Results of Operations

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 (unaudited):

                                           Three months ended
                                              December 31,           Nine months ended December 31,
                                           2012           2011           2012             2011
                                                         (Dollars in thousands)
Average gross loans receivable ¹       $ 1,124,333     1,003,584     1,063,557            956,723
Average net loans receivable ²             816,671       733,613       774,896            700,266

Expenses as a % of total revenue:
Provision for loan losses                     25.0 %        26.6 %        22.1 %             22.7 %
General and administrative                    50.0 %        48.7 %        49.8 %             49.1 %
Total interest expense                         2.9 %         2.5 %         2.9 %              2.7 %

Operating income ³                            25.0 %        24.7 %        28.1 %             28.1 %

Return on average assets (trailing 12
months)                                       13.0 %        13.4 %        13.0 %             13.4 %

Offices opened or acquired, net                 13            12            49                 53

Total offices (at period end)                1,186         1,120         1,186              1,120


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(1) Average gross loans receivable have been determined by averaging month-end gross loans receivable over the indicated period.

(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 income is computed as total revenues less provision for loan losses and general and administrative expenses, as a percentage of total revenues.

Comparison of Three Months Ended December 31, 2012 Versus Three Months Ended December 31, 2011

Net income increased to $20.7 million for the three months ended December 31, 2012, or 5.6%, from the three month period ended December 31, 2011. Operating income (revenues less provision for loan losses and general and administrative expenses) increased, approximately $3.8 million, or 11.4%, interest expense increased by approximately $1.1 million, or 31.9%, and income tax expense increased by $1.7 million, or 15.8%.

Total revenues rose to $149.6 million during the quarter ended December 31, 2012, a 10.1% increase over the $135.9 million for the corresponding quarter of the previous year. The Company calculates interest revenue on its loans using the rule of 78s, and recognizes the interest revenue using the collection method, which is a cash method of recognizing the revenue. The Company believes that the combination of these two methods does not differ materially from the effective interest method, which is an accrual method for recognizing the revenue. While we do see substantial fluctuations in the amount of cash collected on a month to month basis depending on the number of business days in a month, these fluctuations generally level off during a given quarter. As discussed in the June 30, 2012 Form 10-Q, management believed a timing issue occurred between the September 30, 2012 quarter and the December 31, 2012 quarter. As expected this shift did occur resulting in a shift of interest and fee revenue, currently estimated to be between $2.0 and $2.5 million dollars. The remaining increase was attributable to new offices and an increase in revenues from offices open throughout both quarterly periods. Revenues from the 1,063 offices open throughout both quarterly periods increased by approximately 7.3%. At December 31, 2012, the Company had 1,186 offices in operation, an increase of 49 offices from March 31, 2012.

Interest and fee income for the quarter ended December 31, 2012 increased by $13.2 million, or 11.3%, over the same period of the prior year. This increase resulted from a $83.1 million increase, or 11.3%, in average net loans receivable over the two corresponding periods.

Insurance commissions and other income increased by approximately $500,000, or 2.6%, between the two quarterly periods. Insurance commissions increased by approximately $852,000, or 6.6%, during the most recent quarter when compared to the prior year quarter due to the increase in loans in those states where credit insurance is sold in conjunction with the loan. Other income decreased by approximately $357,000, or 6.0%. The decrease was mostly attributed to $240,000 reduction in Paradata sales revenue and by the Company recognizing a $109,000 gain on the interest rate swap in the prior year quarter, no similar gain was recognized in the current quarter.

The provision for loan losses during the three months ended December 31, 2012 increased by $1.3 million, or 3.6% due to an 11.3% increase in average net loans, from the same quarter last year. This increase was offset by a decrease in our net charge-offs as a percentage of average net loans, which decreased from 15.9% to 15.6% (annualized) when comparing the two quarter end periods. Over the last ten years, charge-off ratios during the third fiscal quarter have ranged from a high of 19.6% in fiscal 2008 to a low of 15.6% in fiscal 2006 and fiscal 2013. The percent of loans delinquent 91 days or more as a percent of gross loans also decreased from 1.18% as of December 31, 2011 to 1.13% at December 31, 2012. Since loans 91 days or more past due are reserved 100%, this reduction resulted in a $650,000 reduction to the provision expense. Accounts that were 61+ days past due decreased from 3.0% to 2.9% of gross loans on a recency basis and remained flat at 4.3% on a contractual basis when comparing the two quarter end statistics.

