Q4 2020 Regional Management Corp Earnings Call
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Thank you for standing by this is the conference operator, welcome to the regional management fourth quarter 'twenty 'twenty earnings Conference call. As a reminder, all participants are in listen only mode on the conference is being recorded.
After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad share do you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would now like to turn the conference over to Garrett Edson of ICR for opening remarks. Please go ahead.
Thank you and good afternoon by now everyone should have access to our earnings announcement and supplemental presentation, which was released prior to this call may be found on our website at regional management Dot com before we begin our formal remarks I will direct you to page two of our supplemental presentation, which contains important disclosures concerning forward looking statements from the use of non-GAAP financial measures.
Part of our discussion today may include forward looking statements, which are based on management's current expectations estimates and projections about the companys future financial performance and business prospects. These forward looking statements speak only as of today are subject to various assumptions risks uncertainties and other factors that are difficult to predict and that could cause actual results to differ materially from those expressed or implied in the forward looking.
Statements. These statements are not guarantees of future performance and therefore, you should not place undue reliance upon them.
For all of you to our press release presentation, our recent balance with the SEC for a more detailed discussion of our forward looking statements and the risks and uncertainties that could impact the future operating results and financial condition of regional management Corp.
Also our discussion today may include references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found within our earnings announcement or earnings presentation and posted on our website at regional management Dot Com I would now like to introduce Rob Beck, President and CEO of Regional Management Corp. Thanks, Garrett and welcome to our fourth quarter 2000.
'twenty earnings call I'm joined today by Harper on our Chief Financial Officer.
Our team executed extremely well and delivered strong results in the fourth quarter, we generated $14 $3 million from net income or $1 28 of diluted EPS. As a result of continued quality growth in our loan portfolio, a strong credit profile disciplined expense management and low funding cost.
We leveraged our new growth initiatives to take advantage of an increase in consumer demand in the quarter.
We originated 359 million of loans in the fourth quarter, which was comparable to the prior year and up nearly $51 million or 16% from the third quarter.
This drove sequential growth in our total portfolio of $77 million or 7%, our core small and large loan portfolio grew by $80 million or 8% quarter over quarter and on a year over year basis, our core loan portfolio grew by $19 million or 2% and.
On an impressive result, considering the circumstances presented in 2020.
Credit quality also remained stable in the fourth quarter and we continued to maintain a very strong balance sheet. Our net credit loss rate during the quarter was six 9% a 210 basis point improvement from last year, and we ended the quarter with a 30 plus day delinquency rate of five 3% down from 7% last year on 100.
$50 million allowance for credit losses as of December 31 continues to compare quite favorably to her 30, plus day contractual delinquency of $60 5 million and includes a $30 4 million reserve for additional credit losses associated with COVID-19.
This reserve students on unemployment rate of 9% at the end of 2021, we continue to believe that we have ample coverage to absorb future credit losses.
In addition, with $452 million of unused capacity on our credit facilities and 203 million on available liquidity as of February 5th.
We have access to more than enough capital to invest in our business and fund our ambitious growth plans.
Earlier today, we also amended our ABL facility to provide an additional $20 million of flexibility to return capital to our shareholders in the future, whether it's through dividends or share repurchases.
Earlier this week, we priced our latest securitization transaction, which is expected to close on February 18th.
Approximately $250 million securitization garnered wide interest from investors and priced at a record low average weighted coupon of 2.08% nearly 80 basis points better than our previous securitization. The proceeds from the securitization will be used to retire our M. I T 2018 cash to securitization.
Thereby significantly reducing our cost of capital and further strengthening our balance sheet.
Looking ahead to 2021 would be on I'd like to take a moment to reflect on the accomplishments from the past year.
From the beginning of the pandemic, we maintained our focus on serving our customers supporting our team members delivering assistance to our communities and generating value for our shareholders.
