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Note C - Finance Receivables, Net

12 Months Ended

Apr. 30, 2024

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 18.25% for all states except Arkansas (originates at 16.75%), Illinois (originates at 19.5% - 21.5%) and acquired dealerships in Tennessee (which originate at up to 23.0%), 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, 2024, and 2023 are as follows:

(In thousands)		April 30, 2024				April 30, 2023

Gross contract amount		$	1,844,392			$	1,752,149
Less unearned finance charges			(409,004	)			(378,777	)
Principal balance			1,435,388				1,373,372
Less: estimated insurance receivables for APP claims			(3,026	)			(5,694	)
Less: allowance for APP claims			(3,171	)			(5,310	)
Less: allowance for credit losses			(331,260	)			(299,608	)
Finance receivables, net			1,097,931				1,062,760
Loan origination costs			660				700
Finance receivables, net, including loan origination costs			1,098,591				1,063,460

Auto finance receivables collateralizing the non-recourse notes payable related to the financing and securitization transaction completed during the fiscal year 2024 and 2023 were $814.7 million and $721.9 million, respectively.

Changes in the finance receivables, net for the years ended April 30, 2024, 2023 and 2022 are as follows:

		Years Ended April 30,
(In thousands)		2024				2023				2022

Balance at beginning of period		$	1,062,760			$	855,424			$	626,077
Finance receivable originations			1,079,946				1,161,132				1,009,859
Finance receivable collections			(455,828	)			(434,458	)			(417,796	)
Provision for credit losses			(423,406	)			(352,860	)			(238,054	)
Losses on claims for accident protection plan			(34,504	)			(25,107	)			(21,871	)
Inventory acquired in repossession and accident protection plan claims			(131,037	)			(141,371	)			(102,791	)

Balance at end of period		$	1,097,931			$	1,062,760			$	855,424

Changes in the finance receivables allowance for credit losses for the years ended April 30, 2024, 2023 and 2022 are as follows:

		Years Ended April 30,
(In thousands)		2024				2023				2022

Balance at beginning of period		$	299,608			$	237,823			$	177,267
Provision for credit losses			423,406				352,860				238,054
Charge-offs			(525,634	)			(414,397	)			(260,039	)
Recovered collateral			133,880				123,322				82,541

Balance at end of period		$	331,260			$	299,608			$	237,823

Amounts recovered from previously written-off accounts were $2.8 million, $2.5 million, and $2.4 million for the years ended April 30, 2024, 2023 and 2022, respectively. These amounts are netted against recovered collateral in the table above.

During fiscal 2022, the allowance for credit losses remained basically flat at 23.57%, up from 23.55% at April 30, 2021. For fiscal 2023, 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%. During the second quarter of the 2024 fiscal year, the Company increased the allowance for credit losses to 26.04%. The Company decreased the allowance for credit losses to 25.74% and 25.32% during the third quarter and fourth quarter of fiscal year 2024, respectively. The decrease in the third quarter and fourth quarter of the 2024 fiscal year was primarily driven by the lower overall inflationary outlook and fewer past due balances at third quarter end and changes in the underwriting process and refinements to the underwriting guidelines due to the implementation of the Company’s new loan origination system. As a result of the implementation of LOS and the new deal structures there has been a notable decrease in the frequency and loss rate in charge-offs as compared to loans that were originated during the same period and dealership state using the legacy system. All the underwriting deal information is centrally located in LOS and as such, dealerships can view internal scores, deal percentages, pre-qual credit report and other customer information. Historically, this information was sourced from several sources. As a result, changes to the underwriting process and refinement to the underwriting guidelines, the decisions to underwrite tend to be better informed.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)		April 30, 2024								April 30, 2023

		Principal				Percent of				Principal				Percent of
		Balance				Portfolio				Balance				Portfolio
Current		$	1,125,945				78.44	%		$	1,166,860				84.96	%
3 - 29 days past due			264,491				18.43	%			156,943				11.43	%
30 - 60 days past due			34,042				2.37	%			37,214				2.71	%
61 - 90 days past due			6,438				0.45	%			8,407				0.61	%
> 90 days past due			4,472				0.31	%			3,948				0.29	%
Total		$	1,435,388				100.00	%		$	1,373,372				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 installment sale 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, payment to income, down payment percentages, and collections for credit quality indicators.

		Twelve Months Ended April 30,
		2024				2023

Average total collected per active customer per month		$	554			$	534
Principal collected as a percent of average finance receivables			31.7	%			34.7	%
Average down-payment percentage			5.4	%			5.4	%
Average originating contract term (in months)			44.0				42.9

		April 30, 2024				April 30, 2023
Portfolio weighted average contract term, including modifications (in months)			47.9				46.3

Although total dollars collected per active customer increased 3.7% year over year, principal collections as a percentage of average finance receivables were lower in fiscal 2024 compared to fiscal 2023 primarily due to the average term increases. The portfolio weighted average contract term increased primarily due to the increased average selling price, up $1,033 or 5.7%, from fiscal year 2023.

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 following table presents a summary of finance receivables by credit quality indicator, as of April 30, 2024 segregated by customer score and year of origination.

			Customer Score by Fiscal Year of Origination
																							Prior to
(Dollars in thousands)			2024				2023				2022				2021				2020				2020				Total				%

1-2			$	43,445			$	13,757			$	3,668			$	375			$	95			$	6			$	61,346				4.3	%
3-4				300,323				117,904				36,349				4,552				325				158				459,611				32.0	%
5-6				485,535				291,198				116,611				19,452				1,216				419				914,431				63.7	%
Total			$	829,303			$	422,859			$	156,628			$	24,379			$	1,636			$	583			$	1,435,388				100.0	%

Gross charge-offs			$	155,385			$	265,609			$	88,160			$	14,835			$	1,081			$	564			$	525,634

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
																							Prior to
(Dollars in thousands)			2023				2022				2021				2020				2019				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	%