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spk00: Thank you for standing by. This is the conference operator. Welcome to the Regional Management Corporation third quarter 2020 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Garrett Edson of ICR. Please go ahead.
spk04: Thank you, and good afternoon. By now, everyone should have access to our earnings announcement and supplemental presentation, which was released prior to this call and may be found on our website at regionalmanagement.com. Before we begin our formal remarks, I will direct you to page two of our supplemental presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP financial measures. Part of our discussion today may include forward-looking statements, which are based on management's current expectations, estimates, and projections about the company's future financial performance and business prospects. These forward-looking statements speak only as of today and are subject to various assumptions, risks, uncertainties, and other factors that are difficult to predict, and that could cause actual results to differ materially from those expressed or implied in the forward-looking 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. 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 would now like to introduce Rob Beck, President and CEO of Regional Management Corp.
spk03: Thanks, Garrett, and welcome to our third quarter 2020 earnings call. I'm joined today by Mike Dimski, our interim chief financial officer. Simply put, we had an outstanding third quarter, particularly when considering the challenging economic and operating environment. I couldn't be happier with our results and our team's effort. We generated $11.2 million of net income, or $1.01 of diluted EPS, as a result of quality growth in our loan portfolio, a strong credit profile, disciplined expense management, and low funding costs. Thanks to both rebounding consumer demand and our new growth initiatives, we sequentially grew our total portfolio by $37 million, led by $41 million of growth in our core small and large loan portfolio. Our core loan portfolio also grew by $10 million year over year. At the same time, the credit quality of our portfolio remains stable, with a net credit loss rate of 7.8% in the third quarter compared to a 10.6% rate in the second quarter and 8.1% in the prior year period. We ended the third quarter with 30 plus day delinquency rate of 4.7%, near historical lows and down from 4.8% as of June 30th and 6.5% as of the prior year, even as our borrower assistance program usage held steady at pre-pandemic levels throughout the quarter. Our $144 million allowance for credit losses as of September 30th compares favorably to our 30 plus day contractual delinquency of $49.9 million. The allowance includes a $31.9 million reserve for credit losses associated with COVID-19. Though we expect delinquencies to begin to normalize off these historic lows, we're confident that we have ample coverage to absorb the associated credit losses. Of course, Any additional government stimulus would help us to keep delinquencies low for a longer period of time. As an annualized percentage of average receivables, interest expense in the third quarter improved by 50 basis points to 3.5%, compared to 4% in the prior year period. In late September, we completed our largest securitization transaction to date at a weighted average coupon of 2.85%. further reducing our cost of capital and improving our already ample liquidity and borrowing capacity. We're now a well-established issuer in the ABS market and expect to access the market regularly moving forward. As of October 23rd, we had $516 million of unused capacity on our credit facilities and $208 million of liquidity, consisting of a combination of unrestricted cash on hand and immediate availability to draw down cash from our credit facility. In sum, we executed well on all facets of our business, and we continue to position the company to expand market share and profitability in the coming quarters and years. As we've consistently noted, our management team and board of directors regularly assess our capital allocation priorities. On the heels of our outstanding third quarter performance and based on our strong capital position, robust liquidity, and confidence in our long-term strategy and ability to generate excess capital to return to shareholders on a regular basis, our Board of Directors approved a quarterly dividend of 20 cents per share and authorized a $30 million share repurchase program. The quarterly dividend and the repurchase program enable us to return significant value to our shareholders, while at the same time allowing us to maintain a strong balance sheet and the necessary capital to invest in our long-term growth strategies. Looking ahead, we're excited about our growth prospects. We continue to invest heavily in our omni-channel digital and marketing initiatives as we see considerable opportunities to generate significant growth and expand our market share moving forward. We entered the fourth quarter with $1.1 billion