Q1 2025 Regional Management Corp Earnings Call
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Greetings and welcome to the regional management first quarter 2025 earnings call. At this time, all participants are in a listen only mode.
And answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press Star Zero My telephone keypad. It is now my pleasure to introduce your host Garrett Edson. Thank you you may begin.
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 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 measures part of our discussion. Today may include forward looking statements, which are based on management's current expectations estimates and projections about the companys future financial performance and business prospects.
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, we refer all even 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.
Speaker Change: 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 and posted on our website at regional management Dot Com I would now like to introduce Rob Beck, President and CEO of regional Management Corp.
Speaker Change: Thanks, Garrett and welcome to our first quarter 2025 earnings call I'm joined today by Heart, Ron Our Chief financial and administrative officer on this call will cover our first quarter financial and operating results provide an update on our portfolio credit performance and growth strategies and share our expectations for the second quarter and balance of 2025, we're very.
Speaker Change: Pleased with how we began the new year, we delivered $7 million and net income and 70 <unk> diluted EPS in the first quarter.
Speaker Change: Aligned with our guidance, we experienced relatively low seasonal liquidation of $2 million in the quarter compared to a $27 million portfolio declined in the first quarter of last year.
Speaker Change: Thanks to our recent growth initiatives, including opening 15, new branches in September we had a much lower seasonal liquidation. This year. Despite a strong tax season, and some adverse impacts from winter storms, we generated record first quarter originations, while maintaining our tightened credit box and ending net receivables were up 8% year over year.
Speaker Change: Our fastest year over year growth rates since 2023.
Speaker Change: We've opened 15, new branches in September 2024, 10 of which are entirely new markets and all are performing very well and growing rapidly. Our 10, new market branches are located in California, Arizona and Louisiana as of the end of the first quarter. The new market branches have been opened for an average of roughly two months and had an average portfolio.
Speaker Change: The balance of $2 2 million with the largest of the branches achieving more than $7 million of larger and less than three months in the first quarter. These 10 branches generated $1 5 million of revenue against $1 1 million of G&A expense.
Speaker Change: Looking back further our new branches opened between one and three years averaged $7 $4 million and portfolio balance as of the end of the first quarter.
Speaker Change: Notably we've achieved this portfolio growth, while maintaining our credit box and new markets that is tighter than our broader market.
Speaker Change: Our new branches generally begin to generate positive monthly net income at 114 and pre provision net income at month rate.
These results demonstrate the power of our branch based model and our ability to accelerate growth through brands and geographic expansion without needing to open the credit box.
Speaker Change: We also continued to experience strong results from our barbell strategy, which focuses on growth in our high quality auto secured and higher margin smaller portfolios.
Speaker Change: Our auto secured loan portfolio grew by $59 million or 37% year over year to 12% of the total portfolio compared to 9% in the prior year period.
Speaker Change: Meanwhile, our portfolio of loans with APR is above 36% also grew by $59 million or 21% year over year to 18% of our portfolio compared to 16% in the prior year period.
Speaker Change: These portfolios continue to perform well have strong margins and support our customer graduation strategy.
Speaker Change: Our loan portfolio generated $153 million of revenue in the quarter a record for a first quarter and up 7% from the prior year period. After adjusting for the impact of the fourth quarter 2023 loan sale on first quarter 2024 results.
Speaker Change: Revenue yield was 10 basis points better year over year, and up 100 basis points compared to the first quarter of 2023 in each case after adjusting for the impact of loan sale on yields in prior periods.
Speaker Change: We've been pleased with the lift in yields that we've experienced over the past couple of years from increased pricing improved credit performance and a mix shift to higher margin loans.
Speaker Change: On the credit front, our portfolio continues to perform well our 30 plus day delinquency rate was seven 1% at the end of the first quarter.
Speaker Change: It was flat to the prior year on a GAAP basis, but an improvement of 20 basis points. After adjusting for the impact of growth in our higher margin portfolio and the carryover impact of the 2024 hurricane events.
Speaker Change: Net credit losses came in $1 6 million better than our guidance. Our NCL rate was 12, 4% or 120 basis points better than the prior year period after adjusting for the loan sale impact and the growth in our higher margin portfolio.
Speaker Change: Our front book now makes up 92% of our portfolio is continuing to perform in line with our expectations and has a 30 plus day contractual delinquency rate of six 8%.
Speaker Change: 3rd% to 10% and the back book portfolio.
Speaker Change: As we evaluate our quarterly and annual loss curves, we're observing consistent and meaningful improvements in loss performance within the front book vintages across all months on book.
Speaker Change: We're also seeing roll rates improve across early mid and late stage buckets. We expect these improvements to benefit our bottom line in future quarters, We will continue to carefully monitor credit quality and performance, making adjustments, where advisable to further improve credit margin and bottom line outcomes.
