Q2 2024 Regional Management Corp Earnings Call
Operator: Ladies and gentlemen, greetings and welcome to the Regional Management Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Ladies and gentlemen, greetings and welcome to the regional management second quarter 'twenty 'twenty four earnings conference call.
Speaker Change: At this time all participants are in a listen only mode.
Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garrett Edson, ICR. Please go ahead.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Edson: It is now my pleasure to introduce your host got it Edson ICR. Please go ahead.
Garrett Edson: Thank you, and good afternoon. By now, everyone should have access to our earnings announcement and supplemental presentation, which were 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.
Speaker Change: Thank you and good afternoon by now everyone should have access to our earnings announcement and supplemental presentation, which were released prior to this call may be found on our website at regional management Dot 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 measure.
Speaker Change: 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.
Garrett Edson: 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.
Speaker Change: 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 forward looking statements.
Speaker Change: Things are not guarantees of future performance and therefore, you should not place undue reliance upon them.
Garrett Edson: 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 our future operating results and financial condition. Also, our discussion today may include references to certain non-GAAP measures. Reconciliation of these measures to the most comparable GAAP measures 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.
Speaker Change: All you to our press release presentation and recent filings with the SEC for more detailed discussion of our forward looking statements and the risks and uncertainties that could impact our future operating results and financial condition also our discussion today may include references to certain non-GAAP measures reconciliation of these measures to the most comparable GAAP measures can be found within our earnings announcement our earnings presentation.
Speaker Change: And posted on our website at regional management Dot Com I would now.
Robert William Beck: Like to introduce Rob Beck, President and CEO of regional Management Corp.
Robert William Beck: Thanks, Garrett, and welcome to our second quarter 2024 earnings call. I'm joined today by Harpreet Rana, our chief financial officer. On this call, we'll cover our second quarter financial and operating results and share our expectations for the balance. We're very pleased with our quarterly and year-to-date results. We delivered $8.4 million of net income in the second quarter for $0.86 of diluted EPS.
Robert William Beck: Thanks, Garrett and welcome to our second quarter 2024 earnings call I'm joined today by Heart product Chief Financial Officer, almost call will cover our second quarter financial and operating results and share our expectations for the balance of the year.
Speaker Change: We're very pleased with our quarterly and year to date results. We delivered $8 4 million of net income in the second quarter or <unk> 86 cents of diluted EPS. We grew our portfolio by 29 million sequentially to $1 8 billion in the quarter.
Robert William Beck: We grew our portfolio by $29 million sequentially to $1.8 billion in the quarter, up 5% from the prior year. Our total revenue yield increased 80 basis points year over year from a combination of increased pricing, growth of our higher-margin small loan portfolio, and improved credit performance. Our larger portfolio and stronger revenue yield combined to drive total revenue to $143 million in the second quarter, up 7% from last year. At the same time, we've maintained a tight grip on G&A expenses while still investing in our growth in strategic initiatives.
Robert William Beck: Up 5% from the prior year.
Robert William Beck: Our total revenue yield increased 80 basis points year over year from a combination of increased pricing.
Robert William Beck: Both of our higher margin small loan portfolio and improved credit performance, our larger portfolio and stronger revenue yield combined to drive total revenue to 143 million in the second quarter up 7% from last year at the same time, we've maintained a tight grip on G&A expense, while still investing in our growth and strategic.
Robert William Beck: Initiatives, our second quarter year over year revenue growth outpaced our G&A expense growth by $2 Nymex together the strong line item outcomes drove net income up 40% compared to the second quarter of last year.
Robert William Beck: Our second quarter year-over-year revenue growth outpaced our G&A expense growth by 2.9%. Together, these strong line item outcomes drove net income up 40% compared to the second quarter of last year. Along with our strong first half results, we continue to carefully manage our portfolio's credit quality and performance. Recent economic data has been somewhat mixed, as inflation appears to be cooling while the labor market is softening.
Robert William Beck: Along with our strong first half results, we continued to carefully manage our portfolio's credit quality and performance recent economic data has been somewhat mixed as inflation appears to be cool and while the labor market is softening somewhat.
Robert William Beck: We're optimistic about the benefits that lower inflation levels will bring to our customers and our credit performance, and we believe that the labor market softening will disproportionately impact higher-income workers as job openings appear to remain plentiful for our customers. However, we plan to maintain our conservative underwriting posture and growth trajectory while awaiting additional positive economic data. We expect ending net receivables to grow by roughly 6% in full year 2024, with average net receivables up 4 to 4.5%, as our growth will be weighted to the second half of the year.
Robert William Beck: We're optimistic about the benefits of lower inflation levels will bring to our customers and our credit performance and we believe that the labor market softening will disproportionately impact higher income workers as job openings appear to remain carnival for our customers. However, we plan to maintain our conservative underwriting posture and growth trajectory, while awaiting additional positive.
Robert William Beck: The economic outlook, we expect.
Robert William Beck: Ending net receivables to grow by roughly 6% and full year 2024 with average net receivables up four to four 5% as our growth will be weighted to the second half of the year.
Robert William Beck: I want to take a minute to discuss how we strategically think about product mix and the downstream implications of a shift in product mix on yield, net credit losses, and other key performance indicators. We have two primary products, small and large installers.
Speaker Change: I wanted to take a minute to discuss how we strategically think about product mix and the downstream implications of the shift in product mix to yield no credit losses and other key performance indicators, we have two primary products small and large installment loans.
Robert William Beck: We believe that our dual offering of small and large loans, including loans with APRs over 36%, provides us with a competitive advantage as most of our competitors operate in either the small loan space or the large loan space, but not both. As a result, we're uniquely positioned to offer credit access to a wider set of customers and to adjust our loan offerings to our customers as their needs evolve and their credit profiles improve. We have deep experience lending to small loan customers who typically have weaker credit profiles than their larger loan counterparts.
Speaker Change: We believe that our dual offering at small and large loans, including loans with apr's over 36% provides us with a competitive advantage as most of our competitors operate any of the small loan space or the large loan space, but not both as a result, we're uniquely positioned to offer credit access to a wider set of customers and to adjust our loan offerings to our cost.
Speaker Change: As their needs evolve and credit profiles improve.
Speaker Change: We have deep experience lending to small loan customers, who typically have weaker credit profiles than their large loan counterparts are small loan apr's averaged 45, 2% and because of the smaller loan sizes and higher yields we're able to offer smaller lots of customers, who wouldnt otherwise have access to credit.
Robert William Beck: Our small loan APRs average 45.2%, and because of the smaller loan size and higher yields, we're able to offer smaller loans to customers who wouldn't otherwise have access to credit. We're comfortable lending to this credit profile because, while the credit risk may be greater, with the increased credit risk comes increased yields and margins. Highly qualified consumers are currently driving strong demand in this segment as fewer consumers are qualifying for sub-36% APR loans due to credit tightening within the. Continuing to provide access to credit is also essential for our small loan customers.
Speaker Change: We're comfortable running to this credit profile, because while the credit risk maybe greater with the increased credit risk comes increased yields and margins.
Speaker Change: Highly qualified consumers are currently driving strong demand in this segment as fewer consumers are qualifying for sub 36% APR loans due to credit tightening and the industry.
Speaker Change: Continuing to provide access to credit is also a central for our small loan customers many of them improve their credit profiles by establishing a responsible payment history with us and ultimately qualifying to graduate to our large loan product at a lower APR for.
Robert William Beck: Many of them improved their credit profiles by establishing a responsible payment history with us and ultimately qualifying to graduate to our large loan product at a lower APR. For example, last year we refinanced nearly 24,000 of our customers' small loans into large loans, representing 134 million in finance receivables, resulting in a decrease in their average APR from 42% to 30%. This strategy has resulted in high customer satisfaction and retention, as well as improved credit performance over time.
Speaker Change: For example, last year, we refinanced nearly 24000 of our customers small loans into large loans, representing $134 million in finance receivables, resulting in a decrease in the average APR from 42% to 30%.
Speaker Change: This strategy has resulted in high customer satisfaction and retention as well as improved credit performance overtime.
Robert William Beck: As a state-licensed lender, there is a natural limit to how large our small loan portfolio may grow, as not every state permits lending at rates above 36%. As we have expanded geographically in recent years, we've entered many states where interest rate limitations make large loan lending more attractive than small loans. In addition, if higher inflation caused economic conditions to become more challenging beginning in late 2021 and credit performance began to deteriorate, lending to small-owned consumers, whose credit performance tends to be more volatile than large-owned consumers.
Speaker Change: As a state licensed lender there is a natural limit to how large or small loan portfolio may go up it's not every state permits lending at rates about 36%.
