10-Q 1 nick-10q_20191231.htm 10-Q nick-10q_20191231.htm

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED December 31, 2019

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: 0-26680

 

NICHOLAS FINANCIAL, INC.

(Exact Name of Registrant as Specified in its Charter) 

 

 

British Columbia, Canada

 

59-2506879

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

2454 McMullen Booth Road, Building C

 

 

Clearwater, Florida

 

33759

(Address of Principal Executive Offices)

 

(Zip Code)

 

(727) 726-0763

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

NICK

 

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).     Yes      No  

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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the 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. 

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

As of February 12, 2020, approximately 12.6 million shares, no par value, of the Registrant were outstanding (of which 4.7 million shares were held by the Registrant’s principal operating subsidiary and pursuant to applicable law, not entitled to vote and 7.9 million shares were entitled to vote).

 

 

NICHOLAS FINANCIAL, INC.


Table of Contents

 

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

Part I .

 

Financial Information

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

Consolidated Balance Sheets as of December 31, 2019 and March 31, 2019

 

1

 

 

Consolidated Statements of Income for the three and nine months ended December 31, 2019 and 2018

 

2

 

 

Consolidated Statements of Shareholders’ Equity for the three and nine months ended December 31, 2019 and 2018

 

3

 

  

Consolidated Statements of Cash Flows for the nine months ended December 31, 2019 and 2018

 

4

 

 

Notes to the Consolidated Financial Statements

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

26

Item 4.

 

Controls and Procedures

 

26

 

 

 

 

 

Part II .

 

Other Information

 

 

Item 1.

 

Legal Proceedings

 

28

Item 1A.

 

Risk Factors

 

28

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

Item 6.

 

Exhibits

 

29

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Nicholas Financial, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

 

 

 

December 31, 2019

(Unaudited)

 

 

March 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

15,801

 

 

$

35,595

 

Restricted cash

 

 

8,305

 

 

 

2,047

 

Finance receivables, net

 

 

190,327

 

 

 

202,042

 

Repossessed assets

 

 

1,500

 

 

 

1,924

 

Income taxes receivable

 

 

1,669

 

 

 

1,654

 

Prepaid expenses and other assets

 

 

3,001

 

 

 

1,378

 

Property and equipment, net

 

 

522

 

 

 

656

 

Intangibles

 

 

65

 

 

 

 

Goodwill

 

 

295

 

 

 

 

Deferred income taxes

 

 

6,597

 

 

 

7,124

 

Total assets

 

$

228,082

 

 

$

252,420

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Credit facility

 

$

119,450

 

 

$

145,000

 

Unamortized debt issuance costs

 

 

(2,682

)

 

 

(2,381

)

   Net long-term debt

 

 

116,768

 

 

 

142,619

 

Accounts payable and accrued expenses

 

 

5,322

 

 

 

4,916

 

Total liabilities

 

 

122,090

 

 

 

147,535

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, no par: 5,000 shares authorized; none issued

 

 

 

 

 

 

Common stock, no par: 50,000 shares authorized; 12,664 and 12,624 shares issued,

   respectively; and 7,926 and 7,910 shares outstanding, respectively

 

 

34,813

 

 

 

34,660

 

Treasury stock: 4,738 and 4,714 common shares, at cost, respectively

 

 

(70,675

)

 

 

(70,459

)

Retained earnings

 

 

141,854

 

 

 

140,684

 

Total shareholders’ equity

 

 

105,992

 

 

 

104,885

 

Total liabilities and shareholders’ equity

 

$

228,082

 

 

$

252,420

 

 

 

 

 

 

 

 

 

 

The following table represents the assets and liabilities of our consolidated variable interest entity as follows:

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

(Unaudited)

 

 

March 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Restricted cash

 

$

8,305

 

 

$

2,047

 

Finance receivables, net

 

 

173,084

 

 

 

187,584

 

Repossessed assets

 

 

1,339

 

 

 

 

Total assets

 

$

182,728

 

 

$

189,631

 

Liabilities

 

 

 

 

 

 

 

 

Credit facility

 

$

116,768

 

 

$

142,619

 

Accounts payable and accrued expenses

 

 

586

 

 

 

 

Total liabilities

 

$

117,354

 

 

$

142,619

 

 

See Notes to the Consolidated Financial Statements.

