C – Finance Receivables, Net

The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts, which carry an interest rate of 15% or 16.5% per annum (based on the Company’s contract interest rate as of the contract origination date), 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 15.5% at October 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)	October 31, 2016			April 30, 2016

Gross contract amount	$	548,966		$	504,149
Less unearned finance charges		(74,671	)		(66,871	)
Principal balance		474,295			437,278
Less allowance for credit losses		(111,340	)		(102,485	)

Finance receivables, net	$	362,955		$	334,793

Changes in the finance receivables, net are as follows:

	Six Months Ended October 31,
(In thousands)	2016			2015

Balance at beginning of period	$	334,793		$	324,144
Finance receivable originations		244,680			223,266
Finance receivable collections		(117,126	)		(117,593	)
Provision for credit losses		(72,822	)		(73,439	)
Losses on claims for payment protection plan		(6,919	)		(6,095	)
Inventory acquired in repossession and payment protection plan claims		(19,651	)		(23,054	)

Balance at end of period	$	362,955		$	327,229

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

	Six Months Ended October 31,
(In thousands)	2016			2015

Balance at beginning of period	$	102,485		$	93,224
Provision for credit losses		72,822			73,439
Charge-offs, net of recovered collateral		(63,967	)		(66,229	)

Balance at end of period	$	111,340		$	100,434

The factors which influenced management’s judgment in determining the amount of the current period provision for credit losses are described below.

The level of charge-offs, net of recovered collateral, is the most important factor in determining 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 decreased to 14.0% for the six months ended October 31, 2016 compared to 15.6% for the same period in the prior year. This improvement in net charge-offs is primarily due to a decrease in the frequency of losses as a result of the low delinquencies greater than 30 days at April 30, 2016 of 3.0%, significantly lower than 5.8% at April 30, 2015.

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 25.6% for the six months ended October 31, 2016 compared to 27.7% for the prior year period. The decrease in collections as a percentage of average finance receivables resulted primarily from the longer average term, higher levels of contract modifications, higher delinquencies and, to a lesser extent, the increase in the contract interest rate. Delinquencies greater than 30 days were 4.8% for October 31, 2016 and 3.5% at October 31, 2015.

Macro-economic factors, the competitive environment on the funding side, 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. The Company continues to focus on operational improvements within the collections area such as further implementation and integration of GPS technology on vehicles sold.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)	October 31, 2016					April 30, 2016					October 31, 2015

	Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio
Current	$	386,962		81.58	%	$	378,631		86.59	%	$	365,346		85.44	%
3 - 29 days past due		64,749		13.65	%		45,631		10.43	%		47,406		11.08	%
30 - 60 days past due		16,581		3.50	%		8,429		1.93	%		10,320		2.41	%
61 - 90 days past due		4,161		0.88	%		3,498		0.80	%		2,914		0.68	%
> 90 days past due		1,842		0.39	%		1,089		0.25	%		1,677		0.39	%
Total	$	474,295		100.00	%	$	437,278		100.00	%	$	427,663		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 improvement in the past due percentages is driven in part by the proper execution of best collections efforts at all dealerships.

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; such contracts 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.

	Six Months Ended October 31,
	2016			2015

Principal collected as a percent of average finance receivables		25.6	%		27.7	%
Average down-payment percentage		5.8	%		6.5	%
Average originating contract term (in months )		29.2			28.4

		October 31, 2016				October 31, 2015
Portfolio weighted average contract term, including modifications (in months )			31.7				30.6

The decrease in collections as a percentage of average finance receivables resulted primarily from the longer average term, higher levels of contract modifications, higher delinquencies and, to a lesser extent, the increase in the contract interest rate. The increases in contract term are primarily related to efforts to keep payments affordable, for competitive reasons and to continue to work with our customers when they experience financial difficulties. In order to remain competitive, term lengths may continue to increase.