Why ENOVA's Q2 2023 Financial Performance Is a Lesson for Subprime Lenders
Lending to financially challenged consumers and small-to-medium businesses (SMBs) is rewarding and risky—the success of any lending business pivots around the dual axes of growth and risk management.
The recent Q2 2023 earnings report from Enova International, a publicly traded lender, is a case study in this balance.
As a seasoned consultant in the lending space, I see the Enova report not just as an affirmation of the company’s solid strategies but also as a treasure trove of insights for my clients.
The Pros of Following Publicly Traded Lenders Like Enova
- Benchmarking: Understanding the performance metrics of successful companies can serve as a benchmark for your business.
- Risk Management: Observing how Enova manages its credit risk can offer valuable insights into creating robust risk management systems.
- Strategic Moves: Companies like Enova often lead the way regarding strategic initiatives, portfolio diversification, or technological investments.
- Financial Planning: The financial statements and earnings calls can serve as an excellent educational resource for understanding financial planning in the lending industry.
- Market Trends: Following publicly traded lenders can help you stay abreast of industry trends, aiding in strategic planning.
- Publicly traded lenders are required to disclose their financial performance quarterly. This provides valuable insights into the performance of the lending industry.
- Publicly traded lenders are also subject to greater scrutiny by investors and analysts. This helps to ensure that they are operating responsibly and sustainably.
- By following publicly traded lenders, business lenders can learn from the best practices of their peers. This can help them to improve their business lending performance.
So What?
Enova International’s Q2 2023 earnings report is more than just an overview of the company’s excellent performance; it’s a learning tool for anyone in the lending space, especially those focusing on financially challenged consumers and SMBs.
The report offers multiple takeaways, from understanding the importance of portfolio diversification to the need for robust risk management systems.
As a consultant and teacher, I highly recommend that my clients keep an eye on such publicly traded lenders; their performance and strategies can serve as a valuable guide to navigating the challenges and opportunities in the lending landscape.Â
Publicly traded lenders provide valuable insights into the performance of the lending industry, and they are subject to greater scrutiny by investors and analysts. By following publicly traded lenders, business lenders can learn from their peers’ best practices and improve their business lending performance.
To those who aim for a sustainable and growing lending business, the path ahead is more straightforward when guided by proven success stories like Enova International.
Additional tips:
When following publicly traded lenders, it is essential to pay attention to a variety of metrics, including revenue, profitability, asset quality, and capital strength.
It is also essential to consider the specific business model of each lender. Some lenders specialize in certain types of loans, such as financially strapped line-of-credit, installment, collateralized, or small business loans.
Pay attention to your targets’ infrastructure plan! Is this lender employing a 100% storefront footprint, an online channel, or a blended model?
ENOVA: Key Takaways
Enova’s diversified portfolio continues to drive growth. Business products represented 62% of its total portfolio in the second quarter, up from 57% in the same quarter last year.
Consumer revenue increased by 19% year-over-year, driven mainly by strong demand for line-of-credit products.
Enova’s revenue increased by 22% year-over-year to $499 million in the second quarter of 2023.
Adjusted EBITDA increased by 24% year-over-year to $126 million.
Portfolio Diversification: A greater focus on business products, making up 62% of their total portfolio.
The company is continuing to de-emphasize its longer-term near-prime installment loans. The percentage of consumer installment loans in the company’s portfolio decreased in the second quarter.
Enova is also continuing to invest in its technology and analytics capabilities. These investments are helping Enova to manage risk better and grow its business.
Credit Quality: Net charge-offs decreased from 8.2% in Q1 to 7.6% in Q2.
Adjusted EPS increased by 5% year-over-year to $1.72.
For the seventh consecutive quarter, the company originated more than $1 billion in loans in the quarter.
Enova’s balance sheet is strong, with $1.1 billion in total liquidity.
The company is exploring ways to further unlock shareholder value, including repurchasing shares and bonds.
Financial Strength
The 22% increase in Enova’s revenue to $499 million is a stellar indicator of the company’s growth trajectory. Their Adjusted EBITDA rose by 24% to $126 million.
Significantly, this growth has not come at the cost of increased risk. The reduction in net charge-offs from 8.2% to 7.6% demonstrates that Enova has a handle on credit quality.Â
Portfolio DiversificationÂ
Enova’s strategic move to diversify its portfolio towards business products—accounting for 62% of the portfolio this quarter—has paid off. This is a critical lesson for lenders in the subprime and SMB lending space, signaling that diversification is vital to minimizing risk and tapping into new revenue streams.
