Note C - Finance Receivables, Net

12 Months Ended

Apr. 30, 2015

C - Finance Receivables, Net

The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts typically include interest rates ranging from 14% to 15% per annum, are collateralized by the vehicle sold and typically provide for payments over periods ranging from 18 to 42 months. The Company’s finance receivables are defined as one segment and one class of loans, which is sub-prime consumer automobile contracts. The level of risks inherent in our financing receivables is managed as one homogeneous pool. The components of finance receivables as of April 30, 2015 and 2014 are as follows:

(In thousands)	April 30, 2015			April 30, 2014

Gross contract amount	$	477,305		$	432,327
Less unearned finance charges		(59,937	)		(52,995	)
Principal balance		417,368			379,332
Less allowance for credit losses		(93,224	)		(86,033	)

Finance receivables, net	$	324,144		$	293,299

Changes in the finance receivables, net for the years ended April 30, 2015, 2014 and 2013 are as follows:

	Years Ended April 30,
(In thousands)	2015			2014			2013

Balance at beginning of period	$	293,299		$	288,049		$	251,103
Finance receivable originations		445,405			404,918			387,895
Finance receivable collections		(238,845	)		(223,538	)		(207,713	)
Provision for credit losses		(120,289	)		(119,247	)		(96,035	)
Losses on claims for payment protection plan		(10,588	)		(9,586	)		(7,544	)
Inventory acquired in repossession and payment protection plan claims		(44,838	)		(47,297	)		(39,657	)

Balance at end of period	$	324,144		$	293,299		$	288,049

Changes in the finance receivables allowance for credit losses for the years ended April 30, 2015, 2014 and 2013 are as follows:

	Years Ended April 30,
(In thousands)	2015			2014			2013

Balance at beginning of period	$	86,033		$	75,345		$	65,831
Provision for credit losses		120,289			119,247			96,035
Charge-offs, net of recovered collateral		(113,098	)		(108,559	)		(86,521	)

Balance at end of period	$	93,224		$	86,033		$	75,345

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 was 27.8% for fiscal 2015 as compared to 28.2% for fiscal 2014. The decrease in net charge-offs for fiscal 2015 resulted from a lower frequency of losses offset by an increase in severity due largely to lower wholesale values at time of repossession. Higher sales volumes and the shift in the relative age of the dealerships also had the effect of higher charges to the provision for fiscal 2015. The fiscal 2014 provision included a $7.7 million increase in the provision as a result of the increase in our provision percentage applied to the growth in finance receivables.

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 58.7% for the year ended April 30, 2015 compared to 58.0% for the year ended April 30, 2014. The increase in collections as a percentage of average finance receivables was primarily due to lower contract modifications, partially offset by the higher delinquencies and the longer overall contract term. Delinquencies greater than 30 days increased to 5.8% for April 30, 2015 compared to 4.4% at April 30, 2014.

Macro-economic factors, 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 credit reporting for customers and implementation of GPS technology on vehicles sold.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)	April 30, 2015					April 30, 2014

	Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio
Current	$	329,329		78.91	%	$	300,478		79.21	%
3 - 29 days past due		64,004		15.33	%		62,108		16.38	%
30 - 60 days past due		12,777		3.06	%		10,926		2.88	%
61 - 90 days past due		8,463		2.03	%		4,665		1.23	%
> 90 days past due		2,795		0.67	%		1,155		0.30	%
Total	$	417,368		100.00	%	$	379,332		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 the increase in the past due percentages can be attributed in part to a failure to properly execute best collections efforts at all dealerships during the fourth quarter of fiscal 2015.

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 and repossession, and higher losses than contracts made with buyers with better credit. The Company monitors contract term length, down payment percentages, and collections for credit quality indicators.

	Twelve Months Ended April 30,
	2015			2014

Principal collected as a percent of average finance receivables		58.7	%		58.0	%
Average down-payment percentage		6.9	%		6.6	%

	April 30, 2015		April 30, 2014
Average originating contract term (in months)		27.7		27.4
Portfolio weighted average contract term, including modifications (in months)		30.2		29.8

The increase in collections as a percentage of average finance receivables was primarily due to lower contract modifications, partially offset by the higher delinquencies and the longer overall contract term. The increases in contract term are primarily related to efforts to keep payments affordable, for competitive reasons and to continue to work more with our customers when they experience financial difficulties. In order to remain competitive, term lengths may continue to increase.