World Acceptance Corp (WRLD) 2013 Q2 法說會逐字稿

Good morning and welcome to the World Acceptance Corporation's sponsored second 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 announcement. The comments made during this conference may contain certain forward-looking statements within the meaning of section 27-E 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. Statements other than those of historical fact, as well as those identified by the words anticipate, estimate, intend, plan, expect, believe, may, will, and should or any variation of the foregoing and similar expressions are forward looking statements. Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include the factors discussed in today's earnings press release and in the risk factors sections of the corporation's most recent form 10-K and other reports filed or furnished to the SEC from time to time.

The corporation does not undertake any obligation to update any forward-looking statements it makes. At this time, it's my pleasure to turn the floor over to your host, Sandy McLean, CEO.

Thank you, Emily. Because of certain circumstances and the concern for fair disclosure, the Company decided to change its customary procedures and release my prepared remarks at the same time as the press release. Because some of you may not have seen them, I will read these remarks and then we will be happy to answer any questions.

Welcome to the world acceptance corporation's 2013 second quarter conference call. As usual, Mark and Kelly, our President and our CFO are with me along with other members of our management team. I'll spend just a few minutes reviewing the quarterly results, after which, we'll be happy to answer any questions.

To begin with, we are disappointed with the financial results for the quarter. However, we do not believe the reported results are fully indicative of the fundamental business performance of the Company and we do not believe that there has been a fundamental change in our business prospects. As has been disclosed in our financial statement footnotes since becoming publically traded, the Company calculates interest revenue on its loans using the rule of 78s, and recognizes the interest revenue using the collection method, which is a cash method of recognizing the revenue. The Company believes that the combination of these two methods does not differ materially from the effective interest method, which is an accrual method for recognizing the revenue. While we do see substantial fluctuations in the amount of cash collected on a month-to-month basis depending on the number of business days in a month, these fluctuations generally level off during a given quarter. However, every so often, as occurred this quarter, the last two days of the quarter fell on a weekend. The last time it occurred was September 30, 2007 and, the time before that, September 30, 2001. We believe this timing issue has and will result in a shift of interest and fee revenue, currently estimated to be between $2 and $2.5 million dollars, from the current quarter to the third quarter of the fiscal year. The Company intends to fully implement the effective interest method at the beginning of fiscal year 2014, if not sooner, to better match the recognition of revenue with underlying business performance on a quarterly basis.

Aside from the impact on revenue discussed above, the Company's performance continued many of the positive trends that we have seen over that last several years. Demand for our loan products remained strong during the quarter and, as expected, we have continued to see improvement in our loan loss ratios from prior year and historical levels. Net income for the second fiscal quarter was $22.9 million, or $1.72 per diluted share compared to $23.3 million, or $1.52 per diluted share, for the prior year quarter. This represents a 1.7% decrease in net income and a 13.2% increase in net income per diluted share when comparing the two quarterly periods. For the first six months of fiscal 2013, net income was $45.5 million, or $3.35 per diluted share, representing an increase of 4.7% and 20.5% in net income and EPS, respectively, over the first 6 months of fiscal 2012.

The large difference between the change in net income and the growth in diluted EPS is due to the ongoing benefit from our share repurchase program. During the second quarter, the Company repurchased 186 thousand shares at an aggregate price of $13.4 million. For the first six months of the fiscal year, the Company repurchased 1.1 million shares, spending $75 million. This, combined with the 2.2 million shares repurchased during fiscal 2012, has provided a great deal of EPS accretion during the quarter and six month periods. The benefits from the repurchase program should continue during the remainder of the fiscal year and beyond. Additionally, of the $113 million dollar increase in our credit facility that was announced during the first quarter, $100 million was added primarily for use in share repurchases. Of that $100 million, $25 million remains in open authorizations that can be used for share repurchases during the remainder of fiscal 2013. The timing of these repurchases will depend upon our rate of loan growth and our availability under our loan facility during the next quarter, traditionally our busiest in terms of loan demand. The Company has recently requested an additional, substantial increase in its loan facility from its bank group, but has not received a formal commitment as to the additional amount that may be available. The primary purpose of this request is to enhance the Company's ability to aggressively continue its share repurchase program.