Technology and Analytics Investments
Enova continues to invest in its technology and analytics capabilities, which it credits to its ability to manage risk effectively. Given that analytics play an integral role in modern lending, this emphasis is an essential takeaway for my clients.
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Table of Contents
Your First Steps: Page 17
Macro View of the Consumer Loan Industry. Page 19
State of the Consumer Lending Industry. Page 23
Hang-In There! The Future is Ours! Page 30
Flash – It’s a Whole New Business. Page 33
The Future of the Consumer Loan Industry. Page 47
Executive Summary. Page 56
Consumer Loans Defined. Page 58
The Demand Side. Page 59
Customer Profile. Page 62
The Numbers. Page 64
Regulatory Environment. Page 68
Legislative Survey. Page 70
Trends in Financing & Valuations. Page 70
The Future of Lending. Page 72
The Loan Process: an Overview. Page 74
Step-by-Step Procedures. Page 75
Consumer loan Procedures Step-By-Step Overview. Page 75
Telephone Qualifications: Your Most Important Skill. Page 79
In Your Office, Step 2. Page 84
How to Calculate the APR Formula. Page 85
General Tactics. Page 90
Exhibits. Page 94
Loan Extension Procedures. Page 102
Typical Installment Loan Breakout. Page 105
Title Loans: Overview of the Product & Industry. Page 106
How Big Is the Title Loan Market? Page 107
How Title Lending Works. Page 108
Who Uses Auto-Title Loans. Page 110
Title Loan Profits. Page 112
Regarding Title Loan Legislation. Page 116
Laws & Regulations. Page 117
Title Loans: Documents You Need. Page 120
Recording the Title. Page 123
Title Loan Add-On Fees. Page 126
Title Loans: Repossession. Page 126
Title Loan Repossession Checklist. Page 129
Repossession: The Consumer’s Point of View. Page 134
Defaults and Repossessions in Motor Vehicle Transactions. Page 147
Title Loan GPS, Starter Interrupt Devices – Payment Assurance Devices. Page 151
How to Value Your Loan Collateral. Page 161
Title Loan Lender Philosophies. Page 166
Title Loan Lenders Serving Active-Duty Service Members NO-NO! Page 166
Title Loan Resources. Page 169
Detecting Title Fraud. Page 170
Title Loan Forms. Page 173
Man loading & Personnel Page 178
Consumers typically apply for consumer loans as follows: Page 178
Profits: How Much Can You Make? Page 180
Sub-Prime Consumer Reporting, ID Validation & Credit Bureaus. Page 185
Software for the Business of Lending Money. Page 200
Features & Issues to Consider: Page 203
Consumer loan Software Vendors. Page 206
Electronic Funds Transfer (ACH & EFT). Page 211
Internet Lending: How to & Strategies. Page 228
How Internet Lending Works. Page 229
Your First Steps to Reverse Engineer an Internet Lender’s Loan Process. Page 230
Web Site Development. Page 233
Choosing a Domain Name. Page 233
Web Site Hosting. Page 234
Web Site Development. Page 235
In-House Development. Page 235
Out Sourcing. Page 237
Turnkey Websites. Page 239
Search Engine Positioning. Page 241
Keywords and Key Phrases. Page 246
Final Note on Google’s PPC Policy. Page 247
More on Pay-per-Click Search Engines. Page 251
Definitions. Page 252
Marketing Other Than Search Engines. Page 254
Affiliate Programs. Page 254
CFSI Small Dollar Loan Data. Page 257
Purchasing Loan Leads & Applications. Page 270
Buying Consumer Loan Leads. Page 270
Percentage of Applications Funded. Page 272
Fees to Charge. Page 272
Email Strategies. Page 274
Mobile-Friendly Web Sites. Page 277
Faxing of Loan Documents. Page 281
Collections. Page 283
Debt Collector’s Phone Communication Required Statements. Page 291
List of Techniques & Procedures for Your Collection Campaign: In-House Approach. Page 292
Collection Record Keeping and Data Entry. Page 292
Typical Collection Letter Template. Page 300
Taking the Risk Out of Consumer Advances. Page 301
Collections: Final Thoughts. Page 301
Extended Payment Plans. Page 302
Consumer Perspective on Collectors. Page 304
Collections. Page 306
Collection Letters & Practices. 307
Avoiding the Pitfalls of Debt Collection. Page 307
Small Claims. Page 313
ID-Verification Systems. Page 325
Instant Bank Verification. Page 327
