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Executives

Sandy McLean – Chairman and CEO

Kelly Malson – SVP, CFO and Treasurer

Mark Roland – President and COO

Analysts

John Rowan – Sidoti

John Heck – Stevens

Bob Ramsey – FBR

Henry Coffey – Sterne Agee

Bill Dezellem – Tieton Capital Management

Les Bryant – UBS Financial Services

Bill Armstrong – CL King

Clifford Sosin – CAS Investment Partners

Edmund Sullivan – Cowen

Douglas Smith – Northern Capital

World Acceptance Corporation (WRLD) F4Q13 Earnings Call April 25, 2013 10:00 AM ET

Operator

Please standby. Good morning, and welcome to the World Acceptance Corporation-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 presentation by the Corporation’s CEO and his 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 risks and uncertainties.

Statements other than those of historical fact as well as those identified by the words anticipate, estimate, intent, 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 factor 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.

Sandy McLean

Thank you, Vicky and good morning. As Vicky said, I’m Sandy McLean, the CEO and with me this morning is Mark Roland our 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?

Question-and-Answer Session

Operator

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

John Rowan – Sidoti

Good morning everyone.

Sandy McLean

Good morning, John.

John Rowan – Sidoti

Just one quick question in the prepared remarks you did discuss the kind of unusually large non-cash 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 compensation agreement initially, which outlined some relatively heavy expenses that we should expect for fiscal 2014.

Sandy McLean

I don’t know that they should be look at separately. But they are – they do account for a fairly significant increase in our G&A. Now, obviously, these are non-cash expenses and there’s certainly – there are some fairly significant targets associated with the vesting of those grants.

So, if in fact we hit those targets then certainly our 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 – on a 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 – one-time five year grant as opposed to historically one-year grants, I felt it’s 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.

John Rowan – Sidoti

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

Sandy McLean

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 have built in the expense under the assumption that all of those tranches would be hit. And now – like I say 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 there we have not fully expensed the part associated with the most aggressive tranche, because the likelihood of us hitting it is questionable.

John Rowan – Sidoti

Okay, fair enough. Thank you.

Operator

And the next question comes from John Heck with Stevens.

John Heck – Stevens

Morning and thank you for taking my questions. First one, if you have handy, the end of quarter share count?

Sandy McLean

We got to look here and somewhere in there is that numbers, are very different.

John Heck – Stevens

Okay.

Kelly Malson

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

John Heck – Stevens

Great. Thank you. I’m wondering if you can comment on the composition mix of the originations during the quarter kind of the traditional size versus the large installment loans. Are we seeing more of a kind of a stabilization of that shift at this point?

Sandy McLean

It’s on a year-over-year basis. The percentage of loans that we categorize as that large 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, it’s 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 large 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.

John Heck – Stevens

Okay, thanks for that color. Impact of the tax refunds during the quarter, they were delayed, do you – I’m wondering if you can comment on that and what it might mean for this quarter in terms of the kind of the reverberating effects?

Sandy McLean

To put forth the delay two weeks, it was more like a two week delay when the first taxes could be filed. And as a result of that, certainly there was a kind of delay in the timing of a lot of our customers getting their tax refunds and as such there was a kind of 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 net ledger balance we gained.

John Heck – Stevens

$10 million.

Sandy McLean

Somewhere around $10 million. And this year it was pretty much, we lost slightly. So there is going to be that timing impact their and so certain extent it’s showing up in the April quarter or there is 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, but from a ledger balance standpoint it 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.

John Heck – Stevens

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 7, 8. Did that occur over the last quarter or is this the core that they shift. I know it’s not a material impact on anything, but I just want to make sure it got my record straight there.

Sandy McLean

It did in fact take place and I think there is a paragraph in the prepared narrative that talks about the overall impact of that change in 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 $2.1 million.

If that is less of a difference between what you generally expect on a year-over-year basis, but is more a difference of the timing of the end of the quarter, the last day of the quarter in fiscal year was on a Sunday. And we had a similar impact to our financials that we have 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’ll have less fluctuations on both 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 things. So I think, we’ll always have some seasonality. However, I believe that you’ll see more of somewhat more consistent earnings along loan basis.

John Heck – Stevens

Okay, I appreciate it. Thank you.

Operator

And our next question comes from Bob Ramsey with FBR.