1


Table of Contents

 

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Income (Loss)

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Interest and fee income on finance receivables

 

$

14,973

 

 

$

16,740

 

 

$

47,199

 

 

$

54,903

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing

 

 

402

 

 

 

652

 

 

 

1,240

 

 

 

1,756

 

Salaries and employee benefits

 

 

4,629

 

 

 

4,575

 

 

 

14,168

 

 

 

14,182

 

Administrative

 

 

2,825

 

 

 

2,530

 

 

 

10,148

 

 

 

8,387

 

Provision for credit losses

 

 

4,597

 

 

 

7,870

 

 

 

12,982

 

 

 

21,670

 

Amortization of intangibles

 

 

14

 

 

 

 

 

 

42

 

 

 

 

Depreciation

 

 

80

 

 

 

91

 

 

 

250

 

 

 

290

 

Interest expense

 

 

1,886

 

 

 

2,303

 

 

 

6,672

 

 

 

7,228

 

Total expenses

 

 

14,433

 

 

 

18,021

 

 

 

45,502

 

 

 

53,513

 

Income (loss) before income taxes

 

 

540

 

 

 

(1,281

)

 

 

1,697

 

 

 

1,390

 

Income tax expense (benefit)

 

 

229

 

 

 

(376

)

 

 

527

 

 

 

293

 

Net income (loss)

 

$

311

 

 

$

(905

)

 

$

1,170

 

 

$

1,097

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

 

$

(0.12

)

 

$

0.15

 

 

$

0.14

 

Diluted

 

$

0.04

 

 

$

(0.12

)

 

$

0.15

 

 

$

0.14

 

 

See Notes to the Consolidated Financial Statements.

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Table of Contents

 

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(Unaudited)

(In thousands)

 

 

 

Three Months Ended December 31, 2019

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Treasury

Stock

 

 

Retained

Earnings

 

 

Shareholders'

Equity

 

Balance at September 30, 2019

 

 

7,925

 

 

$

34,749

 

 

$

(70,459

)

 

$

141,543

 

 

$

105,833

 

Exercise of stock options

 

 

1

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Share-based compensation

 

 

 

 

 

59

 

 

 

 

 

 

 

 

 

59

 

Treasury stock repurchases

 

 

 

 

 

 

 

 

(216

)

 

 

 

 

 

(216

)

Net income

 

 

 

 

 

 

 

 

 

 

 

311

 

 

 

311

 

Balance at December 31, 2019

 

 

7,926

 

 

$

34,813

 

 

$

(70,675

)

 

$

141,854

 

 

$

105,992

 

 

 

 

 

 

 

Three Months Ended December 31, 2018

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Treasury

Stock

 

 

Retained

Earnings

 

 

Shareholders'

Equity

 

Balance at September 30, 2018

 

 

7,904

 

 

$

34,589

 

 

$

(70,459

)

 

$

146,334

 

 

$

110,464

 

Issuance of restricted stock awards

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

1

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Cancellation of restricted stock awards

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

Shared-based compensation

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

27

 

Net (loss)

 

 

 

 

 

 

 

 

 

 

 

(905

)

 

 

(905

)

Balance at December 31, 2018

 

 

7,908

 

 

$

34,621

 

 

$

(70,459

)

 

$

145,429

 

 

$

109,591

 

 

 

 

 

 

 

Nine Months Ended December 31, 2019

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Treasury

Stock

 

 

Retained

Earnings

 

 

Shareholders'

Equity

 

Balance at March 31, 2019

 

 

7,910

 

 

$

34,660

 

 

$

(70,459

)

 

$

140,684

 

 

$

104,885

 

Issuance of restricted stock awards

 

 

39

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

2

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Cancellation of restricted stock awards

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

148

 

 

 

 

 

 

 

 

 

148

 

Treasury stock repurchases

 

 

 

 

 

 

 

 

(216

)

 

 

 

 

 

(216

)

Net income

 

 

 

 

 

 

 

 

 

 

 

1,170

 

 

 

1,170

 

Balance at December 31, 2019

 

 

7,926

 

 

$

34,813

 

 

$

(70,675

)

 

$

141,854

 

 

$

105,992

 

 

 

 

 

 

 

Nine Months Ended December 31, 2018

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Treasury

Stock

 

 

Retained

Earnings

 

 

Shareholders'

Equity

 

Balance at March 31, 2018

 

 

7,895

 

 

$

34,564

 

 

$

(70,459

)

 

$

144,332

 

 

$

108,437

 

Issuance of restricted stock awards

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

12

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Cancellation of restricted stock awards

 

 

(22

)

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

41

 

 

 

 

 

 

 

 

 

41

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,097

 

 

 

1,097

 

Balance at December 31 2018

 

 

7,908

 

 

$

34,621

 

 

$

(70,459

)

 

$

145,429

 

 

$

109,591

 

 

See Notes to the Consolidated Financial Statements.

