|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited
consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form
10-Q.
These discussions contain forward-looking statements that reflect our current expectations
and that include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, expectations regarding demand and acceptance for our financial products, growth
opportunities and trends in the market in which we operate, prospects, and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,”
“plans,” “projects,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not
actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements involve risks and uncertainties that could
cause actual results or events to differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements. Such risks and uncertainties include, without limitation, the risks set forth in our filings with the
Securities and Exchange Commission (the “
SEC
”), including our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2016 (which was filed with the SEC on
February 10, 2017) and this Quarterly Report on
Form 10-Q.
The forward-looking information we have provided in this Quarterly Report on
Form 10-Q
pursuant
to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to
update or revise such statements, except as required by the federal securities laws.
Overview
We are a diversified consumer finance company providing a broad array of loan products primarily to customers with limited access to consumer
credit from banks, thrifts, credit card companies, and other traditional lenders. We began operations in 1987 with four branches in South Carolina and have expanded our branch network to 344 locations in the states of Alabama, Georgia, New Mexico,
North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia as of March 31, 2017. Most of our loan products are secured, and each is structured on a fixed rate, fixed term basis with fully amortizing equal monthly installment
payments, repayable at any time without penalty. Our loans are sourced through our multiple channel platform, which includes our branches, direct mail campaigns, automobile dealerships, retailers, and our consumer website. We operate an integrated
branch model in which nearly all loans, regardless of origination channel, are serviced through our branch network, providing us with frequent
in-person
contact with our customers, which we believe improves
our credit performance and customer loyalty. Our goal is to consistently and soundly grow our finance receivables and manage our portfolio risk while providing our customers with attractive and
easy-to-understand
loan products that serve their varied financial needs.
Our diversified
product offerings include:
|
|
•
|
|
Small Loans (
£
$2,500)
– As of March 31, 2017, we had 255.4 thousand small installment loans outstanding, representing
$335.6 million in finance receivables. This included 80.9 thousand small loan convenience checks, representing $89.4 million in finance receivables as of March 31, 2017.
|
|
|
•
|
|
Large Loans (>$2,500)
– As of March 31, 2017, we had 58.5 thousand large installment loans outstanding, representing $242.4 million in finance receivables. This included 1.4 thousand
large loan convenience checks, representing $3.4 million in finance receivables as of March 31, 2017.
|
|
|
•
|
|
Automobile Loans
– As of March 31, 2017, we had 9.9 thousand automobile purchase loans outstanding, representing $85.9 million in finance receivables. This included 5.0 thousand indirect
automobile loans and 4.9 thousand direct automobile loans, representing $46.3 million and $39.5 million in finance receivables, respectively.
|
|
|
•
|
|
Retail Loans
– As of March 31, 2017, we had 21.3 thousand retail purchase loans outstanding, representing $31.2 million in finance receivables.
|
|
|
•
|
|
Optional
Insurance Products
– We offer optional payment and collateral protection insurance to our direct loan customers.
|
Small and large installment loans are our core products and will be the drivers of our future growth. Our primary sources of revenue are
interest and fee income from our loan products, of which interest and fees relating to small and large installment loans are the largest component. In addition to interest and fee income from loans, we derive revenue from optional insurance products
purchased by customers of our direct loan products.
18
Factors Affecting Our Results of Operations
Our business is driven by several factors affecting our revenues, costs, and results of operations, including the following:
Quarterly Information and Seasonality
.
Our loan volume and contractual delinquency follow seasonal trends. Demand for our
small and large loans is typically highest during the second, third, and fourth quarters, which we believe is largely due to customers borrowing money for vacations,
back-to-school,
and holiday spending. With the exception of automobile and retail loans, loan demand has generally been the lowest during the first quarter, which we
believe is largely due to the timing of income tax refunds. Delinquencies generally reach their lowest point in the first quarter of the year and rise throughout the remainder of the fiscal year. Consequently, we experience seasonal fluctuations in
our operating results and cash needs.
Growth in Loan Portfolio.
The revenue that we derive from interest and fees is
largely driven by the balance of loans that we originate and purchase. Average finance receivables grew 14.8% from $572.8 million in 2015 to $657.4 million in 2016. Average finance receivables grew 14.9% from $617.5 million in the
first three months of 2016 to $709.3 million in the first three months of 2017. We source our loans through our branches and our direct mail program, as well as through automobile dealerships, retail partners, and our consumer website. Our
loans are made almost exclusively in geographic markets served by our network of branches. Increasing the number of loans per branch and the number of branches we operate allows us to increase the number of loans that we are able to service. We
opened 8 and 31 net new branches in 2016 and 2015, respectively. We opened 5 and 8 net new branches in the first three months of 2017 and 2016, respectively. We believe we have the opportunity to add as many as 700 additional branches in states
where it is currently favorable for us to conduct business, and we have plans to continue to grow our branch network.
Product
Mix.
We charge different interest rates and fees and are exposed to different credit risks with respect to the various types of loans we offer. Our product mix also varies to some extent by state, and we may further diversify our product mix
in the future.
Asset Quality and Allowance for Credit Losses.
Our results of operations are highly dependent upon the
quality of our loan portfolio. The quality of our loan portfolio is the result of our ability to enforce sound underwriting standards, maintain diligent servicing of the portfolio, and respond to changing economic conditions as we grow our loan
portfolio. In late 2014, we created a credit risk function and have been making changes to continue to improve our credit underwriting guidelines. We believe that these changes have impacted, and will continue to impact, our business and results of
operations, and have improved the credit quality of our portfolio. We will continue to monitor how these changes impact our business and results of operations, and we will make further revisions to our credit underwriting guidelines when
appropriate.
The allowance for credit losses calculation uses the current delinquency profile and historical delinquency roll rates as
key data points in estimating the allowance. We believe that the primary underlying factors driving the provision for credit losses for each loan type are our underwriting standards, the general economic conditions in the areas in which we conduct
business, portfolio growth, and the effectiveness of our collection efforts. In addition, the market for repossessed automobiles at auction is another underlying factor that we believe influences the provision for credit losses for automobile
purchase loans and, to a lesser extent, large loans. We monitor these factors, and the amount and past due status of delinquencies for all loans one or more days past due, to identify trends that might require us to modify the allowance for credit
losses.
Interest Rates.
Our costs of funds are affected by changes in interest rates, and the interest rate that we pay on
our senior revolving credit facility is a variable rate. We have purchased interest rate cap contracts with an aggregate notional principal amount of $200.0 million and 2.50% strike rates against the
one-month
LIBOR. $150.0 million of these contracts expire in April 2018, with the remaining $50.0 million expiring in March 2019. When the
one-month
LIBOR
exceeds 2.50%, the counterparty reimburses us for the excess over 2.50%. No payment is required by us or the counterparty when the
one-month
LIBOR is below 2.50%.
Operating Costs.
Our financial results are impacted by the costs of operations and home office functions. Those costs are
included in general and administrative expenses on our consolidated statements of income. Our receivable efficiency ratio (annualized sum of general and administrative expenses divided by average finance receivables) was 17.7% for the first three
months of 2017 compared to 19.3% for the same period of 2016. While this ratio is relatively in line with industry standards, we have a number of initiatives underway that we believe will improve our operating leverage over the next couple of years,
including the continued transition to our new loan management system, which will allow us to accept electronic payments and reduce the amount of time it takes to originate a loan.
Components of Results of Operations
Interest and Fee Income.
