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World Acceptance Corp (S.C.) (NASDAQ:WRLD)
Q3 2021 Earnings Call
Jan 22, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 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 facts, as well as those identified by the words, anticipate, estimate, intend, plan, expect, believe, may, will and should and any variation of the foregoing and 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 expect -- 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.

Chad Prashad -- President and Chief Executive Officer

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 for being flexible, dedicated and helping to navigate these challenges as we served our communities and our customers. So, thank you team.

And with that, I will open it up for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions]. And our first question will come from Kyle Joseph with Jefferies. Please go ahead.

Kyle Joseph -- Jefferies -- Analyst

Hey, good morning. Thanks for taking my questions. Just on the -- I don't know if you factored incremental stimulus in the -- in to 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?

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Sure. I'm going to 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 qualitative 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 last and what that might mean to the losses, so we still have, we've kept the allowance on the conservative within the range until there's a little bit more certainty.

Chad Prashad -- President and Chief Executive Officer

Yeah.

Kyle Joseph -- Jefferies -- Analyst

Got it.

Chad Prashad -- President and Chief Executive Officer

As the demand going forward, we saw a pretty precipitous drop in demand with the first round of stimulus in April, but then began to see a 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 will just be delayed for some period of time as we've seen just recently, but it's too early to tell and a lot of it depends on exactly what the stimulus package looks like.

Kyle Joseph -- Jefferies -- Analyst

Got it. Appreciate that. And then one follow-up for me, Illinois passed the legislation last week. Can you guys quantify your exposure and potential impacts on the business from the Illinois Bill?

Chad Prashad -- President and Chief Executive Officer

Sure. So, Illinois did pass some new legislation last week and [indecipherable] patient 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%, since, this is our first full week of doing that. We recognized 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.

Kyle Joseph -- Jefferies -- Analyst

Got it. Actually that brings up one other question for me and that is your -- your customer count was down [Technical Issues] than your loan balances. Is that a result of you guys focusing on the larger loan balances?

Chad Prashad -- President and Chief Executive Officer

Not specifically. It's good question. That is really a result of decreased demand in loans from new customers throughout, really the 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 -- smaller loans. So it's a rerating of the portfolio again, most of our demand was toward higher credit quality customers, who were asking for larger loans.

Kyle Joseph -- Jefferies -- Analyst

Got it. Thanks very much for answering my questions.

Chad Prashad -- President and Chief Executive Officer

Yeah.

Operator

[Operator Instructions] Our next question will come from John Rowan with Janney. Please go ahead.

John Rowan -- Janney Montgomery Scott LLC -- Analyst

Good morning, guys.

Chad Prashad -- President and Chief Executive Officer

Good morning.

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Good morning.

John Rowan -- Janney Montgomery Scott LLC -- Analyst

To 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?

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

No. So, yeah the loans that originated obviously has an impact, yeah, but the loans originated prior to that will also be legal loans that are collectible.

John Rowan -- Janney Montgomery Scott LLC -- Analyst

Sure. I read the bill, it's super confusing because there is, it's amendments and links to other things I just want to make sure that because you mean you have like $91 million as of March with $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 was -- is that the number you gave or is it the 75%?

Chad Prashad -- President and Chief Executive Officer

So, that 70% -- it's 70% of new loans that we originate in Illinois right? So, our business model is we're going to take on risk with the 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 toward growth in acquisitions in Illinois as well as new customer growth and solicitations above or below 36% as well.

John Rowan -- Janney Montgomery Scott LLC -- Analyst

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

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Yeah, 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 cash 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 that 36%.

John Rowan -- Janney Montgomery Scott LLC -- Analyst

So those -- all those customers who are somewhere north of 36% are just going to get a reduction in payment? Sounds right?

Chad Prashad -- President and Chief Executive Officer

Right. That's right.

John Rowan -- Janney Montgomery Scott LLC -- Analyst

That's right. 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 is always this constant Board authorization and 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?

