Press Release: CURO Group Holdings Corp. -3-
Online revenue as a percentage of consolidated revenue increased during the three months and year ended December 31, 2020 due to COVID-19 Impacts and the resulting transition of customers using our online channel which provides customers a safe and contactless option.
Loan Volume and Portfolio Performance Analysis
The following table reconciles Company Owned gross loans receivable, a GAAP-basis balance sheet measure to Gross combined loans receivable, a non-GAAP measure(1) . Gross combined loans receivable includes loans originated by third-party lenders through CSO programs, which are not included in the Consolidated Financial Statements but from which we earn revenue by providing a guarantee to the unaffiliated lender.
Gross combined loans receivable decreased $144.7 million, or 19.5%, to $597.8 million as of December 31, 2020, from $742.5 million as of December 31, 2019. The decrease was driven by COVID-19 Impacts and, for Installment loans, the impact of regulatory changes in California that were effective January 1, 2020. Sequentially, gross combined loans receivable increased $60.6 million, or 11.3%, as demand increased during the fourth quarter from normal seasonality, reduced government stimulus benefits, continued growth in Open-End in Canada and growth in the Verge Credit brand.
Gross combined loans receivable performance by product is described further in the following sections.
Open-End loan balances as of December 31, 2020 increased $23.4 million, or 7.0% ($16.4 million, or 4.9%, on a constant-currency basis), compared to December 31, 2019. Open-End balances in Canada increased $51.2 million, or 20.3% ($44.2 million, or 17.5%, on a constant-currency basis), year over year and $37.8 million, or 14.2% ($54.1 million, or 22.8%, on a constant currency basis), sequentially. Open-End loan balances in the U.S. declined $27.8 million, or 33.4% year over year. Sequentially, U.S. Open-End balances declined $1.2 million, or 2.1%, primarily due to the conversion of Virginia Open-End loans to Installment loans in advance of regulatory changes effective January 1, 2021.
The Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable ("allowance coverage") decreased sequentially from 16.0% to 14.5% as of December 31, 2020 and decreased from 16.4% year over year. The decrease was due to (i) sustained favorable trends in NCOs throughout 2020, (ii) the sequential decrease in Troubled Debt Restructuring ("TDRs") loans as a percentage of total gross loans receivable, and (iii) continued lower past-due gross loans receivable as a percentage of total gross loans receivable compared to historical trends. Year over year, NCO rates improved 520 bps and past-due rates improved 440 bps.
Q1 2019 Open-End Loss Recognition Change
Effective January 1, 2019, we modified the timeframe over which we charge-off Open-End loans and made related refinements to our loss provisioning methodology. Prior to January 1, 2019, we deemed Open-End loans uncollectible and charged-off when a customer missed a scheduled payment and the loan was considered past-due. Because of our continuing shift to Open-End loans in Canada and our analysis of payment patterns on early-stage versus late-stage delinquencies, we revised our estimates and now consider Open-End loans uncollectible when the loan has been contractually past-due for 90 consecutive days. Consequently, past-due Open-End loans and related accrued interest now remain in loans receivable for 90 days before being charged off against the allowance for loan losses. All recoveries on charged-off loans are credited to the allowance for loan losses. We evaluate the adequacy of the allowance for loan losses compared to the related gross loans receivable balances that include accrued interest.
Prospectively from January 1, 2019, past-due, unpaid balances plus related accrued interest charge-off on day 91.
This change was treated as a change in accounting estimate for accounting purposes and applied prospectively beginning January 1, 2019.
In addition, the following table illustrates, on a non-GAAP pro forma basis, the 2019 quarterly results as if the Q1 2019 Open-End Loss Recognition Change had been applied to our outstanding Open-End loan portfolio as of December 31, 2018. This table is illustrative of retrospective application to determine the NCOs that would have been incurred in each quarter of 2019 from the December 31, 2018 loan book. The primary purpose of this pro forma illustration is to provide a representative level of NCO rates from applying the Q1 2019 Open-End Loss Recognition Change.
Unsecured Installment Loans - Company Owned
Company Owned Unsecured Installment revenue for the three months ended December 31, 2020 and related gross loans receivable decreased $27.0 million, or 42.6%, and $58.4 million, or 36.3%, respectively, from the prior-year period. The decrease in receivables was primarily due to COVID-19 Impacts and regulatory changes in California that were effective January 1, 2020, partially offset by growth in the Verge Credit brand. Sequentially, Company Owned Unsecured Installment revenue and related gross loans receivable increased $5.2 million, or 16.7%, and $21.8 million, or 17.6%, respectively.
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