For our customers, we provided effective avenues for continued access to our valuable loan products, we introduced curbside service prepayments loan closings and all the other types of servicing activity and we quickly created enrolled out electronic remote loan closing capabilities, enabling our customers to extend and expand their relationship with us.
From the comfort of their homes and.
In December we closed 20% of our branch originations through the loan closing process. We also offered borrow system programs is it necessary bridge for those most impacted by the pandemic and in combination with government stimulus, we experienced historically low delinquencies throughout much of the year importantly, we ensured our customers' safety while continuing.
To provide the best in class service experience for our team members. We expanded our paid time off policy to provide them with flexibility to address personal obligations and to assist in situations, where they were unable to work remotely.
We implemented enhanced safety measures in all of our branches covered the cost of virtual health visits for our team members and all for paid leave for those exposed to the virus at the end of the year, we announced significantly enhanced benefit programs for our communities, we introduce regional reach and employee led initiatives dedicated to creating positive social change and goodwill through community.
This charitable, giving and diversity equity and inclusion initiatives.
In the spring, we partnered with the American Heart Association, and let all upstate South Carolina companies and fund raising for the heart walk more recently, we partnered with local food banks throughout our footprint to raised tens of thousands of dollars and collecting literally tons of food for distribution within the local communities.
For our shareholders. We grew our loan portfolio maintained a stable credit profile appropriately managed our operating expenses and decreased our funding costs, resulting in excellent bottom line results.
We fortified our balance sheet, and we maintained access to significant borrowing capacity and liquidity.
We made considerable progress on our digital investments and initiatives, including by migrating our technology infrastructure to the cloud at the end of the year.
And thanks to our strong capital position and the confidence we have on our long term strategy, we were trying to excess capital to our shareholders through a share repurchase program and the initiation of a quarterly dividend of <unk> 20 per share.
The resilience of our Omnichannel operating model was clearly validated in 2020 as we turned the page on what was for everyone. A very challenging year I could not be prouder of our team and how they stepped up to navigate the crisis successfully.
We enter 2021, and a position of considerable strength and ready to embark on your next chapter.
Looking ahead, we're excited about the opportunities that we see for sustainable growth, we remain focused on expanding our market share maintaining the credit quality of our loan portfolio and extending our competitive advantages over the next 18 months, we will acquire new customers through innovation and geographic expansion.
We will continue to prioritize our investment in digital capabilities to further enable our growth and to ensure that we're always available at our customers' demands.
During the first half of 'twenty and 'twenty, one we expect to rollout an improved digital prequalification experience for our customers, including expanded integration with existing and new digital affiliates and lead generators.
We're also moving ahead with our pilot on the new guaranteed loans offer program. This will be on alternative to our convenience check loan product and may be fulfilled online with <unk> funding into the customer's bank account.
In the second half of 'twenty 'twenty, one and into early 2022, we expect to test digital origination product and channel for new and existing customers at the same time, we will complete the development of our mobile app and enhancements to our customer portal, allowing our customers easy access to payment functionality and additional features.
In parallel with our digital investments, we will expand our operations into four to five new states over the next 18 months doing so will make our valuable product set including a newly enhanced auto secured product available to millions of new customers.
Georgia on initiatives, including our remote loan closing capabilities introduced in 2020, we plan to enter new states with a lighter branch density than we have in the past to that end we plan to open between 15 and 20 net new branches in 'twenty and 'twenty one we.
We believe this branch expansion strategy supported by our digital initiatives will enable our branches to maintain a wider geographic reach and higher average receivables per branch. This will ultimately further expand our revenue and operating efficiencies and lead to stronger bottom line growth.
Our accelerated state expansion will begin with Illinois in the second quarter, while Illinois has recently passed legislation to cap. The all in APR, 36%, we feel that it remains a terrific opportunity to enter a new market with our digitally enabled business model and take advantage of the competitive disruptions from the recent legislation.
As of year end 2000, 2080 per cent of our loan portfolio had an APR at or below 36 per cent.