of net finance receivables, and thus far in October, we have continued to experience a steady uptick in the number of loan applications and originations, further evidence of rebounding consumer demand, and the early effectiveness of our growth strategy. As I noted on our prior call, we completed the rollout of our remote loan closing capabilities across our network in July. Our remote loan closing process enables our customers to extend and expand their borrowing relationship with us from the comfort of their home, while still allowing us to maintain the exact same underwriting standard that we would apply if the customers were meeting with us in our branches. After only three months with the new capabilities fully deployed, we completed 16% of September branch originations through the loan closing process, a demonstration of our ability to adapt successfully to the new operating environment while continuing to provide our customers with the best-in-class service and experience that they've come to expect from us. Over the next 18 months, we expect to test and implement a number of exciting digital and growth initiatives. For example, In the third quarter, we experienced early positive results from a test of our larger loan offers to our highest credit quality customers and a test of direct mail offers to expanded segments of our risk response model, which we believe will generate attractive risk-adjusted returns. By early 2021, we expect to complete the migration of IT infrastructure to the cloud. And in the first half of 2021, we plan to roll out an improved digital pre-qualification experience for our customers, including expanded integrations with existing and new digital affiliates and lead generators. Early next year, we also plan to enter a new state as we continue our footprint expansion, and we intend to pilot a guaranteed loan offer program, which will be an alternative to our convenience check loan product, and may be fulfilled online with ACH funding into a customer's bank account. In the second half of 2021 and early 2022, we expect to test a digital origination product and channel for new and existing customers. In parallel, we plan to improve our customer experience through the introduction of a mobile app and the enhancement of our customer portal. Being available at the customer's convenience is imperative, now more than ever, and having modern capabilities that further enrich the customer experience will only aid in our ability to retain our current customers and win new customers. We believe that our omni-channel and digital investments will allow us to extend the geographic reach of our existing branches, enter new markets more quickly and with lower branch density, enable new growth and higher average receivables per branch, and ultimately further expand our revenue and operating efficiencies, leading to a stronger bottom-line growth. As we grow and introduce new channels, products, and service features, we remain keenly focused on maintaining the credit quality of our portfolio. We're proud of the job we've done in preserving a strong and stable credit profile. Our ongoing credit performance is a testament to the quality of our pre-pandemic underwriting criteria, our custom scorecards, the bridge provided by borrow assistance programs and government stimulus, and our ability to quickly adapt our underwriting criteria as the operating and macroeconomic environment evolves. Our investment in our credit infrastructure over the past several years has paid dividends in 2020. and has positioned us well to pursue our growth initiatives over the long term. Looking ahead, we plan to continue investing in further improving our underwriting, including through alternative data and advanced machine learning tools and models that will expand the use of trended credit attributes. Maintaining sharp focus on our credit quality will help to ensure that top-line expansion translates into sustainable bottom-line growth. To aid in the execution of our ongoing initiatives We announced last month that Harp Rana will be joining us in November as our new Chief Financial Officer. Along with her significant financial and credit expertise, Harp has extensive experience in steering digital initiatives and innovation at Citi, making her an ideal fit for the role. We look forward to having her as a key member of the team, and I would be remiss if I didn't thank Mike for doing an outstanding job in the interim CFO positions. I look forward to continuing to work with him in his ongoing role as our Chief Accounting Officer. In summary, I want to thank our team members who continue to perform admirably for an outstanding third quarter performance in all respects. We remain confident in the sustainability of our operating model, the resilience of our customers, and our team's ability to execute in a challenging environment. We're very pleased with our results and with our ability to return capital to our shareholders and we're excited about what the future holds. I'll now turn the call over to Mike to provide additional color on our financials.
