Q4 2023 Regional Management Corp Earnings Call

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Operator: Transcribed by https://otter.ai Thank you for standing by. This is the conference operator. Welcome to the Regional Management Fourth Quarter 2023 Earnings Call. 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.

Thank you for standing by this is the conference operator, welcome to the reading of management fourth quarter 2023 earnings call. As a reminder, all participants are in a listen only mode and the conference is being recorded after the presentation, there will be an opportunity to ask questions.

They joined 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 Zero I would now like to turn the conference over to Garrett Edson ICR. Please go ahead.

Operator: Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Garrett Edson, ICR. Please go ahead.

Garrett Edson: Thank you and good afternoon. By now, everyone should have access to our earnings announcement supplemental presentation, which was released prior to this call and may be found on our website at regionalmanagement.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 in the forward-looking statement. Announcements and statements are not guarantees of future performance, and therefore you should not place undue reliance upon them.

Thank you and good afternoon by now everyone should have access to our earnings announcement and supplemental presentation, which will really prior to this call and may be found on our website a regional net dot com.

Before we begin our formal remarks, I will direct you to page to our supplemental presentation, which contains important disclosures concerning forward looking statements and the use of non-GAAP financial measures are 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.

Looking statements speak only as of today are subject to various assumptions risks uncertainties and other factors that we just got to predict and that could cause actual results to differ materially from those expressed or implied forward. Looking statements. These statements are not guarantees of future performance and therefore, you should not place undue reliance upon them. Therefore.

Garrett Edson: We refer all of you to our press release, presentation, and recent filings with the SEC for more detailed discussion about forward-looking statements and the risks and uncertainties that could impact our future operating results and financial conditions. Also, our discussion today may include references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measures can be found within our earnings announcement or earnings presentation and posted on our website at RegionalManagement.com. I would now like to introduce Rob Beck, President and CEO of Regional Management Corp.

For all of <unk> 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 certain non-GAAP measures.

Installation of these measures to the most comparable GAAP measures can be found within our earnings call. It's been our earnings presentation and posted on our website at regional boundaries Dot Com I would now like to introduce Rob Beck, President and CEO of regional Management Corp.

Rob Beck: Thanks Garrett, and welcome to our fourth quarter 2023 earnings call. I'm joined today by Harp Rana, our Chief Financial Officer. In the fourth quarter, we took a series of actions to place the business back on a more normalized earnings trajectory, including putting the higher losses in our back book portfolio behind us. On this call, we'll cover our core operating results, provide details on the actions taken in the fourth quarter, and preview our expectations for the first quarter and full year 2024. Fourth quarter results came in better than I expected when excluding the impact of three discrete items that we took in the fourth quarter. While we had a net loss of $7.6 million, or $0.80 per share, our after-tax earnings were reduced by $12.6 million, or $1.34 per share, due to these three actions.

Thanks, Garrett and welcome to our fourth quarter 2023 earnings call I'm joined today by Harper, our Chief Financial Officer in the fourth quarter. We took a series of actions to place the business back on a more normalized earnings trajectory, including putting the higher losses in our back book portfolio behind US on this call will cover our core operating results provide.

Details on the actions taken in the fourth quarter and preview our expectations for the first quarter and full year 2024.

Fourth quarter results came in better than our outlook when excluding the impact of three discrete items that we took in the quarter. While we had a net loss of $7 6 million or <unk> 80 per share. Our after tax earnings are reduced by $12 6 million or one.

Dollars 34 per share due to these three actions. However, these actions strengthened our balance sheet and realigned the business with further cost reductions both of which position us for future growth with improved operating leverage and stronger earnings in 2024 and beyond I'll provide an overview of these actions now before covering our fourth quarter results and two.

Rob Beck: However, these actions strengthen our balance sheet and realign the business with further cost reductions, both of which position us for future growth with improved operating leverage and stronger earnings in 2024. I'll provide an overview of these actions now before covering our fourth-quarter results and 2024 expectations in more detail. First, we booked a $2 million pre-tax restructuring charge in the fourth quarter related to branch consolidations and severance costs from the elimination of roughly 10% of our corporate position.

24 expectations in more detail.

First we booked a $2 million pretax restructuring charge in the fourth quarter related to branch consolidations and severance costs from the elimination of roughly 10% of our corporate positions. These restructuring actions will result in about $6 million of operating cost savings in 2024, which we'll utilize to self fund our continued investment in <unk>.

Rob Beck: These restructuring actions will result in about $6 million of operating cost savings in 2024, which will be used to self-fund our continued investment in growth, technology, data analytics, and expansion with our newer states of operation. As a result of these actions, we expect to hold our 2024 G&A expenses roughly flat to our fourth quarter run rate. Second, as we did in the fourth quarter of 2022, we undertook a sale of certain non-performing loans prior to their normal charge-off at 180 days past due, which impacted net income by $3.9 million in the quarter. As a result, we ended the year with 30-plus-day delinquencies of 6.9 percent, an improvement of 20 basis points from the prior year. We took advantage of attractive pricing to sell these loans and put the associated losses behind us. The sale also frees up additional collection capacity going into 2024 to be put against assets with a higher probability of collection during tax season. The fourth quarter net income impact is largely timing-related, as first quarter earnings will benefit from lower losses and interest accrual.

Growth technology data analytics and expansion with our newer states of operation.

As a result of these actions we expect to hold our 2020 for G&A expenses, roughly flat to our fourth quarter run rate.

Second as we did in the fourth quarter of 2022, we undertook a sale of certain nonperforming loans prior to their normal charge offs at 180 days past due which impacted net income by $3 9 million in the quarter.

As a result, we ended the year with 30, plus day delinquencies of six 9% an improvement of 20 basis points from the prior year.

We took advantage of attractive pricing to sell these loans and put the associated losses behind us.

I'll also frees up additional collection capacity going into 2024, B put against the assets with a higher probability of collection during tax season.

The fourth quarter net income impact is largely timing related as first quarter earnings will benefit from lower losses and interest accrual reversals.

Rob Beck: Third, we refined our description of loans included in our backbook and built additional reserves for backbook portfolio stress in the fourth quarter. Previously, our backbook included all loans originated prior to the fourth quarter of 2022, though we excluded delinquent renewals associated with loans from these vintage. As of year-end, 23% of our portfolio fit the prior description of our backbook. Under our revised description of the backbook, we are now including only those loans that were originated in the four quarters from fourth quarter 21 through third quarter of 2022, and the associated delinquent renewals for all loans originated prior to fourth quarter 2022. Under this description, we have a total of $390 million in our back book, representing 22% of our portfolio as of the year. Our analysis of this newly defined back book shows that it continues to be stressed.

Third we refined our description of loans included in our back book and built additional reserves for back book portfolio stress in the fourth quarter.

Previously our back book included all loans originated prior to the fourth quarter of 2022, though we excluded delinquent renewals associated with loans from these vintages.

As of year end, 23% of our portfolio fit the prior description of our back book under a revised description of the back book, we are now including only those loans that were originated in the four quarters from fourth quarter 'twenty, one through third quarter of 2022, and the associated delinquent renewals for all loans originated prior to fourth.

