The SEC staff’s comments regarding loans receivable and valuation allowances (credit losses) have focused on the following:
  • Disclosures relating to the significant qualitative factors that affect the collectability of the lending portfolio and in particular how those qualitative trends influence the amount of the allowance for loan losses.
  • Requests for revisions to quantitative and qualitative disclosures to adequately address the characteristics and risks of particular portfolios, which are assessed to determine the allowance for loan losses.
  • Requests for registrants to provide additional disclosures when there are significant quantitative changes in the allowance for loan losses or changes that appear inconsistent with changes in key credit metrics or in the lending portfolios.
  • Requests for disclosure of loan charge-off policies within the allowance for credit losses including discussion of triggering events or other relevant information that may result in a charge-off.
Comment examples
Guidance references
  • Please revise future filings to discuss the underlying factors contributing to changes in credit quality (e.g., charge-offs, delinquency rates) during each period presented. Also, ensure that you comprehensively explain how changes in credit quality trends impacted your allowance for credit losses.
  • We note your disclosure for loan portfolio by loan type as well as the description of credit risk associated with each loan type. However, it does not appear your disclosure adequately addresses the risks and characteristics of certain portfolios which make up the vast majority of your allowance balance. Please revise your MD&A to address the following related to these portfolios: (1) allocation between prime and non-prime loans; (2) typical terms of your retail installment contracts and auto loans and the percentage of fixed loans versus variable loans; and (3) default rates and other risks associated with non-prime loans, the procedures you follow to mitigate those risks, and how the level of non-prime loans in your portfolio affects your allowance levels.
  • Tell us and revise future filings to disclose the quantitative assumptions used in estimating the prepayment estimate for each loan class in accordance with ASC 310-20-50-2.
  • Please tell us and revise future filings to disclose your policy for recognizing loan write offs within the allowance for credit losses. Specifically discuss the triggering events or other facts and circumstances that cause you to charge-off a loan. Refer to ASC 326-20-50-17(c) for guidance.
  • We note your tabular presentation includes accounts that have been excluded from troubled debt restructuring (TDR) designation due to regulatory exemptions. Please tell us what consideration has been given to including information in future filings that provides expanded insight into the credit quality of those customers that were excluded. The following are examples of information that would enhance your disclosures: Quantify the number (or percentage) of those customers that have made a payment in the last payment cycle; quantify the number (or percentage) of those customers that have made no payments since entering the program; provide a distribution by most recent FICO score (e.g., 660 and above, and less than 660 or no scores).
  • In a risk factor you identify the energy, retail, travel, entertainment and real estate industries as being heavily impacted by the COVID-19 pandemic. You also indicate that your municipal bond portfolio is subject to risks of default due to increased strain related to the pandemic. Finally, you disclose that these significant financial market disruptions may have a material impact on your business, results of operations and financial condition. Please tell us the following: Your current investment portfolio exposure to each of the industries identified above; your consideration for disclosing concentration information in your investment portfolio for these industries and your municipal bond portfolio as stipulated in ASC 825-10-50-20 and 50-21; and if your investment portfolio concentrations do not meet the disclosure threshold in the guidance identified, your consideration for otherwise disclosing in Management's Discussion and Analysis more information about the composition of your investment portfolio so that investors can better assess the underlying risks given the significant financial market disruptions you identify.
  • You disclose that your allowance is estimated for loans using a historical loss percentage based on losses arising specifically for each respective loan category, adjusted for various economic and environmental factors that are considered reasonable and supportable related to the underlying loans. Please provide us proposed revised disclosure to be included in future filings that: identifies the key quantitative inputs used in your estimate of the allowance for credit losses; indicates and quantifies how these key quantitative inputs changed from period to period; quantifies the qualitative component of your estimate and how it interacts with the quantitative component during the period; summarizes the information requested above; and clarifies the length of time in your reasonable and supportable forecasts and the reversion method you applied after the reasonable and supportable forecast period. See Item 303(b)(3) of Regulation S-K and ASC 326-20-50-11.
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