Earnings Call Transcript - RM Q4 2022

Operator, Operator

Thank you for standing by. This is the conference operator. Welcome to the Regional Management Fourth Quarter 2022 Earnings Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. I would now like to turn the conference over to Garrett Edson, ICR. Please go ahead.

Garrett Edson, ICR

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 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 and financial performance and business prospects. These forward-looking statements speak only as of today and are subject to various assumptions, risks, and 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 the future operating results and financial condition of Regional Management Corp. Also, our discussion today may include references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found within our earnings announcement or earnings presentation and posted on our website at regionalmanagement.com. I'd now like to introduce Rob Beck, President and CEO of Regional Management Corp.

Rob Beck, President and CEO

Thanks Garrett, and welcome to our fourth quarter 2022 earnings call. I'm joined today by Harp Rana, our Chief Financial Officer. We closed out 2022 having taken several meaningful steps to prepare for the New Year. Harp and I will take you through our fourth quarter results, discuss our growth and the credit quality of our portfolio, update you on our strategic initiatives, and share our expectations for the first quarter and 2023 more generally. Fourth quarter results came in better than our expectations on an adjusted basis. We earned $2.4 million of net income and $0.25 of diluted EPS, inclusive of a $2.7 million impact to net income from the sale of $27 million of non-performing loans, $17 million of which would have otherwise been written off in early 2023. On an adjusted basis, excluding the impact of this loan sale, we produced $5 million in net income and $0.54 of diluted EPS. The non-performing loan sale allowed us to dispose of a distressed portion of our portfolio at an attractive price and enabled us to refocus our personnel on early stage delinquent accounts as we enter the first quarter tax season, which seasonally is our best quarter for collections. As a result of the sale and the acceleration of the net credit losses on the sold accounts from the first quarter to the fourth quarter, our net income was negatively impacted by $2.7 million in the fourth quarter, but net income will be positively impacted by a similar amount in the first quarter. While the timing issue created some noise in our fourth quarter financial results, the sale provided operational value and allowed us to put a portion of the stressed segments of our 2021 and early 2022 vintages behind us. The sold loans were funded by our senior revolver and warehouse facilities and excluded any loans in our securitization transactions. As a result, the sold portfolio contained a greater proportion of higher rate, higher risk loans than our total portfolio, including $1.9 million of loans from the eliminated direct mail segments and digital affiliate that we've highlighted on prior calls. Roughly 38% of the sold portfolio balances had APRs greater than 36% compared to 14% of total portfolio balances, and they had an average FICO of 613 compared to 640 for our total portfolio average. As a reminder, we began tightening credit in late 2021 and continued our tightening actions throughout 2022. Our second half 2022 vintages are some of the strongest in our portfolio and are currently performing in line with expectations. At year-end, our 2021 vintages represent just 22% of the portfolio, and we expect that number to decline to around 7% by the end of 2023. We ended 2022 with a 30-plus day delinquency rate of 7.1%, only 10 basis points higher than 2019 pre-pandemic levels and our early 1 to 29-day and 30 to 59-day delinquency buckets, monthly roll rates improved sequentially from the third quarter to the fourth quarter by 80 basis points and 120 basis points respectively. Delinquency rates in those early buckets were also 50 basis points and 10 basis points better respectively than fourth quarter 2019 levels. Our first payment default rates were also strong in the fourth quarter, improving to 7.1% in December, which was 240 basis points better than September 2022 and 130 basis points better than December 2019. We attribute these early indicators of credit improvement to tighter underwriting and shifting additional collections resources to early-stage accounts. Excluding the impact of the eliminated direct mail segments and digital affiliate, our year-end delinquency rate would have been 10 basis points better than pre-pandemic levels. The portfolio associated with the eliminated direct mail segments and digital affiliate was down to $22 million at the end of the fourth quarter from $31 million at the end of the third quarter, and we expected to be off our books in the second half of the year. Demand for our loan products remained strong in the fourth quarter as it was throughout 2022. We grew our receivables by $92 million to $1.7 billion in the quarter, slightly above our guidance. Continued strong demand has allowed us to be selective about the borrowers to whom we make loans, particularly as we've intentionally slowed our growth rate over the past few quarters, given the economic environment. We grew our receivables by 19% year-over-year in the fourth quarter, down from year-over-year growth rates of 31%, 29%, and 22% respectively in the first three quarters of the year. Our full-year receivable growth was disproportionately impacted by growth in the first and second quarters as fourth quarter originations were up only 8% year-over-year. We continued to tighten credit in the fourth quarter most significantly to new borrowers. While our credit tightening actions slowed our year-over-year receivables growth in the fourth quarter, we believe that the trade-off between credit and growth is appropriate in this environment. New borrowers represented 29% of our 2022 originations compared to 22% of 2019 originations with the increase in 2022 principally attributable to our geographic expansion since 2020. New borrowers naturally perform worse on average than our seasoned borrowers who remain in our portfolio following loan refinancing. Higher credit losses on our new borrower portfolio reflect a component of our investment in growth. By tightening credit over the past year, we believe we continue to strike the right balance between growth and credit quality. We offset some of the loss volume from our new borrower credit tightening actions by increasing our former borrower direct mail programs. Similar to our present borrower portfolio, our former borrower portfolio performs better than our new borrower population, as we are able to use past on-us credit performance in determining which former borrowers to include in mailings. Throughout 2022, we increasingly targeted former borrowers in our mail campaigns. In the fourth quarter, 45% of our direct mail volume was to former borrowers, compared to 29% in the first