Good morning, and welcome to the World Acceptance Corporation Sponsored Third Quarter Press Release Conference Call. This call is being recorded. [Operator Instructions]. Before we begin, the corporation has requested that I make the following announcement.

The comments made during this conference may contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that represent the corporation's expectations and beliefs concerning future events.

Such forward-looking statements are about matters that are inherently subject to risks and uncertainties, statements other than those of historical fact as well as those identified by the words anticipate, estimate, intend, plan, expect, believe, may, will, and should, and any variation of the foregoing or similar expressions are forward-looking statements.

Additionally, information regarding forward-looking statements and any factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements are included in the paragraph discussing forward-looking statements in today's earnings press release and in the Risk Factors section of the corporation's most recent Form 10-K for the fiscal year ended March 31, 2020, and subsequent 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 is my pleasure to turn the floor over to your host, Mr. Chad Prashad, President and Chief Executive Officer. Please go ahead..

Good morning, and thank you for joining us for our third quarter earnings call. Before we begin, I would like to extend a big thank you to all of our team members. Calendar 2020 was a very challenging year, and the third quarter was our busiest quarter in the company history.

So I want to thank all of you from being flexible, dedicated and helping to navigate these challenges as we served our communities and our customers. So, thank you, team. And with that, we'll open it up for questions..

[Operator Instructions]. And our first question will come from Kyle Joseph with Jefferies..

Just on the -- I noticed you factored incremental stimulus into your reserve, if you could just give us a sense for -- there remains some uncertainty in terms of the magnitude and the timing there, but just your thoughts on incremental stimulus and potential impacts on loan demand?.

Sure. I can speak to the impacts of -- on the allowance, and I'll let Chad speak to demand going forward. Through the second quarter, we built up a quantitative reserve sort of specifically tied to the higher unemployment rates.

And as of the end of the quarter, given the additional federal unemployment and stimulus, we felt like those weren't needed any longer. But still looking forward, there is some uncertainty around how long the pandemic lasts and what that might mean to losses.

So we still have -- we've kept the allowance on the conservative end of the range until there's a little bit more certainty..

Yes, as to demand going forward -- yes, as to demand going forward, we saw a pretty precipitous drop in demand with the first round stimulus in April, but then began to see it rebound several months later into the third quarter, which was our highest demand for former customers we've had on company history.

So it's likely that with another round of stimulus, though this be delayed for some period of time, as we've seen just recently, but it's too early to tell. A lot of it depends on exactly what the stimulus package looks like..

Got it. I appreciate that. And then 1 follow-up for me. Illinois passed some legislation last week.

Can you guys quantify your exposure and potential impacts on the business from the Illinois Bill?.

Sure. So Illinois did pass some new legislation last week. In anticipation of it being signed in the law in the coming weeks, we have already pivoted to only serving customers that we can serve sub 36%. So it's our first full week of doing that.

We recognize it will have an impact on the roughly 70% of customer base that we used to serve in Illinois that we will no longer be able to serve there. But we're very confident that we will be able to pivot quickly and swiftly throughout the next couple of weeks and to months in Illinois to grow our sub 36% and larger loan business in Illinois.

One of the other pieces to this equation is, we'll be able to take these learnings in Illinois and spread it to other states and grow our large loans sub 36% business in other states as well..

Got it. Actually, that brings up 1 other question for me. I noticed your customer count was down more than your loan balances.

Is that a result of you guys focusing on the larger loan balances?.

Not specifically. It's a good question. That is really a result of decreased demand in loans from new customers throughout really first quarter and second quarter where we had very minimal demand. And the most of our loans were to former customers and refinances. So in third quarter, we had our biggest third quarter for former customers ever.

Those are typically going to be much larger loans than our new customers. New customer demand did rebound. And it was down about 20%, 25% year-over-year. However, those are typically larger loan -- smaller loans. So it's a re-rating of the portfolio again. Most of our demand was towards higher credit quality customers who were asking for larger loans..

Our next question will come from John Rowan with Janney..

Follow-up on Kyle's question on Illinois. Are you -- this law was obviously passed very abruptly. I don't believe it's signed by the Governor yet.