Our interest and fee income consists primarily of interest earned on outstanding loans. We cease
accruing interest on a loan when the customer is 90 days contractually past due. Interest accrual resumes when the account is less than 90 days contractually past due. If the account is charged off, the interest accrual is reversed as a reduction of
interest and fee income during the period the credit loss occurs.
19
Most states allow certain fees in connection with lending activities, such as loan origination
fees, acquisition fees, and maintenance fees. Some states allow for higher fees while keeping interest rates lower. Loan fees are additional charges to the customer and are included in the annual percentage rate shown in the Truth in Lending
disclosure we make to our customers. The fees may or may not be refundable to the customer in the event of an early payoff, depending on state law. Fees are accrued to income over the life of the loan on the constant yield method.
Insurance Income, Net.
Our insurance income, net consists of revenue, net of expenses, from the sale of various optional payment
and collateral protection insurance products offered to customers who obtain loans directly from us. We do not sell insurance to
non-borrowers.
We offer optional credit life insurance, credit accident and
health insurance, credit involuntary unemployment insurance, and personal property insurance. The type and terms of our optional insurance products vary from state to state based on applicable laws and regulations. In addition, we require property
insurance on any personal property securing loans and offer customers the option of providing proof of such insurance purchased from a third party in lieu of purchasing property insurance from us. We also collect a fee for collateral protection and
purchase
non-filing
insurance in lieu of recording and perfecting our security interest in the assets pledged on certain loans. We require proof of insurance for any vehicles securing loans. In addition, in
select markets, we offer vehicle single interest insurance and a Guaranteed Asset Protection (“
GAP
”) waiver product. Vehicle single interest insurance provides coverage on automobiles used as collateral on small and large loans.
This insurance affords the borrower flexibility regarding the requirement to maintain full coverage on the vehicle while also protecting the collateral used to secure the loan. The GAP waiver product reduces or eliminates any loan balance remaining
following payment by a primary insurance carrier.
During 2016, we transitioned our insurance administration to a new unaffiliated third
party provider, which resulted in variances in the premiums we charge for the products we offer. Additionally, we continually assess the costs of our products for an equitable balance of costs and benefits. Due to the transition to a new vendor and
our ongoing assessment of costs, premiums may change, which may impact the revenue and/or costs of our insurance operations.
We issue
insurance certificates as agents on behalf of an unaffiliated insurance company and then remit to the unaffiliated insurance company the premiums we collect (net of refunds on prepaid loans and net of commission on new business). The unaffiliated
insurance company cedes life insurance premiums to our wholly-owned insurance subsidiary, RMC Reinsurance, Ltd. (“
RMC Reinsurance
”), as written and
non-life
premiums as earned. We maintain
cash reserves for life insurance claims in an amount determined by the unaffiliated insurance companies. As of March 31, 2017, the restricted cash balance for these cash reserves was $4.9 million. The unaffiliated insurance companies
maintain the reserves for
non-life
claims. Insurance income, net includes all of the above-described insurance premiums, claims, and expenses.
Other Income.
Our other income consists primarily of late charges assessed on customers who fail to make a payment within a
specified number of days following the due date of the payment. In addition, fees for extending the due date of a loan and returned check charges are included in other income.
Provision for Credit Losses.
Provisions for credit losses are charged to income in amounts that we estimate as sufficient to
maintain an allowance for credit losses at an adequate level to provide for estimated losses on the related finance receivables portfolio. Credit loss experience, delinquency of finance receivables, portfolio growth, the value of underlying
collateral, and management’s judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses. Our provision for credit losses fluctuates so that we maintain an adequate credit loss
allowance that reflects our estimate of losses over the effective life of our loan portfolios. Changes in our delinquency and net credit loss rates may result in changes to our provision for credit losses. Future adjustments to the allowance may be
necessary if there are significant changes in economic conditions or portfolio performance.
General and Administrative Expenses.
Our general and administrative expenses are comprised of four categories: personnel, occupancy, marketing, and other. We measure our general and administrative expenses as a percentage of average finance receivables, which we refer to as our
receivable efficiency ratio.
Our personnel expenses are the largest component of our general and administrative expenses and consist
primarily of the salaries and wages, bonuses, benefits, and related payroll taxes associated with all of our branch, field, and home office employees.
Our occupancy expenses consist primarily of the cost of renting our facilities, all of which are leased, as well as the utility, depreciation
of leasehold improvements and furniture and fixtures, telecommunication, data processing, and other
non-personnel
costs associated with operating our business.
Our marketing expenses consist primarily of costs associated with our direct mail campaigns (including postage and costs associated with
selecting recipients) and maintaining our consumer website, as well as some local marketing by branches. These costs are expensed as incurred.
20
Other expenses consist primarily of legal, compliance, audit, consulting,
non-employee
director compensation, amortization of software licenses and implementation costs, bank service charges, office supplies, and credit bureau charges. We expect legal and compliance costs to remain
elevated due to the regulatory environment in the consumer finance industry and as a result of certain litigation matters, including those discussed in Part II, Item 1. “Legal Proceedings.” For a discussion regarding how risks and
uncertainties associated with legal proceedings and the current regulatory environment may impact our future expenses, net income, and overall financial condition, see Part II, Item 1A. “Risk Factors” and the filings referenced therein.
Interest Expense.
Our interest expense consists primarily of paid and accrued interest for long-term debt, unused line
fees, and amortization of debt issuance costs on long-term debt. Interest expense also includes costs attributable to the interest rate caps that we use to manage our interest rate risk. Changes in the fair value of the interest rate caps are
reflected in interest expense.
Income Taxes.
Income taxes consist primarily of state and federal income taxes. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The change in deferred tax assets and liabilities is recognized in the
period the change occurs, and the effects of future tax rate changes are recognized in the period when the enactment of new rates occurs.
