Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements and accompanying notes in Part II, Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. The discussion of the components of our results of operations focuses on financial trends and events occurring during 2025 and 2024.
Additional information related to financial trends between 2024 and 2023 can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2024, filed with the SEC on April 30, 2025, which information under that caption is incorporated herein by this reference. Historical results of operations are not necessarily predictive of future results.
OVERVIEW:
The Company is a privately-held Georgia corporation headquartered in Toccoa, Georgia. 1FFC has been engaged in the consumer finance business since 1941. Our operations focus primarily on making consumer loans to individuals for personal or family needs, in relatively small amounts with maturities of approximately 2 years. The Company historically extended real estate loans. Beginning in 2024, 1FFC discontinued the origination of real estate loans, and the portfolio is currently in runoff. The Company also purchases sales finance contracts from various dealers.
All of 1FFC's loans are at fixed rates and contain fixed terms and fixed payments. The Company operates branch offices in ten southern states and had a total of 374 branch locations as of December 31, 2025. The Company and its operations are guided by a strategic plan which includes planned growth through strategic expansion of our branch office network. The majority of our revenues are derived from interest and finance charges earned on loans outstanding. Additional revenues are derived from earnings on investment securities, insurance income and other miscellaneous income.
FACTORS IMPACTING RESULTS OF OPERATIONS:
1FFC's results of operations are affected by various factors that influence our revenues and costs, including the following:
Seasonality:
The Company's loan volume follows seasonal trends. The highest loan demand generally occurs during the second, third and fourth quarters, which we believe is primarily due to customers borrowing money for vacations and holiday spending. Loan demand is generally lowest and loan repayment highest during the first quarter, which we believe is primarily driven by the timing of income tax refunds.
Changes in quarterly growth or liquidation could result in larger allowance for credit loss releases in periods of portfolio liquidation, and larger provisions for credit losses in periods of portfolio growth. Consequently, 1FFC experiences seasonal fluctuations in our operating results. However, due to our reliance on the continued income stream of most of our loan customers, our ability to continue the profitable operation of our business depends to a large extent on the continued employment of our customers and their ability to meet their obligations as they become due. Therefore, changes in macroeconomic factors, including inflation, higher interest rates, and increases in unemployment, may have a material adverse effect on our profitability and may impact our typical seasonal trends for loan volume.
Growth in Loan Portfolio:
The Company's financial performance continues to be dependent in large part upon the growth in its loan portfolio. Portfolio growth has been driven by expanding 1FFC's geographic footprint and growing our loan portfolios within existing branches. In addition, an increased focus on mailing convenience checks has also contributed to portfolio growth in recent years.
Almost all loans, regardless of origination channel, are serviced through our branches, which allows us to build and maintain relationships with our customers throughout the life of each loan. We believe this relationship-driven model provides greater visibility into potential payment challenges, helps mitigate credit risk, and allows us to better understand and respond to our customers' evolving borrowing needs. 1FFC intends to continue capitalizing on opportunities in the marketplace to drive growth in the loan portfolio, increase revenue, and enhance the profitability of existing branches. Additionally, the Company plans to open new branches within our current geographic footprint and strategically expand operations into new states that we believe align well with our products, services, and operating model.
Allowance for Credit Losses:
Operating results are significantly influenced by the credit quality of the loan portfolio. The Company utilizes a Probability of Default (“PD”) / Loss Given Default (“LGD”) model to estimate the allowance for credit losses whereby estimated loss is equal to the product of PD and LGD. The allowance for credit losses model estimates instances of loss and the average severity of losses using the characteristics of the loan portfolio, along with incorporating a reasonable and supportable forecast which is utilized to support the adjustments to historical loss experience of loans with similar credit risk.
The allowance for credit losses recorded in the balance sheet reflects the Company’s best estimate of expected credit losses. See Note 2, Loans and Allowance for Credit Losses, in the accompanying Notes to Consolidated Financial Statements for further discussion.
Interest Rates:
1FFC's cost of funds is influenced by changes in interest rates, as certain of our liabilities bear interest at variable rates. Volatility in interest rates generally has more impact on income earned from investments and the Company's borrowing costs than on interest income earned on loans. All of 1FFC's loans are at fixed rates and, therefore, are not impacted by changes in the interest rate environment.