Bob Ramsey – FBR

Hey, good morning guys. Just a follow-up on that, I want to be sure I’m thinking about it correctly. So the $2.1 million difference, this reflects it under the prior methodology, because of the way the days fell over the weekend, you would had $2.1 million less revenues this quarter, but you would have had that fall into 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?

Sandy McLean

That’s exactly correct, and that exactly, if you remember that’s what happened at the end of September. We anticipated somewhere between $2 million and $2.5 million, it not get recorded in the September quarter, but we expected it show up in the December quarter. And, if you remember the yields from the second to third quarter, yes, actually verified that didn’t – that did in fact take place.

So we had a similar type situation this year at quarter end. And what’s unusual is that, over the last 10 years this particular phenomenal has not taken place at the end of the quarter, but one previous time and then here we have – this happened three times in a row, not three times in a row, but it happened in the September quarter, the March quarter, and it would have happen again in the June quarter.

So this is a preferred method of accounting. It’s the proper math of accounting, it’s not materially different from the other, but there certainly be some benefits by not seeing these unusual fluctuations based on number of days and when it falls into the period.

Bob Ramsey – FBR

Perfect, okay, that make sense to me. I was wondering to, if you could talk a little bit about your share repurchase appetite, obviously you guys are very active in the quarter. I know this quarter is one when you typically have strong cash flow in your prepared comments 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.

Sandy McLean

We still believe at these levels that the stock is accretive and beneficial to the shareholders going forward, but one thing and as I’ve said in the prepared remarks, I think there is an additional $17 million in authorization that the board has approved that we and in fact start repurchasing shares beginning the day after tomorrow given our block-out 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, it results to a certain extent by the reduction of our outstanding receivables. So while we have overall capacity within the line, we have to monitor the availability of the total capacity. It’s based on a borrowing book based formula. And, at some point, it will become a little more restrictive than it has in the past because of the large numbers in dollars amount of shares that we 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.

Bob Ramsey – FBR

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

Sandy McLean

Well, I can quantify – I don’t believe that everything that’s going on with the charge-off is strictly due to timing. However, the part that I can’t 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 31st, compared our 90-day delinquency to March 31st drop by about $1.7 million. So therefore, had the one category stayed about the same then and you recalculated what the charge-off ratio would have been, it would have been to closer to where we were last year, but I don’t want to indicate 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 had that 1% increase – on an annualized basis a 1% increase this fourth quarter versus the prior year fourth quarter. So I think we’re seeing a slight increase in the charge-off ratio. It appears that there is a slight decrease in the demand for our loan products and – and I cannot say that it’s all due to the timing, but I don’t really believe there has been a real fundamental change to our business. We’ll just have to see where this economy takes us and so forth.

Bob Ramsey – FBR

And it’s interesting, do you think that the slight decrease in demand for products, is it – I guess everything at the end of the day is driven by the economy. What do you sort of attribute that to?

Mark Roland

Well, this is Mark Roland. Part of it was in our last March about the middle of March, the tax refund season was clearly over and we began to grow last year. We grew in aggregate in the March period last year by about $10 million, corresponding 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 – 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. Whether or not that bounce is back in the second – first fiscal quarter this year I don’t know, but the other party of your question really is about the general economy and I think the statistic that was out sometime in the past few weeks was that some 90 plus million people are now out of the workforce, which is the highest number since the partner administration.

So regardless of the fact that we lend in a lower-end credit spectrum than some, we can’t lend to any that doesn’t have a job or doesn’t have income. So there is a large population out there that – that is on credit under writable at this point.

Bob Ramsey – FBR

Okay. That’s helpful. Thank you guys.

Operator

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

Henry Coffey – Sterne Agee

Good morning everyone and thanks for taking my questions. Just to help me clarify a few things in the – on 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 gain will just kind of not show up in fiscal 2014, is that correct?

Sandy McLean

That’s correct.

Henry Coffey – Sterne Agee

And then, historically on 12/31, you had made all these loans and we hadn’t collected any revenue. That will really change that seasonal pattern what really changed was this correct, because you still only will have those loans on your balance sheet for a week or two, the Christmas month?

Sandy McLean

Well, considering our busy season, really is the middle of November putting into December there will be some change, because while the payment may not be – if loans made on December 2nd.

Henry Coffey – Sterne Agee

Right.

