Q1 2022 OppFi Inc Earnings Call
Good morning, and welcome to <unk> first quarter 2022 earnings call. All participants are in a listen only mode. As a reminder, this conference call is being recorded after management's presentation. There will be a question and answer session. It is now my pleasure to introduce your host Sean.
Smell ours head of Investor Relations you may begin.
Thank you operator, good morning on today's call are Todd Schwartzman, Chief Executive Officer, and Executive Chairman and Pam Johnson, Chief Financial Officer, Our first quarter 2022 earnings press release and supplemental presentation can be found at investors don't upside.
<unk> Dot com.
During this call upside, we'll discuss certain forward looking information. These forward looking statements are based on assumptions and assessments made by <unk> management in light of their experience and assessment of historical trends current conditions expected future developments and other factors they believe to be a <unk>.
Appropriate any forward looking statements made during this call are made as of today and <unk> undertakes no duty to update or revise any such statements whether as a result of new information future events or otherwise important factors that could cause actual results developments and <unk>.
This decision to differ materially from forward looking statements are described in the company's filings with the Securities and Exchange Commission, including the sections entitled risk factors.
In today's remarks by management the company will discuss non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in the earnings press release issued earlier this morning.
This call is being webcast live and will be available for replay on our website.
I would now like to turn the call over to Todd.
Thanks, Sean and good morning, everyone.
Past two months since I returned to occupy as CEO have been very exciting.
We have refined our company mission and growth strategy.
Refocused our efforts on the installment loan business and continue to build our leadership team to take us to the next level as a publicly traded company.
Now I would like to cover three topics before I turn the call over to Pam.
We're going to offer some reflections on the first quarter and macro trends to discuss more detail about our long term growth strategy.
Three elaborate on our proactive regulatory initiatives.
While Pam will discuss our financial results in more detail.
Want to start by discussing a few key highlights from the first quarter the robust demand environment. We experienced in Q4 continued to accelerate through Q1, resulting in a 63% growth in origination volume year over year, a first quarter record for originations for us.
With a more normalized credit demand environment and the absence of federal stimulus dollars. In addition, our receivables ended the quarter at $338 million up 38% year over year and remaining flat since the beginning of the year.
Moreover, we rolled out an updated underwriting model, which tightened our scoring parameters and shifted our mix to higher quality customers. As a result, we believe the quality of our originations was very strong as measured by future expected net charge off rates.
The Q1 vintages are experiencing early delinquency rates for new loans that are 20% lower and for loans originated in the second half of 2021 as a result, we are cautiously optimistic about this improved trend.
We are also very pleased with our improved operational efficiency in the quarter, our auto approval rate reached 61% up from just 41% in the prior period. In addition, our cost per new funded loans decreased 17% year over year to $221 and decrease.
<unk>, 15% sequentially from fourth quarter 2021.
Turning to the income statement total revenue grew 20% to $101 million year over year ahead of our expectations driven by robust origination growth.
However, as we anticipated profitability was muted in the quarter due to elevated charge offs from lower credit quality originations during the second half of last year combined with the softer benefit from tax refund season.
As a result, net revenue declined to $51 million adjusted EBITDA decreased to $11 million. Adjusted net income was approximately $600000 with adjusted diluted earnings <unk> <unk> per.
Per share.
While we anticipated these results we pride ourselves by our strong track record of solid profitable growth. Therefore, we view. These first quarter results as a onetime event and we are already starting to see credit normalize as we anticipated.
In addition, the current macro environment, which includes 40 year high inflation and rising interest rates is fueling demand by our customers within our industry non prime lenders and banks are pulling back from our target market driving strong borrower demand to our platform we believe.
We are well positioned to capitalize on the strong demand environment.
Within our addressable market affording us the opportunity to be more selective in our underwriting and facilitate credits a stronger high quality borrowers.
Moving on to discuss the long term strategy with my return as CEO , we have refined our mission to be focused on facilitating safe simple and more affordable credit access to the $60 million everyday Americans, who currently lack traditional options while rebuilding their financial health.
All of our current and prospective growth initiatives are and will be designed to help facilitate affordable credit access to achieve our overall mission for financial inclusion for example, our market based offer feature is helping us penetrate our existing market, while also expanding our addressable market by more strongly.
