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2. Finance Receivables | 9 Months Ended
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Sep. 30, 2014
Finance Receivables |
Finance Receivables | Our portfolio of finance receivables consists of small-balance homogeneous contracts comprising a single segment and class that is collectively evaluated for impairment on a portfolio basis according to delinquency status. Our contract purchase guidelines are designed to produce a homogenous portfolio. For key terms such as interest rate, length of contract, monthly payment and amount financed, there is relatively little variation from the average for the portfolio. We report delinquency on a contractual basis. Once a contract becomes greater than 90 days delinquent, we do not recognize additional interest income until the obligor under the contract makes sufficient payments to be less than 90 days delinquent. Any payments received on a contract that is greater than 90 days delinquent are first applied to accrued interest and then to principal reduction. The following table presents the components of Finance Receivables, net of unearned interest:
|  | September 30, |  |  | December 31, |
|  | 2014 |  |  | 2013 |
Finance Receivables |  | (In thousands) |
Automobile finance receivables, net of unearned interest |  | $ | 1,481,410 |  |  | $ | 1,182,950 |
Less: Unearned acquisition fees and originations costs |  |  | (18,980 | ) |  |  | (27,887 | )
Finance Receivables |  | $ | 1,462,430 |  |  | $ | 1,155,063 |
We consider an automobile contract delinquent when an obligor fails to make at least 90% of a contractually due payment by the following due date, which date may have been extended within limits specified in the servicing agreements. The period of delinquency is based on the number of days payments are contractually past due, as extended where applicable. Automobile contracts less than 31 days delinquent are not included. In certain circumstances we will grant obligors one-month payment extensions to assist them with temporary cash flow problems. The only modification of terms is to advance the obligor’s next due date by one month and extend the maturity date of the receivable by one month. In certain limited cases, a two-month extension may be granted. There are no other concessions such as a reduction in interest rate, forgiveness of principal or of accrued interest. Accordingly, we consider such extensions to be insignificant delays in payments rather than troubled debt restructurings. The following table summarizes the delinquency status of finance receivables as of September 30, 2014 and December 31, 2013:
|  | September 30, |  |  | December 31, |
|  | 2014 |  |  | 2013 |
|  | (In thousands) |
Deliquency Status |  |  |  |  |  |  |  |
Current |  | $ | 1,412,427 |  |  | $ | 1,125,926 |
31 - 60 days |  |  | 38,800 |  |  |  | 21,421 |
61 - 90 days |  |  | 17,398 |  |  |  | 24,663 |
91 + days |  |  | 12,785 |  |  |  | 10,940 |
|  | $ | 1,481,410 |  |  | $ | 1,182,950 |
Finance receivables totaling $12.8 million and $10.9 million at September 30, 2014 and December 31, 2013, respectively, including all receivables greater than 90 days delinquent, have been placed on non-accrual status as a result of their delinquency status. We use a loss allowance methodology commonly referred to as "static pooling," which stratifies our finance receivable portfolio into separately identified pools based on the period of origination. Using analytical and formula driven techniques, we estimate an allowance for finance credit losses, which we believe is adequate for probable incurred credit losses that can be reasonably estimated in our portfolio of automobile contracts. The estimate for probable incurred credit losses is reduced by our estimate for future recoveries on previously incurred losses. Provision for losses is charged to our consolidated statement of operations. Net losses incurred on finance receivables are charged to the allowance. We establish the allowance for new receivables over the 12-month period following their acquisition. The following table presents a summary of the activity for the allowance for finance credit losses for the three-month and nine-month periods ended September 30, 2014 and 2013:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
|  | (In thousands) |  |  | (In thousands) |
Balance at beginning of period |  | $ | 53,326 |  |  | $ | 32,101 |  |  | $ | 39,626 |  |  | $ | 19,594 |
Provision for credit losses on finance receivables |  |  | 27,287 |  |  |  | 20,220 |  |  |  | 76,795 |  |  |  | 52,739 |
Charge-offs |  |  | (29,988 | ) |  |  | (20,952 | ) |  |  | (80,514 | ) |  |  | (47,229 | )
Recoveries |  |  | 3,996 |  |  |  | 3,095 |  |  |  | 18,714 |  |  |  | 9,360 |
Balance at end of period |  | $ | 54,621 |  |  | $ | 34,464 |  |  | $ | 54,621 |  |  | $ | 34,464 |
Excluded from finance receivables are contracts that were previously classified as finance receivables but were reclassified as other assets because we have repossessed the vehicle securing the Contract. The following table presents a summary of such repossessed inventory together with the allowance for losses in repossessed inventory that is not included in the allowance for finance credit losses:
|  | September 30, |  |  | December 31, |
|  | 2014 |  |  | 2013 |
|  | (In thousands) |
Gross balance of repossessions in inventory |  | $ | 31,276 |  |  | $ | 24,743 |
Allowance for losses on repossessed inventory |  |  | (19,220 | ) |  |  | (14,779 | )
Net repossessed inventory included in other assets |  | $ | 12,056 |  |  | $ | 9,964 |

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- Definition Disclosure of accounting policy for those finance, loan and lease receivables classified as held for investment. This disclosure may include (1) the basis at which such receivables are carried in the entity's statements of financial position (2) how the level of the allowance for loan and lease losses is determined (3) when impairments, charge-offs or recoveries are recognized for such receivables (4) the treatment of commitment and other fees and loan origination costs (including, if applicable, how the entity accounts for fees and costs associated with credit cards that are either purchased or originated) (5) the treatment of any premiums or discounts or unearned income (6) the entity's income recognition policies for such receivables, including those that are impaired, past due or placed on nonaccrual status (for impaired loans, the policy for recognizing interest income on such loans, including how cash receipts are recorded) and (7) the treatment of foreclosures or repossessions. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18780-107790 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=35738203&loc=d3e5144-111524 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6378556&loc=d3e10133-111534 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 15 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=35738203&loc=d3e5212-111524 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=35738203&loc=d3e5093-111524 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 3-5 -Article 5 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35738203&loc=d3e5033-111524 + Details
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