While we have significant plans to investing in our growth in 2021 and beyond we will not sacrifice the credit quality of our portfolio, which remains of Paramount importance.
As of year end, 61% of our total portfolio had been underwritten using enhanced credit standards that we deployed during the pandemic. It's.
Our credit performance and underwriting capabilities that provide us with confidence in the pursuit of our long term growth strategies, we will continue to invest in our underwriting capabilities over time, including advanced machine learning tools to ensure the sustainability of our growth.
As we've said previously any additional stimulus such as the recent $600 stimulus checks will push COVID-19 related losses into the second half of 'twenty 'twenty, one and the subsequent stimulus will continue to possibly impact credit, but will reduce loan demand early this year.
As we experienced from 2020, we expect a strong second half bounce in loan demand as vaccinations become more widespread and the economy begins to reopen more fully.
In sum, we had a fantastic end to a year that challenged everyone. We executed across all facets of our business and we have set ourselves up for an improved 2021 on both the top and bottom line. Our team continues to go above and beyond to ensure that our customers receive the best possible experience. We are excited about and confident in.
On the sustainability of our Omnichannel operating model.
Zillions of our customers and our team's ability to execute on our growth plan I'll now turn the call over to harp to provide additional color on our financials.
Thank you, Bob and Hello, everyone. Let me take you through our fourth quarter result from mortgage.
On page three of the supplemental presentation, we provide our fourth quarter financial highlights.
We generated net income of $14 3 million and diluted earnings per share on the dollar 28, resulting from quality growth in our portfolio a strong credit profile disciplined expense management and low funding costs.
Page four shows our strong portfolio growth in the second half of 2020, driven by increased loan demand in our new growth initiatives.
<unk> grew 114 million from June to December of 'twenty, 'twenty with 77 million and describe from fourth quarter.
We also increased our core finance receivables by 120 million from June to December of 2020, like 80 million of this growth from fourth quarter page five displays our portfolio growth. The next train through year end 2020, we closed the quarter with net finance receivables of $1 1 billion up $77 million or 7% sequentially and three.
And in Europe here.
Our new growth initiatives drove $36 million of the 77 million a sequential growth.
Our core loan portfolio grew $80 million or 8% sequentially and 19 million euro per year.
We continued our mix shift towards large loans, which represent 63 per cent per park portfolio at the fourth quarter of 2020 moving to page six as Rob mentioned earlier originations continued to rebound in the fourth quarter.
<unk> origination credit from $233 million in the third quarter of 2020 to 272 million in the fourth quarter, a 17% improvement.
Meanwhile, direct mail and digital origination increased from 75 million in the third quarter to 87 million in the fourth quarter of 16% from pregnant.
Total originations in December increased 7% year over year for the first quarter, we expect to see our normal seasonal pattern lower origination and higher run off as customer interest saved tax refunds and utilize their military stimulus payments as in prior years, we expect our net net receivables to liquidate quarter over quarter with the timing.
And then any government stimulus reducing alone demand temporarily.
On page seven we show our digitally sourced originations, which were 29 per cent to brand new borrower volume in fourth quarter the highest we've seen.
This demonstrates our commitment to meeting the needs of our customers from serving them through our omni channel strategy.
During the fourth quarter large loans were 60 per cent of our digitally sourced originations.
Turning to page eight total revenue declined 1% due to the continued product mix shift towards large loans in the portfolio composition shift towards higher credit quality cuts can rate.
On a year over year basis total revenue yield on interest and fee yield remained relatively flat.
In the first quarter due to our seasonal pattern. We expect total revenue to be 180 basis points lower than fourth quarter and interest and fee yield to be 140 basis points slower.
Moving to page 10, our net credit loss rate was $6 nine per cent for the fourth quarter of 2020 of 210 basis point improvement year over year, and a 90 basis point improvement from the third quarter of 2020.
Credit quality of our portfolio remains stable as can be seen on page 11.