<unk> on rate and term and loan amounts and thereby enabling us to reach customer segments that we have not historically served we are actively exploring product extensions to enter adjacent market segments, including a sub 36% installment loan product that would feature a different business.
Model with less balance sheet and credit risk. We would also consider acquisitions that would enable us to provide access to other customer types and adjacent lending categories and diversify our business mix.
We have continued to build and augment our leadership team in late March we announced the appointment of Pam Johnson as Chief Financial Officer, Pam joined <unk> last year, as Chief Accounting officer, leading and expanding our accounting department since prior to our business combination with FG New America.
Ham was CFO for more than a decade at multiple consumer finance companies served nine years and accounting at a large regional bank and began her career in public accounting, we're very fortunate to promote Pam and are appreciative of <unk> Shah our former CFO for his tremendous leader.
Ship during the past five years.
We also recently welcomed many changes as our chief operating officer.
He manages our people team customer operations functions and banking partnerships to attain greater productivity and optimize employee and customer experiences.
Danny joined Us from discover where he spent eight years in various leadership roles, which included managing product marketing and operations for its student loans business. We are confident that many will help us enhance employee engagement gain market share and achieve stronger profitable growth.
We also underscored our commitment to building a best in class Investor Relations program by welcoming Sean <unk> as head of Investor Relations.
Newly created position, we believe sean's expertise will be invaluable to us as we seek to grow our analyst coverage and investor base.
We look forward to engaging with current and prospective investors more frequently so that our growth strategy and competitive differentiation are clearly understood.
We are confident that is more than 10 years of capital markets experience, including equity research on both the sell side and buy side will enable him to successfully lead the strategy and execution of our Investor relations function.
Turning to the regulatory side of our business I want to provide a brief update of our proactive activity to defend our business in California.
In March we filed a complaint in Los Angeles Superior Court for a declaratory and injunctive relief against the Commissioner of the Department of financial Protection and innovation for the state of California.
We are seeking a declaration that the interest rate cap set forth in California law do not apply to loans that are originated by <unk> bank partner and service to optimize technology platform on April eight the Spi filed a counterclaim against the company the company intends to aggressively prosecute the claim set forth in the.
The complaint and vigorously defend itself against the counter claim is up I believe that the <unk> position is without merit as explained in our complaint.
There are $7 2 million Californians that lack access to traditional credit options and <unk> will continue to defend their ability to obtain credit by utilizing our platform.
While we will not comment further on this pending litigation I will share with you highlights of our recent survey that we undertook to better understand our customers in California, and the value that they place on our platform.
Of the 700, plus respondents more than 90% had a positive experience.
Most 50% were turned down by a bank or credit Union and more than 50% declined by another online lender without op Fi or one of our peers more than 80% would fall behind on bills, 30% would be at risk of losing their job are losing their housing and 12%.
Would file bankruptcy.
We think these statistics are compelling and speak for themselves.
I want to further underscore the primary conclusion from this survey 80% of the respondents choose to leave an optional comment and of these 93% were positive here's one such covenant.
And help me get through the struggle I was facing.
Without the help I honestly don't even know what would've happened I'm very blessed to know op loans exist because there's many people out there who probably don't know there is this helping hand 'end-quote. These survey results and comments illustrate why we continue to lead the industry with an <unk>.
85, net promoter score facilitating access to credit for these customers during their challenging financial times is exactly what motivates me and our entire company everyday to truly make a difference in people's lives.
In closing I want to reiterate that we are committed to executing on our corporate share repurchase program.
When we believe <unk> share price is disconnected from the long term value and potential of the company. In addition, my family and I are and have been strong believers in the long term potential of up 5% and are prepared to further invest and support the stock when we see such a disconnect in the market with.
That I will turn the call over to Pam to review, our first quarter in more detail.
Thanks, Todd and good morning, everyone, turning now to our first quarter results total revenue increased 20% to $101 million as Todd mentioned, we achieved a 63% year over year increase in originations are lowering our marketing cost per new funded loans by 17% or $45 to 202.
$1 compared to the prior year period.