quarter, and 70% of all originations in the fourth quarter were to present and former borrowers. The increased former borrower production coupled with present borrower renewal activity in the branches drove much of our growth in the fourth quarter as we continued to focus on the highest quality originations. With our credit actions, our top-tier risk ranks made up 63% of our originations in the quarter, up from 46% in the fourth quarter of 2019, and 54% from a year ago. More than 80% of our third and fourth-quarter originations had FICO scores of 600 or above compared to 71% in the fourth quarter of 2019, and nearly all of our new borrower originations in the fourth quarter had FICO scores of 600 or above. Our auto secured portfolio has surpassed $100 million for the first time as of year-end. The credit performance on the growing auto secured portfolio has been strong to date with the 30-plus day delinquency rate of only 2.2% as of the end of the year. It's worth noting that for every dollar of growth in any given quarter, we lose money on that growth as we book the credit reserve upfront to cover lifetime losses. In the fourth quarter alone, we reserved $9 million pre-tax on our $92 million of receivables growth. Our fourth quarter receivables growth, however, provided us with a higher starting point for the new year and will generate nearly $30 million of incremental revenue in 2023. In addition to the fourth quarter credit tightening, we also completed several key risk and pricing initiatives to support our portfolio going into 2023. First, we completed the rollout of our second-generation custom underwriting scorecard to all of our states. The new advanced model evaluates more than 5,000 attributes including alternative data and has more complex segmentations that will allow us to further fine-tune our underwriting strategies, make better credit decisions at the margin, and improve our credit loss experience while holding loan volume stable, which should benefit net credit losses as we slow our growth in the near term. Second, we expanded our relationship with our external collector, improved their capabilities, and increased our internal and external collector capacity by 50% in the second half of 2022. These moves allow our branch team members to focus more of their efforts on early stage collections, renewal activity, and loan production. Third, we began rolling out our new customer online portal, which significantly enhances the customer experience and includes improved payment functionality. Finally, as a result of the rising rate environment and normalizing credit, we began to reprice parts of our portfolio in the second half of 2022. Most of the pricing actions were implemented late in the fourth quarter with additional repricing occurring in the first quarter. Our revenue yields fell in 2022, largely due to the mix shift to larger loans below 36% APR, increased credit tightening on our higher risk, higher rate segments, and the impact of the worsening credit environment. The credit environment has caused a larger portion of our loans to reach non-accrual status as they enter later stage delinquency and an increase in the reversal of accrued interest when these loans are written off. We expect that our recent pricing actions will help to stabilize revenue yields over the long term, and while we anticipate continued yield pressure in the near term as a result of recent credit tightening and higher rate, higher risk segments, we expect yields to improve in the future as the macro impact on credit reverts back to more normalized levels. As we look ahead to the New Year, we believe that the actions we took in 2022 position us to address potential further deterioration in the macro-environment. In the coming year, we will continue to place our focus on our highest confidence originations, emphasizing quality over quantity. We will originate loans only where we can achieve our return hurdles under an assumption of additional credit stress beyond today's levels, as well as higher future funding costs. A greater percentage of our originations will be to present and former borrowers with new borrower lending disproportionately skewed to our newer states. As a result, we expect receivables growth to slow to the mid to high single digits in 2023 compared to 19% in 2022. As we begin to benefit from the more meaningful impact of second half 2022 credit tightening, we anticipate that delinquencies will begin to improve in the first half of 2023, which will support improvement in our net credit loss rate in the second half of 2023. By the end of 2023, we expect our second half 2022 and 2023 vintages to account for more than 80% of our total portfolio. While we expect an economic downturn in 2023, most signs indicate that our customer base will fare better than average. We're encouraged by the recent trends in inflation and the continued strength of the labor market, including low unemployment, a high number of open jobs, and strong wage growth in our customer’s industry. However, if conditions worsen, our tightened underwriting provides a powerful mitigator to further economic deterioration. As a result of expected stronger credit performance and higher revenues in the second half of 2023, we anticipate that our net income will be strongest in the third and fourth quarters of the year. As always, we'll monitor our credit performance and the macroeconomic environment closely and we'll make further adjustments to underwriting as dictated by circumstances. Most critically, we'll monitor the inflation rate and how it compares to wage growth for lower-income segments. Should we observe an improving macroeconomic environment, we have the ability to quickly lean back into growth. From an investment standpoint, we'll seek to capitalize on the opportunities available to us in the seven new states that we've entered over the past couple of years, which have increased our addressable market by nearly 80%. We'll tightly manage our expenses while our pace of new state entry is significantly reduced, opening only five to seven new branches in 2023. In the first quarter, we plan to enter one new state that carried over from 2022, and we may enter a second new state in the second half of the year if justified by the economic conditions. Our expense growth in 2023 will be driven primarily by the carryover impact of our 2022 investments as we look to grow and capitalize on prior year investments. Our efforts will include completing several important technology, digital, and data and analytics projects as we continue to modernize and evolve our omnichannel business strategy. I want to thank all of our team members for their tireless effort this past year. Together we made major strides in growing and transforming our business, and these efforts, including the actions taken in the fourth quarter, put us in a strong position going into 2023. While the economic environment remains uncertain, I'm confident that the actions we took in 2022 position us well for 2023 and beyond. I'll now turn the call over to Harp to provide additional color on our financial results.

