General

The Company's financial performance continues to be dependent in large part upon the growth in its outstanding loans receivable, the ongoing introduction of new products and services for marketing to its customer base, the maintenance of loan quality and acceptable levels of operating expenses. Since March 31, 2004, gross loans receivable have increased at a 16.7% annual compounded rate from $310.1 million to $671.2 million at March 31, 2009. The increase reflects both the higher volume of loans generated through the Company's existing offices and the contribution of loans generated from new offices opened or acquired over the period. During this same five-year period, the Company has grown from 470 offices to 944 offices as of March 31, 2009. During fiscal 2010, the Company plans to open or acquire approximately 30 new offices in the United States and 15 new offices in Mexico.

The Company attempts to identify new products and services for marketing to its customer base. In addition to new insurance-related products, which have been introduced in selected states over the last several years, the Company sells and finances electronic items and appliances to its existing customer base in many states where it operates. This program is called the "World Class Buying Club." Total loan volume under this program was $13.0 million during fiscal 2009, compared to $16.2 million in fiscal 2008. World Class Buying Club represents less than 2% of the Company's total loan volume.

The Company's ParaData Financial Systems subsidiary provides data processing systems to 107 separate finance companies, including the Company, and currently supports approximately 1,465 individual branch offices in 44 states and Mexico. ParaData's revenue is highly dependent upon its ability to attract new customers, which often requires substantial lead time, and as a result its revenue may fluctuate greatly from year to year. Its net revenues from system sales and support amounted to $2.0 million, $2.2 million and $2.5 million in fiscal 2009, 2008 and 2007, respectively. ParaData's net revenue to the Company will continue to fluctuate on a year to year basis. ParaData continues to provide state-of-the-art data processing support for the Company's in-house integrated computer system at a substantially reduced cost to the Company.

The Company also includes in its product line larger balance, lower risk, and lower yielding individual consumer loans. These loans typically average $1,000 to $3,000, with terms of generally 18 to 24 months, compared to smaller loans, which average $300 to $1,000, with terms of generally 8 to 12 months. The Company offers the larger loans in all states except Texas, where they are not profitable under our lending criteria and strategy. Additionally, the Company has purchased over the years numerous larger loan offices and has made several bulk purchases of larger loans receivable. As of March 31, 2009, the larger loan category accounted for approximately $191.4 million of gross loans receivable, a 22.7% increase over the balance outstanding at March 31, 2008. At the end of the current fiscal year, this portfolio was 28.5% of the total loan balances, a slight increase from the previous year mix of 26.0%. Management believes that these loans provide lower expense and loss ratios, and thus provide positive contributions.

The Company offers an income tax return preparation and access to refund anticipation loan program in all but a few of its offices. Based on the results of this test, the Company expanded this program in fiscal 2000 into substantially all of its offices. The Company prepared approximately 63,000, 65,000 and 60,000 returns in each of the fiscal years 2009, 2008 and 2007, respectively. Net revenue generated by the Company from this program during fiscal 2009 amounted to approximately $9.9 million. The Company believes that this profitable business provides a beneficial service to its existing customer base and plans to continue to promote and expand the program in the future.

The following table sets forth certain information derived from the Company's consolidated statements of operations and balance sheets, as well as operating data and ratios, for the periods indicated:

                                                         Years Ended March 31,
                                                   2009          2008          2007
                                                        (Dollars in thousands)

    Average gross loans receivable (1)           $ 658,587       576,050       480,120
    Average net loans receivable (2)               486,776       426,524       358,047

    Expenses as a percentage of total revenue:
    Provision for loan losses                         21.7 %        19.5 %        17.8 %
    General and administrative                        50.9 %        51.8 %        52.6 %
    Total interest expense                             2.6 %         3.3 %         3.3 %

    Operating margin (3)                              27.4 %        28.7 %        29.7 %
    Return on average assets                          11.6 %        11.3 %        12.5 %

    Offices opened and acquired, net                   106           106           112
    Total offices (at period end)                      944           838           732

(2) Average loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred fees over the indicated period.

