Regional Management Corp (RM) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth-quarter 2014 Regional Management Corporation earnings conference call. My name is Denise, and I'll be the operator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to Mr. Garrett Edson, Senior Vice President with ICR. Please proceed.

Thank you Denise, and good afternoon. By now everyone should have access to our earnings announcement, which was released prior to this call and which may also be found on our website at regionalmanagement.com.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements which are based on the expectations, estimates and projections of Management as of today. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which 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 undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition of Regional Management Corp.

We disclaim any intentions or obligations to update or revise any forward-looking statements, except to the extent required by applicable law. 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 and posted on our website at regionalmanagement.com. I would now like to introduce Michael Dunn, CEO of Regional Management Corp.

Thanks, Garrett. Good afternoon and welcome to our fourth-quarter 2014 earnings conference call. I'm here with our EVP and CFO, Don Thomas, who will speak a little bit later about our fourth-quarter finance results. And I'm also joined by other members of our financial team.

Regional's fourth quarter can be summed up, in my opinion, in one word, and that word is progress. When I took the reins as Interim CEO at the end of October, the Company had been set back by a couple of issues, most notably the significant increase in delinquencies due to the issue involving our convenience check loans. Fast-forward four months and I am comfortable that we have resolved that issue and are progressing toward a much improved 2015. Let me give you some color on this.

Once I began in the role, we identified five key short-term objectives to accomplish in the first 90-to-120-days. First and foremost, obvious we had to get the credit quality of our portfolios under control. You'll recall we noted in our last call that we had to use a new vendor in the spring related to sourcing customers for convenience checks. That unfortunately caused us to end up with a higher proportion of the lower quality loans on our books.

At the beginning of the fourth quarter we returned to using the previous set of vendors to source new convenience check customers, and in addition we implemented a series of new controls and approval programs to insure that they would not be a repeat of these past missteps. The end results from our efforts saw our early stage delinquencies that are less-than-60-days past due as of December 31, 2014 decline 16% from the end of the third quarter, and overall delinquencies that are one-or-more-days past due declined by 10.6%, both clearly movements in the right direction.

Second, we thought it was imperative to establish the Chief Risk Officer position to ensure we are effectively managing our portfolio of credit risk going forward and preventing any recurrence of these issues. On January 15 we happily announced the appointment of Dan Taggart as our first Chief Risk Officer. Dan brings 20 years of lending experience and significant expertise in credit risk management, including a stint as the Chief Credit Officer at OneMain Financial. We are very excited to have him onboard, and he's already making a difference in how we utilize better analytics in our lending processes.

Third, in terms of our top line we wanted to focus on continuing to increase our small and convenience check loan portfolios while making a new concerted effort to materially grow originations in our large loan portfolio, which we think is a major market opportunity for us and very attractive from a risk/reward standpoint. These products will be the core drivers of our portfolio growth over the coming quarters. Our new COO, Jody Anderson, who joined us on October 1 was tasked to this priority, given his strong track record of larger loans at OneMain. And he and his team set out to determine the most successful methods of marketing initiatives to obtain the best response from our consumers.

With this renewed focus, we were pleased to see receivables at December 31, 2014 in the large installment category increase 9.4% compared to September 30. We believe there are many opportunities to gain share in this category, and will continue to make large loan products a significant focus of our top-line growth strategy and marketing initiatives in 2015.

Our branch small loans and convenience check products collectively grew 2.9% and 10.6% compared to the third quarter of 2014 and the fourth quarter of 2013 respectively. While these two portfolios grew quarter-over-quarter and year-over-year, the total portfolio growth was essentially flat over the same time periods. This was in part due to declines in our auto portfolio, which is a trend that we have been experiencing since the end of 2013. To give you some numbers on that, versus the third quarter the auto portfolio dropped $9.4 million, or 5.8%, and it declined $26.7 million, almost $27 million, or 15% year-over-year.

We experienced these decreases in part due to the aggressive pricing in the marketplace which left fewer opportunities for us. However, starting this quarter and with Dan's guidance we've began to add new pricing and loss mitigation programs, which in the short term should slow or eliminate the pace of liquidation. Still to come is the conclusion of our strategic review of this business, which will be completed in the next quarter.

Fourth, as a result of the direct mail issue we had previously announced, that we had found a material weakness in our internal controls at both June 30 and September 30 of 2014. In response to this material weakness, we took immediate steps to [remediate] the underlying causes in concert with our audit committee. And I'm pleased to announce that the material weakness was fully remediated prior to December 31, 2014.

