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Finance Receivables | 12 Months Ended
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Mar. 31, 2024
Receivables [Abstract] |
Finance Receivables | 3. Finance Receivables Finance receivables consist of Contracts and Direct Loans, each of which comprise a portfolio segment. The Company purchased individual Contracts from used and new automobile dealers in its markets. There is no relationship between the Company and the dealer with respect to a given Contract once the assignment of that Contract is complete. The dealer has no vested interest in the performance of any Contract the Company purchases. The Company’s charge off policy is 121 days past due. In addition, Chapter 13 Bankruptcies, once the Company is notified of such, is notated on the customer's account of the bankruptcy status. When the Company receives notice that a Chapter 13 Bankruptcy plan is not confirmed by the courts or the loan is 121 days past due, the loan is charged off. This policy is in line with industry standards, considering the sub-prime nature of our customers. In the event of repossession, the charge-off will occur after standard collection practices by the Company, as determined by the residency state of a customer. This practice is consistent with the sub-prime industry. Contracts and Direct Loans included in finance receivables are detailed as follows as of fiscal years ended March 31:
|  | (In thousands) |
|  | 2024 |  |  | 2023 |
Finance receivables |  | $ | - |  |  | $ | 128,170 |
Accrued interest receivable |  |  | - |  |  |  | 1,932 |
Unearned dealer discounts |  |  | - |  |  |  | (4,286 | )
Unearned purchase price discounts |  |  | - |  |  |  | (82 | )
Unearned insurance and fee commissions |  |  | - |  |  |  | (1,419 | )
Finance receivables, net of unearned |  |  | - |  |  |  | 124,315 |
Allowance for credit losses |  |  | - |  |  |  | (17,396 | )
Finance receivables, net |  | $ | - |  |  | $ | 106,919 |
Finance receivables held for sale consist of Contracts and Direct Loans and are detailed as follows:
|  | (In thousands) |
|  | March 31, |  |  | March 31, |
|  | 2024 |  |  | 2023 |
Finance receivables held for sale at amortized cost |  | $ | 56,108 |  |  |  | - |
Held for sale allowance |  |  | (17,335 | ) |  |  | - |
Finance receivables held for sale at fair value |  | $ | 38,773 |  |  | $ | - |
Contracts The Company purchases Contracts from automobile dealers at a negotiated price that is less than the original principal amount being financed by the purchaser of the automobile. The Contracts are predominantly for used vehicles. As of March 31, 2024, the average model year of vehicles collateralizing the portfolio was a 2012 vehicle. The terms of the Contracts range from 12 to 84 months and bear an average contractual interest rate of 22.1% and 22.2% as of March 31, 2024 and 2023, respectively. In connection with the decision to sell the portfolio, the Company has cancelled, not renewed, or otherwise terminated all of its Contracts loan licenses, except in Florida, during the fourth quarter of fiscal 2024. Consequently, the Company has not originated any new Contracts since the end of the third quarter of fiscal 2024 and the Company does not intend to originate any new Contracts going forward. However, the Company expects its third-party service provider to continue to service the Company’s existing portfolio through the date of sale. The Company expects its total Contracts portfolio to be reduced over time as such Contracts are paid off or otherwise liquidated until there are no Contracts in the Company’s portfolio, which at the current rate of such activity, is expected to occur sometime during the fiscal year ending March 31, 2027. Direct Loans Direct Loans are typically for amounts ranging from $1 thousand to $15 thousand and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal property. The majority of Direct Loans are originated with current or former customers under the Company’s automobile financing program. The typical Direct Loan represents a better credit risk than Contracts due to the customer’s historical payment history with the Company; however, the underlying collateral is less valuable. In deciding whether or not to make a loan, the Company considers the individual’s credit history, job stability, income, and impressions created during a personal interview with a Company loan officer. Additionally, because most of the Direct Loans made by the Company to date have been made to borrowers under Contracts previously purchased by the Company, the payment history of the borrower under the Contract is a significant factor in making the loan decision. During fiscal 2023, the Company has cancelled, not renewed, or otherwise terminated all of its Direct Loan licenses. Consequently, the Company has not originated any new Direct Loans since the end of the third quarter of fiscal 2023 and the Company does not intend to originate any new Direct Loans going forward. However, the Company expects its third-party service provider to continue to service the Company’s existing Direct