The Company’s consumer loans are made to individuals, who may be new customers, existing customers (loan renewals), former customers or customers converting from a sales contract, in relatively small amounts for relatively short period of time. First and second mortgage loans on real estate are made in larger amounts and for longer periods of time. The Company also purchases sales finance contracts from various dealers. All loans and sales contracts are held for investment.

Cash, unearned finance charges, origination fees, discounts, premiums, deferred fees, and, in the instance of a loan renewal, the net payoff of the of the renewed loan are included in the loan origination amount. The cash component of the loan origination is included in the Statement of Cash Flows in the Cash Flows from Investing Activities as Loans Originated or Purchased.

Loan renewals are accounted for in accordance with the applicable guidance in ASC Topic 310-20 Nonrefundable Fees and Other Costs. Loan renewals are a product the Company offers to existing customers that allows them to borrow additional funds from the Company. In evaluating a loan for renewal, in addition to our standard underwriting requirements, we may take into consideration the customer’s prior payment performance with us, which we believe to be an indicator of the customer’s future credit performance. If the terms of the new loan resulting from a loan renewal are at least as favorable to us as the terms for comparable loans to other customers with similar collection risks who are not renewing a loan, the renewal is accounted for as a new loan. The criteria is met if the new loan's effective yield is at least equal to the effective yield for such comparable loans and the modification of the original loan is more than minor. A modification of a loan is more than minor if the present value of the cash flows under the terms of the renewal is at least 10 percent different from the present value of the remaining cash flows under the terms of the original loan. Accordingly, when a renewal is generated, the original loan(s) are extinguished along with the associated unearned finance charges and a new loan is originated. Substantially all renewals include a non-cash component that represents the exchange of the original principal balance for the new principal balance and a cash component for the net proceeds distributed to the customer for the additional amount borrowed. The cash component is presented as outflows from investing activities and the non-cash component is presented as a non-cash investing activity.


		Three months ended March 31,
		2023		2022

Loans Originated / Acquired:		$	246,983	$	265,539
Less Non-Cash Reconciling items:
	Other Consumer renewed loans (live check and premier)	49,626		54,837
	Other non-cash activity: unearned finance charges, origination fees, discounts, premiums, and deferred fees	60,461		64,609
Loans originated or purchased per Consolidated Statements of Cash Flows:		$	136,896	$	146,094


Loan Class	2023(1)		2022		2021		2020		2019		Prior		Total
Live Check Loans	$	55,682	$	85,131	$	8,901	$	1,485	$	177	$	30	$	151,406
Premier Loans	6,592		56,213		23,131		5,470		1,546		465		93,417
Other Consumer Loans	143,138		366,281		100,086		18,780		6,126		2,147		636,558
Real Estate Loans	—		3,670		12,851		5,760		4,996		7,782		35,059
Sales Finance Contracts	24,760		73,894		31,677		15,826		2,890		428		149,475
Total	$	230,172	$	585,189	$	176,646	$	47,321	$	15,735	$	10,852	$	1,065,915


Loan Class	2022		2021		2020		2019		2018		Prior		Total
Live Check Loans	$	129,140	$	15,432	$	2,234	$	292	$	32	$	10	$	147,140
Premier Loans	68,166		29,236		7,155		2,101		528		82		107,268
Other Consumer Loans	482,667		136,511		24,941		8,134		2,333		526		655,112
Real Estate Loans	3,640		13,216		6,098		5,261		3,876		4,517		36,608
Sales Finance Contracts	85,001		37,060		19,145		3,817		585		68		145,676
Total	$	768,614	$	231,455	$	59,573	$	19,605	$	7,354	$	5,203	$	1,091,804


Loan Class	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due Loans

Live Check Loans	$	4,989	$	2,617	$	6,637	$	14,243
Premier Loans	1,506		1,042		2,171		4,719
Other Consumer Loans	17,176		9,641		22,299		49,116
Real Estate Loans	772		513		1,406		2,691
Sales Finance Contracts	2,727		1,570		3,540		7,837
Total	$	27,170	$	15,383	$	36,053	$	78,606


Loan Class	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due Loans

Live Check Loans	$	6,217	$	4,524	$	8,232	$	18,973
Premier Loans	2,164		1,302		2,416		5,882
Other Consumer Loans	24,681		14,373		26,818		65,872
Real Estate Loans	894		436		1,380		2,710
Sales Finance Contracts	4,257		2,066		3,315		9,638
Total	$	38,213	$	22,701	$	42,161	$	103,075

While aging analysis is the primary credit quality indicator, we also consider loans in non-accrual status, loan restructures where the borrower is experiencing financial difficulty, the ratio of bankrupt accounts to the total Gross Outstanding, and economic factors in evaluating whether any qualitative adjustments were necessary to the allowance for credit losses.


