Annual report pursuant to Section 13 and 15(d)

Receivables

v3.2.0.727
Receivables
 12 Months Ended
Jun. 30, 2015
Receivables [Abstract]  
Receivables
RECEIVABLES
Receivables and secured loans consist of the following as of June 30, 2015 and June 30, 2014:
in thousands
 
 
 
 
 
June 30,
 
2015
 
2014
 
 
 
 
 
 
 
Customer trade receivables
 
$
11,835

 
$
1,744

 
Wholesale trade advances
 
12,164

 
4,586

 
Due from brokers
 
6,056

 
33,079

 
Subtotal
 
30,055

 
39,409

 
Secured loans
 
48,666

 
41,261

 
Secured loans (long-term portion)
 
650

 
—

 
Subtotal
 
79,371

 
80,670

 
Less: allowance for doubtful accounts
 
(30
)
 
(30
)
 
Subtotal
 
79,341

 
80,640

 
Derivative assets — open sale and purchase commitments, net
 
1,722

 
22,170

 
Derivative assets — futures contracts
 
5,363

 
—

 
Derivative assets — forward contracts
 
4,279

 
14

 
Receivables, net
 
$
90,705

 
$
102,824

 

    
Customer trade receivables. Customer trade receivables represent short-term, non-interest bearing amounts due from precious metal sales and are secured by the related precious metals stored with the Company, a letter of credit issued on behalf of the customer, or other secured interests in assets of the customer.

Wholesale trade advances. Wholesale trade advances represent advances of various bullion products and cash advances to customers. Typically, these advances are: unsecured, short-term, and non-interest bearing, which are made to wholesale metals dealers and government mints.

Due from brokers. Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts (see Note 12).

Secured loans - originated: Secured loans include short-term loans, which include a combination of on-demand lines and short term facilities, and long-term loans that are made to our customers (i.e., originated secured loans). These loans are fully secured by the customers' assets, that include bullion, numismatic and semi-numismatic material, which are typically held in safekeeping by TDS or CFC, wholly owned subsidiaries of the Company.

Secured loans - acquired: Secured loans also include short-term loans, which include a combination of on-demand lines and short term facilities, that are acquired from our customers. These loans are fully secured by the customers' assets, that include bullion, numismatic and semi-numismatic material, which are held in safekeeping by TDS or CFC, which are wholly owned subsidiaries of the Company.
Below is a summary of the carrying-value of our secured loans as of June 30, 2015 and June 30, 2014:
in thousands
 
 
 
 
June 30,
 
2015
 
2014
 
 
 
 
 
Secured loans originated
 
$
36,778

 
$
32,577

Secured loans originated - with a related party
 
—

 
2,562

 
 
36,778

 
35,139

Secured loans acquired
 
12,538

 
6,122

Secured loans, total
 
$
49,316

 
$
41,261



As of June 30, 2015 and June 30, 2014, our secured loans carried weighted-average effective interest rates of 8.5% and 7.9%, respectively, and mature in periods generally ranging from on-demand to two years.

Below is a summary of the significant secured loans that were modified, assumed or acquired and the financial effects of those agreements.

Arrangements with Customer

•
On September 27, 2013, CFC assumed the rights from a borrower/customer to a portfolio of short-term loan receivables totaling $12.8 million for $0.4 million and the satisfaction of an existing outstanding loan, totaling $12.8 million, which was owed to CFC. This transaction resulted in the assignment of the borrower/customer's portfolio of loan receivables to CFC, which are collateralized by the underlying precious metal product of the customers of the borrower/customer. The loan premium is amortized ratably as the loan is paid off. The loans are due on demand with the option to extend maturities for 180 days. As of June 30, 2015, the aggregate carrying value of this loan portfolio was $2.1 million and the aggregate loan premium was $0.1 million, related to this transaction. As of June 30, 2014, the aggregate carrying value of this loan portfolio was $5.8 million and the aggregate loan premium was $0.3 million.

•
On June 5, 2014, CFC assumed the rights to an additional portfolio of short-term loan receivables totaling $3.8 million for the aggregate principal amount of the loan portfolio. This transaction resulted in the assignment of the customer's portfolio of loan receivables to CFC, which are collateralized by each of the customer's borrowers' underlying precious metals. The customer had retained certain rights to repurchase these loans at a price equal to the then-outstanding principal balance, plus accrued and unpaid interest, but this repurchase right was subsequently rescinded in an amendment entered into in fiscal 2015. Additionally, the customer retains the responsibility for the servicing and administration of the loans. As a result of the terms of this arrangement, the Company reflects this transaction as a financing arrangement with the customer, secured by the portfolio of short-term loan receivables, which is collateralized by precious metal products. As of June 30, 2015 and June 30, 2014, the aggregate carrying value of this loan portfolio was $0.9 million and $3.8 million, respectively.

•
On July 1, 2014, CFC assumed the rights to an additional portfolio of short-term loan receivables totaling $3.7 million for the aggregate principal amount of the loan portfolio. This transaction resulted in the assignment of the customer's portfolio of loan receivables to CFC, which are collateralized by each of the customer's borrowers' underlying precious metals. Additionally, the customer retains the responsibility for the servicing and administration of the loans. As of June 30, 2015, the aggregate carrying value of this loan portfolio was $1.6 million.