(3) Operating margin is computed as total revenues less provision for loan losses and general and administrative expenses as a percentage of total revenues.

As described below under "- Recently Issued Accounting Pronouncements - Convertible Debt Instruments," in the first quarter of fiscal 2010, we will be required to adopt FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"), and apply it retrospectively to all periods presented with a cumulative effect adjustment being made as of the earliest period presented. Adoption of FSP APB 14-1 will affect our fiscal 2009 and fiscal 2008 consolidated statements of operations and balance sheets as reported in future periods to the extent described in Note 1, Summary of Significant Accounting Policies in Part II, Item 8 of this report.

Comparison of Fiscal 2009 Versus Fiscal 2008

Net income was $60.7 million during fiscal 2009, a 14.5% increase over the $53.0 million earned during fiscal 2008. This increase resulted from an increase in operating income (revenues less provision for loan losses and general and administrative expenses) of $8.7 million, or 8.8%, a reduction in the income tax effective rate and a reduction in interest expense.

Total revenues increased to $393.7 million in fiscal 2009, a $47.7 million, or 13.8%, increase over the $346.0 million in fiscal 2008. Revenues from the 727 offices open throughout both fiscal years increased by 7.7%. At March 31, 2009, the Company had 944 offices in operation, an increase of 106 offices from March 31, 2008.

Interest and fee income during fiscal 2009 increased by $39.0 million, or 13.3%, over fiscal 2008. This increase resulted from an increase of $60.3 million, or 14.1%, in average net loans receivable between the two fiscal years. The increase in average loans receivable was attributable to the Company acquiring approximately $9.1 million in net loans and internal growth. During fiscal 2009, internal growth increased because the Company opened 98 new offices and the average loan balance increased from $877 to $917.

Insurance commissions and other income increased by $8.7 million, or 16.2%, over the two fiscal years. Insurance commissions increased by $2.0 million, or 6.7%, as a result of the increase in loan volume in states where credit insurance is sold. Other income increased by $6.6 million, or 28.6%, over the two years, primarily due to a $1.5 million gain on the sale of the foreign currency option and a $5.5 million gain on the extinguishment of $15 million par value of the Convertible Notes. See Note 8 for further discussion regarding this extinguishment of debt. This increase was partially offset by approximately a $0.8 million loss related to our interest rate swap.

The provision for loan losses during fiscal 2009 increased by $17.9 million, or 26.6%, from the previous year. This increase resulted from a combination of increases in both the allowance for loan losses and the amount of loans charged off. Net charge-offs for fiscal 2009 amounted to $81.1 million, a 30.9% increase over the $62.0 million charged off during fiscal 2008. Net charge-offs as a percentage of average loans increased from 14.5% to 16.7% when comparing the two annual periods. We believe the 2.2 percentage point increase resulted from the difficult economic environment and higher energy cost that our customers faced. Delinquencies on a recency basis increased from 2.6% to 2.7% and on a contractual basis increased from 4.0% to 4.2% at March 31, 2008 and March 31, 2009, respectively.

General and administrative expenses during fiscal 2009 increased by $21.0 million, or 11.7%, over the previous fiscal year. This increase was due primarily to costs associated with the new offices opened or acquired during the fiscal year. General and administrative expenses, when divided by average open offices, remained flat when comparing the two fiscal years and, overall, general and administrative expenses as a percent of total revenues decreased from 51.8% in fiscal 2008 to 50.9% during fiscal 2009. This decrease resulted from management's ongoing monitoring and control of expenses.

Interest expense decreased by $1.2 million, or 10.2%, during fiscal 2009, as compared to the previous fiscal year as a result of a decrease in interest rates, partially offset by an increase in average debt outstanding of 12.1%. Average interest rates decreased from 5.4% in fiscal 2008 to 4.4% in fiscal 2009.

Income tax expense increased $2.2 million, or 6.3%, primarily from an increase in pre-tax income. The decrease in the effective rate from 39.6% to 37.8% was a result of the prior year tax examination discussed in Note 13 to our Consolidated Financial Statements. At this time, it is too early to predict the outcome on this tax issue and any future recoverability of this charge. Until the tax issue is resolved, the Company expects to accrue approximately $40,000 per quarter for interest and penalties.

