Mexico supports World Acceptance net income in 4Q
GREENVILLE, S.C. (AP) — World Acceptance Corp.'s net income rose 6 percent in the fiscal third quarter as it boosted lending to consumers with checkered credit histories and expanded its higher-margin Mexican operations.
The subprime consumer lender, based in Greenville, S.C., said Wednesday that extending more risky loans allowed it to charge its customers 11 percent more interest and fees than in the same period a year earlier.
The earnings fell short of analsyts' expectations, and shares fell in morning trading.
World Acceptance net income in the three months ended Dec. 31 rose to $20.7 million, or $1.58 per share, from $19.6 million, or $1.30 per share in the same period a year ago. The increase was higher in part because management has been repurchasing shares, reducing the number outstanding.
Total revenue rose 10 percent to $149.6 million.
Analysts surveyed by FactSet had anticipated, on average, earnings of $1.73 per share on revenue of $150.4 million.
The company's loan portfolio expanded by 11 percent in the quarter, forcing it to boost its cushion for future loan losses by 3.6 percent, to $37.4 million. The company gave up on collecting about 16 percent of its loans, on an annualized basis.
World Acceptance's expenses increased 15 percent. The biggest contributor was a $6 million hike in compensation and other personnel costs. The higher personnel costs consisted of salaries for workers at the new stores, a "larger than normal equity grant" for management and board members approved by the board's compensation committee and other factors, the company said in a filing accompanying the earnings release.
The company said the "relative impact of the grant was not material during the quarter" because of its timing. However, the cost "will be substantial over the next several years" if management can meet certain performance targets.
World Acceptance added 13 stores in the quarter, and has added 66 net locations in the past 12 months. In the current quarter ending March 31, it expects to open seven stores in the U.S. and 10 in Mexico.
Mexico has been fertile ground for lenders that target people with limited access to credit. In the U.S., they face harsh new scrutiny from regulators including the new Consumer Financial Protection Bureau. For the first time, federal examiners are conducting ongoing oversight and demanding extensive information from many high-cost lenders.
New rules and compliance costs are expected to force a radical reorientation of the industry, analysts and executives believe. For many lenders, Mexico offers a shelter from the storm.
World Acceptance had 110 stores in Mexico at the end of the quarter, and expects to add a net 16 stores in the fiscal year ending March. 31.
World Acceptance has boosted its ledger in Mexico by 38 percent over the same quarter last year, on a trailing 12 months basis, compared with an 11 percent increase for the broader company.
The Mexican subsidiary boosted pretax earnings by 32 percent, according to the quarterly filing. The ratio of loans in Mexico not expected to be repaid is about 2 percent higher than for the company's overall operations.
It was not immediately clear what type of tougher regulation World Acceptance faces because it is not known whether officials would consider it a "payday lender." The CFPB has stronger powers to oversee payday lenders.
The company and the CFPB did not respond to requests for comment. However, Chairman and CEO A. A. McLean III said the new consumer bureau "may continue to have an impact on our stock performance" until its intentions become clear, in a letter to shareholders with the company's most recent annual report, filed in June.
The company believes that "the value of the vital service we provide, by that is providing credit opportunities to so many individuals that have limited access to other credit markets, will continue to be appreciated as this new Bureau is developed," according to public filings. "
World Acceptance is one of the biggest companies that provide small, short-term loans; larger, medium-term loans and add-on credit insurance to people who can't access lower-cost types of lending. The average gross loan in fiscal 2012 was $1,180, with an average length of 12 months.
The company also provides software used by competing lenders and has an income tax preparation business that has been shrinking as fewer people take loans to access their tax refunds early.
As of Dec. 31, World Acceptance had 1,186 stores in 13 states and Mexico.
World Acceptance stock fell $1.25, or 4 percent, to $75.51 in morning trading. The stock has traded between $57.03 and $79.11 over the past year.