Summary of Significant Accounting Policies

6 Months Ended

May 31, 2022

Summary of Significant Accounting Policies

For a detailed discussion about the Company’s significant accounting policies, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2021.

During the six months ended May 31, 2022, there were no significant changes made to the Company’s significant accounting policies except as follows.

Credit Losses on Certain Financial Assets Measured at Amortized Cost

On December 1, 2021, Jefferies transferred its investment in Foursight, a subsidiary of Jefferies, to us. Foursight is engaged primarily in automobile lending. At May 31, 2022, we had automobile loans, including accrued interest and related fees, of $872.5 million, which are classified as either held for investment or held for sale depending on the intent to hold the underlying collateral and which are collateralized by a security interest in the vehicles’ titles. Automobile loans held for investment consisted of approximately 17.2% with credit scores 680 and above, 47.2% with scores between 620 and 679 and 35.6% with scores below 620 at May 31, 2022. These loans are included in Receivables—fees, interest and other in our Consolidated Statements of Financial Condition and are not carried at fair value. The automobile loans have a fair value of $906.2 million at May 31, 2022, which would be classified as Level 3 in the fair value hierarchy.

Provision for credit losses are charged to income in amounts sufficient to maintain an allowance for credit losses inherent in automobile loans held for investment. The allowance for credit losses is established systematically by management based on the determination of the amount of credit losses inherent in the automobile loans held for investment 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.

A rollforward of the allowance for credit losses related to our automobile loans for the three and six months ended May 31, 2022 is as follows (in thousands):


	Three Months Ended May 31, 2022		Six Months Ended May 31, 2022
Beginning balance (1)	$	70,109	$	67,236
Provision for doubtful accounts	8,935		16,480
Charge-offs, net of recoveries	(3,384)		(8,056)
Ending balance	$	75,660	$	75,660

(1)The beginning balance for the six months ended May 31, 2022 is at December 1, 2021 and is related to Jefferies’ transfer of its investment in Foursight to us.