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 December 31, 2018 and 2017:


	Three months ended December 31, 2018
	Contracts			Direct Loans			Consolidated
Balance at beginning of period	$	18,692		$	484		$	19,176
Provision for credit losses		7,743			127			7,870
Charge-offs		(7,337	)		(103	)		(7,440	)
Recoveries		359			10			369

Balance at December 31, 2018	$	19,457		$	518		$	19,975


	Three months ended December 31, 2017
	Contracts			Direct Loans			Consolidated
Balance at beginning of period	$	19,967		$	782		$	20,749
Provision for credit losses		8,818			171			8,989
Charge-offs		(8,745	)		(172	)		(8,917	)
Recoveries		360			6			366

Balance at December 31, 2017	$	20,400		$	787		$	21,187

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts and Direct Loans for the nine-months ended December 31, 2018 and 2017:


	Nine months ended December 31, 2018
	Contracts			Direct Loans			Consolidated
Balance at beginning of period	$	19,433		$	833		$	20,266
Provision for credit losses		21,655			15			21,670
Charge-offs		(22,965	)		(357	)		(23,322	)
Recoveries		1,334			27			1,361

Balance at December 31, 2018	$	19,457		$	518		$	19,975


	Nine months ended December 31, 2017
	Contracts			Direct Loans			Consolidated
Balance at beginning of period	$	16,885		$	773		$	17,658
Provision for credit losses		28,498			389			28,887
Charge-offs		(26,372	)		(395	)		(26,767	)
Recoveries		1,389			20			1,409

Balance at December 31, 2017	$	20,400		$	787		$	21,187

During the first quarter of the fiscal year ending 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.

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)
	December 31, 2018						December 31, 2017
	Contracts		Direct Loans		Total		Contracts		Direct Loans		Total
Performing accounts	$	225,110	$	8,284	$	233,394	$	283,340	$	8,030	$	291,370
Non-performing accounts		13,073		186		13,259		18,204		174		18,378

Total		238,183		8,470		246,653		301,544		8,204		309,748
Chapter 13 bankruptcy accounts		3,564		62		3,626		3,843		40		3,883

Finance receivables	$	241,747	$	8,532	$	250,279	$	305,387	$	8,244	$	313,631

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, and any previously accrued interest is reversed. 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 $774,000 and $0 for these accounts as of December 31, 2018 and December 31, 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
December 31, 2018	$	238,183	$	18,229		$	6,897		$	3,760		$	2,416		$	31,302
				7.65	%		2.90	%		1.58	%		1.01	%		13.14	%
December 31, 2017	$	301,544	$	22,583		$	9,413		$	5,320		$	3,471		$	40,787
				7.49	%		3.12	%		1.76	%		1.15	%		13.53	%


Direct Loans	Balance Outstanding		31 – 60 days			61 – 90 days			91 – 120 days			Over 120			Total
December 31, 2018	$	8,470	$	188		$	88		$	30		$	68		$	374
				2.22	%		1.04	%		0.35	%		0.80	%		4.42	%
December 31, 2017	$	8,204	$	204		$	81		$	26		$	67		$	378
				2.49	%		0.99	%		0.32	%		0.82	%		4.61	%