World Acceptance Corp (WRLD) 2012 Q3 法說會逐字稿

Ladies and gentlemen, good morning, and welcome to the what World Acceptance Corporation sponsored third-quarter press release conference call. This call is being recorded. At this time, all participants have been placed on listen-only mode. A question-and-answer session will follow the presentation by the Corporation's CEO and its other officers.

Before we begin, the Corporation has requested that I make the following announcements. The comments made during this conference may contain certain forward-looking statements within the meaning of the Section 27A of the Securities and Exchange Act that represents 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 the current revenue and expense trends, changes in the Corporation's markets, and changes in the economy. Those factors are discussed in greater detail 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, CEO.

Thank you, Peter, and I'd like to welcome everybody to the World Acceptance Corporation third-quarter conference call. As Peter said, I am Sandy McLean, the Company's CEO, and with me are Mark Roland, our President and Chief Operating Officer; and Kelly Malson, our Chief Financial Officer, along with other members of our management team. As is customary, I'll spend a few minutes reviewing the quarterly results, after which we'll be happy to answer any questions.

I am once again very pleased that our quarterly financial performance has continued the positive trends that we experienced over the last several fiscal quarters. As we mentioned in our press release, this is the 44th consecutive year-over-year quarterly increase in net income and diluted earnings per share, excluding the September, 2007, quarter, which was restated by approximately $700,000 with the adoption of FASB ASC Topic 470-20.

Demand for our loan products remained strong during the quarter, as expected. We have continued to maintain our loan loss ratios at or below prior year and historical levels. Net income for the third fiscal quarter was $19.6 million or $1.36 per diluted share, compared to $18.1 million or $1.12 per diluted share for the prior-year quarter. This represents an 8.4% increase in net income and a 16.1% increase in net income per diluted share when comparing the two quarterly periods.

For the first nine months of fiscal 2012, net income was $63.1 million or $4.08 per diluted share, representing a 10.6% and a 15.9% increase in net income and EPS respectively over the $57 million and $3.52 earned in the first nine months of fiscal 2011.

The Company's EPS continues to benefit from an ongoing share repurchase program. During the first nine months of fiscal 2012, we repurchased 1.167 million common shares for approximately $74 million. We should continue to be very accretive to our per-share earnings in the future.

As you know, the third fiscal quarter is our busiest of the year in regards to loan volume, primarily due to the holiday season. During the quarter, we closed approximately $816 million in gross loans, a 16% increase over the amount loaned in the second quarter and a 7.2% increase over the same quarter of the prior year. As a result, gross loans amounted to $1.07 billion at December 31, 2011, a 10.4% increase over the $965 million outstanding at December 31, 2010, and a 21.8% increase since the beginning of the fiscal year.

Additionally, the 10.4% year-over-year growth resulted from a 6.8% increase in number of accounts outstanding and a 3.6% increase in average balances. While the 10.4% year-over-year growth rate is less than the increases that we have seen in prior years, it is similar to what we have been experiencing during the last few quarters. We have not, in general, tightened our underwriting criteria, but believe that our customers have become more conservative in accessing available credit.

While acquisitions will always remain an important factor in the overall growth strategy of the Company, there have been only moderate purchase activity during the first three quarters of the fiscal year. 20 small offices, consisting of 3,937 accounts and $3.1 million in gross loans were purchased. Of the 20, 1 became office location, and 19 were merged into existing offices.

For comparison purposes, during the first three quarters of fiscal 2011, the Company acquired 5,700 accounts and $3.9 million in gross loan balances in 17 separate offices. Six of these became new offices, and the rest were consolidated into existing locations. We remained on track with our planned expansion of our branch network during the first nine months of the current fiscal year.

We've began in fiscal 2012 with 1,067 offices, opened 53, purchased 1, and merged 1, giving us a total of 1,120 offices at December 31, 2011. We now have 11 offices in Wisconsin, our newest state, and 100 offices in Mexico. We intend to open an additional 16 offices in the United States and 4 in Mexico, which should give us 1,140 offices at the end of fiscal year.

Total revenue for the quarter amounted to $136 million, a 7.9% increase over the $126 million during the third quarter of the prior fiscal year. This resulted from a 10.6% increase in average net loans when comparing the two quarterly periods. The Company has experienced a slight decrease in yields over the last couple of quarters due to a small change in the loan mix among the states as well as a small shift in what we consider small versus larger installment loans.

