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WRLD World Acceptance

Filed: 6 Nov 20, 4:04pm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

__________________________________
 Form 10-Q
__________________________________

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934

For the transition period from ______________ to ______________
 
Commission File Number:  000-19599

WORLD ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter.)

South Carolina 57-0425114
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

104 S Main Street
Greenville,South Carolina29601
(Address of principal executive offices)
(Zip Code)

(864)298-9800
(registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, no par valueWRLDThe NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
1


 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated filerAccelerated filer
  
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No x

The number of outstanding shares of the issuer’s no par value common stock as of October 30, 2020 was 6,872,921.

2


 WORLD ACCEPTANCE CORPORATION
FORM 10-Q

TABLE OF CONTENTS

Item No.ContentsPage
GLOSSARY OF DEFINED TERMS
PART I - FINANCIAL INFORMATION 
1.Consolidated Financial Statements (unaudited):
 Consolidated Balance Sheets as of September 30, 2020 and March 31, 2020
 Consolidated Statements of Operations for the three and six months ended September 30, 2020 and September 30, 2019
 Consolidated Statements of Shareholders' Equity for the three and six months ended September 30, 2020 and September 30, 2019
 Consolidated Statements of Cash Flows for the six months ended September 30, 2020 and September 30, 2019
 Notes to Consolidated Financial Statements
2.Management's Discussion and Analysis of Financial Condition and Results of Operations
3.Quantitative and Qualitative Disclosures about Market Risk
4.Controls and Procedures
PART II - OTHER INFORMATION
1.Legal Proceedings
1A.Risk Factors
2.Unregistered Sales of Equity Securities and Use of Proceeds
3.Defaults Upon Senior Securities
4.Mine Safety Disclosures
5.Other Information
6.Exhibits
EXHIBIT INDEX
SIGNATURES

Introductory Note: As used herein, the "Company," "we," "our," "us," or similar formulations include World Acceptance Corporation and each of its subsidiaries, unless otherwise expressly noted or the context otherwise requires that it include only World Acceptance Corporation. All references in this report to "fiscal 2021" are to the Company’s fiscal year ending March 31, 2021; all references in this report to "fiscal 2020" are to the Company's fiscal year ended March 31, 2020; and all references to "fiscal 2019" are to the Company’s fiscal year ended March 31, 2019.

3

GLOSSARY OF DEFINED TERMS

The following terms may be used throughout this Report, including consolidated financial statements and related notes.

TermDefinition
ACLAllowance for Credit Losses
ASUAccounting Standards Update
CECLCurrent Expected Credit Loss
CEOChief Executive Officer
CFOChief Financial Officer
CFPBU.S. Consumer Financial Protection Bureau
Compensation CommitteeCompensation and Stock Option Committee
Customer TenureThe number of years since a customer was first serviced by the Company
DOJU.S. Department of Justice
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FCPAU.S. Foreign Corrupt Practices Act of 1977, as amended
G&AGeneral and administrative
GAAPU.S. generally accepted accounting principles
IRCInternal Revenue Code of 1986, as amended
IRSU.S. Internal Revenue Service
LIBORLondon Interbank Offered Rate
Option Measurement PeriodThe 6.5 year performance period beginning on September 30, 2018 and ending on March 31, 2025 over which the Performance Options are eligible to vest, following certification by the Compensation Committee of achievement
Performance OptionsPerformance-based stock options
Performance Share Measurement PeriodThe 6.5 year performance period beginning on September 30, 2018 and ending on March 31, 2025 over which the Performance Shares are eligible to vest, following certification by the Compensation Committee of achievement
Performance SharesService- and performance-based restricted stock awards
PurchasersJointly, Astro Wealth S.A. de C.V. and Astro Assets S.A. de C.V.
Rehab RatePercentage of 91 days or more delinquent that do not charge off
Restricted StockService-based restricted stock awards
SECU.S. Securities and Exchange Commission
Service OptionsService-based stock options
TALTax Advance Loan
WAC de MexicoWAC de México, S.A. de C.V., SOFOM, E.N.R., a former subsidiary of World Acceptance Corporation

4

PART I.  FINANCIAL INFORMATION

WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 September 30, 2020March 31, 2020
ASSETS  
Cash and cash equivalents$13,987,906 $11,618,922 
Gross loans receivable1,109,366,487 1,209,871,366 
Less:  
Unearned interest, insurance and fees(289,700,225)(308,980,724)
Allowance for credit losses(109,601,359)(96,487,856)
Loans receivable, net710,064,903 804,402,786 
Right-of-use asset (Note 6)95,335,005 101,686,918 
Property and equipment, net25,910,292 24,761,108 
Deferred income taxes, net29,425,306 23,257,985 
Other assets, net26,122,886 28,547,950 
Goodwill7,370,791 7,370,791 
Intangible assets, net22,930,322 24,448,477 
Assets held for sale (Note 2)1,143,528 3,991,498 
Total assets$932,290,939 $1,030,086,435 
 
LIABILITIES & SHAREHOLDERS' EQUITY  
Liabilities:  
Senior notes payable$424,900,000 $451,100,000 
Income taxes payable4,723,017 4,965,302 
Lease liability (Note 6)96,481,607 102,759,386 
Accounts payable and accrued expenses38,911,164 59,298,680 
Total liabilities565,015,788 618,123,368 
Commitments and contingencies (Notes 6 and 12)
Shareholders' equity:  
Preferred stock, no par value Authorized 5,000,000, no shares issued or outstanding0 
Common stock, no par value Authorized 95,000,000 shares; issued and outstanding 7,002,080 and 7,807,834 shares at September 30, 2020 and March 31, 2020, respectively0 
Additional paid-in capital237,547,566 227,214,577 
Retained earnings129,727,585 184,748,490 
Total shareholders' equity367,275,151 411,963,067 
Total liabilities and shareholders' equity$932,290,939 $1,030,086,435 

See accompanying notes to consolidated financial statements.

5

WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three months ended September 30,Six months ended September 30,
2020201920202019
Revenues:  
Interest and fee income$108,885,851 $126,091,032 $218,746,307 $249,001,181 
Insurance income, net and other income15,555,201 15,482,084 29,561,547 31,013,918 
Total revenues124,441,052 141,573,116 248,307,854 280,015,099 
Expenses:   
Provision for credit losses26,090,367 52,968,036 51,751,027 94,259,107 
General and administrative expenses:  
Personnel46,832,893 49,610,802 91,454,916 102,070,247 
Occupancy and equipment13,515,468 13,554,466 26,696,974 26,910,768 
Advertising5,255,613 6,269,734 7,867,780 12,379,561 
Amortization of intangible assets1,286,118 1,257,953 2,668,246 2,212,594 
Other8,402,448 7,759,428 18,212,603 16,655,576 
Total general and administrative expenses75,292,540 78,452,383 146,900,519 160,228,746 
Interest expense5,892,790 6,327,817 11,454,667 10,731,145 
Total expenses107,275,697 137,748,236 210,106,213 265,218,998 
Income before income taxes17,165,355 3,824,880 38,201,641 14,796,101 
Income taxes3,766,735 1,311,706 9,293,372 3,674,528 
Net income$13,398,620 $2,513,174 $28,908,269 $11,121,573 
Net income per common share:   
Basic$2.01 $0.32 $4.27 $1.36 
Diluted$1.96 $0.31 $4.20 $1.30 
Weighted average common shares outstanding:  
Basic6,680,969 7,807,229 6,773,704 8,155,263 
Diluted6,853,425 8,201,597 6,890,265 8,532,012 

See accompanying notes to consolidated financial statements.

