UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended March 31,June 30, 2015

OR

 

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

For the transition period ended

Commission File Number: 001-35477

 

 

Regional Management Corp.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware 57-0847115

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

509 West Butler Road

Greenville, South Carolina

 29607
(Address of principal executive offices) (Zip Code)

(864) 422-8011

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer ¨  Accelerated filer x
Non-accelerated filer ¨  (Do not check if a smaller reporting company)  Smaller reporting company ¨

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

As of May 6,July 30, 2015, the registrant had outstanding 12,872,54012,893,621 shares of Common Stock, $0.10 par value.

 

 

 


  Page No. 

PART I.

FINANCIAL INFORMATION

  

Item 1.

Financial Statements (Unaudited)

  

Consolidated Balance Sheets Dated March 31,June 30, 2015 and December 31, 2014

   3  

Consolidated Statements of Income for the Three and Six Months Ended March 31,June 30, 2015 and 2014

   4  

Consolidated Statements of Stockholders’ Equity for the ThreeSix Months Ended March 31,June 30, 2015 and the Year Ended December 31, 2014

   5  

Consolidated Statements of Cash Flows for the ThreeSix Months Ended March 31,June 30, 2015 and 2014

   6  

Notes to Consolidated Financial Statements

   7  

Item 2.

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

   1516  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.          Controls and Procedures

29

PART II.     OTHER INFORMATION

Item 1.          Legal Proceedings

30

Item 1A.       Risk Factors

30

Item 6.          Exhibits

31
SIGNATURE   32  

Item 4.

EXHIBIT INDEXControls and Procedures   33

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings34

Item 1A.

Risk Factors34

Item 6.

Exhibits34

SIGNATURE

35

EXHIBIT INDEX

36  

PART I. FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

Regional Management Corp. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except par value amounts)

 

  March 31, 2015
(Unaudited)
 December 31,
2014
   June 30, 2015
(Unaudited)
 December 31, 2014 

Assets

      

Cash

  $2,060   $4,012    $4,793   $4,012  

Gross finance receivables

   638,809   663,432     704,862   663,432  

Less unearned finance charges, insurance premiums, and commissions

   (112,902 (117,240   (132,337 (117,240
  

 

  

 

   

 

  

 

 

Finance receivables

 525,907   546,192     572,525   546,192  

Allowance for credit losses

 (36,950 (40,511   (36,171 (40,511
  

 

  

 

   

 

  

 

 

Net finance receivables

 488,957   505,681     536,354   505,681  

Property and equipment, net of accumulated depreciation

 8,211   8,905     8,646   8,905  

Deferred tax asset, net

 1,372   1,870     2,305   1,870  

Repossessed assets at net realizable value

 400   556     407   556  

Goodwill

 716   716     716   716  

Intangible assets, net

 745   847     655   847  

Other assets

 5,281   7,683     7,105   7,683  
  

 

  

 

   

 

  

 

 

Total assets

$507,742  $530,270    $560,981   $530,270  
  

 

  

 

   

 

  

 

 

Liabilities and Stockholders’ Equity

   

Liabilities:

   

Senior revolving credit facility

$312,538  $341,419    $359,491   $341,419  

Accounts payable and accrued expenses

 10,905   10,528     10,733   10,528  
  

 

  

 

   

 

  

 

 

Total liabilities

 323,443   351,947     370,224   351,947  

Commitments and Contingencies

   

Stockholders’ equity:

   

Preferred stock, $0.10 par value, 100,000 shares authorized, no shares issued or outstanding

 —    —      —     —   

Common stock, $0.10 par value, 1,000,000 shares authorized, 12,848 and 12,748 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

 1,285   1,275  

Common stock, $0.10 par value, 1,000,000 shares authorized, 12,889 and 12,748 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

   1,289   1,275  

Additional paid-in-capital

 87,538   85,655     88,584   85,655  

Retained earnings

 95,476   91,393     100,884   91,393  
  

 

  

 

   

 

  

 

 

Total stockholders’ equity

 184,299   178,323     190,757   178,323  
  

 

  

 

   

 

  

 

 

Total liabilities and stockholders’ equity

$507,742  $530,270    $560,981   $530,270  
  

 

  

 

   

 

  

 

 

See accompanying notes to consolidated financial statements.

Regional Management Corp. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

(in thousands, except per share amounts)

 

  Three Months Ended
March 31,
   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
  2015   2014   2015   2014   2015   2014 

Revenue

            

Interest and fee income

  $47,065    $44,080    $47,668    $42,962    $94,733    $87,041  

Insurance income, net

   2,929     3,295     3,120     2,481     6,049     5,776  

Other income

   2,530     2,206     2,213     1,994     4,743     4,201  
  

 

   

 

   

 

   

 

   

 

   

 

 

Total revenue

 52,524   49,581     53,001     47,437     105,525     97,018  
  

 

   

 

   

 

   

 

   

 

   

 

 

Expenses

        

Provision for credit losses

 9,712   16,945     12,102     13,620     21,814     30,564  

Personnel

 19,760   11,174     16,211     13,068     35,971     24,242  

Occupancy

 4,125   3,420     4,256     3,713     8,381     7,133  

Marketing

 2,471   982     2,009     1,750     4,480     2,732  

Other

 6,267   4,322     5,767     4,667     12,034     8,990  
  

 

   

 

   

 

   

 

   

 

   

 

 

Total general and administrative expenses

 32,623   19,898     28,243     23,198     60,866     43,097  

Interest expense

 3,604   3,763     3,932     3,556     7,536     7,319  
  

 

   

 

   

 

   

 

   

 

   

 

 

Income before income taxes

 6,585   8,975     8,724     7,063     15,309     16,038  

Income taxes

 2,502   3,365     3,316     2,649     5,818     6,014  
  

 

   

 

   

 

   

 

   

 

   

 

 

Net income

$4,083  $5,610    $5,408    $4,414    $9,491    $10,024  
  

 

   

 

   

 

   

 

   

 

   

 

 

Net income per common share:

        

Basic

$0.32  $0.44    $0.42    $0.35    $0.74    $0.79  
  

 

   

 

   

 

   

 

   

 

   

 

 

Diluted

$0.31  $0.43    $0.41    $0.34    $0.73    $0.77  
  

 

   

 

   

 

   

 

   

 

   

 

 

Weighted average shares outstanding:

        

Basic

 12,838   12,655     12,845     12,691     12,812     12,673  
  

 

   

 

   

 

   

 

   

 

   

 

 

Diluted

 13,061   13,000     13,078     12,916     13,040     12,958  
  

 

   

 

   

 

   

 

   

 

   

 

 

See accompanying notes to consolidated financial statements.

Regional Management Corp. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands)

 

   Common
Stock
  Additional
Paid-in-Capital
  Retained
Earnings
   Total 

Balance, December 31, 2013

  $1,265   $83,317   $76,591    $161,173  

Issuance of restricted stock awards

   7    (7  —      —   

Exercise of stock options

   5    118    —      123  

Excess tax benefit from exercise of stock options

   —     161    —      161  

Shares withheld related to net share settlement

   (2  (194  —      (196

Share-based compensation

   —     2,260    —      2,260  

Net income

   —     —     14,802     14,802  
  

 

 

  

 

 

  

 

 

   

 

 

 

Balance, December 31, 2014

 1,275   85,655   91,393   178,323  

Issuance of restricted stock awards, net of forfeiture

 9   (9 —    —   

Exercise of stock options

 4   —    —    4  

Excess tax benefit from exercise of stock options

 —    26   —    26  

Shares withheld related to net share settlement

 (3 (92 —    (95

Share-based compensation

 —    1,958   —    1,958  

Net income

 —    —    4,083   4,083  
  

 

 

  

 

 

  

 

 

   

 

 

 

Balance, March 31, 2015

$1,285  $87,538  $95,476  $184,299  
  

 

 

  

 

 

  

 

 

   

 

 

 

   Common Stock           
   Shares  Amount  Additional
Paid-in-Capital
  Retained
Earnings
   Total 

Balance, December 31, 2013

   12,652   $1,265   $83,317   $76,591    $161,173  

Issuance of restricted stock awards

   73    7    (7  —       —    

Exercise of stock options

   46    5    118    —       123  

Excess tax benefit from exercise of stock options

   —      —      161    —       161  

Shares withheld related to net share settlement

   (23  (2  (194  —       (196

Share-based compensation

   —      —      2,260    —       2,260  

Net income

   —      —      —      14,802     14,802  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Balance, December 31, 2014

   12,748    1,275    85,655    91,393     178,323  

Issuance of restricted stock awards, net of forfeiture

   106    11    (11  —       —    

Exercise of stock options

   95    9    —      —       9  

Excess tax benefit from exercise of stock options

   —      —      196    —       196  

Shares withheld related to net share settlement

   (60  (6  (316  —       (322

Share-based compensation

   —      —      3,060    —       3,060  

Net income

   —      —      —      9,491     9,491  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Balance, June 30, 2015

   12,889   $1,289   $88,584   $100,884    $190,757  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

Regional Management Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

  Three Months Ended
March 31,
   Six Months Ended
June 30,
 
  2015 2014   2015 2014 

Cash flows from operating activities:

      

Net income

  $4,083   $5,610    $9,491   $10,024  

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

      

Provision for credit losses

   9,712   16,945     21,814   30,564  

Depreciation and amortization

   863   1,001     1,771   2,034  

Loss on disposal of property and equipment

   362    —       339   3  

Accretion of discounts on purchased receivables

   (8 (35   (13 (58

Share-based compensation

   1,906   201     3,223   473  

Fair value adjustment on interest rate caps

   172    —    

Deferred income taxes, net

   498   (851   (435 (1,806

Changes in operating assets and liabilities:

      

Decrease in other assets

   2,433   185  

Increase in other liabilities

   580   2,008  

(Increase) decrease in other assets

   341   (1,656

Increase (decrease) in other liabilities

   182   (593
  

 

  

 

   

 

  

 

 

Net cash provided by operating activities

 20,429   25,064     36,885   38,985  
  

 

  

 

   

 

  

 

 

Cash flows from investing activities:

   

Net repayment of finance receivables

 7,020   30,276  

Net repayment (origination) of finance receivables

   (52,474 698  

Purchase of property and equipment

 (303 (950   (1,428 (2,249
  

 

  

 

   

 

  

 

 

Net cash provided by investing activities

 6,717   29,326  

Net cash used in investing activities

   (53,902 (1,551
  

 

  

 

   

 

  

 

 

Cash flows from financing activities:

   

Net payments on senior revolving credit facility

 (28,881 (52,435

Net advances (payments) on senior revolving credit facility

   18,072   (38,180

Payments for debt issuance costs

 (1 (1   (16 (3

Proceeds from exercise of stock options

 —     90     —     90  

Excess tax benefits from exercise of stock options

 67   100     244   100  

Taxes paid related to net share settlement of equity awards

 (283 —       (502  —    
  

 

  

 

   

 

  

 

 

Net cash used in financing activities

 (29,098 (52,246

Net cash provided by (used in) financing activities

   17,798   (37,993
  

 

  

 

   

 

  

 

 

Net change in cash

 (1,952 2,144     781   (559

Cash:

Beginning

 4,012   4,121  

Cash at beginning of period

   4,012   4,121  
  

 

  

 

   

 

  

 

 

Ending

$2,060  $6,265  

Cash at end of period

  $4,793   $3,562  
  

 

  

 

   

 

  

 

 

Supplemental Disclosure of Cash Flow Information

Cash payments for interest

$3,478  $3,612  

Supplemental cash flow information

   

Interest paid

  $7,134   $7,022  
  

 

  

 

   

 

  

 

 

Cash payments for income taxes

$320  $604  

Income taxes paid

  $5,774   $8,034  
  

 

  

 

   

 

  

 

 

See accompanying notes to consolidated financial statements.

Regional Management Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except per share amounts)

Note 1. Nature of Business

Regional Management Corp. (the “Company,“we,we,“us,us,” and “our”our) was incorporated and began operations in 1987. The Company is engaged in the consumer finance business, offering small loans (branch small loans and convenience checks), large loans, automobile loans, retail loans, and related credit insurance. As of March 31,June 30, 2015, the Company operated offices in 306316 locations in the states of Alabama (49 offices), Georgia (3 offices), New Mexico (13(17 offices), North Carolina (35 offices), Oklahoma (27(28 offices), South Carolina (70 offices), Tennessee (21 offices), and Texas (88(93 offices) under the names Regional Finance, RMC Financial Services, Anchor Finance, Superior Financial Services, First Community Credit, and Sun Finance. The Company opened 610 new offices during the three months ended March 31,June 30, 2015.

Seasonality: The Company’s loan volume and corresponding finance receivables follow seasonal trends. Demand for the Company’s loans is typically highest during the third and fourth quarter,quarters, which the Company believes is largely due to customers borrowing money for back-to-school and holiday spending. LoanWith the exception of automobile loans, loan demand has generally been the lowest during the first quarter, which the Company believes is largely due to the timing of income tax refunds. During the remainder of the year, the Company typically experiences loan growth from general operations. In addition, the Company typically generates higher loan volumes in the second half of the year from direct mail campaigns, which are timed to coincide with seasonal consumer demand. Consequently, we experiencethe Company experiences significant seasonal fluctuations in ourits operating results and cash needs.

Note 2. Basis of Presentation and Significant Accounting Policies

Basis of presentation:The consolidated financial statements of the Company have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q adopted by the Securities and Exchange Commission (“SEC”) and generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and, accordingly, do not include all information and note disclosures required by GAAP for complete financial statements. The interim financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (U.S.), but in the opinion of management include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows in accordance with GAAP. These consolidated financial statements should be read in conjunction with our current Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC.

Significant accounting policies: The following is a description of significant accounting policies used in preparing the financial statements. The accounting and reporting policies of the Company are in accordance with GAAP and conform to general practices within the consumer finance industry.

Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates through a separate wholly-owned subsidiary in each state.

Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities for the periods indicated in the financial statements. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to change relate to the determination of the allowance for credit losses, fair value of stock based compensation, the valuation of deferred tax assets and liabilities, and the allocation of the purchase price to assets acquired in business combinations.

Reclassifications: Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications had no impact on previously reported net income or stockholders’ equity.