Operating Expenses:
The Company's financial results are significantly impacted by the costs associated with our operations and corporate office functions. These expenses include personnel-related costs as well as the infrastructure and administrative support necessary to manage our branch network, service the loan portfolio, oversee compliance and risk management, and support corporate governance and strategic initiatives.
COMPONENTS OF RESULTS OF OPERATIONS:
Interest Income:
Interest income is a principal component of the Company’s operating performance and resulting net income. It primarily represents income on earning assets and is affected by the size and mix of the loan and investment portfolios, as well as the related interest and finance charges.
Interest income on loans is recognized as revenue on an accrual basis using the effective interest method. Loans are generally placed on non-accrual status after two missed payments. For loans placed on non-accrual status, the Company ceases accruing interest and finance charges and previously accrued interest is reversed against interest income. 1FFC generally charges off a loan when a full contractual payment has not been received in the preceding 180 days.
Most states permit certain fees in connection with lending activities, such as loan origination fees and maintenance fees. Loan fees are deferred and amortized to interest income over the contractual life of the loan using methods that approximate the effective interest method. Depending on applicable state law, such fees may or may not be refundable to the customer in the event of an early payoff, depending on state law. If a loan liquidates before amortization is complete, the Company applies any unamortized fees and origination costs to interest income at the date of liquidation. The Company recognizes late charges and prepayment penalties as revenue when received.
Interest Expense:
Interest expense represents the cost of funds associated with interest-bearing liabilities, with debt securities comprising the majority of these obligations. Key factors affecting our interest expense include 1FFC's average outstanding debt as well as the general interest rate environment.
Provision for Credit Losses:
The Company’s provision for credit losses is a charge against earnings in amounts sufficient to maintain the allowance for credit losses at a level considered adequate to cover expected losses in our loan portfolio.
Determining a proper allowance for credit losses is a critical accounting estimate which involves management’s judgment with respect to certain relevant factors, such as historical and expected loss trends, unemployment rates, delinquency levels, bankruptcy trends and overall general and industry specific economic conditions. Changes in the provision are intended to ensure that the allowance for credit losses reported on the Consolidated Statements of Financial Position appropriately reflects expected credit losses over the remaining maturity of the portfolio.
While management believes its approach for determining the allowance for credit losses adequately considers the potential factors that could potentially result in credit losses, to the extent actual outcomes are worse than management’s estimates, additional provision for credit losses could be required which could adversely affect our earnings or financial position in future periods. See Note 2, Loans and Allowance for Credit Losses , in the accompanying Notes to Consolidated Financial Statements for further discussion.
Net Insurance Income :
The Company offers certain optional credit insurance products to customers when closing a loan. Net insurance income primarily represents earned premiums from these products, net of related insurance claims and associated expenses. In addition, net insurance income includes earned premiums and direct costs related to
non-file insurance that 1FFC purchases to protect us from credit losses, where following an event of default, we are unable to take possession of personal property collateral because our security interest is not perfected.
Other Revenue:
Other revenue consists mainly of earnings from the sale of auto club memberships and fees charges to customers for non-sufficient funds.
Operating Expenses:
The cost of operations impact 1FFC's financial results, which are comprised of personnel expenses, occupancy expenses, and other expenses.
Personnel expenses represent the largest component of our operating costs and consist largely of salaries and wages, overtime, contract labor, incentives, benefits, medical claims, and related payroll taxes associated with all of our operations.
Occupancy expenses primarily include the cost of leasing our facilities, as well as related expenses such as utilities, maintenance, and depreciation and amortization expenses.
Other expenses primarily include advertising and marketing costs, legal and audit fees, consulting, postage, computer and IT expenses, collection costs and credit bureau dues, conversion expenses, training and development, bank service charges, and the amortization of loans purchased at a premium.
Income Taxes:
The Company is an S corporation for income tax reporting purposes. Taxable income or loss of an S corporation is passed through to the shareholders of the Company. Accordingly, deferred income tax assets and liabilities have been eliminated and no provision for current and deferred income taxes were made by the Company except for amounts attributable to state income taxes for certain states which do not recognize S corporation status for income tax reporting purposes. Deferred income tax assets and liabilities are recognized and provisions for current and deferred income taxes continue to be recorded by the Company's subsidiaries as they are not permitted to be treated as S Corporations. The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences.