6

WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Three months ended September 30, 2020
Common Stock
SharesAdditional Paid-in CapitalRetained EarningsTotal Shareholders' Equity
Balances at June 30, 20207,451,588 $231,678,312 159,564,603 391,242,915 
Proceeds from exercise of stock options15,571 1,006,825  1,006,825 
Common stock repurchases(460,120) (43,235,638)(43,235,638)
Restricted common stock expense under stock option plan, net of cancellations ($90,720)(4,959)3,776,190  3,776,190 
Stock option expense 1,086,239  1,086,239 
Net income  13,398,620 13,398,620 
Balances at September 30, 20207,002,080 $237,547,566 129,727,585 367,275,151 

Three months ended September 30, 2019
Common Stock
SharesAdditional Paid-in CapitalRetained EarningsTotal Shareholders' Equity
Balances at June 30, 20199,181,305 $208,876,263 340,783,798 549,660,061 
Proceeds from exercise of stock options15,706 977,522 — 977,522 
Common stock repurchases(1,251,103)— (168,195,335)(168,195,335)
Restricted common stock expense under stock option plan, net of cancellations ($8,481)(66)6,677,016 — 6,677,016 
Stock option expense— 1,604,772 — 1,604,772 
Net income— — 2,513,174 2,513,174 
Balances at September 30, 20197,945,842 $218,135,573 175,101,637 393,237,210 

Six months ended September 30, 2020
Common Stock
SharesAdditional Paid-in CapitalRetained EarningsTotal Shareholders' Equity
Balances at March 31, 20207,807,834 $227,214,577 184,748,490 $411,963,067 
Proceeds from exercise of stock options15,571 1,006,825  1,006,825 
Common stock repurchases(786,418) (62,686,925)(62,686,925)
Restricted common stock expense under stock option plan, net of cancellations ($284,079)(34,907)7,193,190  7,193,190 
Stock option expense 2,132,974  2,132,974 
Cumulative effect of adoption of ASC 326  (21,242,249)(21,242,249)
Net income  28,908,269 28,908,269 
Balances at September 30, 20207,002,080 $237,547,566 129,727,585 $367,275,151 

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Six months ended September 30, 2019
Common Stock
SharesAdditional Paid-in CapitalRetained EarningsTotal Shareholders' Equity
Balances at March 31, 20199,284,118 $198,125,649 353,990,976 $552,116,625 
Proceeds from exercise of stock options55,472 3,654,097 — 3,654,097 
Common stock repurchases(1,392,180)— (190,010,912)(190,010,912)
Restricted common stock expense under stock option plan, net of cancellations ($246,650)(1,568)13,129,717 — 13,129,717 
Stock option expense— 3,226,110 — 3,226,110 
Net income— — 11,121,573 11,121,573 
Balances at September 30, 20197,945,842 $218,135,573 175,101,637 $393,237,210 

See accompanying notes to consolidated financial statements.

8

WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended September 30,
 20202019
Cash flow from operating activities:  
Net income$28,908,269 $11,121,573 
Adjustments to reconcile net income to net cash provided by operating activities:  
Amortization of intangible assets2,668,246 2,212,594 
Amortization of investment in historic tax credits868,192 
Amortization of debt issuance costs315,015 261,392 
Provision for credit losses51,751,027 94,259,107 
Depreciation3,477,512 3,499,067 
Loss (gain) on sale of property and equipment34,058 (101,774)
Deferred income tax benefit1,218,798 (6,361,213)
Compensation related to stock option and restricted stock plans, net of taxes and adjustments9,610,243 16,602,477 
Change in accounts:  
Other assets, net1,692,741 3,704,467 
Income taxes payable(242,285)(10,028,921)
Accounts payable and accrued expenses(20,387,516)3,007,987 
Net cash provided by operating activities79,914,300 118,176,756 
Cash flows from investing activities:  
Decrease (increase) in loans receivable, net19,745,335 (130,033,384)
Net assets acquired from branch acquisitions, primarily loans(5,786,847)(47,021,848)
Increase in intangible assets from acquisitions(1,150,091)(14,548,794)
Purchases of property and equipment(4,760,009)(5,132,987)
Proceeds from sale of property and equipment2,947,225 153,044 
Net cash provided by (used in) investing activities10,995,613 (196,583,969)
Cash flow from financing activities:  
Borrowings from senior notes payable144,676,750 358,191,400 
Payments on senior notes payable(170,876,750)(91,300,000)
Debt issuance costs associated with senior notes payable(376,750)(991,400)
Proceeds from exercise of stock options1,006,825 3,654,097 
Payments for taxes related to net share settlement of equity awards(284,079)(246,650)
Repurchase of common stock(62,686,925)(190,010,912)
Net cash provided by (used in) financing activities(88,540,929)79,296,535 
Net change in cash and cash equivalents2,368,984 889,322 
Cash and cash equivalents at beginning of period11,618,922 9,335,433 
Cash and cash equivalents at end of period$13,987,906 $10,224,755 
Supplemental Disclosures:
Interest paid during the period$11,283,327 $9,303,060 
Income taxes paid during the period$8,731,860 $17,683,191 

See accompanying notes to consolidated financial statements.
9

WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The consolidated financial statements of the Company at September 30, 2020 and for the three and six months then ended were prepared in accordance with the instructions for Form 10-Q and are unaudited; however, in the opinion of management all adjustments (consisting only of items of a normal, recurring nature) necessary for a fair presentation of the financial position at September 30, 2020, and the results of operations and cash flows for the periods ended September 30, 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:
September 30, 2020March 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

10

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 September 30, 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 September 30, 2019Six months ended September 30, 2019
As originally filedAdjustmentsAs revisedAs originally filedAdjustmentsAs revised
Income tax expense (benefit)$(395,121)$1,706,827 $1,311,706 $1,967,701 $1,706,827 $3,674,528 
Net income$4,220,001 $(1,706,827)$2,513,174 $12,828,400 $(1,706,827)$11,121,573 

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.

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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.
September 30, 2020March 31, 2020
Input LevelCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
ASSETS
Cash and cash equivalents1$13,987,906 13,987,906 $11,618,922 11,618,922 
Loans receivable, net3710,064,903 710,064,903 804,402,786 804,402,786 
LIABILITIES
Senior notes payable3424,900,000 424,900,000 451,100,000 451,100,000 

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.
September 30, 2020March 31, 2020
Input LevelCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
ASSETS
Assets held for sale2$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 September 30, 2020 or March 31, 2020.

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NOTE 5 – FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

The following is a summary of gross loans receivable by customer tenure as of:
Customer TenureSeptember 30, 2020
0 to 5 months$75,827,098 
6 to 17 months142,658,784 
18 to 35 months160,451,477 
36 to 59 months126,077,197 
60+ months603,148,733 
Tax advance loans1,203,198 
Total gross loans$1,109,366,487 

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 September 30, 2020:
13

Term Loans By Origination
LoansUp 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$972,725,701 $50,307,235 $2,171,951 $156,648 $10,639 $3,984 $1,025,376,158 
30 - 60 days past due30,118,338 3,199,397 226,733 33,613 1,560 1,553 33,581,194 
61 - 90 days past due16,896,334 1,959,318 116,829 30,665 1,386 19,004,532 
91 or more days past due24,942,824 4,938,873 287,985 25,415 4,497 1,811 30,201,405 
Total$1,044,683,197 $60,404,823 $2,803,498 $246,341 $18,082 $7,348 $1,108,163,289 
Term Loans By Origination
Tax advance loansUp 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$63,894 $469 $$$$64,363 
30 - 60 days past due58,728 156 58,884 
61 - 90 days past due62,232 879 63,111 
91 or more days past due1,013,377 3,463 1,016,840 
Total$1,198,231 $4,967 $$$$$1,203,198 
Total gross loans$1,109,366,487 

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 September 30, 2020:
14

Term Loans By Origination
LoansUp 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$958,885,641 $44,710,976 $1,629,478 $74,227 $843 $$1,005,301,165 
30 - 60 days past due33,474,292 2,144,594 111,912 14,826 35,745,624 
61 - 90 days past due19,187,491 1,822,975 76,408 4,932 21,091,806 
91 or more days past due33,135,773 11,726,278 985,700 152,356 17,239 7,348 46,024,694 
Total$1,044,683,197 $60,404,823 $2,803,498 $246,341 $18,082 $7,348 $1,108,163,289 
Term Loans By Origination
Tax advance loansUp to
1
Year Ago
Between
1 and 2
Years Ago
Between
2 and 3
Years Ago
Between
3 and 4
Years Ago
Between
4 and 5
Years Ago
More than
5
Years Ago
Total
Current$22,319 $$$$$22,319 
30 - 60 days past due41,073 41,073 
61 - 90 days past due51,596 51,596 
91 or more days past due1,083,243 4,967 1,088,210 
Total$1,198,231 $4,967 $$$$$1,203,198 
Total gross loans$1,109,366,487 