Are there provisions in the law that preclude you from collecting the loans that are currently outstanding that are above 36% in the state of Illinois?.

No. So yes, the loans that originated -- obviously, hasn't been passed fully yet, but the loans originated prior to that will still be legal loans that are collectible..

Sure. I read the bill, it's super confusing because there's -- it's amendments and links to other things. I just want to make sure that because I mean you have like $91 million -- as of March, you had $91 million of receivables in Illinois. And based on your comments, you said it's about what, 70% of those customers are above 36%.

That's the number you gave? Or is the 75%?.

So that 70% is 70% of new loans that we originate in Illinois, right? So our business model is we're going to take on risk with a new customer and as they prove themselves, we'll increase their credit line and lower their interest rate.

So that's relating to the ability to bring on new customers and the customer base that we're going to have to abandon in that effort, right? But we are pivoting towards growth in acquisitions in Illinois as well as new customer growth and solicitations above -- or below 36% as well..

So how much outstanding do you have in Illinois, because I think the last data point that we had was March of '20 at $91 million?.

Yes. So when you -- that's a gross loan amount. So when you look at the net loans in Illinois, it's around $60 million at the end of December. And on Chad's point.

So with our existing portfolio, because we have experience with those customers and the vast majority of those customers are good payers, we feel comfortable operating with the vast majority of those at 36%, right? It's -- what changes is who we originate new loans to, right? So it will make us -- for new customers, we'll have to move up the spectrum, and we can't take as much risk on those new loans.

But for existing customers, we feel pretty comfortable at 36%..

So those -- all those customers who are somewhere north of 36% are just going to get a reduction in payment, it sounds like?.

Right, that's right..

Okay. On repurchases. Obviously, you made some adjustments to covenants to allow for more repurchases.

Can you just give us an idea of what because there's this always this constant Board authorization, you run through it, and you get a new authorization? Can you give us an idea of what you think is the correct cadence and run rate for repurchases?.

Yes. So a lot of it will depend on the banks working with us to get additional capacity. As of the end of December, we had around $18 million that we can spend on buybacks. We've spent $10 million of that in January already. So under the bank facility, as of today, we still have another $8 million we can spend.

So we'll build back to that based on Q4 earnings. But we also have the ability to go to the banks and ask for additional capacity.

Given that with the stimulus package we'll likely have some more runoff than usual that's already typical in Q4, which will lead to additional pay-downs of our facility, that's something we will go to the banks and ask for, but a lot of that will depend on them..

Well, because you guys had a bucket that was already filled, right? So you had earlier this year been doing effectively a catch-up with a prior bucket. And then I believe it was going forward, you were going to be at 50% of net income.

Do you still think that's an appropriate way to model out repurchases at 50% of net income? Or is it going to be fundamentally higher than that?.

Well, the only sort of guaranteed spend we have is that interest of net income, right? But under certain circumstances, depending on the leverage ratio and everything else, that's -- we'll ask for additional capacity.

There's no guarantee of that, right? So I can't tell you, you can build it into your model, but it's certainly something we will seek to get from the banks..

Our next question will come from Vincent Caintic with Stephens..

I wanted to maybe take a broader picture just on the regulation and I know the government since we have the -- we have the Biden administration, Democrat controlled Congress and a new CFPB Director coming up is maybe just your broad thoughts on what we should pay attention to? Anything you think changes and how you plan to pivot, if you need to pivot at all, given the new changes in the administration?.

Vincent, so I'll tackle this probably in two different ways. First, we take compliance and abiding by regulations very seriously. We're one of the few companies out there that can say that we help over 1 million customers a year who are subprime or deep subprime.

On an annual basis, we actively lend to 100,000 new customers who don't have a credit score or scorable credit history. And those aren't applications, right? Those are actual customers we're lending to. And we're one of the few companies out there that can say that.

Not only that, we help hundreds of thousands of people build their credit on an annual basis and to a point where each year, over 100,000 to 200,000 customers are moving out of each subprime and deep subprime into more credit options. And we take this responsibility that we have to our customers and our communities very seriously.