Primarily due to the recent introduction of larger balance loans in Texas and the pent-up demand of the existing qualified customers in that state, we've experienced a shift in the larger loan balances from 25.6% at December 31, 2010 to 28.9% at December 31, 2011. We expect this mix to begin to normalize over time and believe these changes will result in improved earnings over the long-term. Revenues from the 988 offices opened throughout both quarterly periods increased by 4.6%.

As expected, the Company's delinquencies and charge-offs have remained stable during the third quarter as it has during the first three quarters of the fiscal year. In spite of an ongoing difficult economic environment, accounts that were 61-plus days past due increased slightly from 2.8% to 3% on a recency basis and from 4% to 4.3% on a contractual basis when comparing the two quarter-end statistics.

The ratio of net charge-offs to average net loans decreased from 16.3% to 15.9% on an annualized basis when comparing the third quarter of fiscal 2011 to 2012. This is the third quarter in a row of stable charge-off ratios, which remain in line with historical levels. Over the last 10 years, charge-off ratios during the third fiscal quarter have ranged from a high of 19.6% in fiscal year 2009 to a low of 15.3% in fiscal 2003.

The Company remains focused on controlling operating expenses. General and administrative expenses amounted to $66.2 million during the current quarter, a 7.9% increase over the $61.4 million in the prior-year quarter, primarily as a result of the 66 net new offices opened over the past 12 months. As a percentage of revenues, our G&A remained flat at 48.7% when comparing the two third-quarter periods. Our G&A for average opened office increased by 1% when comparing the two fiscal quarters.

We are also very pleased with progress being made in our Mexican operations. We have 100 offices opened as of December 31, 2011. Six offices have been opened and one closed are in the current fiscal year, with an additional four offices expected before the end of March. We now have approximately 114,000 accounts and approximately $52 million in gross loans receivable. This represents a 19.7% increase in accounts and an 18% increase in ledger over the trailing 12 months.

During the past 12 months, there has been a strengthening in the value of the dollar when compared to the peso. The growth in the Mexican ledger balance would have been 33.1% in a constant exchange rate environment. Additionally, the growth in consolidated gross loans would have been 11.1% instead of 10.4% without the US dollar appreciation. Revenues in Mexico grew by 15.8% in US dollars and by 27.1% in Mexican pesos when comparing the two third-quarterly periods.

We had net charge-offs of approximately $4.7 million during the first three quarters of the fiscal year or 18.6% of average net loans on an annualized basis, the same ratio we had during the first three quarters of fiscal 2011. Additionally, our 61-day delinquencies are 4.8% and 7.3% on a recency and contractual basis respectively.

This subsidiary has been profitable during the last three quarters with pretax earnings of approximately $3.4 million for the current year compared to $871,000 for the first nine months of the prior year. This profitability should continue to improve as we grow our outstanding receivables in our existing offices. The Company's trailing four-quarter return on average assets of 13.4% and return on average asset equity of 22.8% continue the excellent historical to trend as we enter the fourth quarter fiscal 2012.

Finally, I'd like to provide a brief update on the regulatory and the legislative landscape, the Company's greatest risk factor. At the state level there is very little activity with no material legislation pending in any of the states where we currently operate.

There is a ballot initiative in the state of Missouri that is proposing a 36% rate cap on all consumer credit products. There are several legal challenges to this proposed referendum, and many groups are spending a great deal of time trying to highlight the negative consequences that such a law would have on consumers in Missouri. However, the current time, there is no way to determine the outcome of this initiative.

At the federal level, the primary focus and concern is the recent developments at the Consumer Financial Protection Bureau. As everyone is aware, the President appointed Richard Cordray as the new director of this bureau in a recess appointment. While there have been several challenges as to the legality of this appointment, the bureau is moving forward with all the powers granted to it by Congress, including oversight of non-bank entities.

Part of the Dodd-Frank law set as a priority the requirement that the bureau specifically review the practices of lenders offering payday loans, student loans, and mortgage loan services. In a recent hearing in Birmingham, Alabama, Director Cordray defined payday loans in a clear, precise manner, indicating that the bureau is still fully aware of the distinction between payday loans and the installment loans offered by our Company and our industry.

We will continue to work with our national trade associations, the American Financial Services Association and the National Installment Lenders Association. We are meeting with key regulators as this process moves forward and are providing comments and other input as new regulations are created implemented.

We continue to believe that the value of the vital service we provide, that is providing credit opportunities to so many individuals that have limited access to the credit markets, will continue to be recognized by this bureau as it progresses in its oversight in other non-bank services. At this point in time, Peter, we would be more than happy to answer any questions that somebody might have.

