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Note C - Finance Receivables, Net

12 Months Ended

Apr. 30, 2023

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 18.0% for all states except Arkansas (which is subject to a usuary cap of 17%) and Illinois (where dealerships originate at 19.5% to 21.5%), are collateralized by the vehicle sold and typically provide for payments over periods ranging from 18 to 69 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 in our financing receivables is managed as one homogeneous pool. The components of finance receivables as of April 30, 2023, and 2022 are as follows:

(In thousands)		April 30, 2023				April 30, 2022

Gross contract amount		$	1,752,149			$	1,378,803
Less unearned finance charges			(378,777	)			(277,306	)
Principal balance			1,373,372				1,101,497
Less allowance for credit losses			(299,608	)			(237,823	)

Finance receivables, net		$	1,073,764			$	863,674

Auto finance receivables collateralizing the non-recourse notes payable related to the financing and securitization transaction completed during the fiscal year 2023 and 2022 were $721.9 million and $550.3 million, respectively.

Changes in the finance receivables, net for the years ended April 30, 2023, 2022 and 2021 are as follows:

		Years Ended April 30,
(In thousands)		2023				2022				2021

Balance at beginning of period		$	863,674			$	632,270			$	472,401
Finance receivable originations			1,161,132				1,009,858				762,717
Finance receivable collections			(434,458	)			(417,796	)			(370,254	)
Provision for credit losses			(352,860	)			(238,054	)			(153,835	)
Losses on claims for accident protection plan			(25,107	)			(21,871	)			(18,954	)
Inventory acquired in repossession and accident protection plan claims			(138,617	)			(100,734	)			(59,805	)

Balance at end of period		$	1,073,764			$	863,674			$	632,270

Changes in the finance receivables allowance for credit losses for the years ended April 30, 2023, 2022 and 2021 are as follows:

		Years Ended April 30,
(In thousands)		2023				2022				2021

Balance at beginning of period		$	237,823			$	177,267			$	148,781
Provision for credit losses			352,860				238,054				153,835
Charge-offs, net of recovered collateral			(291,075	)			(177,498	)			(125,349	)

Balance at end of period		$	299,608			$	237,823			$	177,267

Amounts recovered from previously written-off accounts were $2.5 million, $2.4 million, and $1.9 million for the years ended April 30, 2023, 2022 and 2021, respectively.

As a result of improved credit losses during the fiscal year 2021, as well as the Company’s outlook for projected losses, the Company decreased the allowance for credit losses in the fourth quarter of fiscal 2021 from 25.43% to 23.55%, resulting in a $14.2 million pre-tax decrease in the provision for credit losses The allowance for credit losses remained basically flat at 23.57% at April 30, 2022. For the current year credit losses increased primarily due to the ending of federal stimulus programs, continuing inflationary pressure on customers and increasing interest rates from federal monetary policy, and in the fourth quarter of fiscal 2023, the Company increased its allowance for credit losses to 23.91%.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)		April 30, 2023								April 30, 2022

		Principal				Percent of				Principal				Percent of
		Balance				Portfolio				Balance				Portfolio
Current		$	1,166,860				84.96	%		$	958,808				87.05	%
3 - 29 days past due			156,943				11.43	%			109,873				9.97	%
30 - 60 days past due			37,214				2.71	%			22,477				2.04	%
61 - 90 days past due			8,407				0.61	%			7,360				0.67	%
> 90 days past due			3,948				0.29	%			2,979				0.27	%
Total		$	1,373,372				100.00	%		$	1,101,497				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 customer scores, contract term length, down payment percentages, and collections for credit quality indicators.

		Twelve Months Ended April 30,
		2023				2022

Average total collected per active customer per month		$	534			$	513
Principal collected as a percent of average finance receivables			34.7	%			43.5	%
Average down-payment percentage			5.4	%			6.4	%
Average originating contract term (in months)			42.9				40.2

		April 30, 2023				April 30, 2022
Portfolio weighted average contract term, including modifications (in months)			46.3				42.9

Although total dollars collected per active customer increased 4.1% year over year, principal collections as a percentage of average finance receivables were lower in fiscal 2023 compared to fiscal 2022 primarily due to the average term increases. Overall collections have also been negatively impacted by the current inflationary environment and lower overall income tax refunds for consumers in fiscal 2023. The portfolio weighted average contract term increased primarily due to the increased average selling price, up $1,708 or 10.4%, from fiscal year 2022.

When customers apply for financing, the Company’s proprietary scoring models rely on the customers’ credit histories and certain application information to evaluate and rank their risk. The Company obtains credit histories and other credit data that includes information such as number of different addresses, age of oldest record, high risk credit activity, job time, time at residence and other factors. The application information that is used includes income, collateral value and down payment. The scoring models yield credit grades that represent the relative likelihood of repayment. Customers with the highest probability of repayment are 6 rated customers. Customers assigned a lower grade are determined to have a lower probability of repayment. For loans that are approved, the credit grade influences the terms of the agreement, such as the maximum amount financed, term length and minimum down payment. After origination, credit grades are generally not updated.

The Company uses a combination of the initial credit grades and historical performance to monitor the credit quality of the finance receivables on an ongoing basis, and the accuracy of the scoring model is validated periodically. Loan performance is reviewed on a recurring basis to identify whether the assigned grades adequately reflect the customers’ likelihood of repayment.

The following table presents a summary of finance receivables by credit quality indicator, as of April 30, 2023 segregated by customer score and year of origination.

			Customer Score by Fiscal Year of Origination
(Dollars in thousands)			2023				2022				2021				2020				2019				Prior to 2019				Total				%

1-2			$	38,743			$	12,983			$	2,736			$	329			$	32			$	6			$	54,829				4.0	%
3-4				294,972				105,101				24,982				1,698				243				137				427,133				31.1	%
5-6				563,581				254,945				66,436				5,390				687				371				891,410				64.9	%
Total			$	897,296			$	373,029			$	94,154			$	7,417			$	962			$	514			$	1,373,372				100.0	%

The following table presents a summary of finance receivables by credit quality indicator, as of April 30, 2022 segregated by customer score and year of origination.

			Customer Score by Fiscal Year of Origination
(Dollars in thousands)			2022				2021				2020				2019				2018				Prior to 2018				Total				%

1-2			$	37,916			$	11,493			$	2,221			$	77			$	-			$	2			$	51,709				4.7	%
3-4				260,298				84,118				13,537				587				14				15				358,569				32.5	%
5-6				488,257				172,843				28,193				1,803				115				8				691,219				62.8	%
Total			$	786,471			$	268,454			$	43,951			$	2,467			$	129			$	25			$	1,101,497				100.0	%