Allowance for Loan Losses

3 Months Ended

Jun. 30, 2011

Allowance for Loan Losses {1}

Allowance for Loan Losses

Note 2 – Allowance for Loan Losses

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

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

When a loan becomes 60 days or more past due based on its original terms, it is placed in nonaccrual status.  At such time, the accrual of any additional finance charges is discontinued.  Finance charges are then only recognized to the extent there is a loan payment received or when the account qualifies for return to accrual status.  Nonaccrual loans return to accrual status when the loan becomes less than 60 days past due.  There were no loans past due 60 days or more and still accruing interest at June 30, 2011 or December 31, 2010.  The Company’s principal balances on non-accrual loans by loan category at June 30, 2011 and December 31, 2010 are as follows:

Loan Category	June 30,  2011	December 31, 2010
Consumer Loans	$ 26,602,745	$ 27,643,405
Real Estate Loans	1,012,670	1,274,025
Sales Finance Contracts	1,022,984	1,331,137
Total	$ 28,638,399	$ 30,248,567

An age analysis of principal balances on past due loans, segregated by loan category, as of June 30, 2011 and December 31, 2010 follows:

June 30, 2011	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans	$ 10,842,554	$ 5,902,025	$ 10,537,402	$ 27,281,981
Real Estate Loans	463,026	332,199	366,727	1,161,952
Sales Finance Contracts	370,103	248,487	431,492	1,050,082
Total	$ 11,675,683	$ 6,482,711	$ 11,335,621	$ 29,494,015

December 31, 2010	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans	$ 10,507,984	$ 5,765,462	$ 12,596,092	$ 28,869,538
Real Estate Loans	563,681	267,090	561,326	1,392,097
Sales Finance Contracts	507,723	265,857	644,219	1,417,799
Total	$ 11,579,388	$ 6,298,409	$ 13,801,637	$ 31,679,434

In addition to the delinquency rating analysis, the ratio of bankrupt accounts to the total portfolio is also used as a credit quality indicator.  The ratio of bankrupt accounts to total principal loan balances outstanding at June 30, 2011 and December 31, 2010 was 2.97% and 3.05%, respectively.

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

			6 Months
June 30, 2011	Principal Balance	% Portfolio	Y-T-D Net Charge Offs	% Net Charge Offs
Consumer Loans	$ 341,492,830	88.8%	$ 8,509,340	96.1%
Real Estate Loans	21,991,289	5.7	37,142	.4
Sales Finance Contracts	21,102,218	5.5	307,506	3.5
Total	$ 384,586,337	100.0%	$ 8,853,988	100.0%

			6 Months
June 30, 2010	Principal Balance	% Portfolio	Y-T-D Net Charge Offs	% Net Charge Offs
Consumer Loans	$ 314,252,202	87.4%	$ 9,837,691	95.8%
Real Estate Loans	22,830,148	6.3	81,581	.8
Sales Finance Contracts	22,595,569	6.3	350,561	3.4
Total	$ 359,677,919	100.0%	$ 10,269,833	100.0%

Sales finance contracts are similar to consumer loans in nature of loan product, terms, customer base to whom these products are marketed, factors contributing to risk of loss and historical payment performance, and together represented 94% of the Company’s loan portfolio.  As a result of these similarities, which have resulted in similar historical performance, consumer loans and sales finance contracts represent substantially all loan losses.  Real estate loans and related losses have historically been insignificant, and, as a result, we do not stratify the loan portfolio for purposes of determining and evaluating our loan loss allowance.  As a result, the Company determines and monitors the allowance for loan losses on a collectively evaluated, single portfolio segment basis due to the composition of the loan portfolio.  Therefore, a roll forward of the allowance for loan loss activity at the portfolio segment level is the same as at the total portfolio level.  We have not acquired any impaired loans with deteriorating quality during any period reported.  The following table provides additional information on our allowance for loan losses based on a collective evaluation:  

	Three Months Ended		Six Months Ended
	June 30, 2011	June 30, 2010	June 30, 2011	June 30, 2010
Allowance for Credit Losses:
Beginning Balance	$ 24,110,085	$ 26,610,085	$ 24,110,085	$ 26,610,085
Provision for Loan Losses	3,546,018	4,666,450	8,103,988	10,269,834
Charge-offs	(6,230,054)	(6,318,351)	(12,973,297)	(14,021,302)
Recoveries	1,934,036	1,651,901	4,119,309	3,751,468
Ending Balance	$ 23,360,085	$ 26,610,085	$ 23,360,085	$ 26,610,085
Ending balance; collectively evaluated for impairment	$ 23,360,085	$ 26,610,085	$ 23,360,085	$ 26,610,085
Finance receivables:
Ending balance	$ 384,586,337	$ 359,677,919	$ 384,586,337	$ 359,677,919
Ending balance; collectively evaluated for impairment	$ 384,586,337	$ 359,677,919	$ 384,586,337	$ 359,677,919