Credit Losses on Financial Assets Measured at Amortized Cost

12 Months Ended

Nov. 30, 2022

Credit Loss [Abstract]

Credit Losses on Financial Assets Measured at Amortized Cost

Credit Losses on Financial Assets Measured at Amortized CostAutomobile Loans. Financial assets measured at amortized cost are presented at the net amount expected to be collected and the measurement of credit losses and any expected increases or decreases in expected credit losses are recognized in earnings. The estimate of expected credit losses involves judgment based on an assessment over the life of the financial instrument taking into consideration forecast of expected future economic conditions.

At November 30, 2022 and 2021, we had automobile loans, including accrued interest and related fees, of $891.1 million and $812.6 million, respectively, which are classified as either held for investment or held for sale depending on the intent and ability to hold the loans, which are collateralized by a security interest in the vehicles’ titles. These loans are included in Other assets in our Consolidated Statements of Financial Condition. Loans held for investment are recorded at cost net of deferred acquisition costs and an allowance for credit losses. Loans held for sale are recorded at the lower of cost or fair value until the loans are sold.

Provision for credit losses are charged to income in amounts sufficient to maintain an allowance for credit losses inherent in the automobile loans held for investment which is established systematically by management as of the reporting date. All automobile loans held for investment are collectively evaluated for impairment. Management's estimate of expected credit losses is based on an evaluation of relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of the reported amounts. We use static pool modeling techniques to determine the allowance for loan losses expected over the remaining life of the loans, which is supplemented by management judgment. Expected losses are estimated for groups of accounts aggregated by monthly vintage.

Generally, the expected losses are projected based on historical loss experience over the last eight years, more heavily weighted toward recent performance when determining the allowance to result in an estimate that is more reflective of the current internal and external environments. Our estimate of expected credit losses includes a reasonable and supportable forecast period of two years and then reverts to an estimate based on historical losses. We review charge-off experience factors, contractual delinquency, historical collection rates, the value of underlying collateral and other information to make the necessary judgments as to credit losses expected in the portfolio as of the reporting date. While management utilizes the best information available to make its evaluations, changes in macroeconomic conditions, interest rate environments, or both, may significantly impact the assumptions and inputs used in determining the allowance for credit losses. Our charge-off policy is based on a loan by loan review of delinquent loans. We have an accounting policy to not place loans on nonaccrual status; however, the allowance for credit losses is determined including the accrued interest receivable that it does not expect to collect.

A rollforward of the allowance for credit losses related to our automobile loans for the years ended November 30, 2022, 2021 and 2020 is as follows (in thousands):

	Year Ended November 30,
	2022		2021		2020
Beginning balance	$	67,236	$	29,710	$	23,606
Adjustment for change in accounting principle for current expected credit losses	—		30,148		—
Provision for doubtful accounts	35,173		18,768		27,974
Charge-offs, net of recoveries	(22,795)		(11,390)		(21,870)
Ending balance	$	79,614	$	67,236	$	29,710

The following tables present a summary of automobile loans held for investment by credit score, determined at origination, at November 30, 2022 for each vintage of the loan portfolio:

	Year of Origination
	2022		2021		2020		2019		2018		Prior Years		Total		Percent
Credit scores of 680 and above	$	53,700	$	46,668	$	17,276	$	16,560	$	7,631	$	1,378	$	143,213	16.3	%
Credit scores between 620 to 679	170,220		132,528		44,095		35,393		17,635		7,647		407,518		46.3
Credit scores below 620	175,690		97,953		21,371		19,039		8,840		5,602		328,495		37.4
Total	$	399,610	$	277,149	$	82,742	$	70,992	$	34,106	$	14,627	$	879,226	100.0	%

The following tables present a summary of automobile loans held for investment by credit score, determined at origination, at November 30, 2021 for each vintage of the loan portfolio:

	Year of Origination
	2021		2020		2019		2018		2017		Prior Years		Total		Percent
Credit scores of 680 and above	$	71,724	$	31,215	$	31,143	$	16,695	$	3,642	$	805	$	155,224	19.4	%
Credit scores between 620 to 679	198,097		79,315		66,247		37,714		17,637		6,509		405,519		50.6
Credit scores below 620	132,374		38,322		34,638		18,277		11,689		5,644		240,944		30.0
Total	$	402,195	$	148,852	$	132,028	$	72,686	$	32,968	$	12,958	$	801,687	100.0	%

