Q3 2023 Regional Management Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the regional management third quarter 2023 earnings Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad.
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I would now like to turn the conference over to Garrett Edson with ICR. Please go ahead.
Thank you and good afternoon by now everyone should have access to our earnings announcement and supplemental presentation, which were released prior to this call and 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 and 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 company's future financial performance and business prospects. These forward looking statements speak only as of today and 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.
The forward looking statements. These statements are not guarantees of future performance and therefore, you should not place undue reliance upon them. We refer all of you to our press release presentation and recent filings with the SEC for a more detailed discussion of our forward looking statements and the risks and uncertainties that could impact our future operating results and financial condition also our discussion today may include references to <unk>.
Certain non-GAAP measures reconciliation of these measures to the most comparable GAAP measure can be found within our earnings announcement, our 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 third quarter 2023 earnings call I'm joined today by Harper, Our Chief Financial Officer, Sharpen I will take you through our third quarter results discuss the current operating environment and loan portfolio performance and share our expectations for the fourth quarter.
We continued our focus on portfolio quality expense management and strong execution of our core business in the third quarter, we generated $8 8 million of net income of 91 on diluted EPS.
Loan demand and our conservative underwriting criteria led to a high quality portfolio growth of $62 million record revenue of $141 million and a sequential increase in revenue yields of 80 basis points, all of which exceeded our expectations for the quarter.
We also continue to closely manage our G&A expenses, while investing in our business driving a 50 basis points improvement in our operating expense ratio from the prior year.
Pleased with our team's ability to deliver consistent predictable and superior results for our shareholders quarter after quarter.
As you would expect we're keeping a close eye on the economic environment and its impact on our consumer base, we think that it indicates a strong labor market moderating inflation and real wage growth. However, we continue to observe stress in certain segments of our portfolio caused by inflationary pressures. We also remain mindful that resumption of stimulus.
Payments will impact many consumers budgets and we're monitoring whether recent geopolitical events may cause energy prices to increase further.
As a result, we remained selective in making loans within our tightened credit box, while we achieved strong high quality portfolio growth in the third quarter, we slowed our year over year voyage rate to 9% down from 22% from the third quarter of last year.
We're prepared to lean back into growth when the economic conditions are right for them.
He'll then we'll maintain a conservative credit posture.
Our third quarter originations again reflected our selective underwriting we originated 60% of our volume to our top three risks we continue to emphasize present, former borrower lending over new borrower lending and we further our auto secured portfolio to eight 3% of our total portfolio up from 6% a year ago, we're off.
So seeing the benefit of the machine learning driven credit and marketing models that we've implemented in recent quarters and we see additional opportunity for improvement as we develop our next generation models.
We ended the third quarter with a 30 plus day delinquency rate of seven 3% up 40 basis points from the second quarter, but consistent with normal seasonal trends are.
Our higher quality originations from credit tightening have kept their first payment default and early stage delinquency rates below 2019 levels.
Our July 1st payment default rate was 50 basis points better than July 2019 rate and our third quarter, 1% to 59 day delinquency rate was 110 basis points better than the third quarter of 2019.
Notably, we're seeing solid performance in fourth quarter, 2022, and 2023 vintages as of September 30, These vintages, representing nearly 70% of our portfolio a number that we expect to increase to nearly 80% by year end.
Macroeconomic conditions have continued to stress mid and late stage delinquencies and roll rates something that we've observed across our industry, particularly for loans originated prior to late 2022.
This is causing our delinquency levels and credit losses to be higher than we'd like.
We anticipate that this stressful linger into at least the early part of 2024, but we continue to expect the credit tightening actions strong collections execution and moderating inflation, we'll gradually bring delinquencies and credit losses back down to more normalized levels over time subject to the macroeconomic environment.
Looking ahead in the near to midterm, we will navigate this challenging economic environment in much the same way that we have over the past year will focus on strong execution of our core business, including by maintaining a tight credit box and originating loans only where we can achieve our return hurdles under an assumption of additional credit stress and higher funding costs.
As we've discussed in the past we have a large addressable market that provides us with ample opportunity to take advantage of high levels of consumer demand to drive strong portfolio growth, while still remaining selective and approving borrowers under our conservative underwriting criteria.
Where appropriate we will also continue to pursue opportunities to increase pricing and expand our margins. Our strategy that has been affected in recent quarters from improving our revenue.
At the same time, we'll keep a firm handle on expenses, while continuing to make key investments in technology digital initiatives and data and analytics, including artificial intelligence and these investments are critical to achieving our strategic objectives and will create additional sustainable growth.
Credit performance and greater operating efficiency and leverage over the long term in.
In summary, we're pleased with our results and we're proud of our team's execution, we're well positioned to operate effectively in the current economic cycle and with ample liquidity significant borrowing capacity on our large addressable market, we stand ready to lean back into growth when justified by the economic conditions.
I'll now turn the call over to heart Ryan the additional color on our financial results.
Thank you, Bob and Hello, everyone.
I'll take the correct third quarter with more detail.
Hum.
Okay.
We will provide our current quarter lots of highlights.
We generated net income of <unk>, <unk> and diluted earnings per share.
Our results were driven once again by high quality portfolio on revenue growth and careful management of expenses.
Actually all quite frankly funding costs and net credit loss caused by macro economic conditions.
Yeah.
Turning to page of Guangdong demand remained strong in the quarter, but our tighter underwriting commentary amp equivalent.
And Paul My ball, our origination and collection, okay, well that's true.
Total origination I almost <unk> from the prior year.
By channel direct mail or international laptop, Chris that our branch and digital originations were down 1% and 10%.
As we can.
Got it.
Congratulations.
Gary.
We appropriately balanced squad further on the credit quality of our core.
Okay.
He picked up well with our portfolio growth and product next quarter.
We closed the third quarter with net Mark for Super Bowl.
Hi, Brian.
62 million from June 30, and ahead of our guidance.
As of the end of the third quarter, our large loans comprised 73 total.
Portfolio and 85% about Oh, Yeah, Oh, yeah.
Yeah.
Okay.
Notably small loan portfolio by 39, 7%.
Sure.
It's higher margin loans.
Yeah.
The increase in funding costs and meet our return hurdle higher.
Credit losses, I mean somewhat riskier segments.
Looking ahead, we'll start there and then that receivable in the fourth quarter to grow by approximately 25 million I think.
Continue to monitor the economic environment our.
Our current underwriting standards.
Okay Mark.
Homegrown, particularly given the continued uncertainty.
Hey, Michael.
National Health.
Second.
We're prepared to further tighten our underwriting our lean back into growth, even though glitch what impact.
No.