30, plus day delinquency rate of five 3% in December continued to track near historic lows, even with the usage of borrower assistance programs remaining at pre pandemic levels at 2.2 per cent Howard.
Our delinquency level of 5.3% 60 basis points higher than the third quarter, primarily due to normal seasonality, but it represents 170 basis point improvement year over year.
Our credit performance continues to be very solid thanks to the quality and adaptability of our underwriting criteria custom scorecards and borrower assistant programs as well as the bridge provided by government stimulus. We expect the recent government stimulus will keep delinquencies muted for at least the first quarter of 'twenty 'twenty, one and perhaps longer.
Depending upon the level of the additional stimulus turning to page 12, we ended the third quarter with an allowance for credit losses of 144 million or $13 six per cent of net finance receivables during the fourth quarter of 2020, the allowance increased by 6 million to $150 million or $13 two per cent of net finance receivables.
The day reserve increased by $7 5 million due to portfolio growth and was partially offset by $1 5 million of Covid specific reserves, resulting in $34 million of Covid specific reserves as of quarter end.
Severity on the duration of our macroeconomic assumptions remained relatively consistent with our third quarter model, including an assumption that unemployment is 9% at the end of 'twenty 'twenty one.
Our 150 million allowance for credit losses as of December 31st compares favorably to our 30 plus day contractual delinquency at $60 5 million and at our current reserve levels. We are confident that we are sufficiently reserved if the pandemic continues for an extended period flipping to page 13, G&A expenses in the fourth quarter.
2020 were $44 8 million up $3 9 million year over year, but better than our sequential guidance for the quarter by 0.7 million.
The increase in G&A expense was primarily driven by $3 million and higher marketing expenses and digital investments to support our growth initiatives.
As Rob noted earlier in 'twenty and 'twenty, one we remain focused on investing in our digital capabilities and marketing effort all to drive new revenue opportunities enhance our customers' omni channel experience and create long term operating leverage overall, we expect G&A expenses for the first quarter it can be higher than the fourth quarter by approximately $1 million in.
The thing investments and increased marketing, our digital capabilities and our state expansion plans, we will continue to investing in new growth initiatives in 'twenty 'twenty, one to drive receivable growth and to improve our operating leverage over the long term turning to page 14 interest expense of $9 3 million in the fourth quarter of 2020 with 1 million lower than in the pre.
For a year period.
The lower interest rate environment, our fourth quarter annualized interest expense as a percentage of average net receivables was 3.3 per cent, a 40 basis point improvement year over year.
We purchased $50 million of interest rate caps in the fourth quarter to take advantage of the favorable rate environment in the first quarter, we expect interest expense to be approximately $9 million as Rob mentioned earlier this week with price and approximately $250 million securitization at a record low average weighted coupon of 2.08 per cent per.
Sales from the securitization will be used to retire our R. M. I T 2018 dash to securitization, which had a weighted average coupon of 487 per cent and the fourth quarter, we accelerated their point 8 million for the amortization of debt issuance costs related to the Rmi tier 2018 dash tier transaction in advance.
From the expected repayment this quarter, the new securitization transaction will further reduce our cost of capital and strengthen our balance sheet moving forward.
Our effective tax rate during the fourth quarter of 2020 was 23 three per cent compared to $24 five per cent in the prior year period better than expected due to tax benefits on share based compensation for 'twenty and 'twenty. One we're expecting an effective tax rate of approximately $25 five per cent.
15 is a reminder of our strong funding profile, our fourth quarter funded debt to equity ratio remained at a very conservative two eight to one.
Low leverage coupled with $150 million in loan loss reserves provides a strong balance sheet as.
As of February 10th we had $452 million of unused capacity on our credit facilities and $203 million of available liquidity consisting of a combination of unrestricted cash on hand, and immediate availability to draw down cash from our revolving credit facilities in summary, we have more than adequate capacity to support the fund.
Mental operations of our business as well as our ambitious growth initiatives during the fourth quarter, we repurchased 435816 share at a weighted average share price of $27 from 58 cents.
