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Note C - Finance Receivables

9 Months Ended

Jan. 31, 2015

Receivables [Abstract]

Financing Receivables [Text Block]

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 January 31, 2015. 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, 2015				April 30, 2014

Gross contract amount		$	481,945			$	432,327
Less unearned finance charges			(56,869	)			(52,995	)
Principal balance			425,076				379,332
Less allowance for credit losses			(95,273	)			(86,033	)

Finance receivables, net		$	329,803			$	293,299

Changes in the finance receivables, net are as follows:

		Nine Months Ended January 31,
(In thousands)		2015				2014
Balance at beginning of period		$	293,299			$	288,049
Finance receivable originations			334,769				308,330
Finance receivable collections			(168,784	)			(155,481	)
Provision for credit losses			(89,453	)			(91,602	)
Losses on claims for payment protection plan			(7,840	)			(6,745	)
Inventory acquired in repossession and payment protection plan claims			(32,188	)			(32,842	)

Balance at end of period		$	329,803			$	309,709

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

		Nine Months Ended January 31,
(In thousands)		2015				2014

Balance at beginning of period		$	86,033			$	75,345
Provision for credit losses			89,453				91,602
Charge-offs, net of recovered collateral			(80,213	)			(76,005	)

Balance at end of period		$	95,273			$	90,942

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 slightly to 19.9% for the nine months ended January 31, 2015 compared to 19.8% for the same period in the prior year. The increase in net charge-offs for the first nine months of fiscal 2015 resulted primarily from the increased severity of losses resulting from lower wholesale values at repossession. The decrease in the current year provision compared to the prior year quarter is primarily the result of the increase in our provision percentage applied to the growth in finance receivables, net at January 31, 2014 resulting in a $7.7 million increase in the provision.

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 41.9% for the nine months ended January 31, 2015 compared to 40.5% 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 slightly longer overall contract term as compared to the first nine months of the prior year. Delinquencies greater than 30 days were 5.2% for January 31, 2015 and 5.8% at January 31, 2014.

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. While the decreasing gas prices provided some relief to our customers during the second and third quarters of fiscal 2015, we believe our customers continue to be under significant pressure due to the persistent difficult macro-economic environment for the Company’s customer base.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 technology on vehicles sold.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)		January 31, 2015								April 30, 2014								January 31, 2014

			Principal Balance				Percent of Portfolio				Principal Balance				Percent of Portfolio				Principal Balance				Percent of Portfolio
Current		$	352,969				83.03	%		$	300,478				79.21	%		$	321,511				80.24	%
3 - 29 days past due			49,944				11.75	%			62,108				16.38	%			55,873				13.95	%
30 - 60 days past due			14,972				3.52	%			10,926				2.88	%			14,620				3.65	%
61 - 90 days past due			4,827				1.14	%			4,665				1.23	%			6,221				1.55	%
> 90 days past due			2,364				0.56	%			1,155				0.30	%			2,426				0.61	%
Total		$	425,076				100.00	%		$	379,332				100.00	%		$	400,651				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 Saturday end date for the quarter ended January 31, 2015 contributed to the improvement in the aging of the portfolio, along with the improved collections.

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,
		2015				2014

Principal collected as a percent of average finance receivables			41.9	%			40.5	%
Average down-payment percentage			6.2	%			5.6	%
Average originating contract term (in months)			27.5				27.4

		January 31, 2015				January 31, 2014
Portfolio weighted average contract term, including modifications (in months)			29.7				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 slightly longer overall contract term as compared to the first nine months of the prior year. 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.