Loans through the day of sale. Direct Loans constituted approximately 11% of the aggregate principal amount of the Company’s loan portfolio as of March 31, 2024, and 15% of the aggregate principal amount of the Company’s loan portfolio as of March 31, 2023. The terms of the Direct Loans range from 6 to 72 months and bear an average contractual interest rate of 0.0% and 30.4% originated during the fiscal years ended March 31, 2024 and 2023, respectively. The Company expects its total Direct Loans portfolio to be reduced over time as such Direct Loans are paid off or otherwise liquidated until there are no Direct Loans in the Company’s portfolio, which at the current rate of such activity, is expected to occur sometime during the fiscal year ending March 31, 2027. Allowance for Credit Losses (ACL) and Held for Sale Allowance The Company adopted ASU 2016-13 on April 1, 2023, and consequently utilized the current expected credit losses model through October 31, 2023, by applying a Discounted Cash Flow (DCF) methodology to its financial assets, measured at amortized cost, over the life of those financial assets. Beginning on November 1, 2023, the Company is carrying its loan portfolio at the lower of amortized cost or fair value. For the period from April 1, 2023 through October 31, 2023, the ACL reflects the difference between the amortized cost basis and the present value of the expected cash flows of finance receivables. Provisions for credit losses were recorded in amounts sufficient to maintain an ACL at an adequate level to provide for estimated losses over the lives of the finance receivables. Portfolio segments are comprised of homogeneous loans sharing common risk factors. Accordingly, loans are not individually evaluated for collectability. Consistent with the application during prior reporting years, the Company continued charging credit losses against the allowance when the account reached 120 days contractually delinquent and any recoveries on finance receivables previously charged to the ACL were credited to the ACL when collected. The Company used a DCF model to forecast expected credit losses. Historical information about losses generally provided a basis for the estimate of expected credit losses. The Company has utilized its own historical data as well as its peer group companies' data from FFIEC Call Report filings. This data was used to produce regression analyses designed to quantify the impact of reasonable and supportable forecasts in projective models. The Company also considered the need to adjust historical information to reflect the extent to which conditions differed from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature. The Company considered changes in international, national, regional and local conditions, changes in the volume and severity of past due loans, portfolio bankruptcy trends, maturity terms extensions, changes in the value of underlying collateral for collateral dependent loans, the effect of other external factors, such as competition, legal and regulatory requirements on the level of estimated credit losses, the existence and effect of any concentrations of credit and changes in the levels of such concentrations, changes in the nature and volume of the portfolio and terms of loans, changes in the quality of the loan review system, changes in the experience, depth, and ability of lending management, and reasonable and supportable economic forecasts, which covered the lives of the finance receivables. The Company discounted expected cash flows at the financial asset’s effective interest rate. The effective interest rate is defined in ASC 326 as the contractual interest rate adjusted for any net deferred fees or costs, premium, or discount existing at the origination or acquisition of the financial assets. For the Company, this was calculated using adjusted contractual cash flows relative to the amortized cost. The Company also considered prepayment and curtailment effects in calculation of its effective interest rate. According to ASC 326-20-30-9, estimating expected credit losses is highly judgmental and requires management to produce reasonable and supportable forecasts of expected credit losses. The Company elected to forecast the first four quarters of the credit loss estimate and revert to a long-run average of each considered economic factor as permitted in ASC 326-20-30-9. Based on the final values in the forecast and the uncertainty of a post-pandemic recovery, management elected to revert over four quarters. The Company also used information provided by the Federal Open Market Committee (FOMC) to obtain various forecasts for unemployment rate and gross domestic product, as well as other economic factors that were considered as part of its ACL calculations. The Company elected not to measure an allowance on accrued interest which is included as a component of amortized cost and limited to performing accounts, defined as an account that is less than 61 days past due. Accrual of interest income on finance receivables is suspended when a loan was contractually delinquent for 61 