As of the beginning of the year, we still had 18 million of availability remaining under our $30 million share repurchase program announced in third quarter of 2020. In addition, our board of Directors recently declared a dividend of <unk> 20 per common share for the first quarter of 'twenty 'twenty one.
Dividends will be paid on March 12, 2021 to shareholders of record as of the close of business February 23rd 2021.
We are very pleased that our strong balance sheet enables us to return excess capital towards shareholders.
That concludes my remarks, I'll now turn the call back over to Robyn. Thanks Harp in summary, 2020, it was a challenging year for everyone, but when times were the hardest our team rose to the occasion as a result, we entered 2021, particularly well positioned to grow our market share while also maintaining a very strong balance sheet.
An excellent credit profile.
We're excited for the future as we continue to provide our customers with a best in class experience and deliver additional value to our shareholders. Thank you again for your time on interest I'll now open up the call for questions. Operator could you. Please open the line.
Certainly we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will share atone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press star.
Then to move on.
I'll pause for a moment as callers join the queue.
The first question comes from David Scharf with JMP Securities. Please go ahead.
Hey, good afternoon.
Thanks for thanks for taking my questions.
Rob.
Wondering if you can.
Maybe address.
I guess a little longer term.
Strategic question.
Obviously throughout the pandemic every quarter you get questions about.
Our digital initiatives and clearly you're stepping up the pace on several fronts.
Of processing customer acquisition products.
Can you give me a sense for.
Looking out three or four years.
Or are you going to need physical branches to enter new states in your mind I mean, I mean, recognizing it's always nice to have.
You know a touch point.
I'm just wondering based on.
The experiences of your applicants who were able to.
Fill out an application on line and ultimately they're going to get comfortable closing online digitally went once you finish that.
Do you see.
On the geographic expansion for regional over the next several years.
Requiring as much physical footprint as maybe in the past.
Yeah, Hey, David How're, you doing Tonight, no a great question I guess the way I would address it is you know we we obviously are investing in our omni channel capabilities.
So that we can meet the needs of our customers and the branch over the phone on the web browser through the mobile phone.
They choose.
As we you know probably the best indicator of how we're looking going forward is as I mentioned, Illinois.
With the rate cap they've put in place I'm really fits in well with the with our new strategy, which is to enter with a lighter footprint and you can envision.
Having branches in more dense densely populated areas.
And then being able to service a wider range of reach around the branches and maybe into more rural areas, using our digital capabilities and ability to close.
Closed loan volume.
You know as we said was at 20% in December. So you know, we're gonna enter Illinois with that lighter footprint strategy and I think that's gone on a hold up really well as we look to expand into other states. You know I've said, there's probably 25 to 30 additional seats that we find attractive.
We're looking at four to five over the next day.
18 months and what I'll tell you is the the pace by which we can enter new states when youre not thinking about building out as many branches could be accelerated and so that that's how we're kind of looking at it going forward, but I wouldn't want to leave you with the impression that we don't think that there's a value.
In our branch presence that relationship with the customers that do want to come into the branch.
Is invaluable and we foresee that that's going to be a core part of our strategy going forward.
But I will tell you so far what we've done on the rote loan closing side, we haven't seen any.
Difference or impact on credit from closing customers remotely versus having to come into the branch.
Oh got it got it and maybe just one follow up.
I thought I heard you referenced maybe I missed it did you did you say a new auto secured product is being launched.
I assume that's not a per year.
But more a yeah.
Okay.
It's simply taking the auto as security to be able to offer larger loans to our customers. So we really view. This as just an extension of life cycle for a large loan customers, who you know they're kind of capped out on what we'd give them on an unsecured basis, but if we can get their card. Then obviously, we come on them more money and as you know some of our competitors. It's.
Meaningful if not half of their portfolio.
We piloted that in the fourth quarter, but we're really going to lean into it this year.
