NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The consolidated financial statements of the Company at December 31, 2020 and for the three and nine 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 December 31, 2020, and the results of operations and cash flows for the periods ended December 31, 2020 and 2019, 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, 2020, included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020, as filed with the SEC. In addition to the "Critical Accounting Policies" impacted by the new CECL standard described below, 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, 2020. The Company believes that the disclosures are adequate to make the information presented not misleading. Certain reclassifications have been made to the amounts previously reported to conform to the current period presentation.
NOTE 2 – ASSETS HELD FOR SALE
In the fourth quarter of fiscal 2020 the Company moved its corporate headquarters from properties it owned outright in Greenville, South Carolina to leased office space in downtown Greenville, South Carolina. Under ASC 360-10, the properties met the criteria for classification as held for sale as of March 31, 2020.
During the second quarter of fiscal 2021 the Company completed the sale of two of the three buildings held for sale, resulting in an aggregate loss of $37,579. The loss on sale of assets held for sale is included as a component of insurance income, net and other income in the Company's Consolidated Statement of Operations. The Company expects to complete the sale of the third, and final, building held for sale within the next twelve months.
The following table reconciles the major classes of assets held for sale to the amounts presented in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2020
|
Assets held for sale:
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,143,528
|
|
|
$
|
3,991,498
|
|
Total assets held for sale
|
|
$
|
1,143,528
|
|
|
$
|
3,991,498
|
|
NOTE 3 – 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.
Allowance for credit losses
Refer to Note 5, “Finance Receivables and Allowance for Credit Losses,” in this Quarterly Report on Form 10-Q for information regarding the Company's adoption of the CECL allowance model on April 1, 2020 and a description of the methodology it utilizes.
Reclassification
The Company has made certain adjustments to its treatment of historic tax credits purchased during fiscal 2020 since it filed its Report on Form 10-Q for the quarterly period ended December 31, 2019. The adjustments correctly present the Company’s election to account for historic tax credits purchased using the income statement method in conjunction with the flow-through method. Under this approach, the deferred tax liability related to the difference between the book and tax basis in the underlying historic tax credit investment is recorded in the tax provision and reversed over the same period as the amortization of the historic tax credit investment. As a result of these corrections, the below line items have been adjusted as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF OPERATIONS
|
|
Three months ended December 31, 2019
|
|
Nine months ended December 31, 2019
|
|
As originally filed
|
|
Adjustments
|
|
As revised
|
|
As originally filed
|
|
Adjustments
|
|
As revised
|
Insurance income, net and other income
|
$
|
16,854,871
|
|
|
$
|
(83,124)
|
|
|
$
|
16,771,747
|
|
|
$
|
47,868,789
|
|
|
$
|
(83,124)
|
|
|
$
|
47,785,665
|
|
Total revenues
|
147,079,208
|
|
|
(83,124)
|
|
|
146,996,084
|
|
|
427,094,307
|
|
|
(83,124)
|
|
|
427,011,183
|
|
Other expense
|
17,631,727
|
|
|
434,096
|
|
|
18,065,823
|
|
|
34,287,303
|
|
|
434,096
|
|
|
34,721,399
|
|
Total general and administrative expense
|
90,123,631
|
|
|
434,096
|
|
|
90,557,727
|
|
|
250,352,377
|
|
|
434,096
|
|
|
250,786,473
|
|
Total expenses
|
152,473,279
|
|
|
434,096
|
|
|
152,907,375
|
|
|
417,692,277
|
|
|
434,096
|
|
|
418,126,373
|
|
Income (loss) before income taxes
|
(5,394,071)
|
|
|
(517,220)
|
|
|
(5,911,291)
|
|
|
9,402,030
|
|
|
(517,220)
|
|
|
8,884,810
|
|
Income tax expense
|
$
|
429,997
|
|
|
$
|
(73,704)
|
|
|
$
|
356,293
|
|
|
$
|
2,397,698
|
|
|
$
|
1,633,123
|
|
|
$
|
4,030,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(5,824,068)
|
|
|
$
|
(443,516)
|
|
|
$
|
(6,267,584)
|
|
|
$
|
7,004,332
|
|
|
$
|
(2,150,343)
|
|
|
$
|
4,853,989
|
|
Recently Adopted Accounting Standards
Measurement of Credit Losses on Financial Instruments
ASU 2016-13 (and all subsequent ASUs on this topic) introduce the CECL model, a new credit loss methodology, replacing multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. The amendments in this ASU require loss estimates be determined over the lifetime of the asset and broaden the information that an entity must consider in developing its expected credit losses. The ASU does not specify a method for measuring expected credit losses and allows an entity to apply methods that reasonably reflect its expectations of the credit loss estimate based on the entity’s size, complexity, and risk profile. In addition, the disclosures of credit quality indicators in relation to the amortized cost of financing receivables, a current disclosure requirement, are further disaggregated by year of origination.
The Company adopted this ASU (and all subsequent ASUs on this topic) as of April 1, 2020 using the modified retrospective approach. The adoption of this pronouncement resulted in the recognition of a $28.6 million increase in the allowance for credit losses on our opening balance sheet as of April 1, 2020, with a corresponding net-of-tax $21.2 million reduction in retained earnings and a $7.4 million increase to deferred income taxes, net.