Comparison of Fiscal 2008 Versus Fiscal 2007

Net income was $53.0 million during fiscal 2008, a 10.6% increase over the $47.9 million earned during fiscal 2007. This increase resulted from an increase in operating income of $12.5 million, or 14.4%, partially offset by an increase in interest expense and income taxes.

Total revenues increased to $346.0 million in fiscal 2008, a $53.7 million, or 18.4%, increase over the $292.3 million in fiscal 2007. Revenues from the 645 offices open throughout both fiscal years increased by 8.9%. At March 31, 2008, the Company had 838 offices in operation, an increase of 106 offices from March 31, 2007.

Interest and fee income during fiscal 2008 increased by $45.5 million, or 18.4%, over fiscal 2007. This increase resulted from an increase of $68.5 million, or 19.1%, in average net loans receivable between the two fiscal years. The increase in average loans receivable was attributable to the Company acquiring approximately $3.1 million in net loans and internal growth. During fiscal 2008, internal growth increased because the Company opened 95 new offices and the average loan balance increased from $837 to $877.

Insurance commissions and other income increased by $8.3 million, or 18.3%, over the two fiscal years. Insurance commissions increased by $6.0 million, or 24.5%, as a result of the increase in loan volume in states where credit insurance is sold. Other income increased by $2.3 million, or 11.0%, over the two years, primarily due to an increase in fees received from income tax return preparation of $1.5 million, an increase in motor club product sales of $1.1 million and an $0.8 million increase in World Class Buying Club sales. This increase was partially offset by a $1.8 million loss related to our interest rate swap.

The provision for loan losses during fiscal 2008 increased by $15.6 million, or 30.1%, from the previous year. This increase resulted from a combination of increases in both the allowance for loan losses and the amount of loans charged off. Net charge-offs for fiscal 2008 amounted to $62.0 million, a 29.8% increase over the $47.7 million charged off during fiscal 2007. Net charge-offs as a percentage of average loans increased from 13.3% to 14.5% when comparing the two annual periods. This increase was mainly attributed to a change in the bankruptcy laws which decreased the number of bankruptcy filings in fiscal 2007. However, in fiscal 2008 the bankruptcy charge-offs returned to more historical levels. This resulted in the fiscal 2008 net charge-offs being more in line with historical losses of 14.8% in 2006, 14.6% in 2005, 14.7% in 2004 and 14.6% in 2003. Delinquencies on a recency basis increased from 2.2% to 2.6% and on a contractual basis increased from 3.6% to 4.0% at March 31, 2007 and March 31, 2008, respectively.

General and administrative expenses during fiscal 2008 increased by $25.6 million, or 16.7%, over the previous fiscal year. This increase was due primarily to costs associated with the new offices opened or acquired during the fiscal year. General and administrative expenses, when divided by average open offices, decreased by 0.6% when comparing the two fiscal years and, overall, general and administrative expenses as a percent of total revenues decreased from 52.6% in fiscal 2007 to 51.8% during fiscal 2008.

Interest expense increased by $2.0 million, or 20.6%, during fiscal 2008, as compared to the previous fiscal year as a result of an increase in average debt outstanding of 40.2%. This was offset by a decrease in average interest rates from 6.3% in fiscal 2007 to 5.4% in fiscal 2008.

Income tax expense increased $5.4 million, or 18.6%, primarily from an increase in pre-tax income and a charge of $1.5 million related to a tax examination. A state jurisdiction has completed its examinations and issued a proposed assessment for tax years 2001 through 2006. In consideration of the proposed assessment, net income for fiscal 2008 was reduced by a charge of $1.5 million and the total gross unrecognized tax benefits was increased by $2.3 million in fiscal 2008 as a result of this examination. As a result, the Company's effective income tax rate increased to 39.6% for the year ended March 31, 2008 from 37.9% for the year ended March 31, 2007.