Speaker Change: As we expanded geographically in recent years, we've entered many states where interest rate limitations make large loan lending more attractive than small loan lending. In addition, as higher inflation caused economic conditions to become more challenged beginning in late 2021 and credit performance began to deteriorate, we constrain lending to smaller consumers whose credit performance.
Speaker Change: And to be more volatile than large long consumers. We also introduced a new auto secured product as a subset of our broader large loan product. The auto secured product is reserved for our highest quality consumers requires auto collateral and has the lowest price of our products, allowing us to extend our customers' lifecycle.
Robert William Beck: We also introduced a new auto-secured product as a subset of a broader, large loan product. The auto-secured product is reserved for our highest quality consumers, requires auto collateral, and is the lowest price of our products, allowing us to extend our customers' life cycle.
Robert William Beck: As a result of these dynamics, our large loan portfolio grew more rapidly than our portfolio of small loans with APRs greater than 36 percent. Despite the growth in our large loans, our small loan portfolio plays a very important role in our business and finances. It's one of our introductory products for new customers, creating a feeder business for our large loan portfolio.
Speaker Change: As a result of these dynamics, our large loan portfolio grew more rapidly than a portfolio of small loans with APR is greater than 36%.
Speaker Change: The growth in our large loans small loan portfolio plays a very important role in our business and financial results. It's one of our introductory products for new customers, creating a theater business for our large loan portfolio. In addition, despite the small loan portfolios greater credit risk and higher servicing cost carries very strong yields and margins benefiting our bottom line returns.
Robert William Beck: In addition, despite the small loan portfolio's greater credit risk and higher servicing costs, it carries very strong yields and margins, benefiting our bottom line returns in cash. Our product offering of small-large loans, including segments of greater than 36% APR loans and auto-secured loans, provides us with multiple levers we can pull to maximize growth and return. Which lever we pull depends on many factors, including the economic environment, competitive dynamics, relative funding and collection costs, our observations of consumer health, state regulatory nuances, and our expectations for how these factors may interact in the future and impact credit performance, yield, and bottom line return.
Speaker Change: And cash flows.
Speaker Change: Our product offering with small and large loans, including segments with greater than 36% APR loans and auto secured loans provides us with multiple levers, we can pull to maximize growth and returns.
Speaker Change: Which lever we pull it depends on many factors, including the economic environment competitive dynamics relative funding and collection costs, our observations of consumer health state regulatory nuances and our expectations for how these factors may involve in the future and impact credit performance yields and bottom line returns.
Robert William Beck: Ultimately, we seek to grow our products and build our portfolio in a way that will generate strong margins that meet our return hurdles while also appropriately balancing credit risk outcomes and meeting the needs of our customers. More recently, in light of moderating inflation and our expectations of an improving economic environment, we've increased the growth of our high-margin small loan portfolio. As a result, more of our portfolio growth this year has come from this product than we anticipated at the outset of the year. We grew the small loan portfolio by 61 million, or 14% year-over-year, representing more than 70% of our portfolio growth over the last year.
Speaker Change: Ultimately, we seek to grow our products and build our portfolio in a way that will generate strong margins that meet our return hurdles, while also appropriately balancing credit risk outcomes and meeting the needs of our customers.
Speaker Change: More recently in light of moderating inflation and our expectations of an improving economic environment. We've increased the growth of our high margin small loan portfolio.
Speaker Change: As a result more of our portfolio growth. This year has come from this product than we anticipated at the outset of the year.
Speaker Change: We grew the small loan portfolio by 61 million or 14% year over year, representing more than 70% of our portfolio over the last year.
Robert William Beck: Our portfolio of loans with greater than 36% APR grew from 14% to 17% of the total portfolio over that same time period. As large loan competitors have tightened their credit policies, we're seeing strong demand for our small loan product from highly qualified applicants who have experienced a resulting drop in access to credit. These are consumers that we were able to onboard into our small loan product and ultimately retain with a lower-rate large loan as economic conditions improve and as these customers demonstrate consistent payment performance.
Speaker Change: Our portfolio of loans with greater than 36% APR grew from 14% to 17% of the total portfolio over that same time period.
Speaker Change: As large loans competitors have tightened the credit box, we're seeing strong demand in our small loan product for highly qualified applicants who have experienced the resulting drop in access to credit.
Speaker Change: These are consumers that were able to onboard into our small loan product and ultimately retain with a lower rate large loans as economic conditions improve and as these customers demonstrate consistent payment before.
Robert William Beck: We now have multiple quarters of data on our more recent high-margin, small-loan expansion, and we feel comfortable continuing to thoughtfully and moderately grow this business, given the strong margins and the opportunity to graduate these customers over time to larger, lower-rate loans. To buffer the risk associated with the growth in our high-margin, small-loan portfolio, we also continue to deploy a barbell strategy of originating larger amounts The Auto Secure portfolio increased to $180 million, representing 10.1% of the portfolio as of June 30th, up from 7.6% at the end of the second quarter of last year.
Speaker Change: We now have multiple quarters looked out on a more recent high margins fall on expansion and we feel comfortable continuing to thoughtfully and moderately grow this business given the strong margins and the opportunity to graduate these customers over time to larger lower rate loans.
Speaker Change: The buffer the risk associated with the growth in our high margin small loan portfolio. We also continue to deploy a barbell strategy of originating larger amounts of high quality auto secured logs.
Speaker Change: To execute portfolio has increased to 180 million.
Speaker Change: Representing 10, 1% of the portfolio as of June 30 up from seven 6% at the end of the second quarter last year.
Robert William Beck: This portfolio is performing very well, with 30 plus day delinquency of 2.4% at the end of the quarter and the lowest credit losses of all our products. Our auto-secured loans generate healthy margins and will continue to be a focal point of our... As Harp and I will discuss in greater detail, the adjustment to our product mix has implications for our various key performance indicators. The shift in emphasis and product mix to our small loan product, particularly our subset of loans carrying greater than 36% APRs, has benefited our portfolio APRs and interest in CEOs.
Speaker Change: This portfolio was performing very well with 30 plus day delinquency up two 4% at the end of the quarter.
Speaker Change: And the lowest credit losses of all our products, our auto secured loans generate healthy margins will continue to be a focal point of our growth.
Harper: This is harper and I will discuss in greater detail the adjustment to our product mix have implications for our various key performance indicators are shifting emphasis and product extra small loan product, particularly our subset of bonds carrying greater than 36% APR has benefited our portfolio Apr's an interesting field.
Robert William Beck: In the second quarter of 2024, our average APR at origination for our total portfolio was 36.4%, up from 35.4% in the prior year period. Along with the improved credit performance, the increased APR has helped to drive our interest and fee yield up 110 basis points in the second quarter compared to the prior year period. Conversely, as expected, the shift to small loans negatively impacts overall portfolio credit performance, requires slightly higher G&A expense to support the greater collection intensity of the portfolio, and marginally increases overall funding.
Speaker Change: In the second quarter of 2024, our average APR at origination for our total portfolio was 36, 4% up from 35, 4% in the prior year period, along with the improved credit performance. The increase the APR has helped to drive our interest and fee yield up 110 basis points in the second quarter compared to the prior year.
Speaker Change: Period.
Speaker Change: Conversely, as expected the shift of small loans negatively impact overall portfolio of credit performance requires slightly higher G&A expense to support the greater collection intensity of the portfolio and marginally increases overall funding cost.
Robert William Beck: On a net basis, however, the benefits of yield exceed the drag on credit performance, G&A expense, and funding costs, creating a net benefit to margin and our bottom line. Turning to credit performance, as of June 30th, our 30-plus-day delinquency rate remained stable at 6.9 percent, 20 basis points better sequentially and flat to the prior year period. Our net credit loss rates improved 40 basis points from the prior year as the front boat continues to perform in line with our expectations and makes up a larger portion of our total portfolio.
Speaker Change: On a net basis, however, the benefits the yield exceeds the drag on credit performance G&A expense and funding costs, creating a net benefit to margin and our bottom line.
Speaker Change: Turning to credit performance as of June 30, our 30, plus day delinquency rate remained stable at six 9% 20 basis points better sequentially and flat to the prior year period.
Speaker Change: Net credit loss rates improved 40 basis points from the prior year as the front book continues to perform in line with our expectations. It makes up a larger portion of our total portfolio.
Robert William Beck: We estimate that the additional growth in our small loan product drove roughly 10 basis points of incremental delinquency rate and 20 basis points of incremental NCL rate in the second quarter. But as discussed, it's a very good trade when compared to the higher yield of the portfolio. As we said previously, our NCL rate will continue to fall in the second half of the year as we maintain tighter credit underwriting on new originations and our back book declines to 8 to 10 percent of the portfolio by year end.
