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Operator
Good morning, and welcome to the World Acceptance Corporation sponsored third quarter press release conference call.
At this time all participants have been placed on listen-only mode.
A question and answer session will follow the presentations by the Corporation's CEO and its 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 risks and uncertainties.
Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include changes in the timing amount of revenues that may be recognized by the Corporation, changes in 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.
Sandy McLean - CEO
Thank you very much, and welcome to the World Acceptance Corporation third quarter conference call.
As she said, I'm Sandy McLean, Chairman and CEO, and with me is Mark Roland, our President and Chief Operating Officer, Kelly Malson, my Senior Vice President and Chief Financial Officer, along with other members of our management team.
I'll spend a few minutes reviewing the quarterly results, after which we will be happy to answer any questions.
I am once again very pleased by our quarterly financial performance, and am happy that the operational improvements that we experienced during our first two fiscal quarters have generally continued into the third quarter.
Demand for our loan products remained strong during the quarter, and as expected we have experienced continued improvement in our loan losses.
Net income for the third fiscal quarter was $14.8 million or $0.89 per diluted share compared to $8.9 million or $0.54 per diluted share for the third quarter of fiscal 2009.
This represents a 66.4% increase in net income and a 64.8% increase in net income per diluted share when comparing the two quarterly periods.
For the first nine months of the current fiscal year, net income was $44 million or $2.68 per diluted share, representing a 45.9% and a 47.3% increase in net income and EPS respectively over the first three quarters of Fiscal 2009.
Net income for the quarter ended December 31st, 2008 was originally reported as $10 million or $0.61 per share and was subsequently restated due to the change in accounting principles for the Company's convertible notes.
Net income for the nine months ending December 31st, 2008 was originally reported as $32.7 million or $1.98 per share, and was reduced by approximately $2.6 million or $0.16 per share as a result of this accounting change.
Demand for our loan products remained very strong during the current quarter, which is historically our busiest primarily due to the holiday season.
As expected, due to the traditional third quarter busy season and our expanded office network, loan volume reached the record amount for a single quarter of $674 million in 629,000 separate transactions.
This is an increase of 17.9% over the $572 million in loans made in the prior third quarter.
Additionally, gross loans amounted to $838.9 million at December 31st, 2009, a 13.9% increase over the $736.2 million outstanding at December 31st, 2008 and a 25% increase since the beginning of the fiscal year.
Additionally, this growth was fairly evenly distributed throughout the Company with seven of our eleven states experiencing at least a 10% growth rate, and five of those states exceeding a 15% growth rate.
Additionally, our 13.9% increase in gross loans resulted from an 8.9% increase in the number of accounts outstanding and a 5.0% increase in the average account balance.
While acquisitions continue to be an important factor in our overall growth strategy, the Company has not made any significant purchases during the first three quarters of the fiscal year.
Four small offices consisting of 1,524 accounts and $1.02 million in gross loans were purchased.
All were merged into existing offices.
For comparison purposes, during the first three quarters of Fiscal 2009, the Company acquired 8,679 accounts and $10.1 million in gross loan balances in 21 separate offices.
Of the 21 offices acquired, 11 remained open and the other 10 were consolidated into existing locations.
As planned, we continued the expansion of our branch network during the third fiscal quarter at a much more moderate rate.
We began Fiscal 2010 with 944 offices and opened 32 and merged one, giving us a total of 975 offices at December 31st, 2009.
Our plans for Fiscal 2010 are to open 30 offices in the U.S., which have all been opened, and 15 in Mexico, two of which have been opened so far this year, plus evaluate any other acquisitions which may arise.
Total revenue for the quarter amounted to $112.3 million, which is a 13.3% increase over the $99.2 million during the third quarter of the prior fiscal year.
This corresponds to the 13.7% increases in average net loans when comparing the three quarterly periods.
Revenues from the 834 offices throughout both quarterly periods increased by 9.1%.
Delinquencies and charge-offs continued to improve during the third quarter in spite of the ongoing difficult economic environment.
Accounts that were 61 plus days past due decreased by 0.3% on both a recency and contractual basis to 3.0% and 4.3% respectively when comparing the two quarter-end statistics.
Net charge-offs as a percentage of average net loans decreased with 19.6% annualized during the quarter ended December 31st, 2008, 17.8% annualized during the most recent quarter.
The 17.8% is still higher than historical charge-off ratios for the third fiscal quarter, but we are getting much closer each quarter.
Charge-off ratios were 17.4% during the quarter ended December 31st, 2005, and 17.0% in December 2001.
