We are an insurance premium financing company, specializing primarily in
commercial policies. We make it efficient for companies to access financing for
insurance premiums. Enabled by our network of marketing representatives and
relationships with insurance agents, we provide a value-driven, customer-focused
lending service.
We have offered premium financing since 1991 through our wholly owned
subsidiary,
targeting premium financing loans from
ranging from 6 to 10 months, although we may offer larger loans in cases we deem
appropriate. Qualified customers may have multiple financings with us
concurrently, which we believe provides opportunities for repeat business, as
well as increased value to our customers.
We originate loans primarily in
The Company has expanded its operations, and currently is licensed to finance
insurance premiums in
continue to expand our market into new states as part of our organic growth
trend. Loans are originated primarily through a network of insurance agents
solicited by our in-house sales team and marketing representatives.
We generate the majority of our revenue through interest income and the
associated fees earned from our loan products. We earn interest based on the
“rule of 78” and earn other associated fees as applicable to each loan. These
fees include, but are not limited to, a one-time finance charge, late fees, and
NSF fees. Our company charges interest to its customers solely by the Rule of
78. Charging interest per the Rule of 78 is the industry standard among premium
finance loans. The Rule of 78 is a method to calculate the amount of principal
and interest paid by each payment on a loan with equal monthly payments. The
Rule of 78 is a permissible method of calculating interest in the states in
which we operate. The Rule of 78 recognizes greater amounts of interest income
during the first months of the loan, while decreasing interest income during the
final months of the loan. Whenever a loan is repaid prior to full maturity, the
Rule of 78 methodology is applied and the borrower is refunded accordingly.
We rely on several funding sources for the loans we make to our customers. Our
primary source of financing has historically been a line of credit from a bank
collateralized by our loan receivables and other assets. We receive additional
funding from unsecured subordinate noteholders that pays monthly interest to the
investors. We have also used proceeds from operating cash flow to fund loans in
the past and continue to finance a portion of our outstanding loans with these
funds. See Liquidity and Capital Resources for additional information regarding
our financing strategy.
The Company’s main source of funding is its line of credit, which represented
approximately 64% (
of credit was replaced with a new lender,
2021
approximately 18% (
provide approximately 8% (
provides approximately 2% (
represents approximately 1% (
retained earnings and common paid-in capital represents the remaining 7%
(
Key Financial and Operating Metrics
We regularly monitor a series of metrics in order to measure our current
performance and project our future performance. These metrics aid us in
developing and refining our growth strategies and making strategic decisions.
As of or for the Three Months Ended March 31,
2022 2021
(unaudited) (unaudited)
Gross Revenue $ 1,822,596 $ 1,711,904
Originations $ 29,571,428 $ 27,429,500
Interest Earned Rate 14.8 % 15.2 %
Cost of Funds Rate 3.22 % 3.21 %
Reserve Ratio 2.03 % 1.77 %
Provision Rate 0.57 % 0.65 %
Return on Assets 1.68 % 1.51 %
Return on Equity 22.76 % 23.45 %
20
Gross Revenue
Gross Revenue represents the sum of interest and finance income, associated fees
and other revenue.
Originations
Originations represent the total principal amount of Loans made during the
period.
Interest Earned Rate
The Interest Earned Rate is the average annual percentage interest rate earned
on new loans.
Cost of Funds Rate
Cost of Funds Rate is calculated as interest expense divided by average debt
outstanding for the period, net of the interest related tax benefit.
Reserve Ratio
Reserve Ratio is our allowance for credit losses at the end of the period
divided by the total amount of principal outstanding on Loans at the end of the
period. It excludes net deferred origination costs and associated fees.
Provision Rate
Provision Rate equals the provision for credit losses for the period divided by
originations for the period. Because we reserve for probable credit losses
inherent in the portfolio upon origination, this rate is significantly impacted
by the expectation of credit losses for the period’s originations volume. This
rate is also impacted by changes in loss expectations for contract receivables
originated prior to the commencement of the period.
