Q4 2023 Regional Management Corp Earnings Call
Participants
John Hecht; Analyst; Jefferies LLC
Zachary Oster; Analyst; JMP Securities LLC
John Rowan; Analyst; Janney Montgomery Scott
Presentation
Operator
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 during 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.
Thank you and good afternoon. By now everyone should have access to our earnings announcement 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, 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 are 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. These statements are not guarantees of future performance and therefore, you should not place undue reliance upon them refer only to our press release presentation and recent filings with the SEC for 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. For reconciliation of these measures to the most comparable GAAP measures can be found within our earnings announcement, 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 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 $0.8 per share our after-tax earnings were reduced by $12.6 million or $1.34 per share due to the 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 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 growth, technology, data analytics and expansion with our newer states of operations. As a result of these actions, we expect to hold our 2024 G&A expenses roughly flat to our Q4 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-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. 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. So we excluded delinquent renewals associated with loans from these vintages. As of year end, 23% of our portfolio fits 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 backlog 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 stress backed by loans flow through the loss, the incremental reserves will represent about 40 basis points of net credit loss rate in 2024, what 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 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 2020. For the fourth quarter 2023 for the loan sale held to our existing reserve level 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 revenues 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 $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 rates in the future. It comes with an interactive 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, 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 lead 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 currencies. 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 macro economic 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 remained 70 basis points better at year end 2023 compared to 2019 in projecting our 2024 NCL rates at 10.7% to 10.8%. We are assuming inflation continues to moderate, resulting in improvement in delinquency roll rate of between 30 and 80 basis points across all buckets. So those roll rates will remain elevated compared to 2019 levels. Their flow rates do not improve in 2024, our net credit loss rate could increase to 11% to 11.3% if 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. 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 the portfolio growth rate that is consistent with our historical norms. However, as we have begun to lean back into our higher margin smaller 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 sale 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 are right. I'll now turn the call over to Harp to provide additional color on our fourth quarter results as well as Q1 guide.
Thank you, Bob, and hello, everyone. I'll now take you through our fourth quarter results in more detail, including the impact of the three actions that Bob 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. As Rob noted, we had solid core operating results despite a net loss of $7.6 million or $0.8 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 continued 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 remained strong in the quarter and we continue to take a cautious approach to underwriting with an emphasis on higher-margin anchor total originations declined 13% year-over-year 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.
Hi return. Page 5 displays our portfolio growth and product mix. For the fourth quarter, we closed the quarter with net finance receivables of just over $1.77 billion, up $20 million from September 30 and 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 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. 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. We grew our small loan portfolio by $49 million over the past two quarters. As Bob noted, we've purposefully leaned into growth in these higher margin loans in recent quarters, and 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 the 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 forming back into growth, either of which could impact ending net receivables as shown on page 6, our lighter branch footprint and strategy in these states and branch consolidation actions and legacy state, continuing 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 and fee yield were 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 bond 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 for yields in future quarters as these actions roll through the portfolio over time. We also expect to see improving yields with 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 at 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 linked quarter.
Page 10 provides additional information on the performance of our front book and back book front book is becoming an increasingly large portion of our portfolio, ending the year at 73% of our total book load representing 60% of our 30 plus day delinquency. Our backlog, which represents 22% of our portfolio accounts for 33% of our 30 plus day delinquency, Oscient and back-book reserve rate for 9.5% and 14.8%, respectively in the first quarter. We expect the 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 bucket following the fourth quarter on quarter. In addition, we anticipate that our net credit losses will be approximately $47.5 million in the first quarter, but the sequential decrease being attributable to the benefits to the first quarter and the fourth quarter alone.
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.
Lastly, washed against that reserve build for our basket of the portfolio, the allowance system, the 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 was $64.8 million, 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 31st, 82% of our debt is 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 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 or $33 per share as of 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 duration stretching out to 2026. And since 2020, we maintained a quarter and unused borrowing capacity of between roughly $400 million to $700 million dollars, demonstrating our ability to protect ourselves against short-term disruptions in the credit markets.
Our fourth quarter funded debt to equity ratio remained at a conservative $4.3 per month. We have ample capacity to fund our business even as 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 impact of equity compensation. We also continue to return capital to our shareholders and the Board of Directors declared a dividend of $0.3 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 first quarter and full year 2021 guidance on page 16 of our earnings supplement. That concludes my remarks. I'll now turn the call back over to Ron.
Thanks, Art. 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 lead 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's an increasing likelihood of lower funding costs 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?
Question and Answer Session
Operator
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 here. Using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then first question comes from John Hecht with Jefferies. Please go ahead.
John Hecht
Afternoon, guys. Thanks very much. And I guess the first question, just because it feels like credit has been a little bit of a moving field goal kind of post the last several quarters. And I'm just wondering what it looked like. Maybe you could talk about the 23 vintage for the 22 vintage, like your confidence levels and how much better that will perform, what kind of underwriting changes you made and what kind of are the early signals that that will come to fruition?
