C – Finance Receivables, Net

The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts typically carry an interest rate of 15% per annum, are collateralized by the vehicle sold and typically provide for payments over periods ranging from 18 to 42 months. The weighted average interest rate for the portfolio was approximately 14.9% at January 31, 2016. The Company’s finance receivables are defined as one segment and one class of loans in 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, 2016			April 30, 2015
Gross contract amount	$	505,976		$	477,305
Less unearned finance charges		(62,680	)		(59,937	)
Principal balance		443,296			417,368
Less allowance for credit losses		(104,228	)		(93,224	)
Finance receivables, net	$	339,069		$	324,144

Changes in the finance receivables, net are as follows:

	Nine Months Ended January 31,
(In thousands)	2016			2015
Balance at beginning of period	$	324,144		$	293,299
Finance receivable originations		336,508			334,769
Finance receivable collections		(173,949	)		(168,784	)
Provision for credit losses		(106,225	)		(89,453	)
Losses on claims for payment protection plan		(9,815	)		(7,840	)
Inventory acquired in repossession and payment protection plan claims		(31,594	)		(32,188	)
Balance at end of period	$	339,069		$	329,803

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

	Nine Months Ended January 31,
(In thousands)	2016			2015
Balance at beginning of period	$	93,224		$	86,033
Provision for credit losses		106,225			89,453
Charge-offs, net of recovered collateral		(95,221	)		(80,213	)
Balance at end of period	$	104,228		$	95,273

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 22.2% for the nine months ended January 31, 2016 compared to 19.9% for the same period in the prior year. The increase in net charge-offs for the first nine months of fiscal 2016 resulted from an increase in per vehicle losses due to lower wholesale values at repossession, partially offset by a lower frequency of losses.

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 40.6% for the nine months ended January 31, 2016 compared to 41.9% for the prior year period. The decrease in collections as a percentage of average finance receivables resulted primarily from the longer average term and, to a lesser extent, to a delay in the initial release of 2015 income tax refunds to February 2016, whereas 2014 income tax refund releases began in January 2015. Delinquencies greater than 30 days were 5.0% for January 31, 2016 and 5.2% at January 31, 2015.

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. Unemployment levels, gasoline prices and prices for staple items can potentially have a significant effect on collections and delinquency levels, and ultimately on net charge-offs. 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 also 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, 2016					April 30, 2015					January 31, 2015
	Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio
Current	$	364,453		82.22	%	$	329,329		78.91	%	$	352,969		83.03	%
3 - 29 days past due		56,835		12.82	%		64,004		15.33	%		49,944		11.75	%
30 - 60 days past due		15,087		3.40	%		12,777		3.06	%		14,972		3.52	%
61 - 90 days past due		4,790		1.08	%		8,463		2.03	%		4,827		1.14	%
> 90 days past due		2,131		0.48	%		2,795		0.67	%		2,364		0.56	%
Total	$	443,296		100.00	%	$	417,368		100.00	%	$	425,076		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, repossession, and losses than contracts made with buyers with better credit.

The Company monitors contract term length, down payment percentages, and collections as credit quality indicators.

	Nine Months Ended January 31,
	2016			2015
Principal collected as a percent of average finance receivables		40.6	%		41.9	%
Average down-payment percentage		6.1	%		6.2	%
Average originating contract term (in months )		28.6			27.5

		January 31, 2016				January 31, 2015
Portfolio weighted average contract term, including modifications (in months )			30.9				29.7

The decrease in the principal collected as a percent of average finance receivables was primarily due to the longer average term and, to a lesser extent, to a delay in the initial release of 2015 income tax refunds to February 2016, whereas 2014 income tax refund releases began in January 2015. The increases in the portfolio weighted average contract term are primarily related to efforts to keep payments affordable, continue to work more with our customers when they experience financial difficulties, and to continue to offer competitive terms. In order to remain competitive, term lengths may continue to increase.