World Acceptance Corporation (WRLD) Q3 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen 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 27A of the Securities and Exchange Act 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. Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include changes in the timing amount of revenues that may be recognized by the Corporation, changes in the current revenue and expense trends, changes in the Corporation's market and changes in the economy. Such factors are discussed in greater detail in the Corporation's filings with the Securities and Exchange Commission. At this time, it's my pleasure to turn the floor over to your host, Sandy McLean, CEO.

Thank you, David, and I'd like to welcome everybody to the World Acceptance Corporation third quarter conference call. As David said, I'm Sandy McLean, the Company's CEO and with me are Mark Roland, our President and Chief Operating Officer and Kelly Malson, our Chief Financial Officer; along with other members of our management team. As is customary, I'll spend a few minutes reviewing the quarterly results, after which we'll be happy to answer any questions. I'm once again very pleased that our quarterly financial performance has continued the positive trends that we experienced over the last several fiscal quarters. As we mentioned in our press release, this is the 44th consecutive year-over-year quarterly increase in net income and diluted earnings per share, excluding the September 2007 quarter, which was restated by approximately 700,000 deduction of the FASB ASC Topic 47020. Demand for our loan products remained strong during the quarter and as expected, we have continued to maintain our loan loss ratios at or below prior year in historical levels. Net income for the third fiscal quarter was $19.6 million or $1.36 per diluted share, compared to $18.1 million or $1.12 per diluted share for the prior year quarter. This represents an 8.4% increase in net income and a 16.1% increase in net income per diluted share when comparing the two quarterly periods. For the first nine months of fiscal 2012, net income was $63.1 million or $4.8 per diluted share representing a 10.6% and 15.9% increase in net income and EPS respectively over the $57 million and $3.52 earned in the first 9 months of fiscal 2012. The company's EPS continues to benefit from our ongoing share repurchase program. During the first nine months of fiscal 2012, we repurchased 1,167,000 common shares for approximately $74 million, which is continuing…

[Operator Instructions] And let's first go to Stephens Incorporated, David Burtzlaff.

Few questions here. One pertains more to the loan growth. So -- you said you haven't changed your underwriting. Would you say this is also a function of the strong -- the difficult comp that you had last year in the third quarter?

I mean, certainly -- as last year's third quarter was -- it was very good, but we've certainly had bigger quarters in the past. So, I think it's just a continuation of the same type of year-over-year comparisons that we've had for the first couple of quarters. I'm not 100% sure what's driving demand. I know that our -- all levels of operations have been extremely focused on making every single good loan that -- application that comes across their desk, and whether or not it's a matter of the reduction in the number of qualified borrowers or whether those borrowers are hesitant to lend, it's very difficult to tell, but it's certainly nothing we're doing internally to restrict the amount of loans that we're making.

Okay. And in the past, you have kind of talked about some different states and where you've seen growth and you kind of alluded to that there was a little bit of a mix and change in some of the states, one that's affecting the yield. Can you talk a little bit about that? I mean, what states are not growing as fast as they have been?

I certainly would be happy to. That wasn't intended -- I didn't intentionally not discuss that, but -- do you want it by individually by state, or do you just want generally speaking of the -- Unlike in the past, I think we've had as many as 8 out of 12 that had growth rates exceeding 10%. This year, we have one, two, three, four, not -- I mean not including Mexico, but including Mexico if you consider it a state -- five out of the 13 had growth rates exceeding 10%. The biggest growth came in Louisiana, Illinois, Wisconsin and Mexico, so -- but everything else was -- the growth rate ranged anywhere from 3% in New Mexico on the low side to -- obviously, some of these extremely large amounts in Wisconsin.

Okay. So do you think you may be reaching saturation in some of those markets, I mean, that they're not growing as fast or is it a function of any of your store openings?

No, I don't believe that at all. As far as the store openings, we are pretty much in line with our plan this year and it is very similar what we did last year. And I believe it's more of a function of the demand and our ability to make good quality loans than it is -- I think there're still a lot of people that utilize our services out there and there will continue to be.