General and administrative expenses for the quarter ended December 31, 2012 increased by $8.6 million, or 12.9% over the same quarter of fiscal 2012. Of the total increase, approximately, $2.0 million related to salary expense, the majority of which was attributable to the year over year increase in our branch network and normal merit increases to employees. In addition, health insurance cost for employees increased approximately $1.1 million when comparing the two quarterly periods, primarily due to increased claims. Incentives increased approximately $1.4 million from prior year quarter. In the prior year, estimated incentives were reduced based on projections at that time. A similar reduction to the estimated incentives accruals were not required in the current year. Overall, general and administrative expenses, when divided by average open offices, increased by approximately 6.6% when comparing the two periods. The total general and administrative expense as a percent of total revenues was 50.0% for the three months ended December 31, 2012 and was 48.7% for the three months ended December 31, 2011.

Interest expense increased by approximately $1.1 million when comparing the two corresponding quarterly periods as a result of a 42.1% increase in the average debt balance, partially offset by a decrease in the effective interest rate. The effective interest rate decreased from 4.6% to 4.3% during the current quarter.

The Company's effective income tax rate increased to 37.4% for the quarter ended December 31, 2012 compared to 35.3% for the prior year quarter. The increase was primarily due to the recognition of the benefit of state refund claims that resulted in a discrete event in the prior year quarter.

Comparison of Nine Months Ended December 31, 2012 Versus Nine Months Ended December 31, 2011

Net income increased to $66.2 million for the nine months ended December 31, 2012, an increase of 5.0%, from the nine months ended December 31, 2011. Operating income increased approximately $8.3 million, or 7.6%; interest expense increased by 16.2% and income taxes increased by 9.6%.

Total revenues rose to $421.9 million during the nine months ended December 31, 2012, a 7.8% increase over the $391.2 million for the corresponding nine months of the previous year. This increase was attributable to new offices and an increase in revenues from offices open throughout both quarterly periods. Revenues from the 1,063 offices open throughout both nine month periods increased by approximately 5.5%.

Interest and fee income for the nine months ended December 31, 2012 increased by $26.7 million, or 7.8%, over the same period of the prior year. This increase resulted from a $74.6 million increase, or 10.7%, in average net loans receivable over the two corresponding periods.

Insurance commissions and other income increased by approximately $3.9 million, or 7.7%, between the two nine month periods. Insurance commissions increased by approximately $3.8 million, or 10.7%, during the most recent nine months when compared to the same period in the prior year due to the increase in loans in those states where credit insurance is sold in conjunction with the loan. Other income increased by approximately $126,000 or 0.8%, over the corresponding nine months.

The provision for loan losses during the nine months ended December 31, 2012 increased by $4.4 million, or 4.9% due to loan growth, from the same period of the prior year. Accounts that were 61+ days past due decreased slightly from 3.0% to 2.9% of gross loans on a recency basis and remained relatively consistent at 4.3% on a contractual basis when comparing the two quarter end statistics. Net charge-offs as a percentage of average net loans decreased from 14.4% to 14.0% (annualized) when comparing the two nine month periods.

General and administrative expenses for the nine months ended December 31, 2012 increased by $17.9 million, or 9.3% over the same period of fiscal 2012. Health insurance cost for employees increased approximately $2.3 million when comparing the two periods, primarily due to increased claims. In addition, equity compensation increased by $1.7 million associated with the additional cost of the November 2011 grant compared to the November 2010 grant. Overall, general and administrative expenses, when divided by average open offices, increased by approximately 3.3% when comparing the two periods. During the first nine months of fiscal 2013, the Company opened or acquired 49 branches compared to 53 branches opened or acquired in the first nine months of fiscal 2012. The total general and administrative expense as a percent of total revenues increased from 49.1% for the nine months ended December 31, 2011 to 49.8% for the nine months ended December 31, 2012.

Interest expense increased by approximately $1.7 million when comparing the two corresponding nine month periods as a result of a 43.7% increase in the average debt balance, partially offset by a decrease in the effective interest rate. The effective interest rate decreased from 5.6% to 4.5% during the current nine month period.

The Company's effective income tax rate increased to 37.5% for the nine months ended December 31, 2012 compared to 36.5% for the first nine months of the prior year. The increase was primarily the result of the state refund settlement in the prior year period as described above.