General and administrative expenses amounted to $55.5 million in the third fiscal quarter, a 7.4% increase over $51.7 million in the same quarter of the prior fiscal year.
As a percentage of revenues, our G&A decreased from 52.2% during the third quarter of Fiscal 2009 to 49.5% during the current quarter.
Our G&A per average opened office actually decreased by 0.3% when comparing the two nine-month periods.
Our expense ratios have greatly benefited from a more moderate office expansion during the current year.
We have opened or acquired 32 new offices during the first nine months of the fiscal year compared to 87 offices during the same period of Fiscal 2009.
Highlights of our Mexican operation include the following -- 65 offices were opened at December 31st, 2009.
Two offices were opened during the current quarter.
We now have approximately 72,500 accounts and approximately $27.9 million in gross loans outstanding.
This represents a 59.1% increase in accounts and a 68.4% in ledger over the trailing 12 months.
We had net charge-offs of approximately $1 million during the quarter or 22.1% of average net loans on an annualized basis, and our 61-day delinquencies are 4.3% and 5.8% on a recency and contractual basis respectively.
We made approximately $185,000 during the third quarter.
We are very glad to see this subsidiary in a profitable position, although we are still trying to address some of our management issues.
Most of our mature offices are doing well and we are pleased with the progress being made.
The Company's return on average assets of 12.7% and average equity of 22.6% for the trailing four quarters continued their excellent historical trend during the third quarter of Fiscal 2010.
Starting with this quarter, we began reporting our return on assets and return on equity on a trailing fourth-quarter basis because we believe this will show a more consistent trend.
Finally I'd like to give you a brief update on the regulatory and legislative landscape, our greatest risk factor.
There has been little change since the end of the last quarter on a state basis.
There are still discussions in two states, Illinois and New Mexico, regarding possible changes to the specific laws under which we operate.
But at this time there is very little activity in resolving these discussions, and there is no reason to believe that any proposed changes would result in our inability to operate profitably in these states.
However, this is an ongoing challenge that we have successfully managed throughout our Company's history.
At the federal level we are still concerned about the proposed Consumer Financial Protection Agency that was part of the Wall Street Reform and Consumer Protection Act, H.R.
4173, which recently passed in a very close vote in the House.
At this time there does not appear to be adequate support in the Senate to pass anything like the House version, if anything at all.
Nonetheless, it remains a high priority of the administration and such an agency or any other legislation or regulation imposing limitations on terms or product structure could have a negative impact on our ability to offer our products to the borrowers who need and deserve them.
We will continue to work closely with our state trade associations as well as federal organizations like the American Financial Services Association and the National Installment Lenders Association to promote our industry and to educate legislators as to the consequences of such legislation, primarily the elimination of available credit to a large segment of the population that does not have access to other forms of credit.
At this time any of us will be more than happy to answer any of your questions.
Operator?
Operator
Thank you.
(OPERATOR INSTRUCTIONS) We'll go first to Dan Bandi with Integrity Asset Management.
Dan Bandi - Analyst
Oh, thanks.
Great quarter, guys.
Hey, Sandy, can you talk at all if you guys have finalized branch growth plans for next year, what you might be looking at?
Sandy McLean - CEO
It just so happens we have our divisional Senior Vice President in with us this week, and we have begun discussions.
And I think on a preliminary basis we're looking at somewhere around 55 offices in the U.S., an additional 15 in Mexico subject to plus or minus a few offices depending upon their -- where they believe it's best to open this year.
Dan Bandi - Analyst
And in Mexico, what have been some of the challenges in terms of getting managers?
Sandy McLean - CEO
Well, you've got to remember we've been in Mexico now for roughly three and a half years, and typically in the U.S.
a good supervisor has at least five years of experience.
Well, in Mexico, other than the two or three people that originally worked in the U.S., nobody has more than three and a half years experience.
And given that we have 65 offices, and the number of people in each office there is a little more than three -- it's more like six or seven offices -- a typical supervisor will only manage or supervise six or seven offices.
So the math says that we should have ten supervisors there that have at least five or six or more years experience, and that level of experience is just not there.
We're making the strides and we see -- I think we've got a lot of good things happening there.
Dan Bandi - Analyst
So it's not necessarily then an issue of finding the right people.
It's more of getting the right people the experience?
Sandy McLean - CEO
Yes.
Dan Bandi - Analyst
Okay.
And my last question for you just on the balance sheet, if you compare just this year versus last year, you guys have brought leverage down quite a bit and yet you've continued to maintain a pretty good ROE.