Okay. And then -- was there a timing difference last quarter, Kelly, maybe with the debt balance in terms of your revolver and timing of paying off the convert? Because the debt balance dropped significantly this quarter compared to -- when normally this is a growth quarter?

Yes. At September 30, we had $77 million in restricted cash and we still had $77 million outstanding on the convert. And on October 3rd that convertible bond was paid off.

So you saw the normal growth in loan -- in debt balances that you normally do during this time period?

Correct.

And finally, what would be a good tax rate to model going forward?

On an annualized basis,it should be somewhere around 37.5%. We've had a lot of things both last year and this year that have had an impact in various quarters, but on an annualized basis, that should be a good rule.

Next up, let's go to Dan Bandi with Integrity Asset Management.

Sandy, just another question on the growth you were mentioning in terms of -- just not seeing as much demand as in past. Is that true on the existing book also? Are you seeing some clients just pay down and not -- maybe not re-up or take out more, as they would have in the past? Or is it primarily just getting new clients in the door?

Well, if you look at our loan volume for the quarter compared to the last year, our total loan volume of seven point something percent increase is -- it's a little less than it has in the past. And if you look at our year-over-year growth, I believe I said it was somewhere around about 6 point -- about 10%, with 6% growth in the number of customers and 4% growth in average balances. I think we are a little shy both sides of that, but I -- anyway, Kelly is indicating something I am not looking at, but I think the subtraction of new customers has certainly been a large part of this process. Was that what you...

That's correct.

From C.L. King & Associates let's go to Bill Armstrong.

Are you seeing any changes in any trends down in Mexico, whether it be customer traffic, overall demand levels -- any impact on consumer behavior from the weaker Mexican peso? Maybe people crossing the border. Anything you can call out down in Mexico?

Since the functional currency in Mexico is the peso, I believe the demand -- I don't believe there has been any real change upon their utilization in that currency there. The impact has been when we convert those back to the dollar, it's had a negative impact. But -- and I don't really believe that that change has had an impact from what's going on. I think generally what's going on down there from a both a growth standpoint, we're very pleased with what's taking place.

So on a local currency basis then, this seems like demand is continuing to grow unabated. Is that fair to say?

Yes. Would you agree with that? Yes, Mark would agree with that also, yes.

John Rowan, Sidoti and Company.

Kelly, I know the convert was paid off in the beginning of October. I just wanted to make sure that there were still no GAAP impact from the hedges on the diluted share count?

As of December 31st, the warrants that were outstanding were anti-dilutive, so there was no impact. If the strike or the stock is above 73.94 then there could be some impact, but those warrants will expire on February 9th. So, the timeframe is pretty small.

Okay. And then, just to go back to the regulatory issue. Obviously the comments have been centered on payday lending. Have you guys gotten any type of feedback as how to the comment period for installment lending is going with the CFPB? And when do you expect some type of decision as to what they're going to define as, I guess, the participants fees for installment loans?

Well I think it's -- it's not that installment loans. Once we identify the three industries specifically -- or the three products specifically identified by Dodd-Frank, then it becomes a matter of other non-bank entities of which we will be fall into that. The first thing they have to decide is what is a large market participant. And that -- I think the rules relating to the large market participants will be issued sometime within the next few weeks. And obviously if we don't qualify as a large market participant, then we would probably not come under the direct regulatory or examination of bodies encompassing in the bureau. But if they look at, say, installments lenders as a product and then in the installment lending industry, then certainly World would probably considered a large market participant in that particular industry. But they compare the size of World to some of these other larger non-bank financial institutions, we're not large by any measure. So a lot depends on the direction they go and identifying the large market participant, and then from there we'd just have to wait and see.

So, if they do include you as other larger lenders is there a chance -- maybe it's not a fair question, but if that is the grouping, I assume there is another possibility: that you don't even come under regulatory guidance of the CFPB. Technically as of now, you are not under their umbrella, correct?

