Note C - Finance Receivables, Net

9 Months Ended

Jan. 31, 2017

Notes to Financial Statements

Financing Receivables [Text Block]

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%

or

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

18

to

42

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

15.7%

at

January

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)	January 31, 2017			April 30, 2016
Gross contract amount	$	549,329		$	504,149
Less unearned finance charges		(73,975	)		(66,871	)
Principal balance		475,354			437,278
Less allowance for credit losses		(111,818	)		(102,485	)
Finance receivables, net	$	363,536		$	334,793

Changes in the finance receivables, net are as follows:

	Nine Months Ended January 31,
(In thousands)	2017			2016
Balance at beginning of period	$	334,793		$	324,144
Finance receivable originations		356,776			336,508
Finance receivable collections		(175,696	)		(173,949	)
Provision for credit losses		(110,467	)		(106,225	)
Losses on claims for payment protection plan		(11,260	)		(9,815	)
Inventory acquired in repossession and payment protection plan claims		(30,610	)		(31,594	)
Balance at end of period	$	363,536		$	339,069

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

	Nine Months Ended January 31,
(In thousands)	2017			2016
Balance at beginning of period	$	102,485		$	93,224
Provision for credit losses		110,467			106,225
Charge-offs, net of recovered collateral		(101,134	)		(95,221	)
Balance at end of period	$	111,818		$	104,228

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

21.8%

for the

nine

months ended

January

31,

2017

compared to

22.2%

for the same period in the prior year. This improvement in net charge-offs is primarily due to a decrease in the frequency of losses as a result of the low delinquencies greater than

30

days at

April

30,

2016

of

3.0%,

significantly lower than

5.8%

at

April

30,

2015.

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

37.9%

for the

nine

months ended

January

31,

2017

compared to

40.6%

for the prior year period. The decrease in collections as a percentage of average finance receivables resulted primarily from the longer average term, higher levels of contract modifications, higher delinquencies and, to a lesser extent, the increase in the contract interest rate. Delinquencies greater than

30

days were

4.7%

for

January

31,

2017

and

5.0%

at

January

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)	January 31, 2017					April 30, 2016					January 31, 2016
	Principal		Percent of			Principal		Percent of			Principal		Percent of
	Balance		Portfolio			Balance		Portfolio			Balance		Portfolio
Current	$	371,078		78.06	%	$	378,631		86.59	%	$	364,453		82.22	%
3 - 29 days past due		81,887		17.23	%		45,631		10.43	%		56,835		12.82	%
30 - 60 days past due		15,957		3.36	%		8,429		1.93	%		15,087		3.40	%
61 - 90 days past due		4,395		0.92	%		3,498		0.80	%		4,790		1.08	%
> 90 days past due		2,037		0.43	%		1,089		0.25	%		2,131		0.48	%
Total	$	475,354		100.00	%	$	437,278		100.00	%	$	443,296		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

third

quarter of fiscal

2017

ended on a Tuesday, which is believed to contribute to the decrease in current receivables at quarter end.

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.

	Nine Months Ended January 31,
	2017			2016
Principal collected as a percent of average finance receivables		37.9	%		40.6	%
Average down-payment percentage		5.3	%		6.1	%
Average originating contract term (in months )		29.3			28.6

	2017		2016
Portfolio weighted average contract term, including modifications (in months )		31.9		30.9

The decrease in collections as a percentage of average finance receivables resulted primarily from the longer average term, higher levels of contract modifications, higher delinquencies and, to a lesser extent, the increase in the contract interest rate. 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.