As shown on page 11, a lighter branch strategy.
The branch consolidation actions.
Continue to go out of our Super Bowl co brands to all time high coming in at five nine warmed up the quarter.
Considerable growth opportunities along with some.
Branch footprint.
Or just like auto, particularly on even more branches.
Yeah.
Turning to Colgate total revenue will grow 7% to 121 million in the third quarter.
Our total revenue interest compete for 32, seven and 29.
Right.
In Europe and your decline in yield primarily attributable to a continued mix shift towards larger higher quality of earnings and the impact of the macroeconomic environment.
No from about 80 basis points sequentially in part from the impact of pricing increasing.
Oh alone cannot claim to credit performance.
In the fourth quarter, we expect sequential declines in Turkey, and total revenue of 20 basis points.
That quickly.
Knowing higher credit losses intra Arsenal.
Offset in part by the impact of price increases.
Continue to anticipate that aren't crazy pricing will drive further organic growth or yield in future quarters as well.
Boxing well through the portfolio overtime.
Moving to page nine our 30, plus day delinquency rate as of quarter, seven 3% and our net credit loss rate in the third quarter was 11%.
Underwriting help to ensure that the increase in our delinquency rate in line with seasonal patterns.
That credit lock with coal market second quarter high.
Yeah.
In the fourth quarter, we exactly delinquency rate to increase slightly compared to the third quarter based on normal seasonality.
In addition, we anticipate that our net credit losses will be approximately 52 million in the fourth quarter with the sequential increase also being due to normal seasonality.
Turning to page 10, our allowance for credit losses increased slightly and my great quarter, as we dealt with or partly receivables growth but decreased by.
By 10 basis points to 10, 6%.
At quarter end, the allowance of 185 million, which continues to compare favorably to our 30 plus day contractual delinquency of 120 million.
We expect to end the year with a reserve rate between 10.4, and 10, 6% subject to macroeconomic conditions.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Regional Management Third Quarter 2023 earnings conference call.
Over the long term under a normal economic environment, we continue to expect that our net credit loss rate could be in the range of eight 5% to 9% based on our current product mix and underwriting.
Operator: As a reminder, all participants are in listen only mode and 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. Should you need assistance during the conference call, you may signal an operator by pressing star then zero.
I believe overtime, but our reserve rate could drop to below 10 per cat with the improvement attributable to a shift to higher quality along as.
As we've always done however will manage the book once in a way that maximizes direct contribution margin and bottom line with all of them.
Garrett Edson: I would now like to turn the conference over to Garrett Edson with ICR. Please go ahead. Thank you.
Flipping to page 11, we continue to closely manage our spending while investing in our capabilities and strategic initiatives.
Garrett Edson: Good afternoon. By now, everyone should have access to our earnings announcement and supplemental presentation, which were released prior to this call and maybe found on our website at regionalmanagement.com.
G&A expenses for the third quarter were better than our prior guidance coming in at $52 1 million.
Our annualized operating expense ratio was 14, 4% in the third quarter.
Garrett Edson: 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 and the use of non-gap 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 company's future and financial performance and business prospects. If forward-looking statements speak only as of today and 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. If statements are not guarantees of future performance and therefore you should not place undue reliance upon them.
Basis points better than the prior year period, and our revenue growth outpaced expense growth by a factor of two point times.
We will continue to manage our spending close from Portland and.
In the fourth quarter, we expect G&A expenses to be approximately 60 40 $65 million kept quite Vascepa. Both girl, we continued targeted investments in our operations.
Turning to pages 12, and 13, our interest expense for the third quarter of $16 9 million of corporate bank of average net receivables on an annualized basis.
Garrett Edson: We refer all of you to our press release presentation and recent funds with the SEC for a more detailed discussion of our forward-looking statements and the risks and uncertainties that could impact our future operating results and financial condition.
Despite the sharp increase in benchmark rate early 2022.
Comparatively modest increase in interest expense as a percentage of.
Average net receivables.
Garrett Edson: Also, our discussion today may include references to certain non-gap measures. Reconciliation of these measures to the most comparable gap measure can be found within our earnings announcement or earnings presentation and posted on our website at regionalmanagement.com.
For fixed rate debt issued.
Our asset backed securitization program.
As of September 30th 87% of our debt is fixed rate with a weighted average coupon of three 6% and a weighted average for Balkan duration of one three years.
Rod Beck: I would now like to introduce Rod Beck, president and CEO of Regional Management Corp. Thanks Garrett and welcome to our third quarter, 2023 earnings call. I'm joined today by Harp Rana, our chief financial officer.
In the fourth quarter of 2023, we expect interest expense to be approximately 18 million or four 1% of average net receivables with the increase in expense primarily attributable to our expected portfolio.
Rod Beck: Harp Rana will take you through our third quarter results, discuss the current operating environment and loan portfolio performance, and share our expectations for the fourth quarter. We continue to focus on portfolio quality, expense management, and strong execution of our core business in the third quarter. We generated 8.8 million of net income and 91 cents of diluted EPS. Strong loan demand and our conservative underwriting criteria led to a high-quality portfolio growth of 62 million, record revenue of 141 million, and a sequential increase in revenue yields of 80 basis points, all of which exceeded our expectations for the quarter.
Uh-huh fixed rate until maturity and we continue to grow using variable rate debt.
Interest expense will continue to increase as a percentage of average net receivables.
We also continue to maintain a very strong balance sheet with low leverage puppy reserves and ample liquidity to fund our growth.
As of the end of the third quarter, we had 613 million of unused capacity on our credit facility and $179 million of available liquidity.
Unrestricted cash on hand, and immediate availability to draw down on our revolving credit facility our.
Rod Beck: We also continue to closely monitor P&A expenses while investing in our business, driving a 50 basis points improvement in our operating expense ratio from the prior year. We're pleased with our team's ability to deliver consistent, predictable, and superior results for our shareholders quarter after quarter. As you would expect, we're keeping a close high on the economic environment and its impact on our consumer base. Recent data indicates a strong labor market, moderating inflation, and real wage growth.
Forget have guys you'd put Balkan duration stretching out to 2026, and 2020 with maintain a quarter and unused borrowing capacity of between 400 million and 700 million demonstrating our ability to protect yourself against short term disruptions in the credit market.
Our third quarter funded debt to equity ratio remains conservative at 1.2 to one.
The ample capacity to fund our business even at back in the securitization market when they become mature.
Okay.
