Conn’s originations are very high

Conn’s originations seem to exceed the amount of money lent to its customers.

In FY2014, Conn’s originations were $1,075M.
It provided $757.2M in in-house financing, including down payments and excluding insurance.
The ratio between originations versus in-house financing was ~142%.


One possible explanation for this is that restructurings, refinancings, and/or re-agings of old debt are being counted as new originations.  If so, such behaviour could cause loan performance data to be misleading.

Another possible explanation is that the origination amount includes interest payments along with principal payments.  However, not all of Conn’s historical loans are installment loans.  Conn’s used to offer charge accounts until Feb 29 2012.  Applying an unconventional definition of what a “balance” is should require an explanation as to how charge accounts (and their promotional interest rates) are treated.

*Origination amount data is from page 2 of Conn’s Combined Portfolio Summary by Quarter.  In-house financing data is calculated from Conn’s 10-Ks.  There may be errors in my calculations.
**For a more precise picture, you can take into account the effect of downpayments, insurance, and sales tax.  I assume that those items do not materially affect the big picture.
***Conn’s re-aging policies, charge-off policies, and troubled debt restructuring (TDR) accounting have changed over the years.

*Disclosure:  Short CONN via put options.

One thought on “Conn’s originations are very high

  1. Glenn, I came across this blog post after a google search into Conn’s portfolio data. Even though this is 2 1/2 years later, I have some insight into what’s going on in the table above.

    I am 99% sure that the Originations and the In-House Financing numbers above are apples and oranges, so to speak. Conn’s currently offers 3 types of financing in their stores. (1) Their own in-house financing (the lower number in the table above), (2) third party rent-to-own through Rent-A-Center (soon to be Progressive – a unit of Aaron’s), and (3) third party 0% APR financing through Synchrony Bank. The origination amounts in the table above include all 3 buckets as I believe Conn’s is the servicer for all 3 programs (mostly to facilitate in-store payments among their large unbanked customer base). But the receivables from the two 3rd party programs are actually owned by those 3rd parties. In other words, Conn’s originated the loan, but performance of those loans doesn’t impact their financial results after the retail transaction is complete.

    Regardless, the explanation of why the ratio you computed is well over 100% is very benign. What ultimately matters for investors is whether they’re making profitable loans on the in-house portion of what they originate.

    If you care to discuss further, reach out to me via my email address as I will probably never find your blog URL again! LOL

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