Finally, we are cognizant of our recently increasing efficiency ratio and we're looking to further manage and reduce our overall G&A expenses. Obviously a hallmark a well-run company is the ability to manage expenses, and we will get there. On this end, you can see from our fourth-quarter results we still have work left to do to reduce our efficiency ratio to a more optimal level. And then as I said, we expect to play close attention to the G&A expense throughout the new year to make sure that it is in line with our growth plans. Tom will add some text to this in his remarks as well.

One final update, our new loan management system, GOLDPoint, is now expected to be implemented in the second quarter. A function of both concentrating our efforts over the last several months on fixing our credit problems and wanting to ensure a seamless transition on a conversion, we felt that adding a little bit more time to our timeline made sense at this point. Overall I'm pleased with the concerted progress we have made in the last few months to eliminate credit concerns and get Regional turned around. The entire team has really come together and I believe we are positioning ourselves nicely to return bottom-line growth in the both the near and long term.

Let me just take you briefly through some fourth-quarter highlights and then I'll hand the call over to Don. For the fourth quarter revenue increased 10.8% from the prior period. Our revenue yield for the quarter was 39.8%, an increase of 290 basis points from the prior-year period, mostly a mix issue. Early stage delinquencies, as I mentioned before, are defined as accounts delinquent fewer-than-60-days as a percentage of total finance receivables were 18% compared to 20.2% at December 31, 2013 and 21.7% as of September 30, 2014. Total delinquencies as a percentage of total finance receivables as of December 31, 2014 were 22.6% compared to 25% a year ago and 25.5% as of September 30 of this past year

Importantly, as I've briefly discussed, the small loan convenience check portfolios collectively grew $9.1 million, or 2.9% and the large loan portfolios grew $4 million, or 9.4%. And during the quarter we also opened 4 new branches, continuing our branch opening process, bringing us to a total of 36 de novo branches for the year. We now have 300 branches at the end of the year. For 2015 we will continue this branch opening and projecting right now to open between 25 and 30 de novo branches, and we've opened 1 already since January 1 of this year.

With those comments, I will turn the call over to Don, and then I'll come back to make some closing comments. Don?

Thank you Mike, and thanks to everyone else for being on the call with us this afternoon. On the back of press release we've provided average product category loans, product category yields, and a rate volume chart by product category for interest and fee incomes. Please notice that for the first time this quarter we have broken out convenient check loans from the previous small loan category, which we now call branch small loans.

Our total interest and fee yield for the fourth quarter was up 300 basis points compared to the prior-year period. The improvement came from the convenient check loans which saw a 400 basis point improvement in yield, primarily due to the rate increases that occurred in late 2013 in Texas and North Carolina. About 32% of the increase in interest and fees was from rate changes and the other 68% was from volume changes. In accordance with our accounting policy we reverse accrued interest and fees at the time an account is charged off, and this had a dampening effect on interest and fee income in the fourth quarter because we had a higher quantity of charge-offs in that quarter compared to the prior-year period.

Overall loan originations were up 5.6% in the fourth quarter of 2014 over the prior-year period. This is higher than the 0.5% increase in the loan portfolio in the fourth quarter of 2014 due to the to the high net charge-off rate and the portfolio declines Mike mentioned for auto and retail. However, loan originations collectively for branch small loans, convenience checks and large loans increased 11.1% in the prior-year period. Branch small loan originations increased due to a new customer appreciation event we carried out in November. Origination for convenience checks were up slightly due in part to a decrease in [debt] volume of about 200,000 pieces year-over-year.

Even thought mail volume was down, we spent $700,000 more in marketing in the fourth quarter of 2014 compared to the prior-year period which allowed us to diversify our marketing spend to include pre-approved offers for large loans. Branch small loans, convenience checks and large loans provided 100% of the increase in interest and fee income. And as Mike mentioned, we expect those categories will be the core drivers of our future strategy.

Insurance income for the fourth quarter decreased $600,000 from the prior-year period and was 4.2% of revenues. Part of the decrease was due to a one-time $370,000 premium adjustment and the remainder is due to increased claims cost. Other income for the fourth quarter of 2014 increased $600,000 due to the implementation of a late fee in North Carolina as part of the modernization of their Consumer Finance law. As a reminder, approximately 14% of our accounts are in the State of North Carolina.