spk05: Thank you, Rob, and hello, everyone. Let me take you through our third quarter results in more detail. On page three of the supplemental presentation, we provide the third quarter financial highlights. We produced net income of $11.2 million and diluted earnings per share of $1.01, driven by sequential portfolio growth stable credit performance, and low funding costs. Page 4 displays our portfolio growth in mixed trends through September 30th. We closed the quarter with net finance receivables of $1.1 billion, up $37 million sequentially due to rebounding consumer demand and the execution of our new growth initiatives. Our core loan portfolio grew $41 million, or 4% sequentially, and $10 million, or 1% year over year. We continue to originate new loans with appropriately tightened lending criteria. As illustrated on page 5, branch originations further increased from $67 million in June to $82 million in September. Meanwhile, direct mail and digital originations increased from $12 million in June to $27 million in September. Total originations for the third quarter of 2020 decreased 12% over the prior year period. The year-over-year change in total originations has consistently improved for the past five months, with September originations increasing 7% year-over-year. We expect fourth-quarter originations to decline from third-quarter levels as part of our normal seasonal pattern, which should result in modest sequential portfolio growth in the quarter. However, the timing of any new government stimulus check would temporarily reduce loan demand. Turning to page seven, total revenue declined 1% and the interest and fee yield declined 60 basis points year over year due to the continued product mix shift toward large loans and the portfolio composition shift toward higher credit quality customers with slightly lower interest rates due to enhanced underwriting standards during the pandemic. Interest and fee yield increased 100 basis points sequentially as a result of increased renewal activity and the recognition of unearned revenue on those renewals. In the fourth quarter, we expect interest and fee yield to be 30 basis points lower than the third quarter. As of September 30th, 80% of our loan portfolio had an APR at or below 36%. Total revenue yield, which includes our insurance net income, decreased 40 basis points year over year also due to the change in product mix and portfolio composition shift to higher credit quality customers. As a reminder, customers purchase unemployment insurance coverage from us to help keep their loan payments on track, even during an unforeseen unemployment event. As of September 30th, 53,000 or 13% of our customer accounts are covered by unemployment insurance. In the first quarter of 2020, we recorded a 1.3 million IUI reserve related to elevated unemployment claims at the start of the pandemic. Based on IUI claim frequency to date, no additional reserves were required in the second or third quarters. In the fourth quarter, we expect our total revenue yield to be 50 basis points lower than the third quarter. Moving to page nine. Our net credit loss rate was 7.8% for the third quarter of 2020, a 30 basis point improvement year over year, and a 280 basis point improvement from the second quarter of 2020. We expect to see the impact of the pandemic on our net credit loss rate more prominently in the middle of 2021 with the timing dependent on macro conditions and the impact of any additional government stimulus. Clipping to page 10. The credit quality of our portfolio remains stable. Our 30 plus day delinquency level at September 30th was 4.7%, which was a 10 basis point improvement from the second quarter and a 180 basis point improvement year over year. 74% of our core loan portfolio has now passed our scorecard underwriting criteria. In addition, approximately 40% of our total loan portfolio has been originated since April the vast majority of which was subject to enhanced underwriting standards deployed following the outset of the pandemic. Turning to page 11, we ended the second quarter with an allowance for credit losses of $142 million, or 13.9% of net finance receivable. During the third quarter of 2020, the allowance increased by $2 million, with a base reserve billed of $3.5 million from portfolio growth partially offset by a macroeconomic reserve release of 1.5 million. We ran several updated economic stress scenarios, and our final forecast assumed elevated unemployment in 2020 with a gradual decline of 9% by the end of 2021. The severity and duration of our macro assumptions remained relatively consistent with the second quarter model. We ended the third quarter with an allowance for credit losses of $144 million, or 13.6% of net finance receivables, inclusive of $31.9 million of COVID-19 related reserves. We are confident that we are sufficiently reserved if the pandemic continues for an extended period. Looking to page 12, G&A expenses in the third quarter of 2020 were $43.8 million, of $3.6 million year-over-year, but better than our sequential guidance for the quarter by $0.7 million. As we reposition the business for future growth, we adjusted our workforce in the third quarter and incurred $0.8 million of non-operating severance expense. The savings from these actions will be used to fund our omnichannel and digital investments. We deferred $0.9 million less in loan origination costs on less loan volume in the third quarter of 2020 which increased personnel expense year over year. We increased marketing expense year over year by $0.9 million to support our growth initiative. Lastly, the third quarter of 2020 included $0.8 million of incremental costs related to new branches that opened since the prior year period. Our operating expense ratio was 17% in the third quarter of 2020, with the items previously noted impacting the ratio by 130 basis points. We remain focused on investing in our digital capabilities and marketing efforts, all to drive new revenue opportunities, enhance our customers' omnichannel experience, and create