World Acceptance Corp (WRLD) 2009 Q3 法說會逐字稿

Please stand by.

We're about to begin.

Good morning, and welcome to the World Acceptance Corporation sponsored third quarter press release conference call.

At this time, all participants have been placed in a listen-only mode.

A question-and-answer session will follow the presentation by the Corporation's CEO and other officers.

Before we begin, the Corporation has requested that I make the following announcement.

The comments made during this conference may contain certain forward-looking statements within the meaning of Section 27A of the Securities and Exchange Act that represent the Corporation's expectations and beliefs concerning future events.

Such forward-looking statements are about matters that are inherently subject to risk and uncertainties.

Factors that could cause actual results or performance to differ from the expectations expressed or implied in forward-looking statements include changes in the timing, amount of revenues that may be recognized by the Corporation; changes in the current revenue and expense trends; changes in the Corporation's markets; and changes in the economy.

Such factors are discussed in greater detail in the Corporation's filings with the Securities and Exchange Commission.

At this time, it is my pleasure to turn the floor over to your host, Sandy McLean, Chairman and CEO.

Please go ahead, sir.

Thank you, Matt.

Welcome to the World Acceptance Corporation's third quarter conference call.

As Matt said, I'm Sandy McLean, the Company's Chairman and CEO.

With me are Mark Roland, our President and Chief Operating Officer; Kelly Malson, our Chief Financial Officer, as well as other members of our management team.

As we have done in the past, I will spend a few minutes reviewing the quarterly results, and then we'll be happy to answer any questions.

Fiscal 2009 continues to provide numerous challenges to World Acceptance Corporation, as is the case with most financial services companies.

However, we are very pleased with our improved profitability on a year-over-year basis in a very difficult economic environment.

We are glad to be able to report the continued expansion of our office network, the growth in our receivable portfolio, and the increase in our net earnings, as well as other areas of improvement.

Net income for the third fiscal quarter was $10 million or $0.61 per diluted share compared to $7.3 million or $0.43 per diluted share for the third quarter of fiscal 2008.

This represents a 37.3% increase in net income and a 41.9% increase in net income per diluted share when comparing the two quarterly periods.

For the nine-month period endings December 31, 2008, net income was $32.7 million or $1.98 per share compared to $28.6 million or $1.63 per share for the prior nine-month period.

This represents a 14.4% and a 21.5% increase in net income and diluted earnings per share, respectively.

The large difference between the net income and the per-share increases is due to the substantial number of shares that the Company repurchased during the current and prior fiscal years under its stock repurchase plan.

During fiscal 2008, the Company repurchased 1,375,100 shares for an aggregate purchase price of $41.9 million.

During the current fiscal year, the Company repurchased 288,700 shares for a total purchase price of $7.8 million.

Going forward, the Company considers share repurchases to be an important part of its long-term strategy, but will do so only when it determines that there is an availability of excess capital and that there are no other more beneficial uses of that capital.

Gross loans amounted to $736.2 million at December 31, 2008, an 11% increase over the $663.2 million outstanding at December 31, 2007, and a 22.8% increase since the beginning of the fiscal year.

While the year-over-year growth rate declined from previous quarters, we are pleased with the 11% growth, considering the worsening economy and the rise in our loan loss ratios.

Acquisitions continued to be an important factor in our overall growth during the first three quarters of fiscal 2009, as the Company acquired 8,679 accounts and $10.1 million in gross loan balances in 21 separate offices.

Of the 21 offices acquired, 11 remain open and the rest were consolidated into existing locations.

For comparison purposes, during the first nine months of fiscal 2008, the Company purchased 7,900 accounts and approximately $4.1 million in gross loans in 21 offices.

Of those 21, 13 remained open.

As expected, we continued the expansion of our branch network during the third fiscal quarter.

We began fiscal 2009 with 838 offices.

We opened 77 offices, acquired 11, and merged 3, to give us a total of 923 offices at December 31, 2008.

Of the 77 de novo offices, 61 were in the United States and 16 were in Mexico.

Our plans for fiscal 2009, as we previously stated, are to open 70 offices in the United States and 25 in Mexico, plus evaluate acquisitions as opportunities arise.

Total revenue for the quarter amounted to $99.7 million, a 13.2% increase over the $88 million during the third quarter of the prior fiscal year.

For the nine months, total revenue grew by 14.4% to $279.8 million compared to $244.6 million for the same period of fiscal 2008.

This corresponds to a 13.1% and 15.0% increases in average net loans when comparing to two quarterly and nine-month periods, respectively.

Revenues from the 727 offices opened throughout both quarterly periods increased by 7.1%.

During the most recent quarter, there were several unusual items that had a significant impact on our quarterly net revenues.

In October, the Company sold a $10 million foreign currency option and recorded a net gain of approximately $1.5 million.

In December, the Company repurchased and retired $5 million par value of its convertible notes at a substantial discount.

This resulted in a net gain of approximately $2 million.

The two gains of $3.5 million were partially offset by a $1.6 million unrealized loss in the fair value of our outstanding interest rate swaps.

Loan delinquencies and charge-offs will always remain a primary area of management concern and focus.

Accounts that were 61 days or more past due increased from 2.7% to 3.3% on a recency basis, and from 3.9% to 4.6% on a contractual basis when comparing the two quarterly in statistics.