Note 3. Finance Receivables, Allowance for Credit Losses, and Credit Quality Information

Finance receivables consisted of the following:

 

  March 31, 2015   December 31, 2014   June 30, 2015   December 31, 2014 

Branch small loans

  $121,649    $128,217    $140,161    $128,217  

Convenience checks

   170,013     191,316     174,786     191,316  

Large loans

   63,338     46,147     93,203     46,147  

Automobile loans

   146,724     154,382     139,593     154,382  

Retail loans

   24,183     26,130     24,782     26,130  
  

 

   

 

   

 

   

 

 

Finance receivables

$525,907  $546,192    $572,525    $546,192  
  

 

   

 

   

 

   

 

 

Changes in the allowance for credit losses for the periods indicated are as follows:

 

  Three Months Ended March 31,   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
  2015   2014   2015   2014   2015   2014 

Balance at beginning of period

  $40,511    $30,089    $36,950    $34,325    $40,511    $30,089  

Provision for credit losses

   9,712     16,945     12,102     13,620     21,814     30,564  

Charge-offs

   (14,108   (13,098   (13,439   (13,789   (27,548   (26,886

Recoveries

   835     389     558     428     1,394     817  
  

 

   

 

   

 

   

 

   

 

   

 

 

Balance at end of period

$36,950  $34,325    $36,171    $34,584    $36,171    $34,584  
  

 

   

 

   

 

   

 

   

 

   

 

 

The following is a reconciliation of the allowance for credit losses by product for the periods indicated:

 

  Balance
January 1,
2015
   Provision   Charge-offs Recoveries   Balance
March 31,
2015
   Finance
Receivables
March 31,
2015
   Allowance as
Percentage of
Finance Receivable
March 31, 2015
   Balance
April 1,

2015
   Provision   Charge-offs Recoveries   Balance
June 30,

2015
   Finance
Receivables
June 30,
2015
   Allowance as
Percentage of
Finance
Receivable
June 30, 2015
 

Branch small loans

  $6,960    $2,926    $(3,333 $197    $6,750    $121,649     5.5  $6,750    $3,487    $(3,230 $131    $7,138    $140,161     5.1

Convenience checks

   18,320     1,708     (6,527 289     13,790     170,013     8.1   13,790     4,322     (7,133 226     11,205     174,786     6.4

Large loans

   1,980     1,578     (512 73     3,119     63,338     4.9   3,119     2,693     (492 44     5,364     93,203     5.8

Automobile loans

   11,776     3,120     (3,304 241     11,833     146,724     8.1   11,833     1,314     (2,153 127     11,121     139,593     8.0

Retail loans

   1,475     380     (432 35     1,458     24,183     6.0   1,458     286     (431 30     1,343     24,782     5.4
  

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

 

Total

$40,511  $9,712  $(14,108$835  $36,950  $525,907   7.0  $36,950    $12,102    $(13,439 $558    $36,171    $572,525     6.3
  

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

 
  Balance
April 1,

2014
   Provision   Charge-offs Recoveries   Balance
June 30,

2014
   Finance
Receivables
June 30,
2014
   Allowance as
Percentage of
Finance
Receivable
June 30, 2014
 

Branch small loans

  $6,034    $3,340    $(3,177 $103    $6,300    $107,598     5.9

Convenience checks

   12,448     7,300     (6,868 124     13,004     167,858     7.7

Large loans

   2,150     314     (566 88     1,986     42,996     4.6

Automobile loans

   11,883     2,117     (2,529 84     11,555     171,777     6.7

Retail loans

   1,810     549     (649 29     1,739     27,746     6.3
  

 

   

 

   

 

  

 

   

 

   

 

   

 

 

Total

  $34,325    $13,620    $(13,789 $428    $34,584    $517,975     6.7
  

 

   

 

   

 

  

 

   

 

   

 

   

 

 
  Balance
January 1,
2015
   Provision   Charge-offs Recoveries   Balance
June 30,

2015
   Finance
Receivables
June 30,
2015
   Allowance as
Percentage of
Finance
Receivable
June 30, 2015
 

Branch small loans

  $6,960    $6,414    $(6,563 $327    $7,138    $140,161     5.1

Convenience checks

   18,320     6,029     (13,660 516     11,205     174,786     6.4

Large loans

   1,980     4,270     (1,004 118     5,364     93,203     5.8

Automobile loans

   11,776     4,433     (5,457 369     11,121     139,593     8.0

Retail loans

   1,475     668     (864 64     1,343     24,782     5.4
  

 

   

 

   

 

  

 

   

 

   

 

   

 

 

Total

  $40,511    $21,814    $(27,548 $1,394    $36,171    $572,525     6.3
  

 

   

 

   

 

  

 

   

 

   

 

   

 

 

  Balance
January 1,
2014
   Provision   Charge-offs Recoveries   Balance
March 31,
2014
   Finance
Receivables
March 31,
2014
   Allowance as
Percentage of
Finance Receivable
March 31, 2014
   Balance
January 1,
2014
   Provision   Charge-offs Recoveries   Balance
June 30,

2014
   Finance
Receivables
June 30,
2014
   Allowance as
Percentage of
Finance
Receivable
June 30, 2014
 

Branch small loans

  $5,166    $3,522    $(2,763 $109  �� $6,034    $100,031     6.0  $5,166    $6,862    $(5,940 $212    $6,300    $107,598     5.9

Convenience checks

   10,204     8,114     (5,975 105     12,448     155,030     8.0   10,204     15,414     (12,843 229     13,004     167,858     7.7

Large loans

   2,233     330     (501 88     2,150     41,868     5.1   2,233     643     (1,066 176     1,986     42,996     4.6

Automobile loans

   10,827     4,145     (3,151 62     11,883     175,152     6.8   10,827     6,262     (5,680 146     11,555     171,777     6.7

Retail loans

   1,659     834     (708 25     1,810     29,653     6.1   1,659     1,383     (1,357 54     1,739     27,746     6.3
  

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

 

Total

$30,089  $16,945  $(13,098$389  $34,325  $501,734   6.8  $30,089    $30,564    $(26,886 $817    $34,584    $517,975     6.7
  

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

 

Finance receivables associated with customers in bankruptcy as a percentage of total finance receivables were 1.2% andwas 1.1% as of March 31,June 30, 2015 and December 31, 2014, respectively.2014. The following is a summary of the finance receivables associated with customers in bankruptcy as of the periods indicated:

 

   March 31, 2015   December 31, 2014 

Branch small loans

  $595    $582  

Convenience checks

   531     544  

Large loans

   1,275     1,260  

Automobile loans

   3,712     3,698  

Retail loans

   127     119  
  

 

 

   

 

 

 

Total

$6,240  $6,203  
  

 

 

   

 

 

 

   June 30, 2015   December 31, 2014 

Branch small loans

  $615    $582  

Convenience checks

   521     544  

Large loans

   1,335     1,260  

Automobile loans

   3,625     3,698  

Retail loans

   127     119  
  

 

 

   

 

 

 

Total

  $6,223    $6,203  
  

 

 

   

 

 

 

The contractual delinquency of the finance receivable portfolio by component for the periods indicated are as follows:

 

 March 31, 2015  June 30, 2015 
 Branch Small Convenience
Check
 Large Automobile Retail Total  Branch Small Convenience Check Large Automobile Retail Total 
 $ % $ % $ % $ % $ % $ %  $ % $ % $ % $ % $ % $ % 

Current

 $99,398   81.7 $139,303   82.0 $54,919   86.7 $110,992   75.6 $20,476   84.7 $425,088   80.8 $112,740   80.4 $143,057   81.8 $80,157   86.1 $97,983   70.2 $20,487   82.7 $454,424   79.4

1 to 29 days past due

 13,361   11.0 16,029   9.4 6,715   10.6 28,878   19.7 2,670   11.0 67,653   12.9 16,617   11.9 18,168   10.4 10,298   11.0 32,991   23.6 3,201   12.9 81,275   14.2
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Delinquent accounts

            

30 to 59 days

 2,910   2.3 3,796   2.2 763   1.2 3,752   2.6 375   1.5 11,596   2.2 3,908   2.7 4,386   2.5 1,385   1.5 4,570   3.3 416   1.6 14,665   2.5

60 to 89 days

 2,022   1.7 2,772   1.6 421   0.7 1,421   1.0 188   0.8 6,824   1.3 2,453   1.8 2,962   1.7 586   0.6 1,873   1.3 239   1.0 8,113   1.4

90 to 119 days

 1,304   1.2 2,349   1.4 235   0.3 798   0.5 158   0.7 4,844   0.9 1,763   1.3 2,236   1.3 360   0.3 1,086   0.8 188   0.8 5,633   1.0

120 to 149 days

 1,379   1.1 2,571   1.5 159   0.3 620   0.4 152   0.6 4,881   0.9 1,413   1.0 2,017   1.2 260   0.3 778   0.6 129   0.5 4,597   0.8

150 to 179 days

 1,275   1.0 3,193   1.9 126   0.2 263   0.2 164   0.7 5,021   1.0 1,267   0.9 1,960   1.1 157   0.2 312   0.2 122   0.5 3,818   0.7
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total delinquency

$8,890   7.3$14,681   8.6$1,704   2.7$6,854   4.7$1,037   4.3$33,166   6.3 $10,804   7.7 $13,561   7.8 $2,748   2.9 $8,619   6.2 $1,094   4.4 $36,826   6.4
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total finance receivables

$121,649   100.0$170,013   100.0$63,338   100.0$146,724   100.0$24,183   100.0$525,907   100.0 $140,161   100.0 $174,786   100.0 $93,203   100.0 $139,593   100.0 $24,782   100.0 $572,525   100.0
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Finance receivables in nonaccrual status

$3,958   3.3$8,113   4.8$520   0.8$1,681   1.1$474   2.0$14,746   2.8 $4,443   3.2 $6,213   3.6 $777   0.8 $2,176   1.6 $439   1.8 $14,048   2.5
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 December 31, 2014  December 31, 2014 
 Branch Small Convenience
Check
 Large Automobile Retail Total  Branch Small Convenience Check Large Automobile Retail Total 
 $ % $ % $ % $ % $ % $ %  $ % $ % $ % $ % $ % $ % 

Current

 $104,003   81.1 $154,833   80.9 $36,658   79.4 $105,424   68.3 $21,424   82.0 $422,342   77.4 $104,003   81.1 $154,833   80.9 $36,658   79.4 $105,424   68.3 $21,424   82.0 $422,342   77.4

1 to 29 days past due

 13,967   10.9 19,318   10.1 7,383   16.0 38,656   25.0 3,390   13.0 82,714   15.1 13,967   10.9 19,318   10.1 7,383   16.0 38,656   25.0 3,390   13.0 82,714   15.1
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Delinquent accounts

            

30 to 59 days

 3,647   2.8 5,134   2.7 1,036   2.3 5,651   3.7 483   1.8 15,951   2.9 3,647   2.8 5,134   2.7 1,036   2.3 5,651   3.7 483   1.8 15,951   2.9

60 to 89 days

 2,275   1.8 4,442   2.3 483   1.0 2,114   1.4 310   1.2 9,624   1.8 2,275   1.8 4,442   2.3 483   1.0 2,114   1.4 310   1.2 9,624   1.8

90 to 119 days

 1,857   1.4 3,312   1.8 263   0.6 1,266   0.8 201   0.8 6,899   1.2 1,857   1.4 3,312   1.8 263   0.6 1,266   0.8 201   0.8 6,899   1.2

120 to 149 days

 1,478   1.2 2,343   1.2 204   0.4 758   0.5 205   0.8 4,988   0.9 1,478   1.2 2,343   1.2 204   0.4 758   0.5 205   0.8 4,988   0.9

150 to 179 days

 990   0.8 1,934   1.0 120   0.3 513   0.3 117   0.4 3,674   0.7 990   0.8 1,934   1.0 120   0.3 513   0.3 117   0.4 3,674   0.7
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total delinquency

$10,247   8.0$17,165   9.0$2,106   4.6$10,302   6.7$1,316   5.0$41,136   7.5 $10,247   8.0 $17,165   9.0 $2,106   4.6 $10,302   6.7 $1,316   5.0 $41,136   7.5
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total finance receivables

$128,217   100.0$191,316   100.0$46,147   100.0$154,382   100.0$26,130   100.0$546,192   100.0 $128,217   100.0 $191,316   100.0 $46,147   100.0 $154,382   100.0 $26,130   100.0 $546,192   100.0
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Finance receivables in nonaccrual status

$4,325   3.4$7,589   4.0$587   1.3$2,537   1.6$523   2.0$15,561   2.8 $4,325   3.4 $7,589   4.0 $587   1.3 $2,537   1.6 $523   2.0 $15,561   2.8
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Following is a summary of finance receivables evaluated for impairment for the periods indicated:

 

  March 31, 2015  June 30, 2015 
  Branch
Small
   Convenience
Check
   Large   Automobile   Retail   Total  Branch
Small
 Convenience
Check
 Large Automobile Retail Total 

Customers in Chapter 13 bankruptcy specifically evaluated

  $595    $531    $1,275    $3,712    $127    $6,240  

Customers in bankruptcy specifically evaluated

 $615   $521   $1,335   $3,625   $127   $6,223  

Finance receivables evaluated collectively

   121,054     169,482     62,063     143,012     24,056     519,667   139,546   174,265   91,868   135,968   24,655   566,302  
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Finance receivables outstanding

$121,649  $170,013  $63,338  $146,724  $24,183  $525,907   $140,161   $174,786   $93,203   $139,593   $24,782   $572,525  
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Accounts in bankruptcy in nonaccrual status

$95  $104  $58  $213  $18  $488   $98   $81   $92   $135   $18   $424  
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Amount of the specific reserve for impaired accounts

$159  $140  $323  $998  $19  $1,639   $164   $133   $376   $946   $19   $1,638  
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Average impaired accounts

$592  $517  $1,265  $3,671  $122  $6,167  
  

 

   

 

   

 

   

 

   

 

   

 

 

Amount of the general component of the allowance

$6,591  $13,650  $2,796  $10,835  $1,439  $35,311   $6,974   $11,072   $4,988   $10,175   $1,324   $34,533  
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

  December 31, 2014 
  Branch
Small
  Convenience
Check
  Large  Automobile  Retail  Total 

Customers in bankruptcy specifically evaluated

 $582   $544   $1,260   $3,698   $119   $6,203  

Finance receivables evaluated collectively

  127,635    190,772    44,887    150,684    26,011    539,989  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Finance receivables outstanding

 $128,217   $191,316   $46,147   $154,382   $26,130   $546,192  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Accounts in bankruptcy in nonaccrual status

 $140   $159   $133   $559   $16   $1,007  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Amount of the specific reserve for impaired accounts

 $143   $165   $309   $981   $18   $1,616  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Amount of the general component of the allowance

 $6,817   $18,155   $1,671   $10,795   $1,457   $38,895  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Average recorded investment in impaired finance receivables for the periods indicated are as follows:

   December 31, 2014 
   Branch
Small
   Convenience
Check
   Large   Automobile   Retail   Total 

Customers in Chapter 13 bankruptcy specifically evaluated

  $582    $544    $1,260    $3,698    $119    $6,203  

Finance receivables evaluated collectively

   127,635     190,772     44,887     150,684     26,011     539,989  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Finance receivables outstanding

$128,217  $191,316  $46,147  $154,382  $26,130  $546,192  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts in bankruptcy in nonaccrual status

$140  $159  $133  $559  $16  $1,007  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amount of the specific reserve for impaired accounts

$143  $165  $309  $981  $18  $1,616  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average impaired accounts

$1,097  $1,266  $1,616  $4,134  $235  $8,348  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amount of the general component of the allowance

$6,817  $18,155  $1,671  $10,795  $1,457  $38,895  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2015   2014   2015   2014 

Branch small

  $526    $1,470    $521    $1,632  

Convenience check

   618     1,315     605     1,349  

Large

   1,276     1,796     1,271     1,828  

Automobile

   3,603     4,305     3,637     4,303  

Retail

   130     280     126     311  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total average recorded investment

  $6,153    $9,166    $6,160    $9,423  
  

 

 

   

 

 

   

 

 

   

 

 

 

Impaired finance receivables previously included receivables that were delinquent 180 days and over. Beginning in September 2014, finance receivables that reach 180 days delinquent are charged-off.

It is not practical to compute the amount of interest earned on impaired loans.

Note 4. Debt

The Company’s senior revolving credit facility contains restrictive covenants. At March 31,June 30, 2015, the Company was in compliance with all debt covenants. As of March 31,June 30, 2015, the Company had $187,462$140,509 of unused capacity on the credit facility. Advances on this agreement are at 85% of eligible finance receivables and are subject to adjustment at certain credit quality levels (81%(84% as of March 31,June 30, 2015).

Note 5. Interest Rate Caps

On April 1, 2015, the Company purchased interest rate caps. The interest rate cap contracts have an aggregate notional principal amount of $150,000, a 2.5% strike rate against one-month LIBOR rates, and mature in April 2018. When the one-month LIBOR exceeds 2.5%, the counterparty reimburses the Company for the excess over 2.5%. No payment is required by the Company or the counterparty when the one-month LIBOR is below 2.5%. The following is a summary of changes in the rate caps:

   Three Months Ended
June 30, 2015
   Six Months Ended
June 30, 2015
 

Balance at beginning of period

  $—     $—   

Purchases

   577     577  

Fair value adjustment included as an (increase) in interest expense

   (172   (172
  

 

 

   

 

 

 

Balance sheet at end of period, included in other assets

  $405    $405  
  

 

 

   

 

 

 

Note 5.6. Disclosure About Fair Value of Financial Instruments:Instruments 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Finance receivables: Finance receivables are originated at prevailing market rates. The Company’s finance receivable portfolio turns approximately 1.6 times per year. The portfolio turnover is calculated by dividing cash payments and renewals by the average finance receivables. Management believes that the carrying value approximates the fair value of its finance receivable portfolio.

Interest rate caps: The fair value of the interest rate caps is the estimated amount the Company would receive to terminate the cap agreements at the reporting date, taking into account current interest rates and the creditworthiness of the counterparty for assets and creditworthiness of the Company for liabilities.

Repossessed assets: Repossessed assets are valued at the lower of the receivable balance on the finance receivable prior to repossession or the estimated net realizable value. The Company estimates net realizable value at the projected cash value upon liquidation, less costs to sell the related collateral.