Quarter 2022.

Under this subscription we have a total of $390 million and our back book, representing 22% of our portfolio as of the year.

Our analysis of this newly defined back book shows that it continues to be stressed as a result, we increased the loan loss reserve rate on these vintages by 240 basis points to 14, 8% building $9 3 million in incremental loan loss reserves or $7 million after tax.

Rob Beck: As a result, we increased the loan loss reserve rate on these vintages by 240 basis points to 14.8%, building $9.3 million in incremental loan loss reserves, or $7 million after tax. In comparison, the loan loss reserve rate on our front book is 9.5%. As the stress packs of loans flow through to losses, the incremental reserves will represent about 40 base points of net credit loss rate in 2024, which will be charged against the loan loss reserves, resulting in no bottom line impact in 2024, all else being equal. We are fully reserved for back boat losses as of the end of the year.

In comparison, the loan loss reserve rate on our front book is nine 5%.

The stress packed with loans flow through to loss the incremental reserves will represent about 40 basis points of net credit loss rate in 2024 with green charged against our loan loss reserves, resulting in no bottom line impact in 2024, all else being equal we are fully reserved for back book losses as of the end of the year.

Rob Beck: While we've broken out the various components of these actions we took in the fourth quarter, on a net basis, we effectively accelerated $14 million of net credit losses and $2 million of interest accrual reversals from first quarter 2024 to fourth quarter 2023 for the loan sale, fell down to our existing reserve levels due to stress in the portfolio, particularly in the back book, and took a $2 million restructuring. While these actions clearly impacted our fourth-quarter results, they also set us well to generate stronger earnings in 2024 and beyond. Overall, we had solid core operating results in the fourth quarter. Our revenue reached record levels from a combination of higher quality portfolio growth and total revenue that came in better than our forecast.

While we broken out the various components of these actions we took in the fourth quarter on a net basis, we effectively accelerated 14 weight them that credit losses, and 2 million of interest accrual reversals from first quarter 2020 for the fourth quarter 2023 for the loan sale.

Now onto our existing reserve levels due to stress in the portfolio, particularly in the back book and took a $2 million restructuring charge. While these actions clearly impacted our fourth quarter results. They also set us up well to generate stronger earnings in 2024 and beyond.

Overall, we had solid core operating results in the fourth quarter, our revenue reached record levels from a combination of higher quality portfolio growth and total revenue that came in better than our outlook total.

Rob Beck: Total revenue yields have benefited from our repricing actions and growth in our higher-margin small loan portfolio, which grew by $30 million in the third quarter and $19 million in the fourth quarter. We've experienced strong returns in this segment as demand has been healthy, allowing us to be more selective in the loans we book. While growth in this segment will put some pressure on our normalized credit loss rate in the future, it comes with an attractive revenue and margin tradeoff. On our fourth-quarter line items, G&A expenses came in better than our outlook on an adjusted basis as we continue to manage expenses tightly while still investing in our growth and strategic initiatives. Despite our strong portfolio growth, interest expense also came in better than our expectations as we benefited from our fixed-rate funding, which ended the year at 82% of our total debt, mitigating the impact of the higher interest rate environment. Finally, excluding the loan sale and additional reserve bill in our backbook portfolio, our net credit losses and provision for credit losses were roughly in line with our expectations. Looking ahead, we're introducing full-year line-item guidance for the first time.

Total revenue yields benefited from our repricing actions and growth in our higher margin small loan portfolio, which grew by $30 million in the third quarter and $19 million in the fourth quarter. We've.

We've experienced strong returns in this segment as demand has been healthy, allowing us to be more selective in the loans we book.

While growth in this segment will put some pressure on our normalized credit loss rate in the future. It comes with an attractive revenue and margin tradeoff.

On our fourth quarter line items G&A expenses came in better than our outlook on an adjusted basis as we continued to manage expenses tightly while still investing in our growth and strategic initiatives.

Spite, our strong portfolio growth interest expense also came in better than our expectations as we benefited from our fixed rate funding, which ended the year at 82% of our total debt.

Mitigating the impact of the higher interest rate environment.

Finally, excluding the loan sale, an additional reserve build on our back book portfolio, our net credit losses and provision for credit losses were roughly in line with our expectations.

Looking ahead, we're introducing full year line item guidance for the first time based on the current economic environment, we anticipate a modest rebound in portfolio growth in 2024, we expect 2024, ending net receivables to grow by approximately 5% to 7% up from just over 4% in 2023.

Rob Beck: Based on the current economic environment, we anticipate a modest rebound in portfolio growth in 2024. We expect 2024 ending net receivables to grow by approximately 5 to 7 percent, up from just over 4 percent in 2023. We're forecasting revenue growth to be towards the higher end of this range, with revenue yields improving by 40 to 50 basis points due to our repricing actions and growth in our higher margin small loan segment, offset in part by the impact of interest reversals associated with elevated losses from the back book. We expect full year 2024 G&A expenses to be approximately $256 million to $258 million, roughly flat to the fourth quarter run rate.

We're forecasting revenue growth could be towards the higher end of this range with revenue yields improving by 40 to 50 basis points due to our repricing actions and growth in our higher margin small loan segment offset in part by the impact of interest reversals associated with elevated losses from the back book.

We expect full year 2020 for G&A expenses to be approximately $256 million to $258 million are roughly flat to the fourth quarter run rate, while the amount may vary in any given quarter. We will hold the line on expenses in 2024, barring a decision to lean into faster growth if warranted by improving economic conditions.

Rob Beck: While the amount may vary in any given quarter, we will hold the line on expenses in 2024, barring a decision to lean into faster growth, if warranted by improving economic conditions. We expect our cost of funds, which is our interest expense as an annualized percentage of average net receivables, to be approximately 4.5 to 4.6 percent. This assumes that benchmark rates improve consistent with current foreign currency. Lastly, we anticipate that our net credit loss rate will be in the range of 10.7 to 10.8 percent in 2024, and our year-end loan loss reserve rate will be between 10.1 and 10.3 percent, subject to economic conditions. This is naturally very difficult to predict, given the economic uncertainty. The 30-plus day delinquency rate on the back book is 10.4%, compared to 5.8% on the front book, which is still maturing.

We expect our cost of funds, which is our interest expense as an annualized percentage of average net receivables debride approximately four 5% to four 6%. This assumes that benchmark rates improve consistent with current foreign currency.

Lastly, we anticipate that our net credit loss rate will be in the range of 10, 7% to 10, 8% in 2024, and our year end loan loss reserve rate will be between 10, one and 10, 3% subject to economic conditions. This is naturally very difficult to predict given the economic uncertainty the 30 plus day delinquency.

On the back book is 10, 4% compared to five 8% on the front book, which is still maturing our front book continues to perform in line with our expectations despite macroeconomic stress.

Credit tightening actions have improved overall portfolio quality as we have originated roughly 60% of our loans to our top two risk ranks in recent quarters, our 1% to 59 day delinquency rate remains 70 basis points better at year end 2023 compared to 2019.