RESULTS OF OPERATIONS:
Net loans are carried on an amortized cost basis which includes the remaining principal balance, accrued interest, and net unamortized deferred fees and costs. The following table summarizes our results of operations, both in dollars and as a percentage of average net loans (in thousands):
Year Ended December 31,
Amount
% of Average Net Loans
Amount
% of Average Net Loans
Interest income
Interest expense
Provision for credit losses
Net insurance income
Other revenue
Personnel
Occupancy
Other
Total operating expenses
Income before income taxes
Income taxes
Net income / (loss)
Information explaining the changes in our results of operations from year-to-year is provided in the following pages.
Comparison of December 31, 2025 Versus December 31, 2024
The following table describes the changes in loans by loan class (in thousands, except for %):
Loans Outstanding for the Year Ended December 31,
$ Change
% Change
Direct cash loans
Real estate loans
Sales finance contracts
Total loans outstanding
Comparison of the Year Ended December 31, 2025, Versus the Year Ended December 31, 2024
Net Income (Loss):
Net income increased $20.3 million (362%) to $14.7 million in 2025, compared to a net loss of $(5.6) million in 2024. The change in net income is explained in greater detail below.
Interest Income:
Interest income increased $52.2 million (17%) to $359.5 million in 2025, from $307.2 million in 2024. The increase in interest income was primarily due to growth in the average net loans outstanding in 2025 compared to 2024.
Average net loans outstanding increased $95.3 million (11%) to $959.3 million at December 31, 2025, compared to $864.0 million at December 31, 2024.
The average annual yield on loans we make (the percentage of finance charges earned to average net outstanding balance) has been as follows:
Year Ended December 31,
Change
Direct cash loans
Real estate loans
Sales finance contracts
Gross loan originations increased $321.7 million (24%) to $1.7 billion in 2025, from $1.3 billion in 2024. Origination volume increased during 2025 compared to the prior year due to increases in direct cash loans, an increased focus in convenience checks, and the Company’s expansion into a new state, which contributed to additional lending opportunities. 1FFC's net loan portfolio increased $136.3 million (15%) to $1.0 billion at December 31, 2025 compared to $911.7 million as of December, 31 2024. The following table represents the volume of loans originated or acquired (in thousands):
Year Ended December 31,
$ Change
% Change
Direct cash loans
Real estate loans
Sales finance contracts
Net bulk purchases
Total Loans Originated / Acquired
The following table shows the sources of our earned finance charges (in thousands):
Year Ended December 31,
$ Change
% Change
Direct Cash Loans
Real Estate Loans
Sales Finance Contracts
Total Finance Charges
Interest Expense:
Interest expense increased $3.1 million (6%) to $58.2 million in 2025, from $55.1 million in 2024. Higher sales of the Company’s debt securities and an increase in borrowings on the Company’s credit line resulted in an increase in senior debt, which both resulted in higher interest cost. Average borrowings were $1,084.1 million during 2025 compared to $893.5 million during 2024. The increase was partially offset by lower interest rates on the Company's credit line in 2025 compared to 2024.
Provision for Credit Losses:
The Company’s provision for credit losses increased $21.3 million (25%) to $104.6 million in 2025, from $83.4 million in 2024. The increase was primarily due to an increase in net charge-offs of $20.3 million (25%) to $101.7 million in 2025, from $81.4 million in 2024. The increase in net-charge-offs was primarily due to growth in the loan portfolio in 2025 compared to 2024.
Delinquency Performance:
The Company considers the loan portfolio to be a homogenous loan pool for purposes of calculating the allowance for credit losses due to similar risk characteristics, pricing, and term, among other factors. 1FFC also evaluates credit quality based on the aging status of the loan and by payment activity. Accounts are classified in delinquency categories of 30-59 days (1 installment), 60-89 days (2 installments), or 90 or more days (3+
installments) past due. The Company categorizes its loans into risk categories based on relevant information about the ability of borrowers to service their debt. 1FFC analyzes the loan portfolio by credit risk and updates the rating periodically based on current credit information.
The percent of the loan portfolio greater than 30 days delinquent is 7.00% at December 31, 2025 compared to 8.43% at December 31, 2024. The ratio of bankrupt accounts to the net principal balance was 1.30% and 1.38% at December 31, 2025 and December 31, 2024, respectively.