Looking ahead, our focus is on the economy and its potential impact on our portfolio of credit performance and growth strategy.
Speaker Change: Like everyone else. We're closely monitoring recent events that may have an impact on the macroeconomic environment as the lender tariffs alone don't have a direct material impact on our operations, but any governmental policy that increases the likelihood of an economic downturn has our ongoing attention.
While we are unable to predict the outcome of trade policy and its impact on our customers. It's worth to remind you that we significantly tightened our underwriting in late 2022, and 2023 and our underwriting remains conservative. This is somewhat unlike a typical cycle where are we in the broader industry with tightened credit in response to changing economic conditions.
Speaker Change: Instead for this cycle, we would enter a potential downturn with an already tightened credit box. We can certainly tightened further if warranted, but any impacts from a worsening environment should be at least partially mitigated by already having a tight credit box.
Speaker Change: Aside from Conservative underwriting. We've also maintained a strong level of credit loss reserves, our current allowance for credit losses of $199 million as at the end of the first quarter compares favorably to our 30 plus day past few portfolio $134 million.
Speaker Change: Our operating margin and our allowance for credit losses reserve rate of 10, 5% gives us significant loss absorption capacity.
Speaker Change: In addition, having entered eight new states and increased our addressable market by more than 80%. Since 2020, we have significant runway to grow in our existing geographies without expanding our credit box. In fact, we could further tightening our credit box without inhibiting our short term growth strategies and we'd also expect volume opportunity to increase the prime source.
Speaker Change: The credit tightened their underwriting for these reasons along with the strong new brands growth that I discussed earlier, we're comfortable maintaining our guidance of a minimum 10% portfolio growth in 2025, despite the economic uncertainty.
Speaker Change: In sum from both the credit performance of growth perspective, we feel that we're well positioned to navigate through any economic environment. We've actually this credit period of uncertainty from a position of strength in light of our existing tight credit box and ample capital and liquidity.
Speaker Change: We also believe that our economic markers, including wage growth number of open jobs, the unemployment rate and the direction of inflation are favoring our customers and that our customers tend to be resilient and agile.
Speaker Change: Of course, we will continue to monitor developments closely and make adjustments to our growth and underwriting strategies in a way that will optimize returns.
Speaker Change: I spent some time on our last earnings call discussing portfolio growth and how we strategically assess the balance between growth and net income in the short and long term.
Speaker Change: In light of the net income drag created by seasonal provisioning associated with loan growth, which we often refer to internally as the growth effect.
Speaker Change: We believe that the true capital generating power because that's just not always readily apparent.
Speaker Change: As a result, one way that we incentivize our team engage our success in profitably growing our business is by evaluating our growth in pre provision net income.
Speaker Change: Another metric we use to measure our success is our amount of capital generation, which is in many ways similar to the pre provision net income metric.
Speaker Change: We define pre provision net income as net income excluding the tax affected impact of the provision for credit losses, but including the impact of recognizing that credit losses, we closely track our pre provision net income because the metric enables us to look past the net income drag created by portfolio growth.
Speaker Change: Net income drag or growth effect is due to the seasonal requirement that we reserve for expected lifetime credit losses at the origination of each well, even though the revenue and profit generated by each loan are recognized overtime in the future.
Speaker Change: In terms of capital generation, we define total capital as our stockholders equity plus our allowance for credit losses.
Speaker Change: Our total capital is of course reduced by the amount of capital returned to our shareholders through our dividend and stock repurchase programs.
Speaker Change: For that reason, we calculate capital generation by summing the change in our capital position and the amount of capital returned to shareholders for any given period.
As demonstrated on slide 13 of the supplement our company generates a significant amount of capital that we're able to both invest in our future and return to our shareholders. We generated $9 9 million of total capital in the first quarter and since the beginning of 2020, we generated total capital of $339 million or one three times.
Speaker Change: We're beginning 2020 stockholders' equity over that time period, our total capital and capital return have increased at a CAGR of 13% and we've averaged annual capital generation as a percentage of stockholders equity of 21% despite the inflationary environment.
Speaker Change: We've also returned $161 million of capital to our shareholders since the beginning of 2020.
Speaker Change: We're very pleased with our company's ability to generate capital, particularly in a challenging economic environment and we expect to continue to highlight our capital generation in future quarters, as we accelerate our portfolio growth.
Speaker Change: Finally, I'll close with a brief regulatory update as you know we can send it last year to CFPB supervision for a two year period ending in January 2026, we cooperated fully with the CFPB throughout its examination process and we were pleased to be notified earlier. This month that the CFPB has closed its examination about.
Speaker Change: Without any adverse findings.
Harp: We believe this result is appropriately reflective of our strong compliance management system and culture. We of course look forward to continuing our cooperation with the CFPB and other federal and state regulators as we work to provide attractive safe and compliant financial products to our valued customers I'll now turn the call over to harp, who will provide.
