Q2 2025 Regional Management Corp Earnings Call
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Garrett Edson: Ladies and gentlemen, greetings and welcome to the Regional Management Q2 2025 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please signal the operator by pressing 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 from ICR. Please go ahead.
Ladies and gentlemen, greetings and welcome to the regional management. Second quarter 2025 earnings conference call.
At this time, all participants are in a listen-only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference, please signal the operator by pressing * and 0 on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Garrett Edson from 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. 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.
Garrett Edson: These statements are not guarantees of future performance, and therefore you should not place undue reliance upon them. We refer all of you to our press release presentation or 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. A 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 Quarter.
Thank you and good afternoon by. Now, everyone should have access to our earnings announcement and supplemental presentation, which will release prior to this call and may be found on our website at Regional management.com. Before we begin our formal remarks, I will direct you to page 2 of our supplemental presentation which contains important disclosures concerning forward-looking statements and the use of non-gaap financial measures part of our discussion say may include 4 looking statements which are based on Management's, current expectations, estimates, and projections about the company's future financial performance and business prospects. Please forward looking statements speak only as of today, or subject to various assumptions, risks and certainties and other factors that are difficult to predict and that could cause actual results to different materially from those expressed or implied. In the forward-looking statements, these statements are not guaranteed. So future performance. And therefore, you should not Place undue Reliance upon them. We refer all of you to our press release presentation or 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 conditions,
Rob Beck: Thanks, Garrett, and welcome to our second quarter 2025 earnings call. I'm joined today by Harpreet Rana, our Chief Financial and Administrative Officer. On this call, we'll cover our second quarter results, provide an update on our portfolio credit performance and growth strategies, and share our expectations for the second half of 2025. We delivered very strong financial and operating results in the second quarter. We generated net income of 10.1 million and diluted earnings per share of $1.03, an improvement of 20% year over year. Our results across all line items met or beat our guidance, including net income that was 3 million or 42% better than the midpoint of our guidance. Our quarterly revenue reached a record level of 157 million. Total originations were also at a record high, and our annualized operating expense ratio was an all-time best.
Also, our discussion today may include references to certain non-GAAP measures. Our reconciliation of these measures to the most comparable GAAP measures can be found within our earnings announcement or earnings presentation, which are posted on our website at regionalmanagement.com. I would now like to introduce Rob Beck, President and CEO of Regional Management Corp.
Thanks Garrett and Welcome to our second quarter 2025 earnings call. I'm joined today by harp Rana our chief financial administrative officer on this. Call will cover our second quarter results, provide an update on our portfolio credit performance and growth strategies and share our expectations for the second half of 2025.
We deliver very strong financial and operating results. In the second quarter, we generated net, income of 10.1 million and diluted earnings per share of a Dollar Tree and Improvement of 20% year-over-year.
Or beat our guidance, including net income. That was 3 million or 42%, better than the midpoint of our guidance.
Our quarterly Revenue reached a record level of 157 million.
Rob Beck: I continue to be impressed with our team's execution as we focus on driving growth, improving our operating effectiveness, and delivering strong shareholder returns. Consumers in our target segment remain healthy. This has allowed us to responsibly grow our portfolio while also improving our credit performance. We grew our net receivables by 70 million sequentially in the second quarter on 510 million of originations. Our ending net receivables were up 10.5% year over year, in line with our expectations to grow the portfolio by at least 10% in 2025. At quarter end, our 30-day delinquency rate was 6.6%, an improvement of 50 basis points sequentially and 30 basis points better year over year. Our net credit loss rate of 11.9% was in line with our expectations for the quarter. The NCL rate improved 50 basis points sequentially and was 80 basis points better than the prior year period.
Total originations were also at a record high and our annualized, operating expense ratio was at all-time best. I continue to be impressed with our team's execution. As we focus on driving growth, improving our operating Effectiveness and delivering strong shareholder returns.
Consumers in our target segments remain healthy. This has allowed us to responsibly grow our portfolio while also improving our credit performance. We grew our net receivables by $70 million sequentially in the second quarter on $510 million of originations. Our ending net receivables were up 10.5% year-over-year, in line with our expectations to grow the portfolio by at least 10% in 2025.
Rob Beck: Our credit tightening actions continue to yield positive results. We also managed expenses tightly in the quarter. Our operating expense ratio of 13.2% improved 60 basis points year over year, despite continued investment in innovation and growth, including new branch openings. We'll continue to invest in initiatives that will drive long-term returns while practicing sound expense disciplines. In the second quarter, we had capital generation of 16.9 million, bringing total capital generation year to date to 26.8 million. Through the second quarter of this year, we returned an aggregate of 17.6 million in capital to shareholders via stock repurchases of 11.6 million and dividends of 6.1 million. Our book value per share reached $36.43 at quarter end. In sum, we're very pleased with our second quarter results.
