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, including the recent CEO transition and ongoing search for a permanent replacement; 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 and macroeconomic uncertainty; 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 credit facilities 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 2026 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: 42 Table of Contents Three months ended June 30, 2026 2025 (Dollars in thousands) Gross loans receivable $ 1,293,946 $ 1,264,341 Average gross loans receivable (1) 1,280,587 1,239,483 Net loans receivable (2) 957,225 938,126 Average net loans receivable (3) 950,211 922,484 Expenses as a percentage of total revenue: Provision for credit losses 31.4 % 38.0 % General and administrative 54.7 % 53.0 % Interest expense 8.2 % 7.3 % Operating income as a % of total revenue (4) 13.9 % 9.0 % Loan volume (5) $ 758,916 $ 751,502 Net charge-offs as percent of average net loans receivable on an annualized basis 18.2 % 19.4 % Return on average assets (trailing 12 months) 3.6 % 7.8 % Return on average equity (trailing 12 months) 10.6 % 19.1 % Branches opened or acquired (merged or closed), net — (10) Branches open (at period end) 1,009 1,014 _______________________________________________________ (1) Average gross loans receivable has been determined by averaging month-end gross loans receivable over the indicated period. (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. (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, 2026 versus three months ended June 30, 2025 Gross loans outstanding increased to $1.29 billion as of June 30, 2026, a 2.3% increase from the $1.26 billion of gross loans outstanding as of June 30, 2025. During the most recent quarter, our existing customer borrowing increased, while our new customer borrowing decreased, compared to the same quarter of fiscal 2026. New customer loan volume decreased 40.1%, compared to the same quarter of fiscal year 2026. At the end of the prior fiscal year, we tightened our underwriting of new customers given the proportion of new customers already in the portfolio and increasing macroeconomic uncertainty. As a result, our customer base decreased by 1.9% during the twelve-month period ended June 30, 2026, compared to an increase of 4.0% for the comparable period ended June 30, 2025. We have since expanded underwriting and expect to carefully increase new customer lending in the coming quarters. The $6.1 million net income for the three months ended June 30, 2026 is a 285.4% increase from net income of $1.6 million for the same period of the prior year. Operating income, which is revenue less provision for credit losses and general and administrative expenses, increased by $7.4 million, or 62.4%, compared to the same period of the prior year. Revenues for the three months ended June 30, 2026 increased by $6.4 million, or 4.8%, to $139.2 million from $132.8 million for the same period of the prior year. Interest and fee income for the three months ended June 30, 2026 increased by $6.2 million, or 5.4%, from the same period of the prior year due to an increase in outstanding balances and interest yields. 43 Table of Contents Insurance and other income for the three months ended June 30, 2026 increased by $0.2 million, or 1.3%, from the same period of the prior year. Insurance income remained essentially unchanged at $11.3 million in the first quarter of fiscal 2027 compared to $11.5 million in the first quarter of fiscal 2026. Other income increased $0.5 million, or 7.7%, to $6.4 million in the first quarter of fiscal 2027, compared to $5.9 million in the first quarter of fiscal 2026. The provision for credit losses decreased $6.7 million, or 13.4%, to $43.8 million from $50.5 million when comparing the first quarter of fiscal 2027 to the first quarter of fiscal 2026. 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 2027 Q1 FY 2026 Difference Reconciliation Beginning Allowance - March 31 $112.0 $103.4 $8.6 Change due to Growth $1.2 $3.3 $(2.1) $(2.1) Change due to Expected Loss Rate on Performing Loans $1.4 $5.7 $(4.3) $(4.3) Change due to 90 days past due $(2.1) $(3.3) $1.2 $1.2 Ending Allowance - June 30 $112.5 $109.1 $3.4 $(5.2) Net Charge-offs $43.3 $44.8 $(1.5) $(1.5) Provision $43.8 $50.5 $(6.7) $(6.7) Note: The change in allowance for the quarter plus net charge-offs for the quarter equals the provision for the quarter (see above reconciliation). Net charge-offs for the quarter decreased $1.5 million, from $44.8 million in the first quarter of fiscal 2026 to $43.3 million in the first quarter of fiscal 2027. Net charge-offs as a percentage of average net loan receivables on an annualized basis decreased to 18.2% in the first quarter of fiscal 2027 from 19.4% in the first quarter of fiscal 2026. Net charge-offs decreased due to the decrease in new customers during the twelve-month period ending June 30, 2026. Additionally, net charge-offs during the quarter include recoveries of $1.6 million related to a bulk sale of prior charge-offs. The Company's allowance for credit losses as a percentage of net loans was 11.8% at June 30, 2026 compared to 11.6% at June 30, 2025. Accounts that were 61 days or more past due on a recency basis decreased to 5.2% at June 30, 2026 compared to 5.4% at June 30, 2025. Recency delinquency on accounts 0 to 60 days past due decreased from 19.2% at June 30, 2025, to 18.1% at June 30, 2026. G&A expenses for the three months ended June 30, 2026 increased by $5.8 million, or 8.2%, from the corresponding period of the previous year. As a percentage of revenues, G&A expenses increased