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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, 2023
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
WORLD ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter.)
| | | | | | | | |
South Carolina | | 57-0425114 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| | | | | | | | |
104 S Main Street |
Greenville, | South Carolina | 29601 |
(Address of principal executive offices) |
(Zip Code) |
| | | | | |
(864) | 298-9800 |
(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 |
Common Stock, no par value | WRLD | The NASDAQ Stock Market LLC (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.
| | | | | | | | | | | | | | | | | | | | |
| Large Accelerated filer | ☐ | | 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 October 27, 2023 was 6,224,831.
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, 2023 and March 31, 2023 | |
| Consolidated Statements of Operations for the three and six months ended September 30, 2023 and September 30, 2022 | |
| | |
| Consolidated Statements of Shareholders' Equity for the three and six months ended September 30, 2023 and September 30, 2022 | |
| Consolidated Statements of Cash Flows for the six months ended September 30, 2023 and September 30, 2022 | |
| 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 2024" are to the Company’s fiscal year ending March 31, 2024; all references in this report to "fiscal 2023" are to the Company's fiscal year ended March 31, 2023; all references in this report to "fiscal 2022" are to the Company's fiscal year ended March 31, 2022; and all references to "fiscal 2019" are to the Company’s fiscal year ended March 31, 2019.
GLOSSARY OF DEFINED TERMS
The following terms may be used throughout this Report, including consolidated financial statements and related notes.
| | | | | |
Term | Definition |
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 years since a customer was first serviced by the Company |
DOJ | U.S. Department of Justice |
| |
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 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 |
PART I. FINANCIAL INFORMATION
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) | | | | | | | | | | | |
| September 30, 2023 | | March 31, 2023 |
ASSETS | | | |
Cash and cash equivalents | $ | 18,785,970 | | | $ | 16,508,935 | |
Gross loans receivable | 1,379,513,967 | | | 1,390,015,568 | |
Less: | | | |
Unearned interest, insurance and fees | (370,312,342) | | | (376,674,349) | |
Allowance for credit losses | (128,892,192) | | | (125,552,733) | |
Loans receivable, net | 880,309,433 | | | 887,788,486 | |
| | | |
Operating lease right‐of‐use assets, net | 80,396,803 | | | 81,289,240 | |
| | | |
Property and equipment, net | 23,695,862 | | | 23,926,080 | |
Deferred income taxes, net | 41,857,758 | | | 41,722,361 | |
Other assets, net | 40,125,544 | | | 43,422,669 | |
Goodwill | 7,370,791 | | | 7,370,791 | |
Intangible assets, net | 13,157,700 | | | 15,289,579 | |
| | | |
| | | |
Total assets | $ | 1,105,699,861 | | | $ | 1,117,318,141 | |
| | | |
LIABILITIES & SHAREHOLDERS' EQUITY | | | |
| | | |
Liabilities: | | | |
Senior notes payable | $ | 276,555,903 | | | $ | 307,910,824 | |
Senior unsecured notes payable, net | 284,378,749 | | | 287,352,892 | |
Income taxes payable | 1,946,851 | | | 2,532,766 | |
Operating lease liability | 82,948,163 | | | 83,735,002 | |
| | | |
Accounts payable and accrued expenses | 49,847,400 | | | 50,559,920 | |
| | | |
Total liabilities | 695,677,066 | | | 732,091,404 | |
| | | |
Commitments and contingencies | | | |
| | | |
Shareholders' equity: | | | |
Preferred stock, no par value Authorized 5,000,000, no shares issued or outstanding | — | | | — | |
Common stock, no par value Authorized 95,000,000 shares; issued and outstanding 6,246,818 and 6,231,082 shares at September 30, 2023 and March 31, 2023, respectively | — | | | — | |
Additional paid-in capital | 287,246,730 | | | 288,071,839 | |
Retained earnings | 122,776,065 | | | 97,154,898 | |
| | | |
Total shareholders' equity | 410,022,795 | | | 385,226,737 | |
| | | |
Total liabilities and shareholders' equity | $ | 1,105,699,861 | | | $ | 1,117,318,141 | |
See accompanying notes to consolidated financial statements.
