| Finance Receivables | 4. Finance Receivables Finance Receivables Portfolio Finance receivables consist of Contracts and Direct Loans and are detailed as follows:
(In thousands)
June 30, 2021
March 31, 2021
June 30, 2020
Finance receivables
$
180,823
$
184,237
$
208,808
Accrued interest receivable
2,459
2,285
3,035
Unearned dealer discounts
(7,110
)
(7,290
)
(7,944
)
Unearned insurance commissions and fees
(2,483
)
(2,396
)
(2,557
)
Purchase price discount
(311
)
(364
)
(766
)
Finance receivables, net of unearned
173,378
176,472
200,576
Allowance for credit losses
(5,250
)
(6,154
)
(11,248
)
Finance receivables, net
$
168,128
$
170,318
$
189,328
Contracts and Direct Loans each comprise a portfolio segment. The following tables present selected information on the entire portfolio of the Company:
As of June 30,
Contract Portfolio
2021
2020
Average APR
22.8
%
22.6
%
Average discount
7.5
%
7.6
%
Average term (months)
50
51
Number of active contracts
21,995
25,931
As of June 30,
Direct Loan Portfolio
2021
2020
Average APR
28.8
%
27.4
%
Average term (months)
27
27
Number of active contracts
4,354
3,412
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 predominantly for used vehicles. As of June 30, 2021, the average model year of vehicles collateralizing the portfolio was a 2012 vehicle. Direct Loans are typically for amounts ranging from $500 to $15,000 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 the typical Contract due to the customer’s prior payment history with the Company; however, the underlying collateral is “typically” less valuable. In deciding whether 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 current or former customers, the payment history of the borrower is a significant factor in making the loan decision. As of June 30, 2021, loans made by the Company pursuant to its Direct Loan program constituted approximately 8.7% 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 primarily by consideration of 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. Additionally, credit loss trends over several reporting periods are utilized in estimating future losses and overall portfolio performance. Conversely, the Company could identify abnormalities in the composition of the portfolio, which would indicate the calculation is overstated and management judgement may be required to determine the allowance of credit losses for both Contracts and Direct Loans. Each portfolio segment consists of smaller balance homogeneous loans which are collectively evaluated for impairment. 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 June 30, 2021 and 2020:
Three months ended June 30, 2021
Contracts
Direct Loans
Consolidated
Balance at beginning of period
$
6,001
$
153
$
6,154
Provision for credit losses
730
-
730
Charge-offs
(2,774
)
(191
)
(2,965
)
Recoveries
1,311
20
1,331
Balance at June 30, 2021
$
5,268
$
(18
)
$
5,250
Three months ended June 30, 2020
Contracts
Direct Loans
Consolidated
Balance at beginning of period
$
10,433
$
729
$
11,162
Provision for credit losses
3,300
-
3,300
Charge-offs
(4,334
)
(155
)
(4,489
)
Recoveries
1,252
23
1,275
Balance at June 30, 2020
$
10,651
$
597
$
11,248
T he Compan y uses the trailing six-month charge-offs, annualized, and applies this calculated percentage to ending finance receivables to calculate estimated future probable credit losses for purposes of determining the allowance for credit losses. The Company then takes into consideration the composition of its portfolio, current economic conditions, estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts and adjusts the above, if necessary, to determine management’s total estimate of probable credit losses and its assessment of the overall adequacy of the allowance for credit losses. By including recent trends such as delinquency, non-performing assets, and bankruptcy in its determination, management believes that the allowance for credit losses reflects the current trends of incurred losses within the portfolio and is better aligned with the portfolio’s performance indicators. The following table is an assessment of the credit quality by creditworthiness:
(In thousands)
June 30, 2021
June 30, 2020
Contracts
Direct Loans
Total
Contracts
Direct Loans
Total
Performing accounts
$
161,700
$
15,598
$
177,298
$
191,988
$
11,524
$
203,512
Non-performing accounts
3,229
123
3,352
4,955
160
5,115
Total
164,929
15,721
180,650
196,943
11,684
208,627
Chapter 13 bankruptcy accounts
162
11
173
181
0
181
Finance receivables
$
165,091
$
15,732
$
180,823
$
197,124
$
11,684
$
208,808
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 10% of a payment contractually due by a certain date has not been paid immediately by the 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 for which the accrual interest income has been suspended. The Company’s charge-off policy is to charge off an account in the month the contract becomes 121 days contractually delinquent. In the event an account is dismissed from bankruptcy, the Company will decide whether to begin repossession proceedings or to allow the customer to make regularly scheduled payments. 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:
Contracts
(In thousands, except percentages)
Balance Outstanding
30 – 59 days
60 – 89 days
90 – 119 days
120+
Total
June 30, 2021
$
164,929
$
7,087
$
2,575
$
644
$
10
$
10,316
4.30
%
1.56
%
0.39
%
0.01
%
6.26
%
March 31, 2021
$
170,195
$
6,289
$
2,430
$
896
$
42
$
9,657
3.70
%
1.43
%
0.53
%
0.02
%
5.67
%
June 30, 2020
$
196,943
$
9,584
$
3,595
$
1,334
$
26
$
14,539
4.87
%
1.83
%
0.68
%
0.01
%
7.39
%
Direct Loans
Balance Outstanding
30 – 59 days
60 – 89 days
90 – 119 days
120+
Total
June 30, 2021
$
15,721
$
285
$
70
$
53
$
—
$
408
1.81
%
0.45
%
0.34
%
—
2.60
%
March 31, 2021
$
13,909
$
253
$
101
$
81
$
10
$
445
1.82
%
0.73
%
0.58
%
0.07
%
3.20
%
June 30, 2020
$
11,684
$
244
$
81
$
79
$
—
$
404
2.09
%
0.69
%
0.68
%
—
3.46
% |