Results of
Operations
The following table summarizes our results of operations, both in dollars and as a percentage of average receivables
(annualized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q’17
|
|
|
1Q’16
|
|
|
In thousands
|
|
Amount
|
|
|
% of
Average
Receivables
|
|
|
Amount
|
|
|
% of
Average
Receivables
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
59,255
|
|
|
|
33.4
|
%
|
|
$
|
51,300
|
|
|
|
33.2
|
%
|
|
Insurance income, net
|
|
|
3,805
|
|
|
|
2.1
|
%
|
|
|
2,939
|
|
|
|
1.9
|
%
|
|
Other income
|
|
|
2,760
|
|
|
|
1.6
|
%
|
|
|
2,458
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
65,820
|
|
|
|
37.1
|
%
|
|
|
56,697
|
|
|
|
36.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
19,134
|
|
|
|
10.8
|
%
|
|
|
13,791
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
Personnel
|
|
|
18,168
|
|
|
|
10.2
|
%
|
|
|
17,127
|
|
|
|
11.1
|
%
|
|
Occupancy
|
|
|
5,285
|
|
|
|
3.0
|
%
|
|
|
4,863
|
|
|
|
3.2
|
%
|
|
Marketing
|
|
|
1,205
|
|
|
|
0.7
|
%
|
|
|
1,515
|
|
|
|
1.0
|
%
|
|
Other
|
|
|
6,796
|
|
|
|
3.8
|
%
|
|
|
6,300
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
|
|
|
31,454
|
|
|
|
17.7
|
%
|
|
|
29,805
|
|
|
|
19.3
|
%
|
|
|
|
|
|
|
|
Interest expense
|
|
|
5,213
|
|
|
|
2.9
|
%
|
|
|
4,710
|
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
10,019
|
|
|
|
5.7
|
%
|
|
|
8,391
|
|
|
|
5.4
|
%
|
|
Income taxes
|
|
|
2,385
|
|
|
|
1.4
|
%
|
|
|
3,215
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,634
|
|
|
|
4.3
|
%
|
|
$
|
5,176
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table summarizes the quarterly trend of our financial results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Trend
|
|
|
In thousands, except per share amounts
|
|
1Q’16
|
|
|
2Q’16
|
|
|
3Q’16
|
|
|
4Q’16
|
|
|
1Q’17
|
|
|
QoQ $
B(W)
|
|
|
YoY $
B(W)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
51,300
|
|
|
$
|
52,589
|
|
|
$
|
57,420
|
|
|
$
|
59,654
|
|
|
$
|
59,255
|
|
|
$
|
(399
|
)
|
|
$
|
7,955
|
|
|
Insurance income, net
|
|
|
2,939
|
|
|
|
2,601
|
|
|
|
2,346
|
|
|
|
1,570
|
|
|
|
3,805
|
|
|
|
2,235
|
|
|
|
866
|
|
|
Other income
|
|
|
2,458
|
|
|
|
2,135
|
|
|
|
2,709
|
|
|
|
2,797
|
|
|
|
2,760
|
|
|
|
(37
|
)
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
56,697
|
|
|
|
57,325
|
|
|
|
62,475
|
|
|
|
64,021
|
|
|
|
65,820
|
|
|
|
1,799
|
|
|
|
9,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
13,791
|
|
|
|
13,386
|
|
|
|
16,410
|
|
|
|
19,427
|
|
|
|
19,134
|
|
|
|
293
|
|
|
|
(5,343
|
)
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
17,127
|
|
|
|
16,674
|
|
|
|
18,180
|
|
|
|
16,998
|
|
|
|
18,168
|
|
|
|
(1,170
|
)
|
|
|
(1,041
|
)
|
|
Occupancy
|
|
|
4,863
|
|
|
|
4,770
|
|
|
|
5,175
|
|
|
|
5,251
|
|
|
|
5,285
|
|
|
|
(34
|
)
|
|
|
(422
|
)
|
|
Marketing
|
|
|
1,515
|
|
|
|
2,062
|
|
|
|
1,786
|
|
|
|
1,474
|
|
|
|
1,205
|
|
|
|
269
|
|
|
|
310
|
|
|
Other
|
|
|
6,300
|
|
|
|
6,042
|
|
|
|
5,312
|
|
|
|
5,103
|
|
|
|
6,796
|
|
|
|
(1,693
|
)
|
|
|
(496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
|
|
|
29,805
|
|
|
|
29,548
|
|
|
|
30,453
|
|
|
|
28,826
|
|
|
|
31,454
|
|
|
|
(2,628
|
)
|
|
|
(1,649
|
)
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,710
|
|
|
|
4,811
|
|
|
|
5,116
|
|
|
|
5,287
|
|
|
|
5,213
|
|
|
|
74
|
|
|
|
(503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
8,391
|
|
|
|
9,580
|
|
|
|
10,496
|
|
|
|
10,481
|
|
|
|
10,019
|
|
|
|
(462
|
)
|
|
|
1,628
|
|
|
Income taxes
|
|
|
3,215
|
|
|
|
3,668
|
|
|
|
4,020
|
|
|
|
4,014
|
|
|
|
2,385
|
|
|
|
1,629
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,176
|
|
|
$
|
5,912
|
|
|
$
|
6,476
|
|
|
$
|
6,467
|
|
|
$
|
7,634
|
|
|
$
|
1,167
|
|
|
$
|
2,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.41
|
|
|
$
|
0.50
|
|
|
$
|
0.57
|
|
|
$
|
0.57
|
|
|
$
|
0.66
|
|
|
$
|
0.09
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.40
|
|
|
$
|
0.49
|
|
|
$
|
0.56
|
|
|
$
|
0.55
|
|
|
$
|
0.65
|
|
|
$
|
0.10
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,756
|
|
|
|
11,756
|
|
|
|
11,384
|
|
|
|
11,408
|
|
|
|
11,494
|
|
|
|
(86
|
)
|
|
|
1,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
12,949
|
|
|
|
11,974
|
|
|
|
11,664
|
|
|
|
11,763
|
|
|
|
11,715
|
|
|
|
48
|
|
|
|
1,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
$
|
51,987
|
|
|
$
|
52,514
|
|
|
$
|
57,359
|
|
|
$
|
58,734
|
|
|
$
|
60,607
|
|
|
$
|
1,873
|
|
|
$
|
8,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net credit margin
|
|
$
|
38,196
|
|
|
$
|
39,128
|
|
|
$
|
40,949
|
|
|
$
|
39,307
|
|
|
$
|
41,473
|
|
|
$
|
2,166
|
|
|
$
|
3,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q’16
|
|
|
2Q’16
|
|
|
3Q’16
|
|
|
4Q’16
|
|
|
1Q’17
|
|
|
QoQ $
Inc (Dec)
|
|
|
YoY $
Inc (Dec)
|
|
|
Total assets
|
|
$
|
609,707
|
|
|
$
|
642,803
|
|
|
$
|
691,329
|
|
|
$
|
712,224
|
|
|
$
|
690,432
|
|
|
$
|
(21,792
|
)
|
|
$
|
80,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
607,363
|
|
|
$
|
645,744
|
|
|
$
|
696,149
|
|
|
$
|
717,775
|
|
|
$
|
695,004
|
|
|
$
|
(22,771
|
)
|
|
$
|
87,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
$
|
36,230
|
|
|
$
|
36,200
|
|
|
$
|
39,100
|
|
|
$
|
41,250
|
|
|
$
|
41,000
|
|
|
$
|
(250
|
)
|
|
$
|
4,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
396,543
|
|
|
$
|
441,147
|
|
|
$
|
481,766
|
|
|
$
|
491,678
|
|
|
$
|
462,994
|
|
|
$
|
(28,684
|
)
|
|
$
|
66,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Comparison of March 31, 2017, Versus March 31, 2016
The following discussion and table describe the changes in finance receivables by product type:
|
|
•
|
|
Small Loans (
£
$2,500)
– Small loans outstanding increased by $25.1 million, or 8.1%, to $335.6 million at March 31,
2017, from $310.5 million at March 31, 2016, despite the
up-sell
of many small loan customers to large loans. The growth in receivables in branches opened in 2015 and 2016 contributed to the growth
in overall small loans outstanding.
|
|
|
•
|
|
Large Loans (>$2,500)
– Large loans outstanding increased by $80.1 million, or 49.3%, to $242.4 million at March 31, 2017 from $162.3 million at March 31, 2016. The increase was
primarily due to increased marketing and the
up-sell
of many small loan customers to large loans.
|
|
|
•
|
|
Automobile Loans
– Automobile loans outstanding decreased by $20.4 million, or 19.2%, to $85.9 million at March 31, 2017, from $106.3 million at March 31, 2016 as we continued
to restructure our automobile loan business to a centralized model. We expect that the automobile loan portfolio will liquidate at a slower rate in 2017 compared to 2016.
