Q3 2024 World Acceptance Corp Earnings Call
Presentation
Operator
Good morning, and welcome to the World Acceptance Corporation's third-quarter 2024 earnings conference call. This call is being recorded. At this time, all participants have been placed in a listen only mode.
Before we begin, the Corporation has requested that I make the following announcement. The comments made during this conference call may contain forward-looking statements within the meaning of Section 21A 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 risk 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, or any variation of these 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 these expectations expressed or implied in such forward-looking statements are included in the paragraph discussing forward-looking statements in today's earnings press release in the Risk Factors section of the corporation's most recent Form 10-K for the fiscal year ending March 31, 2023, 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.
And 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, sir.
Good morning and thank you for joining our fiscal 2024 third-quarter earnings call. Before we open up to questions, there are a few areas I'd like to highlight.
Earlier this year, we signaled the tightening of credit and slower portfolio growth pace for this year. Our new customer loan volume increased about 22% sequentially this quarter from the prior quarter and up 56% compared to last year's third quarter. But the percentage of new customers relative to our customer base was around 30% lower than the prior normal third quarters, especially pre-COVID.
Our credit quality and performance continues to improve and remain near historical norms or even higher. While our approval and booking rates have improved significantly from our low in August of this year through the end of this calendar year, our first data falls remain at or below historical norms. New loan application volume increased around 30% this quarter when compared to last third quarter.
The earlier stat that I mentioned on the resulting one comparison was a 56% increase of new customer loan volume for the same quarter. New applications increased only 1% sequentially over the prior quarter, second quarter, compared to third quarter as we shifted marketing and underwriting strategies that resulted in higher approval and booking rates, which earlier I shared as a 22% increase in booked new customer lines sequentially. And those new customers continue to perform well with first day default rates that are significantly better than fiscal year 2022 and in line with last year and our pre-COVID comparisons.
Further, our overall new customer application volume has increased back to within 1% of our pre-COVID application volumes after increasing over 30% in the third quarter when compared to last year's third quarter. We believe we have been able to successfully increase our approval rates without sacrificing credit quality or yields and our focus on continually improving both our underwriting and marketing strategies.
Return of former customers increased around 6% sequentially in the third quarter compared to the second quarter and 17% compared to last year's third quarter. And the percentage of former customers relative to the customer base continues to be higher than the prior normal comparable periods, especially pre-COVID.
For new customers in the whole portfolio, our yields continue to improve. This is a result of improved gross yields and reduced delinquency. While we are pleased with our current progress in delinquency improvement and the trending of the underlying portfolio, we believe there's still room for improvement in the current and upcoming quarters. With the expectations of economic stability increasing and the decreasing likelihood of major unemployment impacts, management continues to accrue for long-term incentive plan with investing tiers of $16.35 and $20.45 earnings per share due to the much-improved credit quality yields and operating conditions.
Finally, I'd like to thank all of our wonderful team members who have helped so many customers from our communities during the calendar year of 2023, helping to establish and rebuild credit as well as meeting immediate financial needs. We have an absolutely amazing team, and I'm very grateful for their commitment to their customers and to each other.
At this time, John Calmes, our Chief Financial and Strategy Officer and I would like to open up to any questions you have. Thank you.
Question and Answer Session
Operator
(Operator Instructions) John Rowan, Janney.
Good morning, guys. Okay, so I just want to understand what change in assumptions drove the $10 million provision release. Obviously, you did -- you talk about lower loss assumptions going forward. But what is the loss assumption that's included in that $10 million reserve release? And what economic factor change, drove that assumption?
Yeah. So you got to broke up there, right?
So the biggest piece that's driving the reduction of that for the quarter is December, like seasonally, is our lowest risk quarter of the year, right? So just due to the fact that -- obviously, our customer base will windfall cash receipts in the fourth quarter. So historically, that drops down both delinquency and charge-offs in the fourth quarter, and that's what we see every year.
So there is a seasonal adjustment that happens in the fiscal third quarter. The opposite adjustment happened in the fiscal first quarter, right? So there was a substantial increase in the expected loss rates for seasonality that happened in Q1. So this is just the release of that. Because again, our customer base in portfolios is it's less risky that December.
But I mean I guess I just don't understand, maybe I was wrong. But I mean wouldn't lifetime loss accounting negate seasonal trends in the reserve level?
No. I mean, there's still a seasonality factor that goes into the season, right? So at a point in time, right? So you're trying to assess the [federal] losses at a point in time still, right? So those point in time expected losses will change based on the seasonality.