And we absolutely do not want to do anything to jeopardize that, right? So with the new administration, we do expect there to be some changes from different organizations. And we intend to comply 100% with those and work with whoever we need to work with, because, again, we take this responsibility very seriously.

Another way to look at this is there is recently the rate cap that came in Illinois at 36% all-in. And we took a very deep look at our portfolio, as Johnny was talking about, and there is a pretty large portion of the current portfolio, we can easily pivot sub 36%, and we can make that work.

The real difference to our customers comes to new customers, right? When things like that happen, there is a large portion of the population we can no longer extend credit to. In Illinois, that's roughly 2.5 million to 2.7 million people.

It's roughly 30% of the population of Illinois that we used to be able to serve that we can no longer serve just because they're too risky to lend to, and we can't even get a return, let alone breakeven, right? So we take that very seriously that this is our mission as a company is to extend credit to these folks and help them move up the credit spectrum with positive payment histories.

So in the case that we need to pivot, we absolutely can do it. But it is part of our mission as a company to continue to serve these folks. And we intend to do everything we can to continue to be able to do that. But also, we don't want to leave behind such a large loss of Americans who will no longer have access to credit..

Okay. Great. That's very helpful and thorough. So if you just think about that, because I think a lot of investor questions are about that 36% rate cap, maybe if you could expand on how much of your existing portfolio would be okay, either they're already at 36% or you can convert them easily.

Is 70% that you have in Illinois kind of a good metric to use for the rest of the country? And is that maybe an area where you can expand it? I know it gets -- unfortunately cuts off a lot of new customers, but is that a potential growth area for you?.

Yes. Good question. So I don't have the exact number in front of me what percent is below 36% today, but a large portion of our portfolio is at or right -- very close to sub -- to 36%. So we could continue to serve those customers, absolutely. It does require some changes in how we operate, both in terms of servicing and originating loans.

And we're going to that today in Illinois. This is our first full week where we've changed how we underwrite and how we service customers in Illinois. So we have a week's worth of experience doing it. It's going very well so far. We believe we could pivot in other states as needed. But again, it's part of our mission to continue to serve these customers.

And it's a large percentage of population that we no longer have access to affordable or legal credit. And that's one thing that we just have to educate folks on.

In terms of new customer growth, there is -- while we do lose the new customers who traditionally would have been too risky to price below 36%, it does open a whole new segment of customers that we certainly have never brought in before as new customers, and these are your 600-plus credit score, 620, 640-plus credit scores.

And we have not typically focused on that area as a company, but are beginning to, and it's a very large population in America..

Okay. Very helpful. And last one for me. So your credit performance has done really well. And just wondering, when you think about the next couple of quarters, it seems like -- so we have a second round of stimulus, and maybe there's going to be even more support.

Does that lend itself to maybe loosening credit or otherwise trying to find some other avenues of growth where maybe in a normal situation it might have -- it might have been tighter than it is. I'm just kind of wondering if maybe the environment now is conducive to growth since credit seems to be doing so well..

Yes, it's a good question. So to the first round of stimulus, we did the opposite, we tightened credit. And so what you've seen in terms of our loss rates and our delinquency rates improving over the last 9 months is a combination of 2 things. First, it's a -- it's the impact of how we tighten credit for new customers.

But second, there's a lack of demand for new customers who are typically much more risky. And as demand returned, it returned first with our current customers and then former customers who are less risky, before new customers this past quarter.

So part of what we've seen there is absolutely the shift in credit quality of our portfolio itself, more than the effect of stimulus, right? So this is more of an indirect effect of stimulus. Going forward, with the current $600 and any other future stimulus package, I don't anticipate needing to loosen our credit criteria.

We've seen demand come back fairly rapidly. And so we'll probably continue to go that path as well as essentially offer other products or other things to meet customers' needs without having to affect our credit quality..

This concludes our question-and-answer session. I would like to turn the conference back over to Chad Prashad for any closing remarks. Please go ahead, sir..

Thank you all for joining us for the third quarter earnings call. This concludes the call, and we look forward to talking with you in the fourth quarter. Thanks..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..