World Acceptance Corp (WRLD) 2013 Q4 法說會逐字稿

Good morning and welcome to the World Acceptance Corporation's sponsored fourth 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 presentations by the Corporation's CEO and its other officers.

Before we begin, the Corporation has asked that I make the following announcement. The comments made during this conference may contain certain forward-looking statements within the meaning of Section 21E 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 risk 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 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.

At this time, it's my pleasure to turn the floor over to your host, Sandy McLean, CEO. Please go ahead, sir.

Thank you, Vicky, and good morning. As Vicky said, I'm Sandy McLean, the CEO, and with me this morning is Mark Roland, my President and Chief Operating Officer; Kelly Malson, our Chief Financial Officer; as well as other members of our Management team.

I hope all of you had a chance to see the press release this morning, as well as a copy of the narrative summary that we released at the same time. All in all, we had a lot of things going on this quarter, but we believe, everything considered, it was a fairly reasonably good quarter. That being said, I will be more than happy to answer any questions that you may have. Vicky?

Thank you. (Operator Instructions) And we'll take the first question today from John Rowan with Sidoti. Please go ahead.

Good morning, everyone.

Good morning, everyone. Just one quick question. In the prepared remarks, you did discuss the kind of unusually large noncash equity compensation expense tied to the equity grants in the quarter. Is that to say that we should be pulling that number out going forward, or should we view that separately from the disclosures that you made when you signed the competition agreement initially, which outlined some relatively heavy expenses that we should expect for fiscal 2014.

Well, I don't know that they should be looked at separately, but they are -- they do account for a fairly significant increase in our G&A. Now, obviously these are noncash expenses, and they are certainly -- there's some fairly significant targets associated with the vesting of those grants. So, if in fact we hit those targets, then certainly Management benefits, but I believe the shareholders will benefit greatly also because these represent fairly significant compounding percentages over a five-year period.

So I just -- you know, on an ongoing basis, this is not something that we will highlight. But given the fact that it was done during the current fiscal year, and it was a five -- a one-time five-year grant, as opposed to historically one-year grants, I felt it significant enough to mention in the narrative. But as you say, going forward, I think we've disclosed the impact over the next four years, and it's not an item of discussion.

Okay. But have there been any changes to at least what you guys were projecting for the expenses that were provided to us over the next couple of years? I'm just curious if you've made any material adjustments to those expectations, or are those still a good run rate to go forward with?

At this point in time, there have been no material adjustments, but we have to evaluate, on an ongoing basis, the likelihood of us hitting the various groups of those restricted stock grants. And initially, with the first quarter, we had built in the expense under the assumption that all of those tranches would be hit. And now though -- and that's -- like I said, that's something we will have to evaluate quarter by quarter in each fiscal year as that takes place. As of the end of the first year, we have not fully expensed the part associated with the most aggressive tranche because the likelihood of us hitting it is questionable.

Okay. Fair enough. Thank you.

And the next question comes from John Hecht with Stephens.

Good morning. Thank you for taking my questions. First one, if you have handy the end-of-quarter share count.

We've got a great big book here, and somewhere in there is that number.

Yes, at March 31, the ending share count was 12,171,075 shares.

Great. Thank you. I wonder if you could comment on the composition mix of the originations during the quarter. You know, kind of the traditional size versus the large installment loans. Are we seeing more of kind of stabilization of that shift at this point?

On a year-over-year basis, the percentage of loans that we categorize is that larger loan portfolio. As of March 31, 2012, that number was 30.7%. As of March 31, 2013, that number was 31.1%. So it is fairly stable on a year-over-year basis. However, as we enter states like Indiana and so forth, certainly those are more larger loan-type states, so I would continue to expect, over the long run, that you'll continue to see the percent of the larger loan portfolio to slightly grow. However, most of the loans that are in Mexico would be in the smaller category. And as it becomes a more material part of the overall Company, that will be a balancing offset to that.

Okay. Thanks for that color. Impact to the tax refunds during the quarter, they were delayed. Do you -- I wonder if you could comment on that and what it might mean for this quarter in terms of the kind of reverberating effects.

The -- what was it, like, two weeks? It was about like a two-week delay when the first taxes could be filed. And as a result of that, certainly the -- there was kind of a delay in the timing of a lot of our customers getting their tax refunds. And, as such, there was kind of a delay in them making payments and/or paying off their loans. And we saw that, especially in March, where in the previous March I think we gained somewhere -- in the net ledger balance we gained --

$10 million.

