Company Quick10K Filing
Quick10K
Nicholas Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$8.92 13 $112
10-Q 2019-06-30 Quarter: 2019-06-30
10-K 2019-03-31 Annual: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-K 2018-03-31 Annual: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-K 2017-03-31 Annual: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-K 2016-03-31 Annual: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-K 2015-03-31 Annual: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-K 2014-03-31 Annual: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-08-28 Officers, Shareholder Vote, Regulation FD, Exhibits
8-K 2019-08-16 Enter Agreement, Exhibits
8-K 2019-08-09 Earnings, Exhibits
8-K 2019-06-28 Exhibits
8-K 2019-05-29 Earnings, Other Events, Exhibits
8-K 2019-04-30 Regulation FD, Exhibits
8-K 2019-03-29 Enter Agreement, Other Events, Exhibits
8-K 2019-02-01 Earnings, Exhibits
8-K 2018-12-05 Officers, Exhibits
8-K 2018-11-02 Enter Agreement, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-08-23 Shareholder Vote
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-07-02 Accountant, Exhibits
8-K 2018-06-06 Earnings, Exhibits
8-K 2018-05-26 Officers, Regulation FD, Exhibits
8-K 2018-04-19 Officers
8-K 2018-03-30 Enter Agreement, Regulation FD, Exhibits
8-K 2018-02-20 Officers, Regulation FD, Exhibits
8-K 2018-02-05 Officers
8-K 2018-01-05 Officers
VLY Valley National Bancorp 3,470
EHTH Ehealth 2,206
ECPG Encore Capital Group 1,146
AGM Federal Agricultural Mortgage 875
FNHC Fednat Holding 178
PLBC Plumas Bancorp 142
OVLY Oak Valley Bancorp 141
STND Standard Avb Financial 131
ASFI Asta Funding 49
PMTS CPI Card Group 31
NICK 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Note 7. Stock Repurchase Program
Note 8. Income Taxes
Note 9. Leases
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 5. Other Information
Item 6. Exhibits
EX-31.1 nick-ex311_9.htm
EX-31.2 nick-ex312_8.htm
EX-32.1 nick-ex321_7.htm
EX-32.2 nick-ex322_6.htm

Nicholas Financial Earnings 2019-06-30

NICK 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 nick-10q_20190630.htm 10-Q nick-10q_20190630.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2019

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                      .

Commission file number: 0-26680

 

NICHOLAS FINANCIAL, INC.

(Exact Name of Registrant as Specified in its Charter) 

 

 

British Columbia, Canada

 

59-2506879

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

2454 McMullen Booth Road, Building C

 

 

Clearwater, Florida

 

33759

(Address of Principal Executive Offices)

 

(Zip Code)

 

(727) 726-0763

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

NICK

 

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).     Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes       No   

As of August 9, 2019, approximately 12.6 million shares, no par value, of the Registrant were outstanding (of which 4.7 million shares were held by the Registrant’s principal operating subsidiary and pursuant to applicable law, not entitled to vote and 7.9 million shares were entitled to vote).

 

 

 

 


Table of Contents

 

NICHOLAS FINANCIAL, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

Part I .

 

Financial Information

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

Consolidated Balance Sheets as of June 30, 2019 and March 31, 2019

 

1

 

 

Consolidated Statements of Income for the three-months ended June 30, 2019 and 2018

 

2

 

 

Consolidated Statements of Cash Flows for the three-months ended June 30, 2019 and 2018

 

3

 

 

Notes to the Consolidated Financial Statements

 

4

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

22

Item 4.

 

Controls and Procedures

 

22

 

 

 

 

 

Part II .

 

Other Information

 

 

Item 1.

 

Legal Proceedings

 

24

Item 1A.

 

Risk Factors

 

24

Item 5.

 

Other Information

 

24

Item 6.

 

Exhibits

 

25

 

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Nicholas Financial, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

 

 

 

June 30, 2019

(Unaudited)

 

 

March 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

7,539

 

 

$

35,595

 

Restricted cash

 

 

26,978

 

 

 

2,047

 

Finance receivables, net

 

 

209,426

 

 

 

202,042

 

Repossessed assets

 

 

2,025

 

 

 

1,924

 

Income taxes receivable

 

 

1,669

 

 

 

1,654

 

Prepaid expenses and other assets

 

 

3,831

 

 

 

1,378

 

Property and equipment, net

 

 

616

 

 

 

656

 

Intangibles

 

 

93

 

 

 

 

Goodwill

 

 

328

 

 

 

 

Deferred income taxes

 

 

6,918

 

 

 

7,124

 