Consistent with the rise in delinquencies, we have seen a continued increase in our loan losses.

Net charge-off as a percentage of average net loans increased from 16.7% annualized during the prior-year third quarter to 19.6% annualized during the most recent quarter.

As was the case with the first two quarters, this 19.6% loss ratio is the highest charge-off percentage that the Company has ever experienced during a third fiscal quarter.

Previous high charge-off ratios for a third fiscal quarter were 17.4% in December of '05, and 17% in December of '01.

For the nine months ending December 2008, net charge-offs to average loans on an annualized basis was 17.1%, compared to 15% for the corresponding period of the prior fiscal year.

While the loss ratios were higher than expected during the most recent quarter, they were not unrealistic, given the current economic environment.

Additionally, there is no reason to believe that loss ratios will decrease on a year-over-year basis for the remaining of the current fiscal year.

General and administrative expenses amounted to $51.7 million in the third fiscal quarter, an 8.9% increase over the $47.5 million in the same quarter of the prior fiscal year.

As a percentage of revenues, they decreased to 51.9% during the current quarter from 53.9% for the prior-year quarter.

For the nine months, the G&A increased by 13.1% to $148.9 million from $131.6 million for the prior-year period.

As a percent of revenues, they also decreased slightly to 53.2% from 53.8% over the two periods.

Our G&A for average opened office decreased by 1.4% when comparing the two nine-month periods.

Highlights of our expansion into Mexico include the following -- 51 offices were opened at December 31, 2008, an increase of 5 during the current quarter and 16 during the first nine months of the fiscal year.

We now have 45,578 accounts and approximately 16.5 million in gross loans outstanding.

Our growth in loan balances, as measured in pesos, amounted to 99.7% when comparing to two quarter-end periods, but was only 58.3% in US dollars over the same period.

The increase in the value of the dollar to the peso during the third quarter reduced the reported growth in loans, and resulted in the $3.7 million of the comprehensive loss reflected in the change in our shareholders equity.

We had net charge-offs of approximately $500,000 during the quarter or 17.7% of average net loans on an annualized basis.

The continued increase in net charge-offs during the quarter is due to the management issues resulting from our rapid expansion, primarily in the Monterey region that were discussed last quarter.

Steps have been taken to relieve these issues, and we expect our charge-off ratios in Mexico to return to more historical levels in the next couple of quarters.

A 61-plus day delinquencies were 3.4% and 4.6% on a recency and contractual basis, respectively.

During the first nine months of the fiscal year, the Mexican subsidiary has lost approximately $425,000, which we believe is still reasonable in a rapidly expanding market.

Finally, the Company's annualized return on average assets of 8.3% and return on equity of 17.4% remain consistent with historical returns for the first three quarters of the fiscal year.

At this time, any of us will be glad to answer any of your questions.

Thank you, sir.

(Operator Instructions) David Burtzloff, Stephens, Inc.

Hey, Sandy, guys.

Congratulations on a great quarter.

Just a few questions here.

Where are the unusual items?

Where do they show up in the income statement?

Other revenue.

Other revenue?

All of them are in there?

That's correct.

Okay.

All right.

And then on the -- I noticed -- the advertising expense was much lower than I thought would be for the quarter and also much lower than last year.

I mean, was there a reason why you're not advertising as much?

Is it just the environment?

No, it's -- we made a decision to improve our advertising and marketing department.

And we hired an individual to come in and help us with that last May.

And she has helped us to send out preapproved mail and shown us that it's -- it can be done with a higher response rate by sending less pieces out.

So it's a direct result -- of course, the average cost per piece is up substantially -- I mean, quite a bit; but when you reduce the number of pieces that you send out, that's where that savings has been generated.

Okay.

And then also on the personnel line, it didn't seem to increase as much as it has in previous third quarters.

What did you do kind of differently there?

Well, one part of it is the -- once the gas prices increased substantially early in the year, we made a decision to do away with an overall automobile allowance in the branch manager and assistant manager level.

And we put it in on a direct reimbursement basis, based on the number of miles driven.

And that shifted a certain amount of that expense from the personnel line down into the other G&A expenses.

But given the -- another part of that is given the performance and everything of the branches this year because of some of the difficult circumstances, our bonuses have been a little bit less than they had in prior years.

Okay.

Thank you very much.

Henry Coffey, Sterne, Agee.

Good morning, everyone.

Great quarter.

A couple of items here.

In the September quarter, what were your past dues on a recency and contractual basis?

Bear with me.

Kelly has that number.

I don't remember exactly.

At the September quarter, in contractual, it was 4.5 and on a recency, it was 3.3.

So you're -- well, and how much of the decline do you think was just better credit quality and how much decline is growth-related?

The decline from the third quarter to the fourth?

Yes, I mean, I know that's an awkward metric because you guys see so much long growth in the December quarter, but --

Actually, Henry, let's just make sure that you wrote the numbers down correctly.

Our delinquency on both a recency and contractual basis are basically the same between September 2008 and December 2008.

What were the numbers again, then?

4.6 on a contractual and 3.3 (multiple speakers) --

Oh, I'm sorry, yes.

So, you gave them -- yes, okay.

Thank you.

4.6 and what was the other figure?

3.3.

That was my error.

Thank you.