The provision for credit losses in the fourth quarter increased $4.3 million from the prior-year period. On a sequential basis the provision declined 29% as there was no large addition to the allowance as in the third quarter of 2014. Net charge-offs of $18.7 million include the majority of first payment defaults from the summer convenience check issuances and exceeded the $16 million provision due to the release of a portion of the allowance related to convenience checks. At the back of the press release we've provided information about the $33.2 million of remaining amount of summer convenience check loans that on our books at 12/31/2014.

As you can see in that information, with the current allowance for those loans covering 124% of 30-day-and-over contractual delinquencies and covering 75% of accounts one-or-more-days past due, we believe the risk related to these lower credit quality convenience check originations is captured in our 2014 financials. We provide detail of all the delinquency categories for our total portfolio in our press release, and for the first time this quarter we provided product category delinquency as well. 30-day-and-over contractual delinquency at December 31, 2014 was up 0.1% compared to September 30, 2014.

As Mike noted in his earlier comments, total accounts one-more-days past due at the end of 2014 decreased $14.7 sequentially with all of the decline coming from our early stage accounts. Annualized net charge-offs were 13.9% of average finance receivables for the fourth quarter of 2014, above both 7.8% in the prior-year period and 10.3% for the third quarter of 2014. The largest amount of net charge-offs occurred in Texas, South Carolina, and Alabama during the fourth quarter of 2014.

Finally, we further revised our charge-off policy near the end of 2014. If you remember, we had changed our policy in September 2014 to eliminate the category of 180-day-and-over accounts. The revision at the end of 2014 means we will collect accounts through 180 days before charging them off, with the obvious exceptions for bankruptcies, deceased borrowers and auto repossessions. This second revision of our charge-off policy puts us firmly at industry standards and will allow us to have transparency as we move forward. This revision means that in the short term we should see a slight decrease in net charge-offs and increase in delinquency until the policy is fully in place.

And with that, I will move on, personnel costs. Personnel costs for the fourth quarter of 2014 increased $7 million from the prior-year period. Excluding a one-time $1.2 million charge in the quarter related to separation costs, personnel cost increase $5.8 million. Increases in branch personnel to open 36 new branches and to reduce accounts per employee from 340 at the end of 2013 to 277 at the end of 2014 for improved collections increased costs by about $4.4 million. We retained branch headcount as we headed into first quarter of 2015 to help the branches deal with significant changes in our operations programs and to remain prepared for loan system implementation.

As we open new branches in 2015 we plan to use some of these employees to staff the new branches, which would help us save on recruitment and training costs throughout the year. Over the course of 2015 we do expect to get further efficiencies out of our branch network. In addition, during 2014 we added personnel to corporate functions to handle growth and to allow us to stop using outsourced providers moving into 2015. These personnel added approximately $1.4 million in the fourth quarter.

In October 2014 we announced that the compensation committee revised our annual incentive plan and implemented a new long-term incentive plan. With our increased corporate office headcount, the annual incentive plans has a few more participants and higher targeted pay. In addition the new long-term incentive plan complements our base pay and revised bonus to achieve market competitive pay. These changes added about $800,000 to personnel expense in the fourth quarter and we expect about $500,000 of incremental quarterly run rate going forward. Of course the level of expense will be dependent on our performance relative to the planned metrics and targets.

Occupancy expense for the fourth quarter of 2014 was $800,000 more than the prior-year period, primarily due to new branch openings and ongoing customer service and telecommunication upgrades. In my earlier remarks I mentioned that marketing costs increase $700,000 in the fourth quarter of 2014 compared to the prior-year period. We also expect to see increased marketing spend in the first quarter of 2015 as we seek to mitigate the typical seasonality we see in our business, where loan volume dips in the first quarter due to payments from tax refunds.

Other expense for the fourth quarter of 2014 were $5.3 million, a 6.9% increase from $5 million in the prior-year period. While we did not incur the immediate vesting of director stock grants and stock offering costs that were expensed by the Company in the fourth quarter of 2013, we did have increases for compliance consulting, legal expense related to the security class action lawsuit, compensation consulting costs and costs related to a larger number of branches. Collectively, across our income statement one-time loan system implementation costs were $0.3 million in the fourth quarter.

Diluted earnings per share for the fourth quarter were $0.26 compared to and $0.65 per share in the prior-year period. Excluding the one-time costs mentioned earlier, [payouts for] diluted earnings per share for the fourth (technical difficulties). Just a note about funding, Regional Management has the ability to fund our growth strategy. At December 31, 2014 Regional Management had finance receivables of $546 million and outstanding debt of $341 million on our $500 million senior revolving credit facility. The credit facility has an expansion feature to grow to $600 million and matures in May 2016. With that, I will turn the call back to Mike for some closing remarks.

