other income increased $0.2 million, or 3.4%, to $5.6 million in the first quarter of fiscal 2026, compared to $5.4 million in the first quarter of fiscal 2025. Revenues from our tax return preparation business increased by $0.4 million, or 21.6%, in the first quarter of fiscal 2026, compared to the first quarter of fiscal 2025 due to an increase in our average preparation fee. The provision for credit losses increased $5.1 million, or 11.2%, to $50.5 million from $45.4 million when comparing the first quarter of fiscal 2026 to the first quarter of fiscal 2025. The table below itemizes the key components of the CECL allowance and provision impact during the quarter. CECL Allowance and Provision (Dollars in millions) Q1 FY 2026 Q1 FY 2025 Difference Reconciliation Beginning Allowance - March 31 $103.4 $103.0 $0.4 Change due to Growth $3.3 $(0.2) $3.5 $3.5 Change due to Expected Loss Rate on Performing Loans $5.7 $6.8 $(1.1) $(1.1) Change due to 90 day past due $(3.3) $0.1 $(3.4) $(3.4) Ending Allowance - June 30 $109.1 $109.7 $(0.6) $(1.0) Net Charge-offs $44.8 $38.7 $6.1 $6.1 Provision $50.5 $45.4 $5.1 $5.1 Note: 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 was negatively impacted by growth, a seasonality adjustment that occurs in the first quarter of each fiscal year, and net charge-offs. The improved quarter over quarter growth resulted in a $3.5 million increase in the provision. The seasonality adjustment negatively impacted the provision by approximately $5.0 million. As a reminder, the seasonality adjustment that occurs in the first quarter is removed in the December quarter due to the benefit of tax refunds that occurs in the March quarter. There was also a $1.0 million increase in our tax advance loans reserve during the quarter. This increase in reserve should be isolated to the first quarter. Net charge-offs for the quarter increased $6.1 million, from $38.7 million in the first quarter of fiscal 2025 to $44.8 million in the first quarter of fiscal 2026. Net charge-offs as a percentage of average net loan receivables on an annualized basis increased to 19.4% in the first quarter of fiscal 2026 from 16.4% in the first quarter of fiscal 2025. The Company's allowance for credit losses as a percentage of net loans was 11.6% at each of June 30, 2025 and June 30, 2024. Accounts that were 61 days or more past due on a recency basis decreased to 5.4% at June 30, 2025 compared to 5.6% at June 30, 2024. We experienced an improvement in recency delinquency on accounts at least 90 days past due, improving from 3.4% at June 30, 2024, to 3.3% at June 30, 2025. G&A expenses for the three months ended June 30, 2025 increased by $8.9 million, or 14.6%, from the corresponding period of the previous year. As a percentage of revenues, G&A expenses increased from 47.4% during the three months ended June 30, 2024 to 53.1% during the three months ended June 30, 2025. G&A expenses per average open branch increased by 17.6% when comparing the two three-month periods. The change in G&A expense is explained in greater detail below. Personnel expense totaled $45.8 million for the three months ended June 30, 2025, a $8.8 million, or 23.8%, increase over the three months ended June 30, 2024. Salary expense increased approximately $1.1 million, or 3.6%, during the quarter ended June 30, 2025, compared to the quarter ended June 30, 2024. Our headcount as of June 30, 2025 decreased 1.4% compared to June 30, 2024. Benefit expense increased approximately $2.2 million, or 31.7%, when comparing the quarterly periods ended June 30, 2025 and 2024. The increase in benefit expense is primarily the result of several large health claims experienced during the quarter. Incentive expense increased $5.7 million in the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025. The increase in incentive expense is primarily due to 38 Table of Contents a $4.2 million increase in share based compensation expense and a $1.6 million increase in field bonus expense. Share based compensation expense increased due to share grants in December of 2024 and June of 2025. The prior year quarter also included a $1.8 million reversal of share based compensation expense related to the retirement of an officer. Occupancy and equipment expense totaled $11.8 million for the three months ended June 30, 2025, a $0.4 million, or 3.1%, decrease over the three months ended June 30, 2024. Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the period. For the three months ended June 30, 2025, the average open branches decreased 2.6% compared to the three months ended June 30, 2024. Advertising expense increased $0.6 million, or 38.8%, in the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 due to increased spending on customer acquisition programs. Amortization of intangible assets totaled $0.8 million for the three months ended June 30, 2025, a $0.2 million, or 17.4%, decrease over the three months ended June 30, 2024. Other expense totaled $9.7 million for the three months ended June 30, 2025, a $0.1 million, or 0.8%, increase over the three months ended June 30, 2024. Interest expense for the three months ended June 30, 2025 decreased by $0.1 million, or 1.4%, from the corresponding three months of the previous year. The decrease in interest expense was due to a 7.2% decrease in the average debt outstanding from $491.6 million to $456.2 million and a 2.7% decrease in the effective interest rate from 8.6% to 8.3%. The Company’s debt-to-equity ratio decreased from 1.2:1 at June 30, 2024 to 1.1:1 at June 30, 2025. The Company repurchased and extinguished $15.6 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 $15.5 million during the third quarter of fiscal 2025. Other key return ratios for the three months ended June 30, 2025 included a 7.7% return on average assets and a return on average equity of 19.0% (both on a trailing 12-month basis), as compared to a 7.1% return on average assets and a return on average equity of 18.9% (both on a trailing 12-month basis) for the three months ended June 30, 2024. The Company’s effective income tax rate increased to 30.9% for the three months ended June 30, 2025 compared to 23.1% for the corresponding period of the previous year. The Company finalized a settlement with various taxing authorities that resulted in an increase in the reserve under ASC 740-10 (unrecognized tax positions) which is treated as a discrete item in the current quarter, along with a decrease in pretax book income relative to an increase in disallowed executive compensation under Section 162(m) in the current quarter. This was partially offset by the permanent tax benefit related to nonqualified stock option exercises and vesting of restricted stock treated as discrete items in the current quarter. Regulatory Matters CFPB Rulemaking Initiatives 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 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”). 