But going forward are you comfortable with the balance sheet leverage?
Do you see maybe it going up to pay for some of this growth, or just kind of your thoughts there?
Sandy McLean - CEO
Well, we know -- I mean, we were very conservative this year as far as repurchasing stock.
We did take advantage of some of our convertible bonds that were outstanding.
We bought quite a few of those back at a discount, and then we went through our renewal on our revolver and we had one bank that wanted to reduce its amount, but we were able to bring in two other banks but there was a timeframe between that took place.
So we wanted to be -- we wanted to make sure we had adequate funding to get through the busy season.
As it turned out we had more than adequate funding.
But we certainly will -- I mean, let me back up one second.
We know that sometime in the next year and a half we've got to address our convertible bonds, and I think sometime in the fairly near future that we should take a look at where they stand.
Should we go forward with term notes or issue another convert?
These are things we're beginning to have discussions.
I don't know exactly the timing of that, but obviously the timing is getting a lot shorter.
And in conjunction with some type of transaction there, it's a good possibility that we may buy back some stock as we did last time.
But all these things are preliminary, but we are well aware that our leverage ratios are getting pretty -- I mean, were not that highly leveraged again.
Dan Bandi - Analyst
Okay.
Thanks a lot.
Again, a great quarter.
Sandy McLean - CEO
Thanks.
Operator
We'll go next to Henry Coffey with Sterne Agee.
Henry Coffey - Analyst
Yeah, good morning everyone.
A phenomenal quarter.
Can you give us a sense on a couple of things?
I know you're not 100% comfortable with guidance, but we've seen a dramatic improvement in net charge-offs again.
But now as we start to sort of lap the initial recovery, is this a process that will continue for another three or four quarters or what is your feeling?
Sandy McLean - CEO
Henry, we have shown dramatic improvement in each of these quarters.
We still as you know and as we stated in the press release, we're still pretty far from our historical averages.
But we still are also in a pretty uncertain time as far as unemployment and so forth, so it's really difficult to say and I'm not real comfortable giving guidance because this is something that is hard for us to tell internally.
Mark, can you add anything to that?
That's like passing the hat, but it's a question I can't answer.
Mark Roland - President and COO
Henry, it's difficult to tell.
If unemployment continues to stay at the levels that they're at right now, sooner or later that's going to have a negative impact.
But at this point I would expect that in the coming quarter that we would see a marginal improvement over the prior year.
I don't believe that we can continue to lop off 190 basis points from prior year levels.
As you indicated, we're beginning to lap ourselves here on when the improvement began to start, so I think anything more than that would be pure speculation.
Henry Coffey - Analyst
And then on the buyback front, do you have a current authorization open?
Kelly Malson - SVP and CFO
Henry, this is Kelly.
And as of now we do have authorization both to buy back stock and to buy back the convert.
Henry Coffey - Analyst
And what is the dollar sort of remaining on each of these programs?
Kelly Malson - SVP and CFO
Dollar remaining on the stock repurchase is $15 million and the dollar amount on the convert is $24 million.
Henry Coffey - Analyst
Historically you've sort of waited until the spring to start buying back stock.
I know you've been making great gains with the convert.
What is your thought process?
I know leverage is low.
You've got terms -- a convert to deal with, but what is your thought process in terms of buying in stock this year.
Sandy McLean - CEO
Well, number one, I think we missed a really good opportunity last year, but there was a lot of reasons for that.
Henry Coffey - Analyst
Right.
Sandy McLean - CEO
But I think that it's still a good use of excess capital, and I think that is a long-term strategy that we will continue to follow, as has historically been the case with this Company.
Henry Coffey - Analyst
Well, thank you.
Great quarter and I appreciate your comments.
Sandy McLean - CEO
Thank you, Henry.
Operator
(OPERATOR INSTRUCTIONS) We'll go next to Bill Dezellem with Tieton Capital Management.
Bill Dezellem - Analyst
Thank you.
I'd actually just like to follow up on the last question.
Given that you do continue to generate a lot of excess capital, have you given thought to not replacing the convert at all and just operating with bank debt or just straight debt?
Sandy McLean - CEO
We certainly give thought to all possibilities regarding this, but if you look at our balance sheet and you look at the amount of debt outstanding as opposed to the availability under our lines, it doesn't quite work.
Now, that's not to say that we couldn't get there fairly easily over the next 12 to 15 to 16 months, but that also could severely restrict our ability to make acquisitions should they present themselves or other types of opportunities that may come along.
So I would not want to cut our total availability that close at this point in time.
Bill Dezellem - Analyst
That's helpful.