Payment Performance by Origination Year (in thousands)
	2023(1)		2022		2021		2020		2019		Prior		Total Gross Balance Balance
Live Check Loans:
Performing	$	55,239	$	77,392	$	8,196	$	1,407	$	167	$	26	$	142,427
Nonperforming	443		7,739		705		78		10		4		8,979
	$	55,682	$	85,131	$	8,901	$	1,485	$	177	$	30	$	151,406
Premier Loans:
Performing	$	6,587	$	54,210	$	22,043	$	5,205	$	1,472	$	436	$	89,953
Nonperforming	5		2,003		1,088		265		74		29		3,464
	$	6,592	$	56,213	$	23,131	$	5,470	$	1,546	$	465	$	93,417
Other Consumer Loans:
Performing	$	142,772	$	348,751	$	93,018	$	17,575	$	5,689	$	1,972	$	609,777
Nonperforming	366		17,530		7,068		1,205		437		175		26,781
	$	143,138	$	366,281	$	100,086	$	18,780	$	6,126	$	2,147	$	636,558
Real Estate Loans:
Performing	$	—	$	3,575	$	12,046	$	5,576	$	4,696	$	7,492	$	33,385
Nonperforming	—		95		805		184		300		290		1,674
	$	—	$	3,670	$	12,851	$	5,760	$	4,996	$	7,782	$	35,059
Sales Finance Contracts:
Performing	$	24,757	$	71,625	$	30,091	$	14,984	$	2,705	$	392	$	144,554
Nonperforming	3		2,269		1,586		842		185		36		4,921
	$	24,760	$	73,894	$	31,677	$	15,826	$	2,890	$	428	$	149,475

In March 2022 the Financial Accounting Standards Board ("FASB") issued an accounting update ("ASU No. 2022-02 ") eliminating the accounting for troubled debt restructurings (each, a "TDR") by creditors while enhancing the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The amendment also requires disclosure of gross credit losses by year of origination for finance receivables. The amendments in this update are effective for annual and interim periods beginning after December 15, 2022. The elimination of TDR guidance was adopted prospectively for loan modifications after adoption. Adoption did not have a material impact on the Company's consolidated financial statements.

Modifications that lower the principal balance experience a direct charge-off for the difference of the original and modified principal amount. The Company only lowers the principal balance due in the event of a court order. The information relating to modifications made to borrowers experiencing financial difficulty (dollars in 000's) for the period indicated are as follows:


	As of and for the three months ended March 31, 2023 (in 000's)

Loan Class	Interest Rate Reduction				Term Extension				Principal Forgiveness				Combination - Term Extension and Principal Forgiveness				Combination - Term Extension and Interest Rate Reduction
Live Check Loans	$	1,224	0.8	%	$	670	0.4	%	$	663	0.4	%	$	890	0.6	%	$	317	0.2	%
Premier Loans	319		0.3	%	578		0.6	%	227		0.2	%	493		0.5	%	393		0.4	%
Other Consumer Loans	3,807		0.6	%	3,620		0.6	%	2,770		0.4	%	7,948		1.2	%	4,791		0.8	%
Real Estate Loans	47		0.1	%	—		—	%	5		—	%	—		—	%	—		—	%
Sales Finance Contracts	177		0.1	%	174		0.1	%	503		0.3	%	1,833		1.2	%	125		0.1	%
Total	$	5,574	0.5	%	$	5,042	0.5	%	$	4,168	0.4	%	$	11,165	1.0	%	$	5,626	0.5	%