Rob Beck: Our front book continues to perform in line with our expectations despite macroeconomic stress. Credit tightening actions have improved overall portfolio quality as we have originated roughly 60% of our loans to our top two risk ranks in recent quarters. Our 1-59 day delinquency rate remains 70 basis points better at year-end 2023 compared to 2009.

In projecting our 2020 for NCL rate at $10 seven to 10, 8%. We are assuming inflation continues to moderate resulting in improvement in delinquency roll rates of between 30% and 80 basis points across all buckets. So those roll rates will remain elevated compared to 2019 levels.

Rob Beck: In projecting our 2024 NCL rate at 10.7 to 10.8 percent, we are assuming inflation continues to moderate, resulting in an improvement in delinquency roll rates of between 30 and 80 basis points across all budgets. Thus, those roll rates will remain elevated compared to 2019. However, if real rates do not improve in 2024, our net credit loss rate could increase to 11% to 11.3%.

Rates do not improve in 2024, our net credit loss rate could increase to 11% 11, 3%.

The rates were to improve to 2019 levels, our net credit loss rate could fall to as low as 9%, but we don't anticipate that outcome in 2024.

To further understand the 2024 projected net credit loss rate range of 10, 7% to 10, 8% we need to break this down in terms of our current underwriting and portfolio mix. We have said previously that we would expect our normalized net credit loss rate of eight 5% to 9% and a benign economic environment and where we have a portfolio of growth rate that is <unk>.

Rob Beck: The referral rates were to improve to 2019 levels, and the credit loss rate could fall to as low as 9%, but we don't anticipate that outcome in 2024. To further understand the 2024 projected net credit loss rate range of 10.7% to 10.8%, we need to break this down in terms of our current underwriting and portfolio. We have said previously that we would expect a normalized net credit loss rate of 8.5% to 9% in a benign economic environment and where we have a portfolio growth rate that is consistent with our historical norm. However, as we have begun to lean back into our higher-margin, small-owned business, we expect our normalized portfolio loss rate to increase to 9% to 9.5%. Broadly speaking, the difference between this range and the projected range of 10.7 to 10.8 percent in 2024 is due to a roughly 80 basis points impact associated with slower portfolio growth in 2024 compared to historical growth rates, as well as economic stress reflected in the portfolio, including the estimated 40 basis point impact from back book losses associated with the incremental fourth quarter reserve. We expect the newly defined backbook to represent 8% of the portfolio by year-end 2024.

System with our historical norms.

However, as we have begun to lean back into our higher margin small business, we expect our normalized portfolio loss rate to increase to the 9% to 95% range broadly speaking the difference between this range and the projected range of 10, 7% to 10, 8% in 2024 is due to a roughly 80 basis points impact.

Located with slower portfolio growth in 2024 compared to historical growth rates as well as economic stress reflected in the portfolio, including the estimated 40 basis point impact from back book losses associated with the incremental fourth quarter reserves.

We expect the newly defined back book to represent 8% of the portfolio by year end 2024, while it's impossible to predict the future if economic conditions return to a more benign environment and we resume a higher portfolio growth rate, our net credit loss rate should return to more normalized levels sometime in 2025, as we've always done well Manny.

The business in a way that maximizes direct contribution margin and bottom line results.

While the actions taken in the fourth quarter were difficult, particularly on those individuals' impacted by the restructuring they were necessary to position the business for a stronger 2024 and beyond having.

Having completed the fourth quarter loan sale and taken additional reserves related to our remaining backlog portfolio. We are on a path towards a more normalized earnings trajectory as economic conditions continue to improve including strong profits in the first quarter of this year.

Rob Beck: While it's impossible to predict the future, if economic conditions return to a more benign environment and we resume a higher portfolio growth rate, our net credit loss rate should return to more normalized levels sometime in 2025. As we've always done, we'll manage the business in a way that maximizes direct contribution margin and bottom-line results. While the actions taken in the fourth quarter were difficult, particularly for those individuals impacted by the restructuring, they were necessary to position the business for a stronger 2024 and beyond. Having completed the fourth-quarter loan sale and taken additional reserves related to our remaining back book portfolio, we are on a path toward a more normalized earnings trajectory as economic conditions continue to improve, including strong profits in the first quarter of this year. The team and I are excited as we continue to execute on our omni-channel strategy and remain positioned for stronger growth when the economic conditions are right. I'll now turn the call over to Harp to provide additional color on our fourth quarter results as well as first quarter guidance. Thank you, Rob, and hello everyone.

Team and I are excited as we continue to execute on our Omnichannel strategy and remain positioned for stronger growth when the economic conditions are right now.

Now I'll turn the call over to harp provide additional color on our fourth quarter results as well as first quarter guidance.

Thank you, Bob and Hello, everyone I'll now take you through or whatever we've got more detail, including the impact of the three actions that Bob.

I'll also provide you with line item guidance.

On page three of the supplemental presentation, we provide our fourth quarter financial highlights as Rob noted, we had solid core operating results. Despite a net loss of $7 million or <unk>.

Krishna.

Restructuring loans and reserve actions described by Rod impacted net income by $12 $6 million Alright dollars 31 per share.

On a normalized okay.

Strong revenue growth and we continue to carefully manage our G&A and interest expense.

Also exited the year in a strong position.

Harp Rana: I'll now take you through our fourth quarter results in more detail, including the impact of the three actions that Rob covered. I'll also provide you with line item guidance for the first quarter. On page 3 of the Supplemental Presentation, we provide our fourth quarter financial highlights.

Kevin Quinn posture.

Turning to page four and demand remained strong in the quarter and we continue to take a cautious approach to underwriting.

How are margins.

Total originations declined 13% year over year.

Harp Rana: As Rob noted, we had solid core operating results despite a net loss of $7.6 million, or $0.80 per share. The restructuring, loan sale, and reserve actions described by Rob impacted net incomes of $12.6 million, or $1.34 per share. On a normalized basis, we had strong revenue growth, and we continued to carefully manage our GMA and interest expense. We also exited the year in a strong reserve position with an improved delinquency posture. Turning to page 4, demand remains strong in the quarter, and we continue to take a cautious approach to underwriting, with an emphasis on higher-margin FIGs. However, total originations declined 13% year-over-year.

Channel direct mail digital and branch originations fell by 22%, 16% and 8% respectively.

As we've consistently noted.

Currently reduced originations wondering perfectly balanced growth credit quality and higher return.

Page five.

Some product mix.

They closed the quarter.

Both objective that one second.

29, one from September 30.

Our fourth quarter portfolio growth was impacted by the fourth quarter alone.

Accelerated a total of $16 million loan charge off interest accrual.

From the first quarter 2020 for fourth quarter 2023.

Excluding the impact of the fourth quarter alone.

We exceeded our fourth quarter receivables growth outlook of 35 million.

