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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 June 30, 2021

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 August 5, 2021, approximately 12.7 million common shares, no par value, of the Registrant were outstanding (of which 5.0 million shares were held by the Registrant’s principal operating subsidiary and pursuant to applicable law, not entitled to vote and 7.7 million shares were entitled to vote).

 

 


Table of Contents

 

NICHOLAS FINANCIAL, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

Part I .

 

Financial Information

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

Consolidated Balance Sheets as of June 30, 2021 and March 31, 2021

 

1

 

 

Consolidated Statements of Income for the three months ended June 30, 2021 and 2020

 

2

 

 

Consolidated Statements of Shareholders’ Equity for the three months ended June 30, 2021 and 2020

 

3

 

  

Consolidated Statements of Cash Flows for the three months ended June 30, 2021 and 2020

 

4

 

 

Notes to the Consolidated Financial Statements

 

5

Item 2.

 

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

 

14

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

23

Item 4.

 

Controls and Procedures

 

23

 

 

 

 

 

Part II .

 

Other Information

 

 

Item 1.

 

Legal Proceedings

 

24

Item 1A.

 

Risk Factors

 

24

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

Item 6.

 

Exhibits

 

25

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Nicholas Financial, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

 

 

 

June 30, 2021

(Unaudited)

 

 

March 31, 2021

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

18,401

 

 

$

22,022

 

Restricted cash

 

 

5,072

 

 

 

10,955

 

Finance receivables, net

 

 

168,128

 

 

 

170,318

 

Repossessed assets

 

 

805

 

 

 

685

 

Operating lease right-of-use assets

 

 

3,430

 

 

 

3,392

 

Prepaid expenses and other assets

 

 

1,246

 

 

 

1,271

 

Income taxes receivable

 

 

418

 

 

 

653

 

Property and equipment, net

 

 

1,189

 

 

 

859

 

Deferred income taxes

 

 

1,919

 

 

 

2,283

 

Total assets

 

$

200,608

 

 

$

212,438

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Credit facility, net of debt issuance costs

 

$

72,871

 

 

$

86,154

 

Note payable

 

 

3,244

 

 

 

3,244

 

   Net long-term debt

 

 

76,115

 

 

 

89,398

 

Operating lease liabilities

 

 

3,410

 

 

 

3,367

 

Accounts payable and accrued expenses

 

 

4,751

 

 

 

4,451

 

Total liabilities

 

 

84,276

 

 

 

97,216

 

Shareholders’ equity

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, no par: 50,000 shares authorized; 12,655 and 12,653 shares issued,

   respectively; and 7,650 and 7,708 shares outstanding, respectively

 

 

35,110

 

 

 

35,064

 

Treasury stock: 5,005 and 4,945 common shares, at cost, respectively

 

 

(73,008

)

 

 

(72,343

)

Retained earnings

 

 

154,230

 

 

 

152,501

 

Total shareholders’ equity

 

 

116,332

 

 

 

115,222

 

Total liabilities and shareholders’ equity

 

$

200,608

 

 

$

212,438

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

(Unaudited)

 

 

March 31, 2021

 

Assets

 

 

 

 

 

 

 

 

Restricted cash

 

$

5,072

 

 

$

10,955

 

Finance receivables, net

 

 

149,713

 

 

 

150,706

 

Repossessed assets

 

 

715

 

 

 

631

 

Total assets

 

$

155,500

 

 

$

162,292

 

Liabilities

 

 

 

 

 

 

 

 

Credit facility, net of debt issuance costs

 

$

72,871

 

 

$

86,154

 

Accounts payable and accrued expenses

 

 

336

 

 

 

405

 

Total liabilities

 

$

73,207

 

 

$

86,559

 

 

See Notes to the Consolidated Financial Statements.

1


Table of Contents

 

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

Interest and fee income on finance receivables

 

$

12,594

 

 

$

14,151

 

Expenses:

 

 

 

 

 

 

 

 

Marketing

 

 

577

 

 

 

219

 

Salaries and employee benefits

 

 

4,838

 

 

 

4,152

 

Administrative

 

 

2,860

 

 

 

2,903

 

Provision for credit losses

 

 

730

 

 

 

3,300

 

Depreciation

 

 

73

 

 

 

69

 

Interest expense

 

 

1,188

 

 

 

1,649

 

Total expenses

 

 

10,266

 

 

 

12,292

 

Income before income taxes

 

 

2,328

 

 

 

1,859

 

Income tax expense

 

 

599

 

 

 

429

 

Net income

 

$

1,729

 

 

$

1,430

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.22

 

 

$

0.18

 

Diluted

 

$

0.22

 

 

$

0.18

 

 

See Notes to the Consolidated Financial Statements.

