UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
Form 10-Q
__________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2024
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 | |||||
For the transition period from ______________ to ______________
Commission File Number: 000-19599
(Exact name of registrant as specified in its charter.)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
| (Address of principal executive offices) | ||||||||
| (Zip Code) | ||||||||
| (registrant's telephone number, including area code) | |||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
The (NASDAQ Global Select Market) | ||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large Accelerated filer | ☐ | ☒ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The number of outstanding shares of the issuer’s common stock, no par value, as of November 1, 2024 was 5,749,572 .
2
WORLD ACCEPTANCE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
| Item No. | Contents | Page | ||||||
| GLOSSARY OF DEFINED TERMS | ||||||||
| PART I - FINANCIAL INFORMATION | ||||||||
| 1. | Consolidated Financial Statements (unaudited): | |||||||
| Consolidated Balance Sheets as of September 30, 2024 and March 31, 2024 | ||||||||
| Consolidated Statements of Operations for the three and six months ended September 30, 2024 and September 30, 2023 | ||||||||
| Consolidated Statements of Shareholders' Equity for the three and six months ended September 30, 2024 and September 30, 2023 | ||||||||
| Consolidated Statements of Cash Flows for the six months ended September 30, 2024 and September 30, 2023 | ||||||||
| Notes to Consolidated Financial Statements | ||||||||
| 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||
| 3. | Quantitative and Qualitative Disclosures about Market Risk | |||||||
| 4. | Controls and Procedures | |||||||
| PART II - OTHER INFORMATION | ||||||||
| 1. | Legal Proceedings | |||||||
| 1A. | Risk Factors | |||||||
| 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||
| 3. | Defaults Upon Senior Securities | |||||||
| 4. | Mine Safety Disclosures | |||||||
| 5. | Other Information | |||||||
| 6. | Exhibits | |||||||
| EXHIBIT INDEX | ||||||||
| SIGNATURES | ||||||||
Introductory Note: As used herein, the "Company," "we," "our," "us," or similar formulations include World Acceptance Corporation and each of its subsidiaries, unless otherwise expressly noted or the context otherwise requires that it include only World Acceptance Corporation. All references in this report to "fiscal 2025" are to the Company’s fiscal year ending March 31, 2025; all references in this report to "fiscal 2024" are to the Company's fiscal year ended March 31, 2024; and all references to "fiscal 2019" are to the Company’s fiscal year ended March 31, 2019.
3
GLOSSARY OF DEFINED TERMS
The following terms may be used throughout this Report, including consolidated financial statements and related notes.
| Term | Definition | ||||
2008 Plan | World Acceptance Corporation 2008 Stock Option Plan | ||||
2011 Plan | World Acceptance Corporation 2011 Stock Option Plan | ||||
2017 Plan | World Acceptance Corporation 2017 Stock Incentive Plan | ||||
$20.45 Performance Shares | Performance shares associated with the $20.45 trailing 4-Quarter EPS target for September 30, 2018 through March 31, 2025 | ||||
| ASC | Accounting Standards Codification | ||||
| ASU | Accounting Standards Update | ||||
| CECL | Current Expected Credit Loss | ||||
| CEO | Chief Executive Officer | ||||
| CFO | Chief Financial Officer | ||||
| CFPB | U.S. Consumer Financial Protection Bureau | ||||
| Compensation Committee | Compensation and Stock Option Committee | ||||
| Customer Tenure | The number of months since a customer was first serviced by the Company | ||||
EPS | Earnings per share | ||||
| ERISA | Employee Retirement Income Security Act | ||||
| Exchange Act | Securities Exchange Act of 1934, as amended | ||||
| FASB | Financial Accounting Standards Board | ||||
| FICO | The Fair Isaac Corporation | ||||
| G&A | General and administrative | ||||
| GAAP | U.S. generally accepted accounting principles | ||||
| HTC | Historic Tax Credit | ||||
| IRS | U.S. Internal Revenue Service | ||||
| Notes | $300 million in aggregate principal amount of 7.0% unsecured senior notes due November 2026 issued on September 27, 2021 | ||||
| Option Measurement Period | The 6.5 year performance period beginning on September 30, 2018 and ending on March 31, 2025 over which the Performance Options are eligible to vest, following certification by the Compensation Committee of achievement | ||||
| PCD | Purchased Assets with Credit Deterioration | ||||
| Performance Options | Performance-based stock options | ||||
| Performance Share Measurement Period | The 6.5 year performance period beginning on September 30, 2018 and ending on March 31, 2025 over which the Performance Shares are eligible to vest, following certification by the Compensation Committee of achievement | ||||
| Performance Shares | Service- and performance-based restricted stock awards | ||||
| Rehab Rate | Percentage of 91 days or more delinquent that do not charge off | ||||
| Restricted Stock | Service-based restricted stock awards | ||||
| SEC | U.S. Securities and Exchange Commission | ||||
| Service Options | Service-based stock options | ||||
| SOFR | Secured Overnight Finance Rate | ||||
| TAL | Tax Advance Loan | ||||
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PART I. FINANCIAL INFORMATION
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2024 | March 31, 2024 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Gross loans receivable | |||||||||||
| Less: | |||||||||||
| Unearned interest, insurance and fees | ( | ( | |||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Loans receivable, net | |||||||||||
| Income taxes receivable | |||||||||||
| Operating lease right‐of‐use assets, net | |||||||||||
| Property and equipment, net | |||||||||||
| Deferred income taxes, net | |||||||||||
| Other assets, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES & SHAREHOLDERS' EQUITY | |||||||||||
| Liabilities: | |||||||||||
| Senior notes payable | $ | $ | |||||||||
| Senior unsecured notes payable, net | |||||||||||
| Operating lease liability | |||||||||||
| Accounts payable and accrued expenses | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Shareholders' equity: | |||||||||||
Preferred stock, | |||||||||||
Common stock, | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Total shareholders' equity | |||||||||||
| Total liabilities and shareholders' equity | $ | $ | |||||||||
See accompanying notes to consolidated financial statements.
5
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended September 30, | Six months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Interest and fee income | $ | $ | $ | $ | |||||||||||||||||||
| Insurance and other income, net | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Provision for credit losses | |||||||||||||||||||||||
| General and administrative expenses: | |||||||||||||||||||||||
| Personnel | |||||||||||||||||||||||
| Occupancy and equipment | |||||||||||||||||||||||
| Advertising | |||||||||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total general and administrative expenses | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net income per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
6
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
| Three months ended September 30, 2024 | |||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Shares | Additional Paid-in Capital | Retained Earnings | Total Shareholders' Equity | ||||||||||||||||||||
Balances at June 30, 2024 | $ | $ | $ | ||||||||||||||||||||
| Proceeds from exercise of stock options | — | ||||||||||||||||||||||
| Common stock repurchases | ( | — | ( | ( | |||||||||||||||||||
Stock-based compensation (reversal) related to restricted stock, net of cancellations ($ | — | ( | — | ( | |||||||||||||||||||
| Stock-based compensation related to stock options | — | — | |||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
Balances at September 30, 2024 | $ | $ | $ | ||||||||||||||||||||
| Three months ended September 30, 2023 | |||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Shares | Additional Paid-in Capital | Retained Earnings | Total Shareholders' Equity | ||||||||||||||||||||
Balances at June 30, 2023 | $ | $ | $ | ||||||||||||||||||||
| Proceeds from exercise of stock options | — | ||||||||||||||||||||||
Stock-based compensation related to restricted stock, net of cancellations ($ | — | ||||||||||||||||||||||
Stock-based compensation (reversal) related to stock options | — | ( | — | ( | |||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
Balances at September 30, 2023 | $ | $ | $ | ||||||||||||||||||||
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| Six months ended September 30, 2024 | |||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Shares | Additional Paid-in Capital | Retained Earnings | Total Shareholders' Equity | ||||||||||||||||||||
| Balances at March 31, 2024 | $ | $ | $ | ||||||||||||||||||||
| Proceeds from exercise of stock options | — | ||||||||||||||||||||||
| Common stock repurchases | ( | — | ( | ( | |||||||||||||||||||
Stock-based compensation (reversal) related to restricted stock, net of cancellations ($ | ( | ( | — | ( | |||||||||||||||||||
Stock-based compensation related to stock options | — | — | |||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | $ | ||||||||||||||||||||
| Six months ended September 30, 2023 | |||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Shares | Additional Paid-in Capital | Retained Earnings | Total Shareholders' Equity | ||||||||||||||||||||
| Balances at March 31, 2023 | $ | $ | $ | ||||||||||||||||||||
| Proceeds from exercise of stock options | — | ||||||||||||||||||||||
Stock-based compensation related to restricted stock, net of cancellations ($ | — | ||||||||||||||||||||||
Stock-based compensation (reversal) related to stock options | — | ( | — | ( | |||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
| Balances at September 30, 2023 | $ | $ | $ | ||||||||||||||||||||
See accompanying notes to consolidated financial statements.
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WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six months ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flow from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Amortization of intangible assets | |||||||||||
| Accrued unearned interest | ( | ( | |||||||||
| Amortization of deferred loan cost | |||||||||||
| Gain on extinguishment of senior unsecured notes payable | ( | ( | |||||||||
| Amortization of debt issuance costs | |||||||||||
| Provision for credit losses | |||||||||||
| Depreciation | |||||||||||
| Loss (gain) on sale of property and equipment | ( | ||||||||||
| Deferred income tax benefit | ( | ( | |||||||||
| Stock-based compensation (reversal) related to equity classified awards | ( | ( | |||||||||
| Change in accounts: | |||||||||||
| Other assets, net | |||||||||||
| Income taxes receivable | ( | ( | |||||||||
| Accounts payable and accrued expenses | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Increase in loans receivable, net | ( | ( | |||||||||
| Cash paid for acquisitions, primarily loans | ( | ||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from the sale of property and equipment | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flow from financing activities: | |||||||||||
| Borrowings from senior notes payable | |||||||||||
| Payments on senior notes payable | ( | ( | |||||||||
| Payments for extinguished senior unsecured notes payable | ( | ( | |||||||||
| Payments for debt extinguishment costs | ( | ( | |||||||||
| Debt issuance costs associated with senior notes payable | ( | ( | |||||||||
| Proceeds from exercise of stock options | |||||||||||
| Payments for taxes related to net share settlement of equity awards | ( | ||||||||||
| Repurchase of common stock | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental Disclosures: | |||||||||||
| Interest paid during the period | $ | $ | |||||||||
| Income taxes paid during the period | $ | $ | |||||||||
| Non-cash excise tax on stock repurchases | $ | $ | |||||||||
9
See accompanying notes to consolidated financial statements.