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 4 – 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, and senior notes payable. Fair value approximates carrying value for all of these instruments. Loans receivable are originated at prevailing market rates and have an average life of approximately eight months. Given the short-term nature of these loans, they are continually repriced at current market rates. The Company’s revolving credit facility has a variable rate based on a margin over LIBOR and reprices with any changes in LIBOR. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2020
|
|
Input Level
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
1
|
|
$
|
9,690,662
|
|
|
9,690,662
|
|
|
$
|
11,618,922
|
|
|
11,618,922
|
|
Loans receivable, net
|
3
|
|
816,007,035
|
|
|
816,007,035
|
|
|
804,402,786
|
|
|
804,402,786
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Senior notes payable
|
3
|
|
539,600,000
|
|
|
539,600,000
|
|
|
451,100,000
|
|
|
451,100,000
|
|
The carrying amounts and estimated fair values of amounts the Company measures at fair value on a non-recurring basis, which are limited to the Company's assets held for sale, are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2020
|
|
|
|
Input Level
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
2
|
|
$
|
1,143,528
|
|
|
$
|
1,143,528
|
|
|
$
|
3,991,498
|
|
|
$
|
3,991,498
|
|
|
|
|
|
The Company re-valued its corporate headquarters in Greenville, South Carolina as of March 31, 2020 in conjunction with its reclassification of the related assets as held for sale. The observable inputs the Company used in its revaluation were the agreed-upon prices to sell the assets.
There were no other significant assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2020 or March 31, 2020.
NOTE 5 – FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
The following is a summary of gross loans receivable by Customer Tenure as of:
|
|
|
|
|
|
|
|
|
|
Customer Tenure
|
December 31, 2020
|
|
|
|
|
0 to 5 months
|
$
|
109,146,394
|
|
|
|
|
|
6 to 17 months
|
140,042,981
|
|
|
|
|
|
18 to 35 months
|
189,205,533
|
|
|
|
|
|
36 to 59 months
|
148,244,918
|
|
|
|
|
|
60+ months
|
677,647,591
|
|
|
|
|
|
|
|
|
|
|
|
Tax advance loans
|
242,898
|
|
|
|
|
|
Total gross loans
|
$
|
1,264,530,315
|
|
|
|
|
|
During the first quarter of fiscal 2021, we adopted ASU 2016-13, which replaces the incurred loss methodology for determining our provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model, using the modified retrospective approach. Upon adoption, the total allowance for credit losses increased by $28.6 million, with no impact to the consolidated statement of operations.
Based on the Company’s loan products, the purpose and the term, current payment performance is used to assess the capability of the borrower to repay contractual obligations of the loan agreements as scheduled. Current payment performance 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 tables provide a breakdown of the Company’s gross loans receivable by current payment performance on a recency basis and year of origination at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
1,096,454,268
|
|
$
|
53,542,759
|
|
$
|
2,329,906
|
|
$
|
128,216
|
|
$
|
10,211
|
|
$
|
3,063
|
|
|
$
|
1,152,468,423
|
|
|
|
30 - 60 days past due
|
|
42,220,508
|
|
4,099,955
|
|
272,431
|
|
58,886
|
|
8,142
|
|
168
|
|
|
46,660,090
|
|
|
|
61 - 90 days past due
|
|
23,939,973
|
|
2,640,530
|
|
158,794
|
|
23,586
|
|
1,198
|
|
574
|
|
|
26,764,655
|
|
|
|
91 or more days past due
|
|
31,674,388
|
|
6,339,220
|
|
325,237
|
|
46,724
|
|
6,639
|
|
2,041
|
|
|
38,394,249
|
|
|
|
Total
|
|
$
|
1,194,289,137
|
|
$
|
66,622,464
|
|
$
|
3,086,368
|
|
$
|
257,412
|
|
$
|
26,190
|
|
$
|
5,846
|
|
|
$
|
1,264,287,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
7,920
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
7,920
|
|
|
|
30 - 60 days past due
|
|
9,305
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
9,305
|
|
|
|
61 - 90 days past due
|
|
11,647
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
11,647
|
|
|
|
91 or more days past due
|
|
211,779
|
|
2,247
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
214,026
|
|
|
|
Total
|
|
$
|
240,651
|
|
$
|
2,247
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
242,898
|
|
|
|
Total gross loans
|
|
|
|
|
|
|
|
|
$
|
1,264,530,315
|
|
|
|
The following tables provide a breakdown of the Company’s gross loans receivable by current payment performance on a contractual basis and year of origination at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
1,082,056,393
|
|
$
|
48,598,283
|
|
$
|
1,885,402
|
|
$
|
74,695
|
|
$
|
270
|
|
$
|
831
|
|
|
$
|
1,132,615,874
|
|
|
|
30 - 60 days past due
|
|
46,120,163
|
|
2,687,437
|
|
146,140
|
|
15,455
|
|
—
|
|
—
|
|
|
48,969,195
|
|
|
|
61 - 90 days past due
|
|
27,167,688
|
|
2,234,188
|
|
81,559
|
|
945
|
|
—
|
|
—
|
|
|
29,484,380
|
|
|
|
91 or more days past due
|
|
38,944,893
|
|
13,102,556
|
|
973,268
|
|
166,317
|
|
25,919
|
|
5,015
|
|
|
53,217,968
|
|
|
|
Total
|
|
$
|
1,194,289,137
|
|
$
|
66,622,464
|
|
$
|
3,086,369
|
|
$
|
257,412
|
|
$
|
26,189
|
|
$
|
5,846
|
|
|
$
|
1,264,287,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
63
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
63
|
|
|
|
30 - 60 days past due
|
|
50
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
50
|
|
|
|
61 - 90 days past due
|
|
2,744
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2,744
|
|
|
|
91 or more days past due
|
|
237,794
|
|
2,247
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
240,041
|
|
|
|
Total
|
|
$
|
240,651
|
|
$
|
2,247
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
242,898
|
|
|
|
Total gross loans
|
|
|
|
|
|
|
|
|
$
|
1,264,530,315
|
|
|
|
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, adjusted for seasonality. 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. Management considers whether current credit conditions might suggest a change is needed to the allowance for credit losses by monitoring trends in 60-day delinquencies, FICO scores and average loan size as compared to metrics in the historical migration 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 6-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 an adjustment is made as a result of the forecast, then the Company has elected to immediately revert back to historical experience past the forecast period.