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Yeah, 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 could 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 will 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, what the stimulus package will likely have some more one-off 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 would depend on them. Okay. Well, you guys had a bucket that was already filled, right? So, you had earlier this year, been doing effectively a catch up with the prior bucket and then I believe it was going forward you're going to be a 50% of net income, we 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, so the only we had -- sort of guaranteed spend we have is that with net income, right? But under certain circumstances, depending on the leverage ratio and everything else, it's, yeah we'll ask for additional capacity. There's no guarantee of that, right? So, I can't tell you can build into your model, but it's certainly something we will seek to get from the banks.

John Rowan -- Janney Montgomery Scott LLC -- Analyst

Okay, that's it from me. Thanks guys.

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Yeah.

Operator

[Operator Instructions] Our next question will come from Vincent Caintic with Stephens. Please go ahead.

Vincent Caintic -- Stephens Inc. -- Analyst

Hey, thanks, good morning. Thanks for taking my question. I wanted to maybe take a broader picture just on the regulation and other government since we have the, we have the Biden Administration, Democratic-Controlled Congress and then the new CFPB director coming up. Is that -- maybe just your broad thoughts on what we should pay attention to anything you've made changes and how you plan to pivot if you needed to pivot at all, given the new changes in the administration?

Chad Prashad -- President and Chief Executive Officer

Good morning, 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 one million customers here 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 are on 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 to build their credit on annual basis and to a point where each year over a 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 of the Company is to extent credits 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 swath of Americans who no longer have access to credit.

Vincent Caintic -- Stephens Inc. -- Analyst

Okay, great, that's very helpful and thorough. Thank you. So, if you just think about that because I think a lot of investor questions are about that 36% of rate cap, maybe if you could expand on how much of your existing portfolio would be OK either they're already at 36% or you can convert them easily as 70% that you have in Illinois, kind of a good metric to use for the rest of the country, and is that may be an area where you can expand then? I know it gets unfortunately cuts-off a lot of new customers, but is that a potential growth area for you? Thank you.

Chad Prashad -- President and Chief Executive Officer

Yeah, 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-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 do 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 can pivot in other states as needed. But again, it's part of our mission to continue to serve these customers and that's a large percentage of population that will 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 what we do is 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 bought in before as new customers and these are -- your 600 plus credit scores, 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.

Vincent Caintic -- Stephens Inc. -- Analyst

Okay, very helpful. And last one from me. So, your credit performance has done really well. And I'm just wondering when you think about in the next couple of quarters and it seems like, so we have a second round of stimulus that maybe there's going to be more support. Does that lend itself to maybe loosening credit or otherwise, trying to find some other avenues of growth where may be in normal situations it might have -- it might have been tighter than it is? I'm just kind of wondering if maybe environment now is conducive to growth since credit seems to be doing so well?

Chad Prashad -- President and Chief Executive Officer

Yeah, it's a good question. So, with 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 nine months is a combination of two things. First, it's the impact of how we tightened credit for new customers, but second, there is a lack of demand for new customers, who are typically much more risky. And as demand returned, we 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 in that path, as well essentially offer other products or other things to meet customers' needs without having to affect our credit quality.

Vincent Caintic -- Stephens Inc. -- Analyst

Okay, very helpful. Thanks very much.

Chad Prashad -- President and Chief Executive Officer

Yeah.

Operator

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.

Chad Prashad -- President and Chief Executive Officer

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.

Operator

[Operator Closing Remarks]

Duration: 11 minutes

Call participants:

Chad Prashad -- President and Chief Executive Officer

John L. Calmes -- Executive Vice President, Chief Financial and Strategy Officer, and Treasurer

Kyle Joseph -- Jefferies -- Analyst

John Rowan -- Janney Montgomery Scott LLC -- Analyst

Vincent Caintic -- Stephens Inc. -- Analyst

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