10
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The consolidated financial statements of the Company at September 30, 2024 and 2023 and for the three and six months then ended were prepared in accordance with the instructions for Form 10-Q and are unaudited; however, in the opinion of management, all adjustments (consisting only of items of a normal, recurring nature) necessary for a fair presentation of the financial position at September 30, 2024, and the results of operations and cash flows for the periods ended September 30, 2024 and 2023, have been included. The results for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The consolidated financial statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the fiscal year ended March 31, 2024, included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024, as filed with the SEC (the "fiscal 2024 Annual Report"). The Company applies the accounting policies contained in Note 1 to the Consolidated Financial Statements included in fiscal 2024 Annual Report. The Company believes that the disclosures are adequate to make the information presented not misleading.
NOTE 2 – SUMMARY OF SIGNIFICANT POLICIES
Nature of Operations
The Company is a small-loan consumer finance company headquartered in Greenville, South Carolina that offers short-term small loans, medium-term larger loans, related credit insurance products and ancillary products and services to individuals who have limited access to other sources of consumer credit. The Company offers income tax return preparation services to its loan customers and other individuals.
Seasonality
The Company's loan volume and corresponding loans receivable follow seasonal trends. The Company's highest loan demand generally occurs from October through December, its third fiscal quarter. Loan demand is generally lowest and loan repayment highest from January to March, its fourth fiscal quarter. Loan volume and average balances remain relatively level during the remainder of the year. Consequently, the Company experiences significant seasonal fluctuations in its operating results and cash needs. Operating results for the Company's third fiscal quarter are generally lower than in other quarters, and operating results for its fourth fiscal quarter are generally higher than in other quarters.
Loans receivable, net
Loans receivable are carried at amortized cost, which is the gross amount outstanding, reduced by unearned interest and insurance income, net of deferred origination fees and direct costs, and an allowance for credit losses. Fees received and direct costs incurred for the origination of loans are deferred and amortized to interest income over the contractual lives of the loans using the interest method. Unamortized amounts are recognized in income at the time that loans are refinanced or paid in full except for those refinancings that do not constitute a more than minor modification. Net unamortized deferred origination costs were $5.9 million and $5.0 million as of September 30, 2024 and March 31, 2024, respectively.
From time to time, the Company will sell charged off loans receivable, which are accounted for as a sale in accordance with ASC 860, Transfers and Servicing. See Note 4 to the Consolidated Financial Statements for further information.
Allowance for credit losses
Refer to Note 4 to the Consolidated Financial Statements for information regarding the Company's CECL allowance model and a description of the policies and methodology utilized.
11
Reclassification
Recently Issued Accounting Standards Not Yet Adopted
Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. Management is currently evaluating this ASU to determine its impact on the Company's consolidated financial statements and related disclosures.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which modifies the rules on income tax disclosures to require entities to expand annual disclosures to 1) include specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold and 2) disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign taxes. ASU 2023-09 also requires entities to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and income tax expense (or benefit) from continuing operations disaggregated by federal, state and foreign, among other changes. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. Management is currently evaluating this ASU to determine its impact on the Company's consolidated financial statements and related disclosures.
We reviewed all other newly issued accounting pronouncements and concluded that they are either not applicable to our business or are not expected to have a material effect on the consolidated financial statements and related disclosures as a result of future adoption.
NOTE 3 – FAIR VALUE
Fair Value Disclosures
The Company may carry certain financial instruments and derivative assets and liabilities at fair value measured on a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Company measures the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Fair value measurements are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less active.
•Level 3 – Unobservable inputs for assets or liabilities reflecting the reporting entity’s own assumptions.
The Company’s financial instruments consist of cash and cash equivalents, loans receivable, net, the senior notes payable, and the senior unsecured notes payable. Loans receivable are originated at prevailing market rates and have an average life of up to twelve months. Given the short-term nature of these loans, they are continually repriced at current market rates. The Company’s senior notes payable, consisting of a senior revolving credit facility, has a variable rate based on a margin over SOFR and
12
reprices with any changes in SOFR. The fair value of the senior unsecured notes payable is estimated based on quoted prices in markets that are not active. The Company also considers its creditworthiness in its estimation of fair value.
The carrying amounts and estimated fair values of financial assets and liabilities disclosed but not carried at fair value and their level within the fair value hierarchy are summarized below.
| September 30, 2024 | March 31, 2024 | ||||||||||||||||||||||||||||
| Input Level | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||||
| Cash and cash equivalents | 1 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loans receivable, net | 3 | ||||||||||||||||||||||||||||
| LIABILITIES | |||||||||||||||||||||||||||||
| Senior unsecured notes payable | 2 | ||||||||||||||||||||||||||||
| Senior notes payable | 3 | ||||||||||||||||||||||||||||
There were no significant assets or liabilities measured at fair value on a non-recurring basis as of September 30, 2024 or March 31, 2024.
NOTE 4 – LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
The following is a summary of gross loans receivable by Customer Tenure as of:
| Customer Tenure | September 30, 2024 | March 31, 2024 | ||||||
| 0 to 5 months | $ | $ | ||||||
| 6 to 17 months | ||||||||
| 18 to 35 months | ||||||||
| 36 to 59 months | ||||||||
| 60+ months | ||||||||
| TALs | ||||||||
| Total gross loans | $ | $ | ||||||
Current payment performance is used to assess the capability of the borrower to repay contractual obligations of the loan agreements as scheduled, which is monitored by management on a daily basis. The Company’s payment performance buckets are as follows: current, 30-60 days past due, 61-90 days past due, 91 days or more past due.
All loans, except for TALs, that are greater than 90 days past due on a recency basis and not written off as of the reporting date are reserved for at 100% of the outstanding balance, net of a calculated Rehab Rate. The weighted average Rehab Rate at September 30, 2024 and March 31, 2024 was 4.7 % and 4.9 %, respectively. A loan is charged off within the allowance for credit losses in the month following when an account reaches 120 days past due on a recency basis, subject to certain exceptions. Specifically, the Company’s customer accounts in a confirmed bankruptcy are generally charged off in the month after they reach 60 days past due on a recency basis. The accounts of deceased or incarcerated customers are also generally charged off in the month after they reach 60 days past due on a recency basis, with the exception of deceased customers with credit life insurance. Subsequent recoveries of amounts charged off, if any, are credited to the allowance.
The following table provides a breakdown of the Company’s gross loans receivable by current payment performance on a recency basis and year of origination at September 30, 2024:
13
| Term Loans By Origination | ||||||||||||||||||||||||||
| Loans | Up to 1 Year Ago | Between 1 and 2 Years Ago | Between 2 and 3 Years Ago | Between 3 and 4 Years Ago | Between 4 and 5 Years Ago | More than 5 Years Ago | Total | |||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| 30 - 60 days past due | ||||||||||||||||||||||||||
| 61 - 90 days past due | ||||||||||||||||||||||||||
| 91 or more days past due | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Term Loans By Origination | ||||||||||||||||||||||||||
| TALs | Up to 1 Year Ago | Between 1 and 2 Years Ago | Between 2 and 3 Years Ago | Between 3 and 4 Years Ago | Between 4 and 5 Years Ago | More than 5 Years Ago | Total | |||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| 30 - 60 days past due | ||||||||||||||||||||||||||
| 61 - 90 days past due | ||||||||||||||||||||||||||
| 91 or more days past due | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Total gross loans | $ | |||||||||||||||||||||||||
The following table provides a breakdown of the Company’s gross loans receivable by current payment performance on a recency basis and year of origination at March 31, 2024:
14
| Term Loans By Origination | ||||||||||||||||||||||||||
| Loans | Up to 1 Year Ago | Between 1 and 2 Years Ago | Between 2 and 3 Years Ago | Between 3 and 4 Years Ago | Between 4 and 5 Years Ago | More than 5 Years Ago | Total | |||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| 30 - 60 days past due | ||||||||||||||||||||||||||
| 61 - 90 days past due | ||||||||||||||||||||||||||
| 91 or more days past due | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Term Loans By Origination | ||||||||||||||||||||||||||
| TALs | Up to 1 Year Ago | Between 1 and 2 Years Ago | Between 2 and 3 Years Ago | Between 3 and 4 Years Ago | Between 4 and 5 Years Ago | More than 5 Years Ago | Total | |||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| 30 - 60 days past due | ||||||||||||||||||||||||||
| 61 - 90 days past due | ||||||||||||||||||||||||||
| 91 or more days past due | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Total gross loans | $ | |||||||||||||||||||||||||
The following table provides a breakdown of the Company’s gross loans receivable by current payment performance on a contractual basis and year of origination at September 30, 2024:
15
| Term Loans By Origination | ||||||||||||||||||||||||||
| Loans | Up to 1 Year Ago | Between 1 and 2 Years Ago | Between 2 and 3 Years Ago | Between 3 and 4 Years Ago | Between 4 and 5 Years Ago | More than 5 Years Ago | Total | |||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| 30 - 60 days past due | ||||||||||||||||||||||||||
| 61 - 90 days past due | ||||||||||||||||||||||||||
| 91 or more days past due | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Term Loans By Origination | ||||||||||||||||||||||||||
| TALs | Up to 1 Year Ago | Between 1 and 2 Years Ago | Between 2 and 3 Years Ago | Between 3 and 4 Years Ago | Between 4 and 5 Years Ago | More than 5 Years Ago | Total | |||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| 30 - 60 days past due | ||||||||||||||||||||||||||
| 61 - 90 days past due | ||||||||||||||||||||||||||
| 91 or more days past due | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Total gross loans | $ | |||||||||||||||||||||||||
The following table provides a breakdown of the Company’s gross loans receivable by current payment performance on a contractual basis and year of origination at March 31, 2024:
16
| Term Loans By Origination | ||||||||||||||||||||||||||
| Loans | Up to 1 Year Ago | Between 1 and 2 Years Ago | Between 2 and 3 Years Ago | Between 3 and 4 Years Ago | Between 4 and 5 Years Ago | More than 5 Years Ago | Total | |||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| 30 - 60 days past due | ||||||||||||||||||||||||||
| 61 - 90 days past due | ||||||||||||||||||||||||||
| 91 or more days past due | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Term Loans By Origination | ||||||||||||||||||||||||||
| TALs | Up to 1 Year Ago | Between 1 and 2 Years Ago | Between 2 and 3 Years Ago | Between 3 and 4 Years Ago | Between 4 and 5 Years Ago | More than 5 Years Ago | Total | |||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| 30 - 60 days past due | ||||||||||||||||||||||||||
| 61 - 90 days past due | ||||||||||||||||||||||||||
| 91 or more days past due | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Total gross loans | $ | |||||||||||||||||||||||||
The following table provides a breakdown of the Company’s gross charge-offs by year of origination for the three and six months ended September 30, 2024:
| Three months ended September 30, | Six months ended September 30, | ||||||||||||||||||||||
| Gross Charge-offs by Origination | Gross Charge-offs by Origination | ||||||||||||||||||||||
| Origination Year | Loans | TALs | Total | Loans | TALs | Total | |||||||||||||||||
| 2020 and prior | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| 2021 | |||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| 2025 | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||
The following table provides a breakdown of the Company’s gross charge-offs by year of origination for the three and six months ended September 30, 2023:
17
| Three months ended September 30, | Six months ended September 30, | ||||||||||||||||||||||
| Gross Charge-offs by Origination | Gross Charge-offs by Origination | ||||||||||||||||||||||
| Origination Year | Loans | TALs | Total | Loans | TALs | Total | |||||||||||||||||
| 2019 and prior | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| 2020 | |||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Credit risk is inherent in the business of extending loans to borrowers and is continuously monitored by management and reflected within the allowance for credit losses for loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s gross loans receivable portfolio. In estimating the allowance for credit losses, loans with similar risk characteristics are aggregated into pools and collectively assessed. The Company’s loan products have generally the same terms therefore the Company looks to borrower characteristics as a way to disaggregate loans into pools sharing similar risks.