(Operator Instructions) And let's first go to Stephens Incorporated, David Burtzlaff.

Morning, Sandy. And a few questions here. One pertains more to the loan growth. You said you haven't changed your underwriting. Would you say this is also a function of the strong -- the difficult comp that you had last year in the third quarter?

Certainly, last year's third quarter was -- it was very good, but we've certainly had bigger quarters in the past. So, I think it's just a continuation of the same type of year-over-year comparisons that we've had for the first couple of quarters.

I'm not 100% sure what is driving demand. I know that our -- all levels of operations have been extremely focused on making every single good loan that they -- application that comes across their desk. Whether or not is a matter of the reduction in the number of qualified borrowers or whether those borrowers are hesitant to lend is very difficult to tell. But it's certainly nothing we are doing internally to restrict the amount of loans that we are making.

Okay. And in the past, you have talked about some different states and where you've seen growth, and you kind of alluded to that there was a little bit of a mix and change in some of the states. One that's affecting the yield. Can you talk a little bit about that? What states are not growing as fast as they have been?

I certainly would be happy to. That wasn't -- I did not intentionally not discuss that. You want it by individually by state? Or do you just want generally speaking? Unlike in the past, I think we've had as many as 8 out of 12 that had growth rates exceeding 10%.

This year, we have one, two, three, four, not including Mexico. But including Mexico, if you consider it a state, 5 out of the 13 that had that growth rates exceeding 10%. The biggest growth came in Louisiana, Illinois, Wisconsin, and Mexico. But everything else was -- the growth rates ranged anywhere from 3% in New Mexico on the low side to, obviously, some extremely large amount in Wisconsin.

Okay. Okay. Do you think you might be reaching saturation in some of those markets, that they are not growing as fast? Or is it a function of any of your store openings?

No, I don't believe that at all. As far as the store openings, were pretty much in line with our plan this year, and it is very similar to what we did last year. And I believe it is more of a function of the demand and our ability to make good quality loans than it is -- I think there is still a lot of people that utilize our services out there, and it will continue to be.

Okay. And then, was there a timing difference last quarter, Kelly, maybe with the debt balance in terms of your revolver and timing of paying off the convert, because the debt balance dropped significantly this quarter compared to when, normally, this is a growth quarter?

Yes. At September 30, we had $77 million in restricted cash, and we still had $77 million outstanding on the convert. And on October 3, that convertible bond was paid off.

Okay. Okay. So you saw the normal growth, then, in loan -- in debt balances that you normally do during this time period?

Correct.

Okay. And finally, what would be a good tax rate to model going forward?

On an annualized basis, it should be somewhere around 37.5%.

Okay.

We've had a lot of things both last year and this year that have had an impact in various quarters. But on an annualized basis, that should be a good rule.

All right, thank you very much.

Next up, let's go to Dan Bandi with Integrity Asset Management.

Thanks. Sandy, just on -- another question on the growth. You were mentioning in terms of just not seeing as much demand as in the past. Is that true on the existing book also? Are you seeing some clients just pay down and not -- maybe not re-up or take out more as they would have in the past? Or is it primarily just getting new clients in the door?

If you look at our loan volume for the quarter compared to last year, our total loan volume of 7 point-something percent increase, it is a little less than it has in the past. And if you look at our year-over-year growth, I believe I said it was somewhere around of 6 points -- of our 10% is 6% growth in number of customers and 4% growth in average balances.

I think we're a little shy on both sides of that. So, but anyway, Kelly is indicating something I'm not looking at. I think the subtraction of new customers has been certainly a large part of this process. Is that what you --

That is correct.

Okay, thanks a lot.

From C.L. King & Associates, let's go to Bill Armstrong.

Good morning, Sandy and Kelly. Are you seeing any changes in any trends down in Mexico, whether it be customer traffic, overall demand levels, any impact on consumer behavior from the weaker Mexican peso, maybe people crossing the border, anything you can call out down in Mexico?

Since the functional currency in Mexico is the peso, I believe the demand -- I don't believe there's been any real change upon their utilization in that currency there. The impact has been when we convert those back to the dollar. It's had a negative impact. But I don't really believe that that change has had an impact on what is going on. Generally, what's going on down there from both a growth standpoint -- we are very pleased with what is taking place.

So, on a local currency basis, then, this seems like demand is continuing to grow unabated? Is that fair to say?

Yes. Would you agree with that? Yes. Mark agrees with that also, yes.

Okay, great. Thank you.