Harp Rana: By channel, direct mail, digital, and branch originations fell by 22%, 16%, and 8%, respectively. As we've consistently noted, we've deliberately reduced originations in recent quarters as we appropriately balance growth with credit quality and higher returns. Page 5 displays our portfolio growth and product mix for the fourth quarter. We close the quarter with net finance receivables of just over $1.77 billion, up $20 million from September 30th. Our fourth quarter portfolio growth was impacted by the fourth quarter loan sale, which accelerated a total of $16 million of loan charge-offs and interest accrual reversals from the first quarter 2024 to the fourth quarter 2023. Excluding the impact of the fourth quarter loan sale, we exceeded our fourth quarter receivables growth outlook of $35 million by roughly $1 million. As of the end of the fourth quarter, our large loan book comprised 72% of our total portfolio.

As of the end of the fourth quarter, our large loans.

2% of our total portfolio.

In addition, 84% of our portfolio carried an APR.

Slide 36.

Down from 86%.

At the end of last year as we grew our small loan portfolio by 49 young over the past two quarters.

And so I've got it.

<unk> leaned into higher.

Higher margin loans.

And they will support future revenue yield offset increasing funding cost and exceed our return hurdles despite higher expected net credit losses.

Excellent.

Looking ahead, we expect our ending.

Ending net receivables in the first quarter to decline by approximately 25 million.

Consistent with normal seasonal activity.

During the quarter, we will continue to monitor the economy.

Nothing wrong.

Why is that margin.

<unk> second.

To further tighten underwriting forming back into.

Neither of which could impact on the market.

As shown on page six a lighter branch footprint strategy in these states and branch consolidation actions I guess each day.

Harp Rana: In addition, 84% of our portfolio carried an APR at or below 36%, down from 86% of our portfolio at the end of last year, as we grew our small loan portfolio by $49 million over the past two quarters. As Rob noted, we purposefully leaned into growth in these higher-margin loans in recent quarters as they will support future revenue yield, offset increasing funding costs, and exceed our return hurdles despite higher expected net credit losses on these somewhat riskier segments. Looking ahead, we expect our ending net receivables in the first quarter to decline by approximately $25 million, consistent with normal seasonal payment activity during tax season.

Higher receivables per branch and greater operating efficiency.

Our receivables per branch ended the year at $5 1 million.

A record high and up 200000 from the prior.

Here here, we believe considerable growth opportunity to remain within our existing branch footprint more efficient model, particularly in newer branches in more states.

Turning to page seven and eight total revenue grew 7% to a record $142 million in Nepal.

I got one $9 million impact on revenue from the fourth quarter alone.

Our total revenue yields and interest and fee yield was 32, 3% and 28.

Harp Rana: During the quarter, we'll continue to monitor the economy and focus on originating loans that maximize our margins. As economic circumstances dictate, we're prepared to further tighten our underwriting or lean back into growth, either of which could impact ending net receivables. As shown on page 6, our lighter branch footprint strategy in new states and branch consolidation actions in legacy states continue to support higher receivables per branch and greater operating efficiency. Our receivables per branch ended the year at $5.1 million, a record high and up $200,000 from the prior year.

[laughter] respectively.

Interest and fee yield and total revenue exceeded our outlook after normalizing for the fourth quarter alone.

Year over year, our total revenue yield is up 20 basis points. Despite the 30 basis point impact due in large part to our price increases from New Orleans and growth in our higher margin small loan portfolio and the <unk>.

First quarter, we expect total revenue to decline.

Or do you think.

Consistent with seasonal trends, we continue to anticipate that our increased pricing will drive benefits for yields in future.

Harp Rana: We believe considerable growth opportunities remain within our existing branch footprint under this more efficient model, particularly in newer branches and newer states. Turning to page 7 and 8, total revenue grew 7% to a record $142 million in the 4th quarter, despite a $1.9 million impact on revenue from the 4th quarter loan fill. Our total revenue yield and interest in fee yield were 32.3% and 28.8%, respectively.

As these actions will the portfolio over time, we also expect to see improving credit outcomes improve in parallel with an improving economic environment.

Moving to page nine on a normalized.

Delinquency and net credit losses were in line with our expectations. Our 30 plus day delinquency rate at quarter end was six 9% an improvement from seven 1% at the end of 2002.

Our net credit losses of 66 million were in line with our fourth quarter outlook. After adjusting for the 14 million of accelerated charge offs in the quarter from a loan sale.

Harp Rana: Both interest in fee yield and total revenue yield exceeded our outlook after normalizing for the fourth quarter loan sale. Year-over-year, our total revenue yield is up 20 basis points, despite the 30-basis-point loan sale impact, due in large part to our pricing increases on newer loans and growth in our higher-margin small loan portfolio. In the first quarter, we expect total revenue yield to decline by roughly 40 basis points, consistent with seasonal trends.

Net credit loss rate of 15, 1% included 3.2% impact from now on.

Page 10 provides additional information on the performance of that book and backlog of pop.

Pop back is becoming an increasingly large portion of that portfolio ending the year at 73% of our total book well, representing 60% of our dirty stable.

Harp Rana: We continue to anticipate that our increased pricing will drive benefits for yields in future quarters as these actions roll through the portfolio over time. We also expect to see improving yields as credit outcomes improve in parallel with an improving economic environment. Moving to page 9, on a normalized basis, our delinquency and net credit losses are in line with our expectations. Our 30-plus-day delinquency rate at the quarter-end was 6.9%, an improvement from 7.1% at the end of 2022. Our net credit losses of $66 million were in line with our fourth-quarter outlook after adjusting for the $14 million of accelerated charge-offs in the quarter from the loan sale. The net credit loss rate of 15.1% includes a 3.2% impact from the loan sale.

Stable.

Our backlog, which represents 22% of our portfolio accounts for 32% over 30 plus day delinquent.

Oxide and backup reserve rate to nine, 5% and 14, 8% respectively.

In the first quarter, we expect delinquency rates to be buckled flat to the fourth quarter due to the offsetting impact of the normal seasonal decline in delinquency and the rebuild of the delinquency buckets following the fourth quarter of longhorn.

In addition, we anticipate that our net credit losses will be approximately 47 5 million.

The sequential decrease being attributable to the benefit of the first quarter of the fourth quarter alone.

Harp Rana: Page 10 provides additional information on the performance of our front book and back book. The front book is becoming an increasingly large portion of our portfolio, ending the year at 73% of our total book while representing 60% of our 30-plus-day billing expenses. Our backlog, which represents 22% of our portfolio, accounts for 33% of our 30-plus state delinquents, are signed in that the book reserve rates are 9.5% and 14.8%, respectively. In the first quarter, we expect our delinquency rate to be roughly flat to the fourth quarter due to the offsetting impacts of the normal seasonal decline in delinquency and the rebuild of the delinquency buckets following the fourth quarter loans In addition, we anticipate that our net credit losses will be approximately $47.5 million in the first quarter, with the sequential decrease being attributable to the benefits of the fourth quarter loans.

Turning to page 11 for fourth quarter allowance for credit losses, and flat to the third quarter at 10, 6% consistent with the high end of the range that we provided in our outlook.

At quarter end, the allowance was 187 million.

Our allowance increased by $2 5 million in the quarter, primarily due to portfolio growth was observed.

