2. Finance Receivables

9 Months Ended

Sep. 30, 2013

Finance Receivables

Finance Receivables

Our portfolio of finance receivables consists of small-balance homogeneous contracts comprising a single segment and class that is collectively evaluated for impairment on a portfolio basis according to delinquency status. Our contract purchase guidelines are designed to produce a homogenous portfolio. For key terms such as interest rate, length of contract, monthly payment and amount financed, there is relatively little variation from the average for the portfolio. We report delinquency on a contractual basis. Once a contract becomes greater than 90 days delinquent, we do not recognize additional interest income until the obligor under the contract makes sufficient payments to be less than 90 days delinquent. Any payments received on a contract that is greater than 90 days delinquent are first applied to accrued interest and then to principal reduction.

The following table presents the components of Finance Receivables, net of unearned interest:

	September 30,			December 31,
	2013			2012
Finance Receivables		(In thousands)
Automobile finance receivables, net of unearned interest	$	1,111,773		$	795,786
Less: Unearned acquisition fees and originations costs		(30,491	)		(31,443	)
Finance Receivables	$	1,081,282		$	764,343

We consider an automobile contract delinquent when an obligor fails to make at least 90% of a contractually due payment by the following due date, which date may have been extended within limits specified in the servicing agreements. The period of delinquency is based on the number of days payments are contractually past due, as extended where applicable. Automobile contracts less than 31 days delinquent are not included. In certain circumstances we will grant obligors one-month payment extensions to assist them with temporary cash flow problems. The only modification of terms is to advance the obligor’s next due date by one month and extend the maturity date of the receivable by one month. In some cases, a two-month extension may be granted. 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. The following table summarizes the delinquency status of finance receivables as of September 30, 2013 and December 31, 2012:

		September 30,		December 31,
		2013		2012
		(In thousands)
Delinquency Status
Current	$	1,061,090	$	764,741
31 - 61 days		26,335		16,925
61 - 90 days		16,084		9,019
91 + days		8,264		5,101
	$	1,111,773	$	795,786

Finance receivables totaling $8.3 million and $5.1 million at September 30, 2013 and December 31, 2012, respectively, including all receivables greater than 90 days delinquent, have been placed on non-accrual status as a result of their delinquency status.

We use a loss allowance methodology commonly referred to as "static pooling," which stratifies our finance receivable portfolio into separately identified pools based on the period of origination. Using analytical and formula driven techniques, we estimate an allowance for finance credit losses, which we believe is adequate for probable credit losses that can be reasonably estimated in our portfolio of automobile contracts. The estimate for probable credit losses is reduced by our estimate for future recoveries on previously incurred losses. Provision for losses is charged to our consolidated statement of operations. Net losses incurred on finance receivables are charged to the allowance. For finance receivables originated through December 31, 2010 we established the allowance at the time of the acquisition of the receivable. Beginning January 1, 2011, we establish the allowance for new receivables over the 12-month period following their acquisition.

The following table presents a summary of the activity for the allowance for finance credit losses for the three-month and nine-month periods ended September 30, 2013 and 2012:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(In thousands)						(In thousands)
Balance at beginning of period	$	32,101		$	14,093		$	19,594		$	10,351
Provision for credit losses on finance receivables		20,220			9,465			52,739			22,012
Charge-offs		(20,952	)		(9,578	)		(47,229	)		(26,158	)
Recoveries		3,095			2,966			9,360			10,741
Balance at end of period	$	34,464		$	16,946		$	34,464		$	16,946

Excluded from finance receivables are contracts that were previously classified as finance receivables but were reclassified as other assets because we have repossessed the vehicle securing the Contract. The following table presents a summary of such repossessed inventory together with the allowance for losses in repossessed inventory that is not included in the allowance for finance credit losses:

	September 30,			December 31,
	2013			2012
	(In thousands)
Gross balance of repossessions in inventory	$	20,718		$	12,102
Allowance for losses on repossessed inventory		(11,980	)		(6,384	)
Net repossessed inventory included in other assets	$	8,738		$	5,718