Which is one of our pivotal growth strategies and actually I think it's really important David that that would really stress what exactly we did this year. So when COVID-19 hit and we shut down on our direct mail in March for six weeks.
What we decided at that point in time is we needed to get very focused not only getting through the you know the pandemic.
Pandemic, but what are we going to do on the other side of the pandemic and so we we're laser like focused on what the growth strategy is going to be post pandemic and so you know, we obviously restarted a mailing by a tightening up on the underwriting, but we put in place a series of growth initiatives in the second half of the year, which drew.
Half of our growth from net portfolio and that was you know the expanded mail strategy, we talked about the extended mail mailing out the wider around the branches on being able to use the remote loan closing capability to close those loans and then offering credit to our very best customers. We then laid the groundwork to our digi.
It'll investments that we made this year so that throughout this year, there's three things three big drivers that we think are going to continue to propel the franchise forward as the economy opens up and that's the digital investment that starts with the Prequalification front and or guaranteed loan offer.
It can be used alongside the line checks and then completing at the end of the year early into next year. The end to end digital experience on our mobile App and the browser and we believe that's going to open up not only new channels for growth, but new capabilities to service our customers better. So then taking that allows us, whereas we talk.
About our geographic expansion into Illinois, and then four to five states and 18 months is we're able to use those digital technologies to be more efficient as we entered new states with a lighter footprint be able to move more rapidly because we don't need like some competitors 100 branches in Illinois.
We're able to get in there with a much lighter footprint and then lastly is the the auto secured product, which as I said is a meaningful part of some competitors balance sheet, which allows us to.
Expand the product set for those larger loan customers grow our volumes and obviously, it's a it's a more secured credit as well. So that's that's been the focus since April we have been thinking ahead and we've been very you know very diligent in our execution on that while getting through the the pant.
And then from a portfolio standpoint.
We feel like we have sufficient conservative reserves to really address any kind of credit.
The issues that may pop up here over the next couple of years.
Understood I appreciate it that's very helpful.
The only the only observation as you you've had plenty of time to come up with a more creative name for the.
Auto product and your competitor came up with and I'm sure you'll arrive at that.
[laughter]. Thanks.
Okay.
Yeah.
The next question comes from John Hecht with Jefferies. Please go ahead.
Afternoon, guys. Thanks for taking my questions.
It did in Q4, the yields I know theres, a seasonal bump up in yields but it looked like the Q3 to Q4 bump up in yields was a little bit more pronounced this year I'm wondering was something going on it was it was that because some of the deferrals were coming off. So there is more optimization or was there some repricing or how do we think about the driver of that.
<unk>.
Yes, so John John How're, you doing yeah, it's very similar to what you're going to see his heart mentioned in the yields dropping in the first quarter. So as you see tax season come on.
A lot of people pay down, particularly small loan customers. What you saw happened in the fourth quarter is kind of the opposite of that volume has picked up a lot of renewal activity picked up and some of the.
Deferred income got recognize because of.
The pickup in loan demand in renewables. So it's just a function of.
On the jumping renewal activity.
Yeah.
Okay.
Yeah can you guys comment on I mean, theres been a little bit more I guess distribution of tax rate or excuse me stimulus checks through January with other platforms have talked about seeing a decline along with the normal seasonal decline of demand because of tax refunds and so forth incremental patterns of a softening demand tied to that.
Are you guys able to comment on that at this at this point.
Well look I'll tell you a couple of things one you know obviously.
The stimulus checks great benefit to credit and you know it bridges the customer the same way our borrower assistance programs do in and I think you know given the level of stimulus and we may find out that.
Many customers or bridge to the other side until they regain employment or regain their financial footing.
That obviously is a it is a net positive on the loan demand side, what I would tell you is the first $600 on and I don't want to give you too much insight on that as you know that along with the normal tax refunds will put pressure on the first quarter, we always liquidate in the first quarter. So you can expect that.
Plus a little bit more probably but what I'm what I would tell you is so far I mean, you know the tax refunds are.