Located at the fourth quarter alone scale, roughly washed against that reserve build.

The allowance of 10 to 2024 warrant unemployment rate of five eight.

Looking ahead.

The economic conditions, we expect to maintain a reserve grade of 10, 6% at the end of the first quarter, which had stopped trying to Atlanta Pittsburgh right.

So going to page 12, we continue to closely manage our spending while investing in our capabilities and strategic initiatives. Our G&A expense for the fourth quarter was $64 8 million or better than our outlook of <unk> $64 million to $65 million after normalizing for the $2 million restructuring charge.

Annualized operating expense ratio of 14, 8% in the fourth quarter inclusive of the 50 basis point impact from a fourth quarter restructuring.

Harp Rana: According to PAVE 11, our fourth quarter allowance for credit losses stayed flat to the third quarter at 10.6%, consistent with the high end of the range that we provided in our outlook. As of quarter end, the allowance is $187 million. Our allowance increased by $2.5 million in the quarter, primarily due to portfolio growth, while the reserve relief associated with the fourth-quarter loan sale roughly washed against the reserve billed for our back-book portfolio. The allowance assumes a 2024 year-end unemployment rate of 5.8%.

We will continue to manage our spending closely moving problems in the first quarter, we expect G&A expenses to be approximately $65 5 million to support a larger portfolio and continued targeted investments.

Yeah.

Turning to pages 13, and 14, our interest expense for the fourth quarter was $17 five.

Or 4% of average net receivables on an annualized basis slightly better than our outlook.

The sharp increase in benchmark late <unk> early 2022.

Experienced a comparatively modest increase in interest expense as a percentage of average net receivables.

Harp Rana: Looking ahead, subject to economic conditions, we expect to maintain a reserve rate of 10.6% at the end of the first quarter, which is flat to our year-end reserve rate. Flipping to page 12, we continue to closely manage our spending while investing in our capabilities and strategic initiatives. Our G&A expenses for the fourth quarter of $64.8 million were better than our outlook of $64 to $65 million after normalizing for the $2 million restructuring charge. Our annualized operating expense ratio was 14.8% in the fourth quarter, inclusive of the 50 basis point impact from the fourth quarter restructuring. We will continue to manage our spending closely moving forward. In the first quarter, we expect G&A expenses to be approximately $65.5 million to support our larger portfolio and continue targeted investments in our operations.

For fixed rate debt issued through our asset backed securitization program.

As of December 31, 82% of our debt is fixed rate with a weighted average coupon of three 6% and a weighted average revolving duration of one two years.

The first quarter, we expect interest expense to be approximately $18 5 million or.

Four 2% of average receivables either.

Fixed rate funding maturing and they continue to grow using variable rate debt. Our interest expense will increase as a percentage of average net receivables.

We also have a strong balance sheet and continued to maintain ample liquidity to fund our growth.

$87 million of lifetime loan loss versus five 8% year end 2020 for unemployment rate assumption as well as 322 million and stockholders equity was $33 per share.

At the end of the fourth quarter, we had $552 million of unused capacity on our credit facility and 113 million of available liquidity consisting of unrestricted cash on hand, and immediate availability to draw down on our revolving credit facility.

Harp Rana: Turning to pages 13 and 14, our interest expense for the fourth quarter was $17.5 million, or 4% of average net receivables on an annualized basis, slightly better than our outlook. Despite the sharp increase in benchmark rates since early 2022, we've experienced a comparatively modest increase in interest expenses as a percentage of average net receivables. Thanks to fixed rate debt issued through our asset-backed securitization program. As of December 31st, 82% of our debt was fixed rate, with a weighted average coupon of 3.6% and a weighted average revolving duration of 1.2 years. In the first quarter, we expect interest expense to be approximately $18.5 million, or 4.2% of average net receivables.

Our debt has staggered from Bolton duration stretching out to 2020 and since 2020, we maintained a quarter and unused borrowing capacity between roughly $400 million and 701 and demonstrating our ability to protect yourself against short term disruptions in the credit market.

Quarter funded debt to equity ratio remains at a conservative 4321.

We have ample capacity to fund our business, even if access to the securitization market at the time that strict it.

The fourth quarter, we experienced a tax benefit of two now.

Each quarter, we expect an effective tax rate of approximately 24% prior to discrete items, such as any tax impact of equity compensation.

Harp Rana: As our fixed-rate funding matures and we continue to grow using variable-rate debt, our interest expense will increase with the percentage of the average net receivables. We also have a strong balance sheet and continue to maintain ample liquidity to fund our growth. We have $187 million of lifetime loan loss reserves using a 5.8% year-end 2024 unemployment rate assumption, as well as $322 million of stockholders' equity, or $33 per share. At the end of the fourth quarter, we had $552 million of unused capacity on our credit facilities and $113 million of available liquidity consisting of unrestricted cash on hand and immediate availability to draw down on our revolving credit facilities. Our debt has staggered revolving durations stretching out to 2026, and since 2020, we've maintained a quarter-end unused borrowing capacity of between roughly $400 million and $700 million, demonstrating our ability to protect ourselves against short-term disruptions in the credit market.

We also continue to return capital to our shareholders. Our board of directors declared a dividend of 30 cents per common share for the first quarter. The dividend will be paid on March 14th 2024 to shareholders of record as of the close of business on February 22nd 2024.

Finally, I'll note that we provide a summary of our fourth quarter and full year 2020 on page 16 of our earnings supplement that concludes my remarks, I'll now turn the call back over to Rob.

Thanks, Harp as always I want to thank the entire regional team for their hard work and commitment. The team continues to execute well against our strategy, which has positioned us to lean into growth as economic conditions continue to normalize our business has proven to be very resilient during a period of high inflation not seen in the last 40 years.

As we kick off 2024, I'm optimistic about our prospects and future results for several reasons first the economic outlook is improving inflation continues to fall real wages are growing for our customers' unemployment is below 4% and there is an increasing likelihood of lower funding cost in the near future.

Harp Rana: Our fourth-quarter funded debt-to-equity ratio remained a conservative 4.3 to 1. We have ample capacity to fund our business even if access to the securitization market were to become restricted. For the fourth quarter, we experienced a tax benefit of $2 million. For the first quarter, we expect an effective tax rate of approximately 24% prior to discrete items, such as any tax impacts of equity compensation. We also continue to return capital to our shareholders. The Board of Directors declared a dividend of $0.30 per common share for the first quarter.

Second we put the incremental stress on the back book behind US and our front book is performing in line with our expectations and third we positioned the business to further increase receivable growth as the economic environment improves the actions we took in the fourth quarter position us for more normalized earnings in 2024 and set us up for a strong two.

$1 25 and beyond.

You again for your time and interest I will now open up the call for questions. Operator could you. Please open the line.

Okay.

Thank you to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.

Harp Rana: The dividend will be paid on March 14, 2024, to shareholders of record as of the close of business on February 22, 2024. Finally, I'll note that we provide a summary of our first quarter and full year 2024 guidance on page 16 of our earnings supplement. That concludes my remarks. I'll now turn the call back over to Will. Thanks, Harp.