Harp Rana, CFO

Thank you, Rob. Hello everyone. I'll now take you through our fourth quarter results in more detail. On Page three of the supplemental presentation, we provide our fourth quarter financial highlights. We generated GAAP net income of $2.4 million and diluted earnings per share of $0.25. GAAP results are inclusive of a $2.7 million or $0.29 per diluted share charge related to the loan sale that Rob described earlier. Excluding the loan sale, we would have generated net income of $5 million and diluted earnings per share of $0.54. Our core results were driven once again by a high-quality portfolio, revenue growth, and careful management of expenses, partially offset by our base reserve build for portfolio growth, increased interest expense, and macroeconomic impact. For 2022, we produced returns of 3.3% ROA and 17% ROE. Turning to Page four, our loan products continue to experience strong demand enabling us to drive high-quality growth, despite a number of credit tightening actions and an increased focus on collection activities in our branches. Fourth quarter direct mail originations were up compared to the prior year with an emphasis on former borrowers, while digital and branch originations each trailed the prior year. We had $470 million of total originations in the quarter, an 8% increase over the prior year period. The 8% increase is modest compared to the fourth quarter of last year where originations were up 19% year-over-year. As you can see on Page five, we continue to grow our digital channel through affiliate partnership expansion. In the fourth quarter, we generated digitally sourced originations of $48 million, representing 27% of our new borrower volume in the quarter. We continue to meet the needs of our customers through our multi-channel marketing strategy. Page six displays our portfolio growth and product mix through the fourth quarter. We closed 2022 with net finance receivables of $1.7 billion, up $92 million from the prior quarter, slightly ahead of our prior guidance. As Rob noted, we've intentionally slowed growth in recent quarters, and while our portfolio is up $273 million or 19% year-over-year, much of the annual growth rate is attributable to the strong origination activity early in the year. On a product basis, we continue to shift to larger loans and loans at or below 36%. As of the end of the fourth quarter, our large loan book comprised 71% of our total portfolio and 86% of our portfolio carried an APR at or below 36%. Looking ahead, we would expect to see normal seasonal liquidation in the first quarter, as we continue to monitor the macro environment and keep a close handle on our underwriting. In the first quarter, we anticipate that our net finance receivables will contract by approximately $25 million. As we've noted before, we're focused on smart controlled growth, and if dictated by the circumstances, will further tighten our underwriting, which would impact receivables at the end of the first quarter. As shown on Page seven, our growth initiatives, lighter branch footprint strategy in new states and recent branch consolidation actions and legacy states contributed to another strong same-store year-over-year growth rate of 15% in the fourth quarter. Our receivables per branch were at an all-time high of $4.9 million at the end of the year. We believe considerable growth opportunities remain within our existing branch footprint, particularly in newer branches. Turning to Page eight, total revenue grew 11% to $132 million in the fourth quarter. Our total revenue yield and interest in fee yield were 32.1% and 28.5% respectively. Due to our continued mix shift towards larger, higher-quality loans, credit normalization, and the impact of the loan sale, our total revenue yield and interest in fee yield declined 300 basis points and 290 basis points respectively year over year. Of those declines, 40 basis points is attributable to the loan sale, which involved the acceleration of net credit losses and interest accrual reversals from the first quarter to the fourth quarter. We estimate the credit impacts in the macroeconomic conditions on revenue reversals and non-accrual loans to be approximately a 100 basis points, with the remainder of the decrease in yield being the result of credit tightening