Return on Assets
Return on Assets is calculated as annualized net income (loss) attributable to
common stockholders for the period divided by average total assets for the
period.
Return on Equity
Return on Equity is calculated as annualized net income (loss) attributable to
common stockholders for the period divided by average stockholders’ equity
attributable to common stockholders for the period.
RESULTS of OPERATIONS
Results of Operations for the Three Months ended
Three Months ended
Revenue
Revenue increased by 10.0% overall or
months ended
2021
in finance charges. Revenue from finance charges comprised 82.8% and 81.5% of
overall revenue for the three months ended
respectively.
21
During the three months ended
originations. This increase was due largely to increased marketing efforts
throughout our established states. Although the Company increased amounts
financed, the total quantity of loan originations remained stable for the three
months ended
2021
origination charge revenue, as the Company immediately recognizes an origination
fee on substantially all new loans.
Under the terms of the line of credit agreement, the loan receivables and our
other assets provide the collateral for the loan. As the receivables increase,
driven by new sales, the company has greater borrowing power, giving it the
opportunity generate additional sales. In
credit. In
its line of credit to
availability on our line of credit was an essential driver to our increased
originations during the three months ended
three months ended
Company’s strategy regarding its line of credit.
Expense
Expenses increased by 8.7% or
The increase in expenses was primarily due to increases in the following
categories:
·$54,205 increase in professional fees primarily because of audit fees expensed as incurred, fees related to the trading of our common stock, and programming fees related to our software. ·$33,841 increase in other operating expenses as a result of general business growth. The primary cost increases were convention expenses, office repairs and maintenance, business travel, and licensing costs. ·$31,666 increase in interest expense as a result of increased borrowings on our line of credit. Although the Company increased borrowings on the line of credit of$3,142,389 , an increase of 10.8%, for the three months endedMarch 31, 2022 over the three months endedMarch 31, 2021 , interest expense increased by only 8.0% over the same period. The Company's new line of credit withFirst Horizon Bank has a lower minimum rate, which the Company has benefited from during the three months endedMarch 31, 2022 as compared to partially for the three months endedMarch 31, 2021 . See Liquidity and Capital Resources for more information on the new line of credit. Income before Taxes
Income before taxes increased by
increase was attributable to the net increases and decreases as discussed above.
Income Tax Provision
Income tax provision decreased
decrease was primarily attributable to temporary differences related to the
allowance for doubtful accounts.
Net Income
Net Income increased by
2022
attributable to the
business activity, and the
Comparison of Cash Flows for the Three Months Ended
2021
Cash Flows from Operating Activities
We used
of
working capital components partially offset by a
as adjusted for noncash items.
22
The
primarily due to a
contracts, a
increase in the change in prepaid expenses and other current assets, partially
offset by a
expenses. These are natural fluctuations in operating accounts that occur during
the normal course of business. The Company expects net cash outflows from
operations during periods of growth, which we experienced during the three
months ended
During both 2022 and 2021, the Company has utilized its increased availability
on its line of credit leading to the increases in premium finance contracts
receivable.
The
resulted primarily from an
portfolio in 2021, bad debt expense increased to adjust the allowance
accordingly.
Cash Flows from Investing Activities
We used
in cash used in 2021. The decrease in cash used of
the sale of property and equipment in 2022.
Cash Flows from Financing Activities
We received
compared to
funds provided of
the line of credit of
others of
related parties of
line of credit to finance its increased premium finance contracts receivable. In
conjunction with the new line of credit, the Company was required to increase
its subordinated debt, which accounts for the increases in proceeds from notes
payable – related parties and notes payable – others, leading to a substantial
increase of cash provided by financing activities in 2021.
