Robert Beck: Hey, Bill, how are you doing? Thanks for joining. Really, it was us optimizing across the head office. So I wouldn’t say it was heavy in any particular area. But as you think ahead and how we plan to run the business going forward, particularly, operational elements and certain business lines, including digital business that we’re growing. There was just the ability to combine functions and then by doing that, basically have a more efficient organization, be able to reduce some folks. And I will tell you, always a hard decision to reduce talented people and this had nothing to do with the individuals themselves. It had to do with where we could run more effectively and frankly create some synergies and backups where functions could be put together. So not any one targeted area.
William Dezellem: That’s helpful. And then what was the size of the portfolio that you sold in the fourth quarter, please?
Robert Beck: Yes. So Harp, you got that.
Harp Rana: Yes. So we sold about $24 million of the loans, and that had a December E&R impact of $16 million.
William Dezellem: Great. Thank you. And couple more, if I may, please.
Harp Rana: Sure.
William Dezellem: Have you begun leaning into portfolio growth as of today?
Robert Beck: So I would say in this way. We — our models where we look at our returns on a DCM basis, a direct contribution margin basis. Like others, we look at every aspect of our portfolio. We look at what the returns are. We pick those parts of the portfolio where we have the highest confidence. We also apply stress against those underwriting decisions, particularly where there are higher stressed or higher risk areas, and I’ll give you an example. So our small loan book, we added about $30 million of receivables in the third quarter, another $19 million in the fourth quarter. And I think we’re now at a record high in terms of our small loan portfolio. Now typically, we have been reducing the amount of loans that are greater than 36%, and we actually, I think we’re up about 2 percentage points versus prior year.
Now I would say that that is done with confidence, because while this is higher rate, higher risk business, it’s got very attractive margins. So to kind of give you a sense of what this means for the businesses, so we’ve talked about repricing our portfolio for all of last year, and we continue to do it where we see opportunities. We’re leaning into some of the small loan growth. And so if you look at our originations in the fourth quarter, the average APR was right at 37%. Our fourth quarter 2022 APRs on our originations, so a year ago was 34.6%, give or take. So we’ve added 233 basis points of higher APR to our business model over the last year through repricing our base business as well as starting to lean into some of that smaller loan activity, which as I said is higher rate, higher return, but also has somewhat higher losses, which is why we kind of guided up the NCL rate for next year.
So again, it’s all about putting on our highest confidence assets with the best returns and that’s how we run the business.
William Dezellem: That’s interesting. Let me jump in a little further on that, if I may. So historically, we have thought about the small loan portfolio as being a feeder for the large loan portfolio. And those loans tend to be to newer or have tended to be to new or newer clients, and then that leads to large loan growth. Is there something different going on now? Or is that exactly what we’re seeing and it explains and somehow leads to there being a pullback in the large loan originations that you’ve experienced?
Robert Beck: No, I would say that the market and the competition around that small owned space is not as great right now for lots of reasons than other competitors. And so we’re able to be pretty selective in those loans we put on. And it creates that feeder system that we’ve always had to be able to take those best customers who perform on us, and then migrate them up to larger loans. So, this isn’t about deemphasizing large loans. This is about finding where there’s opportunities really strong returns with the small loan portfolio. And we probably have discussed this in the past, but we have a barbell strategy where we have some higher rate, higher risk loans, small loans on one end. We have a large loan book in the middle and we’re increasing the size of our auto secured business on the other end of the barbell, which is obviously, it has much lower credit losses and equally strong returns.
And so this is just the strategy of continuing to maximize the bottom line returns across those three elements of our business.
William Dezellem: Great. Thank you both for taking my questions.
Robert Beck: Great. Thanks, Bill.
Operator: The next question comes from John Rowan with Janney. Please go ahead.
John Rowan: Good evening. I just have one really quick question. So the net charge off rate guidance that you gave for fiscal 2024, that obviously benefits from the loan sale in the fourth quarter, correct?
Robert Beck: Actually, it does benefit from the loan sale in the fourth quarter. The Harp, do you have that?
Harp Rana: So in the fourth quarter, it had a 320 basis point impact. And I’ll go back to last year’s loan sale, which had a 320 basis point impact in the fourth quarter of 2022, but then had a 280 basis point positive impact in first quarter of 2023. So we would expect a similar pattern with the fourth quarter ’23 loan sale.
John Rowan: Okay. All right. Thank you.
Robert Beck: Thank you.