Total assets

 

$

259,423

 

 

$

252,420

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Credit facility

 

$

149,000

 

 

$

145,000

 

Unamortized debt issuance costs

 

 

(2,897

)

 

 

(2,381

)

   Net long-term debt

 

 

146,103

 

 

 

142,619

 

Drafts payable

 

 

1,475

 

 

 

1,312

 

Accounts payable and accrued expenses

 

 

6,335

 

 

 

3,604

 

Total liabilities

 

 

153,913

 

 

 

147,535

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, no par: 5,000 shares authorized; none issued

 

 

 

 

 

 

Common stock, no par: 50,000 shares authorized; 12,642 and 12,624 shares issued,

   respectively; and 7,928 and 7,910 shares outstanding, respectively

 

 

34,694

 

 

 

34,660

 

Treasury stock: 4,714 common shares, at cost

 

 

(70,459

)

 

 

(70,459

)

Retained earnings

 

 

141,275

 

 

 

140,684

 

Total shareholders’ equity

 

 

105,510

 

 

 

104,885

 

Total liabilities and shareholders’ equity

 

$

259,423

 

 

$

252,420

 

 

 

 

 

 

 

 

 

 

The following table represents the assets and liabilities of our consolidated variable interest entity as of June:

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

(Unaudited)

 

 

March 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Restricted cash

 

$

26,978

 

 

$

2,047

 

Finance receivables, net

 

 

164,162

 

 

 

187,584

 

Repossessed assets

 

 

1,407

 

 

 

 

Total assets

 

$

192,547

 

 

$

189,631

 

Liabilities

 

 

 

 

 

 

 

 

Credit facility

 

$

146,103

 

 

$

142,619

 

Accounts payable and accrued expenses

 

 

779

 

 

 

 

Total liabilities

 

$

146,882

 

 

$

142,619

 

 

See Notes to the Consolidated Financial Statements.

1


Table of Contents

 

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three months ended June 30,

 

 

 

2019

 

 

2018

 

Interest and fee income on finance receivables

 

$

16,641

 

 

$

18,759

 

Expenses:

 

 

 

 

 

 

 

 

Marketing

 

 

411

 

 

 

367

 

Salaries and employee benefits

 

 

4,821

 

 

 

5,266

 

Administrative

 

 

3,638

 

 

 

3,065

 

Provision for credit losses

 

 

4,385

 

 

 

5,426

 

Amortization of intangibles

 

 

14

 

 

 

 

Depreciation

 

 

87

 

 

 

103

 

Interest expense

 

 

2,488

 

 

 

2,540

 

 

 

 

15,844

 

 

 

16,767

 

Operating income before income taxes

 

 

797

 

 

 

1,992

 

Income tax expense

 

 

206

 

 

 

572

 

Net income

 

$

591

 

 

$

1,420

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.07

 

 

$

0.18

 

Diluted

 

$

0.07

 

 

$

0.18

 

 

See Notes to the Consolidated Financial Statements.

2


Table of Contents

 

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three months ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

591

 

 

$

1,420

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

87

 

 

 

103

 

Amortization of intangibles

 

 

14

 

 

 

 

Gain on sale of property and equipment

 

 

(7

)

 

 

 

Provision for credit losses

 

 

4,385

 

 

 

5,426

 

Amortization of dealer discounts

 

 

(2,063

)

 

 

(2,247

)

Amortization of insurance and fee commissions

 

 

(1,047

)

 

 

(538

)

Accretion of purchase price discount

 

 

(404

)

 

 

 

Deferred income taxes

 

 

206

 

 

 

323

 

Share-based compensation

 

 

34

 

 

 

60

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(269

)

 

 

33

 

   Increase in repossessed assets

 

 

(8

)

 

 

(70

)

Prepaid expenses and other assets

 

 

283

 

 

 

(69

)

Accounts payable and accrued expenses

 

 

(535

)

 

 

505

 

Income taxes receivable

 

 

(15

)

 

 

249

 

Unearned insurance and fee commissions

 

 

111

 

 

 

(50

)

Net cash provided by operating activities

 

 

1,363

 

 

 

5,145

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase and origination of finance receivables

 

 

(21,110

)

 

 

(22,173

)

Principal payments received

 

 

33,110

 

 

 

32,785

 

Net assets acquired from branch acquisitions, primarily loans

 

 

(20,501

)

 

 

 

Purchase of property and equipment

 

 

(14

)

 

 

(15

)

Proceeds from sale of property and equipment

 

 

7

 

 

 

 

Net cash (used in) provided by investing activities

 

 

(8,508

)

