Caution 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 ofThe 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, as well as those identified by the words "anticipate," "estimate," "intend," "plan," "expect," "believe," "may," "will," "should," "would," "could," "continue," "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: the ongoing impact of the COVID-19 pandemic and the mitigation efforts by governments and related effects on our financial condition, business operations and liquidity, our customers, our employees, and the overall economy; recently enacted, proposed or future legislation and the manner in which it is implemented; changes in theU.S. tax code; the nature and scope of regulatory authority, particularly discretionary authority, that may be exercised by regulators, including, but not limited to, theSecurities and Exchange Commission (SEC),Department of Justice ,U.S. Consumer Financial Protection Bureau , and individual state regulators having jurisdiction over the Company; the unpredictable nature of regulatory 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; 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, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption; 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 most recent annual report on Form 10-K for the fiscal year endedMarch 31, 2021 filed with theSEC , and in the Company's other reports filed with, or furnished to, theSEC from time to time. The Company does not undertake any obligation to update any forward-looking statements it may make.
Operating results
The following table sets forth certain information derived from the Company's consolidated statements of operations and balance sheets (unaudited), as well as operating data and ratios, for the periods indicated: 32
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Table of Contents Three months ended December 31, Nine months ended December 31, 2021 2020 2021 2020 (Dollars in thousands) Gross loans receivable$ 1,606,111 $ 1,264,530 $ 1,606,111 $ 1,264,530 Average gross loans receivable (1) 1,493,234 1,175,251 1,319,026 1,133,065 Net loans receivable (2) 1,172,679 929,474 1,172,679 929,474 Average net loans receivable (3) 1,094,014 865,480 970,992 839,491 Expenses as a percentage of total revenue: Provision for credit losses 38.0 % 22.0 % 30.9 % 21.3 % General and administrative 50.0 % 59.5 % 53.5 % 59.3 % Interest expense 6.8 % 5.6 % 5.4 % 4.9 % Operating income as a % of total revenue (4) 12.0 % 18.5 % 15.6 % 19.5 % Loan volume (5) 976,118 782,995 2,531,815 1,893,502 Net charge-offs as percent of average net loans receivable on an annualized basis 13.8 % 11.6 % 12.0 % 14.7 % Return on average assets (trailing 12 months) 7.4 % 6.6 % 7.4 % 6.6 % Return on average equity (trailing 12 months) 20.1 % 17.4 % 20.1 % 17.4 % Branches opened or acquired (merged or closed), net - (2) (3) (13) Branches open (at period end) 1,202 1,230 1,202 1,230
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(1) Average gross loans receivable has been determined by averaging month-end gross loans receivable over the indicated period, excluding tax advances. (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 tax advances. (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
Gross loans outstanding increased to$1.61 billion as ofDecember 31, 2021 , a 27.0% increase from the$1.26 billion of gross loans outstanding as ofDecember 31, 2020 . During the three months endedDecember 31, 2021 our unique borrowers increased by 7.7% compared to a decrease of 8.4% during the three months endedDecember 31, 2020 . Net income for the three months endedDecember 31, 2021 decreased to$7.3 million , a 49.4% decrease from$14.5 million for the same period of the prior year. Operating income (revenue less provision for credit losses and general and administrative expenses) decreased by$6.3 million , or 26.1%. Revenues for the three months endedDecember 31, 2021 increased by$17.6 million , or 13.5%, to$148.6 million from$130.9 million for the same period of the prior year. The increase was primarily due to an increase in average net loans outstanding. 33 -------------------------------------------------------------------------------- Table of Contents Interest and fee income for the three months endedDecember 31, 2021 increased by$13.3 million , or 11.5%, from the same period of the prior year. Interest and fee income was impacted by a shift to larger lower interest rate loans. Net loans outstanding atDecember 31, 2021 increased by 26.2% over the balance atDecember 31, 2020 . Average net loans outstanding increased by 26.4% for the three months endedDecember 31, 2021 compared to the three-month period endedDecember 31, 2020 . Insurance commissions and other income for the three months endedDecember 31, 2021 increased by$4.4 million , or 27.2%, from the same period of the prior year. Insurance commissions increased by approximately$2.9 million , or 24.9%, during the three months endedDecember 31, 2021 when compared to the three months endedDecember 31, 2020 . Insurance revenue increased due to a shift to larger loans during the quarter. The sale of insurance products are limited to large loans in several of our states. The large loan portfolio increased from 39.5% of the overall portfolio as ofDecember 31, 2020 to 49.5% as