Rod Beck: However, we continue to observe stress in certain segments of our portfolio caused by inflationary pressures. We also remain mindful that the resumption of student loan repayments will impact many consumer budgets, and we're monitoring whether recent geopolitical events may cause energy prices to increase further. As a result, we remain selected and making loans within our tight and credit box. While we achieve strong high-quality portfolio growth in the third quarter, we slowed our year-of-a-year growth rate to 9%, down from 22% in the third quarter of last year.
We incurred an effective tax rate of 19% for the third quarter lower than guidance due to tax benefits from reestablish deferred tax asset.
And state net operating losses.
Yeah.
For the fourth quarter, we expect an effective tax rate of approximately 24% prior to discrete items, such as any tax impact of equity compensation.
We also continued to return capital to our shareholders. Our board of directors declared a dividend of 36 per common share for the fourth quarter. The dividend will be paid on December 13th 2023 to shareholders of record.
The close of business on November 22nd 2023.
For the third quarter, we saw quite strong balance sheet, and our near and long term prospects of the controlled sustainable growth that concludes my remarks, I'll now turn the call back over to Rob.
Thanks Art and as always I'd like to recognize our team for the outstanding results that it's delivered throughout this economic cycle looking.
Looking ahead, we'll remain focused on consistent execution of our core business, including originating high quality loans within our tightened credit box.
Mostly managing expenses and maintaining a strong balance sheet.
Our geographic expansion over the past few years have greatly increased our addressable market positioning us well to take advantage of consumer demand, while maintaining our conservative credit posture. We're pleased that our early delinquency and first payment default rates continue to outperform in 2019 levels. Thanks in large part to our credit tightening actions over the last several.
Quarters, and the strong performance of our more recent loan vintages.
We also remain sharply focused on limiting our G&A expenses, while still furthering our chief technology digital and data analytics initiatives that will create additional growth improved credit performance and greater operating leverage in the future and of course, we'll continue to monitor the economic environment. So that when the conditions are right.
It immediately leverage our substantial balance sheet strength liquidity and borrowing capacity to reopen our credit box and lean further into growth. Thank you again for your time and interest I will now open up the call for questions. Operator would 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'll hear a tone acknowledging your request if you're using a speakerphone. Please pick up your handset before pressing any keys.
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Our first question is from John Hecht with Jefferies. Please go ahead.
Afternoon, guys. Thanks for taking my questions.
First question.
$52 million.
Charge offs in the fourth quarter.
I'm wondering.
Roll rates, you're sitting behind that or are they relatively consistent with recent quarters or anything.
Excuse me in terms of the migration of roll rates.
Hey, John how are you. Thanks for the question Yeah, We're assuming you know consistent roll rates from prior quarter with.
Kind of the normal seasonal lift that we would see you know, albeit awesome you know elevated levels still.
Okay and then.
Thank you guys.
A couple of times in the presentation.
Little bit of focus on kind of recurring customers rather than new customers.
Part of it.
I think what.
That's a recurring customer, but any customer it's just to kind of get a sense.
That's fair.
Focus might do.
Rod Beck: We'll prepare it to lean back into growth when the economic conditions are right, but until then, we'll maintain a conservative credit possible.
Thanks.
Yeah.
You broke you broke up there John right in the Middle of your question can I ask you to repeat it because we I think we missed the gist of it.
Oh I apologize.
I'm wondering what kind of loss experiences.
We knew when recurring customers to get a sense of what that focus might do to have losses over the next few quarters.
Rod Beck: Thank you. Our third quarter originations again reflected our selective underwriting. We originated 60% of our buying to our top two risk rates. We continue to emphasize present farmer borrower lending over new borrower lending, and we further grew our auto secure portfolio to 8.3% of our total portfolio up from 6% a year ago. We're also seeing the benefit of the machine learning driven credit and marketing models that we've implemented in recent quarters, and we see additional opportunity for improvement as we develop our next generation models.
Yeah, and so look new borrowers and we'd never disclose you know the difference between a new bar over an existing borrower in terms of.
Higher losses, but new new borrowers do perform worse until till their seasons right.
Now obviously, we've been shifting the mix of our book to present borrowers and former borrowers from new borrowers you know.
Over over a period of time, but when you're in new geographies in the new States. We are we're still going to have a reasonably high percentage of new borrowers.
That will naturally take time to season through but I will tell you, though that our underwriting models.
No.
Adjust for the new borrower in fact and assume additional stress on those on those customers.
And we underwrite obviously with the assumption not only of that stress but.
The incremental cost of funds that we incur today as well as fully loaded expenses to make sure that we achieve our hurdle so its factored into our into our models, but any anything to add to that yeah. I would just say that you know our originations continue to be concentrated on programs for president and former.
Borrowers and we know that they perform better than the new bar, where it is just because of the on us data that we have on them.
And then the other thing that I would probably add to that and in terms of you know the new four as Rob touched on this but they fit within our risk box. So so when when we're making loans to new borrowers were making sure that they are meeting those internal hurdles that we have.
Yeah, and John over 70% of our customers are former present borrowers. This this quarter.
You know which you.
It has been pretty.
I guess since last last year, a little bit up from last year, but.
Pretty steady and again that's related to the two states.
So we're going to have some of that.
Yeah.
Yeah, Okay, Okay I'll forward to note yes.
Important to note that the vintages fourth quarter 'twenty two.
And more recently are all performing very well now they are just now getting to.
Now the earliest vintage fourth quarter 'twenty. Two is just now getting to 12 months on book, So we're starting to see what the.
Peak losses are in the other ones are still.
Working through.
But right now performance is good and that's reflective.
That mix of new borrowers and present in front of me so.
We feel good about where things are.
Given the current macro environment for those vintages.
Okay.
Very good context. Thank you and my last question is I think you guys mentioned and what we've heard is that the kind.
The loss experienced in similar type of income ranges I'm wondering are you seeing anything like any disburse dispersion of that.
Or I guess, if credit metrics on a geographical basis or is there anything else to discern or is it in your minds is that largely income driven.
Well.
You know it it's not just one factor I mean look we naturally when we tightened.
We reduced the lower FICO and and increase the percentage to higher income band I think that's just a natural effect.
You're tightening.
So it's kind of all built into the mix, but you know obviously employment to factor you know industry states perform differently.
Rod Beck: We ended the third quarter with a 30-plus-day delinquency rate of 7.3% up 40 basis points from the second quarter, but consistent with normal seasonal trends. Our higher quality originations from credit tightening have kept our first payment default at an early stage delinquency rates below 2019 levels. Our July 1st payment default rate of 50 base points becomes better than July 2019 rate, and our third quarter, 1 to 59-day delinquency rate was 110 base points better than the third quarter of 2019.
We have all these cuts in our underwriting models in fact, hundreds and hundreds of cells, where we look at what the returns are and whether that's small loan large loan check gauge it alone.