And then in terms of trying to -- basically in terms of building our estimates, I imagine the big swing variable with everybody was provision, which was the same thing that happened in the September quarter.

What sort of reserves are you likely to be targeting, given where charge-offs are going?

I think at this point in time -- this is something we evaluate very closely, on an ongoing basis, especially at the end of each quarter.

And you can see that our allowance is up slightly from the level of last year, but not substantially.

And we go through several models at the end of each quarter that determine the adequacy of that allowance.

We have a movement model that tries to predict in the existing portfolio what we expect to take place in the following quarter, and then there's some other trailing volume type models.

At this point in time, the allowance out there still indicates that it's adequate, but the -- that number fluctuates on a quarterly basis.

Where you've seen the increase is in the actual provision line because of the increase in the charge-offs.

So at this point in time, although we are pretty much at the top of the band, I do believe that the allowance methodology that we've been going through is still valid and adequate, which basically means on a percentage basis, it should stay pretty close to the same.

It will vary on a dollar amount, due to seasonality.

The current ratio is a good one for future modeling?

Well, I wouldn't say -- I mean, it is good at this point in time, but there is a point at which if the charge-off levels rise above a certain point -- if it's getting close to that, then we will need to reevaluate the adequacy of the allowance for the balance sheet at that point in time.

We just believe at -- currently, it's still adequate.

And then I don't know how deep you are into your 2010 planning, but what sort of level of new offices are you thinking about and --?

I think that we, because of some of the management issues we've had this year because of the rapid growth, it is our plan to reduce the number of offices being opened at the US level and to decrease expansion of the number of offices at the Mexico level.

So, we hadn't come up with exact numbers, but you will see it will be substantially fewer offices than the last two or three years.

Dan Bandi, Integrity Asset Management.

Sandy, you talk about, on share buybacks based on excess capital and sort of your hierarchy of what you would do there in terms of buyback, but looking at your stock and your valuations, I mean, you guys are a financial -- you've turned in great results here in a horrible environment, your stocks selling close to book value, although a little bit higher today.

I guess, what constitutes excess capital for you guys before you would actually maybe go in now and start buying back stock?

And then also I was wondering if you bought back any stock in this quarter?

Let me answer the second question first.

We did buy back shares, not a significant amount, but we did buy back shares during the quarter.

And the number was 106,000 shares at $15.94, [for] about $1.7 million.

What constitutes excess capital, I don't know that there is such a thing.

I know I use that word, but the main thing is to make sure we have plenty of available funding to meet any acquisition opportunities as well as our internal growth, and then have some excess there in the event that one of our banks for some reason wishes to get out of the bank line.

I still believe we have a great relationship with our current banking group, and we feel good about that.

But at the same time, we are still generating quite a bit of capital through our earnings.

And so we can continue to grow the Company and, to a certain extent, pay down debt at the same time.

So we have been able to keep a pretty level leverage ratio while buying back stock and growing at the same time.

So it's a number that I can't tell you exactly, but it's something we work on internally and decide what amounts we think would be proper to utilize that method.

But one other thing that we are -- the reason we may not be buying back stock is we have other opportunities.

As we mentioned, we had a pretty substantial gain during the quarter through paying back our -- some of our preferreds to debt and convertible bonds.

And those things are available currently at about a 42% discount.

And you're retiring 3% debt, you're replacing it with less than 3% debt on a variable basis, plus you're eliminating a pretty large liquidity issue three years down the road.

So, we think that's another good use of any excess debt.

So these are the things we look at on an ongoing basis.

And as a team, we evaluate and do what we think is best for the Company.

I guess is it fair to assume -- I mean, looking forward and especially in light of your answer to Henry on 2010 as you look out, and you think that in terms of your greatest cash needs have been met in this most recent quarter in terms of receivables going out, and so the cash flow really starts hitting, expansion slowing down.

It seems like the next year may be a year where you have just -- of those few years that you've had recently, some of the most free cash flow that you've seen.

That is very possible; but at the same time, we are in a very difficult environment.

You hear new bad news dealing with banks on a daily basis and the availability of funding outside of our current bank group may or may not be there.

And if it is, at what cost?

So I think we will continue to be conservative in this area, but I think there's a good opportunity when we believe it's appropriate.

Are you guys -- on a complete different subject -- are you on schedule to open the remaining Mexican branches by year-end?

It seems like you've got a number to get done this quarter.

We are on schedule.

And in Mexico, unlike in the US, the December quarter is not a tremendous growth period.

They actually get an extra payroll type of bonus, Christmas bonus during December.

So their lending needs are less, relatively speaking, to the US.

So, in the US, we try to have all these offices open before we go into growth season, whereas in Mexico, it's more of an annualized basis.

Okay.

And then if I could just clarify one other thing too, and then I'll get off.

You had mentioned I think in the release itself, you'd said that you don't expect losses to decrease going forward.

And then on the call, I think you said year-over-year.

So, usually next quarter, sequentially the losses would decrease.

And I'm just wondering if you would expect a sequential loss decrease on a percentage basis or do you think that's even aggressive?

I think -- any time we talk about losses, we talk about comparative periods for the prior year, because of the seasonality.

There's no doubt that our loss ratios will decline in the fourth quarter when comparing to the third quarter, if history repeats itself; because our customers have more funding -- I mean, more available cash due to the tax refunds, and our average balances are largest during the fourth quarter because of what we've seen from a growth season in December.