These results reflect stronger strategic marketing partnerships and more efficient utilization of other non direct mail channels, such as search engine optimization email and customer referrals.
We have seen a year over year increase in key operational metrics such as qualified rate defined as qualified app software applications and funded rate defined as funded loans overqualified apps. In addition, our investments in automation resulted in our auto approval rate, increasing 49% year over year to 61%.
Our origination mix continues to shift towards the servicing our facilitation model for bank partners from a direct origination model.
Total net originations by our bank partners increased to 95% in the first quarter up more than 24 percentage points from the first quarter of 2021.
In addition, our net origination saw an increase in the percentage of originations of new loans compared to refinance loans as we continued to drive growth through increased marketing spend with cost efficient marketing partners driving more new loans.
Total net originations of new loans as a percentage of total loans increased to 53% up nearly 20 percentage points from the first quarter last year.
Our annualized net charge off ratio was 56% for the first quarter of 2022 versus 53% for the fourth quarter of 2021 and 30% for the prior year quarter the.
The increase reflects the normalization of credit towards pre pandemic levels and includes losses from new loan segments that are no longer being approved in 2022.
However to reiterate what Todd said earlier, the higher quality level of originations from the first quarter are already leading to early delinquency rates that are 20% less and for originations in the second half of last year.
We continue to expect improvement in our net charge off ratio beginning in the second quarter trending towards pre pandemic levels as the year progresses, driven by our updated underwriting model tighter parameters. In addition, as Todd mentioned, we are utilizing this opportunity to focus originations on higher credit quality borrowers within our addressable market.
Turning to expenses operating expenses for the first quarter, excluding interest expense as well as add backs in onetime items increased 34% to $43 million or <unk>, 43% of total revenue from $32 million or 38% of total revenue in the year ago period.
The year over year increase was due to higher direct marketing costs to drive new originations an increase in salaries and benefits related to additional head count increased insurance costs as a public company and further investment in technology infrastructure.
However, as discussed in our fourth quarter earnings call, we launched operational efficiency initiatives in the first quarter that we anticipate will yield $15 million in after tax annual cost savings.
All of these initiatives are well on track and performing to our expectations. While we anticipate realizing only a portion of the $15 million. This year, we are on pace to exit 2022 and positioned to benefit from the full run rate next year.
Adjusted EBITDA totaled $11 million for the quarter down $21 million versus the prior year quarter as higher revenues were more than offset by elevated charge offs and increased operating expenses as expected our adjusted EBITDA margin compressed to 11% compared to 38% in the year ago period.
Interest expenses, excluding debt amortization for the first quarter totaled $7 million or 7% of total revenue compared to $4 million or 5% of total revenue in the year ago period.
We generated adjusted net income of approximately $600000 for the first quarter compared to $19 million for the comparable period last year.
As of March 31, 2022 up by had $84 5 million adjusted shares outstanding excluding $25 5 million earn out shares adjusted basic and diluted earnings for the first quarter were <unk> <unk> per share.
Our balance sheet remains healthy with cash of $60 million total debt of $281 million gross receivables of $338 million in equity of $157 million.
Our net debt to equity ratio remains well below two times and coupled with approximately $455 million in total funding capacity, we have ample liquidity available to support our future growth plans.
Turning now to our outlook as Todd discussed based on our strong origination volume recorded in the first quarter, our macro outlook and anticipated improvement net charge offs in the second half of the year, we are reiterating our full year guidance as previously issued to.
To summarize we expect the following for 2022.
Total revenue in ending receivables growth of 20% to 25%.
Net revenue margin defined as gross revenues less change in fair value between 60% and 65%.
Adjusted operating expenses, excluding interest expense add backs and onetime items as a percentage of revenue between 43% and 47%.
Adjusted EBITDA margin between 20% to 25%.
And adjusted net income margin between 8% and 12% importantly, we have reaffirmed our outlook based on confidence in three key areas number one origination volumes remained strong.
Number two net charge offs stabilizing and improving with our tightened underwriting model and number three realizing benefits from operating expense efficiency initiatives already underway.
We believe our balance sheet is well positioned to weather market disruptions with multiyear committed lines and ample capacity further.