long-term operating leverage. In parallel with these efforts, we executed cost management actions, including the aforementioned workforce reduction to self-fund a large portion of the digital investment, excluding marketing expenses in the second half of 2020 are forecasted to be down from the first half of the year, which evidences the self-funding of the digital initiatives. Overall, we expect G&A expenses for the fourth quarter to be higher than the third quarter by $1.7 million, encompassing $1 million of increased marketing and the remainder related to investment in digital capability. Turning to page 13. Interest expense of $9.3 million in the third quarter of 2020 was $1 million lower than the prior year period due to the lower interest rate environment and despite $0.8 million of accelerated amortized debt issue costs incurred during the third quarter of 2020. These costs related to repaying our first securitization with the proceeds from our latest securitization transaction. In late September, we closed our fourth and largest asset-backed securitization, a $180 million note issuance, with a weighted average coupon of 2.85%, our lowest cost of capital ever. Our third quarter annualized interest expense as a percentage of average finance receivables was 3.5%, a 50 basis point improvement year over year. During the third quarter, we purchased $150 million of interest rate cap contracts with three-year terms and a strike rate against LIBOR of 50 basis points. We took advantage of the favorable rate environment and helped secure our funding costs for the future. In the fourth quarter, we expect interest expense to be approximately $9.1 million. Our effective tax rate during the third quarter of 2020 was 27% compared to 25% in the prior year period. In the ordinary course of business, we have non-deductible expenses, taxes on share-based compensation, and state taxes in Texas that largely do not vary based on pre-tax income. So these items have a larger impact on our effective tax rate when pre-tax income is lower. Our 27% effective tax rate for the third quarter of 2020 was better than our guidance of 30% as pre-tax income increased on sequential loan growth, strong credit results, and low funding costs. In the fourth quarter, we expect our effective tax rate to be approximately 27%. Page 14 is a reminder of our strong funding profile. Our third quarter funded debt to equity ratio remained at a very conservative 2.6 to 1. Low leverage coupled with $144 million in loan loss reserves provides a fortress for our balance sheet, and the completion of the securitization transaction during the third quarter improved our liquidity profile and borrowing capacity even more. In summary, we have more than adequate liquidity and capacity to support the fundamental operations of our business throughout the pandemic. That concludes my remarks. I'll now turn the call back over to Rob to wrap up.
spk03: Thanks, Mike. In summary, we exited the third quarter with solid operating results, strong balance sheet, ample liquidity, stable credit profile, and an exciting long-term growth trajectory. We're very pleased with our performance, our current position, and with our Board of Directors' decision to begin regularly returning excess capital to our shareholders. Thank you again for your time and interest. I'll now open up the call for questions. Operator, could you please open the line?
spk00: Certainly. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. Our first question comes from David Sharf with JMP Securities. Please go ahead.
spk01: Hey, good afternoon, and thanks for taking my questions. First off, Rob, you kind of rattled off an awful lot of sort of new growth initiatives next year. I couldn't get them all down, but I was just wondering, at a high level, whether it's new – trying to think about how to rank maybe – the prioritization in your mind as you think about what might be most impactful to origination volumes over the next maybe 24, 30 months? Is it new stores? Is it the digital convenience checks or just remote closing? How should we be thinking about how the origination model is ultimately changing?
spk03: Yeah, David, great question and good to hear from you. So I guess the way I look at it is this way. You know, the growth we saw in the third quarter, you know, the $41 million increase in receivables, about half of that came from some of the new initiatives that we listed. You know, whether that was testing, you know, some larger offers to our very best credit quality customers, you know, some of the enhanced analytics we used for our direct mail program, to kind of expand the segments that we're marketing into within our risk response models. We talked about extended footprint mailing before. So we're starting to see some early results from those initiatives. I think the key takeaway, and we did pack in a lot in my commentary there, is this was all about really finally building out that true omni-channel experience so a customer can access be served where and how they want. And we think that's going to be critical post-COVID. The things we're going to be rolling out next year is going to ultimately allow us to do end-to-end digital originations, whether that's on a mobile app or our portal. And when you have those capabilities, that can be applied in numerous ways to not only expand the top line of and grow your balance sheet and your receivables, but also drive efficiencies in the organization. And so then when you think about, you know, we talked about entering a new state next year, you know, as we think about entering new markets, not only could that allow you to do that in a more efficient way with less stores, but it can also ramp up your ability to enter more geographies faster. So it's hard for me to give you any kind of quantification now, other than, you know, I think part of the confidence in returning, you know, capital to our shareholders is the confidence that we have in our long-term business model and ability to return, you know, excess capital to our shareholders.