-- somewhere around $10 million. And this year it was pretty much below slightly. So that timing impact shows up there. And to a certain extent, it's showing up in the April quarter, or there's reduced demand. We're not 100% sure at this point because we're about $8 million or $9 million in ledger growth through -- so far through this April. So from a ledger balance standpoint, it's certainly had an impact on volume.

Now, as far as the tax season itself, through last week, I think I said in those prepared remarks, we're actually up about 15% in year-over-year tax returns per payer, and the actual dollar amount of fee -- net fees that we recorded in fiscal 2013 versus 2012 was up about somewhere between 9% and 10%. So it was still a very good tax season, although that delay did create some timing issues within the quarter as far as other things.

Okay. Thank you for that. And final question, if you could just remind us -- I know you're shifting your yield recognition policy to the rule of seven-eights. Did that occur last quarter, or is this the quarter that that shifted? I know it's not a material impact on anything, but I just wanted to make sure I've got my record straight there.

It did, in fact, take place. And I think there's a paragraph in the prepared narrative that talks about the overall impact of that change. And as we've stated in the past, the differences between the two methods are not materially different on a year-over-year basis. However, it did create a positive impact during the quarter of about $3.1 million, and that is less of a difference between what you'd generally expect on a year-over-year basis. But it's more a difference of the timing of the end of the quarter, such that the last day of the quarter in fiscal year was on a Sunday, and we had a similar impact to our financials that we had previously seen in the September quarter.

And that's really one of the reasons that we went and made this change because I would anticipate, going forward, that we would have less fluctuations on both a monthly and quarterly basis in our earnings. And it won't be dependent upon the number of days and when the days fall and that sort of thing. So I think we'll always have some seasonality. However, I believe that you will see more of -- somewhat more consistent earnings on an ongoing basis.

All right. I appreciate all of that. Thank you.

And our next question comes from Bob Ramsey with FBR.

Hey, good morning, guys. Just to follow up on that, I want to be sure I'm thinking about it correctly. So the $2.1 million difference just reflects it under the prior methodology because of the way the days fell over the weekend, you would have had $2.1 million less revenues this quarter, but you would have had that fall into the next quarter instead. And under the new methodology, it just basically accrues that income as accrued, rather than as paid. Is that the right way to think about it?

That's exactly correct. And that's exactly -- if you'll remember, that's what happened at the end of September. We anticipated somewhere between $2 million and $2.5 million. It did not get recorded in the September quarter, but we expected it to show in the December quarter. And if you'll remember the yields from the second to third quarter, it actually verified that that did, in fact, take place. So we had a similar type situation this year at quarter end.

And what's unusual is over the last ten years, this particular phenomenon has not taken place at the end of a quarter but one previous time, and then here we have it's happened three times in a row. Not three times a row, but it happened the September quarter, the March quarter, and it would have happened again in the June quarter. So this is a preferred method of accounting. It's the proper method of accounting. It's not materially different from the other, but there will certainly be some benefits by not seeing these unusual fluctuations based on number of days and when it falls at the end of the period.

Perfect. That makes sense to me. I was wondering if you could talk a little bit about your share repurchase appetite. Obviously you guys were very active in the quarter. I know this quarter is one where you typically have strong cash flow. And your prepared comments said that you intend to continue to repurchase stock when cash is available and when it's in the best interest of shareholders. Can you just talk a little bit about your appetite with the stock, where it is today?

We still believe at these levels that the stock is accretive and beneficial to the shareholders going forward. But one thing -- and as I said in the prepared remarks, I think there's sort of an additional $17 million in authorization that the Board has approved that -- and in fact start repurchasing shares beginning the day after tomorrow, given our blackout period and so forth. However, our only source of funding is a group of banks that have a revolving facility that is an asset-based facility. And while our cash flow has been very good during the quarter, the results, to an extent, by the reduction of our outstanding receivables -- so while we have overall capacity within the line, we have to monitor the availability of that total capacity just based on a (inaudible) formula.

And at some point, it will become a little more restrictive than it has in the past because of the large numbers and dollars amount of shares that we've repurchased over the last two fiscal years. But it is something that we are working with our bank group on an ongoing basis to give us the maximum flexibility either within that line or as an additional source of funding. It would not be dependent upon our outstanding receivables.

Okay. That's helpful. And I guess the final question, can you just talk a little bit about the -- you know, I know you mentioned the delayed tax refund season that has sort of had some impact on customers. How much of the uptick in charge-offs do you think is purely related to timing and sort of cures itself as the tax season progresses on through, and how much are you seeing anything else out there from customers just in terms of credit quality?