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Table of Contents

 

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended December 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

1,170

 

 

$

1,097

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

250

 

 

 

290

 

Amortization of intangibles

 

 

42

 

 

 

 

Amortization of debt issuance costs

 

 

324

 

 

 

860

 

Gain on sale of property and equipment

 

 

(9

)

 

 

(38

)

Repossessed assets

 

 

517

 

 

 

215

 

Provision for credit losses

 

 

12,982

 

 

 

21,670

 

Amortization of dealer discounts

 

 

(6,138

)

 

 

(8,140

)

Amortization of insurance and fee commissions

 

 

(1,984

)

 

 

(1,508

)

Accretion of purchase price discount

 

 

(1,453

)

 

 

 

Deferred income taxes

 

 

527

 

 

 

851

 

Share-based compensation

 

 

148

 

 

 

41

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(199

)

 

 

221

 

Prepaid expenses and other assets

 

 

(1,605

)

 

 

(541

)

Accounts payable and accrued expenses

 

 

350

 

 

 

(1,717

)

Income taxes receivable

 

 

(15

)

 

 

(610

)

Unearned insurance and fee commissions

 

 

182

 

 

 

 

Net cash provided by operating activities

 

 

5,089

 

 

 

12,691

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase and origination of finance receivables

 

 

(66,572

)

 

 

(56,266

)

Principal payments received

 

 

94,994

 

 

 

91,386

 

Net assets acquired from branch acquisitions, primarily loans

 

 

(20,483

)

 

 

 

Purchase of property and equipment

 

 

(81

)

 

 

(113

)

Proceeds from sale of property and equipment

 

 

7

 

 

 

62

 

Net cash provided by investing activities

 

 

7,865

 

 

 

35,069

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repayments on credit facility

 

 

(38,950

)

 

 

(45,750

)

Proceeds from the credit facility

 

 

13,400

 

 

 

 

Payment of loan originations fees

 

 

(729

)

 

 

(400

)

Proceeds from exercise of stock options

 

 

5

 

 

 

16

 

Repurchases of treasury stock

 

 

(216

)

 

 

 

Net cash used in financing activities

 

 

(26,490

)

 

 

(46,134

)

Net (decrease) increase in cash and restricted cash

 

 

(13,536

)

 

 

1,626

 

Cash and restricted cash at the beginning of period

 

 

37,642

 

 

 

2,626

 

Cash and restricted cash at the end of period

 

$

24,106

 

 

$

4,252

 

 

See Notes to the Consolidated Financial Statements.

4


Table of Contents

 

Notes to the Consolidated Financial Statements

1. Basis of Presentation

Nicholas Financial, Inc. (“Nicholas Financial – Canada”) is a Canadian holding company incorporated under the laws of British Columbia with several wholly-owned United States subsidiaries, including Nicholas Financial, Inc., a Florida corporation (“NFI”). The accompanying consolidated balance sheet as of March 31, 2019, which has been derived from audited financial statements, and the accompanying unaudited interim consolidated financial statements of Nicholas Financial – Canada, and its wholly-owned subsidiaries (collectively, the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information, with the instructions to Form 10-Q pursuant to the Securities and Exchange Act of 1934, as amended, and with Article 8 of Regulation S-X thereunder. Accordingly, they do not include all of the information and notes to the consolidated financial statements required by U.S. GAAP for complete consolidated financial statements, although the Company believes that the disclosures made are adequate to ensure the information is not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year ending March 31, 2020. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019 as filed with the Securities and Exchange Commission on June 28, 2019. The March 31, 2019 consolidated balance sheet included herein has been derived from the March 31, 2019 audited consolidated balance sheet included in the aforementioned Form 10-K.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses on finance receivables and fair value of the assets and liabilities for business combination.

2. Revenue Recognition

Finance receivables consist of automobile finance installment contracts (“Contracts”) and direct consumer loans (“Direct Loans”). Interest income on finance receivables is recognized using the interest method. Accrual of interest income on finance receivables is suspended when a loan is contractually delinquent for 61 days or more, or the collateral is repossessed, whichever is earlier. The Company reverses the accrual of interest income when the loan is contractually delinquent 61 days or more.

As of February 2019, Chapter 13 bankruptcy accounts are charged-off at the time the bankruptcy status is confirmed on the account. Chapter 13 bankruptcy accounts, for which the corresponding bankruptcy plan has not been confirmed by the relevant court as of December 31, 2019 are accounted for under the cost-recovery method. Interest income on Chapter 13 bankruptcy accounts does not resume until all principal amounts are recovered.

