World Acceptance Corp (WRLD) Q1 2022 Earnings Call Transcript

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World Acceptance Corp (WRLD -1.76%)
Q1 2022 Earnings Call
Jul 21, 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 First Quarter Press Release Conference Call. This call is being recorded. At this time, all participants have been placed on listen-only mode. Before we begin, the corporation has requested that I make the following statements.

The comments made during this conference call 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 or any variation of the foregoing and similar expressions are forward-looking statements.

Additional 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, Chad Prashad, President and Chief Executive Officer. Please go ahead.

R. Chad Prashad -- President and Chief Executive Officer

Good morning and thank you for joining our 2022 quarter one earnings call this morning. Before we open it up to questions, there are a few aspects about the quarter that I'd like to highlight. First, we continue to experience record low delinquency as a result of several factors. The continued improvement in the overall economic environment, changes to our credit underwriting and new loan products and marketing to ensure that we remain the most attractive option for our best customers.

Recently, we eliminated all loans with APRs in the triple digits and continue to evolve our underwriting criteria. We've also made meaningful progress in large loan offerings that provide more attractive terms to increase customer retention. After the recent rate changes in Illinois, we've had to shift away from serving the subprime population toward a larger average balance loan and higher FICO customer. As a result, our Illinois portfolio has grown 31% year-over-year to 17.5% in the first quarter of this year.

Across the rest of our footprint, we're also growing the large loan portfolio. However, we're still serving the nonprime community and in June, we saw new customer demand return to parity with pre-pandemic levels, which has continued to date, in July, so far in this quarter. During this time, our most selective underwriting has resulted in our approval and booking rate declining by approximately 20%, increasing the overall quality of our average new customer as this customer segment remains very important to us and our future.

On the customer access front, a year ago, in the first quarter of 2021, roughly 1% of our loan proceeds were funded to debit cards, almost exclusively, remotely and outside of the branch. This year during quarter one of 2022, with over 45% of funds disbursed via debit card, we've demonstrated our ability to adapt and meet customers' needs and allow them to get funded without the need for a branch visit.

As a result of these changes, today over 40% of our portfolio is below 36% APR and nearly two-thirds of our portfolio is below 50% APR. This is a dramatic increase from 26% and 50% respectively just three years ago. Along with this portfolio shift, our first quarter loan growth is the largest on record. With a change to FICO provisioning last year, we should expect to grow our provision in real time as the portfolio grows, which temporarily decreases net income as compared to our historical delinquency based provisioning model. The loan growth and earlier provisioning of CECL should continue to positively impact revenue and income in future quarters and we continue to expect to hit our long-term incentive EPS targets before the end of fiscal year 2025 and accrue as expected.

Finally, we continue to pilot and explore products to add to our financial wellness suite. Our ultimate goal is to help all of our customers improve their financial health, credit score and access to affordable credit. There is much to be excited about the World.

At this time. Johnny Calmes, our Chief Financial and Strategy Officer and I would like to open up the questions about our fourth quarter -- first quarter fiscal year 2022 earnings.

Questions and Answers:

Operator

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

Kyle Joseph -- Jefferies -- Analyst

Hey, good morning guys. Thanks very much for taking my question. First one just on the reserve, obviously, there's a lot of moving parts right now. But just to give a sense for how you think about it trending from here, you know when, where we are versus kind of the pre-COVID level and then also factoring in some of the portfolio developments you talked about the tighter underwriting and kind of a shift to a lower APR, but how should we think about the reserve level going forward?

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

Yeah. So, like you said, there are a lot of moving pieces there. Right? In general -- high level, when you look at the Q1 ending allowance. The allowance on the performing portfolio was around 6.6%. Right? And then the allowance on the some nonperforming 90-plus day delinquent was around 1.4%. Right? So, this is to gross loans. So, the allowance of gross loans was 8% in total. Right? So, as we go forward, that's a decent benchmark to apply to grow. Right? So, if we grow $100 million in the quarter, you'd expect it to add $6.6 million to the allowance. Right? But that's $6.6 million can move depending on a lot of factors. Right? So, one of the factors are the tenure of the portfolio and as we bring back former customers and increase the loan size of existing customers, those are longer tenured customers that have a lower expected loss rate. Right? So, that could move that 6.6% to something lower than that. But first if we were to bring back a lot of -- bring in a lot of new customers, it could push that 6.6% higher. Does that makes sense?

Kyle Joseph -- Jefferies -- Analyst

Yes, yes. Very helpful. Next question on child tax credits. The first round of payments kind of went out in the last week or so. On the heels of stimulus, how do you see this impacting loan demand and kind of credit for the rest of the year.

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

So, it should...

Kyle Joseph -- Jefferies -- Analyst

I guess, just calendar year.

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

Sorry.

Kyle Joseph -- Jefferies -- Analyst

I guess, just calendar year, so kind of more immediate term.

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

Right. Yes, it could have impact on both. Right? So, we expect it to continue to have a positive impact on credit quality and it could almost on the smaller loans, new customers, it could hurt demand a little bit. I don't know if you'd add anything to that, Chad?

