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Enova Reports Charge-Offs Rise, Return to Pre-Pandemic Seasonal Patterns

Enova saw its charge-offs increase during the fourth quarter but remain below those it saw before the pandemic.

Compared to the same quarter a year earlier, the online lender’s charge-offs increased by 0.9 percentage point during the fourth quarter, Enova said in a Tuesday (Jan. 30) earnings release.

During the three months ended Dec. 31, the firm’s charge-offs stood at 9.6% of average loan and finance receivable balance, up from 8.8% during the same period in 2022, according to the release.

“Credit quality across our portfolio remains solid,” Enova CEO David Fisher said Tuesday (Jan. 30) during the company’s quarterly earnings call.

Enova’s net charge-offs remain below their pre-COVID levels, Fisher said. The company’s net charge-offs were 15.6% in the fourth quarter of 2019 and 16.1% in the fourth quarter of 2018.

Fisher attributed the improvement since that time to “a combination of mix shift and good credit management.”

The good credit management has been helped in part by Enova’s machine learning analytics and technology, Fisher said.

The company saw some cases in its small and medium-sized business (SMB) portfolio dating back to 2022 in which credit was worse than it had anticipated, Fisher said.

However, that was addressed during the first three quarters of 2023, as Enova slowed the growth of that portfolio while giving its machine learning models an opportunity to adjust, he added.

“As expected, we saw a major improvement in our SMB net charge-off ratio in the fourth quarter, which dropped to 4.8% from 5.5% in the third quarter,” Fisher said during the call.

Enova Chief Financial Officer Steve Cunningham said during the call that charge-offs in the consumer portfolio are returning to seasonal patterns seen before the pandemic. Consumer credit losses tend to peak in the fourth quarter and are at their lowest during the second quarter, he added.

“Compared to the fourth quarter of 2022, the increase in the consolidated net charge-off rate was driven by the return of a more typical seasonal pattern for our consumer portfolio during 2023, for the first time since before the COVID pandemic,” Cunningham said.

Cunningham said he expects the seasonal pattern to continue in 2024.