Further compared to some peers in the specialty lending industry. We think our profitability is less affected by higher interest rates, our credit agreements contemplate rising interest rates, resulting in minimal impact on our financial performance and spreads and underscoring the resiliency of our business model to weather varying economic cycles.
In mid April we were very excited to have reached a total return swap agreement that provides up to $75 million in additional funding capacity.
Through this structure loans originated by our partner banks as they normally do but then interest and the loans are purchased by a third party, which provides balance sheet relief to the banks.
<unk> continues to <expletive> loan servicing apply also provides credit protection through the total return swap to the lender that provides financing to the third party. Since we are familiar with the underlying assets. We believe this structure enables us to maintain the growth in our core product, while increasing capital efficiency.
With that we would now like to turn the call over to the operator for Q&A operator.
Thank you, ladies and gentlemen on the phone lines. If you wish to ask a question. Please press. The one followed by the four on your telephone you will hear a three ton pump technology request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three once again, ladies and gentlemen that is one four if you have.
Question.
First question is from the line of David Scharf with J M. P. Securities. Please go ahead. Your line is open.
Great. Good morning, everyone. Thanks for taking my questions.
Hey.
Just wondering.
If you can expand a little bit on.
Sure.
Broad comments about.
How you've refined your.
Target marketing and underwriting and I guess specifically.
Specifically as you talk about.
Sort of higher credit quality borrower can you can you be a little more specific I mean, obviously these are higher cost loans triple digit apr's, but is it primarily a reflection of the channels through which they come from are there any particular characteristics whether it's.
Debt to income levels, just trying to get a little better sense for how the businesses either either been repositioned or reset too.
Pre 2021 levels.
Okay.
Yes.
David Thank you for that question so.
Coming coming back in as the founder of some of the things that were core to up by in the early days, where our robust referral program. We didn't we didn't really have marketing in the early days when I founded the business and was basically all referrals.
And so I have a real.
Granular understanding of how to propel our referral program and we've made some operational changes that have significantly improved.
That channel, which is a low cost channel, but also we do receive higher quality borrowers from referrals.
One thing that.
It has really been revamped over the fourth is our is our search engine optimization.
Program.
These obviously theres some overhead attributed to it but as far as the actual acquisition cost is virtually zero and we're driving a lot of our new originations from that channel.
The action acquisition costs from last year has significantly improved.
Due to those efforts also direct mail rate so direct mail on the acquisition cost on that channel was coming in higher than we would like from an ROA perspective, if you look at the ROA.
We've been able to make significant strides we rebuilt the direct mail model.
Better targets customers in the market and Vegas, better response rates and conversion rates.
So those are some of the things we're doing on the marketing channel side I think and then if you look at.
The partner channels, the credit Karma is the lending trees, the <unk> of the world.
Our market based offers have been we're showing we're still we're still testing we're being cautious.
Cautiously optimistic we obviously if you remember from our last call we had some.
Issues in testing.
Second half of last year that kind of came back to bite us a little bit in the first quarter. So but the market based offers allows us to find new borrowers and then we segment our borrowers and.
And our credit model and our weighted average risk score, which is if you take.
As a holder as a vintage has come down significantly. So we know that we're finding higher quality customers.
And be able to still maintain.
Three more free cash flow and relatively the same ROA and so.
I feel really good about those operational improvements we've made over the first quarter and we're starting to see if we get the benefit of it and see extremely strong demand and like I said with a higher quality customer coming through and I think the second part of the question was how do we know that they are higher quality.
Well, we've been we've been around for 10 years and our data.
Is pretty robust.
By the sheer number of volume and number of customers that we service for the last 10 years.
Theres various attributes that go into the scoring that allows us to identify these customers but.
These customers are definitely higher quality based on ability to pay based on their bank.
<unk> bank transactions based on the attributes that we're looking at from from the various data sources that we pull so we feel really good about the fact that we've tightened the credit model over the first quarter, but still are exceeding our growth plan and and the acquisition cost is also matching.
So thats kind of what I call it the trifecta.
Got it.
Very helpful and obviously the.
Early stage delinquency.
Reductions or.
Certainly supporting it just wanted to follow up.
As we think about.
The product mix and the profile going out.