In determining the allowance for credit losses, the Company examined four borrower risk metrics as noted below.
1.Borrower type
2.Active months
3.Prior loan performance
4.Customer Tenure
To determine how well each metric predicts default risk the Company used loss rate data over an observation period of twelve months at the loan level.
The information value was then calculated for each metric. From this analysis management determined the metric that had the strongest predictor of default risk was Customer Tenure. The Customer Tenure buckets used in the allowance for credit loss calculation are:
1.0 to 5 months
2.6 to 17 months
3.18 to 35 months
4.36 to 59 months
5.60+ months
Management will continue to monitor this credit metric on a quarterly basis.
Management estimates an allowance for each Customer Tenure bucket by performing a historical migration analysis of loans in that bucket for the twelve most recent historical twelve-month migration periods. Management considers whether current credit conditions might suggest a change is needed to the allowance for credit losses by monitoring trends in first pay success for new borrowers, 60-89 day delinquencies on a recency basis, percent of loan balances that are paying and percentage of gross loans that are acquired loans. If management determines that historical migration rates should be adjusted to reflect expected credit losses, a qualitative adjustment is made to reflect management's judgment regarding observable changes in recent or expected economic trends and conditions, portfolio composition, or other significant events or conditions that affect the current estimate. The increase in the allowance for credit losses from March 31, 2024 to September 30, 2024 was primarily due to a seasonally driven increase in expected loss rates.
Due to the short term nature of the loan portfolio, forecasted changes in macroeconomic variables such as unemployment levels, general inflation and commodity prices, typically do not have a significant impact on loans outstanding at the end of a particular reporting period, unless those changes are particularly severe and sudden in nature. Therefore, management develops a reasonable and supportable forecast of losses by comparing the most recent six-month loss curves as compared to historical loss curves to see if there are significant changes in borrower behavior that may indicate the historical migration rates should be adjusted. If a change is determined necessary, then the Company has elected to immediately revert back to historical experience past the forecast period. As of September 30, 2024 and March 31, 2024, there were no conditions or other factors considered significant enough to warrant a forecast adjustment.
18
The following table presents a roll forward of the allowance for credit losses for the three and six months ended September 30, 2024 and 2023:
| Three months ended September 30, | Six months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Provision for credit losses | |||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | |||||||||||||||||||
| Recoveries1 | |||||||||||||||||||||||
| Net charge-offs | ( | ( | ( | ( | |||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | |||||||||||||||||||
The following table is an aging analysis on a recency basis at amortized cost of the Company’s gross loans receivable at September 30, 2024:
| Days Past Due - Recency Basis | |||||||||||||||||||||||
| Customer Tenure | Current | 30 - 60 | 61 - 90 | Over 90 | Total Past Due | Total Loans | |||||||||||||||||
| 0 to 5 months | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| 6 to 17 months | |||||||||||||||||||||||
| 18 to 35 months | |||||||||||||||||||||||
| 36 to 59 months | |||||||||||||||||||||||
| 60+ months | |||||||||||||||||||||||
| TALs | |||||||||||||||||||||||
| Total gross loans | |||||||||||||||||||||||
| Unearned interest, insurance and fees | ( | ( | ( | ( | ( | ( | |||||||||||||||||
| Total net loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Percentage of period-end gross loans receivable | |||||||||||||||||||||||
The following table is an aging analysis on a recency basis at amortized cost of the Company’s gross loans receivable at March 31, 2024:
1 Recoveries during the three and six months ended September 30, 2024 include $2.4 million and $5 million, respectively, in proceeds related to the recurring sales of charge-offs. Recoveries during the three months ended September 30, 2023 include $8.1 million in proceeds, for which $3.2 million relates to the recurring sale of charge-offs and the remaining $4.9 million relates to a bulk sale of charge-offs from prior periods. Recoveries during the six months ended September 30, 2023 include $12.5 million in proceeds, for which $7.6 million relates to the recurring sale of charge-offs and the remaining $4.9 million relates to a bulk sale of charge-offs from prior periods. These proceeds are included as a component of Provision for credit losses in the Consolidated Statements of Operations.
19
| Days Past Due - Recency Basis | |||||||||||||||||||||||
| Customer Tenure | Current | 30 - 60 | 61 - 90 | Over 90 | Total Past Due | Total Loans | |||||||||||||||||
| 0 to 5 months | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| 6 to 17 months | |||||||||||||||||||||||
| 18 to 35 months | |||||||||||||||||||||||
| 36 to 59 months | |||||||||||||||||||||||
| 60+ months | |||||||||||||||||||||||
| TALs | |||||||||||||||||||||||
| Total gross loans | |||||||||||||||||||||||
| Unearned interest, insurance and fees | ( | ( | ( | ( | ( | ( | |||||||||||||||||
| Total net loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Percentage of period-end gross loans receivable | % | % | % | % | |||||||||||||||||||
The following table is an aging analysis on a contractual basis at amortized cost of the Company’s gross loans receivable at September 30, 2024:
| Days Past Due - Contractual Basis | |||||||||||||||||||||||
| Customer Tenure | Current | 30 - 60 | 61 - 90 | Over 90 | Total Past Due | Total Loans | |||||||||||||||||
| 0 to 5 months | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| 6 to 17 months | |||||||||||||||||||||||
| 18 to 35 months | |||||||||||||||||||||||
| 36 to 59 months | |||||||||||||||||||||||
| 60+ months | |||||||||||||||||||||||
| TALs | |||||||||||||||||||||||
| Total gross loans | |||||||||||||||||||||||
| Unearned interest, insurance and fees | ( | ( | ( | ( | ( | ( | |||||||||||||||||
| Total net loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Percentage of period-end gross loans receivable | % | ||||||||||||||||||||||
The following table is an aging analysis on a contractual basis at amortized cost of the Company’s gross loans receivable at March 31, 2024:
20
| Days Past Due - Contractual Basis | |||||||||||||||||||||||
| Customer Tenure | Current | 30 - 60 | 61 - 90 | Over 90 | Total Past Due | Total Loans | |||||||||||||||||
| 0 to 5 months | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| 6 to 17 months | |||||||||||||||||||||||
| 18 to 35 months | |||||||||||||||||||||||
| 36 to 59 months | |||||||||||||||||||||||
| 60+ months | |||||||||||||||||||||||
| TALs | |||||||||||||||||||||||
| Total gross loans | |||||||||||||||||||||||
| Unearned interest, insurance and fees | ( | ( | ( | ( | ( | ( | |||||||||||||||||
| Total net loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Percentage of period-end gross loans receivable | % | % | % | % | |||||||||||||||||||
The Company elected not to record an allowance for credit losses for accrued interest as outlined in ASC 326-20-30-5A. Loans are placed on nonaccrual status when management determines that the full payment of principal and collection of interest according to contractual terms is no longer likely. The accrual of interest is discontinued when a loan is 61 days or more past the contractual due date. When the interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. While a loan is on nonaccrual status, interest income is recognized only when a payment is received. Once a loan moves to nonaccrual status, it remains in nonaccrual status until it is paid out, charged off or refinanced.