The following table presents a roll forward of the allowance for credit losses on our gross loans receivable for the three and nine months ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
Nine months ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Beginning balance
|
109,601,359
|
|
|
$
|
101,469,313
|
|
|
$
|
96,487,856
|
|
|
$
|
81,519,624
|
|
Impact of ASC 326 adoption
|
—
|
|
|
—
|
|
|
28,628,368
|
|
|
—
|
|
Provision for credit losses
|
28,857,443
|
|
|
55,219,470
|
|
|
80,608,470
|
|
|
149,478,577
|
|
Charge-offs
|
(29,239,780)
|
|
|
(46,850,430)
|
|
|
(106,865,225)
|
|
|
(128,978,851)
|
|
Recoveries
|
4,248,339
|
|
|
3,231,288
|
|
|
14,607,892
|
|
|
11,050,291
|
|
Net charge-offs
|
(24,991,441)
|
|
|
(43,619,142)
|
|
|
(92,257,333)
|
|
|
(117,928,560)
|
|
Ending Balance
|
$
|
113,467,361
|
|
|
$
|
113,069,641
|
|
|
$
|
113,467,361
|
|
|
$
|
113,069,641
|
|
The following table is an aging analysis on a recency basis at amortized cost of the Company’s gross loans receivable at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days Past Due - Recency Basis
|
|
|
|
Customer Tenure
|
|
Current
|
30 - 60
|
61 - 90
|
Over 90
|
Total Past Due
|
Total Loans
|
|
0 to 5 months
|
|
$
|
91,287,471
|
|
$
|
6,542,056
|
|
$
|
4,492,845
|
|
$
|
6,824,023
|
|
$
|
17,858,924
|
|
$
|
109,146,395
|
|
|
6 to 17 months
|
|
118,906,270
|
|
7,443,204
|
|
5,183,990
|
|
8,509,517
|
|
21,136,711
|
|
140,042,981
|
|
|
18 to 35 months
|
|
171,201,659
|
|
7,495,044
|
|
4,324,184
|
|
6,184,645
|
|
18,003,873
|
|
189,205,532
|
|
|
36 to 59 months
|
|
136,570,735
|
|
5,156,489
|
|
2,804,847
|
|
3,712,847
|
|
11,674,183
|
|
148,244,918
|
|
|
60+ months
|
|
634,502,288
|
|
20,023,296
|
|
9,958,789
|
|
13,163,218
|
|
43,145,303
|
|
677,647,591
|
|
|
|
|
|
|
|
|
|
|
|
Tax advance loans
|
|
7,920
|
|
9,305
|
|
11,647
|
|
214,026
|
|
$
|
234,978
|
|
242,898
|
|
|
Total gross loans
|
|
1,152,476,343
|
|
46,669,394
|
|
26,776,302
|
|
38,608,276
|
|
112,053,972
|
|
1,264,530,315
|
|
|
Unearned interest, insurance and fees
|
|
(305,365,570)
|
|
(12,365,743)
|
|
(7,094,775)
|
|
(10,229,831)
|
|
(29,690,349)
|
|
(335,055,919)
|
|
|
Total net loans
|
|
$
|
847,110,773
|
|
$
|
34,303,651
|
|
$
|
19,681,527
|
|
$
|
28,378,445
|
|
$
|
82,363,623
|
|
$
|
929,474,396
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of period-end gross loans receivable
|
|
|
3.7%
|
2.1%
|
3.1%
|
8.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days Past Due - Contractual Basis
|
|
|
|
Customer Tenure
|
|
Current
|
30 - 60
|
61 - 90
|
Over 90
|
Total Past Due
|
Total Loans
|
|
0 to 5 months
|
|
$
|
90,177,810
|
|
$
|
6,466,041
|
|
$
|
4,502,768
|
|
$
|
7,999,773
|
|
$
|
18,968,582
|
|
$
|
109,146,392
|
|
|
6 to 17 months
|
|
116,381,121
|
|
7,566,591
|
|
5,380,327
|
|
10,714,943
|
|
23,661,861
|
|
140,042,982
|
|
|
18 to 35 months
|
|
168,402,428
|
|
7,688,576
|
|
4,805,036
|
|
8,309,493
|
|
20,803,105
|
|
189,205,533
|
|
|
36 to 59 months
|
|
134,268,134
|
|
5,473,173
|
|
3,130,245
|
|
5,373,367
|
|
13,976,785
|
|
148,244,919
|
|
|
60+ months
|
|
623,386,383
|
|
21,774,814
|
|
11,666,004
|
|
20,820,390
|
|
54,261,208
|
|
677,647,591
|
|
|
|
|
|
|
|
|
|
|
|
Tax advance loans
|
|
63
|
|
50
|
|
2,744
|
|
240,041
|
|
$
|
242,835
|
|
242,898
|
|
|
Total gross loans
|
|
1,132,615,939
|
|
48,969,245
|
|
29,487,124
|
|
53,458,007
|
|
131,914,376
|
|
1,264,530,315
|
|
|
Unearned interest, insurance and fees
|
|
(300,103,263)
|
|
(12,975,122)
|
|
(7,813,048)
|
|
(14,164,486)
|
|
(34,952,656)
|
|
(335,055,919)
|
|
|
Total net loans
|
|
$
|
832,512,676
|
|
$
|
35,994,123
|
|
$
|
21,674,076
|
|
$
|
39,293,521
|
|
$
|
96,961,720
|
|
$
|
929,474,396
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of period-end gross loans receivable
|
|
|
3.9%
|
2.3%
|
4.2%
|
10.4
|
%
|
|
|
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 revenue 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. During the three months ended December 31, 2020, the Company reversed a total of $6.4 million of unpaid accrued interest against interest income. During the nine months ended December 31, 2020, the Company reversed a total of $16.2 million of unpaid accrued interest against interest income.
