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Finance Receivables

6 Months Ended

Jun. 30, 2023

(2) 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.

In January 2018 the Company adopted the fair value method of accounting for finance receivables acquired after 2017. Finance receivables measured at fair value are recorded separately on the Company’s Balance Sheet and are excluded from all tables in this footnote.

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 certain limited 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. Automobile finance receivables, net of unearned interest was $52.1 million and $92.3 million as of June 30, 2023 and December 31, 2022, respectively. The following table summarizes the delinquency status of finance receivables as of June 30, 2023 and December 31, 2022:


	June 30,		December 31,
	2023		2022
	(In thousands)
Deliquency Status
Current	$	37,553	$	65,764
31 - 60 days		9,100		16,796
61 - 90 days		4,339		7,756
91 + days		1,088		1,988
	$	52,080	$	92,304

Finance receivables totaling $1.1 million and $2.0 million at June 30, 2023 and December 31, 2022, respectively, including all receivables greater than 90 days delinquent, have been placed on non-accrual status as a result of their delinquency status.

Allowance for Credit Losses – Finance Receivables

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of finance receivables to present the net amount expected to be collected. Charge offs are deducted from the allowance when management believes that collectability is unlikely.

Management estimates the allowance using relevant available information, from internal and external sources, relating to past events, current conditions and, reasonable and supportable forecasts. We believe our historical credit loss experience provides the best basis for the estimation of expected credit losses. Consequently, we use historical loss experience for older receivables, aggregated into vintage pools based on their calendar quarter of origination, to forecast expected losses for less seasoned quarterly vintage pools.

We measure the weighted average monthly incremental change in cumulative net losses for the vintage pools in the relevant historical period. For the pools in the relevant historical period, we consider each pool’s performance from its inception through the end of the current period. We then apply the results of the historical analysis to less seasoned vintage pools beginning with each vintage pool’s most recent actual cumulative net loss experience and extrapolating from that point based on the historical data. We believe the pattern and magnitude of losses on older vintages allows us to establish a reasonable and supportable forecast of less seasoned vintages.

Our contract purchase guidelines are designed to produce a homogenous portfolio. For key credit characteristics of individual contracts such as obligor credit history, job stability, residence stability and ability to pay, there is relatively little variation from the average for the portfolio. Similarly, for key structural characteristics such as loan-to-value, length of contract, monthly payment and amount financed, there is relatively little variation from the average for the portfolio. Consequently, we do not believe there are significant differences in risk characteristics between various segments of our portfolio.

Our methodology incorporates historical pools that are sufficiently seasoned to capture the magnitude and trends of losses within those vintage pools. Furthermore, the historical period encompasses a substantial volume of receivables over periods that include fluctuations in the competitive landscape, the Company’s rates of growth, size of our managed portfolio and fluctuations in economic growth and unemployment.

In consideration of the depth and breadth of the historical period, and the homogeneity of our portfolio, we generally do not adjust historical loss information for differences in risk characteristics such as credit or structural composition of segments of the portfolio or for changes in environmental conditions such as changes in unemployment rates, collateral values or other factors. However, we have considered how certain qualitative factors may affect future credit losses and have incorporated our judgement of the effect of such factors into our estimates.

The following table presents the amortized cost basis of our finance receivables by annual vintage as of June 30, 2023 and December 31, 2022.


	June 30,		December 31,
	2023		2022
	(In thousands)
Annual Vintage Pool
2014 and prior	$	876	$	1,865
2015		4,019		8,627
2016		15,609		28,632
2017		31,576		53,180
	$	52,080	$	92,304

The following table presents a summary of the activity for the allowance for finance credit losses for the three-month periods ended June 30, 2023 and 2022:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
	(In thousands)						(In thousands)
Balance at beginning of period	$	14,728		$	45,001		$	21,753		$	56,206
Provision for credit losses on finance receivables		(9,700	)		(8,000	)		(18,700	)		(17,400	)
Charge-offs		(1,897	)		(4,446	)		(4,914	)		(9,805	)
Recoveries		2,590			3,117			7,582			6,671
Balance at end of period	$	5,721		$	35,672		$	5,721		$	35,672

The following table presents the gross charge-offs by year of origination of our finance receivables for the three-month and six-month ended June 30, 2023 and 2022:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Annual Vintage Pool	(In thousands)						(In thousands)
2014 and prior	$	67		$	243		$	208		$	535
2015		297			653			741			1,742
2016		713			1,514			2,034			3,539
2017		1,230			2,131			2,732			4,303
Applied against repos in inventory (net)		(410	)		(95	)		(801	)		(314	)
	$	1,897		$	4,446		$	4,914		$	9,805

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:


	June 30,			December 31,
	2023			2022
	(In thousands)
Gross balance of repossessions in inventory	$	1,003		$	1,894
Allowance for losses on repossessed inventory		(655	)		(1,323	)
Net repossessed inventory included in other assets	$	348		$	571