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Finance Receivables

3 Months Ended

Jun. 30, 2017

4. Finance Receivables

Finance receivables consist of automobile finance installment Contracts and Direct Loans and are detailed as follows:


	(In thousands)
	June 30, 2017			March 31, 2017
Finance receivables, gross contract	$	491,433		$	512,720
Unearned interest		(152,737	)		(160,853	)

Finance receivables, net of unearned interest		338,696			351,867
Unearned dealer discounts		(16,012	)		(17,004	)

Finance receivables, net of unearned interest and unearned dealer discounts		322,684			334,863
Allowance for credit losses		(19,153	)		(17,658	)

Finance receivables, net	$	303,531		$	317,205

Contracts and Direct Loans each comprise a portfolio segment. The following tables present selected information on the entire portfolio of the Company:


	As of June 30,
Contract Portfolio	2017			2016
Weighted APR		22.34	%		22.60	%
Weighted average discount		7.37	%		7.64	%
Weighted average term (months)		57			57
Number of active contracts		36,174			37,648

	As of June 30,
Direct Loan Portfolio	2017			2016
Weighted APR		25.47	%		25.72	%
Weighted average term (months)		33			33
Number of active contracts		2,774			2,973

Each portfolio segment consists of smaller balance homogeneous loans which are collectively evaluated for impairment.

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts:


	Three months ended June 30, (In thousands)
	2017			2016
Balance at beginning of period	$	16,885		$	12,265
Current period provision		9,658			6,955
Losses absorbed		(8,691	)		(6,992	)
Recoveries		527			608

Balance at end of period	$	18,379		$	12,836

The allowance for credit losses is increased by charges against earnings and decreased by charge-offs (net of recoveries). The Company aggregates Contracts into static pools consisting of Contracts purchased during a three-month period for each branch location as management considers these pools to have similar risk characteristics and are considered smaller-balance homogenous loans. The Company analyzes each consolidated static pool at specific points in time to estimate losses that are probable of being incurred as of the reporting date. It has maintained historical write-off information for over 10 years with respect to every consolidated static pool and segregates each static pool by liquidation which creates snapshots or buckets of each pool’s historical write-off-to liquidation ratio at five different points in each vintage pool’s liquidation cycle. These snapshots are then used to assist in determining the allowance for credit losses. The five snapshots are tracked at liquidation levels of 20%, 40%, 60%, 80% and 100%. These snapshots help us in determining the appropriate allowance for credit losses.

The Company purchases Contracts from automobile dealers at a negotiated price that is less than the original principal amount being financed by the purchaser of the automobile. The Contracts are predominately for used vehicles. As of June 30, 2017, the average model year of vehicles collateralizing the portfolio was a 2009 vehicle. The Company utilizes a static pool approach to track portfolio performance. If the allowance for credit losses is determined to be inadequate for a static pool, then an additional charge to income through the provision is used to maintain adequate reserves based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, and current economic conditions. Such evaluation, considers among other matters, the estimated net realizable value of the underlying collateral, economic conditions, historical loan loss experience, management’s estimate of probable credit losses and other factors that warrant recognition in providing for an adequate allowance for credit losses.

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Direct Loans:


	Three months ended June 30, (In thousands)
	2017			2016
Balance at beginning of period	$	773		$	748
Current period provision		94			71
Losses absorbed		(101	)		(72	)
Recoveries		8			17

Balance at end of period	$	774		$	764

Direct Loans are typically for amounts ranging from $1,000 to $11,000 and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal property. Much of Direct Loans are originated with current or former customers under the Company’s automobile financing program. The typical Direct Loan represents a better credit risk than Contracts due to the customer’s historical payment history with the Company; however, the underlying collateral is less valuable. In deciding if to make a loan, the Company considers the individual’s credit history, job stability, income and impressions created during a personal interview with a Company loan officer. Additionally, because most of the Direct Loans made by the Company to date have been made to borrowers under Contracts previously purchased by the Company, the payment history of the borrower under the Contract is a significant factor in making the loan decision. As of June 30, 2017, loans made by the Company pursuant to its Direct Loan program constituted approximately 2% of the aggregate principal amount of the Company’s loan portfolio. Changes in the allowance for credit losses for both Contracts and Direct Loans were driven by current economic conditions and credit loss trends over several reporting periods which are utilized in estimating future losses and overall portfolio performance.

A performing account is defined as an account that is less than 61 days past due. We define an automobile contract as delinquent when more than 25% of a payment contractually due by a certain date has not been paid by the immediately following due date, which date may have been extended within limits specified in the servicing agreements or as a result of a deferral. The period of delinquency is based on the number of days payments are contractually past due, as extended where applicable.

In certain circumstances, we will grant obligors one-month payment extensions. The only modification of terms in those circumstances is to advance the obligor’s next due date by one month and extend the maturity date of the receivable. 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 is an assessment of the credit quality by creditworthiness:


	(In thousands)
	June 30, 2017				June 30, 2016
	Contracts		Direct Loans		Contracts		Direct Loans
Performing accounts	$	450,814	$	10,298	$	472,424	$	10,965
Non-performing accounts		26,149		253		11,603		97

Total	$	476,963	$	10,551	$	484,027	$	11,062
Chapter 13 bankruptcy accounts		3,880		39		4,350		40

Finance receivables, gross contract	$	480,843	$	10,590	$	488,377	$	11,102

A non-performing account is defined as an account that is contractually delinquent for 61 days or more or is a Chapter 13 bankruptcy account, and the accrual of interest income is suspended. As of September 1, 2016, when an account is 180 days contractually delinquent, the account is written off. This change aligns the Company’s charge-off policy with practices within the subprime auto financing segment. Prior to September 2016, accounts that were 120 days contractually delinquent were written off. Upon notification of a bankruptcy, an account is monitored for collection with other Chapter 13 bankruptcy accounts. In the event the debtors’ balance has been reduced by the bankruptcy court, the Company will record a loss equal to the amount of principal balance reduction. The remaining balance will be reduced as payments are received by the bankruptcy court. In the event an account is dismissed from bankruptcy, the Company will decide, based on several factors, to begin repossession proceedings or to allow the customer to begin making regularly scheduled payments.

The following tables present certain information regarding the delinquency rates experienced by the Company with respect to Contracts and under its Direct Loans, excluding Chapter 13 bankruptcy accounts:


(In thousands)
Contracts	Gross Balance Outstanding		31 – 60 days			61 – 90 days			Over 90 days			Total
June 30, 2017	$	476,963	$	32,032		$	15,074		$	11,075		$	58,181
				6.72	%		3.16	%		2.32	%		12.20	%
June 30, 2016	$	484,027	$	25,445		$	8,027		$	3,576		$	37,048
				5.26	%		1.66	%		0.74	%		7.66	%

Direct Loans	Gross Balance Outstanding		31 – 60 days			61 – 90 days			Over 90 days			Total
June 30, 2017	$	10,551	$	310		$	102		$	151		$	563
				2.94	%		0.97	%		1.43	%		5.34	%
June 30, 2016	$	11,062	$	178		$	55		$	42		$	275
				1.61	%		0.50	%		0.38	%		2.49	%