|
|
|
•
|
|
Retail Loans
– Retail loans outstanding increased $2.9 million, or 10.4%, to $31.2 million at March 31, 2017, from $28.3 million at March 31, 2016. The increase in retail loans
outstanding resulted from the additional relationships we established with new retailers, an increase in average loan amount, and an expansion of volume through our existing relationships.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Receivables by Product
|
|
|
In thousands
|
|
1Q’17
|
|
|
4Q’16
|
|
|
QoQ $
Inc (Dec)
|
|
|
QoQ %
Inc (Dec)
|
|
|
1Q’16
|
|
|
YoY $
Inc (Dec)
|
|
|
YoY %
Inc (Dec)
|
|
|
Small loans
|
|
$
|
335,552
|
|
|
$
|
358,471
|
|
|
$
|
(22,919
|
)
|
|
|
(6.4
|
)%
|
|
$
|
310,502
|
|
|
$
|
25,050
|
|
|
|
8.1
|
%
|
|
Large loans
|
|
|
242,380
|
|
|
|
235,349
|
|
|
|
7,031
|
|
|
|
3.0
|
%
|
|
|
162,301
|
|
|
|
80,079
|
|
|
|
49.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core loans
|
|
|
577,932
|
|
|
|
593,820
|
|
|
|
(15,888
|
)
|
|
|
(2.7
|
)%
|
|
|
472,803
|
|
|
|
105,129
|
|
|
|
22.2
|
%
|
|
Automobile loans
|
|
|
85,869
|
|
|
|
90,432
|
|
|
|
(4,563
|
)
|
|
|
(5.0
|
)%
|
|
|
106,297
|
|
|
|
(20,428
|
)
|
|
|
(19.2
|
)%
|
|
Retail loans
|
|
|
31,203
|
|
|
|
33,523
|
|
|
|
(2,320
|
)
|
|
|
(6.9
|
)%
|
|
|
28,263
|
|
|
|
2,940
|
|
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables
|
|
$
|
695,004
|
|
|
$
|
717,775
|
|
|
$
|
(22,771
|
)
|
|
|
(3.2
|
)%
|
|
$
|
607,363
|
|
|
$
|
87,641
|
|
|
|
14.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of branches at period end
|
|
|
344
|
|
|
|
339
|
|
|
|
5
|
|
|
|
1.5
|
%
|
|
|
339
|
|
|
|
5
|
|
|
|
1.5
|
%
|
|
Average finance receivables per branch
|
|
$
|
2,020
|
|
|
$
|
2,117
|
|
|
$
|
(97
|
)
|
|
|
(4.6
|
)%
|
|
$
|
1,792
|
|
|
$
|
228
|
|
|
|
12.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of the Three Months Ended March 31, 2017, Versus the Three Months Ended March 31, 2016
Net Income.
Net income increased $2.5 million, or 47.5%, to $7.6 million during the three months ended March 31,
2017 from $5.2 million during the prior year period. The increase was primarily due to an increase in revenue of $9.1 million and a decrease in income taxes of $0.8 million, offset by an increase in provision for credit losses of
$5.3 million, an increase in general and administrative expenses of $1.6 million, and an increase in interest expense of $0.5 million.
Revenue.
Total revenue increased $9.1 million, or 16.1%, to $65.8 million during the three months ended March 31,
2017, from $56.7 million during the prior year period. The components of revenue are explained in greater detail below.
Interest
and Fee Income
.
Interest and fee income increased $8.0 million, or 15.5%, to $59.3 million during the three months ended March 31, 2017, from $51.3 million during the prior year period. The increase in interest
and fee income was primarily due to a 14.9% increase in average finance receivables.
23
The following table sets forth the average finance receivables balance and average yield for each
of our loan product categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Finance Receivables for the Quarter Ended
|
|
|
Average Yields for the Quarter Ended
|
|
|
In thousands
|
|
1Q’17
|
|
|
4Q’16
|
|
|
QoQ%
Inc (Dec)
|
|
|
1Q’17
|
|
|
4Q’16
|
|
|
QoQ %
Inc (Dec)
|
|
|
Small loans
|
|
$
|
349,521
|
|
|
$
|
354,276
|
|
|
|
(1.3
|
)%
|
|
|
42.3
|
%
|
|
|
42.6
|
%
|
|
|
(0.3
|
)%
|
|
Large loans
|
|
|
239,033
|
|
|
|
225,786
|
|
|
|
5.9
|
%
|
|
|
28.7
|
%
|
|
|
29.0
|
%
|
|
|
(0.3
|
)%
|
|
Automobile loans
|
|
|
88,150
|
|
|
|
93,866
|
|
|
|
(6.1
|
)%
|
|
|
16.6
|
%
|
|
|
17.0
|
%
|
|
|
(0.4
|
)%
|
|
Retail loans
|
|
|
32,560
|
|
|
|
33,013
|
|
|
|
(1.4
|
)%
|
|
|
18.7
|
%
|
|
|
19.0
|
%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and fee yield
|
|
$
|
709,264
|
|
|
$
|
706,941
|
|
|
|
0.3
|
%
|
|
|
33.4
|
%
|
|
|
33.8
|
%
|
|
|
(0.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue yield
|
|
$
|
709,264
|
|
|
$
|
706,941
|
|
|
|
0.3
|
%
|
|
|
37.1
|
%
|
|
|
36.2
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Finance Receivables for the Quarter Ended
|
|
|
Average Yields for the Quarter Ended
|
|
|
In thousands
|
|
1Q’17
|
|
|
1Q’16
|
|
|
YoY %
Inc (Dec)
|
|
|
1Q’17
|
|
|
1Q’16
|
|
|
YoY %
Inc (Dec)
|
|
|
Small loans
|
|
$
|
349,521
|
|
|
$
|
325,649
|
|
|
|
7.3
|
%
|
|
|
42.3
|
%
|
|
|
41.9
|
%
|
|
|
0.4
|
%
|
|
Large loans
|
|
|
239,033
|
|
|
|
152,938
|
|
|
|
56.3
|
%
|
|
|
28.7
|
%
|
|
|
28.2
|
%
|
|
|
0.5
|
%
|
|
Automobile loans
|
|
|
88,150
|
|
|
|
111,008
|
|
|
|
(20.6
|
)%
|
|
|
16.6
|
%
|
|
|
18.2
|
%
|
|
|
(1.6
|
)%
|
|
Retail loans
|
|
|
32,560
|
|
|
|
27,923
|
|
|
|
16.6
|
%
|
|
|
18.7
|
%
|
|
|
19.2
|
%
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and fee yield
|
|
$
|
709,264
|
|
|
$
|
617,518
|
|
|
|
14.9
|
%
|
|
|
33.4
|
%
|
|
|
33.2
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue yield
|
|
$
|
709,264
|
|
|
$
|
617,518
|
|
|
|
14.9
|
%
|
|
|
37.1
|
%
|
|
|
36.7
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small and large loan yields increased 0.4% and 0.5%, respectively, compared to the prior year period as a
result of adjusted pricing that reflects current market conditions. Automobile loan yields decreased 1.6% compared to the prior year period due to our revised pricing model for our automobile loan program.