Well, the about will do, John, and thanks for joining the call on 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 on yet, Alan. So as we see the new ventures is coming on, they're performing, yes, basket, our historical levels. Now there's always a difference in mix in 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 and the profile, I mean for us, the on the NPLs peaked in 2023. And so yes, we have a back book now that's 22% of the portfolio. And as you can see, it's got a fairly high delinquencies, but we're fully reserved against that with a 14.8% 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 and you know this this quarter where we now took the actions to put the back book behind us, and 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 on. Certainly we got to still collect the on the assets as best we can in the back book, but we feel good about and having positioned the business for the future.
John Hecht
And then if you like, 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 are 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, we included in all the restructuring actions that we took in the quarter, which was largely, you know, looking for efficiency saves and how we manage the business with 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, plenty of headroom and growth opportunity in every one of those states will it will add a handful of branches in those newer states where we know we can get some really nice receivables per branch, which are newer states are averaging $5 million, $6 million 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's opportunities to consolidate in terms of Illinois and the new states for I mean, we're very happy with the with the growth that we've seen on. Illinois got $54 million of E&R across eight branches, and we're averaging $6.7 million per branch. So our profile is the same, if not higher than some of our other new states, which is just a proof point that our leaner footprint model on creates a lot of leverage in these new markets.
John Hecht
Thanks, guys very much. Thanks, Ben.
Operator
Our next question comes from Zachary Oster with GMP Securities. Please go ahead.
Zachary Oster
And Zach on for David. And so just back to the topic of the branch optimization place and just wanted 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, because of kind of impact any future, yes, footprint extension kind of strategy longer term.
No, it really is, um, you know, when you look at any kind of retail business, your leases come up over a period of time and then you look at well, you know, based on our kind of larger footpr int strategy, we have an opportunity to consolidate and in one larger location. And so we take those opportunities as they come up, which is what was the case with these and for branches that we 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 help self-fund additional branches and newer locations in new states. So it's just a just a normal part of running the business and now optimizing your real retail storefronts.
And Zach, the only thing that I would add to that is, as 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. 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.
Zachary Oster
Yes, it. Thank you.
Great. Thanks.
Operator
Once again, if you have a question, please press star then one 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 have you found that you were getting a bit heavy and needed to trim down.
Hey, will, how are you doing? Thanks for joining. You know, really it was us optimizing now across the head office. So I wouldn't say it was heavy in any particular area on. But as you think ahead and how we plan to run the business going forward, particularly on the operational elements and certain business lines, including in our digital business that we're growing, there was just the ability to combine functions. And then by doing that from a basically have a more efficient organization, be able to reduce some folks. And I will tell you it's 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 run more effectively and frankly, create some synergies and backups where functions could be put together. So not any one targeted area.
And that's helpful. And then what was the size of the portfolio that you sold in the fourth quarter, please?
Yes. So Mark, against the asset, we sold about $24 million of the loans that had a December in our impact, $16 million.
Great. Thank you. And a couple of more, if I may, please. Jim, have you begun leaning into portfolio growth as of today?
So I would say it this way. We, um, we are models where we look at our returns on a DCF basis, a direct contribution margin basis on like others. We look at every aspect of our portfolio. We look at what the returns are. 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 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 some, yes, greater than 36%. And we actually, I think, are up about two percentage points versus prior year from now, 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 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 up to our business model over the last year through repricing our base business as well as starting to lead into some of that smaller loan activity, which, as I said, is higher rate on a 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 on our highest confidence assets with the best returns, and that's how we run the business.
And 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 the newer or have tended to be to new or newer clients and And then that leads to large loan growth. Is there something different going on now? Or is that is that exactly what we're seeing and it explains and somehow lead to there being a pullback in the large loan originations that you have as you've experienced?
No, I would say that, um, you know, the market and the competition around that small loan spaces is not as great right now for lots of reasons that 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 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 you now finding where there's opportunities really strong returns with the small loan portfolio. And and we probably have discussed this in the past, but you know, 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 or the on the other end of the barbell, which is obviously has much lower credit profile and credit losses on an equally strong returns 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 questions.
Great. Thanks, Bill.
Operator
Our next question comes from John Rowan with Janney. Please go ahead.
John Rowan
Good evening. I 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.
And actually, the um, it does benefit from the loan sale in the fourth quarter.
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 regarding our federal.
John Rowan
Thank you.
Operator
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. Um, let me close by saying that I'm optimistic about our future. You know, as I said, the economic outlook is improving on inflation as falling real wage growth on unemployment below 4%, and there's still 9 million open jobs out there. And, you know, the rate cuts, as I said, are from a, you know, seemingly on the horizon.
I think most importantly though, we put the back of a higher losses on our back book on 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% of E&R now. And by year end, it's going to be 8% given our proactive tightening in our INCL. did peak in 2023 and a lot of 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. And overall, our model is proving 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 can lean into growth as the macro environment improves from now, 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 day.
Operator
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