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. Subsequently, the U.S. Court of Appeals for the Fifth Circuit set March 30, 2025 as the effective 39 Table of Contents 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. 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. 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. 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. 1091.113. 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, “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 fiscal 2025 Annual Report for more information regarding these regulatory and related risks. Liquidity and Capital Resources The Company has historically financed and continues to finance its operations, acquisitions and branch expansion primarily through a combination of cash flows from operations and borrowings from its institutional lenders. As discussed below, the Company has also issued debt securities to finance its operations and repay a portion of its outstanding indebtedness. The Company has generally applied its cash flows from operations to fund its loan volume, fund acquisitions, repay long-term indebtedness, and repurchase its common stock. Net cash provided by operating activities for the three months ended June 30, 2025 was $58.2 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 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. Interest on the Notes is payable semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2022. At any time prior to November 1, 2023, the Company could have redeemed the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus a make-whole premium, as described in the indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. 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 could have used 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. 40 Table of Contents During the three months ended June 30, 2025, the Company repurchased and extinguished $15.5 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 $15.5 million. During fiscal 2025, the Company repurchased and extinguished $89.0 million of its Notes, net of $0.6 million unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $88.0 million. For the three months ended June 30, 2025 and 2024, the Company recognized a $43.0 thousand loss and an $0.8 million gain on extinguishment, respectively. In accordance with ASC 470, the Company recognized the gain and loss on extinguishments 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; (ii) pay dividends or distributions or redeem or purchase capital stock; (iii) prepay subordinated debt or make certain investments; (iv) transfer and sell assets; (v) create or permit to exist liens; (vi) enter into agreements that restrict dividends, loans and other distributions from their subsidiaries; (vii) engage in a merger, consolidation or sell, transfer or otherwise dispose of all or substantially all of their assets; and (viii) engage in transactions with affiliates. However, these covenants are subject to a number of important detailed qualifications and exceptions. On July 22, 2025, the Company delivered an irrevocable notice of redemption to the holders of the Notes for the redemption of all of the outstanding Notes (the “Redemption”) on August 29, 2025 (the “Redemption Date”) at a redemption price equal to 101.75% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to but not including, the Redemption Date. The Company continues to believe stock repurchases are a viable component of the Company’s long-term financial strategy and an excellent use of excess cash when the opportunity arises. However, as of June 30,2025, 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 June 30, 2025, we could repurchase approximately $7.2 million of shares under the terms of our senior unsecured notes payable. Additional share repurchases could be made subject to compliance with, among other things, applicable restricted payment covenants under the revolving credit facility and the Notes. On July 22, 2025, the Company’s Board of Directors approved a new share repurchase program authorizing the Company to repurchase up to $100.0 million of its outstanding common stock inclusive of any amount that remains available for repurchase under prior repurchase authorizations. As of June 30, 2025, the Company had a revolving credit facility with a syndicate of banks. The revolving credit facility provided for revolving borrowings of up to the lesser of (a) the aggregate commitments under the facility and (b) a borrowing base, and it includes $889.7 thousand in outstanding standby letters of credit. Subject to a borrowing base formula, the Company could 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 June 30, 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 was 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 had the right to set aside reasonable reserves against the available borrowing base in such amounts as it may deem appropriate, including, without limitation, reserves with respect to certain regulatory events or any increased operational, legal, or regulatory risk of the Company and its subsidiaries. For the three months ended June 30, 2025 and fiscal year ended March 31, 2025, 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 8.7% annualized and 9.5%, respectively. At June 30, 2025, the unused amount available under the revolving credit facility was $276.4 million. Borrowings under the revolving credit facility had a maturity date of 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. The obligations of the Company and the subsidiary guarantors under the revolving credit facility, together with such treasury management and hedging obligations, are secured by a first-priority security interest in substantially all assets of the Company and the subsidiary guarantors. 