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
15


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 six months ended September 30, 2020 and 2019.
Three months ended September 30,Six months ended September 30,
2020201920202019
Beginning balance$112,686,597 $87,353,087 $96,487,856 $81,519,624 
Impact of ASC 326 — 28,628,368 — 
Provision for credit losses26,090,367 52,968,036 51,751,027 94,259,107 
Charge-offs(33,793,503)(42,604,434)(77,625,445)(82,128,421)
Recoveries4,617,898 3,752,624 10,359,553 7,819,003 
Net charge-offs(29,175,605)(38,851,810)(67,265,892)(74,309,418)
Ending Balance$109,601,359 $101,469,313 $109,601,359 $101,469,313 

The following table is an aging analysis on a recency basis at amortized cost of the Company’s gross loans receivable at September 30, 2020:

Days Past Due - Recency Basis
Customer TenureCurrent30 - 6061 - 90Over 90Total Past DueTotal Loans
0 to 5 months$62,173,397 $3,884,632 $2,980,787 $6,788,282 $13,653,701 $75,827,098 
6 to 17 months126,535,248 6,150,317 4,017,882 5,955,337 16,123,536 142,658,784 
18 to 35 months147,862,032 5,374,578 2,934,945 4,279,922 12,589,445 160,451,477 
36 to 59 months118,141,571 3,556,780 1,796,038 2,582,808 7,935,626 126,077,197 
60+ months570,663,909 14,614,888 7,274,880 10,595,056 32,484,824 603,148,733 
Tax advance loans64,363 58,884 63,111 1,016,840 1,138,835 1,203,198 
Total gross loans1,025,440,520 33,640,079 19,067,643 31,218,245 83,925,967 1,109,366,487 
Unearned interest, insurance and fees(267,783,778)(8,784,778)(4,979,329)(8,152,340)(21,916,447)(289,700,225)
Total net loans$757,656,742 $24,855,301 $14,088,314 $23,065,905 $62,009,520 $819,666,262 
Percentage of period-end gross loans receivable3.0%1.7%2.8%7.6%
16

Days Past Due - Contractual Basis
Customer TenureCurrent30 - 6061 - 90Over 90Total Past DueTotal Loans
0 to 5 months$60,727,536 $3,744,789 $2,855,588 $8,499,186 $15,099,563 $75,827,099 
6 to 17 months124,014,494 6,292,585 4,228,451 8,123,254 18,644,290 142,658,784 
18 to 35 months145,170,347 5,707,082 3,242,541 6,331,507 15,281,130 160,451,477 
36 to 59 months115,850,902 3,771,789 2,074,251 4,380,254 10,226,294 126,077,196 
60+ months559,537,885 16,229,380 8,690,975 18,690,493 43,610,848 603,148,733 
Tax advance loans22,319 41,073 51,595 1,088,211 1,180,879 1,203,198 
Total gross loans1,005,323,483 35,786,698 21,143,401 47,112,905 104,043,004 1,109,366,487 
Unearned interest, insurance and fees(262,530,410)(9,345,347)(5,521,393)(12,303,075)(27,169,815)(289,700,225)
Total net loans$742,793,073 $26,441,351 $15,622,008 $34,809,830 $76,873,189 $819,666,262 
Percentage of period-end gross loans receivable3.2%1.9%4.2%9.4%

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 September 30, 2020, the Company reversed a total of $4.3 million of unpaid accrued interest against interest income. During the six months ended September 30, 2020, the Company reversed a total of $9.8 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 TenureAs of
September 30, 2020
As of
March 31, 2020
Financial Assets 61 Days or More Past Due, Not on Nonaccrual StatusNonaccrual Financial Assets With No Allowance
as of September 30, 2020
Interest Income
Recognized
0 to 5 months$11,676,657 $26,040,593 $$$1,062,504 
6 to 17 months12,746,931 17,466,450 1,238,745 
18 to 35 months10,032,544 13,723,295 1,045,401 
36 to 59 months6,825,858 10,071,288 815,245 
60+ months29,250,038 44,293,545 3,624,427 
Tax advance loans1,203,653 41,573 
Unearned interest, insurance and fees(18,733,073)(28,510,140)— — 
Total$53,002,608 $83,126,604 $$$7,786,322 

17

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, 2020Loans 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 delinquent70,719,727 70,719,727 
Loans not contractually delinquent and not in bankruptcy1,133,985,887 1,133,985,887 
Gross loan balance75,885,479 1,133,985,887 1,209,871,366 
Unearned interest and fees(16,848,762)(292,131,962)(308,980,724)
Net loans59,036,717 841,853,925 900,890,642 
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 

September 30, 2019Loans individually
evaluated for
impairment
(impaired loans)
Loans collectively
evaluated for
impairment
Total
Gross loans in bankruptcy, excluding contractually delinquent$5,919,237 5,919,237 
Gross loans contractually delinquent67,515,456 67,515,456 
Loans not contractually delinquent and not in bankruptcy1,200,712,101 1,200,712,101 
Gross loan balance73,434,693 1,200,712,101 1,274,146,794 
Unearned interest and fees(15,408,232)(318,918,117)(334,326,349)
Net loans58,026,461 881,793,984 939,820,445 
Allowance for losses(52,358,792)(49,110,521)(101,469,313)
Loans, net of allowance for losses$5,667,669 832,683,463 838,351,132 

The average net balance of impaired loans was $53.4 million for the six-month period ended September 30, 2019. It is not practical to compute the amount of interest earned on impaired loans.
 
18

The following is an assessment of the credit quality of loans for the periods indicated:
 March 31, 2020September 30, 2019
Credit risk 
Consumer loans- non-bankrupt accounts$1,203,552,152 $1,266,666,753 
Consumer loans- bankrupt accounts6,319,214 7,480,041 
Total gross loans$1,209,871,366 $1,274,146,794 
Consumer credit exposure 
Credit risk profile based on payment activity, performing$1,104,130,714 $1,171,654,200 
Contractual non-performing, 61 or more days delinquent (1)
105,740,652 102,492,594 
Total gross loans$1,209,871,366 $1,274,146,794 
Credit risk profile based on customer type 
New borrower$124,800,193 $152,893,420 
Former borrower127,108,125 143,234,099 
Refinance935,448,882 954,842,006 
Delinquent refinance22,514,166 23,177,269 
Total gross loans$1,209,871,366 $1,274,146,794 
_______________________________________________________
(1) Loans in non-accrual status.

The following is a summary of the past due receivables as of:
 March 31, 2020September 30, 2019
Contractual basis:  
30-60 days past due$49,137,102 $55,199,165 
61-90 days past due35,020,925 34,977,138 
91 days or more past due70,719,727 67,515,456 
Total$154,877,754 $157,691,759 
Percentage of period-end gross loans receivable12.8 %12.4 %
Recency basis:
30-60 days past due$48,206,910 $54,101,357 
61-90 days past due28,450,942 30,534,482 
91 days or more past due50,669,837 51,155,873 
Total$127,327,689 $135,791,712 
Percentage of period-end gross loans receivable10.5 %10.7 %

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.

19

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 September 30, 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 six months ended September 30, 2020 and 2019:
Three months ended September 30,Six months ended September 30,
 2020201920202019
Lease Cost
Operating lease cost$7,018,273 $6,422,771 $14,087,935 $12,653,350 
Short-term lease cost0 1,800 
Variable lease cost897,723 810,078 1,777,373 1,614,685 
Total lease cost$7,915,996 $7,232,849 $15,867,108 $14,268,035 

The following table reports other information about the Company's leases for the three and six months ended September 30, 2020 and 2019:
Three months ended September 30,Six months ended September 30,
 2020201920202019
Other Lease Information
Cash paid for amounts included in the measurement of lease liabilities$6,912,319 $6,270,796 $13,849,168 $12,303,194 
Right-of-use assets obtained in exchange for new operating lease liabilities(1)
$3,509,052 $5,800,042 $7,632,494 $23,293,291 
Weighted average remaining lease term — operating leases7.2 years5.1 years7.2 years5.1 years
Weighted-average discount rate — operating leases6.5 %6.7 %6.5 %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.

20

The following table reports information about the maturity of the Company's operating leases as of September 30, 2020:
September 30, 2020
Operating lease liability maturity analysis
Fiscal 2021$13,573,314 
Fiscal 202224,553,898 
Fiscal 202320,165,601 
Fiscal 202416,082,881 
Fiscal 202511,719,843 
Fiscal 20268,076,744 
Thereafter29,578,070 
Total undiscounted lease liability123,750,351 
Imputed interest27,268,744 
Total discounted lease liability$96,481,607 

The Company had no leases with related parties at September 30, 2020.

