Note 4. Finance Receivables, Credit Quality Information, and Allowance for Credit Losses

Finance receivables for the periods indicated consisted of the following:


	December 31,
In thousands	2016		2015
Small loans	$	358,471	$	338,157
Large loans		235,349		146,553
Automobile loans		90,432		116,109
Retail loans		33,523		27,625

Finance receivables	$	717,775	$	628,444

The contractual delinquency of the finance receivable portfolio by product and aging for the periods indicated are as follows:


	December 31, 2016
	Small					Large					Automobile					Retail					Total
In thousands	$		%			$		%			$		%			$		%			$		%
Current	$	288,983		80.6	%	$	204,063		86.8	%	$	66,936		74.0	%	$	27,220		81.2	%	$	587,202		81.9	%
1 to 29 days past due		36,533		10.2	%		19,172		8.1	%		17,196		19.0	%		4,205		12.5	%		77,106		10.7	%

Delinquent accounts
30 to 59 days		9,408		2.6	%		3,948		1.7	%		2,654		3.0	%		717		2.2	%		16,727		2.3	%
60 to 89 days		7,110		2.0	%		2,920		1.2	%		1,171		1.3	%		440		1.3	%		11,641		1.6	%
90 to 119 days		6,264		1.8	%		2,271		1.0	%		1,110		1.2	%		376		1.1	%		10,021		1.4	%
120 to 149 days		5,424		1.5	%		1,710		0.7	%		743		0.8	%		328		1.0	%		8,205		1.1	%
150 to 179 days		4,749		1.3	%		1,265		0.5	%		622		0.7	%		237		0.7	%		6,873		1.0	%

Total delinquency	$	32,955		9.2	%	$	12,114		5.1	%	$	6,300		7.0	%	$	2,098		6.3	%	$	53,467		7.4	%

Total finance receivables	$	358,471		100.0	%	$	235,349		100.0	%	$	90,432		100.0	%	$	33,523		100.0	%	$	717,775		100.0	%

Finance receivables in nonaccrual status	$	16,437		4.6	%	$	5,246		2.2	%	$	2,475		2.7	%	$	941		2.8	%	$	25,099		3.5	%


	December 31, 2015
	Small					Large					Automobile					Retail					Total
In thousands	$		%			$		%			$		%			$		%			$		%
Current	$	270,635		80.1	%	$	127,374		86.9	%	$	79,878		68.8	%	$	22,704		82.2	%	$	500,591		79.7	%
1 to 29 days past due		37,337		11.0	%		14,234		9.7	%		27,518		23.7	%		3,500		12.7	%		82,589		13.1	%

Delinquent accounts
30 to 59 days		8,841		2.6	%		2,157		1.5	%		4,119		3.5	%		537		1.9	%		15,654		2.5	%
60 to 89 days		6,430		1.9	%		1,153		0.8	%		1,959		1.7	%		316		1.1	%		9,858		1.6	%
90 to 119 days		5,620		1.6	%		682		0.4	%		1,147		1.0	%		247		1.0	%		7,696		1.1	%
120 to 149 days		4,928		1.5	%		574		0.4	%		1,003		0.9	%		173		0.6	%		6,678		1.1	%
150 to 179 days		4,366		1.3	%		379		0.3	%		485		0.4	%		148		0.5	%		5,378		0.9	%

Total delinquency	$	30,185		8.9	%	$	4,945		3.4	%	$	8,713		7.5	%	$	1,421		5.1	%	$	45,264		7.2	%

Total finance receivables	$	338,157		100.0	%	$	146,553		100.0	%	$	116,109		100.0	%	$	27,625		100.0	%	$	628,444		100.0	%

Finance receivables in nonaccrual status	$	14,914		4.4	%	$	1,635		1.1	%	$	2,635		2.3	%	$	568		2.1	%	$	19,752		3.1	%

The allowance for credit losses consists of general and specific components. Prior to September 30, 2016, the general component estimated credit losses for groups of finance receivables on a collective basis and was primarily based on historical loss rates (adjusted for qualitative factors). Effective September 30, 2016 and forward, it is primarily based on delinquency roll rates. Delinquency roll rate modeling is forward-looking and common practice in the consumer finance industry. As a result of this change, the Company decreased the provision for credit losses for the year ended December 31, 2016 by $0.5 million, which increased net income by $0.3 million, or $0.03 diluted earnings per share.

In September 2014, the Company changed the time-based element of the charge-off policy from 365 days contractually delinquent to 180 days. The updated policy improves consistency and creates better alignment with industry practice. The policy change generated a one-time credit loss of $2.1 million as of September 2014. Prior to the charge-off policy change, the specific component of the allowance for credit losses included a full valuation allowance for finance receivables that were contractually delinquent 180 days or more. The $2.1 million in credit losses from the policy change were charged against this allowance as of September 2014 and, therefore, did not impact the provision for credit losses.

Prior to September 30, 2016, the general component of the allowance estimated credit losses for groups of finance receivables on a collective basis and was primarily based on historical loss rates. The September 2014 charge-off policy change modified this historical loss rate and the resulting general reserve. In addition, the Company converted bankrupt accounts with confirmed plans from the bankruptcy court from delinquent to current status. The bankrupt accounts continue to be accounted for as troubled debt restructurings and considered impaired finance receivables. As a net result of these changes, the Company increased the provision for credit losses by $0.3 million during the three months ended September 30, 2014, which decreased net income for the year ended December 31, 2014 by $0.2 million, or $0.02 diluted earnings per share.