Well, I can -- I don't believe that everything that's going on with that charge-off is strictly due to timing. However, the part that I can quantify is that a large part of our charge-offs come from what's considered the 90-day delinquency category. And I do know that our 90-day delinquencies at December 31 compared to our 90-day delinquencies at March 31 drop by about $1.7 million.

So, therefore, had the -- that one category stayed about the same, and you recalculated what the charge-off ratio would have been, it would have been closest to where we were last year. But I don't want to indicate that that is totally what's going on. I believe we've had fairly substantial reductions year over year for the last 16 months, and we've had that 1% -- on an annualized basis, a 1% increase this fourth quarter versus the prior-year fourth quarter.

So, you know, I think we're seeing a slight increase in the charge-off ratios. It appears that there is a slight decrease in the demand for our loan products. And I cannot say that it's all due to timing, but I don't really believe that there's been a real fundamental change to our business. And we'll just have to see where this economy takes us, and so forth.

And it's interesting. Do you think that the slight decrease in demand for products is -- I mean, I guess everything at the end of the day is driven by the economy, but what do you sort of attribute that to?

This is Mark Roland. Part of it was last March, about the middle of March, as the tax refund season was clearly over and we began to grow last year, and we grew in aggregate in the March period last year by about $10 million. Of course, on a month -- this last year, this last past March, we lost about $10 million in loan receivables there, a swing of $20 million. Through February that number was flat. And to me, that indicates that our customers continued to have excess cash that they normally wouldn't have throughout the March period due to the delay in the tax refund season.

You know, whether or not that bounces back in the second -- in our first fiscal quarter this year I don't know. But the other part of your question really is about the general economy. I think the statistic that was out sometime in the past few weeks was that some 90+ million are now out of the workforce, which is the highest number since the Carter administration. So regardless of the fact that we lend in a lower-end credit spectrum than some, we can't lend to anybody that doesn't have a job or doesn't have income. So there's a large population out there that is uncredit-underwritable at this point.

Okay. That's helpful. Thank you, guys.

And we'll take the next question from Henry Coffey with Sterne Agee.

Good morning, everyone, and thanks for taking my questions. Just to help me clarify a few things. In the current quarter you switched to an accrual method, which makes tremendous sense. That created a modest gain, about $2.1 million. I'm assuming that that gain will just kind of not show up in fiscal '14. Is that correct?

That's correct.

And historically, on 12/31, you made all of these loans, and we hadn't collected any revenue. That won't really change, that seasonal pattern won't really change with this, correct? Because you still only will have those loans on your balance sheet for a week or two, right?

Well, considering our busy season really is the middle of November, [moving] into December, there will be some change because while a payment may not be -- if a loan is made on December 2, previously we would not record any earnings until we received that payment on January 2. Now, we will be recording revenue at the end of December based on the 29 days that one was outstanding.

So there'll be some modification of that big disconnect between the December quarter and the March quarter, which probably will help a little bit.

There will be some. But remember, our fourth quarter always will be our most profitable because not only are we getting our most payments, but we're getting paid off. There are some of those fees that are not -- you know, a certain percentage of those fees that are nonrefundable that you recapture whenever a loan is paid off in full. So that benefits. Plus we always have our tax revenue that comes in primarily during the fourth quarter, and our provision because of the reduction of loans outstanding, our allowance follows those outstanding loans. And we end up with a reduction in the allowance for loan losses, which creates a credit to the provision.

So the seasonality will still remain, but it will just -- but as far as the top-line revenue recognition, it will be a little more consistent on a quarter-by-quarter basis.

How will the accrual method impact this whole punch-up that -- you know, when you refi there's a fee recapture. Are you going to build that into the accrual models, or is that still going to be based on experience?

It'll be based on experience. But when a refi is made, the refinances will be done based on the rules established at the same level for a refund of non-earned interest.

Now, jumping over to the overhead side and John's earlier question, and some of this is my own ignorance, the $2.9 million of expense related to the stock program, assuming that the program performs as expected and you don't hit the high bar, was that a one-time fee, or is that $2.9 million a year?

Well, I mean, this is a large five-year grant, and the expense associated with the grant was going to be -- it'll be amortized over the entire period. And --

So it'll be $2.9 million a year in a frozen universe.

No. What I'm going to give you is the expense associated -- this was disclosed previously when we -- when those grants were originally made. But basically the cost of this program, if we hit those various tranches, is about $12 million in fiscal 2014, $10 million in '15, $7.8 million in '16, $5 million in '17, and $1.1 million in '18. So certainly it's more heavily expensed in the earlier years than in the end years, but the -- you know, if, in fact, all of those targets are hit then the ultimate cost is in the $36 million to $40 million range.