NOTE 7 – AVERAGE SHARE INFORMATION

The following is a summary of the basic and diluted average common shares outstanding:
Three months ended September 30,Six months ended September 30,
2020201920202019
Basic:  
Weighted average common shares outstanding (denominator)6,680,969 7,807,229 6,773,704 8,155,263 
Diluted:  
Weighted average common shares outstanding6,680,969 7,807,229 6,773,704 8,155,263 
Dilutive potential common shares172,456 394,368 116,561 376,749 
Weighted average diluted shares outstanding (denominator)6,853,425 8,201,597 6,890,265 8,532,012 

Options to purchase 637,322 and 655,462 shares of common stock at various prices were outstanding during the three months ended September 30, 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 639,654 and 669,374 shares of common stock at various prices were outstanding during the six months ended September 30, 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 2005 Stock Option Plan, 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 4,350,000 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 September 30, 2020, there were a total of 207,224 shares of common stock available for grant under the plans.

21

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)
$16.3540%
$20.4560%

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)
$25.30100%

Stock Options

22

The weighted-average fair value at the grant date for options issued during the three months ended September 30, 2020 and 2019 was $47.61 and $71.31, respectively. The weighted-average fair value at the grant date for options issued during the six months ended September 30, 2020 and 2019 was $47.31 and $70.69, respectively.

Fair value was estimated at grant date using the weighted-average assumptions listed below:
Three months ended September 30,Six months ended September 30,
2020201920202019
Dividend Yield0%0%0%0%
Expected Volatility56.19%51.25%56.17%50.90%
Average risk-free rate0.35%1.54%0.36%1.70%
Expected Life6.2 years6.5 years6.2 years6.6 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 six months ended September 30, 2020 was as follows:
 SharesWeighted Average Exercise
Price
Weighted Average
Remaining
Contractual Term
Aggregate Intrinsic Value
Options outstanding, beginning of period646,728 $88.30   
Granted during period17,530 90.72   
Exercised during period(15,571)64.66   
Forfeited during period(11,880)100.79   
Expired during period(300)76.51   
Options outstanding, end of period636,507 $88.71 6.1 years$11,209,268 
Options exercisable, end of period309,398 $75.75 4.0 years$9,228,750 
 
The aggregate intrinsic value reflected in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on September 30, 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 September 30, 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 September 30, 2020 and 2019 was as follows:
September 30,
2020
September 30,
2019
Three months ended$496,721 $1,515,230 
Six months ended$496,721 $4,350,557 
 
As of September 30, 2020, total unrecognized stock-based compensation expense related to non-vested stock options amounted to approximately $9.0 million, which is expected to be recognized over a weighted-average period of approximately 3.8 years.

Restricted Stock

During the first six months of fiscal 2021, the Company granted 29,215 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 $92.44 per share.

23

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 $7.5 million and $13.4 million for the six months ended September 30, 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 September 30, 2020, there was approximately $32.3 million of unrecognized compensation cost related to unvested restricted stock awards, which is expected to be recognized over the next 3.0 years based on current estimates.

A summary of the status of the Company’s restricted stock as of September 30, 2020, and changes during the six months ended September 30, 2020, are presented below:
 SharesWeighted Average Fair Value at Grant Date
Outstanding at March 31, 2020705,254 $101.47 
Granted during the period29,215 92.44 
Vested during the period(15,568)100.41 
Forfeited during the period(60,000)100.79 
Outstanding at September 30, 2020658,901 $101.16 
 
Total Stock-Based Compensation

Total stock-based compensation included as a component of net income during the three and six month periods ended September 30, 2020 and 2019 was as follows:
Three months ended September 30,Six months ended September 30,
2020201920202019
Stock-based compensation related to equity classified awards:
Stock-based compensation related to stock options$1,086,239 $1,604,772 $2,132,974 $3,226,110 
Stock-based compensation related to restricted stock, net of adjustments and exclusive of cancellations3,940,404 6,685,497 7,477,269 13,376,367 
Total stock-based compensation related to equity classified awards$5,026,643 $8,290,269 $9,610,243 $16,602,477 

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.
24


The following table sets forth the Company's acquisition activity for the six months ended September 30, 2020 and 2019.
 Six months ended September 30,
20202019
Acquisitions:
Number of branches acquired through business combinations0 37 
Number of loan portfolios acquired through asset purchases15 134 
Total acquisitions15 171 
Purchase price$6,936,938 $61,570,642 
Tangible assets: 
Loans receivable, net5,786,847 46,952,848 
Property and equipment0 69,000 
Total tangible assets5,786,847 47,021,848 
Excess of purchase prices over carrying value of net tangible assets$1,150,091 $14,548,794 
Customer lists$1,070,091 13,466,111 
Non-compete agreements$80,000 855,000 
Goodwill$0 227,683 

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
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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 September 30, 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 September 30, 2020 $424.9 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 September 30, 2020. The letter of credit expires on December 31, 2020; 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 3.0% and 4.0% 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 4.0%. The revolving credit facility has a commitment fee of 0.50% per annum on the unused portion of the commitment. Commitment fees on the unused portion of the borrowing totaled $0.8 million and $0.7 million for the six months ended September 30, 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 six months ended September 30, 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 September 30, 2020 was $157.0 million. The Company also had $102.8 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 $325.0 million; (ii) a minimum fixed charge coverage ratio of (a) 2.25 to 1.0 for the fiscal quarter ending September 30, 2020 and (b) 2.75 to 1.0 for each fiscal quarter thereafter; (iii) a maximum ratio of total debt to consolidated adjusted net worth of 2.0 to 1.0; (iv) as of the end of each fiscal quarter, provision for credit losses for the four fiscal quarters then ending shall equal or exceed the net loan charge-off for the corresponding period (any shortfalls are required to be deducted in the determination of net income and consolidated adjusted net worth); and (v) a maximum collateral performance indicator of 23.0%, 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 September 30, 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,
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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. 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 September 30, 2020 and March 31, 2020, the Company had $6.0 million and $5.8 million, respectively, of total gross unrecognized tax benefits including interest. Approximately $5.4 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 September 30, 2020, approximately $2.9 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 September 30, 2020, the Company had approximately $1.6 million accrued for gross interest, of which $154.3 thousand was accrued during the six months ended September 30, 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 decreased to 21.9% for the quarter ended September 30, 2020 compared to 34.3% for the prior year quarter. The decrease is primarily due to the net effect of the historic tax credit accounting being recorded as a discrete event in the prior year quarter, an increase in the disallowed executive compensation under Section 162(m) in the prior year quarter and the recognition of the permanent tax benefit related to the exclusion of life insurance proceeds in the current year quarter.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Resolution of Mexico Investigation

As previously disclosed, the Company retained outside legal counsel and forensic accountants to conduct an investigation of its operations in Mexico, focusing on the legality under the FCPA, and certain local laws of certain payments related to loans, the maintenance of the Company’s books and records associated with such payments, and the treatment of compensation matters for certain employees. The investigation addressed whether and to what extent improper payments, which may violate the FCPA and other local laws, were made approximately between 2010 and 2017 by or on behalf of WAC de Mexico, to government officials in Mexico relating to loans made to unionized employees. The Company voluntarily contacted the SEC and the DOJ in June 2017 to advise both agencies that an internal investigation was underway and that the Company intended to cooperate with both agencies. The SEC issued a formal order of investigation. The Company has cooperated with both agencies.

On August 6, 2020, the Company announced that it reached resolution with both the SEC and the DOJ regarding allegations primarily involving the Company’s former subsidiary in Mexico.

In connection with the resolution of the investigations, the Company agreed to the terms contained in a Declination Letter with the DOJ, dated August 5, 2020 (the “Declination Letter”). Pursuant to the terms of the Declination Letter, the DOJ declined to prosecute the Company and closed its investigation into the Company citing as the bases for this decision, among other things, the following: prompt, voluntary self-disclosure of the misconduct; full and proactive cooperation in this matter (including its provision of all known relevant facts about the misconduct); and full remediation, including the additional FCPA training added to the Company’s compliance program, separation from executives under whom the misconduct took place; and discontinuing relationships with third parties in Mexico involved in the misconduct.