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Six months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
Revenues: | | | | | | | |
Interest and fee income | $ | 116,953,114 | | | $ | 130,461,548 | | | $ | 233,572,028 | | | $ | 260,666,938 | |
Insurance and other income, net | 19,922,207 | | | 20,796,630 | | | 42,627,084 | | | 48,509,528 | |
Total revenues | 136,875,321 | | | 151,258,178 | | | 276,199,112 | | | 309,176,466 | |
| | | | | | | |
Expenses: | | | | | | | |
Provision for credit losses | 40,463,066 | | | 68,620,146 | | | 87,065,078 | | | 154,442,413 | |
General and administrative expenses: | | | | | | | |
Personnel | 38,437,364 | | | 45,294,668 | | | 80,229,451 | | | 90,473,013 | |
Occupancy and equipment | 12,428,506 | | | 13,490,914 | | | 25,048,246 | | | 26,725,611 | |
Advertising | 2,241,707 | | | 1,009,797 | | | 4,991,251 | | | 3,218,192 | |
Amortization of intangible assets | 1,062,563 | | | 1,106,050 | | | 2,131,879 | | | 2,238,154 | |
Other | 8,777,372 | | | 8,792,876 | | | 18,671,889 | | | 18,689,730 | |
Total general and administrative expenses | 62,947,512 | | | 69,694,305 | | | 131,072,716 | | | 141,344,700 | |
| | | | | | | |
Interest expense | 12,543,238 | | | 13,032,418 | | | 24,785,487 | | | 24,206,765 | |
Total expenses | 115,953,816 | | | 151,346,869 | | | 242,923,281 | | | 319,993,878 | |
| | | | | | | |
Income (loss) before income taxes | 20,921,505 | | | (88,691) | | | 33,275,831 | | | (10,817,412) | |
| | | | | | | |
Income tax expense (benefit) | 4,839,086 | | | 548,888 | | | 7,654,664 | | | (1,613,361) | |
| | | | | | | |
Net income (loss) | $ | 16,082,419 | | | $ | (637,579) | | | $ | 25,621,167 | | | $ | (9,204,051) | |
| | | | | | | |
Net income (loss) per common share: | | | | | | | |
Basic | $ | 2.78 | | | $ | (0.11) | | | $ | 4.44 | | | $ | (1.61) | |
Diluted | $ | 2.71 | | | $ | (0.11) | | | $ | 4.33 | | | $ | (1.61) | |
Weighted average common shares outstanding: | | | | | | | |
Basic | 5,780,061 | | | 5,726,469 | | | 5,776,417 | | | 5,733,613 | |
Diluted | 5,938,705 | | | 5,726,469 | | | 5,915,023 | | | 5,733,613 | |
See accompanying notes to consolidated financial statements.