A dealer discount represents the difference between the finance receivable of a Contract, and the amount of money the Company actually pays for the Contract. The discount negotiated by the Company is a function of the lender, the wholesale value of the vehicle and competition in any given market. In making decisions regarding the purchase of a particular Contract the Company considers the following factors related to the borrower: place and length of residence; current and prior job status; history in making installment payments for automobiles; current income; and credit history. In addition, the Company examines its prior experience with Contracts purchased from the dealer, and the value of the automobile in relation to the purchase price and the term of the Contract.

The entire amount of discount is amortized as an adjustment to yield using the interest method over the life of the loan. The average dealer discount associated with new volume for the three months ended December 31, 2019 and 2018 was 7.6% and 8.1% and 7.9% and 8.3% for the nine months ended December 31, 2019 and 2018, respectively, in relation to the total amount financed.

Unearned insurance and fee commissions consist primarily of commissions received from the sale of ancillary products. These products include automobile warranties, roadside assistance programs, accident and health insurance, credit life insurance, involuntary unemployment insurance coverage, and forced placed automobile insurance. These commissions are amortized over the life of the contract using the interest method.

 

 

5


Table of Contents

 

3. Earnings Per Share

The Company has granted stock compensation awards with nonforfeitable dividend rights which are considered participating securities. Earnings per share is calculated using the two-class method, as such awards are more dilutive under this method than the treasury stock method. Basic earnings per share is calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities. Diluted earnings per share includes the dilutive effect of additional potential common shares from stock compensation awards. Earnings per share have been computed based on the following weighted average number of common shares outstanding:

 

 

 

Three months ended

December 31,

(In thousands, except

per share amounts)

 

 

Nine months ended

December 31,

(In thousands, except

per share amounts)

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

311

 

 

$

(905

)

 

$

1,170

 

 

$

1,097

 

Less: Allocation of earnings to participating securities

 

 

(2

)

 

 

5

 

 

 

(6

)

 

 

(10

)

Net income (loss) allocated to common stock

 

$

309

 

 

$

(900

)

 

$

1,164

 

 

$

1,087

 

Basic earnings per share computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) allocated to common stock

 

$

309

 

 

$

(900

)

 

$

1,164

 

 

$

1,087

 

Weighted average common shares outstanding, including

   shares considered participating securities

 

 

7,970

 

 

 

7,859

 

 

 

7,901

 

 

 

7,855

 

Less: Weighted average participating securities outstanding

 

 

(52

)

 

 

(46

)

 

 

(40

)

 

 

(68

)

Weighted average shares of common stock

 

 

7,918

 

 

 

7,813

 

 

 

7,861

 

 

 

7,787

 

Basic earnings (loss) per share

 

$

0.04

 

 

$

(0.12

)

 

$

0.15

 

 

$

0.14

 

Diluted earnings per share computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) allocated to common stock

 

$

309

 

 

$

(900

)

 

$

1,164

 

 

$

1,087

 

Undistributed earnings re-allocated to participating securities

 

 

2

 

 

 

 

 

 

6

 

 

 

 

Numerator for diluted earnings (loss) per share

 

$

311

 

 

$

(900

)

 

$

1,170

 

 

$

1,087

 

Weighted average common shares outstanding for basic

   earnings per share

 

 

7,918

 

 

 

7,813

 

 

 

7,861

 

 

 

7,787

 

Incremental shares from stock options

 

 

1

 

 

 

7

 

 

 

1

 

 

 

 

Weighted average shares and dilutive potential common shares

 

 

7,919

 

 

 

7,820

 

 

 

7,862

 

 

 

7,787

 

Diluted earnings (loss) per share

 

$

0.04

 

 

$

(0.12

)

 

$

0.15

 

 

$

0.14

 

 

Diluted earnings per share do not include the effect of certain stock options as their impact would be anti-dilutive. For the three months ended December 31, 2019 and 2018, potential shares of common stock from stock options totaling 62,400 and 35,000, respectively, were not included in the diluted earnings per share calculation because their effect is anti-dilutive. For the nine months ended December 31, 2019 and 2018, potential shares of common stock from stock options totaling 62,400 and 68,600, respectively, were not included in the diluted earnings per share calculation because their effect is anti-dilutive.