Loan Modification	Loan Class	Financial Effect
Principal Forgiveness	Live Check Loans	Reduced the gross balance of the loans $0.7 million
	Premier Loans	Reduced the gross balance of the loans $0.2 million
	Other Consumer Loans	Reduced the gross balance of the loans $2.8 million
	Real Estate Loans	No Financial Effect
	Sales Finance Contracts	Reduced the gross balance of the loans $0.5 million
Interest Rate Reduction	Live Check Loans	Reduced the weighted-weighted average contractual interest rate from 26.7% to 16.5%
	Premier Loans	Reduced the weighted-weighted average contractual interest rate from 20.2% to 15.1%
	Other Consumer Loans	Reduced the weighted-weighted average contractual interest rate from 29.2% to 19.3%
	Real Estate Loans	Reduced the weighted-weighted average contractual interest rate from 17.9% to 6.0%
	Sales Finance Contracts	Reduced the weighted-weighted average contractual interest rate from 21.9% to 15.6%
Term Extension	Live Check Loans	Added a weighted average 14 months to the term
	Premier Loans	Added a weighted average 27 months to the term
	Other Consumer Loans	Added a weighted average 16 months to the term
	Real Estate Loans	No Financial Effect
	Sales Finance Contracts	Added a weighted average 18 months to the term


	March 31, 2023

Loan Class	Interest Rate Reduction		Term Extension		Principal Forgiveness		Combination- Term Extension and Principal Forgiveness		Combination - Term Extension and Interest Rate Reduction

Live Check Loans	$	864	$	105	$	369	$	144	$	81
Premier Loans	85		45		76		189		67
Other Consumer Loans	1,583		665		927		1,603		708
Real Estate Loans	3		—		5		—		—
Sales Finance Contracts	81		22		120		245		17
Total	$	2,616	$	837	$	1,497	$	2,181	$	873

The aging for loans that were modified to borrowers experiencing financial difficulty in the past 12 months (in 000's):


	March 31, 2023

Loan Class	Current		30 - 89 Past Due		90+ Past Due		Total

Live Check Loans	$	4,171	$	887	$	1,617	$	6,674
Premier Loans	4,293		696		740		5,729
Other Consumer Loans	49,933		8,003		10,093		68,029
Real Estate Loans	127		10		152		290
Sales Finance Contracts	6,555		787		1,138		8,480
Total	$	65,079	$	10,382	$	13,741	$	89,202

The allowance for credit losses is based on Management's evaluation of the inherent risks and changes in the composition of the Company's loan portfolio. Management estimates and evaluates the allowance for credit losses utilizing an open pool loss rate method on collectively evaluated loans with similar risk characteristics in segments, whereby a historical loss rate is calculated and applied to the balance of loans outstanding in the portfolio at each reporting date. This historical loss rate then may be adjusted by macroeconomic forecast and other qualitative factors, as appropriate, to fully reflect the Company’s expected losses in its loan portfolio. The Company’s allowance for credit losses recorded in the balance sheet reflects Management’s best estimate of expected credit losses.

The Company calculates an expected credit loss by utilizing a snapshot of each specific loan segment at a point in history and tracing that segment’s performance until charge-offs were substantially exhausted for that particular segment. Charge-offs in subsequent period are aggregated to derive an unadjusted lifetime historical charge-off rate by segment. The receivables balance at the balance sheet date is reviewed and adjustments to the allowance for credit losses are made if Management determines the receivables balance warrants an adjustment. The Company performs a correlation analysis between macroeconomic factors and prior charge-offs for the following macroeconomic factors: Annual Unemployment Rates, Real Gross Domestic Product, Consumer Price Index (CPI), and US National Home Price Index (HPI). To evaluate the overall adequacy of the Company’s allowance for credit losses, Management considers the level of loan receivables, historical loss trends, loan delinquency trends, bankruptcy trends and overall economic conditions. Such allowance is, in the opinion of Management, adequate for expected losses in the current loan portfolio. As the estimates used in determining the loan loss reserve are influenced by outside factors, such as consumer payment patterns and general economic conditions, there is uncertainty inherent in these estimates. Actual results could vary based on future changes in significant assumptions.

Management disaggregates the Company’s loan portfolio by loan class when evaluating loan performance and estimating the allowance for credit losses. Although most loans are similar in nature, the Company concluded that based on variations in loss experience (severity and duration) driven by product type it is most relevant to segment the portfolio into classes by loan product consisting of five different classes: live check loans, premier loans, other consumer loans, real estate loans, and sales finance contracts.