Gross loans amounted to $1.09 billion at September 30, 2012, a 12.7% increase over the $965 million outstanding at September 30, 2011 and an 11.8% increase since the beginning of the fiscal year. This growth resulted from a 10% increase in our smaller installment loans and a 20% increase in our larger loan balances. Additionally, the 12.7% year over year growth resulted from a 5.2% increase in the number of accounts outstanding and a 7.5% increase in average balances. The 12.7% growth in year over year loan balances is an improvement from the 9.4% growth in loans at the end of the first quarter.

Acquisitions will always remain an important factor in the overall growth strategy of the Company; however, as has been the case in last several years, there has been very little purchase activity during the first two quarters of the fiscal year. Six small offices consisting of 2,180 accounts and $1.3 million in gross loans were purchased. Of the six, three became new office locations and three were merged into existing offices. For comparison purposes, during the first two quarters of fiscal 2012, the Company acquired 2,061 accounts and $2.1 million in gross loan balances in 12 separate offices, 11 of which were consolidated into existing locations.

We remained on track with the expansion of our branch network during the first six months of the current fiscal year, which is, as previously disclosed, about the same as fiscal 2012. We began fiscal 2013 with 1,137 offices, opened 35, purchased three and closed two, giving us a total of 1,173 offices at September 30, 2012. Our plan for fiscal 2013 is to open 60 offices in the US and 10 in Mexico, plus evaluate acquisitions as opportunities arise.

As expected, the Company's delinquencies and charge-offs have remained stable during the second quarter as we have seen in previous quarters. Accounts that were 61+ days past due decreased slightly from 3.0% to 2.9% on a recency basis and remained flat at 4.2% on a contractual basis when comparing the two quarter end statistics. The ratio of net charge-offs to average net loans on an annualized basis declined to 13.9% during the current quarter from 14.8% during the second quarter of the prior fiscal year. This is the 14th quarter in a row where charge-off ratios have declined from the corresponding quarter of the prior fiscal year.

The Company remains focused on controlling operating expenses on an ongoing basis. General and administrative expenses amounted to $66 million during the current fiscal quarter, a 7.6% increase over the $61 million in the prior year quarter primarily as a result of the 65 net new offices opened over the past twelve months. As a percentage of revenues, our G&A increased from 46.5% during the second quarter of fiscal 2012 to 47.5% during the current quarter, primarily as a result of the decline in expected revenue as previously discussed. Our G&A per average open office increased by 2% when comparing the two fiscal quarters.

We are also very pleased with the ongoing progress being made in our Mexican operations. We have 107 offices open as of September 30, 2012. Three offices have been opened and one was closed during the current fiscal year, with an additional seven expected to be opened before the end of the year. We now have approximately 121,000 accounts and approximately $71.7 million in gross loans outstanding. This represents an 8.2% increase in accounts and a 37.5% increase in ledger over the trailing twelve months.

The Company also benefitted from a decline in the exchange rate in pesos for dollars. The year over year growth rate in loan balances was 30.8% in pesos and 37.5% in US dollars. This is a reversal of the foreign exchange rate trend that we saw in the first quarter. Net charge-offs were approximately $3.4 million during the first two quarters of the fiscal year, or 17.6% of average net loans on an annualized basis, approximately the same as the corresponding six month period of the prior year. And our 61 day delinquencies were 3.6% and 6.2% on a recency and contractual basis respectively. This subsidiary had $2.6 million in pretax earnings for the first six months of the current year versus $1.8 million for the prior year 6 month period, which should improve as we continue to grow our outstanding receivables. The Company's trailing four quarter return on assets of 13.4% and return on average equity of 25.1% continue their excellent historical trend as we pass the midpoint of fiscal 2013.

Finally, I am pleased to report that there are no new developments on the legislative or regulatory front at either the state or federal level. We continue to actively monitor the development of the Consumer Financial Protection Bureau through our national trade associations, the American Financial Services Association and the National Installment Lenders Association, but as we have previously stated, we believe that the value of the vital service we provide, that is providing credit opportunities to so many individuals that have limited access to other credit markets, will continue to be appreciated as this new Bureau is developed.

At this time, we will be more than happy to answer any questions.

(Operator Instructions) We'll take our first question from Bob Ramsey with FBR.