Debt: The Company refinanced its senior revolving credit facility in January 2012, and further amended the senior revolving credit facility in July 2012, March 2013, May 2013, and November 2013. As a result of the refinancing, the Company believes that the fair value of this variable rate debt approximates its carrying value at March 31,June 30, 2015. The Company also considered its creditworthiness in its determination of fair value.

The carrying amount and estimated fair values of the Company’s financial instruments summarized by level are as follows:

 

  March 31, 2015   December 31, 2014   June 30, 2015   December 31, 2014 
  Carrying
Amount
   Estimated
Fair Value
   Carrying
Amount
   Estimated
Fair Value
   Carrying
Amount
   Estimated
Fair Value
   Carrying
Amount
   Estimated
Fair Value
 

Assets

                

Level 1 inputs

                

Cash

  $2,060    $2,060    $4,012    $4,012    $4,793    $4,793    $4,012    $4,012  

Restricted cash

   1,900     1,900     1,900     1,900     1,900     1,900     1,900     1,900  

Level 2 inputs

        

Interest rate caps

   405     405     —      —   

Level 3 inputs

                

Net finance receivables

   488,957     488,957     505,681     505,681     536,354     536,354     505,681     505,681  

Repossessed assets

   400     400     556     556     407     407     556     556  

Liabilities

                

Level 3 inputs

                

Senior revolving credit facility

   312,538     312,538     341,419     341,419     359,491     359,491     341,419     341,419  

Certain of the Company’s assets carried at fair value are classified and disclosed in one of the following three categories:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.

Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3 – Unobservable inputs that are not corroborated by market data.

In determining the appropriate levels, the Company performs an analysis of the assets and liabilities that are carried at fair value. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.

Note 6. Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return. The Company files consolidated or separate state income tax returns as permitted by individual states in which it operates.

Note 7. Earnings Per Share

The following schedule reconciles the computation of basic and diluted earnings per share for the periods indicated:

 

  Three Months Ended
March 31,
   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
  2015   2014   2015   2014   2015   2014 

Numerator:

            

Net income

  $4,083    $5,610    $5,408    $4,414    $9,491    $10,024  
  

 

   

 

   

 

   

 

   

 

   

 

 

Denominator:

        

Weighted average shares outstanding for basic earnings per share

 12,838   12,655     12,845     12,691     12,812     12,673  

Effect of dilutive securities

 223   345     233     225     228     285  
  

 

   

 

   

 

   

 

   

 

   

 

 

Weighted average shares adjusted for dilutive securities

 13,061   13,000     13,078     12,916     13,040     12,958  
  

 

   

 

   

 

   

 

   

 

   

 

 

Earnings per share:

        

Basic

$0.32  $0.44    $0.42    $0.35    $0.74    $0.79  
  

 

   

 

   

 

   

 

   

 

   

 

 

Diluted

$0.31  $0.43    $0.41    $0.34    $0.73    $0.77  
  

 

   

 

   

 

   

 

   

 

   

 

 

Options to purchase 104477 and 27405 shares of common stock were outstanding during the three and six months ended March 31,June 30, 2015 and 2014, respectively, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

Note 8. Share-Based Compensation

The Company previously adopted the 2007 Management Incentive Plan (the “2007 Plan”) and the 2011 Stock Incentive Plan (the “2011 Plan”). Under these plans, 1,987 shares of authorized common stock were reserved for issuance pursuant to grants approved by the Company’s Board of Directors (the “Board”). As of March 31, 2015, there were 448 and 124 shares available for grant under the 2007 Plan and the 2011 Plan, respectively.

At its 2015 annual meeting of stockholders held onOn April 22, 2015, the stockholders of the Company approved the 2015 Long-Term Incentive Plan (the “2015 Plan”). The effective date of the 2015 Plan was April 22, 2015. Subject to adjustments as provided in the 2015 Plan, the maximum aggregate number of shares of the Company’s common stock that may be issued under the 2015 Plan may not exceed the sum of (i) 350 shares plus (ii) any shares (A) remaining available for the grant of awards as of the effective date under the 2007 Plan or the 2011 Plan, and/or (B) subject to an award granted under the 2007 Plan or the 2011 Plan, which award is forfeited, cancelled, terminated, expires, or lapses. As of the effectiveness of the 2015 Plan, there were 922 shares available for grant under the 2015 Plan, inclusive of shares previously available for grant under the 2007 Plan and the 2011 Plan that were rolled over to the 2015 Plan. No further grants will be made under the 2007 Plan or the 2011 Plan. As of June 30, 2015, there were 580 shares available for grant under the 2015 plan.

As of March 31,June 30, 2015, unrecognized share-based compensation expense to be recognized over future periods approximated $2,784.$6,851. This amount will be recognized as expense over a weighted-average period of 2.52.3 years. Share-based compensation expenses are recognized on a straight-line basis over the requisite service period of the agreement. All share-based compensation is classified as equity except where otherwise noted.

The Company allows for the settlement of share-based awards on a net share basis. With net share settlement, the employee does not surrender any cash or shares upon the exercise of stock options or the vesting of stock awards or stock units. Rather, the Company withholds the number of shares with a value equivalent to the option exercise price for stock options and the minimum statutory tax withholding for all share-based awards. Net share settlements have the effect of reducing the amount of shares that would have otherwise been issued as a result of exercise or vesting.

Long-term incentive program:The Company issues nonqualified stock options, performance-contingent restricted stock units (“RSU”), and cash-settled performance shares (“PS”) under a long-term incentive program. Recurring annual grants are at the discretion of the Board and have been granted in October 2014, for the 2014 calendar year, and in April 2015, for the 2015 calendar year. The grants cliff vest at the end of the third calendar year, subject to continued employment or as otherwise provided in the agreements. The actual value of the RSU and PS that may be earned can range from 0% to 150% of target based on the achievement of EBITDA (RSU) and net income per share (PS) performance targets over a three yearthree-year period.

Inducement and retention program: From time to time, the Company issues share-based awards in conjunction with employment offers to select new executives and retention grants to select existing employees. The Company issues these awards to attract and retain talent and to provide market competitive compensation. The grants have various vesting terms which include fully-vested awards at the grant date and graded vesting over three-two- to five-year periods (subject to continued employment or as otherwise provided in the agreements).

Board compensation program:In October 2013, the Board revised its standard compensation arrangement for its non-employee directors. Effective for annual service years beginning in 2014, the Company awards its non-employee directors a cash retainer and shares of restricted common stock. The restricted stock awards occur five days following the Company’s annual meeting of stockholders and are fully vested upon the earlier of the first anniversary of the grant date or the completion of the directors’ annual service to the Company. The Board revised the compensation arrangement in April 2015 to provide that the equity portion of the compensation program be split evenly between restricted stock awards and nonqualified stock options, with the stock options immediately vested on the grant date.

The following are the terms and amounts of the awards issued under the Company’s share-based incentive programs:

Stock options: The exercise price of all stock options is equal to the Company’s closing stock price on the date of grant. Stock options granted are subject to various vesting terms which include graded and cliff vesting over three-two- to five-year vesting periods. In addition, all stock options vest and become exercisable in full under certain circumstances following the occurrence of a Change of Control (as defined in the option award agreements). Participants who are awarded options must exercise their options within a maximum of ten years of the grant date.

The fair value of option grants are estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions for option grants during the threesix months ended March 31,June 30, 2015. No stock options were granted in the three or six months ended March 31,June 30, 2014.

 

   2015 

Expected volatility

   47.7747.18

Expected dividends

   0.00

Expected term (in years)

   6.436.17  

Risk-free rate

   1.771.62

Expected volatility is based on the Company’s historical stock price volatility beginning in 2014. Prior years were based on the historic volatility of a publicly traded company in the same industry.volatility. The expected term is calculated by using the simplified method (average of the vesting and original contractual terms) due to insufficient historical data. The risk-free rate is based on the zero coupon U.S. Treasury bond rate over the expected term of the awards.

The following table summarizes the stock option activity for the threesix months ended March 31,June 30, 2015:

 

  Number of
Shares
 Weighted-Average
Price Per Share
   Weighted-Average
Remaining
Contractual
Life (Years)
   Aggregate
Intrinsic
Value
   Number of
Shares
   Weighted-
Average

Price
Per Share
   Weighted-
Average
Remaining
Contractual
Life (Years)
   Aggregate
Intrinsic
Value
 

Options outstanding, beginning of the year

   896   $11.63         896    $11.63      

Granted

   101   15.55         297     15.26      

Exercised

   (37 8.64         (95   6.96      

Forfeited

   (10 15.29         (17   16.03      

Expired

         —           —        —      —       
  

 

  

 

       

 

   

 

     

Options outstanding at March 31, 2015

 950  $12.13       4.8  $3,650  

Options outstanding at June 30, 2015

   1,081    $12.97     5.5    $5,713  
  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Options exercisable at March 31, 2015

 625  $9.12   2.7  $3,650  

Options exercisable at June 30, 2015

   629    $10.26     3.0    $4,872  
  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Available for grant at March 31, 2015

 572  

Available for grant at June 30, 2015

   580        
  

 

        

 

       

The following table provides additional stock option information.

 

  Three Months Ended March 31,   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
  2015   2014   2015   2014   2015   2014 

Weighted-average grant date fair value per award

  $7.33      

Weighted-average grant date fair value per share

  $6.95    $—     $7.08    $—   

Intrinsic value of options exercised

  $258    $316    $636    $316    $894    $316  

Fair value of stock options that vested

  $439    $698    $411    $698    $851    $698  

Restricted stock units:Compensation expense for restricted stock units is based on the Company’s closing stock price on the date of grant and the probability that certain financial goals are achieved over the performance period. Compensation cost is estimated based on expected performance and is adjusted at each reporting period.

The following table summarizes restricted stock unit activity during the threesix months ended March 31, 2015:June 30, 2015. No restricted stock units were granted in the three or six months ended June 30, 2014:

 

  Shares   Weighted-Average
Grant Date

Fair Value
   Units   Weighted-Average
Grant Date

Fair Value
 

Non-vested shares, beginning of the year

   35    $17.76  

Non-vested units, beginning of the year

   35    $17.76  

Granted

   —      —      92     14.75  

Vested

   —      —      —       —   

Forfeited

   (5   17.76     (7   17.76  
  

 

   

 

   

 

   

 

 

Non-vested shares, at March 31, 2015

 30  $17.76  

Non-vested units, at June 30, 2015

   120    $15.46  
  

 

   

 

   

 

   

 

 

The following table provides additional restricted stock unit information.

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2015   2014   2015   2014 

Weighted-average grant date fair value per unit

  $14.75    $—     $14.75    $—   

Cash-settled performance shares:units: Cash-settled performance sharesunits will be settled in cash at the end of the performance measurement period and are classified as a liability. Compensation cost is estimated based on expected performance and is adjusted at each reporting period.

The following table summarizes cash-settled performance shareunit activity during the threesix months ended March 31, 2015:June 30, 2015. No cash-settled performance units were granted in the three or six months ended June 30, 2014:

 

  Shares   Weighted-Average
Grant Date

Fair Value
   Units   Weighted-Average
Grant Date

Fair Value
 

Non-vested shares, beginning of the year

   629    $1.00  

Non-vested units, beginning of the year

   629    $1.00  

Granted

   —      —      1,357     1.00  

Vested

   —      —      —       —   

Forfeited

   (98   1.00     (125   1.00  
  

 

   

 

   

 

   

 

 

Non-vested shares, at March 31, 2015

 531  $1.00  

Non-vested units, at June 30, 2015

   1,861    $1.00  
  

 

   

 

   

 

   

 

 

Restricted stock awards:The fair value and compensation cost of restricted stock is calculated using the Company’s closing stock price on the date of grant.

In January 2015, the Company entered into an Employment Agreement with its Chief Executive Officer. Pursuant to the Employment Agreement, the Company granted the executive 99 fully-vested shares of common stock, subject to a holding period requirement, and recognized $1,530 of expense during the threesix months ended March 31,June 30, 2015.

The following table summarizes restricted stock activity during the threesix months ended March 31,June 30, 2015:

 

  Shares   Weighted-Average
Grant Date

Fair Value
   Shares   Weighted-Average
Grant Date

Fair Value
 

Non-vested shares, beginning of the year

   60    $15.91     60    $15.91  

Granted

   99     15.10     118     15.29  

Vested

   (99   15.10     (145   15.17  

Forfeited

   (10   17.76     (12   17.76  
  

 

   

 

   

 

   

 

 

Non-vested shares, at March 31, 2015

 50  $15.53  

Non-vested shares, at June 30, 2015

   21    $16.47  
  

 

   

 

   

 

   

 

 

The following table provides additional restricted stock information.

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2015   2014   2015   2014 

Weighted-average grant date fair value per share

  $16.30    $15.34    $15.29    $15.34 

Fair value of restricted stock awards that vested

  $698    $—      $2,198    $—    

Note 9. Commitments and Contingencies

On May 30, 2014, a securities class action lawsuit was filed in the United States District Court for the Southern District of New York against the Company and certain of its current and former directors, executive officers, and shareholders (collectively, the “Defendants”). The complaint alleged violations of the Securities Act of 1933 (“1933 Act Claims”) and sought unspecified compensatory damages and other relief on behalf of a purported class of purchasers of the Company’s common stock in the September 2013 and December 2013 secondary public offerings. On August 25, 2014, Waterford Township Police & Fire Retirement System and City of Roseville Employees’ Retirement System were appointed as lead plaintiffs (collectively, the “Plaintiffs”). An amended complaint was filed on November 24, 2014. In addition to the 1933 Act Claims, the amended complaint also added claims for violations of the Securities Exchange Act of 1934 (“1934 Act Claims”) seeking unspecified compensatory damages on behalf of a purported class of purchasers of the Company’s common stock between May 2, 2013 and October 30, 2014, inclusive. On January 26, 2015, the Defendants filed motions to dismiss the amended complaint in its entirety. In response, the Plaintiffs sought and were granted leave to file an amended complaint. On February 27, 2015, the Plaintiffs filed a second amended complaint. Like the prior amended complaint, the second amended complaint asserts 1933 Act Claims and 1934 Act Claims and seeks unspecified compensatory damages. The Defendants’ motions to dismiss the second amended complaint were filed on April 28, 2015. The2015, the Plaintiffs’ opposition is duewas filed on June 12, 2015, and the Defendants’ reply is duewas filed on July 13, 2015. The motions remain under consideration by the Court. The Company believes that the claims against it are without merit and intends to defend against the litigation vigorously.

The Company’s primary insurance carrier during the applicable time period has (i) denied coverage for the 1933 Act Claims and (ii) acknowledged coverage of the Company and other insureds for the 1934 Act Claims under a reservation of rights and subject to the terms and conditions of the applicable insurance policy. The parties are in the process of negotiating an allocation between denied and acknowledged claims.

In the normal course of business, the Company has been named as a defendant in legal actions, including arbitrations, class actions, and other litigation arising in connection with its activities. Some of the actual or threatened legal actions include claims for compensatory and punitive damages or claims for indeterminate amounts of damages. While the Company will continue to identify legal actions where the Company believes a material loss to be reasonably possible and reasonably estimable, there can be no assurance that material losses will not be incurred from claims that the Company has not yet been notified of or are not yet determined to be probable or reasonably possible and reasonable to estimate.

The Company contests liability and the amount of damages, as appropriate, in each pending matter. Where available information indicates that it is probable that a liability has been incurred and the Company can reasonably estimate the amount of that loss, the Company accrues the estimated loss by a charge to net income. As of March 31,June 30, 2015, the Company has accrued $497$523 for these matters. In many actions, however, it is inherently difficult to determine whether any loss is probable or even reasonably possible or to estimate the amount of loss. In addition, even where a loss is reasonably possible or an exposure to loss exists in excess of the liability already accrued, it is not always possible to reasonably estimate the size of the possible loss or range of loss.

For certain legal actions, the Company cannot reasonably estimate such losses, particularly for actions that are in their early stages of development or where plaintiffs seek indeterminate damages. Numerous issues may need to be resolved, including through lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the actions in question, before a loss, additional loss, range of loss, or range of additional loss can be reasonably estimated for any given action.