 

 

10,597

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repayments on credit facility

 

 

(8,000

)

 

 

(14,750

)

Proceeds from the credit facility

 

 

12,000

 

 

 

 

Change in drafts payable

 

 

163

 

 

 

1,492

 

Payment of loan origination fees

 

 

(143

)

 

 

(200

)

Proceeds from exercise of stock options

 

 

 

 

 

71

 

Net cash provided by (used in) financing activities

 

 

4,020

 

 

 

(13,387

)

Net (decrease) increase in cash

 

 

(3,125

)

 

 

2,355

 

Cash, beginning of period

 

 

37,642

 

 

 

2,626

 

Cash, end of period

 

$

34,517

 

 

$

4,981

 

 

See Notes to the Consolidated Financial Statements.

3


Table of Contents

 

Notes to the Consolidated Financial Statements

1. Basis of Presentation

Nicholas Financial, Inc. (“Nicholas Financial – Canada”) is a Canadian holding company incorporated under the laws of British Columbia with several wholly-owned United States subsidiaries, including Nicholas Financial, Inc., a Florida corporation (“NFI”). The accompanying consolidated balance sheet as of March 31, 2019, which has been derived from audited financial statements, and the accompanying unaudited interim consolidated financial statements of Nicholas Financial – Canada, and its wholly-owned subsidiaries, (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information, with the instructions to Form 10-Q pursuant to the Securities and Exchange Act of 1934, as amended, and with Article 8 of Regulation S-X thereunder. Accordingly, they do not include all of the information and notes to the consolidated financial statements required by U.S. GAAP for complete consolidated financial statements, although the Company believes that the disclosures made are adequate to ensure the information is not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year ending March 31, 2020. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019 as filed with the Securities and Exchange Commission on June 28, 2019. The March 31, 2019 consolidated balance sheet included herein has been derived from the March 31, 2019 audited consolidated balance sheet included in the aforementioned Form 10-K.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses on finance receivables and fair value of the assets and liabilities for business combination.

2. Revenue Recognition

Finance receivables consist of automobile finance installment contracts (“Contracts”) and direct consumer loans (“Direct Loans”). Interest income on finance receivables is recognized using the interest method. Accrual of interest income on finance receivables is suspended when a loan is contractually delinquent for 61 days or more, or the collateral is repossessed, whichever is earlier. The Company reverses the accrual of interest income when the loan is contractually delinquent 61 days or more.

As of February  2019, Chapter 13 bankruptcy accounts are charged-off at the time the bankruptcy status is confirmed on the account.   Chapter 13 bankruptcy accounts, for which the corresponding bankruptcy plan has not been confirmed by the relevant court as of June 30, 2019 are accounted for under the cost-recovery method. Interest income on Chapter 13 bankruptcy accounts does not resume until all principal amounts are recovered (see Note 4).

A dealer discount represents the difference between the finance receivable of a Contract, and the amount of money the Company actually pays for the Contract. The discount negotiated by the Company is a function of the lender, the wholesale value of the vehicle and competition in any given market. In making decisions regarding the purchase of a particular Contract the Company considers the following factors related to the borrower: place and length of residence; current and prior job status; history in making installment payments for automobiles; current income; and credit history. In addition, the Company examines its prior experience with Contracts purchased from the dealer, and the value of the automobile in relation to the purchase price and the term of the Contract. The entire amount of discount is amortized as an adjustment to yield using the interest method over the life of the loan. The average dealer discount associated with new volume for the three-months ended June 30, 2019 and 2018 was 8.28% and 8.32%, respectively, in relation to the total amount financed.

Unearned insurance and fee commissions consist primarily of commissions received from the sale of ancillary products. These products include automobile warranties, roadside assistance programs, accident and health insurance, credit life insurance, involuntary unemployment insurance coverage, and forced placed automobile insurance. These commissions are amortized over the life of the contract using the interest method.

 

 

4


Table of Contents

 

3. Earnings Per Share

The Company has granted stock compensation awards with nonforfeitable dividend rights which are considered participating securities. Earnings per share is calculated using the two-class method, as such awards are more dilutive under this method than the treasury stock method. Basic earnings per share is calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities. Diluted earnings per share includes the dilutive effect of additional potential common shares from stock compensation awards. Earnings per share have been computed based on the following weighted average number of common shares outstanding:

 

 

 

Three months ended

June 30,

(In thousands, except

per share amounts)

 

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

Net income

 

$

591

 

 

$

1,420

 

Less: Allocation of earnings to participating securities

 

 

(4

)

 

 

(11

)

Net income allocated to common stock

 