Apparently way behind and a lot of the tax refunds aren't expected to hit until late February or March and so you know it's going to be interesting how that kind of plays out across the quarter and you know at this point in time.
The unemployment benefits on our taxable so there may not be as great of refunds I think the estimates have said, maybe as low as 11% lower than prior years.
And then as his heart mentioned in her comments.
It will have an impact on demand as you know all of that has to burn its way through the system, but as the economy opens up we feel there's a huge pent up demand to spend money and.
How long that takes to burn through I don't know, but I think our expectations are as the second half of the year you know should be strong as we said in our comments.
Okay, and then I appreciate all that color it makes sense and then.
The last one is on the hedges you mentioned some interest rate hedges, how maybe can you give the specific kind of hedging you were targeting how we should see that flow through the P&L over the near term.
Yeah, no the the cost of the hedges are amortized and so theres not any kind of immediate impact it's amortized over a period of time, we've been putting on our hedges.
At the end of last year, and we probably will do so in the early part of this year and it's really just an interest rate cap. So you know the most recent one we did in December it was a strike price of 25 basis points on LIBOR. So if I'm you know obviously when we paid a price for that that we amortize in which I can give you.
I don't have it in front of me, but I can I can give you the various kind of by hedge depending on the timing of it but but it's you know LIBOR goes above the 25 basis points, then we get paid.
And it's an offset or hedge to our variable.
Our variable funding, which as you know on the ABL on the warehouse, which is tied to LIBOR.
Okay that answers exactly I was looking for thank you guys very much.
Thanks, Sean.
The next question comes from John Rowan with Janney. Please go ahead.
Good afternoon, everyone.
Hey, John just to spend another second on the branch network and your auto loans.
Peter your peers tend to affect collateral at the branch level, which is difficult to do on line does that play into your expansion strategy.
You know with the with the new branches that you're planning to open this year.
Yeah, No look we were definitely you're going to protect the collateral and and so you should look at that business being around the branch network and not a not a digital strategy I'm not saying at some point in time theres not a weighted digitally enable it.
But are.
We're gonna be driving and we're gonna be pushing that product.
First in our.
Existing states and then we'll be rolling that out to go along with the new state Rollouts win when they call.
Okay. That's an auto secured installment product not or is it also auto refi.
No. It's well it's it's it's auto secured not not refi. So you know obviously, we want to we want to have a have a clean title one on the loan.
Okay, and then you mentioned that you amended some of the your ABL facility to allow for more capital returns can you just expand upon how much more leeway you have for capital returns.
Yeah. So.
The amendment is has been posted on the 8-K, but basically you know it gives us an additional $20 million of flexibility over the next 18 months you know the way the.
E on.
Availability for buybacks works under our ABL is you know we look at the trailing eight quarters of pre tax earnings and 50% of that is available for return on returning capital to shareholders.
You know and I think as we looked at it and saw the reserves. We took on the early last year for Covid.
Bank group was working with us.
You know provided us more availability so.
Yeah that just gives us more.
More flexibility as we go forward as to what we may want to do.
Okay. Thank you.
Thanks, Sean.
Once again, if you have a question. Please press Star then one.
The next question comes from Bill does along with tight on capital management. Please go ahead.
Thank you I had a couple of questions. The first one is that relative to your branch closings that you had this quarter I think there were three of them is that an indication of an early sign that as you expand your digital strategy, there will be additional or excuse me fewer branches in your.
Our existing geographic areas.
Hey, Bill how are you look.
That's a little bit at flight, Here's what I would tell you we have some markets, where we have pretty high branch density and as we look at the performance of those branches from when the leases come up.
You know in some cases, we have the opportunity to collapse two branches into one save a little money and it'll be a larger branch, but it covers the G. On.
Geography, or the branch trade area, very well and so what we've actually been doing all year long is closing some branches and that's been funding growth and new branches in some of our new states and in certain markets where.
We have branches that are at capacity.
So.
Our strategy, we will deploy.
