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 a listen-only mode and the conference is being recorded. [Operator Instructions]. 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 regionalmanagement.com.

Before we begin our formal remarks, I will direct you to Page 2 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 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 certain non-GAAP measures.

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..

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 Q4 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 $0.80 per share, our aftertax earnings were reduced by $12.6 million or $1.34 per share due to these three actions.

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 and beyond. 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 pretax restructuring charge in the fourth quarter related to brands 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 will utilize to self-fund our continued investment in growth, technology, data and 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%, 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 reversals.

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, but 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 our revised description of the back-book, 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 year-end. 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. In comparison, the loan loss reserve rate on our front book is 9.5%.

As the stressed back-book loans flow through the loss, the incremental reserves will represent about 40 basis points of net credit loss rate in 2024, which we charged against our loan loss reserve 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.

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, held on to 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 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 yields that came in better than our outlook.

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 $90 million [ph] 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 trade off.

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 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.

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 or 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.

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%. 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 10.1% and 10.3% 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. 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 one to 59 day delinquency rate remains 70 basis points better at year-end 2023 compared to 2019.

In projecting our 2024 MCL rate at 10.7% 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, though those roll rates will remain elevated compared to 2019 levels.

If roll rates do not improve in 2024, our net credit loss rate could increase to 11% to 11.3%. If roll 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 current underwriting and portfolio mix.

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 norms.

However, as we have begun to lean back into our higher margins swallowing business, we expect our normalized portfolio loss rate to increase to the 9% to 9.5% 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 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 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, 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 on 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 sales and taken additional reserves related to our remaining back book 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.

The team and I are excited as we continue to execute on our omnichannel strategy and remain positioned for stronger growth when the economic conditions arrive. 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. 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 the line item guidance for the first quarter. On Page 3 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 $7.6 million or $0.80 per share. The restructuring loan sale and reserve actions described by Rob impacted net income by $12.6 million or $1.34 per share. On a normalized basis, we had strong revenue growth and we continue to carefully manage our G&A 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 segments. Total originations declined 13% year-over-year.

By channel, direct mail, digital, and branch origination 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 through the fourth quarter.

We closed 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 sales, which accelerated a total of $16 million of loan charge offs and interest accrual reversals from the first quarter 2024 to fourth quarter 2023.

Excluding the impact of the fourth quarter loan sales, 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.

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. 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.

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 fourth quarter despite a $1.9 million impact on revenue from the fourth quarter loan sale.

Our total revenue yield and interest in fee yield was 32.3% and 28.8% respectively. Both interest and 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.

We continue to anticipate that our increased pricing will drive benefits to our 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 were in line with our expectations. Our 30 plus day delinquency rate as of 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. 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 delinquency. Our back book, which represents 22% of our portfolio, accounts for 33% of our 30 plus day delinquency. Our front and back book reserve rates were 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 and delinquency and the rebuild of the delinquency buckets following the fourth quarter loan sale.

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 to the first quarter of the fourth quarter loan sale.

Turning to Page 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 was $187 million.

Our allowance increased by $2.5 million in the quarter, primarily due to portfolio growth, while the reserve release associated with the fourth quarter loan sale roughly washed against the reserve build for our back book portfolio. The allowance assumes a 2024 year end unemployment rate of 5.8%.

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 expense for the fourth quarter of $64.8 million were better than our outlook of $64 million 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'll 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 continued targeted investments in our operations.

Turning to Pages 13 and 14, our interest expense for the fourth quarter of $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 expense as a percentage of average net receivables, thanks for fixed rate debt issued through our asset backed securitization program.

As of December 31, 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.

As our fixed rate funding matures and we continue to grow using variable rate debt, our interest expense will increase as a 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 5.8% year-end 2024 unemployment rate assumption as well as $322 million of stockholders' equity for $33 per share.

As of the end of the fourth quarter, we had $552 million of unused capacity on our credit facilities and a $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 duration 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 disruption in the credit market. Our fourth quarter funded debt-to-equity ratio remained at conservative 4.3:1.

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. 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 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. 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 2025 and beyond. Thank you again for your time and interest. I'll now open up the call for questions.

Operator, could you please open the line?.

Thank you. [Operator Instructions]. The first question comes from John Hecht with Jefferies. Please go ahead..

Good afternoon, guys. Thanks very much. I guess the first question just because it feels like credit spend a little bit of a moving field goal kind of post the last several quarters.