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 and the amortized cost basis of nonaccrual loans without related expected credit loss. It also shows year-to-date interest income recognized on nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual Financial Assets
|
Customer Tenure
|
|
As of December 31, 2020
|
As of March 31, 2020
|
Financial Assets 61 Days or More Past Due, Not on Nonaccrual Status
|
Nonaccrual Financial Assets With No Allowance as of December 31, 2020
|
Interest Income
Recognized
|
0 to 5 months
|
|
$
|
12,725,225
|
|
$
|
26,040,593
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,283,886
|
|
6 to 17 months
|
|
16,352,270
|
|
17,466,450
|
|
—
|
|
—
|
|
1,617,925
|
|
18 to 35 months
|
|
13,429,551
|
|
13,723,295
|
|
—
|
|
—
|
|
1,418,093
|
|
36 to 59 months
|
|
8,794,918
|
|
10,071,288
|
|
—
|
|
—
|
|
1,082,178
|
|
60+ months
|
|
33,829,640
|
|
44,293,545
|
|
—
|
|
—
|
|
4,822,468
|
|
|
|
|
|
|
|
|
Tax advance loans
|
|
296,191
|
|
41,573
|
|
—
|
|
—
|
|
|
Unearned interest, insurance and fees
|
|
(22,635,352)
|
|
(28,510,140)
|
|
—
|
|
—
|
|
|
Total
|
|
$
|
62,792,443
|
|
$
|
83,126,604
|
|
$
|
—
|
|
$
|
—
|
|
$
|
10,224,550
|
|
Under the prior incurred loss methodology, loss contingencies were evaluated as: probable, reasonably possible, or remote. If, at the date of financial statement presentation, information was available that indicated an asset had been impaired and the amount of loss could be reasonably estimated, then an allowance for that loss could be recorded. Recording an allowance for a loss that was considered reasonably possible or remote was not permitted. With the adoption of ASC 326, the Company considers the lifetime potential for losses at the point of origination and records an allowance for that potential, at that point in time, removing the necessity of differentiation between the three loss contingency concepts and impairment. The following disclosures are presented under previously applicable GAAP.
The following is a summary of loans individually and collectively evaluated for impairment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
Loans individually
evaluated for
impairment
(impaired loans)
|
|
Loans collectively
evaluated for
impairment
|
|
Total
|
|
|
|
|
|
|
Gross loans in bankruptcy, excluding contractually delinquent
|
$
|
5,165,752
|
|
|
—
|
|
|
5,165,752
|
|
Gross loans contractually delinquent
|
70,719,727
|
|
|
—
|
|
|
70,719,727
|
|
Loans not contractually delinquent and not in bankruptcy
|
—
|
|
|
1,133,985,887
|
|
|
1,133,985,887
|
|
Gross loan balance
|
75,885,479
|
|
|
1,133,985,887
|
|
|
1,209,871,366
|
|
Unearned interest and fees
|
(16,848,762)
|
|
|
(292,131,962)
|
|
|
(308,980,724)
|
|
Net loans
|
59,036,717
|
|
|
841,853,925
|
|
|
900,890,642
|
|
Allowance for credit losses
|
(54,090,509)
|
|
|
(42,397,347)
|
|
|
(96,487,856)
|
|
Loans, net of allowance for credit losses
|
$
|
4,946,208
|
|
|
799,456,578
|
|
|
804,402,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Loans individually
evaluated for
impairment
(impaired loans)
|
|
Loans collectively
evaluated for
impairment
|
|
Total
|
|
|
|
|
|
|
Gross loans in bankruptcy, excluding contractually delinquent
|
$
|
5,066,019
|
|
|
—
|
|
|
5,066,019
|
|
Gross loans contractually delinquent
|
80,765,569
|
|
|
—
|
|
|
80,765,569
|
|
Loans not contractually delinquent and not in bankruptcy
|
—
|
|
|
1,286,936,992
|
|
|
1,286,936,992
|
|
Gross loan balance
|
85,831,588
|
|
|
1,286,936,992
|
|
|
1,372,768,580
|
|
Unearned interest and fees
|
(19,140,361)
|
|
|
(346,893,706)
|
|
|
(366,034,067)
|
|
Net loans
|
66,691,227
|
|
|
940,043,286
|
|
|
1,006,734,513
|
|
Allowance for losses
|
(61,840,514)
|
|
|
(51,229,127)
|
|
|
(113,069,641)
|
|
Loans, net of allowance for losses
|
$
|
4,850,713
|
|
|
888,814,159
|
|
|
893,664,872
|
|
The average net balance of impaired loans was $56.7 million for the nine-month period ended December 31, 2019. It is not practical to compute the amount of interest earned on impaired loans.
