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Finance Receivables

9 Months Ended

Dec. 31, 2012

Receivables [Abstract]

Finance Receivables

4. Finance Receivables

Finance receivables consist of automobile finance installment Contracts and Direct Loans and are detailed as follows:


		December 31, 2012				March 31, 2012
Finance receivables, gross contract		$	389,380,493			$	388,988,355
Unearned interest			(110,341,867	)			(110,651,966	)

Finance receivables, net of unearned interest			279,038,626				278,336,389
Allowance for credit losses			(32,695,952	)			(35,987,868	)

Finance receivables, net		$	246,342,674			$	242,348,521

The terms of the Contracts range from 12 to 72 months and the Direct Loans range from 6 to 48 months. The Contracts bear a weighted average effective interest rate of 23.45% as of December 31, 2012 and 23.58% as of March 31, 2012.

Finance receivables consist of Contracts and Direct Loans, each of which comprises a portfolio segment. Each portfolio segment consists of smaller balance homogeneous loans which are collectively evaluated for impairment.

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts:


		Three months ended December 31,								Nine months ended December 31,
		2012				2011				2012				2011
Balance at beginning of period		$	34,100,661			$	36,356,666			$	35,495,684			$	35,895,449
Discounts acquired on new volume			2,485,560				2,729,337				8,469,382				8,805,428
Current period provision			757,347				450,951				971,746				559,659
Losses absorbed			(5,571,903	)			(4,474,500	)			(14,527,271	)			(11,269,063	)
Recoveries			786,891				559,716				2,339,194				1,664,824
Discounts accreted			(404,994	)			(8,570	)			(595,173	)			(42,697	)

Balance at end of period		$	32,153,562			$	35,613,600			$	32,153,562			$	36,613,600

The Company purchases Contracts from automobile dealers at a negotiated price that is less than the original principal amount being financed by the purchaser of the automobile. The Contracts are predominately for used vehicles. As of December 31, 2012, the average model year of vehicles collateralizing the portfolio was a 2006 vehicle. The average loan to value ratio, which expresses the amount of the Contract as a percentage of the average wholesale value of the automobile, is approximately 92%, at the time of purchase. A dealer discount represents the difference between the finance receivable, net of unearned interest, of a Contract, and the amount of money the Company actually pays for the Contract. The discount negotiated by the Company is a function of the credit quality of the customer, the wholesale value of the vehicle and competition in any given market. In making decisions regarding the purchase of a particular Contract the Company considers the following factors related to the borrower: place and length of residence; current and prior job status; history in making installment payments for automobiles; current income; and credit history. In addition, the Company examines its prior experience with Contracts purchased from the dealer from which the Company is purchasing the Contract, and the value of the automobile in relation to the purchase price and the term of the Contract. For allowance purposes, the entire amount of discount is related to credit quality and is considered to be part of the credit loss reserve. The Company utilizes a static pool approach to track portfolio performance. A static pool retains an amount equal to 100% of the discount as a reserve for credit losses. Subsequent to the purchase, if the reserve for credit losses is determined to be inadequate for a static pool, then an additional charge to income through the provision is used to maintain adequate reserves based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, and current economic conditions. Such evaluation considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, management’s estimate of probable credit losses and other factors that warrant recognition in providing for an adequate allowance for credit losses. If a static pool is fully liquidated and has any remaining reserves, the excess discounts are immediately recognized into income and the excess provision is immediately reversed during the period. For static pools not fully liquidated that are determined to have excess discounts, such excess discounts are accreted into income over the remaining life of the static pool. For static pools not fully liquidated that are deemed to have excess reserves, such excess reserves are reversed against provision for credit losses during the period.

The average dealer discount associated with new volume for the three months ended December 31, 2012 and 2011 was 7.92% and 8.41%, respectively. The average dealer discount associated with new volume for the nine months ended December 31, 2012 and 2011 was 7.85% and 8.46%, respectively.

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Direct Loans:


		Three months ended December 31,								Nine months ended December 31,
		2012				2011				2012				2011
Balance at beginning of period		$	531,101			$	489,978			$	492,184			$	378,418
Current period provision			61,556				3,388				165,869				152,124
Losses absorbed			(57,006	)			(26,150	)			(131,201	)			(77,244	)
Recoveries			6,739				5,565				15,538				19,483

Balance at end of period		$	542,390			$	472,781			$	542,390			$	472,781

Direct Loans are originated directly between the Company and the consumer. These loans are typically for amounts ranging from $1,000 to $8,000 and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal property. The majority of Direct Loans are originated with current or former customers under the Company’s automobile financing program. The typical Direct Loan represents a significantly better credit risk than our typical Contract due to the customer’s historical payment history with the Company. In deciding whether or not to make a loan, the Company considers the individual’s credit history, job stability, income and impressions created during a personal interview with a Company loan officer. Additionally, because most of the Direct Loans made by the Company to date have been made to borrowers under Contracts previously purchased by the Company, the payment history of the borrower under the Contract is a significant factor in making the loan decision. As of December 31, 2012, loans made by the Company pursuant to its Direct Loan program constituted approximately 2% of the aggregate principal amount of the Company’s loan portfolio.

Changes in the allowance for credit losses for both Contracts and Direct Loans were driven by current economic conditions and trends over several reporting periods which are useful in estimating future losses and overall portfolio performance.

The following table is an assessment of the credit quality by creditworthiness. A performing account is defined as an account that is less than 61 days past due. A non-performing account is defined as an account that is contractually delinquent for 61 days or more and the accrual of interest income is suspended. When an account is 120 days contractually delinquent, the account is written off.


		December 31, 2012								March 31, 2012
		Contracts				Direct Loans				Contracts				Direct Loans
Non-bankrupt accounts		$	379,983,971			$	8,841,768			$	382,358,608			$	6,221,688
Bankrupt accounts			535,424				19,330				408,059				—

Total		$	380,519,395			$	8,861,098			$	382,766,667			$	6,221,688

Performing accounts		$	373,735,506			$	8,809,302			$	380,213,503			$	6,202,498
Non-performing accounts			6,783,889				51,796				2,553,164				19,190

Total		$	380,519,395			$	8,861,098			$	382,766,667			$	6,221,688

Finance receivables which are contractually delinquent for more than 60 days, are placed on nonaccrual status. Payments received on nonaccrual status finance receivables are applied to interest then principal. The Company resumes accrual of interest when the finance receivable is less than 60 days delinquent.