days or more, or the collateral is repossessed, whichever is earlier. Consistent with the application in the prior reporting periods, the Company continued timely reversing of the accrual of interest income when the loan was contractually delinquent 61 days or more. All of these accounts were accounted for in the calculation for allowance for credit losses. The Company defines a non-performing asset as one that is 61 or more days past due, a Chapter 7 bankruptcy account, or a Chapter 13 bankruptcy account that has not been confirmed by the courts, for which the accrual of interest income is suspended. Upon confirmation of a Chapter 13 bankruptcy account, the account is immediately charged-off. Upon notification of a Chapter 7 bankruptcy, an account is monitored for collectability. In the event the debtors’ balance is reduced by the bankruptcy court, the Company records a loss equal to the amount of principal balance reduction. The remaining balance is reduced as payments are received. In the event an account is dismissed from bankruptcy, the Company will decide whether to begin repossession proceedings or to allow the customer to make regularly scheduled payments. Prior to adoption of ASU 2016-13 the Company was periodically evaluating the composition of the portfolio, current economic conditions, the estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts when determining management’s estimate of probable credit losses and the adequacy of the allowance for credit losses. Management utilized significant judgment in determining probable incurred losses and in identifying and evaluating qualitative factors. This approach aligned with the Company’s lending policies and underwriting standards. If the allowance for credit losses is determined to be inadequate, then an additional charge to the provision is recorded to maintain adequate reserves based on management’s evaluation of the risk inherent in the loan portfolio. The Company used a trailing twelve-month net charge-off as a percentage of average finance receivables, and applied this percentage to ending finance receivables to estimate probable credit losses. This approach reflected the current trends of incurred losses within the portfolio and closely aligns the allowance for credit losses with the portfolio’s performance indicators. Estimating the allowance for credit losses using the trailing twelve-month charge-off analysis reflected portfolio performance adjusted for seasonality. Management evaluated qualitative factors to support its allowance for credit losses. The Company examined the impact of macro-economic factors, such as year-over-year inflation, as well as portfolio performance characteristics, such as changes in the value of underlying collateral, level of nonperforming accounts, delinquency trends, and accounts with extended terms. As of November 1, 2023, concurrent with the decision to sell the portfolio, the Company reclassified its finance receivables to held for sale, which are carried at the lower of amortized cost or fair value. As a result of this reclassification, the Company eliminated the allowance for credit losses established under ASC 326 which resulted in a reversal of previously recorded provisions for credit losses for the period from April 1, 2023 through October 31, 2023. The Company compared the fair value and amortized cost of finance receivables held for sale and recorded a held for sale valuation allowanc e of $17.3 million through earnings to reduce the amortized cost basis to fair value as of March 31, 2024. The following presents the activity in our allowance for credit losses:
|  | For the year ended March 31, 2024 |
|  | (In thousands) |
|  | Indirect |  |  | Direct |  |  | Total |
Balance at beginning of year, prior to adoption of ASU 2016-13 |  | $ | 16,265 |  |  | $ | 1,131 |  |  | $ | 17,396 |
Impact of adoption of ASU 2016-13 |  |  | (562 | ) |  |  | 772 |  |  |  | 210 |
Provision for credit losses (1) |  |  | 12,713 |  |  |  | 2,110 |  |  |  | 14,823 |
Charge-offs(2) |  |  | (21,337 | ) |  |  | (3,495 | ) |  |  | (24,832 | )
Recoveries(2) |  |  | 4,210 |  |  |  | 446 |  |  |  | 4,656 |
Reversal of allowance for credit losses (1) |  |  | (11,289 | ) |  |  | (964 | ) |  |  | (12,253 | )
Balance at end of year |  | $ | — |  |  | $ | — |  |  | $ | — |
(1)Provision for credit losses and reversal of allowance for credit losses is presented net as "Provision for credit losses" in the Consolidated Statements of Operations. (2)Amounts shown represents charge-offs and recoveries through October 31, 2023. Since November 1, 2023 charge-offs and recoveries are included in "Fair value and other adjustment, net" in the Consolidated Statements of Operations.
|  | For the year ended March 31, 2023 |
|  | (In thousands) |
|  | Indirect |  |  | Direct |  |  | Total |
Balance at beginning of year |  | $ | 1,961 |  |  | $ | 988 |  |  | $ | 2,949 |
Provision for credit losses |  |  | 37,125 |  |  |  | 3,533 |  |  |  | 40,658 |
Charge-offs |  |  | (28,391 | ) |  |  | (3,621 | ) |  |  | (32,012 | )
Recoveries |  |  | 5,570 |  |  |  | 231 |  |  |  | 5,801 |