Critical Accounting Policies

The Company's accounting and reporting policies are in accordance with U.S. generally accepted accounting principles and conform to general practices within the finance company industry. The significant accounting policies used in the preparation of the consolidated financial statements are discussed in Note 1 to the consolidated financial statements. Certain critical 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, revenues, 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 loan losses and share-based compensation, to be its most critical accounting policies due to the significant degree of management judgment involved.

Allowance for Loan Losses

The Company has developed policies and procedures for assessing the adequacy of the allowance for loan losses that take into consideration various assumptions and estimates with respect to the loan portfolio. The Company's assumptions and estimates may be affected in the future by changes in economic conditions, among other factors. For additional discussion concerning the allowance for loan losses, see "Credit Quality" below.

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 our common stock, 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. In addition, the estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current estimates.

Credit Quality

The Company's delinquency and net charge-off ratios reflect, among other factors, changes in the mix of loans in the portfolio, the quality of receivables, the success of collection efforts, bankruptcy trends and general economic conditions.

Delinquency is computed on the basis of the date of the last full contractual payment on a loan (known as the recency method) and on the basis of the amount past due in accordance with original payment terms of a loan (known as the contractual method). Management closely monitors portfolio delinquency using both methods to measure the quality of the Company's loan portfolio and the probability of credit losses.

The following table classifies the gross loans receivable of the Company that were delinquent on a recency and contractual basis for at least 61 days at March 31, 2009, 2008, and 2007:

                                                             At March 31,
                                                    2009         2008         2007
                                                        (Dollars in thousands)
Recency basis:
61-90 days past due                               $ 11,304       10,414        7,732
91 days or more past due                             6,661        5,003        3,495

Total                                             $ 17,965       15,417       11,227

Percentage of period-end gross loans receivable        2.7 %        2.6 %        2.2 %
Contractual basis:
61-90 days past due                               $ 14,223       12,838        9,684
91 days or more past due                            13,673       11,123        8,209

Total                                             $ 27,896       23,961       17,893

Percentage of period-end gross loans receivable        4.2 %        4.0 %        3.5 %

Loans are charged off at the earlier of when such loans are deemed to be uncollectible or when six months have elapsed since the date of the last full contractual payment. The Company's charge-off policy has been consistently applied and no significant changes have been made to the policy during the periods reported. Management considers the charge-off policy when evaluating the appropriateness of the allowance for loan losses.

The Company experienced an increase in contractual delinquency from 4.0% at March 31, 2008 to 4.2% at March 31, 2009. The delinquency rate on a recency basis also increased from 2.6% at the end of fiscal 2008 to 2.7% at the end of the current fiscal year. Charge-offs as a percent of average loans increased from 14.5% in fiscal 2008 to 16.7% in fiscal 2009.

In fiscal 2009, approximately 84.0% of the Company's loans were generated through refinancings of outstanding loans and the origination of new loans to previous customers. A refinancing represents a new loan transaction with a present customer in which a portion of the new loan proceeds is used to repay the balance of an existing loan and the remaining portion is advanced to the customer. For fiscal 2009, 2008, and 2007, the percentages of the Company's loan originations that were refinancings of existing loans were 75.0%, 73.3% and 74.3%, respectively. The Company's refinancing policies, while limited by state regulations, in all cases consider our customer's payment history and require that our customer have made at least two payments on the loan being considered for refinancing. A refinancing is considered a current refinancing if the customer is no more than 45 days delinquent on a contractual basis. Delinquent refinancings may be extended to customers that are more than 45 days past due on a contractual basis if the customer completes a new application and the manager believes that the customer's ability and intent to repay has improved. It is the Company's policy to not refinance delinquent loans in amounts greater than the original amounts financed. In all cases, a customer must complete a new application every two years. During fiscal 2009, delinquent refinancings represented 2.1% of the Company's total loan volume compared to 1.9% in fiscal 2008.