Thanks, Don. In closing, we are excited about the progress we made in the fourth quarter, but at the same time we recognize it remains much work for us to do. This was, as I mentioned in the beginning, a transitional quarter for us. And much of our efforts are focused on establishing the foundation for increased growth in 2015 and beyond.

We have now laid the groundwork for our long-term growth plans by considerably remediating our credit issue and focusing more closely on our both small and large installment loans. Most importantly, we have the right team in place to produce strong profitable growth going forward and to create long-term shareholder value. Thanks for your time and interest. And now we will open up the call for questions. Garrett?

(Operator Instructions)

Bob Ramsey, FBR.

I wanted first to ask about the provision line. Last quarter you all said to expect a provision expense to be relatively normal starting with the fourth quarter. But at 29.7% of fees it still seems to be higher than I think your normalized credit costs are. I'm just not sure if maybe that's not the right metric to use to think about credit costs, or how to think about the provision here?

Hey, Bob, this is Don. When we work through the provision, we are also quarter to quarter moving out another three months and picking up losses into the future. So while we are absorbing some of the charge-offs that are occurring in the fourth quarter, we are looking a little further out and picking up those future losses.

We have had higher loss rates than we had historically and those loss rates are embedded in our trend loss rates we use in our allowance calculations. We did in fact say we expect a somewhat more normalized provision, but in the context of where we have been and working through these issues, we just can't get there that fast.

I think the other thing that we've said in the third quarter was we had specific questions about the adequacy of the $6 million, Tom, that we added. And I think what we've said, this is in the provisional -- I think what we said was as we work through the fourth quarter we would continue to assess whether or not that $6 million was adequate to discover the problems that we saw in the spring and summer solicitations.

We thought, and we see that in the numbers, that we would have higher level of losses, credit losses or charge-offs, as these -- the higher proportion of the poor quality of loans, if you will, worked its way through the system. So in this quarter our [write-offs] were --

$18.7 million --

Almost $19 million and our provision was --

$16 million.

$16 million. We wrote off more. We wrote off almost $7 million worth of receivables due to the solicitation that we talked about in the fourth quarter. And as Don mentioned in doing we utilized some of this reserve that we set up at the end of the third quarter.

As you sit here and you look forward -- or let's say at the end of the year, rather than look forward, I think we also mentioned that the receivables that we booked in July and August and September, as Don mentioned with the 180-day write-off rule will take six months to roll to loss. We will continue to see some higher levels of charge-offs, not necessarily provisioning, in the first quarter and maybe a tail into the second quarter.

But I think as we said, I think we have these fully contained in the financial statements. I think the net charge-off number should probably moderate over the next quarter or so. And then likewise the provisional will also moderate.

Okay. On a go-forward basis, then, if at this point you're fully reserved for that problem vintage of loans, what is the right way to think about your credit costs on an annualized basis? Is there a provision of fees sort of level, or allowance to loans, or what's the right way to think about annual credit costs on a go-forward basis?

With Dan coming in, we are rough working that issue. Part of the problem with giving you a -- one number in total is it really depends upon the mix. As I mentioned in my comments, year over year we've seen a $27 million decrease in the auto portfolio which typically carries a loss rate of 7% or 8%, maybe a little higher more recently. I think that going forward if you blended it for the near future, next three or four quarters, I think it should probably be closer to the 8% to 9% range.

Okay. Last question, I'll hop back out. I appreciate you all breaking out the convenience checks from the branch loans on the balances and yields. Is it possible in the future you all consider breaking out the credit matrix net charge-offs by those two portfolios as well?

Don?

Yes. We will give that consideration. And I think we have that available to us here if you want us to give them to you.

Yes. That would be -- I mean, I guess I appreciate it's a little bit skewed now because you've got a bad vintage of loans, historical data prior to this last run-up, maybe if you included that in your K, that would be very interesting to me.

Yes. We will have some breakout of information in the K, specifically in the financials. So we have net charge-off rates, Bob, for our categories. But I apologize because in the small loan category, it is actually both branch small loans and convenience checks. For the fourth quarter it was 18.1%, because you mentioned, it was going to be the high one. Large loans were 5.2%, auto was at 9%, and retail is at 6.8%.

Okay. Great. Thank you guys.

David Scharf, JMP Securities.