Regulatory Matters

Missouri Ballot Initiative

As previously disclosed, the proponents of a 2012 ballot initiative to limit consumer loan annual interest rates in Missouri to 36% failed to secure inclusion of this initiative on Missouri's November 2012 general election ballot. On November 21, 2012, the proponents filed an identical ballot initiative to have the limitation placed on the November 2014 ballot. The Company, through its state and federal trade associations, is working in opposition to this new ballot initiative; however, it is uncertain whether these efforts will be successful in preventing the initiative from being placed on the November 2014 election ballot or in defeating the initiative if it is ultimately placed on the ballot. As discussed further in the Company's report on Form 10-K for the fiscal year ended March 31, 2012 and the Company's other reports filed with or furnished to the SEC from time to time, the Company's operations are subject to extensive state and federal laws and regulations, and changes in those laws or regulations or their application could have a material adverse effect on the Company's business, results of operations, prospects or ability to continue operations in the jurisdictions affected by these changes. See Part I, Item 1, "Description of Business-Government Regulation" and Part I, Item 1A, "Risk Factors" in the Company's report on Form 10-K for the fiscal year ended March 31, 2012 for more information regarding these regulations and related risks and the Company's Form 8-K filed August 2, 2012 for more information regarding the potential impact of adoption of such a ballot initiative in Missouri.

Canning v. National Labor Relations Board

The D.C. Circuit issued its decision in the case of Canning v. National Labor Relations Board on January 25, 2013, which invalidated the President's appointment of three members to the NLRB on grounds that the appointments pursuant to the exercise of his "recess appointment" authority were unconstitutional under the circumstances.

The President similarly appointed Richard Cordray as the first Director of the CFPB pursuant to his recess appointment authority at approximately the same time as the NLRB appointments. Mr. Cordray's appointment is similarly being challenged in the D.C. District Court.

The CFPB was not a party to the Canning decision, and Mr. Cordray's appointment was not directly affected by that decision. It is also possible that the Canning decision will be appealed to the U.S. Supreme Court, which could overturn or modify the Canning decision or interpretation of the President's recess appointment authority. However, if Mr. Cordray's appointment is invalidated or his authority remains clouded because of this issue, it may affect our industry, as the operational authorities of the CFPB, which are set forth in Title X of the Dodd-Frank Act, distinguish between certain powers which were exercisable prior to the appointment of a Director and those which are exercisable only when the CPFB has a Director.

One of the CFPB powers which requires a Director is supervising non-depository institutions pursuant to the provisions of Section 1024 of the Dodd-Frank Act, which includes the authority to: (i) prescribe rules defining the scope of non-depository institutions subject to CFPB's supervision; (ii) prescribe rules establishing recordkeeping requirements that CFPB determines are needed to facilitate non-depository supervision; and (iii) conduct examinations of non-depository institutions.

We are a non-depository institution, as described in the Dodd- Frank Act, and it is unclear how the recent Canning ruling or pending action to invalidate Mr. Cordray's appointment will affect our industry and if we will be supervised by the CFPB until the recess appointment issue is resolved.

Critical Accounting Policies

The Company's accounting and reporting policies are in accordance with U. S. 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, 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, share-based compensation and income taxes 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. Additional information concerning the allowance for loan losses is discussed under "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Credit Quality" in the Company's report on Form 10-K for the fiscal year ended March 31, 2012.

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, 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 the Company's 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 and historical experience. 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 by the U.S. Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service ("IRS"), state taxing authorities, or Mexico 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, including capital gains, in order to ultimately realize deferred income tax assets.

The Company adopted FASB ASC Topic 740 on April 1, 2007. 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.

Liquidity and Capital Resources

The Company has financed and continues to finance its operations, acquisitions and office 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 increasing loan volume, fund acquisitions, repay long-term indebtedness, and repurchase its common stock. As the Company's gross loans receivable increased from $671.2 million at March 31, 2009 to $972.7 million at March 31, 2012, net cash provided by operating activities for fiscal years 2012, 2011 and 2010 was $219.4 million, $199.8 million and $183.6 million, respectively.

The Company believes stock repurchases to be a viable component of the Company's long-term financial strategy and an excellent use of excess cash when the opportunity arises. Subject to appropriate authorizations, the Company may use a substantial portion of recent and any future increases under its revolving credit facility (described further below) to fund additional stock repurchases. As of February 6, 2013, the Company has $11.0 million in aggregate remaining repurchase capacity under all of the Company's outstanding stock repurchase authorizations.

The Company plans to open or acquire at least 50 branches in the United States and 10 branches in Mexico during fiscal 2013. Expenditures by the Company to open and furnish new offices averaged approximately $25,000 per office during fiscal 2012. New offices have also required from $100,000 to $400,000 to fund outstanding loans receivable originated during their first 12 months of operation.

