XML 20 R9.htm IDEA: XBRL DOCUMENT

Finance Receivables

3 Months Ended

Jun. 30, 2018

4. Finance Receivables

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


	(In thousands)
	June 30, 2018			March 31, 2018
Finance receivables	$	286,391		$	301,155
Accrued Interest		2,609			2,642
Unearned dealer discounts		(13,345	)		(13,655	)

Finance receivables, net of unearned dealer discounts		275,655			290,142
Allowance for credit losses		(19,065	)		(20,266	)

Finance receivables, net	$	256,590		$	269,876

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,
	2018			2017
Contract Portfolio
Weighted APR		22.38	%		22.34	%
Weighted average discount		7.44	%		7.37	%
Weighted average term (months)		54			57
Number of active contracts		32,069			36,174


	As of June 30,
	2018			2017
Direct Loan Portfolio
Weighted APR		25.16	%		25.47	%
Weighted average term (months)		28			33
Number of active contracts		2,498			2,774

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, 2018, the average model year of vehicles collateralizing the portfolio was a 2010 vehicle. 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)
	2018			2017
Balance at beginning of period	$	19,433		$	16,885
Provision for credit losses		5,227			9,658
Charge-offs		(7,049	)		(8,691	)
Recoveries		505			527

Balance at end of period	$	18,116		$	18,379

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. Many 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 the typical Contract due to the customer’s historical payment history with the Company; however, the underlying collateral is less valuable. In deciding wether to grant a loan, the Company considers the individual’s credit history, job stability, income and impression left of the Company’s loan officer during a personal interview. 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, 2018, 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. They were also influenced by a change in the Company’s method for calculating the allowance for credit losses, as described below.

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)
	2018			2017
Balance at beginning of period	$	833		$	773
Provision for credit losses		199			94
Charge-offs		(90	)		(101	)
Recoveries		7			8

Balance at end of period	$	949		$	774

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

During the first quarter of the fiscal year ended March 31, 2019, the Company began using the trailing six month charge-offs, annualized, to calculate the allowance for credit losses. This change was made to reflect changes in the Company’s lending policies and underwriting standards, which were a result on the Company changing its business strategies. The Company changed its focus on financing primary transportation to and from work for the subprime borrower. This change resulted in higher yielding loans, smaller amounts financed and shorter monthly terms.

In addition the Company takes into consideration the composition of the portfolio, current economic conditions, the estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts when determining management’s estimate of probable credit losses and adequacy of the allowance for credit losses. If the allowance for credit losses is determined to be inadequate, then an additional charge to the provision would be recorded to maintain adequate reserves based on management’s evaluation of the risk inherent in the loan portfolio.

Using the prior calculation the allowance for credit losses and provision expense for the quarter would have been approximately $151,000 lower.

Prior to June 30, 2018, the Company calculated the allowance for credit losses by reference to static pools, which each pool 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 analyzed each consolidated static pool at specific points in time to estimate losses that are probable of being incurred as of the reporting date. The Company maintained historical write-off information for over 10 years with respect to every consolidated static pool and segregated such static pool by liquidation, thereby creating 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 were then used to assist in determining the allowance for credit losses. The five snapshots were tracked at liquidation levels of 20%, 40%, 60%, 80% and 100%.

The following table is an assessment of the finance receivables:


	(In thousands)
	June 30, 2018				June 30, 2017
	Contracts		Direct Loans		Contracts		Direct Loans
Performing accounts	$	265,267	$	7,292	$	306,185	$	8,059
Non-performing accounts		10,059		230		17,441		200

Total	$	275,326	$	7,522	$	323,626	$	8,259
Chapter 13 bankruptcy accounts		3,486		57		3,880		39

Finance receivables	$	278,812	$	7,579	$	327,506	$	8,298

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, or forgiveness of principal or accrued interest. Accordingly, we consider such extensions to be insignificant delays in payments rather than troubled debt restructurings

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 on which the accrual of interest income is suspended. As of September 1, 2016, an account is written off when an account is 180 days contractually delinquent, which is consistent with practices within the subprime auto financing industry. 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, whether to begin repossession proceedings or allow the customer to begin making regularly scheduled payments. We do consider Chapter 13 bankruptcy accounts to be troubled debt restructurings and included in the Company’s allowance for credit losses is a specific reserve of approximately $750,000 and $0 for these accounts as of June 30, 2018 and June 30, 2017, respectively.

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


	(In thousands)
Contracts	Balance Outstanding		31 – 60 days			61 – 90 days			90-120 days			Over 120 days			Total
June 30, 2018	$	275,326	$	17,333		$	6,281		$	2,074		$	1,704		$	27,392
				6.30	%		2.28	%		0.75	%		0.62	%		9.95	%
June 30, 2017	$	323,626	$	21,490		$	10,095		$	4,208		$	3,138		$	38,931
				6.64	%		3.12	%		1.30	%		0.97	%		12.03	%


Direct Loans	Balance Outstanding		31 – 60 days			61 – 90 days			90-120 days			Over 120 days			Total
June 30, 2018	$	7,522	$	171		$	83		$	32		$	115		$	401
				2.27	%		1.10	%		0.43	%		1.53	%		5.33	%
June 30, 2017	$	8,259	$	237		$	81		$	48			71		$	437
				2.87	%		0.98	%		0.58	%		0.86	%		5.29	%