So on that second subject, loan balance growth has been single digit. Revenue growth has been high single digit, and it seems that most of the earnings growth that we've seen in the last couple of quarters has come from buybacks. What metrics -- what levers can you operate or what strategies can you pursue that could result in more aggressive top-line growth coming out of the store base?

Well, the only thing we can continue to pursue is the things that we have been pursuing over the last 20 years as a public company, and 60 years as a -- I mean, 50 years as a company. It's geared towards opening in new locations and hopefully becoming better at what we do and offering up more variety of products and so forth. And we'll strive to continue to do that.

And obviously we're not going to hit a 20% compounded EPS growth rate on a 5% bottom-line earnings growth rate. I mean, share repurchases, in and of itself, won't do it. So I mean, this Management team has got to be focused on getting back to near historical type growth levels. Now, can we do that? The larger we are, the more difficult that becomes, but it's our challenge to try to do that, so that our shareholders benefit as best as we can offer.

Henry, this is Mark.

Yes.

If we ended the quarter in February, the compounded year-over-year growth rate was about 11.8%. You know, it was just that -- it's an anomaly in March with regards to pay downs. Now, I can't predict the future, but this question probably wouldn't have happened if we ended in February instead of March.

Yes, 12% would have been a great number.

Right. It wouldn't have been great, but it would have been better than 9.7%, that's for sure.

Well, thank you. I appreciate your focus on these issues.

(Operator Instructions) And we'll take our next question from Bill Dezellem with Tieton Capital Management. Please go ahead.

Thank you very much. A group of questions. First of all, did we hear correctly the simple interest method, the change to that, that will reduce the seasonality between the December quarter and the March quarter, but it will not entirely eliminate it? And if I heard rate, probably won't even largely eliminate it, but it will create some reduction in that seasonality.

That's correct. And you'll also see it in the June quarter and the September quarter depending upon how the days fall and when they fall and so forth. But I mean, yes, there will always be fluctuations, but this will offer the benefit of hopefully making them a little bit more consistent.

And secondarily, on that change to simple interest, does this impact how you are calculating interest on your actual loans to your customers, so from your customers' perspective, or will they still be seeing the rule of 78s used for interest calculations?

Well, if you remember, our previous method of recognition was the rule of 78s basis on a cash collection method. The current recognition procedure is an actuarial method on the accrual basis. Now, I'm going to answer this question in two parts. The first part is the rule of 78s recognition method kind of accelerates the recognition of revenue, but the cash -- but the accrual method, as opposed to cash, accelerates. So that's why there's not a material impact between the two methods.

Now, to answer the second part of your question is that the -- we will continue to recognize interest in what the customer pays based on the contract, contractual terms of the loan. And as they disclosed APR, and that is the rate that the customer is going to be charged if he pays that loan in the proper amount of time to maturity. Now, in certain states, if the customer pays off early or renews the loan, then the refund associated with that pre-computed interest is going to be based on the rule of 78s basis. So depending upon what the customer does, the recognition to the Company would be dependent upon that decision. But if in fact the customer pays to maturity then he will pay the interest associated -- I mean, disclosed in that contract. I hope I answered that question.

The end of the question though is nothing between the customer and World has changed. The income recognition change is only at the corporate level, how we recognize it for purposes of displaying in our annual reports and quarterly reports. The end relationship between World and the borrower did not change at all. It's the same contract and the same terms and the same refunding methods that have always been there.

That's helpful. And I did not read the commentary in advance, so if this question is repetitive, my apologies. Mexico, I guess a couple of questions. Would you talk about the maturation of your business there and how you are viewing the earnings growth from this point forward? And as a separate question, maybe it ends up being more related, is how many additional locations do you see as possible in Mexico as you sit today? And remind us again how many you do have today, please.

Okay. To start with, the -- Mexico, given the -- bear with me one -- 119 offices that we now have open down there, and we opened our first offices in September 2005, there's still a large number of non-mature offices. And as such, the growth in the loan portfolio in Mexico year over year was 40%. Now, we had a slight benefit from what was going on with the exchange rate, but even with that -- even taking that into consideration, the growth in the loan balances in Mexico is far exceeding what's in the US, and that's to be expected.

But number two, there's still a great deal of growth potential there given the size of these offices and the number of offices that have been open for less than three or four years. So there's still a tremendous growth opportunity there.