Sandy McLean

Previously we would not record any earnings until we receive that first payment on January 2nd. Now, we will be recording revenue at the end of December based on the 29 days that loan was outstanding.

Henry Coffey – Sterne Agee

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

Sandy McLean

There will be some, but remember our fourth quarter will always be most profitable, because not only getting are our giving out payments, but we get paid off. There are some of those – these that are not a certain percentages of these are non-refundable that you recapture whenever that 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 in our allowance follows those out stated 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 consisted on a quarter-by-quarter basis.

Henry Coffey – Sterne Agee

How will the accrual method impact this whole concept that you – when you refine there is a fee recapture, are you going to build that into the accrual models or is that still going to be based on experience?

Sandy McLean

It will be based on experience, but the – so when refi is made, the refinances will be done based on the rules established at this.

Henry Coffey – Sterne Agee

Right.

Sandy McLean

Base level for refund of non-earned interest. I mean so

Henry Coffey – Sterne Agee

Yeah, 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 you expect and you don’t hit the high bar, was that a one-time fee or was that $2.9 million a year?

Sandy McLean

Well, this is a large five-year graph that in the expense associated with that graph was going roughly – it’ll be amortized over the entire period. And

Henry Coffey – Sterne Agee

So, it will be $2.9 million a year in a frozen universe?

Sandy McLean

What I’m going to give you is the expense associated. This was disclosed previously and when we – when those graphs 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 2015, $7.8 million in 2016, $5 million in 2017, and $1.1 million in 2018. So certainly it’s more heavily expensed in the earlier years than in the end years, but the – if in fact all of those targets are hit, then the ultimate cost is in the $36 billion to $40 billion range.

Henry Coffey – Sterne Agee

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.

Sandy McLean

Well, the only thing we can continue to pursue is the things that we have been pursuing over the last 40 years as a public company and 60 years as a company – 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 more variety of products and so forth.

And, we’ll – we’ll strive to continue to do that, and obviously we are not going to hit a 20% compounded EPS growth rate on a 5% bottom line earnings growth rate. Share repurchase is required do it. So this management team is got to be focused on getting back to near of 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 is we can off.

Sandy McLean

And, Henry, this is Mark.

Henry Coffey – Sterne Agee

So when you look at, yeah.

Mark Roland

If we’d ended the quarter in February, the compounded year-over-year growth rate was about 11.8%. 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 would haven’t happened if we ended in February instead of March. It’s just

Henry Coffey – Sterne Agee

Exactly, 12% would have been a great number, yeah.

Sandy McLean

Right, it would have been great, but it would have been better than 9.7, that’s for sure.

Henry Coffey – Sterne Agee

Thank you. I appreciate your focus on these issues.

Operator

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

Bill Dezellem – Tieton Capital Management

Thank you very much. A group of questions, first of all, did we hear correctly, the simple interest method that changed 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 right – probably you’ve already even largely eliminated but it will create some reduction in that seasonality.

Sandy McLean

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

Bill Dezellem – Tieton Capital Management

And, secondarily on that change to simple interest, does this impact how you’re calculating interest on your actual loans to your customers, and if so from your customers perspective will they still be seen in the rule of 78’s used for the interest calculation?

Sandy McLean

Well, if you remember, then our previous method of recognition was the rule of 78 basis on a cash collection method. The current recognition procedure is actuarial method on the accrual basis. Now, I’m going to answer this question in two parts. The first part is that the rule of 78’s recognition of asset kind of accelerates the recognition of revenue. But, the cash – but the accrual method as opposed to cash accelerates.

So that’s why there is a – not a material impact between two methods. And 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 they as I disclosed APR and that is the rate that the customer is going to be charged if he pays that loan in proper amount of time to maturity. Now, in certain states, if the customer should – 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 will – would be dependent upon that decision. But, if in fact the customer pays the maturity, then he will pay the interest associated – I mean disclosed in that contract. So – hope I answered that question.

Mark Roland

The end of the question though is nothing between the customer and World has changed. The income recognition changes 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.

Bill Dezellem – Tieton Capital Management

That’s – that’s helpful. Thank you. And then, I did not read the commentary in advance. So if this question is repetitive, my apologies. Mexico, a couple of – I guess a couple of questions. Would you talked about the maturation of your business there and how you’re viewing the earnings growth from this point forward, and as a separate question, but 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?