Harp: More detail on our first quarter results and guidance for the second quarter. Thank.
Harp: Thank you Robin Hello, everyone I'll now take you through our first quarter results in more detail and provide you with an outlook for the second quarter of 2025.
Harp: On page for supplemental presentation, we provide our first quarter financial highlights.
Speaker Change: As Rob noted, we posted net income of $7 million and diluted earnings per share of 70% directly in line with our guidance, but lower than the first quarter of 2024 due to the benefit in the prior year period, and the fourth quarter 2023 special long sale. Our results continued to be supported by our solid portfolio revenue growth healthy credit profile expense.
Harp: The plan and a strong balance sheet.
Harp: Turning to page five we only modestly liquidity that our portfolio in the quarter. Despite the first quarter typically being a seasonally softest quarter for originations. This is thanks to our efforts to grow and newly opened branches and lean back into growth across our network with new originations continuing to focus on our higher margin auto secured second from.
Harp: From a risk standpoint, we continue to originate roughly 60% of our loans to Apple.
Harp: That's great.
Harp: Total originations reached record levels for first quarter and were up 20% year over year with branch direct mail and digital originations up 17, 18, and 46% respectively from the prior year period.
Harp: As we mentioned last quarter barring any meaningful macroeconomic headwinds, we expect our pace of growth to increase for the rest of the year due to our confidence in our credit performance and our ability to generate growth in new markets with that open up the credit.
Harp: Page six displays or portfolio growth product mix through the first quarter.
Harp: Closed the quarter with net finance receivable from $1 9 billion up 146 million year over year are honest with your portfolio at the end of the quarter with a percent of our total portfolio up from 9% at the end of the first quarter of 2020 for our small loan portfolio increased 11% year over year and at the end of the quarter approximately 18%.
Harp: Our portfolio carried an APR greater than 36% up from 16% a year ago.
Harp: And as Rob was consistently noted we like the results we're seeing from a barbell strategy.
Harp: And our high quality honest insured portfolio and higher margin small loan portfolio, while the growth in our higher margin small loan book has an impact on our total portfolio credit performance. The impact was mitigated by the growth in our auto secured book, which remains the best performing segment in our portfolio at the end of the quarter auto secured had a 30.
Harp: Plus day delinquency rate of one 7% and the lowest credit losses all of our products.
Harp: So our higher margin portfolio was down sequentially due to pay down to the strong tax season will continue to pursue our barbell strategy in a measured way moving forward.
Harp: Looking ahead to the second quarter, we anticipate our ending net receivables to be up roughly 55 to 60 million sequentially compared to a 29 million sequential increase in the second quarter of 2024.
Harp: Normal seasonal growth across our network following tax season and from growth in our newly opened branches. We expect our average net receivables to be up roughly $15 million sequentially second quarter growth is seasonally weighted towards the back half of the quarter.
Harp: As the year progresses, we will take further advantage of seasonally higher consumer demand to drive quality portfolio growth. However, we will remain selective in our proven core, whereas while continuing to monitor the economy and as always we'll focus on originating loans that maximize our margins and bottom line results.
Harp: Turning to page seven total revenue grew to 153 million in the first quarter up 6% from the prior year period or seven 4% when adjusted for loan sale revenue benefit from the first quarter of last year. Our total revenue yield an interesting field were 32, 4% from 28, 9%.
Harp: Effectively Egypt tightening from the prior year period after adjusting for loan sale benefit from the prior year period.
Harp: Total revenue yield was down 100 basis points sequentially due to seasonally higher revenue reversal from net credit losses, lower revenue acceleration competes not only lower refinancing activity and the 20 basis point benefit in the prior quarter. It's something we've had personal property insurance reserves related to hurricane activity in the second quarter weeks.
Harp: That total revenue yield to rise by roughly 20 basis points sequentially.
Harp: He won't happen.
Harp: Moving to page eight our portfolio continues to perform well our 30 plus day delinquency rate to the quarter end was seven 1%.
Harp: 60 basis points, better sequentially and flat year over year. Despite an estimated 10 basis point negative impact from growth in our higher margin portfolio and another 10 basis point negative impact related to 'twenty 'twenty four hurricane activity.
Harp: Yeah.
Harp: Our net credit losses of $58 4 million were better than our outlook by 1.6 million when excluding the loan sale benefit of 270 basis points from the prior year period, our annualized net credit loss rate of talk like corporate center in the first quarter was 90 basis points better year over year. Despite a 30 basis point negative impact from a higher margin.
Harp: Yeah.
Harp: We've discussed in the past the higher yield coming from portfolio more than make up for the credit drag, resulting in overall improved margin in it.
Harp: Second quarter, we expect delinquency rates to gradually improve due in part to the seasonal benefit of payments generated by tax refunds in April.