ofDecember 31, 2021 . Other income increased by$1.5 million . Sales of our motor club product increased by$1.5 million as sales opportunities increased, similar to our insurance products, with the increase in large loan originations. OnApril 1, 2020 , the Company replaced its incurred loss methodology with a current expected credit loss ("CECL") methodology to accrue for expected losses. The provision for credit losses increased$27.6 million , or 95.6%, to$56.5 million from$28.9 million when comparing the third quarter of fiscal 2022 to the third quarter of fiscal 2021. The provision for credit losses increased during the most recent quarter primarily due to significant loan growth and the increase in loans 90 days past due. The same quarter in the prior year also included a$6.5 million release of a pandemic related reserve. Net charge-offs as a percentage of average net loans receivable on an annualized basis increased from 11.6% in the third quarter of fiscal 2021 to 13.8% in the third quarter of fiscal 2022. The increases in delinquency and charge-offs were expected due to the increase in new and shorter tenured customers in the most recent fiscal second and third quarters. The Company's allowance for credit losses as a percentage of net loans was 11.4% atDecember 31, 2021 compared to 12.2% atDecember 31, 2020 . Accounts that were 61 days or more past due on a recency basis were 6.4% of the portfolio atDecember 31, 2021 and 5.2% of the portfolio atDecember 31, 2020 . Accounts that were 61 days or more past due on a contractual basis were 7.8% of the portfolio atDecember 31, 2021 compared to 6.6% of the portfolio atDecember 31, 2020 . G&A expenses for the three months endedDecember 31, 2021 decreased by$3.6 million , or 4.7%, from the corresponding period of the previous year. As a percentage of revenues, G&A expenses decreased from 59.5% during the three months endedDecember 31, 2020 to 50.0% during the three months endedDecember 31, 2021 . G&A expenses per average open branch decreased by 2.4% when comparing the two three-month periods. The change in G&A expense is explained in greater detail below. Personnel expense totaled$44.4 million for the three months endedDecember 31, 2021 , a$2.3 million , or 5.0%, decrease over the three months endedDecember 31, 2020 . Salary expense decreased approximately$0.1 million , or 0.2%, when comparing the two quarterly periods endedDecember 31 , 2021and 2020. Our headcount as ofDecember 30, 2021 , decreased 5.9% compared toDecember 30, 2020 . Benefit expense decreased approximately$2.1 million , or 20.5%, when comparing the quarterly periods endedDecember 31, 2021 and 2020. Incentive expense decreased$0.2 million , or 1.8%. Occupancy and equipment expense totaled$12.6 million for the three months endedDecember 31, 2021 , a$2.4 million , or 16.2%, decrease over the three months endedDecember 31, 2020 . Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the period. For the three months endedDecember 31, 2021 , the average occupancy and equipment expense per branch decreased to$10.5 thousand , down from$12.2 thousand for the three months endedDecember 31, 2020 . The prior year includes a$2.1 million write down of signage as a result of rebranding our offices in the prior year quarter and we did not have any similar expense this year. Advertising expense remained flat in the third quarter of fiscal 2022 compared to the second quarter of fiscal 2021. The Company anticipated an increase in demand during the quarter and increased marketing accordingly. Marketing spend remained neutral as the Company shifted to lower cost channels.
Amortization of intangible assets totals
Other expenses totaled
34 -------------------------------------------------------------------------------- Table of Contents Interest expense for the three months endedDecember 31, 2021 increased by$2.9 million , or 39.2%, from the corresponding three months of the previous year. The increase in interest expense was due to a 34.7% increase in the average debt outstanding, from$475.7 million to$640.8 million , and a 3.7% increase in the effective interest rate from 6.1% to 6.3%. The Company's senior debt-to-equity ratio increased from at 1.5:1 atDecember 31, 2020 to 1.8:1 atDecember 31, 2021 . Other key return ratios for the three months endedDecember 31, 2021 included a 7.4% return on average assets and a return on average equity of 20.1% (both on a trailing 12-month basis), as compared to a 6.6% return on average assets and a return on average equity of 17.4% (both on a trailing 12-month basis) for the three months endedDecember 31, 2020 . The Company's effective income tax rate decreased to 5.1% for the three months endedDecember 31, 2021 compared to 14.3% for the corresponding period of the previous year. The decrease is primarily due to the permanent tax benefit related to non-qualified stock option exercises and vesting of restricted stock as discrete items in the current quarter, the recognition of Federal Historic Tax Credits in the current quarter and lower than estimated Federal Historic Tax Credits for fiscal 2020 with the provision to return adjustment being treated as a discrete item in the prior year quarter. This was partially offset by an increase in the disallowed executive compensation under Section 162(m) in the current quarter.