Hey, good morning. I wanted to understand I guess this revenue shift issue just a little bit better. Is it just the revenues of $2 million to $2.5 million that get moved into the fourth quarter, or are provision associated with those revenues or other expense items allocated along the same basis as the revenues?

We estimate that number between $2 million to $2.5 million and it's due to the timing of payments because of the two days at the end of the quarter. And the $2 million to $2.5 million is a net number of what is a recognizable number and it has whatever type of provisions and reserves offset against that number.

So the right way then to think about this is that something like $0.10 to $0.15 got shifted out of this quarter's earnings but into the fourth quarter's earnings and that's I guess just simply a way to think about it.

I wish it were that simple. I mean we believe that our financial statements are materially correct in accordance with GAAP. Otherwise, we would have made the proper adjustment. We also know that between $2 million and $2.5 million in revenue was shifted from the second quarter due to the timing issue that we discussed, most of which should be recognized in the third quarter. However, due to other considerations and other offsetting items of a recurring type nature, the financial impact is not overall material. However, we do believe that the impact we had on the yields warranted this additional disclosure.

So normally, we would not even be addressing these differences and so forth, and from an overall standpoint of true net earnings, it's not necessarily materially incorrect, but there is no doubt that there will be a pickup in the third quarter as a result of this shift. I know that's a little bit confusing, but that's what took place and that is what put us in this position that we wanted to go above and beyond the normal disclosure.

Okay, that is helpful. You also mentioned a substantial increase in the credit facility that you guys have applied for. Do you guys have any sense of when the bank could give you an answer on that and are you waiting on that approval before repurchasing any additional shares? Or is that just something you're looking for as part of the plan to complete the authorization?

As I announced and as you know, we still have $25 million remaining under the previous authorization. We have to balance what we have in total availability and what we anticipate loan growth, but at this point in time we believe that we will be repurchasing shares in the near future regardless of what happens with the credit facility. The request -- we had a banker's meeting within the last few weeks and we made the request for the additional increase in our credit facility, and I believe that we will hear from them in the near term. But they've all got to go to their credit committees and so forth, and we do not have a firm commitment on the amount. But we believe the amount will be substantial.

Great. Last question and I'll move back out, but I know you guys mentioned that loan demand improved this quarter. Can you just talk a little bit about sort of what is driving that and what you're hearing and seeing from your customers, and what's driving sort of the slight uptick in loan growth?

Yes, unfortunately that's got a little bit of noise in it also. But yes, we did in fact have -- our loan growth grew from 9.4% to 12.7%, which is a really very good improvement in our year-over-year growth rate. However, as a result of the shift in the peso that took place between March and the June quarter, and then turned around and reversed between the June quarter and the September quarter, approximately three-fourths of a percent, somewhere between three-fourths and 1% of that change was due to the shifting and the timing of the movement and the exchange rate. In addition to that, because of the amount of payments that we did not receive in the second quarter because of the timing issue that we were -- that we've been discussing and talking about, those payments came in, in the beginning of the third quarter and are coming in as we speak. And so that accounted for what we believe is roughly 1%.

So our true year-over-year growth rate we believe is somewhere between 11.7% or 11.8% and 12%, and like I say, it's a little bit of noise here that we weren't faced with, but we're trying to be as fair in disclosure as we can. But it is definitely an improvement.

That's helpful. What, again, sort of more big picture fundamentals, what is sort of driving that improvement and what are -- are customers a little more comfortable borrowing, a little more apt to borrow? Or do you think it's more a reflection of some of the new stores added?

I'm going to let Mark address that.

Part of the improvement is the fact that the second fiscal quarter of last year wasn't a very stellar quarter in terms of growth. So growth returned to a more normal level. It's still not exactly where we would like to have it. In addition, as Sandy mentioned, you get three-quarters of a cent pickup due to the exchange rate and some fractional percent based on payments that didn't occur on the last two days of September. But you're still looking at a percent and a half or so of internally improved growth, which may reflect partially that last year wasn't great. But yes, long demand did pick up a bit. I believe looking at a 3.4% or whatever increase over the end of fiscal quarter one is probably rose colored glasses. It's not that good.

Thank you very much.

We'll go next to John Hecht with Stevens Incorporated. Mr. Hecht, your line is open.

