| Finance Receivables | 4. Finance Receivables Finance receivables consist of automobile finance installment Contracts and Direct Loans and are detailed as follows:
June 30, 2015 March 31, 2015
Finance receivables, gross contract $ 478,766,546 $ 457,974,758
Unearned interest (147,552,467 ) (139,262,996 )
Finance receivables, net of unearned interest 331,214,079 318,711,762
Unearned dealer discounts (18,439,140 ) (17,779,690 )
Finance receivables, net of unearned interest and unearned dealer discounts 312,774,939 300,932,072
Allowance for credit losses (12,278,284 ) (12,028,012 )
Finance receivables, net $ 300,496,655 $ 288,904,060
The terms of the Contracts range from 12 to 72 months and the Direct Loans range from 6 to 48 months. The Contracts and Direct Loans bear a weighted average effective interest rate of 22.81% and 25.89% as of June 30, 2015, respectively and 22.86% and 26.14% as of March 31, 2015, respectively. Finance receivables consist of Contracts and Direct Loans, each of which comprises a portfolio segment. Each portfolio segment consists of smaller balance homogeneous loans which are collectively evaluated for impairment. The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts:
Three months ended June 30,
2015 2014
Balance at beginning of period $ 11,325,222 $ 12,889,082
Current period provision 4,886,470 4,073,398
Losses absorbed (5,522,828 ) (4,849,623 )
Recoveries 834,663 821,048
Balance at end of period $ 11,523,527 $ 12,933,905
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 June 30, 2015, the average model year of vehicles collateralizing the portfolio was a 2007 vehicle. The average loan to value ratio, which expresses the amount of the Contract as a percentage of the value of the automobile, is approximately 96%. 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, management’s estimate of probable credit losses and other factors that warrant recognition in providing for an adequate allowance for credit losses. The following table sets forth a reconciliation of the changes in the allowance for credit losses on Direct Loans:
Three months ended June 30,
2015 2014
Balance at beginning of period $ 702,790 $ 590,278
Current period provision 102,966 158,418
Losses absorbed (58,977 ) (54,101 )
Recoveries 7,978 12,365
Balance at end of period $ 754,757 $ 706,960
Direct Loans are originated directly between the Company and the consumer. These loans are typically for amounts ranging from $1,000 to $9,000 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 significantly better credit risk than our typical Contract due to the customer’s historical payment history with the Company. 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 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 June 30, 2015, 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 trends over several reporting periods which are useful in estimating future losses and overall portfolio performance. A performing account is defined as an account that is less than 61 days past due. A non-performing account is defined as an account that is contractually delinquent for 61 days or more and the accrual of interest income is suspended. When an account is 120 days contractually delinquent, the account is written off. Upon notification of a Chapter 13 bankruptcy, an account is monitored for collection with other Chapter 13 bankrupt 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:
June 30, 2015 June 30, 2014
Contracts Direct Loans Contracts Direct Loans
Performing accounts $ 456,697,990 $ 11,312,987 $ 420,006,795 $ 11,118,330
Non-performing accounts 6,697,909 58,992 5,889,676 57,331
Total $ 463,395,899 $ 11,371,979 $ 425,896,471 $ 11,175,661
Chapter 13 bankrupt accounts 3,957,591 41,077 3,406,769 27,458
Finance receivables, gross contract $ 467,353,490 $ 11,413,056 $ 429,303,240 $ 11,203,119
The following tables present certain information regarding the delinquency rates experienced by the Company with respect to Contracts and under its Direct Loans, excluding Chapter 13 bankrupt accounts:
Contracts Gross Balance 31 – 60 days 61 – 90 days Over 90 days Total
June 30, 2015 $ 463,395,899 $ 18,878,551 $ 4,798,801 $ 1,899,108 $ 25,576,460
4.07 % 1.04 % 0.41 % 5.52 %
June 30, 2014 $ 425,896,471 $ 16,433,351 $ 4,346,201 $ 1,543,475 $ 22,323,027
3.86 % 1.02 % 0.36 % 5.24 %
Direct Loans Gross Balance 31 – 60 days 61 – 90 days Over 90 days Total
June 30, 2015 $ 11,371,979 $ 156,356 $ 35,440 $ 23,552 $ 215,348
1.37 % 0.31 % 0.21 % 1.89 %
June 30, 2014 $ 11,175,661 $ 183,159 $ 41,491 $ 15,840 $ 240,490
1.64 % 0.37 % 0.14 % 2.15 % |