12 to 24 months you had referenced.
Adjacencies, including sub 36%.
Is that I'm, just curious is that a business where.
I guess number one.
There is.
Any overlap with your existing borrower base I mean, sometimes.
Repeat borrowers demonstrate the ability to continually.
Repay and get offered lower rates and I'm curious whether or not any of your installed base do you actually think might be.
Ultimately qualify for that and from a return standpoint based on your existing cost of capital obviously, that's a lot less APR starting with.
Would there have to be a different funding strategy contemplated to meaningfully.
Underwrites sub 36% loans yeah. So.
The way, we're going to play sub 36% to be clear is from a as a servicer right as an originator and servicer.
We don't plan to play it where we take the credit risk or the balance sheet risk. So one thing that <unk> has built as one of the strongest consumer facing brands.
In the in the online lending World, we have an 85 NPS our tech infrastructure allows for installment based products and so for us to play sub 36, all the marketing channel partners and a lot of the marketing that we're already doing is consistent with the core business.
So it's essentially taking everything that we've built over the last 10 years and using it to earn service and fee income and acquisition fee income.
From from customers and it also provides for a natural gratulation product for our current customers. Unfortunately, we have this product feature David where we screen our customers against a consortium of low cost lenders before they take out our product, it's our commitment to our customers to make sure hey, if we can find.
The lower cost of capital, let's do that and hope you're successful out of the 7% that match I think half of those ended up getting approved so unfortunately, the reality is it's a small percentage today, but it would be nice that if we were able to match, we could provide that product for the customer instead of kind of <unk>.
Providing it through a third party.
<unk> of lenders and then in addition, yes, it's a natural gratulation product for our customers. So when our customers are successful and do do pay us over time and their credit profile improves. It's a natural graduation for a customer which would be a lower rate little bit of a longer dated maturity and larger amounts.
Capital to help them consolidate bills and expenses.
Got it got it great. Thank you very much that's helpful.
Yep.
Thank you. Our next question is from the line of Mike Grondahl with Northland Securities. Please go ahead. Your line is open.
Hey, guys. Thanks could.
Could you talk a little bit about demand in kind of the pacing of demand kind of January through April .
Specifically the pacing like has it picked up towards towards the second half whispers with inflation and gas prices kind of rising a little bit later in the quarter just trying to understand did you did you see demand pick up at the same time.
And maybe kind of what you saw with delinquencies and credit quality as those things have picked up.
Yes, I mean, there was a muted muted tax refund season.
Pretty much the whole first quarter, we saw we saw drug method, but specifically March April there's been a there's been a noticeable pickup in I think.
With everything.
Prices rising, 8% to 9% year over year to interest rates rising housing costs.
They are all hitting not just our borrowers, but kind of all consumers and.
I think what's happened in March is we've anecdotally heard but also read that Theres bank. There's banks that may have been serving kind of the top tier of our customers for the last couple of years through Covid have now tightened their credit models and we're getting the benefit of those customers now once again.
Interacting without Fi and meeting our Arps us to facilitate credit access for them, but yes. There is definitely an increase in demand.
And higher quality borrowers that we're seeing.
Got it and then Pam.
That $75 million I'll call. It financing you talked about.
How will that show up or will that show up kind of in your financial statements. How should we think about you guys accessing that how will we see that.
Right now, we're still researching that with our technical accounting advisers Mike.
We are anticipating having that as an off balance sheet items. So you won't see that.
On our balance sheet. However, we will be the servicer youll see fees.
And acquisition costs, our actual acquisition fees related to that that product plus then youll see a derivative on the balance sheet for the total return swap.
Got it okay. Thank you.
Thank you, ladies and gentlemen on the phone line. Once again it is one four to ask a question.
One moment please.
We do have another question from the line of Chris <unk> with D. A Davidson. Please go ahead. Your line is open.
Hi, good morning, Thanks, I missed the one for Starwood.
I wanted to ask on the credit side, just to confirm that the issues.
In the first quarter.
And some of the improvement you've seen subsequently that was almost the same issues you called out last quarter with there.
Some of those marketing partners you had just to make sure that there wasn't an additional step down in <unk>.