Well, every consumer product comes under their umbrella. But whether or not they will intend -- come into our offices and conduct audits and so forth will depend upon whether we meet the minimum qualifications for that large market participant. However, in looking at the field -- field audit guide that they published for payday lending, if in fact we become subject to a similar type audit, we are not encouraging more oversight because we're already completing -- we're audited by so many different arenas. But we are not fearful of what they would find, if they came in and conducted those audit procedures on our offices today. So -- but to answer your question directly, so much depends on how they define the large audit of participants, I mean, large market participants.

And just last question, how much is left under the repurchase authorization?

Close to $20 million. I ruled it over 20 million. We were unable to -- we did not buy a lot during the current quarter, relatively speaking, so it's most of what that most recent authorization.

Okay. I figured that obviously with the December period. I assume, you guys may be more aggressive in the March period given the typical cash flow of the season? Is that fair?

Yes. I mean, I think that when we granted that authorization by the board, it was our intent to utilize cash flow for that purpose, as we have been doing in the past.

Up next from Sterne Agee, let's go to Henry Coffey.

Just really three different sets of questions. At the hearings in Alabama, one of the consumer advocates specifically cited the difference between payday and the small-loan act and indicated that there were a series of audit and other protections associated with the small loan act that didn't seem to be prevalent with payday. Is it fair to say that you are -- in the scheme of things, that the installment loan business is a third or fourth priority for the CFPB and that payday is the immediate focus, or do -- you don't get that sense?

Henry, I can't answer that. I think it's fair to say that not third or fourth, I think it's fair to say second, because the Dodd-Frank Act specifically named three products in the bill itself. The fact that installment loans is not one of those specific products would indicate that it's not as much of a priority as those products named, in the end, and --

Right. Whether you're second in line or fifth in line is probably not relevant right now.

That's correct. But I think -- as I said earlier, the next step that we will -- with the next thing that we will learn in the process is the definition of the large market participants.

And when does that come out? Are they likely to publish a list?

I think what they will do is they will have some kind of guidelines that will be -- it will come out in the form of a proposed regulatory ruling and people have a chance to comment on it, and I think it's expected within the next two or three weeks.

And then shifting gears, looking at the geography, I missed -- I heard some of the Mexico numbers. Can you give me a replay of that, particularly in constant currency terms? You were talking about loan balance growth, customer growth and a couple of other performance metrics?

I think in pesos the growth rate was slightly in excess of 30% and...

On a year-over-year basis? That was in terms of earnings or loan balances?

Balances. Sandy is looking it up right now; hang on.

The Mexican ledger balance would have been a 33.1% on a cost exchange ratio.

What about customer account, what was that up?

The customer accounts are going to be the same regardless of...

Right. Of course. I just was wondering what the figure was.

We have all those numbers. I just have to look at different places to give it, so bear with me just one second. The number of customers were up 19.7% from 95,000 to 114,000 from December.

Now looking at the other geographic dynamics, when we look at the pawn shops that have been reporting, they are all seeing slower growth in their payday loan revenues and they showed up late in Texas. If you're focusing on your US market, was Texas a disappointment for you all?

Well, the debt -- as I mentioned -- I specifically mentioned that when we made the decision to offer that larger loan product in Texas, we believe it's going to be an extremely profitable product. But given the fact that the limitations in Texas under the laws -- under the license we were previously operating, there was a maximum of little over of $1,000 that we could lend. But now by getting this additional license we are able to offer loans up to $3,000 or more. That's obviously at a different rate structure, but given the pent up -- but given the pent up demand for additional availability and the credit quality of those customers, we had a bigger than normal shift between small loan customers and large loan customers that I think had some impact on the mix of the larger loan balances to the overall. But as I said, I think that will normalize over time, because every customer in Texas is not going to qualify for the $1,500 and $2,000 loan and there certainly is no shortage of customers that are going to be looking for credit under less than $1,000.

So in Texas, you maybe may have lost a little on the revenue front as you moved customers into this bigger and frankly better product?

We probably didn't lose a whole lot on the revenue front, but as much as you did, maybe on the yield front. You'd have a larger balance outstanding with a lower yield, because of the lower -- the larger balances and the higher credit costs.

And looking at either loan balances or store count, how big a factor is Missouri for you all?