John Rowan, Sidoti & Company. Please go ahead.

Good morning. Kelly, I know the convert was paid off in the beginning of October. I just wanted to make sure that there were still no GAAP impact from the hedges on the diluted share count?

As of December 31, the warrants that were outstanding were anti-dilutive, so there was no impact. If the strike or the stock is above $73.94, then there could be some impact. But those warrants will expire on February 9. So, the timeframe is pretty small.

Okay. And just to go back to the regulatory issue. Obviously, the comments have been centered on payday lending. Have you guys gotten any type of feedback as to how the comment period for installment lending is going with the CFPB? And when do you expect some type of decision as to what they are going to define as the participant's phase for installment loans?

Well, I think it is not installment loans. Once the identify the three industries specifically, or the three products specifically identified by Dodd-Frank then it becomes a matter of other non-bank entities, of which we will fall under that. The first thing they have to decide is what is a large market participant? And that, I think the rules related to the large market participants will be issued sometime within the next few weeks.

And obviously, if we don't qualify as a large market participant, then we would probably not come under the direct regulatory or examination of bodies encompassing in the Bureau. But if they look at, say, installment lenders as a product, and then in the installment lending industry, then certainly,

World would probably be considered a large-market participant in that particular industry. But If they compare the size of world to some of these other larger non-bank financial institutions, we're not large by any measure. A lot depends on the direction they go in identifying the large market participants, and then from there, we'll just have to wait and see.

So, if they do include you with other larger lenders, is there a chance -- maybe it is not a fair question, but if that is the grouping, I assume there is the possibility that you don't even come under the regulatory guys of the CFPB. Technically, as of now, you are not under their umbrella, correct?

Every consumer product comes under their umbrella, but whether or not they will come into our offices and conduct audits and so forth will depend upon whether we meet the minimal qualifications for that large-market participant. However, in looking at the field -- Mark, what was that called?

The field audit guide.

The field audit guide that they published for payday lending, if in fact we become subject to a similar type audit, we're not encouraging more oversight because we already complete -- we're audited by so many different areas, but were not fearful of what they would find if they came in and conducted those audit procedures on our offices today. So, but to answer your question directly, so much depends on how they define the large-audit participants -- I mean large-market participants.

And just last question. How much is left under the repurchase authorization?

Close to $20 million, a little bit over $20 million. We were unable -- we did not buy a lot during the current quarter, relatively speaking, so it is mostly of what that most recent authorization.

Okay, I figured that, obviously, with the December period, I assumed you guys may be me aggressive in the March period, given the cash flow of the season? Is that fair?

Yes. I think that when we were granted that authorization by the board, it was our intent to utilize cash flow for that purposes, as we have been doing in the past.

Okay. Thank you.

Up next, from Sterne Agee, let's go to Henry Coffey.

Good morning, everyone. Just really three different sets of question. At the hearings in Alabama, one of the consumer advocates specifically cited the difference between payday and the Small Loan Act and indicated that there were a series of audit and other protections associated with the Small Loan Act that didn't seem to be prevalent with payday. Is it fair to say that your -- in the scheme of things, that the installment loan business is a third or fourth priority for the CFPB and that payday is the immediate focus, or you don't get that sense?

Henry, I can't answer that. I think it is fair to say that -- not third or fourth. I think it is fair to say second because the Dodd-Frank act specifically named three products in the bill itself. The fact that installment loans is not one of those specific products would indicate that it is not as much of a priority as those products named.

Right, but whether you're a second in line or fifth in line is probably not relevant right now.

That is correct. But as I said earlier, I think the next step that we will -- the next thing that we will learn in the process is the definition of the large-market participants.

And when does that come out? Are they likely to publish a list?

No, I think what they will do is they'll have some kind of guidelines that will be -- that will come out in the form of a proposed regulatory ruling, and people will have a chance to comment on it. And I think it is expected within the next 2 or 3 weeks.

And then shifting gears, looking at the geography. I heard some of the Mexico numbers. Can you give me a replay of that, particularly in constant currency terms? You were talking about loan balance growth, customer growth, and a couple of other performance metrics.

I don't have anything in pesos, but growth rate was in slightly excess of 30%.

On a year-over-year basis? That was in terms of earnings or loan balances?

Loan balances. Sandy' s looking it up right now. Hang on.

The Mexican ledger balance would've been a 33.1% on a constant exchange ratio.

What about customer count? What was that up?

The customer count is going to be the same regardless of --

Right, of course, I was just wondering what the figure was.