and the mix shift to larger higher-quality loans. We continue to believe that tightening underwriting on higher risk, higher yield segments, and the shift in our portfolio towards higher-quality large loans is appropriate in light of the uncertain macroeconomic environment. In the first quarter, we expect total revenue yield and interest and field to be approximately flat for the fourth quarter as the impact of continuing credit normalization and additional credit tightening is offset by the first quarter benefit of the loan sale. As the credit environment improves, our yields will also improve, benefited also by the pricing actions that Rob described earlier. Moving to Page nine, our 30-plus day delinquency rate at quarter-end was 7.1%, down 10 basis points sequentially but up 110 basis points year over year due to macroeconomic impacts, partially offset by the benefit of the loan sale. Our net credit loss rate in the fourth quarter came in at 15%, with approximately 320 basis points of the NCL rate attributable to the loan sale and 90 basis points attributable to the eliminated direct mail segments and digital affiliate that Rob discussed earlier. Excluding the loan sale, our net credit loss rate for the fourth quarter would have been 11.8%. In the first quarter, we expect delinquencies to improve consistent with normal seasonal trends, and we expect that net credit losses will be approximately $42 million or $20 million lower than the fourth quarter, as the first quarter benefit of the loan sale more than offsets the typical seasonal increase in net credit losses. Turning to Page 10, our allowance for credit losses declined slightly in the fourth quarter as the reserve reduction of $11.8 million due to the loan sale more than offset a reserve build of $9.1 million due to portfolio growth and $1.7 million of additional macro-related reserves. As of quarter-end, the allowance stood at $179 million or 10.5% of net finance receivable. Our allowance model contemplates that unemployment rates will peak at 6.7% in the fourth quarter of 2023 and then gradually decline. The allowance continues to compare favorably to our 30-plus day contractual delinquency of $120 million and includes a macro-related reserve of $21 million. These macro-related reserves amount to 12% of our total allowance for credit losses, a strong position as we continue to monitor the health of the economy and the consumer. In the first quarter, we expect to build reserves as the late-stage delinquency buckets are partially empty due to the loan sale begin to refill. This build will be partially offset by a small release in the base reserve due to seasonal first quarter portfolio liquidation. As a result, we expect to end the quarter with a reserve rate between 11% and 11.1%, subject to macroeconomic conditions. If the credit improvement described earlier by Rob materializes, by year-end, we expect our reserve rate to decline to between 10.5% and 10.7%. Over the long term, once the macroeconomic environment improves, we expect that our net credit loss rate will be in the range of 8.5% to 9% based on our current product mix and underwriting, and we believe that our reserve rate could drop to as low as 10% with the improvement attributable to our shift to higher-quality loans. Of course, as we've always done, we'll manage the business in a way that maximizes direct contribution margin and bottom-line results. Flipping to Page 11, we continue to manage our G&A expenses tightly in the face of normalizing credit. G&A expenses for the fourth quarter were $55.1 million, better than our prior guidance. Our annualized operating expense ratio was 13.4% in the fourth quarter, a 290 basis point improvement from the prior year period. We are very pleased with our disciplined expense management in this challenging economic environment. We will continue to manage our expenses tightly and prioritize those investments that are most critical to achieving our strategic objectives. Over the long term, we believe that our investments in our digital capabilities, geographic expansion, data and analytics, and personnel will drive additional sustainable growth, improved credit performance, and greater operating leverage. In the first quarter, we expect G&A expenses to be approximately $62.5 million.