An age analysis of balances past due, segregated by loan class, as of December 31, 2025 and 2024 is as follows (in thousands):
December 31, 2025
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
More
Past Due
Total
Past Due
Loans
Direct Cash Loans
Real Estate Loans
Sales Finance Contracts
Total
December 31, 2024
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
More
Past Due
Total
Past Due
Loans
Direct Cash Loans
Real Estate Loans
Sales Finance Contracts
Total
Net Insurance Income:
Net insurance income (insurance revenues less claims and expenses) increased $4.9 million (10%) to $52.5 million in 2025, from $47.6 million in 2024.
The following table summarizes the components of insurance income net (in thousands):
Year Ended December 31,
$ Change
% Change
Earned premiums and commissions
Insurance claims and expenses
Net insurance income
Earned premiums and commissions increased $5.2 million during 2025 and insurance claims and expenses increased $0.2 million during 2025 compared to 2024. These increases were driven by growth in the direct cash loan portfolio and the corresponding rise in optional insurance products written. In addition, the increase in earned premiums and commissions reflects the receipt of 1FFC's business interruption insurance claim of $3.0 million in 2025 related to the 2022 cyber-attack.
Other Revenue:
Other revenue increased $2.1 million (31%) to $9.1 million in 2025, from $7.0 million in 2024. This was primarily driven by an increase in sales of our automobile club membership products of $1.5 million in 2025 compared to 2024, which resulted from growth in the loan portfolio.
Operating Expenses :
The Company's operating expenses increased $14.2 million (6%) to $237.4 million in 2025 compared to $223.2 million in 2024.
Personnel expenses represent the largest component of our operating costs, which increased $18.0 million (14%) to $142.6 million in 2025, from $124.6 million in 2024. An increase in the number of employees, higher bonus accrual, higher medical claims, higher payroll taxes, and salary adjustments were the primary reasons for the increase.
Occupancy expenses increased $1.8 million (8%) to $24.0 million in 2025, from $22.2 million in 2024. Increases in depreciation and amortization expense, rent expense, and new branch openings attributed to the increase in occupancy expenses partially offset by a decrease in maintenance and utilities expense.
Other expenses decreased $5.5 million (7%) to $70.8 million in 2025, from $76.3 million in 2024. Lower advertising, computer, and postage expenses were partially offset by increases in information technology consulting expenses, conversion expenses, stationary and supplies, and professional fees during 2025 compared to 2024.
Income Taxes:
Income taxes increased $0.5 million (9%) to $6.2 million in 2025, from $5.7 million in 2024. The increase was primarily due to a $20.8 million increase in income before income taxes compared to 2024.
Effective income tax rates for the years ended December 31, 2025 and 2024 were 29.8% and 6,268.6%, respectively. The effective income tax rate differs from the statutory rate due to changes in the proportion of income earned by the Company's insurance subsidiaries and the S Corporation tax effect of the 1FFC parent company.
LIQUIDITY AND CAPITAL RESOURCES:
Liquidity is the ability of the Company to meet its ongoing financial obligations, either through converting assets into cash or cash equivalents without significant loss or through raising additional funds by increasing liabilities. Liquidity management involves maintaining the ability to meet the daily cash flow requirements of customers, both depositors and borrowers. The primary objective is to ensure that sufficient funding is available, at a reasonable cost, to meet ongoing operational cash needs and to take advantage of revenue producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, our primary goal is to maintain a sufficient level of liquidity in all expected economic environments.
Sources of Liquidity:
An important part of 1FFC's liquidity resides in the asset portion of the balance sheet, which provides liquidity primarily through loan interest and principal repayments and the maturities and sales of securities, as well as the ability to use these assets as collateral for borrowings on a secured basis. Liquidity is also available from cash and cash equivalents.
As of December 31, 2025 and December 31, 2024, the Company had $18.2 million and $35.9 million, respectively, invested in cash and short-term investments readily convertible into cash with original maturities of three months or less. The Company uses cash reserves to fund its operations, including providing funds for any increase in redemptions of debt securities by investors which may occur.
