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3. Finance Receivables
 12 Months Ended
Dec. 31, 2019
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, 
   2019   2018 
  (In thousands) 
Finance receivables    
Automobile finance receivables, net of unearned interest  $895,566   $1,518,395 
Unearned acquisition fees, discounts and deferred origination costs, net   1,964    3,690 
Finance receivable  $897,530   $1,522,085 

 

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, 2019 and 2018:

 

   December 31, 
   2019   2018 
   (In thousands) 
Delinquency Status          
Current  $698,870   $1,262,730 
31 - 60 days   107,951    157,688 
61 - 90 days   57,395    66,134 
91 + days   31,350    31,843 
   $895,566   $1,518,395 

 

Finance receivables totaling $31.4 million and $31.8 million at December 31, 2019 and 2018, 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.

 

The following table presents a summary of the activity for the allowance for finance credit losses, for the years ended December 31, 2019, 2018 and 2017:

 

   December 31, 
   2019   2018   2017 
       (In thousands)     
Balance at beginning of year  $67,376   $109,187   $95,578 
Provision for credit losses   85,773    133,080    186,713 
Charge-offs   (184,449)   (220,523)   (211,948)
Recoveries   42,940    45,632    38,844 
Balance at end of year  $11,640   $67,376   $109,187 

 

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, 
   2019   2018 
   (In thousands) 
Gross balance of repossessions in inventory  $28,933   $33,462 
Allowance for losses on repossessed inventory   (21,389)   (24,564)
Net repossessed inventory included in other assets  $7,544   $8,898