41 Table of Contents As of June 30, 2025, 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 amount imposed by the financial covenants under the agreement. The agreement's financial covenants include (i) a minimum consolidated net worth of $325 million; (ii) a maximum ratio of total debt to consolidated adjusted net worth of 2.25 to 1.0 as of the end of each fiscal quarter; (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 2.25 to 1.0 for each fiscal quarter, 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 June 30, 2025 and does not believe that these covenants will materially limit its business and expansion strategy. As of June 30, 2025, the agreement contained 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. On July 22, 2025, the Company terminated this credit facility and entered into a new revolving credit facility. Refer to Note 13 to the Consolidated Financial Statements for information regarding the Company’s Revolving Credit Agreement. As of June 30, 2025, the Company's debt outstanding was 471.7 million, net of $0.8 million unamortized debt issuance costs related to the unsecured senior notes payable, and its shareholders' equity was $427.9 million resulting in a debt-to-equity ratio of 1.1:1.0. Management will continue to monitor the Company's debt-to-equity ratio and is committed to maintaining a debt level that will allow the Company to continue to execute its business objectives, while not putting undue stress on its consolidated balance sheet. The Company 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 (i) 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 (ii) Part I, Item 1A, "Risk Factors" in the Company's fiscal 2024 Annual Report (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 April 30, 2025, 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, 2025, the Company had $7.0 million in aggregate remaining repurchase capacity under its current share repurchase program. On July 22, 2025, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $100.0 million of its outstanding common stock inclusive of any amount that remains available for repurchase under prior repurchase authorizations. 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. The Company’s stock repurchase program may be suspended or discontinued at any time. 42 Table of Contents The Company continues to believe stock repurchases are a viable component of the Company’s long-term financial strategy and an excellent use of excess cash when the opportunity arises. 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. Our first priority is to ensure we have enough capital to fund loan growth. As of June 30, 2025, we could repurchase approximately $7.2 million of shares under the terms of our senior unsecured notes payable. To the extent we have excess capital, we may repurchase stock, if appropriate and as authorized by our Board of Directors. Inflation 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. It is reasonable to anticipate that such a change in customer preference would result in an increase in total loans receivable and an increase in absolute revenue to be generated from that larger amount of loans receivable. The Company believes that this increase in absolute revenue should offset any increase in operating costs. In addition, because the Company’s loans have a relatively short contractual term and average life, it is unlikely that loans made at any given point in time will be repaid with significantly inflated dollars. Quarterly Information and Seasonality See Note 2 to the Consolidated Financial Statements. Recently Adopted Accounting Pronouncements 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 The Company’s accounting and reporting policies are in accordance with GAAP and conform to general practices within the finance company industry. Certain accounting policies involve significant judgment by the Company’s management, including the use of estimates and assumptions which affect the reported amounts of assets, liabilities, revenue, and expenses. As a result, changes in these estimates and assumptions could significantly affect the Company’s financial position and results of operations. The Company considers its policies regarding the allowance for credit losses, share-based compensation and income taxes to be its most critical accounting policies due to the significant degree of management judgment involved. Allowance for Credit Losses Accounting policies related to the allowance for credit losses are considered to be critical as these policies involve considerable subjective judgement and estimation by management. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. 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, qualitative factors, and reasonable and supportable forecasts. Share-Based Compensation 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 Black-Scholes model requires the input of assumptions, including expected volatility, risk-free interest rate and expected life. 43 Table of Contents Income Taxes 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. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. Management exercises considerable judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets. These judgments and estimates are re-evaluated on a periodic basis as regulatory and business factors change. No assurance can be given that either the tax returns submitted by management or the income tax reported on the consolidated financial statements will not be adjusted by either adverse rulings, changes in the tax code, or assessments made by the IRS, state, or foreign taxing authorities. 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. 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. While the Company supports its tax positions by unambiguous tax law, prior experience with the taxing authority, and analysis of what it considers to be all relevant facts, circumstances and regulations, management must still rely on assumptions and estimates to determine the overall likelihood of success and proper quantification of a given tax position. 44 Table of Contents