For certain other legal actions, the Company can estimate reasonably possible losses, additional losses, ranges of loss, or ranges of additional loss in excess of amounts accrued, but the Company does not believe, based on current knowledge and after consultation with counsel, that such losses will have a material adverse effect on the consolidated financial statements.

The Company expenses legal costs as they are incurred.

Note 10: Subsequent Events

On April 1, 2015, the Company purchased three interest rate cap contracts for $577 to manage the interest rate risk associated with future interest payments on variable-rate debt. The Company will use the interest rate caps to minimize the negative impact of interest rate fluctuations on its earnings and cash flows, thus reducing the Company’s exposure to variability in expected future cash flows. The interest rate cap contracts have an aggregate notional principal amount of $150,000 with a 2.5% strike rate against one-month LIBOR rates and mature in April 2018.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. These discussions contain forward-looking statements reflecting our current expectations that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, expectations regarding demand and acceptance for our financial products, growth opportunities and trends in the market in which we operate, prospects, and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including without limitation, the risks set forth in our filings with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (which was filed with the SEC on March 16, 2015) and this Quarterly Report on Form 10-Q.. The forward-looking information we have provided in this Quarterly Report onForm 10-Q pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or revise such statements, except as required by the federal securities laws.

The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited consolidated financial statements contained elsewhere in this report, as well as our audited consolidated financial statements, including the notes thereto, and the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.2014 and in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2015.

Overview

We are a diversified specialty consumer finance company providing a broad array of loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other traditional lenders. We began operations in 1987 with four branches in South Carolina and have expanded our branch network to 306316 locations in the states of Alabama, Georgia, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, and Texas as of March 31,June 30, 2015. Most of our loan products are secured, and each is structured on a fixed rate, fixed term basis with fully amortizing equal monthly installment payments, repayable at any time without penalty. Our loans are sourced through our multiple channel platform including inthat includes our branches, through direct mail campaigns, independent and franchise automobile dealerships, online credit application networks, retailers, and our consumer website. We operate an integrated branch model in which nearly all loans, regardless of origination channel, are serviced through our branch network, providing us with frequent in-person contact with our customers, which we believe improves our credit performance and customer loyalty. Our goal is to consistently and soundly grow our finance receivables and manage our portfolio risk while providing our customers with attractive and easy-to-understand loan products that serve their varied financial needs.

Our diversified product offerings include:

 

  Small Loans – Our small loan portfolio is comprised of branch small loan receivables and convenience check receivables. As of March 31,June 30, 2015, we had approximately 271,300273,400 small loans outstanding, representing $291.7$314.9 million in finance receivables. This includes 108,700112,000 branch small installment loans and 162,600161,400 convenience check loans, representing $121.7$140.2 million and $170.0$174.8 million in finance receivables, respectively.

 

  Large Loans – As of March 31,June 30, 2015, we had approximately 17,00024,300 large installment loans outstanding, representing $63.3$93.2 million in finance receivables.

 

  Automobile Loans – As of March 31,June 30, 2015, we had approximately 16,60016,000 automobile purchase loans outstanding, representing $146.7$139.6 million in finance receivables. This includes 8,7008,300 indirect automobile loans and 7,9007,700 direct automobile loans, representing $86.0$80.4 million and $60.7$59.2 million in finance receivables, respectively.

 

  Retail Loans – As of March 31,June 30, 2015, we had approximately 24,00023,900 retail purchase loans outstanding, representing $24.2$24.8 million in finance receivables.

 

  Insurance Products – We offer our customers optional payment protection insurance options relating to manycustomers of our direct loan products.

Branch small loans, convenience checks, and large loans are our core products and will be the drivers of our future growth. Our primary sources of revenue are interest and fee income from our loan products, of which interest and fees relating to branch small loans, convenience checks, and automobile loans have historically been the largest component. In addition to interest and fee income from loans, we derive revenue from optional insurance products purchased by customers of our direct loan products.

Factors Affecting Our Results of Operations

Our business is driven by several factors affecting our revenues, costs, and results of operations, including the following:

Growth in Loan Portfolio. The revenue that we derive from interest and fees from our loan products is largely driven by the amount of loans that we originate and purchase. We originated or purchased approximately 172,900 143,500, and 24,400143,500 new loan accounts during 2013 2014, and the first three months of 2015,2014, respectively. Average finance receivables grew 10.9% from $477.4 million in 2013 to $529.5 million in 2014. We originated or purchased approximately 57,300 and 61,500 new loan accounts during the first six months of 2014 and 2015, respectively. Average finance receivables grew 1.5%5.0% from $525.8$518.5 million in the first threesix months of 2014 to $533.7$544.2 in the first threesix months of 2015. We source our loans through our branches and our direct mail program, as well as through automobile dealerships and retailers that partner with us. Our loans are made almost exclusively in geographic markets served by our network of branches. Increasing the number of branches we operate allows us to increase the number of loans that we are able to service. We opened or acquired 43 36, and 636 new branches in 2013 and 2014, respectively. We opened or acquired 29 and 16 new branches in the first threesix months of 2014 and 2015, respectively. We believe we have the opportunity to add as many as 700 additional branches in states where it is currently favorable for us to conduct business, and we have plans to continue to grow our branch network. A minimum of 25 to 30 branches are scheduled to be opened during 2015.

Product Mix. We offer a number of different loan products, including small loans (comprised of branch small loans and convenience checks), large loans, automobile loans, and retail loans. We charge different interest rates and fees and are exposed to different credit risks with respect to the various types of loans we offer. Our product mix also varies to some extent by state, and we expect to continue tomay further diversify our product mix in the future.

Asset Quality. Our results of operations are highly dependent upon the quality of our asset portfolio. We recorded a $21.8 million provision for credit losses during the first six months of 2015 (or 8.0% of average finance receivables) and a $30.6 million provision for credit losses during the first six months of 2014 (or 11.8% as a percentage of average finance receivables). We recorded a $69.1 million provision for credit losses during 2014 (or 13.0% as a percentage of average finance receivables) and a $9.7 million provision for credit losses during the first three months of 2015 (or 7.3% of average finance receivables). The quality of our asset portfolio is the result of our ability to enforce sound underwriting standards, maintain diligent service and collection of the portfolio, and respond to changing economic conditions as we grow our loan portfolio.

Allowance for Credit Losses.We evaluate losses in each of our loan categories of loans in establishing the allowance for credit losses. The following table sets forth our allowance for credit losses compared to the related finance receivables (in thousands):

 

  As of March 31, 2015 As of December 31, 2014   As of June 30, 2015 As of December 31, 2014 
  Finance
Receivables
   Allowance
for Credit
Losses
   Allowance as
Percentage
of Related
Finance
Receivables
 Finance
Receivables
   Allowance
for Credit
Losses
   Allowance as
Percentage
of Related
Finance
Receivables
   Finance
Receivables
   Allowance
for Credit
Losses
   Allowance as
Percentage
of Related
Finance
Receivables
 Finance
Receivables
   Allowance
for Credit
Losses
   Allowance as
Percentage
of Related
Finance
Receivables
 

Branch small loans

  $121,649    $6,750     5.5 $128,217    $6,960     5.4  $140,161    $7,138     5.1 $128,217    $6,960     5.4

Convenience checks

   170,013     13,790     8.1 191,316     18,320     9.6   174,786     11,205     6.4 191,316     18,320     9.6

Large loans

   63,338     3,119     4.9 46,147     1,980     4.3   93,203     5,364     5.8 46,147     1,980     4.3

Automobile loans

   146,724     11,833     8.1 154,382     11,776     7.6   139,593     11,121     8.0 154,382     11,776     7.6

Retail loans

   24,183     1,458     6.0 26,130     1,475     5.6   24,782     1,343     5.4 26,130     1,475     5.6
  

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

   

 

  

 

   

 

   

 

 

Total

$525,907  $36,950   7.0$546,192  $40,511   7.4  $572,525    $36,171     6.3 $546,192    $40,511     7.4
  

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

   

 

  

 

   

 

   

 

 

The allowance for credit losses uses the net charge-off rate for the most recent six months (branch small loans and convenience checks), ten months (retail loans), eleven months (large and retail loans), and twelve months (automobile loans) as a percentage of the most recent month-end balance of loans as a key data point in estimating the allowance. Based on our 2014 annual2015 evaluation of the effective lives of our loan categories, retaillarge loans were updated to use a tenan eleven month effective life rather than eleven.ten. This had a negligible impact onadded $0.4 million to the allowance duefor credit losses during the six months ended June 30, 2015. The effective life for large loans may increase to twelve months by the relative sizeend of 2015. As we continue to grow our large loan portfolio, we are originating longer term loans, thus increasing the retail loan portfolio.effective life of large loans. We believe that the primary underlying factors driving the provision for credit losses for each of these loan types are our underwriting standards, the general economic conditions in the areas in which we conduct business, portfolio growth, and the effectiveness of our collection efforts. In addition, gasoline prices and the market for repossessed automobiles at auction are additional underlying factors that we believe influence the provision for credit losses for automobile purchase loans and, to a lesser extent, large loans. We monitor these factors, the amount and past due status of delinquencies, and the slow file (which consists of all loans one or more days past due) to identify trends that might require us to modify the allowance for credit losses accordingly.

Interest Rates. Our costs of funds are affected by changes in interest rates, and the interest rate that we pay on our senior revolving credit facility is a floating rate. A previous interest rate cap matured unused onin March 4, 2014. OnIn April 1, 2015, we entered into another interest rate management transaction to replace the matured interest rate cap. The interest rate cap contracts have an aggregate notional principal amount of $150.0 million with a 2.5% strike rate against one-month LIBOR rates and mature in April 2018.

Operating Costs. Our financial results are impacted by the costs of operating our branch offices and corporate functions. Those costs are included in general and administrative expenses on our consolidated statements of income. One of our key operating metrics is our efficiency ratio, which is calculated by dividing the sum of general and administrative expenses by total revenue or average finance receivables. Our revenue efficiency ratio was 62.1%57.7% for the first threesix months of 2015 compared to 40.1%44.4% for the same period of 2014, and our annualized receivable efficiency ratio was 24.4%22.4% for the first threesix months of 2015, compared to 15.1%16.6% for the same period of 2014. The increase was primarily the result of adding 23 branches to our network since June 30, 2014, and certain non-operating expenses, including compensation-related costs of $2.1 million, as well as increases in marketing, credit risk consulting, and legal costs.

Components of Results of Operations

Interest and Fee Income.Our interest and fee income consists primarily of interest earned on outstanding loans. We cease accruing interest on a loan when the customer is contractually past due 90 days. Interest accrual resumes when the customer makes at least one full payment and the account is less than 90 days contractually past due. If the account is charged off, the interest accrual is reversed as a reduction of interest and fee income during the period the charge offcharge-off occurs.

Loan fees are additional charges to the customer, such as loan origination fees, acquisition fees, and maintenance fees, as permitted by state law. The fees may or may not be refundable to the customer in the event of an early payoff, depending on state law. Fees are accrued to income over the life of the loan on the constant yield method and are included in the truth in lending disclosure we make to our customers.

Insurance Income.Our insurance income consists of revenue from the sale of various optional credit insurance products and other payment protection options offered to customers who obtain loans directly from us. We do not sell insurance to non-borrowers. The type and terms of our optional credit insurance products vary from state to state based on applicable laws and regulations. We offer optional credit life insurance, credit accident and health insurance, and involuntary unemployment insurance. We require property insurance on any personal property securing loans and offer customers the option of providing proof of such insurance purchased from a third party in lieu of purchasing property insurance from us. We also require proof of liability and collision insurance for any vehicles securing loans, and we obtain automobile collision insurance on behalf of customers who permit their other insurance coverage to lapse.

We issue insurance certificates as agents on behalf of an unaffiliated insurance company and then remit to the unaffiliated insurance company the premiums we collect (net of refunds on prepaid loans and net of commission on new business). The unaffiliated insurance company cedes life insurance premiums to our wholly-owned insurance subsidiary, RMC Reinsurance, Ltd. (“RMC Reinsurance”), as written and non-life premiums as earned. As of March 31,June 30, 2015, we had pledged a $1.9 million letter of credit to the unaffiliated insurance company to secure payment of life insurance claims. We maintain a cash reserve for life insurance claims in an amount determined by the unaffiliated insurance company. The unaffiliated insurance company maintains the reserves for non-life claims.

Other Income.Our other income consists primarily of late charges assessed on customers who fail to make a payment within a specified number of days following the due date of the payment, fees for extending the due date of a loan, and returned check charges.

Provision for Credit Losses.Provisions for credit losses are charged to income in amounts that we judge as sufficient to maintain an allowance for credit losses at an adequate level to provide for estimated losses on the related finance receivables portfolio. Credit loss experience, delinquency of finance receivables, portfolio growth, the value of underlying collateral, and management’s judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses. Our provision for credit losses fluctuates so that we maintain an adequate credit loss allowance that reflects our estimate of losses over the averageeffective life in our loan portfolio.portfolios. Therefore, changes in our charge-off rates may result in changes to our provision for credit losses. Future adjustments to the allowance may be necessary if there are significant changes in economic conditions or portfolio performance.

General and Administrative Expenses.Our general and administrative expenses are comprised of four categories: personnel, occupancy, marketing, and other. We measure our general and administrative expenses as a percentage of total revenue, which we refer to as our revenue efficiency ratio, and as a percentage of average finance receivables.receivables, which we refer to as our receivable efficiency ratio.

Our personnel expenses are the largest component of our general and administrative expenses and consist primarily of the salaries, bonuses, benefits, and related payroll taxes associated with all of our branch, field, and home office employees.

Our occupancy expenses consist primarily of the cost of renting our branches, all of which are leased, as well as the utility, telecommunication, software, data processing, and other non-personnel costs associated with operating our branches.

Our marketing expenses consist primarily of costs associated with our direct mail campaigns (including postage and costs associated with selecting recipients) and maintaining our web site,website, as well as telephone directory advertisements and some local marketing by branches. These costs are expensed as incurred.

Other expenses consist primarily of legal, audit, consulting, director compensation, bank service charges, office supplies, credit bureau charges, and postage.

Our general and administrative expenses have increased as a result of the additional legal, accounting, insurance, and other expenses associated with being a publicgrowing company. We expect compliance costs to continue to increase due to the regulatory environment in the consumer finance industry, and we expect legal costs to continue to increase as a result of the securities class action lawsuit. For a discussion regarding how risks and uncertainties associated with legal proceedings and the current regulatory environment may impact our future expenses, net income, and overall financial condition, see Part I, Item 1A. “Risk Factors” in our Annual Report onForm 10-K for the fiscal year ended December 31, 2014.

Interest Expense.Our interest expense consists primarily of interest payable, unused line fees, and amortization of debt issuance costs in respect of borrowings under our senior revolving credit facility. In April 2015, we purchased interest rate caps with an aggregate notional principal amount of $150.0 million as economic safeguards against the variability of future interest rates.

Income Taxes.Income taxes consist primarily of state and federal income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effects of future tax rate changes are recognized in the period when the enactment of new rates occurs.