2


Table of Contents

 

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(Unaudited)

(In thousands)

 

 

 

Three Months Ended June 30, 2021

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Treasury

Stock

 

 

Retained

Earnings

 

 

Shareholders'

Equity

 

Balance at March 31, 2021

 

 

7,708

 

 

$

35,064

 

 

$

(72,343

)

 

$

152,501

 

 

$

115,222

 

Issuance of restricted stock awards

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

46

 

 

 

 

 

 

 

 

 

46

 

Treasury stock repurchases

 

 

(60

)

 

 

 

 

 

(665

)

 

 

 

 

 

(665

)

Net income

 

 

 

 

 

 

 

 

 

 

 

1,729

 

 

 

1,729

 

Balance at June 30, 2021

 

 

7,650

 

 

$

35,110

 

 

$

(73,008

)

 

$

154,230

 

 

$

116,332

 

 

 

 

 

 

 

Three Months Ended June 30, 2020

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Treasury

Stock

 

 

Retained

Earnings

 

 

Shareholders'

Equity

 

Balance at March 31, 2020

 

 

7,806

 

 

$

34,867

 

 

$

(71,438

)

 

$

144,150

 

 

$

107,579

 

Issuance of restricted stock awards

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

49

 

 

 

 

 

 

 

 

 

49

 

Treasury stock repurchases

 

 

(5

)

 

 

-

 

 

 

(28

)

 

 

 

 

 

(28

)

Net income

 

 

 

 

 

 

 

 

 

 

 

1,430

 

 

 

1,430

 

Balance at June 30, 2020

 

 

7,802

 

 

$

34,916

 

 

$

(71,466

)

 

$

145,580

 

 

$

109,030

 

 

See Notes to the Consolidated Financial Statements.

3


Table of Contents

 

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

1,729

 

 

$

1,430

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

73

 

 

 

69

 

Amortization of debt issuance costs

 

 

107

 

 

 

107

 

Amortization of operating lease right-of-use assets

 

 

385

 

 

 

428

 

Gain on sale of property and equipment

 

 

(2

)

 

 

(2

)

Provision for credit losses

 

 

730

 

 

 

3,300

 

Amortization of dealer discounts

 

 

(1,612

)

 

 

(1,489

)

Amortization of insurance and fees commissions

 

 

(598

)

 

 

(552

)

Accretion of purchase price discount

 

 

(52

)

 

 

(78

)

Deferred income taxes

 

 

364

 

 

 

78

 

Principal reduction on operating lease liabilities

 

 

(335

)

 

 

(386

)

Share-based compensation

 

 

46

 

 

 

49

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Repossessed assets

 

 

(120

)

 

 

267

 

Accrued interest receivable

 

 

(174

)

 

 

129

 

Prepaid expenses and other assets

 

 

25

 

 

 

(190

)

Accounts payable and accrued expenses

 

 

254

 

 

 

(430

)

Income taxes receivable

 

 

235

 

 

 

373

 

Unearned insurance and fee commissions

 

 

(34

)

 

 

(59

)

Net cash provided by operating activities

 

 

1,021

 

 

 

3,044

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase and origination of finance receivables

 

 

(26,042

)

 

 

(19,223

)

Principal payments received

 

 

29,973

 

 

 

28,425

 

Purchase of property and equipment

 

 

(401

)

 

 

(18

)

Proceeds from sale of property and equipment

 

 

 

 

 

20

 

Net cash provided by investing activities

 

 

3,530

 

 

 

9,204

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repayments on credit facility

 

 

(13,390

)

 

 

(7,830

)

Proceeds from PPP Loan

 

 

 

 

 

3,244

 

Repurchases of treasury stock

 

 

(665

)

 

 

(28

)

Net cash used in financing activities

 

 

(14,055

)

 

 

(4,614

)

Net (decrease) increase in cash and restricted cash

 

 

(9,504

)

 

 

7,634

 

Cash and restricted cash at the beginning of period

 

 

32,977

 

 

 

24,684

 

Cash and restricted cash at the end of period

 

$

23,473

 

 

$

32,318

 

Supplemental Disclosures:

 

 

 

 

 

 

 

 

Interest paid, including debt originations cost, during the quarter

 

 

1,142

 

 

 

1,643

 

Leased assets obtained in exchange for new operating lease liabilities

 

 

412

 

 

 

867

 

 

See Notes to the Consolidated Financial Statements.