Mark Roland

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

But number two, there is still a great deal of growth potential there given the size of the new offices and the number of offices that’s been open for less than three or four years. So, there is still a tremendous growth opportunity there. Number three is on the profitability. It’s taking four, 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 then the profitability on a pre-tax basis is – was 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 hadn’t gone into Mexico City, which is a tremendous metropolitan area. And, there is a lot of other big cities we haven’t even begun to go into. So as far as geographical locations potentially, it could be a 1,000 offices down there,. And, when I’ll see that day is doubtful, but there is a tremendous opportunity in that country. And, we’re excited about what Javier is doing down there, and his contribution is becoming more and more important every single year and the materiality of that investment is growing to the extent that it will make a difference.

Bill Dezellem – Tieton Capital Management

Thank you. And so if we’re hearing you correctly given the number of offices that are immature, I mean less than four years old, and you’ve 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 with 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?

Sandy McLean

And, Bill, you would see the exact same thing if we publish results on new state openings and whatever, they all tend to follow that same curve.

Mark Roland

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

Bill Dezellem – Tieton Capital Management

And the next I want to tie that concept – I’ll back off the word skyrocket, it is kind of extreme, but tie into that concept relative to a couple of 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 over emphasizing that one part of your business?

Sandy McLean

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 Indiana, two of our more recent states and we’re looking at other states to open in the U.S. hopefully this coming year. So we think that our future success is dependent upon many geographical areas.

Mark Roland

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

Bill Dezellem – Tieton Capital Management

Right, that’s fair. And, if you allow me one more question, as I think about the past commentary that you have shared in helping us understand that your limitations to grow often tied to people and people’s willingness. Well, first of all, their abilities to be a manager within 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 U.S.?

Sandy McLean

It’s exactly the same as the U.S., 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 do is we’ll find a adaptable qualified individual to go into a new area, open that area by hiring locally, and that’s why it takes a little while 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 that. For example, Mexico City had opened 100 branches because we can’t get trained individuals to move in mass from one place to another. So it’s just with 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 seat it with some people, and then hire locally.

Mark Roland

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

Bill Dezellem – Tieton Capital Management

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

Sandy McLean

Correct.

Bill Dezellem – Tieton Capital Management

Thank you, both.

Operator

And, we’ll now go to Les Bryant with UBS Financial Services.

Les Bryant – UBS Financial Services

Hi. This is not a complaint. It’s – but, something has been troubling me for some time. I’ve been a shareholder 15, 20 years. I have lot of clients who own it. I’m a broker with UBS. I have 127 symbols on my market mind where I look at every day, these are the stocks my clients own or have an interest in, and our stock is only one of five – excuse me, one of five that are above $80 a share. The interest of my clients are for shares that are – say half a 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 this.

Sandy McLean

Yes, Les, I’ll be happy to though. I think we’ve had this conversation before, but I’ll certainly

Les Bryant – UBS Financial Services

Not with me.

Sandy McLean

Okay, well, if we’d not had it – we’ve had it with somebody, so in that respect, Les,

Les Bryant – UBS Financial Services

Yeah.

Sandy McLean

I personally do not believe that necessarily splitting the stock does anything to the overall economic valuation of the company, but recall that this question has come up on multiple times – occasions. I will promise you and everybody listening to this call that at our next board meeting, I will tail – I will tell the Board that this is the request that’s been made.

There won’t be a recommendation from me to do so, but I will tell the AMO of your concerns and if they choose – if they believe it will be beneficial, then I’ll leave it to the Board to make that recommendation and we will do a stock split but I personally do not believe the changes, the overall value of the stock from an economic stand point. And if a person believes it’s a good value at 90 then it should not – then 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 an item that will be on our agenda at the next board meet will be a discussion about the stock split and I’ll leave it to the Board to make that determination.

Les Bryant – UBS Financial Services

Thank you.

Operator

We’ll now go to Bill Armstrong with CL King and Associates.