Wondering if you could comment a little bit on the combination of what you are seeing competitively, as well as how macro factors, i.e., gas prices and the like might be impacting the loan demand? It looks like this is the first time we saw same-store AR growth turn negative, and obviously a lot of that is based on the optics created by the losses on those short-tern loans filtering through. I'm wondering if you are seeing any change in terms of foot traffic that we should explore?

On the gas prices, I think we are interested in that obviously. We have seen some recent articles about that and it sounds like some of the consumers are banking (technical difficulties). We have seen some of the competitors, maybe somebody close to home here, experiencing some loan growth issues.

But as we've tried to get across, I think the same -- just so I don't lose the point, the same-store growth issues are impacted by, first of all, the auto loan portfolio which has declined, as I said, from fourth quarter 2013. Plus I think we have some internal issues when we split a branch, and we put -- the branch has a lot of accounts, 2000 accounts and we split in two 1000 branches.

Part of that remains in the same store, part of it goes into the new store. So it kind of skews the numbers a little bit. But anyway, that's just a fine point.

I think from a -- our competitors are seeing -- some of our competitors are seeing issues. I think when you look at our loan production tables in the press release, we actually had a good production quarter.

We had a record month in the month of November. We tightened some of our controls obviously on the convenience checks, but we had good response rates.

We had a Customer Appreciation Day in the fourth quarter. That was Jody's contribution. That is what we used to do at OneMain. We had a really high take up on that. Large loans are growing very, very nicely.

Competitively, Springleaf and OneMain, I think they are going to be distracted for a while. I see for ourselves a lot of ability to grow the business, putting auto loans to the side, which I mentioned we have to figure out our strategy.

But it isn't in the in the auto loans. We're going to make some progress on a tactical basis by doing some of the things I mentioned, which is changing some of our origination matrixes as well as some loss mitigation. This Company has had a high culture of collecting, and what we are trying to do is turn that a little bit to also saying, we also want to keep our -- a lot of our customers with their loans.

And we're trying to figure out ways to do that, because we'll be, at least in the short term, successful. Competitively, I think other people are seeing some problems.

I think we're -- in the marketplace we see opportunities. And I think as we're working our way through the first quarter, those opportunities are still there.

As Don said, that's - we are spending more marketing dollars. Don alluded to that because we're trying to mitigate, as Don said, the normal seasonal liquidation of accounts in the first quarter.

But, we'll see how we do on that when we report. But I think there's plenty of opportunity in the marketplace for us.

(Multiple speakers) On the gasoline prices, I would just add that they are back up $0.30 from their low, but when they were at a low there were a lot of articles around what the annual impact was. For a single person it was maybe $520, and for a family possibly as much as $1300 a year. And we just don't believe those are numbers that are big enough to really change demand in the market.

Got it. Don, maybe just some clarification on a couple of the numbers. The personnel cost, I guess when you back out the one-time compensation item, it would have been closer to $15.8 million in the quarter. Did I hear you comment $0.5 million above that, maybe $16.3 million, is a good way to think about the quarterly run rate this year?

Yes, you did.

Okay. And relatively flattish to the extent, it sounds like did I hear you explain that you might feel like you are a little over-employeed, if you will? That some of the current staff would be seeding some of the de novo units?

Yes. I think that is a fair assessment. We went from year end last year of 340 accounts per employee. We are at 277 at the end of this year.

Certainly we wanted to make sure we solved the staffing issue that we had early in 2014 and we also wanted to stay staffed well for a lot of operational changes that Jody is making. And to make sure that as we move forward and get ready for a loan system implementation that we are training and are ready to go with plenty of personnel to make that a smooth transition.

Okay.

But later in the year, as I said, I think we have a chance to get some operational efficiencies from the branch network, and that is in fact our plan.

On the allowance side, it looks like the period-ending allowance in Q3 I think was 8% of receivables. It closed the year down at 7.4%, and that's after obviously you absorbed a big wave of losses in the quarter. Is 7.4%, should we be thinking of that is still a high watermark, or is it going to tick up in the first quarter?

No. I don't see it taking up, David. We did see in the quarter certainly higher automobile losses and slightly higher retail losses, and those upticks in those particular categories did have us add a little bit to our allowance in the quarter. But I would not see another major tick.

Maybe asking a different way. In comparison to the first half of last year, when the allowance -- ending allowance in the first two quarters were at 6.8% and 6.7% of gross receivables, do you think you can get back down to that level by the end of this year?