from 53.0% during the three months ended June 30, 2025 to 54.7% during the three months ended June 30, 2026. G&A expenses per average open branch increased by 9.4% when comparing the two three-month periods. G&A expenses were negatively impacted during the current quarter by $4.6 million in CEO transition related expense. The change in G&A expense is explained in greater detail below. Personnel expense totaled $50.8 million for the three months ended June 30, 2026, a $5.1 million, or 11.1%, increase over the three months ended June 30, 2025. Salary expense increased approximately $2.5 million, or 7.8%, during the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025. Severance related costs increased salary expense by $2.1 million in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. Our headcount as of June 30, 2026 remained relatively flat compared to June 30, 2025. Benefit expense increased approximately $1.0 million, or 10.6%, when comparing the quarterly periods ended June 30, 2026 and 2025. Incentive expense increased $3.3 million in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. The increase in incentive expense is primarily due to $2.0 million in CEO transition expense. Occupancy and equipment expense totaled $12.0 million for the three months ended June 30, 2026, a $0.2 million, or 2.1%, increase over the three months ended June 30, 2025. Advertising expense decreased $0.2 million, or 7.6%, in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026 due to decreased spending on new customer acquisition programs. Amortization of intangible assets totaled $0.8 million for the three months ended June 30, 2026, a $0.1 million, or 6.9%, decrease over the three months ended June 30, 2025. Other expense totaled $10.4 million for the three months ended June 30, 2026, a $0.7 million, or 7.1%, increase over the three months ended June 30, 2025. 44 Table of Contents Interest expense for the three months ended June 30, 2026 increased by $1.8 million, or 18.6%, from the corresponding three months of the previous year. Interest expense primarily increased due to a 27.6% increase in the average debt outstanding for the quarter, partially offset by a 6.4% decrease in the effective interest rate from 8.3% to 7.8%. The average debt outstanding increased from $456.2 million to $582.3 million when comparing the quarters ended June 30, 2025 and 2026. The Company’s debt-to-equity ratio increased from 1.1:1 at June 30, 2025 to 1.6:1 at June 30, 2026. Other key return ratios for the three months ended June 30, 2026 included a 3.6% return on average assets and a return on average equity of 10.6% (both on a trailing 12-month basis), as compared to a 7.8% return on average assets and a return on average equity of 19.1% (both on a trailing 12-month basis) for the three months ended June 30, 2025. The Company’s effective income tax rate was 22.7% for the three months ended June 30, 2026 compared to 30.2% for the corresponding period of the previous year. The decrease was the result of a settlement with various taxing authorities that resulted in an increase in the reserve under ASC 740 (unrecognized tax positions) which was treated as a discrete item in the prior year quarter. This was partially offset by an increase in disallowed executive compensation under Section 162(m) 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 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 45 Table of Contents 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 2026 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, 2026 was $64.4 million. As of June 30, 2026, the Company's debt outstanding was $572.8 million and its shareholders' equity was $362.2 million resulting in a debt-to-equity ratio of 1.6:1.0. 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 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. As of June 30, 2026, the Company had two credit facilities: the Revolving Credit Facility and the Warehouse Facility. The Revolving Credit Facility provides, among other things, aggregate commitments of the Lenders of $655.0 million, with an accordion feature that can increase the aggregate commitments by $135.0 million (for a total commitment, if the full accordion is borrowed, of $790.0 million). 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% under the Revolving Credit Agreement. At June 30, 2026, the aggregate commitments under the Revolving Credit Agreement were $655.0 million. 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 equal to the sum of, for the Company and certain of its subsidiaries (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 had $816.1 thousand in outstanding standby letters of credit which include (i) $200.0 thousand related to worker's compensation expiring on October 16, 2026 and (ii) $616.1 thousand related to the Company's investment in captive insurance expiring on March 01, 2027. Both letters of credit automatically extend for one year on their expiration dates. Further, under the 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 three months ended June 30, 2026 and fiscal year ended March 31, 2026, the Company’s effective interest rate, including the commitment fee and amortization of debt issuance costs, as it relates to the Revolving Credit Agreement was 7.8% annualized and 8.3%, respectively. At June 30, 2026, the unused amount available under the Revolving Credit Facility was $103.6 million. Borrowings under the Revolving Credit Facility have a maturity date of July 22, 2028. The Company’s obligations under the Revolving Credit Agreement, together with treasury management and hedging obligations owing to any lender under the Revolving Credit Agreement or any affiliate of any such lender, are required to be guaranteed by each of the Company’s wholly-owned domestic subsidiaries (other than special purpose subsidiaries). The obligations of the Company and the subsidiary guarantors under the Revolving Credit Agreement, 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. The Warehouse Facility provides for a revolving $175.0 million warehouse facility and is secured by certain consumer loan receivables that were directly originated by certain of the Company’s subsidiaries. As of June 30, 2026, the Company may borrow at the rate of one-month SOFR plus 0.11448% and an applicable margin of 3.00%, with a minimum rate of 4.00%. The Credit Agreement has a commitment fee of 0.50% per annum on the unused portion of the commitment. 