The following table presents unpaid accrued interest reversed against interest income by Customer Tenure for the three and six months ended September 30, 2024 and 2023:
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Customer Tenure | ||||||||||||||||||||||||||
| 0 to 5 months | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| 6 to 17 months | ( | ( | ( | ( | ||||||||||||||||||||||
| 18 to 35 months | ( | ( | ( | ( | ||||||||||||||||||||||
| 36 to 59 months | ( | ( | ( | ( | ||||||||||||||||||||||
| 60+ months | ( | ( | ( | ( | ||||||||||||||||||||||
| Total | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
The following table presents the amortized cost basis of loans on nonaccrual status as of the beginning of the reporting period and the end of the reporting period, as well as interest income recognized on nonaccrual loans for the three and six months ended September 30, 2024 and 2023:
21
| Nonaccrual Loans Receivable | |||||||||||||||||||||||
| Customer Tenure | As of September 30, 2024 | As of March 31, 2024 | Interest Income Recognized for the three months ended September 30, 2024 | Interest Income Recognized for the three months ended September 30, 2023 | Interest Income Recognized for the six months ended September 30, 2024 | Interest Income Recognized for the six months ended September 30, 2023 | |||||||||||||||||
| 0 to 5 months | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| 6 to 17 months | |||||||||||||||||||||||
| 18 to 35 months | |||||||||||||||||||||||
| 36 to 59 months | |||||||||||||||||||||||
| 60+ months | |||||||||||||||||||||||
| Unearned interest, insurance and fees | ( | ( | — | — | — | — | |||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||
As of September 30, 2024 and March 31, 2024, there were no loans receivable 61 days or more past due, not on nonaccrual status, and no loans receivable on nonaccrual status with no related allowance for credit losses.
22
NOTE 5 – LEASES
Accounting Policies and Matters Requiring Management's Judgment
The Company uses its senior notes payable's effective annual interest rate to determine the discount rate when evaluating leases under Topic 842. Specifically, Management applies its senior notes payable's effective annual interest rate at the end of the prior fiscal year to leases entered into in the following year. For example, the senior notes payable's annual effective interest rate of 9.9 % at March 31, 2024 was used as the discount rate when determining the lease type and the present value of lease payments for leases entered into in fiscal 2025.
Based on its historical practice, the Company believes it is reasonably certain to exercise a given option associated with a given office space lease. Therefore, the Company classifies all lease options for office space as “reasonably certain” unless it has specific knowledge to the contrary for a given lease. The Company does not believe it is reasonably certain to exercise any options associated with its office equipment leases.
Periodic Disclosures
The Company's operating leases consist of real estate leases for office space as well as office equipment. Both the branch real estate and office equipment lease terms generally range from three years to five years , and generally contain options to extend which mirror the original terms of the lease.
As of September 30, 2024 and 2023, the Company had no finance leases.
The following table reports information about the Company's lease cost for the three and six months ended September 30, 2024 and 2023:
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Lease Cost | ||||||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Variable lease cost | ||||||||||||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||||||||||||
The following table reports other information about the Company's leases for the three and six months ended September 30, 2024 and 2023:
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Other Lease Information | ||||||||||||||||||||||||||
| Operating cash flows for amounts included in the measurement of lease liabilities — operating leases | $ | $ | $ | $ | ||||||||||||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted average remaining lease term — operating leases | ||||||||||||||||||||||||||
| Weighted-average discount rate — operating leases | % | % | % | % | ||||||||||||||||||||||
23
The aggregate annual lease obligations as of September 30, 2024 are as follows:
| Operating Leases | |||||||||||
| Remainder of 2025 | $ | ||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| 2029 | |||||||||||
| Thereafter | |||||||||||
| Total undiscounted lease liability | $ | ||||||||||
| Imputed interest | |||||||||||
| Total discounted lease liability | $ | ||||||||||
The Company had no leases with related parties as of September 30, 2024 or March 31, 2024.
24
NOTE 6 – AVERAGE SHARE INFORMATION
The following is a summary of the basic and diluted average common shares outstanding:
| Three months ended September 30, | Six months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Weighted average common shares outstanding (denominator) | |||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| Dilutive potential common shares | |||||||||||||||||||||||
| Weighted average diluted shares outstanding (denominator) | |||||||||||||||||||||||
Options to purchase 244,738 and 298,954 shares of common stock at various prices were outstanding during the three months ended September 30, 2024 and 2023, respectively, but were not included in diluted shares outstanding because the option exercise price exceeded the market value of the shares.
25
NOTE 7 – STOCK-BASED COMPENSATION
Stock Incentive Plans
The Company maintains the 2008 Plan, the 2011 Plan and the 2017 Plan for the benefit of certain non-employee directors, officers, and key employees. Under these plans, a total of 3,350,000 shares of authorized common stock have been reserved for issuance pursuant to grants approved by the Compensation Committee. Stock options granted under these plans have a maximum term of 10 years, may be subject to certain vesting requirements, which are generally to six years for officers, non-employee directors, and key employees, and are priced at the market value of the Company's common stock on the option's grant date. At September 30, 2024, there were a total of 270,301 shares of common stock remaining available for grant under the 2017 Plan.
Stock-based compensation is recognized as provided under FASB ASC Topic 718-10 and FASB ASC Topic 505-50. FASB ASC Topic 718-10 requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the requisite service period (generally the vesting period) in the consolidated financial statements based on their grant date fair values. Stock-based compensation related to restricted stock is based on the number of shares expected to vest and the fair market value of the common stock on the grant date. Stock-based compensation related to stock option awards is based on the number of shares expected to vest and the estimated fair value of the awards on the grant date using the Black-Scholes valuation model. Under the Black-Scholes valuation method, the assumptions used to determine the fair value are expected volatility, expected life, average risk-free rate, and dividend yield, if any. The expected stock price volatility is based on the historical volatility of the Company's common stock for a period approximating the expected life. The expected life represents the period of time that options are expected to be outstanding after the grant date. The risk-free rate reflects the interest rate at grant date on zero coupon U.S. governmental bonds having a remaining life similar to the expected option term.
Long-term Incentive Program and Non-Employee Director Awards
On October 15, 2018, the Compensation Committee and Board approved and adopted a long-term incentive program that seeks to motivate and reward certain employees and to align management’s interest with shareholders’ interest by focusing executives on the achievement of long-term results. The program is comprised of four components: Service Options, Performance Options, Restricted Stock, and Performance Shares.
Pursuant to this program, in fiscal 2019, the Compensation Committee approved certain grants of Service Options, Performance Options, Restricted Stock and Performance Shares under the 2011 Plan and the 2017 Plan to certain employee directors, vice presidents of operations, vice presidents, senior vice presidents, and executive officers. Separately, the Compensation Committee approved certain grants of Service Options and Restricted Stock to certain non-employee directors of the Company.
Under the long-term incentive program, up to 100 % of the shares of restricted stock subject to the Performance Shares will vest, if at all, based on the achievement of two trailing EPS performance targets established by the Compensation Committee that are based on EPS (measured at the end of each calendar quarter, commencing with the calendar quarter ending September 30, 2019) for the previous four calendar quarters. The Performance Shares are eligible to vest over the Performance Share Measurement Period, subject to each respective employee’s continued employment at the Company through the last day of the Performance Share Measurement Period (or as otherwise provided under the terms of the applicable award agreement or applicable employment agreement).
The Performance Share performance targets are set forth below.
| Trailing 4-Quarter EPS Targets for September 30, 2018 through March 31, 2025 | Restricted Stock Eligible for Vesting (Percentage of Award) | ||||
| $ | |||||
| $ | |||||
During the second quarter of fiscal 2025, it was determined that the $20.45 Performance Share performance target was no longer probable of being achieved and that the $20.45 Performance Shares would likely be forfeited as of the last day of the performance period in accordance with their terms. As a result and in accordance with ASC 718, the Company reversed $18.5 million in previously recognized stock-based compensation related to the $20.45 Performance Shares during the second quarter of fiscal 2025.
26
The Restricted Stock awards typically vest in three to six equal annual installments, beginning on the first anniversary of the grant date, subject to each respective employee’s continued employment at the Company through each applicable vesting date or otherwise provided under the terms of the applicable award agreement or applicable employment agreement.
The Service Options typically vest in three equal annual installments, beginning on the first anniversary of the grant date, subject to each respective employee’s continued employment at the Company through each applicable vesting date or otherwise provided under the terms of the applicable award agreement or applicable employment agreement. The option price is equal to the fair market value of the common stock on the grant date and the Service Options have a 10 -year term.
The Performance Options will fully vest if the Company attains the trailing EPS target over four consecutive calendar quarters occurring between September 30, 2018 and March 31, 2025 as described below. Such performance target was established by the Compensation Committee and will be measured at the end of each calendar quarter commencing on September 30, 2019. The Performance Options are eligible to vest over the Option Measurement Period, subject to each respective employee’s continued employment at the Company through the last day of the Option Measurement Period or as otherwise provided under the terms of the applicable award agreement or applicable employment agreement. The option price is equal to the fair market value of the common stock on the grant date and the Performance Options have a 10 -year term. The Performance Option performance target is set forth below.
| Trailing 4-Quarter EPS Targets for September 30, 2018 through March 31, 2025 | Options Eligible for Vesting (Percentage of Award) | ||||
| $ | |||||
During the second quarter of fiscal 2024, it was determined that the Performance Option performance target was no longer probable of being achieved and that the Performance Options would likely be forfeited as of the last day of the performance period in accordance with their terms. As a result and in accordance with ASC 718, the Company reversed $4.9 million in previously recognized stock-based compensation related to these Performance Options during the second quarter of fiscal 2024.
Stock Options
During the first six months of fiscal 2025, the Company did not grant stock options.
During fiscal 2024, the Company granted 2,598 stock options at a weighted-average fair value of $69.00 per share.
