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Note C - Finance Receivables, Net
 12 Months Ended
Apr. 30, 2020
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
15%
or
16.5%
per annum (
19.5%
to
21.5%
in Illinois), are collateralized by the vehicle sold and typically provide for payments over periods ranging from
18
to
48
months. The Company’s finance receivables are defined as
one
segment and
one
class of loans, which is sub-prime consumer automobile contracts. The level of risks inherent in our financing receivables is managed as
one
homogeneous pool. The components of finance receivables as of
April 30, 2020
and
2019
are as follows:
 
(In thousands)   April 30, 2020   April 30, 2019
         
Gross contract amount   $
728,841
     $
631,681
  
Less unearned finance charges    
(107,659
 )    
(88,353
 )
Principal balance    
621,182
      
543,328
  
Less allowance for credit losses    
(155,041
 )    
(127,842
 )
                 
Finance receivables, net   $
466,141
     $
415,486
  
Changes in the finance receivables, net for the years ended
April 30, 2020,
2019
and
2018
are as follows:
 
    Years Ended April 30,
(In thousands)   2020   2019   2018
             
Balance at beginning of period   $
415,486
     $
383,617
     $
357,161
  
Finance receivable originations    
604,497
      
540,505
      
494,641
  
Finance receivable collections    
(322,180
 )    
(293,739
 )    
(260,104
 )
Provision for credit losses    
(162,246
 )    
(146,363
 )    
(149,059
 )
Losses on claims for payment protection plan    
(17,966
 )    
(17,020
 )    
(16,748
 )
Inventory acquired in repossession and payment protection plan claims    
(51,450
 )    
(51,514
 )    
(42,274
 )
                         
Balance at end of period   $
466,141
     $
415,486
     $
383,617
  
 
Changes in the finance receivables allowance for credit losses for the years ended
April 30, 2020,
2019
and
2018
are as follows:
 
    Years Ended April 30,
(In thousands)   2020   2019   2018
             
Balance at beginning of period   $
127,842
     $
117,821
     $
109,693
  
Provision for credit losses    
162,246
      
146,363
      
149,059
  
Charge-offs, net of recovered collateral    
(135,047
 )    
(136,342
 )    
(140,931
 )
                         
Balance at end of period   $
155,041
     $
127,842
     $
117,821
  
 
The factors which influenced management’s judgment in determining the amount of the additions to the allowance charged to provision for credit losses are described below.
 
The level of actual charge-offs, net of recovered collateral, is the most important factor in determining the charges to 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 was
23.1%
for fiscal
2020
as compared to
25.7%
for fiscal
2019.
The decrease in net charge-offs for fiscal
2020
primarily resulted from a lower frequency of losses combined with a lower severity of losses, primarily due to improvements in the collections processes and higher recovery rates on repossessions. However, as a result of COVID-
19
restrictions and for the health and safety of our associates and customers, we suspended repossession efforts for a period of time beginning in the
fourth
quarter, which also decreased the percentage of net charge-offs in fiscal
2020.
 
Collections and delinquency levels can have a significant effect on additions to the allowance and are reviewed frequently. Collections as a percentage of average finance receivables were
55.1%
for the year ended
April 30, 2020
compared to
55.3%
for the year ended
April 30, 2019.
Delinquencies greater than
30
days increased to
6.2%
at
April 30, 2020
compared to
2.9%
at
April 30, 2019.
Many of our customers were impacted by the pandemic resulting in increased past due amounts. Although delinquency levels have improved since year end, there is still uncertainty regarding the impact of COVID-
19
on the economy and unemployment, which could affect our collections and past due receivables going forward.
 
Macro-economic factors, 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. As a result, the Company increased the allowance for credit losses from
25.0%
to
26.5%
in fiscal
2020.
 
Credit quality information for finance receivables is as follows:
 
(Dollars in thousands)   April 30, 2020   April 30, 2019
                 
     
Principal
      
Percent of 
      
Principal
      
Percent of 
  
     
Balance
      
Portfolio
      
Balance
      
Portfolio
  
Current   $
515,390
      
82.97
 %   $
435,603
      
80.17
 %
3 - 29 days past due    
67,259
      
10.83
 %    
91,747
      
16.89
 %
30 - 60 days past due    
25,311
      
4.07
 %    
11,362
      
2.09
 %
61 - 90 days past due    
10,140
      
1.63
 %    
3,429
      
0.63
 %
> 90 days past due    
3,082
      
0.50
 %    
1,187
      
0.22
 %
Total   $
621,182
      
100.00
 %   $
543,328
      
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. 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 contract term length, down payment percentages, and collections for credit quality indicators.
 
    Twelve Months Ended
April 30,
    2020   2019
         
Principal collected as a percent of average finance receivables    
55.1
 %    
55.3
 %
Average down-payment percentage    
6.4
 %    
6.5
 %
                 
     
April 30, 2020
      
April 30, 2019
  
Average originating contract term
(in months
)
    
30.7
      
29.5
  
Portfolio weighted average contract term, including modifications
(in months
)
    
33.3
      
32.1