All right, all of our states are extremely important to us. But as far as balances per se, $63 million. So it's depending on what happens with that ballot amendment. We would have to make some changes in the way we're doing business in Missouri.

And is that going to be a November initiative or sooner?

I think that they will -- they have until sometime in May to get the required signatures. There is still some legal issues whether or not the proper processes went through by the Secretary of the State as far as the economic impact regarding this referendum. But if all of this goes forward according to whatever the plan, I mean, then it would be part of the November ballot initiative, yes.

And that was originally sort of a targeted payday wasn't it? I don't --

It alleged to be a payday control product, but it encompasses all credit services in Missouri. So, there certainly will be negative consequences to consumers in Missouri should that referendum pass.

And now let's go to Bill Dezellem with Tieton Capital Management. Bill?

I'd like to circle back. Sandy, you made a comment -- something to the effect of subtraction of new customers. Would you please readdress what it was that you were talking about there?

Subtraction of new customers. I'm sorry, I don't remember specifically stating that, so you'll have to tell me what we were talking about.

I know. As I stated, that was -- my point of confusion is exactly what that was in relation to. But that phrase is what I heard, "subtraction of new customers", and I was just hoping that you might...

It may have been attraction of new customers.

That would probably make a lot more sense. All right, let's shift to the higher balances in Texas if we could, please. You said earlier on that ultimately you believe that's going to lead to higher earnings in Texas. Currently that's not necessarily the case. Would you please discuss in a bit more detail why it's not currently generating more earnings, number one, and number two, why longer-term you do believe that it would be an earnings enhancement?

Well number one, we know that Texas small loans are extremely profitable and these are -- these are loans that are less than $1000. They have higher yields that are dictated by the state. As you move in the larger loan balances the yields on the -- these loans of $1500, $2000. The state allows you to give yields into the low 30s, plus sell ancillary products. And the losses are certainly less than you would see on a smaller loan product. So, given the -- at larger balances, the reduction in G&A to service these loans, the reduction in losses that you would anticipate on these loans, the net returns on asset and on equity if you could break it down to that level would be very similar in the long run that you may see on a smaller loan product. However, in the short-term as we shift immediately from the smaller loans to the larger loans, then there could be some negative impact on the reduction in yields until we get this book of business built up and we get them replaced. I know that you're probably saying that if both of them are just as profitable, why wouldn't you instantly see the same result? But there is a timing issue associated with -- in our business that we experience. But we know both products are profitable. So therefore as we expand this business to encompass both of these products lines, the state in and of itself will be more profitable.

That is helpful and you did say that you expect smaller losses on the larger loans. And why is that?

I mean we generally expect that all the time. The larger the balance loan that you're willing to underwrite would indicate a more credit worthy customer and the more credit worthy customer or the better collateral that you're able to have pledged against the loan would result in lower losses. And that's why we're saying...

Good.

That's really kind of the nature of why these ultimate rates are provided on the real, real smaller loans, because the larger the balance -- it takes about the same amount of time to underwrite a smaller loan as a larger loan. Anyway, I think I've tried to answer that.

That's fine. Thank you. And in the press release that you did mention that the tax rate did have a benefit here in the current quarter. Something to do with state income taxes. Would you please provide detail behind that?

Well, we're constantly evaluating all of our states and we discovered that we had an opportunity that we had missed because we have certain envoys in Kentucky we were able to -- that really constituted nexus [ph] in Kentucky and South Carolina which allowed us to allocate certain general overhead from the parent company down to the state level which then allowed us to redeem -- reduce some of the state taxes we paid in Kentucky. And that did provide somewhere around a $350,000 benefit during the current quarter. So, year-to-date, we had a similar type benefit last year during the second quarter that related to a similar type thing in Texas and in South Carolina. So these are not material numbers but they do have an impact on the state rate in any given quarter depending upon when they take place.

And so that $350,000, that's essentially a catch-up? That's not something that we will see on an ongoing basis each quarter?