The total classes are monitored for credit losses based on graded contractual delinquency and other economic conditions. The Company classifies delinquent accounts at the end of each month according to the Company’s graded delinquency rules which includes the number of installments past due at that time, based on the then-existing terms of the contract. Accounts are classified in delinquency categories of 30-59 days past due, 60-89 days past due, or 90 or more days past due based on the Company’s graded delinquency policy. When a loan meets the Company’s charge-off policy, the loan is charged off, unless Management directs that it be retained as an active loan. In making this charge-off evaluation, Management considers factors such as pending insurance, bankruptcy status and other indicators of collectability. The amount charged off is the unpaid balance less the unearned finance charges and the unearned insurance premiums, if applicable.

recognized to the extent there is a loan payment received or when the account qualifies for return to accrual status. Accounts qualify for return to accrual status when the graded delinquency on a precomputed loan is less than two payments and on when the interest paid-to-date on an interest-bearing loan is less than 60 days past due. There were no loans that met the non-accrual policy still accruing interest at March 31, 2023 or December 31, 2022.

Due to the composition of the loan portfolio, the Company determines and monitors the allowance for credit losses on a portfolio segment basis. As of March 31, 2023, a historical look back period of five quarters was utilized for live checks; six quarters for other consumer loans, premier loans, and sales finance contracts; and a look back period of five years was utilized for real estate loans. Expected look back periods are determined based on analyzing the history of each segment’s snapshot at a point in history and tracing performance until charge-offs are mostly exhausted. The Company addresses seasonality primarily through the use of an average in quarterly historical loss rates over a 4-quarter snapshot time span instead of using one specific snapshot quarter’s historical loss rates.

Determining a proper allowance for credit losses is a critical accounting estimate which involves Management’s judgment with respect to certain relevant factors, such as historical and expected loss trends, unemployment rates in various locales, delinquency levels, bankruptcy trends and overall general and industry specific economic conditions.

The Company considered factors such as rising energy, food and services prices and the potential market disruptions resulting from recent bank failures. The Company also considered the potential impact of an increased Federal Funds Rate. Despite increase to the Federal Funds Rate, the economy has been resilient with unemployment remaining historically low. 1st Franklin loans are contracted at a fixed rate; therefore, borrowers will not be directly affected by rising interest rates.

It is difficult to estimate how potential changes in any one economic factor might affect the overall allowance because a wide variety of factors and inputs are considered in the allowance estimate. Changes in the factors and inputs may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.

Management believes that the allowance for credit losses, as calculated in accordance with the Company’s current expected credit loss (“CECL”) methodology, is appropriate to cover expected credit losses on loans at March 31, 2023; however, because the allowance for credit losses is based on estimates, there can be no assurance that the ultimate charge-off amount will match such estimates. Management may determine it is appropriate to increase or decrease the allowance for expected credit losses in future periods, or actual losses in any period, either of which events could have a material impact on our results of operations in the future.


Loan Class	2023		2022		2021		2020		2019		Prior		Total
Live Check Loans	$	14	$	8,025	$	1,074	$	70	$	19	$	12	$	9,214
Premier Loans	—		1,066		799		153		61		15		2,094
Other Consumer Loans	4		11,281		6,041		856		307		173		18,662
Real Estate Loans	—		—		1		7		—		6		14
Sales Finance Contracts	—		1,012		754		518		89		21		2,394
Total	$	18	$	21,384	$	8,669	$	1,604	$	476	$	227	$	32,378


	Three Months Ended March 31, 2023
	Live Check Loans		Premier Loans		Other Consumer Loans		Real Estate Loans		Sales Finance Contracts		Total
Allowance for Credit Losses:
Balance as of 12/31/2022	$	14,896	$	6,108	$	46,412	$	143	$	7,651	$	75,210
Provision for Credit Losses	9,430		1,087		12,871		22		2,004		$	25,414
Charge-offs	(9,222)		(2,094)		(18,662)		(14)		(2,394)		$	(32,386)
Recoveries	1,231		309		4,195		2		507		$	6,244
Ending Balance 3/31/2023	$	16,335	$	5,410	$	44,816	$	153	$	7,768	$	74,482