The SEC approved the Offer of Settlement on August 6, 2020 and issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (the “SEC Order”). Pursuant to the terms of the SEC Order, the Company consented to 1) cease and desist from committing or
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causing any violations and any future violations of Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act of 1934, and 2) pay, within fourteen days, disgorgement, prejudgment interest and civil penalties totaling $21,726,000 to the SEC. During the quarter ended September 30, 2020, the Company paid $21.7 million for such matters.

The Company could still face fines, sanctions, and other penalties from authorities in Mexico, as well as third-party claims by shareholders and/or other stakeholders of the Company. Disclosure of the disposition of the SEC and DOJ investigations could adversely affect the Company’s reputation and its ability to obtain new business or retain existing business from its current customers and potential customers, to attract and retain employees, and to access the capital markets. Further, under the terms of the stock purchase agreement among the Company and the Purchasers in connection with the sale of our Mexico operations, we are obligated to indemnify the Purchasers for claims and liabilities relating to certain investigations of our former Mexico operations, the Company, and its affiliates by the DOJ or the SEC that commenced prior to July 1, 2018. Any such indemnification claims could have a material adverse effect on our financial condition, including liquidity, and results of operations.

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 described above, 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.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Information

This report on Form 10-Q, including "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contains various "forward-looking statements," within the meaning of The Private Securities Litigation Reform Act of 1995, that are based on management’s beliefs and assumptions, as well as information currently available to management. Statements other than those of historical fact, 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: recently enacted, proposed or future legislation and the manner in which it is implemented, including the effect of changes in tax law; the nature and scope of regulatory authority, particularly discretionary authority, that may be exercised by regulators, including, but not limited to, the SEC, DOJ, CFPB, and individual state regulators having jurisdiction over the Company; the unpredictable nature of regulatory proceedings and litigation; risks associated with the COVID-19 pandemic and the mitigation efforts by governments and related effects on us, our customers, and employees; the sale of our Mexico subsidiaries, including claims or litigation resulting therefrom; uncertainties associated with management turnover and the effective succession of senior management; 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, integration or migration issues, 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; 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); 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 ended March 31, 2020 filed with the SEC, and in the Company’s other reports filed with, or furnished to, the SEC from time to time. The Company does not undertake any obligation to update any forward-looking statements it may make.

Results of Operations

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:
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Three months ended September 30,Six months ended September 30,
 2020201920202019
 (Dollars in thousands)
Gross loans receivable$1,109,366 $1,274,147 $1,109,366 $1,274,147 
Average gross loans receivable (1)
1,088,191 1,253,249 1,105,573 1,212,281 
Net loans receivable (2)
819,666 939,820 819,666 939,820 
Average net loans receivable (3)
805,346 923,046 821,808 894,935 
Expenses as a percentage of total revenue:
Provision for credit losses21.0 %37.4 %20.8 %33.7 %
General and administrative60.5 %55.4 %59.2 %57.2 %
Interest expense4.7 %4.5 %4.6 %3.8 %
Operating income as a % of total revenue (4)
18.5 %7.2 %20.0 %9.1 %
Loan volume (5)
647,024 729,775 1,110,507 1,481,923 
Net charge-offs as percent of average net loans receivable14.5 %16.8 %16.4 %16.6 %
Return on average assets (trailing 12 months)4.5 %5.8 %4.5 %5.8 %
Return on average equity (trailing 12 months)11.8 %10.5 %11.8 %10.5 %
Branches opened or acquired (merged or closed), net(8)16 (11)41 
Branches open (at period end)1,232 1,234 1,232 1,234 
_______________________________________________________
(1) Average gross loans receivable have 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 have 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 loans generated by the Company. It does not include loans purchased through acquisitions.

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 September 30, 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:

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CONSOLIDATED BALANCE SHEET
As of September 30, 2019
As originally filedAdjustmentsAs revised
Deferred income taxes, net$31,898,939 $(1,706,827)$30,192,112 
Other assets, net16,151,630 8,681,915 24,833,545 
Total assets1,077,816,368 6,975,088 1,084,791,456 
Income taxes payable1,521,276 9,236,080 10,757,356 
Accounts payable and accrued expenses42,389,238 (554,165)41,835,073 
Total liabilities682,872,331 8,681,915 691,554,246 
Shareholders' equity394,944,037 (1,706,827)393,237,210 
Total liabilities and shareholders' equity$1,077,816,368 $6,975,088 $1,084,791,456 

SELECTED CONSOLIDATED STATISTICS
Three months ended September 30, 2019Six months ended September 30, 2019
As originally filedAdjustmentsAs revisedAs originally filedAdjustmentsAs revised
Return on average equity (trailing 12 months)10.8 %(0.3)%10.5 %10.8 %(0.3)%10.5 %
_______________________________________________________
(1) Operating income is computed as total revenues less provision for loan losses and general and administrative expenses.

Comparison of three months ended September 30, 2020 versus three months ended September 30, 2019

Gross loans outstanding decreased to $1.11 billion as of September 30, 2020, a 12.9% decrease from the $1.27 billion of gross loans outstanding as of September 30, 2019. During the three months ended September 30, 2020 our unique borrowers decreased by 21.3% compared to an increase of 11.8% during the three months ended September 30, 2019.

Net income for the three months ended September 30, 2020 increased to $13.4 million, a 433.1% increase from the $2.5 million reported for the same period of the prior year. Operating income (revenue less provision for loan losses and general and administrative expenses) increased by $12.9 million, or 127.1%.

Revenues for the three months ended September 30, 2020 decreased by $17.1 million, or 12.1%, to $124.4 million from $141.6 million for the same period of the prior year. The decrease was primarily due to a decrease in average net loans outstanding. Revenues from the 1,203 branches open throughout both three-month periods decreased by 14.3%.

Interest and fee income for the three months ended September 30, 2020 decreased by $17.2 million, or 13.6%, from the same period of the prior year. The decrease was primarily due to a corresponding decrease in average net loans outstanding. Average net loans outstanding at September 30, 2020 decreased by 12.8% over the balance at September 30, 2019.

Insurance commissions and other income for the three months ended September 30, 2020 increased by $0.1 million, or 0.5%, from the same period of the prior year. Insurance commissions decreased by approximately $1.8 million, or 14.5%, during the three months ended September 30, 2020 when compared to the three months ended September 30, 2019. Insurance revenue decreased due to lower loan volume during the quarter. Other income increased by $1.9 million, $0.7 million of which was due to higher tax preparation revenue as a result of an extended tax season. The Company also recorded a gain on company owned life insurance of $1.1 million due to the death of a former executive.

On April 1, 2020, the Company replaced its incurred loss methodology with a current expected credit loss methodology to accrue for expected losses. The provision for credit losses for the three months ended September 30, 2020 decreased by $26.9 million, or 50.7%, when compared to the provision for credit losses from the same period of the prior year. The provision decreased during the quarter due primarily to a $9.7 million decrease in net charge-offs as well as an improvement in delinquency. Net charge-offs as a percentage of average net loans on an annualized basis decreased from 16.8% for the three months ended September 30, 2019 to 14.5% for the three months ended September 30, 2020. Loans that were 91 days or more past due on a recency basis decreased $11.8 million during the quarter compared to a $7.0 million increase in the second fiscal quarter of the prior year.
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The Company's allowance for credit losses as a percentage of net loans was 13.4% at September 30, 2020 compared to 10.8% at September 30, 2019. Accounts that were 61 days or more past due on a recency basis were 4.5% of the portfolio at September 30, 2020 and 6.4% of the portfolio at September 30, 2019. Accounts that were 61 days or more past due on a contractual basis were 6.2% of the portfolio at September 30, 2020 compared to 8.0% of the portfolio at September 30, 2019.

After experiencing rapid growth of the portfolio during the prior two years, primarily in new customers, the gross loan balance declined in the first half of fiscal 2021 as a result of the ongoing pandemic and its effect on the overall economy. As of September 30, 2020, $363.4 million of the total loan portfolio is with customers who have been with the Company less than two years, a 24.6% increase from the average of the fiscal years 2016-2018 portfolios, but a 20.4% decline from fiscal 2020.