That is a real good question because of the number of moving parts. We are also changing our mix and we are also changing the charge-off policy, as I mentioned, which will also impact the allowance. Hard to say, David, if we will get that low.

Got it. Last question, I would be remiss not to ask. We're three-quarters of the way done with the first quarter. Is there any color you can provide us, not necessarily quantitatively but at least relative to prior years, whether tax refund season, whether the kind of the post-holiday convenience check drop, whether consumer patterns and behavior are similar to what you would normally expect?

I would say that, and as Don again alluded to it, we are seen some seasonality that the first quarter usually experiences with our consumer, our customers paying off the debt that they increased significantly in the fourth quarter. What we're trying to do is trying to increase our marketing spend across -- one of the other things we should probably mention is whereas if you go back a couple of years the marketing was principally done against the convenience check programs, starting in the fourth quarter and continuing into 2015 we will do a variety of marketing programs.

Mail programs and including the convenience check, including large loans, including some auto loans and some variety of things. We are trying to do is, as Don said, we're trying to mitigate the effects of the seasonality. And we're doing that through marketing and we are having some success. And we are continuing to have success in the large loan category.

And as Don also said, and I think maybe even I said, going forward we will continue to do -- to build the small loans as defined by convenience and small branch loans, as well as through the large loans. As I said, I think we see a lot of opportunity there. And hopefully we'll see some progress on both fronts in the first quarter.

Got it. Thanks very much.

Sure.

Sanjay Sakhrani, KBW.

Hi. This is actually Steven Kwok filling in for Sanjay. Thanks for taking my questions. The first one I have was around the yield and how we should think about it as the year progresses. Any call-outs in terms of how the dynamics will change between mixes?

Yes. I think, Stephen, how are you? This is Don. The yield went through a time period in 2014 where it was increasing due to some of the state regulatory changes, more so than anything. There is a little bit of the mix change in there as well. We had a higher percentage of small loans, both the branch small loans and convenience check collectively.

As we are moving forward in 2015, we had as a Company for the first time begun to market and drive for increases in our large loan portfolio. That particular portfolio does carry slightly lower (technical difficulties). To the extent that we can have success with building the large loan portfolio, then certainly it would perhaps tend to detract a little bit from the overall yield. That is all I see.

If you look at Page 8 in the press release, there is actually a pretty good table which describes the year-over-year changes. As Don said, it's really all in the mix between the branch small loans and convenience checks and whatever.

I would expect us to level off. And as Don said, slightly come down because of the change going forward to large loans. What we are also trying to do is we're also trying to reward some of our better customers that we currently have on the books by offering them products that will extend their loan term, but also give them better rates.

But we're really trying to do in the branches, we're trying to just add more of a book more volume into each branch. Right now we are about $1.7 million or $1.8 million per branch, $1.8 million per branch.

We're trying to add more volume into the branch, keeping our costs at the branch fixed and from the volume, just get more volume in. We have a number of initiatives underway. But I think over time what you should expect to see is the yield probably flattened and come down because of mix, but the revenue to continue to grow as we grow the volume. That's what we are working towards.

Got it. My follow-up is around the loan originations. When we look at both third quarter and fourth quarter it looks like on a year-over-year basis origination were down about 20%. How should we think about it for the first quarter, if you have any insight to that and along with the rest of the year?

I'm sorry. You're talking third -- I mean, fourth to fourth, is that what you're looking at?

We were just looking at, if you look at third quarter and fourth quarter on a year-over-year basis, the total loans originated looks like it's down about 20%. I was just wondering how we should think about that going forward in terms -- it's been around $200 million. Usually the first quarter is typically weaker. Just wondering in terms of any guidance around of loans originated?

Yes. Steven, you're looking at what happened in the third and fourth quarter of 2013, which was a very strong rate of origination and increase and seeing less of a strong increase in the third and fourth quarter of 2014, right? We went up, certainly had more originations in the third and fourth quarters of 2014, but just up less than 2013.

So that is really your question, and we can't say a whole lot about first quarter of 2014 -- 2015, I'm sorry, just because we don't give guidance. We are spending a few more marketing dollars and working hard to mitigate, decrease the normal happenings this time of the year. And I think that's probably all we can say.

And if you take a look at the two charts we included in the press release on Pages 8 and 10, which is the fourth to fourth and year over year, and again it is very consistent with the comments we have made already about branch small loans doing pretty nicely both year over year and in the quarter, up about 22%, convenience checks I think as Don said last year's fourth quarter was strong. So it kind of flattened that. Large loans growing nicely, especially in the fourth quarter.