Speaker Change: We estimate that the additional growth on our small loan product drove roughly 10 basis points of incremental delinquency rate and 20 basis points of incremental NCL rate in the second quarter, but as discussed it's a very good trade when compared to the higher yield the portfolio generates.
Speaker Change: As we've said previously our NCL rate will continue to fall in the second half of the year as we maintained tighter credit underwriting on new originations and our back book declined to 8% to 10% of the portfolio by year end.
Robert William Beck: The slope of improvement will, however, be impacted somewhat by the continued growth of our high-margin, small-owned business, as well as the macroeconomic environment. Our view remains that the aggregate and lingering effects of persistently high inflation since 2020 continue to strain our customer base, as the cost of meeting everyday necessities such as food, energy, and rent remains elevated. Economic conditions, particularly inflation, while improving, have not improved at the pace we or most economists had predicted at the start of the year.
Speaker Change: The slope of improvement will however be impacted somewhat by the continued growth in our high margin small loan business as well as the macroeconomic environment. Our view remains that the aggregate and lingering effects of persistently high inflation. Since 2020 continue just trained our customer base as the cost of meeting everyday necessities, such as food energy and ret.
Speaker Change: The elevated economic conditions, particularly inflation, while improving have not improved at the pace. We are most economists had predicted at the start of the year our portfolio roll rates are likewise, improving though they remain elevated due to the slower pace of economic improvement.
Robert William Beck: Our portfolio roll rates are likewise improving, though they remain elevated due to the slower pace of economic improvement. In light of the lingering effects of inflation, elevated roll rates, and the growth in our higher-margin small loan portfolio, we're increasing our full year NCO rate guidance to 11.1 to 11.2 percent. We estimate that roughly 10 basis points of this incremental NCL rate is due to economic conditions, and another 10 basis points is due to the denominator effect of slower growth in our average net receivables, which itself is a consequence of macro conditions.
Speaker Change: In light of the lingering effects of inflation elevated roll rates and the growth in our higher margin small loan portfolio, we're increasing our full year NCL rate guidance to 11, one to 11, 2%.
Speaker Change: We estimate that roughly 10 basis points of this incremental NCL rate is due to economic conditions.
Speaker Change: And another 10 basis points is due to the denominator effect of slower growth in our average net receivables, which itself is a consequence of macro conditions. The remaining 20 basis points in incremental NCL rate is attributable to the additional growth of our high margin small business.
Robert William Beck: The remaining 20 basis points in the incremental NCL rate is attributable to the additional growth of a high-margin, small-capitalization business. However, as discussed, it's an excellent trade given the stronger margins and bottom-line returns that the portfolio generates.
Speaker Change: As discussed it's an excellent trade given the stronger margins and bottom line returns as the portfolio generates.
Robert William Beck: With the increase in NCO rate guidance for 2024, we're also increasing our total revenue yield guidance to 32.8 to 32.9, up 60 to 70 basis points year over year to reflect the shift in portfolio mix to higher-rate small-owned business, offset in part by revenue reversals from higher net credit losses on the full portfolio. Despite the continued impacts of inflation on credit performance, we exceeded our net income and EPS expectations in the first and second quarters.
Speaker Change: With the increase in NCL rate guidance for 2024, we're also increasing our total revenue yield guidance to 32.8 to 32.9 up 60 to 70 basis points year over year to reflect the shift in portfolio mix to higher rate small loan business offset in part by revenue reversals from higher net credit losses on the full portfolio.
Speaker Change: Despite the continued impact of inflation on credit performance has exceeded our net income and EPS expectations in the first and second quarters. We've done so by adjusting our strategies and pulling on various levers to improve revenue yields and lower expenses driving strong bottom line results in the face of an economic environment that while improving <unk>.
Robert William Beck: We've done so by adjusting our strategies and pulling on various levers to improve revenue yields and lower expenses, driving strong bottom-line results in the face of an economic environment that, while improving, continues to challenge our customers and slow the rate of credit normalization. Of particular note is our tight expense management in the first half of the year. These efforts have freed up resources to ramp up second half investment to open 10 new branches, which will drive incremental volume in 2025.
Speaker Change: The challenge for our customers and slow the rate of credit normalization.
Speaker Change: A particular note is our tight expense management in the first half of the year.
Speaker Change: These efforts have freed up resources to ramp up second half investment to open 10, new branches, which will drive incremental volume in 2025.
Robert William Beck: We'll also increase our investment in technology and data analytics to drive further productivity in the future. Despite the increase in investment spend in the second half of the year to position us for strong growth in 2025, we're lowering our full-year G&A expense guidance by roughly $7 million to $250 million.
Speaker Change: We'll also increase our investment in technology and data analytics to drive further productivity in the future.
Speaker Change: Despite the increase in investment spend in the second half of the year positioning us for strong growth in 2025, we're lowering our full year G&A expense guidance by roughly 7 million to $250 million will continue to carefully manage our G&A expense in the future while still investing in our company's future success.
Robert William Beck: We'll continue to carefully manage our G&A expenses in the future while still investing in our company's future success. We're also introducing net income guidance of $41 to $44 million for full year 2024. As we've discussed in the past, over the long term, with the benefits of a stable macroeconomic environment, further scale through portfolio growth, and a well-balanced product mix, we're targeting a return on assets of 4% and a return on equity of 20%.
Speaker Change: We're also introducing net income guidance of 41 to 44 million for full year 2024, as we've discussed in the past over the long term with the benefits of a stable macroeconomic environment further scale through portfolio growth.
Speaker Change: Well balanced product mix, we're targeting a return on assets of 4% and a return on equity of 20% while it will take time to reach these targets. We believe these returns are achievable. If we are disciplined in our growth.
Robert William Beck: While it will take time to reach these targets, we believe these returns are achievable if we are disciplined in our growth, prudently manage our expense base, maintain a strong funding profile and balance sheet, and continue our focus on executing on our core business. As we look ahead through the rest of the year and into 2025, we expect to make progress on this journey back to normalized returns. Assuming a steady economic outlook driven by continued revenue yield expansion, Incrementally better credit performance, and a continued focus on generating operating leverage from portfolio growth and efficiency, even in the face of continued headwinds from inflation and higher interest rates.
Speaker Change: We manage our expense base and maintain a strong funding profile our balance sheet and continue our focus on executing on our core business.
Speaker Change: As we look ahead through the rest of the year and into 2025, we expect to make progress on this journey back to normalized returns assuming a steady economic outlook driven by continued revenue yield expansion incrementally better credit performance and a continued focus on generating operating leverage from portfolio growth and efficiencies even in.
Speaker Change: Faced with continued headwinds from inflation and higher interest rates.
Robert William Beck: As always, I'd like to thank the regional team for their hard work, dedication, and superior customer service. The team has skillfully managed through a difficult economic environment over the past couple of years, providing valuable financial products and services to our customers while anticipating, preparing for, and reacting to conditions that have been particularly challenging for our consumers. I continue to be impressed by the team's talent and commitment. I'll now turn the call over to Harp, who will provide more detail on our second quarter results and additional line-item guidance for 2021. Thank you, Rob, and hello everyone.
Speaker Change: It was always like to think the regional team for their hard work dedication and superior customer service. The team has skillfully managed through a difficult economic environment over the past couple of years, providing valuable financial products and services to our customers, while anticipating preparing for and reacting to conditions that have been particularly challenging for our consumer base.
Speaker Change: I continue to be impressed by the team's talent and commitment.
Harp: I'll now turn the call over to harp, who will provide more detail on our second quarter results and additional line item guidance for 2024. Thank.
Harp: Thank you Robin Hello, everyone I'll now take you through our second quarter results in more detail and provide you with an updated outlook for third quarter and full year 2024.
Harpreet Rana: I'll now take you through our second quarter results in more detail and provide you with an updated outlook for the third quarter and full year 2024. On page 4 of the supplemental presentation, we provide our second quarter financial highlights. As Rob noted, we posted strong net income of $8.4 million and diluted earnings per share of $0.86, up 37% from the second quarter of last year. We generated these results through another quarter of solid revenue growth and expense distribution.
Harp: On page four of the supplemental presentation, we provide our second quarter financial highlights as Rob noted, we posted strong net income of $8 1 million and diluted earnings per share of 86% up 37% in the second quarter.
Speaker Change: I blocked here.
Harp: We generated deep herself for another quarter of solid revenue growth and expense discipline.