So, your enumerative losses should be less and your denominator of average balances should be greater, which mathematically dictates that ratio should come down.

All right.

Okay, that's great.

And thank you very much and another great quarter in a tough environment.

Thanks.

Joe Gagan, Atlantic Equity Research.

Yes, I just have a couple of questions.

You don't provide a cash flow statement here.

What was the operating cash flow?

And I have a couple of questions on the line items on the Investment section of the cash flow statement.

Do you have that available?

Right here.

I actually do not have the cash flow available, but we'll be releasing our 10-Q soon, and it will be in the 10-Q.

Okay.

And then under the line item where you have -- in the cash flow statement, where you have assets acquired, I think that you said in your preliminary discussion that it was $10.1 million through the first nine months of the year?

That's correct, but that is gross loans.

So, as far as what you would normally see in the cash flow statement, it would be about 78% of that.

So it would be about $7.5 million to $8 million.

Okay.

But as far as that $10.1 million, it seems to me that if I go back and look at history, that if you look at the amount of loans that you're getting per office purchased, it seems to be high the last two quarters.

Am I correct in that assumption?

In other words, so if you look at the total loans acquired from these acquisitions -- I mean, you look at the total offices purchased, right?

It seems that it's really, really a high figure, loans-per-office figure, than say in the early part of the decade.

Is that right?

And if I am correct, why is that?

I don't believe that you are correct.

I mean, it is correct if you look back and compare it to last year.

But if you go back two, three and four years, we've had pretty substantial acquisitions over a period of time.

We bought a couple of companies out of bankruptcy that were pretty large acquisitions.

This number fluctuates, just depending upon what our competitors are doing and whether or not they want to decide to get out of the business.

We do not target companies for acquisitions.

No, I know, but I understand that you've made a lot of acquisitions in the past.

But I'm saying that the amount of loans that you're getting per-office/per-unit seems to be higher than before.

Do you see what I'm saying?

Is that right or not?

This is Mark.

I don't have the exact numbers in front of me, but I'm believe what that works out to is, what?

$500,000 an office or something like that?

That, I believe, is well within the range of what we've historically done.

I mean, certainly we buy smaller things occasionally, offices that aren't fully seasoned, but in this case, I mean, I think on a per-average basis, these offices we're buying are smaller than our average branch.

Okay.

I have one more question.

You increased your charge-offs per gross loan to 19.

-- toward -- if charge-offs per gross loan receivable to 19.6% from 16.7%, which is like a 17% increase.

And you increase your provision for loan losses as a percentage of the revenues from 25.4% to 29.5%, which is only like a 12% increase.

So why were the charge-offs such a big increase in comparison to the increase in the provision for loan losses?

One of the -- I think -- well, first of all, that 19.6% and 16.7% is a percentage of charge-offs to average net loans.

So, I wish to clarify that.

But whether you look at it net or gross, you probably should get the same percentages.

The reason that our provision itself went up at a smaller rate is because our growth this year compared to last year was down pretty substantially.

We ended up the quarter last year on a year-over-year basis at about a 17% or 18% growth rate.

We ended up -- and it grew from the September quarter.

This year, we started off the September quarter on a year-over-year basis at about 16.7% and ended at 11%.

So, the percentage growth during the quarter, during our busy season, was smaller than it had been previously.

So therefore, the allowance portion of it that's based on our outstanding balances, was less on a percentage basis, if that makes sense.

Okay.

Is that going to, like, equalize, if you will, like, next quarter?

In other words, is the provision from loan losses increases going to catch up to the charge-offs, do you think?

The provision for loan losses will always be greater than the charge-offs.

No, I understand it, but I'm saying, is the percentage increase year-over-year, quarter-to-quarter, is the percentage increase for provision for loan losses as a percentage of revenues going to catch up to the charge-offs as a percentage of net loans receivables?

Because it seems like the charge-offs are ahead of the provision loan losses increases.

Do you think that's going to catch up?

I think it will be very close when you get to the end of the year.

And the biggest impact on -- I mean, there's two pieces to the provision.

It's the net charge-offs that are running directly through plus the change in your allowance.

And the allowance itself changes, based on the number of gross loans outstanding, plus 90-day accounts and so forth, but really it's primarily based on your gross loan balance outstanding.

So, if we get to the end of March and we have 11 -- let's just say we keep the same year-over-year growth rate of 11%, and then you compare it to last March, when the year-over-year growth rate was 18%, then the allowance portion is not going to be growing as quickly because the growth in the portfolio is not growing as quickly.

Okay.

Well, thank you very much.

But the charge-off piece of it will be growing faster because our annual charge-off rates are growing faster at this point.

Okay, good.

Thank you very much.

Rick Shane, Jefferies.

Thanks for taking my question.

Somewhat in the same vein of the last question and I want to talk about this in a couple of different ways.

From an earnings perspective, this was a solid quarter.

You beat everybody's expectations.

But from a credit cost perspective, credit costs are rising faster than any other expense within the Company, especially when you look at it on a real basis in terms of charge-offs, ignoring the more sort of subjective -- not necessarily subjective, but more variable notion of provisions or the more controllable notion of provisions.