This was kind of a cumulative number. It will -- on an ongoing basis, we will benefit in our rate in the state of Kentucky but this was a multi-year adjustment when we identified it. And as a matter of fact, we only could take a certain percent of this benefit. So there will be another -- because there is still some question whether or not the state of Kentucky will take exception to this strategy, although we do have a letter from them that says it should be fine. So, I mean, when you get into tax issues, you need someone smarter than me. But there is a lot of details and we are in a lot of states and there are a lot of issues on ongoing basis.

Let's now go to Philadelphia Financial, Jordan Hymowitz.

Two quick questions. One, can you disclose the percentage of those are refinances in the quarter. That's usually in your Q.

Certainly. If you bear one second, it's probably somewhere near the same percentage -- Kelly, go ahead.

The percent of renewals for the quarter was 75%, former borrowers was 9%.

I'm sorry, what was that statement?

The percent of renewals for the quarter was 75% and for former borrowers it was 9%, which was consistent with the same quarter last year.

I don't know what the term means for former borrowers, it was 9%?

A former borrower is an individual who has paid us out in full and then has come back and taken out a new loan with us.

So is that on top of the 75% or included in the 75%?

On top of.

Okay.

So the combined would be 84%.

Got it. Second question is could you comment at all on Elektra in Mexico, I mean they seem to have gone from nowhere to in the past year dramatically expanding both their installment lending and pawn shop operations there. And is that one of the reasons you think that Mexico has been slowing down so much?

Elektra was there when we entered the country as one of the largest financed buyer retailers in the country. I wasn't aware that they had expanded greatly unless they've re-branded something and put it under the Elektra label.

Actually, they have. So.

Okay.

They've expanded their installment lending not directly related to retailing as well as their pawn shop operations in the past year, so they are no longer just targeting retailing in store, but if you look at their earnings they've expanded their bank, which is more of a direct lending relationship. So I am just wondering if you're seeing that more as a competitor down there?

Not overtly no, but even when -- again, when we first entered the country, if you went into any Elektra store in the back, there were opportunities for direct loan lending. They were very new to it six or seven years ago and if they've expanded that greatly, I apologize, I was unaware of it.

Asferro Beck for Oil by Capital [ph].

Okay, in terms of your stock buyback, obviously a $70 stock price is a bit much. When you make that determination, are you just fixing a certain amount each quarter regardless of price or do you have some basis or some valuation you'd like to get for the stock?

Well, on ongoing basis we certainly want the stock to be accretive in the current year, but -- and we are certainly price sensitive. We would be more aggressive in -- as the stock goes down than it may -- if it goes up. But we're not necessarily following the stock on a day to day to day basis to try to hit the lows and miss the highs. We certainly think it is still accretive at the $70 levels and even in the $80 levels but we certainly take advantages of those times when the stock tends to drop for some unknown reason.

How does buying a stock up here relate to some of your private purchases of loan shops around the country. Is this what you have been paying for the private deals around or is this...

I can remember -- if you remember, we had 20 small office acquisitions, a total of 3500 -- $3.5 million. A lot of times you're buying an office that's losing money. But we're buying it number one, to remove a competitor in the market; number two, to get -- rather than coming on a de novo basis, to have some basis to expand that business without incurring as many operating losses that you would normally have. And so there is no metric that you can use to consistently measure the valuation on these small purchases because they are so different. We generally look at basically a multiple to assets purchase.

Okay on the de novo side, just briefly. What type of timeframe, I know it varies day to day, but what type of timeframe are you looking at now from when you start one to profitability?

Generally speaking, it's got to go through at least one busy season, which is third quarter. Sometimes they are profitable in the subsequent year and sometimes it takes more than a year but it's not, it's not so state dependent as it is dependent upon the manager that you select to go in to open those offices. Some managers are much better in attracting new customers, a little more aggressive. Sometimes that plays in our benefit, sometimes it blows up. If they are too aggressive and they put on loans that they probably should have underwritten a little more thoroughly, then you've got to be -- either the -- there is a balance that you have to have when opening these new offices. But it's very inconsistent depending upon the town you go in and the manager you place there.

Then, I have two small questions here. The next one is the closure of a branch, what's your determination on closing a branch? What do you look at and say -- I'm sure you try to replace the managers and do those sorts of things, but I guess what's your process behind branch closures?