$

587

 

 

$

1,409

 

Basic earnings per share computation:

 

 

 

 

 

 

 

 

Net income allocated to common stock

 

$

587

 

 

$

1,409

 

Weighted average common shares outstanding, including

   shares considered participating securities

 

 

7,973

 

 

 

7,890

 

Less: Weighted average participating securities outstanding

 

 

(52

)

 

 

(71

)

Weighted average shares of common stock

 

 

7,921

 

 

 

7,819

 

Basic earnings per share

 

$

0.07

 

 

$

0.18

 

Diluted earnings per share computation:

 

 

 

 

 

 

 

 

Net income allocated to common stock

 

$

587

 

 

$

1,409

 

Undistributed earnings re-allocated to participating securities

 

 

 

 

 

 

Numerator for diluted earnings per share

 

$

587

 

 

$

1,409

 

Weighted average common shares outstanding for basic

   earnings per share

 

 

7,921

 

 

 

7,819

 

Incremental shares from stock options

 

 

1

 

 

 

11

 

Weighted average shares and dilutive potential common shares

 

 

7,922

 

 

 

7,830

 

Diluted earnings per share

 

$

0.07

 

 

$

0.18

 

 

Diluted earnings per share do not include the effect of certain stock options as their impact would be anti-dilutive. For the three-months ended June 30, 2019 and 2018, potential shares of common stock from stock options totaling 60,600 and 116,100, respectively, were not included in the diluted earnings per share calculation because their effect is anti-dilutive.

4. Finance Receivables

Finance Receivables Portfolio

Finance receivables consist of Contracts and Direct Loans and are detailed as follows:

 

 

 

(In thousands)

 

 

 

June 30,

2019

 

 

March 31,

2019

 

 

June 30,

2018

 

Finance receivables

 

$

235,931

 

 

$

228,994

 

 

$

286,391

 

Accrued interest receivable

 

 

3,158

 

 

 

2,889

 

 

 

2,609

 

Unearned dealer discounts

 

 

(9,533

)

 

 

(10,083

)

 

 

(13,345

)

Unearned insurance and fee commissions

 

 

(2,715

)

 

 

(2,826

)

 

 

(3,253

)

Finance receivables, net of unearned

 

 

226,841

 

 

 

218,974

 

 

 

272,402

 

Purchase price discount

 

 

(1,303

)

 

 

 

 

 

 

Allowance for credit losses

 

 

(16,112

)

 

 

(16,932

)

 

 

(19,065

)

Finance receivables, net

 

$

209,426

 

 

$

202,042

 

 

$

253,337

 

 

5


Table of Contents

 

Contracts and Direct Loans each comprise a portfolio segment. The following tables present selected information on the entire portfolio of the Company:

 

 

 

As of June 30,

 

Contract Portfolio

 

2019

 

 

2018

 

Average APR

 

 

22.63

%

 

 

22.38

%

Average discount

 

 

7.65

%

 

 

7.44

%

Average term (months)

 

 

52

 

 

 

54

 

Number of active contracts

 

 

28,631

 

 

 

32,069

 

 

 

 

As of June 30,

 

Direct Loan Portfolio

 

2019

 

 

2018

 

Average APR

 

 

26.24

%

 

 

25.16

%

Average term (months)

 

 

27

 

 

 

28

 

Number of active contracts

 

 

2,763

 

 

 

2,498

 

 

The Company purchases Contracts from automobile dealers at a negotiated price that is less than the original principal amount being financed by the purchaser of the automobile. The Contracts are predominantly for used vehicles. As of June 30, 2019, the average model year of vehicles collateralizing the portfolio was a 2010 vehicle.

Direct Loans are typically for amounts ranging from $500 to $11,000 and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal property. The majority of Direct Loans are originated with current or former customers under the Company’s automobile financing program. The typical Direct Loan represents a better credit risk than the typical Contract due to the customer’s prior payment history with the Company; however, the underlying collateral is less valuable. In deciding whether to make a loan, the Company considers the individual’s credit history, job stability, income, and impressions created during a personal interview with a Company loan officer. Additionally, because most of the Direct Loans made by the Company to date have been made to current or former customers, the payment history of the borrower is a significant factor in making the loan decision. As of June 30, 2019, loans made by the Company pursuant to its Direct Loan program constituted approximately 3.7% of the aggregate principal amount of the Company’s loan portfolio. Changes in the allowance for credit losses for both Contracts and Direct Loans were driven primarily by current economic conditions and credit loss trends over several reporting periods which are utilized in estimating future losses and overall portfolio performance.

