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3. Finance Receivables | 12 Months Ended
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Dec. 31, 2018
Finance Receivables |
Finance Receivables | (3) 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. 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. In January 2018 the Company adopted the fair value method of accounting for finance receivables acquired after 2017. Finance receivables measured at fair value are recorded separately on the Company’s Balance Sheet and are excluded from all tables in this footnote. The following table presents the components of finance receivables, net of unearned interest:
|  | December 31, |
|  | 2018 |  |  | 2017 |
Finance receivables |  | (In thousands) |
Automobile finance receivables, net of unearned interest |  | $ | 1,518,395 |  |  | $ | 2,298,608 |
Unearned acquisition fees, discounts and deferred origination costs, net |  |  | 3,690 |  |  |  | 6,376 |
Finance receivable |  | $ | 1,522,085 |  |  | $ | 2,304,984 |
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 reported as delinquent. In certain circumstances we will grant obligors one-month payment extensions. 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 December 31, 2018 and 2017:
|  | December 31, |
|  | 2018 |  |  | 2017 |
|  | (In thousands) |
Delinquency Status |  |  |  |  |  |  |  |
Current |  | $ | 1,262,730 |  |  | $ | 2,069,617 |
31 - 60 days |  |  | 157,688 |  |  |  | 138,395 |
61 - 90 days. |  |  | 66,134 |  |  |  | 63,081 |
91 + days |  |  | 31,843 |  |  |  | 27,515 |
|  | $ | 1,518,395 |  |  | $ | 2,298,608 |
Finance receivables totaling $31.8 million and $27.5 million at December 31, 2018 and 2017, respectively, 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 credit losses is charged to our consolidated statement of income. 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 years ended December 31, 2018, 2017 and 2016:
|  | December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  |  |  |  | (In thousands) |  |  |  |
Balance at beginning of year |  | $ | 109,187 |  |  | $ | 95,578 |  |  | $ | 75,603 |
Provision for credit losses |  |  | 133,080 |  |  |  | 186,713 |  |  |  | 178,511 |
Charge-offs |  |  | (220,523 | ) |  |  | (211,948 | ) |  |  | (192,366 | )
Recoveries |  |  | 45,632 |  |  |  | 38,844 |  |  |  | 33,830 |
Balance at end of year |  | $ | 67,376 |  |  | $ | 109,187 |  |  | $ | 95,578 |
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 on repossessed inventory:
|  | December 31, |
|  | 2018 |  |  | 2017 |
|  | (In thousands) |
Gross balance of repossessions in inventory |  | $ | 33,462 |  |  | $ | 33,679 |
Allowance for losses on repossessed inventory |  |  | (24,564 | ) |  |  | (24,024 | )
Net repossessed inventory included in other assets |  | $ | 8,898 |  |  | $ | 9,655 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=84158767&loc=d3e18780-107790 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=84173941&loc=d3e5144-111524 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=84159169&loc=d3e10133-111534 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=84173941&loc=d3e5033-111524 Reference 5: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.9-03(7)) -URI http://asc.fasb.org/extlink&oid=6876686&loc=d3e534808-122878 Reference 6: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=84173941&loc=d3e5093-111524 Reference 7: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 15 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84173941&loc=d3e5212-111524 Reference 8: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 11B -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84173941&loc=SL6953423-111524 + Details
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