Good morning, and welcome to the World Acceptance Corporation's Q3 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 21E of the Securities Exchange Act of 1934 that represent 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 historical fact, 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. 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 Q3 earnings call. Before we open up to questions, there are a few areas I'd like to highlight. Earlier this year, we signaled a 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 about 56% compared to last year's Q3. But the percent of new customers relative to our customer base was around 30% lower than the prior normal Q3s, 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 pay defaults remain at or below historical norms.
New loan application volume increased around 30% this quarter when compared to last Q3. The earlier stat that I mentioned on the resulting loan comparison was a 56% increase of new customer loan volume for the same quarter. New applications increased only 1% sequentially over the prior quarter, Q2 compared to the Q3, as we shifted marketing and underwriting strategies that resulted in higher approval and booking rates, which earlier I shared is a 22% increase in booked new customer loans sequentially. Those new customers continue to perform well, with first pay 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 Q3 when compared to last year's Q3. We believe we've been able to successfully increase our approval rates without sacrificing credit quality or yield and are focused on continually improving both our underwriting and marketing strategies. Return of former customers increased around 6% sequentially in the Q3 compared to the Q2, and 17% compared to last year's Q3. The percent of former customers relative to the customer base continues to be higher than the prior normal comparable periods, especially pre-COVID. For new customers and 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 the long-term incentive plan, with vesting 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.
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from John Rowan with Janney. Please go ahead.
Good morning, guys.
Good morning.
Okay, so I just want to understand, what change in assumptions drove the $10 million provision release? You know, obviously you did, you talked about you know, lower loss you know, assumptions going forward, but what is the loss assumption that's included in that you know, that $10 million reserve release, and what you know, economic factor change drove that assumption?
... Yeah, yeah. So you kind of broke up there, right? So the biggest piece that's driving the reduction in that for the quarter is December's like seasonally is our lowest risk quarter of the year, right? So just due to the fact that, obviously, our customer base will sort of have windfall cash receipts in the Q4. So it's sort of that drives down both delinquency and charge-offs in the Q4. And that's something we you know, seasonally see every year. So there is a seasonal adjustment that happens in the fiscal Q3. You know the opposite adjustment happened in the Q1 fiscal, right? So there was a substantial increase in the expected loss rates for seasonality that happened in Q1. This is just sort of the release of that, because again you know, our customer base and portfolios is its least risky at December.
But, I mean, I guess I just don't understand you know, maybe I'm just wrong, but I mean, wouldn't lifetime loss accounting kind of negate seasonal trends in the reserve level?
No. I mean, there's still a seasonality factor that goes into the CECL, right? So at a point in time, right? So you're trying to assess the expected losses at a point in time still, right? So, you know, those point in time expected losses will change based on seasonality.
Okay. And you said that you're still accruing for $16.35 and $20.45, correct? the hurdles. What fiscal years are those two in?
That's by the end of fiscal 2025.
But, so they're both at fiscal 2024. So you're accruing that you're gonna basically get to 20.45 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.
Again, if you have a question, please press star then one. Our next question will come from Vincent Caintic with Stephens. Please go ahead.
Good morning. Thanks for taking my questions. First, actually a follow-up just on that seasonality. Any different expectations with tax refund season this year and how that will shape up vs. last year? Hearing different views about whether or not, you know, whether to expect more or less tax refunds for the consumer this year vs. last year. Thank you.
Yeah. Good morning, Vincent. You know for us right now, while we've started filing taxes, it's still too early for us to tel you know, what the impact is gonna be for our average customer base you know, if it's gonna be a higher or lower return from that perspective. From a runoff perspective, so you know typically in the Q4, as our customers receive tax refunds, you know, they tend to pay down their loans. You know it kind of remains to be seen what that may look like this year. Our portfolio is substantially different this year entering the Q4 than it has been in prior Q4s. We have substantially more tenured customers with us and less new customers with us.
You know, that may 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. So very helpful prepared remarks, details on the evolving and the tightened credit resulting, you know, improving metrics. Just wondering if this quarter's metrics are sort of 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 net yields that you're charging, the net charge-offs that you're targeting and so forth? Just trying to get, basically get a sense of maybe what fiscal 2025 loan metrics look like.
Yeah. Vincent, so on our end, it sounded like you cut out in the middle of your question there, but from what I heard, you're asking about what the credit quality and kind of 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, you know, for the last year and a half or so, we've been tightening credit a fair amount, you know, pretty aggressively to begin with. And, you know, our loan volumes certainly suffered because of that. But over that time period, a couple things have happened. One, as those new customers have kind of aged into a portfolio, it'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 two and then three, you know, we've increased confidence in 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. All that to say, you know, going forward, you know, I wouldn't treat this as a high point in terms of credit quality. I would treat this as sort of the norm going forward. And then, in terms of the overall portfolio, you know, we mentioned this about two years ago, that it would take a lot of time for these changes to impact the overall portfolio. And you're beginning to really see that in terms of the portfolio gross yields this quarter, you know, 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, you know, maybe macro improvement, maybe soft landing. And certainly, you talked about increasing approval rates, and you're not seeing, you're getting more comfortable, you're underwriting, not seeing reduction in credit quality. Is there a point or is there a macro trend, or maybe just takes a little bit of time before you feel really comfortable in leaning in, and we can see the, you know, the portfolio significantly grow? Just wondering what you're looking at, before, you know, we see significant portfolio growth. Thank you.
Yeah. You know, I would say, you know, 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, you know, obviously didn't come for, you know, another year and a half, and it was much slower than I expected. So in terms of loosening up, we have loosened up where, you know, 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 in any way sacrificing credit quality for growth.
It, the opposite is actually pretty true, where we have spent a lot of time making sure from a marketing perspective and underwriting perspective, we can drive applications and approve applications that are within the acceptable credit box. So going forward, you know, that will continue to be one of our main focuses, is to grow the business, kind of move out of this, wait and see and be very conservative growth approach into, a more aggressive approach from a growth perspective, but still very prudent and conservative on the credit side.
Okay, very helpful. Thanks very much.
Thanks, Vincent.
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. This concludes the Q3 earnings call for World Acceptance Corporation.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.