Note C - Finance Receivables, Net

12 Months Ended

Apr. 30, 2013

C - Finance Receivables, Net

The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts typically include interest rates ranging from 11% to 19% per annum, are collateralized by the vehicle sold and typically provide for payments over periods ranging from 18 to 36 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, 2013 and 2012 are as follows:

(In thousands)	April 30, 2013			April 30, 2012

Gross contract amount	$	414,614		$	359,364
Less unearned finance charges		(51,220	)		(42,430	)
Principal balance		363,394			316,934
Less allowance for credit losses		(75,345	)		(65,831	)

Finance receivables, net	$	288,049		$	251,103

Changes in the finance receivables, net for the years ended April 30, 2013, 2012 and 2011 are as follows:

	Years Ended April 30,
(In thousands)	2013			2012			2011

Balance at beginning of period	$	251,103		$	222,305		$	205,423
Finance receivable originations		387,895			354,328			311,249
Finance receivable collections		(207,713	)		(200,697	)		(188,840	)
Provision for credit losses		(96,035	)		(81,638	)		(70,964	)
Losses on claims for payment protection plan		(7,544	)		(6,053	)		(4,927	)
Inventory acquired in repossession and payment protection plan claims		(39,657	)		(37,142	)		(29,636	)

Balance at end of period	$	288,049		$	251,103		$	222,305

Changes in the finance receivables allowance for credit losses for the years ended April 30, 2013, 2012 and 2011 are as follows:

	Years Ended April 30,
(In thousands)	2013			2012			2011

Balance at beginning of period	$	65,831		$	60,173		$	55,628
Provision for credit losses		96,035			81,638			70,964
Charge-offs, net of recovered collateral		(86,521	)		(75,980	)		(66,419	)

Balance at end of period	$	75,345		$	65,831		$	60,173

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 25.2% for fiscal 2013 as compared to 24.8% for fiscal 2012. Higher sales volumes had the effect of increasing required additions to the allowance charged to the provision for each of the three fiscal years ending April 30, 2013. In fiscal 2012 the increase was partially offset by a decrease in the allowance percentage from 22% to 21.5% (a $1.5 million effect), based on the overall quality of the portfolio at April 30, 2012 and several consecutive years of good credit results.

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 lower in fiscal 2013 compared to fiscal 2012 requiring increased additions to the allowance. Delinquencies greater than 30 days increased to 5.1% for April 30, 2013 compared to 4.1% at April 30, 2012.

Macro-economic factors as well as 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. While overall macro-economic factors were still somewhat unfavorable during fiscal 2013 and 2012, the Company is focused on continuing operational improvements within the collections area as well as market share gains and governmental stimulus funds directly benefitting most of the Company’s customers were positive as related to credit results when compared to the prior years.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)	April 30, 2013					April 30, 2012
	Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio
Current	$	284,441		78.27	%	$	262,325		82.77	%
3 - 29 days past due		60,477		16.64	%		41,508		13.10	%
30 - 60 days past due		10,232		2.82	%		8,818		2.78	%
61 - 90 days past due		6,280		1.73	%		3,627		1.14	%
> 90 days past due		1,964		0.54	%		656		0.21	%
Total	$	363,394		100.00	%	$	316,934		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. The Company believes that the increase in the past due percentages can be attributed in part to the continuing challenging macroeconomic environment our customers are facing.

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,
	2013			2012

Principal collected as a percent of average finance receivables		60.6	%		65.6	%
Average down-payment percentage		6.6	%		7.0	%

	April 30, 2013		April 30, 2012
Average originating contract term (in months)		27.2		26.8
Portfolio weighted average contract term, including modifications (in months)		29.3		28.1

The decrease in the principal collected as a percent of average finance receivables is primarily attributed to higher delinquencies, slightly longer average contract term and the higher average portfolio interest rate, together with an increase in contract modifications. The Company did modify a higher number of accounts during fiscal 2013 and had more delinquent accounts on average as management worked with customers experiencing delays with income tax refunds during the end of the third quarter and throughout the fourth quarter. The Company schedules seasonal payments during tax refund time as a significant number of customers receive income tax refunds. These seasonal payments assist in efforts to keep payments affordable and terms shortened. The increases in term are primarily related to our efforts to keep our payments affordable, for competitive reasons and to continue to work more with our customers when they experience financial difficulties. In order to remain competitive our term lengths may continue to increase some into the future.