Note C - Finance Receivables

3 Months Ended

Jul. 31, 2014

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, 2014			April 30, 2014

Gross contract amount	$	451,228		$	432,327
Less unearned finance charges		(54,911	)		(52,995	)
Principal balance		396,317			379,332
Less allowance for credit losses		(89,526	)		(86,033	)

Finance receivables, net	$	306,791		$	293,299

Changes in the finance receivables, net are as follows:

	Three Months Ended July 31,
(In thousands)	2014			2013

Balance at beginning of period	$	293,299		$	288,049
Finance receivable originations		107,957			102,834
Finance receivable collections		(54,317	)		(51,069	)
Provision for credit losses		(27,876	)		(26,530	)
Losses on claims for payment protection plan		(2,186	)		(1,790	)
Inventory acquired in repossession and payment protection plan claims		(10,086	)		(10,382	)

Balance at end of period	$	306,791		$	301,112

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

	Three Months Ended July 31,
(In thousands)	2014			2013

Balance at beginning of period	$	86,033		$	75,345
Provision for credit losses		27,876			26,530
Charge-offs, net of recovered collateral		(24,383	)		(23,067	)

Balance at end of period	$	89,526		$	78,808

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 6.3% for the three months ended July 31, 2014 compared to 6.2% for the same period in the prior year. The increase in net charge-offs for the first three months of fiscal 2015 resulted primarily from the increased severity of losses resulting from lower wholesale values at repossession and longer contract terms. The increase in the provision is primarily the result of the increase in our provision percentage applied to the growth in finance receivables, net compared to the prior year percentage.

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 14.1% for the three months ended July 31, 2014 compared to 13.8% for the prior year period. The increase in collections as a percentage of average finance receivables was primarily due to lower delinquencies and lower contract modifications, partially offset by the longer overall contract term as compared to the first three months of the prior year. Delinquencies greater than 30 days were 4.7% for July 31, 2014 and 5.4% at July 31, 2013.

Macro-economic factors, the competitive environment, and more importantly, proper execution of operational policies and procedures can 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. We believe our customers continue to be under significant pressure due to the persistent negative macro-economic environment during the first three months of fiscal 2015. We expect these conditions to continue in the near to mid-term future. The Company continues to focus on operational improvements within the collections area such as credit reporting for customers and implementation of GPS units on vehicles sold.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)	July 31, 2014					April 30, 2014					July 31, 2013

	Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio
Current	$	314,969		79.48	%	$	300,478		79.21	%	$	295,971		77.91	%
3 - 29 days past due		62,700		15.82	%		62,108		16.38	%		63,260		16.65	%
30 - 60 days past due		12,853		3.24	%		10,926		2.88	%		14,326		3.77	%
61 - 90 days past due		4,058		1.02	%		4,665		1.23	%		4,680		1.23	%
> 90 days past due		1,737		0.44	%		1,155		0.30	%		1,683		0.44	%
Total	$	396,317		100.00	%	$	379,332		100.00	%	$	379,920		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.

	Three Months Ended July 31,
	2014			2013

Principal collected as a percent of average finance receivables		14.1	%		13.8	%
Average down-payment percentage		6.9	%		6.6	%
Average originating contract term (in months)		27.2			27.7

		July 31, 2014				July 31, 2013
Portfolio weighted average contract term, including modifications (in months)			29.6				29.5

The increase in the principal collected as a percent of average finance receivables was primarily due to lower delinquencies and lower contract modifications, partially offset by the longer overall contract term as compared to the first three months of the prior year. A lower average selling price and higher down payment percentages contributed to the decrease in average originating contract term compared to the prior year quarter. The increases in the portfolio weighted average contract term are primarily related to efforts to keep payments affordable, for competitive reasons and to continue to work more with our customers when they experience financial difficulties. In order to remain competitive term lengths may continue to increase.