Selling Your Debt. Page 329
How to Calculate the True Annual Percentage Rate on a Consumer loan? Page 330
The APR Formula. Page 331
APR for Deferred Presentment Loans. Page 332
Default Rates. Page 333
Compliance Issues. Page 335
Arbitration Clauses. Page 346
Licensing & Legislation. Page 350
Current Licensing Models. Page 352
•     Choice-of-Law Model: Page 352
•     State-by-State Licensing Model: Page 352
•     Offshore Model: Page 352
•     Sovereign Nation: Page 352
•     Credit Services Organization (CSO) Model: Page 352
•     Bank Model: Page 352
•     Creative Models: Page 352
Scenario 1. Page 353
Scenario 2. Page 353
Scenario 3. Page 353
Scenario 4. Page 355
Scenario 5. Page 355
Final Thoughts. Page 355
Consumer Loan Demographics. Page 357
Marketing/Branding/Advertising. Page 359
Craigs List. Page 365
Tactics & Strategies. Page 370
Tactics: Niches. Page 370
Tactics: How to Make Money & Not Fund Consumer Loans. Page 370
Tactics: Contact Info on Your Web Site. Page 371
Tactics: Choosing a Name for Your Company. Page 371
Tactics: Contract Language & Arbitration. Page 372
Tactics: Additional Web Site Resources. Page 372
Tactics: Stress the Benefits. Page 372
Tactics: Make it Easy. Page 372
Tactics: Repayment Options. Page 372
Tactics: Gathering Intelligence on your Market. Page 373
Your Competition: Tactics. Page 374
Site Selection. Page 376
Zoning. Page 376
Criteria for a Consumer Loan Store. Page 377
Motion Loft: A Tool for Site Selection. Page 378
Zoning. Page 380
Leasing Checklist. Page 381
Site Location Criteria. Page 383
Site Criteria Table Checklist. Page 384
Top 10 Do’s. Page 385
Top 10 Don’ts. Page 385
Consumer Lending & the Internet. Page 389
Licensing. Page 389
Internet Lending Topics. Page 390
Internet Default Rates. Page 390
Internet Volume & Capital Requirements. Page 390
Web Site Marketing. Page 391
Obtaining your Client Documents. Page 391
Delivery of the Funds to the Client. Page 391
Call Centers & Outsourcing. Page 392
Prepaid, Stored Value & Reloadable Cards. Page 394
What Are They? Page 394
Consult legal Counsel and the Vendors. Page 396
Kiosks or Automated Financial Centers. Page 397
Consumer Loan Product Alternatives. Page 398
Sales-Leaseback. Page 399
Cash Back Ad Sales. Page 402
Catalog Sales. Page 402
Delivery Document Center. Page 403
Cash Rebates. Page 403
Additional Income Opportunities & Traffic Builders. Page 406
Obtaining Funds for Your Loan Business. Page 408
Lender Resources. Page 409
Lender Surety Bonds & Insurance. Page 411
List of State Regulatory Agencies. Page 413
Definitions. Page 419
Customer acquisition Cost. Page 419
Consumer Lenders. Page 419
APR. Page 419
Cash Advance Loan. Page 419
Cash Advance Industry. Page 419
Consumer. Page 419
Contract. Page 419
Credit. Page 420
Customer Service Reps. Page 420
Deferred Deposit. Page 420
Extension. Page 420
Financial Accommodation. Page 420
Flip. Page 420
NSF. Page 420
Consumer loan. Page 420
Refinance. Page 421
Renewals. Page 421
Rollovers. Page 421
Short-Term Loans. Page 421
Typical Guide to Buying a Franchise. Page 422
Industry Associations. Page 435
Legal Resources for Lenders, Check Cashing & Car Title Lending. Page 438
Business Plan Outline. Page 441
Excel Business Plan Spreadsheets. Page 441
Conservative 1st Year Projected Cash Flow: Single Payment Loans. Page 449
Typical Minimum Equipment List for a Single Payment Startup. Page 450
I. WHAT IS A BUSINESS PLAN. Page 450
II. WHY WRITE A BUSINESS PLAN. Page . 450
III. KNOW YOUR BUSINESS. Page 451
IV. BUSINESS TRENDS TO CONSIDER. Page 451
V. BUDGETING – HOW AND WHY. Page 452
VI. MANAGING YOUR BUSINESS PLAN. Page 455
VII. SUMMARY. Page 456
VIII. OTHER CONSIDERATIONS. Page 456
PERSONAL TRAITS. Page 456
WHAT DO BANKERS LOOK FOR? Page 456
YOUR OWN PERSONAL DEVELOPMENT. Page 456
MARKETING THOUGHTS. Page 457
Sample Loan Forms. Page 461
Consumer Loan Document Checklist. Page 480
Final Thoughts on Launching & Operating a Successful Consumer Loan Business. Page 510
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Thorough coverage of both Internet and store-front consumer lending.