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%

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

months. The weighted average interest rate for the portfolio was approximately

16.1%

October 31, 2017.

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, 2017			April 30, 2017

Gross contract amount	$	571,302		$	545,916
Less unearned finance charges		(78,807	)		(79,062	)
Principal balance		492,495			466,854
Less allowance for credit losses		(115,918	)		(109,693	)

Finance receivables, net	$	376,577		$	357,161

Changes in the finance receivables, net are as follows:

	Six Months Ended October 31,
(In thousands)		2017			2016
Balance at beginning of period	$	357,161		$	334,793
Finance receivable originations		239,007			244,680
Finance receivable collections		(118,609	)		(117,126	)
Provision for credit losses		(72,906	)		(72,822	)
Losses on claims for payment protection plan		(7,980	)		(6,919	)
Inventory acquired in repossession and payment protection plan claims		(20,096	)		(19,651	)
Balance at end of period	$	376,577		$	362,955

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

	Six Months Ended October 31,
(In thousands)	2017			2016
Balance at beginning of period	$	109,693		$	102,485
Provision for credit losses		72,906			72,822
Charge-offs, net of recovered collateral		(66,681	)		(63,967	)
Balance at end of period	$	115,918		$	111,340

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

13.8%

for the

six

months ended

October 31, 2017

compared to

14.0%

for the same period in the prior year. This decrease in net charge-offs is due to a decrease in the frequency of the losses, partially offset by an increase in the severity of the losses compared to the same period in the prior year.

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

24.6%

for the

six

months ended

October 31, 2017

compared to

25.6%

for the same period in the prior year. The decrease in collections as a percentage of average finance receivables resulted primarily from the longer average term, a lower level of early pay-offs and the increase in the contract interest rate, partially offset by a higher age of receivables. Delinquencies greater than

days were

4.1%

for

October 31, 2017

and

4.8%

October 31, 2016.

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.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)	October 31, 2017					April 30, 2017					October 31, 2016
	Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio
Current	$	381,557		77.48	%	$	397,341		85.12	%	$	386,962		81.58	%
3 - 29 days past due		90,776		18.43	%		52,869		11.32	%		64,749		13.65	%
30 - 60 days past due		14,485		2.94	%		11,658		2.50	%		16,581		3.50	%
61 - 90 days past due		3,832		0.78	%		3,516		0.75	%		4,161		0.88	%
> 90 days past due		1,845		0.37	%		1,470		0.31	%		1,842		0.39	%
Total	$	492,495		100.00	%	$	466,854		100.00	%	$	474,295		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

second

quarter of fiscal

2018

ended on a Tuesday compared to a Monday period end for the

second

quarter of fiscal

2017,

which the Company believes contributed to the decrease in current receivables at quarter end compared to the prior year

second

quarter.

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,
	2017		2016
Principal collected as a percent of average finance receivables		24.6%		25.6%
Average down-payment percentage		6.0%		5.8%
Average originating contract term (in months )		29.6		29.2

		October 31, 2017				October 31, 2016
Portfolio weighted average contract term, including modifications (in months )			32.5				31.7

The decrease in collections as a percentage of average finance receivables resulted primarily from the longer average term, a lower level of early pay-offs, and the increase in the contract interest rate, partially offset by a higher average age of receivables. 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.