Each portfolio segment consists of smaller balance homogeneous loans which are collectively evaluated for impairment.

Allowance for Credit Losses

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts and Direct Loans for the three-months ended June 30, 2019 and 2018:

 

 

 

Three months ended June 30, 2019

 

 

 

Contracts

 

 

Direct Loans

 

 

Consolidated

 

Balance at beginning of period

 

$

16,575

 

 

$

357

 

 

$

16,932

 

Provision for credit losses

 

 

3,980

 

 

 

405

 

 

 

4,385

 

Charge-offs

 

 

(6,811

)

 

 

(157

)

 

 

(6,968

)

Recoveries

 

 

1,750

 

 

 

13

 

 

 

1,763

 

Balance at June 30, 2019

 

$

15,494

 

 

$

618

 

 

$

16,112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2018

 

 

 

Contracts

 

 

Direct Loans

 

 

Consolidated

 

Balance at beginning of period

 

$

19,433

 

 

$

833

 

 

$

20,266

 

Provision for credit losses

 

 

5,227

 

 

 

199

 

 

 

5,426

 

Charge-offs

 

 

(7,049

)

 

 

(90

)

 

 

(7,139

)

Recoveries

 

 

505

 

 

 

7

 

 

 

512

 

Balance at June 30, 2018

 

$

18,116

 

 

$

949

 

 

$

19,065

 

 

During the first quarter of the fiscal year ending March 31, 2019, the Company began using the trailing six-month charge-offs, annualized, to calculate the allowance for credit losses.

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In addition, the Company takes into consideration the composition of the portfolio, current economic conditions, the estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts when determining management’s estimate of probable credit losses and adequacy of the allowance for credit losses. If the allowance for credit losses is determined to be inadequate, then an additional charge to the provision would be recorded to maintain adequate reserves based on management’s evaluation of the risk inherent in the loan portfolio.

The following table is an assessment of the credit quality by creditworthiness:

 

 

 

(In thousands)

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

 

Contracts

 

 

Direct Loans

 

 

Total

 

 

Contracts

 

 

Direct Loans

 

 

Total

 

Performing accounts

 

$

219,772

 

 

$

8,549

 

 

$

228,321

 

 

$

265,267

 

 

$

7,292

 

 

$

272,559

 

Non-performing accounts

 

 

6,939

 

 

 

149

 

 

 

7,088

 

 

 

10,719

 

 

 

224

 

 

 

10,943

 

Total

 

 

226,711

 

 

 

8,698

 

 

 

235,409

 

 

 

275,986

 

 

 

7,516

 

 

 

283,502

 

Chapter 13 bankruptcy accounts

 

 

519

 

 

 

3

 

 

 

522

 

 

 

3,486

 

 

 

57

 

 

 

3,543

 

Finance receivables

 

$

227,230

 

 

$

8,701

 

 

$

235,931

 

 

$

279,472

 

 

$

7,573

 

 

$

287,045

 

 

A performing account is defined as an account that is less than 61 days past due. The Company defines an automobile contract as delinquent when more than 10% of a payment contractually due by a certain date has not been paid by the immediately following due date, which date may have been extended within limits specified in the servicing agreements or as a result of a deferral. The period of delinquency is based on the number of days payments are contractually past due, as extended where applicable.

 

In certain circumstances, the Company will grant obligors one-month payment extensions. The only modification of terms in those circumstances is to advance the obligor’s next due date by one month and extend the maturity date of the receivable. There are no other concessions, such as a reduction in interest rate, or forgiveness of principal or of accrued interest. Accordingly, the Company considers such extensions to be insignificant delays in payments rather than troubled debt restructurings.

A non-performing account is defined as an account that is contractually delinquent for over 60 days or is a Chapter 13 bankruptcy account for which the corresponding bankruptcy plan has not been confirmed by the relevant court. Once the account is deemed non-performing, the accrual of interest income is suspended. As of February 2019, the Company  changed the charge-off policy from 181 days contractually delinquent to 121 days contractually delinquent. Also, as of February 2019, once Chapter 13 bankruptcy plans are confirmed by the relevant court, the corresponding accounts are charged-off.

In the event an account is dismissed from bankruptcy, the Company will decide, based on several factors, to begin repossession proceedings or to allow the customer to begin making regularly scheduled payments.

The Company does consider Chapter 13 bankruptcy accounts, for which the corresponding bankruptcy plan has not been confirmed as of the period end, to be troubled debt restructurings, and included in the Company’s allowance for credit losses is a specific reserve of approximately $212,000 and $774,000 for these accounts as of June 30, 2019 and June 30, 2018, respectively.