The first question comes from John Hecht with Jefferies. Please go ahead.

Will: As always, I want to thank the entire regional team for their hard work. The team continues to execute well against our strategy, which has positioned us to lead growth as economic conditions continue to normalize. Our business has proven to be very resilient during a period of high inflation not seen in the last 40 years. As we kick off 2024, I'm optimistic about our prospects and future results for several reasons. First, the economic outlook is improving. Inflation continues to fall.

Good afternoon, guys. Thanks very much.

I guess the first question just.

Because it feels like credits that a little bit of a.

Moving field go kind of post.

The last several quarters.

Yeah, I'm just wondering if you could.

What did you like maybe you could talk about the 23 vintage for the 22 that your confidence level.

How much better that will perform what kind of underwriting changes you've made and what kind of are the early signals that that will come to fruition.

Will: Real wages are growing for our customers, unemployment is below 4%, and there is an increasing likelihood of lower funding costs in the near future. We have put the incremental stress on the back book behind us. And third, we position the business to further increase receivable growth as the economic environment improves. The actions we took in the fourth quarter position us for more normalized earnings in 2024 and set us up for a strong 2025 and beyond. Thank you again for your time and interest. I'll now open up the call to questions. Operator, could you please open the line? Thank you. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys.

Yes.

Yeah, John and thanks for joining the call what I would tell you is when we did the analysis of the front book versus back book.

The back book is stressed about 40% more than the front book.

And so as we see the new vintages coming on they're performing back Ed.

Historical levels now, there's always a difference in mix and various vintages, but.

Titan is having an impact and that we wanted to have and we're very pleased with the performance of the of the new vintages.

In terms of the credit losses, and the profile I mean for us.

The Mpls peaked in 2023.

So we have a back book now that it's 22% of the portfolio.

Operator: To withdraw your question, please press star, then two. The first question comes from John Hecht with Jeffries. Please go ahead. Afternoon, guys. Thanks very much. I guess the first question is just, just because it feels like credit's been a little bit of a moving field goal, kind of post the last several quarters, and, you know, I'm just wondering. What did you like?

As you can see it's Scott.

Fairly high delinquencies, but we're fully reserved against that with a 14, 8% reserve rate.

And as that portfolio burns through a release of reserves associated with it and by year end, we expect to have the back book down to about 8%. So.

This.

This quarter, where we took the actions to put the back book behind Us.

John Hecht: Maybe you could talk about the 23 vintage for the 22 vintage, like your confidence level and how much better that will perform. What kind of underwriting changes have you made? And what kind of early signals do we have that that will come to fruition? Well, John, and thanks for joining us on the call. What I want to tell you is when we did the analysis of the front book versus the back book, the back book is stressed about 40% more than the front book, you know, and so as we see the new ventures coming on, they're performing, you know, back at historical levels. Now, there's always a difference in mix and in various ventures, but, you know, the tightening is having an impact that we wanted it to have, and we're very pleased with the performance of the new ventures, you know, in terms of the credit losses in the profile.

Partially through the loan sale as well I'm really just puts us on a more normalized trajectory and allows us to focus on you know the path forward.

Certainly we got to still collect the.

<unk> as best we can in the back book, but we feel good about having.

Having positioned the business for the future now.

And then.

Like just the branches you've optimized our branch locations.

More to go there and then.

Maybe kind of.

On the same branch topic, you guys expanded into Illinois, a couple of years ago, maybe give us.

Data, how that's going.

Yes. So we ended up closing four branches I would say you know that's fairly typical in every given year that we closed three or four branches.

John Hecht: I mean, for us, the MCL peaked in 2023, and so, you know, we have a back book now that's 22% of the portfolio, and, you know, as you can see, it's got, you know, fairly high delinquencies, but we're fully reserved against that with a 14.8% reserve rate. And, you know, as that portfolio burns through, we'll release the reserves associated with it And by year end, we expect to have the back book down to about 8%. So, you know, this quarter was where we took the actions to put the back book behind us.

We included in all the restructuring actions that we took in the quarter, which was largely.

Looking for efficiency saves in how we manage the business.

Belt tightening we thought that was the right thing to do and give us some dry powder for when we want to lean back into growth.

In terms of going forward for this year, you know I would say in terms of new markets just to be transparent. We have entered so many new states. There is plenty of headroom and growth opportunity at every one of those states.

Rob Beck: And that's partially through the loan sale as well, which really just puts us on a more normalized trajectory and allows us to focus on, you know, the path forward. Certainly, we have to still collect the assets as best we can in the back book, but we feel good about having positioned the business for the future. And then, like, just the branches, you've optimized the branch locations. You know, is there more to go there?

We'll add a handful of branches in those newer states, where we know we can get real.

Nice receivables per branch, which you know in our newer states are averaging $5 $6 million.

Per branch.

So you know.

We'll continue to optimize around the network like any good retailer, we do when leases come due and if there's opportunities to consolidate.

Rob Beck: And then maybe kind of, you know, on the same branch topic, you guys expanded into Illinois a couple years ago. Maybe give us an update on how that's going. Yeah, so we ended up closing four branches. I would say, you know, that's fairly typical in every given year that we close three or four branches. We included this in all the restructuring actions that we took in the quarter, which were largely, you know, looking for efficiency savings and how we manage the business.

In terms of Illinois, and the new States I mean, we're very happy with with the growth that we've seen Illinois got $54 million of Anr across eight branches and we're averaging $6 7 million per branch.

So that profile.

Is the same if not higher than some of our other new states, which is just a proof point that you know our leaner footprint model creates.

Creates a lot of leverage in these new markets.

Yeah.

Great. Thanks, guys very much.

Rob Beck: You know, some belt tightening, we thought that was the right thing to do and gave us some dry powder for when we want to lean back into growth. In terms of going forward for this year, I would say, you know, in terms of new markets, just to be transparent, we've entered so many new states; there's plenty of headroom and growth opportunity in every one of those states. You know, we'll add a handful of branches in those newer states where we know we can get, you know, really nice receivables per branch, which, you know, in our newer states are averaging, you know, five, six million dollars per branch. And so, you know, we'll continue to optimize around the network like any good retailer would do when leases come due and if there are opportunities to consolidate.

Thanks, John.

The next question comes from Zachary Auster with JMP Securities. Please go ahead.

Hi, This is Jack on for David So just back to the topic of the branch optimization. So I just wanted to kind of dig in there a little bit more and see if there is if it was concentrated in any specific state or region.

I think this is kind of impact any future footprint expansion kind of strategy longer term.

No it really is.

When you look at any kind of retail business.

Leases come up over a period of time and then you look at well you know based on our kind of the larger footprint strategy that we have an opportunity to consolidate in and one larger location and so we take those opportunities as they come up which is what was the case with these.

Four branches that we that we closed and consolidated to a nearby location.

Rob Beck: In terms of Illinois and the new states, I mean, we're very happy with the growth that we've seen. Illinois has got 54 million dollars of ENR across eight branches, and we're averaging 6.7 million dollars per branch. So, you know, that profile is the same, if not higher, in some of our other new states, which is just a proof point that, you know, our leaner footprint model creates a lot of leverage in these new markets. Great Thanks, guys, very much. Thanks, John. The next question comes from Zachary Oster with JMP Securities; please go ahead. Hi, this is Zach on behalf of David.

