10-Q 1 nick-10q_20200930.htm 10-Q nick-10q_20200930.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 September 30, 2020

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 November 6, 2020, approximately 12.4 million shares, no par value, of the Registrant were outstanding (of which 4.6 million shares were held by the Registrant’s principal operating subsidiary and pursuant to applicable law, not entitled to vote and 7.8 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 September 30, 2020 and March 31, 2020

 

1

 

 

Consolidated Statements of Income for the three and six months ended September 30, 2020 and 2019

 

2

 

 

Consolidated Statements of Shareholders’ Equity for the three and six months ended September 30, 2020 and 2019

 

3

 

  

Consolidated Statements of Cash Flows for the six months ended September 30, 2020 and 2019

 

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

 

28

Item 4.

 

Controls and Procedures

 

28

 

 

 

 

 

Part II .

 

Other Information

 

 

Item 1.

 

Legal Proceedings

 

30

Item 1A.

 

Risk Factors

 

30

Item 5.

 

Other Information

 

30

Item 6.

 

Exhibits

 

31

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Nicholas Financial, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

 

 

 

September 30, 2020

(Unaudited)

 

 

March 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

19,568

 

 

$

16,802

 

Restricted cash

 

 

13,601

 

 

 

7,882

 

Equity investments with readily determinable fair values

 

 

3,013

 

 

 

 

Finance receivables, net

 

 

179,035

 

 

 

199,781

 

Repossessed assets

 

 

856

 

 

 

1,340

 

Operating lease right-of-use assets

 

 

2,588

 

 

 

2,598

 

Prepaid expenses and other assets

 

 

959

 

 

 

1,126

 

Income taxes receivable

 

 

1,448

 

 

 

4,898

 

Property and equipment, net

 

 

674

 

 

 

482

 

Deferred income taxes

 

 

4,004

 

 

 

3,909

 

Total assets

 

$

225,746

 

 

$

238,818

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Credit facility, net of debt issuance costs

 

$

106,639

 

 

$

124,255

 

Note payable

 

 

3,244

 

 

 

-

 

   Net long-term debt

 

 

109,883

 

 

 

124,255

 

Operating lease liabilities

 

 

2,590

 

 

 

2,652

 

Accounts payable and accrued expenses

 

 

3,129

 

 

 

4,332

 

Total liabilities

 

 

115,602

 

 

 

131,239

 

Shareholders’ equity

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, no par: 50,000 shares authorized; 12,650 and 12,639 shares issued,

   respectively; and 7,787 and 7,806 shares outstanding, respectively

 

 

34,964

 

 

 

34,867

 

Treasury stock: 4,863 and 4,833 common shares, at cost, respectively

 

 

(71,667

)

 

 

(71,438

)

Retained earnings

 

 

146,847

 

 

 

144,150

 

Total shareholders’ equity

 

 

110,144

 

 

 

107,579

 

Total liabilities and shareholders’ equity

 

$

225,746

 

 

$

238,818

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

(Unaudited)

 

 

March 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Restricted cash

 

$

13,601

 

 

$

7,882

 

Finance receivables, net

 

 

157,845

 

 

 

165,966

 

Repossessed assets

 

 

803

 

 

 

1,277

 

Total assets

 

$

172,249

 

 

$

175,125

 

Liabilities

 

 

 

 

 

 

 

 

Credit facility, net of debt issuance costs

 

$

106,639

 

 

$

124,255

 

Accounts payable and accrued expenses

 

 

460

 

 

 

597

 

Total liabilities

 

$

107,099

 

 

$

124,852

 

 

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 September 30,

 

 

Six Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fee income on finance receivables

 

$

14,064

 

 

$

15,585

 

 

$

28,215

 

 

$

32,226

 

Unrealized gain on equity investments

 

 

45

 

 

 

 

 

 

45

 

 

 

 

Total revenue

 

 

14,109

 

 

 

15,585

 

 

 

28,260

 

 

 