Okay. And you said that you're still accruing forward $16.35 and $20.45, correct, the hurdles? What years are -- what fiscal years are those doing?
That's by the end of fiscal year 2025.
So they're both in fiscal 2024. So you're accruing that you're going to basically get to 2045 by fiscal 2025, is that correct? Because obviously, if you're accruing for $16.45, you're certainly accruing -- for $20.45, you're certainly accruing for $16.35?
Correct. That's right.
Okay. All right. Thank you.
Operator
(Operator Instructions) Vincent Caintic, Stephens.
Good morning. Thanks for taking my questions. First, actually a follow-up just on that seasonality. Any different expectations with the tax refund season this year? And how that will shape up versus last year, hearing different views about whether or not -- whether to expect more less tax refunds for the consumer this year versus last year? Thank you.
Yeah. Good morning, Vincent. For us, right now, while we've certified on taxes, it's still too early for us to tell what the impact's going to be for our average customer base, even if it's going to be a higher or lower return from that perspective.
For my runoff perspective, so typically, in the fourth quarter, as our customers receive tax refunds, they tend to pay down [their lines]. It kind of remains to be seen what that may look like this year. Our portfolio is substantially different this year entering the fourth quarter than it has been in prior fourth quarters. We have substantially more tenured customers with us, some less new customers with us, so you may then have an impact to the runoff rate. But in terms of how the tax season is itself for our customer base, it's still too early to tell.
Okay, understood. Thank you. And then -- so very helpful prepared remarks details on the evolving and the tightened credit resulting improving metrics. I'm just wondering if this quarter's metrics are a good run rate to think about going forward? Or maybe said another way, like once the entire portfolio has the metrics of your current underwriting, like what does that look like in terms of the yields that you're charging the net charge-offs that you're targeting and so forth? Just trying to basically get a sense of maybe what fiscal 2025 loan metrics look like?
Yeah, Vincent, so on our end, it sounds like you cut out in the middle of your question there. But from when I heard, you're asking about what the credit quality and performance of the new customers look like and what the impact to the overall yields would be?
Yes, please. Yes. Thank you.
Great question. So for the last 1.5 year or so, we've been tightening credit a fair amount pretty aggressively to begin with, and our loan volumes certainly suffered because of that. But over that time period, couple of things have happened.
One, as those new customers have agent of portfolio, that's had an impact to the overall portfolio. Two, some of those underwriting strategies for new customers have also been applied to the rest of the portfolio book as well. So that has a greater impact on the overall portfolio.
And then three, we've increased confidence and how we've been underwriting. We've increased our approval rates pretty substantially over the last two or three quarters especially, and we haven't seen any reduction in credit quality there. So all that to say, going forward, I wouldn't treat this as a high point in terms of credit quality, I would treat this as the norm going forward.
And then in terms of the overall portfolio, we mentioned this about two years ago that it would take a lot of time for these changes to impact our overall portfolio. And you're beginning to really see that in terms of the portfolio, gross yields this quarter increasing pretty substantially year over year. And we'll continue to see that for some time as well.
Okay. Thank you, and then last one for me.
So we've been hearing about maybe macro improvement, maybe soft landing. And certainly, you're talking about increasing accrual rates, and you're not seeing -- you're getting more comfortably underwriting, not seeing reduction in credit quality. Is there a point -- is there a macro trend? Or maybe it just takes a little bit of time before you feel really comfortable in leaning in and we can see that portfolio significantly grow. Just wondering what you're looking at before we see significant portfolio growth. Thank you.
I would say we're very conservative in how we look at the macroeconomic picture. We began tightening in April 2021. Personally, I expected a rather tight and quick change to the economy, which obviously didn't come for another year, a year and a half, and it was much slower than I expected.
So in terms of loosening up, we have loosened up where we have seen prudent over the last couple of quarters. Again, our approval rates are up pretty substantially. But in terms of loosening up and for growth, we're not in a position at all where we are considering loosening up and reducing credit quality or any way sacrificing credit quality for growth. The opposite is actually pretty true where we have spent a lot of time making sure that from a marketing perspective and underwriting perspective, we can drive applications and approve applications that are within the acceptable credit box.
So going forward, that will continue to be one of our main focuses, is to grow the business, move out of this wait and see and be very conservative growth approach into a more aggressive approach. From a growth perspective, it's still very prudent and conservative on the credit side.
Okay, very helpful. Thank you so much.
Thanks, Vincent.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Prashad for any closing remarks. Please go ahead.
Thank you all for taking the time to join us today. And this concludes the third-quarter earnings call for World Acceptance Corporation.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