Harpreet Rana: We also continue to maintain a strong balance sheet as well as a healthy credit profile and robust loan loss reserve. Turning to page 5, we observed a high level of loan demand in the quarter, though we maintained our cautious approach to underwriting with an emphasis on higher-margin segments. Total originations increased 7% year-over-year, contributing to a 7% increase in customers. Originations in all marketing channels were up, with digital, direct mail, and branch originations increasing by 17%, 7%, and 5%, respectively.
Harp: We also continue to maintain a strong balance sheet as well as the healthy credit profile and real basketball Mastercard.
Harp: Turning to page five we observed a higher level of loan demand in the corner that we maintained our cautious approach to underwriting with an emphasis on higher margin.
Harp: Total originations increased 7% year over year contributing to a 7% increase in customer accounts.
Harp: Originations in all marketing channels were up with digital direct mail and branch originations, increasing by 17, seven and 5% respectively.
Harp: Yeah.
Harpreet Rana: At this time, we remain comfortable prioritizing credit quality and margin over more aggressive loans. As a result, we expect to remain highly selective in making loans within our tight credit box, at least in the near term.
Harp: At this time, we remain comfortable prioritizing credit quality and margin of our more aggressive long back.
Harp: As a result, we expect to remain highly selective in making along with tight credit box at least in the near term.
Harpreet Rana: Page 6 displays our portfolio growth and product mix through the second quarter. We close the quarter with net finance receivables of $1.8 billion, up $29 million from the prior quarter end as originations picked up towards the end of the quarter as expected. As of the end of the second quarter, our large loan book comprised 71% of our total portfolio, and 83% of our portfolio carried an APR at or below 36%, down from 86% a year ago.
Harp: Page six of our portfolio growth and product mix for the second quarter.
Harp: Closed the quarter with net finance receivables of $1 8 billion up 29 million in the prior quarter and at the originations picked up towards the end of the quarter as expected as well.
Harp: And on the second quarter, our large loans comprised 71% of our total portfolio and 83% of our portfolio carry a P R or below 36% down from 86% a year ago.
Harpreet Rana: As Rob discussed, we purposely leaned into growth of higher-margin small loans in recent quarters, and we expect to continue growing our small loan book in a measured way in future quarters. This portfolio drives higher revenue yields, which offsets moderately higher funding costs and exceeds our return hurdles, despite higher expected net credit losses on these particular sectors. Looking ahead, we now enter a seasonally strong quarter for originations.
Harp: As Rob discussed, we purple cleanly and content growth and higher margin small loans in recent quarters.
Speaker Change: And we expect to continue growing our small loan book in a measured rate in district court.
Rob: This portfolio drives higher revenue yield, which offset moderately higher funding costs and exceed our return hurdles. Despite higher expected net credit losses on these particular segments.
Speaker Change: Looking ahead, we now enter a seasonally strong quarter for origination I'm, having expanded to eight new states and having increased our addressable market by more than 80% 2020 with ample opportunity to take advantage of high levels of consumer demand to drive quality portfolio growth.
Harpreet Rana: By having expanded to 8 new states and having increased our addressable market by more than 80% since 2020, we have ample opportunity to take advantage of high levels of consumer demand to drive quality portfolio growth while remaining selective in approving borrowers under our more conservative underwriting criteria. We expect our ending net receivables to increase by approximately $48 million sequentially as of September 30th, driving average net receivables for the third quarter up by roughly $43 million.
Rob: While remaining selective in our critical power under a more conservative underwriting criteria.
Rob: Our ending net receivables to increase by approximately 48 million sequentially as of September 30th driving average net receivables for the third quarter up from 43 nine as always we'll continue to monitor the economy and focus on originating loans.
Harpreet Rana: As always, we'll continue to monitor the economy and focus on originating loans that maximize our margins and bottom-line results. Depending upon market conditions, we can quickly tighten our underwriting or lean back into growth, either of which would impact receivables growth in the quarter. Turning to page 7, total revenue grew to $143 million in the second quarter, up 7% from the prior year period. Our total revenue yield and interest and fee yield were 32.7% and 29.3%, respectively. sequentially, total revenue yield was down 10 basis points, better than our initial expectations.
Rob: Our margins and bottom line results.
Rob: Depending upon market conditions, we can quickly tightened our underwriting or getting back into growth either of which would impact receivables scrap from Macquarie.
Speaker Change: Turning to page seven total revenue grew to 123 in melanoma in the second quarter up 7% from the prior year period, our total revenue yield and interesting fields were 32, 7% and 29, 3% respectively sequentially.
Rob: Sequentially total revenue yield was down 10 basis points better than our initial expectations.
Harpreet Rana: Year-over-year, our total revenue yield was up 80 basis points due to pricing increases, growth in our higher-margin small loan portfolio, and improved credit performance. In the third quarter, we expect a roughly 40 basis points sequential increase in total revenue. Moving to page 8, our delinquency and net credit losses were roughly in line with our expectations.
Rob: The year over year, our total revenue yield, but that 80 basis points.
Speaker Change: Rising increases growth in our higher margin small loan portfolio and improved credit profile.
Speaker Change: In the third quarter, we expect a roughly 40 basis.
Rob: The increase in total debt.
Rob: Moving to page eight our delinquency and net credit losses were roughly in line with our expectations.
Harpreet Rana: Though, as Rob discussed, our credit performance was naturally impacted by the growth in our higher-rate portfolio. Our 30-plus-day delinquency rate as a quarter ends at 6.9 percent, a 20-basis-point improvement sequentially and comparable with where it stood at the end of the second quarter of 2023, despite the growth in our higher-margin small loan portfolio. Our net credit losses of $55.5 million were roughly in line with our outlook, and our annualized net credit loss rate of 12.7% was 40 basis points better than last year.
Rob: So as Ron discussed our credit performance with naturally impacted by the breadth and a higher rate portfolio.
Rob: 30, plus day delinquency rate at quarter end was six 9%, a 20 basis point improvement sequentially and comparable with where it stood at the end of the second quarter of 2023, despite the grants now higher margin small loan portfolio.
Rob: Credit losses were 55 5 million or roughly in line with our outlook and our annualized net credit loss rate of 12, 7% with 40 days better than last year.
Harpreet Rana: We expect that our NCL rate will decline throughout the balance of the year as we continue reducing our back portfolio. Page nine provides additional information on the performance of our front book and back book portfolios. The front book ended the quarter at 83% of our total book compared to 78% at the end of the first quarter. The front book carries a 6.4% delinquency rate compared to 9.8% on the back book.
Rob: But our NCL rate will decline throughout the balance of the year as we continue reducing our backup portfolio.
Rob: Page nine provides additional information on the performance the restaurant book in that portfolio.
Rob: Front book ended the quarter at 82% of our total book compared to 78% at the end of the first quarter, that's not that carries a six 4% delinquency rate compared to nine 8% on the backlog.
Harpreet Rana: The back book accounted for 20% of our 30 plus day delinquency, despite representing only 14% of the portfolio at quarter end. Our front book and back book reserve rates are 10% and 13.7%, respectively. We continue to be pleased with the way that our front book is performing. Compared to the back book, the front book continues to season at a lower level of loss, despite the growth in our higher-rate small loan business, which should benefit our 2025 results.
Rob: Book accounted for 20% about 30, plus day delinquency, despite representing only 14% of the portfolio at quarter end.
Rob: Stop book and back book Reserve rates are 10% and 13% respectively.
Speaker Change: We continue to be pleased with the way that I felt like a quick one.
Speaker Change: And to the back book Front book continues to season, and a lower level of loss. Despite the growth in our higher rate small loan default, which should benefit our 2025 or so overall, we're seeing the benefit of our prudent underwriting and our credit metrics in the third quarter, we expect our delinquency rate to right.
Harpreet Rana: Overall, we're seeing the benefit of our prudent underwriting in our credit metrics. In the third quarter, we expect our delinquency rate to rise slightly, in line with seasonal patterns. In addition, we anticipate that our net credit losses will be approximately $47.5 million.
Rob: In line with seasonal patterns. In addition, we anticipate that our net credit losses will be approximately 47 5 million in the third quarter down from 55 5 million in the second quarter as the backup continues to diminish.
Harpreet Rana: In the third quarter, down from $55.5 million in the second quarter, as the back book continues to diminish. Turning to page 10, our second quarter allowance for credit losses reserve rate declined by 20 basis points to 10.5%, consistent with our prior outlook, the improved credit quality of our portfolio, and expectations for improving future macroeconomic conditions. As of quarter-end, the allowance was $185 million and assumed a 2024 year-end unemployment rate of 4.8%.
Rob: Turning to page 10, our second quarter allowance for credit losses reserve rate declined by 20 basis points to 10, 5%.
Rob: With the higher outlet the improved credit quality of our portfolio and expectation for improving future macroeconomic conditions as of quarter end. The allowance was 185 million and assumed at 'twenty 'twenty four and you're in the unemployment rate of 420%.
