Quarterly report pursuant to Section 13 or 15(d)

Receivables

v2.4.0.8
Receivables
 6 Months Ended
Dec. 31, 2013
Receivables [Abstract]  
Receivables
RECEIVABLES
Receivables and secured loans consist of the following as of December 31, 2013 and June 30, 2013:
in thousands
December 31, 2013
 
June 30, 2013
 
 
 
 
Customer trade receivables
$
30,185

 
$
38,405

Wholesale trade advances
12,327

 
20,623

Due from brokers
8,909

 
—

Subtotal
51,421

 
59,028

Secured loans
31,935

 
35,585

Subtotal
83,356

 
94,613

Less: allowance for doubtful accounts
(30
)
 
(104
)
Subtotal
83,326

 
94,509

Derivative assets — open sales and purchase commitments, net
3,293

 
—

Derivative assets — forward contracts
4,933

 
471

Derivative assets — futures contracts
10,921

 
14,967

Receivables, net
$
102,473

 
$
109,947


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 represent advances of refined materials to customers. These advances are limited to a portion of the unrefined materials received. These advances are unsecured, short-term, non-interest bearing advances made to wholesale metals dealers and government mints.

Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts (see Note 11).

Secured loans represent short term loans made to customers of CFC. Loans are fully secured by bullion, numismatic and semi-numismatic material which are held in safekeeping by CFC. As of December 31, 2013 and June 30, 2013, the loans carried weighted-average effective interest rates of 7.9% and 8.0%, respectively, and mature in periods generally ranging from three months to one year.

•
Until October 31, 2011, A-Mark maintained a segregated commodities account with M.F. Global, Inc. (“MFGI”). A-Mark used this account to enter into future transactions to hedge the risk related to its positions with counterparties and physical inventories. MFGI filed for bankruptcy protection on October 31, 2011. At the time MFGI filed for bankruptcy, A-Mark had $20.3 million in funds held at MFGI of which $14.6 million, or 72%, of A Mark's MFGI Equity was returned to A-Mark in December 2011 pursuant to a bulk transfer approved by the Bankruptcy Court. A-Mark has filed a claim in the bankruptcy proceedings for the remaining $5.7 million. In July 2012, A-Mark received an additional distribution of $1.6 million from the trustee for the liquidation of MFGI, bringing the remaining balance to $4.1 million. On December 31, 2012, A-Mark sold its claim to this balance for $3.8 million. During quarter ended December 31, 2011, the Company recorded a $1.0 million reserve for this potential shortfall, which is included in selling, general and administrative expenses. For the six months ended December 31, 2012, the receipt of proceeds from the sale of the receivable of $3.8 million resulted in a positive impact to the provision for bad doubtful accounts of $0.7 million.
 
•
On September 27, 2013, CFC paid $0.35 million to a borrower of CFC in exchange for the right to assume a portfolio of short-term loan receivables totaling $12.8 million.  The loans were used to satisfy the existing outstanding loan totaling $12.8 million with the borrower of CFC. The receivables were originated by the borrower and this transaction resulted in the assignment of those receivables to CFC. This premium will be amortized ratably as loans pay off. The loans are due on demand with the option to extend maturities for 180 days.  For the three months ended and six months ended December 31, 2013, a total of $2.3 million and $2.3 million in loans were paid off, respectively, and $0.1 million and $0.1 million ,respectively, in premium amortization cost was recorded related to this transaction.

    
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 sales and purchase contracts, as adjusted on a daily basis for changes in market values of the underlying metals, until settled (see Note 11). The Company's derivative assets represent the net fair value of open 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. Based upon the Company's analysis of credit losses and risk factors, secured commercial loans are its sole portfolio segment. This is due to the fact that all loans are very similar in terms of secured material, method of initial and ongoing collateral value determination and 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 further evaluated its portfolio segments by the class of finance receivables, which is defined as a level of information in which the finance receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit risk. As a result, the Company determined that the secured commercial loans portfolio segment has two classes of receivables, those secured by bullion and those secured by collectibles.
The Company's classes, which align with management reporting, are as follows:
in thousands
December 31, 2013
 
June 30, 2013
 
 
 
 
 
 
 
 
Bullion
$
19,403

 
60.8
%
 
$
21,993

 
61.8
%
Collectibles
12,532

 
39.2

 
13,592

 
38.2

 Total secured loans
$
31,935

 
100.0
%
 
$
35,585

 
100.0
%


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 income is suspended and the loan is placed on non-accrual status when management determines that collection of future income is not probable. Accrual is resumed, and previously suspended 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 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.
The Company ceases the accrual of interest on its non-performing loans. There were no impaired loans as of December 31, 2013 and one impaired loan of $0.07 million as of June 30, 2013.

Credit quality of loans
All 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. Loans never 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.
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 as follows:
in thousands
December 31, 2013
 
June 30, 2013
 
 
 
 
 
 
 
 
Loan-to-value of 75% or more
$
12,493

 
39.1
%
 
$
3,764

 
10.6
%
Loan-to-value of less than 75%
19,442

 
60.9

 
31,821

 
89.4

Total secured loans
$
31,935

 
100.0
%
 
$
35,585

 
100.0
%


No loans have a loan-to-value in excess of 100% at December 31, 2013 and June 30, 2013.

Allowance for Doubtful Accounts
Allowances for doubtful accounts are recorded based on specifically identified receivables, which the Company has identified as potentially uncollectible. Activity in the allowance for doubtful accounts for the six months ended December 31, 2013 and year ended June 30, 2013 is as follows:
in thousands
Period ended:
Beginning Balance

Provision

Charge-off

Ending Balance

December 31, 2013
$
104

$
—

$
(74
)
$
30

June 30, 2013
$
1,118

$
(700
)
$
(314
)
$
104