Rod Beck: Notably, we're seeing solid performance in fourth quarter 2022 and 2023 vintage. As of September 30, these vintage represent nearly 70% of our portfolio, a number that we expect to increase to nearly 80% by year-end. Macro-economic conditions, Boba, that continue to stress mid and late phase to delinquency and raw rates, something that we've observed across our industry, particularly for London, which is originated prior to late 2022. This is causing our delinquency levels and credit losses to be higher than we'd like.
Rod Beck: We anticipate that this stress will linger into at least the early part of 2024, but we continue to expect that credit tightening actions, strong collections of execution, and moderating inflation will gradually bring delinquency to credit losses back down to more normalized levels over time, subject to the macroeconomic environment.
Homeowner renter.
By State you know, we have all of those cuts and you know what.
Rod Beck: Looking ahead, in the near to midterm, we'll navigate this challenging economic environment in much the same way that we have over the past year. We'll focus on strong execution of our core business, including by maintaining a tight credit box and origin in loans only where we can achieve our return hurdles under an assumption of additional credit stress and higher funding costs. As we've discussed in the past, we have a large addressable market that provides us with ample opportunity to take advantage of high levels of consumer demand to drive strong portfolio growth, while still remaining selected in approving borrowers under our conservative under running criteria.
We've talked about tightening since the fourth quarter of 2022, where we really tightened up.
But we've been tightening throughout 2022, but you know inflation shot up to 9%.
Rod Beck: We're appropriate, we'll also continue to pursue opportunities to increase pricing and expand our margins, a strategy that has been effective in recent quarters in improving our revenue yield. At the same time, we'll keep a firm handle on expenses while continuing to make key investments in technology, digital initiatives, and data and analytics, including artificial intelligence. These investments are critical for achieving our strategic objectives and will create additional sustainable growth, improve credit performance, and greater operating efficiency and leverage over the long term.
But you know ever since fourth quarter 2022, and every quarter that goes by we're constantly turning the dials in reaction to what we see in all of those individual segments. You know in cuts that we have and so we feel good that we're making the right decisions and putting on the app.
It's that will hit a hurdle even under a stressed additional stressed environment and were putting on in the end the highest confidence assets each and every quarter.
Yeah.
Great. Thank you very much.
The next.
Oh I'm so sorry.
The next question is from Vincent came tick.
Your line is open.
Hi, Thanks for taking my questions good afternoon.
Thanks for the all the detailed guidance that you're giving into fourth quarter and laying it out in the slides is really very helpful.
First just wondering the trends that we're seeing in the fourth quarter.
If that's a good jumping off point, when we think about 'twenty 'twenty four or going forward I know, it's a it's a little bit a ways away but.
When you think about the revenues that the credit performance and your expense controls just wondering if that's a good jumping off point in the fourth quarter.
Yeah, I mean naturally you got to look at fourth quarter and project out from there and we're not giving specific guidance at this point in time for next year.
Naturally we are still in the middle of the middle of our budget process, but I think most importantly is those vintages that we said originated it for the fourth quarter 'twenty two in sooner.
Be about 80% of the book by the end of this year you know a couple of more months of seeing how those vintages perform is going to help give us better guidance for all of you as to what we might expect next year. What we do know is you know the 20% of the book that is pre fourth quarter 'twenty two.
And that those vintages and some have called it a back book those.
Those vintages are going to create stress in the early part of next year.
By their very nature, you know they've been matured you know.
Renewed where they could be renewed paid off and there's still a lot of good customers in there, but there's also customers and they are probably disproportionately that or under some form of a borrower assistance program.
Rod Beck: In summary, we're pleased with our results and we're proud of our team's execution, we're well positioned to operate effectively in the current economic cycle and with ample liquidity, significant borrowing capacity, and a larger addressable market, we stand ready to lean back into growth when justified by the economic conditions.
Which you know for US is important for them to stay active and engaged particularly leading up to tax season. So.
Harp Rana: I'll turn the call over to the heart, Riley, if you're still calling on our financial results. Thank you, Robb, and hello everyone. I'll now take you through our third quarter results in more detail.
If we sit here right now and say what is the credit profile look like for next year I don't think anybody can predict for precisely, particularly given some of the macro events, but what I think we can say is that there will be some stress from those earlier vintages that the more recent vintages are performing well and we haven't seen it.
Any thing there that is causing concern and I think the things that will make a difference for next year will be you know.
What's the tax refund season looked like I think that's all these are big help and and Ah lever very beginning of the year and we will ring fence those assets and make sure we put everything against collecting against them and then of course, you know if there's any other macro stress is that might be out there probably.
The one that you know we're all kind of looking at is is there any you know.
<unk> or contagion from the middle East.
That ends up hitting oil prices, so that would be the one thing we would be looking at as we get close here to the end of the year and in figuring out what next year looks like.
Okay.
Okay, Great and then I guess the other maybe there's other lines like <unk>.
Expenses, you've been pretty are able to hold those expenses controls pretty well.
Spence ratio just wondering if there's more kind of room to hold it can cause the expenses up.
Harp Rana: On page three of the supplemental presentation, we provide our third quarter's national highlights. We generate a net income of 8.8 million and deluded earnings per share of 91 cents. Our results are driven once again by high-quality portfolio and revenue growth and careful management of expenses, especially offset by increased funding costs and net credit loss headwinds caused by macroeconomic conditions. During the pages four and five, demand remains strong in the quarter, but our tighter underwriting standards emphasis on present and former borrower originations and collection focus led us to increase total originations by only two percent in the prior year.
Can you hold it relatively fixed for a while.
What are what I would tell you is that we are laser like focused that every dollar we spend it.
It helps drive the business forward and you know we've been.
Harp Rana: Our channel directs no originations around 12 percent while branch and digital originations were down 1 percent and 10 percent respectively. As we've consistently noted, we've deliberately reduced originations in recent quarters as we appropriately balance growth with further enhancing the credit quality of our portfolio.
Strongly profitable.
In this environment and yet still investing in the business and we will adjust the.
The spending pattern as we need to.
Harp Rana: Page six displays are portfolio growth and product next to the quarter. We closed the third quarter with net finance receivables of just over 1.75 billion, up 62 million from June 30 and ahead of our guidance. As at the end of the third quarter, our large loan book comprise 73 percent of our total portfolio and 85 percent of our portfolio carries an APR at or below 36 percent. Notably, we grew our small loan portfolio by 30 million or 7 percent in the third quarter.
To continue to grow the business where growth is needed.
Or to continue to drive operating leverage that we need to do over time as well so.