spk01: Got it. Understood. I appreciate that. And maybe just one follow-up. I guess with Roughly 80% of balances now, it sounded like, are at or below 36%. You know, you obviously can control based on what types of products you're actually marketing, either digitally or direct mail. Did you have a goal in mind time-wise for when you would prefer perhaps for the portfolio to be entirely digital? at that level, particularly in advance of what potentially could be a different regulatory environment in Washington?
spk03: Yeah, so really two component pieces to your question, I think. Look, part of our core strategy is We acquire, you know, small loan customers that, you know, on average have a much higher rate than 36%. I think the average is 43%. We then, you know, have the honest credit experience with us. And then, as you know, we graduate them to larger loans. And they're delighted in the sense that they pay a lower rate and, in many cases, you know, a lower payment, absolute payment. And that's still a core part of our strategy, and it's how we acquire new customers and fill the funnel, so to speak, to then, you know, graduate them to large loans. So, you know, that remains intact. Now, you know, if there were to be a pivot in the regulatory environment to some sort of 36% rate cap, You know, being at 80% is a pretty good place to be, and we could migrate and pivot accordingly. I also think that any kind of rate cap at 36% would lead to a lot of companies struggling to stay in business and create some opportunity, maybe even a lot of opportunity for us to grab share from their customers who some are paying higher rates than they otherwise could be paying if they possibly apply to us to get a loan. But stepping back more from a practicality standpoint, and, you know, no one can predict what's going to happen in Washington, you know, the access to credit that would get taken away if there's a 36% rate cap, you know, it could impact, I don't know, 100 million Americans. And that's going to have a significant impact on the economy right as we're hopefully coming out of COVID. And so while it sounds good that there's a 36% rate cap, I'm not sure from a practical standpoint that that's going to be beneficial to the economy and get through. But again, whichever way it goes, we're well positioned and we like where we stand.
spk01: Great. Thanks very much. Congratulations.
spk03: Thanks, David.
spk00: The next question comes from Sanjay Sakrani with KBW. Please go ahead.
spk06: Hi, this is actually Stephen Clark filling in for Sanjay. Thanks for taking my question. I guess, like, following on around the credit aspect, like, when do we see the effects of the pandemic on your credit metrics? It seems like everything has been great thus far. how should we think about the credit trajectory over the near term? And then as we think about that, how does that impact the reserve rate as these charge-offs come through? And should we expect then the reserve rate to come down, given you've already reserved for those losses? Thanks.
spk03: Hey, Stephen. Thanks for the question. I'll take the first part and probably kick the reserve question over to Mike. So, Look, where we stand now, delinquencies, you know, at 4.7% are just off historical lows. And we do expect that delinquencies, as we've said previously, will start to rise. You know, given where we are in the year, I think right now you're looking at, absent any more government stimulus, you're looking at maybe middle of the year, next year, where you start to see the COVID-related losses come through, which we are, you know, reserved well for. So that's kind of the outlook at the moment. Now, obviously, if there's additional government stimulus, and we don't know the timing or the form, but I would expect that that would extend the benefit on the delinquencies and push further out the losses, depending on what the nature of that stimulus is. Mike, you want to cover from a reserve standpoint?
spk05: Sure. Hey, Stephen. Good afternoon, and your thesis is correct on the reserving for the losses here in 2020. That would release of the reserves would offset those losses when they come through in 2021. So just to give you a little background, our model assumed elevated unemployment in 2020 with a gradual decline to 9% by the end of next year. We then made adjustments to the model to account for some of the benefits of our internal borrower assistance programs. In the third quarter, our severity and duration of our assumptions remain pretty consistent with where the second quarter model was. And overall, we're confident that we are sufficiently reserved if the pandemic continues for an extended period. As Rob mentioned, we do expect delinquency to rise during the fourth quarter, but a lot of that's going to depend on the timing and level of any government stimulus. But in the meantime, we have 31.9 million of COVID-related reserves, which is about a 30% stress on our normal reserve rate that we came into 2020 with on CECL. And so we feel comfortable with reserves being able to cover the impact of COVID losses in 2021. Great. Thanks.