What's interesting to me when I look at the numbers is that over the year, the percentage of reserve that is absorbed each quarter by the subsequent quarter's charge-offs is increasing.

You're taking down more of your reserve each quarter, yet you have not increased your reserve ratios at all.

Why not -- have taken this opportunity, since earnings on a bottom line basis look pretty strong, to start building that up?

And Sandy, you'd alluded to the fact that you're starting to sort of reach the fringe of your model in terms of that, would suggest that maybe that's something you're contemplating.

Is that going to be an issue as we move into your fourth financial quarter, fiscal quarter?

Sort of an auditor effect?

Is that what we're setting up for here?

We're not setting up anything, I don't believe.

It depends on what happens with our charge-off ratios.

What you're saying is exactly true from the standpoint that our loss ratios have been rising and that we're eating up a larger percentage of that allowance in the following quarter.

But you've got to remember that we're still turning our portfolio over 300% on an annualized basis.

So, as long as your allowance will cover basically one-third of your following charge-offs, you're certainly within the ballpark of reasonableness and adequacy.

And it really gets down to the point of -- you know, you've got to work with your accountants.

And you can't arbitrarily say, okay, I want to increase this allowance by $1 million, and then maybe turn it around if things improve next month, because then you get into a situation of manipulating earnings and giving false indicators and things like that.

So, I mean, we take this allowance extremely -- you know, very seriously.

Understood.

And I guess the question is that -- and again, you, in some ways -- hinted is not the right word, but you definitely intimated that we're reaching the point within the model where you guys have to look at this -- you're going to have to reevaluate this.

Is the scrutiny and is that discussion as you approach the end of your fiscal year as you're going through a more detailed audit with your accountants, do you think that this is going to be a time where we're going to really look at this very hard?

Trust me, on a quarterly basis, our accountants look at this more than anything, because it is our number one estimate.

And a lot depends on what happens to our charge-off ratios during the fourth quarter.

If they begin to level out, even at this current level, then I would not anticipate making any major change to our allowance model and increasing that allowance.

But if they continue to rise, there is a point at which you cannot say that the allowance is adequate if your charge-off ratios grow to a certain amount.

And again, because of the fluctuations in our delinquencies and the timing of our charge-offs and so forth, as long as we stay within a band, between a high and a low level as far as our expected charge-offs, given these models and so forth, then we feel comfortable with our formulas for deriving our allowance.

But once we get outside of that band is when we will make those adjustments.

And all I'm saying is that we're getting very close to being outside of that band.

Whether or not we'll have to make that adjustment in the fourth quarter will be totally dependent upon what happens to the charge-offs.

And we just cannot tell exactly what's going to happen.

I mean, the economy is not exactly improving as we go.

No, a fair response.

And I appreciate the spirit with which the answer was given.

Just one follow-up.

When you look at your allowance models, what are the economic factors?

I'm assuming that it is that your credit performance is unbelievably correlated to what's going on in the labor markets.

Assuming that that's the case, what do you think the lag between job losses showing up and credit performance within your portfolio is?

So, given the rapid acceleration that we saw throughout the December quarter, in terms on a month-by-month basis, in terms of job losses and what we see in January to date, when do we expect to see that show up so we can make our own assessments of whether or not you're likely to move outside that band?

I cannot answer that.

And I will answer it by saying -- I mean, I'll attempt to answer it from the standpoint that historically, we have always said that we are somewhat immune to what's going on from a macroeconomic environment.

We have not traditionally been severely affected by increases in unemployment and so forth.

But these are unusual times.

And to say that, we are not affected, obviously, would be incorrect, because what we're seeing with our loss ratios.

I'm not so sure we didn't have just as much of an impact on our losses during the second quarter because of the really high gas and food prices, than we're seeing right now because of increased unemployment.

I just don't have a direct correlation.

We are learning as we go through this process.

And as I said, there's no reason to predict that our loss ratios will be improving during the next quarter or so; we just don't see any indications.

But that's not to say, at some point, they may continue to deteriorate.

I don't know what's going to happen with the economy.

Yes, I will agree.

I think we're all learning as we go through this process.

And I think we're all in uncharted territories in terms of what we're seeing right now, so.

Hey, Rick, this is Mark Roland.

Just as an aside to your question, I mean, within a 60-mile radius of where we're sitting here in Greenville, South Carolina, we've got the highest unemployment and the lowest unemployment in the state.

And the low end is much lower than the national average in the upstate and Greenville, South Carolina, in that area.

The highest in Union County, like I said, 60 miles from here, is three or four times what the Greenville area is.

Would I suspect, if I looked at Union, South Carolina, where we have a branch, to see some impact?

Yes.

But those unemployment statistics are so varied and so local, depending on individual mills and plants and whatever that's shut down, it would be almost impossible for us to correlate.

Okay, great.

Thank you, guys.

John Rowan, Sidoti & Company.

Sandy, just to go back to kind of a comment that you made about the credit costs, just briefly -- how did the credit costs trend in the quarter?

Did it seem like they were more related to the broad economy?

Or did they tail off toward the end of the quarter, meaning that they were potentially more correlated with gas prices?

Credit cost or credit --?

Well, charge-offs.

-- charge-offs.

I don't know that they -- rapid -- they did not make any dramatic change from the beginning of the quarter to the end.