G&A expenses for the three months ended September 30, 2020 decreased by $3.2 million, or 4.0%, from the corresponding period of the previous year. As a percentage of revenues, G&A expenses increased from 55.4% during the three months ended September 30, 2019 to 60.5% during the three months ended September 30, 2020. G&A expenses per average open branch decreased by 5.0% when comparing the two three-month periods. The change in G&A expense is explained in greater detail below.

Personnel expense totaled $46.8 million for the three months ended September 30, 2020, a $2.8 million, or 5.6%, decrease over the three months ended September 30, 2019. Salary expense decreased approximately $1.9 million, or 6.1%, when comparing the two quarterly periods ended September 30, 2020 and 2019. Our headcount as of September 30, 2020, decreased 10.2% compared to September 30, 2019. Benefit expense decreased approximately $0.9 million, or 9.3%, when comparing the quarterly periods ended September 30, 2020 and 2019, primarily as a result of decreased health insurance claims. Incentive expense decreased $1.6 million due to a decrease in share based compensation partially offset by an increase in bonuses paid to branch employees. The Company deferred $1.7 million less in origination costs under ASC 310 when comparing year over year due to lower originations during the quarter, which increased personnel costs.

Occupancy and equipment expense totaled $13.5 million for the three months ended September 30, 2020, a $39.0 thousand, or 0.3%, decrease over the three months ended September 30, 2019. Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the period. For the three months ended September 30, 2020, the average expense per branch decreased to $10.9 thousand, down from $11.1 thousand for the three months ended September 30, 2019.

Advertising expense totaled $5.3 million for the three months ended September 30, 2020, a $1.0 million, or 16.2%, decrease over the three months ended September 30, 2019. The Company anticipated lower demand as a result of COVID-19 during the quarter and reduced the marketing spend.

Amortization of intangible assets totaled $1.3 million for the three months ended September 30, 2020, a $28.2 thousand, or 2.2%, increase over the three months ended September 30, 2019.

Other expense totaled $8.4 million for the three months ended September 30, 2020, a $0.6 million, or 8.3%, increase over the three months ended September 30, 2019.
Interest expense for the three months ended September 30, 2020 decreased by $0.4 million, or 6.9%, from the corresponding three months of the previous year. The decrease in interest expense was due to a 9.3% decrease in the average debt outstanding, from $419.8 million to $380.7 million. The Company’s senior debt-to-equity ratio decreased from 1.3:1 at September 30, 2019 to 1.2:1 at September 30, 2020.

Other key return ratios for the three months ended September 30, 2020 included a 4.5% return on average assets and a return on average equity of 11.8% (both on a trailing 12-month basis), as compared to a 5.8% return on average assets and a return on average equity of 10.5% for the three months ended September 30, 2019.

The Company’s effective income tax rate decreased to 21.9% for the three months ended September 30, 2020 compared to 34.3% for the corresponding period of the previous year. The decrease is primarily due to the net effect of the historic tax credit accounting being recorded as a discrete event in the prior year quarter, an increase in the disallowed executive compensation under Section 162(m) in the prior year quarter and the recognition of the permanent tax benefit related to the exclusion of life insurance proceeds in the current year quarter.

Comparison of six months ended September 30, 2020 versus six months ended September 30, 2019
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Gross loans outstanding decreased to $1.11 billion as of September 30, 2020, a 12.9% decrease from the $1.27 billion of gross loans outstanding as of September 30, 2019. During the six months ended September 30, 2020 our number of unique borrowers in the portfolio decreased by 18.0% compared to an increase of 12.1% during the six months ended September 30, 2019.

Net income for the six months ended September 30, 2020 increased to $28.9 million, a 159.9% increase from the $11.1 million reported for the same period of the prior year. Operating income (revenue less provision for credit losses and general and administrative expenses) increased by $24.1 million, or 94.5%.

Revenues decreased by $31.7 million, or 11.3%, to $248.3 million during the six months ended September 30, 2020 from $280.0 million for the same period of the prior year. The decrease was primarily due to an decrease in average net loans outstanding. Revenues from the 1,178 branches open throughout both six-month periods decreased by 15.5%.

Interest and fee income for the six months ended September 30, 2020 decreased by $30.3 million, or 12.2%, from the same period of the prior year. The decrease was primarily due to a corresponding decrease in average net loans outstanding. Net loans outstanding at September 30, 2020 decreased by 12.8% over the balance at September 30, 2019. Average net loans outstanding decreased by 8.2% for the six months ended September 30, 2020 compared to the six-month period ended September 30, 2019.

Insurance commissions and other income for the six months ended September 30, 2020 decreased by $1.5 million, or 4.7%, from the same period of the prior year. Insurance commissions decreased by approximately $2.6 million, or 10.9%, during the six months ended September 30, 2020 when compared to the six months ended September 30, 2019. Other income increased by $1.1 million primarily due to a $0.8 million increase in tax preparation revenue as a result of an extended tax season and a gain on company owned life insurance of $1.1 million due to the death of a former executive, partially offset by decreases in income from ancillary services of approximately $0.8 million due to a decrease in loan volume.

On April 1, 2020, the Company replaced its incurred loss methodology with a current expected credit loss methodology to accrue for expected losses. The provision for credit losses for the six months ended September 30, 2020 decreased by $42.5 million, or 45.1%, when compared to the provision for credit losses from the same period of the prior year.

The Company's allowance for credit losses as a percentage of net loans was 13.4% at September 30, 2020 compared to 10.8% at September 30, 2019. Accounts that were 61 days or more past due on a recency basis were 4.5% at September 30, 2020 compared to 6.4% at September 30, 2019. Accounts that were 61 days or more past due on a contractual basis were 6.2% at September 30, 2020 compared to 8.0% at September 30, 2019.

Net charge-offs as a percentage of average net loans on an annualized basis decreased from 16.6% for the six months ended September 30, 2019 to 16.4% for the six months ended September 30, 2020.

G&A expenses for the six months ended September 30, 2020 decreased by $13.3 million, or 8.3%, from the corresponding period of the previous year. As a percentage of revenues, G&A expenses increased from 57.2% during the first six months of fiscal 2020 to 59.2% during the first six months of fiscal 2021. G&A expenses per average open branch decreased by 10.0% when comparing the two six-month periods. The change in G&A expense is explained in greater detail below.

Personnel expense totaled $91.5 million for the six months ended September 30, 2020, a $10.6 million, or 10.4%, decrease over the six months ended September 30, 2019. Salary expense decreased approximately $2.9 million, or 4.7%, when comparing the six months ended September 30, 2020 and 2019. Our headcount as of September 30, 2020 decreased 10.2% compared to September 30, 2019, primarily driven by furloughs during the first six months of fiscal 2021. Benefit expense decreased approximately $3.2 million, or 16.2%, when comparing the six months ended September 30, 2020 and 2019, primarily as a result of decreased claims as well as a decrease in headcount. Incentive expense decreased $8.7 million due to a decrease in share based compensation and a decrease in bonuses paid to branch employees. The Company deferred $4.2 million less in origination costs under ASC 310 due to lower originations during the six month ending September 30, 2020, which increased personnel costs.

Occupancy and equipment expense totaled $26.7 million for the six months ended September 30, 2020, a $0.2 million, or 0.8%, decrease over the six months ended September 30, 2019. Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the period. For the six months ended September 30, 2020, the average expense per branch decreased to $21.5 thousand, down from $22.1 thousand for the six months ended September 30, 2019.

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Advertising expense totaled $7.9 million for the six months ended September 30, 2020, a $4.5 million, or 36.4%, decrease over the six months ended September 30, 2019. The Company anticipated lower demand as a result of COVID-19 during the quarter and reduced the marketing spend across all programs.

Amortization of intangible assets totaled $2.7 million for the six months ended September 30, 2020, a $0.5 million, or 20.6%, increase over the six months ended September 30, 2019.

Other expense totaled $18.2 million for the six months ended September 30, 2020, a $1.6 million, or 9.3%, increase over the six months ended September 30, 2019.
Interest expense for the six months ended September 30, 2020 increased by $0.7 million, or 6.7%, from the corresponding six months of the previous year. The increase in interest expense was due to a 10.7% increase in the average debt outstanding, from $352.8 million to $390.6 million. The increase in average debt outstanding was partially offset by a reduction in the benchmark interest rate. The Company’s senior debt-to-equity ratio decreased from 1.3:1 at September 30, 2019 to 1.2:1 at September 30, 2020.