46 Table of Contents For the three months ended June 30, 2026, the Company’s effective interest rate, including the commitment fee and amortization of debt issuance costs, as it relates to the Credit Agreement was 7.9%. At June 30, 2026, the unused amount available under the Warehouse Facility was $69.8 million. Borrowings under the Warehouse Facility have an expected maturity date of September 29, 2027. 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 Agreement. Our first priority is to ensure we have enough capital to fund loan growth. As of June 30, 2026, subject to further approval from our Board of Directors, we could repurchase approximately $63.8 million of shares under the terms of our Revolving Credit Agreement. To the extent we have excess capital, we may repurchase stock, if appropriate and as authorized by our Board of Directors. The Company believes that cash flow from operations and borrowings under its credit facilities 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 2026 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. Revolving Credit Facility Debt Covenants The Revolving Credit Agreement contains a number of affirmative and negative covenants that, among other things, restrict our ability to incur liens, incur indebtedness, pay dividends and repurchase or redeem capital stock, make certain restricted payments, merge or consolidate, dispose of assets, 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 of the Revolving Credit Agreement and that contains specified subordinated terms, subject to limitations on amount imposed by the financial covenants under the Revolving Credit Agreement. On May 22, 2026, the Company entered into a Consent and Limited Modification to Fixed Charge Ratio (the "Modification") with Bank of Montreal, as Administrative Agent and Collateral Agent, and the Required Lenders party to the Revolving Credit Agreement dated as of July 22, 2025 (as amended or otherwise modified from time to time), by and among the Company, the lenders from time to time party thereto, and BMO, as Administrative Agent and Collateral Agent. Pursuant to Section 8.7(b) of the Revolving Credit Agreement, the Company and its Restricted Subsidiaries are required to maintain a ratio of Net Income Available for Fixed Charges to Fixed Charges (the "Financial Covenant") of not less than 2.25 to 1.0 for each fiscal quarter. The Modification provides for a limited, temporary modification of the Financial Covenant as follows: i. 2.20 to 1.0 as of the fiscal quarter ending March 31, 2026; ii. 2.10 to 1.0 as of the fiscal quarter ending June 30, 2026; and iii. 2.15 to 1.0 as of the fiscal quarter ending September 30, 2026. Commencing with the fiscal quarter ending December 31, 2026, and for all fiscal quarters thereafter, the Financial Covenant shall revert to its original level of not less than 2.25 to 1.0, without regard to the limited modification set forth in the Modification. Except as expressly modified by the Modification, the Revolving Credit Agreement remains in full force and effect in accordance with its current terms. .In addition, the Revolving Credit Agreement requires the Company to (i) keep and maintain a Consolidated Net Worth of $325.0 million, (ii) not permit the aggregate unpaid principal amount of Total Debt to exceed 225.0% of Consolidated Adjusted Net Worth, and (iii) maintain an Asset Quality Indicator (Consolidated) of less than or equal to 26.0%. Each of the capitalized terms used and not defined herein have the meanings set forth in the Revolving Credit Agreement. The Company was in compliance with these covenants at June 30, 2026, after giving effect to the Consent and Limited Modification to the Net Income Available for Fixed Charges to Fixed Charges ratio. The Company does not believe that these covenants will materially limit its business and expansion strategy. 47 Table of Contents The Revolving Credit Agreement also contains customary events of default (subject to certain materiality thresholds and cure periods), including among others: (a) non-payment, (b) non-compliance with covenants, (c) a breach of a representation or warranty, (d) an insolvency event involving the Company, (e) a change in control of the Company, (f) failure of the Company to maintain certain financial covenants, (g) cross-default to other debt, (h) invalidity of subordination provisions of subordinated debt, (i) the occurrence of certain regulatory events (including an order or judgment entered against the Company with respect to the financial receivables generally or any category of receivables that is material to the business) 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, and (j) payment defaults resulting in acceleration of securitizations or warehouse facilities that remain continuing for more than 30 days. Warehouse Facility