The following is an assessment of the credit quality of loans for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Credit risk
|
|
|
|
|
|
Consumer loans- non-bankrupt accounts
|
|
|
$
|
1,203,552,152
|
|
|
$
|
1,366,079,543
|
|
Consumer loans- bankrupt accounts
|
|
|
6,319,214
|
|
|
6,689,037
|
|
Total gross loans
|
|
|
$
|
1,209,871,366
|
|
|
$
|
1,372,768,580
|
|
|
|
|
|
|
|
Consumer credit exposure
|
|
|
|
|
|
Credit risk profile based on payment activity, performing
|
|
|
$
|
1,104,130,714
|
|
|
$
|
1,255,471,072
|
|
Contractual non-performing, 61 or more days delinquent (1)
|
|
|
105,740,652
|
|
|
117,297,508
|
|
Total gross loans
|
|
|
$
|
1,209,871,366
|
|
|
$
|
1,372,768,580
|
|
|
|
|
|
|
|
Credit risk profile based on customer type
|
|
|
|
|
|
New borrower
|
|
|
$
|
124,800,193
|
|
|
$
|
155,284,022
|
|
Former borrower
|
|
|
127,108,125
|
|
|
161,575,535
|
|
Refinance
|
|
|
935,448,882
|
|
|
1,031,380,059
|
|
Delinquent refinance
|
|
|
22,514,166
|
|
|
24,528,964
|
|
Total gross loans
|
|
|
$
|
1,209,871,366
|
|
|
$
|
1,372,768,580
|
|
_______________________________________________________
(1) Loans in non-accrual status.
The following is a summary of the past due receivables as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Contractual basis:
|
|
|
|
|
|
30-60 days past due
|
|
|
$
|
49,137,102
|
|
|
$
|
55,172,208
|
|
61-90 days past due
|
|
|
35,020,925
|
|
|
36,531,939
|
|
91 days or more past due
|
|
|
70,719,727
|
|
|
80,765,569
|
|
Total
|
|
|
$
|
154,877,754
|
|
|
$
|
172,469,716
|
|
|
|
|
|
|
|
Percentage of period-end gross loans receivable
|
|
|
12.8
|
%
|
|
12.6
|
%
|
|
|
|
|
|
|
Recency basis:
|
|
|
|
|
|
30-60 days past due
|
|
|
$
|
48,206,910
|
|
|
$
|
54,090,162
|
|
61-90 days past due
|
|
|
28,450,942
|
|
|
33,295,364
|
|
91 days or more past due
|
|
|
50,669,837
|
|
|
62,565,314
|
|
Total
|
|
|
$
|
127,327,689
|
|
|
$
|
149,950,840
|
|
|
|
|
|
|
|
Percentage of period-end gross loans receivable
|
|
|
10.5
|
%
|
|
10.9
|
%
|
NOTE 6 – LEASES
Accounting Policies and Matters Requiring Management's Judgment
When determining the economic life of a lease the Company adopts a convention of applying an economic life equal to the useful life as specified in its accounting policy. Refer to Note 1, “Property and Equipment,” to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2020 for a description of the Company's accounting policy regarding useful lives.
The Company uses its effective annual interest rate, adjusted for certain assumptions, as the discount rate when evaluating leases under Topic 842. Management applies the adjusted effective annual interest rate to leases entered for the entirety of the subsequent year.
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 leases consist of real estate leases for office space as well as office equipment leases, all of which were classified as operating at December 31, 2020. Both the real estate and office equipment leases range from three years to five years, and generally contain options to extend which mirror the original terms of the lease.