We really haven't closed a branch for performance based reasons for as long as I remember. What typically will happen is we have had offices in a town, we've acquired a new office. We wind up three in a town that ought to be supporting two, or two in a town that ought to be supporting one and we'll consolidate them together. In the case with the current fiscal quarter, where we closed a branch in Mexico, the primary reason for that was that we had multiple branches in a small town, not a small town, pretty good sized town in Central Mexico that was hit hard by the current drug cartel issues and a large segment of the population simply left. So in order to -- for economies of scale, we simply consolidated down to a number, I think it was four down to three offices in that town and it wasn't necessarily a performance thing. It was that that town would simply not support the four offices any longer that we felt going in should have been supportable.

Okay. And then as far as the regulatory environment goes, I kind of divvy it up into two areas. One, it seems like this group can control through whatever rules they might put forth at some point, volume which they can make that more cumbersome. But has there been any discussion on rates and if you've seen in terms of capping them? And I believe, the way I understand is that they can't do that, but have you heard of any volume issues, regulatory issues aside, that could affect your volume? Have you heard of anything that could just affect you in terms of rates?

Well, number one, the Dodd-Frank bill specifically took betting of rates off the table. So at a federal level there is -- should they eventually get into looking at the installment loan industry, this could -- there is any number of things they could do if they find these practices to be abusive or whatever, but rates is -- the federal level rate is not one of them.

And on the rate level, you've mentioned for instance in Missouri dropping down, the possibility as remote as it might be, them down dropping the state down to 36. Has World ever looked at operating a branch at 36 and if so, have you had any success at that?

We currently do. The maximum rate in Kentucky for example is 36% plus ancillary insurance and actually that's the rate for the first year of the borrowed money. It drops down to 24% or, I believe 24% after that. So our blended yield in Kentucky in small -- on all loans is somewhere in the 30% range plus ancillary insurance products. So yes, we have experienced operating end rate structures that are that low. Typically it requires a larger loan balance in order to do that. There are questions in Missouri whether or not ancillary products would be included or not included in this sort of overall rate structure and I think there is disagreement among smart people as to whether or not that the way that they have written the ballot initiative would limit ancillary products as well. But I'm sure that would be sorted out by the courts over time.

But let me point out, we are a -- primarily 70% of our business is small loan business. And if they did something like that it would make it very difficult to offer loans of less than $1000. It would make it impossible to offer loans of less than $1000, at those lower rates. So the impact on the Missouri consumer would certainly be substantial.

Moving on, let's go to Ed Groshans with Height Analytics.

Just following up on, I guess, the regulatory front, given the somewhat disputable appointment of Richard Cordray to the CFPB, he still says he is acting as if he has his full authorities. And in that vein, last Thursday they did release their examination manual. It's called the short term, small dollar lending manual. And I know that all the headlines read payday, payday, payday and President Obama mentioned payday last night. But the manual seems to be much broader and I don't know. It would seem to me that that covers World's products offering. I just wanted to get your view on that.

Well, my view is -- based on what he said in Birmingham, that he specifically identified and defined payday lending in such a clear manner that it would not include a typical installment loan. Now, granted, if in fact -- as I said previously -- if in fact after this initial review process and oversight and so forth of payday lending that they decide that World is a large market participant, then certainly we could be subject to some of the same examination procedures as you found in that particular field manual that we have read and are aware of. But because of the way he defined payday lending, at this point in time we do not believe we will be subject to the initial review processes that they will be doing.

And if you read the first three or four pages of that manual it clearly directs their auditors to look at Cordray's definition of payday lending, which has to do with the method of repayment in a single sum via check or ACH in order to define whether they're in the right building or not.

Okay. So, you think that I mean they have the whole section on sustained use.

Yes.

In the response to Jordan Hymowitz's question, you mentioned sustained use does seem fairly high at World with 75% of the loans being refied in the quarter. I think that's -- go ahead.

We said 75% of the total loan volume in the quarter. That doesn't meant that 70 buck's out [ph].

Okay, I'm sorry, the volume. Thank you.