spk06: And just as a quick follow-up, Blake, are you seeing anything on the consumer side as some of the stimulus programs have kind of gone away? Just wanted to see if you were seeing anything on the early front.
spk03: Well, you know, Stephen, the additional unemployment expired. The FEMA money that was redirected was largely, you know, used up by the end of September. And so we really haven't seen an impact on our delinquencies ending at, you know, 4.7%. And so far in October we're tracking well to be below 5%. You know, besides the government stimulus, there's other things that are supporting our customer, you know, and the economy in general. You know, I think that if you think about the forbearance programs with the mortgage forbearance programs, the government agencies, I think up to a third of customers may be taking advantage of those forbearance programs. The average benefit is about $1,100 in cash saved per month. So, you know, obviously our customers may be below the average in terms of cash saved. But, you know, you take that, you combine that with people spending less money, and what that translates into is a much higher savings rate. And I think you can see that from some of the metrics that have been reported. I think savings are up $12 trillion since the beginning of the pandemic. and that's really across all income bands. You know, debt to income has improved. So, you know, the consumer's balance sheet is pretty healthy. I saw some research recently that suggested, you know, for the pure government stimulus that was provided, about a third of the dollars want to pay down debt, a third want to spending, and a third want to savings. So, There's underlying support beyond direct government stimulus, but clearly if there's additional government stimulus, that's going to add further support on the credit side. Now, just to be clear, a little bit of a double-edged sword, I do think if there's stimulus checks, at least in the very short term, you might have some impact on demand for a month or two or a quarter as any stimulus dollars, you know, burn through. But net-net, we're sitting, you know, in a pretty good shape. The customer, I think, is in better shape. And, of course, as Mike said, we've got substantial reserves relative to our current delinquencies at this point in time.
spk06: Got it. Thanks for taking my question.
spk00: Once again, if you have a question, please press star then one. The next question comes from Len with Jefferies. Please go ahead.
spk02: Hey, guys. Thanks for taking my question. I'm on for John Heck today. I just wanted to touch on the omnichannel platform. how it's going to affect the cost structure going forwards, and what else you expect to see out of it, especially in, like, 21, 22?
spk03: Yeah, you know, a little bit too early to tell how that's all going to play out. You know, as you saw, there's various initiatives we have. You know, I think fundamentally over time it is going to, improve our cost efficiency. You know, the more customers you service through digital means, you know, the lower the cost will be. You know, if we enter new states with a thinner branch footprint, that obviously reduces our origination cost. Part of the reason why I can't give you a straight answer is it really all comes down to the pace of implementation of And we're very early in testing some things, and we're investing in building out the rest of the capabilities. And, you know, where we finally land is in part going to be, you know, how quickly we can, you know, affect the pace of change. And, of course, along the way, make sure that we're meeting the needs of the customer with the right capabilities. And that's never just a straight line. You know, you test and you learn and you pivot. I think we've learned to be very nimble in this environment during the global pandemic, and that's going to pay off in spades as we digitize the business and build out our omni-channel strategy.
spk02: Awesome. Thanks. And then another quick one for 21 is how should we think about the branch build-outs? I know you said – Any release that we're expecting one for 4Q, but going forward, or is it too early to tell there?
spk03: You know, a little early to tell. I would tell you this. We are going to enter a new state, so you can kind of pencil in right now, you know, approximately 10 new branches. I'm not going to say that they're all going to be in the new state. We do have some opportunities in some of our other recent states we've entered, so You know, you can pencil in 10 for now. You know, we'll get back to you on more details as we finish up our plan for next year.
spk02: Awesome. Thank you so much.
spk00: The next question comes from Bill Desalem with Tietan Capital. Please go ahead.
spk07: Thank you. You walked through a number of new digital initiatives. over the course of the next 12 or so months. Would you please kind of highlight which one of those is going to have the greatest overall impact on the business, number one? Number two, which one you expect to have the biggest impact on loan growth? And number three, the one that you expect to have the biggest impact on credit?