Debt Covenants The Credit Agreement contains affirmative and negative covenants, including covenants that generally restrict the ability of the Company and the Borrower to, among other things, incur or guarantee indebtedness, incur liens, pay dividends and repurchase or redeem capital stock, engage in mergers and consolidations, make acquisitions or other investments, or fund benefit plans. The Company’s financial covenants under the Credit Agreement include: (i) a minimum tangible net worth of $305.0 million; (ii) a maximum ratio of debt to tangible net worth of 2.25 to 1.0 as of the end of each fiscal quarter; (iii) a minimum liquidity amount of $35.0 million; and (iv) a minimum of unrestricted cash and cash equivalents of $5.0 million. The Credit Agreement also contains covenants that require the Company, as Servicer, with respect to any collection period to maintain certain delinquency ratios, payment ratios and annualized net charge-off ratios. A failure to maintain such ratios may result in a Level I Trigger Event, Level II Trigger Event, or Level III Trigger Event. Each of the capitalized terms used and not defined herein have the meanings set forth in the Credit Agreement. The Company was in compliance with these covenants at June 30, 2026 and does not believe that these covenants will materially limit its business and expansion strategy. The Credit Agreement also contains customary events of default (subject to certain materiality thresholds and cure periods), including among others, (a) non-payment, (b) non-compliance with covenants, (c) failure of the Administrative Agent to maintain a first-priority perfected security interest in any material portion of the collateral (subject to permitted liens), (d) the occurrence of a servicer termination event, (e) a breach of a representation or warranty, (f) an insolvency event involving the Company, the Borrower, or the Originators, (g) a change in control of the Company or the Borrower, (h) an event of default under a material financing agreement of the Company, the Borrower, or the Originators, (i) failure of the Company, as Servicer, to maintain certain financial covenants, and (j) the Company, the Borrower, or the Originators have one or more final non-appealable judgments entered against it by a court of competent jurisdiction in excess of the specified monetary thresholds. The remedies for such events of default are also customary for this type of transaction and include acceleration of the Borrower’s outstanding obligations under the Credit Agreement. Notes Redemption 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. On July 22, 2025, an irrevocable notice of full redemption (the “Notice”) of the Notes was delivered to the holders of the Notes. The Notice called for the redemption of all of the outstanding Notes (the “Redemption”) on August 29, 2025 (the “Redemption Date”) at a redemption price equal to 101.750% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to but not including, the Redemption Date. The aggregate principal amount of the Notes redeemed was $168.3 million. The Redemption was made in accordance with the terms and conditions of the Notes and the indenture governing the Notes. As a result of the Redemption, the Company recognized an additional $3.7 million in interest expense, for which $3.0 million represents an early redemption premium and $0.7 million represents the write-off of the remaining unamortized debt issuance costs associated with the Notes. During fiscal 2026 and prior to the Redemption, the Company repurchased and extinguished $17.0 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 $17.0 million. For the three months ended June 30, 2025, the Company recognized a $43.0 thousand loss on extinguishment. In accordance with ASC 470, the Company recognized the loss on extinguishments as a component of interest expense in the Company's Consolidated Statements of Operations. 48 Table of Contents Share Repurchase Program On February 11, 2026, the Board of Directors authorized the Company to repurchase up to $50.0 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, 2026, the Company had $10.0 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. The Company’s stock repurchase program may be suspended or discontinued at any time. On September 3, 2025, in accordance with its share repurchase program, the Company, after approval by the Audit and Compliance Committee, repurchased 347,064 shares of its common stock for $60.0 million from Prescott Associates L.P., Idoya Partners L.P., Prescott International Partners L.P., and Prescott Investors, Inc. Profit Sharing (the "Sellers") in a privately negotiated transaction. The Sellers are affiliates of Prescott General Partners, LLC, who, along with its affiliates, beneficially own approximately 46.3% of the Company's common stock as of June 30, 2026. The $172.88 price per share was the closing market price at September 3, 2025. 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 Agreement. Our first priority is to ensure we have enough capital to fund loan growth. As of June 30, 2026, subject to further approval from our Board of Directors, we could repurchase approximately $63.8 million of shares under the terms of our Revolving Credit Agreement. 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. 49 Table of Contents Allowance for Credit Losses Accounting policies related to the allowance for credit losses are considered to be critical as these policies involve considerable subjective judgment 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. 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. 50 Table of Contents