Inventory Finance Receivables and Allowance for Loan Loss

6 Months Ended

Sep. 30, 2012

Consumer Loans Receivable/Inventory Finance Receivables and Allowance for Loan Loss [Abstract]

Inventory Finance Receivables and Allowance for Loan Loss

6. Inventory Finance Receivables and Allowance for Loan Loss

The Company’s inventory finance receivables balance consists of two classes: (i) amounts loaned by the Company under participation inventory financing programs; and (ii) direct inventory financing arrangements for the home product inventory needs of our independent distribution base.

Under the terms of the participation programs, the Company provides loans to independent floorplan lenders, representing a significant portion of the funds that such financiers then lend to retailers to finance their inventory purchases of our products. The participation inventory finance receivables are unsecured general obligations of the independent floorplan lenders.

Under the terms of the direct inventory finance arrangements, the Company provides funds for the independent retailers’ inventory financed. The notes are secured by the inventory collateral and other security depending on the borrower’s (retailer’s) circumstances. The other terms of direct inventory finance arrangements vary depending on the needs of the borrower and the opportunity for the Company, but generally follow the same tenets as the participation programs.

Inventory finance notes receivables, net, consist of the following by class of financing notes receivable (in thousands):

	September 30,			March 31,
	2012			2012
Direct inventory finance receivables	$	19,997		$	18,367
Participation inventory finance receivables		7,454			6,529
Allowance for loan loss		(139	)		(215	)
	$	27,312		$	24,681

The Company evaluates the potential for loss from its participation inventory finance programs based on the independent lender’s overall financial stability and has determined that an applicable allowance for loan loss was not needed at either September 30, 2012 or March 31, 2012.

With respect to the direct inventory finance notes receivable, the risk of loss is spread over numerous borrowers. Borrower inventory levels and activity are monitored in conjunction with third-party service providers, where applicable, to estimate the potential for loss on the related notes receivable, considering potential exposures including repossession costs, remarketing expenses, impairment of value and the risk of collateral loss. The Company has historically been able to resell repossessed unused homes, thereby mitigating loss experience. If a default occurs and collateral is lost, the Company is exposed to loss of the full value of the home loan. If the Company determines that it is probable that a borrower will default, a specific reserve is determined and recorded within the estimated allowance for loan loss. The Company recorded an allowance for loan loss of $139,000 and $215,000 at September 30, 2012 and March 31, 2012, respectively. The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan loss applicable to the direct inventory finance receivables (in thousands):

	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2012			2011		2012			2011
Balance at beginning of period	$	196		$	173	$	215		$	169
Provision for credit losses		(57	)		12		(76	)		16
Balance at end of period	$	139		$	185	$	139		$	185

The following table disaggregates inventory finance notes receivable and the estimated allowance for loan loss for each class of financing receivable by evaluation methodology (in thousands):

	Direct Inventory Finance						Participation Inventory Finance
	September 30,			March 31,			September 30,		March 31,
	2012			2012			2012		2012
Inventory finance notes receivable:
Collectively evaluated for impairment	$	13,854		$	13,916		$	—	$	—
Individually evaluated for impairment		6,143			4,451			7,454		6,529
	$	19,997		$	18,367		$	7,454	$	6,529
Allowance for loan loss:
Collectively evaluated for impairment	$	(139	)	$	(215	)	$	—	$	—
Individually evaluated for impairment		—			—			—		—
	$	(139	)	$	(215	)	$	—	$	—

Loans are subject to regular review and are given management’s attention whenever a problem situation appears to be developing. Loans with indicators of potential performance problems are placed on watch list status and are subject to additional monitoring and scrutiny. Nonperforming status includes loans accounted for on a non-accrual basis and accruing loans with principal payments past due 90 days or more. The Company’s policy is to place loans on nonaccrual status when interest is past due and remains unpaid 90 days or more or when there is a clear indication that the borrower has the inability or unwillingness to meet payments as they become due. Payments received on nonaccrual loans are recorded on a cash basis, first to interest and then to principal. Charge-offs occur when it becomes probable that outstanding amounts will not be recovered. At September 30, 2012, the Company did not have any loans on nonaccrual status and was not aware of any potential problem loans that would have a material effect on the inventory finance receivables balance. The following table disaggregates the Company’s inventory finance receivables by class and credit quality indicator (in thousands):

	Direct Inventory Finance				Participation Inventory Finance
	September 30,		March 31,		September 30,		March 31,
	2012		2012		2012		2012
Risk profile based on payment activity:
Performing	$	19,949	$	17,972	$	7,454	$	6,529
Watch list		48		395		—		—
	$	19,997	$	18,367	$	7,454	$	6,529

The Company has concentrations of inventory finance notes receivable related to factory-built homes located in the following states, measured as a percentage of inventory finance receivables principal balance outstanding as of September 30, 2012 and March 31, 2012:

	September 30,			March 31,
	2012			2012
Arizona		17.1	%		21.4	%
Texas		11.4	%		11.3	%
Florida		8.1	%		10.7	%
California		3.8	%		3.0	%

The states of Arizona, Florida, and California have experienced economic weakness. The risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan losses. The Company did not have concentrations in excess of 10% of the principal balance of the inventory finance receivables in any other states as of September 30, 2012 or March 31, 2012, respectively.