Harpreet Rana: Looking ahead, as a reminder, higher second-half receivables growth will require higher provisioning for loan loss. While loan loss provisioning for growth is a near-term drag on earnings, it will lead to stronger performance in 2025. We expect our loan loss reserve rate to remain flat at 10.5% or improve slightly to 10.4% at the end of the third quarter, subject to economic conditions and portfolio performance. In addition, we're narrowing our year-end 2024 loan loss reserve rate guidance to 10.2% to 10.3%, reflecting the lingering effects of inflation in our higher-margin small loan business and the impact of Hurricane Vera, which impacted our Texas business, particularly in the Houston area.
Rob: Looking ahead as a reminder, I hear second half receivables growth will require higher provisioning for loan market.
Rob: Loan loss provisioning for growth is a near term drag on earnings it will lead to stronger performance in 2025.
Rob: Our loan loss reserve rate remained flat at 10, 5% on improved slightly to 10, 4% at the end of the third quarter subject to economic conditions and portfolio performance. In addition, we're narrowing our year end 'twenty 'twenty four loan loss reserve rate guidance to 10, 2% to 10, 3%, reflecting the lingering effects.
Rob: Inflation increased in our higher margin small loan Bethlehem and impacts of Hurricane Barry which impacted on Texas.
Rob: Particularly in the eastern area.
Harpreet Rana: Flipping to page 11, we continue to closely manage our spending while still investing in our growth capabilities and strategic initiatives. Our G&A expenses of $60.1 million in the second quarter were better than our outlook, due in part to aggressive management of our personnel expenses. Our annualized operating expense ratio was 13.8% in the second quarter, 20 basis points higher than the prior year period due to an insurance settlement received in the second quarter of last year.
Speaker Change: Flipping to page 11, we continue to closely manage our spending while still investing in our growth capabilities and strategic in our G&A expenses at $60 1 million in the second quarter were better than our outlook due in part to the aggressive management of our personnel expense.
Speaker Change: Annualized operating expense ratio was 13, 8% on my second quarter 20 basis points higher than the prior year period due to an insurance settlement received in the second quarter of last year.
Harpreet Rana: Meanwhile, our revenue growth outpaced our expense growth by nearly 3%. For the third quarter, we expect G&A expenses to be roughly $64.5 million. The sequential increase in G&A expense is attributable to our investments in growth and strategic initiatives, as well as the timing of expenses associated with our incentive plan, which is weighted towards the second half of the year due to seasonality and timing of equity grants. Our growth investments include opening 10 new branches this year to drive portfolio expansion in New York State, where there is a large untapped market opportunity and expenses to drive new loan originations and service a higher number.
Speaker Change: Meanwhile, our revenue growth outpaced our expense by nearly three times.
Speaker Change: In the third quarter, we expect G&A expenses to be roughly $65 million.
Speaker Change: The increase in G&A expenses attributable to our investments in growth and strategic initiatives as well as the timing of expenses associated with our incentive plans, which are weighted towards the second half of the year due to seasonality and timing of equity grants.
Speaker Change: Growth investments include opening 10, new branches this year to drive portfolio expansion and our New York State, where there was a large untapped market opportunity and expenses to drive new loan origination and service a higher number of accounts.
Harpreet Rana: We also continue to invest in technology and data initiatives to benefit future performance. Moving forward, we'll continue to meticulously manage expenses while also investing in our core business in a way that improves our operating efficiency over time and ensures our long-term success and profitability. Turning to pages 12 and 13, our interest expense for the second quarter was $17.9 million, or 4% of average net receivables on an annualized basis, better than our outlook on lower average debt and lower rates.
Speaker Change: Also continue to invest in technology and data initiatives to benefit future performance moving forward, we'll continue to meticulously manage expenses, while also investing in our core business in a way that improves our operating efficiency over time and ensuring their long term success and profitability.
Speaker Change: Turning to pages 12, and 13, our interest expense for the second quarter was $17 9 million or 4% of average net receivables on an annualized basis better than our outlook on lower average debt and lower rate.
Harpreet Rana: We've experienced stable interest expenses, a percentage of average net receivables of four percent for the past four quarters, thanks to fixed-rate debt issued to our asset-backed securitization program. In the second quarter, we re-entered the ABS market, completing a $187 million transaction with a three-year revolving period at a weighted average coupon of 6.2 percent. Our Class A notes received a top rating of AAA from S&P and DBRF, and we had strong investor interest in the deal.
Speaker Change: We experienced stable interest expense as a percentage of average net receivables of 4% for the past four quarters. Thanks to fixed rate debt issued term asset backed securitization program in the second quarter, we reentered the ABS market completing $187 million transaction with a three year revolving period at a weighted average.
Speaker Change: [noise] coupon of six 2%.
Speaker Change: Our class a notes received the top rating of AAA from S&P and DVR out and we had strong investor interest in the deal given our significant liquidity and borrowing capacity, we have the flexibility to go to the market condition for most advantageous for US we were very pleased with the results of its latest ABS transaction.
Harpreet Rana: Given our significant liquidity and borrowing capacity, we had the flexibility to go to the market when conditions were most advantageous for us. We were very pleased with the results of this latest ABS transaction. As of June 30th, 88% of our debt is fixed rate with a weighted average coupon of 4.2% and a weighted average revolving duration of 1.2 years. In the third quarter, we expect the interest expense to be approximately $19.8 million, or 4.4% of average net receivable.
Speaker Change: As of June 30, 88% of our debt at fixed rate with a weighted average coupon of four 2% and a weighted average revolving duration of one point from year.
Speaker Change: In the third quarter, we expect interest expense to be approximately $19 8 million or four 4% of average net receivables.
Harpreet Rana: For the full year, we're lowering our cost of funds rate guidance to approximately 4.3%. As our fixed rate funding matures and we continue to grow using variable rate debt, our interest expense will increase as a percentage of average net receivables. In addition, our balance sheet remains strong, and we continue to maintain ample liquidity to fund our growth. We have $185 million of lifetime loan loss reserves, as well as $345 million of stockholders' equity, or nearly $34 in book value per share.
Speaker Change: The full year, we're lowering our cost of funds rate guidance to approximately four 3%.
Speaker Change: Other fixed rate funding matures and we continue to grow using variable rate debt. Our interest expense will increase as a percentage of average net receivables.
Speaker Change: In addition, our balance sheet remains strong and we continue to maintain ample liquidity to fund our growth.
Speaker Change: $185 million of lifetime loan loss reserves as well as 345 million stockholders' equity for nearly $34 and book value per share.
Harpreet Rana: As of the end of the second quarter, we had $564 million of unused capacity on our credit facilities and $149 million of available liquidity, consisting of unrestricted cash on hand and immediate availability to draw down on our revolving credit facilities. Our debt has a staggered revolving duration stretching up to 2027, and since 2020, we've maintained a quarter-end unused borrowing capacity of between roughly $400 and $700 million, demonstrating our ability to protect ourselves against short-term disruption in the credit market.
Speaker Change: As of the end of the second quarter, we had 564 million of unused capacity on our credit facility and 149 million of available liquidity consisting of unrestricted cash on hand, and immediate availability to draw down on our revolving credit facility.
Speaker Change: Our debt has staggered revolving duration stretching out to 2027.
Speaker Change: Since 2020, we maintained a quarter and unused borrowing capacity between roughly 400, and 700 million demonstrating our ability to protect yourself against short term disruptions in the credit market.
Harpreet Rana: We will continue to maintain a strong balance sheet with ample liquidity and borrowing capacity, diversified and staggered funding sources, and a sensible interest rate management strategy. We incurred an effective tax rate of $24.7 in the second quarter, consistent with our expectations.
Speaker Change: We will continue to maintain a strong balance sheet with ample liquidity and borrowing capacity diversified and staggered funding pointing in a sensible interest rate management strategy.
Speaker Change: We incurred an effective tax rate of $24 seven in the second quarter consistent with our expectation.
Harpreet Rana: For the third quarter, we expect an effective tax rate of approximately 24.5% prior to this grade item. We're maintaining our full-year effective tax rate guidance of 24 to 25%. We also continue to return capital to our shareholders. Our board of directors declared a dividend of $0.30 per common share for the third quarter. The dividend will be paid on September 12, 2024, to shareholders of record as at the close of business on August 21, 2020.
Speaker Change: For the third quarter, we expect an effective tax rate of approximately 24, 5% prior to discrete items, we're maintaining our full year effective tax rate guidance of 24% to 25%.