We have all those number. I just have to look at different places to get it, so bear with me just 1 second. The number of customers was up 19.7% from 95,000 to 114,000 from December to December.

Now, looking at the other geographic dynamics, when we look at the pawn shops that have been reporting, there'll all seeing slower growth in their payday loan revenues. They sort of blame Texas. If you focus in on your US market, was Texas a disappointment for you all? I know you --

As I mentioned -- I specifically mentioned, when we made the decision to offer that larger loan product in Texas, we believe it is going to be an extremely profitable product. But given the fact that the limitations in Texas under the laws -- under the license we were previously operating, there was a maximum a little over $1,000 that we could lend. But now, by getting this additional license, we are able to offer loans up to $3,000 or more. It's obviously at a different rate structure.

But given the pent-up demand for additional availability and the credit quality of those customers, we had a bigger than normal shift between small loan customers and large loan customers that I think had some impact on the mix of the larger loan balances to the overall. But as I said, I think this will normalize over time because every customer in Texas is not going to qualify for the $1,500 and $2,000 loan, and certainly, any -- there is no shortage of customers that are going to be looking for credit under less than $1,000.

So in Texas you may have lost a little on the revenue front as you move customers into this bigger, frankly, better product.

We probably didn't lose a lot on the revenue front but as much as you did maybe on the yield front. You have a larger balance outstanding with a lower yield because of the larger balances and the higher credit cost.

And looking at either loan balances or store count, how big a factor is Missouri for you all?

All of our states are extremely important to us. But as far as balances per se, $63 million, so if it -- depending on what happens with that ballot amendment, we would have to make some changes in the way we're doing business in Missouri.

And is that going to be a November initiative?

I think that --

Or sooner?

I think that they will -- they have until some time in May to get the required signatures. There are our still some legal issues whether or not the proper processes went through by the Secretary of State, as far as the economic impact regarding this referendum, but if all of this goes forward according to whatever the plan, then it would be part of the November ballot initiative. Yes.

And that was originally targeted at payday, wasn't it?

It alleged to be a payday control product, but it encompasses all credit services in Missouri. So, this certainly will be negative consequences to consumers in Missouri should that referendum past.

Great. Thank you very much.

And now, let's go to Bill Dezellem with Tieton Capital Management. Bill?

Thank you. I would like to circle back. Sandy, you made a comment that something to the effect that subtraction of new customers. Would you please readdress what it was that you were talking about, there.

Subtraction of new customers? I'm sorry I don't remember saying that specifically stating that, so you'd have to tell you we are talking about.

That was my point of confusion, is exactly what that was in relation to, but that phrase is what I heard, subtraction of new customers, and I was just hoping that might --

It may have been attraction of new customers.

That would probably make a lot more sense. All right. Let's shift to the higher balances in Texas, if we could, please. You said earlier on that ultimately you believe that is going to lead to higher earnings in Texas. But currently, that is not necessarily the case. Would you please discuss in a bit more detail why it is not currently generating more earnings, number 1, and number 2, why longer-term, you do believe that it will be an earnings enhancement?

Number 1, we know that Texas small loans are extremely profitable, and these are loans that are less than $1,000 that have higher yields that are dictated by the state. As you move into larger loan balances, the yields on these loans of $1,500, $2000 the state allows you to give yields in the low 30s plus sell ancillary products, and the losses are certainly less than you would see on the smaller loan product.

So given the -- at larger balances, the reduction in G&A to service these loans, the reduction of losses that you would anticipate on these loans, the net returns on assets and on equity, if you could break it down to that level, would be very similar in the long run that you may see on a large -- on a small loan product. However, in the short term, as we shift immediately from the smaller loans to the larger loans, then it could be some negative impact on the reduction in yields until we get this book of business built up and we get in place.

I know that you're probably saying, that if both of them were just as profitable, why wouldn't you instantly see the same results? But there is a timing issue associated with -- in our business that we experience, and -- but we know both products are profitable, so therefore, as we expand this business to encompass both of these product lines, the state in and of itself will be more profitable.

That is helpful. And you did say that you expect smaller losses on the larger loans. And why is that?

You would generally expect that all the time. The larger the balance loan that you are willing to underwrite would indicate a more credit worthy customer. And the more credit worthy customer or the better collateral that you are able to have pledged against a loan would result in lower losses. That is why --

Understood.

That is why -- that is really the nature of why these alternate rates are provided on the real, real small loans because the larger the balance, it takes about the same amount of time to underwrite a small loan as a larger loan. So -- anyway, I think I've tried to answer that.