And again, we are experienced some decline. I mean, in the automobile loans alone we're down $36 million on a base of $100 million. I think you have to sort of look at our portfolios individually rather than a total.

As we've said, we have this automobile liquidation -- automobile portfolio liquidation has been happening since the fourth quarter of 2013. And we're trying to, as I mentioned, we have some tactical things we are doing currently and we have a strategic review underway. And we will get that done in the second quarter. But the other portfolios where we think we really have the higher yield and the more opportunity for us, in my view, are growing pretty nicely.

Got it. Thanks for taking my questions.

Sure.

John Hash, Jefferies.

Good afternoon, guys. Thanks very much. (Inaudible.) On the auto -- excuse me, on the large loans they're running about 8.4% of the total portfolio right now, or I guess the average portfolio. You are talking about emphasizing this product throughout the coming quarters. How much of that shift would occur -- what type of shift do you think we'd get in that 8% number throughout this year based on your goals?

I'm just trying to figure out how to answer that. The portfolio of the large loans at the end of the year were $49 million, I think it was. That was up from $45 million, I think it was. We're getting the right number. It says $4 million there.

Yes, it's up $4 million.

When Jody came in, he put out a program on the large loans, but he came onboard October 1. He had other things he was worrying about, and the large loans really started, I would say, in the middle of November. So the growth that we had in the fourth quarter was really, in admittedly a good quarter, usually a high volume quarter. It was only like six weeks' worth of progress.

I'm expect this portfolio to -- I don't -- percentages are hard, but I would say it should at least grow for the full year this year at the rate that it was growing in the fourth quarter, if not higher than that, in terms of dollars, and maybe even percents. I think it's going to be significant for us by the time we end the year.

That alone will change the mix, and it's just a question of how we do from the total mix perspective on small and convenience checks and what we do with auto. But I think the auto -- the (technical difficulties) large loan's going to a much product for us going forward by quite a lot.

That is very helpful color. Can you tell us what type -- give us an example, maybe what type of marketing program you are engaged in, in order to find these customers and get a bigger than normal loan to them?

I think it is a variety of things. I think we are making -- we are mailing to customers, for example that we know are -- that use the product of our competitors. That is something you can see.

We also have -- which is part of the other change that Jody's trying to orchestrate, which is, as I mentioned before, our branches were very good at collection. And we are also trying to get them to be better at sales.

He put some programs out in the market -- in our branches, rather, where we are looking at some of our customers who, with Dan's help as well, would qualify for a large loan and, as Don said, better rates and a longer term. It has been very successful so far.

Those are just a couple of examples. And when I talk about large loans and I talk about examples, I will also tell you that also happened in the fourth quarter with Customer Appreciation and how we will now looked at our present borrowers, our former borrowers, and we're doing marketing on that as well. It is not only mail, but it's just getting a sales culture into the branch which is also going to help us. (Multiple speakers) results.

Okay. Thank you. I just want to sort of making sure I heard right. It sounded like you had put in an excess provision in the third quarter for the convenience checks of about $6 million. And if I heard you right, you've used about half of that excess allowance specific to that portfolio issue in this quarter?

Well, the $6 million -- let me just try. The $6 million that we've had in the third quarter was to augment the existing reserve, or the higher level of low quality loans. But there already existed in that reserve some portion of reserve related to the convenience checks that were put on in second and third quarter.

I think that the right way to think about it is in the fourth quarter we charged off $6.9 million of the convenience check issues that we had, and then also to make a (technical difficulties) that we didn't make before. Most of those charge-offs were the loans that were less than 180 days past due.

So we just had them, we brought a lot of those loans to a centralized location. We tried to collect them centrally away from the branches.

Despite repeated -- these were a lot of the first payment defaults, but despite repeated attempts to make collection, we realized that they were uncollectible and we wrote them off early. So we would [have] about $6.9 million was in the quarter, and I think on Page 11 in the press release we show you that we have $32 million remaining?

$33.2 million.

$33 million remaining in what we call the non-core summer convenience checks. Against that $33 million when you take a look at the delinquent accounts, we have a reserve left of $9.3 million. So the future losses that we haven't taken from those bad solicitations, if you will, we should be able to charge them all against that $9.2 million that we have remaining as a reserve.

Okay. Very helpful. Thanks. And last question. I wondered, any update on, or you're still pursuing tight-label securitization for the auto [book]?

We are. It's been something that has been contingent on getting Goal Point in place. So as we've pushed the timeline back for Goal Point, we've also been pushing timeline back for the securitization.

