Note C - Finance Receivables, Net

6 Months Ended

Oct. 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 79 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)	October 31, 2024			April 30, 2024
Gross contract amount	$	1,889,413		$	1,844,392
Less unearned finance charges		(415,619	)		(409,004	)
Principal balance		1,473,794			1,435,388
Less: estimated insurance receivables for APP claims		(2,485	)		(3,026	)
Less: allowance for APP claims		(2,651	)		(3,171	)
Less allowance for credit losses		(336,693	)		(331,260	)
Finance receivables, net		1,131,965			1,097,931
Loan origination costs		653			660
Finance receivables, net, including loan origination costs	$	1,132,618		$	1,098,591

Changes in the finance receivables, net are as follows:

	Six Months Ended October 31,
(In thousands)	2024			2023
Balance at beginning of period	$	1,097,931		$	1,062,760
Finance receivable originations		527,487			580,082
Finance receivable collections		(224,640	)		(218,208	)
Provision for credit losses		(194,945	)		(231,718	)
Losses on claims for accident protection plan		(16,797	)		(15,173	)
Inventory acquired in repossession and accident protection plan claims		(57,071	)		(73,217	)
Balance at end of period	$	1,131,965		$	1,104,526

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

	Six Months Ended October 31,
(In thousands)	2024			2023
Balance at beginning of period	$	331,260		$	299,608
Provision for credit losses		194,945			231,718
Charge-offs		(250,057	)		(255,685	)
Recovered collateral		60,545			68,689
Balance at end of period	$	336,693		$	344,330

Amounts recovered from previously written-off accounts were approximately $1.8 million and $1.4 million for the six months ended October 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 second quarter of fiscal year 2025 to 24.72% from 25.00% at July 31, 2024, resulting in a decrease of $3.8 million to the provision. The primary driver of this change was favorable performance in loans originated under the loan origination system and the improvements the new system is driving in the Company’s historical loss rates.

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

(Dollars in thousands)	October 31, 2024					April 30, 2024					October 31, 2023
	Principal		Percent of			Principal		Percent of			Principal		Percent of
	Balance		Portfolio			Balance		Portfolio			Balance		Portfolio
Current	$	1,188,852		80.66	%	$	1,125,945		78.44	%	$	1,121,215		76.62	%
3 - 29 days past due		233,486		15.84	%		264,491		18.43	%		290,123		19.83	%
30 - 60 days past due		35,039		2.38	%		34,042		2.37	%		37,602		2.57	%
61 - 90 days past due		10,083		0.68	%		6,438		0.45	%		7,068		0.48	%
> 90 days past due		6,334		0.44	%		4,472		0.31	%		7,390		0.50	%
Total	$	1,473,794		100.00	%	$	1,435,388		100.00	%	$	1,463,398		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.

	Six Months Ended October 31,
	2024			2023
Average total collected per active customer per month	$	561		$	534
Principal collected as a percent of average finance receivables		15.4	%		15.2	%
Average down-payment percentage		5.2	%		4.9	%
Average originating contract term (in months)		44.3			44.4

	As of
	October 31, 2024		October 31, 2023
Portfolio weighted average contract term, including modifications (in months)		48.2		47.3

Total dollars collected per active customer for the six months ended October 31, 2024 increased 5.0% year over year and principal collections as a percentage of average finance receivables increased slightly by 20 basis points compared to the prior year. The average originating contract term was close to flat compared to prior year. The portfolio weighted average contract term increased primarily due to the increased average selling price for the six months ended October 31, 2024, up $736 or 3.9%, 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 October 31, 2024, segregated by customer score and year of origination.

	As of October 31, 2024
(Dollars in thousands)	Fiscal Year of Origination										Prior to
Customer Rating	2025		2024		2023		2022		2021		2021		Total		%
1-2	$	30,975	$	27,649	$	8,152	$	1,805	$	133	$	54	$	68,768		4.7	%
3-4	$	171,128	$	206,403	$	75,913	$	19,301	$	1,836	$	313	$	474,894		32.2	%
5-6	$	269,257	$	369,298	$	206,893	$	73,766	$	9,949	$	969	$	930,132		63.1	%
Total	$	471,360	$	603,350	$	290,958	$	94,872	$	11,918	$	1,336	$	1,473,794		100.0	%
Charge-offs	$	24,742	$	137,604	$	66,999	$	18,381	$	1,993	$	338	$	250,057

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

	As of October 31, 2023
(Dollars in thousands)	Fiscal Year of Origination										Prior to
Customer Rating	2024		2023		2022		2021		2020		2020		Total		%
1-2	$	26,044	$	23,346	$	7,271	$	1,127	$	150	$	13	$	57,951		4.0	%
3-4	$	189,850	$	190,995	$	64,672	$	11,479	$	643	$	246	$	457,885		31.3	%
5-6	$	317,130	$	411,515	$	178,564	$	37,177	$	2,485	$	691	$	947,562		64.7	%
Total	$	533,024	$	625,856	$	250,507	$	49,783	$	3,278	$	950	$	1,463,398		100.0	%
Charge-offs	$	36,228	$	153,765	$	54,307	$	10,301	$	791	$	293	$	255,685