That is fine, thank you. And then in the press release that you did mention that the tax rate did have a benefit here in the current quarter, something to do with state income taxes. Would you please provide detail behind that?

Well, we are constantly evaluating all of our states, and we've discovered that we had an opportunity we had missed because we have certain employees in Kentucky. We were able to -- that really constituted Nexus in Kentucky to South Carolina, which allowed us to allocate certain general overhead from the parent Company down to the state level, which then allowed us to redeem -- we have reduced some of the state taxes we paid in Kentucky.

That did provide somewhere around a $350,000 benefit during the current quarter. So, year-to-date, we had a similar type benefit last year during the second quarter that related to a similar type thing in Texas and in South Carolina. So, these are not material numbers, but they do have an impact on the state rate in any given quarter depending upon when they take place.

And so that $350,000, that is essentially a catch-up? That's not something that we will see on an ongoing basis each quarter?

This was kind of a cumulative number. It will -- on an ongoing basis, we will benefit in our rate in the state of Kentucky. But this was a multiyear adjustment when we identified it, and as a matter of fact, we only could take a certain percent of this benefit.

So, there will be another benefit -- because there is still some question whether or not the state of Kentucky will take exception to this strategy, although we do have a letter from them that says it should be fine. So when you get into tax issues, he you need somebody smarter than me. But there is a lot of details, and we are in a lot of states, and there are a lot of issues on an ongoing basis.

Thank you.

Let's now go to Philadelphia Financial's Jordan Hymowitz.

Thanks, guys. Two quick questions. One, can you disclose the percentage of loans that are refinances in the quarter that's usually in your queue?

Certainly, if you bear one second. It's probably somewhere near the same percentage --

The percent of renewals for the quarter was 75%. Former borrowers was 9%.

I'm sorry, what was that statement?

The percent of renewals for the quarter was 75%, and for former borrowers, it was 9%,which was consistent with the same quarter last year.

I don't know what the term means for former borrowers was 9%.

A former borrower is an individual who has paid us out in full and then has come back and taken out a new loan with us.

So, is that on top of the 75% or included in the 75%?

On top of. The combined would be 84%.

Second question is could you comment at all on Elektra in Mexico? They seem to have gone from nowhere to in the past year dramatically expanding both their installment lending and pawnshop operations there. Is that one of the reasons you think that Mexico has been slowing down so much?

Elektra was there when we entered the country as one of the largest finance buy-here retailers in the country. I wasn't aware that they had expanded greatly unless they have rebranded something and put it under the Elektra label.

Actually, they have. So -- they expanded their installment lending not directly related to retailing, as well as their pawn shop operations the past year, so they are no longer just targeting retailing in-store. But if you look at the earnings, they've expanded their bank, which is more of a direct lending relationship. So, I'm just wondering if you are seeing that more as a competitor down there?

Not overtly, no, but even -- again, when we first entered the country, if you went into any Elektra store, in the back there were opportunities for direct-loan lending. They were very new to it six or seven years ago, and if they have expanded that greatly, I apologize, I was unaware of it.

Okay, thank you.

(Inaudible)

In terms of your stock buyback, obviously, a $70 stock price is a bit much. When you make that determination, are you just fixing a certain amount each quarter regardless of price, or do you have some basis or some valuation you would like to get for the stock?

Well, on an ongoing basis, we certainly want the stock to be accretive in the current year, but -- and we are certainly price sensitive. We would be more aggressive if the stock goes down than it may if it goes up, but we are not necessarily following the stock on a day-to-day basis to try to hit the lows and miss the highs. We certainly think it is still accretive at the $70 levels and even at the $80 level, but we certainly take advantages of those times when the stock tends to drop for some unknown reason.

How does buying a stock up here relate to some of your private purchases of loan shops around the country? Is this what you have been paying for the private deals around or is this --

If you remember, we've had 20 small office acquisitions, a total of $3.5 million. A lot of times, you are buying an office that is losing money, but we are buying it number one, to take -- to remove a competitor in the market, number two, to get -- rather than coming in on a de novo basis, to have some basis to expand that business without incurring as much in operating losses that you would normally have.

And so, there is no metric that you can use to measure, consistently measure the valuation on these small purchases because they are so different. We generally look at basically a multiple to asset purchased.

On the de novo side, just briefly, what type of time frame? I know it would vary state to state, but what kind of timeframe are you looking at now from when you start one to profitability?

