Note 4 - Consumer Receivables Acquired for Liquidation

3 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note

4—Consumer

Receivables Acquired for Liquidation

Accounts acquired for liquidation are stated at their net estimated realizable value and consist primarily of defaulted consumer loans of individuals primarily throughout the United States.

The Company

may

account for its investments in consumer receivable portfolios, using either:

• the interest method; or

• the cost recovery method.

Prior to

October

 

1,

2013

, the Company accounted for certain of its investments in finance receivables using the interest method in accordance with the guidance of ASC

310,

Receivables. Under the guidance of ASC

310

-

30,

static pools of accounts are established. These pools are aggregated based on certain common risk criteria. Each static pool is recorded at cost and is accounted for as a single unit for the recognition of income, principal payments and loss provision. Effective

October

 

1,

2013,

due to the substantial reduction of portfolios reported under the interest method, and the ability to reasonably estimate cash collections required to account for those portfolios under the interest method, the Company concluded the cost recovery method is the appropriate accounting method in the circumstances.

Although the Company has switched to the cost recovery method on its current inventory of portfolios, the Company must still analyze a portfolio upon acquisition to ensure which method is appropriate, and once a static pool is established for a quarter, individual receivable accounts are not added to the pool (unless replaced by the seller) or removed from the pool (unless sold or returned to the seller).

The Company uses the cost recovery method when collections on a particular pool of accounts cannot be reasonably predicted. Under the cost recovery method, no income is recognized until the cost of the portfolio has been fully recovered. A pool can become fully amortized

(zero

carrying balance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received.

The Company has extensive liquidating experience is in the field of distressed credit card receivables, telecommunication receivables, consumer loan receivables, retail installment contracts, consumer receivables, and auto deficiency receivables.

The Company aggregates portfolios of receivables acquired sharing specific common characteristics which were acquired within a given quarter. In addition, the Company uses a variety of qualitative and quantitative factors to estimate collections and the timing thereof. The Company obtains and utilizes, as appropriate, input, including but not limited to, monthly collection projections and liquidation rates, from

third

party collection agencies and attorneys, as further evidentiary matter, to assist in evaluating and developing collection strategies and in evaluating and modeling the expected cash flows for a given portfolio.

The following tables summarize the changes in the balance sheet account of consumer receivables acquired for liquidation during the following periods:

	For the Three Months Ended December 31,
	2016			2015
Balance, beginning of period	$	14,320,000		$	15,608,000
Acquisitions of receivable portfolios		463,000			4,419,000
Net cash collections from collection of consumer receivables acquired for liquidation		(5,592,000	)		(7,293,000	)
Net cash collections represented by account sales of consumer receivables acquired for liquidation		(190,000	)		—
Effect of foreign currency translation		(415,000	)		(33,000	)
Finance income recognized		3,298,000			5,142,000
Balance, end of period	$	11,884,000		$	17,843,000
Finance income as a percentage of collections		57.0	%		70.5	%

 During the

three

month periods ended

December

31,

2016,

the Company purchased

$11.0

 million of face value portfolios at a cost of

$0.5

million. During the

three

months ended

December

31,

2015,

the Company purchased

$97.7

million of face value portfolios, at a cost of

$4.4

million.

The following table summarizes collections received by the Company’s

third

-party collection agencies and attorneys, less commissions and direct costs, for the

three

month periods ended

December

31,

2016

and

2015,

respectively.

	For the Three Months Ended December 31 ,
	2016		2015
Gross collections (1)	$	9,911,000	$	11,411,000
Commissions and fees (2)		4,129,000		4,118,000
Net collections	$	5,782,000	$	7,293,000

(1) Gross collections include: collections from third -party collection agencies and attorneys, collections from in-house efforts, and collections represented by account sales.

(2) Commissions and fees are the contractual commission earned by third party collection agencies and attorneys, and direct costs associated with the collection effort, generally court costs. Includes a 3% fee charged by a servicer on gross collections received by the Company in connection with the Portfolio Purchase. Such arrangement was consummated in December   2007. The fee is charged for asset location, skip tracing and ultimately suing debtors in connection with this portfolio purchase.