•
On January 23, 2015, CFC assumed the rights to an additional portfolio of short-term loan receivables totaling $3.1 million for the aggregate principal amount of the loan portfolio. This transaction resulted in the assignment of the customer's portfolio of loan receivables to CFC, which are collateralized by each of the customer's borrowers' underlying precious metals. Additionally, the customer retains the responsibility for the servicing and administration of the loans. As of June 30, 2015, the aggregate carrying value of this loan portfolio was $2.5 million.
•
On April 1, 2015, CFC assumed the rights to an additional portfolio of short-term loan receivables totaling $2.4 million for the aggregate principal amount of the loan portfolio. This transaction resulted in the assignment of the customer's portfolio of loan receivables to CFC, which are collateralized by each of the customer's borrowers' underlying precious metals. Additionally, the customer retains the responsibility for the servicing and administration of the loans. As of June 30, 2015, the aggregate carrying value of this loan portfolio was $2.1 million.
•
On June 9, 2015, CFC assumed the rights to an additional portfolio of short-term loan receivables totaling $4.1 million for the aggregate principal amount of the loan portfolio. This transaction resulted in the assignment of the customer's portfolio of loan receivables to CFC, which are collateralized by each of the customer's borrowers' underlying precious metals. Additionally, the customer retains the responsibility for the servicing and administration of the loans. As of June 30, 2015, the aggregate carrying value of this loan portfolio was $3.9 million.
Arrangements with Related Party
•
On June 18, 2014, CFC assumed the rights to a secured portfolio of short-term loan receivables totaling $2.6 million from Stack's Bowers Numismatics, LLC ("Stack's Bowers"), a wholly-owned subsidiary of our Former Parent. The Company reflects this transaction as a financing arrangement with the related party, secured by the portfolio of short-term loan receivables, which is collateralized by numismatic and semi numismatic products. As of June 30, 2015 and June 30, 2014, the aggregate carrying value of this loan was $0.0 million and $2.6 million, respectively, bearing interest at 5.5% per annum. This secured loan was paid off in full, plus accrued interest, on August 19, 2014.
•
On October 9, 2014, CFC entered into a loan agreement with Stack’s Bowers, providing for a secured line of credit in the maximum principal amount of up to $16.0 million, bearing interest at a competitive rate per annum. Advances under the line of credit are secured by numismatic and semi-numismatic products and receivables. This secured loan was paid off in full, plus accrued interest, on April 15, 2015. As of June 30, 2015, the aggregate carrying value of this loan was $0.0 million.
•
Subsequent to fiscal 2015, on July 23, 2015, CFC entered into a loan agreement and related documents with Stack's Bowers, providing a secured line of credit in the maximum principal amount of up to $2.5 million, bearing interest at a competitive rate per annum. The amount of the initial draw was $1.8 million, which has subsequently been partially repaid. The loan is secured by numismatic and semi-numismatic products.
The secured loans that the Company generates with active customers of A-Mark are reflected as an operating activity on the consolidated statements of cash flows within receivables. The secured loans that the Company generates with borrowers who are not active customers of A-Mark are reflected as an investing activity on the consolidated statements of cash flows as secured loans, net.
For the secured loans that are reflected as an investing activity and have terms that allow the borrower to increase their loan balance (at the discretion of the Company) based on the excess value of their collateral compared to their aggregate principal balance of loan and are repayable on demand or in the short-term, the borrowings and repayments are netted on the consolidated statements of cash flows. In contrast, for the secured loans that are reflected as an investing activity and do not contain a revolving credit-line feature or have long-term maturities, the borrowed funds are shown at gross as other originated secured loans, segregated from the repayments of the principal, which are shown as principal collections on other originated secured loans on the consolidated statements of cash flows.

Derivative assets and liabilities. The Company's derivative assets and liabilities represent the net fair value of the difference between market values and trade values at the trade date for open precious metals sale and purchase contracts, as adjusted on a daily basis for changes in market values of the underlying metals, until settled (see Note 12.) The Company's derivative assets and liabilities represent the net fair value of open precious metals forwards and futures contracts. The precious metals forwards and futures contracts are settled at the contract settlement date.
Credit Quality of Financing Receivables and Allowance for Credit Losses
The Company applies a systematic methodology to determine the allowance for credit losses for finance receivables. The finance receivables portfolio is comprised solely of secured commercial loans with similar risk profiles. This similarity allows the Company to apply a standard methodology to determine the credit quality for each loan. The credit quality of each loan is generally determined by the secured material, the initial and ongoing collateral value determination and the assessment of loan to value determination. Typically, the Company's finance receivables within its portfolio have similar credit risk profiles and methods for assessing and monitoring credit risk.
The Company evaluates its loan portfolio in one of three classes of finance receivables: those loans secured by: 1) bullion 2) numismatic items and 3) customers' pledged assets, which may include bullion and numismatic items. The Company's secured loans by portfolio class, which align with management reporting, are as follows:
in thousands
 