Speaker Change: We also continue to return capital to our shareholders. Our board of directors declared a dividend of <unk> 30 cents per common share for the third quarter. The dividend will be paid on September 12, 2024th to shareholders of record as the close of business on August 22024.
Harpreet Rana: Finally, I'll note that we provide a summary of our third quarter 2024 guidance and our updated full year 2024 guidance on page 14 of our earnings supplement. That concludes my remarks. I'll now turn the call back over to Robert. Thanks, Harp.
Speaker Change: Finally, I'll note that we provide a summary of our third quarter 2020 for guidance and our updated full year 2024 guidance on page 14 of our earnings supplement.
Speaker Change: That concludes my remarks, I'll now turn the call back over to Rob.
Robert William Beck: We had a very successful first half of 2024, posting strong top and bottom line results. We remain well positioned to operate effectively through the current economic cycle. As we expect credit losses to improve in the second half of the year, we're excited to begin increasing our investment in our strategic initiatives and portfolio growth, including through the opening of new branch locations and continued expansion of our high-margin and auto-secured loan portfolios. We look forward to continuing to deliver strong returns to our shareholders while also investing in the business in a way that will enable us to achieve additional sustainable growth, improve credit performance, and greater productivity and operating Thank you again for your time and interest. I'll now open up the call to questions. Operator, could you please open the line?
Rob: Thanks, Barb, we had a very successful first half of 'twenty 'twenty four posting strong top and bottom line results, we remain well positioned to operate effectively through the current economic cycle as we expect credit losses to improve in the second half of the year. We're excited to begin increasing our investment in our strategic initiatives and portfolio growth, including through the opening of new branch.
Speaker Change: <unk> and continued expansion of our high margin in auto secured loan portfolios. We look forward to continuing to deliver strong returns to our shareholders. While also investing in the business in a way that will enable us to achieve additional sustainable growth improved credit performance and greater productivity and operating efficiency over the long term.
Speaker Change: Thank you again for your time and interest I'll now open up the call for questions. Operator could you. Please open the line.
Speaker Change: Thank you.
Operator: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you'd like to remove your question from the queue.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star and one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if you'd like to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handsets before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of Sanjay Sakkarani with KBW. Please go ahead. Hi, this is actually Stephen Kwok filling in for Sanjay.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the stuck east.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: Our first question is from the line of Sunday Suck Ronnie with K B W. Please go ahead.
Speaker Change: Hi, does that take Steven Kwok filling in for Sanjay Thanks for taking my questions.
Stephen Kwok: Thanks for taking my questions. I guess the first question I have is just if you could drill down on the health of the consumer. I'm curious to see what you're seeing in terms of how the consumers are doing. Sure, Stephen.
Sanjay: I guess the first question I have was just if you could drill down on the health of the consumer I'm curious to see what you're seeing around the how the.
Speaker Change: Consumers are doing at this point thanks.
Robert William Beck: Thanks for joining us. So, you know, as we said, the labor market is softening a bit. You saw a little tick up in unemployment. You know, the way we look at it, there's still over 8 million open jobs, weighted, you know, towards lower-income roles. There was some recent research I saw from Vanguard where the hiring rate for jobs for wages less than $55,000 is about three times that of. We have a lot of jobs that are greater than $55,000 in terms of salary.
Speaker Change: Sure Stephen.
Speaker Change: Thanks for joining so you know as we said the labor market is softening a bit you saw a little tick up in unemployment.
Speaker Change: You know the way we look at it there is still over 8 million open jobs.
Speaker Change: Weighted towards lower income rolls.
Speaker Change: There were some recent research I saw from Vanguard, where the hiring rate for jobs.
Speaker Change: Wage wages less than 55000 is about three times that of.
Speaker Change: Jobs that are greater than 55000 in terms of salary and so we're optimistic.
Robert William Beck: And so, you know, we're, you know, optimistic that, you know, if the economy does soften, that, you know, at least for our customer set, the impact will be pretty muted. The other thing is, particularly in the last two months, we've seen, you know, a nice jump in real wage growth for our customer segment. I think they are now positive relative to where inflation has been over the last, you know, two
Speaker Change: Stick that you know if the economy does soften that you know at least for our customer set.
Speaker Change: The impact will be pretty pretty muted. The other thing is particularly the last two months we've seen a.
Speaker Change: A nice jumping real wage growth for for our customer segment I think they are now positive relative to where inflation has been over the last.
Speaker Change: Two years and so that's a that's a real positive trend and it means the customer is healing.
Robert William Beck: And so, you know, that's a real positive trend and it means the customer is healing. But you know, the pace of normalization, credit for our customers is also impacted by the fact that, on average, probably, this customer set probably has a 5%, you know, mid single-digit increase in debt over where they were pre this cycle. So you know, it's going to take a little bit of time for the customers to burn through that and get stable again.
Speaker Change: But you know the pace of normalization.
Speaker Change: Credit for our customers as it was also impacted by the fact that on average.
Speaker Change: <unk>, probably this customer set.
Speaker Change: Probably it was 5%.
Speaker Change: Mid single digit increase in debt over where they were pre previous cycle. So it's going to take a little bit of time for the customers to you now.
Speaker Change: Burn through that and yeah, and get stable again, but you know things are moving in the right direction and we feel pretty good about how the second year will shape up and as we lean into some more growth.
Robert William Beck: But, you know, things are moving in the right direction, and we feel pretty good about how the second year will shape up as we, you know, lean into some more growth. And just like as a follow-up, if we think about, you know, if the environment were to change, either for the better or for the worse, what levers are at your disposal to be able to adapt to that type of environment? Yeah, look at it.
Speaker Change: Got it.
Speaker Change: Just like as a follow up if we think about.
Speaker Change: If if the environment with the change either for better for worse like what levers at your disposal to be able to adapt to that type of environment. Thanks.
Speaker Change: Yeah look a great question.
Robert William Beck: Great question. You know, look, the higher-rate business is exactly an opportunity that we're looking at because, you know, those consumers, as I said, have ample job opportunities. There's plenty of margin built into the risk-based pricing for those customers, and as you know, we build in stress assumptions in our underwriting. So, you know, that's attractive.
Speaker Change: Look the higher rate business is exactly an opportunity that we're looking at because you know those those.
Speaker Change: Those consumers as I said, you know have apple ample job opportunities theres plenty of margin built into the risk based pricing for those customers and as you know we build in stress assumptions in our in our underwriting so.
Speaker Change: That's attracted the auto secured business on the other side of the spectrum, which is kind of a balancing act for the overall portfolio.
Robert William Beck: The auto secured business on the other side of the spectrum, which is kind of the balancing act for the overall portfolio, you know, demand remains good there. It's growing as an increasing part of our portfolio. You know, the delinquencies are, you know, two and a half percent, and so, you know, we have opportunity to continue to lean into that space, and you know, look, when the economy, you know, softens, if it does soften, you know, obviously the demand for credit, you know, goes up, as long as we're smart about, you know, pricing relative to risk, I think we're going to be in real good shape, and, you know, frankly, we've learned a lot through the testing of the small loan portfolio regrowth that we put on in the last, you know, six to nine months, and, you know, that's going to, you know, all be helpful in terms of which levers we pull going forward, and of course, you know, we always manage our expense tightly and cost of funds and balance sheets, so, you know, look, we've got a lot of levers to pull, and, you know, we're optimistic about, you know, the future of the business. I'm excited. Thanks for taking my question. No, thanks.
Speaker Change: Demand.
Speaker Change: Remains good there it's growing is increasing part of our portfolio.
Speaker Change: Delinquencies are two 5% and so you know we have opportunity to continue to lean into into that space and you know look at when when the economy softens. If it does soften you know obviously the demand for credit goes up.
Speaker Change: As long as we're smart about pricing relative to risk.
Speaker Change: And I think we're gonna be in real good shape and you know frankly, we've learned a lot.
Speaker Change: Through the testing of the small loan portfolio re growth that we put on in the last you know.
Speaker Change: Six to nine months and you know that's going to all.
Speaker Change: <unk> will be helpful in terms of which levers we pull going forward and of course, you know, we always manage our expenses tightly and cost of funds and our balance sheet. So you know look we've got a lot of levers to pull and we're.
Speaker Change: We're optimistic about the future of the business.
Speaker Change: Got it thanks for taking my questions.
Speaker Change: No. Thanks.
Speaker Change: Thank you.
Robert William Beck: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and 1. Our next question comes from the line of Vincent Caintic with BTIG. Please go ahead. Good afternoon.
Speaker Change: Ladies and gentlemen, if you wish to ask a question Please press star and one.
Speaker Change: Our next question comes from the line of Vinson can take the B P. I T. Please go ahead.
Vincent Albert Caintic: Thanks for taking my questions. I have two questions. I'll just ask both of them now.