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2023 |
| Common Stock | | | | | | | | |
| Shares | | Additional Paid-in Capital | | Retained Earnings | | | | Total Shareholders' Equity |
Balances at June 30, 2023 | 6,240,497 | | | $ | 290,193,831 | | | $ | 106,693,646 | | | | | $ | 396,887,477 | |
Proceeds from exercise of stock options | 4,203 | | | 360,676 | | | — | | | | | 360,676 | |
| | | | | | | | | |
Stock-based compensation related to restricted stock, net of cancellations ($0) | 2,118 | | | 1,066,500 | | | — | | | | | 1,066,500 | |
Stock-based compensation (reversal) related to stock options | — | | | (4,374,277) | | | — | | | | | (4,374,277) | |
| | | | | | | | | |
Net income | — | | | — | | | 16,082,419 | | | | | 16,082,419 | |
Balances at September 30, 2023 | 6,246,818 | | | $ | 287,246,730 | | | $ | 122,776,065 | | | | | $ | 410,022,795 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2022 |
| Common Stock | | | | | | | | |
| Shares | | Additional Paid-in Capital | | Retained Earnings | | | | Total Shareholders' Equity |
Balances at June 30, 2022 | 6,280,721 | | | $ | 285,126,690 | | | $ | 67,356,437 | | | | | $ | 352,483,127 | |
| | | | | | | | | |
| | | | | | | | | |
Stock-based compensation related to restricted stock, net of cancellations ($0) | 1,000 | | | 3,143,874 | | | — | | | | | 3,143,874 | |
Stock-based compensation related to stock options | — | | | 676,704 | | | — | | | | | 676,704 | |
| | | | | | | | | |
Net loss | — | | | — | | | (637,579) | | | | | (637,579) | |
Balances at September 30, 2022 | 6,281,721 | | | $ | 288,947,268 | | | $ | 66,718,858 | | | | | $ | 355,666,126 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended September 30, 2023 |
| Common Stock | | | | | | | | |
| Shares | | Additional Paid-in Capital | | Retained Earnings | | | | Total Shareholders' Equity |
Balances at March 31, 2023 | 6,231,082 | | | $ | 288,071,839 | | | $ | 97,154,898 | | | | | $ | 385,226,737 | |
Proceeds from exercise of stock options | 11,743 | | | 1,069,970 | | | — | | | | | 1,069,970 | |
| | | | | | | | | |
Stock-based compensation related to restricted stock, net of cancellations ($0) | 3,993 | | | 2,165,851 | | | — | | | | | 2,165,851 | |
Stock-based compensation (reversal) related to stock options | — | | | (4,060,930) | | | — | | | | | (4,060,930) | |
| | | | | | | | | |
Net income | — | | | — | | | 25,621,167 | | | | | 25,621,167 | |
Balances at September 30, 2023 | 6,246,818 | | | $ | 287,246,730 | | | $ | 122,776,065 | | | | | $ | 410,022,795 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Six months ended September 30, 2022 |
| Common Stock | | | | | | | | |
| Shares | | Additional Paid-in Capital | | Retained Earnings | | | | Total Shareholders' Equity |
Balances at March 31, 2022 | 6,348,314 | | | $ | 280,907,085 | | | $ | 92,117,343 | | | | | $ | 373,024,428 | |
Proceeds from exercise of stock options | 4,300 | | | 403,547 | | | — | | | | | 403,547 | |
Common stock repurchases | (73,643) | | | — | | | (14,314,088) | | | | | (14,314,088) | |
Stock-based compensation related to restricted stock, net of cancellations ($0) | 2,750 | | | 6,191,877 | | | — | | | | | 6,191,877 | |
Stock-based compensation related to stock options | — | | | 1,444,759 | | | — | | | | | 1,444,759 | |
Cumulative effect of adoption of ASU 2023-02 | — | | | — | | | (1,880,346) | | | | | (1,880,346) | |
| | | | | | | | | |
| | | | | | | | | |
Net loss | — | | | — | | | (9,204,051) | | | | | (9,204,051) | |
Balances at September 30, 2022 | 6,281,721 | | | $ | 288,947,268 | | | $ | 66,718,858 | | | | | $ | 355,666,126 | |
See accompanying notes to consolidated financial statements.