Harp Rana: These higher margin loans will support future revenue yield, offsetting increasing funding costs, and need our return hurdle despite higher accepted net credit losses on these somewhat riskier segments. Looking ahead, we expect our ending net receivables in the fourth quarter to grow by approximate a 35 million, as we continue to monitor the economic environment and maintain our current underwriting standards. We remain focused on smart, controlled growth, particularly given the continued uncertainty around consumer financial health. As circumstances dictate, we'll prepare to further tighten our underwriting or lean back into growth, either of which, the impact ending net receivables.
Can't really give you any more guidance on that right now.
Okay.
Harp Rana: As shown on page 7, our lighter branch puts strategy in new states and branch consolidation actions in legacy states, continue to drive our receivables per branch to all time highs, coming in at 5 million at the end of the quarter. We believe considerable growth opportunities remain within our existing branch book print under this more efficient model, particularly in newer branches in newer states.
And the last one from me so the product mix has shifted you've talked about high quality loans doing more auto secured.
Harp Rana: Turning to payday, total revenue grows 7% to 141 million in the third quarter. Our total revenue yield and interest in fee yield were 32.7% and 29% respectively. The year of a year decline in the yield is primarily attributable to a continued mixed shift toward larger, higher quality loans in the impact of the macroeconomic environment. So we're pleased to see yields may drop 80 days this point sequentially, and part from the impact of pricing increases on newer loans and improve the credit performance.
And it's just wonder if that's a trend that that.
We should expect to continue and if theres any way or are there may be certain products you want to lead into a more thank you.
Harp Rana: In the fourth quarter, we expect sequential declines in interest in fee yield and total revenue yield of 20 basis points and 50 basis points respectively through the seasonally higher net credit losses and interest reversal offset in part by the impact of pricing increases. We continue to anticipate that our increased pricing will drive further benefits for yields of the future quarter as these actions roll through the portfolio over time.
Well look I think the auto security is definitely one that will continue to lean into and grow and you know I kind of view that and we've said this before it kind of a one end of the barbell.
We have our large loan products.
The bulk of our business now.
That are performing well and you know and then we have the small loan business and the small loan business.
<unk> is very attractive on a return basis and you would've seen that we actually grew that this quarter sequentially same as we did last year sequentially at this time.
And part of that is you know we it was part of our tightening where we said you know what we have the opportunity instead of making a larger loan to some group of customers. We can give them a smaller loan but charge them a little bit more because we perceive the risk to be higher so we risk based price did and put on some more small loans.
Harp Rana: Moving to page 9 are 30 plus state delinquency rates as a quarter and with 7.3% and our net credit loss rate in the third quarter was 11%. Our tightened underwriting helped to ensure that the increase in our delinquency rates stayed in the line with seasonal patterns, while net credit losses came off of their second quarter highs as expected. In the fourth quarter, the expected delinquency rate to increase slightly compared to the third quarter based on normal seasonality.
And effectively we think created a pretty good return on that.
Harp Rana: In addition, we anticipate that our net credit losses will be approximately 52 million in the fourth quarter, with the sequential increase also being due to normal seasonality. Starting to page 10 are allowance for credit losses increased slightly in the third quarter, as we built reserves to support receivables growth that decreased or was zero rate by 10 basis points to 10.6%. As a quarter end, the allowance was 185 million, which continues to compare favorably to our 30 plus state contractual delinquency of 128 million.
Harp Rana: We expect to end a year with a reserve rate between 10.4 and 10.6%, subject to macroeconomic conditions. Over the long term, under a normal economic environment, we continue to expect that our net credit loss rate will be in the range of 8.5 to 9%, based on our current product mix and underwriting, and we believe over time that our reserve rate could drop to as low as 10%, with the improvement attributable to our shift to higher quality loans. As we've always done, however, we'll manage the business in a way that maximizes direct contribution margin and bottom line results.
<unk> growth that we did in the small loan book so.
There's always that opportunity for us to lean.
Harp Rana: Within the page 11, we continue to closely manage our spending while investing in our capabilities and strategic initiatives. G&A expenses for the third quarter were better than our prior value, coming in at 62.1 million. Our annualized operating expense ratio was 14.4% in the third quarter, 50 basis points better than the prior year period, and our revenue growth outpaced our expense growth by a factor of 2.4 times. We'll continue to manage our spending closely moving forward. In the fourth quarter, we expect G&A expenses to be approximately 64 to 65 million. To support receivables growth and continued targeted investments in our operations.
Lean in where it's attractive on small loans, we haven't limited ourselves to you know a rate cap at 36%, so having the ability, particularly in a rising rate environment or hopefully a flat rate environment, and we will see how that turns out having that ability to lean back in.
Harp Rana: During the page 12 and 13, our interest expense for the third quarter of the 16.9 million, was 4% of the average net receivables on an annualized basis. Despite the sharp increase in benchmark rates since early 2022, we've experienced a comparatively modest increase in interest expense as a percentage of the average net receivables. Thanks to our sixth rate debt issued through our asset-baped securitization program. As of September 30, 87% of our debt is fixed rate, with a weighted average coupon of 3.6%, and a weighted average revolving duration of 1.3 years.
Harp Rana: In the fourth quarter of 2023, we expect interest expense to be approximately 18 million, of 4.1% of average net receivables, with the increase in expense primarily attributable to our expected portfolio growth. As of 6th rate funding the choice and the continued growth using variable rate debt, our interest expense will continue to increase the percentage of average net receivables.
Harp Rana: We also continue to maintain a very strong balance sheet with low leverage healthy reserves and ample liquidity to fund our growth. As of the end of the third quarter, we had 613 million of unused capacity on our credit facility and a hundred and 79 million of available liquidity, consisting of unrestricted cash on hand and immediate availability to draw down on our revolving credit facility. Our debt has gathered revolving duration stretching up to 2026 and since 2020, we've maintained an older total and unused borrowing capacity of between roughly 400 million and 700 million, demonstrating our ability to protect ourselves against short-term distractions in the credit market.
Harp Rana: Our third quarter funded debt to equity ratio remains a conservative 4.2 to 1. We have ample capacity to fund our business, even if access to the security market would have become restricted. We incurred an effective tax rate of 19% with a third quarter. Lower than guidance due to tax benefits from where we established the third tax assets, a certain state net operating losses. For the fourth quarter, we expect an effective tax rate of approximately 24% prior to discrete items, such as any tax impacts that equity compensation.
To those segments.
When it's appropriate.
It's something that I think helps us stand out versus competitors.
Great very helpful. Thank you.
Great I appreciate it.
Once again, if you have a question. Please press Star then one.