Harp: We anticipate that our net credit losses will be approximately 57 million in the second quarter, our net credit loss rate of approximately 12% second quarter net credit losses will include $1 6 million of losses associated with the 'twenty 'twenty four hurricane events impacting our net credit loss rate 40 basis points in the corner, we're fully reserved for these.
Harp: Losses as it would be ended the first quarter.
Harp: Excluding the hurricane impact, we expect second quarter net credit loss rate to be 80 basis points, better sequentially, and 110 basis points better than the second quarter of last year.
Harp: Turning to page nine our first quarter allowance for credit loss reserve rate remains steady at 10, 5%, we decreased our reserve slightly in the quarter to $199 1 million, primarily due to a small portfolio liquidation.
Harp: We're comfortable with our reserve levels. Despite the recent economic uncertainty, we've consistently reflected higher stress downside scenario and our model and the weighted average unemployment rate embedded in our model for the end of 2025, its 5.2% looking to the second quarter subject to economic conditions and portfolio performance, we expect our reserve rate.
Harp: It declined to 10, 3% at the end of the quarter due to the release of the remaining special hurricane reserves against the associated net credit losses slipping.
Harp: Flipping to page 10, we continue to closely manage our spending while investing in our growth capabilities and strategic initiatives. Our G&A expenses of 66 million in the first quarter were $5 6 million higher than the prior year period. The increase was primarily driven by one 7 million of incentive expenses shifting from the second quarter to the first quarter and.
Harp: Our investment in growth, which included $1 9 million of expenses associated with 17, new branches opened within the past year and roughly $600000 of incremental marketing expenses in legacy markets.
Harp: First quarter G&A expense was higher than our guidance due to the incentive expense timing our annualized operating expense ratio was 14% in the first quarter 30 basis points higher than the prior year period, but 10 basis points better year over year. After adjusting for the incentive expense planning, despite our new branch openings and increased marketing spend.
Harp: <unk>, new branches had $3 6 million of revenue in the quarter against $1 9 million of G&A expense further demonstrating the power of our branch based model.
Harp: In the second quarter, we expect G&A expenses to be roughly 65 5 million, we continue to invest in growth in our strategic initiatives and we're experiencing increased expenses from servicing a larger number of accounts moving forward. We'll continue to carefully manage expenses, while also investing in our core business in ways that improve our operating efficiency over time and then.
Harp: Sure our long term success and profitability.
Harp: Turning to pages 11, and 12, our interest expense for the first quarter was $19 8 million or four 2% of average net receivables on an annualized basis better than our outlook of more averaged at lower fees at the end of the quarter. We closed the $265 million asset backed securitization transaction at a weighted average coupon of five 3%.
Harp: Comparable to our prior ABS deal and a 90 basis point improvement from our second quarter 2020 for it yet.
Harp: This transaction once again demonstrates the strength of our ABS platforms.
Harp: At March 31st 90% of our debt was fixed rate with a weighted average coupon of four 4% and a weighted average of revolving duration of 1.4 years in the second quarter. We expect interest expense to be approximately 21 million or four 4% of average net receivables as a reminder, as a lower fixed rate funding matures and we continue to grow.
Harp: Thank variable rate debt, our interest expense will increase as a percentage of average net receivables.
Harp: In addition, our balance sheet remains strong and we continue to maintain ample liquidity to fund our growth with $641 million of total unused capacity and $129 million of available liquidity as of quarter end. We also had nearly $200 million of lifetime loan loss reserves as well as 358 million and stockholders equity or a proxy.
Harp: The $35.48 and book value per share, 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.
Harp: On the income tax line, we incurred an effective tax rate of 23, 5% in the first quarter and for the second quarter of 2025, we expect an effective tax rate of approximately 24, 5% prior to discrete items on the bottom line, we expect that our second quarter net income will be roughly seven to $7 3 million.
Harp: Reflecting the impact of our increased portfolio growing from a provision for credit loss line.
Harp: We discussed on our last earnings call subject to the economic backdrop, we expect to meaningfully increase net income in 2025 with the timing of 2025 net income being back end weighted as we benefit in the second half of the year on the revenue line from a larger portfolio size and on the credit and revenue line from seasonally low on that credit.
Harp: Austin.
Harp: Aside from investing in our growth and strategic initiatives, we continue to allocate excess capital or dividend and 30 million share repurchase program. Our board of directors declared a dividend of <unk> 30 per common share for the second quarter. The dividend will be paid on June 11, 2025 to shareholders of record as of the close of business on May 21 2025.
Harp: Pursuant to our buyback program, we repurchased approximately 187000 shares of our common stock in the first quarter at a weighted average price of $34 from 56 cents per share.
Harp: Finally, I'll note that we provide a summary of our second quarter 2025 guidance on page 14 of our earnings supplement that concludes my remarks, I'll now turn the call back over to Rob.