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) | | | | | | | | | | | |
| Six months ended September 30, |
| 2023 | | 2022 |
Cash flow from operating activities: | | | |
Net income (loss) | $ | 25,621,167 | | | $ | (9,204,051) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| | | |
| | | |
Amortization of intangible assets | 2,131,879 | | | 2,238,154 | |
| | | |
Accrued unearned interest | (1,861,155) | | | (3,205,855) | |
Amortization of deferred loan cost | 6,613,208 | | | 8,007,538 | |
Gain on extinguishment of senior unsecured notes payable | (621,776) | | | — | |
Amortization of debt issuance costs | 995,155 | | | 745,810 | |
Provision for credit losses | 87,065,078 | | | 154,442,413 | |
Depreciation | 3,230,062 | | | 3,016,033 | |
Amortization of finance leases | — | | | 204,552 | |
Gain on asset acquisitions, net of income tax | — | | | (3,708,344) | |
| | | |
Gain on sale of property and equipment | (62,085) | | | (29,962) | |
Deferred income tax benefit | (135,397) | | | (8,579,264) | |
Stock-based compensation (reversal) related to stock option and restricted stock plans, net of cancellations | (1,895,079) | | | 7,636,636 | |
| | | |
| | | |
Change in accounts: | | | |
Other assets, net | 3,303,326 | | | (6,307,587) | |
Income taxes payable | (585,915) | | | (5,067,372) | |
Accounts payable and accrued expenses | (712,520) | | | (3,531,037) | |
Net cash provided by operating activities | 123,085,948 | | | 136,657,664 | |
Cash flows from investing activities: | | | |
Increase in loans receivable, net | (84,338,078) | | | (149,437,154) | |
| | | |
Cash paid for acquisitions, primarily loans | — | | | (22,314,902) | |
| | | |
Purchases of property and equipment | (3,198,907) | | | (3,132,033) | |
| | | |
| | | |
Proceeds from the sale of property and equipment | 261,148 | | | 283,927 | |
Net cash used in investing activities | (87,275,837) | | | (174,600,162) | |
Cash flow from financing activities: | | | |
Borrowings from senior notes payable | 123,726,963 | | | 182,426,096 | |
Payments on senior notes payable | (155,081,884) | | | (128,500,000) | |
Payments for extinguished senior unsecured notes payable | (2,829,375) | | | — | |
| | | |
Debt issuance costs associated with senior unsecured notes payable | — | | | (104,656) | |
Payments for debt extinguishment costs | (8,750) | | | — | |
Debt issuance costs associated with senior notes payable | (410,000) | | | (430,136) | |
Proceeds from exercise of stock options | 1,069,970 | | | 403,547 | |
| | | |
Repayment of finance lease | — | | | (80,067) | |
Repurchase of common stock | — | | | (14,314,088) | |
| | | |
Net cash provided by (used in) financing activities | (33,533,076) | | | 39,400,696 | |
| | | |
Net change in cash and cash equivalents | 2,277,035 | | | 1,458,198 | |
Cash and cash equivalents at beginning of period | 16,508,935 | | | 19,236,322 | |
| | | |
Cash and cash equivalents at end of period | $ | 18,785,970 | | | $ | 20,694,520 | |
| | | |
| | | |
| | | |
Supplemental Disclosures: | | | |
Interest paid during the period | $ | 24,526,424 | | | $ | 24,513,429 | |
Income taxes paid during the period | $ | 7,171,889 | | | $ | 10,772,869 | |
Finance lease right-of-use assets, net transferred to property and equipment, net | $ | — | | | $ | 402,960 | |
See accompanying notes to consolidated financial statements.
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, 2023 and 2022 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, 2023, and the results of operations and cash flows for the periods ended September 30, 2023 and 2022, 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, 2023, included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023, as filed with the SEC. The Company applies the accounting policies contained in Note 1 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended March 31, 2023. 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 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 $5.4 million and $4.9 million as of September 30, 2023 and March 31, 2023, respectively.
From time to time, the Company may sell charged off loans receivable, which are accounted for as a sale in accordance with ASC 860, Transfers and Servicing.
Allowance for credit losses
Refer to Note 4, “Loans Receivable and Allowance for Credit Losses,” for information regarding the Company's CECL allowance model and a description of the methodology it utilizes.
Reclassification
Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications had no impact on previously reported net income (loss) or shareholders' equity, with the exception of the following.
As a result of adopting ASU 2023-02, Investments- Equity Method and Joint Venture (Topic 323), in March 2023 with an effective date of April 1, 2022, previously reported net loss for the three and six months ended September 30, 2022 and shareholders' equity as of September 30, 2022 were immaterially impacted to conform to the modified retrospective application of this newly adopted ASU.
Recently Adopted Accounting Standards
Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. The amendments in this update eliminated the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, for public business entities, the amendments in this update require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The adoption of ASU 2022-02 on April 1, 2023 expanded our write-off disclosures, but had no other impact on the Company’s Consolidated Financial Statements.