Good morning. Thanks for taking my question. For the facility change, can you tell us approximately what the magnitude of potential change is and are you asking for a change in your advance rate or is there some other factor we should think about what you're basing the increase on?

Really I've been advised by the banks not to get into that detail, but I can tell you it's much or more than what we requested, what we announced in the second quarter and yes, there will be some slight change in terms as a result of this, but those details are being worked out.

Thank you. The accounting shift, it sounds like more the effective yield, can you tell us beyond Q -- the next quarter, is there any changes we should expect for, I guess we would model it as on an effective yield basis. Would there be any impact on that?

We would have made that transition now, but there's a lot of things to consider and we're working through what the overall impact will be as we -- the things that we'll have to address when we make this change. I mean theoretically, it should not be materially different on a year-to-year basis, but I don't know of anything that you should be concerned with from a modeling basis over the near term. It's amazing to us, we hadn't really thought about this today, last two days ending on the end of a quarter, and it hasn't happened twice, three times over the last ten years. And for some unknown reason it's going to happen twice more in the next three quarters. That even lends -- made our decision to fully implement the accrual, the full accrual method that much more important so that we don't have these potential fluctuations.

But I hope I've answered your question. But no, I don't know of any significant modeling things out there.

But we will see the full effect of it in the current quarter when you report next?

Between that and the end of the year or effective April 1.

Okay, and then I wonder if you could talk about the mix shift on small versus large installment loans and where you've seen that going? And what does that tell you about customer behavior?

I don't know that it changes anything with customer behavior. We have always attempted to fit the proper sized loan to the customers' needs and/or ability. I think the mix in shift has been kind of as a result of offering additional products that we didn't previously offer in, for instance, the state of Texas. And as we have, certainly not real recently, but Kentucky has been a great state, but it's not as good on a really small loan, but it's extremely profitable for larger loans. And then out latest state that we've gone into is Indiana, and Indiana is kind of like Kentucky. It does not have the rate structure to support those loans of less than $1,000, but it certainly is profitable for those larger loans.

So I think as we enter new markets and continue to offer these larger loan products, we will continue to see the trend that we've seen over the last couple of years. Now, that is an overall decline in the interest in fee income as a percent of average net loans. And we've been talking about this reduction in yields in every conference call at every quarter. However, along with that you should expect to see a continuing slight decline in your loss ratios because the credit quality of a larger loan is generally better and you would expect the loss ratios to be less, and that in fact is what takes place in our portfolio. And additionally, it certainly helps your G&A expense structure as you move to a larger loan because it's much more costly to originate and service ten $1,000 loans than it is to originate and service one $10,000 loan.

So I think we'll continue to see this gradual and slight change in mix and I think we'll continue to see the overall, the same type of impact to our financial statements. But I still believe that we will continue to get excellent returns on assets and improving returns on equity as we continue our share repurchase program.

Final question is, I wonder if you could talk about the acquisition pipeline. Is there any large franchises or portions of large franchises that are out there that you might take a peek at?

There is always little things here and there and I really hesitate. I mean no, not at this point in time. We do not anticipate closing any significant transactions in the near future.

Thank you very much.

We'll go next to Bill Dezellem with Tieton Capital Management.

Thank you. Would you discuss Mexico and talk to us about the areas that you see the most opportunity from this point forward, if they're any different than what you have seen historically? And I know several years ago you had a couple of hiccups there given that you're still in the early phases of building out that country. What's your biggest challenge today in Mexico?

The biggest challenge today in Mexico is the same as it has been over the last five or six years and that's having really good, qualified people that we can promote through higher levels of management. If you look at our slide presentation, we review this in investor presentations and stuff. The average tenure of a supervisor in Mexico I believe is between maybe three years. The average tenure of a supervisor in the US is like seven or eight years. When you consider we opened our very first two offices in September of '06 and then really began opening more offices in fiscal '08, nobody that we have down there has been with the Company longer than six or seven years, and most of them have been there for less than two or three years.

So the main challenge in Mexico is to continue to develop more and more highly qualified people that are in a position to accept traditional responsibility.