And then we see the numbers in terms of loan demand or loan growth that you had in the December quarter.
Would you please qualitatively characterize how you view loan demand?
And I ask the question just given the fits and starts that we're hearing about in the economy.
Sandy McLean - CEO
Qualitatively, I mean, it's -- we're very pleased with our growth season and the fact that 8.9% of our growth came from new customers.
And you've got to remember that quite a few of our customers are paying us off each month, and unfortunately quite a few of them are being charged off.
So there still remains a lot of demand for our products, and I don't know what else to say.
I think the outlook is great.
Bill Dezellem - Analyst
That's helpful.
And then shifting to loan losses, is there any structural reason that you cannot return to the 2005/2008 level of losses, assuming that at some point employment does -- or unemployment starts to trend down and employment starts to work its way back up?
Sandy McLean - CEO
We maintained a 14.5% annualized rate for the full year for about seven years, and then we've had a major increase in Fiscal 2009 and we're seeing improvements in Fiscal 2010.
Now, I can't sit here and tell you that we will ever get back to the 14.5% level, but I personally don't see any reason should the economy stabilize that there is nothing within our contract terms or whatever that would prevent us from getting to that level.
But so much depends on outside influences that I can't even begin to possibly predict that.
Bill Dezellem - Analyst
So basically, although you don't want to guarantee anything, at this point in terms of your crystal ball, you don't see anything that structurally is different such that we couldn't return to what at one point in the past was the norm?
Sandy McLean - CEO
That's correct.
I do not have a crystal ball, but I do know that structurally our loan products remain similar to the way they've always been.
Bill Dezellem - Analyst
Great.
Thank you for the time.
Operator
We'll go next to Jim Rowan with Sidoti & Company.
Jim Rowan - Analyst
Good morning.
Sandy McLean - CEO
Good morning.
Jim Rowan - Analyst
Just a couple of quick questions, and maybe to follow up on the last question.
Sandy said that you could go back to the earlier levels of charge-offs.
Now, does that change at all as you moved more toward the high-balance loans?
Could you actually maybe fall lower than where you had historically been?
Sandy McLean - CEO
If we had a major shift in our large loan/small loan category, yes, that would make sense, but I don't anticipate that happening.
Jim Rowan - Analyst
Okay.
And how about -- just to go back to returning capital to the shareholders, how about a dividend?
Sandy McLean - CEO
It's something we always consider, but we believe the other uses of funds such as stock repurchase and so forth are more beneficial in the long run.
Jim Rowan - Analyst
Okay.
Just two more.
The subordinated debt number, what was that at the end of the quarter?
Kelly Malson - SVP and CFO
$84 million.
Jim Rowan - Analyst
$84 million, okay.
And one last question.
I had read some comments about there being talk about changing or making tax advisors be licensed.
And I know you guys don't actually have tax advisors, but have you looked at any potential changes to those types of laws and how it would impact your business?
Sandy McLean - CEO
There has always been some type of I don't know if you want to call it rumor or speculation or whatever that that could, in fact, take place.
We would welcome such a thing.
We go through very intense training programs for all of our individuals that participate in the tax preparation, and we believe that we would have no real issues in passing those type of tests.
Jim Rowan - Analyst
Okay.
Thank you.
Operator
(OPERATOR INSTRUCTIONS) We'll go next to Jim Hom with Miller Tabak.
Jim Hom - Analyst
Hi, good morning, and congratulations on a very good quarter.
Sandy McLean - CEO
Thank you.
Jim Hom - Analyst
Just a couple of questions.
Could you tell us what the percentage of loans that were refinanced versus a year ago, and could you disclose how much was drawn on your revolver at the quarter end, please?
Kelly Malson - SVP and CFO
This is Kelly.
And regarding the revolver, at December 31st our balance was $186 million rounded.
And Sandy --
Sandy McLean - CEO
Bear with me one second and I'll tell you exactly what the percentage is.
During the current quarter, 73.3% of our total loan volume represented renewals.
During the same quarter of the prior year, 71.1% represented renewals.
Jim Hom - Analyst
Okay.
Sandy McLean - CEO
This is very close to historical -- basically the way it's been over many years.
Jim Hom - Analyst
Okay, great.
Thank you very much.
Operator
And Mr.
McLean, we have no further questions.
Sandy McLean - CEO
Well, then I want to thank all of you for being with us today, and thank you very much.
Operator
Ladies and gentlemen, 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 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 risks and uncertainties.
Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include changes in the timing amount of revenues that may be recognized by the Corporation, changes in 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.