Comparison of the nine months ended
Gross loans outstanding increased to$1.61 billion as ofDecember 31, 2021 , a 27.0% increase from the$1.26 billion of gross loans outstanding as ofDecember 31, 2020 . During the nine months endedDecember 31, 2021 our number of unique borrowers in the portfolio increased by 15.4% compared to a decrease of 10.2% during the nine months endedDecember 31, 2020 . Net income for the nine months endedDecember 31, 2021 decreased to$35.5 million , a 18.1% decrease from the$43.4 million reported for the same period of the prior year. Operating income (revenue less provision for credit losses and general and administrative expenses) decreased by$9.1 million , or 12.4%. Revenues increased by$36.8 million , or 9.7%, to$416.1 million during the nine months endedDecember 31, 2021 from$379.3 million for the same period of the prior year. The increase was primarily due to an increase in average net loans outstanding. Interest and fee income for the nine months endedDecember 31, 2021 increased by$21.8 million , or 6.5%, from the same period of the prior year. Interest and fee income was impacted by a shift to larger, lower interest rate loans. Net loans outstanding atDecember 31, 2021 increased by 26.2% over the balance atDecember 31, 2020 . Average net loans outstanding increased by 15.7% for the nine months endedDecember 31, 2021 compared to the nine-month period endedDecember 31, 2020 . Insurance commissions and other income for the nine months endedDecember 31, 2021 increased by$15.0 million , or 32.9%, from the same period of the prior year. Insurance commissions increased by approximately$8.0 million , or 24.6%, during the nine months endedDecember 31, 2021 when compared to the nine months endedDecember 31, 2020 . Insurance commissions benefited from the shift to larger loans mentioned above. Other income increased by$7.0 million . Sales of our motor club product increased by$6.1 million as sales opportunities increased, similar to our insurance products, with the increase in large loan originations. Revenue from our tax preparation business increased by$1.3 million during the first three quarters of fiscal 2022 from$3.0 million during the first three quarters of fiscal 2021, or 43.5%. This was largely driven by a delay in the individual income tax filing season which resulted in a higher number of tax preparations being completed in the first quarter of fiscal 2022. OnApril 1, 2020 , the Company replaced its incurred loss methodology with a current expected credit loss ("CECL") methodology to accrue for expected losses. The provision for credit losses increased$48.2 million , or 59.7%, to$128.8 million from$80.6 million when comparing the first three quarters of fiscal 2022 to the first three quarters of fiscal 2021. The provision increased during the first three quarters of the year primarily due to significant loan growth during the period. CECL requires expected losses to be accrued at the time of origination. This increase was offset by a$5.0 million decrease in net charge-offs. Net charge-offs as a percentage of average net loans receivable on an annualized basis decreased from 14.7% in the first three quarters of fiscal 2021 to 12.0% in the first three quarters of fiscal 2022. The charge-off rate during the period benefited from the increased average tenure and reduced credit risk of customers in the portfolio as ofMarch 31, 2021 . We are experiencing lower losses on loans that were in the portfolio as ofJanuary 1, 2021 than initially predicted under our CECL methodology throughDecember 31, 2021 .