Bill, one thing I might add, this is Mark, if you think about the geography of Mexico and the US typically are trained, qualified assistant branch managers, are moving accounting over, and talent over generally within a state and they feel comfortable with that. It's when we open new states in the US that we become challenged somewhat from an employee standpoint in getting individuals to move. I'm sure you know a lot about our younger generation. They don't necessarily go where we tell them anymore. They tell us where they're going to go.

In Mexico, think of it as every new place that we open is generally like opening a new state because there are tremendous distances down there when we move from, say, Matamoros to Cancun, or Juarez to Monterey, or wherever. So we're constantly having to retool new staffs and new areas and you don't get the luxury of being able to move people within certain geographic areas like inside South Carolina or Georgia that we do in the US.

So again, as Sandy stated clearly, our biggest challenge down there is always and probably always will be having the right people tenured, trained, and experienced to do the job down there. And it will continue to be a challenge that we work through.

And is there more willingness on the part of the employees in Mexico to move long distances than there is in the US?

Probably absolutely no and maybe worse. I mean people are very comfortable where they live and where they were raised and whatever in Mexico, just as our younger generation in the US tends not to stray far from where they're at. But again, it's just a challenge. We work through it. It's part of management's job.

And then the next question relative to Mexico is with the change in leadership down there, how, if at all, does that either create challenge or opportunity for you all?

Our best source of information on that is our in-country manager, Javier [Souza] who was born in Monterey and his family has always been from there. And his indication to us is that the change in politics down there will have zero impact on our operations. That in terms of building a broader credit base or availability for credit to their citizens in Mexico, that neither party has any qualms with that.

Thank you.

We'll go next to John Rowan with Sidoti and Company.

Just trying to, not to beat a dead horse here, but the revenue number that wasn't included in the second quarter but pushed off into the third quarter. I just want to try to understand that relative to the provision expense, right, because the provision expense if you look at revenues, even if you add back that $2.5 million, was up as a percentage year-over-year. Meanwhile, charge-offs were down year-over-year. I just want to understand, do you view the increase in the provision expense more as a function of loan growth, the provision leading the revenue associated with it? I'm trying to understand because there was a lot of dilution from what looks like a high provision expense.

Absolutely, we view the provision and/or the allowance that's owned, the allowance, the loan losses on the balance sheet at the end of the quarter, we view that as a function of the balances outstanding at the same period of time and generally does not have a direct correlation between the timing of the recognition of revenue associated with the payments collected.

So over time, our historical charge-off ratios have remained in a fairly tight band of anywhere between 15% to 14%. They remain within those still fairly tight bands. They've declined slightly over time, but still within that same range. Therefore, you would expect and as is the case, the allowance has a percentage of net loans outstanding to also remain in a fairly tight band, and that has also been the case. So I think as long as we see the loan loss ratios to remain within this band of historical numbers then you'll continue to see the allowance at the end of any given period to remain as a percent of the net loans outstanding.

So is it fair to say then that the increase in loans, because obviously if there's no big change in the allowance ratio and charge-offs come down but provision relative to revenue comes up, that there was additional dilution in the quarter simply because the rate of loan growth increased and you obviously have to provision up front for those loans before you even start necessarily earning interest on them throughout the quarter?

Actually, I did not think about that because we don't look at the two, but you're absolutely correct because roughly 1% of our growth in loans for the quarter was in fact associated with the non-collection of payments for that two day period. That would have had an impact on the provision. You are correct.

And then lastly, on the rule of [78s], you say there's not much of a difference. If I go back and I look at some old correspondence documents between World and the SEC, they had asked you previously to disclose the difference in the accrual method. And at that point, I'm pretty sure you guys had responded that it was about a 1% -- would have been a 1% decline. Now, I know that that changes a little bit based on the growth rates of the loan portfolio. But is that still, a 1% decline in pretax earnings let's just say, is that still a fair kind of run rate to assume as far as an incremental difference between the accounting methodology?

Well, let me respond by saying, generally speaking, a collection method is a much more conservative method of recognizing earnings than the accrual method. And therefore, as the portfolio grows, the cumulative timing difference associated with these two methods has also grown over time. But in any given period, the impact of these two methods has not been -- has generally been material. And once again, it was the unusual circumstances of the current quarter that we felt needed additional disclosure, so that people would have a better understanding of what was happening to yields than what appeared in our financial statement.

So does that answer your question?