Rob Beck, President and CEO

Thanks, Harp, and as always, I'd like to thank our team for their strong execution in a challenging environment. We're pleased with our fourth quarter results and the meaningful steps that we took to prepare ourselves for 2023. As we enter the new year, we feel good about having put a portion of our stress loans behind us, starting the year with 30-day delinquencies nearly flat to pre-pandemic levels. We are observing early signs of credit improvement, including lower first payment defaults and lower delinquency, and improved roll rates in our early-stage delinquency buckets compared to the third quarter and pre-pandemic levels. These early indications are a result of tighter underwriting, our next-generation scorecard, and improved collections capabilities. With these proactive steps on credit and increased pricing, we're well positioned as we enter the first quarter tax season and are prepared to weather additional economic stress if it materializes. We're cautiously optimistic that we'll see an improvement in delinquencies in the first half of the year and net credit loss rate in the second half of the year. If so, our sophisticated underwriting model will enable us to respond quickly to take advantage of the improving macroeconomic conditions. As we've done in the past, we'll manage our expenses tightly while continuing our investment in those things that will generate the greatest returns in the form of controlled, disciplined portfolio growth, improved credit performance, and greater operating leverage. Ultimately, these efforts will position us to sustainably grow our business, expand our market share, and create additional value for our shareholders.

Operator, Operator

We will now begin the question-and-answer session. Our first question comes from David Scharf of JMP Securities. Please go ahead.

David Scharf, Analyst

Hi, good afternoon. Thanks for taking my questions, Rob and Harp. I wanted to dig in a little bit into some of your underlying assumptions on how the year plays out, recognizing how many variables there are. One thing that piqued my interest was when you were discussing reserve levels. Did you say that your forecasted year-end unemployment rate was 6.7%?

Harp Rana, CFO

Yes, so what we have is our model that contemplates that the unemployment rate will peak at 6.7% in the fourth quarter of 2023, and just for reference, in the third quarter, we projected unemployment peaking at 6.4% in that same time period. The reflection of that increase in the unemployment rate is based upon scenarios that we use from a large rating agency, and it is basically a reflection of a higher probability of recession you’re seeing there.

Rob Beck, President and CEO

To clarify, when we made those assumptions, it was obviously before the most recent unemployment figures were released.

David Scharf, Analyst

Right; I guess that was what I wanted to get into, Rob. That’s even prior to that very strong January jobs report. I know quite a number of peers in their year-end earnings calls have based reserve levels on the assumption of 4.5%, 5%, which seems to be what many economists suggest. I'm just wondering what metrics you might be watching and how quickly might those come in terms of one or two more months of jobs reports? Not just as reserve levels should we view it as very, very conservative, but would more granular or more comfort that unemployment is going to peak potentially 200 basis points lower, 4.5% seems to be more a consensus? Would that impact your origination plans as well?

