|3 Months Ended|
Sep. 30, 2014
Receivables and secured loans consist of the following as of September 30, 2014 and June 30, 2014:
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 various bullion products and cash advances to customers. 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, or short term loans acquired by CFC, which include a combination of on-demand and short term facilities. These loans are fully secured by bullion, numismatic and semi-numismatic material which are held in safekeeping by CFC. As of September 30, 2014 and June 30, 2014, the loans carried weighted-average effective interest rates of 8.4% and 8.3%, respectively, and mature in periods generally ranging from on-demand to one year.
Below is a summary of the significant secured loans that were modified, assumed or acquired and the financial effects of those agreements:
The secured loans that CFC generates with active customers of A-Mark or related parties of the Company are reflected as an operating activity on the condensed consolidated statements of cash flows within receivables or secured loans to Former Parent. The secured loans that are assumed by CFC from others, including from our customers, are reflected as an investing activity on the condensed consolidated statements of cash flows, shown as secured loans acquired.
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 11). The Company's derivative assets 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 two classes of finance receivables: those loans secured by bullion and those loans secured by numismatic items. Each of these two classes of receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit risk.
The Company's secured loans by portfolio class, which align with management reporting, are as follows:
The methodology of assessing the credit quality of the secured loans acquired by CFC is similar to the secured loans originated loans by CFC; they are administered using the same internal reporting system, collateralized by precious metals, and the same 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 as follows:
No loans have a loan-to-value in excess of 100% at September 30, 2014 and June 30, 2014.
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 three months ended September 30, 2014 and 2013, the Company incurred loan impairment costs of $0.00 million, and $0.00 million, respectively.
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:
The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.
Reference 1: http://www.xbrl.org/2003/role/presentationRef