The following table represents the amount of loan originations and refinancing net of unearned finance charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans Originated
|
|
|
In thousands
|
|
1Q’17
|
|
|
4Q’16
|
|
|
QoQ $
Inc (Dec)
|
|
|
QoQ %
Inc (Dec)
|
|
|
1Q’16
|
|
|
YoY $
Inc (Dec)
|
|
|
YoY %
Inc (Dec)
|
|
|
Small loans
|
|
$
|
115,359
|
|
|
$
|
152,868
|
|
|
$
|
(37,509
|
)
|
|
|
(24.5
|
)%
|
|
$
|
114,377
|
|
|
$
|
982
|
|
|
|
0.9
|
%
|
|
Large loans
|
|
|
57,020
|
|
|
|
67,273
|
|
|
|
(10,253
|
)
|
|
|
(15.2
|
)%
|
|
|
48,569
|
|
|
|
8,451
|
|
|
|
17.4
|
%
|
|
Automobile loans
|
|
|
8,789
|
|
|
|
8,099
|
|
|
|
690
|
|
|
|
8.5
|
%
|
|
|
8,485
|
|
|
|
304
|
|
|
|
3.6
|
%
|
|
Retail loans
|
|
|
6,264
|
|
|
|
8,043
|
|
|
|
(1,779
|
)
|
|
|
(22.1
|
)%
|
|
|
8,701
|
|
|
|
(2,437
|
)
|
|
|
(28.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loans originated
|
|
$
|
187,432
|
|
|
$
|
236,283
|
|
|
$
|
(48,851
|
)
|
|
|
(20.7
|
)%
|
|
$
|
180,132
|
|
|
$
|
7,300
|
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the components of the increase in interest and fee income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Increase in Interest and Fee Income
1Q’17 Compared to 1Q’16
Increase
(Decrease)
|
|
|
In thousands
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Small loans
|
|
$
|
2,520
|
|
|
$
|
272
|
|
|
$
|
2,792
|
|
|
Large loans
|
|
|
6,176
|
|
|
|
211
|
|
|
|
6,387
|
|
|
Automobile loans
|
|
|
(975
|
)
|
|
|
(431
|
)
|
|
|
(1,406
|
)
|
|
Retail loans
|
|
|
218
|
|
|
|
(36
|
)
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in interest and fee income
|
|
$
|
7,939
|
|
|
$
|
16
|
|
|
$
|
7,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Income, Net
.
Insurance income, net increased $0.9 million, or 29.5%, to
$3.8 million during the three months ended March 31, 2017 from $2.9 million during the prior year period. Annualized insurance income, net as a percentage of average finance receivables increased to 2.1% for the three months ended
March 31, 2017 from 1.9% during the prior year period. The increase from the prior year period was primarily due to a transition in insurance carriers during the three months ended March 31, 2017, causing some of our insurance claims to
impact net credit losses instead of insurance income, net.
24
Other Income
.
Other income, which consists primarily of late charges,
increased $0.3 million, or 12.3%, to $2.8 million during the three months ended March 31, 2017 from $2.5 million during the prior year period. Annualized other income represented 1.6% of average receivables during both the first
three months of 2017 and the prior year period.
Provision for Credit Losses.
Our provision for credit losses increased
$5.3 million, or 38.7%, to $19.1 million during the three months ended March 31, 2017 from $13.8 million during the prior year period. The provision for credit losses represented 10.8% of average receivables during the first
three months of 2017 compared to 8.9% of average receivables during the prior year period. The increase in the provision for credit losses was due to an increase in net credit losses of $4.4 million and a change in the estimated allowance of
$1.0 million, primarily due to reserves associated with the change in insurance provider.
Net credit losses increased
$4.4 million, or 29.1%, to $19.4 million during the three months ended March 31, 2017 from $15.0 million during the prior year period. Net credit losses for the first quarter of 2017 included $1.0 million of losses due to a
temporary shift of certain insurance claims into net credit losses during a transition in our insurance provider. Annualized net credit losses as a percentage of average receivables were 10.9% during the first three months of 2017 compared to 9.7%
during the prior year period. To improve future net credit losses, we reduced lending to specific underperforming segments of our customer base starting in the fourth quarter of 2016 and continuing in the first quarter of 2017. As a result of our
credit policy tightening and our improved early and late stage delinquencies at the end of the first quarter of 2017, we expect net credit losses in the second and third quarter of 2017 to be lower compared to the first quarter of 2017. However, the
full provision for credit losses will continue at or near its current level due to the incremental provision associated with portfolio growth during these quarters.
We evaluate delinquency and losses in each of our loan categories in establishing the allowance for credit losses. The following table sets
forth our allowance for credit losses compared to the related finance receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q’17
|
|
|
4Q’16
|
|
|
In thousands
|
|
Finance
Receivables
|
|
|
Allowance
for Credit
Losses
|
|
|
Allowance as
Percentage
of Related
Finance
Receivables
|
|
|
Finance
Receivables
|
|
|
Allowance
for Credit
Losses
|
|
|
Allowance as
Percentage
of Related
Finance
Receivables
|
|
|
Small loans
|
|
$
|
335,552
|
|
|
$
|
20,575
|
|
|
|
6.1
|
%
|
|
$
|
358,471
|
|
|
$
|
21,770
|
|
|
|
6.1
|
%
|
|
Large loans
|
|
|
242,380
|
|
|
|
12,675
|
|
|
|
5.2
|
%
|
|
|
235,349
|
|
|
|
11,460
|
|
|
|
4.9
|
%
|
|
Automobile loans
|
|
|
85,869
|
|
|
|
5,775
|
|
|
|
6.7
|
%
|
|
|
90,432
|
|
|
|
5,910
|
|
|
|
6.5
|
%
|
|
Retail loans
|
|
|
31,203
|
|
|
|
1,975
|
|
|
|
6.3
|
%
|
|
|
33,523
|
|
|
|
2,110
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
695,004
|
|
|
$
|
41,000
|
|
|
|
5.9
|
%
|
|
$
|
717,775
|
|
|
$
|
41,250
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance as a percentage of related finance receivables increased to 5.9% as of March 31, 2017, from
5.7% as of December 31, 2016, due to the continued seasoning of the large loan portfolio.
Delinquencies 1 day and over past due as a
percentage of total finance receivables decreased to 15.7% as of March 31, 2017, from 16.7% as of March 31, 2016. Delinquencies 30 days or more past due as a percentage of total finance receivables increased to 6.5% as of March 31,
2017, from 6.2% as of March 31, 2016. The increase was primarily due to the seasoning of our large loan portfolio. The following tables include delinquency balances by aging category and by product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Delinquency by Aging
|
|
|
In thousands
|
|
1Q’17
|
|
|
4Q’16
|
|
|
1Q’16
|
|
|
Allowance for credit losses
|
|
$
|
41,000
|
|
|
|
5.9
|
%
|
|
$
|
41,250
|
|
|
|
5.7
|
%
|
|
$
|
36,230
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
586,085
|
|
|
|
84.3
|
%
|
|
|
587,202
|
|
|
|
81.9
|
%
|
|
|
505,801
|
|
|
|
83.3
|
%
|
|
1 to 29 days past due
|
|
|
63,978
|
|
|
|
9.2
|
%
|
|
|
77,106
|
|
|
|
10.7
|
%
|
|
|
63,686
|
|
|
|
10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days
|
|
|
13,860
|
|
|
|
2.1
|
%
|
|
|
16,727
|
|
|
|
2.3
|
%
|
|
|
11,986
|
|
|
|
1.9
|
%
|
|
60 to 89 days
|
|
|
9,889
|
|
|
|
1.4
|
%
|
|
|
11,641
|
|
|
|
1.6
|
%
|
|
|
7,640
|
|
|
|
1.3
|
%
|
|
90 to 119 days
|
|
|
7,569
|
|
|
|
1.0
|
%
|
|
|
10,021
|
|
|
|
1.4
|
%
|
|
|
7,099
|
|
|
|
1.1
|
%
|
|
120 to 149 days
|
|
|
6,975
|
|
|
|
1.0
|
%
|
|
|
8,205
|
|
|
|
1.1
|
%
|
|
|
5,914
|
|
|
|
1.0
|
%
|
|
150 to 179 days
|
|
|
6,648
|
|
|
|
1.0
|
%
|
|
|
6,873
|
|
|
|
1.0
|
%
|
|
|
5,237
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual delinquency
|
|
$
|
44,941
|
|
|
|
6.5
|
%
|
|
$
|
53,467
|
|
|
|
7.4
|
%
|
|
$
|
37,876
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables
|
|
$
|
695,004
|
|
|
|
100.0
|
%
|
|
$
|
717,775
|
|
|
|
100.0
|
%
|
|
$
|
607,363
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 day and over past due
|
|
$
|
108,919
|
|
|
|
15.7
|
%
|
|
$
|
130,573
|
|
|
|
18.1
|
%
|
|
$
|
101,562
|
|
|
|
16.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Delinquency by Product
|
|
|
In thousands
|
|
1Q’17
|
|
|
4Q’16
|
|
|
1Q’16
|
|
|
Small loans
|
|
$
|
26,573
|
|
|
|
7.9
|
%
|
|
$
|
32,955
|
|
|
|
9.2
|
%
|
|
$
|
24,978
|
|
|
|
8.0
|
%
|
|
Large loans
|
|
|
12,142
|
|
|
|
5.0
|
%
|
|
|
12,114
|
|
|
|
5.1
|
%
|
|
|
5,561
|
|
|
|
3.4
|
%
|
|
Automobile loans
|
|
|
4,513
|
|
|
|
5.3
|
%
|
|
|
6,300
|
|
|
|
7.0
|
%
|
|
|
6,120
|
|
|
|
5.8
|
%
|
|
Retail loans
|
|
|
1,713
|
|
|
|
5.5
|
%
|
|
|
2,098
|
|
|
|
6.3
|
%
|
|
|
1,217
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual delinquency
|
|
$
|
44,941
|
|
|
|
6.5
|
%
|
|
$
|
53,467
|
|
|
|
7.4
|
%
|
|
$
|
37,876
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative Expenses.