Like any retailer if it makes sense you know including into into this year, but you know I don't think you should look at it as a as a big shift for the for the network I think its just on selectively as we see opportunities.
Thank you and then relative to your marketing expense. It was a pretty significant increase could you talk to that point. Please.
Yeah, so the marketing spend particularly on the second half of the year. It was really to drive those growth initiatives. So you now have half the growth in the fourth quarter and actually it was half the gross.
114 million.
In the second half of the year, a big part of those new initiatives as I said was the.
Expanded our mail, where we mailed into deeper response segments and so when you think about that deeper response segments means its costing you more per dollar of loans, you've originated but with better analytics, we were able to look at that realize even if we stress the losses. It was a very good return business. So we said you know what.
We should put more money into that and so we invested more marketing dollars.
Similar on the extended footprint side, we started mailing on a wider radius around the branches on that required more marketing dollars as well and so the return on the marketing dollars that we put in play.
It's been quite quite remarkable.
And you know and I think as a percentage of our anr on marketing spend probably in prior years has probably been under weighted versus others and I think this is just part of getting our spend to where it should be.
Yeah.
Great.
Thank you and thanks for great job navigating all things Covid.
Great I appreciate it thanks a lot.
The next question comes from Vincent <unk> with Stephens. Please go ahead.
Hey, Thanks, I'm just two quick questions. So first and they're just clarifying questions, but on the insurance kind of come on.
Nice to hear your growth there and I think contributed to the Texas insurance commissions, but just wondering if that's you should expect to continue going forward and then secondly, I appreciate your guidance for expenses.
Being up 1 million quarter on quarter in the first quarter when youre thinking about it over the course of 'twenty 'twenty, one on beyond and you're making these investments just sort of wondering how we should think about expenses going forward as you're growing your revenue base. Thank you.
No Hey, Vince on how are you so look.
Yeah, Let me take the expense issue first so we will be continuing our investment in digital and new states and alike.
Look our our approach is we want to make sure we get the appropriate return on on that investment spend and so we and we have the ability like we did in during Covid too.
Pull back on investment spend if we think that we need to for yeah.
Because the revenues and the volume on aren't coming through at the same pace. So you should expect that this is a pretty heavy investment year, you know cause I, it's going to set us up extremely well for really what I think you know attractive growth in 'twenty 'twenty, two 2023 and beyond.
On once do we get the economy is as a tailwind as opposed to a headwind so.
Think now's the time to invest and we you know, but the great part about what we're able to do last year is we were able to lay a very good foundation for our strategic initiatives as I mentioned and that's already led to substantial volume growth and revenue.
Quarter was it was great in terms of revenue back to where it was.
Last year. So you know, we're gonna make investments that makes sense for the long term and we'll pace from accordingly to make sure. We're just mindful of short term short term results from the insurance side, Yeah, We had a repricing in Texas, which we expect that you know that's going on that pricing will stay in place and.
Insurance income was very strong and you know I I don't expect that kind of have the same growth in insurance income as we had this past year just because of.
Of them from a pricing in Texas, but but insurance is a strong part of our business and I expect it to continue that way.
Okay, Great makes sense and very helpful. Thanks, very much Greg.
Right right no.
No problem.
This concludes the question and answer session I would like to turn the conference back over to Rob Berg for any closing remarks.
Yeah, no. Thank you operator, and thank you everyone for participating as we said, we're really excited about where.
Where we're positioned we really feel like we're moving forward with the next chapter which is the focus on growth as the economy opens up while still maintaining.
Strong credit quality in our portfolio is as we grow.
Maintaining a conservative stance on our reserve levels.
And the rest of the pandemic unfolds here. So we're really excited about the future of the company and we're excited about the investment opportunities we have already put in place and what we've got moving in terms of return on those investments and.
We feel the road ahead is very bright.
With strong growth ahead of us as we implement on the rest of our strategy. So thanks again for joining US. This evening and you all have a good a good week.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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