I'm just wondering, what did you like maybe you could talk about the 2023 vintage or the 2022 vintage, like your confidence level and 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?.

We'll do John and thanks for joining the call. What I'd 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 at historical levels.

Now there's always a difference in mix and various vintages, but the tightening is having an impact and that we wanted to have and we're very pleased with the performance of the new vintages. In terms of the credit losses in the profile, I mean for us, the MCLs peaked in 2023.

And so we have a back-book now that's 22% of the portfolio and as you can see, it's got fairly high delinquencies, but we're fully reserved against that with a 14.8% of reserve rate and 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 this quarter where we took the actions to put the back-book behind us, that's partially through the loan sale as well, really just puts us on a more normalized trajectory and allows us to focus on the path forward.

Certainly, we got 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 now..

And then like just the branches, you've optimized the branch locations, is there 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 an update on how that's going?.

Yes. So we ended up closing four branches.

I would say that's fairly typical in every given year that we close three or four branches, we included in all the restructuring actions that we took in the quarter, which was largely looking for efficiency saves and how we manage the business, some 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, I would say 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.

We'll add a handful of branches in those newer states where we know we can get really nice receivables per branch, which on our newer states are averaging $5 million to $6 million per branch. And so and we'll continue to optimize around the network like any good retailer would do when leases come due and if there's opportunities to consolidate.

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 of E&R across eight branches and we're averaging $6.7 million per branch.

So that profile is the same, if not higher in some of our other new states, which is just a proof point that 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 for David. So just back to the topic of the branch optimization. So we 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.

Additionally, does this kind of impact any future footprint extension kind of strategy longer term?.

No, it really is when you look at any kind of retail business, your leases come up over a period of time and then you look at well, based on our kind of the 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 is what was the case with these four branches that we closed and consolidated to a nearby location. And effectively, we've been doing this for a while. We effectively do that and that helps self-fund additional branches in newer locations and new states.

So it's just a normal part of running the business and optimizing your retail storefront..

And Zach, the only thing that I would add to that is as we talked about the restructuring, much of the restructuring in the severance costs were due to the elimination of approximately 10% of our corporate positions. 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 2024..

Got it. Thank you..

Great. Thanks, Zach..

[Operator Instructions]. The next question comes from Bill Dezellem with Tieton Capital. Please go ahead..

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 and needed to trim down?.

Hey, Bill, how are you doing? Thanks for joining. Really, it was us optimizing 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 and certain business lines, including 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, be able to reduce some folks. And I will tell you, always a hard decision to reduce talented people 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 and backups where functions could be put together. So not any one targeted area..

That's helpful.

And then what was the size of the portfolio that you sold in the fourth quarter, please?.

Yes. So Harp, you got that..

Yes. So we sold about $24 million of the loans, and that had a December E&R impact of $16 million..

Great. Thank you. And couple more, if I may, please..

Sure..

Have you begun leaning into portfolio growth as of today?.

So I would say in this way. We -- our 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. 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 stressed or higher risk areas, and I'll give you an example. 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, I think we're up about 2 percentage points versus prior year.

Now I would say that that is done with confidence, because while this is 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 businesses, 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%. Our fourth quarter 2022 APRs on our originations, so a year ago was 34.6%, give or take.

So we've added 233 basis points of higher APR to our business model over the last year through repricing 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 kind of guided up 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..

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 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 and somehow leads to there being a pullback in the large loan originations that you've experienced?.

No, I would say that the market and the competition around that small owned space is not as great right now for lots of reasons than other competitors. 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 on us, and then migrate them up to larger loans. So, this isn't about deemphasizing large loans. This is about finding where there's 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 in the middle and we're increasing the size of our auto secured business on the other end of the barbell, which is obviously, it has much lower 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..

Great. Thank you both for taking my questions..

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 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?.

So in the fourth quarter, it had a 320 basis point impact. And 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 first quarter of 2023. So we would expect a similar pattern with the fourth quarter '23 loan sale..

Okay. 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..

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 the rate cuts, as I said, are seemingly on the horizon.

I think most importantly though, we put the back -- the higher losses on our back book behind us. And as we said, our front book continues to perform in line with our expectations. Our back book is 22% of E&R now, and by year end, it's going to be 8%. Given our proactive tightening, our MCLs did 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%. And lastly, our year end 30 plus day delinquencies were better than prior year by 20 basis points. Overall, our model is proven to be very resilient through a period of high inflation that's not been seen in 40 years.

And during this period, we continue 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 or $33 per share. So given all 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..

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