The following tables present certain information regarding the delinquency rates experienced by the Company with respect to Contracts and Direct Loans, excluding Chapter 13 bankruptcy accounts:

 

 

 

 

Contracts

 

 

 

 

(In thousands, except percentages)

 

 

 

 

Balance

Outstanding

 

 

31 – 59

days

 

 

60 – 89

days

 

 

90 – 119

days

 

 

120+

 

 

Total

 

June 30, 2019

 

 

$

226,711

 

 

$

13,566

 

 

$

5,302

 

 

$

1,627

 

 

$

10

 

 

$

20,505

 

 

 

 

 

 

 

 

 

5.98

%

 

 

2.34

%

 

 

0.72

%

 

 

 

 

 

9.04

%

June 30, 2018

 

 

$

275,986

 

 

$

16,645

 

 

$

6,624

 

 

$

2,377

 

 

$

1,718

 

 

$

27,364

 

 

 

 

 

 

 

 

 

6.03

%

 

 

2.40

%

 

 

0.86

%

 

 

0.62

%

 

 

9.91

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct Loans

 

 

 

 

Balance

Outstanding

 

 

31 – 59

days

 

 

60 – 89

days

 

 

90 – 119

days

 

 

120+

 

 

Total

 

June 30, 2019

 

 

$

8,698

 

 

$

228

 

 

$

103

 

 

$

46

 

 

$

 

 

$

377

 

 

 

 

 

 

 

 

 

2.62

%

 

 

1.18

%

 

 

0.53

%

 

 

 

 

 

4.33

%

June 30, 2018

 

 

$

7,516

 

 

$

167

 

 

$

82

 

 

$

36

 

 

$

106

 

 

$

391

 

 

 

 

 

 

 

 

 

2.22

%

 

 

1.09

%

 

 

0.48

%

 

 

1.41

%

 

 

5.20

%

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Table of Contents

 

 

 

5. Goodwill and Intangibles

On April 30, 2019, the Company completed an acquisition of three branches from ML Credit, Inc. Two acquired branches are located in the state of North Carolina and one branch is located in South Carolina. Based on its evaluation of the agreement consistent with the framework described above, the Company accounted for the acquisition as a business combination. In conjunction with the acquisition, the Company allocated the purchase price, tangible assets, and intangible assets among the acquired branches based on the fair values of their respective acquired assets. As of June 30, 2019, the accounting related to this acquisition is preliminary. The final determination of the fair value of the customer lists and goodwill will be completed within the twelve-month measurement period from the date of the acquisition as required by FASB ASC Topic 805-10-25. The Company recorded the following goodwill and intangibles in its preliminary accounting for this acquisition.

 

 

 

As of

 

 

 

June 30, 2019

 

Acquisitions:

 

 

 

 

Number of branches acquired through business combinations

 

3

 

Purchase price

 

$

20,501

 

Tangible assets:

 

 

 

 

Finance receivable, net

 

 

20,097

 

Other assets

 

 

124

 

Assumed liabilities

 

 

(155

)

Total net tangible assets

 

 

20,066

 

Excess of purchase prices over carrying value of net tangible assets

 

$

435

 

 

 

 

 

 

Indirect dealer network relationships

 

$

64

 

Direct customer relationships

 

 

43

 

Goodwill

 

 

328

 

Total goodwill and intangible assets

 

$

435

 

 

 

The Company incurred approximately $278,000 in expenses related to the purchase of Metrolina asset.

 

6. Credit Facility

Senior Secured Credit Facility

On March 29, 2019, NF Funding I, wholly-owned, special purpose financing subsidiary of NFI entered into a senior secured credit facility (the “Credit Facility”) pursuant to a credit agreement with Ares Agent Services, L.P., as administrative agent and collateral agent, and the lenders that are party thereto (the “Credit Agreement”). The Company’s prior credit facility was paid off in connection with this Credit Facility.

Pursuant to the Credit Agreement, the lenders have agreed to extend to NF Funding I a line of credit of up to $175,000,000, which will be used to purchase motor vehicle retail installment sale contracts from NFI on a revolving basis pursuant to a related receivables purchase agreement between NF Funding I  and NFI (the “Receivables Purchase Agreement”). Under the terms of the Receivables Purchase Agreement, NFI will sell to NF Funding I the receivables under the installment sale contracts. NFI will continue to service the motor vehicle retail installment sale contracts transferred to NF Funding I  pursuant to a related servicing agreement (the “Servicing Agreement”).