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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 June 30, 2021, 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 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 adjustments) 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, 2022. 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, 2021 as filed with the Securities and Exchange Commission on June 22, 2021. The March 31, 2021 consolidated balance sheet included herein has been derived from the March 31, 2021 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

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.

The Company defines a non-performing asset as one that is 61 or more days past due, a Chapter 7 bankruptcy account, or a Chapter 13 bankruptcy account that has not been confirmed by the courts, for which the accrual of interest income is suspended. Upon confirmation of a Chapter 13 bankruptcy account (BK13), the account is immediately charged-off. Upon notification of a Chapter 7 bankruptcy, an account is monitored for collectability. In the event the debtors’ balance is reduced by the bankruptcy court, the Company records a loss equal to the amount of principal balance reduction. The remaining balance is reduced as payments are received. In the event an account is dismissed from bankruptcy, the Company will decide whether to begin repossession proceedings or to allow the customer to make regularly scheduled payments.

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 dealer 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 June 30, 2021 and 2020 was 7.0% and 8.0%, 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 effective interest method.

 

 

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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

June 30,

(In thousands, except

per share amounts)

 

 

 

2021

 

 

2020

 

Numerator

 

 

 

 

 

 

 

 

Net income per consolidated statements of income

 

$

1,729

 

 

$

1,430

 

Percentage allocated to shareholders *

 

 

99

%

 

 

99

%

Numerator for basic and diluted earnings per share

 

$

1,720

 

 

$

1,422

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Denominator for Basic earnings per share - weighted-average shares outstanding

 

 

7,650

 

 

 

7,758

 

Dilutive effect of stock options

 

 

 

 

 

 

Denominator for diluted earnings per share

 

 

7,650

 

 

 

7,758

 

 

 

 

 

 

 

 

 

 

Per share income from continuing operations

 

 

 

 

 

 

 

 

Basic

 

$

0.22

 

 

$

0.18

 

Diluted

 

 

0.22

 

 

 

0.18

 

 

 

 

 

 

 

 

 

 

* Basic weighted-average shares outstanding

 

 

7,650

 

 

 

7,758

 

   Basic weighted-average shares outstanding and unvested restricted stock units expected to vest

 

 

7,689

 

 

 

7,801

 

Percentage allocated to shareholders

 

 

99

%

 

 

99

%

 

4. Finance Receivables

Finance Receivables Portfolio

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

 

 

 

(In thousands)

 

 

 

June 30,

2021

 

 

March 31,

2021

 

 

June 30,

2020

 

Finance receivables

 

$

180,823

 

 

$

184,237

 

 

$

208,808

 

Accrued interest receivable

 

 

2,459

 

 

 

2,285

 

 

 

3,035

 

Unearned dealer discounts

 

 

(7,110

)

 

 

(7,290

)

 

 

(7,944

)

Unearned insurance commissions and fees

 

 

(2,483

)

 

 

(2,396

)

 

 

(2,557

)

Purchase price discount

 

 

(311

)

 

 

(364

)

 

 

(766

)

Finance receivables, net of unearned

 

 

173,378

 

 

 

176,472

 

 

 

200,576

 

Allowance for credit losses

 

 

(5,250

)

 

 

(6,154

)

 

 

(11,248

)

Finance receivables, net

 

$

168,128

 

 

$

170,318

 

 

$

189,328

 

 

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

 

 

 

As of June 30,

 

Contract Portfolio

 

2021

 

 

2020

 

Average APR

 

 

22.8

%

 

 

22.6

%

Average discount

 

 

7.5

%

 

 

7.6

%

Average term (months)

 

 

50

 

 

 

51

 

Number of active contracts

 

 

21,995

 

 

 

25,931

 

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Table of Contents

 

 

 

 

As of June 30,

 

Direct Loan Portfolio

 

2021

 

 

2020

 

Average APR

 

 

28.8

%

 

 

27.4

%

Average term (months)

 

 

27

 

 

 

27

 

Number of active contracts

 

 

4,354

 

 

 

3,412

 

 

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 June 30, 2021, the average model year of vehicles collateralizing the portfolio was a 2012 vehicle.

