Note C - Finance Receivables

3 Months Ended

Jul. 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 weighted average interest rate for the portfolio was approximately 14.9% at July 31, 2014. 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)	July 31, 2013			April 30, 2013

Gross contract amount	$	433,605		$	414,614
Less unearned finance charges		(53,685	)		(51,220	)
Principal balance		379,920			363,394
Less allowance for credit losses		(78,808	)		(75,345	)

Finance receivables, net	$	301,112		$	288,049

Changes in the finance receivables, net are as follows:

	Three Months Ended July 31,
(In thousands)	2013			2012

Balance at beginning of period	$	288,049		$	251,103
Finance receivable originations		102,834			90,953
Finance receivable collections		(51,069	)		(48,279	)
Provision for credit losses		(26,530	)		(21,663	)
Losses on claims for payment protection plan		(1,790	)		(1,484	)
Inventory acquired in repossession and payment protection plan claims		(10,382	)		(9,200	)

Balance at end of period	$	301,112		$	261,430

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

	Three Months Ended July 31,
(In thousands)	2013				2012

Balance at beginning of period		$	75,345			$	65,831
Provision for credit losses			26,530				21,663
Charge-offs, net of recovered collateral			(23,067	)			(18,989	)

Balance at end of period		$	78,808			$	68,505

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 increased 5% to 6.2% for the first three months ended July 31, 2013 compared to 5.9% for the same period in the prior year. The increase in net charge-offs for the first three months of fiscal 2014 resulted primarily from the increased severity of losses due in part to overall wholesale price decreases coupled with the effect of overall longer contract terms partially resulting from the increased sales prices and lower down payments. Higher sales volumes, lower collections and the shift in the relative age of the dealerships also had the effect of higher additions to the allowance charged to the provision for the first three months of fiscal 2014.

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 13.8% for the three months ended July 31, 2013 compared to 14.9% 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, higher contract modifications and more delinquent accounts for the first three months of fiscal 2014 as compared to the first three months of the prior year. Delinquencies greater than 30 days were 5.4% for July 31, 2013 and 4.0% at July 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 three months of fiscal 2014, the Company continues to focus on operational improvements within the collections area as well as market share gains and governmental stimulus funds directly benefitting most of the Company’s customers which can be a positive factor in the Company’s collection efforts.

Credit quality information for finance receivables is as follows:

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

	Principal Balance			Percent of Portfolio			Principal Balance			Percent of Portfolio			Principal Balance			Percent of Portfolio
Current		$	295,971		77.91	%		$	284,441		78.27	%		$	259,012		78.50	%
3 - 29 days past due			63,260		16.65	%			60,477		16.64	%			57,575		17.45	%
30 - 60 days past due			14,326		3.77	%			10,232		2.82	%			9,968		3.02	%
61 - 90 days past due			4,680		1.23	%			6,280		1.73	%			2,742		0.83	%
> 90 days past due			1,683		0.44	%			1,964		0.54	%			638		0.20	%
Total		$	379,920		100.00	%		$	363,394		100.00	%		$	329,935		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.

	Three Months Ended July 31,
	2013			2012

Principal collected as a percent of average finance receivables		13.8	%		14.9	%
Average down-payment percentage		6.6	%		7.2	%

	July 31, 2013		July 31, 2012
Average originating contract term (in months)		27.7		26.7
Portfolio weighted average contract term, including modifications (in months)		29.5		28.1

The decrease in the principal collected as a percent of average finance receivables is primarily attributed to higher delinquencies, the longer average contract term and the increase in contract modifications when compared to this time last year. The increases in contract 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.