Speaker Change: Thanks, as always I'd like to recognize the regional team for their excellent work and dedication in serving our customers and generate capital for our shareholders. We're off to a strong start in 2025, having posted solid bottom line results in the first quarter, while also holding a line on portfolio liquidation.
Speaker Change: Looking ahead, we're excited to enter a period of seasonally higher loan demand and more normalized portfolio growth, but we will of course carefully monitor economic conditions and adjust our strategies, where appropriate as always we'll manage the business prudently and in a way that appropriately balances portfolio growth and credit risk as well as short and long term capital generation and returns.
Speaker Change: For our shareholders. Thank you again for your time and interest I will now open up the call for questions. Operator could you. Please open the line.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: Press Star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Our first question comes from the line of Kyle Joseph with Stephens, Inc. Please proceed with your question.
Kyle Joseph: Hey, good afternoon, guys. Thanks for thanks for taking my questions just wanted to get a sense for kind of the the longer term outlook on NIM I. Appreciate the guidance you gave for the second quarter, but it's.
Kyle Joseph: Talk about the kind of puts and takes to both the the cost of funds in the in the U S side for US if you don't mind.
Kyle Joseph: Yeah.
Kyle Joseph: So on the cost of funds, it's heart so on the cost of funds. We we've said that as our fixed rate funding, which is currently at 90% at the end of the quarter, but as our fixed rate funding from prior years matures that you will see cost of funds go up.
Kyle Joseph: Our pricing in terms of where we are you know you'll see seasonal fluctuations of that but we did make some pricing changes and you're seeing that most of those are fully in the portfolio, but I wouldn't take into account. Though is you know you talked a lot about our higher margin higher rate business.
Kyle Joseph: So I would take that into account and then you have to balance that with our barbell strategy, where we do auto secured loans, which have lower yields but of course have lower net credit losses as well.
Kyle Joseph: I'll just add as you think through the rest of the year beyond the second quarter.
Kyle Joseph: Very much where yields go will depend on.
Kyle Joseph: Any adjustments when you want to make to the underwriting side, depending on how macro conditions unfold.
Kyle Joseph: A little hard to predict you know at this point in time, where you may tighten or not so I think that that's kind of the best best direction. We can give you at this point.
Kyle Joseph: Yeah.
Speaker Change: Got it and that's a good segue to my next question I mean, just asking I mean, you guys. Obviously have a broad based portfolio do you see any signs of and consumer behavior change is really since the band of end of February or mid late February whether it's on the demand side.
Speaker Change: <unk> on the payment and credit side, recognizing theres a lot of moving parts in our in the first quarter as well with tax refunds and everything and so it might be hard to parcel out.
Speaker Change: Yeah. It really is hard but I will tell you that.
Speaker Change: A front book and credit results are tracking.
Speaker Change: As expected you know all the months on Bulks performing performing.
Speaker Change: Performing well.
Speaker Change: So seeing a roll rates performing as expected.
Speaker Change: I think the tax season was relatively strong and we saw you know a higher payment rates, particularly on the pay down of the Ohio rate small loans, which is which is pretty typical.
Speaker Change: We're watching the consumer closely we're looking at all economic metrics, we get and obviously the best indication is how our how our consumers are performing on us.
Speaker Change: We are you know.
Speaker Change: We take as a positive that there's still seven and a half million open jobs and that's going to be disproportional to the lower income.
Speaker Change: Cohorts, they're still.
Speaker Change: Real wage growth for our.
Speaker Change: Customers.
Speaker Change: You know I think the inflation picture is is where there is where there is uncertainty and you know I think part of that depends on where things land on tariffs in the next couple of months clearly our customers are.
Speaker Change: They're not as impacted by discretionary spend.
Speaker Change: So having you know oil prices down is good I think we'll have to see them there.
Speaker Change:
Speaker Change: Food prices go and the like but on balance the customers are seem to be holding up well and as I said you know in the prepared remarks, I mean, if we do enter a downturn and I'm not saying. This is because you don't know what what the severity of the downturn could be but having tightened our credit box for.
Speaker Change: Over two years.
Speaker Change: It is certainly different than entering a typical cycle, where youre tightening in reaction to.
Speaker Change: Macro events, so that that should lessen the severity.
Speaker Change: What may or may not happen. So we're just watching everything closely and.
Look we can we can pivot quickly and tightening the risks so.
Speaker Change: We're prepared to do so if needed.
Speaker Change: Got it I appreciate the color thanks for taking my questions.
Speaker Change: Thanks Scott.
Speaker Change: Thank you.
Speaker Change: As a reminder, if anyone has any questions you May press star one on your telephone keypad to join the queue and ask the question.
Speaker Change: Our next question comes from the line of David Scharf with citizens capital.
Speaker Change: Please proceed with your question.
David Scharf: Hi, good afternoon.
David Scharf: Thanks for taking my questions Robin Harp.
David Scharf: Hey.