Direct Loans are typically for amounts ranging from $500 to $15,000 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 June 30, 2021, loans made by the Company pursuant to its Direct Loan program constituted approximately 8.7% 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 of 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.

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 June 30, 2021 and 2020:

 

 

 

Three months ended June 30, 2021

 

 

 

Contracts

 

 

Direct Loans

 

 

Consolidated

 

Balance at beginning of

   period

 

$

6,001

 

 

$

153

 

 

$

6,154

 

Provision for credit losses

 

 

730

 

 

 

-

 

 

 

730

 

Charge-offs

 

 

(2,774

)

 

 

(191

)

 

 

(2,965

)

Recoveries

 

 

1,311

 

 

 

20

 

 

 

1,331

 

Balance at June 30,

2021

 

$

5,268

 

 

$

(18

)

 

$

5,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2020

 

 

 

Contracts

 

 

Direct Loans

 

 

Consolidated

 

Balance at beginning of

   period

 

$

10,433

 

 

$

729

 

 

$

11,162

 

Provision for credit losses

 

 

3,300

 

 

 

-

 

 

 

3,300

 

Charge-offs

 

 

(4,334

)

 

 

(155

)

 

 

(4,489

)

Recoveries

 

 

1,252

 

 

 

23

 

 

 

1,275

 

Balance at June 30,

2020

 

$

10,651

 

 

$

597

 

 

$

11,248

 

 

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The Company uses the trailing six-month charge-offs, annualized, and applies this calculated percentage to ending finance receivables to calculate estimated future probable credit losses for purposes of determining the allowance for credit losses. The Company then takes into consideration the composition of its portfolio, current economic conditions, estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts and adjusts the above, if necessary, to determine management’s total estimate of probable credit losses and its assessment of the overall adequacy of the allowance for credit losses.  By including recent trends such as delinquency, non-performing assets, and bankruptcy in its determination, management believes that the allowance for credit losses reflects the current trends of incurred losses within the portfolio and is better aligned with the portfolio’s performance indicators.

The following table is an assessment of the credit quality by creditworthiness:

 

 

 

(In thousands)

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

Contracts

 

 

Direct Loans

 

 

Total

 

 

Contracts

 

 

Direct Loans

 

 

Total

 

Performing accounts

 

$

161,700

 

 

$

15,598

 

 

$

177,298

 

 

$

191,988

 

 

$

11,524

 

 

$

203,512

 

Non-performing accounts

 

 

3,229

 

 

 

123

 

 

 

3,352

 

 

 

4,955

 

 

 

160

 

 

 

5,115

 

Total

 

 

164,929

 

 

 

15,721

 

 

 

180,650

 

 

 

196,943

 

 

 

11,684

 

 

 

208,627

 

Chapter 13 bankruptcy

accounts

 

 

162

 

 

 

11

 

 

 

173

 

 

 

181

 

 

 

0

 

 

 

181

 

Finance receivables

 

$

165,091

 

 

$

15,732

 

 

$

180,823

 

 

$

197,124

 

 

$

11,684

 

 

$

208,808

 

 

A performing account is defined as an account that is less than 61 days past due. The Company defines an automobile contract as delinquent when more than 10% of a payment contractually due by a certain date has not been paid immediately by the following due date, which date may have been extended within limits specified in the servicing agreements or as a result of a deferral. The period of delinquency is based on the number of days payments are contractually past due, as extended where applicable.

 

In certain circumstances, the Company will grant obligors one-month payment extensions. The only modification of terms in those circumstances is to advance the obligor’s next due date by one month and extend the maturity date of the receivable. There are no other concessions, such as a reduction in interest rate, or forgiveness of principal or of accrued interest. Accordingly, the Company considers such extensions to be insignificant delays in payments rather than troubled debt restructurings.

A non-performing account is defined as an account that is contractually delinquent for 61 days or more or is a Chapter 13 bankruptcy account for which the accrual interest income has been suspended. The Company’s charge-off policy is to charge off an account in the month the contract becomes 121 days contractually delinquent.

In the event an account is dismissed from bankruptcy, the Company will decide whether to begin repossession proceedings or to allow the customer to make regularly scheduled payments.

The following tables present certain information regarding the delinquency rates experienced by the Company with respect to Contracts and Direct Loans, excluding Chapter 13 bankruptcy accounts: