FINANCE RECEIVABLES

Our finance receivables are primarily loans to active-duty or career retired U.S. military personnel. During fiscal 2017, we purchased $222.9 million of loans from MCB compared to $292.5 million during fiscal 2016. Approximately 45.4% of the amount of loans we purchased in fiscal 2017 were refinancings of outstanding loans compared to 39.7% during fiscal 2016.

In the normal course of business, we receive a portion of customer loan payments through the Federal Government Allotment System ("Allotment") on the first day of each month. If the first day of the month falls on a weekend or holiday, Allotment payments are received on the last business day of the preceding month. On September 30, 2017, we collected $3.5 million in customer loan payments in advance of the payment due date of October 1, 2017. Allotment payments are reflected on the balance sheet as advanced finance receivable payments and as a reduction of net finance receivables of $2.1 million and the corresponding accrued interest receivable of $1.4 million. On September 30, 2016, we collected $4.0 million in customer loan Allotment payments in advance of the payment due date of October 1, 2016. Allotment payments are reflected on the balance sheet as advanced finance receivable payments and as a reduction of net finance receivables of $2.4 million and the corresponding accrued interest receivable of $1.6 million.

The following table represents our finance receivables for the periods presented:



	As of September 30,
	2017			2016
	(dollars in thousands)
Finance Receivables:
Gross finance receivables	$	242,684		$	280,947

Less:				0
Advanced finance receivable payments	(2,068		)	(2,397		)
Gross finance receivables less advanced finance receivable payments	240,616			278,550

Less:
Net deferred loan fees	(5,949		)	(6,271		)
Unearned debt protection fees	(859		)	(3,175		)
Debt protection claims and policy reserves	(642		)	(812		)
Total unearned fees, debt protection claims and policy reserves	(7,450		)	(10,258		)

Finance receivables - net of unearned fees, debt protection claims and policy reserves	233,166			268,292

Allowance for credit losses	(33,725		)	(30,374		)

Net finance receivables	$	199,441		$	237,918

The following table sets forth changes in the components of our allowance for credit losses on finance receivables as of the end of the years presented:



	As of and for the Years Ended September 30,
	2017			2016
	(dollars in thousands)
Allowance for credit losses:
Balance, beginning of period	$	30,374		$	28,957
Finance receivables charged-off	(36,271		)	(34,227		)
Recoveries	4,482			4,516
Provision for credit losses	35,140			31,128
Balance, end of period	$	33,725		$	30,374

Finance receivables:	242,684			280,947
Allowance for credit losses	(33,725		)	(30,374		)
Balance, net of allowance	$	208,959		$	250,573

The accrual of interest income is suspended when three full payments (95% or more of the contracted payment amount) have not been received. Accrued and uncollected interest is limited to no more than 92 days. The Company has experience with customers periodically missing payments during times of financial hardship; however, these missed payments do not necessarily render loans uncollectible. Non-accrual status, therefore, does not equate to a determination that a loan is uncollectible. Accordingly, payments received from a customer on a non-accrual loan may be recognized as interest income. Non-performing loans represent those finance receivables where the accrual of interest income has been suspended. As of September 30, 2017, we had $15.5 million in non-performing loans, compared to $16.1 million of non-performing loans as of September 30, 2016. As of September 30, 2017 and September 30, 2016, we had $0.9 million and $1.0 million, respectively, in accrued interest for non-performing loans.

We consider a loan impaired when a full payment has not been received for the preceding six calendar months and is 30 days contractually past due. Impaired loans are removed from our finance receivable portfolio and charged against the allowance for credit losses. Accrued interest on impaired loans is reversed and charged against interest income. We do not restructure troubled debt as a form of curing delinquencies.

A large number of our customers generally present elevated levels of credit risk and are unable to obtain financing from traditional sources due to factors such as employment history, frequent relocations and lack of credit history. These factors may not allow them to build relationships with traditional sources of financing. We manage credit risk by closely monitoring the performance of the portfolio and through our finance receivable purchasing criteria. The following reflects the credit quality of our finance receivables portfolio:



	As of September 30,
	2017			2016
	(dollars in thousands)

Gross finance receivables	$	242,684		$	280,947
Performing	227,167			264,834
Non-performing	15,517			16,113
Non-performing finance receivables as a percent of gross finance receivables	6.39		%	5.74		%

As of September 30, 2017, and 2016, past due finance receivables, on a recency basis, are as follows:



	Age Analysis of Past Due Financing Receivables
	Balance at September 30, 2017
	60-89 Days Past Due		90-180 Days Past Due		Total 60-180 Days Past Due		0-59 Days Past Due		Total Finance Receivables
	(dollars in thousands)

Finance receivables	$	2,485	$	8,327	$	10,812	$	231,872	$	242,684



	Age Analysis of Past Due Financing Receivables
	Balance at September 30, 2016
	60-89 Days Past Due		90-180 Days Past Due		Total 60-180 Days Past Due		0-59 Days Past Due		Total Finance Receivables
	60-89 Days Past Due		90-180 Days Past Due		Total 60-180 Days Past Due		0-59 Days Past Due		Total Finance Receivables
	(dollars in thousands)

Finance receivables	$	5,966	$	10,924	$	16,890	$	264,057	$	280,947

Additionally, we employ purchasing criteria, developed from our past customer repayment experience. The purchasing criteria are periodically evaluated based on current portfolio performance. These criteria require the following:


•	At the time of loan origination, customers are primarily active-duty, career retired U.S. military personnel or veterans with prior loan history with us;


•	All potential customers must complete standardized online credit applications; and


•	All loans must meet additional purchase criteria developed from our past loan repayment experience, which is periodically revalidated based on current portfolio performance.

These criteria are used to help reduce the risk of purchasing finance receivables where the customer is unwilling or unable to repay.

The liability for unpaid debt protection claims and claim adjustment expenses is estimated using an actuarially computed amount payable on claims reported prior to the balance sheet date that have not yet been settled, claims reported subsequent to the balance sheet date that have been incurred during the period ended, and an estimate (based on prior experience) of incurred but unreported claims relating to such period.

Activity in the liability for unpaid claims and claim adjustment expenses for the debt protection product are summarized as follows:



	As of and for the Years ended September 30,
	2017			2016			2015
	(dollars in thousands)

Balance, beginning of year	$	812		$	1,291		$	2,196
Claim amount incurred	1,187			1,005			1,214
Claim amount paid	(1,357		)	(1,484		)	(2,119		)
Balance, end of year	$	642		$	812		$	1,291