Note 2 - Allowance For Loan Losses

9 Months Ended

Sep. 30, 2013

Notes

Note 2 - Allowance For Loan Losses

Note 2 – Allowance for Loan Losses

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

Management does not disaggregate the Company’s loan portfolio by loan class when evaluating loan performance.  The total portfolio is evaluated for credit losses based on contractual delinquency and other economic conditions. The Company classifies delinquent accounts at the end of each month according to the number of installments past due at that time, based on the then-existing terms of the contract.  Accounts are classified in delinquency categories based on the number of days past due.  When three installments are past due, 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 addition, no installment is counted as being past due if at least 80% of the contractual payment has been paid. In connection with any bankruptcy court-initiated repayment plan and as allowed by state regulatory authorities, the Company effectively resets the delinquency rating of each account to coincide with the court initiated repayment plan. The amount charged off is the unpaid balance less the unearned finance charges and the unearned insurance premiums, if applicable.

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

  There were no loans past due 60 days or more and still accruing interest at September 30, 2013 or December 31, 2012.  The Company’s principal balances on non-accrual loans by loan class as of September 30, 2013 and December 31, 2012 are as follows:

Loan Class	September 30,  2013	December 31, 2012
Consumer Loans	$ 34,529,283	$ 31,936,076
Real Estate Loans	1,058,720	1,113,624
Sales Finance Contracts	820,835	862,952
Total	$ 36,408,838	$ 33,912,652

An age analysis of principal balances on past due loans, segregated by loan class, as of September 30, 2013 and December 31, 2012 follows:

September 30, 2013	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans	$ 13,367,348	$ 6,712,650	$ 13,573,035	$ 33,653,033
Real Estate Loans	697,952	218,267	605,369	1,521,588
Sales Finance Contracts	412,382	187,810	384,612	984,804
Total	$ 14,477,682	$ 7,118,727	$ 14,563,016	$ 36,159,425

December 31, 2012	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans
Consumer Loans	$ 11,265,415	$ 5,928,748	$ 12,984,546	$ 30,178,709
Real Estate Loans	479,103	201,442	603,585	1,284,130
Sales Finance Contracts	455,619	208,323	389,533	1,053,475
Total	$ 12,200,137	$ 6,338,513	$ 13,977,664	$ 32,516,314

In addition to the delinquency rating analysis, the ratio of bankrupt accounts to the total loan portfolio is also used as a credit quality indicator.  The ratio of bankrupt accounts outstanding to total principal loan balances outstanding at September 30, 2013 and December 31, 2012 was 2.90% and 2.64%, respectively.

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

September 30, 2013	Principal Balance	% Portfolio	9 Months Net Charge Offs	% Net Charge Offs
Consumer Loans	$ 408,511,052	90.7%	$ 16,399,446	98.2
Real Estate Loans	20,152,393	4.5	(4,024)	-
Sales Finance Contracts	21,871,014	4.8	297,299	1.8
Total	$ 450,534,459	100.0%	$ 16,692,721	100.0%

September 30, 2012	Principal Balance	% Portfolio	9 Months Net Charge Offs	% Net Charge Offs
Consumer Loans	$ 386,296,369	90.2%	$ 13,758,862	97.4%
Real Estate Loans	21,171,696	4.9	46,543	.3
Sales Finance Contracts	20,943,072	4.9	325,483	2.3
Total	$ 428,411,137	100.0%	$ 14,130,888	100.0%

Sales finance contracts are similar to consumer loans in nature of loan product, terms, customer base to whom these products are marketed, factors contributing to risk of loss and historical payment performance, and together with consumer loans, represented approximately 96% and 95% of the Company’s loan portfolio at September 30, 2013 and 2012, respectively.  As a result of these similarities, which have resulted in similar historical performance, consumer loans and sales finance contracts represent substantially all loan losses.  Real estate loans and related losses have historically been insignificant, and, as a result, we do not stratify the loan portfolio for purposes of determining and evaluating our loan loss allowance.  Due to the composition of the loan portfolio, the Company determines and monitors the allowance for loan losses on a collectively evaluated, single portfolio segment basis.  Therefore, a roll forward of the allowance for loan loss activity at the portfolio segment level is the same as at the total portfolio level.  We have not acquired any impaired loans with deteriorating quality during any period reported.  The following table provides additional information on our allowance for loan losses based on a collective evaluation:

	Three Months Ended		Nine Months Ended
	Sept. 30, 2013	Sept. 30, 2012	Sept. 30, 2013	Sept. 30, 2012
Allowance for Credit Losses:
Beginning Balance	$ 22,810,085	$ 21,360,085	$ 22,010,085	$ 21,360,085
Provision for Loan Losses	7,268,188	5,966,552	18,492,721	14,130,888
Charge-offs	(8,403,389)	(8,023,572)	(23,596,878)	(20,943,198)
Recoveries	2,135,201	2,057,020	6,904,157	6,812,310
Ending Balance	$ 23,810,085	$ 21,360,085	$ 23,810,085	$ 21,360,085
Ending balance; collectively evaluated for impairment	$ 23,810,085	$ 21,360,085	$ 23,810,085	$ 21,360,085

	Three Months Ended		Nine Months Ended
	Sept. 30, 2013	Sept. 30, 2012	Sept. 30, 2013	Sept. 30, 2012
Finance receivables:
Ending balance	$ 450,534,459	$ 428,411,137	$ 450,534,459	$ 428,411,137
Ending balance; collectively evaluated for impairment	$ 450,534,459	$ 428,411,137	$ 450,534,459	$ 428,411,137

Troubled Debt Restructings ("TDR's") represent loans on which the original terms of the loans have been modified as a result of the following conditions: (i) the restructuring constitutes a concession and (ii) the borrower is experiencing financial difficulties. Loan modifications by the Company involve payment alterations, interest rate concessions and/ or reductions in the amount owed by the borrower.  The following table presents a summary of loans that were restructured during the three months ended September 30, 2013.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	1,090	$ 3,319,113	$ 3,077,259
Real Estate Loans	13	98,077	98,077
Sales Finance Contracts	45	90,740	86,593
Total	1,148	$ 3,507,930	$ 3,261,929

The following table presents a summary of loans that were restructured during the three months ended September 30, 2012.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	1,009	$ 3,119,185	$ 2,855,504
Real Estate Loans	13	70,857	64,608
Sales Finance Contracts	44	130,325	116,979
Total	1,066	$ 3,320,367	$ 3,037,091

The following table presents a summary of loans that were restructured during the nine months ended September 30, 2013.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	2,682	$ 8,258,864	$ 7,598,031
Real Estate Loans	44	329,983	325,681
Sales Finance Contracts	125	242,193	226,547
Total	2,851	$ 8,831,040	$ 8,150,259

The following table presents a summary of loans that were restructured during the nine months ended September 30, 2012.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Consumer Loans	2,861	$ 8,816,999	$ 8,095,855
Real Estate Loans	51	374,756	335,217
Sales Finance Contracts	165	404,465	370,761
Total	3,077	$ 9,596,220	$ 8,801,833

TDRs that occurred during the previous twelve months and subsequently defaulted during the three months ended September 30, 2013 are listed below. 

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	181	$ 347,757
Real Estate Loans	-	-
Sales Finance Contracts	11	11,091
Total	192	$ 358,848

TDRs that occurred during the twelve months ended September 30, 2012 and subsequently defaulted during the three months ended September 30, 2012 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	207	$ 422,352
Real Estate Loans	-	-
Sales Finance Contracts	12	8,965
Total	219	$ 431,317

TDRs that occurred during the previous twelve months and subsequently defaulted during the nine months ended September 30, 2013 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	443	$ 813,951
Real Estate Loans	2	6,464
Sales Finance Contracts	19	16,773
Total	464	$ 837,188

TDRs that occurred during the twelve months ended September 30, 2012 and subsequently defaulted during the nine months ended September 30, 2012 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment
Consumer Loans	469	$ 896,124
Real Estate Loans	1	5,351
Sales Finance Contracts	29	34,767
Total	499	$ 936,242

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