Option activity for the six months ended September 30, 2024 was as follows:
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||||||||||
| Options outstanding, beginning of period | $ | ||||||||||||||||||||||
| Exercised during period | ( | ||||||||||||||||||||||
| Forfeited during period | ( | ||||||||||||||||||||||
| Expired during period | ( | ||||||||||||||||||||||
| Options outstanding, end of period | 2 | $ | $ | ||||||||||||||||||||
| Options exercisable, end of period | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value reflected in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on September 30, 2024 and the exercise price, multiplied by the number of in-the-money options that are currently exercisable) that would have been received by option holders had all option holders exercised their options as of September 30, 2024. This amount will change as the market price of the common stock changes. The total intrinsic value and tax benefit of options exercised during the three and six month periods ended September 30, 2024 and 2023 were as follows:
2 Of the 243,200 options outstanding, 36,331 are not yet exercisable based solely on fulfilling a service condition and another 102,925 are not yet exercisable based solely on fulfilling the performance condition described further above.
27
| Three months ended September 30, | Six months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Intrinsic value of options exercised | $ | $ | $ | $ | |||||||||||||||||||
| Tax benefit of options exercised | |||||||||||||||||||||||
The total fair value of stock options vested during the six months ended September 30, 2024 was $133,582 . As of September 30, 2024, total unrecognized stock-based compensation expense related to non-vested stock options amounted to approximately $0.1 million, which is expected to be recognized over a weighted-average period of approximately 1.8 years.
Restricted Stock
During the first six months of fiscal 2025, the Company did not grant shares of restricted stock.
During fiscal 2024, the Company granted 3,993 shares of restricted stock (which are equity classified) to certain vice presidents with a grant date weighted average fair value of $120.12 per share.
The total fair value of restricted stock vested during the six months ended September 30, 2024 was $412,710 . As of September 30, 2024, there was approximately $0.1 million of unrecognized compensation cost related to unvested restricted stock awards, which is expected to be recognized over the next 0.1 years based on current estimates.
A summary of the status of the Company’s restricted stock as of September 30, 2024, and changes during the six months ended September 30, 2024, are presented below:
| Shares | Weighted Average Fair Value at Grant Date | ||||||||||
| Outstanding at March 31, 2024 | $ | ||||||||||
| Vested during the period | ( | ||||||||||
| Forfeited during the period | ( | ||||||||||
| Outstanding at September 30, 2024 | $ | ||||||||||
Total Stock-Based Compensation
Total stock-based compensation included as a component of personnel expenses in the Company's Consolidated Statements of Operations during the three and six month periods ended September 30, 2024 and 2023 was as follows:
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| Three months ended September 30, | Six months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Stock-based compensation related to equity classified awards: | |||||||||||||||||||||||
Stock-based compensation (reversal) related to stock options3 | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Stock-based compensation (reversal) related to restricted stock4 | ( | ( | |||||||||||||||||||||
| Total stock-based compensation (reversal) related to equity classified awards | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
NOTE 8 – ACQUISITIONS
The Company evaluates each set of assets and activities it acquires to determine if the set meets the definition of a business according to FASB ASC Topic 805-10-55. Acquisitions meeting the definition of a business are accounted for as business combinations while all other acquisitions are accounted for as asset purchases.
The following table sets forth the Company's acquisition activity for the six months ended September 30, 2024 and 2023:
| Six months ended September 30, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Acquisitions: | ||||||||||||||
| Number of loan portfolios acquired through asset purchases | ||||||||||||||
| Total acquisitions | ||||||||||||||
| Purchase price | $ | $ | ||||||||||||
| Tangible assets: | ||||||||||||||
| Loans receivable, net | ||||||||||||||
| Property and equipment | ||||||||||||||
| Total tangible assets | ||||||||||||||
Purchase price amount over carrying value of net tangible assets | $ | $ | ||||||||||||
| Non-compete agreements | $ | $ | ||||||||||||
Acquisitions that are accounted for as business combinations typically result in one or more new branches. In such cases, the Company typically retains the existing employees and the branch location from the acquisition. The purchase price is allocated to the tangible assets and intangible assets acquired based upon their estimated fair market values at the acquisition date. The remainder is allocated to goodwill.
Acquisitions that are accounted for as asset purchases are typically limited to acquisitions of loan portfolios. The purchase price is allocated to the tangible assets and intangible assets acquired based upon their estimated fair values at the acquisition date. In an asset purchase, no goodwill is recorded. When the cost of an asset acquisition is less than the fair value of the net assets
3 The $(4,374,277 ) for the three months ended September 30, 2023 represents the reversal of $4.9 million in previously recognized stock-based compensation related to the Performance Options, offset by $0.5 million in current period expense. The $(4,060,930 ) for the six months ended September 30, 2023 represents this $4.9 million reversal and $0.3 million in forfeiture credit, offset by $1.1 million in current period expense.
4 The $(18,042,631 ) for the three months ended September 30, 2024 represents the reversal of $18.5 million in previously recognized stock-based compensation related to the $20.45 Performance Shares, offset by $0.5 million in current period expense. The $(19,250,196 ) for the six months ended September 30, 2024 represents this $18.5 million reversal and $1.8 million in forfeiture credit, offset by $1.0 million in current period expense.
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acquired, the benefit is allocated to nonmonetary long-lived assets acquired on a relative fair value basis. However, any assets for which the subsequent application of GAAP would result in an immediate gain (e.g., financial assets, assets held for sale) are not allocated a portion of the cost below fair value. Any remaining benefit is recorded as a discount on purchase, which is a component of Unearned interest, insurance and fees in the Company's Consolidated Balance Sheets, and is amortized over the life of loans receivable acquired.
The Company’s acquisitions include tangible assets (generally loans and furniture and equipment) and intangible assets (generally non-compete agreements, customer lists, and goodwill), both of which are recorded at their fair values, which are estimated pursuant to the processes described below.
Acquired loans are valued at the net loan balance. Given the short-term nature of these loans, generally less than twelve months, and that these loans are priced at current rates, management believes the net loan balances approximate their fair value. Under CECL, acquired loans are included in the reserve calculations for all loan types (excluding TALs). Management includes recent acquisition activity compared to historical activity when considering reasonable and supportable forecasts as it relates to assessing the adequacy of the allowance for expected credit losses. The Company did not acquire any loans that would qualify as PCDs during the six months ended September 30, 2024 and 2023.
Furniture and equipment are valued at the specific purchase price as agreed to by both parties at the time of acquisition, which management believes approximates their fair values.
Non-compete agreements are valued at the stated amount paid to the other party for these agreements, which the Company believes approximates their fair values.
Customer lists are valued with a valuation model that utilizes the Company’s historical data to estimate the value of any acquired customer lists.
The results of all acquisitions are included in the Company’s consolidated financial statements since the respective acquisition date. The pro forma impact of these branches as though they had been acquired at the beginning of the periods presented would not have a material effect on the results of operations as reported.
NOTE 9 – INTANGIBLE ASSETS
The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:
| September 30, 2024 | March 31, 2024 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Intangible Asset | Gross Carrying Amount | Accumulated Amortization | Net Intangible Asset | ||||||||||||||||||||||||||||||
| Customer lists | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Non-compete agreements | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
The estimated amortization expense for intangible assets for future fiscal years ended March 31 is as follows: $1.8 million for the remainder of 2025; $3.2 million for 2026; $2.7 million for 2027; $0.9 million for 2028; $0.4 million for 2029; and an aggregate of $0.1 million for the years thereafter.
NOTE 10 – DEBT
Senior Notes Payable; Revolving Credit Facility
At September 30, 2024, the Company's senior notes payable consisted of a $580.0 million senior revolving credit facility, which has an accordion feature permitting the maximum aggregate commitments to increase to $730.0 million provided that certain conditions are met.
At September 30, 2024, $265.6 million was outstanding under the Company's credit facility, not including $725.8 thousand in outstanding standby letters of credit, which include (i) $300.0 thousand related to worker's compensation expiring on December 31, 2024 and (ii) $425.8 thousand related to the Company's investment in captive insurance expiring on April 12, 2025. Both letters of credit automatically extend for one year on their expiration dates. To the extent that the letter of credit is drawn upon, the disbursement will be funded by the credit facility. There are no amounts due related to the letter of credit as of
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September 30, 2024. Subject to a borrowing base formula, the Company may borrow at the rate of one month SOFR plus 0.10 % and an applicable margin of 3.5 % with a minimum rate of 4.5 %. The revolving credit facility has a commitment fee of 0.50 % per annum on the unused portion of the commitment. Commitment fees on the unused portion of the borrowing totaled $0.9
For the six months ended September 30, 2024 and fiscal year ended March 31, 2024, the Company’s effective interest rate, including the commitment fee and amortization of debt issuance costs, was 10.1 % annualized and 9.9 %, respectively. At September 30, 2024, the unused amount available under the revolving credit facility was $313.6 million and borrowings under the revolving credit facility mature on June 7, 2026.
Substantially all of the Company’s assets are pledged as collateral for borrowings under the revolving credit agreement.
Senior Unsecured Notes Payable
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 of 1933, as amended (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 40.0 % of the aggregate principal amount of the Notes issued under the indenture at a redemption price equal to 107.0 % of the principal amount of Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.
We used the net proceeds from this offering to repay a portion of the outstanding indebtedness under our revolving credit facility and for general corporate purposes.
During the six months ended September 30, 2024, the Company repurchased and extinguished $33.7 million of its Notes, net of
$0.3 million unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $32.5 million.
During fiscal 2024, the Company repurchased and extinguished $15.7 million of its Notes, net of $0.2 million unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $14.1 million.
For the three months ended September 30, 2024 and 2023, the Company recognized a $0.4 million and $0.2 million gain on extinguishment, respectively. For the six months ended September 30, 2024 and 2023, the Company recognized a $1.2 million and $0.6 million gain on extinguishment, respectively. In accordance with ASC 470, the Company recognized the gain on extinguishment as a component of interest expense in the Company's Consolidated Statements of Operations.