Our general and administrative expenses, comprising
expenses for personnel, occupancy, marketing, and other expenses, increased $1.6 million, or 5.5%, to $31.5 million during the three months ended March 31, 2017 from $29.8 million during the prior year period. Our receivable
efficiency ratio (annualized general and administrative expenses as a percentage of average finance receivables) decreased to 17.7% during the three months ended March 31, 2017 from 19.3% during the prior year period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General & Administrative Expenses Trend
|
|
|
In thousands
|
|
1Q’16
|
|
|
2Q’16
|
|
|
3Q’16
|
|
|
4Q’16
|
|
|
1Q’17
|
|
|
YoY $
B(W)
|
|
|
Legacy operations expenses
|
|
$
|
19,811
|
|
|
$
|
18,224
|
|
|
$
|
19,596
|
|
|
$
|
19,238
|
|
|
$
|
20,497
|
|
|
$
|
(686
|
)
|
|
2017 new branch expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
276
|
|
|
|
(276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operations expenses
|
|
|
19,811
|
|
|
|
18,224
|
|
|
|
19,596
|
|
|
|
19,238
|
|
|
|
20,773
|
|
|
|
(962
|
)
|
|
Marketing expenses
|
|
|
1,515
|
|
|
|
2,062
|
|
|
|
1,786
|
|
|
|
1,474
|
|
|
|
1,205
|
|
|
|
310
|
|
|
Home office expenses
|
|
|
8,479
|
|
|
|
9,262
|
|
|
|
9,071
|
|
|
|
8,114
|
|
|
|
9,476
|
|
|
|
(997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total G&A expenses
|
|
$
|
29,805
|
|
|
$
|
29,548
|
|
|
$
|
30,453
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$
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28,826
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$
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31,454
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$
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(1,649
|
)
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Operations general and administrative expenses increased $1.0 million during the three months ended
March 31, 2017 compared to the prior year period. This increase was primarily due to costs related to the opening of 5 net new branches since March 31, 2016 and higher collection expenses. Home office general and administrative expenses
increased $1.0 million during the three months ended March 31, 2017 compared to the prior year period primarily due to an increase in incentive plan expenses and increased headcount. Home office general and administrative expenses for both
the first quarters of 2017 and 2016 include $0.4 million of loan system conversion costs. In 2016, we began using the new loan management system in our North Carolina, Virginia, and New Mexico branches, and we expect to convert to the new loan
management system in our remaining six states by the end of 2017. We expect technology costs to remain elevated in 2017 in connection with our efforts to transition to our new loan management system. The increase in general and administrative
expenses is explained in greater detail below.
Personnel.
The largest component of general and administrative expenses is
personnel expense, which increased $1.0 million, or 6.1%, to $18.2 million during the three months ended March 31, 2017 from $17.1 million during the prior year period. Home office personnel expense increased $0.4 million in
the three months ended March 31, 2017 from added headcount primarily in our information technology, marketing, and credit risk departments offset by lower recruiting fees. Incentive compensation expense increased $0.7 million primarily due
to the 2016 annual grant of awards under our long-term incentive plan, which have three-year performance targets. The 2016 annual grant of awards were made at the end of the first quarter of 2016 and, therefore, no expense for the 2016 annual grant
of awards was incurred during the three months ended March 31, 2016.
Occupancy.
Occupancy expenses increased
$0.4 million, or 8.7%, to $5.3 million during the three months ended March 31, 2017 from $4.9 million during the prior year period. The increase in occupancy expenses was due to costs related to the opening of 5 net new branches
since the prior year period, branch relocations, and expenses associated with a larger home office building. Additionally, we frequently experience increases in rent as we renew existing branch leases.
Marketing.
Marketing expenses decreased $0.3 million, or 20.5%, to $1.2 million during the three months ended March 31,
2017 from $1.5 million during the prior year period. The decrease was primarily due to a 17.0% decrease in total direct mail marketing compared to the prior year period. The reduction in total mail quantity was the result of our efforts to
fine-tune our processes and shift marketing spend out of the first quarter, when demand is typically lower, and into the latter three quarters, when demand is typically stronger.
Other Expenses.
Other expenses increased $0.5 million, or 7.9%, to $6.8 million during the three months ended March 31,
2017 from $6.3 million during the prior year period. The increase was primarily due to a $0.4 million increase in collection expenses related to higher delinquency in late 2016 and a $0.1 million increase in bank charges due to a
higher branch count and increased fees for accepting debit card payments.
26
Interest Expense.
Interest expense on long-term debt increased $0.5 million,
or 10.7%, to $5.2 million during the three months ended March 31, 2017 from $4.7 million during the prior year period. The increase was primarily due to an increase in the average balance of our senior revolving credit facility due to
loan growth, offset by lower debt issuance costs, lower rate cap expense, and lower unused line fees. The average cost of our long-term debt decreased 0.34% to 4.37% for the three months ended March 31, 2017 from 4.71% for the prior year
period.
Income Taxes.
Income taxes decreased $0.8 million, or 25.8%, to $2.4 million during the three months
ended March 31, 2017 from $3.2 million during the prior year period. The decrease was primarily due to $1.5 million in tax benefits related to the exercise of stock options, offset by an increase in our net income before taxes. Our
effective tax rates were 23.8% and 38.3% for the three months ended March 31, 2017 and 2016, respectively. The tax benefits reduced the effective tax rate by 14.5% for the three months ended March 31, 2017.
Liquidity and Capital Resources
Our
primary cash needs relate to the funding of our lending activities and, to a lesser extent, capital expenditures relating to expanding and maintaining our branch locations. In connection with our plans to expand our branch network and improve our
technology infrastructure in future years, we will incur approximately $4.0 million to $10.0 million of capital expenditures annually. We have historically financed, and plan to continue to finance, our short-term and long-term operating
liquidity and capital needs through a combination of cash flows from operations and borrowings under our senior revolving credit facility and the amortizing loan that we closed in December 2015. We believe that cash flow from operations and
borrowings under our senior revolving credit facility and amortizing loan will be adequate to fund the expected cost of opening or acquiring new branches, including funding initial operating losses of new branches and funding finance receivables
originated by those branches and our other branches, for the next twelve months. From time to time, we have needed an increase in the borrowing limits under our senior revolving credit facility. We have successfully obtained such increases in
the past; however, there can be no assurance that this additional funding will be available (or available on reasonable terms) if and when needed. We continue to seek ways to diversify our long-term funding sources, including through securitization
of certain loans and other similar transactions.
