Note C - Finance Receivables

6 Months Ended

Oct. 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 October 31, 2013. 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)	October 31, 2013			April 30, 2013

Gross contract amount	$	442,545		$	414,614
Less unearned finance charges		(53,746	)		(51,220	)
Principal balance		388,799			363,394
Less allowance for credit losses		(80,699	)		(75,345	)

Finance receivables, net	$	308,100		$	288,049

Changes in the finance receivables, net are as follows:

	Six Months Ended October 31,
(In thousands)	2013			2012

Balance at beginning of period	$	288,049		$	251,103
Finance receivable originations		203,688			182,140
Finance receivable collections		(102,986	)		(96,730	)
Provision for credit losses		(54,826	)		(45,310	)
Losses on claims for payment protection plan		(4,060	)		(3,292	)
Inventory acquired in repossession and payment protection plan claims		(21,765	)		(19,100	)

Balance at end of period	$	308,100		$	268,811

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

	Six Months Ended October 31,
(In thousands)	2013			2012

Balance at beginning of period	$	75,345		$	65,831
Provision for credit losses		54,826			45,310
Charge-offs, net of recovered collateral		(49,472	)		(40,704	)

Balance at end of period	$	80,699		$	70,437

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 to 13.1% for the first six months ended October 31, 2013 compared to 12.4% for the same period in the prior year. The increase in net charge-offs for the first six months of fiscal 2014 resulted primarily from the increased frequency of losses. The severity of net charge-offs as a percentage of average principal outstanding decreased slightly from the prior year period. 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 six 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 27.3% for the six months ended October 31, 2013 compared to 29.4% 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 six months of fiscal 2014 as compared to the first six months of the prior year. Delinquencies greater than 30 days were 4.7% for October 31, 2013 and 4.3% at October 31, 2012.

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. While overall macro-economic factors were still somewhat unfavorable during the first six months of fiscal 2014, the Company continues to focus on operational improvements within the collections area such as credit reporting for customers and implementation of global positioning system units on vehicles sold.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)	October 31, 2013						April 30, 2013						October 31, 2012
	Principal Balance			Percent of Portfolio			Principal Balance			Percent of Portfolio			Principal Balance			Percent of Portfolio
Current		$	313,006		80.50	%		$	284,441		78.27	%		$	270,853		79.84	%
3 - 29 days past due			57,429		14.77	%			60,477		16.64	%			53,660		15.82	%
30 - 60 days past due			12,008		3.09	%			10,232		2.82	%			10,488		3.09	%
61 - 90 days past due			4,429		1.14	%			6,280		1.73	%			3,323		0.98	%
> 90 days past due			1,927		0.50	%			1,964		0.54	%			924		0.27	%
Total		$	388,799		100.00	%		$	363,394		100.00	%		$	339,248		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.

	Six Months Ended October 31,
	2013			2012

Principal collected as a percent of average finance receivables		27.3	%		29.4	%
Average down-payment percentage		6.4	%		6.8	%

	October 31, 2013		October 31, 2012
Average originating contract term (in months)		27.1		27.0
Portfolio weighted average contract term, including modifications (in months)		29.5		28.3

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.