Results of Operations

The following table summarizes key components of our results of operations, for the periods indicated, both in dollars (in thousands) and as a percentage of total revenue:

 

  1Q’15 1Q’14   2Q’15 2Q’14 YTD’15 YTD’14 
  Amount   % of
Revenue
 Amount   % of
Revenue
   Amount   % of
Revenue
 Amount   % of
Revenue
 Amount   % of
Revenue
 Amount   % of
Revenue
 

Revenue

                    

Interest and fee income

  $47,065     89.6 $44,080     88.9  $47,668     89.9 $42,962     90.6 $94,733     89.8 $87,041     89.7

Insurance income, net

   2,929     5.6 3,295     6.6   3,120     5.9 2,481     5.2 6,049     5.7 5,776     6.0

Other income

   2,530     4.8 2,206     4.5   2,213     4.2 1,994     4.2 4,743     4.5 4,201     4.3
  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

 

Total revenue

 52,524   100.0 49,581   100.0   53,001     100.0 47,437     100.0 105,525     100.0 97,018     100.0
  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

 

Expenses

             

Provision for credit losses

 9,712   18.5 16,945   34.2   12,102     22.8 13,620     28.7 21,814     20.7 30,564     31.5

Personnel

 19,760   37.6 11,174   22.5   16,211     30.6 13,068     27.6 35,971     34.1 24,242     25.0

Occupancy

 4,125   7.9 3,420   6.9   4,256     8.0 3,713     7.8 8,381     7.9 7,133     7.4

Marketing

 2,471   4.7 982   2.0   2,009     3.8 1,750     3.7 4,480     4.2 2,732     2.8

Other

 6,267   11.9 4,322   8.7   5,767     10.9 4,667     9.8 12,034     11.5 8,990     9.2
  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

 

Total general and administrative

 32,623   62.1 19,898   40.1   28,243     53.3 23,198     48.9 60,866     57.7 43,097     44.4

Interest expense

 3,604   6.9 3,763   7.6   3,932     7.4 3,556     7.5 7,536     7.1 7,319     7.6
  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

 

Income before income taxes

 6,585   12.5 8,975   18.1   8,724     16.5 7,063     14.9 15,309     14.5 16,038     16.5

Income taxes

 2,502   4.7 3,365   6.8   3,316     6.3 2,649     5.6 5,818     5.5 6,014     6.2
  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

 

Net income

$4,083   7.8$5,610   11.3  $5,408     10.2 $4,414     9.3 $9,491     9.0 $10,024     10.3
  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

 

The following table summarizes key components of our results of operations, for the periods indicated, both in dollars (in dollars)thousands) and as a percentage of average receivables:

 

   1Q’15  1Q’14 
   Amount   % of
Average
Receivables
  Amount   % of
Average
Receivables
 

Revenue

       

Interest and fee income

  $47,065     35.3 $44,080     33.5

Insurance income, net

   2,929     2.2  3,295     2.5

Other income

   2,530     1.9  2,206     1.7
  

 

 

   

 

 

  

 

 

   

 

 

 

Total revenue

 52,524   39.4 49,581   37.7
  

 

 

   

 

 

  

 

 

   

 

 

 

Expenses

Provision for credit losses

 9,712   7.3 16,945   12.9

Personnel

 19,760   14.8 11,174   8.5

Occupancy

 4,125   3.1 3,420   2.6

Marketing

 2,471   1.9 982   0.7

Other

 6,267   4.6 4,322   3.3
  

 

 

   

 

 

  

 

 

   

 

 

 

Total general and administrative

 32,623   24.4 19,898   15.1

Interest expense

 3,604   2.7 3,763   2.9
  

 

 

   

 

 

  

 

 

   

 

 

 

Income before income taxes

 6,585   4.9 8,975   6.8

Income taxes

 2,502   1.8 3,365   2.5
  

 

 

   

 

 

  

 

 

   

 

 

 

Net income

$4,083   3.1$5,610   4.3
  

 

 

   

 

 

  

 

 

   

 

 

 

   2Q’15  2Q’14  YTD’15  YTD’14 
   Amount   % of
Average
Receivables
  Amount   % of
Average
Receivables
  Amount   % of
Average
Receivables
  Amount   % of
Average
Receivables
 

Revenue

             

Interest and fee income

  $47,668     34.7 $42,962     33.9 $94,733     34.8 $87,041     33.6

Insurance income, net

   3,120     2.3  2,481     2.0  6,049     2.2  5,776     2.2

Other income

   2,213     1.5  1,994     1.5  4,743     1.8  4,201     1.6
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total revenue

   53,001     38.5  47,437     37.4  105,525     38.8  97,018     37.4
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Expenses

             

Provision for credit losses

   12,102     8.8  13,620     10.7  21,814     8.0  30,564     11.8

Personnel

   16,211     11.8  13,068     10.3  35,971     13.2  24,242     9.4

Occupancy

   4,256     3.1  3,713     2.9  8,381     3.1  7,133     2.8

Marketing

   2,009     1.5  1,750     1.4  4,480     1.6  2,732     1.1

Other

   5,767     4.1  4,667     3.7  12,034     4.5  8,990     3.3
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total general and administrative

   28,243     20.5  23,198     18.3  60,866     22.4  43,097     16.6

Interest expense

   3,932     2.9  3,556     2.8  7,536     2.8  7,319     2.8
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Income before income taxes

   8,724     6.3  7,063     5.6  15,309     5.6  16,038     6.2

Income taxes

   3,316     2.4  2,649     2.1  5,818     2.1  6,014     2.3
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Net income

  $5,408     3.9 $4,414     3.5 $9,491     3.5 $10,024     3.9
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

The following tables, provided on pages 20-24, summarize selectedkey financial data for the periods indicated (dollars in thousands):

 

  Net Loans Originated (1)   Net Loans Originated (1) 
  1Q’15   4Q’14   1Q’14   QoQ $
Inc (Dec)
 QoQ %
Inc (Dec)
 YoY $
Inc (Dec)
 YoY %
Inc (Dec)
   2Q’15   1Q’15   2Q’14   QoQ $
Inc (Dec)
 QoQ %
Inc (Dec)
 YoY $
Inc (Dec)
 YoY %
Inc (Dec)
 

Branch small loans

  $51,371    $80,170    $42,846    $(28,799 -35.9 $8,525   19.9  $80,818    $51,371    $62,751    $29,447   57.3 $18,067   28.8

Convenience checks

   60,653     95,330     52,656     (34,677 -36.4 7,997   15.2   90,745     60,653     84,576     30,092   49.6 6,169   7.3

Large loans

   29,829     17,737     10,358     12,092   68.2 19,471   188.0   46,134     29,829     13,020     16,305   54.7 33,114   254.3

Automobile loans

   14,590     13,516     18,898     1,074   7.9 (4,308 -22.8   11,802     14,590     18,786     (2,788 -19.1 (6,984 -37.2

Retail loans

   6,727     7,634     8,517     (907 -11.9 (1,790 -21.0   8,136     6,727     7,345     1,409   20.9 791   10.8
  

 

   

 

   

 

   

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Total net loans originated

$163,170  $214,387  $133,275  $(51,217 -23.9$29,895   22.4  $237,635    $163,170    $186,478    $74,465   45.6 $51,157   27.4
  

 

   

 

   

 

   

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

(1)Represents the balance of loan origination and refinancing net of unearned finance charges

   Other Key Metrics 
   2Q’15  1Q’15  2Q’14 

Net charge-offs

  $12,881   $13,273   $13,361  

Percentage of average finance receivables (annualized)

   9.4  9.9  10.5

Provision for credit losses

  $12,102   $9,712   $13,620  

Percentage of average finance receivables (annualized)

   8.8  7.3  10.7

Percentage of total revenue

   22.8  18.5  28.7

General and administrative expenses

  $28,243   $32,623   $23,198  

Percentage of average finance receivables (annualized)

   20.5  24.4  18.3

Percentage of total revenue

   53.3  62.1  48.9

Same store results:

    

Finance receivables at period-end

  $545,928   $501,393   $484,048  

Finance receivable growth rate

   8.0  1.1  6.6

Number of branches in calculation

   281    264    232  

   Finance Receivables by Product 
   2Q’15   1Q’15   QoQ $
Inc (Dec)
  QoQ %
Inc (Dec)
  2Q’14   YoY $
Inc (Dec)
  YoY %
Inc (Dec)
 

Branch small loans

  $140,161    $121,649    $18,512    15.2 $107,598    $32,563    30.3

Convenience checks

   174,786     170,013     4,773    2.8  167,858     6,928    4.1

Large loans

   93,203     63,338     29,865    47.2  42,996     50,207    116.8

Automobile loans

   139,593     146,724     (7,131  -4.9  171,777     (32,184  -18.7

Retail loans

   24,782     24,183     599    2.5  27,746     (2,964  -10.7
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Total finance receivables

  $572,525    $525,907    $46,618    8.9 $517,975    $54,550    10.5
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Number of branches at period end

   316     306     10    3.3  293     23    7.8

Average finance receivables per branch

  $1,812    $1,719    $93    5.4 $1,768    $44    2.5
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 
   2Q’14   1Q’14   QoQ $
Inc (Dec)
  QoQ %
Inc (Dec)
    

Total finance receivables

  $517,975    $501,734    $16,241    3.2 
  

 

 

   

 

 

   

 

 

  

 

 

     

   Contractual Delinquency by Aging 
   2Q’15  1Q’15  4Q’14  2Q’14 

Allowance for credit losses

  $36,171     6.3 $36,950     7.0 $40,511     7.4 $34,584     6.7

Current

   454,424     79.4  425,088     80.8  422,342     77.4  395,791     76.4

1 to 29 days past due

   81,275     14.2  67,653     12.9  82,714     15.1  87,799     17.0
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Delinquent accounts:

             

30 to 59 days

   14,665     2.5  11,596     2.2  15,951     2.9  14,984     2.9

60 to 89 days

   8,113     1.4  6,824     1.3  9,624     1.8  6,772     1.3

90 to 119 days

   5,633     1.0  4,844     0.9  6,899     1.2  4,435     0.9

120 to 149 days

   4,597     0.8  4,881     0.9  4,988     0.9  3,206     0.6

150 to 179 days

   3,818     0.7  5,021     1.0  3,674     0.7  2,155     0.4

180 days and over

   —      0.0  —      0.0  —      0.0  2,833     0.5
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total contractual delinquency

  $36,826     6.4 $33,166     6.3 $41,136     7.5 $34,385     6.6
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total finance receivables

  $572,525     100.0 $525,907     100.0 $546,192     100.0 $517,975     100.0
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

1 day and over past due

  $118,101     20.6 $100,819     19.2 $123,850     22.6 $122,184     23.6
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 
   Contractual Delinquency by Product 
   2Q’15  1Q’15  4Q’14  2Q’14 

Branch small loans

  $10,804     7.7 $8,890     7.3 $10,247     8.0 $8,525     7.9

Convenience checks

   13,561     7.8  14,681     8.6  17,165     9.0  11,197     6.7

Large loans

   2,748     2.9  1,704     2.7  2,106     4.6  2,437     5.7

Automobile loans

   8,619     6.2  6,854     4.7  10,302     6.7  10,981     6.4

Retail loans

   1,094     4.4  1,037     4.3  1,316     5.0  1,245     4.5
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total contractual delinquency

  $36,826     6.4 $33,166     6.3 $41,136     7.5 $34,385     6.6

   Quarterly Trend 
   2Q’14   3Q’14   4Q’14   1Q’15   2Q’15   QoQ $
B(W)
  YoY $
B(W)
 

Revenue

             

Interest and fee income

  $42,962    $48,792    $48,964    $47,065    $47,668    $603   $4,706  

Insurance income, net

   2,481     2,636     2,261     2,929     3,120     191    639  

Other income

   1,994     2,481     2,567     2,530     2,213     (317  219  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total revenue

   47,437     53,909     53,792     52,524     53,001     477    5,564  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Expenses

             

Provision for credit losses

   13,620     22,542     15,950     9,712     12,102     (2,390  1,518  

Personnel

   13,068     14,042     17,099     19,760     16,211     3,549    (3,143

Occupancy

   3,713     4,179     4,115     4,125     4,256     (131  (543

Marketing

   1,750     1,756     1,842     2,471     2,009     462    (259

Other

   4,667     5,307     5,340     6,267     5,767     500    (1,100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total general and administrative

   23,198     25,284     28,396     32,623     28,243     4,380    (5,045

Interest expense

   3,556     3,848     3,780     3,604     3,932     (328  (376
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Income before income taxes

   7,063     2,235     5,666     6,585     8,724     2,139    1,661  

Income taxes

   2,649     838     2,285     2,502     3,316     (814  (667
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net income

  $4,414    $1,397    $3,381    $4,083    $5,408    $1,325   $994  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net income per common share:

             

Basic

  $0.35    $0.11    $0.27    $0.32    $0.42    $0.10   $0.07  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Diluted

  $0.34    $0.11    $0.26    $0.31    $0.41    $0.10   $0.07  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Weighted-average shares outstanding:

             

Basic

   12,691     12,714     12,744     12,838     12,845     (7  (154
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Diluted

   12,916     12,934     12,955     13,061     13,078     (17  (162
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 
   2Q’14   3Q’14   4Q’14   1Q’15   2Q’15   QoQ $
Inc (Dec)
  YoY $
Inc (Dec)
 

Total assets

   503,995     522,820     530,270     507,742     560,981     53,239    56,986  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Finance receivables

   517,975     543,353     546,192     525,907     572,525     46,618    54,550  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Allowance for credit losses

   34,584     43,301     40,511     36,950     36,171     779    (1,587
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Senior revolving credit facility

   324,570     339,323     341,419     312,538     359,491     46,953    34,921  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

   Headcount Trend 
   2Q’14   3Q’14   4Q’14   1Q’15   2Q’15   QoQ
Inc (Dec)
  YoY
Inc (Dec)
 

Branch headcount

   1,176     1,313  ��  1,335     1,273     1,205     (68  29  

2015 new branches

         15     40     25    40  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total branch headcount

   1,176     1,313     1,335     1,288     1,245     (43  69  

Home office headcount

   88     92     105     125     120     (5  32  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total headcount

   1,264     1,405     1,440     1,413     1,365     (48  101  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Number of branches

   293     296     300     306     316     10    23  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

   General & Administrative Expenses Trend 
   2Q’14   3Q’14   4Q’14   1Q’15   2Q’15   QoQ $
B(W)
  YoY $
B(W)
 

Branch G&A expenses

  $15,525    $16,866    $18,020    $19,284    $16,596    $2,688   $(1,071

2015 new branches

         86     498     (412  (498
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total branch G&A expenses

   15,525     16,866     18,020     19,370     17,094     2,276    (1,569

Marketing

   1,750     1,756     1,842     2,471     2,009     462    (259

Home office G&A expenses

   5,923     6,662     8,534     10,782     9,140     1,642    (3,217
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total G&A expenses

  $23,198    $25,284    $28,396    $32,623    $28,243    $4,380   $(5,045
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

   Net Loans Originated (1) 
   YTD’15   YTD’14   YTD $
Inc (Dec)
   YTD %
Inc (Dec)
 

Branch small loans

  $132,189    $105,597    $26,592     25.2

Convenience checks

   151,398     137,233     14,165     10.3

Large loans

   75,963     23,378     52,585     224.9

Automobile loans

   26,392     37,684     (11,292   -30.0

Retail loans

   14,863     15,862     (999   -6.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net loans originated

  $400,805    $319,754    $81,051     25.3
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)Represents the balance of loan origination and refinancing net of unearned finance charges

 

   Other Key Metrics 
   1Q’15  4Q’14  1Q’14 

Net charge-offs

  $13,273   $18,740   $12,709  

Percentage of average finance receivables (annualized)

   9.9  13.9  9.7

Provision for credit losses

  $9,712   $15,950   $16,945  

Percentage of average finance receivables (annualized)

   7.3  11.8  12.9

Percentage of total revenue

   18.5  29.7  34.2

General and administrative expenses

  $32,623   $28,396   $19,898  

Percentage of average finance receivables (annualized)

   24.4  21.0  15.1

Percentage of total revenue

   62.1  52.8  40.1

Same store results:

    

Finance receivables at period-end

  $480,768   $504,697   $446,814  

Finance receivable growth rate

   -2.0  -6.0  5.7

Revenue during period

  $48,821   $50,875   $44,583  

Revenue growth rate

   -0.6  4.8  16.8

Number of branches in calculation

   264    264    221  

   Finance Receivables by Product 
   1Q’15   4Q’14   QoQ $
Inc (Dec)
  QoQ %
Inc (Dec)
  1Q’14   YoY $
Inc (Dec)
  YoY %
Inc (Dec)
 

Branch small loans

  $121,649    $128,217    $(6,568  -5.1 $100,031    $21,618    21.6

Convenience checks

   170,013     191,316     (21,303  -11.1  155,030     14,983    9.7

Large loans

   63,338     46,147     17,191    37.3  41,868     21,470    51.3

Automobile loans

   146,724     154,382     (7,658  -5.0  175,152     (28,428  -16.2

Retail loans

   24,183     26,130     (1,947  -7.5  29,653     (5,470  -18.4
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

�� 

 

 

 

Total finance receivables

$525,907  $546,192  $(20,285 -3.7$501,734  $24,173   4.8
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 
   

 

           
   1Q’14   4Q’13   QoQ $
Inc (Dec)
  QoQ %
Inc (Dec)
           

