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Note C - Finance Receivables, Net | 6 Months Ended
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Oct. 31, 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 as of the contract origination date), are collateralized by the vehicle sold and typically provide for payments over periods ranging from 18 to 48 months. The weighted average interest rate for the portfolio was approximately 16.4% at October 31, 2019. The Company’s finance receivables are defined as one segment and one class of loans in sub-prime consumer automobile contracts. The level of risks inherent in the Company’s financing receivables is managed as one homogeneous pool. The components of finance receivables are as follows:
(In thousands) |  | October 31, 2019 |  | April 30, 2019
Gross contract amount |  | $ | 682,176 |  |  | $ | 631,681 |
Less unearned finance charges |  |  | (95,089 | ) |  |  | (88,353 | )
Principal balance |  |  | 587,087 |  |  |  | 543,328 |
Less allowance for credit losses |  |  | (135,481 | ) |  |  | (127,842 | )
Finance receivables, net |  | $ | 451,606 |  |  | $ | 415,486 |
Changes in the finance receivables, net are as follows:
|  | Six Months Ended October 31,
(In thousands) |  | 2019 |  | 2018
Balance at beginning of period |  | $ | 415,486 |  |  | $ | 383,617 |
Finance receivable originations |  |  | 293,174 |  |  |  | 269,883 |
Finance receivable collections |  |  | (151,075 | ) |  |  | (135,471 | )
Provision for credit losses |  |  | (72,652 | ) |  |  | (76,064 | )
Losses on claims for payment protection plan |  |  | (8,359 | ) |  |  | (7,903 | )
Inventory acquired in repossession and payment protection plan claims |  |  | (24,968 | ) |  |  | (24,348 | )
Balance at end of period |  | $ | 451,606 |  |  | $ | 409,714 |
Changes in the finance receivables allowance for credit losses are as follows:
|  | Six Months Ended October 31,
(In thousands) |  | 2019 |  | 2018
Balance at beginning of period |  | $ | 127,842 |  |  | $ | 117,821 |
Provision for credit losses |  |  | 72,652 |  |  |  | 76,064 |
Charge-offs, net of recovered collateral |  |  | (65,013 | ) |  |  | (67,757 | )
Balance at end of period |  | $ | 135,481 |  |  | $ | 126,128 |
The factors which influenced management’s judgment in determining the amount of the current period provision for credit losses are described below. The level of charge-offs, net of recovered collateral, is the most important factor in determining 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 decreased to 11.5% for the six months ended October 31, 2019, compared to 13.0% for the prior year period. Both the frequency and severity of losses improved as a result of a higher quality vehicle, improved deal structures and consistent collections practices. 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 26.8% for the six months ended October 31, 2019 compared to 26.0% for the same period in the prior year. The increase in collections as a percentage of average finance receivables resulted primarily from improved and consistent efforts in the collections process. Delinquencies greater than 30 days were 3.5% for October 31, 2019 and 3.4% at October 31, 2018. As a result of the improvements in our net charge-offs as a percentage of average receivables, the quality of the portfolio and our allowance analysis, a decrease to the allowance for credit losses from 25% to 24.5% was made in the first quarter of fiscal 2020, which resulted in a $2.6 million credit to the provision for credit losses, a $2.0 million after tax increase to net income, or $0.29 per diluted share. Macro-economic factors, the competitive environment on the funding side, 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. Credit quality information for finance receivables is as follows:
(Dollars in thousands) |  | October 31, 2019 |  | April 30, 2019 |  | October 31, 2018
|  | Principal |  | Percent of |  | Principal |  | Percent of |  | Principal |  | Percent of
|  | Balance |  | Portfolio |  | Balance |  | Portfolio |  | Balance |  | Portfolio
Current |  | $ | 478,136 |  |  |  | 81.44 | % |  | $ | 435,603 |  |  |  | 80.17 | % |  | $ | 426,905 |  |  |  | 79.67 | %
3 - 29 days past due |  |  | 88,606 |  |  |  | 15.09 | % |  |  | 91,747 |  |  |  | 16.89 | % |  |  | 90,726 |  |  |  | 16.93 | %
30 - 60 days past due |  |  | 14,267 |  |  |  | 2.43 | % |  |  | 11,362 |  |  |  | 2.09 | % |  |  | 14,015 |  |  |  | 2.62 | %
61 - 90 days past due |  |  | 3,852 |  |  |  | 0.66 | % |  |  | 3,429 |  |  |  | 0.63 | % |  |  | 2,684 |  |  |  | 0.50 | %
> 90 days past due |  |  | 2,226 |  |  |  | 0.38 | % |  |  | 1,187 |  |  |  | 0.22 | % |  |  | 1,512 |  |  |  | 0.28 | %
Total |  | $ | 587,087 |  |  |  | 100.00 | % |  | $ | 543,328 |  |  |  | 100.00 | % |  | $ | 535,842 |  |  |  | 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. 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; such contracts generally entail a higher risk of delinquency, default, repossession, and losses than contracts made with buyers with better credit. The Company monitors contract term length, down payment percentages, and collections as credit quality indicators.
|  | Six Months Ended October 31,
|  | 2019 |  | 2018
Principal collected as a percent of average finance receivables |  |  | 26.8 | % |  |  | 26.0 | %
Average down-payment percentage |  |  | 6.2 | % |  |  | 6.0 | %
Average originating contract term (in months ) |  |  | 30.2 |  |  |  | 29.5 |
|  | October 31, 2019 |  | October 31, 2018
Portfolio weighted average contract term, including modifications (in months ) |  |  | 32.3 |  |  |  | 32.1 |
The increase in collections as a percentage of average finance receivables resulted primarily from improved and consistent efforts in the collections process. The portfolio weighted average contract term increased slightly primarily due to the increased average selling price. As the average selling price increases and in order to remain competitive, term lengths may increase.

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