Number three, on the profitability, it's taken four or five or six years to establish enough loans outstanding to support the G&A structure there. And it's just become profitable in the last couple of years. And the profitability on a pretax basis grew over 50% this year. And given the same number of offices, you should see that growth in earnings accelerate as more offices become mature.

And finally, the answer to your last question is the opportunity for additional offices down there, we haven't even scratched the surface. We haven't gone into Mexico City, which is a tremendous metropolitan area. And there's a lot of other big cities we haven't even begun to go into. So as far as geographical locations, potentially it could be 1,000 offices down there. Now, whether or not I'll see that day is doubtful, but there's a tremendous opportunity in that country.

And I -- we're excited about what Javier is doing down there, and his contribution is becoming more and more every single year. And the materiality of that investment is growing to the extent that it will make a difference.

Thank you. And so if we're hearing you correctly, given the number of offices that are immature, meaning less than four years old, and you just crossed the profitability window, you are at the very beginning of what we think of as the curve in the hockey stick, where your profitability just starts to -- I don't want to over-exaggerate this -- but skyrocket from this point forward as your offices start to more than cover that fixed cost, and you get the tremendous bump up in profitability.

And Bill, you'd see the exact same thing if we published results on new state openings and whatever. They all tend to follow that same curve.

And I would like to emphasize that it's your word, skyrocket, but certainly improve dramatically would be appropriate.

And actually I want to tie that concept -- I'll back off the word skyrocket. That is kind of extreme. But tie into that concept relative to a couple other questioners that were asking about growth on a go-forward basis and your ability to hit your goals tied to the compensation plan. To what degree is Mexico kind of the kingpin behind that growth, or is that overemphasizing that one part of your business?

I think it's a vital part of our overall growth strategy going forward, but certainly it's not the only thing that will make this Company a success. I mean, we're excited about the opportunities that we have in Wisconsin and in Indiana, two of our more recent states. And we're looking at other states to open in the US hopefully this coming year. So we think that our future success is dependent upon many geographical areas.

And if you think about it, Bill, as large as Mexico has become, it's still about half the size or less of Texas. So a kingpin is probably not the right answer when it's less than half the size of a state in the US.

Right. That's fair. And if you'll allow me one more question, if you think about the past commentary that you have shared in helping us understand that your limitations to growth often tie to people and people's willingness -- well, first of all their abilities to be a manager, but then their willingness to move to a new location and getting someone to move from Texas to Wisconsin can be challenging. What about within Mexico? What is the cultural mindset there of moving between cities, and I guess relative to the US?

It's exactly the same as the US, Bill, and that is that the individuals that we're hiring down there are local to certain areas. Their families are there. Their support structure is in one place or another. And typically what we'll do is find an adaptable, qualified individual to go into a new area, open that area by hiring locally, and that's why it takes a little while is because we've got to hire in those local communities or that local town or city, and then build that employee base from there. That's why we can't just jump into, for example, Mexico City and open 100 branches because we can't get trained individuals to move en masse from one place to another.

So it's just the same challenge that we've had in the United States for 50 years, and that is when you open it in a new area, you've got to seed it with some people and then hire locally.

However, to elaborate on what Mark's saying, it's a lot easier to find a few people willing to do that when you're drawing from 119 offices than it is four or five years ago when we were drawing for five or six offices. So the larger you are, the more experience your core people have. And as they move from say a manager to a supervisor level, they are more likely to move than they are at an office level. So this certainly -- there are certainly opportunities, but there are limitations at the same time.

And if we heard you correctly, it's not anymore challenging in Mexico culturally, but it's certainly not any easier either.

Correct.

Thank you both.

And we'll now go to [Les Bryant] with UBS Financial Services.

Hi. This is no a complaint. It's a -- but something has been troubling me for some time. I've been a shareholder 15, 20 years. I have a lot of clients who own it. I am a broker with UBS. I have 127 symbols on my market minder I look at everyday. These are the stocks my clients own or I have an interest in. Our stock is only one of five -- one -- excuse me, one of five that are above $80 a share. The interest of my clients are for shares that are, say, half that price or less, in general.

I don't understand why, at some point, you don't consider splitting the stock down where the market demand would be bigger. Just could you make some comment in regards to that.

Yes, I'll be happy to. I think we've had this conversation before, but I'll certainly --

Not with me.

Okay. I've had it before with somebody, so I (inaudible). I personally do not believe that necessarily splitting the stock does anything to the overall economic valuation of the Company. But because this question has come up on multiple occasions I will promise you and everybody listening at this call that at our next Board meeting I will tell the Board that this is a request that's been made. It won't be a recommendation from me to do so, but I will tell them of your concerns. And if they choose -- if they believe that it will be beneficial then I will leave it to the Board to make that recommendation, and we will do a stock split.

