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Note 2 - Allowance For Loan Losses

9 Months Ended

Sep. 30, 2014

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, Management classifies the account as being 60-89 days past due; when four or more installments are past due, Management classifies 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 60 days or more past due and still accruing interest at September 30, 2014 or December 31, 2013. The Company’s principal balances on non-accrual loans by loan class as of September 30, 2014 and December 31, 2013 are as follows:

Loan Class	September 30, 2014	December 31, 2013

Consumer Loans ............................................................	$ 24,800,568	$ 33,680,602
Real Estate Loans ..........................................................	977,380	969,149
Sales Finance Contracts ...............................................	788,448	816,196
Total ..........................................................................	$ 26,566,396	$ 35,465,947

An age analysis of principal balances on past due loans, segregated by loan class, as of September 30, 2014 and December 31, 2013 follows:

September 30, 2014	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans

Consumer Loans ...........	$ 14,379,252	$ 7,352,779	$ 15,305,181	$ 37,037,212
Real Estate Loans	416,853	184,809	659,533	1,261,195
Sales Finance Contracts	358,246	226,343	503,282	1,087,871
Total	$ 15,154,351	$ 7,763,931	$ 16,467,996	$ 39,386,278

December 31, 2013	30-59 Days Past Due	60-89 Days Past Due	90 Days or More Past Due	Total Past Due Loans

Consumer Loans ...........	$ 11,939,226	$ 6,542,571	$ 13,438,184	$ 31,919,981
Real Estate Loans..........	299,094	173,842	547,012	1,019,948
Sales Finance Contracts	391,658	203,821	448,991	1,044,470
Total	$ 12,629,978	$ 6,920,234	$ 14,434,187	$ 33,984,399

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, 2014 and December 31, 2013 was 2.89% and 2.54%, respectively.

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

September 30, 2014	Principal Balance	% Portfolio	9 Months Net Charge Offs	% Net Charge Offs

Consumer Loans ...........	$ 436,692,703	91.0%	$ 18,714,148	97.2
Real Estate Loans..........	19,855,487	4.1	23,283	.1
Sales Finance Contracts.	23,298,783	4.9	516,718	2.7
Total	$ 479,846,973	100.0%	$ 19,254,149	100.0%

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)	(.1)
Sales Finance Contracts.	21,871,014	4.8	297,299	1.9
Total	$ 450,534,459	100.0%	$ 16,692,721	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% of the Company’s loan portfolio at September 30, 2014 and 2013. 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, 2014	Sept. 30, 2013	Sept. 30, 2014	Sept. 30, 2013
Allowance for Credit Losses:
Beginning Balance	$ 25,876,800	$ 22,810,085	$ 24,680,789	$ 22,010,085
Provision for Loan Losses	9,184,293	7,268,188	22,250,160	18,492,721
Charge-offs	(9,542,987)	(8,403,389)	(26,286,287)	(23,596,878)
Recoveries	2,158,694	2,135,201	7,032,138	6,904,157
Ending Balance	$ 27,676,800	$ 23,810,085	$ 27,676,800	$ 23,810,085

Ending balance; collectively evaluated for impairment	$ 27,676,800	$ 23,810,085	$ 27,676,800	$ 23,810,085

	Three Months Ended		Nine Months Ended
	Sept. 30, 2014	Sept. 30, 2013	Sept. 30, 2014	Sept. 30, 2013
Finance receivables:
Ending balance	$479,846,973	$450,534,459	$479,846,973	$450,534,459
Ending balance; collectively evaluated for impairment	$479,846,973	$450,534,459	$479,846,973	$450,534,459

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, 2014.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment

Consumer Loans ...............	1,008	$ 3,238,641	$ 3,046,786
Real Estate Loans..............	8	87,548	80,548
Sales Finance Contracts.....	48	125,818	119,834
Total ..............................	1,064	$ 3,452,007	$ 3,247,168

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 nine months ended September 30, 2014.

	Number Of Loans	Pre-Modification Recorded Investment	Post-Modification Recorded Investment

Consumer Loans ...............	2,659	$ 8,455,145	$ 7,826,633
Real Estate Loans..............	44	382,487	375,431
Sales Finance Contracts.....	120	299,921	285,205
Total ..............................	2,823	$ 9,137,553	$ 8,487,269

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

TDRs that occurred during the previous twelve months and subsequently defaulted during the three months ended September 30, 2014 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment

Consumer Loans ...............	204	$ 370,132
Real Estate Loans..............	2	3,768
Sales Finance Contracts.....	13	16,822
Total ..............................	219	$ 390,722

TDRs that occurred during the twelve months ended September 30, 2013 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 previous twelve months and subsequently defaulted during the nine months ended September 30, 2014 are listed below.

	Number Of Loans	Pre-Modification Recorded Investment

Consumer Loans ...............	512	$ 930,070
Real Estate Loans..............	3	7,294
Sales Finance Contracts.....	23	26,475
Total ..............................	538	$ 963,839

TDRs that occurred during the twelve months ended September 30, 2013 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

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.