Debt Covenants
The agreement governing the Company’s revolving credit facility contains affirmative and negative covenants, including covenants that generally 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 $325.0 million on and after December 31, 2020; (ii) a maximum ratio of total debt to consolidated adjusted net worth of 2.25 to 1.0 for the fiscal quarter ended December 31, 2023 and each fiscal quarter thereafter; (iii) a maximum collateral performance indicator of 26.0 % as of the end of each calendar month; and (iv) a minimum fixed charges coverage ratio of 2.0 to 1.0 for the fiscal quarters ending December 31, 2023 through December 31, 2024, and 2.25 to 1.0 for each fiscal quarter thereafter, where the ratio for the most recent four consecutive fiscal quarters (other than for the fiscal quarter ended September 30, 2023) must be at least 2.0 to 1.0 in order for the Company to declare dividends or purchase any class or series of its capital stock or other equity.
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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 September 30, 2024 and does not believe that these covenants will materially limit its business and expansion strategy.
The agreement contains events of default including, without limitation, nonpayment of principal, interest or other obligations, violation of covenants, misrepresentation, cross-default to other debt, bankruptcy and other insolvency events, judgments, certain ERISA events, actual or asserted invalidity of loan documentation, invalidity of subordination provisions of subordinated debt, certain changes of control of the Company, and the occurrence of certain regulatory events, (including the entry of any stay, order, judgment, ruling or similar event related to the Company’s or any of its subsidiaries’ originating, holding, pledging, collecting or enforcing its eligible loans receivable that is material to the Company or any subsidiary) which remains unvacated, undischarged, unbonded or unstayed by appeal or otherwise for a period of 60 days from the date of its entry and is reasonably likely to cause a material adverse change.
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.
Debt Maturities
The aggregate annual maturities of the Company's debt arrangements as of September 30, 2024 are as follows:
| Amount | |||||||||||
| Remainder of 2025 | $ | ||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| 2029 | |||||||||||
| Thereafter | |||||||||||
| Total future debt payments | $ | ||||||||||
NOTE 11 – INCOME TAXES
As of September 30, 2024 and March 31, 2024, the Company had $1.1 0.9 0.4 million of gross unrecognized tax benefits are expected to be resolved during the next twelve months through the expiration of the statute of limitations and settlement with taxing authorities. The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company had approximately $344.6 thousand accrued for gross interest as of September 30, 2024, and accrued $27.6 thousand during the six months ended September 30, 2024.
Investment in HTC was $22.8 million and $24.8 million as of September 30, 2024 and March 31, 2024, respectively, which is included as a component of Other assets, net in the Consolidated Balance Sheets. The Company recognized net amortization from these investments of $4.1 million and $0.8 million during the three months ended September, 30 2024 and 2023, respectively, and $8.2 million and $2.0 million during the six months ended September 30, 2024 and 2023, respectively, in income tax expense. The Company recognized tax benefits from these investments of $4.5 million and $0.9 million for the three months ended September 30, 2024 and 2023, respectively, and $9.1 million and $2.4 million for the six months ended September 30, 2024 and 2023, respectively, in income tax expense and in Income taxes payable in the Consolidated Statements of Cash Flows. The Company did not recognize any non-tax related activity or have any significant modifications in the investments during the current period.
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The Company is subject to U.S. income taxes, as well as taxes in various other state and local jurisdictions. With the exception of a few states, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2020, although carryforward attributes that were generated prior to 2020 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a future period.
The Company’s effective income tax rate decreased to 20.8 % for the three months ended September 30, 2024 compared to 23.1 % for the prior year quarter. The decrease is primarily due to the effects of pretax book earnings relative to the effects of various permanent items including a decrease in the disallowed executive compensation under Section 162(m) and the recognition of additional HTCs when compared to the prior year.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
From time to time the Company is involved in litigation matters relating to claims arising out of its operations in the normal course of business.
Estimating an amount or range of possible losses resulting from litigation, government actions and other legal proceedings is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve fines, penalties or damages that are discretionary in amount, involve a large number of claimants or significant discretion by regulatory authorities, represent a change in regulatory policy or interpretation, present novel legal theories, are in the early stages of the proceedings, are subject to appeal or could result in a change in business practices. In addition, because most legal proceedings are resolved over extended periods of time, potential losses are subject to change due to, among other things, new developments, changes in legal strategy, the outcome of intermediate procedural and substantive rulings and other parties’ settlement posture and their evaluation of the strength or weakness of their case against us. For these reasons, we are currently unable to predict the ultimate timing or outcome of, or reasonably estimate the possible
losses or a range of possible losses resulting from, any currently pending claims. Based on information currently available, the
Company does not believe that any reasonably possible losses arising from currently pending legal matters will be material to
the Company’s results of operations or financial conditions. However, in light of the inherent uncertainties involved in such matters, an adverse outcome in one or more of these matters could materially and adversely affect the Company’s financial condition, results of operations or cash flows in any particular reporting period.
NOTE 13 – SUBSEQUENT EVENTS
On October 22, 2024, the Company executed a series of asset purchase agreements to acquire $18.8 million in loans receivable, net, at a $1.0 million discount.
Management is not aware of any other significant events occurring subsequent to the balance sheet date that would have a material effect on the financial statements thereby requiring adjustment or disclosure.
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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; 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 2024 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:
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| Three months ended September 30, | Six months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Gross loans receivable | $ | 1,295,870 | $ | 1,379,514 | $ | 1,295,870 | $ | 1,379,514 | |||||||||||||||
Average gross loans receivable (1) | 1,284,326 | 1,394,395 | 1,277,911 | 1,390,609 | |||||||||||||||||||
Net loans receivable (2) | 957,162 | 1,009,202 | 957,162 | 1,009,202 | |||||||||||||||||||
Average net loans receivable (3) | 949,302 | 1,017,773 | 946,188 | 1,015,017 | |||||||||||||||||||
| Expenses as a percentage of total revenue: | |||||||||||||||||||||||
| Provision for credit losses | 35.5 | % | 29.6 | % | 35.3 | % | 31.5 | % | |||||||||||||||
| General and administrative | 35.3 | % | 46.0 | % | 41.3 | % | 47.5 | % | |||||||||||||||
| Interest expense | 8.0 | % | 9.2 | % | 7.8 | % | 9.0 | % | |||||||||||||||
Operating income as a % of total revenue (4) | 29.2 | % | 24.4 | % | 23.4 | % | 21.0 | % | |||||||||||||||
Loan volume (5) | 702,238 | 668,215 | 1,384,435 | 1,389,449 | |||||||||||||||||||
| Net charge-offs as percent of average net loans receivable on an annualized basis | 17.6 | % | 16.1 | % | 17.0 | % | 16.5 | % | |||||||||||||||
| Return on average assets (trailing 12 months) | 7.8 | % | 5.0 | % | 7.8 | % | 5.0 | % | |||||||||||||||
| Return on average equity (trailing 12 months) | 20.1 | % | 15.2 | % | 20.1 | % | 15.2 | % | |||||||||||||||
| Branches opened or acquired (merged or closed), net | (2) | (2) | (3) | (20) | |||||||||||||||||||
| Branches open (at period end) | 1,045 | 1,053 | 1,045 | 1,053 | |||||||||||||||||||
_______________________________________________________
(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 September 30, 2024 versus three months ended September 30, 2023
Gross loans outstanding decreased to $1.296 billion as of September 30, 2024, a 6.1% decrease from the $1.380 billion of gross loans outstanding as of September 30, 2023. During the most recent quarter, gross loans outstanding increased 1.7%, from $1.275 million as of June 30, 2024, compared to a decrease of 1.3%, or $18.5 million, in the comparable quarter of the prior year. During the most recent quarter, we saw improvement in borrowing from new, former and existing customers compared to the same quarter of fiscal year 2024. Specifically, new, former and refinance loan customer volume during the quarter increased 20.8%, 11.5% and 2.9%, respectively, compared to the same quarter of fiscal year 2024. Our customer base decreased by 0.1% during the twelve-month period ended September 30, 2024, compared to a decrease of 9.4% for the comparable period ended September 30, 2023. During the three months ended September 30, 2024 our unique borrowers increased by 3.6% compared to an increase of 1.0% during the three months ended September 30, 2023. We continued to improve the gross yield to expected loss ratio for all new, former and refinance customer originations and will continue to monitor performance indicators and intend to adjust underwriting accordingly.
Net income for the three months ended September 30, 2024 increased to $22.1 million, a 37.6% increase from net income of $16.1 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 $4.9 million, or 14.7%, compared to the same period of the prior year.
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Revenues for the three months ended September 30, 2024 decreased by $5.5 million, or 4.0%, to $131.4 million from $136.9 million for the same period of the prior year. Interest and fee income for the three months ended September 30, 2024 decreased by $3.0 million, or 2.6%, from the same period of the prior year due to a decrease in loans outstanding. The large loan portfolio decreased from 56.7% of the overall portfolio as of September 30, 2023, to 52.1% as of September 30, 2024.
Insurance and other income for the three months ended September 30, 2024 decreased by $2.4 million, or 12.1%, from the same period of the prior year. Insurance income decreased by approximately $3.2 million, or 20.5%, during the three months ended September 30, 2024 when compared to the three months ended September 30, 2023. Insurance commissions decreased primarily due to a decrease in loans where our insurance products are available to our customer. Other income increased by $0.8 million.
The provision for credit losses increased $6.2 million, or 15.3%, to $46.7 million from $40.5 million when comparing the second quarter of fiscal 2025 to the second quarter of fiscal 2024. The table below itemizes the key components of the CECL allowance and provision impact during the quarter.
| CECL Allowance and Provision (Dollars in millions) | Q2 FY 2025 | Q2 FY 2024 | Difference | Reconciliation | ||||||||||||||||||||||
| Beginning Allowance - June 30 | $109.7 | $129.3 | $(19.6) | |||||||||||||||||||||||
| Change due to Growth | $1.8 | $(1.6) | $3.4 | $3.4 | ||||||||||||||||||||||
| Change due to Expected Loss Rate on Performing Loans | $0.8 | $(1.2) | $2.0 | $2.0 | ||||||||||||||||||||||
| Change due to 90 day past due | $2.2 | $2.4 | $(0.2) | $(0.2) | ||||||||||||||||||||||
| Ending Allowance - September 30 | $114.5 | $128.9 | $(14.4) | $5.2 | ||||||||||||||||||||||
| Net Charge-offs | $41.9 | $40.9 | $1.0 | $1.0 | ||||||||||||||||||||||
| Provision | $46.7 | $40.5 | $6.2 | $6.2 | ||||||||||||||||||||||
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 loan growth and an increase in expected loss rates during the quarter. Specifically, expected loss rates were negatively impacted by an increase in our 0-5 month customers, our riskiest customers, during the current quarter.