The availability of funds under the Credit Facility is generally limited to 82.5% of the value of non-delinquent receivables, and outstanding advances under the Credit Facility will accrue interest at a rate of LIBOR plus 3.75%. The commitment period for advances under the Credit Facility is three years. At the end of the commitment period, the outstanding balance would be paid off over a four-year amortization period.

In connection with the Credit Facility, NFI has guaranteed NF Funding I ’s obligations under the Credit Agreement up to 10% of the highest aggregate principal amount outstanding under the Credit Agreement at any time pursuant to the Limited Guaranty. The Company is also obligated to cover any losses of the lender parties resulting from certain “bad acts” of the Company or its subsidiaries, such as fraud, misappropriation of funds or unpermitted disposition of the assets.

Pursuant to a related security agreement (the “Security Agreement”), NF Funding I  granted a security interest in substantially all of its assets as collateral for its obligations under the Credit Facility. In addition, NFI pledged the equity interests of NF Funding I  as additional collateral.

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The Credit Agreement and the other loan documents contain customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, and sales of receivables. If an event of default occurs, the lenders could increase borrowing costs, restrict NF Funding I ’s ability to obtain additional advances under the Credit Facility, accelerate all amounts outstanding under the Credit Facility, enforce their interest against collateral pledged under the Credit Facility or enforce their rights under the Company’s guarantees.

Once sold to NF Funding I , the assets described above are separate and distinct from the Company’s own assets and will not be available to the Company’s creditors should the Company become insolvent, although they will be presented on a consolidated basis on the Company’s balance sheet.

Future maturities of debt as of June 30, 2019 are as follows:

 

(in thousands)

 

 

 

 

Quarter Ended June 30,

 

 

 

 

2020

 

 

 

$

 

2021

 

 

 

 

 

2022

 

 

 

 

 

2023

 

 

 

 

 

2024

 

 

 

 

49,668

 

Thereafter

 

 

 

 

99,332

 

 

 

 

 

$

149,000

 

 

Prior Line of Credit

Prior to March 29, 2019, the Company utilized a line of credit facility (the “Line of Credit”) ranging from $140 million to $225 million during fiscal years 2019 and 2018 (reduced to $200 million on March 30, 2018).  On March 29, 2019 the Company paid-off in full the Line of Credit in connection with the new Credit Facility.  Pledged as collateral for this Line of Credit were all the assets of the Company.

The credit agreement for the Line of Credit required compliance with certain financial ratios and covenants and satisfaction of specified financial tests, including maintenance of asset quality and performance tests. The Company’s operating results over the past years provided indicators that the Company may not have been able to continue to comply with certain of the required financial ratios, covenants and financial tests prior to the maturity date of the Line of Credit in the absence of amendments to the corresponding credit agreement or waivers. On November 2, 2018, the Company entered into a Waiver and Amendment No. 9 (“Amendment No. 9”) to the credit agreement governing the Line of Credit. Among other things, Amendment No. 9 waived compliance with the minimum interest coverage ratio and minimum loss reserve requirements for the measurement period ending August 31, 2018. On February 12, 2019, the Company entered into a Waiver and Amendment No. 10 (Amendment No. 10) to the credit agreement. Among other things, Amendment No. 10:

 

waived compliance with the minimum interest coverage ratio for the measurement period ended November 30, 2018;

 

modified the minimum interest coverage ratio to 0.44 to 1.0 for the measurement period ended on December 31, 2019, 0.2 to 1.0 for the measurement period ended January 31, 2019, and 1.0 to 1.0 for the measurement period ended February 28, 2019 and thereafter; and

 

reduced the Line of Credit to $140 million.

      

Note 7. Stock Repurchase Program

In May 2019, the Company’s Board of Directors (“Board”) authorized a new stock repurchase program allowing for the repurchase of up to $8.0 million of the Company’s outstanding shares of common stock in open market purchases, privately negotiated transactions, or through other structures in accordance with applicable federal securities laws. The authorization was effective immediately. As of June 30, 2019, the Company had not repurchased any shares of common stock.

 

Note 8. Income Taxes

The Company recorded an income tax expense of approximately $206,000 for the three-months ended June 30, 2019 compared to income tax expense of approximately $572,000 for the three-months ended June 30, 2018. The Company’s effective tax rate decreased to 25.8% for the three-months ended June 30, 2019 from 28.7% for the three-months ended June 30, 2018.

 

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Note 9. Leases

The Company adopted a new lease accounting standard in April 2019. See Note 12, “Summary of Significant Accounting Policies,” for an overview of the transition to this standard.