The next question is from Bill does lumen with Titan capital. Please go ahead.
Harp Rana: We also continued return capital to our shareholders, a board of directors declared a dividend of 30 cents for the fourth quarter. The dividend will be paid on December 13, 2023 to shareholder this record as of the close of business on November 22, 2023. But please, with a third quarter results for a strong balance sheet and our near and long-term prospects for controlled sustainable growth. That concludes my remarks.
Thank you I I'd actually like to kind.
Rod Beck: I'll now turn the call back over to Rob. Thanks, Harp. And as always, I'd like to recognize our team for the outstanding results that it's delivered throughout this economic cycle. Looking ahead, we'll remain focused on consistent execution of our core business, including originating high-quality loans within our tight and credit box, closely managing expenses, and maintaining a strong balance sheet. A geographic expansion over the past few years have greatly increased our addressable market, positioning us well to take advantage of consumer demand while maintaining our conservative credit posture.
Kind of circle back to the.
Comments that you just made here you had some pretty significant small loan origination growth this quarter.
Rod Beck: We're pleased that our early delinquency and first payment default rate continue to outperform in 2019 levels. Thanks in large part to our credit tightening actions over the last several quarters, and the strong performance of our more recent loaned images. We also remain sharply focused on limiting our DNA expenses, while still furthering our key technology, digital, and data analytics initiatives that will create additional growth, improve credit performance, and greater operating leverage in the future.
Rod Beck: And of course, we'll continue to monitor the economic environment so that when the conditions are right, we need to immediately leverage our substantial balance sheet strength, liquidity, and borrowing capacity to reopen our credit box and lean further into growth. Thank you again for your time and interest.
What is that actually signaling to us or or what were you doing there I think you started to allude to that in your last answer.
Operator: I'll now open up the call for questions. Operator, would you please open the line? Certainly. We will now begin the question and answer session. To join the question queue, you may press star than one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two.
Yeah.
Thank bill as we look to put.
Put on.
High confidence growth.
Hi confidence growth doesn't just mean you put on you know.
John Hecht: Our first question is from John Hecht with Jeffries. Please go ahead. Afternoon, guys. Thanks for taking my questions. First question is, I think you guys said 52 million of losses in Charleston, the fourth quarter. Chris, what are the role rates you're shooting behind that? Are they relatively consistent with recent quarters or anything that you're assuming in terms of the migration of role rates? Hey, John, how are you? Thanks for the question.
Larger loans with the highest risk ranks.
You've got to look at it from a bottom line return.
John Hecht: Yeah, we're assuming consistent role rates from prior quarter, with kind of the normal seasonal lift that we would see, albeit often elevated levels still. Okay. And then I think you guys refer to a couple times in the presentation, a little bit of focus on kind of recurring customers rather than new customers, you know, part of the type. Yeah, you broke up there, John, right in the middle of your question. I can ask you to repeat it because we I think we missed the gist of it.
On our risk base basis, as well and so when we were looking at I'll. Just give you example, when youre looking at whether it's.
Digital or check.
Check or even a.
John Hecht: Oh, I apologize. I'm wondering what the kind of loss experiences with between you and recurring customers to get a sense of what that focus might do to losses over the next few quarters. Yeah, and so look, new borrowers and we've never disclosed, you know, the difference between the new borrower and adjusting borrower in terms of, you know, higher losses, but new new borrowers do perform worse until until their seasons, right. Now, obviously, we've been shifting the mix of our book to present borrowers and former borrowers from new borrowers, you know, over over a period of time.
Branch loan renewal on the branch as we look at that and we've been.
Staying focused on where we might reprice.
And we have this 500 line on small loans, and said, giving somebody $2000 or $2500 below.
John Hecht: But when you're in new geographies and the new states we are, we're still going to have a recently, you know, high percentage of new borrowers and, you know, that will naturally take time to, you know, season through. But I will tell you though that our underwriting models, you know, adjust for the new borrower effect and assume additional stress on those, on those customers. And we underwrite, obviously, with the assumption not only of that stress, but, you know, the, you know, incremental cost of funds that we incur today as well as fully loaded expenses to make sure that we we achieve our hurdles.
You know a 36% rate.
We're looking at the credit quality and say on the margin you know what let's give the person a 1500 dollar alone and may be charge them, a 43% rate because we believe that you know there are good credit on a relative basis and now we've got the pricing to make sure that we've got plenty of room in buffer.
John Hecht: So it's factored into into our models, but aren't there anything to add to that? Yeah, I would just say that, you know, our originations continues to be concentrated on programs for present and former borrowers. And we know that they perform better than than new borrowers, just because of the on us data that we have on them. And then the other thing that I would probably add to that in terms of, you know, the new borrowers Rob touched on this, but they fit within our risk box.
Built into the you know the stresses on the model to be able to achieve our return hurdles. So.
When we say highest confidence assets, we're looking at the highest confidence asset on a marginal basis bottom line return, it's not just necessarily putting on the highest FICO customer.
John Hecht: So when, when we're making loans to new borrowers, we're making sure that they are needing those internal hurdles that we have. Yeah, and over 70% of our customers are former and present borrowers. You know, it's been pretty steady, I guess, since last year, a little bit out from last year but pretty steady. And again, that's related to these states, we're going to have some of that e-barn effect. Yeah, I think it's also important to note that the vintage is 4th quarter 22 and more recent are all performing very well.
And then Rob taking that one step further is it said another way that's the highest our OE customer or are you seeing saying something slightly different than that.
I'm not I'm not going to say, it's the necessarily the highest Roe or ROA customer.
I think what I because it varies.
I am saying is when you look at the best assets you can put on there is a.
A portion of the portfolio those small loan customers that.
Have equal and maybe better returns then.
And then other parts of the portfolio that you're putting on and.
John Hecht: Now they're just now getting to, you know, the earliest vintage 4th quarter 22 is just now getting to 12 months on books, so we're starting to see what, you know, the peak losses are and the other ones are still working through. But right now performance is good, and that's reflective of, you know, that mix of new bars and present and formal bars. So that's, we feel good about where things are given the current macro environment for those vintage.
Its attractive business.
Alright, and then taking that a step further I believe that that you have given guidance for a 50 basis point sequential decline in your revenue yield in Q4 versus Q3 would you relate that our expectation to.
To what you had just highlighted for us.
Rod Beck: All right, that's a very good context. Thank you. And my last question is, I think you guys mentioned, and what we've heard is, you know, the kind of loss experience of some of the income ranges. I'm wondering, are you seeing anything like any just burst dispersion back to our, I guess, a credit metrics on a geographical basis or anything else to discern or is it in your mind that largely income driven.