But I personally do not believe it changes the overall value of the stock from an economic standpoint. And if a person believes it's a good value at $90 for one share, then it should not be that much better value for two shares at $45. And if they want the Company, rather than buying two shares at $45, they can get the same thing for $90. But that's just a difference in personal opinions, but I will promise you that an item that will be on our agenda at the next Board meeting will be a discussion about a stock split, and I will leave it to the Board to make that determination.

Thank you.

We'll now go to Bill Armstrong with CL King & Associates.

Good morning, Sandy. You mentioned in your prepared remarks a slight reduction in demand for your loan products. And I know at least part of that, if not most of it, is from the timing delays in tax filing. But is there anything underlying that may be of concern in terms of the underlying demand among your customers?

We -- I think we've addressed this a couple of times. You know, I think when I -- my current -- my previous comments that April, so far, year to date at April, our gross has been less than it was last year. But is that an indicator of what to expect going forward. And I think that Mark mentioned the fact that there's a lot of -- there's a tremendous amount of unemployed individuals out there that are not eligible customers. But do we believe there's a fundamental shift into the (inaudible) business? No, we do not. But is there going to be any incremental quarterly change in our growth? We cannot answer that at this point in time. We're certainly not hearing from our offices that traffic is no longer coming in the door. If it's happening, we're not hearing it.

Okay. And one other question. Yesterday's CFPB put out a white paper. I'm not sure if you guys had a chance to look at it. It's really mostly concerned with payday loans, but they -- it does mention installment loans here and there. I'm not sure if you guys have been in direct contact with the CFPB, but I was wondering if you could update us on your view on potential -- the potential impact of whatever federal regulation or oversight may be coming down the road.

Obviously we are very aware of everything that comes out of the CFPB. We are in constant contact, not directly with them but through our AFSA, you know, our primary trade association in Washington. I know there's been communications and discussions with Director Cordray, as well as other members of the Bureau, specifically regarding the paper that was put out this week regarding payday lending.

You know, it's certainly -- I don't believe it really addressed installment lending per se. I mean, it may have alluded to it, but certainly I don't think it addressed it whatsoever. I do not believe at this point in time that the installment lending industry is a real high priority. The Bureau's got a lot of things to look at it. It was mandate by the Dodd-Frank bill, but I also believe that it's just a matter of time that they will be coming in and looking at all nonbank financial products.

So we provide -- we try to provide updates on all regulatory matters on an ongoing basis as far as all of our disclosure. But at this point in time, we really do not have anything to add to previous disclosures because we just don't know anything else that's taken place.

Understood. Thank you.

Next is Clifford Sosin with CAS Investment Partners.

Hi, and thank you for taking my question. You mentioned in your prepared remarks that two states changed some of the rules in your industry in a more favorable way. Can you please clarify a bit what states changed the rules, how the rules were changed, and to what extent you this might benefit you going forward? And then I have a second question.

Yes, I'll be happy to. In the state of Georgia we operate under the GILA to help. That law has not been changed in many years, and the help offsets some of the cost of underwriting loans and so forth. They now allow for a closing fee, which is 4% of the base amount of the loan, up to a maximum of $50. While this is not a large burden to the customers, given our loan volume, it should be a positive impact to the state of Georgia to help offset the rising costs that we've had in that state.

The second one is in the state of Indiana. It's a kind of UCCC state with a 36% rate that's tiered. And previously it was 36% on the amounts of the loan, from zero to $180,000; 21% from $180,000 to $3,600; and 18% for any amounts above that. To compensate, again, for rising costs and so forth, they adjusted those brackets, such that it's 36% from zero to $2,000. It's 21% from $2,000 to $4,000, and 18% for $4,000 and above. Again, this is -- this will not -- this is not a tremendous burden to the customers, but it will help us offset the rising costs associated with operating these offices and underwriting these loans and documenting them.

And on that first question, do you have any sense of what the financial impact to World when these rate changes are? And on a related topic, are there any other states that you're aware of which may be considering similar lease favorable changes to the rate structure?

At this point in time we possibly can quantify an impact in Georgia because we've been there a long time, and we know how many loans we'll be making and so forth. I don't know what that number is, but it could have a fairly significant impact. In Indiana, we've only been -- we only have eight offices there. We've only been there for less than a year. At this point we have no idea what the impact may be because a lot of us depend -- is going to depend upon our success in opening new offices and attracting customers in this new state.