The following table reports information about the Company's lease cost for the three and nine months ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
Nine months ended December 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Lease Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
6,939,330
|
|
|
$
|
6,636,596
|
|
|
$
|
21,027,265
|
|
|
$
|
19,289,946
|
|
Short-term lease cost
|
|
—
|
|
|
1,800
|
|
|
1,800
|
|
|
1,800
|
|
Variable lease cost
|
|
882,559
|
|
|
835,637
|
|
|
2,659,932
|
|
|
2,450,322
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
7,821,889
|
|
|
$
|
7,474,033
|
|
|
$
|
23,688,997
|
|
|
$
|
21,742,068
|
|
The following table reports other information about the Company's leases for the three and nine months ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
Nine months ended December 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Other Lease Information
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
6,845,544
|
|
|
$
|
6,515,141
|
|
|
$
|
20,694,712
|
|
|
$
|
18,818,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities(1)
|
|
$
|
2,116,215
|
|
|
$
|
8,182,788
|
|
|
$
|
9,748,709
|
|
|
$
|
31,476,079
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term — operating leases
|
|
7.3 years
|
|
8.5 years
|
|
7.3 years
|
|
8.5 years
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate — operating leases
|
|
6.3
|
%
|
|
6.7
|
%
|
|
6.3
|
%
|
|
6.7
|
%
|
_______________________________________________________
(1) In May 2019 the Company executed a new 10 year lease agreement for its corporate headquarters in Greenville, South Carolina. The lease payments commenced in December 2019; however, execution of the lease agreement triggered recognition of the right-of-use asset in May 2019 for approximately $15.6 million.
The following table reports information about the maturity of the Company's operating leases as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Operating lease liability maturity analysis
|
|
|
|
|
|
|
Fiscal 2021
|
|
|
|
$
|
6,779,218
|
|
|
|
Fiscal 2022
|
|
|
|
24,901,962
|
|
|
|
Fiscal 2023
|
|
|
|
20,560,663
|
|
|
|
Fiscal 2024
|
|
|
|
16,573,622
|
|
|
|
Fiscal 2025
|
|
|
|
12,182,488
|
|
|
|
Fiscal 2026
|
|
|
|
8,500,529
|
|
|
|
Thereafter
|
|
|
|
30,535,307
|
|
|
|
Total undiscounted lease liability
|
|
|
|
120,033,789
|
|
|
|
Imputed interest
|
|
|
|
25,649,254
|
|
|
|
Total discounted lease liability
|
|
|
|
$
|
94,384,535
|
|
|
|
The Company had no leases with related parties at December 31, 2020 or March 31, 2020.
NOTE 7 – AVERAGE SHARE INFORMATION
The following is a summary of the basic and diluted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
Nine months ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Basic:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (denominator)
|
6,233,961
|
|
|
7,220,938
|
|
|
6,593,135
|
|
|
7,842,689
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
6,233,961
|
|
|
7,220,938
|
|
|
6,593,135
|
|
|
7,842,689
|
|
Dilutive potential common shares
|
218,424
|
|
|
—
|
|
|
150,514
|
|
|
320,618
|
|
Weighted average diluted shares outstanding (denominator)
|
6,452,385
|
|
|
7,220,938
|
|
|
6,743,649
|
|
|
8,163,307
|
|
Options to purchase 629,086 and 643,961 shares of common stock at various prices were outstanding during the three months ended December 31, 2020 and 2019 respectively, but were not included in diluted shares outstanding because the option exercise price exceeded the market value of the shares.
Options to purchase 636,118 and 660,872 shares of common stock at various prices were outstanding during the nine months ended December 31, 2020 and 2019 respectively, but were not included in diluted shares outstanding because the option exercise price exceeded the market value of the shares.
NOTE 8 – STOCK-BASED COMPENSATION
Stock Incentive Plans
The Company has a 2008 Stock Option Plan, a 2011 Stock Option Plan and a 2017 Stock Incentive Plan for the benefit of certain non-employee directors, officers, and key employees. Under these plans, a total of 3,350,000 shares of common stock have been authorized and reserved for issuance pursuant to grants approved by the Compensation Committee of the Board of Directors. Stock options granted under these plans have a maximum duration of 10 years, may be subject to certain vesting requirements, which are generally three 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 December 31, 2020, there were a total of 191,652 shares of common stock available for grant under the plans.
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. The Company has applied the Black-Scholes valuation model in determining the grant date fair value of the stock option awards. Compensation expense is recognized only for those options expected to vest.
Long-term Incentive Program and Non-Employee Director Awards
On October 15, 2018, the Compensation Committee and Board approved and adopted a new long-term incentive program that sought 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, the Compensation Committee approved certain grants of Service Options, Performance Options, Restricted Stock and Performance Shares under the World Acceptance Corporation 2011 Stock Option Plan and the World Acceptance Corporation 2017 Stock Incentive 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 of the Company's non-employee directors.
Under the long-term incentive program, up to 100% of the shares of restricted stock subject to the Performance Shares shall vest, if at all, based on the achievement of two trailing earnings per share performance targets established by the Compensation Committee that are based on earnings per share (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 and subject to each respective employee’s continued employment at the Company through the last day of the applicable 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)
|
$16.35
|
40%
|
$20.45
|
60%
|
The Restricted Stock awards vest in 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 vest in 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 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 earnings per share target over four consecutive calendar quarters occurring between September 30, 2018 and March 31, 2025 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)
|
$25.30
|
100%
|
Stock Options
The weighted-average fair value at the grant date for options issued during the three months ended December 31, 2020 and 2019 was $56.55 and $60.43, respectively. The weighted-average fair value at the grant date for options issued during the nine months ended December 31, 2020 and 2019 was $50.42 and $64.49, respectively.
