Note 2 - Allowance For Loan Losses

9 Months Ended

Sep. 30, 2015

Notes

Note 2 - Allowance For Loan Losses

Note 2 – Allowance for Loan Losses

The allowance for loan losses is based on Management's evaluation of the inherent risks and changes in the composition of the Company's loan portfolio.  Management’s approach to estimating and evaluating the allowance for loan losses is on a total portfolio level based on historical loss trends, bankruptcy trends, the level of receivables at the balance sheet date, payment patterns and economic conditions primarily including, but not limited to, unemployment levels and gasoline prices.  Historical loss trends are tracked on an on-going basis.  The trend analysis includes statistical analysis of the correlation between loan date and charge off date, charge off statistics by the total loan portfolio, and charge off statistics by branch, division and state.  Delinquency and bankruptcy filing trends are also tracked.  If trends indicate an adjustment to the allowance for loan losses is warranted, Management will make what it considers to be appropriate adjustments.  The level of receivables at the balance sheet date is reviewed and adjustments to the allowance for loan losses are made if Management determines increases or decreases in the level of receivables warrants an adjustment.  The Company uses monthly unemployment statistics, and various other monthly or periodic economic statistics, published by departments of the U.S. government and other economic statistics providers to determine the economic component of the allowance for loan losses.  Such allowance is, in the opinion of Management, sufficiently adequate for probable losses in the current loan portfolio.  As the estimates used in determining the loan loss reserve are influenced by outside factors, such as consumer payment patterns and general economic conditions, there is uncertainty inherent in these estimates.  Actual results could vary based on future changes in significant assumptions.

Management does not disaggregate the Company’s loan portfolio by loan class when evaluating loan performance.  The total portfolio is evaluated for credit losses based on contractual delinquency and other economic conditions. The Company classifies delinquent accounts at the end of each month according to the number of installments past due at that time, based on the then-existing terms of the contract.  Accounts are classified in delinquency categories based on the number of days past due.  When three installments are past due, Management classifies the account as being 60-89 days past due; when four or more installments are past due, Management classifies the account as being 90 days or more past due.  When a loan becomes five installments past due, it is charged off unless Management directs that it be retained as an active loan. In making this charge off evaluation, Management considers factors such as pending insurance, bankruptcy status and other indicators of collectability. In addition, no installment is counted as being past due if at least 80% of the contractual payment has been paid. In connection with any bankruptcy court-initiated repayment plan and as allowed by state regulatory authorities, the Company effectively resets the delinquency rating of each account to coincide with the court initiated repayment plan. The amount charged off is the unpaid balance less the unearned finance charges and the unearned insurance premiums, if applicable.

When a loan becomes 60 days or more past due based on its original terms, it is placed in nonaccrual status.  At such time, the accrual of any additional finance charges is discontinued.  Finance charges are then only recognized to the extent there is a loan payment received or when the account qualifies for return to accrual status.  Nonaccrual loans return to accrual status when the loan becomes less than 60 days past due.

 There were no loans 60 days or more past due and still accruing interest at September 30, 2015 or December 31, 2014.  The Company’s principal balances on non-accrual loans by loan class as of September 30, 2015 and December 31, 2014 are as follows:

Loan Class	September 30, 2015	December 31, 2014
Consumer Loans	$ 25,904,539	$ 23,124,540
Real Estate Loans	936,149	919,600
Sales Finance Contracts	1,014,224	739,009
Total	$ 27,854,912	$ 24,783,149

An age analysis of principal balances on past due loans, segregated by loan class, as of September 30, 2015 and December 31, 2014 follows:

September 30, 2015	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans	$ 16,653,612	$ 8,233,546	$ 15,948,872	$ 40,836,030
Real Estate Loans	467,748	230,417	434,607	1,132,772
Sales Finance Contracts	499,174	339,323	556,481	1,394,978
Total	$ 17,620,534	$ 8,803,286	$ 16,939,960	$ 43,363,780

December 31, 2014	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans	$ 11,919,463	$ 7,217,788	$ 14,282,710	$ 33,419,961
Real Estate Loans	441,721	180,756	504,384	1,126,861
Total	$ 12,736,005	$ 7,608,389	$ 15,251,051	$ 35,595,445

In addition to the delinquency rating analysis, the ratio of bankrupt accounts to the total loan portfolio is also used as a credit quality indicator.  The ratio of bankrupt accounts outstanding to total principal loan balances outstanding at September 30, 2015 and December 31, 2014 was 2.66% and 2.48%, respectively.

Nearly our entire loan portfolio consists of small homogeneous consumer loans (of the product types set forth in the table below). 