The Company acquired nine loan portfolios during the first nine months of fiscal 2013. Gross loans receivable purchased in these transactions were approximately $1.6 million in the aggregate at the date of purchase. The Company believes that attractive opportunities to acquire new offices or receivables from its competitors or to acquire offices 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 $680.0 million base credit facility with a syndicate of banks. The credit facility will expire on November 19, 2014. Funds borrowed under the revolving credit facility bear interest at the LIBOR rate plus 3.0% per annum with a minimum 4.0% interest rate. During the nine months ended, December 31, 2012, the effective interest rate, including the commitment fee, on borrowings under the revolving credit facility was 4.3%. The Company pays a commitment fee equal to 0.40% per annum of the daily unused portion of the commitments unless the unused portion equals or exceeds 55% of the commitments, in which case the fee increases to 0.50% per annum. Amounts outstanding under the revolving credit facility may not exceed specified percentages of eligible loans receivable. On December 31, 2012, $492.7 million was outstanding under this facility, and there was $151.7 million of unused borrowing availability under the borrowing base limitations. The Company also has $35.6 million that may become available under the revolving credit facility if it grows the net eligible finance receivables.

The Company's credit agreements contain a number of financial covenants, including minimum net worth and fixed charge coverage requirements. The credit agreements also contain certain other covenants, including covenants that impose limitations on the Company with respect to (i) declaring or paying dividends or making distributions on or acquiring common or preferred stock or warrants or options; (ii) redeeming or purchasing or prepaying principal or interest on subordinated debt; (iii) incurring additional indebtedness; and (iv) entering into a merger, consolidation or sale of substantial assets or subsidiaries. The Company believes that it was in compliance with these agreements as of December 31, 2012, and does not believe that these agreements will materially limit its business and expansion strategy.

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 offices, including funding initial operating losses of new offices and funding loans receivable originated by those offices and the Company's other offices and the scheduled repayment of the other notes payable (for the next 12 months and for the foreseeable future beyond that). Except as otherwise discussed in this report and in Part 1, Item 1A, "Risk Factors" in the Company's Form 10-K for the year ended March 31, 2012 (as supplemented by any subsequent disclosures in information the Company files with or furnishes to the SEC from time to time, including, but not limited to, any disclosures in Part II, Item 1A, "Risk Factors" in any of the Company's Forms 10-Q for quarters ended during fiscal 2013), 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, the Company's liquidity increasing or decreasing in any material way. From time to time, the Company has needed and obtained, and expects that it will continue to need on a periodic basis, an increase in the borrowing limits under its revolving credit facility. The Company has successfully obtained such increases in the past and anticipates that it will be able to do so in the future as the need arises; however, there can be no assurance that this additional funding will be available (or available on reasonable terms) if and when needed.

Share Repurchase Program

The Company's long term profitability has demonstrated over many years our ability to grow our loan portfolio (the Company's only earning asset) and generate excess cash flow. We have and will continue to use our cash flow and excess capital to repurchase shares, assuming that the repurchased shares are accretive to earnings per share, which should provide better returns for shareholders in the future. We prefer share repurchases to dividends for several reasons. First, repurchasing shares should increase the value of the remaining shares. Second, repurchasing shares as opposed to dividends provides shareholders the option to defer taxes by electing to not sell any of their holdings. Finally, repurchasing shares provides shareholders with maximum flexibility to increase, maintain or decrease their ownership depending on their view of the value of the Company's shares, whereas a dividend does not provide this flexibility.
Since 1996, the Company has repurchased approximately 14.3 million shares for an aggregate purchase price of approximately $524.7 million. As of December 31, 2012 our debt outstanding was $492.7 million and our shareholders' equity was $359.5 million resulting in a debt-to-equity ratio of 1.37:1. Our first priority is to ensure we have enough capital to fund loan growth. To the extent we have excess capital we intend to continue repurchasing stock, as authorized by our Board of Directors, which is consistent with our past practice. We will continue to monitor on our debt to equity ratio and are committed to maintaining a debt level that will allow us to continue to execute on our business objectives, while not putting undue stress on our balance sheet.
Historically, management has filed a Form 8-K with the Securities and Exchange Commission to announce any new authorization the Board of Directors has given regarding stock repurchases. Management plans to continue to make filings with the Securities and Exchange Commission or otherwise publicly announce future stock repurchase authorizations. When we have Board authorization to repurchase shares, we have historically repurchased shares in the open market and in . . .