I don't have the vintages that have been underperforming.
So I mean, we have not been originating.
Made subsequent enhancements to the model and early in the first quarter. We also made one at the end of Alaska.
That volume is no longer being originated are facilitated.
We are not.
We deemed it to not be.
A customer that can be successful in our system and then ultimately.
Our goal is to.
Give our customers the capital that they need to.
To stabilize their situation and then help them rebuild their financial house. So.
That takes people paying you back right and be successful in our system, whether they pay in full whether they decide that they want to refinance into higher amounts or they graduate.
We do need people to pay us back. So we have no interest kind of in the in a customer thats kind of a onetime user and that they are really just going to kind of be go to the delinquency buckets. So we've definitely enhanced our credit model significantly.
The end of last year in the first quarter.
Okay. So my understanding was it was like a partner issues for some of these newer fintech.
We're trying to be.
Adversely selecting up by.
Is it really like a credit box is there also like.
Certain.
Borrower tied either from a FICO other credit standards perspective, do you also have tightened up on as a result of the second half performance.
Yes, so specifically like if you removed from the last call was the Neo bank population.
What we had we have seen is there has been a large number of customers that apply with us roughly almost 10% that are using these neo bank programs like chime as an example.
We ran a significant test in the fourth quarter to try to find.
Find borrowers and that said that could.
Could be successful and payback in.
Unfortunately, we determined that they are they were a higher risk customer and we were not able to make them successful one of the real technical things. There is in these neo banks people get paid.
Two days or three days or at least sometimes thats one of the benefit of those and I think that is that is something that is.
It's difficult to time and figure out when funds will be available to kind of payback.
The installment loans so.
We no longer are originating that it stopped in the fourth quarter. In addition to that though we took the opportunity with increased demand to also just look holistically at our at our underwriting model and find.
There was some higher risk borrowers that we thought that with inflation coming and with the macroeconomic environment.
It would be would not be a good fit for us and has.
That was early in the first quarter like in January So first thing in January so I.
I feel really good with what's great now is like we've been able to make those those tightening that we've tightened the model, but we've also been able to lower acquisition costs and continue to.
ROE and exceed our expectations like so as I've said before that's like the trifecta.
Yes, no. This is essentially the first quarter originations came in above my estimate so it's nice to see.
All of those lines actually demand environment, improving I guess my question would be how much are we back to normal I think we're still.
Not quite back to where we would've been in 2019 from a consumer demand perspective.
I think we are there.
From what I have seen I'd say.
Significant demand.
But like I said once again, we look at things from an ROA perspective, and people have to pay you back. So like we're happy to see a normalization of demand and exceeding expectations, but I think we're also very cognizant had been around for a while we know that you still need to.
Collect and you still have to be have people be successful in our system to have that flow through to the to the P&L. So.
We're actively.
<unk> our model as we go.
As we find new volume and higher quality volume to make sure that we're not.
Going to make the same mistake kind of that we did in the second half of last year.
Got it okay great.
That's great to hear about demand to this should make things a lot easier when the bigger.
The top end of the funnel coming in.
On the yield came in lower I wanted to ask.
How does that how much of that is the personalized pricing versus the increased delinquencies are the yields potentially could stabilize or go back up a little bit as delinquency improves.
And then also how much what is the what is the higher interest rate environment mean for <unk>.
Yes.
Pam can take the interest rate question and I'll talk about the yield most of that the delinquency rate. The net the net yield is being taken from the delinquency.
We're still on the market based offer approach like being very.
Shortfall about it and keep holding it to a percentage that we feel really comfortable with.
Learning from kind of last year end.
It's more definitely driven by kind of the stuff that's what flowed through in the first quarter.
Okay great.
Go ahead Tim.
As far as the interest rate environment Chris.
Our credit agreements do incorporate rising interest rates.
So it results in a minimal impact on our financial performance in spreads.
And we've already baked that into our guidance and our projections. So we have a resilient business model.
The way we've structured these credit agreements.
I guess when youre lending at around 2050 basis points doesn't really matter that much.
So along those lines I was just the overall tightening of the market conditions, we've seen some other lenders.
Struggled to get financing.
Whereas a year ago is super easy.