Vinson: Hey, good afternoon, thanks for taking my questions.
Vinson: I'll just ask both of them now so first question.
Vincent Albert Caintic: So first question, actually both questions on the guidance. The first question: you discussed your 2024 outlook and that there was the credit losses guidance has increased, and you detailed why, and that was very helpful. Notice though that the full-year outlook credit reserves stayed the same. It was still within the old band of, so the prior band, I think was 10.1 to 10.3.
Vinson: Actually both questions on the guidance. The first question. So you discussed about in your 2020 for outlook.
Speaker Change: And that there's no credit losses guidance has increased and you detailed why and that was very helpful.
Speaker Change: Notice, though that the full year outlook credit reserves.
Speaker Change: Stayed the same it was still within the whole band of.
Speaker Change: So the part that I think it was on that.
Vincent Albert Caintic: Now it's 10.2 to 10.3 percent, and I was just wondering with that higher losses if you could maybe talk about how you're thinking about credit reserves, especially because it's relatively unchanged. So that's question one, and then question two: it was impressive to see that the guidance for G&A expense is lower than the last 2024 outlook, especially because you're talking about higher receivables growth. So you took your guidance up there, and then you're talking about having several new stores.
Speaker Change: 0.1 to 2.3 announced 10 210, 3%.
Speaker Change: I was just wondering what that higher losses.
Speaker Change: If you could maybe talk about how youre thinking about credit reserves, especially since its relatively unchanged.
Speaker Change: Yes.
Speaker Change: That's question one and question two was impressive to see that the guidance for G&A expense is lower than.
Speaker Change: The last one screen for outlook.
Speaker Change: Especially because you're talking about higher.
Speaker Change: Receivables growth. So you took your guidance up there and then you're talking about having several new stores. So.
Speaker Change: But it does speak to maybe a lot of good productivity there and I was wondering if you could talk about that in more detail how you were able to.
Vincent Albert Caintic: So that does speak to maybe a lot of good productivity there, and I was wondering if you could talk about that in more detail how you're able to have both, guidance off-site for your revenue components as well as have better efficiency on expenses. Hi Vincent, thank you for that question.
Speaker Change: Both.
Speaker Change: Guidance upside for your revenues.
Speaker Change: Revenue components as well as having a better efficiency on the expenses. Thank you.
Harpreet Rana: So I'll start with the reserve. Previously, we guided to 10.1 to 10.3, and we've narrowed that, so we're actually now guiding to 10.2 to 10.3, so a little bit higher than where we were on the low end of the range, so we've brought that low end of the range up, but we feel confident in terms of the 10.2 and the 10.3. That, of course, will be very much dependent upon macro variables.
Speaker Change: Yeah, So hi, Vincent Thank you for that question. So I'll start on the on the reserves. So previously we had guided to 10.1 to 10.3 and we've narrowed that so we're actually now guiding to 10.2 to 10.3, so a little bit higher than where we were on the low end of the range. So we bought.
Speaker Change: At that low end of the range, but.
Speaker Change: But we feel confident in terms of the 10 point to in the 10.3 that of course will be very much dependent upon macro variables. It will also be dependent upon how quickly our back book runs off so right now our backlog is expected to be 8% to 10% of the portfolio at year end.
Harpreet Rana: It will also be dependent upon how quickly our back book runs off. So right now, our back book is expected to be 8 to 10% of the portfolio at year end. So those two items could impact where we end up for reserves, but right now, 10.2 to 10.3 is our estimate based on what we're seeing. In terms of the small loans, those are included in that 10.2 to 10.3, but as Rob mentioned in his prepared remarks, we're also seeing higher revenue yield on those.
Speaker Change: So those two items could impact where we end for reserves, but right. Now 10.2 to 10.3 is you know our estimate based upon what we're seeing in in terms of the small island. So those are included in that 10.2 to 10.3, but as Rob mentioned in his prepared remarks.
Harpreet Rana: So we've taken up our guidance on revenue yields, which were 40 to 50 previously, but we've now taken them up to 60 to 70, so you're seeing 20 basis points of upside on the revenue yield that goes along with those small loans that have had us tighten where we are on the reserve. Yeah, and let me add to that, even though it wasn't specific to your question before I get to the efficiency one, the small loan portfolio has grown $61 million, as we said, year on year.
Rob: We're also seeing higher revenue yield on those so we've taken up our guidance on revenue yields which were 40 to 50 previously, but we've now taken them up to 60 to 70, so you're seeing 20 basis points of upside on the revenue yield that goes along with those small loans that have had us tightening them, where we are on there.
Speaker Change: Reserve Yeah.
Speaker Change: Yeah, and let me add onto that.
Speaker Change: Wasn't specific to your question before I get to the efficiency. One is the small loan portfolio has grown $61 million. As we said you know year on year, you know the balancing of that is the growth in the auto secured business that grew by $52 million over that same period of time, but what you know.
Harpreet Rana: The balancing of that is the growth in the auto-secured business that grew by $52 million over that same period of time. But what's really important about this business, and you'll see this in the release, is the interest in fee yields on small loans is up 280 basis points versus prior year. If you look at small loan delinquencies, they're down 10% versus the prior year, and that's inclusive of about 30 basis points of impact from the higher rate business.
Speaker Change: Really important about this business is and you'll see this in the release as the the interesting fields on small loans was up 280 basis points versus prior year. If you look at the small loan delinquencies, it's down 10% versus prior year and that's inclusive of about 30 basis points of impact from the higher rate business. So.
Robert William Beck: So there's a lot of leverage we're getting on that small loan portfolio, and that's why we are modestly leaning back into that business. It's always been a core part of our operations. It's just the time is now, and it's attractive to put on some more of that business and balance it out with the auto-secured. Now pivoting to the G&A expense, you know, look, we manage the business tightly. It's important that as we get bigger, we don't grow our head office costs at the same rate. I mean, that's what scale delivers for you.
Speaker Change: There's a lot of leverage we're getting on that small loan portfolio.
Speaker Change: And that's why we are modestly leaning back into into that business. It's always been a core part of you know our operations. It's just.
Speaker Change: The time is now to.
Speaker Change: And it's attractive to put on some more of that business and balance it out with the auto secured.
Speaker Change: Now pivoting to the G&A expense.
Speaker Change: Look we manage the business tightly it's important that as we get bigger we don't grow our head office cost.
Speaker Change: At the same rate I mean, that's what scale delivers for you.
Robert William Beck: So we manage our expenses tightly. We are getting efficiency benefits, both from the things we've done from a technology standpoint, our ability to source customers digitally, and that a higher rate business is pretty efficient from a marketing standpoint because of higher response rates. And so it's really across the board, the benefits of just managing the business well, operating it tightly, and being very smart about where you deploy that next dollar of expense to make sure you get the maximum amount of revenue in return. Okay, great. That's very helpful on both answers. Thank you. I appreciate it.
Speaker Change: So we manage our expenses tightly we are getting efficiency benefits both from the things we've done on the technology standpoint, our ability our ability to.
Speaker Change: Source customers digitally.
Speaker Change: They have a higher rate business is pretty efficient from a marketing standpoint from higher higher response rates and so it's really across the board you know the benefits of just managing the business well operating it tightly and being very smart about where you deploy that next dollar of expense.
Speaker Change: Sure you get the maximum amount of revenue and return.
Speaker Change: Okay, Great. That's very helpful on both answers. Thank you.
Speaker Change: I appreciate it.
Speaker Change: Yeah.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from the line of Alexander Villalobos with Jefferies. Please go ahead.
Speaker Change: Our next question comes from the line of Alexander Villa Lobos with Jefferies. Please go ahead.
Alexander Villalobos: Congratulations on the results and thank you for taking my question. I wanted to just revisit originations and loan growth, so just kind of confirming that we should see kind of more of an originations push in the fourth quarter in order to get to that, the guide that you guys gave for A&R growth. Usually, we kind of see a little bit of an increase in the fourth quarter, so just kind of confirming as well, we kind of see that natural fourth quarter bump versus the third quarter. So I'm going to talk to your first question about origination.
Speaker Change: Congrats on the results and thank you for taking my question did wanted to just revisit a little bit originations in loan growth. So just just kind of confirming that now we should see kind of more of our originations push in.
Speaker Change: In the fourth quarter in order to get to that I'm. The Guy that you guys gave for the Anr growth.
Speaker Change: And then as well for revenue just you know.
Speaker Change: Usually we kind of do a little bit of of an increase in the fourth quarter. So just kind of confirming as well, we kind of see that like natural fourth quarter bump versus the third quarter. Thank you.
Speaker Change: So I'm going to talk to your first question around the origination so we'd give in our in our guidance for the year.