Recently Issued Accounting Standards Not Yet Adopted
We reviewed all 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 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, senior notes payable, and senior unsecured notes payable. Loans receivable are originated at prevailing market rates and have an average life of approximately less than 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 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, 2023 | | March 31, 2023 |
| Input Level | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
ASSETS | | | | | | | | | |
Cash and cash equivalents | 1 | | $ | 18,785,970 | | | $ | 18,785,970 | | | $ | 16,508,935 | | | $ | 16,508,935 | |
Loans receivable, net | 3 | | 880,309,433 | | | 880,309,433 | | | 887,788,486 | | | 887,788,486 | |
| | | | | | | | | |
LIABILITIES | | | | | | | | | |
Senior unsecured notes payable | 2 | | 287,360,000 | | | 246,175,565 | | | 290,860,000 | | | 218,127,548 | |
Senior notes payable | 3 | | 276,555,903 | | | 276,555,903 | | | 307,910,824 | | | 307,910,824 | |
There were no significant assets or liabilities measured at fair value on a non-recurring basis as of September 30, 2023 or March 31, 2023.
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, 2023 | March 31, 2023 | | | | |
0 to 5 months | $ | 78,905,707 | | $ | 81,803,668 | | | | | |
6 to 17 months | 98,860,782 | | 133,650,188 | | | | | |
18 to 35 months | 151,877,424 | | 135,396,187 | | | | | |
36 to 59 months | 226,824,412 | | 244,414,255 | | | | | |
60+ months | 822,888,964 | | 792,189,216 | | | | | |
| | | | | | |
Tax advance loans | 156,678 | | 2,562,054 | | | | | |
Total gross loans | $ | 1,379,513,967 | | $ | 1,390,015,568 | | | | | |
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. On an as needed basis, qualitative information may be taken into consideration if new information arises related to the customer’s ability to repay the loan. 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.
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, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | 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 | | $ | 1,169,455,712 | | $ | 72,966,809 | | $ | 4,066,741 | | $ | 113,411 | | $ | 22,705 | | $ | 6,064 | | | $ | 1,246,631,442 | | | |
30 - 60 days past due | | 44,868,140 | | 6,430,788 | | 458,895 | | 53,300 | | 24,474 | | 2,567 | | | 51,838,164 | | | |
61 - 90 days past due | | 26,627,657 | | 3,480,427 | | 143,063 | | 5,984 | | 9,473 | | 4,000 | | | 30,270,604 | | | |
91 or more days past due | | 42,123,820 | | 8,031,158 | | 446,165 | | 13,578 | | 2,358 | | — | | | 50,617,079 | | | |
Total | | $ | 1,283,075,329 | | $ | 90,909,182 | | $ | 5,114,864 | | $ | 186,273 | | $ | 59,010 | | $ | 12,631 | | | $ | 1,379,357,289 | | | |
| | | | | | | | | | | |
| | Term Loans By Origination | | | |
Tax advance 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 | | $ | 33,367 | | $ | 1,850 | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | 35,217 | | | |
30 - 60 days past due | | 34,884 | | — | | — | | — | | — | | — | | | 34,884 | | | |
61 - 90 days past due | | 27,612 | | 188 | | — | | — | | — | | — | | | 27,800 | | | |
91 or more days past due | | 58,777 | | — | | — | | — | | — | | — | | | 58,777 | | | |
Total | | $ | 154,640 | | $ | 2,038 | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | 156,678 | | | |
Total gross loans | | | | | | | | | $ | 1,379,513,967 | | | |
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, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 1,200,504,088 | | $ | 62,076,656 | | $ | 1,998,218 | | $ | 148,662 | | $ | 23,046 | | $ | 6,863 | | | $ | 1,264,757,533 | | | |