Other key return ratios for the first six months of fiscal 2021 included a 4.5% return on average assets and a return on average equity of 11.8% (both on a trailing 12-month basis), as compared to a 5.8% return on average assets and a return on average equity of 10.5% for the first six months of fiscal 2020.

The Company’s effective income tax rate decreased to 24.3% for the six months ended September 30, 2020 compared to 24.8% for the corresponding period of the previous year. The decrease is primarily due to the permanent tax benefit related to the exclusion of life insurance proceeds in the current year.
Regulatory Matters

Resolution of Mexico Investigation

See Note 12 to the unaudited Consolidated Financial Statements for a discussion of the investigation into our operations in Mexico and the resolution thereof.

CFPB Rulemaking Initiatives

On October 5, 2017, the CFPB issued a final rule (the "Rule") imposing limitations on (i) short-term consumer loans, (ii) longer-term consumer installment loans with balloon payments, and (iii) higher-rate consumer installment loans repayable by a payment authorization. The Rule required lenders originating short-term loans and longer-term balloon payment loans to evaluate whether each consumer has the ability to repay the loan along with current obligations and expenses (“ability to repay requirements”). 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”). However, on July 7, 2020, the CFPB issued a final rule rescinding the ability to repay requirements of the Rule after re-evaluating the legal and evidentiary bases for these provisions and finding them to be insufficient. The CFPB, however, did not rescind or alter the payments requirements in the Rule. Instead, the CFPB issued guidance clarifying the payment requirements’ scope and assisting lenders in complying with the payment requirements.

The Rule’s compliance date for the payment requirements is August 19, 2019. The compliance date, however, is currently stayed pursuant to a court order issued in Community Financial Services Association v. CFPB, No. 1:18-cv-00295 (W.D. Tex. Nov. 6, 2018). Although the payment requirements are currently stayed by court order, the CFPB announced that it will seek to have them go into effect with a reasonable period for entities to come into compliance.

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. Implementation of the Rule’s payment requirements may require changes to the Company’s practices and procedures for such loans, which could materially and adversely affect the Company’s ability to make such loans, the cost of making such loans, the Company’s ability to, or frequency with which it could, refinance any such loans, and the profitability of such loans.

The CFPB also has stated that it expects to conduct separate rulemaking to identify larger participants in the installment lending market for purposes of its supervision program. This initiative was classified as “inactive” on the CFPB’s Spring 2018
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rulemaking agenda and has remained inactive since, but the CFPB indicated that such action was not a decision on the merits. Though the likelihood and timing of any such rulemaking is uncertain, the Company believes that the implementation of such rules would likely bring the Company’s business under the CFPB’s supervisory authority which, among other things, would subject the Company to reporting obligations to, and on-site compliance examinations by, the CFPB.

The CFPB also announced on July 7, 2020 that it will undertake new research focusing on identifying information that could be disclosed to consumers during the small dollar lending process to allow them to make the most informed choices. Depending on the outcome of this research and future action taken by the CFPB, implementation of new disclosures may require changes to the Company’s practices and procedures for such loans, which could materially and adversely affect the Company’s ability to make such loans, the cost of making such loans, and the profitability of such loans.

See Part I, Item 1, "Business - Government Regulation - Federal legislation" and Part I, Item 1A, "Risk Factors" in the Company’s Form 10-K for the year ended March 31, 2020 for a further discussion of these matters and federal regulations to which the Company’s operations are subject.

Liquidity and Capital Resources

The Company has financed and continues to finance its operations, acquisitions and branch expansion through a combination of cash flows from operations and borrowings from its institutional lenders. The Company has generally applied its cash flows from operations to fund its loan volume, fund acquisitions, repay long-term indebtedness, and repurchase its common stock. Net cash provided by operating activities for the six months ended September 30, 2020 was $79.9 million.

Expenditures by the Company to open and furnish new branches averaged approximately $41,000 per new branch during fiscal 2020. New branches have generally required from $230,000 to $380,000 to fund outstanding loans receivable originated during their first 12 months of operation. During the six months ended September 30, 2020, the Company opened no new branches, acquired no branches, and merged 11 branches into existing ones.

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.

The Company has a revolving credit facility with a syndicate of banks. In June 2019, the Company entered into an amended and restated revolving credit agreement, which provides for revolving borrowings of up to the lesser of (a) $685.0 million as the aggregate commitments under the facility or (b) a borrowing base, and includes a $0.3 million letter of credit subfacility. At September 30, 2020, the aggregate commitments under the credit facility were $685.0 million. 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, and (b) an advance rate percentage that ranges from 79% to 85% based on a collateral performance indicator, as more completely described below. Further, the administrative agent under the revolving credit facility has the right at any time, and from time to time in its permitted discretion (but without any obligation), to set aside reasonable reserves against the 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. The Company does not believe that this right will materially limit its business and strategic initiatives.

On April 30, 2020 the amended and restated revolving credit agreement was further amended to (i) modify certain financial covenants to (a) reduce the Company's required minimum net worth to $365.0 million through December 30, 2020 (from $375.0 million), and (b) reduce the Company's fixed charge ratio to 2.25 to 1 through the fiscal quarter ending September 30, 2020; (ii) add new subsidiary guarantors; and (iii) amend language relating to the transition to a new benchmark interest rate (from LIBOR), if necessary.

On July 24, 2020, the amended and restated revolving credit agreement was further amended to, among other things: (i) reduce the advance rate percentage range to 74% to 80% of the collateral performance indicator; (ii) increase the applicable margin associated with the EBITDA ratio by 50 basis points; (iii) reduce the required minimum net worth to $325.0 million (from $365.0 million); and (iv) allow the Company to make share repurchases up to $50.0 million through March 31, 2021 plus up to 50% of consolidated adjusted net income for the period commencing on January 1, 2019, subject to certain restrictions;

The agreement establishes a maximum specified level for the collateral performance indicator of 23.0%. 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.

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Subject to a borrowing base formula, the Company may borrow at the rate of LIBOR plus an applicable margin between 3.0% and 4.0% 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 4.0%. The revolving credit facility has a commitment fee of 0.50% per annum on the unused portion of the commitment. Commitment fees on the unused portion of the borrowing totaled $0.8 million and $0.7 million for the six months ended September 30, 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 six months ended September 30, 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 September 30, 2020 was $157.0 million. The Company also had $102.8 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.

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 amended and restated revolving credit agreement 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 $325.0 million; (ii) a minimum fixed charge coverage ratio of (a) 2.25 to 1.0 for the fiscal quarter ended September 30, 2020 and (b) 2.75 to 1.0 for each fiscal quarter thereafter; (iii) a maximum ratio of total debt to consolidated adjusted net worth of 2.0 to 1.0; (iv) as of the end of each fiscal quarter, provision for credit losses for the four fiscal quarters then ending shall equal or exceed the net loan charge-off for the corresponding period (any shortfalls are required to be deducted in the determination of net income and consolidated net worth); and (v) a maximum collateral performance indicator of 23.0%, 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 the applicable covenants at September 30, 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, prohibited payments on or amendment to subordinated debt, bankruptcy and other insolvency events, judgments, certain ERISA events, defaults under certain other agreements, actual or asserted invalidity of loan documentation, invalidity of subordination provisions of subordinated debt, certain changes of control of the Company, other defaults under the agreement that are not remedied within thirty (30) days, invalidity of loan documents related to the agreement, appointment of a custodian, trustee, or receiver, and the occurrence of certain regulatory events (including the entry of any stay, order, judgment, cease and desist order, or other sanction (other than the imposition of a monetary fine), order, or ruling against the Company’ or any of its subsidiaries related in any way to the originating, holding, pledging, collecting, servicing, 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. 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, operations, 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. See Note 10 to the unaudited Consolidated Financial Statements for additional information regarding the Company’s debt.

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
36

and for the foreseeable future beyond that). Except as otherwise discussed in this report and in the Company’s Form 10-K for the year ended March 31, 2020, including, but not limited to, any discussions in Part I, Item 1A, "Risk Factors" (as supplemented by any subsequent disclosures in information the Company files with or furnishes to the SEC from time to time), management is not currently aware of any trends, demands, commitments, events or uncertainties that it believes will or could result in, or are or could be reasonably likely to result in, any material adverse effect on the Company’s liquidity.