The aging of automobile loans held for investment at November 30, 2022 is as follows:

	Year of Origination
	2022		2021		2020		2019		2018		Prior Years		Total		Percent
Current Accounts	$	380,863	$	255,412	$	76,841	$	66,338	$	31,269	$	13,291	$	824,014	93.7	%
Delinquent Accounts
30 - 59 days	12,720		15,550		4,307		3,380		2,020		1,097		39,074		4.4
60 - 89 days	3,718		4,156		1,090		734		569		181		10,448		1.2
90 days and over	2,309		2,031		504		539		248		59		5,690		0.7
Total	$	399,610	$	277,149	$	82,742	$	70,991	$	34,106	$	14,628	$	879,226	100.0	%

The aging of automobile loans held for investment at November 30, 2021 is as follows:

	Year of Origination
	2021		2020		2019		2018		2017		Prior Years		Total		Percent
Current Accounts	$	391,366	$	142,210	$	125,580	$	68,852	$	31,147	$	12,041	$	771,196	96.2	%
Delinquent Accounts
30 - 59 days	7,387		4,444		4,330		2,979		1,472		698		21,310		2.7
60 - 89 days	2,613		1,586		1,620		616		305		157		6,897		0.8
90 days and over	829		612		498		240		44		61		2,284		0.3
Total	$	402,195	$	148,852	$	132,028	$	72,687	$	32,968	$	12,957	$	801,687	100.0	%

Secured Financing Receivables. In evaluating secured financing receivables (reverse repurchases agreements, securities borrowing arrangements, and margin loans), the underlying collateral maintenance provisions are taken into consideration. The underlying contractual collateral maintenance for significantly all of our secured financing receivables requires that the counterparty continually adjust the collateralization amount, securing the credit exposure on these contracts. Collateralization levels for our secured financing receivables are initially established based upon the counterparty, the type of acceptable collateral that is monitored daily and adjusted to mitigate the potential of any credit losses. Credit losses are not recognized for secured financing receivables where the underlying collateral's fair value is equal to or exceeds the asset's amortized cost basis. In cases where the collateral's fair value does not equal or exceed the amortized cost basis, the allowance for credit losses, if any, is limited to the difference between the fair value of the collateral at the reporting date and the amortized cost basis of the financial assets. During the year ended November 30, 2021, we incurred bad debt expense of $39.0 million related to a specific default in our prime brokerage business.

Broker Receivables. Our receivables from brokers, dealers, and clearing organizations include deposits of cash with exchange clearing organizations to meet margin requirements, amounts due from clearing organizations for daily variation settlements, securities failed-to-deliver or receive, receivables and payables for fees and commissions, and receivables arising from unsettled securities or loans transactions. These receivables generally do not give rise to material credit risk and have a remote probability of default either because of their short-term nature or due to the credit protection framework inherent in the design and operations of brokers, dealers and clearing organizations. As such, generally, no allowance for credit losses is held against these receivables.

Other Financial Assets. For all other financial assets measured at amortized cost, we estimate expected credit losses over the financial assets' life as of the reporting date based on relevant information about past events, current conditions, and reasonable and supportable forecasts.

Our allowance for credit losses on our investment banking fee receivables using a provisioning matrix based on the shared risk characteristics and historical loss experience for such receivables. In some instances, we may adjust the allowance calculated based on the provision matrix to incorporate a specific allowance based on the unique credit risk profile of a receivable. The provisioning matrix is periodically updated to reflect changes in the underlying portfolio's credit characteristics and most recent historical loss data.

The allowance for credit losses for investment banking receivables for the years ended November 30, 2022, 2021 and 2020 is as follows (in thousands):

	Year Ended November 30,
	2022		2021		2020
Beginning balance	$	4,824	$	19,788	$	6,817
Adjustment for change in accounting principle for current expected credit losses	—		(3,594)		—
Bad debt expense, net of reversals	4,141		2,287		19,582
Charge-offs	(910)		(6,409)		(2,083)
Recoveries collected	(2,141)		(7,248)		(4,528)
Ending balance (1)	$	5,914	$	4,824	$	19,788

(1)The allowance for doubtful accounts balances are substantially all related to mergers and acquisitions and restructuring fee receivables, which include recoverable expense receivables.