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Note C - Finance Receivables, Net

3 Months Ended

Jul. 31, 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 (which originate at 16.75%), Illinois (which originate 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 contracts, which is sub-prime consumer automobile contracts. The level of risks in the Company’s finance receivables is managed as one homogeneous pool.

The components of finance receivables are as follows:

(In thousands)		July 31, 2024				April 30, 2024

Gross contract amount		$	1,883,106			$	1,844,392
Less unearned finance charges			(417,847	)			(409,004	)
Principal balance			1,465,259				1,435,388
Less: estimated insurance receivables for APP claims			(2,468	)			(3,026	)
Less: allowance for APP claims			(2,757	)			(3,171	)
Less allowance for credit losses			(334,424	)			(331,260	)
Finance receivables, net			1,125,610				1,097,931
Loan origination costs			661				660
Finance receivables, net, including loan origination costs		$	1,126,271			$	1,098,591

Changes in the finance receivables, net are as follows:

		Three Months Ended July 31,
(In thousands)		2024				2023

Balance at beginning of period		$	1,097,931			$	1,062,760
Finance receivable originations			271,756				297,732
Finance receivable collections			(112,358	)			(109,291	)
Provision for credit losses			(95,423	)			(96,323	)
Losses on claims for accident protection plan			(9,321	)			(7,769	)
Inventory acquired in repossession and accident protection plan claims			(26,975	)			(32,590	)

Balance at end of period		$	1,125,610			$	1,114,519

Changes in the finance receivables allowance for credit losses are as follows:

		Three Months Ended July 31,
(In thousands)		2024				2023

Balance at beginning of period		$	331,260			$	299,608
Provision for credit losses			95,423				96,323
Charge-offs			(121,605	)			(112,745	)
Recovered collateral			29,346				31,256

Balance at end of period		$	334,424			$	314,442

Amounts recovered from previously written-off accounts were approximately $772,000 and $640,000 for the three months ended July 31, 2024 and 2023, respectively. These amounts are netted against recovered collateral in the table above.

The Company reduced the allowance for credit loss in the first quarter to 25.0% from 25.32% at April 30, 2024, resulting in a benefit of $4.3 million to the provision. The decrease was primarily driven by the lower inflationary outlook and changes in the underwriting process and refinements to the underwriting guidelines due to the implementation of the Company’s new loan origination system.

The following table presents the finance receivables that are current and past due as follows:

(Dollars in thousands)		July 31, 2024								April 30, 2024								July 31, 2023

		Principal				Percent of				Principal				Percent of				Principal				Percent of
		Balance				Portfolio				Balance				Portfolio				Balance				Portfolio
Current		$	1,155,006				78.82	%		$	1,125,945				78.44	%		$	1,151,275				79.91	%
3 - 29 days past due			259,145				17.69	%			264,491				18.43	%			226,600				15.73	%
30 - 60 days past due			38,035				2.60	%			34,042				2.37	%			48,650				3.38	%
61 - 90 days past due			7,463				0.51	%			6,438				0.45	%			9,294				0.64	%
> 90 days past due			5,610				0.38	%			4,472				0.31	%			4,888				0.34	%
Total		$	1,465,259				100.00	%		$	1,435,388				100.00	%		$	1,440,707				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.

		Three Months Ended July 31,
		2024				2023

Average total collected per active customer per month		$	562			$	535
Principal collected as a percent of average finance receivables			7.8	%			7.8	%
Average down-payment percentage			5.2	%			5.0	%
Average originating contract term (in months)			44.3				44.7

		As of
		July 31, 2024				July 31, 2023
Portfolio weighted average contract term, including modifications (in months)			48.1				46.9

Although total dollars collected per active customer for the three months increased 5.0% year over year, principal collections as a percentage of average finance receivables were consistent in the three months ended July 31, 2024 compared to the prior year, primarily due to the average term increases. The portfolio weighted average contract term increased primarily due to the increased average selling price, up $451 or 2.4%, from the prior year period.

When customers apply for financing, the Company’s proprietary scoring model relies 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 installment sales contracts 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 July 31, 2024, segregated by customer score and year of origination.

			As of July 31, 2024

(Dollars in thousands)			Fiscal Year of Origination																				Prior to
Customer Rating			2025				2024				2023				2022				2021				2021				Total				%
1-2			$	18,758			$	34,722			$	10,548			$	2,645			$	245			$	90			$	67,008				4.6	%
3-4			$	94,738			$	251,217			$	94,939			$	26,565			$	2,899			$	396			$	470,754				32.1	%
5-6			$	148,448			$	424,197			$	246,371			$	93,171			$	14,071			$	1,239			$	927,497				63.3	%
Total			$	261,944			$	710,136			$	351,858			$	122,381			$	17,215			$	1,725			$	1,465,259				100.0	%

Charge-offs			$	2,619			$	70,413			$	36,752			$	10,578			$	1,048			$	195			$	121,605

The following table presents a summary of finance receivables by credit quality indicator, as of July 31, 2023, segregated by customer score.

			As of July 31, 2023

(Dollars in thousands)			Fiscal Year of Origination																				Prior to
Customer Rating			2024				2023				2022				2021				2020				2020				Total				%
1-2			$	14,450			$	30,477			$	9,911			$	1,821			$	227			$	28			$	56,914				4.0	%
3-4			$	105,595			$	241,759			$	84,065			$	17,510			$	1,044			$	311			$	450,284				31.2	%
5-6			$	176,815			$	486,594			$	215,403			$	50,180			$	3,665			$	852			$	933,509				64.8	%
Total			$	296,860			$	758,830			$	309,379			$	69,511			$	4,936			$	1,191			$	1,440,707				100.0	%

Charge-offs			$	3,239			$	75,308			$	28,036			$	5,577			$	441			$	144			$	112,745