And then effectively and we've been doing this for a while we effectively do that and that helps self fund additional branches in newer locations in new states. So it's just a.

Just a normal part of running the business and optimizing your retail storefront in fact, the only thing that I would add to that is as we talked about the restructuring I'm much of the restructuring and the severance costs were due to the elimination of approximately 10% of our corporate positions. So I just wanted to point that out.

And in terms of the restructuring and just as a reminder, that's going to result in about $6 million of operating cost savings in 2024.

Zachary Oster: So just back to the topic of branch optimization. So we just want to kind of dig in there a little bit more and see if there's if it was concentrated in any specific state or region. And additionally, does this kind of impact any future footprint expansion kind of strategy longer term? No, it really is, you know, when you look at any kind of retail business, you know, your leases come up over a period of time. And then you look at, well, you know, based on our kind of larger footprint strategy, do we have an opportunity to consolidate in one larger location? And so we take those opportunities as they come up, which was the case with these four branches that we closed and consolidated into a nearby location.

Got it thank you.

Great. Thanks Zack.

Once again, if you have a question. Please press Star then one.

The next question comes from Bill does Allen with Titan Capital. Please go ahead.

Alright. Thank you are you just mentioned the 10% head count at corporate would you. Please walk through kind of what functions are you found that you were getting a bit heavy in and needed to trim down.

Hey, Bill how are you doing thanks. Thanks for joining you know really it was us optimizing <unk>.

Across the head office, so I wouldn't say it was heavy in any particular area.

But as you think ahead and how we plan to run the business going forward, particularly.

Operational elements in certain business lines, including <unk>.

Zachary Oster: You know, and effectively, and we've been doing this for a while, we effectively do that, and that helps self-fund additional branches in newer locations in new states. So it's just a normal part of, you know, running the business and, you know, optimizing your retail storefront. And Zach, the only thing that I would add to that is that we talked about the restructuring. Much of the restructuring and the severance costs were due to the elimination of approximately 10% of our corporate positions.

Digital.

Business that we're growing.

There was just the ability to combine functions and then by doing that.

Basically have a more efficient organization and be able to reduce some some folks and I will tell you.

Always a hard decision to reduce talented people and this had nothing to do with the with the individuals themselves.

It had to do with where we could.

Harp Rana: So I just want to point that out in terms of the restructuring. And just as a reminder, that's going to result in about $6 million of operating cost savings in 2020. Thank you. Great, thanks Zach. Once again, if you have a question, please press star, then 1. This question comes from Bill Dezellem with Titan Capital. Please go ahead.

Run more effectively and frankly.

Create some.

Synergies and backups were functions could be.

Put together so not any one targeted area.

Okay. That's helpful. And then what was the size of the portfolio that you sold in the fourth quarter. Please.

Yes so.

So we told them about 24 million of the loans and that had a December in our impact of $16 million.

William J. Dezellem: Thank you. You just mentioned the 10% headcount at corporate. Would you please walk through kind of what functions you found that you were getting a bit heavy on and needed to trim down?

Great. Thank you and a couple more if I may please.

Have you begun leaning into portfolio growth as of today.

Rob Beck: Hey, Bill, how are you doing? Thanks. Thanks for joining us. You know, really, it was just us optimizing, you know, across the head office. So I wouldn't say it was heavy in any particular area.

So I would say it this way.

We our models, where we look at our returns on a DCF basis, the direct contribution margin basis.

Rob Beck: But as you think ahead and how we plan to run the business going forward, particularly, you know, operational elements, and, and, and, certain business lines, including, you know, digital, you know, business that, you know, we're growing there, there was just the ability to combine functions. And then by doing that, you know, basically have a more efficient organization, and be able to reduce some, some folks. And I will tell you, you know, it's always a hard decision to dismiss talented people.

Like others we.

We look at every aspect of our portfolio, we look at what the returns are we.

We picked those parts of the portfolio, where we have the highest confidence we also apply stress against.

Those underwriting decisions.

Particularly where there are higher stressed or higher risk areas.

And I'll give you. An example, so our small loan book we.

Rob Beck: And this had nothing to do with the individuals themselves. It had to do with where we could run more effectively and, frankly, create some synergies in backups where functions could be, you know, put together. So not any one targeted area.

<unk> added about $30 million of receivables in the third quarter and another $19 million in the fourth quarter and I think we're now at a record high in terms of our small loan portfolio now.

Typically we have been reducing the amount of loans that are.

Rob Beck: That's helpful. And then what was the size of the portfolio that you sold in the fourth quarter? Yes, so we filled about $24 million of the loans, and that had a December E&R impact of $16 million. Great, thank you. And a couple more, if I may, please.

Greater than 36% and we actually I think we're up about two percentage points versus prior year.

No I would say that that is done with confidence because while this is a higher higher rate higher risk business, it's got very attractive margins. So.

Rob Beck: Have you begun leaning into portfolio growth as of today? So I would say this way: we are models where we look at our returns on a DCM basis, a direct contribution margin basis. Like others, we look at every aspect of our portfolio, we look at what the returns are, and we pick those parts of the portfolio where we have the highest confidence. We also apply stress against those underwriting decisions, particularly where there are higher stress or higher risk areas. And I'll give you an example.

To kind of give you a sense of what this means for the business. So we've talked about repricing our portfolio for all of last year.

And we continue to do it where we see opportunities we're leaning into some of the small loan growth and so if you look at our originations in the fourth quarter. The average APR was right at 37%.

Rob Beck: So our small loan book, we added about $30 million of receivables in the third quarter, another $19 million in the fourth quarter, and I think we're now at a record high in terms of our small loan portfolio. Now, typically, we have been reducing the amount of loans that are greater than 36%, and we actually are up about two percentage points versus the prior year. Now I would say that that is done with confidence because while this is a higher rate, higher risk business, it's got very attractive margins. So to kind of give you a sense of what this means for the business, we've talked about repricing our portfolio for all of last year, and we continue to do it where we see opportunities. We're leaning into some of the small loan growth, and so if you look at our originations in the fourth quarter, the average APR was right at 37%. Our fourth quarter 2022 APRs on our originations, so a year ago, were 34.6%, give or take.

Our fourth quarter 2022, <unk> on our originations so a year ago was 34, 6% give or take so we've added 233 basis points.

Higher APR to our to our business model over the last year through repricing, our base business as well as starting to lean into some of the smaller loan.

Activity, which as I said as higher rate.

Higher return, but also has somewhat higher losses, which is why we kind of guided up the the NCL rate for next year. So again, it's all about putting on our highest confidence assets with the best returns and that's how we run the business.

Uh Huh, that's interesting let me jump in a little further on that if I may. So historically, we have thought about the small loan portfolio as is being a feeder for the large loan portfolio and and those loans tend to be the newer oh.

