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Finance Receivables

3 Months Ended

Jun. 30, 2013

4.	Finance Receivables

Finance receivables are detailed as follows:


	June 30,			March 31,
	2013			2013
Finance receivables, gross contract	$	403,447,270		$	395,721,730
Unearned interest		(116,076,836	)		(112,922,191	)

Finance receivables, net of unearned interest		287,370,434			282,799,539
Unearned dealer discounts		(16,709,388	)		(16,415,169	)

Finance receivables, net of unearned interest and unearned dealer discounts		270,661,046			266,384,370
Allowance for credit losses		(15,403,054	)		(16,558,569	)

Finance receivables, net	$	255,257,992		$	249,825,801

The terms of the Contracts range from 12 to 72 months and the Direct Loans range from 6 to 48 months. The Contracts and Direct Loans bear a weighted average effective interest rate of 23.22% and 25.69% as of June 30, 2013 and 23.34% and 25.84% as of March 31, 2013, respectively.

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 June 30,
	2013			2012
Balance at beginning of period	$	16,090,652		$	19,499,208
Provision for credit losses		2,494,430			3,013,676
Losses absorbed		(4,648,976	)		(3,659,844	)
Recoveries		875,067			788,616

Balance at end of period	$	14,811,173		$	19,641,656

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 June 30, 2013, the average model year of vehicles collateralizing the portfolio was a 2005 vehicle. The average loan to value ratio, which expresses the amount of the Contract as a percentage of the value of the automobile, is approximately 93%. The Company utilizes a static pool approach to track portfolio performance. If the allowance 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. In determining the provision and allowance for credit losses, we consider the reduction in the net carrying amount of finance receivables resulting from dealer discounts.

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


	Three months ended June 31,
	2013			2012
Balance at beginning of period	$	467,917		$	492,184
Current period provision		147,361			89,590
Losses absorbed		(27,586	)		(25,092	)
Recoveries		4,189			5,121

Balance at end of period	$	591,881		$	561,803

Direct Loans are loans 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 Direct 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 consumer 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 June 30, 2013, 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.

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. Effective April 1, 2013, the Company changed its policy in regards to bankrupt accounts. Prior to April 1, 2013 the Company would charge-off the entire principal balance of a bankrupt account in the month following confirmation from the bankruptcy court. Subsequent to the charge-off the Company would collect monthly payments from the bankruptcy court recording the recovery payments and reducing charge-off totals in the month collected. Under the new method, the Company no longer charges off the entire principal balance at the time of bankruptcy. Upon notification of a bankruptcy, an account is monitored for collection with other bankrupt accounts. In the event the debtors balance has been reduced by the bankruptcy court, the Company will record a loss equal to the amount of principal balance reduction. The remaining balance will be reduced as payments are received by the bankruptcy court. In the event an account is dismissed from bankruptcy, the Company will decide, based on several factors, to begin repossession proceedings to allow the customer to begin making regularly scheduled payments. This approach to bankrupt accounts aligns the Company with typical industry practice. The following table is an assessment of the credit quality by creditworthiness:


	June 30, 2013				March 31, 2013
	Contracts		Direct Loans		Contracts		Direct Loans
Non-bankrupt accounts	$	391,977,580	$	9,654,948	$	386,324,594	$	8,779,270
Bankrupt accounts		1,802,820		11,922		615,499		2,367

Total	$	393,780,400	$	9,666,870	$	386,940,093	$	8,781,637


Performing accounts	$	388,159,066	$	9,623,370	$	382,843,130	$	8,746,338
Non-performing accounts		5,621,334		43,500		4,096,963		35,299

Total	$	393,780,400	$	9,666,870	$	386,940,093	$	8,781,637

The following tables present certain information regarding the delinquency rates experienced by the Company with respect to Contracts and under its Direct Loans:


	Gross Balance		Delinquencies
Contracts	Outstanding		31 – 60 days			61 – 90 days			Over 90 days			Total

June 30, 2013	$	393,780,400	$	12,803,342		$	3,540,383		$	2,080,951		$	18,424,676
				3.25	%		0.90	%		0.53	%		4.68	%

June 30, 2012	$	385,611,683	$	12,745,275		$	3,216,955		$	804,930		$	16,767,160
				3.31	%		0.83	%		0.21	%		4.35	%


Direct Loans	Gross Balance Outstanding		31 – 60 days			61 – 90 days			Over 90 days			Total

June 30, 2013	$	9,666,870	$	83,885		$	27,046		$	16,454		$	127,385
				0.87	%		0.28	%		0.17	%		1.32	%

June 30, 2012	$	7,095,917	$	78,044		$	19,390		$	4,226		$	101,660
				1.10	%		0.27	%		0.06	%		1.43	%