During 2015, the effective life of the large loan product category increased from ten months to twelve months as the Company originated longer term loans. As a result, the Company increased the allowance for credit losses by $0.5 million, which decreased net income for the year ended December 31, 2015 by $0.3 million, or $0.02 diluted earnings per share. The increase in the allowance for credit losses due to the change in effective life was offset by a decrease in the Company’s normal allowance for credit losses on qualitative factors surrounding finance receivables growth and credit quality. The overall large loan allowance for credit losses as a percentage of loans declined from 4.3% to 3.8% as of December 31, 2014 and 2015, respectively.

Changes in the allowance for credit losses for the periods indicated are as follows:


	December 31,
In thousands	2016			2015			2014
Balance at beginning of year	$	37,452		$	40,511		$	30,089
Provision for credit losses		63,014			47,348			69,057
Credit losses		(64,064	)		(55,043	)		(58,236	)
Credit losses (180+ policy change)		—			—			(2,106	)
Recoveries		4,848			4,636			1,707

Balance at end of year	$	41,250		$	37,452		$	40,511

In December 2015, the Company began selling previously charged-off loans for all products in the portfolio to a third-party debt buyer. The proceeds from these sales were recognized as a recovery in the allowance for credit losses. Recoveries during the year ended December 31, 2015 included $2.0 million from the sale of charged-off loans. No sales of previously charged-off loans were made in 2014. In January 2016, the Company began selling the flow of charged-off loans. The flow sales were recognized as recoveries in the allowance for credit losses and a reduction of the provision for credit losses.

The following is a reconciliation of the allowance for credit losses by product for the periods indicated:


In thousands	Balance January 1, 2016		Provision		Credit Losses			Recoveries		Balance December 31, 2016		Finance Receivables December 31, 2016		Allowance as Percentage of Finance Receivable December 31, 2016
Small loans	$	21,535	$	41,119	$	(43,797	)	$	2,913	$	21,770	$	358,471		6.1	%
Large loans		5,593		14,261		(8,946	)		552		11,460		235,349		4.9	%
Automobile loans		8,828		4,785		(8,886	)		1,183		5,910		90,432		6.5	%
Retail loans		1,496		2,849		(2,435	)		200		2,110		33,523		6.3	%

Total	$	37,452	$	63,014	$	(64,064	)	$	4,848	$	41,250	$	717,775		5.7	%


In thousands	Balance January 1, 2015		Provision		Credit Losses			Recoveries		Balance December 31, 2015		Finance Receivables December 31, 2015		Allowance as Percentage of Finance Receivable December 31, 2015
Small loans	$	25,280	$	33,428	$	(40,059	)	$	2,886	$	21,535	$	338,157		6.4	%
Large loans		1,980		6,032		(2,762	)		343		5,593		146,553		3.8	%
Automobile loans		11,776		6,285		(10,466	)		1,233		8,828		116,109		7.6	%
Retail loans		1,475		1,603		(1,756	)		174		1,496		27,625		5.4	%

Total	$	40,511	$	47,348	$	(55,043	)	$	4,636	$	37,452	$	628,444		6.0	%


In thousands	Balance January 1, 2014		Provision		Credit Losses			Credit Losses (180+ Policy Change)			Recoveries		Balance December 31, 2014		Finance Receivables December 31, 2014		Allowance as Percentage of Finance Receivable December 31, 2014
Small loans	$	15,370	$	50,755	$	(40,697	)	$	(1,132	)	$	984	$	25,280	$	319,533		7.9	%
Large loans		2,233		1,985		(2,334	)		(203	)		299		1,980		46,147		4.3	%
Automobile loans		10,827		14,259		(12,939	)		(688	)		317		11,776		154,382		7.6	%
Retail loans		1,659		2,058		(2,266	)		(83	)		107		1,475		26,130		5.6	%

Total	$	30,089	$	69,057	$	(58,236	)	$	(2,106	)	$	1,707	$	40,511	$	546,192		7.4	%

Impaired finance receivables as a percentage of total finance receivables were 1.6% and 1.2% for the years ended December 31, 2016 and 2015, respectively. The following is a summary of finance receivables evaluated for impairment for the periods indicated:


	December 31, 2016
In thousands	Small		Large		Automobile		Retail		Total
Impaired receivables specifically evaluated	$	2,409	$	6,441	$	2,460	$	101	$	11,411
Finance receivables evaluated collectively		356,062		228,908		87,972		33,422		706,364

Finance receivables outstanding	$	358,471	$	235,349	$	90,432	$	33,523	$	717,775

Impaired receivables in nonaccrual status	$	288	$	610	$	175	$	7	$	1,080

Amount of the specific reserve for impaired accounts	$	563	$	1,216	$	576	$	19	$	2,374

Amount of the general component of the allowance	$	21,207	$	10,244	$	5,334	$	2,091	$	38,876


	December 31, 2015
In thousands	Small		Large		Automobile		Retail		Total
Impaired receivables specifically evaluated	$	1,009	$	2,760	$	3,370	$	121	$	7,260
Finance receivables evaluated collectively		337,148		143,793		112,739		27,504		621,184

Finance receivables outstanding	$	338,157	$	146,553	$	116,109	$	27,625	$	628,444

Impaired receivables in nonaccrual status	$	204	$	83	$	415	$	17	$	719

Amount of the specific reserve for impaired accounts	$	266	$	560	$	862	$	20	$	1,708

Amount of the general component of the allowance	$	21,269	$	5,033	$	7,966	$	1,476	$	35,744

Average recorded investment in impaired finance receivables for the periods indicated are as follows:


	December 31,
In thousands	2016		2015
Small loans	$	1,686	$	1,100
Large loans		4,478		1,523
Automobile loans		2,801		3,571
Retail loans		114		128

Total average recorded investment	$	9,079	$	6,322

It is not practical to compute the amount of interest earned on impaired loans.