So, while we had hoped to see some improvement because of the change in the gas prices, it actually may have helped some of our customers, which was offset by other economic changes.

So I can't specifically answer that.

Okay.

How many offices do you expect to open just in the fourth quarter?

We have 61 in the -- we opened --

We have nine left in the US.

We have nine left in the US and 16 to 25 -- about 10 in Mexico.

Okay.

And then just last question, maybe for Kelly.

The repurchase of the convertible debt, is that more because you saw an opportunity to get the debt at the lower rate or to potentially start bringing that debt down as we move into new accounting standards on that, on the debt?

It had nothing to do with the new accounting standards.

It basically -- the main reason we did it and the timing of what we did is it -- is our stock price fell down to below $16, which made that convertible very attractive.

Okay.

And when do you start with the new accounting standards again on that?

I believe it's the next fiscal year, 2010.

Okay.

Thank you very much.

James Hom, Miller Tabek Roberts.

Good morning and good quarter, everyone.

Could you just tell me, what was the percentage of the loan originations that were refinanced in the quarter?

And what was the figure a year ago, please?

Bear with me one second.

During the quarter, correct?

Yes.

Okay.

Of the total loan volume during the quarter, renewals -- percent renewals was 71% this year versus 67% last year.

Okay.

And just a couple of other items.

The revolver availability at year-end, I calculated that to be about $32 million.

Is that accurate?

That's the approximate balance, yes.

Okay.

And one last items -- you mentioned that the converts were attractive in December.

I think they moved up a little bit.

Do they remain attractive at these levels to you?

As our stock price goes up, the discount on the convertible shrinks.

So, there is a direct correlation to our stock price and the value of the -- or the discount associated with the convertible.

So, what we'll have to do is continue to monitor what our stock price is and what the discount is and monitor what our available cash flow is.

And viewing all of those items, we'll then decide whether or not to purchase any additional debt.

Okay, great.

Thank you very much and good quarter, once again.

(Operator Instructions).

Bill Dezellem, Titan Capital Management.

A couple of questions.

First of all, the flattening delinquency rate from the December quarter versus the September quarter -- is that indicating that we might be seeing a flattening of charge-offs also?

Or is it just simply in your mind too early to read anything into that?

I don't believe that -- I mean, our delinquency rates, the ones that we report of 61-plus days are pretty consistent.

And if you went back and looked over a 10-year basis, they stay within a pretty tight band.

And that's because our branches determine pretty quickly -- if they're having trouble collecting these items and the supervisor reviews their collection efforts, they'll charge those off fairly quickly.

So, you will not see those larger percent delinquencies rise above a certain amount.

So, the timing of payments and so forth can have an impact on that.

So I would not say that the fact that it stayed pretty level between September and December would be an indicator of what charge-offs are going to do in the next quarter or two.

And then the application rejection rate -- how has that changed over the last few quarters?

Historically, over a long period of time, we believe we approved between 40% and 50%, probably 45% of all applications.

As Sandy mentioned during an earlier question, we moved to a certain portion of our advertising budget into a pre-screened, credit pre-qualified, basically preapproved but not 100% pre-approved model for some of our direct mail.

So, in that case, you'd obviously have a very high percent of applications of funding.

So we're not sure yet because we haven't analyzed everything that came in, but on a non-preapproved direct loan basis, I don't believe there's any reason to believe that the denial rate has moved dramatically one way or the other.

So with the weakening economy and higher unemployment, you're not sensing that that rejected rate has increased notably?

That is not my -- I mean, it would all be kind of anecdotal if I was even hearing it, and that's not what we're hearing.

I mean, you know, again, it fluctuates in a band, better performing offices with longer tenured managers that deal better with customers and worse economic situations are certainly probably more prone to take risks than some of our newer managers in newer locations.

So it would be on an individual branch basis where you'd have to make that comparison, and I'm not seeing that.

That's helpful.

Thank you.

And also on an anecdotal basis, shifting to acquisitions.

Are you sensing that there is an increasing level of opportunity that's going to be coming here or has been coming?

As Sandy has mentioned several times, we don't target anyone for acquisitions.

These acquisitions come to us on a as-they-occur basis.

We're reasonably quick at evaluating those.

So there is no pipeline for us to make that kind of evaluation that there may or may not be a lot of things coming up.

Anecdotally, certainly, if our competition is having a difficult time with their credit facilities or their cash flows or whatever, you might assume that there would be more opportunities.

But our pipeline is so short, we don't see a build-up of that happening at this point.

Right.

Because if I recall correctly, you learn about and close an acquisition within a one to two-week time period in many cases?

It really is dependent on how quickly we can get our senior people to that location and when they're available for us to get in.

But as soon as we're able to get into an office with the right people, it can be done very quickly, yes.

And I guess, coming back to just anecdotally, are you seeing that competitors' credit lines are being impacted or that they are having charge-off/delinquency issues that are starting to push them to the brink?

Anecdotally, what we see is some of the older people in our business, individual owner-operators, are looking perhaps at sometime in the near future being a good time to go home and drink coffee and read the newspaper.

But again, the pipeline is so short that we don't see that pent-up demand.

This is just in discussions with our trade association groups.

As we get together, we talk to a lot of people, and there will always be opportunities to buy things.

Very helpful.

Thanks.

To add to that, we're really not privy to the relationships between those independent operators and their particular funding sources.