30 - 60 days past due | | 40,791,746 | | 4,689,867 | | 160,956 | | 42,700 | | 8,504 | | 2,988 | | | 45,696,761 | | | |
61 - 90 days past due | | 26,319,250 | | 2,572,733 | | 92,088 | | 40,281 | | 884 | | — | | | 29,025,236 | | | |
91 or more days past due | | 41,832,821 | | 5,944,645 | | 160,361 | | 29,494 | | 4,430 | | 2,233 | | | 47,973,984 | | | |
Total | | $ | 1,309,447,905 | | $ | 75,283,901 | | $ | 2,411,623 | | $ | 261,137 | | $ | 36,864 | | $ | 12,084 | | | $ | 1,387,453,514 | | | |
| | | | | | | | | | | |
| | Term Loans By Origination | | | |
Tax advance 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 | | $ | 1,932,607 | | $ | 3,524 | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | 1,936,131 | | | |
30 - 60 days past due | | 609,844 | | 736 | | — | | — | | — | | — | | | 610,580 | | | |
61 - 90 days past due | | — | | 4,845 | | — | | — | | — | | — | | | 4,845 | | | |
91 or more days past due | | 409 | | 10,089 | | — | | — | | — | | — | | | 10,498 | | | |
Total | | $ | 2,542,860 | | $ | 19,194 | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | 2,562,054 | | | |
Total gross loans | | | | | | | | | $ | 1,390,015,568 | | | |
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, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 1,148,997,074 | | $ | 63,198,145 | | $ | 3,210,332 | | $ | 36,714 | | $ | 12,494 | | $ | 296 | | | $ | 1,215,455,055 | | | |
30 - 60 days past due | | 49,700,949 | | 5,031,320 | | 205,934 | | 1,533 | | — | | 3,082 | | | 54,942,818 | | | |
61 - 90 days past due | | 32,676,887 | | 4,570,414 | | 146,508 | | 2,939 | | 1,218 | | — | | | 37,397,966 | | | |
91 or more days past due | | 51,700,417 | | 18,109,303 | | 1,552,092 | | 145,088 | | 45,298 | | 9,252 | | | 71,561,450 | | | |
Total | | $ | 1,283,075,327 | | $ | 90,909,182 | | $ | 5,114,866 | | $ | 186,274 | | $ | 59,010 | | $ | 12,630 | | | $ | 1,379,357,289 | | | |
| | | | | | | | | | | |
| | Term Loans By Origination | | | |
Tax advance 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 | | $ | 21,277 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | 21,277 | | | |
30 - 60 days past due | | 24,279 | | — | | — | | — | | — | | — | | | 24,279 | | | |
61 - 90 days past due | | 27,076 | | — | | — | | — | | — | | — | | | 27,076 | | | |
91 or more days past due | | 82,008 | | 2,038 | | — | | — | | — | | — | | | 84,046 | | | |
Total | | $ | 154,640 | | $ | 2,038 | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | 156,678 | | | |
Total gross loans | | | | | | | | | $ | 1,379,513,967 | | | |
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, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 1,174,237,761 | | $ | 53,652,011 | | $ | 1,554,144 | | $ | 64,233 | | $ | 5,142 | | $ | 1,491 | | | $ | 1,229,514,782 | | | |
30 - 60 days past due | | 47,346,331 | | 3,661,493 | | 77,857 | | 6,714 | | — | | — | | | 51,092,395 | | | |
61 - 90 days past due | | 33,012,804 | | 3,030,052 | | 44,129 | | 7,643 | | — | | — | | | 36,094,628 | | | |
91 or more days past due | | 54,851,010 | | 14,940,345 | | 735,493 | | 182,547 | | 31,721 | | 10,593 | | | 70,751,709 | | | |
Total | | $ | 1,309,447,906 | | $ | 75,283,901 | | $ | 2,411,623 | | $ | 261,137 | | $ | 36,863 | | $ | 12,084 | | | $ | 1,387,453,514 | | | |
| | | | | | | | | | | |
| | Term Loans By Origination | | | |
Tax advance 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 | | $ | 1,932,607 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | 1,932,607 | | | |