David Scharf: I had a couple of specific things I wanted to ask about but before that.
David Scharf: Just a very very general question and if it's a it could be just a yes or no response, but setting aside the policy trade.
David Scharf: Uncertainty that's.
David Scharf: Suite over the last month, if we just sort of put that to the sidelines for now.
Rob Beck: Rob is there anything new.
Rob Beck: On this call versus three months ago.
Speaker Change: That you're aiming to communicate to investors or is it pretty much.
Speaker Change: You know all the same kind of fundamentals and drivers and cadences that.
Speaker Change: You provided on your year end call.
Speaker Change: Well I think I think there's three things and youre going to take away my closing comments by this David so okay. Thank you.
Speaker Change: Keep me from having to do those but you know I think first and foremost you know credit came in better than our guidance by $1.6 million in the quarter and you know as you heard me just say, we're seeing consistent improvement.
Speaker Change: The loss performance across all of them on so on books in a row right. So you know that that's encouraging and as we look ahead to the second quarter sequentially. You know, we're looking to be down 80 basis points on the NCL rate now that's that's excluding 40 basis points from the impact of Hurricane Helene.
Speaker Change: Which as art said was fully reserved so I think on the credit front at this point in time, we're seeing things continue to improve I think the second thing that I would highlight is we opened up 15 branches since September.
Speaker Change: Now that's the largest block of branches, we have opened in the last two years.
And because of the high inflation.
Speaker Change: And period warranted US you know kind of pausing any meaningful branch expansion and these branches are performing.
Speaker Change: All ahead of our expectations with a tighter risk box than the rest of the network and we're seeing positive pre provision net income at month three so look we're going to continue to evaluate the performance of these branches in the second quarter, we don't have any branches assumed in the <unk>.
Speaker Change: 10% growth that we had given as a minimum for full year and <unk>.
Speaker Change: <unk> will gauge the performance of these branches for another quarter, we'll look at what's happening on the macro front front and the tail of side.
Speaker Change: And then evaluate our future growth plans, but just you know getting back into growing these branches.
Speaker Change: It is really showing the power there and then lastly, we put in a new slide on the business's ability to generate capital.
Speaker Change: It's a proven model and you know if you look back to the beginning of 2020, you know I think we.
Speaker Change: <unk> $339 million of capital for shareholders, We've returned a substantial.
Speaker Change: Full amount to shareholders and if you looked at the average capital generation over the average shareholder equity over that period of time.
It's a 21% so.
Speaker Change: That we are positioned well.
Speaker Change: Let's see what happens going forward.
Speaker Change: And we have all the opportunities to to grow.
Speaker Change: And you know achieve greater bottom line results.
Speaker Change: In the coming quarters and years, notwithstanding anything from a macro standpoint that might.
Speaker Change: Cause us to alter that strategy to some degree.
Speaker Change: Great No I appreciate all that color and you actually.
Speaker Change:
Speaker Change: [noise] foreshadowed kind of one of my.
Speaker Change: Specific questions.
Speaker Change: Just wanted to get clarification on the capital generation.
Speaker Change: Calculation.
Speaker Change: The that you provided on slide 13 and.
Speaker Change: And in particular as I read it it looks like the capital jet in the first quarter was $9 9 million.
Speaker Change: If I annualize that it's you know, notably below kind of pretty much all the prior years, except one is there something seasonally about Q1.
Speaker Change: Depresses capital generation, usually or was it just.
Speaker Change: More investment in branches.
Just provide a little color around that figure.
Speaker Change: Yeah. So it was actually its heart it was actually a number of things. So our net income it's lowest in first quarter.
Speaker Change: And you know as we've said in the prepared remarks, right. We expect that to increase as the year goes on and you have lower in Seattle and you have higher revenue from the loans that will generate throughout the year. So it's a component of that.
Speaker Change: You will see that the allowance is currently at a 10, 5% reserve rate the allowance will increase as we put on more balances.
Speaker Change: But you know I guided to in second quarter be.
Speaker Change: The reserves will go to 10.3% after the release.
Speaker Change: Hurricane Reserve.
Speaker Change: Got it helpful and then.
Speaker Change: And maybe last question.
Speaker Change: Regarding just sort of the credit box in.
Speaker Change: Okay.
Speaker Change: Ultimately what things might look like.
Speaker Change: When when there is deemed to be less uncertainty.
Speaker Change: You know what.
Speaker Change: Prior earnings calls.
Speaker Change: Competitor ill just say at Onemain.
Speaker Change:
Speaker Change: They did.
Speaker Change: They they sort of defy defined credit tightening as applying an additional 30% kind of stress on their love for each of the loans. They are underwritten over the last three years, meaning they.
Speaker Change: I guess just in order to approve alone it had to meet their return requirements with an additional 30%.
Speaker Change: Of of.
Speaker Change: Stress on top of that and.
Speaker Change: I'm wondering if.