But anyway, we have looked at that manual and as Sandy mentioned in his comments, if they were to apply that standard of audit against our company or against our branches, we don't see a lot in there that is troublesome.

Our last question in queue again is Bill Armstrong, C.L. King & Associates.

Just a quick follow-up on the larger loans in Texas, do they generally have a longer term as well?

Sure absolutely, 24 to 36 months, I've got a rate chart right here. They range from, Sandy?

15 to 28 months and you're talking about total payments of anywhere from $2,600 to $7,700.

And that's gross.

Okay. And then I think you mentioned a timing issue that initially gives the appearance of a lower yield. Is that because when you first underwrite the loan you've got to recognize an allocation, the losses but then you're recognizing the revenue from that loan over a longer period of time?

No, I mean the fact of the matter is that these loans have a lower written APR and when you move a customer out of a $1,000 loan that may have a 60% or so APR to a $2,500 loan that may have a 30% APR, your yield as a function of interest versus net loan is going to decrease. However, the dollar amount of that yield is certainly significantly higher. What we've seen is a move from our small loan customers into that larger loan section at a faster rate than would be normal, because of the pent up demand in Texas of well qualified individuals that were heretofore capped at a $1,200 maximum amount finance. So, over time as the loan offices build these larger loans into their portfolio, there -- you may see a slight degradation in the yield, but it would be more than offset by the dollar value, the interest charges that we're going to collect. And the fact that these loans are going to be lower charge off and lower expense level to maintain on a unit basis.

I see. And then, I think you said that you just got a license to do these loans. Is this product new throughout the state or just new for you in Texas?

It's new for us, it's been out there but the department more clearly defined some aspects to that product which brought it-- its interest level up to us. And, so we did a thorough investigation of the product and moved into it about a year ago actually November of last year.

And my apologies, as we have one more follow-up. Let's go back to Henry Coffey, Sterne Agee.

I was trying to get some clarity on this whole issue with the CFPB. You do all your collections and all your lending face-to-face in the branches.

Correct.

That's right.

And you're audited a lot, right? You have the states in there all the time. So how is an audit per se -- except for the fact that it's just one more person to put up with, how would being reviewed by the CFPB change anything for you? Since everything has been disclosed, there is no, -- I mean it's not like the payday loan product where I think people are going to be shocked when we see the volumes per customer. But it's all within conformity of state regulations. Your not using electronic payments as a collection mechanism so there is no Reg-E issues, you're in conformity with the statutes, you're in conformity with state law. So, expect for the fact that your overhead would go up a little bit, how would being reviewed by the CFPB actually change anything for you at all?

Look, I don't think...

They can't overrule state regulations, right?

Henry, I don't think from our standpoint currently there would be any issues, however from a regulatory standpoint they have the authority and the power to issue new regulations. If they don't like -- let's just -- I mean, heaven forbid they would do this, because I think it would take away a customer's choice and ability to act -- reaccess credit and so forth. But if they arbitrarily decided that nobody could ever renew a loan and you had to pay it out the term and so forth, then certainly that would have an impact on our business, but why they would do that, I don't know.

But what would be the legal mechanism by which they would do that?

I think they….

Because wouldn't that come in conflict with existing state law?

I think they have the authority to --

I think we had a civil war over states rights issues, before.

I think that that's granted. But I don't know, I mean I cannot answer what might happen in the future.

It just seems to be that -- I guess the real problem is the confusion that this causes, not the actual impact.

There's certainly -- I mean, it's not confusion, it's just uncertainty.

Right. Same difference.

And thank you, Mr. McLean. I'll turn the conference back over to you for any additional or closing remarks.

No. Thank you very much for joining us today.

Ladies and gentlemen, again thank you for your participation. Before concluding this morning's teleconference the Corporation has asked me again to remind you that, the comments made during this conference may contain certain forward-looking statements within the meaning of Section 27A 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. Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include changes in the timing amount of revenues that may be recognized by the Corporation, changes in current revenue and expense trends, changes in the Corporation's market and changes in the economy. Such factors are discussed in greater detail in the Corporation's filings with the Securities and Exchange Commission. This concludes World Acceptance Corporation's quarterly teleconference.