32,226

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing

 

 

358

 

 

 

427

 

 

 

577

 

 

 

838

 

Salaries and employee benefits

 

 

4,798

 

 

 

4,718

 

 

 

8,950

 

 

 

9,539

 

Administrative

 

 

2,923

 

 

 

3,699

 

 

 

5,826

 

 

 

7,351

 

Provision for credit losses

 

 

3,050

 

 

 

4,000

 

 

 

6,350

 

 

 

8,385

 

Depreciation

 

 

52

 

 

 

83

 

 

 

121

 

 

 

170

 

Interest expense

 

 

1,569

 

 

 

2,298

 

 

 

3,218

 

 

 

4,786

 

Total expenses

 

 

12,750

 

 

 

15,225

 

 

 

25,042

 

 

 

31,069

 

Income before income taxes

 

 

1,359

 

 

 

360

 

 

 

3,218

 

 

 

1,157

 

Income tax expense

 

 

92

 

 

 

92

 

 

 

521

 

 

 

298

 

Net income

 

$

1,267

 

 

$

268

 

 

$

2,697

 

 

$

859

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

0.03

 

 

$

0.34

 

 

$

0.11

 

Diluted

 

$

0.16

 

 

$

0.03

 

 

$

0.34

 

 

$

0.11

 

 

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 September 30, 2020

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Treasury

Stock

 

 

Retained

Earnings

 

 

Shareholders'

Equity

 

Balance at June 30, 2020

 

 

7,802

 

 

$

34,916

 

 

$

(71,466

)

 

$

145,580

 

 

$

109,030

 

Issuance of restricted stock awards

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

48

 

 

 

 

 

 

 

 

 

48

 

Common stock repurchases

 

 

(25

)

 

 

 

 

 

(201

)

 

 

 

 

 

(201

)

Net income

 

 

 

 

 

 

 

 

 

 

 

1,267

 

 

 

1,267

 

Balance at September 30, 2020

 

 

7,787

 

 

$

34,964

 

 

$

(71,667

)

 

$

146,847

 

 

$

110,144

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Treasury

Stock

 

 

Retained

Earnings

 

 

Shareholders'

Equity

 

Balance at June 30, 2019

 

 

7,928

 

 

$

34,694

 

 

$

(70,459

)

 

$

141,275

 

 

$

105,510

 

Issuance of restricted stock awards

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

55

 

 

 

 

 

 

 

 

 

 

 

55

 

Cancellation of restricted stock awards

 

 

(24

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

268

 

 

 

268

 

Balance at September 30, 2019

 

 

7,925

 

 

$

34,749

 

 

$

(70,459

)

 

$

141,543

 

 

$

105,833

 

 

 

 

 

 

 

Six Months Ended September 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

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

97

 

 

 

 

 

 

 

 

 

97

 

Common stock repurchases

 

 

(30

)

 

 

 

 

 

(229

)

 

 

 

 

 

(229

)

Net income

 

 

 

 

 

 

 

 

 

 

 

2,697

 

 

 

2,697

 

Balance at September 30, 2020

 

 

7,787

 

 

$

34,964

 

 

$

(71,667

)

 

$

146,847

 

 

$

110,144

 

 

 

 

 

 

 

Six Months Ended September 30, 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

 

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of restricted stock awards

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

89

 

 

 

 

 

 

 

 

 

89

 

Net income

 

 

 

 

 

 

 

 

 

 

 

859

 

 

 

859

 

Balance at September 30, 2019

 

 

7,925

 

 

$

34,749

 

 

$

(70,459

)

 

$

141,543

 

 

$

105,833

 

 

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)

 

 

 

Six Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

2,697

 

 

$

859

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

121

 

 

 

170

 

Amortization of debt issuance costs

 

 

214

 

 

 

216

 

Amortization of operating lease right-of-use assets

 

 

818

 

 

 

928

 

Gain on sale of property and equipment

 

 

(2

)

 

 

(7

)