Yeah.
<unk> seen them contrast, that's why I pose the question, yes in the the decline in revenue yield that you see in the fourth quarter is really because of the seasonal increase in npls.
<unk> and delinquencies, which will lead to.
Higher reversals so.
That's going to be what's driving that impact on a sequential basis.
But I think if you were to back out.
Rod Beck: Well, you know, it's, it's not just one factor. I mean, you know, look, we naturally, when we tightened, we reduced the lower FICO and, you know, increased the percentage to higher income bands. I think that's just a natural effect of when you're tightening. You know, so it's kind of all built into the mix, but, you know, obviously, employment's a factor, you know, industry, states perform differently. We have all these cuts in our underwriting models.
That guidance from the fourth quarter guidance.
There's still the resulting revenue yields would be higher than what they were in.
In second quarter.
The re pricing power is in there.
Obviously, it takes time to build as the portfolio turns over in and we're not done re pricing. We are always looking for opportunities to reprice, but it gets it gets masked quarter.
Quarter to quarter, sometimes by you know the seasonality of the NCS.
Rod Beck: In fact, hundreds and hundreds of cells where we look at what the returns are, and whether that's small loan, large loan, check, digital loan, homeowner, renter, you know, state by state. You know, we have all those cuts and, you know, we've talked about tightening since the fourth quarter of 2022, where we really tightened. But we've been tightening, you know, throughout 2022, but, you know, inflation shot up to 9%. But, you know, ever since fourth quarter 2022 and every quarter that goes by, we're constantly turning the dials in reaction to what we see in all those individual segments.
That's very helpful. Thank you and then.
I certainly see the the many uncertainties out and they are in the broad environment, but that having been said are you seeing anything that leads you to think about being more aggressive with originations.
I'm surprised I got that question.
In this environment.
Look we're constantly asking ourselves as I think you would expect us to do is are we seeing things that.
Indicate we should lean into growth.
Or are we seeing things that would say hey, lets pull back right. It's a weekly discussion if you will and we're able to turn those dials on the underwriting side, you know weekly to the greatest extent possible and so you know I think that.
Rod Beck: You know, and cuts that we have. And so, you know, we feel good that we're making the right decisions and putting on the assets that will hit hurdle, even under additional stressed environment. And we're putting on, you know, in the end, the highest confidence assets each and every quarter. Great. Thank you very much. The next. Oh, I'm so sorry.
Inflation coming down.
Is is is key.
I think we want to see is as I mentioned earlier, how our recent vintages continue to mature here over the next three months or so because look that's the best indication is where you tightened are you seeing the performance.
Vincent Caintic: The next question is from Vincent Caintick. One moment. Your line is open. Hi, thanks for taking my questions yet afternoon. Thanks for all the detailed guidance that you're giving in the fourth quarter and laying it out in the slides, really very helpful. And first, just wondering the trends that we're seeing in the fourth quarter, just if that's a good jumping off point when we think about 24 or going forward. It's a little bit of a ways away, but when you think about the revenues, the credit performance and your expense controls, just wondering if that's a good jumping off point in the fourth quarter.
That you expected.
And then I think it really comes down to.
Just seeing if there's any other macro headwinds that are out there I mean, we like the fact that there's lots of jobs out there unemployment is low the economy seems to be.
Robust and maybe heading for a soft landing even.
With some pullback in consumer spending.
But you know we're mindful of the fact that.
There are other other effects that could could hit us.
Particularly if oil prices spike for some reason and so.
We're just taking that all into consideration I think it's partly why we're we're guiding to kind of a more modest growth in the fourth quarter versus third quarter.
Vincent Caintic: Thank you. Yeah, I mean, naturally, you've got to look at fourth quarter and project out from there. And we're not giving, you know, specific guidance at this point in time for next year. You know, naturally, we're still in the middle of our budget process. But I think most importantly is those ventures that we said originated at, you know, fourth quarter 22 and sooner is going to be about eight cent of the book by the end of this year.
Because we were.
We're making these judgments.
Real time.
Great. Thank you for the time.
No that's great I appreciate it.
This concludes the question and answer session I would like to turn the conference back over to Mr. Burke for any closing remarks.
Thanks, operator, and thanks, everyone for joining the call look as we close out this year and approach 2024, and as I said, we're going to continue to monitor the changing macro conditions and the overall health of the consumer and let me just say again and I know we had it in our prepared remarks, but where.
Vincent Caintic: You know, a couple more months of seeing how those ventures perform is going to help give us better guidance for all of you as to what we might expect next year. What we do know is, you know, the 20% of the book that is pre-fourth quarter 22, that those ventures and, you know, some have called it a back book, you know, those ventures are going to, you know, create stress in the early part of next year.
We're focused on the fundamentals strong underwriting.
We're adjusting our underwriting as needed.
We're focused on disciplined growth.
And growth as appropriate.
Vincent Caintic: By the very nature, you know, they've been matured, you know, renewed where they could be renewed paid off, and there's still a lot of good customers in there. But there's also a couple customers in there probably disproportionately that are under some form of borrow assistance program, which, you know, for us is important for them to stay active and engaged, particularly leading up to tax season. So if we sit here right now and say what does the credit profile look like for next year, I don't think anybody can predict precisely, particularly given some of the macro events.
As we put on our highest confidence assets.
We're always focused on tight expense management and investing in those initiatives that drive growth and improve our operating leverage and of course, maintaining a strong balance sheet and liquidity and.
Those are the match rate, which we manage the business and we'll continue to do so and you know I think like everybody. We're we're hoping for.
Brighter 2024, and we're prepared to.
We're positioned well for 2024.
Regardless of the environment, but we're hoping for a very strong environment.
Vincent Caintic: But what I think we can say is that there will be some stress from those earlier ventures that the more recent ventures are performing well, and we haven't seen anything there that is causing concern. And I think the things that will make a difference for next year will be, you know, what's the tax refund season look like? I think that's always a big help and a lever very beginning of the year, and we will ring fence those assets and make sure we put everything against collecting against them.
Okay.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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Vincent Caintic: And then of course, you know, if there's any other macro stresses that might be out there, you know, probably the one that, you know, we're all kind of looking at is, is there any, you know, results or contagion from the Middle East that ends up hitting oil prices. So that would be the one thing, you know, we would be looking at as we get close here to the end of the year and figuring out what next year looks like.
Yeah.