As far as your third question, I know that they were considering legislation in Mississippi. Oklahoma was considering some slight change to the law. Texas was considering a slight change to the law. All of these things not drastically changing what is going on, but to do some -- you know, to accomplish similar offsets to the rising costs of doing business.

And this sounds all very delightful to have changes in the regulation, which are favorable for the industry. I think there's been fears over time that there would be changes in regulations which would be adverse to the industry. Can you maybe spend a moment talking about the political wind in this regard? How did we go from a year or two ago generally being concerned that there would be significant adverse regulations, to now having state legislators or other organizations having decided to change the structures of our regulations such that we would be able to grow our businesses better and be more profitable?

We've always maintained an excellent relationship with the states -- in the states where we operate. We have a good relationship with the regulators there, the examiners there. And these states recognize the need for these small installment loans. And as such, have passed these alternate rates to allow companies to offer these on a profitable basis. And I don't believe that that relationship or the attitude towards those lending products and so forth has ever changed.

Now, certainly the payday lending industry has created a lot of concerns at the state level, and as such, there have been some negative laws passed. For instance, in Oregon and North Carolina and Georgia and so forth, where an attempt to regulate the payday lending industry, they have basically eliminated almost all small dollar financial products. So that is an ongoing concern. In an attempt to regulate one industry, others are affected by that regulation. But with that being said, like I said, we've always maintained excellent relationships at the state level.

And the concern over the last two years is the introduction of general oversight, which we've not had previously. And there's been concerns about what's -- you know, what is going to result from the Dodd-Frank and the creation of this Consumer Financial Protection Bureau. I personally believe that we provide a good service, and we offer products that banks and other institutions are not offering. And that it would be harmful to the -- a large segment of the population to not have access to credit. But you know, all of the sudden you have a Bureau with an incredible amount of power that can deem what products are good and what products are bad, regardless of what -- how it affects that individual consumer.

Well, some of those initial concerns, to a certain extent, have been -- have not risen to the level of being critical because it does not appear at this point in time that the Consumer Financial Protection Bureau -- the Bureau's goal is to eliminate credit to this large share -- segment of the population. So I believe ultimately the availability of credit is a primary goal of this Bureau. And I believe ultimately the installment lending industry is a vehicle that offers a better product than a lot of other ones.

Thank you. That's very helpful. And on my last topic -- and I appreciate you letting me ask so many questions -- given -- historically, the business has grown its store count as high as in the mid teens, and these sort of mid-single-digit store count growth implied by their commentary on the new store openings would put the Company at sort of the low end of its new store opening rate in its history. And given that it's been at this relatively low level for a couple of years now, it would seem that you guys have ample bench strengths in terms of personnel to open more stores faster.

Can you maybe spend a few moments discussing the things that cause you to be concerned, and thus not open as many stores as fast as, say, you did in 2007?

I'd be happy to. If you go back historically, we have always tried to maintain somewhere in the single-digit growth in offices. In 2006, there was a change in Management here, and we felt that we should accelerate that growth, and we opened about 106 offices or 107 offices three years in a row. We did that knowing that it would create a crunch in our available Management structure, and it did in fact create some issues. But since then we've had a bigger base of offices of [job] maturity, so then it's benefited our growth for a period of time.

The way we go about our office openings each year like that is Mark brings in his divisional senior vice presidents, and they go through an analysis of where they have people available to go and open in locations that have the demographics of the -- our customer base, and this is done in January/February timeline of each year. And we then establish what our plans are for the following year. And so I think the biggest thing is still dictated by locations that we have identified as good potential profitable markets, and the available of people to manage those offices, as well as the managers that are able to step up to the supervisory level to oversee the development of these offices.

So it's an ongoing mix just because I said in these statements that next year it appears that somewhere around the 65 to 75 office level is what our current plans are. That does not mean that that is necessarily fixable the next five years.

If I could add to that just for a second, if you look back at that three-year period of 106 branch growth per year, there were some rather large acquisitions in there that added to that store count. In addition, if you look at the three drivers for growth in store count this year, Wisconsin, Indiana and Mexico, although we're growing everywhere, those are, again, areas that are new states where it's difficult to import individuals from other places in order to run those. And that causes us to be somewhat cautious with regards to planning new branch openings until we have a sufficient internal face of individuals ready to run those branches.

So, you know, there's a number of factors, including all the ones that Sandy just mentioned that go into our planning, and we just don't want to (inaudible) our coverage.

That's very helpful. Thank you very much.

And we'll now take the next question from Edmund Sullivan with Cowen.