Fair value was estimated at grant date using the weighted-average assumptions listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
Nine months ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Dividend Yield
|
—%
|
|
—%
|
|
—%
|
|
—%
|
Expected Volatility
|
57.09%
|
|
52.87%
|
|
56.48%
|
|
52.09%
|
Average risk-free rate
|
0.43%
|
|
1.64%
|
|
0.38%
|
|
1.66%
|
Expected Life
|
6.0 years
|
|
6.0 years
|
|
6.2 years
|
|
6.2 years
|
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.
Option activity for the nine months ended December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Exercise
Price
|
|
Weighted Average
Remaining
Contractual Term
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
Options outstanding, beginning of period
|
646,728
|
|
|
$
|
88.30
|
|
|
|
|
|
Granted during period
|
26,402
|
|
|
95.59
|
|
|
|
|
|
Exercised during period
|
(33,776)
|
|
|
66.79
|
|
|
|
|
|
Forfeited during period
|
(15,640)
|
|
|
103.66
|
|
|
|
|
|
Expired during period
|
(300)
|
|
|
76.51
|
|
|
|
|
|
Options outstanding, end of period
|
623,414
|
|
|
$
|
89.43
|
|
|
6.0 years
|
|
$
|
8,627,259
|
|
Options exercisable, end of period
|
342,736
|
|
|
$
|
79.29
|
|
|
4.2 years
|
|
$
|
7,992,605
|
|
The aggregate intrinsic value reflected in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on December 31, 2020 and the exercise price, multiplied by the number of in-the-money options) that would have been received by option holders had all option holders exercised their options as of December 31, 2020. This amount will change as the market price of the common stock changes. The total intrinsic value of options exercised during the periods ended December 31, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
|
|
|
|
Three months ended
|
$
|
718,343
|
|
|
$
|
728,193
|
|
Nine months ended
|
$
|
1,215,063
|
|
|
$
|
5,078,750
|
|
As of December 31, 2020, total unrecognized stock-based compensation expense related to non-vested stock options amounted to approximately $8.4 million, which is expected to be recognized over a weighted-average period of approximately 3.5 years.
Restricted Stock
During the first nine months of fiscal 2021, the Company granted 39,675 shares of restricted stock (which are equity classified) to certain vice presidents, senior vice presidents, executive officers, and non-employee directors with a grant date weighted average fair value of $96.14 per share.
During fiscal 2020, the Company granted 11,223 shares of restricted stock (which are equity classified) to certain vice presidents with a grant date weighted average fair value of $90.23 per share.
Compensation expense 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. The Company recognized compensation expense of $11.5 million and $18.5 million for the nine months ended December 31, 2020 and 2019, respectively, which is included as a component of general and administrative expenses in the Company’s consolidated statements of operations.
As of December 31, 2020, there was approximately $29.4 million of unrecognized compensation cost related to unvested restricted stock awards, which is expected to be recognized over the next 2.7 years based on current estimates.
A summary of the status of the Company’s restricted stock as of December 31, 2020, and changes during the nine months ended December 31, 2020, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Fair Value at Grant Date
|
|
|
|
|
Outstanding at March 31, 2020
|
705,254
|
|
|
$
|
101.47
|
|
Granted during the period
|
39,675
|
|
|
96.14
|
|
Vested during the period
|
(83,250)
|
|
|
101.17
|
|
Forfeited during the period
|
(60,000)
|
|
|
100.79
|
|
Outstanding at December 31, 2020
|
601,679
|
|
|
$
|
101.23
|
|
Total Stock-Based Compensation
Total stock-based compensation included as a component of net income during the three and nine month periods ended December 31, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
Nine months ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Stock-based compensation related to equity classified awards:
|
|
|
|
|
|
|
|
Stock-based compensation related to stock options
|
$
|
854,647
|
|
|
$
|
1,168,033
|
|
|
$
|
2,987,621
|
|
|
$
|
4,394,143
|
|
Stock-based compensation related to restricted stock, net of adjustments and exclusive of cancellations
|
4,043,813
|
|
|
5,162,777
|
|
|
11,521,082
|
|
|
18,539,144
|
|
Total stock-based compensation related to equity classified awards
|
$
|
4,898,460
|
|
|
$
|
6,330,810
|
|
|
$
|
14,508,703
|
|
|
$
|
22,933,287
|
|
NOTE 9 – 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 a business combination while all other acquisitions are accounted for as asset purchases.
The following table sets forth the Company's acquisition activity for the nine months ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended December 31,
|
|
|
2020
|
|
2019
|
Acquisitions:
|
|
|
|
|
Number of branches acquired through business combinations
|
|
—
|
|
|
37
|
|
Number of loan portfolios acquired through asset purchases
|
|
48
|
|
|
134
|
|
Total acquisitions
|
|
48
|
|
|
171
|
|
|
|
|
|
|
Purchase price
|
|
$
|
18,847,223
|
|
|
$
|
56,400,058
|
|
|
|
|
|
|
Tangible assets:
|
|
|
|
|
Loans receivable, net
|
|
14,364,042
|
|
|
43,036,296
|
|
Property and equipment
|
|
—
|
|
|
69,000
|
|
Total tangible assets
|
|
14,364,042
|
|
|
43,105,296
|
|
|
|
|
|
|
Excess of purchase prices over carrying value of net tangible assets
|
|
$
|
4,483,181
|
|
|
$
|
13,294,762
|
|
|
|
|
|
|
Customer lists
|
|
$
|
4,300,681
|
|
|
12,233,806
|
|
Non-compete agreements
|
|
$
|
182,500
|
|
|
855,000
|
|
Goodwill
|
|
$
|
—
|
|
|
205,956
|
|
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 market values at the acquisition date. In an asset purchase, no goodwill is recorded.