Harpreet Rana: So we've given our E&R guidance for the year of 6%. So when you take a look at where we guided to for E&R for the third quarter, we would be at 48. So from that, you can basically figure out that fourth quarter is going to be a little bit higher than third quarter guidance in terms of origination. So Alex, you could probably use that for your model. And I'm sorry, could you repeat the second part of your question again? Yeah, no, just from a yield yield perspective.
Speaker Change: Per cent.
Alexander Villalobos: Yeah, basically just confirming that the fourth quarter is going to just have to be stronger. But yeah, all those numbers you can kind of back into as well. And then maybe if there's anything you guys can kind of like point to maybe towards like 2025 just, you know, if I'm expecting just from, at least the ENR growth kind of like similar to prior years, obviously inclusive of rate cuts and and everything okay on the macro side.
Speaker Change: So when you take a look at where we guided to for Anr for third quarter, we'd be at 48. So from that you can basically figure out that fourth quarter is gonna be a little bit higher than third quarter guidance.
Speaker Change: And in terms of origination so Alex you could probably use that for your model and I'm sorry could you repeat the second part of your question again.
Alex: Yeah, No just just from like a you'll yields perspective, yeah, basically just confirming its you know it.
Speaker Change: Fourth quarter is going to just gonna have to be stronger, but yeah. All the all those numbers you can kind of back into as well and and then maybe if there's anything you guys can kind of like point to maybe towards like 2025, just you know if I'm expecting just from like a at least a yeah and our growth kind of like similar to prior years.
Speaker Change: Obviously inclusive of rate cuts and everything okay on the macro side.
Alexander Villalobos: Yeah, so look, obviously we're not in a position to give any guidance for 2025. But what I'll tell you is, you know, we do have a range on the net income guidance for full year this year. That is largely due to the fact that there naturally is some ability to ramp up growth or pull it back, and that impacts the CECL reserves at the end of the year.
Speaker Change: Yes, so look obviously, where we're not in a position to give any guidance for 2025, what I'll tell you. This as you know we do have a range on the net income guidance for full year. This year that is largely due to the fact that they're naturally is some ability to.
Speaker Change: Ramp up gross growth or pull it back.
Speaker Change: And that impacts the seasonal reserves at the end of the year and so I think as we go through the next couple of months here and we see.
Robert William Beck: So I think as we go through the next couple months here and we see how inflation performs, we see, you know, what the Fed does, there's a lot of factors, you know; we have the ability to lean into more growth or, you know, maybe we taper it back, but, you know, at this point in time, we feel pretty good about the 6% E&R growth, but there's always some movement around that depending on You know, we generally do a pretty good job at the end of the year thinking about the impact of 2025 and, you know, what volumes we can put on to help 2025. And, you know, in that regard, that's why we're opening up, you know, 10 new branches now.
Speaker Change: How inflation performs we see you know what the fed does there's a lot of factors.
Speaker Change: You know, we have the ability to lean into more growth or you know, maybe we tapered back but you know at this point in time.
Speaker Change: We feel pretty good about the 6% anr growth, but there's always some movement around that depending on whether you see opportunity to grab more volume.
Speaker Change: You know, we generally do a pretty good job at the end of the year thinking about the impact of 2025 and you know what volumes. We can put on to help 2025 and you know in that regard. That's why we're opening up 10, new branches now they won't be open until the fourth quarter of the year, our fourth quarter. This year.
Robert William Beck: They won't be open until the, you know, fourth quarter of the year, fourth quarter this year, or the very end of the year, but, you know, in the new states that we'll be putting those branches in, when I say the new states, it's kind of the eight states we've put on in the last couple of years, you know, the 30 branches we have in those states have averaged about 6.5 million in receiv Now, that's after, you know, two years of maturity, but, you know, we're going to open 10 new branches this year, and I think we feel that, you know, if things are improved from a macro standpoint, and credit is where we think it should be, then there are opportunities to, you know, start expanding more aggressively, you know, as we go forward into 2025 in terms of new stores. Perfect. Thank you, and congrats on the results.
Speaker Change: End of the year, but you know in our in the new states that we'll be putting those branches in when I say, the new states, it's kind of the H eight states we've put on in the last couple of years.
Speaker Change: You know the 30 branches, we have in those states have averaged about six and a half million in receivables now that's after two years of maturity, but you know we're gonna put on 10, new branches. This year and I think we feel that you know.
Speaker Change: If things are improved from a macro standpoint, and credit is where we think it should be then theres opportunities to start expanding more aggressively.
Speaker Change: Now as we go forward into 2025 in terms of new stores.
Speaker Change: Perfect. Thank you and congrats on the results.
Operator: Great. Thanks, Alex. Thanks, Alex.
Alex: Thanks, Alex Thanks, Alan.
Speaker Change: Thank you.
Robert William Beck: Thank you. Ladies and gentlemen, as there are no further questions, I now hand the conference over to Rob Beck, President and CEO, for his closing comments.
Speaker Change: Ladies and gentlemen.
Speaker Change: No further questions I now hand, the conference over to Rob Beck, President and CEO for his closing comments.
Robert William Beck: Thank you, Operator, and thanks, everyone, for joining today. Look, we're very happy with our second quarter results, net income up 40% over last year, and our year-to-date progress is also very satisfying, with net income up 61% over the same period last year. As we've said, we're well-positioned for growth as the front book continues to perform as expected, and credit is expected to continue to improve in the second half. We are going to increase our investment, as we talked about, you know, the 10 new branches.
Robert William Beck: Great. Thank you operator, and thanks, everyone for joining today.
Robert William Beck: Look if you know we're very happy with our second quarter results. You know net income up 40% over last year and our year to date progress. As you know is also very satisfying with net income up 61% over the similar period last year as we said, we're well positioned for growth.
Speaker Change: Front book continues.
Speaker Change: <unk> continues to perform as expected and credit is expected to continue to improve in the second half.
Speaker Change: We are going to increase our investment as we talked about you know the 10, new branches and probably just to add to that comment is you know we're going to go after the addressable market in those new states.
Robert William Beck: And, you know, probably just to add to that comment is, you know, we're going to go after the addressable market in those new states. And if you recall, it was about an 80% expansion in our addressable market, and we're feeling increasingly comfortable opening up more branches and really leaning into that expanded market and grabbing more shares. So we're excited about that in the future. And as I said, we've got a competitive advantage right now with our high-rate small business, where we can utilize risk-based pricing to meet the increasing needs of customers who are losing access to credit or experiencing reduced access to credit, while at the same time balancing that out with the opportunity in our auto-secured business.
Speaker Change: If you recall it was about an 80% expansion in our addressable market.
Speaker Change: And you know, we're feeling increasingly comfortable opening up more branches and really leaning into that expanded market and grabbing more share. So we're excited about that in the future.
Speaker Change: And as I said, we've got a competitive advantage right now with our high rate small business.
Speaker Change: Where we can utilize risk based pricing to meet the.
Speaker Change: The increasing needs of customers, who are losing access to credit or experiencing reduced access to credit while at the same time balancing that out with the the opportunity in our auto secured business. So.
Robert William Beck: We really are happy about both of those levers, and the small loan business, of course, is an attractive feeder for our large core loan business as customers pay us back and perform. As we said, we see faster receivable growth in the second half, and the degree to which we grow will depend on the economic environment, particularly where inflation goes and how customer credit profiles normalize, but overall, we feel pretty good about where we are in the business.
Speaker Change: We really are happy about both both of those levers in the small loan business of courses.
Speaker Change: And attractive feeder for our large core loan business as customers.
Speaker Change: Pay on us and perform and as we said, we see you know faster receivable growth in the second half.
Speaker Change: And the degree to which you know we grow will depend on the economic environment, particularly where inflation goes and how customer credit profiles normalize, but overall, we we feel pretty good about where we are in the business, we've got lots of levers to pull.
Robert William Beck: Lots of levers to pull, and we're in a good position being able to really manage the entire life cycle of the customer from greater than 36% business to get them into a core loan, to get them into an auto-secured business, an auto-secured loan later in the life cycle. We feel we're very well positioned.
Speaker Change: And we're in a good position being able to really manage the entire lifecycle of a customer from some third greater than 36% business to get them into a core loan to get them into our auto secured businesses auto secured loans later in the lifecycle. So we feel we're very well positioned.
Speaker Change: So thanks, again and have a good evening.
Operator: So thanks again, and have a good evening. Thank you. The Conference of Regional Management has now concluded. Thank you for your participation. You may now disconnect your lines.
Speaker Change: Thank you the.
Speaker Change: The conference off regional management has now concluded. Thank you for your participation you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].