Balance at end of year |  | $ | 16,265 |  |  | $ | 1,131 |  |  | $ | 17,396 |
The following table presents gross charge-offs and recoveries by receivable origination year for total portfolio:
| (In thousands) |
| 2024 |
| Gross Charge-offs |  |  | Gross Recoveries |  |  | Net Charge-offs |
2024 | $ | 113 |  |  | $ | — |  |  | $ | 113 |
2023 |  | 10,061 |  |  |  | 1,122 |  |  |  | 8,939 |
2022 |  | 9,448 |  |  |  | 1,496 |  |  |  | 7,952 |
2021 |  | 2,776 |  |  |  | 547 |  |  |  | 2,229 |
2020 |  | 1,209 |  |  |  | 506 |  |  |  | 703 |
Prior |  | 1,225 |  |  |  | 985 |  |  |  | 240 |
Total | $ | 24,832 |  |  | $ | 4,656 |  |  | $ | 20,176 |
The following table presents gross charge-offs and recoveries by receivable origination year for Contract segment of portfolio:
| (In thousands) |
| 2024 |
| Gross Charge-offs |  |  | Gross Recoveries |  |  | Net Charge-offs |
2024 | $ | 113 |  |  | $ | — |  |  | $ | 113 |
2023 |  | 7,950 |  |  |  | 907 |  |  |  | 7,043 |
2022 |  | 8,127 |  |  |  | 1,320 |  |  |  | 6,807 |
2021 |  | 2,722 |  |  |  | 521 |  |  |  | 2,201 |
2020 |  | 1,201 |  |  |  | 489 |  |  |  | 712 |
Prior |  | 1,224 |  |  |  | 973 |  |  |  | 251 |
Total | $ | 21,337 |  |  | $ | 4,210 |  |  | $ | 17,127 |
The following table presents gross charge-offs and recoveries by receivable origination year for Direct segment of portfolio:
| (In thousands) |
| 2024 |
| Gross Charge-offs |  |  | Gross Recoveries |  |  | Net Charge-offs |
2024 | $ | — |  |  | $ | — |  |  | $ | — |
2023 |  | 2,111 |  |  |  | 215 |  |  |  | 1,896 |
2022 |  | 1,321 |  |  |  | 176 |  |  |  | 1,145 |
2021 |  | 54 |  |  |  | 26 |  |  |  | 28 |
2020 |  | 8 |  |  |  | 17 |  |  |  | (9 | )
Prior |  | 1 |  |  |  | 12 |  |  |  | (11 | )
Total | $ | 3,495 |  |  | $ | 446 |  |  | $ | 3,049 |
A performing account is defined as an account that is less than 60 days past due. The Company defines an automobile contract as delinquent when more than 25% of payments contractually due by a certain date has not been paid by the immediately following due date, which date may have been extended within limits specified in the servicing agreements or as a result of a deferral. The period of delinquency is based on the number of days payments are contractually past due, as extended where applicable. In certain circumstances, the Company will grant obligors one-month payment extensions. The only modification of terms in those circumstances is to advance the obligor’s next due date by one month and extend the maturity date of the receivable. There are no other concessions, such as a reduction in interest rate, forgiveness of principal or of accrued interest. Accordingly, the Company considers such extensions to be insignificant delays in payments rather than troubled debt restructurings. A non-performing account is defined as an account that is contractually delinquent for 60 days or more or is a Chapter 13 bankruptcy account, and the accrual of interest income is suspended. The Company’s charge-off policy for contractually delinquent is 121 days. The Company’s charge-off policy aligns with practices within the subprime auto financing segment. In the event an account is dismissed from bankruptcy, the Company will decide, based on several factors, to begin repossession proceedings or to allow the customer to begin making regularly scheduled payments. The following table is an assessment of the credit quality by creditworthiness as of March 31:
|  | (In thousands) |
|  | 2024 |  |  | 2023 |
|  | Contracts |  |  | Direct Loans |  |  | Total |  |  | Contracts |  |  | Direct Loans |  |  | Total |
Performing accounts |  |  | — |  |  |  | — |  |  | $ | — |  |  | $ | 101,856 |  |  | $ | 16,926 |  |  | $ | 118,782 |
Non-performing accounts |  |  | — |  |  |  | — |  |  |  | - |  |  |  | 6,972 |  |  |  | 1,728 |  |  |  | 8,700 |
Total |  |  | — |  |  |  | — |  |  |  | - |  |  |  | 108,828 |  |  |  | 18,654 |  |  |  | 127,482 |
Chapter 13 bankruptcy |  |  | — |  |  |  | — |  |  |  | - |  |  |  | 590 |  |  |  | 98 |  |  |  | 688 |
Finance receivables |  |  | — |  |  |  | — |  |  | $ | - |  |  | $ | 109,418 |  |  | $ | 18,752 |  |  | $ | 128,170 |
The following tables present certain information regarding the delinquency rates experienced by the Company with respect to Contracts and Direct Loans, excluding any Chapter 13 bankruptcy accounts:
|  | (In thousands) |
Contracts |  | Balance Outstanding |  |  | 30 – 59 days |  |  | 60 –89 days |  |  | 90-119 days |  |  | 120+ days |  |  | Total |
March 31, 2023 |  | $ | 108,828 |  |  | $ | 10,083 |  |  | $ | 3,274 |  |  | $ | 3,698 |  |  | $ | - |  |  | $ | 17,055 |
|  |  |  |  |  | 9.27 | % |  |  | 3.01 | % |  |  | 3.40 | % |  |  | 0.00 | % |  |  | 15.67 | %
Direct Loans |  | Balance Outstanding |  |  | 30 – 59 days |  |  | 60 –89 days |  |  | 90-119 days |  |  | 120+ days |  |  | Total |
March 31, 2023 |  | $ | 18,654 |  |  | $ | 1,448 |  |  | $ | 654 |  |  | $ | 1,074 |  |  | $ | - |  |  | $ | 3,176 |
|  |  |  |  |  | 7.76 | % |  |  | 3.51 | % |  |  | 5.76 | % |  |  | 0.00 | % |  |  | 17.03 | %

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