Total finance receivables

  $501,734    $544,684    $(42,950  -7.9    
  

 

 

   

 

 

   

 

 

  

 

 

     
   Other Key Metrics 
   YTD’15  YTD’14 

Net charge-offs

  $26,154   $26,069  

Percentage of average finance receivables (annualized)

   9.6  10.1

Provision for credit losses

  $21,814   $30,564  

Percentage of average finance receivables (annualized)

   8.0  11.8

Percentage of total revenue

   20.7  31.5

General and administrative expenses

  $60,866   $43,097  

Percentage of average finance receivables (annualized)

   22.4  16.6

Percentage of total revenue

   57.7  44.4

   Contractual Delinquency by Aging 
   1Q’15  4Q’14  1Q’14 
   Amount   Percentage of
Total Finance
Receivables
  Amount   Percentage of
Total Finance
Receivables
  Amount   Percentage of
Total Finance
Receivables
 

Allowance for credit losses

  $36,950     7.0 $40,511     7.4 $34,325     6.8

Current

   425,088     80.8  422,342     77.4  392,804     78.3

1 to 29 days past due

   67,653     12.9  82,714     15.1  72,265     14.4
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Delinquent accounts:

30 to 59 days

 11,596   2.2 15,951   2.9 12,034   2.4

60 to 89 days

 6,824   1.3 9,624   1.8 7,479   1.5

90 to 119 days

 4,844   0.9 6,899   1.2 5,653   1.2

120 to 149 days

 4,881   0.9 4,988   0.9 4,242   0.8

150 to 179 days

 5,021   1.0 3,674   0.7 3,557   0.7

180 days and over

 —    0.0 —    0.0 3,700   0.7
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total contractual delinquency

$33,166   6.3$41,136   7.5$36,665   7.3
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total finance receivables

$525,907   100.0$546,192   100.0$501,734   100.0
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

1 day and over past due

$100,819   19.2$123,850   22.6$108,930   21.7
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 
   Contractual Delinquency by Product 
   1Q’15  4Q’14  1Q’14 
   Amount   Percentage of
Product Finance
Receivables
  Amount   Percentage of
Product Finance
Receivables
  Amount   Percentage of
Product Finance
Receivables
 

Branch small loans

  $8,890     7.3 $10,247     8.0 $8,804     8.8

Convenience checks

   14,681     8.6  17,165     9.0  13,533     8.7

Large loans

   1,704     2.7  2,106     4.6  2,469     5.9

Automobile loans

   6,854     4.7  10,302     6.7  10,353     5.9

Retail loans

   1,037     4.3  1,316     5.0  1,506     5.1
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total contractual delinquency

$33,166   6.3$41,136   7.5$36,665   7.3
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

   Subset of Convenience Checks (1) 
   1Q’15  4Q’14 

Current

  $10,750   $20,717  

1 to 29 days contractually delinquent

   2,200    4,965  

30 days and over contractually delinquent

   4,975    7,534  
  

 

 

  

 

 

 

Total finance receivables

$17,925  $33,216  
  

 

 

  

 

 

 

Allowance for credit losses

$4,972  $9,337  

Allowance as a % of 30 days and over contractually delinquent

 100 124

Allowance as a % of 1 day and over contractually delinquent

 69 75

(1)Remaining balance of convenience checks originated in the summer of 2014 that contained a higher percentage of lower credit quality customers

   Quarterly Trend 
   1Q’14   2Q’14   3Q’14   4Q’14   1Q’15   QoQ
B(W)
  YoY
B(W)
 

Revenue

             

Interest and fee income

  $44,080    $42,962    $48,792    $48,964    $47,065    $(1,899 $2,985  

Insurance income, net

   3,295     2,481     2,636     2,261     2,929     668    (366

Other income

   2,206     1,994     2,481     2,567     2,530     (37  324  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total revenue

 49,581   47,437   53,909   53,792   52,524   (1,268 2,943  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Expenses

Provision for credit losses

 16,945   13,620   22,542   15,950   9,712   6,238   7,233  

Personnel

 11,174   13,068   14,042   17,099   19,760   (2,661 (8,586

Occupancy

 3,420   3,713   4,179   4,115   4,125   (10 (705

Marketing

 982   1,750   1,756   1,842   2,471   (629 (1,489

Other

 4,322   4,667   5,307   5,340   6,267   (927 (1,945
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total general and administrative

 19,898   23,198   25,284   28,396   32,623   (4,227 (12,725

Interest expense

 3,763   3,556   3,848   3,780   3,604   176   159  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Income before income taxes

 8,975   7,063   2,235   5,666   6,585   919   (2,390

Income taxes

 3,365   2,649   838   2,285   2,502   (217 863  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net income

$5,610  $4,414  $1,397  $3,381  $4,083  $702  $(1,527
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net income per common share:

Basic

$0.44  $0.35  $0.11  $0.27  $0.32  $0.05  $(0.12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Diluted

$0.43  $0.34  $0.11  $0.26  $0.31  $0.05  $(0.12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Weighted-average shares outstanding:

Basic

 12,655   12,691   12,714   12,744   12,838   94   183  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Diluted

 13,000   12,916   12,934   12,955   13,061   106   61  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 
   1Q’14   2Q’14   3Q’14   4Q’14   1Q’15   QoQ
Inc (Dec)
  YoY
Inc (Dec)
 

Total assets

  $488,611    $503,995    $522,820    $530,270    $507,742    $(22,528 $19,131  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Finance receivables

$501,734  $517,975  $543,353  $546,192  $525,907  $(20,285$24,173  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Allowance for credit losses

$34,325  $34,584  $43,301  $40,511  $36,950  $3,561  $(2,625
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Senior revolving credit facility

$310,315  $324,570  $339,323  $341,419  $312,538  $(28,881$2,223  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

   Headcount Trend 
   1Q’14   2Q’14   3Q’14   4Q’14   1Q’15   QoQ
Inc(Dec)
  YoY
Inc(Dec)
 

Branch headcount

   1,084     1,176     1,313     1,335     1,273     (62  189  

2015 new branches

           15     15    15  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total branch headcount

 1,084   1,176   1,313   1,335   1,288   (47 204  

Home office headcount

 77   88   92   105   125   20   48  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total headcount

 1,161   1,264   1,405   1,440   1,413   (27 252  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Number of branches

 281   293   296   300   306   6   25  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 
   General & Administrative Expenses Trend 
   1Q’14   2Q’14   3Q’14   4Q’14   1Q’15   QoQ $
B(W)
  YoY $
B(W)
 

Branch G&A expenses

  $14,487    $15,525    $16,866    $18,020    $19,284    $(1,264 $(4,797

2015 new branches

           86     (86  (86
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total branch G&A expenses

 14,487   15,525   16,866   18,020   19,370   (1,350 (4,883

Marketing

 982   1,750   1,756   1,842   2,471   (629 (1,489

Home office G&A expenses

 4,429   5,923   6,662   8,534   10,782   (2,248 (6,353
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total G&A expenses

$19,898  $23,198  $25,284  $28,396  $32,623  $(4,227$(12,725
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Comparison of March 31,June 30, 2015, Versus March 31,June 30, 2014

The following is a discussion of the changes in finance receivables by product type:

 

  Branch Small Loans– Branch small loans outstanding increased by $21.6$32.6 million, or 21.6%30.3%, to $121.6$140.2 million at March 31,June 30, 2015, from $100.0$107.6 million at March 31,June 30, 2014. The growth in receivables at the branches opened in 2014 and 2015 contributed to the growth in overall branch small loans outstanding.

 

  Convenience Checks– Convenience checks outstanding increased by $15.0$6.9 million, or 9.7%4.1%, to $170.0$174.8 million at March 31,June 30, 2015, from $155.0$167.9 million at March 31,June 30, 2014. Our direct mail campaigns drove loan growth in existing and new branches.

 

  Large Loans– Large loans outstanding increased by $21.5$50.2 million, or 51.3%116.8%, to $63.3$93.2 million at March 31,June 30, 2015, from $41.9$43.0 million at March 31,June 30, 2014. The increase was primarily due to the addition of expertise in this product type and increased marketing.

 

  Automobile Loans– Automobile loans outstanding decreased by $28.4$32.2 million, or 16.2%18.7%, to $146.7$139.6 million at March 31,June 30, 2015, from $175.2$171.8 million at March 31,June 30, 2014. This decrease is due to our strategic decision to constrain capital in the highly competitive automobile category. In August 2014, our AutoCredit Source branches were re-branded as Regional Finance branches, and we now offer all loan products in these branches with less focus on indirect automobile purchase loans. We anticipate that the automobile loan portfolio will continue to liquidate in the short term as we refine our business practices in this segment.

 

  Retail Loans– Retail loans outstanding decreased $5.5$3.0 million, or 18.4%10.7%, to $24.2$24.8 million at March 31,June 30, 2015, from $29.7$27.7 million at March 31,June 30, 2014. The decrease in retail loans outstanding occurred because of competitive pressures and increased presence in the market.

Comparison of the Three Months Ended March 31,June 30, 2015, Versus the Three Months Ended March 31,June 30, 2014

Net Income and Revenue. Net income decreased $1.5increased $1.0 million, or 27.2%22.5%, to $4.1$5.4 million during the three months ended March 31,June 30, 2015, from $5.6$4.4 million during the prior year period. The decreaseincrease in net income induring the quarter ended June 30, 2015 is primarily due to a number of non-operating expenses incurred in the three months ended March 31, 2015, including compensation-related costs of $2.1 million and loan system implementation and termination costs of $0.6 million. On April 2, 2015, we terminated the system implementation and service agreement with DHI Computing Service, Inc. d/b/a GOLDPoint Systems, and we are currently reevaluating the various loan management system capabilities available in today’s market.decreased provision for credit losses. Revenue for the three months ended March 31,June 30, 2015 increased $2.9$5.6 million, or 5.9%11.7%, from the prior year period.

Interest and Fee Income.Interest and fee income increased $3.0$4.7 million, or 6.8%11.0%, to $47.1$47.7 million during the three months ended March 31,June 30, 2015, from $44.1$43.0 million during the prior year period. The increase in interest and fee income was primarily due to a 1.5%an 8.5% increase in average finance receivables since March 31, 2014, coupled with an increase in the average yield on loans of 1.8%, from 33.5% to 35.3%. The yield increase is due to statutory increases in allowable interest and fees in North Carolina and Texas.June 30, 2014. The following table sets forth the average finance receivables balance and average yield for each of our loan product categories (dollars in thousands):

 

  Averages and Yields   Averages and Yields 
  1Q’15 4Q’14 1Q’14   2Q’15 1Q’15 2Q’14 
  Average Finance
Receivables
   Average Yield
(Annualized)
 Average Finance
Receivables
   Average Yield
(Annualized)
 Average Finance
Receivables
   Average Yield
(Annualized)
   Average Finance
Receivables
   Average Yield
(Annualized)
 Average Finance
Receivables
   Average Yield
(Annualized)
 Average Finance
Receivables
   Average Yield
(Annualized)
 

Branch small loans

  $124,350     46.2 $119,097     48.4 $105,332     48.1  $130,806     45.3 $124,350     46.2 $103,595     48.5

Convenience checks

   181,425     45.9 192,951     46.8 169,456     43.5   171,323     45.0 181,425     45.9 158,564     44.4

Large loans

   52,738     26.7 43,464     27.1 42,607     26.7   79,756     27.7 52,738     26.7 42,380     27.3

Automobile loans

   150,107     19.2 159,047     19.5 177,962     19.7   143,659     19.3 150,107     19.2 173,676     19.8

Retail loans

   25,121     18.2 26,493     18.7 30,465     17.9   24,556     18.8 25,121     18.2 28,810     18.4
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Total interest and fee yield

$533,741   35.3$541,052   36.2$525,822   33.5  $550,100     34.7 $533,741     35.3 $507,025     33.9
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Total revenue yield

$533,741   39.4$541,052   39.8$525,822   37.7  $550,100     38.5 $533,741     39.4 $507,025     37.4
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

The following table summarizes the components of the increase in interest and fee income:

 

  Components of Increase in
Interest and Fee Income

1Q’15 Compared to 1Q’14
Increase/(Decrease)
   Components of Increase in Interest and Fee Income
2Q’15 Compared to 2Q’14
Increase (Decrease)
 
  Volume Rate Net   Volume Rate Net 

Branch small loans

  $2,215   $(513 $1,702    $3,124   $(884 $2,240  

Convenience checks

   1,343   1,024   2,367     1,432   230   1,662  

Large loans

   677   7   684     2,585   43   2,628  

Automobile loans

   (1,400 (150 (1,550   (1,516 (139 (1,655

Retail loans

   (234 16   (218   (191 22   (169

Change in product mix

   (1,718 1,718    —    
  

 

  

 

  

 

   

 

  

 

  

 

 

Total increase in interest and fee income

$2,601  $384  $2,985    $3,716   $990   $4,706  
  

 

  

 

  

 

   

 

  

 

  

 

 

Percentage of change in interest and fee income

 87.1 12.9 100.0   79.0 21.0 100.0
  

 

  

 

  

 

   

 

  

 

  

 

 

Branch small loan yields decreased 320 basis points compared to the three months ended June 30, 2014 as more of our branch small loan customers have originated loans with larger balances and longer maturities, which typically are priced at lower interest rates. We anticipate that the branch small loan yields will continue to decrease marginally due to the demand for the larger loan amounts. The overall portfolio yield increased 80 basis points predominantly due to the change in product mix.

Insurance Income.Insurance income decreased $366,000,increased $0.6 million, or 11.1%25.8%, to $2.9$3.1 million during the three months ended March 31,June 30, 2015 from $3.3$2.5 million during the prior year period. Annualized insurance income as a percentage of average finance receivables decreasedincreased to 2.2%2.3% for the three months ended MarchJune 2015 from 2.5%2.0% for the prior year period. The declineincrease is primarily due to an increase inlower claims expense.expense during the three months ended June 30, 2015 compared to the prior year period.

Other Income.Other income increased $324,000,$0.2 million, or 14.7%11.0%, to $2.5$2.2 million during the three months ended March 31,June 30, 2015 from $2.2$2.0 million during the prior year period. The largest component of other income is late charges, which increased $406,000 during$0.3 million compared to the three months ended March 31, 2015.June 30, 2014. The increase in late charges was due primarily to the implementation of a late fee as part of the modernization of North Carolina’s consumer finance law and a 1.5%an 8.5% increase in average finance receivables.

Provision for Credit Losses.Our provision for credit losses decreased $7.2$1.5 million, or 42.7%11.1%, to $9.7$12.1 million during the three months ended March 31,June 30, 2015 from $16.9$13.6 million during the prior year period.period due to improved charge-off performance. Annualized net charge-offs as a percentage of average finance receivables for the three months ended March 31,June 30, 2015 were 9.9%9.4%, a slight increasedecrease from 9.7%10.5% in the prior year period. Net charge-offs of $13.3$12.9 million during the three months ended March 31,June 30, 2015 exceeded the provision for credit losses as we released a portion of the allowance for credit losses recorded in 2014 for convenience checks. Based on our 2015 evaluation of the effective lives of our loan categories, large loans were updated to use an eleven month effective life rather than ten. This added $0.4 million to the allowance for credit losses during the three months ended June 30, 2015.

Delinquencies 1one day and over past due as a percentage of total finance receivables as of March 31,June 30, 2015 improved to 19.2%20.6%, compared to 21.7%23.6% as of March 31, 2014 and 22.6% as of December 31,June 30, 2014. Delinquencies 1 day30 days and over past due as a percentage of total finance receivables was the lowest since our initial public offering in March 2012.as of June 30, 2015 improved to 6.4%, compared to 6.6% as of June 30, 2014.

General and Administrative Expenses.Our general and administrative expenses, comprising expenses for personnel, occupancy, marketing, and other expenses, increased $12.7$5.0 million, or 64.0%21.7%, to $32.6$28.2 million during the three months ended March 31,June 30, 2015 from $19.9$23.2 million during the prior year period. Our revenue efficiency ratio (general and administrative expenses as a percentage of revenue) increased to 62.1% during the three months ended March 31, 2015 from 40.1% during the prior year period. Our receivable efficiency ratio (general and administrative expense as a percentage of average finance receivables) increased to 24.1%20.5% during the three months ended March 31,June 30, 2015 from 15.1%18.3% during the prior year period. ThisOur revenue efficiency ratio (general and administrative expenses as a percentage of revenue) increased to 53.3% during the three months ended June 30, 2015 from 48.9% during the prior year period. The cause of the increase was the result of adding 25 branches since March 31, 2014in general and certain non-operatingadministrative expenses including compensation-related costs of $2.1 million and loan system implementation and termination costs of $0.6 millionis explained in the first quarter of 2015.greater detail immediately below.

