3. Finance Receivables

Finance receivables consist of Contracts and Direct Loans, each of which comprise a portfolio segment. Each portfolio segment consists of smaller balance homogeneous loans which are collectively evaluated for impairment.

The Company purchases individual Contracts from new and used automobile dealers in its markets. There is no relationship between the Company and the dealer with respect to a given Contract once the assignment of that Contract is complete. The dealer has no vested interest in the performance of any Contract the Company purchases. The Company charges-off receivables when an individual account has become more than 180 days contractually delinquent. In the event of repossession, the charge-off will occur in the month in which the vehicle was repossessed.

Contracts included in finance receivables are detailed as follows as of fiscal years ended March 31:


	(In thousands)
	2017			2016			2015
Indirect finance receivables, gross contract	$	502,050		$	487,118		$	447,043
Unearned interest		(158,541	)		(152,911	)		(136,896	)

Indirect finance receivables, net of unearned interest		343,509			334,207			310,147
Unearned dealer discounts		(17,004	)		(18,023	)		(17,780	)

Indirect finance receivables, net of unearned interest and unearned dealer discounts		326,505			316,184			292,367
Allowance for credit losses		(16,885	)		(12,265	)		(11,325	)

Indirect finance receivables, net	$	309,620		$	303,919		$	281,042

The terms of the Contracts range from 12 to 72 months and bear a weighted average contractual interest rate of 22.37% and 22.67% as of March 31, 2017 and 2016, respectively.

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts for the fiscal years ended March 31:


	(In thousands)
	2017			2016			2015
Balance at beginning of year	$	12,265		$	11,325		$	12,889
Provision for credit losses		36,843			25,926			20,008
Losses absorbed		(34,419	)		(27,963	)		(25,042	)
Recoveries		2,196			2,977			3,470

Balance at end of year	$	16,885		$	12,265		$	11,325

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 March 31, 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, competition, management’s estimate of probable credit losses and other factors that warrant recognition in providing for an adequate allowance for credit losses.

Direct Loans are loans originated directly between the Company and the consumer. Direct Loans are also included in finance receivables and are detailed as follows as of fiscal years ended March 31:


	(In thousands)
	2017			2016			2015
Direct finance receivables, gross contract	$	10,670		$	11,012		$	10,932
Unearned interest		(2,312	)		(2,346	)		(2,367	)

Direct finance receivables, net of unearned interest		8,358			8,666			8,565
Allowance for credit losses		(773	)		(748	)		(703	)

Direct finance receivables, net	$	7,585		$	7,918		$	7,862

The terms of the Direct Loans range from 12 to 72 months and bear a weighted average contractual interest rate of 25.62% and 25.72% as of March 31, 2017 and 2016, respectively.

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Direct Loans for the fiscal years ended March 31:


	(In thousands)
	2017			2016			2015
Balance at beginning of year	$	748		$	703		$	590
Provision for credit losses		334			352			362
Losses absorbed		(338	)		(328	)		(277	)
Recoveries		29			21			28

Balance at end of year	$	773		$	748		$	703

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. 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 Contracts due to the customer’s historical payment history with the Company; however, the underlying collateral is less valuable. In deciding whether or not 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 March 31, 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.

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. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more details. 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 table is an assessment of the credit quality by creditworthiness as of March 31:


	(In thousands)
	2017				2016
	Contracts		Direct Loans		Contracts		Direct Loans
Performing accounts	$	473,446	$	10,406	$	473,429	$	10,899
Non-performing accounts		24,585		222		9,435		79

Total	$	498,031	$	10,628	$	482,864	$	10,978
Chapter 13 bankruptcy accounts, net of unearned interest		4,019		42		4,254		34

Finance receivables, gross contract	$	502,050	$	10,670	$	487,118	$	11,012

The following tables present certain information regarding the delinquency rates experienced by the Company with respect to Contracts and Direct Loans on a gross basis which includes unearned interest, excluding any Chapter 13 bankruptcy accounts:


	(In thousands)
Contracts	Gross Balance Outstanding		31 – 60 days			61 – 90 days			Over 90 days			Total
March 31, 2017	$	498,031	$	25,450		$	12,388		$	12,197		$	50,035
				5.11	%		2.49	%		2.45	%		10.05	%
March 31, 2016	$	482,864	$	17,466		$	6,069		$	3,366		$	26,901
				3.61	%		1.26	%		0.70	%		5.57	%
March 31, 2015	$	443,083	$	13,694		$	3,435		$	1,330		$	18,459
				3.09	%		0.78	%		0.30	%		4.17	%

Direct Loans	Gross Balance Outstanding		31 – 60 days			61 – 90 days			Over 90 days			Total
March 31, 2017	$	10,628	$	191		$	67		$	155		$	413
				1.80	%		0.63	%		1.46	%		3.89	%
March 31, 2016	$	10,978	$	161		$	41		$	38		$	240
				1.47	%		0.37	%		0.35	%		2.19	%
March 31, 2015	$	10,912	$	122		$	42		$	15		$	179
				1.12	%		0.38	%		0.14	%		1.64	%