4. Finance Receivables

Finance Receivables Portfolio

Finance receivables consist of Contracts and Direct Loans and are detailed as follows:

 

 

 

(In thousands)

 

 

 

December 31,

2019

 

 

March 31,

2019

 

 

December 31,

2018

 

Finance receivables

 

$

211,813

 

 

$

228,994

 

 

$

250,279

 

Accrued interest receivable

 

 

3,088

 

 

 

2,889

 

 

 

2,421

 

Unearned dealer discounts

 

 

(8,436

)

 

 

(10,083

)

 

 

(10,757

)

Unearned insurance and fee commissions

 

 

(2,644

)

 

 

(2,826

)

 

 

(2,758

)

Finance receivables, net of unearned

 

 

203,821

 

 

 

218,974

 

 

 

239,185

 

Purchase price discount

 

 

(222

)

 

 

 

 

 

 

Allowance for credit losses

 

 

(13,272

)

 

 

(16,932

)

 

 

(19,975

)

Finance receivables, net

 

$

190,327

 

 

$

202,042

 

 

$

219,210

 

 

During the quarter ended December 31, 2019, the Company completed a bulk asset purchase of $1.1 million of Contract loans.

6


Table of Contents

 

Contracts and Direct Loans each comprise a portfolio segment. The following tables present selected information on the entire portfolio of the Company:

 

 

 

As of December 31,

 

Contract Portfolio

 

2019

 

 

2018

 

Average APR

 

 

22.7

%

 

 

22.7

%

Average discount

 

 

7.7

%

 

 

7.5

%

Average term (months)

 

 

51

 

 

 

53

 

Number of active contracts

 

 

25,995

 

 

 

29,061

 

 

 

 

As of December 31,

 

Direct Loan Portfolio

 

2019

 

 

2018

 

Average APR

 

 

27.0

%

 

 

26.0

%

Average term (months)

 

 

26

 

 

 

27

 

Number of active contracts

 

 

3,376

 

 

 

2,641

 

 

The Company purchases Contracts from automobile dealers at a negotiated price that is less than the original principal amount being financed by the purchaser of the automobile. The Contracts are predominantly for used vehicles. As of December 31, 2019, the average model year of vehicles collateralizing the portfolio was a 2011 vehicle.

Direct Loans are typically for amounts ranging from $500 to $11,000 and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal property. The majority of Direct Loans are originated with current or former customers under the Company’s automobile financing program. The typical Direct Loan represents a better credit risk than the typical Contract due to the customer’s prior payment history with the Company; however, the underlying collateral is “typically” less valuable. In deciding whether to make a loan, the Company considers the individual’s credit history, job stability, income, and impressions created during a personal interview with a Company loan officer. Additionally, because most of the Direct Loans made by the Company to date have been made to current or former customers, the payment history of the borrower is a significant factor in making the loan decision. As of December 31, 2019, loans made by the Company pursuant to its Direct Loan program constituted approximately 5.4% of the aggregate principal amount of the Company’s loan portfolio. Changes in the allowance for credit losses for both Contracts and Direct Loans were driven primarily by consideration the composition of the portfolio, current economic conditions, the estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts when determining management’s estimate of probable credit losses and adequacy of the allowance for credit losses. If the allowance for credit losses is determined to be inadequate, then an additional charge to the provision would be recorded to maintain adequate reserves based on management’s evaluation of the risk inherent in the loan portfolio. Additionally, credit loss trends over several reporting periods are utilized in estimating future losses and overall portfolio performance. Conversely, the Company could identify abnormalities in the composition of the portfolio, which would indicate the calculation is overstated and management judgement may be required to determine the allowance of credit losses for both Contracts and Direct Loans.

Each portfolio segment consists of smaller balance homogeneous loans which are collectively evaluated for impairment.

7


Table of Contents

 

Allowance for Credit Losses

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts and Direct Loans for the three months ended December 31, 2019 and 2018:

 

 

 

Three months ended December 31, 2019

 

 

Nine months ended December 31, 2019

 

 

 

Contracts

 

 

Direct Loans

 

 

Consolidated

 

 

Contracts

 

 

Direct Loans

 

 

Consolidated

 

Balance at beginning of

   period

 

$

12,680

 

 

$

850

 

 

$

13,530

 

 

$

16,575

 

 

$

357

 

 

$

16,932

 

Provision for credit losses

 

 

4,597

 

 

 

-

 

 

 

4,597

 

 

 

12,177

 

 

 

805

 

 

 

12,982

 

Charge-offs

 

 

(7,350

)

 

 

(144

)

 

 

(7,494

)

 

 

(22,057

)

 

 

(483

)

 

 

(22,540

)

Recoveries

 

 

2,626

 

 

 

13

 

 

 

2,639

 

 

 

5,858

 

 

 

40

 

 

 

5,898

 

Balance at December 31,

2019

 

$

12,553

 

 

$

719

 

 

$

13,272

 

 

$

12,553

 

 

$

719

 

 

$

13,272