Personnel.The largest component of general and administrative expenses is personnel expense, which increased $8.6$3.1 million, or 76.8%24.1%, to $19.8$16.2 million during the three months ended March 31,June 30, 2015 from $11.2$13.1 million during the prior year period. This increase was primarily the result of adding 2523 branches to our network and 32 home office employees since March 31,June 30, 2014. The increase is also attributable to non-operating compensation-related costs of $2.1$0.7 million incurred during the three months ended March 31,June 30, 2015 primarily related to a Chief Executive Officer restrictedthe new long-term stock grantincentive plan and the retirementseparation agreement with our former Vice Chairman. During the three months ended March 31, 2014, we also changed our vacation pay policySVP of Strategic Operations and recorded a $1.4 million benefit.Initiatives. In addition, duringin the three months ended March 31,first quarter of 2015, we implemented a revised branch incentive plan that rewards employees in connection with corporate goals, resulting in a $1.8$0.5 million increase in personnel expense in the second quarter of 2015 compared to the prior year period.

Occupancy.Occupancy expenses increased $0.7$0.5 million, or 20.6%14.6%, to $4.1$4.3 million during the three months ended March 31,June 30, 2015 from $3.4$3.7 million in the prior year period. The increase in occupancy expenses is the result of new branches opened and telecommunications upgrades, and increased data processing needs.upgrades. Additionally, we frequently experience increases in rent as we renew existing leases. At March 31,June 30, 2014, we had 281293 branches; whereas, at March 31,June 30, 2015, we had 306316 branches.

Marketing. Marketing expenses increased $1.5$0.3 million, or 151.6%14.8%, to $2.5$2.0 million during the three months ended March 31,June 30, 2015 from $1.0$1.8 million during the prior year period. The increase was due to the increases in the volume of our mail campaigns, invitations to apply, and pre-qualified offers to support our 2523 new branches and grow our large loan product category. We also increased mail support throughout the first quarter of 2015 to curtail the seasonal liquidation of our loan portfolios which is typical in our industry. Seasonal portfolio liquidation of $20.3 million during the three months ended March 31, 2015 was a 52.8% improvement compared to prior year seasonal portfolio liquidation of $43.0 million, primarily due to a 22.4% increase in net originations from the prior year period.

Other Expenses. Other expenses increased $1.9$1.1 million, or 45.0%23.6%, to $6.3$5.8 million during the three months ended March 31,June 30, 2015 from $4.3$4.7 million during the prior year period. The increase was primarily due to $0.6$0.5 million of non-operating expenses related to loan system implementation and terminationconsulting costs, as well as increases for credit risk consulting, executive compensation consulting and legal costs, and costs related to a larger number of branches.

Interest Expense.Interest expense on the senior revolving credit facility and other debt increased $0.4 million, or 10.6%, to $3.9 million during the three months ended June 30, 2015 from $3.6 million during the prior year period. This increase was due primarily to the increase in the average balance of our senior revolving credit facility and the purchase of interest rate caps in April 2015. The average cost of our senior revolving credit facility increased 13 basis points to 4.66% for the three months ended June 30, 2015 from 4.53% for the prior period. The increase was due primarily to an increase in interest rate cap expense of $0.2 million.

Income Taxes.Income taxes increased $0.7 million, or 25.2%, to $3.3 million during the three months ended June 30, 2015 from $2.6 million during the prior year period. The increase in income taxes was due to an increase in our net income before taxes. Our effective tax rate increased 50 basis points to 38.0% during the three months ended June 30, 2015 from 37.5% during the prior year period. The slight increase in our effective tax rate was primarily due to the state mix of taxable income.

Comparison of the Six Months Ended June 30, 2015, Versus the Six Months Ended June 30, 2014

Net Income and Revenue.Net income decreased $0.5 million, or 5.3%, to $9.5 million during the six months ended June 30, 2015, from $10.0 million during the prior year period. The decrease in net income for the six months ended June 30, 2015 is primarily due to an increase in general and administrative expenses of $17.8 million partially offset by a decrease in provision for credit losses of $8.8 million and a revenue increase of $8.5 million.

Interest and Fee Income.Interest and fee income increased $7.7 million, or 8.8%, to $94.7 million during the six months ended June 30, 2015, from $87.0 million during the prior year period. The increase in interest and fee income was due primarily to a 5.0% increase in average finance receivables and a 1.2% yield increase since June 30, 2014. The following table sets forth the average finance receivables balance and average yield for each of our loan product categories (in thousands):

   Averages and Yields 
   YTD’15  YTD’14 
   Average Finance
Receivables
   Average Yield
(Annualized)
  Average Finance
Receivables
   Average Yield
(Annualized)
 

Branch small loans

  $128,425     45.4 $105,096     48.0

Convenience checks

   177,283     45.2  165,293     43.6

Large loans

   66,663     27.1  42,583     26.9

Automobile loans

   146,905     19.3  175,915     19.7

Retail loans

   24,932     18.5  29,635     18.1
  

 

 

   

 

 

  

 

 

   

 

 

 

Total interest and fee yield

  $544,208     34.8 $518,522     33.6
  

 

 

   

 

 

  

 

 

   

 

 

 

Total revenue yield

  $544,208     38.8 $518,522     37.4
  

 

 

   

 

 

  

 

 

   

 

 

 

The following table summarizes the components of the increase in interest and fee income:

   Components of Increase in Interest and Fee Income
YTD’15 Compared to YTD’14
Increase (Decrease)
 
   Volume  Rate  Net 

Branch small loans

  $5,359   $(1,417 $3,942  

Convenience checks

   2,678    1,351    4,029  

Large loans

   3,266    46    3,312  

Automobile loans

   (2,920  (285  (3,205

Retail loans

   (419  33    (386

Change in product mix

   (3,561  3,561    —    
  

 

 

  

 

 

  

 

 

 

Total increase in interest and fee income

  $4,403   $3,289   $7,692  
  

 

 

  

 

 

  

 

 

 

Percentage of change in interest and fee income

   57.2  42.8  100.0
  

 

 

  

 

 

  

 

 

 

Branch small loans decreased 260 basis points from the six months ended June 30, 2014 as more of our branch small loan customers have originated loans with larger balances and longer maturities, which typically are priced at lower interest rates. We anticipate that the branch small loan yields will continue to decrease marginally due to the demand for the larger loan amounts. The overall portfolio yield increased 120 basis points predominantly due to the change in product mix.

Insurance Income.Insurance income increased $0.3 million, or 4.7%, to $6.0 million during the six months ended June 30, 2015 from $5.8 million during the prior year period. The increase in insurance income was due primarily to a 5.0% increase in average finance receivables. Annualized insurance income as a percentage of average finance receivables remained at 2.2%.

Other Income.Other income increased $0.5 million, or 12.9%, to $4.7 million during the six months ended June 30, 2015 from $4.2 million during the prior year period. The largest component of other income is late charges, which increased $0.7 million, or 19.4%, to $4.3 million during the six months ended June 30, 2015 from $3.6 million during the prior year period. The increase in late charges was due primarily to the implementation of a late fee as part of the modernization of North Carolina’s consumer finance law and a 5.0% increase in average finance receivables.

Provision for Credit Losses.Our provision for credit losses decreased $8.8 million, or 28.6%, to $21.8 million during the six months ended June 30, 2015 from $30.6 million during the prior year period due to improved charge-off performance. Annualized net loans charged-off were 9.6% and 10.1% of average finance receivables for the six month period ended June 30, 2015 and 2014, respectively. Net charge-offs of $26.2 million during the six months ended June 30, 2015 exceeded the provision for credit losses as we released a portion of the allowance for credit losses recorded in 2014 for convenience checks. Based on our 2015 evaluation of the effective lives of our loan categories, large loans were updated to use an eleven month effective life rather than ten. This added $0.4 million to the allowance for credit losses during the six months ended June 30, 2015.

General and Administrative Expenses.Our general and administrative expenses, comprising expenses for personnel, occupancy, marketing, and other expenses, increased $17.8 million, or 41.2%, to $60.9 million during the six months ended June 30, 2015 from $43.1 million during the prior year period. Our receivable efficiency ratio (general and administrative expenses as a percentage of average receivables) increased to 22.4% for the first six months of 2015 from 16.6% during the prior period. Our efficiency ratio (general and administrative expenses as a percentage of revenue) increased to 57.7% during the six months ended June 30, 2015 from 44.4% during the prior year period. The cause of the increase in general and administrative expenses is explained in greater detail immediately below.

Personnel.The largest component of general and administrative expenses is personnel expense, which increased $11.7 million, or 48.4%, to $36.0 million during the six months ended June 30, 2015 from $24.2 million in the prior year period. This increase is primarily attributable to additional hiring for new branches opened. The increase is also attributable to non-operating compensation-related costs of $2.1 million incurred during the six months ended June 30, 2015, related to a Chief Executive Officer restricted stock grant and the retirement agreement with our former Vice Chairman. At June 30, 2014, we had 293 branches; whereas, at June 30, 2015, we had 316 branches.

Occupancy.Occupancy expenses increased $1.2 million, or 17.5%, to $8.4 million during the six months ended June 30, 2015 from $7.1 million during the prior year period. The increase in occupancy expenses is the result of 23 additional branches since June 30, 2014, and telecommunications upgrades. Additionally, we frequently experience increases in rent as we renew existing leases.

Marketing.Marketing expenses increased $1.7 million, or 64.0%, to $4.5 million during the six months ended June 30, 2015 from $2.7 million during the prior year period. The increase was due to the increases in the volume of our mail campaigns, invitations to apply, and pre-qualified offers to support our 23 new branches and grow our large loan product category.

Other Expenses.Other expenses increased $3.0 million, or 33.9%, to $12.0 million during the six months ended June 30, 2015 from $9.0 million during the prior year period. The increase was primarily due to increases for credit risk consulting, legal expense related to the securities class action lawsuit, executive compensation consulting and legal costs, and costs related to a larger number of branches.

Interest Expense.Interest expense on the senior revolving credit facility and other debt decreasedincreased $0.2 million, or 4.2%3.0%, to $3.6$7.5 million during the threesix months ended March 31,June 30, 2015 from $3.8$7.3 million during the prior year period. This decreaseincrease was due primarily to the decreaseincrease in the average balanceinterest rate cap expense of our senior revolving credit facility.$0.2 million. The average cost of our senior revolving credit facility remained flat at 4.43%increased by 6 basis points to 4.51% for the threesix months ended March 31,June 30, 2015 and 2014.from 4.45% for the prior year period.

Income Taxes.Income taxes decreased $0.9$0.2 million, or 25.6%3.3%, to $2.5$5.8 million during the threesix months ended March 31,June 30, 2015 from $3.4$6.0 million during the prior year period. The decrease in income taxes was due to a decrease in our net income before taxes. TheOur effective tax rate increased 50 basis points to 38.0%38% during the threesix months ended March 31,June 30, 2015 from 37.5% during the prior year period. The slight increase in theour effective tax rate was primarily due to the state mix of taxable income.

Quarterly Information and Seasonality

Our loan volume and corresponding finance receivables follow seasonal trends. Demand for our loans is typically highest during the third and fourth quarter,quarters, largely due to customers borrowing money for back-to-school and holiday spending. With the exception of automobile loans, loan demand has generally been lowest during the first quarter, largely due to the timing of income tax refunds. During the remainder of the year, we typically experience loan growth from general operations. In addition, we typically generate higher loan volumes in the second half of the year from our direct mail campaigns, which are timed to coincide with seasonal consumer demand. Consequently, we experience significant seasonal fluctuations in our operating results and cash needs.

Liquidity and Capital Resources

Our primary cash needs relate to the funding of our lending activities and, to a lesser extent, capital expenditures relating to expanding and maintaining our branch locations. In connection with our plans to expand our branch network in future years, we will incur approximately $3.0 million to $6.0 million of capital expenditures annually. We have historically financed, and plan to continue to finance, our short-term and long-term operating liquidity and capital needs through a combination of cash flows from operations and borrowings under our senior revolving credit facility. We continue to seek ways to diversify our long-term funding sources, including through securitization of certain loans.

As a holding company, almost all of the funds generated from our operations are earned by our operating subsidiaries. In addition, our wholly-owned subsidiary, RMC Reinsurance Ltd., is required to maintain cash reserves against life insurance policies ceded to it, as determined by the ceding company, and has also purchased a cash-collateralized letter of credit in favor of the ceding company. As of March 31,June 30, 2015, these reserve requirements totaled $1.9 million. Additionally, we had a reserve for life insurance claims on our balance sheet of $214,000,$0.2 million, as determined by the third party, unrelated ceding company.

Cash Flow.

Operating Activities.Net cash provided by operating activities decreased by $4.6$2.1 million, or 18.5%5.4%, to $20.4$36.9 million during the threesix months ended March 31,June 30, 2015 from $25.1$39.0 million during the prior year period. The decrease was primarily due to lower net income before provision for credit losses.an increase in general and administrative expenses.

Investing Activities.Investing activities consist of finance receivables originated and purchased, net change in restricted cash, and the purchase of furniture and equipment for new and existing branches. Net cash used in investing activities for the threesix months ended March 31,June 30, 2015 was $6.7$53.9 million compared to net cash provided byused in investing activities of $29.3$1.6 million during the prior year period, a net decreaseincrease of $22.6$52.4 million. The decreaseincrease was primarily due to lowerhigher net repaymentsoriginations of finance receivables.

Financing Activities.Financing activities consist of borrowings and payments on our outstanding indebtedness and issuance of common stock. During the threesix months ended March 31,June 30, 2015, net cash used inprovided by financing activities was $29.1$17.8 million, a change of $23.1$55.8 million compared to the $52.2$38.0 million net cash used in financing activities during the prior year period. The decreaseincrease in net cash used inprovided by financing activities was primarily a result of a decreasean increase in net paymentsadvances on the senior revolving credit facility due to decreased cash available from repaymentsfund higher net originations of finance receivables.

Financing Arrangements.

Senior Revolving Credit Facility.We entered into an amended and restated senior revolving credit facility with a syndicate of banks in January 2012, which was subsequently amended in July 2012, March 2013, May 2013, and November 2013. The amended and restated senior revolving credit facility provides for up to $500.0 million in availability, with a borrowing base of 85% of eligible finance receivables subject to adjustment at certain credit quality levels (81%(84% as of March 31,June 30, 2015), and matures in May 2016. The facility has an accordion provision that allows for the expansion of the facility to $600.0 million. Borrowings under the facility bear interest, payable monthly, at rates equal to LIBOR of a maturity we elect between one and six months, with a LIBOR floor of 1.00%, plus a margin of 3.00%. Alternatively, we may pay interest at a rate based on the prime rate (which was 3.25% as of March 31,June 30, 2015) plus a margin of 2.00%. We also pay an unused line fee of 0.50% per annum, payable monthly. This fee decreases to 0.375% when the average outstanding balance exceeds $375.0 million. The senior revolving credit facility is collateralized by certain of our assets, including substantially all of our finance receivables and equity interests of substantially all of our subsidiaries. The credit agreement contains certain restrictive covenants, including maintenance of specified interest coverage and debt ratios, restrictions on distributions, limitations on other indebtedness, maintenance of a minimum allowance for credit losses, and certain other restrictions.

Our outstanding debt under the senior revolving credit facility was $312.5$359.5 million at March 31,June 30, 2015. At March 31,June 30, 2015, we were in compliance with our debt covenants. In 2015, we intend to seek extension of the maturity date of the senior revolving credit facility or take other appropriate action to address repayment upon maturity. For a discussion of risks related to our amended and restated senior revolving credit facility, including refinancing risk, see Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

We believe that cash flow from operations and borrowings under our senior revolving credit facility will be adequate to fund the expected cost of opening or acquiring new branches, including funding initial operating losses of new branches and funding finance receivables originated by those branches and our other branches for the next twelve months and for the foreseeable future. From time to time, we have needed an increase in the borrowing limits under our senior revolving credit facility. We have successfully obtained such increases in the past; however, there can be no assurance that this additional funding will be available (or available on reasonable terms) if and when needed.

