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Finance Receivables

6 Months Ended

Sep. 30, 2018

4. Finance Receivables

Finance Receivables Portfolio

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


	(In thousands)
	September 30, 2018			March 31, 2018
Finance receivables	$	267,236		$	301,155
Accrued interest receivable		2,542			2,642
Unearned dealer discounts		(11,352	)		(13,655	)
Unearned insurance and fee commissions		(3,009	)		(3,303	)

Finance receivables, net of unearned		255,417			286,839
Allowance for credit losses		(19,176	)		(20,266	)

Finance receivables, net	$	236,241		$	266,573

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


	As of September 30,
Contract Portfolio	2018			2017
Weighted APR		22.37	%		22.24	%
Weighted average discount		7.23	%		7.32	%
Weighted average term (months)		54			57
Number of active contracts		30,548			34,935


	As of September 30,
Direct Loan Portfolio	2018			2017
Weighted APR		25.14	%		25.23	%
Weighted average term (months)		32			33
Number of active contracts		2,458			2,721

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 predominantly for used vehicles. As of September 30, 2018, the average model year of vehicles collateralizing the portfolio was a 2010 vehicle.

Direct Loans are typically for amounts ranging from $500 to $11,000 and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal property. The majority 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 typical Contracts due to the customer’s prior payment history with the Company; however, the underlying collateral is less valuable. In deciding whether 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 current or former customers, the payment history of the borrower is a significant factor in making the loan decision. As of September 30, 2018, loans made by the Company pursuant to its Direct Loan program constituted approximately 3% 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 primarily by current economic conditions and credit loss trends over several reporting periods which are utilized in estimating future losses and overall portfolio performance.

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

Allowance for Credit Losses

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts and Direct Loans for the three months ended September 30, 2018 and 2017:


	Three months ended September 30, 2018
	Contracts			Direct Loans			Consolidated
Balance at beginning of period	$	18,116		$	949		$	19,065
Provision (benefit) for credit losses		8,684			(310	)		8,374
Charge-offs		(8,578	)		(164	)		(8,742	)
Recoveries		470			9			479

Balance at September 30, 2018	$	18,692		$	484		$	19,176


	Three months ended September 30, 2017
	Contracts			Direct Loans			Consolidated
Balance at beginning of period	$	18,379		$	774		$	19,153
Provision for credit losses		10,022			124			10,146
Charge-offs		(8,936	)		(122	)		(9,058	)
Recoveries		502			6			508

Balance at September 30, 2017	$	19,967		$	782		$	20,749

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts and Direct Loans for the six months ended September 30, 2018 and 2017:


	Six months ended September 30, 2018
	Contracts			Direct Loans			Consolidated
Balance at beginning of period	$	19,433		$	833		$	20,266
Provision (benefit) for credit losses		13,912			(111	)		13,801
Charge-offs		(15,629	)		(254	)		(15,883	)
Recoveries		976			16			992

Balance at September 30, 2018	$	18,692		$	484		$	19,176


	Six months ended September 30, 2017
	Contracts			Direct Loans			Consolidated
Balance at beginning of period	$	16,885		$	773		$	17,658
Provision for credit losses		19,680			218			19,898
Charge-offs		(17,628	)		(223	)		(17,851	)
Recoveries		1,030			14			1,044

Balance at September 30, 2017	$	19,967		$	782		$	20,749

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 of the Company changing its business strategies. The Company changed its focus to 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.

During the second quarter of the fiscal year ended March 31, 2019 the Company calculated the charge-off percentage for Contracts and calculated the charge-off percentage for Direct Loans. Prior to that, the charge-off percentage combined the Contracts and Direct Loans. This resulted in an approximately $376,000 reduction in the Direct Loan provision for credit losses and an approximately $758,000 increase in the Contracts provision for credit losses.

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.

Prior to June 30, 2018, the Company calculated the allowance for credit losses by reference to static pools, which each pool consisted of Contracts purchased during a three-month period for each branch location as management considers these pools to have similar risk characteristics and were considered smaller-balance homogenous loans. The Company analyzed each consolidated static pool at specific points in time to estimate losses that were 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 credit quality by creditworthiness:


	(In thousands)
	September 30, 2018				September 30, 2017
	Contracts		Direct Loans		Contracts		Direct Loans
Performing accounts	$	245,603	$	7,257	$	293,673		7,953
Non-performing accounts		10,492		208		17,459		216

Total	$	256,095	$	7,465	$	311,132		8,169
Chapter 13 bankruptcy accounts		3,582		94		3,901		35

Finance receivables, gross contract	$	259,677	$	7,559	$	315,033		8,204

A performing account is defined as an account that is less than 61 days past due. The Company defines 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, the Company 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 of accrued interest. Accordingly, the Company considers 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 to allow the customer to begin making regularly scheduled payments. The Company does 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 $771,000 and $0 for these accounts as of September 30, 2018 and September 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, except percentages)
Contracts	Balance Outstanding		31 – 60 days			61 – 90 days			91 – 120 days			Over 120			Total
September 30, 2018	$	256,095	$	18,322		$	6,341		$	2,181		$	1,970		$	28,814
				7.15	%		2.48	%		0.85	%		0.77	%		11.25	%

September 30, 2017	$	311,132	$	18,330		$	8,768		$	5,067		$	3,624		$	35,789
				5.89	%		2.82	%		1.63	%		1.16	%		11.50	%


Direct Loans	Balance Outstanding		31 – 60 days			61 – 90 days			91 – 120 days			Over 120			Total
September 30, 2018	$	7,465	$	171		$	113		$	27		$	68		$	379
				2.29	%		1.51	%		0.36	%		0.91	%		5.08	%

September 30, 2017	$	8,169	$	216		$	50		$	54		$	112		$	432
				2.64	%		0.61	%		0.66	%		1.37	%		5.29	%