As part of the $75.7 million amortizing asset-backed loan to Regional Management
Receivables, LLC (“
RMR
”), $3.7 million of the cash received by RMR in December 2015 was deposited into a restricted cash reserve account to satisfy provisions of the credit agreement. These reserve requirements decreased to
$1.7 million in June 2016 following our satisfaction of certain provisions of the credit agreement. This restricted cash reserve account requirement will remain at $1.7 million until the termination of the credit agreement. Additionally,
the amortizing loan is supported by the expected cash flows from the underlying collateralized finance receivables. Collections on these accounts are remitted to a restricted cash collection account, which totaled $2.3 million as of
March 31, 2017. On the closing date of this loan, RMR made certain representations and warranties about the quality and nature of these receivables. The credit agreement requires RMR to pay the administrative agent a release fee for the release
of receivables in certain circumstances, including circumstances in which the representations and warranties made by RMR concerning the quality and characteristics of the receivables are inaccurate.
As a holding company, almost all of the funds generated from our operations are earned by our operating subsidiaries. In addition, our
wholly-owned subsidiary, RMC Reinsurance Ltd., is required to maintain cash reserves against life insurance policies ceded to it, as determined by the ceding company, and has also purchased a cash-collateralized letter of credit in favor of the
ceding company. As of March 31, 2017, these reserve requirements totaled $4.9 million.
Cash Flow.
Operating Activities.
Net cash provided by operating activities increased by $8.5 million, or 41.7%, to $28.8 million during
the three months ended March 31, 2017 from $20.3 million during the prior year period. The increase was primarily due to higher net income, before provision for credit losses, resulting from growth in the business.
Investing Activities.
Investing activities consist of finance receivables originated and purchased, net change in restricted cash, the
purchase of intangible assets, and the purchase of property and equipment for new and existing branches. Net cash provided by investing activities during the three months ended March 31, 2017 was $0.8 million compared to $3.2 million
during the prior year period, a net decrease of $2.4 million. The decrease was primarily due to lower net repayments of finance receivables.
Financing Activities.
Financing activities consist of borrowings and payments on our outstanding indebtedness, issuances of common
stock, and repurchases of common stock. During the three months ended March 31, 2017, net cash used in financing activities was $30.5 million, an increase of $6.8 million compared to the $23.7 million net cash used in financing
activities during the prior year period. The increase was primarily a result of an increase in net payments on long-term debt of $14.1 million and taxes paid of $1.6 million related to net share settlements, offset by stock repurchases of
$8.9 million in the three months ended March 31, 2016.
27
Financing Arrangements.
Senior Revolving Credit Facility.
We entered into the fifth amended and restated senior revolving credit facility with a syndicate of
banks in September 2015, which we subsequently amended in May 2016 and August 2016. The senior revolving credit facility provides for up to $585.0 million in availability, with a borrowing base of up to a maximum of 85% of eligible secured
finance receivables and up to a maximum of 70% of eligible unsecured finance receivables, in each case, subject to adjustment at certain credit quality levels (82% and 67% as of March 31, 2017, respectively). The facility matures in August 2019
and has an accordion provision that allows for the expansion of the facility to $650.0 million. Borrowings under the facility bear interest, payable monthly, at rates equal to LIBOR of a maturity we elect between one and six months, with a
LIBOR floor of 1.00%, plus a margin of 3.00%. Alternatively, we may pay interest at a rate based on the prime rate (which was 4.00% as of March 31, 2017) plus a margin of 2.00%. We also pay an unused line fee of 0.50% per annum, payable
monthly. This fee decreases to 0.375% when the average outstanding balance exceeds $400.0 million. Excluding the receivables held by RMR, the senior revolving credit facility is secured by substantially all of our finance receivables and equity
interests of the majority of our subsidiaries. The credit agreement contains certain restrictive covenants, including maintenance of specified interest coverage and debt ratios, restrictions on distributions, limitations on other indebtedness,
maintenance of a minimum allowance for credit losses, and certain other restrictions.
Our outstanding debt under the senior revolving
credit facility was $430.4 million at March 31, 2017, and the amount available for borrowing, but not yet advanced, was $64.0 million. At March 31, 2017, we were in compliance with our debt covenants. A year or more in advance of
its August 2019 maturity date, we intend to extend the maturity date of the amended and restated senior revolving credit facility or take other appropriate action to address repayment upon maturity. See Part II, Item 1A. “Risk Factors” and
the filings referenced therein for a discussion of risks related to our amended and restated senior revolving credit facility, including refinancing risk.
Amortizing Loan.
We entered into a credit agreement in December 2015 which provides for a $75.7 million amortizing loan to RMR
that is secured by certain retail installment contracts and promissory notes secured by automobiles, light-duty trucks, minivans, sport utility vehicles, and other passenger vehicles (excluding motorcycles) which either indirectly or directly were
originated by certain of our subsidiaries. Our outstanding debt under the credit agreement was $32.2 million at March 31, 2017.
Interest Rate Caps.
We have purchased interest rate cap contracts with an aggregate notional principal amount of $200.0 million
and 2.50% strike rates against the
one-month
LIBOR. $150.0 million of these contracts expire in April 2018, with the remaining $50.0 million expiring in March 2019. When the
one-month
LIBOR exceeds 2.50%, the counterparty reimburses us for the excess over 2.50%. No payment is required by us or the counterparty when the
one-month
LIBOR is below
2.50%.
Other Financing Arrangements.
We have $3.0 million in commercial overdraft capability that assists with our cash
management needs for
intra-day
temporary funding.
Off-Balance
Sheet
Arrangements
Our wholly-owned subsidiary, RMC Reinsurance, Ltd., is required to maintain cash reserves against life insurance policies
ceded to it, as determined by the ceding company. As of March 31, 2017, the cash reserves were $4.9 million. We have also purchased a cash collateralized letter of credit in favor of the ceding company. As of March 31, 2017, the
letter of credit was $2.0 million.
Impact of Inflation
Our results of operations and financial condition are presented based on historical cost, except for interest rate caps, which are carried at
fair value. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been
immaterial.
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States (“
GAAP
”) and conform to general practices within the consumer finance industry. The preparation of these financial statements
requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities for the periods indicated in the financial statements. Management bases
estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or
conditions.
We set forth below those material accounting policies that we believe are the most critical to an investor’s
understanding of our financial results and condition and that involve a higher degree of complexity and management judgment.
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Credit Losses.
Provisions for credit losses are charged to income as losses are estimated to have occurred and in amounts sufficient to maintain an allowance
for credit losses at an adequate level to provide for future losses on our finance receivables. We charge credit losses against the allowance when an account is contractually delinquent 180 days, subject to certain exceptions. Our policy for
non-titled
accounts in a confirmed bankruptcy is to charge them off at 60 days contractually delinquent, subject to certain exceptions. Deceased borrower accounts are charged off in the month following the proper
notification of passing, with the exception of borrowers with credit life insurance. The updated policy improves consistency and creates better alignment with industry practice. Subsequent recoveries, if any, are credited to the allowance. Loss
experience, effective loan life, contractual delinquency of finance receivables by loan type, the value of underlying collateral, and management’s judgment are factors used in assessing the overall adequacy of the allowance and the resulting
provision for credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or portfolio performance. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available.