Share Repurchase Program

Since 1996, the Company has repurchased approximately 21.2 million shares for an aggregate purchase price of approximately $1.2 billion. On June 16, 2020, 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. On September 14, 2020, the Board of Directors authorized the Company to repurchase up to $25.0 million of the Company's outstanding common stock in addition to the amount that remained available for repurchase under prior repurchase authorizations. As of September 30, 2020, the Company had $11.8 million in aggregate 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, available funds, alternative uses of capital, restrictions under the revolving credit agreement, and other market and economic conditions. The Company’s stock repurchase program may be suspended or discontinued at any time.

The Company continues to believe stock repurchases are a viable component of the Company’s long-term financial strategy and an excellent use of excess cash when the opportunity arises. However, our revolving credit facility limits share repurchases to (i) $50 million from July 24, 2020 through March 31, 2021, plus (ii) 50% of consolidated adjusted net income commencing on January 1, 2019, subject to certain restrictions. Immediately following a stock repurchase, the Company must have 15% or more in excess availability under the revolving credit facility. The Company can repurchase additional amounts of shares with prior written consent from lenders.
 
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.

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Allowance for Credit Losses

Accounting policies related to the allowance for credit losses are considered to be critical as these policies involve considerable subjective judgement and estimation by management. As discussed in Note 3 – Summary of Significant Policies, our policies related to the allowances for credit losses changed on April 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 the IRS, state, or foreign taxing authorities. The Company is subject to potential adverse adjustments, including but not limited to: an increase in the statutory federal or state income tax rates, the permanent non-deductibility of amounts currently considered deductible either now or in future periods, and the dependency on the generation of future taxable income in order to ultimately realize deferred income tax assets.
 
Under FASB ASC Topic 740, the Company will include the current and deferred tax impact of its tax positions in the financial statements when it is more likely than not (likelihood of greater than 50%) that such positions will be sustained by taxing authorities, with full knowledge of relevant information, based on the technical merits of the tax position. While the Company supports its tax positions by unambiguous tax law, prior experience with the taxing authority, and analysis of what it considers to be all relevant facts, circumstances and regulations, management must still rely on assumptions and estimates to determine the overall likelihood of success and proper quantification of a given tax position.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As of September 30, 2020, the Company’s financial instruments consisted of the following: cash and cash equivalents, loans receivable 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 outstanding debt under its revolving credit facility was $424.9 million at September 30, 2020. Interest on borrowing under this facility is based on the greater of 4.0% or one month LIBOR plus an applicable margin between 3.0% and 4.0% based on certain EBITDA related metrics. Based on the outstanding balance at September 30, 2020, a change of 1.0% in the interest rate would cause a change in interest expense of approximately $4.2 million on an annual basis.

Item 4. Controls and Procedures

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation, with the participation of our CEO and CFO, as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

39

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

See Note 12 to the unaudited Consolidated Financial Statements for information regarding legal proceedings.

Item 1A. Risk Factors

Other than as set forth below, there have been no material changes to the risk factors disclosed in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2020.

Allowance for Credit Losses

We began using a new credit reserving methodology known as the CECL methodology effective April 1, 2020. Our ability to accurately forecast future losses under this methodology may be impaired by the significant uncertainty surrounding the pandemic and containment measures and the lack of comparable precedent. This could result in the need to record additional provisions for credit losses in the future, as the COVID-19 pandemic continues to evolve, and our losses on our loans and other exposures could exceed our allowance.

The global outbreak of the coronavirus has and may continue to adversely impact our business.

Occurrences of epidemics or pandemics, depending on scale, may cause varying degrees of damage to national and local economies. The COVID-19 pandemic has resulted in widespread volatility and deterioration in economic conditions across the United States. Governmental authorities have taken a number of steps to slow the spread of COVID-19, including shutdowns of nonessential businesses, stay-at-home orders, social distancing measures, and other actions which have disrupted economic activity.

The United States has also experienced higher unemployment levels as a result of COVID-19, which we expect will over time result in increased delinquencies and credit losses on finance receivables outstanding. In addition, if significant portions of our workforce are unable to work effectively as a result of COVID-19, there may be servicing and other disruptions to our business. Further, a second outbreak of COVID-19 could lead to further mandated shutdowns and economic uncertainty. As a result, we cannot foresee whether the outbreak of COVID-19 pandemic will be effectively contained, nor can we anticipate the extent, severity and duration of its impact.

The CARES Act was signed into law in March 2020, which, among other things, expanded states’ ability to provide unemployment insurance for many workers impacted by COVID-19, including for workers who were not otherwise eligible for unemployment benefits, provide direct payments to qualifying individuals, and provided assistance for small and medium size businesses. We believe that many of our customers have benefited from the enhanced benefits provided by the CARES Act, some of which, such as enhanced unemployment benefits, were set to expire in July 2020. If these benefits are not extended, or if other stimulus measures benefiting our customers are not enacted in the near term, the effect may result in an increase in delinquencies and materially and adversely impact our results of operations and financial condition in future periods.

Federal, state and local governments have mandated or encouraged financial services companies to make accommodations to borrowers and other customers affected by COVID-19. Legal and regulatory responses to concerns about COVID-19 could result in additional regulation or restrictions affecting the conduct of our business in the future. All of the foregoing may adversely affect our income and other results of operations or make collection of our personal loans more difficult or reduce income received from such loans or our ability to obtain financing with respect to such loans.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company's credit agreements contain certain limits on share repurchases. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources."

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Since 1996, the Company has repurchased approximately 21.2 million shares for an aggregate purchase price of approximately $1.2 billion. On June 16, 2020, 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. On September 14, 2020, the Board of Directors authorized the Company to repurchase up to $25.0 million of the Company's outstanding common stock in addition to the amount that remained available for repurchase under prior repurchase authorizations. As of September 30, 2020, the Company had $11.8 million in aggregate 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, available funds, alternative uses of capital, restrictions under the revolving credit agreement, and other market and economic conditions. The Company's stock repurchase program may be suspended at any time.

The following table details purchases of the Company's common stock, if any, made by the Company during the three months ended September 30, 2020:
(a)
Total number of
shares purchased
(b)
Average price paid
per share
(c)
Total number of shares purchased
as part of publicly announced
plans or programs
(d)
Approximate dollar value of shares
that may yet be purchased
under the plans or programs
July 1 through July 31, 2020— $— — $30,000,000 
August 1 through August 31, 2020132,711 90.70 132,711 17,963,213 
September 1 through September 30, 2020327,409 95.25 327,409 11,778,166 
Total for the quarter460,120 $93.94 460,120 

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits listed in the accompanying exhibit index are filed as part of the Quarterly Report on Form 10-Q.

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EXHIBIT INDEX

Exhibit
Number
Exhibit DescriptionFiled
Herewith
Incorporated by Reference
Form or
Registration
Number
ExhibitFiling
Date
10.018-K10.104-30-20
10.028-K10.107-24-20
10.038-K10.108-06-20
10.048-K10.208-06-20
31.01*
31.02*
32.01*
32.02*
101.01The following materials from the Company's Quarterly Report for the fiscal quarter ended September 30, 2020, formatted in Inline XBRL:*
 (i)Consolidated Balance Sheets as of September 30, 2020 and March 31, 2020;  
 (ii)Consolidated Statements of Operations for the three and six months ended September 30, 2020 and September 30, 2019;  
 (iii)Consolidated Statements of Shareholders' Equity for the three and six months ended September 30, 2020 and September 30, 2019;  
 (iv)Consolidated Statements of Cash Flows for the six months ended September 30, 2020 and September 30, 2019; and  
 (v)Notes to the Consolidated Financial Statements.  
104.01Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*

*Submitted electronically herewith.
+Management Contract or other compensatory plan required to be filed under Item 6 of this report and Item 601 of Regulation S-K of the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WORLD ACCEPTANCE CORPORATION
 
By:   /s/ R. Chad Prashad
R. Chad Prashad
President and Chief Executive Officer
Signing on behalf of the registrant and as principal executive officer
Date:November 6, 2020
 
By: /s/ John L. Calmes, Jr.
John L. Calmes, Jr.
Executive Vice President and Chief Financial and Strategy Officer
Signing on behalf of the registrant and as principal financial officer
Date: November 6, 2020
By: /s/ Scott McIntyre
Scott McIntyre
Senior Vice President of Accounting
Signing on behalf of the registrant and as principal accounting officer
Date: November 6, 2020

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