So, we don't know what's happening with their availability.

Thank you both.

Kyle Cavanaugh, Palisade Capital.

I just had a couple of other questions just to clarify for me.

What's the average duration of your loans?

Average duration given a 300% turnover in our portfolio would have to be somewhere around three to five months.

Okay.

And at what point do you see most of the delinquencies occurring?

Are they immediate?

Are they one month, three months, four months into the loan?

We have all of the above.

Unfortunately, we have some first payment defaults.

And to the other extreme, we can have a long-term customer who's had numerous loans with us in the past, who runs into economic difficulties and becomes a charge-off.

So, I don't -- statistically, I can't tell you which bucket it would fall in, (multiple speakers) --

But if you'd run a bell curve, it would probably tell you that.

Sorry?

If you run a little bell curve on timing of that, it would tell you where most of the delinquencies occur.

Do you do anything like that?

We do.

If you look in the 10-K, every year, we show a percent charge-offs by new, former, and renewal customers, both on a percent of the total as well as percent of the number of loans made.

So, that's as close as we come to any type of curve.

And what that shows you is what you'd expect -- the highest percent turnover on a percentage -- I mean, the highest percent charge-off on a percentage of that category is your new customer.

But the highest percent charge-offs to total charge-offs is the renewal customer, because it's such a higher percentage of the total.

I understand.

I was just wondering if, like, you were seeing a different trend in delinquency because of the unemployment situation out there?

You know, with -- maybe they're happening quicker; maybe you're seeing that new loans are going bad faster than they did in the past?

Something along those lines.

Because it comes from all categories and all types of customers, there's no doubt that we are seeing a deterioration.

And ultimately, where it's reflected is in the charge-offs.

And we've certainly discussed what's happening there.

And then how is the average loan size?

What is the percentage loss?

What is being charged off?

What is the average percentage charge-off of each loan?

Is it a 100% loss, usually?

Or are you charging off the equivalent of 50% or 75% of the loans?

Or is it only -- is it less than 50%?

Well, it depends on the age of that loan.

If it's a first payment default, we'll charge-off the entire 100%.

If it's a renewal and it's halfway into the contract, then it would be 50% of the original loan.

But we always charge off 100% of the remaining balance, whatever we (multiple speakers) --

: Yes.

And that's what I'm saying -- what is the average?

The average is --

The average loan charge-off size.

Average loan charge-off size?

I don't have that number.

I don't have that number.

I'm sorry.

Because I was just trying to see if that's increasing as well.

Are you incurring larger severities than in the past?

Well, our average (multiple speakers) loan size made is growing.

For instance, in the quarter, the average loan made was $1,012 gross.

Last year, it was $970.

So, the fact that your average gross loan made is rising, although it's rising less than 10% or right at 10%, you would also expect your average size of loan that's charged off to be tracking that statistic.

Yes.

I guess if you looked at it from the original question as a percentage of loss, that would normalize that as well.

So, I was just trying to see if your -- the severity was increasing on the losses.

So, my last question was your -- you just said your renewal rate went from 67% to 71% year-over-year?

That's correct.

Why would that happen in the face of a deteriorating economy?

I would think that the percentage of customers -- you would have people losing their jobs within the existing -- and maybe the renewal rate would actually go down.

Well, actually, I think the biggest reason is that we had less growth this year.

Therefore, we had fewer new borrowers and fewer former borrowers that came in.

That's where -- the fact that our year-over-year growth was less is due to the fact that we attracted less customers or made smaller percentage marked to address the percentage of loans made on applications.

But our growth in the September through December period in number of customers was less than it was last year.

Therefore, the percentage of all of our volume would be more heavily weighted towards our renewals.

If you look at it on an annualized -- for the first nine months, that number went from 71.7% to 73.9%.

So it's up about 2%.

But I don't think that's an indication -- I mean, I don't think that's any kind of indication that we can draw any conclusions from.

Okay.

All right.

Thank you very much.

Jordan Hymowitz, Philadelphia Financial.

I have a couple regulatory questions.

South Carolina is poised to outlaw payday loans it seems, or would substantially restrict.

I have to believe that's a positive for you.

What percent of your business is in South Carolina?

My other question is, there's a lot of talk on what Obama is going to do with the 36% consumer finance law.

And there's lots of talk about whether this applied to all consumer loans or just to payday loans.

And where do you fit in that spectrum?

And what do you think is exempted from that?

First of all, the law that's being discussed in the South Carolina House at this point in time is not going to eliminate the payday industry in South Carolina, by any means.

It's going to limit it from the standpoint of the size and it's going to require them to report to databases and things like that.

But it's certainly not going to eliminate that business here.

And in addition, yesterday, competing legislation was introduced in South Carolina in both the House and the Senate, I believe, as a competing bill to the one that you're mentioning.

So the question is, what's South Carolina going to do?

And nobody really knows.

Would you benefit if there was less payday lending in South Carolina?

We're not sure, but anecdotally, we're in the state -- the only state we operate in where it is not there, which is Georgia, we do believe that we benefit from them not being there.

What percent of your business is South Carolina?

11.6% of our loans outstanding.

Okay.

And can you talk about the national legislation?

Or is it too messy to really have a sense on what will be included or be excluded?

