Note C - Finance Receivables

9 Months Ended

Jan. 31, 2013

C – Finance Receivables

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 aggregated as one class of loans, which is 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, 2013			April 30, 2012

Gross contract amount	$	411,577		$	359,364
Less unearned finance charges		(47,659	)		(42,430	)
Principal balance		363,918			316,934
Less allowance for credit losses		(75,566	)		(65,831	)

Finance receivables, net	$	288,352		$	251,103

Changes in the finance receivables, net for the nine months ended January 31, 2013 and 2012 are as follows:

	Nine Months Ended January 31,
(In thousands)	2013			2012

Balance at beginning of period	$	251,103		$	222,305
Finance receivable originations		284,931			263,539
Finance receivable collections		(144,025	)		(140,084	)
Provision for credit losses		(70,499	)		(62,056	)
Losses on claims for payment protection plan		(5,249	)		(4,353	)
Inventory acquired in repossession and payment protection plan claims		(27,909	)		(25,706	)

Balance at end of period	$	288,352		$	253,645

Changes in the finance receivables allowance for credit losses for the nine months ended January 31, 2013 and 2012 are as follows:

	Nine Months Ended January 31,
(In thousands)	2013			2012

Balance at beginning of period	$	65,831		$	60,173
Provision for credit losses		70,499			62,056
Charge-offs, net of recovered collateral		(60,764	)		(53,521	)

Balance at end of period	$	75,566		$	68,708

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 for the first nine months of fiscal 2013 were higher than the prior year period, partially due to higher sales volumes. Net charge-offs as a percentage of average finance receivables increased 0.4% to 18.1% for the first nine months ended January 31, 2013 compared to 17.7% for the same period in the prior year. Higher sales volumes also had the effect of higher additions to the allowance charged to the provision for the first nine months of fiscal 2013, partially offset by a decrease in the allowance percentage from 22% at January 31, 2012 to 21.5% at January 31, 2013.

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 42.8% for the nine months ended January 31, 2013 compared to 46.3% for the prior year period. The decrease in collections as a percentage of average finance receivables was primarily due to the increase in the average term and the increased average interest rate for the first nine months of fiscal 2013 as compared to the first nine months of the prior year. In addition, the timing of income tax refunds for our customers was delayed somewhat this year compared to last year contributing to the decrease in collections as a percentage of average finance receivables and higher delinquencies. Delinquencies greater than 30 days were 6.0% for January 31, 2013 and 4.7% at January 31, 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 the first nine months of fiscal 2013, the Company is focused on continuing operational improvements within the collections area as well as market share gains which can be a positive factor in the Company’s collection efforts.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)	January 31, 2013					April 30, 2012					January 31, 2012

	Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio
Current	$	287,553		79.01	%	$	262,325		82.77	%	$	249,880		77.52	%
3 - 29 days past due		54,358		14.94	%		41,508		13.10	%		57,227		17.75	%
30 - 60 days past due		14,112		3.88	%		8,818		2.78	%		11,096		3.44	%
61 - 90 days past due		5,494		1.51	%		3,627		1.14	%		3,172		0.98	%
> 90 days past due		2,401		0.66	%		656		0.21	%		978		0.30	%
Total	$	363,918		100.00	%	$	316,934		100.00	%	$	322,353		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.

	Nine Months Ended January 31,
	2013			2012

Principal collected as a percent of average finance receivables		42.8	%		46.3	%
Average down-payment percentage		5.8	%		6.2	%

	January 31, 2013		January 31, 2012
Average originating contract term (in months)		28.3		26.6
Portfolio weighted average contract term, including modifications (in months)		28.7		27.7

The decrease in the principal collected as a percent of average finance receivables is primarily attributed to the longer average contract term, together with an increase in contract modifications as well as the higher average interest rate within the portfolio when compared to this time last year. The increases in contract term are primarily related to increases in the average selling price in recent years and our efforts to keep our payments affordable for our customers. Recent market conditions and competitive pressures are expected to result in the Company offering somewhat longer overall contract terms as the Company has been extremely aggressive over the last several years in efforts to keep terms short. The Company has seen average selling price decreases in its most recent quarters but over the last several years pricing trends have resulted in higher average selling prices.