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 eight 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 other 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 PCD's during the period.
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 value.
Customer lists are valued with a valuation model that utilizes the Company’s historical data to estimate the value of any acquired customer lists. Customer lists are allocated at a branch level and are evaluated for impairment at a branch level when a triggering event occurs in accordance with FASB ASC Topic 360-10-05. If a triggering event occurs, the impairment loss to the customer list is generally the remaining unamortized customer list balance. In most acquisitions, the original fair value of the
customer list allocated to a branch is less than $100,000, and management believes that in the event a triggering event were to occur, the impairment loss to an unamortized customer list would be immaterial.
The results of all acquisitions have been 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 10 – DEBT
Senior Notes Payable; Revolving Credit Facility
At December 31, 2020 the Company's notes payable consisted of a $685.0 million senior revolving credit facility, which includes an accordion feature permitting the maximum aggregate commitments to increase to $685.0 million provided that certain conditions are met. At December 31, 2020 $539.6 million was outstanding under the Company's revolving credit facility, not including a $300.0 thousand outstanding standby letter of credit related to workers compensation. 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 December 31, 2020. The letter of credit expires on December 31, 2021; however, it automatically extends for one year on the expiration date. Subject to a borrowing base formula, the Company may borrow at the rate of LIBOR plus an applicable margin between 3.5% and 4.5% based on certain EBITDA related metrics set forth in the revolving credit agreement, which are determined and adjusted on a monthly basis 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 $1.1 million and $0.9 million for the nine months ended December 31, 2020 and 2019, respectively. The amended and restated revolving credit agreement provides for a process to transition to a new benchmark interest rate from LIBOR, if necessary.
For the nine months ended December 31, 2020 and fiscal year ended March 31, 2020, the Company’s effective interest rate, including the commitment fee and amortization of debt issuance costs, was 5.8% annualized and 5.8%, respectively, and the unused amount available under the revolver at December 31, 2020 was $124.0 million. The Company also had $21.1 million that may become available under the revolving credit facility if it grows the net eligible finance receivables. Borrowings under the revolving credit facility mature on June 7, 2022.
Substantially all of the Company’s assets are pledged as collateral for borrowings under the revolving credit agreement.
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 also contains financial covenants, including: (i) a minimum consolidated net worth of $325,000,000; (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 2.0 to 1.0; and (iv) a maximum collateral performance indicator of 24.0%, as of the end of each calendar month. 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 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 Company was in compliance with these covenants at December 31, 2020 and March 31, 2020 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 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 30 days from the date of its entry and is reasonably likely to cause a material adverse change. If it is determined that a violation of any applicable law
has occurred, such violation may give rise to an event of default under our credit agreement if such violation were to result in a material adverse effect on our business, properties, results of operations, assets, liabilities, or condition (financial or otherwise), or a material impairment of the Company’s and the subsidiaries’ ability to perform their obligations under the agreement or related documents, or if the amount of any settlement, penalties, fines, or other payments resulted in the Company failing to satisfy any financial covenants.
NOTE 11 – INCOME TAXES
As of December 31, 2020 and March 31, 2020, the Company had $3.6 million and $5.8 million, respectively, of total gross unrecognized tax benefits including interest. Approximately $3.0 million and $5.2 million, respectively, represent the amount of net unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate. At December 31, 2020, approximately $1.4 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. As of December 31, 2020, the Company had approximately $1.2 million accrued for gross interest, of which $274.5 thousand reversed during the nine months ended December 31, 2020.
The Company is subject to U.S. income taxes, as well as 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 2016, although carryforward attributes that were generated prior to 2016 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 totaled 14.3% for the quarter ended December 31, 2020 compared to (6.0)% for the prior year quarter. The difference is primarily due to the release of reserves related to the settlement of a state dispute and the expiration of the statute of limitations in the current period along with the recognition of the $8.0 million non-deductible accrual for the Mexico resolution which was partially offset by the net benefit under the Federal Historic Tax Credit program in the prior year quarter.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Derivative Litigation
On September 25, 2020, a shareholder filed a derivative complaint in South Carolina state court, Paul Parshall v. World Acceptance et al., against the Company as the nominal defendant and certain current and former directors and officers as defendants. Pointing to the Company’s resolution with the SEC and DOJ of the Mexico investigation previously disclosed, the complaint alleges violations of South Carolina law, including breaches of fiduciary duties and corporate waste, and that the Company has suffered damages as a result of those alleged breaches. The complaint seeks unspecified monetary damages from the individual defendants, equitable and/or injunctive relief, disgorgement of compensation from the individual defendants, and attorneys’ fees and costs. Because the complaint is derivative in nature, it does not seek monetary damages from the Company. However, the Company may be required to advance, and ultimately be responsible for, the legal fees and costs incurred by the individual defendants.
General
In addition, 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. However, in light of the inherent uncertainties involved, 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
Management is not aware of any significant events occurring subsequent to the balance sheet date that would have a material effect on the financial statements thereby requiring adjustment or disclosure.