No, I think it's appropriate that the question is asked and I certainly don't mind addressing it.

As you know, Senator Durbin from Illinois introduced a bill last June that would propose a 36% rate cap across the board of all credit transactions and redefine the truth in lending, which was similar to the military deal that was passed by the Department of Defense -- I mean, actually passed by Congress and the rules were put into place by the Department of Defense two years ago, for military personnel.

That bill died when Congress ended last year.

But it's our understanding that he will be presenting a similar bill sometime in the near future -- February, March, whenever that might be.

The American Financial Services Association, which is our National Federal Trade Association, is working with Senator Durbin's staff.

So hopefully, if he does present such a bill, it will be one that we can live with as installment lenders.

And at this point in time, we don't know.

If he presents a bill and if that bill is one that turns out to be a straight 36% rate cap and it redefines truth in lending, how is it going to be applied?

There's so many questions to that and it will have a major impact on a lot of industries.

So, hopefully that will never take place, but certainly that, as we've always said, our regulatory issues are our number one risks, pretty much.

But I don't -- like I say, who knows what's going to happen?

Time will tell.

Do your loans fall under TILA, as we speak?

Yes.

Okay.

Thank you.

Yes.

Henry Coffey, Sterne, Agee.

Yes.

Again, thank you.

First, given what you've done with your rate caps, can you give us a sense of, in subsequent quarters, how your pricing on your borrowings are going to compare vis-a-vis LIBOR?

Because I know you've got a certain amount of rate caps in place, but obviously most of your borrowings are LIBOR-based.

I'm going to try to answer that, but I'm not sure I really understood you from the standpoint that -- we are not adjusting our pricing on our loan products.

No, I meant on your borrowings.

On our borrowings, it is a LIBOR-based facility.

It's what, L-250?

LIBOR plus 180.

And we have put into place -- we had previously put into place a $30 million interest rate swap.

And we recently put into place a $20 million interest rate swap.

And based on the fair value of those swaps at the end of the quarter, maybe they weren't such great decisions, but it was my decision, so I'm not complaining.

But it does lock in our rates at what we believe is a very reasonable rate for a period of three years and five years.

On the total of $50 million, what is the sort of average LIBOR base?

Do you want to know what the fixed interest rate is on those two?

Yes.

Exactly.

On a $30 million, it's roughly 4.5%.

And on the $20 million, it's roughly 2.5%.

And then the rest of your bank debt floats with LIBOR?

Correct.

And that's, what, replaced monthly or --?

We do it in different segments, but everything reprices every 30 days but it doesn't all [report] price on the same day.

But it's sort of LIBOR -- 30-day LIBOR is the basis for the --?

Yes.

And then a completely unrelated question.

I know some of the work you've done on the mailings points to a more sophisticated use of information.

What are you doing to control the branch behavior?

And how are you modifying how your branch managers approach lending?

Our branch managers have always had a combination of a -- kind of an empirically-based decisioning system as well as a subjective system.

And inside the ranges of their ability to approve credit within dollar amounts, they have broad latitude to make those decisions.

So one would guess -- I mean, as times became more difficult for our customers and in the branches, that their credit approval may have tightened a bit in terms of both approve or disapprove, and also in terms of the size of the loan that they're going to approve.

I mean, their own internal decisioning?

Yes.

Okay, but certainly there are other more sophisticated things that we can be doing or that we can be looking at, in terms of information available from outside sources, predominately credit information providers, credit bureaus.

And those are things that we are becoming more familiar with as we use them to create our mailing list product for the December growth season.

And then ultimately moving that deeper into the credit decisioning process?

Well, ultimately, using it, I believe, to determine which borrowers should be eligible for more money once they've become our customer.

And then -- and the rest of the process is still controlled by the dialogue between the Regional Manager and the Store Manager?

That's correct.

I mean, there are very, very few loans that would be approved at above the level of a Regional Manager.

And you made some very helpful comments in the last quarter about what was going on at the branches.

Can you give us an update in terms of what you've been doing?

I know you had some branches that needed more help; the Monterey branches are getting attention.

Can you --?

Yes.

And I believe that those results -- or those efforts are bearing results.

We had moved a relatively senior individual from the United States and Texas to Monterey directly in a position as a Vice President of Operations, to free up our second VP of Operations in Mexico, to concentrate on the new store openings and all those kinds of things.

So, we've applied a lot of effort in controlling a large group of employees that were relatively new to World in Mexico, that were hired as we went through a very rapid expansion phase in Monterey.

Those employees are now much longer on the job with much higher levels of supervision.

And those results are -- those efforts are bearing fruit.

Thank you very much.

With no further questions, we'd like to thank you for your participation.

Before concluding this morning's teleconference, the Corporation has asked to again remind you that the comments made during this conference may contain certain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act that represent the Corporation's expectations and beliefs concerning future events.

Such forward-looking statements are about matters that are inherently subject to risks and uncertainties.

Factors that could cause actual results or performance to differ from expectations expressed or implied in forward-looking statements include changes in the timing and amount of revenues that may be recognized by the Corporation; changes in the current revenue and expense trends; changes in the Corporation's markets; and changes in the economy.

Such factors are discussed in greater detail in the Corporation's filings with the Securities and Exchange Commission.

This concludes the World Acceptance Corporation quarterly teleconference.

Thank you and have a good day.