 
 
 
 
 
 
 
 
June 30,
 
2015
 
2014
 
Bullion
 
$
16,250

 
33.0
%
 
$
17,361

 
42.1
%
 
Numismatic and semi numismatic
 
32,216

 
65.3

 
23,900

 
57.9

 
Subtotal
 
48,466

 
98.3

 
41,261

 
100.0

 
Other pledged assets(1)
 
850

 
1.7

 
—

 
—

 
Total secured loans
 
$
49,316

 
100.0
%
 
$
41,261

 
100.0
%
 
_________________________________
(1
)
 
Includes secured loans that are collateralized by borrower's assets, which are not exclusively precious metal products.
 

Each of the three classes of receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit risk. The methodology of assessing the credit quality of the secured loans acquired by the Company is similar to the secured loans originated loans by the Company; they are administered using the same internal reporting system, collateralized by precious metals or other pledged assets, for which a loan to value determination procedures are applied.
Credit Quality of Loans and Non Performing Status
Generally, interest is due and payable within 30 days. A loan is considered past due if interest is not paid in 30 days or collateral calls are not met timely. Typically, loans do not achieve the threshold of non performing status due to the fact that customers are generally put into default for any interest past due over 30 days and for unsatisfied collateral calls. When this occurs the loan collateral is typically liquidated within 90 days.
For certain secured loans, interest is billed monthly and, if not paid, is added to the outstanding loan balance. These secured loans are considered past due if their current loan-to-value ratio fails to meet established minimum equity levels, and the borrower fails to meet the collateral call required to reestablish the appropriate loan to value ratio.    
Non-performing loans have the highest probability for credit loss. The allowance for credit losses attributable to non-performing loans is based on the most probable source of repayment, which is normally the liquidation of collateral. In determining collateral value, the Company estimates the current market value of the collateral and considers credit enhancements such as additional collateral and third-party guarantees. Due to the accelerated liquidation terms of the Company's loan portfolio, all past due loans are generally liquidated within 90 days of default.
Further information about the Company's credit quality indicators includes differentiating by categories of current loan-to-value ratios. The Company disaggregates its secured loans that are collateralized by precious metal products, as follows:
in thousands
 
 
 
 
 
 
 
 
June 30,
 
2015
 
2014
Loan-to-value of 75% or more (1)
 
$
17,153

 
35.4
%
 
$
11,950

 
29.0
%
Loan-to-value of less than 75% (1)
 
31,313

 
64.6

 
29,311

 
71.0

Secured loans collateralized by precious metal products (1)
 
$
48,466

 
100.0
%
 
$
41,261

 
100.0
%
_________________________________
(1
)
 
Excludes secured loans that are collateralized by borrower's assets, which are not exclusively precious metal products.
 

    The Company had one loan with a loan-to-value ratio in excess of 100% at June 30, 2015. The aggregate balance of this loan totaled $175,600 or 0.4% of the secured loan balance. The Company had no loans with a loan-to-value ratio in excess of 100% at June 30, 2014.
For the Company's secured loans where the loan-to-value ratio is not a valid indicator (because the loans are collateralized by other assets of the borrower in addition to their precious metal inventory) the Company uses other indicators to measure the quality of this type of loan. For this type of loan, the Company use the following credit quality indicators: accounts receivable-to-loan ratios and inventory-to loan ratios and delinquency status of the loan.
Impaired loans
A loan is considered impaired if it is probable, based on current information and events, that the Company will be unable to collect all amounts due according to the contractual terms of the loan. Customer loans are reviewed for impairment and include loans that are past due, non-performing or in bankruptcy. Recognition of interest income is suspended and the loan is placed on non-accrual status when management determines that collection of future interest income is not probable. Accrual is resumed, and previously suspended interest income is recognized, when the loan becomes contractually current and/or collection doubts are removed. Cash receipts on impaired loans are recorded first against the receivable and then to any unrecognized interest income.
All loans are contractually subject to margin call. As a result, loans typically do not become impaired due to the fact the Company has the ability to require margin calls which are due upon receipt. Per the terms of the loan agreement, the Company has the right to rapidly liquidate the loan collateral in the event of a default. The material is highly liquid and easily sold to pay off the loan. Such circumstances would result in a short term impairment that would typically result in full repayment of the loan and fees due to the Company.
For the years ended June 30, 2015 and 2014, the Company incurred no loan impairment costs.
Allowance for Doubtful Accounts
Allowances for doubtful accounts are recorded based on specifically identified receivables, which the Company has identified as potentially uncollectible. As summary of the activity in the allowance for doubtful accounts is as follows:
in thousands
 
 
 
 
 
 
 
 
 
Period ended:
 
Beginning Balance
 
Provision
 
Charge-off
 
Ending Balance
 
Year Ended June 30, 2015
 
$
30

 
$
—

 
$
—

 
$
30

 
Year Ended June 30, 2014
 
$
104

 
$
—

 
$
(74
)
 
$
30