NOTE 9: ALLOWANCE FOR LOSSES AND CREDIT QUALITY OF CONSUMER LOANS

Grupo Finmart customers obtain installment loans with a series of payments due over the stated term, which can be as long as four years. We recognize consumer loan interest related to loans we originate based on the percentage of consumer loans made that we believe to be collectible, and reserve the percentage of interest we expect not to collect, over the period in which payments are expected to be received under the effective interest method.

Loans to Grupo Finmart customers whose employment is continuing are referred to as “in-payroll” loans, while loans to Grupo Finmart customers whose employment is discontinued are referred to as “out-of-payroll” loans. A customer is generally considered to have discontinued their employment if they are no longer employed by the employer that is responsible for the payroll withholding. We do not reclassify non-performing loans to performing status if there are subsequent collections on the non-performing loans. We establish reserves for Grupo Finmart loans as follows:


•	We reserve 100% of non-performing loans, which for this purpose we consider to be:


◦	Out-of-payroll loans for which Grupo Finmart is not receiving payments; and


◦	In-payroll loans for which Grupo Finmart has not received any payments for 180 consecutive days.


•	We also establish additional reserves on loan principal and accrued interest reserves for performing loans based on historical experience.

When we reserve 100% of a Grupo Finmart loan, we charge the loan principal to consumer loan bad debt expense, reduce interest revenue by the amount of unpaid interest theretofore accrued on the loan and cease accruing interest revenue. Future collections are recorded as a reduction of consumer loan bad debt expense (in the case of written-off principal) and an increase in consumer loan fee revenue (in the case of written-off accrued interest) after principal has been recovered. Long-term unsecured consumer loan bad debt expense is included in "Consumer loan bad debt" expense in our condensed consolidated statements of operations.

Grupo Finmart provides an allowance for losses on performing, in-payroll loans and related interest receivable based on historical collection experience. Changes in the principal valuation allowance are charged to "Consumer loan bad debt" expense and changes in the interest receivable valuation allowance are charged to "Consumer loan fees and interest" in our condensed consolidated statements of operations.

The following table presents changes in the allowance for credit losses, as well as the recorded investment in our financing receivables by portfolio segment for the periods presented and excludes items such as non-sufficient funds fees, repossession fees, auction fees and interest:



Description	Allowance Balance at Beginning of Period		Charge-offs			Recoveries		Provision (Benefit)			Translation Adjustment			Allowance Balance at End of Period (a)		Financing Receivable at End of Period (a)

	(in thousands)
Unsecured short-term consumer loans: (b)
Three Months Ended December 31, 2015	$	11,498	$	(3,077	)	$	1,641	$	(818	)	$	(252	)	$	8,992	$	11,149
Three Months Ended December 31, 2014	14,645		(9,051		)	3,291		4,996			(513		)	13,368		31,159
Secured short-term consumer loans: (c)
Three Months Ended December 31, 2015	$	2,004	$	(2,229	)	$	436	$	(211	)	$	—		$	—	$	—
Three Months Ended December 31, 2014	1,049		(14,437		)	12,989		1,533			—			1,134		7,866
Unsecured long-term consumer loans:
Three Months Ended December 31, 2015	$	50,645	$	(744	)	$	—	$	11,802		$	(545	)	$	61,158	$	162,678
Three Months Ended December 31, 2014	38,087		(167		)	—		7,612			(3,350		)	42,182		157,368


(a)	Portions of these amounts are included in "Consumer loans, net" and "Non-current consumer loans, net" in our condensed consolidated balance sheets.


(b)	No aging allowance disclosure provided for these amounts as our policy is to charge-off all amounts on the first day after the due date.


(c)	As a result of our discontinuance of USFS, our secured short-term consumer loan balance was reduced to zero as of December 31, 2015. As such, no further aging allowance disclosure has been provided for these amounts. Refer to Note 2 for further detail on discontinued operations.

The following table presents an aging analysis of past due financing receivables held by Grupo Finmart:



	Days Past Due								Total Past Due		Current Receivable		Translation Adjustment			Total Financing Receivable		Allowance Balance		Recorded Investment > 90 Days Accruing
	1-30		31-60		61-90		>90		Total Past Due		Current Receivable		Translation Adjustment			Total Financing Receivable		Allowance Balance		Recorded Investment > 90 Days Accruing

	(in thousands)
Unsecured long-term consumer loans:
December 31, 2015
Performing loans	$	10,360	$	7,883	$	5,446	$	3,921	$	27,610	$	78,914	$	270		$	106,794	$	5,274	$	3,921
Non-performing loans	885		1,053		927		51,122		53,987		1,897		—			55,884		55,884		—
	$	11,245	$	8,936	$	6,373	$	55,043	$	81,597	$	80,811	$	270		$	162,678	$	61,158	$	3,921
December 31, 2014
Performing loans	$	5,068	$	4,231	$	1,740	$	1,337	$	12,376	$	107,414	$	1,387		$	121,177	$	5,989	$	1,337
Non-performing loans	1,684		2,010		1,412		28,293		33,399		2,794		(2		)	36,191		36,193		—
	$	6,752	$	6,241	$	3,152	$	29,630	$	45,775	$	110,208	$	1,385		$	157,368	$	42,182	$	1,337
September 30, 2015
Performing loans	$	6,783	$	6,179	$	6,776	$	5,766	$	25,504	$	87,272	$	—		$	112,776	$	5,128	$	5,766
Non-performing loans	553		701		613		41,670		43,537		1,980		—			45,517		45,517		—
	$	7,336	$	6,880	$	7,389	$	47,436	$	69,041	$	89,252	$	—		$	158,293	$	50,645	$	5,766