Generally speaking, it's got to go through at least one busy season, which is third-quarter. Sometimes they are profitable in the subsequent year, and sometimes it takes more than one year.

But it is not so state dependent as it is dependent upon the manager that you select to go in to open those offices. Some managers are much better at attracting new customers or a little more aggressive. Sometimes that plays in our benefit. Sometimes it blows up.

Is they are too aggressive and they put on loans that they probably should have underwritten a little more thoroughly, then -- there's a balance that you have to have when opening these new offices. But it's very inconsistent depending upon the town you go in and the manager you place there.

Then two small questions, here. The next one is, the closure of a branch, what is your determination on closing a branch? What you look at it and say -- I'm sure you try to replace the managers and do those sorts of things, but is there -- what is your process behind branch closures?

We've really haven't closed a branch for performance-based reasons for as long as I could remember. What typically will happen, is we have had offices in a town. We've acquired a new office. We will wind up with three in a town that aught to be supporting two, or two in a town that aught to be supporting one, and we'll consolidate them together.

In the case of the current fiscal quarter where we closed a branch in Mexico, the primary reason for that was that we had multiple branches in a small town, not a small town, a pretty good-sized town, in central Mexico that was hit hard by the current drug cartel issues, and a large segment of the population simply left.

So in order to -- for economies of scale, we simply consolidated down to a number, I think it was four down to three offices in that town. It wasn't necessarily a performance thing. It was that that town was simply not support the four offices any longer that we felt going in should have been supportable.

Okay. And then as far as the regulatory environment goes, I kind of divide it up into two areas. One, it seems like this group can control through whatever rules they might put forth at some point, volume, which they can make that were cumbersome.

But has there been any discussion on rates you've seen in terms of capping them, and I believe the way I understand it is that they can't do that, but have you heard of any volume issues, regulatory issues aside, that could affect your volume? Have you heard of anything that could just affect you in terms of rates?

Number one, the Dodd-Frank bill specifically took setting of rates off the table, so at the Federal level, there is -- should they eventually get into looking at the installment loan industry, there are any number of things they could do if they find these practices to be abusive or whatever. But rates -- at the Federal level, rate is no one of them.

And on the rate level, you mentioned for instance in Missouri dropping down -- the possibility, as remote as it might be, them dropping the state down to 36%. Has World ever looked at operating a branch at 36%, and if so, have you had any success at that?

We currently do. The maximum rate in Kentucky for example is 36% plus ancillary insurance, and actually, that is the rate for the first tier of the borrowed money. It drops to 24%, I believe 24% after that. So our blended yield in Kentucky on small -- on all loans is somewhere in the 30% range plus ancillary insurance products. So, yes, we have experience operating in rate structures that are that low.

Typically, it requires a larger loan balance in order to do that. There are questions in Missouri whether or not ancillary products would be included or not included in this overall rate structure, and I think there is disagreement among smart people as to whether or not that the way they have written the ballot initiative would limit ancillary products as well. But I'm sure that would be sorted out by the courts over time.

Thanks.

Let me point out, we are a -- primarily, 70% of our business is small loan business, and if they did something like that, it would make it very difficult to offer loans of less than $1,000 -- make it impossible to offer loans of less than $1,000 at those low rates. So, the impact on the Missouri consumer would certainly be substantial.

Okay. Thank you.

Moving on, let's go to Ed Groshans with Height Analytics

Good morning, and thank you for taking my question. Just following up on the regulatory front, given the somewhat disputable appointment of Richard Cordray to the CFPB, he still says that he is acting as if he has his full authorities, and in that vein, last Thursday, they did release their examination manual called the "Short-Term Small Dollar Lending Manual." And I know that all the headlines read payday, payday, payday, and President Obama mentioned payday last night, but the manual seems to be much broader, and it would seem to me that that covers World's products offerings. I just wanted to get your view on that.

My view is based on what he said in Birmingham, that he specifically identified and defined payday lending in such a clear manner that it would not include a typical installment loan.

Now, granted, if in fact, as I said previously, if in fact after this initial review process and oversight and so forth on payday lending, if they decide that World is a large market participant, then certainly, we could be subject to some of the same examination procedures as you found in that particular field manual, that we have read and are aware of. But because of the way he defined payday lending, at this point in time, we do not believe that we will be subject to the initial review processes that they will be doing.

And if you read the first three or four pages of that manual, it clearly directs their auditors to look at Cordray's definition of payday lending which has to do with the method of repayment in a single sum by check or ACH in order to define whether they are in the right building are not.