We initiate repossession proceedings when, in the opinion of management, the customer is unlikely to make further payments. We sell
substantially all repossessed vehicle inventory through public sales conducted by independent automobile auction organizations after the required post-repossession waiting period. Losses on the sale of repossessed collateral are charged to the
allowance for credit losses.
The allowance for credit losses consists of general and specific components. The general component of the
allowance estimates credit losses for groups of finance receivables on a collective basis and relates to probable incurred losses of unimpaired finance receivables. Prior to September 30, 2016, the general component of the allowance was
primarily based on historical loss rates. Effective September 30, 2016, it is based on delinquency roll rates. Our finance receivable types are stratified by delinquency stages, and the future monthly delinquency profiles and credit losses are
projected forward using historical delinquency roll rates. We record a general allowance for credit losses that includes forecasted future credit losses over the estimated loss emergence period (the interval of time between the event which caused a
borrower to default and our recording of the credit loss) for each finance receivable type.
We adjust the computed roll rate forecast as
described above for qualitative factors based on an assessment of internal and external influences on credit quality that are not fully reflected in the roll rate forecast. Those qualitative factors include trends in growth in the loan portfolio,
delinquency, unemployment, bankruptcy, operational risks, and other economic trends.
The specific component of the allowance for credit
losses relates to impaired finance receivables, which include accounts for which a customer has initiated a bankruptcy filing and finance receivables that have been modified under our loss mitigation policies. Finance receivables that have been
modified are accounted for as troubled debt restructurings. At the time of the bankruptcy filing or restructuring pursuant to a loss mitigation policy, a specific valuation allowance is established for such finance receivables within the allowance
for credit losses. We compute the estimated loss on our impaired loans by discounting the projected cash flows at the original contract rates on the loan using the terms imposed by the bankruptcy court or restructured by us. This method is applied
in the aggregate to each of our four classes of loans. In making the computations of the present value of cash payments to be received on impaired accounts in each product category, we use the weighted-average interest rates and weighted-average
remaining term based on data as of each balance sheet date.
For customers in a confirmed Chapter 13 bankruptcy plan, we reduce the
interest rate to that specified in the bankruptcy order and we receive payments with respect to the remaining amount of the loan from the bankruptcy trustee. For customers who recently filed for Chapter 13 bankruptcy, we generally do not receive any
payments until their bankruptcy plan is confirmed by the court. If the customers have made payments to the trustee in advance of plan confirmation, we may receive a lump sum payment from the trustee once the plan is confirmed. This lump sum payment
represents our
pro-rata
share of the amount paid by the customer. If a customer fails to comply with the terms of the bankruptcy order, we will petition the trustee to have the customer dismissed from
bankruptcy. Upon dismissal, we restore the account to the original terms and pursue collection through our normal loan servicing activities.
If a customer files for bankruptcy under Chapter 7 of the bankruptcy code, the bankruptcy court has the authority to cancel the
customer’s debt. If a vehicle secures a Chapter 7 bankruptcy account, the customer has the option of buying the vehicle at fair value or reaffirming the loan and continuing to pay the loan.
The FASB issued an accounting update in June 2016 to change the impairment model for estimating credit losses on financial assets. The current
incurred loss impairment model requires the recognition of credit losses when it is probable that a loss has been incurred. The incurred loss model will be replaced by an expected loss model, which requires entities to estimate the lifetime expected
credit loss on such instruments and to record an allowance to offset the amortized cost basis of the financial asset. This update is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted.
The implementation of the accounting update could have a significant impact on the provision for credit losses in the consolidated statements of income and on the allowance for credit losses in the consolidated balance sheets. We are currently
evaluating the potential impact of this guidance on its consolidated financial statements.
29
Income Recognition.
Interest income is recognized using the interest method (constant yield method). Therefore, we recognize revenue from interest at an equal rate
over the term of the loan. Unearned finance charges on
pre-compute
contracts are rebated to customers utilizing statutory methods, which in many cases is the
sum-of-the-years’
digits method. The difference between income recognized under the constant yield method and the statutory method is recognized as an adjustment
to interest income at the time of rebate. Accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent on a contractual basis. The accrual of income is not resumed until the account is less than 90 days
contractually delinquent. Interest income is suspended on finance receivables for which collateral has been repossessed. If the account is charged off, the interest income is reversed as a reduction of interest and fee income.
We recognize income on credit life insurance using the
sum-of-the-years’
digits or actuarial methods over the terms of the policies. We recognize income on credit accident and health insurance using the average of the
sum-of-the-years’
digits and the straight-line methods over the terms of the policies. We recognize income on credit-related property and automobile insurance
using the straight-line or
sum-of-the-years’
digits methods over the terms of the policies. We recognize income on
credit-related involuntary unemployment insurance using the straight-line method over the terms of the policies. Rebates are computed using statutory methods, which in many cases match the GAAP method, and where it does not match, the difference
between the GAAP method and the statutory method is recognized in income at the time of rebate.
We defer fees charged to automobile
dealers and recognize income using the constant yield method for indirect loans and the straight-line method for direct loans over the lives of the respective loans.
Charges for late fees are recognized as income when collected.
Insurance Operations.
Insurance operations include revenue and expense from the sale of optional insurance products to our customers. These optional products include
credit life insurance, credit accident and health insurance, credit personal property insurance, vehicle single interest insurance, and involuntary unemployment insurance.
Share-Based Compensation.
We measure compensation cost for share-based awards at estimated fair value and recognize compensation expense over the service period for
awards expected to vest. We use the closing stock price on the date of grant as the fair value of restricted stock awards. The fair value of stock options is determined using the Black-Scholes valuation model. The Black-Scholes model requires the
input of highly subjective assumptions, including expected volatility, risk-free interest rate, and expected life, changes to which can materially affect the fair value estimate. We estimate volatility using our historical stock prices. The
risk-free rate is based on the zero coupon U.S. Treasury bond rate for the expected term of the award on the grant date. The expected term is calculated by using the simplified method (average of the vesting and original contractual terms) due to
insufficient historical data to estimate the expected term. In addition, the estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from current estimates, such
amounts will be recorded as a cumulative adjustment in the period estimates are revised.
Income Taxes.
We file income tax returns in the U.S. federal jurisdiction and in various states. We are generally no longer subject to federal, state, or
local income tax examinations by taxing authorities before 2013, though we remain subject to examination in New Mexico and Texas for the 2011 and 2012 tax years.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which,
based on all available evidence, it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other
positions. Tax positions that meet the
more-likely-than-not
recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the
applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with
any associated interest and penalties that would be payable to the taxing authorities upon examination. As of December 31, 2016, we had not taken any tax position that exceeds the amount described above.
Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the consolidated statements of
income.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effects of future tax rate changes are recognized in the period when the enactment of new rates occurs.
30
Pursuant to the adoption of an accounting standard update issued in March 2016 and effective for
fiscal year 2017, we now recognize the tax benefits or deficiencies from the exercise or vesting of share-based awards in the income tax line of the consolidated statements of income. These tax benefits and deficiencies were previously recognized
within additional
paid-in-capital
on our balance sheet.
Recently
Issued Accounting Standards
See Note 2, “Basis of Presentation and Significant Accounting Policies,” of the Notes to
Consolidated Financial Statements in Part I, Item 1. “Financial Statements” for a discussion of recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards.
31