The Company's investment securities portfolio increased $19.4 million (8%) to $275.3 million at December 31, 2025 compared to $255.9 million at December 31, 2024. The portfolio consists primarily of invested surplus funds generated by the Company's insurance subsidiaries, Frandisco Property and Casualty Insurance Company and Frandisco Life Insurance Company (collectively, "the Frandiscos"). Management maintains what it believes to be a conservative approach when formulating its investment strategy. The Company does not participate in hedging programs, interest rate swaps or other similar activities. The investment portfolio consists mainly of U.S. Treasury bonds, government agency bonds, and various municipal bonds. See Note 3, Investment Securities, in the accompanying Notes to Consolidated Financial Statements for further discussion.
As of December 31, 2025 and 2024, 99% and 99%, respectively, of the Company's cash and cash equivalents and investment securities were maintained by the Company's insurance subsidiaries. Georgia state insurance
regulations limit the use an insurance company can make of its assets. See Note 6, Insurance Subsidiary Restrictions, in the accompanying Notes to Consolidated Financial Statements for further discussion.
Another primary source of 1FFC's liquidity is cash flows generated from its loan portfolio, including scheduled principal repayments, collections of outstanding receivables, and interest income earned on such loans. The Company actively manages its portfolio to support ongoing liquidity needs, and contractual principal and interest payments provide a recurring source of cash inflows. The timing and amount of these cash flows are influenced by portfolio performance, borrower repayment behavior, and economic conditions. Any increase in the Company's allowance for credit losses would not directly affect the Company's liquidity, as adjustments to the allowance have no impact on cash. However, an increase in the actual loss rate may have a material adverse effect on the Company's liquidity. As such, the inability to collect loans could materially impact the Company's future liquidity.
Most of the Company's loan portfolio is financed through sales of its various debt securities, which have shorter average maturities than the loan portfolio as a whole. The difference in maturities may adversely affect liquidity if the Company is not able to continue to sell debt securities at interest rates and on terms that are responsive to the demands of the marketplace. The Company's continued liquidity is therefore also dependent on the collection of its receivables and the sale of debt securities that meet the investment requirements of the public.
The Company's debt securities are comprised of senior demand notes, commercial paper debt securities, and variable rate subordinated debentures. Debt securities increased $47.5 million (6%) to $888.1 million as of December 31, 2025, compared to $840.6 million as of December 31, 2024. See Note 7, Senior Debt , and Note 8, Subordinated Debt , in the accompanying Notes to Consolidated Financial Statements for further discussion.
In addition to its receivables and securities sales, the Company has an external source of funds available under a revolving credit facility (the "Credit Agreement") with BMO Bank, N.A. The Credit Agreement with BMO Bank, N.A. executed on December 6, 2024, provides for borrowings of up to $300.0 million or 75% of the Company's net loans, whichever is less, subject to certain limitations. All borrowings are secured by the loans of the Company. 1FFC had $79.3 million and $148.1 million of availability to draw down cash from our Credit Agreement as of December 31, 2025 and December 31, 2024 at interest rates of 6.87% and 7.52%, respectively. Outstanding borrowings under the Credit Agreement were $220.7 million and $151.9 million at December 31, 2025 and 2024, respectively.
The Credit Agreement contains covenants customary for financing transactions of this type. The Company is required, under the Credit Agreement, to report on its performance as it relates to the covenants contained therein. The Credit Agreement has a termination date of December 6, 2027. Management believes the current credit facility, when considered with funds expected to be available from operations, should provide sufficient liquidity for the Company. See Note 7, Senior Debt , in the accompanying Notes to Consolidated Financial Statements for further discussion.
1FFC continues to monitor and review current economic conditions and the related potential implications on the Company, including with respect to, among other things, changes in credit losses, liquidity, compliance with debt covenants, and customer relationships.
Internal Liquidity Management:
Frandisco Life Insurance Company and Frandisco Property and Casualty Insurance Company can make dividends and/or lines of credit with maximum amounts of $115.0 million and $135.0 million, respectively, which are subject to approval by the Georgia Commissioner of Insurance and Safety Fire annually. The outstanding balance on the lines of credit with the Frandiscos are eliminated upon consolidation. See Note 6, Insurance Subsidiary Restrictions , in the accompanying Notes to Consolidated Financial Statements for further discussion.
Cash Flow:
Operating Activities:
Net cash provided by operating activities in 2025 was $144.2 million, compared to $84.2 million in 2024, which represents a net increase of $60.0 million. The increase in cash provided was primarily driven by growth in the loan portfolio, which contributed to higher net income.