Todd your comments about being willing to step up and support this company in and the vision here.
How do you sit from a funding perspective and have you seen any of that tightness show up in some of your recent discussions with your lenders.
Just so I make sure I understand the question.
When youre, saying funding.
Showing up I, just want make sure I understand the question just like warehouse lines and your other sources of funding besides that call.
Yes, I mean listen I mean, we've had long dated relationships with our financing partners.
And we have very strong ones.
That has not been something that we have.
<unk> had.
It had had issues.
I think so.
You haven't been around for 10 years and had the history. We've had in the level of success. There may be some financing partners that pullback here because they are worried about the inflationary environment, but I think.
There is going to be a flight to quality right and a bifurcation between lenders that are doing this profitably and have been around and continue to grow and ones that the newer entrants that might not be as stabilized.
Yes, that's what I figured.
Nice to hear I'm sure. Thanks.
Thanks, Congrats on the.
Improving this quarter. Thanks.
Thank you.
Thank you.
Next question is a follow up question from the line of David Scharf with JMP Securities. Please go ahead. Your line is open.
Yes, Thanks, just just really some kind of housekeeping items.
For Pam.
I guess first is there a charge off dollar number you can provide us with.
The quarter, we had the rate, but the actual dollar number.
If need shift perspective.
Around $50 million.
Okay.
Got it and.
Just to provide context for the for the comments about.
Returning to sort of pre pandemic loss rates.
Yes.
I guess, the normalization, you're sort of working in the opposite direction from what we've been.
Dealing with during the last few quarters with most lenders, where theyre seeing losses increased to pre pandemic levels.
But because of the.
Nuance surrounding those 2021 vintages youre going in the other direction.
I guess, Todd Im trying to just triangulate.
What kind of loss rate.
Youre anticipating exiting the year at.
And I would imagine.
There are short duration assets, that's sort of embedded in your fair value calculation as well.
Are we should we be looking at sort of.
2019 levels.
In the mid <unk> as an exit point or is that too aggressive.
I think maybe for this year the flow aggressive I mean, we're looking to get back down into the low forties.
For the second half.
And then eventually we're going to continue to.
Push on that and we'd like to get back down into the high <unk>.
For next year, but listen I mean, you have you have.
A demand environment, that's extremely strong because of the weakening of.
Kind of some of the consumer health segment. So we're also we're being.
Cautiously optimistic there but.
We're also realizing the macro environment is one where the reason the demand is so strong is also because of weakening of the backdrop right. The macroeconomic backdrop for our consumers that things are more expensive interest rates are going up housings.
And used car markets expensive so.
We're balancing that.
Got it got it and then lastly, just a technical question.
I'm looking once again at the fair value.
Slide.
That was provided it looks like it's slide number 13.
Obviously, a lot of inputs.
Go into the Mark to market.
Adopting fair value accounting.
Better understand how to put into context, the default rate.
Can you.
Maybe maybe.
I had a little bit of a.
Some nail education for me and how I equate that 18, 5% to either.
Existing.
Kind of loss rates, the future expectations I'm trying to.
Put that into context versus.
No.
Default rates that are.
Considerably higher on an annualized basis.
Sure we are able to refi customers now we do a full underwriting of that refi, but.
That when you take over the life of that customer. The default rate is is different than just a charge off rate.
So is that helpful.
Yes, no no.
Clearly the.
Loss rates on repeat borrowers are going to be lower.
This 18 and a half that's an annualized figure.
Hi.
That is a that is re rate again.
Without that.
That figure Ed.
<unk> view of an average individual loan that when you start to blend those over a number of different repeat borrower. That's when you start to see the deviation from what Youre, saying observed on the financial statements.
Okay got it helpful. Thank you very much.
Thank you.
And there are no further question at this moment I will turn it back over to Tom Schwartz.
Well, thanks, everyone for joining us today, hopefully you now have a better appreciation and understanding of our mission strategic growth strategy and confidence we look forward to speaking with you again during our second quarter earnings call in August .
Thank you, ladies and gentlemen that does conclude today's call. We thank you for your participation and ask that you. Please disconnect your line.
Okay.
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Yes.
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Yes.
Okay.