General and administrative expenses for the nine months ended
35 -------------------------------------------------------------------------------- Table of Contents fiscal 2021 to 53.5% during the first nine months of fiscal 2022. G&A expenses per average open branch increased by 1.7% when comparing the two nine-month periods. The change in G&A expense is explained in greater detail below. Personnel expense totaled$136.4 million for the nine months endedDecember 31, 2021 , a$1.8 million , or 1.3%, decrease over the nine months endedDecember 31, 2020 . Salary expense decreased approximately$2.1 million , or 2.3%, when comparing the two nine month periods endedDecember 31, 2021 and 2020. Our headcount as ofDecember 31, 2021 , decreased 5.9% compared toDecember 31, 2020 . Benefit expense increased approximately$0.1 million , or 0.3%, when comparing the nine month periods endedDecember 31, 2021 and 2020. Incentive expense increased$1.3 million , or 3.9% due to an increase in branch level bonuses offset by a decrease in share-based compensation. Occupancy and equipment expense totaled$39.2 million for the nine months endedDecember 31, 2021 , a$2.6 million , or 6.2%, decrease over the nine months endedDecember 31, 2020 . Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the period. For the nine months endedDecember 31, 2021 , the average occupancy and equipment expense per branch decreased to$32.5 thousand , down from$33.8 thousand for the nine months endedDecember 31, 2020 . The prior year includes$1.6 million more in write down of signage as a result of rebranding our offices when comparing the two nine-month periods. Advertising expense totaled$15.9 million for the nine months endedDecember 31, 2021 , a$1.4 million , or 9.5%, increase over the nine months endedDecember 31, 2020 . The Company anticipated an increase in demand during the period and increased marketing spend accordingly. Amortization of intangible assets totaled$3.7 million for the nine months endedDecember 31, 2021 , a$309.4 thousand , or 7.6%, decrease over the nine months endedDecember 31, 2020 . Other expense totaled$27.4 million for the nine months endedDecember 31, 2021 , a$1.1 million , or 4.3%, increase over the nine months endedDecember 31, 2020 . Interest expense for the nine months endedDecember 31, 2021 increased by$3.6 million , or 19.3%, from the corresponding nine months of the previous year. The increase in interest expense was due to a 25.8% increase in the average debt outstanding, from$421.2 million to$530.0 million offset by a 5.7% decrease in the effective interest rate from 5.8% to 5.5%. Other key return ratios for the first nine months of fiscal 2022 included a 7.4% return on average assets and a return on average equity of 20.1% (both on a trailing 12-month basis), as compared to a 6.6% return on average assets and a return on average equity of 17.4% (both on a trailing 12-month basis) for the first nine months of fiscal 2021. The Company's effective income tax rate decreased to 16.1% for the nine months endedDecember 31, 2021 compared to 21.3% for the corresponding period of the previous year. The decrease is primarily due to the permanent tax benefit related to non-qualified stock option exercises and vesting of restricted stock in the current period, the recognition of Federal Historic Tax Credits in the current period and lower than estimated Federal Historic Tax Credits for fiscal 2020 with the provision to return adjustment recorded in the prior year. This was partially offset by an increase in the disallowed executive compensation under Section 162(m) in the current period and the recognition of the permanent tax benefit related to the exclusion of life insurance proceeds in the prior year. Regulatory Matters CFPB Rulemaking Initiatives OnOctober 5, 2017 , theCFPB 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 requires 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"). 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"). The the Company does not believe that it will have a material impact on the Company's existing lending procedures, because the Company currently does not make short-term consumer loans or longer-term consumer installment loans with balloon payments that would subject the Company to the Rule's ability to repay requirements. The Company also currently underwrites all its loans (including those secured by a vehicle title that would fall within the scope of these proposals) by reviewing the customer's ability to repay based on the Company's standards. However, implementation of 36 -------------------------------------------------------------------------------- Table of Contents the Rule's payment requirements may require changes to the Company's practices and procedures for such loans, which could 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. Further, onJune 6, 2019 , theCFPB amended the Rule to delay theAugust 19, 2019 compliance date for part of the Rule's provisions, including the ability to repay requirements. In addition, onFebruary 6, 2019 , theCFPB issued a notice of proposed rulemaking proposing to rescind provisions of the Rule governing the ability to repay requirements. There were also lawsuits filed challenging various provisions of these Rules, as well as the constitutionality of theCFPB's structure, and the court stayed the compliance date of the Rule while the litigation was pending. TheSupreme Court handed down its decision on the constitutional challenge inJune 2020 , and inJuly 2020 , theCFPB issued a final Rule, which revoked the underwriting provisions of the prior Rule. However, additional lawsuits were filed challenging the payment provisions of the Rule issued in 2020. InAugust 2021 , the court found for theCFPB and dismissed the remaining challenges. As a result, the compliance date for the payments provisions of the Rule is nowJune 13, 2022 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. 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 the Company's Form 10-K for the year endedMarch 31, 2021 for more information regarding these regulatory and related risks.
Cash 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 nine months endedDecember 31, 2021 was$171.1 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. OnSeptember 27, 2021 , we issued$300 million in aggregate principal amount of 7.0% senior notes due 2026 (the "Notes"). 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 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 onMay 1 andNovember 1 of each year, commencingMay 1, 2022 . At any time prior toNovember 1, 2023 , the Company may redeem 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 afterNovember 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 toNovember 1, 2023 , the Company may use 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 of this offering to repay a portion of the indebtedness outstanding under our revolving credit facility and for general corporate purposes.