Investing Activities:
Investing activities include the origination and repayment of loans, purchases and sales / redemptions of available for sale securities, and purchases of property and equipment for both new and existing branches. Net cash used in investing activities in 2025 was $258.9 million, compared to $154.0 million in 2024, which represents a net increase of $104.9 million. The increase in cash used was primarily due to higher loan originations associated with the growth of our loan portfolio, partially offset by increased repayments of loans.
Financing Activities:
Financing activities consist of borrowings and payments on our outstanding indebtedness. Net cash provided by financing activities in 2025 was $116.3 million, compared to $79.7 million in 2024, which represents a net increase of $36.6 million. The increase in cash provided was primarily due to lower payments and advances on the Company's credit line, reflecting repayment of the prior line of credit, and higher commercial paper redemptions in 2025.
The Company anticipates that its cash and cash equivalents, cash flows from operations, sales of debt securities, available lines of credit, and borrowings under the Credit Agreement will be sufficient to fund its liquidity needs for the next 12 months and thereafter for the foreseeable future.
CRITICAL ACCOUNTING POLICIES:
The accounting and reporting policies of 1st Franklin are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the financial services industry. The more critical accounting and reporting policies include the allowance for credit losses, revenue recognition and insurance claims reserves.
Allowance for Credit Losses:
Provisions for credit losses are charged to operations in amounts sufficient to maintain the allowance for credit losses at a level considered adequate to cover expected credit losses in our loan portfolio. The allowance for credit losses is established based on the determination of the amount of expected losses inherent in the loan portfolio as of the reporting date.
1FFC considers the loan portfolio to be a single homogenous loan pool for purposes of the allowance for credit losses calculation based upon the consistent risk characteristics inherent in the portfolio. No loans are reviewed on an individual basis for potential credit risk. The Company utilizes a PD/LGD model to estimate the allowance for credit losses whereby estimated loss is equal to the product of PD and LGD. The allowance for credit losses model estimates instances of loss and the average severity of losses using the characteristics of the loan portfolio, along with incorporating a reasonable and supportable forecast which is utilized to support the adjustments to historical loss experience of loans with similar credit risk.
Management’s periodic evaluation of the adequacy of the allowance for credit losses takes into consideration the Company’s probable inherent risks in the homogeneous loan portfolio and current economic conditions, including those geographic regions where the Company has a concentration.
Key segmentation in the calculation is origination vintage, remaining contractual term, risk score and state of origination. The allowance for credit loss methodology produces a variety of alternative economic scenarios. The Company considers how macroeconomic and/or other factors might impact expected credit losses over the remaining maturity of the portfolio and determine which scenario(s) and specific scenario weights are applied within the estimation. The allowance for credit losses recorded in the balance sheet reflects the Company’s best estimate of expected credit losses.
Revenue Recognition:
Interest income is recognized using the effective interest method, whereby the Company recognizes interest revenue equitably over the term of the loan. Unearned finance charges on pre-compute loans are rebated utilizing statutory methods, which often is the Rule of 78's method. The difference between income recognized under the effective interest and Rule of 78's method is recognized at the time of rebate as an adjustment to interest income.
Premiums on property and casualty credit, credit life and accident and health insurance policies are deferred and earned over the insurance coverage term using either the pro-rata method or the effective yield method. Rebates are computed using statutory methods. The difference between income recognized under the effective interest and statutory method is recognized at the time of rebate as an adjustment to income.
Policy acquisition costs of the Frandiscos are deferred and amortized to expense over the life of the policies on the same methods used to recognize premium income.
The Company sells auto club memberships as an agent for a third party. The Company has no further obligations after the date of sale as all claims for benefits are paid and administered by the third party. Commissions received from the sale of auto club memberships are earned at the time the membership is sold.
Insurance Claims Reserves:
Included in unearned insurance premiums and commissions on the Consolidated Statements of Financial Position are reserves for incurred but unpaid credit insurance claims for policies written by the Company and reinsured by the Company's wholly owned insurance subsidiaries. These reserves are established based on accepted actuarial methods. In the event that the Company's actual reported losses for any given period are materially in excess of the previously estimated amounts, such losses could have a material adverse effect on the Company's results of operations.
Different assumptions in the application of these policies could result in material changes in the Company's consolidated financial position or consolidated results of operations.