Thank you. Good morning. I was wondering if you could tell us what percentage of new loans written are refinancings of prior outstanding loans, and what percentage of the loans are ultimately fully collected? Thanks.

There's no real great way to answer this, but if you base it on loan volume, 77% of our loan volume represents renewals of existing loans. And if you look at our charge-off ratios, I would say that 85% of our loans are collected because roughly 15% or 14.5% are not collected. So I think there's a lot of ways you can slice and dice that question, but the most straightforward answer is 77% and 85%.

Anything else, Mr. Sullivan?

Oh, no. Thank you.

Thank you. We'll now go to [Doug Smith] with North Run Capital.

Hi. Good morning. Thank you. I'm still a little confused on the explanation for the reasons of the increase and the charge-offs. It sounds like it's a combination of delayed tax refunds and just a weaker employment situation. Is that how you want to characterize it?

No, I don't believe it has that much to do with tax refund. It's a timing of what happened to the 90-day accounts. But I also believe it's an indication of a somewhat tighter market. But how much of it is timing and what we anticipate this quarter I do not know.

Okay. And also just on --

I'm sorry. We had a spike in gas prices for a period of a couple of months that's now subsided. And if you do a couple-month lag off of that spike, you see a tiny increase. But again, the majority of it, as Sandy indicated earlier in his comments was about a $1.7 million reduction in our 90 days from December 31 to March 31 that's reflected in the charge-off total. If those 90 days were normalized from period end to period end, the charge-off rate would not have been a full percentage higher on an annualized basis. It would have been slightly more than 40 basis points higher. And I don't believe that that would have been material enough to even discuss.

But what you should see as we move the mix from smaller to larger loans, which is only taking place slightly over time, but as we move that mix going forward, we would expect our charge-off ratios to decline slightly because you're dealing with a better -- a more qualified customer, but that certainly was not the case this quarter.

Okay. And then just referring back to the white paper from the CFPB yesterday on payday, it seemed that their conclusion and concern was the level of repeat use. You know, for example, there was a meaningful percentage of customers who would take out 20 loans successively. I'm just wondering if that -- if they did kind of the same study of the installment lending area, if they'd kind of reached a similar conclusion and concern. In other words, is there a meaningful percentage of customers who are refinancing loans 20 or 30 times.

I think they gave the number of give loans in a given year is seven or ten or something. And I mean, there's certainly no way in the world an individual can access this type of renewal of existing loans more than two or three times a year, if in fact they make the payments every single month on time. So I don't believe that the cycle that they're referring to in the payday lending -- I mean, there's no pay downs associated with that. It's the same amount that's borrowed time and time and time again. And these are three different products. Whether or not renewals is an issue they will be concerned with, that's yet to be determined. I don't think the two are comparable.

Can you just comment on how often the average customer refinances successively?

I mean, based on the volume of business and based on the average loans outstanding, it would appear that our portfolio turns somewhere between two and three times per year. But that does not imply that it's the same customers doing this. We've got a constant mix of new people coming in, people paying us out in full and coming back in and re-accessing credit. We've got people being charged off that we have to replace with new customers. So I cannot tell you on average what a given person does. I can just tell you that the portfolio turns between two and three times per year, but that is not the same customer base.

Okay. Thank you very much.

And we'll go to Bill Dezellem with Tieton Capital Management.

Thank you. Since you're bringing up the share split to the Board, I figure I'll weigh in on the other side of the equation. You know the math, Sandy. If you do a two-for-one split, we're going to be paying twice the commission for our customers. So since we're not brokers, we're not necessarily focused on the commission component in terms of our pockets. We're far more focused on keeping the cost down for our clients. So there's the opposite side of the equation to look at.

Thank you, Bill. And like I said, I also agree that it doesn't make sense to do so, but this individual is a long-term shareholder, and this opinion has been expressed previously by other shareholders, and as such, I have made a promise that we'll bring it up. I do not know the result. I would not anticipate -- based on prior discussions I would not anticipate the Board doing that. But I have promised that it will be a subject of conversation at the next Board meeting.

Thank you.

And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Mr. McLean for any additional or closing remarks.

None, other than to say we appreciate you being interested in us in World and participating in this call. And for those of you who are shareholders, we appreciate your support. And I'll turn it back over to you, Vicky.

Thank you very much and thank you for your participation. Before concluding this morning's teleconference, the Corporation has asked me, again, to remind you that the comments made during this conference may contain certain forward-looking statements within the meaning of the Section 21E of the Securities and Exchange Act that represents the Corporations 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 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 conference.