Net charge-offs for the quarter increased $1.0 million, from $40.9 million in the second quarter of fiscal 2024 to $41.9 million in the second quarter of fiscal 2025. Net charge-offs as a percentage of average net loan receivables on an annualized basis increased from 16.1% in the second quarter of fiscal 2024 to 17.6% in the second quarter of fiscal 2025. The prior year quarter's net charge-offs benefited from a $4.9 million bulk sale of charge-offs from prior periods.
The Company's allowance for credit losses as a percentage of net loans was 12.0% at September 30, 2024 compared to 12.8% at September 30, 2023. Accounts that were 61 days or more past due on a recency basis decreased to 5.6% at September 30, 2024 compared to 5.9% at September 30, 2023.
We experienced an improvement in recency delinquency on accounts at least 90 days past due, improving from 3.7% at September 30, 2023, to 3.4% at September 30, 2024.
G&A expenses for the three months ended September 30, 2024 decreased by $16.6 million, or 26.4%, from the corresponding period of the previous year. As a percentage of revenues, G&A expenses decreased from 46.0% during the three months ended September 30, 2023 to 35.3% during the three months ended September 30, 2024. G&A expenses per average open branch increased by 25.9% when comparing the two three-month periods. The change in G&A expense is explained in greater detail below.
Personnel expense totaled $21.8 million for the three months ended September 30, 2024, a $16.7 million, or 43.4%, decrease over the three months ended September 30, 2023. Salary expense decreased approximately $0.5 million, or 1.7%, during the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023. Our headcount as of September 30, 2024, decreased 6.7% compared to September 30, 2023. Benefit expense decreased approximately $1.1 million, or 12.2%, when comparing the quarterly periods ended September 30, 2024 and 2023. Incentive expense decreased $14.6 million in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024. The decrease in incentive expense is mostly due to a decrease in share-based compensation as a result of an
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$18.5 million reversal of the expense associated with the $20.45 Performance Shares since the Company is no longer expected to achieve the target required to vest.
Occupancy and equipment expense totaled $12.3 million for the three months ended September 30, 2024, a $0.1 million, or 0.7%, decrease over the three months ended September 30, 2023. Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the period.
Advertising expense increased $0.6 million, or 25.9%, in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 due to increased spending on customer acquisition programs.
Amortization of intangible assets totaled $1.0 million for the three months ended September 30, 2024, a $103.5 thousand, or 9.7%, decrease over the three months ended September 30, 2023.
Other expense totaled $8.5 million for the three months ended September 30, 2024, a $0.3 million, or 3.3%, decrease over the three months ended September 30, 2023.
Interest expense for the three months ended September 30, 2024 decreased by $2.1 million, or 16.6%, from the corresponding three months of the previous year. The decrease in interest expense was due to a 14.5% decrease in the average debt outstanding from $580.4 million to $496.0 million and a 0.6% decrease in the effective interest rate from 8.71% to 8.66%. The Company’s debt-to-equity ratio decreased from 1.4:1 at September 30, 2023 to 1.2:1 at September 30, 2024. The Company repurchased and extinguished $11.9 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 $11.5 million during the second quarter of fiscal 2025.
Other key return ratios for the three months ended September 30, 2024 included a 7.8% return on average assets and a return on average equity of 20.1% (both on a trailing 12-month basis), as compared to a 5.0% return on average assets and a return on average equity of 15.2% (both on a trailing 12-month basis) for the three months ended September 30, 2023.
The Company’s effective income tax rate decreased to 20.8% for the three months ended September 30, 2024 compared to 23.1% for the corresponding period of the previous year. The decrease is primarily due to the effects of pretax book earnings relative to the effects of various permanent items including a decrease in the disallowed executive compensation under Section 162(m) and the recognition of additional HTCs when compared to the prior year.
Comparison of six months ended September 30, 2024 versus six months ended September 30, 2023
Gross loans outstanding decreased to $1.296 billion as of September 30, 2024, a 6.1% decrease from the $1.380 billion of gross loans outstanding as of September 30, 2023.
Net income for the six months ended September 30, 2024 increased to $32.1 million from the $25.6 million net income reported 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 $3.0 million, or 5.2%.
Revenues decreased by $15.3 million, or 5.5%, to $260.9 million during the six months ended September 30, 2024 from $276.2 million for the same period of the prior year. The decrease was primarily due to a decrease in average net loans outstanding.
Interest and fee income for the six months ended September 30, 2024 decreased by $8.5 million, or 3.6%, from the same period of the prior year. Net loans outstanding at September 30, 2024 decreased by 5.2% over the balance at September 30, 2023. Average net loans outstanding decreased by 6.8% for the six months ended September 30, 2024 compared to the six-month period ended September 30, 2023.
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Insurance commissions and other income for the six months ended September 30, 2024 decreased by $6.8 million, or 15.9%, from the same period of the prior year. Insurance commissions decreased by approximately $6.3 million, or 19.9%, during the six months ended September 30, 2024 when compared to the six months ended September 30, 2023. Other income decreased by $0.5 million. Sales of our motor club product decreased by $1.2 million as sales opportunities decreased with lower originations. This decrease was offset by a $0.8 million increase in revenue from the Company's tax preparation.
The provision for credit losses increased $5.0 million, or 5.8%, to $92.1 million from $87.1 million when comparing the first two quarters of fiscal 2025 to the first two quarters of fiscal 2024. Net charge-offs as a percentage of average net loans receivable on an annualized basis increased from 16.5% in the first two quarters of fiscal 2024 to 17.0% in the first two quarters of fiscal 2025.
G&A expenses for the six months ended September 30, 2024 decreased by $23.3 million, or 17.8%, from the corresponding period of the previous year. As a percentage of revenues, G&A expenses decreased from 47.5% during the first six months of fiscal 2024 to 41.3% during the first six months of fiscal 2025. G&A expenses per average open branch decreased by 16.9% when comparing the two six-month periods. The change in G&A expense is explained in greater detail below.
Personnel expense totaled $58.7 million for the six months ended September 30, 2024, a $21.5 million, or 26.8%, decrease over the six months ended September 30, 2023. Salary expense decreased approximately $0.8 million, or 1.3%, when comparing the six month periods ended September 30, 2024 and 2023. Our headcount as of September 30, 2024, decreased 6.7% compared to September 30, 2023. Benefit expense decreased approximately $2.0 million, or 11.7%, when comparing the six month periods ended September 30, 2024 and 2023. Incentive expense decreased $18.1 million, mostly due to the $18.5 million reversal of the expense associated with the $20.45 Performance Shares since the Company is no longer expected to achieve the target required to vest.
Occupancy and equipment expense totaled $24.5 million for the six months ended September 30, 2024, a $0.5 million, or 2.2%, decrease over the six months ended September 30, 2023. Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the period. For the six months ended September 30, 2024, the average occupancy and equipment expense per branch totaled $23.4 thousand, a 0.3 thousand, or 1.3% decrease when compared to the six months ended September 30, 2023.
Advertising expense totaled $4.5 million for the six months ended September 30, 2024, a $0.5 million, or 10.3%, decrease over the six months ended September 30, 2023 due to decreased spending on customer acquisition programs.
Amortization of intangible assets totaled $2.0 million for the six months ended September 30, 2024, a $0.2 million, or 7.8%, decrease over the six months ended September 30, 2023.
Other expense totaled $18.1 million for the six months ended September 30, 2024, a $0.6 million, or 3.1% decrease over the six months ended September 30, 2023.
Interest expense for the six months ended September 30, 2024 decreased by $4.6 million, or 18.4%, from the corresponding six months of the previous year. The decrease in interest expense was due to a 16.1% decrease in the average debt outstanding, from $586.5 million to $492.3 million, and a $0.6 million increase in gain recognized on Notes repurchased and extinguished during the six months ended September 30, 2024. The Company repurchased and extinguished $33.7 million of its Notes, net of $0.3 unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $32.5 million, during the six months ended September 30, 2024.
Other key return ratios for the first six months of fiscal 2025 included a 7.8% return on average assets and a return on average equity of 20.1% (both on a trailing 12-month basis), as compared to a 5.0% return on average assets and a return on average equity of 15.2% (both on a trailing 12-month basis) for the first six months of fiscal 2024.
The Company’s effective income tax rate decreased to 21.5% for the six months ended September 30, 2024 compared to 23.0% for the corresponding period of the previous year. The decrease is primarily due to the effects of pretax book earnings relative to the effects of various permanent items including a decrease in the disallowed executive compensation under Section 162(m) and the recognition of additional HTCs when compared to the prior year.
Regulatory Matters
CFPB Rulemaking Initiatives
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On October 5, 2017, the CFPB issued a final rule (the "Rule") imposing limitations on (i) short-term consumer loans, (ii) longer-term consumer installment loans with balloon payments, and (iii) higher-rate consumer installment loans repayable by a payment authorization. The Rule originally required lenders originating short-term loans and longer-term balloon payment loans to evaluate whether each consumer has the ability to repay the loan along with current obligations and expenses (“ability to repay requirements”); however, the ability to repay requirements 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. To the extent that the Rule is reinstated and takes effect, any regulatory changes could have effects beyond those currently contemplated that could further materially and adversely impact our business and operations. Unless rescinded or otherwise amended, the Company will have to comply with the Rule’s payment requirements if it continues to allow consumers to set up future recurring payments online for certain covered loans such that it meets the definition of having a “leveraged payment mechanism” under the Rule. If the payment provisions of the Rule apply, the Company will have to modify its loan payment procedures to comply with the required notices and mandated timeframes set forth in the final rule.