LIQUIDITY and CAPITAL RESOURCES as of
We had
2022
normal course of business due primarily to the difference between the balance in
loan receivables and the related line of credit liability. As discussed in the
Revenues section, the Company’s line of credit is currently the primary source
of operating funds. In
new lender,
credit to
credit are generally more favorable than the previous line of credit, including
an interest rate based on the 30-day LIBOR rate plus 2.85% with a minimum rate
of 3.35%. The previous, terminated line of credit had an interest rate based on
the 30-day LIBOR rate plus 2.75% with a minimum rate of 3.75%. We anticipate
that the interest rate we pay on our revolving credit agreement may rise due to
the recently adopted benchmark interest rate increase by the
Board
to our borrowers so that our net interest spread will not be adversely affected.
Furthermore, because of the short-term nature of our loans, we are not bound to
any particular loan and its fixed interest rate for a long period of time. Based
on our estimates and taking into account the risks and uncertainties of our
plans, we believe that we will have adequate liquidity to finance and operate
our business and repay our obligations as they become due for at least the next
12 months.
During the three months ended
notes payable – others, and repaid
stockholders and related parties. The Company utilizes its inflows from
subordinated debt as a financing source before drawing additionally from the
line of credit.
Future Cash Requirements
As the Company anticipates its growth patterns to continue, the larger line of
credit is paramount to fueling this growth. By securing its larger line of
credit, the Company can expect to satisfy the cash requirements anticipated by
its future growth, Coinciding with these goals, in
entered into a contract with a new lender for a two-year
credit. In
its line of credit to
23
Uses of Liquidity and Capital Resources
We require cash to fund our operating expenses and working capital requirements,
including costs associated with our premium finance loans, capital expenditures,
debt repayments, acquisitions (if any), pursuing market expansion, supporting
sales and marketing activities, and other general corporate purposes. While we
believe we have sufficient liquidity and capital resources to fund our
operations and repay our debt, we may elect to pursue additional financing
activities such as refinancing or expanding existing debt or pursuing other debt
or equity offerings to provide flexibility with our cash management and provide
capital for potential acquisitions.
Off-balance Sheet Arrangements
None.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We consider the following to be our most critical accounting policy because it
involves critical accounting estimates and a significant degree of management
judgment:
Allowance for premium finance contract receivable losses
We are subject to the risk of loss associated with our borrowers’ inability to
fulfill their payment obligations, the risk that we will not collect sufficient
unearned premium refunds on the cancelled policies on the defaulted loans to
fully cover the unpaid loan principal and the risk that payments due us from
insurance agents and brokers will not be paid.
The carrying amount of the Premium Finance Contracts (“Contracts”) is reduced by
an allowance for losses that are maintained at a level which, in management’s
judgment, is adequate to absorb losses inherent in the Contracts. The amount of
the allowance is based upon management’s evaluation of the collectability of the
Contracts, including the nature of the accounts, credit concentration, trends,
and historical data, specific impaired Contracts, economic conditions, and other
risks inherent in the Contracts. The allowance is increased by a provision for
loan losses, which is charged to expense, and reduced by charge-offs, net of
recovery.
In addition, specific allowances are established for accounts past due over 120
days. Individual contracts are written off against the allowance when collection
of the individual contracts appears doubtful. The collectability of outstanding
and cancelled contracts is generally secured by collateral in the form of the
unearned premiums on the underlying policies and accordingly historical losses
are approximately 1% to 1.5% of the principal amount of loans made each year.
The Company considers historical losses in determining the adequacy of the
allowance for doubtful accounts. The collectability of amounts due from agents
is determined by the financial strength of the agency.
Stock-Based Compensation
We account for stock-based compensation by measuring and recognizing as
compensation expense the fair value of all share-based payment awards made to
directors, executives, employees and consultants, including employee stock
options related to our 2019 Equity Incentive Plan and stock warrants based on
estimated grant date fair values. The determination of fair value involves a
number of significant estimates. We use the Black Scholes option pricing model
to estimate the value of employee stock options and stock warrants which
requires a number of assumptions to determine the model inputs. These include
the expected volatility of our stock and employee exercise behavior which are
based expectations of future developments over the term of the option.
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