R. Chad Prashad -- President and Chief Executive Officer

Yes, I think in the short term, we haven't seen it yet, but this is very early into the child tax credit, in July, being out there, but we haven't seen it hurt demand yet on the new customer or former customer refinance side, but I think if it were going to hurt anywhere, potentially it be on the smaller loan new customer sign. We have eliminated the vast majority of our smallest loans across our footprint for couple of reasons, one from just a -- an APR perspective as we strive to lower overall APR, but two also just from a risk perspective with those individual customers that you typically lend to in the smallest loan area.

So, since we've already eliminated those. I think we'll probably have less of an impact from this early on. It kind of remains to be seen what the potential impact may be, but what we have seen through the prior stimulus payments over the last 12 to 15 months is typically with larger payments, those are short-term impacts that last for one or two months and then there's a rebound afterwards. Theoretically, we might do the same thing here, moving into Q4 fiscal. It remains to be seen how that might impact overall tax refunds and how folks need to balance their cash flows over the next nine months.

Kyle Joseph -- Jefferies -- Analyst

Understood. Got it. And then last one from me. It looks like the insurance have showed good growth in the quarter, anything to think about there and should we expect that to continue going forward?

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

Yes. I think you should expect it to continue going forward. Right? It's really just a function of, as we shift into the larger loans, in a lot of our states, we don't offer -- emphasis on light offer insurance products on the smaller loan portfolio. Right? So as the portfolio grows into that, especially over $2000, $2,500, you should expect to see higher insurance sales as a result of that.

Kyle Joseph -- Jefferies -- Analyst

That makes sense. Great. Thanks very much for answering my question.

Operator

[Operator Instructions] The next question is from John Rowan with Janney. Please go ahead.

John Rowan -- Janney Montgomery Scott -- Analyst

Good morning, guys.

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

Good morning.

R. Chad Prashad -- President and Chief Executive Officer

Good morning.

John Rowan -- Janney Montgomery Scott -- Analyst

Chad what's that number you said first. I believe you said, was it a third of your portfolio a sub-36%. I got the sector, when we talked about two-thirds being below 50%, just to make sure I heard the first one correctly.

R. Chad Prashad -- President and Chief Executive Officer

Yes. Today, roughly 40% of our portfolio is below 36%.

John Rowan -- Janney Montgomery Scott -- Analyst

And you also mentioned accruing expenses under the assumption that you will meet the earnings target set for fiscal 2025. I spent a lot of time looking it up. Can you remind me what the earnings targets are, maybe if you have a couple of years' worth? Just give me an idea what the thresholds are that you need to hit?

R. Chad Prashad -- President and Chief Executive Officer

Yes. There are three thresholds. They range from roughly $16.35 to $25.00 and...

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

$0.30, I believe, and the middle is around around $20.

John Rowan -- Janney Montgomery Scott -- Analyst

And that's all...

R. Chad Prashad -- President and Chief Executive Officer

Wait, so it's $16:35 and the high end is what?

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

$25:30, $25.00 and $0.30 cents.

R. Chad Prashad -- President and Chief Executive Officer

$25.30. And that's for fiscal 2025.

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

The performance period run through fiscal '25, yes.

John Rowan -- Janney Montgomery Scott -- Analyst

Okay and then just to kind of get back to the insurance and other income. I know you mentioned, well, OK. So, the only thing that looks like kind of an unusual item to me in the quarter is the fact that we had tax refunds get moved to some degree from the March quarter, the June quarter. Looking through your press release, I don't really see any -- like other callouts for unusual items. Can you just kind of confirm that there is no other one-time-ish items that we should be adjusting for?

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

That's right, yes. So, we don't -- going forward, we would expect the delay, but if you remember in Q4 of last year, [Technical Issues] were lower than normal. So, it's really just a temporary shift.

John Rowan -- Janney Montgomery Scott -- Analyst

All right, guys, that's all I had. Thank you very much.

R. Chad Prashad -- President and Chief Executive Officer

Hey, John, just to confirm the three targets are $16.35, $20.45 and $25.30.

John Rowan -- Janney Montgomery Scott -- Analyst

Okay. Perfect, thank you.

R. Chad Prashad -- President and Chief Executive Officer

All right, thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Prashad for any closing remarks.

R. Chad Prashad -- President and Chief Executive Officer

If there are no further questions, I want to thank all of our team members here at World for continuing to serve our customers and our communities with dignity and respect. You guys are the reason our customers continue to trust us with their own financial needs, as well as refer their friends and families to us. Thanks again for your tremendous spirit, especially over the last year. With that said, we'll conclude the first quarter earnings call and look forward to speaking next quarter. Thank you. [Operator Closing Remarks]

Duration: 14 minutes

Call participants:

R. Chad Prashad -- President and Chief Executive Officer

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

Kyle Joseph -- Jefferies -- Analyst

John Rowan -- Janney Montgomery Scott -- Analyst

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