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Note C - Finance Receivables, Net
 12 Months Ended
Apr. 30, 2019
Notes to Financial Statements  
Financing Receivables [Text Block]
C - Finance Receivables, Net
 
The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts, which carry an interest rate of
15%
or
16.5%
per annum (based on the Company’s contract interest rate in effect at the contract origination date), are collateralized by the vehicle sold and typically provide for payments over periods ranging from
18
to
48
months. The Company’s finance receivables are defined as
one
segment and
one
class of loans, which is sub-prime consumer automobile contracts. The level of risks inherent in our financing receivables is managed as
one
homogeneous pool. The components of finance receivables as of
April 30, 2019
and
2018
are as follows:
 
(In thousands)   April 30, 2019   April 30, 2018
         
Gross contract amount   $
631,681
     $
584,682
  
Less unearned finance charges    
(88,353
 )    
(83,244
 )
Principal balance    
543,328
      
501,438
  
Less allowance for credit losses    
(127,842
 )    
(117,821
 )
                 
Finance receivables, net   $
415,486
     $
383,617
  
 
Changes in the finance receivables, net for the years ended
April 30, 2019,
2018
and
2017
are as follows:
 
    Years Ended April 30,
(In thousands)   2019   2018   2017
             
Balance at beginning of period   $
383,617
     $
357,161
     $
334,793
  
Finance receivable originations    
540,505
      
494,641
      
479,099
  
Finance receivable collections    
(293,739
 )    
(260,104
 )    
(249,264
 )
Provision for credit losses    
(146,363
 )    
(149,059
 )    
(149,097
 )
Losses on claims for payment protection plan    
(17,020
 )    
(16,748
 )    
(15,627
 )
Inventory acquired in repossession and payment protection plan claims    
(51,514
 )    
(42,274
 )    
(42,743
 )
                         
Balance at end of period   $
415,486
     $
383,617
     $
357,161
  
 
Changes in the finance receivables allowance for credit losses for the years ended
April 30, 2019,
2018
and
2017
are as follows:
 
    Years Ended April 30,
(In thousands)   2019   2018   2017
             
Balance at beginning of period   $
117,821
     $
109,693
     $
102,485
  
Provision for credit losses    
146,363
      
149,059
      
149,097
  
Charge-offs, net of recovered collateral    
(136,342
 )    
(140,931
 )    
(141,889
 )
                         
Balance at end of period   $
127,842
     $
117,821
     $
109,693
  
 
 
The factors which influenced management’s judgment in determining the amount of the additions to the allowance charged to provision for credit losses are described below.
 
The level of actual charge-offs, net of recovered collateral, is the most important factor in determining the charges to the provision for credit losses. This is due to the fact that once a contract becomes delinquent the account is either made current by the customer, the vehicle is repossessed, or the account is written off if the collateral cannot be recovered. Net charge-offs as a percentage of average finance receivables was
25.7%
for fiscal
2019
as compared to
28.8%
for fiscal
2018.
The decrease in net charge-offs for fiscal
2019
primarily resulted from a lower frequency of losses combined with a lower severity of losses, primarily due to improvements in the collections processes and higher recovery rates on repossessions.
 
Collections and delinquency levels can have a significant effect on additions to the allowance and are reviewed frequently. Collections as a percentage of average finance receivables were
55.3%
for the year ended
April 30, 2019
compared to
53.1%
for the year ended
April 30, 2018.
Delinquencies greater than
30
days decreased to
2.9%
for
April 30, 2019
compared to
3.5%
at
April 30, 2018.
 
Macro-economic factors, and more importantly, proper execution of operational policies and procedures have a significant effect on additions to the allowance charged to the provision. Higher unemployment levels, higher gasoline prices and higher prices for staple items can potentially have a significant effect. The Company continues to focus on operational improvements within the collections area such as credit reporting for customers, GPS technology on vehicles sold and text messaging payment reminders.
 
Credit quality information for finance receivables is as follows:
 
(Dollars in thousands)   April 30, 2019   April 30, 2018
                 
    Principal
Balance		   Percent of
Portfolio		   Principal
Balance		   Percent of
Portfolio
Current   $
435,603
      
80.17
 %   $
424,511
      
84.67
 %
3 - 29 days past due    
91,747
      
16.89
 %    
59,544
      
11.87
 %
30 - 60 days past due    
11,362
      
2.09
 %    
12,448
      
2.48
 %
61 - 90 days past due    
3,429
      
0.63
 %    
3,331
      
0.66
 %
> 90 days past due    
1,187
      
0.22
 %    
1,604
      
0.32
 %
Total   $
543,328
      
100.00
 %   $
501,438
      
100.00
 %
 
Accounts
one
and
two
days past due are considered current for this analysis, due to the varying payment dates and variation in the day of the week at each period end. Delinquencies
may
vary from period to period based on the average age of the portfolio, seasonality within the calendar year, the day of the week and overall economic factors. The above categories are consistent with internal operational measures used by the Company to monitor credit results.
 
The decrease in the percentage of accounts receivable current from the year ended
April 30, 2018
to
April 30, 2019
was primarily due to last day of fiscal
2019
falling on a Tuesday versus a Monday in fiscal
2018.
This results in more customers in the
3
-
29
days past due as a high percentage of customers typically make payments on Friday and Saturday. Although the percentage of current accounts receivable decreased year-over-year due to this timing, the delinquencies greater than
30
days decreased to
2.9%
at
April 30, 2019
compared to
3.5%
at
April 30, 2018.
 
Substantially all of the Company’s automobile contracts involve contracts made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. Contracts made with buyers who are restricted in their ability to obtain financing from traditional lenders generally entail a higher risk of delinquency, default and repossession, and higher losses than contracts made with buyers with better credit. The Company monitors contract term length, down payment percentages, and collections for credit quality indicators.
 
    Twelve Months Ended
April 30,
    2019   2018
Principal collected as a percent of average finance receivables    
55.3
 %    
53.1
 %
Average down-payment percentage    
6.5
 %    
6.4
 %
 
    April 30, 2019   April 30, 2018
Average originating contract term
(in months
)
    
29.5
      
29.7
  
Portfolio weighted average contract term, including modifications
(in months
)
    
32.1
      
32.5
  


The increase in collections as a percentage of average finance receivables was primarily due to the shorter contract terms, a lower percentage of delinquent account and improvements in contract modifications.