We entered into interest rate caps in April 2015 to manage interest rate risk associated with a notional $150.0 million of our LIBOR-based borrowings. The interest rate caps are based on the one-month LIBOR, contract, reimburse us for the difference when the one-month LIBOR exceeds 2.50%, and have a maturity of April 2018.

Other Financing Arrangements.We had a $1.5 million line of credit with a commercial bank that providedend-of-day cash management flexibility and was secured by a mortgage on our headquarters. The interest rate was prime plus 0.25%, with a minimum of 5.00%, and interest was payable monthly. There were no significant restrictive covenants associated with this line of credit. The line of credit matured in January 2015 and was replaced by a $3.0 million commercial overdraft capability that assists with our cash management needs for intra-day temporary funding. We continue to seek ways to diversify our funding sources, including through securitization of certain loans.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost, except for interest rate caps which are carried at fair value. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial.

Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and conform to general practices within the consumer finance industry. The preparation of these financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities for the periods indicated in the financial statements. Management bases estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis. Actual results may differ from these estimates under different assumptions or conditions.

We set forth below those material accounting policies that we believe are the most critical to an investor’s understanding of our financial results and condition and that involve a higher degree of complexity and management judgment.

Credit Losses.

Finance receivables are equal to the total amount due from the customer, net of unearned finance charges and insurance premiums and commissions. Net finance receivables are equal to the total amount due from the customer, net of unearned finance charges, insurance premiums and commissions, and the allowance for credit losses.

Provisions for credit losses are charged to income in amounts sufficient to maintain an adequate allowance for credit losses on our related finance receivables portfolio. Credit loss experience, contractual delinquency of finance receivables, the value of underlying collateral, and management’s judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses.

Our loans within each loan product are homogenous and it is not possible to evaluate individual loans. We evaluate losses in each of the categories of loans in establishing the allowance for credit losses.

In making an evaluation about the portfolio, we consider the trend of delinquencies and other factors. We evaluate delinquencies by each state and by supervision district within states to identify trends requiring investigation. Historically, loss rates have been affected by several factors, including the general economic condition in the areas in which we conduct business, the number of customers filing for bankruptcy protection, the prices paid for vehicles at automobile auctions, and the effectiveness of our collection efforts. Management considers each of these factors in establishing the allowance for credit losses.

We evaluate the loans of customers in Chapter 13 bankruptcy for impairment as troubled debt restructurings. We have adopted the policy of aggregating loans with similar risk characteristics for purposes of computing the amount of impairment. In connection with the adoption of this practice, we compute the estimated impairment on our Chapter 13 bankrupt loans in the aggregate by discounting the projected cash flows at the original contract rates on the loan using the terms imposed by the bankruptcy court. We applied this method to each of our categories of loans.

For customers in a Chapter 13 bankruptcy plan, the bankruptcy court reduces the post-petition interest rate we can charge, as it does for most creditors. Once the customer is in a confirmed Chapter 13 bankruptcy plan, we receive payments with respect to the remaining amount of the loan at the reduced interest rate from the bankruptcy trustee. If a customer fails to comply with the terms of the bankruptcy order, we will petition the trustee to have the customer dismissed from bankruptcy. Upon dismissal, we restore the account to the original terms and pursue collection through our normal collection activities.

We charge-off loans during the month the loan is contractually delinquent 180 days. Non-titled accounts in a confirmed Chapter 7 or Chapter 13 bankruptcy are charged off at 60 days contractually delinquent, subject to certain exceptions. Deceased borrower accounts are charged off in the month following the proper notification of passing, with the exception of borrowers with credit life insurance. We initiate repossession proceedings on certain loans when we have exhausted other means of collection and, in the opinion of management, the customer is unlikely to make further payments. We sell substantially all repossessed vehicles through public sales conducted by independent automobile auction organizations, after the required post-possessionpost-repossession waiting period. Losses on the sale of repossessed collateral are charged to the allowance for credit losses.

Income Recognition.

Interest income is recognized using the interest method (constant yield method). Therefore, we recognize revenue from interest at an equal rate over the term of the loan. Unearned finance charges on pre-compute contracts are rebated to customers utilizing statutory methods, which in many cases is the sum-of-the-years’ digits method. The difference between income recognized under the constant yield method and the statutory method is recognized as an adjustment to interest income at the time of rebate. Accrual of interest income on finance receivables is suspended when no payment has been received foran account becomes 90 days or moredelinquent on a contractual basis. The accrual of income is not resumed until one or more full contractual monthly payments are received and the account is less than 90 days contractually delinquent. Interest income is suspended on finance receivables for which collateral has been repossessed. If the account is charged off, the interest income is reversed as a reduction of interest and fee income.

We recognize income on credit life insurance using the sum-of-the-years’ digits method over the terms of the policies. We recognize income on credit accident and health insurance using the average of the sum-of-the-years’ digits and the straight-line methods over the terms of the policies. We recognize income on credit-related property and automobile insurance, and on credit involuntary unemployment insurance using the straight-line method over the terms of the policies. Rebates are computed using statutory methods, which in many cases is the sum-of-the-years-digits method, and any difference between the GAAP method and the statutory method is recognized in income at the time of rebate.

We defer fees charged to automobile dealers and recognize income using the constant yield method for indirect loans and the straight-line method for direct loans over the lives of the respective loans.

Charges for late fees are recognized as income when collected.

Insurance Operations.

Insurance operations include revenue and expense from the sale of optional insurance products to our customers. These optional products include credit life insurance, credit accident and health insurance, property insurance, automobile insurance, and involuntary unemployment insurance.

Share-Based Compensation.

Our stock compensation plans are detailed in “Part I. Financial Statements, Note 8, Share-Based Compensation.” We measure compensation cost for share-based awards at estimated fair value and recognize compensation expense over the service period for awards expected to vest. All grants are made at 100% of fair value at the date of the grant. We use the closing stock price on the date of grant as the fair value of restricted stock and common stock awards. The fair value of stock options is determined using the Black-Scholes valuation model. The Black-Scholes model requires the input of highly subjective assumptions, including expected volatility, risk-free interest rate, and expected life, changes to which can materially affect the fair value estimate. The expected volatility is based on the Company’s historical stock price volatility beginning in 2014. Prior to 2014, we used the performance of the common stock of a publicly traded company whose business is comparable to ours to estimate the volatility of our stock due to a lack of historical data of our own stock price. The risk-free rate is based on the zero coupon U.S. Treasury bond rate for the expected term of the award on the grant date. The expected term is calculated by using the simplified method due to insufficient historical data. In addition, the estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.

Income Taxes.

We file income tax returns in the U.S. federal jurisdiction and various states. We are generally no longer subject to federal, state, or local income tax examinations by taxing authorities before 2011, though we remain subject to examination in Texas for the 2010 tax year.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. As of December 31, 2014,June 30, 2015, we had not taken any tax position that exceeds the amount described above.

Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the consolidated statements of income.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effects of future tax rate changes are recognized in the period when the enactment of new rates occurs.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.RISK.

Interest Rate Risk

Interest rate risk arises from the possibility that changes in interest rates will affect our results of operations and financial condition. We originate finance receivables at either prevailing market rates or at statutory limits. Subject to statutory limits, our ability to react to changes in prevailing market rates is dependent upon the speed at which our customers pay off or renew loans in our existing loan portfolio, which allows us to originate new loans at prevailing market rates. Our loan portfolio turns over approximately 1.6 times per year from cash payments, renewals, and charge-offs of loans. Because our automobile loans have longer maturities and typically are not refinanced prior to maturity, the rate of turnover of the loan portfolio may change as these loans change as a percentage of our portfolio.

We also are exposed to changes in interest rates as a result of our borrowing activities, which include a senior revolving credit facility with a group of banks used to maintain liquidity and fund the Company’s business operations. The nature and amount of our debt may vary as a result of future business requirements, market conditions, and other factors. At March 31,June 30, 2015, our outstanding debt under our senior revolving credit facility was $313$359 million and interest on borrowings under this facility was approximately 4.43%4.51% for the quartersix months ended March 31,June 30, 2015, including amortization of debt issuance costs and an unused line fee. Because the LIBOR interest rates are currently below the 1.00% floor provided for in our senior revolving credit facility, an increase of 100 basis points in the LIBOR interest rate would result in an increase of less than 100 basis points to our borrowing costs. Based on a LIBOR rate of 25 basis points and the outstanding balance at March 31, 2015, an increase of 100 basis points in the LIBOR would result in an increase of 25 basis points to our borrowing costs and would result in $781$899 of increased interest expense on an annual basis.

We entered into interest rate caps in April 2015 to manage interest rate risk associated with a notional $150.0 million of our LIBOR-based borrowings. The interest rate caps are based on the one-month LIBOR, contract, reimburse us for the difference when the one-month LIBOR exceeds 2.50%, and have a maturity of April 2018.

 

ITEM 4.CONTROLS AND PROCEDURES.PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31,June 30, 2015. The term “disclosure controls and procedures,” as defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures as of March 31,June 30, 2015, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

On May 30, 2014, a securities class action lawsuit was filed in the United States District Court for the Southern District of New York against the Company and certain of its current and former directors, executive officers, and shareholders (collectively, the “Defendants”). The complaint alleged violations of the Securities Act of 1933 (“1933 Act Claims”) and sought unspecified compensatory damages and other relief on behalf of a purported class of purchasers of the Company’s common stock in the September 2013 and December 2013 secondary public offerings. On August 25, 2014, Waterford Township Police & Fire Retirement System and City of Roseville Employees’ Retirement System were appointed as lead plaintiffs (collectively, the “Plaintiffs”). An amended complaint was filed on November 24, 2014. In addition to the 1933 Act Claims, the amended complaint also added claims for violations of the Securities Exchange Act of 1934 (“1934 Act Claims”) seeking unspecified compensatory damages on behalf of a purported class of purchasers of the Company’s common stock between May 2, 2013 and October 30, 2014, inclusive. On January 26, 2015, the Defendants filed motions to dismiss the amended complaint in its entirety. In response, the Plaintiffs sought and were granted leave to file an amended complaint. On February 27, 2015, the Plaintiffs filed a second amended complaint. Like the prior amended complaint, the second amended complaint asserts 1933 Act Claims and 1934 Act Claims and seeks unspecified compensatory damages. The Defendants’ motions to dismiss the second amended complaint were filed on April 28, 2015.2015, the Plaintiffs’ opposition is duewas filed on June 12, 2015, and the Defendants’ reply is duewas filed on July 13, 2015. The motions remain under consideration by the Court. The Company believes that the claims against it are without merit and intends to defend against the litigation vigorously.

The Company’s primary insurance carrier during the applicable time period has (i) denied coverage for the 1933 Act Claims and (ii) acknowledged coverage of the Company and other insureds for the 1934 Act Claims under a reservation of rights and subject to the terms and conditions of the applicable insurance policy. The parties are in the process of negotiating an allocation between denied and acknowledged claims.

We are also involved in various legal proceedings and related actions that have arisen in the ordinary course of our business that have not been fully adjudicated. Our management does not believe that these matters, when ultimately concluded and determined, will have a material adverse effect on our financial condition, liquidity, or results of operations.

 

ITEM 1A.RISK FACTORS

Other than with respect to the risk factor set forth below, thereThere have been no material changes to our Risk Factors from those included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.2014 and in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2015. In addition to the other information set forth in this report and in our other reports and statements that we file with the SEC, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (which was filed with the SEC on March 16, 2015) and in Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2015 (which was filed with the SEC on May 8, 2015), which could materially affect our business, financial condition, and/or future operating results. The risks described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are not the only risks facing our company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially and adversely affect the Company’s business, financial condition, and/or operating results.

We rely on information technology products developed, owned, and supported by third parties, including our competitors. Our ability to manage our business and monitor results is highly dependent upon these information technology products. A failure of these products and systems or of the implementation of new information technology products and systems could disrupt our business.

In the operation of our business, we are highly dependent upon a variety of information technology products, including our loan management system, which allows us to record, document, and manage our loan portfolio. We currently use a loan management software package developed and owned by ParaData Financial Systems (“ParaData”), a wholly owned subsidiary of World Acceptance Corporation, one of our primary competitors. Over the years we have tailored this software to meet our specific needs. We depend on the willingness and ability of ParaData to continue to provide customized solutions and support for our evolving products and business model. In the future, ParaData may not be willing or able to modify the loan management software to meet our needs, or it could alter the program without notice to us or cease to adequately support it. ParaData could also decide in the future to refuse to provide support for its software to us on commercially reasonable terms, or at all. If any of these events were to occur, we would be forced to migrate to an alternative software package, which could materially affect our business, results of operations, and financial condition.

We rely on DealerTrack, Route One, Teledata Communications Inc., and other third-party software vendors to provide access to loan applications and/or screen applications. There can be no assurance that these third party providers will continue to provide us information in accordance with our lending guidelines or that they will continue to provide us lending leads at all. If this occurs, our credit losses, business, results of operations, and financial condition may be adversely affected.

ITEM 6.EXHIBITS

The exhibits listed in the accompanying exhibit index are filed as part of this Quarterly Report on Form 10-Q.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

REGIONAL MANAGEMENT CORP.

REGIONAL MANAGEMENT CORP.

Date: May 8,July 31, 2015By:

/s/ Donald E. Thomas

Donald E. Thomas, Executive Vice President and

Chief Financial Officer

(Principal Financial Officer and Duly Authorized Officer)

EXHIBIT INDEX

 

Exhibit

Number

     Incorporated by Reference   

Filed

Herewith

  

Exhibit Description

  

Form

   

File No.

   

Exhibit

   

Filing Date

   
10.1  Employment Agreement, dated as of January 12, 2015, between Michael R. Dunn and Regional Management Corp.   8-K     001-35477     10.1     1/14/2015    
10.2  Form of Retention Award Agreement   8-K     001-35477     10.1     3/13/2015    
31.1  Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer   —       —       —       —      X
31.2  Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer   —       —       —       —      X
32.1  Section 1350 Certifications   —       —       —       —      X
101        The following materials from our Quarterly Report onForm 10-Q for the three months ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014; (ii) the Consolidated Statements of Income for the three months ended March 31, 2015 and 2014; (iii) the Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2015 and the year ended December 31, 2014; (iv) the Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014; and (v) the Notes to the Consolidated Financial Statements.   —       —       —       —      X

Exhibit

Number

     Incorporated by Reference  

Filed

Herewith

  

Exhibit Description

  Form  File No.  Exhibit  Filing Date  
  10.1  Termination Agreement and Mutual Release, dated April 2, 2015, by and between DHI Computing Service, Inc. d/b/a GOLDPoint Systems and Regional Management Corp.  8-K  001-35477  10.1  4/6/2015  
  10.2  Regional Management Corp. 2015 Long-Term Incentive Plan  8-K  001-35477  10.1  4/28/2015  
  10.3  Regional Management Corp. Annual Incentive Plan (as amended and restated effective March 23, 2015)  8-K  001-35477  10.2  4/28/2015  
  10.4  Form of Nonqualified Stock Option Agreement  8-K  001-35477  10.3  4/28/2015  
  10.5  Form of Performance-Contingent Restricted Stock Unit Award Agreement  8-K  001-35477  10.4  4/28/2015  
  10.6  Form of Cash-Settled Performance Unit Award Agreement  8-K  001-35477  10.5  4/28/2015  
  10.7  Form of Restricted Stock Award Agreement  8-K  001-35477  10.6  4/28/2015  
  10.8  Form of Stock Award Agreement  8-K  001-35477  10.7  4/28/2015  
  10.9  Separation Agreement between A. Michelle Masters and Regional Management Corp., dated May 27, 2015.  8-K  001-35477  10.1  6/2/2015  
  31.1  Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer          X
  31.2  Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer          X
  32  Section 1350 Certifications          X
101  The following materials from our Quarterly Report on Form 10-Q for the three and six months ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014; (ii) the Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014; (iii) the Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2015 and the year ended December 31, 2014; (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014; and (v) the Notes to the Consolidated Financial Statements.          X

 

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