Okay. Great. Thank you guys very much.

Okay. Thank you.

Eric Jaschke, Stephens Incorporated.

Most of my questions have been asked. But just one quick one. You mentioned briefly the initiatives Dan has put into place recently to improve the credit quality of the portfolio. Can you expand upon some of those initiatives and talk about when we should see them in full effect?

Well, I think I said in the press release and even in my comments that we needed to make sure that we established a Chief Risk Officer position. Prior to that risk and operations were combined.

I think I mentioned in the call in October that the Company has a lot of very good data. And what you have to do is you have to turn that data into information to utilize.

So Dan is using his 20-plus years of credit experience of using some outside vendors, is currently doing an archive project and has looked at it and has already looked at the experience of a lot of our customers over the years. Broken out the way credit analyst typically do it, by all measures of FICO and all other indicators. And has helped us identify different parts of the customer base that we have been lending to that have carried higher loss rates, and we had stopped lending to those guys on a future basis.

He has also looked at the auto portfolio, as I mentioned. Also done a similar regression analysis showing us where we have the most problems with the auto business and where we have opportunities in the auto business in terms of our pricing and our credit. And has changed the lending matrix for that so that we can put on a bit more business and better quality business, which I had mentioned. Not a strategic move at this point, but should allow us to hopefully mitigate some of the liquidation.

Working across a variety of things, Dan has also helped in our collection efforts across all of our portfolios. As I mentioned, in the automobile portfolio he has looked at the way we do our collection repossession, and has put some things in place already that will help to improve the credit dimensions of the auto book.

And there are many other things that he is currently doing. We expect that over time -- and Dan will take over the, if he hasn't already, will take over all of the metrics and the reporting of all of our credit metrics going forward. And as Don said, we will get a lot more transparency and predictability in our numbers now that we have somebody who can really look at our credit report portfolios and be able to project them with a high degree of accuracy. We are very happy to have Dan and his team onboard.

Thanks for the detail. That is all for me. Thanks again.

Bill Dezellem, Tieton Capital Management

My question was just answered. So I would like to maybe ask that you expand on your OneMain Springleaf combination comments, beyond just the distraction that you referenced?

Well we have Jody and a couple of other folks who have joined us since we know people there. OneMain has had -- been in the Citi holdings segment for about five or six years or so, and hasn't really grown the portfolio. It used to have more volumes per branch. It used to have a real estate portfolio in the branches and they used to have 2000 branches and I think they ended up selling about 900 or something like that to Springleaf.

Springleaf has its own issues. And I think the two companies -- they're going to be formidable, they're going to be almost 2000 branches, they're in a lot of the same places that we are.

But I think they're going -- we're there already. We are making progress against them. I think they're going to be inwardly focused for some certain amount of time, I don't see them as in issue with us in the near future.

As I said, they are the large loan, that's what they do, that's their bread-and-butter, certainly OneMain. Average size of their large loans is like $6000 to $7000. Our large loans that were aiming for is more like $4000 at this point, away from our small loans which are like -- max out at $2500 or so.

So we're incrementing, if you will, towards a larger loan -- large loan portfolio. But I think based upon the progress we have made to date, I think we have a lot of opportunity against those two guys. We're now (multiple speakers)

Taking that question one more step further, do you think you're own internal initiatives create greater opportunity, or the external opportunities of the distraction and potential fallout of that combination?

That is in interesting question. Just let me think about it. I think that when we look at our own footprint, our own branch size, the way we built the portfolios in the branches, types of portfolios we have and the types of portfolios we can build, I think -- and our own initiatives related to those, I think we can build significantly off of our own internal initiatives. But at the same time, when you build a portfolio you're usually taking it away from somebody else.

We are not big enough to really impact -- I'm not exactly sure how big the combined OneMain/Springleaf book is. But it's -- OneMain alone's about $8 billion to $9 billion and I think Springleaf was close to that, although they were slightly smaller. They have, I think, $4 billion in the loan category -- in the large loan category.

So we're not big enough to impact them in any meaningful way. While we build our portfolio from our $50 million right now on the large loan, it'll be a while before they start to notice us.

Thank you.

This concludes this question-and-answer session of the call. I will now turn the call back over to management for any closing remarks. Please proceed.

We thank everybody for their participation today, and that ends our call. Thank you very much.

Thanks, everybody. Appreciate it.

This concludes today's conference. You may now disconnect. Have a great day, everyone.