Okay. So you think that they have a whole section on sustained use, in response to Jordan Heimlich's question, you mentioned sustained use does seem fairly high at world with 75% of the loans being re-fied in the quarter. Go ahead.

No. We said 75% of the total loan volume in the quarter. That doesn't mean that 75% --

I'm sorry, the volume. Thank you.

But anyway, we look at that manual, and as Sandy mentioned in his comments, if we were -- if they were to apply that standard of audit against our Company or against our branches, we don't see a lot in there that is troublesome.

Okay. Fantastic. Thank you very much.

Our last question in queue again is Bill Armstrong, C.L. King & Associates

Just a quick follow-up of the larger loans in Texas. Do they generally have a longer-term as well?

Absolutely. 24 to 36 months. I've got a rate chart right here. They range from -- Sandy --

15 to 28 months, and you're talking about total payments from anywhere from $2,600 to $7,700.

And that is gross.

And I think you mentioned a timing issue that initially gives the appearance of a lower yield. Is that because when you first underwrite the loan, you've got to recognize an allocation for losses, but then you are recognizing the revenue from that loan over a longer period of time?

No, I mean the fact of the matter is that these loans have a lower written APR. And when you move a customer out of a $1,000 loan that may have a 60% or so APR (inaudible) $2,500 loan that may have a 30% APR, your yield as a function of interest versus net loan is going to decrease.

However, the dollar amount of that yield is certainly significantly higher. What we've seen is a move from our smaller customers into that larger loan section at a faster rate than would be normal because of the pent-up demand in Texas of well-qualified individuals that were heretofore capped at a $1,200 maximum amount financed.

Over time, as loan offices build these larger loans into their portfolio, they are -- you may see a slight degradation in the yield, but it would be more than offset by the dollar value of the interest charges that we are going to collect. And the fact that these loans are going to be lower -- lower charge off and lower expense level to maintain on a unit basis.

I see. And then I think you said that you just got a license to do these loans. Is this product new throughout the state, or is it new for you?

It is new for us. It has been out there but the department more clearly defined the aspects to that product which brought it -- it's interest level up to us, and so we did a thorough investigation of the product and moved into it about a year ago, actually, November of last year.

Okay, I get it. Thank you very much.

My apologies. We have one more follow up. Let's go back to Henry Coffey, Sterne Agee

I was trying to get some clarity on this whole issue with the CFPB. You do all your collections and all your lending face-to-face in the branches.

Correct.

And you are audited, a lot, right? You have the states in there all the time. So how is an audit per se, except for the fact that it's just one more person to put up with, how would being reviewed by the CFPB change anything for you, since everything has been disclosed?

There is no -- it is not like that payday loan product where I think people are going to be shocked when they see the volumes per customer, but it is all within conformity of state regulations. You are not using electronic payments as a collection mechanisms so there is no Reg E issues.

You're in conformity with the statutes. You are conformity with state law. So, except for the fact that your overhead would go up a little bit, how would being reviewed by the CFPB actually change anything for you at all? If they can overrule state regulations, right?

I don't think from our standpoint currently there would be any issues. However, from a regulatory standpoint, they have the authority and the power to issue new regulations. If they don't like -- let's just -- heaven forbid they would do this, because I think it would take away a customer's choice and ability to re-access credit and so forth, but if they arbitrarily decided that nobody could ever renew a loan and you had to pay it out to term and so forth, then certainly that would have an impact on my business, but why they would do that, I don't know.

What would be the legal mechanism by which they would do that? Wouldn't that put them in conflict with existing state law?

I think they'd have the authority.

I think we had a civil war over states rights issues before.

I don't know. I cannot answer what might happen in the future.

It just seems to be -- I guess the real problem is the confusion that this causes, not the actual impact.

Certainly. It's not confusion. It is just uncertainty.

Right, same difference. Yes. Thank you.

And thank you, Mr. McLean. I will turn the conference over to you for any closing remarks.

No, thank you very much for joining us today.

Ladies and gentlemen, again, thank you for your participation. Before concluding this morning's teleconference the Corporation has again asked me to remind you that comments made during this conference may contain certain forward-looking statements that it meeting of Section 27A of the Securities and Exchange Act that represent the Corporation's expectations and beliefs concerning future events.

Such forward-looking standards are about matters that are inherently subject to risks and uncertainties and factors that could as 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 market, and changes in the economy. Such factors are discussed in greater detail in the Corporation's filing with the Securities and Exchange Commission. This concludes World Acceptance Corporation quarterly teleconference.