Sort of. I'd always thought that the rule of 78s was probably a little additive to earnings in a growing -- in a rising loan environment and potentially a little dilutive to earnings in a declining loan environment. And obviously, with the ramp up in earnings and based on, like I said, the old correspondence documents between you and the SEC it did seem to me that there was a slight, a very minor different in pretax earnings based on the accrual methodology. It's not going to make or break the model, but I just wanted to understand if it was still in the ballpark.

The impact of the rule of 78s is less than the impact of the collection versus the accrual method. But they kind of offset each other somewhat and the combination of the two procedures that we follow as opposed to the strict accrual method over time, during a specific period of time is not that material. And if documents said that that 1% was a general number, I can't answer that question right now. But it certainly is not varied that much.

Fair enough, thank you.

(Operator Instructions) We'll go next to Doug Smith with Northland Capital.

I have one more on this revenue shift item. I think you mentioned in answer to the first question that there were some offsetting items that muted the impact this quarter. Is that right and if so, can you comment on what the offsetting items were?

Yes, I'd be happy to. For instance, we generally do not go through the normal search fund recorded liabilities and so forth at the end of every quarter, but do so at the end -- only at the end of the full year. And so, there is a timing of the payments and so forth and that has an impact on what's happening. We also have a very conservative approach to the way that we record our claims reserve as far as our group insurance. So there's a component of or an incurred but unrecorded claim that has a timing impact that also contributes to this offset.

We have a -- unearned insurance for our ancillary products. We record those unearned in accordance with the, in this case it is in accordance with the accrual method. However, there is not a specific reserve associated with those for claims that we have -- that have been actually claims made, but not have been paid. And these are consistent practices that we've had over a long period of time. And generally, a combination of these type of ongoing recurring items offset each other. And this quarter, they did not offset each other as much, but the remaining difference was still not considered material enough to go through and make unusual adjustments.

Is that helpful?

Yes. How much of that revenue impact, of that $2 million to $2.5 million revenue shift do you think was offset by those items?

I don't have a specific number, but it was -- I would say at least 50% or more.

Thank you. Then I have two --

I would like to say that the timing of the recognition of the revenue that has been -- will in fact be picked up in the next quarter or there beyond, there's no guarantee that it will all be picked up in the next quarter because there's no guarantee that a customer will make two payments in any given month. So it could very well be that some of this timing will be picked up over the remaining duration of the loan or until he makes renews or something else. But we certainly believe, based on the loan volume in December, that a great deal of this will be picked up in the following quarter.

Thanks. That's helpful. I have two quick ones on the CFPB if you don't mind. One is, do you expect to be made a large market participant? And then two, is there any sense that the CFPB is doing a broader review of credit insurance following the actions against the credit card companies? Do you know how much the review would extend to the settlement loan industry?

Do we expect to be named a large market participant? The answer to that is yes. Number one, we do not have any data to suggest that at this point in time. If you look at certain consumer finance companies like One Main, and Spring Leaf, and so forth, we certainly are not anywhere in the same marketplace as far as their size. But if you do look at primary installment, smaller loan installment lending then we certainly are one of the larger players.

So I guess do we expect that at some point in time for the Bureau to take a look at where we're at, and the answer to that is yes, ultimately we will. To answer your question regarding ancillary products, I -- in the enforcement actions that they have taken to date, there have been no negative comments regarding the product itself. It's all been a criticism and a penalty in the way that they alleged that these products were marketed and sold. So as I stated on previous calls, there's a vast difference in the way that we market and sell these products than what was alleged by the CFPB and the Capital One and other type actions taken. So I hope that answers your question.

I was just wondering, can you -- I was just wondering if those actions were isolated or do you think they're intending to do a broader review of those type of products?

I do not know. I certainly think that the Bureau is responsible for all consumer transactions. So I think certainly they will -- they can be taking a look at credit insurance just like they have collection agencies and student loans and everything else. So yes, will they at some point take a look at these products? I believe yes they will.

Just lastly, a quick one. There was an article yesterday about traditional commercial banks getting aggressive in the small dollar lending space because their core business is not growing. Is there any evidence of encroachment into your space by traditional banks?

