Note C - Finance Receivables, Net

9 Months Ended

Jan. 31, 2019

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 an interest rate of

15%

or

16.5%

per annum (based on the Company’s contract interest rate as of the contract origination date), are collateralized by the vehicle sold and typically provide for payments over periods ranging from

18

to

42

months. The weighted average interest rate for the portfolio was approximately

16.4%

at

January 31, 2019.

The Company’s finance receivables are defined as

one

segment and

one

class of loans in sub-prime consumer automobile contracts. The level of risks inherent in the Company’s financing receivables is managed as

one

homogeneous pool.

The components of finance receivables are as follows:

(In thousands)	January 31, 2019			April 30, 2018
Gross contract amount	$	627,322		$	584,682
Less unearned finance charges		(84,429	)		(83,244	)
Principal balance		542,893			501,438
Less allowance for credit losses		(127,980	)		(117,821	)
Finance receivables, net	$	414,913		$	383,617

Changes in the finance receivables, net are as follows:

	Nine Months Ended January 31,
(In thousands)	2019			2018
Balance at beginning of period	$	383,617		$	357,161
Finance receivable originations		399,089			356,489
Finance receivable collections		(206,620	)		(180,137	)
Provision for credit losses		(111,619	)		(110,778	)
Losses on claims for payment protection plan		(12,148	)		(12,039	)
Inventory acquired in repossession and payment protection plan claims		(37,406	)		(30,312	)
Balance at end of period	$	414,913		$	380,384

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

	Nine Months Ended January 31,
(In thousands)	2019			2018
Balance at beginning of period	$	117,821		$	109,693
Provision for credit losses		111,619			110,778
Charge-offs, net of recovered collateral		(101,460	)		(103,203	)
Balance at end of period	$	127,980		$	117,268

The factors which influenced management’s judgment in determining the amount of the current period provision for credit losses are described below.

The level of charge-offs, net of recovered collateral, is the most important factor in determining the provision for credit losses. This is due to the fact that once a contract becomes delinquent the account is either made current by the customer, the vehicle is repossessed, or the account is written off if the collateral cannot be recovered. Net charge-offs as a percentage of average finance receivables decreased to

19.2%

for the

nine

months ended

January 31, 2019,

compared to

21.2%

for the prior year period.

Macro-economic factors, the competitive environment on the funding side, and more importantly, proper execution of operational policies and procedures have a significant effect on additions to the allowance charged to the provision. Higher unemployment levels, higher gasoline prices and higher prices for staple items can potentially have a significant effect. The Company continues to focus on operational improvements within the collections area.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)	January 31, 2019					April 30, 2018					January 31, 2018
	Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio
Current	$	450,931		83.05	%	$	424,511		84.67	%	$	394,614		79.30	%
3 - 29 days past due		74,788		13.78	%		59,544		11.87	%		82,679		16.61	%
30 - 60 days past due		12,062		2.22	%		12,448		2.48	%		14,918		3.00	%
61 - 90 days past due		3,619		0.67	%		3,331		0.66	%		3,792		0.76	%
> 90 days past due		1,493		0.28	%		1,604		0.32	%		1,649		0.33	%
Total	$	542,893		100.00	%	$	501,438		100.00	%	$	497,652		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 automobile contracts involve contracts made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders; such contracts generally entail a higher risk of delinquency, default, repossession, and losses than contracts made with buyers with better credit. The Company monitors contract term length, down payment percentages, and collections as credit quality indicators.

	Nine Months Ended January 31,
	2019			2018
Principal collected as a percent of average finance receivables		39.2	%		37.2	%
Average down-payment percentage		5.8	%		5.8	%
Average originating contract term (in months )		29.4			29.5

	January 31, 2019		January 31, 2018
Portfolio weighted average contract term, including modifications (in months )		32.0		32.4

The increase in collections as a percentage of average finance receivables resulted primarily from improved efforts in the collections process. The contract term decreased slightly despite the increased average selling price, as we work to improve our underwriting and at the same time keep payments affordable and to continue to work with our customers when they experience financial difficulties. As the average selling price increases and in order to remain competitive, term lengths

may

increase.