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, while the Order establishes that the CFPB has supervisory authority over the Company, it does not constitute a finding that the Company has engaged in wrongdoing, nor does it require any immediate action on the part of the Company. However, the outcome of such supervision could result in operational changes which could reduce our ability to operate profitably or increase compliance costs. The supervision could also result in additional examinations, investigations, litigation, consent orders or administrative proceedings, which could require considerable resources, time, effort and attention from our management, and may result in operational changes, monetary penalties or declines in our stock price.
See Part I, Item 1, “Business Government Regulation Federal legislation,” for a further discussion of these matters and the federal regulations to which the Company’s operations are subject and Part I, Item 1A, “Risk Factors,” in each case, in the Company’s fiscal 2024 Annual Report for more information regarding these regulatory and related risks.
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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 six months ended September 30, 2024 was $102.1 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.
During the six months ended September 30, 2024, the Company repurchased and extinguished $33.7 million of its Notes, net of
$0.3 million unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $32.5 million.
During fiscal 2024, the Company repurchased and extinguished $15.7 million of its Notes, net of $0.2 million unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $14.1 million.
For the three months ended September 30, 2024 and 2023, the Company recognized a $0.4 million and $0.2 million gain on extinguishment, respectively. For the six months ended September 30, 2024 and 2023, the Company recognized a $1.2 million and $0.6 million gain on extinguishment, respectively. In accordance with ASC 470, the Company recognized the gain on extinguishment as a component of interest expense in the Company's Consolidated Statements of Operations.
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.
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, 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 September 30, 2024, subject to further approval from our Board of Directors, we could repurchase approximately $24.7 million of shares under the terms of our debt facilities. Additional share repurchases can be made subject to compliance with, among other things, applicable restricted payment covenants under the revolving credit facility and the Notes.
The Company has a revolving credit facility with a syndicate of banks. The revolving credit facility provides for revolving borrowings of up to the lesser of (a) the aggregate commitments under the facility and (b) a borrowing base, and it includes $725.8 thousand in outstanding standby letters of credit.
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Subject to a borrowing base formula, the Company may borrow at the rate of one month SOFR plus 0.10% and an applicable margin of 3.5% with a minimum rate of 4.5%. At September 30, 2024, the aggregate commitments under the revolving credit facility were $580.0 million. The Company had $725.8 thousand in outstanding standby letters of credit which include (i) $300.0 thousand related to worker's compensation expiring on December 31, 2024 and (ii) $425.8 thousand related to the Company's investment in captive insurance expiring on April 12, 2025. Both letters of credit automatically extend for one year on their expiration dates. The borrowing base limitation is equal to the product of (a) the Company’s eligible finance receivables, less unearned finance charges, insurance premiums and insurance commissions applicable to such eligible finance receivables, and (b) an advance rate percentage that ranges from 70% to 80% based on a collateral performance indicator, as more completely described below. Further, under the amended and restated revolving credit agreement, the administrative agent has the right to set aside reasonable reserves against the available borrowing base in such amounts as it may deem appropriate, including, without limitation, reserves with respect to certain regulatory events or any increased operational, legal, or regulatory risk of the Company and its subsidiaries.
For the six months ended September 30, 2024 and fiscal year ended March 31, 2024, the Company’s effective interest rate, including the commitment fee and amortization of debt issuance costs, as it relates to the revolving credit facility was 10.1% annualized and 9.9%, respectively. At September 30, 2024, the unused amount available under the revolving credit facility was $313.6 million. Borrowings under the revolving credit facility mature on June 7, 2026.
The Company’s obligations under the revolving credit facility, together with treasury management and hedging obligations owing to any lender under the revolving credit facility or any affiliate of any such lender, are required to be guaranteed by each of the Company’s wholly-owned domestic subsidiaries. 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.
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 on and after December 31, 2020; (ii) a maximum ratio of total debt to consolidated adjusted net worth of 2.25 to 1.0 for the fiscal quarter ended December 31, 2023 and each fiscal quarter thereafter; (iii) a maximum collateral performance indicator of 26.0% as of the end of each calendar month; and (iv) a minimum fixed charges coverage ratio of 2.0 to 1.0 for the fiscal quarters ending December 31, 2023 through December 31, 2024, and 2.25 to 1.0 for each fiscal quarter thereafter, where the ratio for the most recent four consecutive fiscal quarters (other than for the fiscal quarter ended September 30, 2023) must be at least 2.0 to 1.0, in order for the Company to declare dividends or purchase any class or series of its capital stock or other equity.
The collateral performance indicator is equal to the sum of (a) a three-month rolling average rate of receivables at least sixty days past due and (b) an eight-month rolling average net charge-off rate.
The Company was in compliance with these covenants at September 30, 2024 and does not believe that these covenants will materially limit its business and expansion strategy.
The agreement contains events of default including, without limitation, nonpayment of principal, interest or other obligations, violation of covenants, misrepresentation, cross-default to other debt, bankruptcy and other insolvency events, judgments, certain ERISA events, actual or asserted invalidity of loan documentation, invalidity of subordination provisions of subordinated debt, certain changes of control of the Company, and the occurrence of certain regulatory events, (including the entry of any stay, order, judgment, ruling or similar event related to the Company’s or any of its subsidiaries’ originating, holding, pledging, collecting or enforcing its eligible loans receivable that is material to the Company or any subsidiary) which remains unvacated, undischarged, unbonded or unstayed by appeal or otherwise for a period of 60 days from the date of its entry and is reasonably likely to cause a material adverse change.
As of September 30, 2024, the Company's debt outstanding was $504.9 million, net of $1.7 million unamortized debt issuance costs related to the unsecured senior notes payable, and its shareholders' equity was $417.5 million resulting in a debt-to-equity ratio of 1.2:1.0. Management will continue to monitor the Company's debt-to-equity ratio and is committed to maintaining a debt level that will allow the Company to continue to execute its business objectives, while not putting undue stress on its consolidated balance sheet.
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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 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 May 15, 2024, the Board of Directors authorized the Company to repurchase up to $20.0 million of the Company’s outstanding common stock, inclusive of the amount that remained available for repurchase under prior repurchase authorizations. As of September 30, 2024, 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.
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 September 30, 2024, subject to further approval from our Board of Directors, we could repurchase approximately $24.7 million of shares under the terms of our debt facilities. To the extent we have excess capital, we may repurchase stock, if appropriate and as authorized by our Board of Directors.
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.
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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.
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.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The Company’s outstanding debt under its revolving credit facility was $265.6 million at September 30, 2024. Interest on borrowings under this facility is based on the greater of 4.5% or one month SOFR plus 0.10% and an applicable margin of 3.5%. Based on the outstanding balance under the Company's revolving credit facility at September 30, 2024, a change of 1.0% in the interest rate would cause a change in interest expense of approximately $2.7 million on an annual basis.
Item 4. Controls and Procedures
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation, with the participation of our CEO and CFO, as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management, including the CEO and CFO do not expect that our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 12 to the Consolidated Financial Statements included in this report for information regarding legal proceedings.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in Part I, Item 1A of the Company's fiscal 2024 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company's credit agreements contain certain limits on share repurchases. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources."
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 September 30, 2024 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.
The repurchase authorization does not have a stated expiration date. The following table details purchases of the Company's common stock, if any, made by the Company during the three months ended September 30, 2024:
| (a) Total number of shares purchased | (b) Average price paid per share | (c) Total number of shares purchased as part of publicly announced plans or programs | (d) Approximate dollar value of shares that may yet be purchased under the plans or programs | ||||||||||||||||||||
| July 1 through July 31, 2024 | — | $ | — | — | $ | 20,000,000 | |||||||||||||||||
| August 1 through August 31, 2024 | — | — | — | 20,000,000 | |||||||||||||||||||
| September 1 through September 30, 2024 | 85,843 | 116.47 | 85,843 | 10,001,742 | |||||||||||||||||||
| Total for the quarter | 85,843 | $ | 116.47 | 85,843 | |||||||||||||||||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None of our officers or directors entered into terminated
Item 6. Exhibits
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| Exhibit Number | Exhibit Description | Filed Herewith | Incorporated by Reference | |||||||||||||||||
| Form or Registration Number | Exhibit | Filing Date | ||||||||||||||||||
| 3.01 | S-8 | 3.1 | 07-29-03 | |||||||||||||||||
| 3.02 | 10-Q | 3.01 | 11-08-18 | |||||||||||||||||
| 31.01 | * | |||||||||||||||||||
| 31.02 | * | |||||||||||||||||||
| 32.01 | * | |||||||||||||||||||
| 32.02 | * | |||||||||||||||||||
| 101.01 | The following materials from the Company's Quarterly Report for the fiscal quarter ended September 30, 2024, formatted in Inline XBRL: | * | ||||||||||||||||||
| (i) | Consolidated Balance Sheets as of September 30, 2024 and March 31, 2024; | |||||||||||||||||||
| (ii) | Consolidated Statements of Operations for the three and six months ended September 30, 2024 and September 30, 2023; | |||||||||||||||||||
| (iii) | Consolidated Statements of Shareholders' Equity for the three and six months ended September 30, 2024 and September 30, 2023; | |||||||||||||||||||
| (iv) | Consolidated Statements of Cash Flows for the six months ended September 30, 2024 and September 30, 2023; and | |||||||||||||||||||
| (v) | Notes to the Consolidated Financial Statements. | |||||||||||||||||||
| 104.01 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | * | ||||||||||||||||||
| * | Filed herewith. | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| WORLD ACCEPTANCE CORPORATION | |||||||||||
| By: /s/ Scott McIntyre | |||||||||||
| Scott McIntyre | |||||||||||
| Senior Vice President of Accounting | |||||||||||
| Signing on behalf of the registrant and as principal accounting officer | |||||||||||
| Date: | November 7, 2024 | ||||||||||
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