No, we, in part of our collection activities and ongoing servicing of loans, encourages the customer to come into our lobbies and so that we can maintain a personal relationship with these individuals. I do not believe that banks want the traffic in their offices that we have in our offices and I don't believe that they are geared to maintaining the type of relationships that we have that make offering these small loan products profitable. So I do not feel threatened in competition on our small loan products. I believe that there will be competition more for what we consider our larger loan products because there's been a tremendous disappearance in the marketplace of those companies such as Beneficial, and Household, and OS Financial consumer credit subsidiary.

In the last couple of years, these companies have been completely shut down and it's created a big void in the market. I believe that's an opportunity for us, but at the same time I believe that if other offers of credit such as traditional banks do get more aggressive, it will be in that area rather than the smaller loans.

We'll go next to John Rowan with Sidoti and Company.

Sorry for the follow-up, but Sandy, if I'm not mistaken I thought you said earlier on the call that the $2 million to $2.5 million was a net number. I just want to make sure I understand what was net and what was offsetting because I thought you said it was net.

No, I thought you were talking about that as opposed to allowance and so forth. That $2 million to $2.5 million is a revenue item that shifted between the second and third quarter. However, due to the other items, and it was very clearly stated in our disclosure as well as specifically in answer to that gentleman's question, that there are other ongoing recurring type of items that did have an impact on that. Therefore, we believe our current financial statements are in accordance with GAAP.

Okay, but the net number is somewhere south of $2 million to $2.5 million, right, because --

Net-net impact to net earnings, yes it is. The amount that's carrying forward is not necessarily and once again, that -- these are small amounts that are certainly more significant as we have a reduction in our shares outstanding.

We'll go next to Bill Dezellem with Tieton Capital Management.

Thank you. I wanted to actually circle back to your point that Household and those types of firms, there have been several of those that are shut down. Does that philosophically create an area that you are interested in? And I would suspect it would not be with your existing loan offices, but maybe starting an entirely new world number two if you will, a business number two?

No, it is definitely business number one. It is specifically what we are doing in the state of Indiana, as I said, and in all states we offer those larger loan products. It's just -- and we've maintained a fairly reasonable mix over a fairly large period of time of roughly 70% small loans and 30% larger loans. And that mix has now shifted to about 68%, 32% and that's ignoring the World Class Buying Club profit line. But no, we certainly look at this. We will continue to always make as many small loans as we possibly can. Every application we take, we underwrite it as to the person's ability and willingness to [replace]. But we just think there's additional opportunity in other markets for these larger loan products that would cause us, as I said, while they're lower yields, there are other compensating items that make them still profitable.

And one other thing, Bill, just to point in on that, in Indiana for example, we would not have been nearly as interested in Indiana at the Associates, the Households, the Beneficials, Norwest, whatever, have all been there. That left a big hole in the playing field and when we met with the administrator and the director of the financial services entity down there, they were very clear that because of their rate structure, which requires a larger loan in order to be profitable, that they have seen a significant decline in the number of licensed lenders in the state of Indiana over the past four or five years.

So yes, there are opportunities there and we're exploring them at every possible moment.

Even though we are talking about some larger loan numbers, you still feel like you're -- the existing locations and the offices the way you have run them, that actually works with the Household and Beneficial type loans?

In every state we operate, we offer -- to us, they're all installment loans. But we do have kind of an internal classification. It's not necessarily market segment or anything else, but it's -- we know the loans less than $1,000 or $1,500 and so forth versus those that are much larger, we offer both products in our existing offices. I mean just about every single office has that array of product.

Thank you both.

And we have no other questions at this time.

Thank you very much for your participation today. Melanie, I'll turn it over to you.

Thank you for your participation. Before concluding this morning's teleconference, the corporation has asked me to again remind you that the comments made during this conference may contain certain forward-looking statements within the meaning of Section 27-E 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. Statements other than those of historical fact, as well as those identified by the words anticipate, estimate, intend, plan, expect, believe, may, will, and should or any variation of the foregoing in similar expressions are forward-looking statements. Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include the factors discussed in today's earnings press release and in the Risk Factors section of the corporation's most recent form 10-K and other reports filed with or furnished to the SEC from time to time. The corporation does not undertake any obligation to update any forward-looking statements it makes.

This concludes the World Acceptance Corporation quarterly teleconference.