Rob Beck: So we've added 233 basis points of higher APR to our business model over the last year through repricing, you know, our base business, as well as starting to lean into some of that smaller loan activity, which, as I said, is higher rate, higher return, but also has somewhat higher losses, which is why we've kind of guided up the NCL rate for next year. So again, it's all about putting our highest confidence assets with the best returns, and that's how we run the business. That's interesting.

It's tended to be to new or newer.

Our clients.

And.

And then that leads to large loan growth.

Rob Beck: Let me jump in a little further on that, if I may. Historically, we have thought about the small loan portfolio as being a feeder for the large loan portfolio. And those loans tend to be to newer or have tended to be to new or newer clients, and then that leads to large loan growth. Is there something different going on now, or is that exactly what we're seeing, and it explains..., uh..., and it somehow leads to there being a pullback in the large loan originations that you've experienced? No, I would say that, you know, the market and the competition around that small loan space is not as great right now for lots of reasons compared to other competitors.

Is there something different going on now or is that is that exactly what we're seeing and it explained.

And then somehow leads to there being a pull back in the large loan originations that you've.

That you've experienced.

No I would say that.

Market and the competition around that small loans spaces.

It is not as great right now for lots of reasons that other competitors.

Rob Beck: And so we're able to be pretty selective in those loans we put on. And it creates that feeder system that we've always had to be able to take those best customers who perform well on us and then migrate them up to larger loans. So this isn't about deemphasizing large loans.

And so we're able to be pretty selective in those loans, we put on.

And it creates that feeder system that we've always had to be able to take those those best customers, who perform on us and then migrate them up to larger loans. So.

This isn't about deemphasizing large loans this is about <unk>.

Rob Beck: This is about finding where there are opportunities to make really strong returns on the small loan portfolio. And we probably have discussed this in the past, but we have a barbell strategy where we have some higher-rate, higher-risk loans and small loans on one end. We have our large loan book in the middle, and we're increasing the size of our auto secured business on the other end of the barbell, which obviously has much lower credit losses and equally strong returns.

Finding where theres opportunities really strong returns with the small loan portfolio and we probably have discussed this in the past, but we have a barbell strategy, where we have some higher rate higher risk loans small loans on one end, we have a large loan book.

The middle and we're increasing the size of our auto secured business all the on the other end of the barbell, which is obviously has much lower <unk>.

Credit performance.

Credit losses.

And equally strong returns and so this is just the strategy of continuing to maximize the bottom line returns across those three elements of our business.

Rob Beck: And so this is just a strategy of continuing to maximize the bottom line returns across those three elements of our business. Great. Thank you both for taking my question.

Great. Thank you both for taking my questions.

William J. Dezellem: Great. Thanks, Bill. The next question comes from John Rowan with Jennie. Please go ahead. Good evening. I just have one really quick question.

Great. Thanks Bill.

The next question comes from John Rowan with Janney. Please go ahead.

Good evening I just have one really quick question. So the net charge off rate guidance that you gave for fiscal 2024 that obviously benefits from the from the loan sale in the fourth quarter correct.

John Rowan: So the net charge-off rate guidance that you gave for fiscal 2024, that obviously benefits from the loan sale in the fourth quarter, correct? Actually, it does benefit from the loan sale in the fourth quarter. The HARP, do you have that?

Actually the.

It does benefit from the loan sale in the fourth quarter.

Yeah.

Harp Rana: In the fourth quarter, it had a $320 basis. And you know, I'll go back to last year's loan sale, which had a 320 basis point impact in the fourth quarter of 2022 but then had a 280 basis point positive impact in the first quarter of 2023. So we would expect a similar pattern in the fourth quarter of 2022. All right. Thank you. Thank you. This concludes the question and answer session. I would like to turn the conference back over to Mr. Beck for any closing remarks. Please go ahead.

You said it in the fourth quarter it had a 320 basis point impact.

And I'll go back to last year as loan sale, which had a 320 basis point impact in the fourth quarter of 2022, but then had a 280 basis point positive impact in first quarter.

2023, so we would expect a similar pattern with the fourth quarter 'twenty three loan sale.

Okay alright, thank you.

Thank you.

Okay.

This concludes the question and answer session I would like to turn the conference back over to Mr. Burke for any closing remarks. Please go ahead.

Rob Beck: Thanks, Operator, and thanks, everyone, for joining us this evening. Let me close by saying, you know, that I'm optimistic about our future. As I said, the economic outlook is improving. Inflation is falling. Real wage growth, unemployment is below four percent. There are still nine million open jobs out there. And, you know, the rate cuts, as I said, are, you know, seemingly on the horizon.

Thanks, operator, and thanks, everyone for joining this evening.

Let me close by saying that I'm optimistic about our future as I said, the economic outlook is improving.

Inflation is falling real wage growth unemployment below 4%, there's still 9 million open jobs out there and you know the rate cuts as I said are.

Seemingly on the Horizon I think most importantly, though we put the back of higher losses on our back book behind Us.

Rob Beck: I think most importantly, though, we put the back, you know, the higher losses on our back book behind us. And as we've said, our front book continues to perform in line with our expectations. You know, our back book is 22 percent of the ANR now, and by year end, it's going to be eight percent. Given our proactive tightening, you know, our NCLs will peak in 2023. And while the back book is still leading to elevated losses in 2024, we are fully reserved for those losses at a reserve rate of 14.8 percent.

And as we said our front book continues to perform in line within our expectations.

Our back book is 22% of Anr now.

And by year end, it is going to be 8%.

Given our proactive tightening RMC.

<unk> did peak in 2023.

And while the back book is still leading to elevated losses in 2024, we're fully reserved for those losses.

At our reserve rate of 14, 8%.

Rob Beck: And lastly, you know, our year-end 30 plus day delinquencies were better than the prior year by 20 basis points. Overall, our model has proven to be, you know, very resilient through a period of, you know, high inflation that's not been seen in 40 years. And during this period, we continue to invest in the business so we can lean into growth as the macro environment improves. You know, we have a strong balance sheet with liquidity to fund our growth. And when you factor in the fourth quarter actions, we still generated 26 million of capital this year, of which 12 million was paid out in dividends. And we ended the year with 322 million in book value, or thirty-three dollars per share. So given all these actions, we are positioned to improve earnings this year, and we're seeing a strong 2025 and beyond.

And lastly, our year end 30, plus day delinquencies were better than prior year by 20 basis points.

Overall, our model has proven to be very resilient through a period of.

High inflation, that's not been seen in 40 years.

And during this period, we continued to invest in the business. So we could lean into growth as the macro environment improves.

We have a strong balance sheet with liquidity to fund our growth.

And when you factor in the fourth quarter actions, we still generated $26 million of capital. This year of which 12 million was paid out in dividends and we ended the year with $322 million of book value of $33 per share.

So given all of these actions.

We are positioned to improve earnings this year and we're seeing a strong 2025 and beyond so again. Thank you all for joining and have a good night.

Rob Beck: So, again, thank you all for joining us and have a good night. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. Please see the complete disclaimer at www.sites.google.com.au, www.globalonenessproject.org

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Okay.

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