30 - 60 days past due | | 609,844 | | — | | — | | — | | — | | — | | | 609,844 | | | |
61 - 90 days past due | | — | | — | | — | | — | | — | | — | | | — | | | |
91 or more days past due | | 409 | | 19,194 | | — | | — | | — | | — | | | 19,603 | | | |
Total | | $ | 2,542,860 | | $ | 19,194 | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | 2,562,054 | | | |
Total gross loans | | | | | | | | | $ | 1,390,015,568 | | | |
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:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Six months ended September 30, |
| Gross Charge-offs by Origination | | | Gross Charge-offs by Origination | |
Origination by Calendar Year | Loans | Tax advance loans | Total | | Loans | Tax advance loans | Total |
2018 and prior | $ | 2,721 | | $ | — | | $ | 2,721 | | | $ | 7,728 | | $ | — | | $ | 7,728 | |
2019 | 4,811 | | — | | 4,811 | | | 17,538 | | — | | 17,538 | |
2020 | 40,176 | | — | | 40,176 | | | 144,463 | | — | | 144,463 | |
2021 | 1,703,191 | | — | | 1,703,191 | | | 4,646,557 | | — | | 4,646,557 | |
2022 | 33,423,002 | | 621 | | 33,423,623 | | | 80,819,818 | | 5,248 | | 80,825,066 | |
2023 | 15,457,320 | | 1,138,748 | | 16,596,068 | | | 15,710,532 | | 1,141,748 | | 16,852,280 | |
Total | $ | 50,631,221 | | $ | 1,139,369 | | $ | 51,770,590 | | | $ | 101,346,636 | | $ | 1,146,996 | | $ | 102,493,632 | |
| | | | | | | |
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, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Six months ended September 30, | | | | |
| Gross Charge-offs by Origination | | | Gross Charge-offs by Origination | | | |
Origination by Calendar Year | Loans | Tax advance loans | Total | | Loans | Tax advance loans | Total | | | | |
2017 and prior | $ | 3,783 | | $ | — | | $ | 3,783 | | | $ | 9,446 | | $ | — | | $ | 9,446 | | | | | |
2018 | 6,739 | | — | | 6,739 | | | 20,594 | | — | | 20,594 | | | | | |
2019 | 37,082 | | — | | 37,082 | | | 175,745 | | — | | 175,745 | | | | | |
2020 | 640,303 | | — | | 640,303 | | | 2,150,295 | | — | | 2,150,295 | | | | | |
2021 | 40,824,718 | | 5,459 | | 40,830,177 | | | 106,691,918 | | 19,622 | | 106,711,540 | | | | | |
2022 | 29,602,144 | | 1,962,912 | | 31,565,056 | | | 31,251,886 | | 2,030,016 | | 33,281,902 | | | | | |
Total | $ | 71,114,769 | | $ | 1,968,371 | | $ | 73,083,140 | | | $ | 140,299,884 | | $ | 2,049,638 | | $ | 142,349,522 | | | | | |
| | | | | | | | | | | |
The allowance for credit losses is applied to amortized cost, which is defined as the amount at which a financing receivable is originated, and net of deferred fees and costs, collection of cash, and charge-offs. Amortized cost also includes interest earned but not collected.
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 looked 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 uses 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. All loans 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. Loans are charged-off at the earlier of 120 days past due on a recency basis or when deemed uncollectible. 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, FICO scores, percent of loan balances that are paying and percentage of gross loans that are acquired loans. From time to time, the Company will make changes, as deemed appropriate, to our new borrower underwriting guidance. As a result, management also considers whether a change in our new borrower underwriting might suggest a change is needed to the allowance for credit losses. If a change is determined necessary, then the Company has elected to immediately revert back to historical experience past the forecast period.