Charge-offs, as a percentage of loans made by category, are greatest on loans made to new borrowers and less on loans made to former borrowers and refinancings. This is as expected due to the payment history experience available on repeat borrowers. However, as a percentage of total loans charged off, refinancings represent the greatest percentage due to the volume of loans made in this category. The following table depicts the charge-offs as a percent of loans made by category and as a percent of total charge-offs during fiscal 2009:

                    Loan Volume          Percent of              Percent of Total
                    by Category       Total Charge-offs       Loans Made by Category

Refinancing                 75.0 %                  73.0 %                        5.4 %
Former borrowers             9.0 %                   5.9 %                        4.0 %
New borrowers               16.0 %                  21.1 %                       11.7 %
                           100.0 %                 100.0 %

The Company maintains an allowance for loan losses in an amount that, in management's opinion, is adequate to cover losses inherent in the existing loan portfolio. The Company charges against current earnings, as a provision for loan losses, amounts added to the allowance to maintain it at levels expected to cover probable losses of principal. When establishing the allowance for loan losses, the Company takes into consideration the growth of the loan portfolio, the mix of the loan portfolio, current levels of charge-offs, current levels of delinquencies, and current economic factors. In accordance with Statement of Accounting Standards No. 5 "Accounting for Contingencies" (SFAS No. 5), the Company accrues an estimated loss if it is probable and can be reasonably estimated. It is probable that there are losses in the existing portfolio. To estimate the losses, the Company uses historical information for net charge-offs and average loan life. This method is based on the fact that many customers refinance their loans prior to the contractual maturity. Average contractual loan terms are approximately nine months and the average loan life is approximately four months. Based on this method, the Company had an allowance for loan losses that approximated six months of average net charge-offs at March 31, 2009, 2008, and 2007. Therefore, at each year end the Company had an allowance for loan losses that covered estimated losses for its existing loans based on historical charge-offs and average lives. In addition, the entire loan portfolio turns over approximately 3 times during a typical twelve-month period. Therefore, a large percentage of loans that are charged off during any fiscal year are not on the Company's books at the beginning of the fiscal year. The Company believes that it is not appropriate to provide for losses on loans that have not been originated, that twelve months of net charge-offs are not needed in the allowance, and that the method employed is in accordance with generally accepted accounting principles.

The Company records acquired loans at fair value based on current interest rates, less an allowance for uncollectibility and collection costs.

Statement of Position No. 03-3 (SOP 03-3), "Accounting for Certain Loans or Debt Securities Acquired in a Transfer," was adopted by the Company on April 1, 2005. SOP 03-3 prohibits carryover or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are within the scope of the SOP. Management believes that a loan has shown deterioration if it is over 60 days delinquent. The Company believes that loans acquired since the adoption of SOP 03-3 have not shown evidence of deterioration of credit quality since origination, and therefore, are not within the scope of SOP 03-3 because there is no consideration paid for acquired loans over 60 days delinquent. For the years ended March 31, 2009, 2008 and 2007, the Company recorded adjustments of approximately $0.5 million, $0.1 million and $0.9 million, respectively, to the allowance for loan losses in connection with acquisitions in accordance generally accepted accounting principles. These adjustments represent the allowance for loan losses on acquired loans which are not within the scope of SOP 03-3.

The Company believes that its allowance for loan losses is adequate to cover losses in the existing portfolio at March 31, 2009.

The following is a summary of the changes in the allowance for loan losses for the years ended March 31, 2009, 2008, and 2007:

                                                                         March 31,
                                                         2009              2008              2007

Balance at the beginning of the year                 $  33,526,147        27,840,239        22,717,192
Provision for loan losses                               85,476,092        67,541,805        51,925,080
Loan losses                                            (88,728,498 )     (68,985,269 )     (53,979,375 )
Recoveries                                               7,590,928         6,989,297         6,230,010
Translation adjustment                                    (306,340 )          18,135              (956 )
Allowance on acquired loans                                462,441           121,940           948,288
Balance at the end of the year                       $  38,020,770        33,526,147        27,840,239
Allowance as a percentage of loans receivable, net
of unearned and deferred fees                                  7.6 %             7.5 %             7.4 %
Net charge-offs as a percentage of average loans
receivable (1)                                                16.7 %            14.5 %            13.3 %