September 30, 2015	Principal Balance	% Portfolio	9 Months Net Charge Off (Recoveries)	% Net Charge Offs
Consumer Loans	$ 465,651,103	90.0 %	$ 20,740,658	97.6 %
Real Estate Loans	22,027,139	4.3	(8,476)	-
Sales Finance Contracts	29,650,932	5.7	511,559	2.4
Total	$ 517,329,174	100.0 %	$ 21,243,741	100.0 %

September 30, 2014	Principal Balance	% Portfolio	9 Months Net Charge Offs	% Net Charge Offs
Consumer Loans	$ 436,692,703	91.0 %	$ 18,714,148	97.2 %
Real Estate Loans	19,855,487	4.1	23,283	.1
Sales Finance Contracts	23,298,783	4.9	516,718	2.7
Total	$ 479,846,973	100.0 %	$ 19,254,149	100.0 %

Sales finance contracts are similar to consumer loans in nature of loan product, terms, customer base to whom these products are marketed, factors contributing to risk of loss and historical payment performance, and together with consumer loans, represented approximately 96% of the Company’s loan portfolio at September 30, 2015 and 2014.  As a result of these similarities, which have resulted in similar historical performance, consumer loans and sales finance contracts represent substantially all loan losses.  Real estate loans and related losses have historically been insignificant, and, as a result, we do not stratify the loan portfolio for purposes of determining and evaluating our loan loss allowance.  Due to the composition of the loan portfolio, the Company determines and monitors the allowance for loan losses on a collectively evaluated, single portfolio segment basis.  Therefore, a roll forward of the allowance for loan loss activity at the portfolio segment level is the same as at the total portfolio level.  We have not acquired any impaired loans with deteriorating quality during any period reported.  The following table provides additional information on our allowance for loan losses based on a collective evaluation:

	Three Months Ended		Nine Months Ended
	Sept. 30, 2015	Sept. 30, 2014	Sept. 30, 2015	Sept. 30, 2014
Allowance for Credit Losses:
Beginning Balance	$ 28,620,000	$ 25,876,800	$ 28,620,000	$ 24,680,789
Provision for Loan Losses	10,872,712	9,184,293	23,623,741	22,250,160
Charge-offs	(10,894,081)	(9,542,987)	(28,694,086)	(26,286,287)
Recoveries	2,401,369	2,158,694	7,450,345	7,032,138
Ending Balance	$ 31,000,000	$ 27,676,800	$ 31,000,000	$ 27,676,800
Ending balance; collectively     evaluated for impairment	$ 31,000,000	$ 27,676,800	$ 31,000,000	$ 27,676,800
	Three Months Ended		Nine Months Ended
	Sept. 30, 2015	Sept. 30, 2014	Sept. 30, 2015	Sept. 30, 2014
Finance receivables:
Ending balance	$ 517,329,174	$ 479,846,973	$ 517,329,174	$ 479,846,973
Ending balance; collectively     evaluated for impairment	$ 517,329,174	$ 479,846,973	$ 517,329,174	$ 479,846,973

Troubled Debt Restructings ("TDR's") represent loans on which the original terms of the loans have been modified as a result of the following conditions: (i) the restructuring constitutes a concession and (ii) the borrower is experiencing financial difficulties. Loan modifications by the Company involve payment alterations, interest rate concessions and/ or reductions in the amount owed by the borrower.  The following table presents a summary of loans that were restructured during the three months ended September 30, 2015.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	2,052	$ 4,531,163	$ 4,204,960
Real Estate Loans	17	142,923	142,812
Sales Finance Contracts	66	129,277	120,583
Total	2,135	$ 4,803,363	$ 4,468,355

The following table presents a summary of loans that were restructured during the three months ended September 30, 2014.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	1,008	$ 3,238,641	$ 3,046,786
Real Estate Loans	8	87,548	80,548
Sales Finance Contracts	48	125,818	119,834
Total	1,064	$ 3,452,007	$ 3,247,168

The following table presents a summary of loans that were restructured during the nine months ended September 30, 2015.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	4,944	$ 11,066,464	$ 10,360,791
Real Estate Loans	36	310,569	304,547
Sales Finance Contracts	176	333,237	310,099
Total	5,156	$ 11,710,270	$ 10,975,437

The following table presents a summary of loans that were restructured during the nine months ended September 30, 2014.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	2,659	$ 8,455,145	$ 7,826,633
Real Estate Loans	44	382,487	375,431
Sales Finance Contracts	120	299,921	285,205
Total	2,823	$ 9,137,553	$ 8,487,269

TDRs that occurred during the previous twelve months and subsequently defaulted during the three months ended September 30, 2015 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	686	$ 944,944
Real Estate Loans	-	-
Sales Finance Contracts	21	28,186
Total	707	$ 973,130

TDRs that occurred during the twelve months ended September 30, 2014 and subsequently defaulted during the three months ended September 30, 2014 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans.	204	$ 370,132
Real Estate Loans	2	3,768
Sales Finance Contracts	13	16,822
Total	219	$ 390,722

TDRs that occurred during the previous twelve months and subsequently defaulted during the nine months ended September 30, 2015 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	1,338	$ 1,891,431
Real Estate Loans	1	1,000
Sales Finance Contracts	51	61,358
Total	1,390	$ 1,953,789

TDRs that occurred during the twelve months ended September 30, 2014 and subsequently defaulted during the nine months ended September 30, 2014 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	512	$ 930,070
Real Estate Loans	3	7,294
Sales Finance Contracts	23	26,475
Total	538	$ 963,839

The level of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance of loan losses.