Unrealized gains on equity securities

 

 

(45

)

 

 

 

Provision for credit losses

 

 

6,350

 

 

 

8,385

 

Amortization of dealer discounts

 

 

(3,218

)

 

 

(4,178

)

Amortization of insurance and fee commissions

 

 

(1,207

)

 

 

(1,359

)

Accretion of purchase price discount

 

 

(305

)

 

 

(985

)

Principal reduction on operating lease liabilities

 

 

(738

)

 

 

(880

)

Share-based compensation

 

 

97

 

 

 

89

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

347

 

 

 

(157

)

Repossessed assets

 

 

484

 

 

 

106

 

Prepaid expenses and other assets

 

 

35

 

 

 

(1,709

)

Accounts payable and accrued expenses

 

 

(1,203

)

 

 

376

 

Income taxes receivable

 

 

3,450

 

 

 

(15

)

Deferred income taxes

 

 

(95

)

 

 

299

 

Unearned insurance and fee commissions

 

 

(156

)

 

 

85

 

Net cash provided by operating activities

 

 

7,644

 

 

 

2,223

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase and origination of finance receivables

 

 

(40,362

)

 

 

(44,202

)

Principal payments received

 

 

59,297

 

 

 

65,098

 

Net assets acquired from branch acquisitions, primarily loans

 

 

 

 

 

(20,483

)

Purchase of equity investments

 

 

(2,968

)

 

 

 

Purchase of property and equipment

 

 

(311

)

 

 

(32

)

Proceeds from sale of property and equipment

 

 

 

 

 

7

 

Net cash provided by investing activities

 

 

15,656

 

 

 

388

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repayments on credit facility

 

 

(17,830

)

 

 

(37,500

)

Proceeds from the credit facility

 

 

 

 

 

12,000

 

Payment of loan origination fees

 

 

 

 

 

(729

)

Proceeds from note payable

 

 

3,244

 

 

 

 

Repurchases of common stock

 

 

(229

)

 

 

 

Net cash used in financing activities

 

 

(14,815

)

 

 

(26,229

)

Net increase (decrease) in cash and restricted cash

 

 

8,485

 

 

 

(23,618

)

Cash and restricted cash at the beginning of period

 

 

24,684

 

 

 

37,642

 

Cash and restricted cash at the end of period

 

$

33,169

 

 

$

14,024

 

Supplemental Disclosures:

 

 

 

 

 

 

 

 

Interest paid

 

 

3,129

 

 

 

4,007

 

Income taxes

 

 

727

 

 

 

15

 

Leased assets obtained in exchange for new operating lease liabilities

 

 

1,213

 

 

 

519

 

 

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, 2020, 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, 2021. 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, 2020 as filed with the Securities and Exchange Commission on June 22, 2020. The March 31, 2020 consolidated balance sheet included herein has been derived from the March 31, 2020 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 dealer discount.

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 and six months ended September 30, 2020 and 2019 was 6.8% and 7.9% and 7.4% and 8.1%, in relation to the total amount financed, respectively.

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

September 30,

(In thousands, except

per share amounts)

 

 

Six months ended

September 30,

(In thousands, except

per share amounts)

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,267

 

 

$

268

 

 

$

2,697

 

 

$

859

 

Less: Allocation of earnings to participating securities

 

 

(7

)

 

 

(1

)

 

 

(15

)

 

 

(6

)

Net income allocated to common stock

 

$

1,260

 

 

$

267

 

 

$

2,682

 

 

$

853

 

Basic earnings per share computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated to common stock

 

$

1,260

 

 

$

267

 

 

$

2,682

 

 

$

853

 

Weighted average common shares outstanding, including

   shares considered participating securities

 

 

7,777

 

 

 

7,859

 

 

 

7,766

 

 

 

7,881

 

Less: Weighted average participating securities outstanding

 

 

(46

)

 

 

(70

)

 

 

(44

)

 

 

(61

)