The Company maintains lease agreements related to its branch network and for its corporate headquarters. The branch lease agreements range from one to five years and generally contain options to extend from one to three years. The corporate headquarters lease agreement expires in April 2020 and the Company is in the process of negotiating a new lease agreement. All of the Company’s lease agreements are considered operating leases. None of the Company’s lease payments are dependent on a rate or index that may change after the commencement date, other than the passage of time.

The Company’s lease liability was $2.7 million as of June 30, 2019. This liability is based on the present value of the remaining minimum rental payments using a discount rate that is determined based on the Company’s incremental borrowing rate on its senior revolving credit facility. The lease asset was $2.7 million as of June 30, 2019. This asset includes right-of-use assets equaling the lease liability, net of prepaid rent and deferred rents that existed as of the adoption of the new lease standard.

The Company has made several policy elections related to lease assets and liabilities. The Company elected to utilize the package of transition practical expedients, which includes not reassessing the following at adoption: (i) whether existing contracts contained leases, (ii) the existing classification of leases as operating or financing, or (iii) the initial direct costs of leases. In addition, the Company did not use hindsight to determine the lease term or include options to extend for leases existing at the transition date.

The Company had elected the practical expedient of combining lease and non-lease components for its real estate leases in calculating the present value of the fixed payments without having to perform an allocation between the types of lease components. Future minimum lease payments under non-cancellable operating leases in effect as of June 30, 2019, are as follows:

 

in thousands

 

 

 

 

2020 (remaining nine months)

 

$

1,674

 

2021

 

 

1,312

 

2022

 

 

521

 

2023

 

 

120

 

2024

 

 

40

 

Thereafter

 

$

8

 

Total future minimum lease payments

 

 

3,675

 

Present value adjustment

 

 

(937

)

Operating lease liability

 

$

2,738

 

 

 

The following table reports information about the Company’s lease cost for the three months ended June 30, 2019 (in thousands):

 

Lease cost:

 

 

 

 

Operating lease cost

 

$

466

 

Variable lease cost

 

 

116

 

Total lease cost

 

$

582

 

 

The following table reports other information about the Company’s leases for the three months ended June 30, 2019 (dollar amounts in thousands):

 

Other Lease Information

 

 

 

 

Operating Lease - Operating Cash Flows (Fixed Payments)

 

$

481

 

Operating Lease - Operating Cash Flows (Liability Reduction)

 

$

442

 

Weighted Average Lease Term - Operating Leases

 

 

2.0 years

 

Weighted Average Discount Rate - Operating Leases

 

 

6.5%

 

 

 

 

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Table of Contents

 

10. Fair Value Disclosures

The Company measures specific assets and liabilities at fair value, which is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When applicable, the Company utilizes market data or assumptions that market participants would use in pricing the asset or liability under a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company’s financial instruments consist of cash, finance receivables, repossessed assets, and the Credit Facility. For each of these financial instruments, the carrying value approximates fair value.

Finance receivables, net, approximates fair value based on the price paid to acquire Contracts. The price paid reflects competitive market interest rates and purchase discounts for the Company’s chosen credit grade in the economic environment. This market is highly liquid as the Company acquires individual loans on a daily basis from dealers.

The initial terms of the Contracts generally range from 12 to 72 months. Beginning in December 2017, the maximum initial term of a Contract was reduced to 60 months. The initial terms of the Direct Loans generally range from 12 to 60 months. If liquidated outside of the normal course of business, the amount received may not be the carrying value.

Repossessed assets are valued at the lower of the finance receivable balance prior to repossession or the estimated net realizable value of the repossessed asset. The Company estimates the net realizable value using the projected cash value upon liquidation plus insurance claims outstanding, if any.

 

Based on current market conditions, any new or renewed credit facility would be expected to contain pricing that approximates the Company’s current Credit Facility. Based on these market conditions, the fair value of the Credit Facility as of June 30, 2019 was estimated to be equal to the book value. The interest rate for the Credit Facility is a variable rate based on LIBOR pricing options.

 

 

 

(In thousands)

 

 

 

Fair Value Measurement Using

 

 

 

 

 

 

 

 

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair

Value

 

 

Carrying

Value

 

Cash and restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30. 2019

 

$

34,517

 

 

$

 

 

$

 

 

$

34,517

 

 

$

34,517

 

March 31, 2019

 

$

37,642

 

 

$

 

 

$

 

 

$

37,642

 

 

$

37,642

 

Finance receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30. 2019

 

$

 

 

$

 

 

$

209,426

 

 

$

209,426

 

 

$

209,426

 

March 31, 2019

 

$

 

 

$

 

 

$

202,042

 

 

$

202,042