Bill Armstrong – CL King

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

Sandy McLean

We’ve – I think we’ve addressed this a couple of times. I think in my previous comments that did April so far year-to-date in April, our growth has been less than it was last year, but is that an indicator of what to expect going forward and I think Mark mentioned the fact that there is a lot – there is a tremendous amount of unemployed individuals out there that are not eligible customers, but do we believe there is a fundamental shift in the demand for our 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 office is the traffic is no longer coming into door. That’s just – if it’s happened, we are not here in it. So

Bill Armstrong – CL King

Okay. And one other question, yesterday’s the CFPB put out a whitepaper, I am not sure if you guys had a chance to look at it. It’s really mostly concerned with payday loans, but it does mention installment loans here and there, I am 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 maybe coming down the road?

Sandy McLean

Obviously, we are very aware of – in everything that comes out of the CFPB, we are in constant contact not directly with them, but through our – AFSA, our primary trade association in Washington. I know that there has 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. It’s certainly – I don’t believe it really addressed in installment lending per se.

I mean it may have alluded to it, but certainly I don’t think he’s addressed it whatsoever. I do not believe at this point in time that the installment lending industry is a real high priority. The bureau has got a lot of things to look at. That was mandated by the Dodd-Frank bill, but I also believed that it is just a matter of time that they will be coming in and looking at all non-bank financial products. So we provide – we try to provide updates on all regulatory matters on an ongoing basis as orders all of our disclosure but at this point of time we really do not have anything to add to previous disclosures because we just don’t know anything that else has taken place.

Bill Armstrong – CL King

Understood, thank you.

Operator

Next is Clifford Sosin with CAS Investment Partners.

Clifford Sosin – CAS Investment Partners

Hi and thank you for taking my question. You mentioned in your prepared remarks – 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 old rules were changed and to what extent you think this might benefit you going forward, and I then have a second question.

Sandy McLean

Yes, I’ll be happy to. In the State of Georgia, we operate under the GILA to help that will always not been changed in many years and they help offset some of the calls to underwriting loans and so forth. They now allowed 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 that loan volume, it should have a positive impact to the State of Georgia to help offset the raising costs that we have had in that state.

The second what is in the State of Indiana? It’s a kind of a triple C state. It was a 36% rate. It’s tiered and previously it was 36% on the amounts loan from zero to a $1,080, 21% from $1,080 to $3,600 and 18% for any amounts above that, to compensate again for rising costs and so forth they adjusted those brackets such as 36% from zero to $2,000, it’s a 21% from $2,000 to $4,000 and 18% for $4,000 and above. Again, this is not a tremendous burden to the customers, but it will help us offset to rising costs associated with operating these offices and underwriting these loans and document them.

Clifford Sosin – CAS Investment Partners

And on that first question. Do you have any sense of what the financial impact to World from these rate changes are? And on a related topic, are there any other states that you’re aware which may be considered in similar lease favorable changes to the rate structure?

Sandy McLean

This one time we possibly could quantify any 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 fairly significant impact. Indiana we’ve only been – we only have eight offices there, we’ve only been there for a less than a year.

At this point we have no idea what the impact maybe because a lot of that will depend upon us excess 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 accomplish similar offsets to the rising cost of doing business.

Clifford Sosin – CAS Investment Partners

And this sounds very delightful to have changes in regulation, which are favorable for the industry. I think there’s news over time that there would be changes in negotiations which would be adverse to the industry. Can you be 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 being – having state legislatures or other organizations decide to change the structures of our regulations, such that we would be able to grow our businesses better and be more profitable.

Sandy McLean

We’ve always – we’ve always maintained an excellent relationship with – in the states where we operate. We have 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 ultimate 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, in North Carolina, in Georgia and so forth where in an attempt to regulate the payday lending industry, they have basically eliminated almost all small dollar financial products.

So that is an ongoing concern that in an attempt to regulate one industry others are affected by that regulation. But that being said we’ve always maintained excellent relationships at the state level. And the concern over the last two years is the introduction of federal oversight which that we’ve not had previously. And there’s been concerns about what’s – 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 large segment of the population to not have access to credit. But all of a 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 that – 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’s goal is to eliminate credit to this large 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 as a vehicle which offers a better product than a lot others.

Clifford Sosin – CAS Investment Partners

Thank you. That’s very helpful. And then on my last topic and I appreciate you letting me ask so many questions. Historically the business has grown its store count, as high as in the mid teens and the sort of – the sort of mid single digit store count growth implied by the 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 seen that you guys have ample bench strength in terms of personnel to open more stores faster. Can you maybe spend a few minutes – few moments discussing the things that cause you to be concerned and does not open as many stores as fast as to say you did in 2007?