Speaker Change: Youre able to help kind of provide some context for us and.
Speaker Change: Similar to that just what tightening means you know over these last couple of years.
Speaker Change: Yeah. So we do the same thing in our underwriting where we put a stress factor to make sure that we're delivering.
Speaker Change: Tractive bottom line returns and so we apply a similar not the similar number of stress, but I'm not going to disclose that because we very much change and stress factor depending on the part of our portfolio. You know in auto secured business might have a different stress factor than a small loan business.
Speaker Change: As a small loan business less than 36, or a small loan, but as I said I was greater than 36% APR.
Speaker Change: And these are the Oh.
Speaker Change: A large loan customer there's also different risk ranked so I you know trying to you know apply.
Speaker Change: Apply.
Speaker Change: One number across the portfolio is just not how we we look at things we manage this business at a very detailed level individual risk ranks cohorts by state byproduct type distribution channel, whether it's a lie check or digital or a branch renewal. So you know.
Speaker Change: One number across the portfolio. It's just not just out of not appropriate we apply stress factors, depending on the underlying risk of the portfolio.
Speaker Change: Got it great. Thanks very much.
Speaker Change: Excellent. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of John Rowan with Janney. Please proceed with your question.
Speaker Change: Afternoon.
Speaker Change: So I'm going to apologize if you covered this already I did miss the prepared comments of the call, but so I I caught that.
Speaker Change: You know the guidance for 2025 is unchanged for meaningful EPS or net income growth of at least one of those correct.
Speaker Change: Yeah, that's what we said, okay and your and also that the greater than 10% portfolio growth correct.
Speaker Change: Yes, we set a minimum of 10%.
Speaker Change: I'm, just kind of I'm, having a hard time getting to meaningful EPS or net income growth. I mean, you know first half of the year and I guess, maybe just guide me on what the right number is to use for <unk> 'twenty for whether or not it was you know whether or not you're using a number that's impacted from the from the loan sales, but you know EPS just is down 41% year.
Speaker Change: Year going into the back half of the year, you're going to have a lot of loan growth to meet that 10% number because you're kind of a decent bit below that through.
Speaker Change: Through the first you know.
Speaker Change: But frankly, the first half of the year given the Q2 guide.
Speaker Change: There's a lot of drag from provisioning tied to growth So I guess.
Speaker Change: Maybe help me triangulate, how you get to that meaningful EPS growth given the results that are contemplated in Q2 guide along with <unk> results.
Speaker Change: You know and whether or not there is reserve releases or something that that softens the impact from the provision tied to growth in the back half of the year.
Speaker Change: So we talked a little bit about you know where our allowance for credit losses would be in second quarter, John I'm not going to give you where it's going to be at the end of the year, but we're at 10, 5% in first quarter of 'twenty, five and that's going to 10, 3% in the second quarter as we release losses associated.
Speaker Change: Seated with Hurricanes, So that's where that's going to go in in second quarter, we guided to net income of somewhere between 7% to $7 3 million for the second quarter and in our growth.
Speaker Change: It's $55 million to $60 million.
Speaker Change: Revenue yields will increase the other thing to keep in the mind is that your balances grow through the.
Speaker Change: The last three quarters of the year right, you'll get revenue off of that of course your yield is increasing 20 basis points quarter over quarter next next quarter and then the other thing is as your Ncl's actually it will come down so we've guided to 57 million or 12.
Speaker Change: And second quarter, but.
Speaker Change: But we know that NCL will come down in the.
Speaker Change: The latter part of the year and so those those are sort of the dynamics and how we get an increase in net income in the second half of the year, Yeah, and the Delta for first quarter of last year. It was entirely due to the loan sale in the prior year.
Speaker Change: Period impacted by I guess, the fourth quarter loan sale and in the quarter before that.
Speaker Change: Oh I get it but obviously there is still a decline year over year in the second quarter, but given the guidance I guess, maybe just just to be clear I shouldn't make sure. So you got your guidance of growth over $41 million of net income reported in 2024, and you're not making an adjustment to the first quarter number for the loan sell correct.
Speaker Change: So the first quarter number and when you look at that year over here and the reason why it is lower in <unk> 25 versus <unk> 24 is basically because of the acceleration of the NCL from first quarter of 'twenty four into 'twenty. Three so that is the difference primarily that is driving.
Speaker Change: The year over year variance when you compare 25 to 24, when you look out at the guidance for 2025 versus them for second quarter of 2025 versus first quarter versus second quarter of 2025 that is a function of the reserves. So it's really a function of where.
Speaker Change: Your.
Speaker Change: The year over year impact of the reserves from second quarter of 24 versus second quarter of 'twenty five yeah, and John were not where our base is 41 million that's what we're.
Speaker Change: Guiding off of Okay, that's what I, that's what I needed.