Due to the short term nature of the loan portfolio, forecasted changes in macroeconomic variables such as unemployment do not have a significant impact on loans outstanding at the end of a particular reporting period. 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 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 following table presents a roll forward of the allowance for credit losses for the three and six months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Six months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Beginning balance | $ | 129,342,988 | | | $ | 155,650,679 | | | $ | 125,552,733 | | | $ | 134,242,862 | |
| | | | | | | |
Provision for credit losses | 40,463,066 | | | 68,620,146 | | | 87,065,078 | | | 154,442,413 | |
Charge-offs | (51,770,590) | | | (73,083,140) | | | (102,493,632) | | | (142,349,522) | |
Recoveries1 | 10,856,728 | | | 4,704,415 | | | 18,768,013 | | | 9,556,347 | |
Net charge-offs | (40,913,862) | | | (68,378,725) | | | (83,725,619) | | | (132,793,175) | |
Ending Balance | $ | 128,892,192 | | | $ | 155,892,100 | | | $ | 128,892,192 | | | $ | 155,892,100 | |
The following table is an aging analysis on a recency basis at amortized cost of the Company’s gross loans receivable at September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Days Past Due - Recency Basis | | | |
Customer Tenure | | Current | 30 - 60 | 61 - 90 | Over 90 | Total Past Due | Total Loans | |
0 to 5 months | | $ | 61,025,284 | | $ | 5,443,334 | | $ | 4,574,581 | | $ | 7,862,508 | | $ | 17,880,423 | | $ | 78,905,707 | | |
6 to 17 months | | 83,064,106 | | 5,500,634 | | 3,587,259 | | 6,708,783 | | 15,796,676 | | 98,860,782 | | |
18 to 35 months | | 133,577,220 | | 6,989,457 | | 4,294,465 | | 7,016,282 | | 18,300,204 | | 151,877,424 | | |
36 to 59 months | | 203,744,178 | | 9,098,337 | | 5,316,135 | | 8,665,762 | | 23,080,234 | | 226,824,412 | | |
60+ months | | 765,220,654 | | 24,806,402 | | 12,498,164 | | 20,363,744 | | 57,668,310 | | 822,888,964 | | |
| | | | | | | | |
Tax advance loans | | 35,217 | | 34,884 | | 27,800 | | 58,777 | | 121,461 | | 156,678 | | |
Total gross loans | | 1,246,666,659 | | 51,873,048 | | 30,298,404 | | 50,675,856 | | 132,847,308 | | 1,379,513,967 | | |
Unearned interest, insurance and fees | | (336,723,807) | | (10,890,630) | | (8,467,754) | | (14,230,151) | | (33,588,535) | | (370,312,342) | | |
Total net loans | | $ | 909,942,852 | | $ | 40,982,418 | | $ | 21,830,650 | | $ | 36,445,705 | | $ | 99,258,773 | | $ | 1,009,201,625 | | |
| | | | | | | | |
Percentage of period-end gross loans receivable | | | 3.8% | 2.2% | 3.7% | 9.6% | | |
The following table is an aging analysis on a recency basis at amortized cost of the Company’s gross loans receivable at March 31, 2023:
1 Recoveries during the six months ended September 30, 2023 include $12.5 million in proceeds related to the sales of charge-offs, for which $4.9 million relates to bulk sales of charge-offs from prior periods and $7.6 million relates to recurring sales of charge-offs. This gain on sale is included as a component of Provision for credit losses in the Consolidated Statements of Operations. There were no sales of charge-offs during the six months ended September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Days Past Due - Recency Basis | | | |
Customer Tenure | | Current | 30 - 60 | 61 - 90 | Over 90 | Total Past Due | Total Loans | |
0 to 5 months | | $ | 64,615,314 | | $ | 5,451,276 | | $ | 4,407,751 | | $ | 7,329,327 | | $ | 17,188,354 | | $ | 81,803,668 | | |
6 to 17 months | | 113,946,833 | | 6,527,355 | | 4,655,441 | | 8,520,559 | | 19,703,355 | | 133,650,188 | | |
18 to 35 months | | 120,125,821 | | 5,336,994 | | 3,727,331 | | 6,206,041 | | 15,270,366 | | 135,396,187 | | |
36 to 59 months | | 223,734,062 | | 8,070,011 | | 4,839,000 | | 7,771,182 |