Harp Rana, CFO

Sure, let me address that. From a seasonal standpoint, we were probably lined out more towards a harder landing than a softer landing at the end of the year, and we made that shift, obviously, looking ahead and not being sure what the impact was of the rapidly increasing Fed funds rate and its impact on unemployment, particularly with all the layoffs we’ve read about, especially in the tech industry. So, we took a slightly more conservative approach in the fourth quarter and increased our macro reserve by $1.7 million. It stands at $21 million today, and again, that was before the most recent print. If we’re thinking about what would induce us to lean back into growth, besides early credit indicators—which we talked about the green shoots in our prepared comments—we'd like to see that continue for a period of time.

David Scharf, Analyst

Got it. Understood. Thank you very much.

Operator, Operator

Our next question comes from John Rowan of Jamie. Please go ahead.

Unidentified Analyst, Analyst

Good afternoon. I just want to clarify two things. So the G&A guidance you gave was $62 million, correct, for 1Q?

Harp Rana, CFO

Yes, $62.5 million.

Unidentified Analyst, Analyst

Okay. And then the adjusted figure you provided of $0.54 does that include the $1.2 million tax gain you reported in the quarter?

Rob Beck, President and CEO

Yes, the only thing that's excluded is the loan sale.

Harp Rana, CFO

Yes, that's correct.

Rob Beck, President and CEO

I misspoke earlier when I said our December 2022 first payment default rate was 130 basis points better than December 2019. It's actually 170 basis points better. I just wanted to correct the record on that and apologize for the miscommunication.

Operator, Operator

Our next question comes from Bill of Titan Capital. Please go ahead.

Unidentified Analyst, Analyst

Thank you. I was hoping that you would discuss the difference in the rate of loan origination growth between small loans and large loans, and whether that was something that you had done intentionally, and if so, why, or if it was related to the environment.

Rob Beck, President and CEO

Sure, absolutely. What you're seeing here is, as we were tightening credit really since the fourth quarter of '21, but more aggressively after July of 2022, we tightened credit on our higher-rate, higher-risk loans, which tended to be disproportionately small loans. And so that's why you see the growth rate slow there. This decision was made because of the current environment and the uncertainty, but where we've cut is also where there are opportunities to lean back into growth when we see the economic environment stabilize. That naturally will help our yields and related metrics.

Operator, Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Beck for any closing remarks.

Rob Beck, President and CEO

Thanks, operator, and thanks everyone for joining this evening. I'd also like to thank our team again for their exceptional execution in a challenging environment. We took numerous actions in the fourth quarter of 2022 that I think put us in an even stronger position as we enter this year. So, just a quick summary: as I said, we began tightening in the fourth quarter of '21. Obviously, we increased that tightening in July or mid-2022, and we tightened again here in the fourth quarter. But it's important to note that as of year-end of 2022, 47% of our portfolio had been originated since July 1st, and by year-end 2023, more than 80% of our portfolio will have been originated since that time as well, and obviously those portfolios have the tightest underwriting. We still maintain an incredibly strong balance sheet. 88% of our debt is fixed as of the year-end. We have plenty of liquidity to fund growth for the next 12 months based on our growth projections for 2023. It's great that we're entering 2023 with 30-day delinquencies nearly flat to pre-pandemic levels after having sold $27 million of distressed loans in the quarter, and we are seeing early indications of improving credit. As I mentioned in the prepared remarks, besides the first payment default rate of 7.1%, which is 170 basis points lower than 2019 when it stood at 8.8%, we saw improvement in the early bucket roll rates versus the third quarter. Our early bucket delinquencies are down versus pre-pandemic levels, and our 30 to 89-day delinquencies are flat compared to the fourth quarter of 2019. We attribute these green shoots to our tighter underwriting, next-generation scorecard, and increased collection capabilities. We also, as I mentioned earlier, began to reprice the portfolio more aggressively and increased our collection staff by 50% in preparation for the tax season this quarter. While inflation is coming down, as I noted in the Q&A, we are encouraged by that continuing decline, alongside the substantial number of job openings for our customers. We remain cautiously optimistic that we will see improvement in delinquencies in the first half of the year and improvements in our net credit loss rate in the second half. Of course, if the macroeconomic conditions improve later this year, we know that our sophisticated underwriting models will enable us to respond quickly and take advantage of the improved operating environment. Thank you again for joining. Have a good evening.

Operator, Operator

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