spk03: So, Bill, good to hear from you. Yeah, you know, we're probably not going to get too far over our skis on any of these initiatives. I can tell you there are several things we're working on that we think are very attractive growth opportunities. You know, obviously as we enter new states, that's always a very nice runway for growth. But the other capabilities we have around using our data to mail more effectively and efficiently, things we may do to extend the reach of our branches, all of those things are going to have a positive impact, and it's not as if we have to choose one over the other. Many of these things can be done simultaneously and be built into just the way we operate. Clearly, as we digitize and we go, you know, end to end in terms of our capabilities to underwrite for new and existing borrowers, that opens up, you know, tremendous greenfield opportunities for us to expand our growth. But on the credit front, what I'll tell you is there's nothing we're doing that we aren't keeping laser focus on credit, you know, particularly given, you know, the environment with the pandemic. But when you, you know, when you do new strategies, obviously we are going to be, you know, laser-like focused on the underwriting. You know, the strategies that we started to put together in the – and tests in the third quarter, all those have been done with the existing underwriting standards we have. You know, I think it's worth pointing out that since the start of the pandemic, we turned over about 40% of our portfolio so far. The vast majority of that new receivables has been put on the books with tightened or enhanced credit underwriting. And that's higher FICO cutoffs maybe, lending less to certain segments, more robust income verification, use of other information to guide us in terms of our direct mail program from a risk standpoint. And we're going to build out, continue to build out our credit infrastructure and go beyond our existing custom scorecards and really start to leverage, you know, a broader set of data elements and beyond the 23 or 24 we have. We're talking about, you know, 1,000 or more, which other firms, some other firms utilize and take advantage of machine learning to make our underwriting even more sophisticated. So... When you take those elements along with tools that exist out there today, particularly with digital underwriting to prevent fraud, all of those activities are going to help us grow the top line through these new strategies but maintain very tight control over our credit so that we can maintain the returns in the business.
spk07: Thank you. Let me ask another unrelated question. To what degree do you know the category that a person is employed in? And specifically, I'm trying to understand to what degree could you just pull up the proportion of your customers that are restaurant servers, for example, or work in hospitality, just some of these higher risk areas.
spk03: Yeah, we have the ability to sort by industry. Obviously, there's always going to be some noise in the data based on your sources of information, whether it's something that has been reported accurately by the customer or not. So we have the ability to look at that. We have the ability and we have suppressed certain industries like oil and gas for our direct mail program as an example. So we have the ability to look at that. We know that proportion in our portfolio, not just in an aggregate but a state level. And, of course, we look at the performance of the business at a very granular level. But clearly, you know, as we continue to build out our data analytic capabilities in the credit side, we'll just get better and better at it.
spk07: And your credit has been great, but have you seen a difference in behavior amongst customers, either geographically or by type of employment or type of employer category?
spk03: Yeah, you know, performance has been pretty consistent across all our states. You know, obviously, you know, if someone's unemployed, there's more stress. There's obviously been a lot of support for the unemployed, which I think, you know, obviously improves the performance of that segment along with, you know, all the other, you know, I think support that's out there in the economy in general, whether it's forbearance programs and the like. So, But the performance is pretty steady across the portfolio, and we're pleased with where we are, but we're also watching it like a hawk, and I think that's what you would expect us to do, and we're reserved, obviously, for any stress that comes.
spk07: Great. Thank you, and Mike, thanks for the great job you've done.
spk03: Thanks for the kind words, Bill. Thanks, Bill.
spk00: This concludes the question and answer session. I would like to turn the conference back over to Rob Beck for any closing remarks.
spk03: Yeah, thank you, operator, and thanks, everyone, for joining. As I said, we're really pleased with the results this quarter. Obviously, the environment is still uncertain and, you know, top of mind for us is the safety and health of our employees and our customers. We remain there for our customers. You know, we are seeing and have seen a pickup in demand and we're encouraged where the future holds. You know, I will tell you that, you know, very confident in the strength of this business. And just a slight snippet of some facts. With $272 million of equity, we have $208 million of available liquidity as of October 23rd, $144 million of loan losses, and $507 million of unused borrowing capacity to support our growth and our earnings in the quarter, all of which were up strongly since the second quarter. So we're confident in the strength of our business. We're optimistic in the future for the business and the growth opportunities, and we are, you know, watching the environment closely, and we're prepared and we remain nimble to address whatever challenges face us as a business. So thanks for joining the call, and have a good day.
spk00: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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