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Note C - Finance Receivables, Net | 12 Months Ended
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Apr. 30, 2020
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 a fixed interest rate of 15% or 16.5% per annum ( 19.5% to 21.5% in Illinois), 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, 2020 and 2019 are as follows:
(In thousands) |  | April 30, 2020 |  | April 30, 2019
Gross contract amount |  | $ | 728,841 |  |  | $ | 631,681 |
Less unearned finance charges |  |  | (107,659 | ) |  |  | (88,353 | )
Principal balance |  |  | 621,182 |  |  |  | 543,328 |
Less allowance for credit losses |  |  | (155,041 | ) |  |  | (127,842 | )
Finance receivables, net |  | $ | 466,141 |  |  | $ | 415,486 |
Changes in the finance receivables, net for the years ended April 30, 2020, 2019 and 2018 are as follows:
|  | Years Ended April 30,
(In thousands) |  | 2020 |  | 2019 |  | 2018
Balance at beginning of period |  | $ | 415,486 |  |  | $ | 383,617 |  |  | $ | 357,161 |
Finance receivable originations |  |  | 604,497 |  |  |  | 540,505 |  |  |  | 494,641 |
Finance receivable collections |  |  | (322,180 | ) |  |  | (293,739 | ) |  |  | (260,104 | )
Provision for credit losses |  |  | (162,246 | ) |  |  | (146,363 | ) |  |  | (149,059 | )
Losses on claims for payment protection plan |  |  | (17,966 | ) |  |  | (17,020 | ) |  |  | (16,748 | )
Inventory acquired in repossession and payment protection plan claims |  |  | (51,450 | ) |  |  | (51,514 | ) |  |  | (42,274 | )
Balance at end of period |  | $ | 466,141 |  |  | $ | 415,486 |  |  | $ | 383,617 |
Changes in the finance receivables allowance for credit losses for the years ended April 30, 2020, 2019 and 2018 are as follows:
|  | Years Ended April 30,
(In thousands) |  | 2020 |  | 2019 |  | 2018
Balance at beginning of period |  | $ | 127,842 |  |  | $ | 117,821 |  |  | $ | 109,693 |
Provision for credit losses |  |  | 162,246 |  |  |  | 146,363 |  |  |  | 149,059 |
Charge-offs, net of recovered collateral |  |  | (135,047 | ) |  |  | (136,342 | ) |  |  | (140,931 | )
Balance at end of period |  | $ | 155,041 |  |  | $ | 127,842 |  |  | $ | 117,821 |
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 23.1% for fiscal 2020 as compared to 25.7% for fiscal 2019. The decrease in net charge-offs for fiscal 2020 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. However, as a result of COVID- 19 restrictions and for the health and safety of our associates and customers, we suspended repossession efforts for a period of time beginning in the fourth quarter, which also decreased the percentage of net charge-offs in fiscal 2020. 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 55.1% for the year ended April 30, 2020 compared to 55.3% for the year ended April 30, 2019. Delinquencies greater than 30 days increased to 6.2% at April 30, 2020 compared to 2.9% at April 30, 2019. Many of our customers were impacted by the pandemic resulting in increased past due amounts. Although delinquency levels have improved since year end, there is still uncertainty regarding the impact of COVID- 19 on the economy and unemployment, which could affect our collections and past due receivables going forward. 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. As a result, the Company increased the allowance for credit losses from 25.0% to 26.5% in fiscal 2020. Credit quality information for finance receivables is as follows:
(Dollars in thousands) |  | April 30, 2020 |  | April 30, 2019
|  |  | Principal |  |  |  | Percent of |  |  |  | Principal |  |  |  | Percent of |
|  |  | Balance |  |  |  | Portfolio |  |  |  | Balance |  |  |  | Portfolio |
Current |  | $ | 515,390 |  |  |  | 82.97 | % |  | $ | 435,603 |  |  |  | 80.17 | %
3 - 29 days past due |  |  | 67,259 |  |  |  | 10.83 | % |  |  | 91,747 |  |  |  | 16.89 | %
30 - 60 days past due |  |  | 25,311 |  |  |  | 4.07 | % |  |  | 11,362 |  |  |  | 2.09 | %
61 - 90 days past due |  |  | 10,140 |  |  |  | 1.63 | % |  |  | 3,429 |  |  |  | 0.63 | %
> 90 days past due |  |  | 3,082 |  |  |  | 0.50 | % |  |  | 1,187 |  |  |  | 0.22 | %
Total |  | $ | 621,182 |  |  |  | 100.00 | % |  | $ | 543,328 |  |  |  | 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. 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,
|  | 2020 |  | 2019
Principal collected as a percent of average finance receivables |  |  | 55.1 | % |  |  | 55.3 | %
Average down-payment percentage |  |  | 6.4 | % |  |  | 6.5 | %
|  |  | April 30, 2020 |  |  |  | April 30, 2019 |
Average originating contract term (in months ) |  |  | 30.7 |  |  |  | 29.5 |
Portfolio weighted average contract term, including modifications (in months ) |  |  | 33.3 |  |  |  | 32.1 |

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