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. 37
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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. Under the terms of our revolving credit facility and the Notes we have, subject to certain restrictions, the ability to make share repurchases of up to$90.0 million throughJune 30, 2022 . 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 a$300,000 letter of credit under a$1.5 million subfacility. Subject to a borrowing base formula, the Company may borrow at the rate of LIBOR plus 3.5% with a minimum rate of 4.5%. The Company's amended and restated revolving credit agreement provides procedures for determining a replacement or alternative rate in the event LIBOR is unavailable or discontinued or if the administrative agent elects to replace LIBOR prior to its discontinuation. There can be no assurances as to whether such replacement or alternative rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the phasing out of LIBOR and will work to limit any negative impacts that could result during the transition away from LIBOR. AtDecember 31, 2021 , the aggregate commitments under the revolving credit facility were$685.0 million . The$300,000 letter of credit outstanding under the subfacility expired onDecember 31, 2021 ; however, it automatically extends for one year on the expiration date. 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 74% 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 nine months endedDecember 31, 2021 and fiscal year endedMarch 31, 2021 , the Company's effective interest rate, including the commitment fee and amortization of debt issuance costs, was 5.5% annualized and 5.8%, respectively, and the unused amount available under the revolving credit facility atDecember 31, 2021 was$259.5 million . Borrowings under the revolving credit facility mature onJune 7, 2024 . 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 also contains financial covenants, including (i) a minimum consolidated net worth of$325.0 million ; (ii) a minimum fixed charge coverage ratio of 2.75 to 1.0; (iii) a maximum ratio of total debt to consolidated adjusted net worth of 2.5 to 1.0; and (iv) a maximum collateral performance indicator of 24% as of the end of each calendar month. 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 the amount incurred that are imposed by the financial covenants under the agreement. 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 atDecember 31, 2021 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 and cross-acceleration 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 finance receivables 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. 38
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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 this report including, but not limited to, any discussions in Part 1, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K (as supplemented by any subsequent disclosures in information the Company files with or furnishes to theSEC 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 buyback program
OnJune 16, 2021 , the Board of Directors authorized the Company to repurchase up to$30.0 million of the Company's outstanding common stock, inclusive of the amount that remains available for repurchase under prior repurchase authorizations. OnDecember 7, 2021 , the Board of Directors authorized the Company to repurchase up to$50.0 million of the Company's outstanding common stock inclusive of any amount that remains available for repurchase under prior repurchase authorizations. As ofDecember 31, 2021 , the Company had$46.1 million in aggregate remaining repurchase capacity. The timing and actual number of shares of common stock repurchased will depend on a variety of factors, including the stock price, corporate and regulatory requirements, restrictions under the revolving credit facility and other market and economic conditions. 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. Under the terms of our revolving credit facility and the Notes, we have, subject to certain restrictions, the ability to make total share repurchases of at least$90.0 million throughJune 30, 2022 . As ofDecember 31, 2021 , subject to further approval from our Board of Directors, we could repurchase approximately$84.4 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. Our first priority is to ensure we have enough capital to fund loan growth. To the extent we have excess capital, we may repurchase stock, if appropriate and as authorized by our Board of Directors. As ofDecember 31, 2021 , the Company's debt outstanding was$720.3 million and its shareholders' equity was$409.4 million resulting in a debt-to-equity ratio of 1.8:1.0. 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.
Inflation
The Company does not believe that inflation, within reasonably anticipated rates, will have a material, adverse effect on its financial condition. 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. We 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. That increase in absolute revenue should offset any increase in operating costs. In addition, because the Company's loans have a relatively short contractual term, 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 3 to the unaudited consolidated financial statements.
Recently Adopted Accounting Pronouncements
See Note 3 to the unaudited consolidated financial statements.
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. 39 -------------------------------------------------------------------------------- Table of Contents Allowance for Credit Losses Accounting policies related to the allowance for credit losses are considered to be critical as these policies involve considerable subjective judgement and estimation by management. As discussed in Note 3 - Summary of Significant Policies, to our unaudited Consolidated Financial Statements included in this report, our policies related to the allowances for credit losses changed onApril 1, 2020 in connection with the adoption of a new accounting standard update as codified in ASC 326. 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, 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 highly subjective assumptions, including expected volatility, risk-free interest rate and expected life, changes to which can materially affect the fair value estimate. Actual results and future changes in estimates may differ substantially from the Company's current estimates.
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 theIRS , 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. 40
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