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Vincent Caintic: Okay, great. And then I just the other maybe those other lines like expenses, you've been pretty able to hold those expenses, controls pretty well about the expense ratio. Just wondering if there's more kind of room to hold it, can his expenses up? Can you hold it relatively fixed for a while? What I would tell you is that we are laser-like focused that every dollar we spend helps drive the business forward and we've been strongly profitable in this environment and yet still investing in the business and we will adjust the spending pattern as we need to, to continue to grow the business where growth is needed or to continue to drive operating leverage that we need to do over time as well.
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Vincent Caintic: So, I can't really give you any more guidance than that right now. Okay, perfect. And last one from me, so the product mix has shifted. You've talked about high quality loans doing more auto-secured and it's just that's a trend that we should expect to continue it if there's any way, are there maybe certain products you want to lean into more? Thank you. Well, look, I think auto-secured is definitely one that will continue to lean into and grow and I kind of view that and we've said this before, you know, kind of a one-end of the barbell, we have our large loan products, you know, that are, you know, the bulk of our business now and that are performing well and, you know, and then we have the small loan business and the small loan business is very attractive on a return basis and you would have seen that we actually grew that this quarter sequentially, same as we did last year sequentially at this time.
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Vincent Caintic: And part of that is, you know, we, it was part of our tightening where we said, you know what, we have the opportunity instead of making a larger loan to some group of customers, we can give them a smaller loan but charge them a little bit more because we perceive the risk to be higher. So we risk-based priced it and put on some more small loans and, you know, effectively, you know, we think created a pretty good return on that, you know, growth that we did in the small loan book.
Yeah.
Vincent Caintic: So there's always that opportunity for us to lean in where it's attractive on small loans. We haven't limited ourselves to, you know, a rate cap at 36 percent. So having the ability, particularly in a, you know, rising rate environment or hopefully a flat rate environment, we'll see how that that turns out. Having that ability to lean back into those segments when it's appropriate is something that, you know, I think, you know, helps us stand out versus competitors. Great, very helpful. Thank you. Right, appreciate it. Once again, if you have a question, please press star then one.
Bill Dozelman: The next question is from Bill Dozelman with Titan Capital. Please feel like to circle back to the comments that you just made here. You have some pretty significant small loan origination growth this quarter. What is that actually signaling to us or what were you doing there? I think you started to allude to that in your last day. Yeah, I, you know, I think Bill is we look to put on high confidence growth.
Bill Dozelman: High confidence growth doesn't just mean you put on, you know, you know, larger loans with the highest risk ranks. You've got to look at it from a bottom line return on a risk base basis as well. And so when we were looking at, I'll just give you an example, when you're looking at whether it's a digital or a check or even a branch loan, renewal on a branch, as we look at that and we've been, you know, staying focused on where we might reprise, you know, and we have this 1500 line on small loans and say giving somebody $2,000 or $2,500 below, you know, a 36% rate, we're looking at the credit quality and say on the margin, you know what?
Bill Dozelman: Let's give the person a $1500 loan and maybe charge him a 43% rate because, you know, we believe that, you know, they're a good credit on a relative basis and now we've got the pricing to make sure that we've got plenty of room and buffer built into the, you know, our return hurdles. So when we say highest confidence assets, we're looking at the highest confident asset on a marginal basis bottom line return.
Bill Dozelman: It's not just necessarily putting on the highest vital customer. And Rob, taking that one step further, is it said another way that's the highest ROE customer or are you seeing saying something slightly different than that? I'm not going to say it's the necessarily the highest ROE or ROE customer. I think what I, because it varies, what I'm saying is when you look at the best assets you can put on, there is a portion of the portfolio, the small loan customers, that have equal and maybe better returns than other parts of the portfolio that you're putting on.
Bill Dozelman: And it's attractive business. All right. And taking that step further, I believe that you have given guidance for a 50 basis point sequential decline in your revenue yield in Q4 versus Q3. Would you relate to that expectation to what you had just highlighted for us? Yeah, the team in contrast, that's why I posed the question. Yeah. And the decline in revenue yield that you see in the fourth quarter is really because of the seasonal increase in NCLs and the lengthensies which will lead to higher reversals.
Bill Dozelman: So that's going to be what's driving that impact on a sequential basis. But I think if you were to back out, back guidance from the fourth quarter guidance, the still the resulting revenue yields would be higher than what they were in, and Second Quarter. So the repricing power is in there. It obviously takes time to build as the portfolio turns over, and we're not done repricing. We are always looking for opportunities to repriced, but it gets masked quarter to quarter sometimes by the seasonality of the NCLs.
Bill Dozelman: That's very helpful. Thank you. And then I certainly see the many uncertainties out in the broad environment, but that having been said, are you seeing anything that leads you to think about being more aggressive with originations? I'm surprised I got that question in this environment. Look, we're constantly asking ourselves, as I think you would expect this to do, is are we seeing things that indicate we should lean into growth, or are we seeing things that would say, hey, let's pull back.
Bill Dozelman: It's a weekly discussion, if you will, and we're able to turn those dials on the underwriting side weekly to the greatest extent possible. I think that inflation coming down is key. I think we want to see, as I mentioned earlier, how our recent vinegar just continued to mature here over the next three months or so, because, look, that's the best indication is where you tightened, are you seeing the performance that you expected.
Bill Dozelman: And then I think it really comes down to, you know, just seeing if there's any other macro headwinds that are out there. I mean, we like the fact there's lots of jobs out there. Unemployment is low. The economy seems to be robust and maybe heading for a soft landing even, you know, with some pullback and consumer spending. But, you know, we're mindful of the fact that, you know, there are other effects that could hit us, particularly if oil prices spike for some reason.
Bill Dozelman: And so we're just taking that all into consideration. I think it's partly why we're guiding to kind of a more modest growth in the fourth quarter versus third quarter, because we're, you know, making these judgments, you know, real time. Great. Thank you for the time. That's great. Appreciate it, Bill.
Operator: This concludes the question and answer session.
Rod Beck: I would like to turn the conference back over to Mr. Buck for any closing remarks. Thanks operator and thanks everyone for joining the call. Look, as we close out this year and approach 2024. And as I said, we're going to continue to monitor the changing macro conditions and the overall health and the consumer. You know, and let me just say again and I know we had it in our prepared marks, but we're focused on the fundamentals strong underwriting.
Rod Beck: We're adjusting our underwriting as needed. We're focused on discipline growth and growth as appropriate as we put on our highest confidence assets. We're always focused on tight expense management and investing in those initiatives that drive growth and improve our operating leverage. And of course maintaining a strong balance sheet and liquidity. And, you know, those are the mantra which we manage the business. And we'll continue to do so. And, you know, I think like everybody, we're hoping for a brighter 2024. And we're prepared to, we're positioned well for 2024 regardless of the environment, but we're hoping for a very strong. Strong Environment.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.