Speaker Change: I mean, no no, let's I mean, we all know that there's macro uncertainty out there, but that's that's what we're guiding office. Okay alright. Thank you.
Speaker Change: I appreciate it John.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Alexander.
Speaker Change: Oh Boy with Jefferies. Please proceed with your question.
Speaker Change: No.
Speaker Change: Hey, guys. Thank you for taking my question.
Speaker Change: A lot of the questions that I had have been answered but did have if it's any possibility of giving you a little bit more guidance on the expense side.
Speaker Change: I know you guys grew expenses in 'twenty for about 2% should we be thinking about.
Speaker Change: Around that number or something maybe a little bit higher and my second question is maybe a little bit more detail on the consumer.
Speaker Change: Obviously, the consumer is still spending, but if theres anything kind of in your data that can tell you how much of it is pull forward.
Speaker Change: Or just the consumer actually.
Speaker Change: Within their regular cadence thank you.
Speaker Change: So I'll take the question on the expenses first so we're not giving full year guidance on the expenses. They did give second quarter guidance in terms of that being around 65 5 million.
Speaker Change: You will see expenses increase as our loans an increase in the variable expenses associated with that increase as well, but as always we're quite prudent around our expense control and we'll continue to do that.
Speaker Change: And help me with the second part of your question.
Speaker Change: Yeah, No just just in general like from the other companies from everything from the credit card companies to some of the other lenders.
Speaker Change: Lenders, there's there's the question of the consumer spending how much of it could be just pull forward based on the tariffs.
Speaker Change: Or if it's just a consumer truly just within their regular cadence. Thank you.
Speaker Change: Yeah, I don't we're not seeing in.
Speaker Change: In the first quarter and of course, there's tax season, there, we're not seeing any kind of increased demand that we would we would look to say, it's it's accelerated spending for our customer base. You know that's that's not something that you know our customers tend to have the the access you know yeah I'll look.
Speaker Change: You know I I got that extra spending power to do unlike maybe applying based customers. So you know I think their behaviors are holding pretty steady.
Speaker Change: They're meeting their obligations and that's reflected in our credit so yeah that would be my my reaction on that.
Speaker Change: And the other thing running services I'll tell you this that you know.
Speaker Change: Look.
Speaker Change: Like we do every year, we assess how were going along in the year and then we have the ability to pivot and it put on more investment in growth for the following year. For example, we added these 15 branches in the very end of last year going into first quarter and so you know we're always.
Speaker Change: Look for opportunities to invest more to take advantage of a good problem.
Speaker Change: Hello.
Speaker Change: And those 15 branches that we opened actually I go back to the 17 branches. We opened since the beginning of the year I think we've created in the first quarter $3 6 million if I got it right Harper of revenue on about $1 6 million of expense. So briefly fixing one point I'm sorry 3.6.
Speaker Change: And 1.9, so you know we're getting a good return on on those those new branches and so we always reserve the opportunity to lean into growth as we see opportunities.
Speaker Change: And we'll communicate that that accordingly, I think at this point in time, given kind of just where things may settle out in the coming months on the tariff side you know.
Speaker Change: I think we're just we're going to evaluate you know where things unfold.
Speaker Change: But we are keeping a very tight lid on expenses that aren't associated with growing.
Speaker Change: Growing the business be that yeah variable cost in support of the portfolio growth.
Speaker Change: Or additional marketing.
Speaker Change: Or you know additional branches in fact of the $5 $6 million growth in expenses in the first quarter I mean, we had a timing issue on incentives for 1.7.
Speaker Change: But the bulk of the rest was the increase from new branches and additional marketing and legacy markets. So we're not we're not spending additional money in areas other than in pursuit of.
Speaker Change: Improved growth and bottom line returns.
Speaker Change: Awesome. Thank you for the color.
Speaker Change: Okay.
Speaker Change: Thank you.
Robert: We have reached the end of the question and answer session I would like to turn the floor back to Robert back for closing remarks.
Speaker Change: Thank you operator, and thanks, everyone from from joining look.
Speaker Change: As I said in response to David's question.
Speaker Change: Look we're happy with the credit performance I'm not going to go through and reiterate what I said.
Speaker Change: It's been great to open up you know a cohort of branches and see the performance and rebuild that muscle memory.
Speaker Change: Its being done at a tighter risk box and so.
Speaker Change: Even if we tightened the credit box, we have opportunity to.
Speaker Change: Continue to grow.
Speaker Change: So that's that's exciting for for the business and you know look we we continue to manage our balance sheet well our cost of funds well, we were generating capital and I think like everybody. We're we're just watching things unfold on the tariff side and other.
Speaker Change: Other implications and we can quickly pivot.
Speaker Change: And Titan if that's what we need to do so.
Speaker Change: I appreciate everybody joining this evening and if you've got any other follow up questions. Obviously wrong is available. Thank you.
Speaker Change: Thank you and this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: [music].