Sandy McLean

I’ll be happy to. If you go back and look 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 I believe 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 essentially I mean we’ve had a bigger base of offices and it benefited our growth for a period of time.

The way we go about our office openings each year right there as Mark brings in his Divisional Senior Vice Presidents and they go through an analysis of what – where they have people available to go and open in locations that have the demographics of 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 availability of people to manage those offices as well as the managers that are well – able to step up to the supervisory level to oversee the development of these offices. So it’s an total mix just because I said these statements it appears that somewhere around the 65 to 75 office level is what our current plans are, that does not mean that is necessarily fixed for the next five years.

Sandy McLean

If I could add to the just for a second if you look back at the 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 was, Indiana and Mexico, although we’re going 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 base of individuals ready to run those branches. So there is a number of factors including all the ones that Sandy just mentioned that go into our planning and we just don’t want to outrun our coverage.

Clifford Sosin – CAS Investment Partners

That’s very helpful. Thank you very much.

Operator

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

Edmund Sullivan – Cowen

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

Sandy McLean

There’s no real great way to answer this but if you base it on loan volume 77% of our loan volume represents renewals too 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 could slice and dice that question, but the most straight forward answer is 77% and 85%.

Operator

Anything else Mr. Sullivan?

Edmund Sullivan – Cowen

Oh no, thank you.

Operator

Thank you. We’ll now go to Doug Smith with Northern Capital.

Douglas Smith – Northern Capital

Hi, good morning. Thank you. I’m still a little confused on the explanation for the reason of the increase in 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?

Sandy McLean

No, I think, I don’t believe it has that much to do with tax refund. Its timing of what happened to the 90 day accounts, but I also believe it’s a indication of a somewhat tighter market, but how much of its time and what we anticipate this quarter, I do not know.

Douglas Smith – Northern Capital

Okay. And also just on...

Sandy McLean

I’m sorry.

Douglas Smith – Northern Capital

Sorry, go ahead.

Mark Roland

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 of 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 $1.7 million reduction in our 90 days from December 31 to March 31. This 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 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.

Sandy McLean

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

Douglas Smith – Northern Capital

Okay. And then just referring back to the whitepaper from CFPB yesterday on payday. And it seemed that their big conclusion and concern was the level of repeat use. 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 kind of reach a similar conclusion and concern. In other words is there a meaningful percentage of customers who are refinancing loan costs.

Sandy McLean

I think they use a number of loans, in a given year it’s seven or 10 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 they are referring to in the payday lending. There are no pay downs associated with that. It’s the same amount, it’s borrowed time and time and time again. And these are two different products. Whether or not renewals is an issue that they will be concerned with, that’s yet to be determined. I mean I don’t think the two are comparable.

Douglas Smith – Northern Capital

Yeah. Could you just comment on how often the average customer refinances successively?

Sandy McLean

I mean based on the volume of business and based on the average loans outstanding it would appear that our portfolio turns somewhere between 2 and 3 times per year, but that is not implied that it’s the same customers doing this. We’ve got a constant mix of people come – new people come in the end, people paying us out in full and coming back out, coming back 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 2 and 3 times a year, but that is not the same customer base.

Douglas Smith – Northern Capital

Okay. Thank you very much.

Sandy McLean

Sure.

Operator

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

Bill Dezellem – Tieton Capital Management

Thank you. Since you’re bringing up the share split to the board, if you would have to weigh on the other side of the equation. You know the math Sandy if you do a two for one split or 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 own pockets. We’re far more focused on keeping the cost down for our clients. So there is the opposite side of the equation to look at.

Sandy McLean

Thank you, Bill. And like I said, I also agree that it doesn’t make sense to do so. But this is – this individual is a long-term shareholder and this opinion has been expressed previously by other shareholders and as such he made a promise he will 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 it will be a subject of conversation at the next board meet.

Bill Dezellem – Tieton Capital Management

Thank you.

Operator

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.

Sandy McLean

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

Operator

Thank you very much. And thank you for your participation.

Before concluding this morning’s teleconference, the Corporation has asked to made again remind you that 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 risks and uncertainties. Statements other than those of historical fact as well as those identified by the words anticipate, estimate, intent, 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 risks factor 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’s quarterly conference.

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