Weighted average shares of common stock

 

 

7,731

 

 

 

7,789

 

 

 

7,722

 

 

 

7,820

 

Basic earnings per share

 

$

0.16

 

 

$

0.03

 

 

$

0.34

 

 

$

0.11

 

Diluted earnings per share computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated to common stock

 

$

1,260

 

 

$

267

 

 

$

2,682

 

 

$

853

 

Undistributed earnings re-allocated to participating securities

 

 

7

 

 

 

 

 

 

15

 

 

 

 

Numerator for diluted earnings per share

 

$

1,267

 

 

$

267

 

 

$

2,697

 

 

$

853

 

Weighted average common shares outstanding for basic

   earnings per share

 

 

7,731

 

 

 

7,789

 

 

 

7,722

 

 

 

7,820

 

Incremental shares from stock options

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Weighted average shares and dilutive potential common shares

 

 

7,731

 

 

 

7,790

 

 

 

7,722

 

 

 

7,821

 

Diluted earnings per share

 

$

0.16

 

 

$

0.03

 

 

$

0.34

 

 

$

0.11

 

 

 

4. Finance Receivables

Finance Receivables Portfolio

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

 

 

 

(In thousands)

 

 

 

September 30,

2020

 

 

March 31,

2020

 

 

September 30,

2019

 

Finance receivables

 

$

198,168

 

 

$

219,366

 

 

$

222,320

 

Accrued interest receivable

 

 

2,817

 

 

 

3,164

 

 

 

3,046

 

Unearned dealer discounts

 

 

(7,411

)

 

 

(8,056

)

 

 

(8,995

)

Unearned insurance and fee commissions

 

 

(2,460

)

 

 

(2,616

)

 

 

(2,741

)

Purchase price discount

 

 

(610

)

 

 

(915

)

 

 

(676

)

Finance receivables, net of unearned

 

 

190,504

 

 

 

210,943

 

 

 

212,954

 

Allowance for credit losses

 

 

(11,469

)

 

 

(11,162

)

 

 

(13,502

)

Finance receivables, net

 

$

179,035

 

 

$

199,781

 

 

$

199,452

 

 

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 September 30,

 

Contract Portfolio

 

2020

 

 

2019

 

Average APR

 

 

22.7

%

 

 

22.7

%

Average discount

 

 

7.6

%

 

 

7.7

%

Average term (months)

 

 

51

 

 

 

52

 

Number of active contracts

 

 

24,656

 

 

 

27,294

 

 

 

 

As of September 30,

 

Direct Loan Portfolio

 

2020

 

 

2019

 

Average APR

 

 

27.7

%

 

 

26.5

%

Average term (months)

 

 

27

 

 

 

27

 

Number of active contracts

 

 

3,673

 

 

 

2,921

 

 

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 September 30, 2020, 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 September 30, 2020, loans made by the Company pursuant to its Direct Loan program constituted approximately 6.4% 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 September 30, 2020 and 2019:

 

 

 

Three months ended September 30, 2020

 

 

Six months ended September 30, 2020

 

 

 

Contracts

 

 

Direct Loans

 

 

Consolidated

 

 

Contracts

 

 

Direct Loans

 

 

Consolidated

 

Balance at beginning of

   period

 

$

10,651

 

 

$

597

 

 

$

11,248

 

 

$

10,433

 

 

$

729

 

 

$

11,162

 

Provision for credit losses

 

 

3,050

 

 

 

0

 

 

 

3,050

 

 

 

6,350

 

 

 

0

 

 

 

6,350

 

Charge-offs

 

 

(4,073

)

 

 

(142

)

 

 

(4,215

)

 

 

(8,407

)

 

 

(298

)

 

 

(8,705

)

Recoveries

 

 

1,349

 

 

 

37

 

 

 

1,386

 

 

 

2,601

 

 

 

61

 

 

 

2,662

 

Balance at September 30,

2020

 

$

10,977

 

 

$

492