At quarter end, our 30-day delinquency rate with 6.6% and Improvement of 50 basis points sequentially and 30 basis points better year-over-year our net credit loss rate of 11.9% was in line with our expectations for the quarter, the NCL rate improved 50 basis points sequentially and with 80 basis points better than the prior year period. Our credit tightening actions continue to yield positive results.
We also manage expenses tightly in the quarter. Our operating expense ratio of 13.2% improved 60 basis points year-over-year, despite continued investment in innovation and growth, including new branch openings.
We'll continue to invest in initiatives that will drive long-term returns while practicing sound expense disciplines.
13.6 million in capital to shareholders, by a stock, repurchases of 11.6 million and dividends of 6.1 million. Our book value per share. Reached 36.43 at quarter end
Rob Beck: As I reflect on economic conditions and our team's efforts over the last several years, I believe the second quarter represents one of the strongest periods of execution since 2021 and early 2022. A time when inflation was stable, funding costs were low, and government stimulus was contributing to strong credit outcomes. We have very positive momentum, a growing, healthy portfolio, and remain well-positioned to deliver strong results moving forward. Before handing things over to Harp, I'll touch on a few strategic items. We opened two branches in the second quarter, bringing total new branch openings to 17 since early September of last year, of which 11 are in new markets in California, Arizona, and Louisiana. These branches are performing well and growing rapidly, and we expect to open another 5 to 10 branches over the next six months.
In sum, we’re very pleased with our second quarter results as a reflection of economic conditions and our team’s efforts over the last several years. I believe the second quarter represents one of the strongest periods of execution since 2021 and early 2022.
Time when inflation was stable, funding costs were low and government stimulus was contributing to strong credit outcomes.
We have very positive momentum, a growing, healthy portfolio, and remain well positioned to deliver strong results moving forward.
Before handing things over to harp. I'll touch on a few strategic items.
We opened 2 branches in the second quarter, bringing total New Branch openings to 17 since early September of last year of which 11 are in new markets in California, Arizona and Louisiana.
Rob Beck: We generally observe that new branches begin to generate positive monthly net income at around month 14 and pre-provision net income at around month three. We view new branch openings as excellent investments and will continue to open new branches in new and existing markets with the pace of openings dependent on economic conditions. We also continue to execute on our barbell strategy, which focuses on growth in our high-quality auto-secured and high-margin small loan portfolios. Our auto-secured loan portfolio grew by 66 million or 37% year over year, from 10 to 13% of the total portfolio, and carries a 30-day delinquency rate of 1.9%. Meanwhile, our portfolio of loans with APRs above 36% grew by 50 million or 16% year over year, increasing modestly from 17 to 18% of our total portfolio. These portfolios continue to perform well, have strong margins, and support our customer graduation strategy.
These branches are performing well and growing rapidly and we expect to open another 5 to 10 branches over the next 6 months.
We generally observe that new branches begin to generate positive monthly net income at around month 14 and pre-provision net income at around month 3. We View New Branch openings as excellent Investments and we'll continue to open new branches in new and existing markets with the pace of openings dependent on economic conditions
We also continue to execute on our barbell strategy, which focuses on growth. Our high-quality auto portfolio grew by $66 million, or 37% year-over-year, from 10% to 13% of the total portfolio and carries a 30-day delinquency rate of 1.9%.
Meanwhile, our portfolio of loans with APR is above 36% grew by 50 million or 16% year-over-year.
From 17 to 18% of our total portfolio.
These portfolios continue to perform well, have strong margins, and support our customer graduation strategy.
Rob Beck: On the expense front, we remain good stewards of shareholder capital. As a normal course of our operations, we regularly review branch-level financial and operating metrics and evaluate opportunities to improve network efficiency. In connection with those efforts, we expect to consolidate eight to 10 branches this year into nearby branches. The G&A expense from these actions will be used to support our new branch openings in new geographies. In addition, earlier this month, we completed a small restructuring in our corporate offices with the general goal of streamlining our business processes to maximize efficiency. While this resulted in a restructuring charge in the third quarter, the G&A expense savings from the action will more than offset the charge within the quarter. Moving forward, we expect annualized G&A expense savings of roughly 2.3 million from this reposition.
On the expense front, we remain good stewards of shareholder capital.
As a normal course of our operations, we regularly review, Branch level financial and operating metrics and evaluate opportunities to improve Network efficiency.
In connection with those efforts, we expect to consolidate 8 to 10 branches this year into nearby branches.
The GNA expense from these actions will be used to support our new Branch openings in New geographies.
In addition, earlier this month, we completed a small restructuring in our corporate offices. With the general goal of streamlining, our business processes to maximize efficiency while this resulted in a restructuring charge in the third quarter, the G&A expense savings from the action will more than offset the charge within the quarter. Moving forward. We expect annualized DNA.
Expense savings of roughly $2.3 million from this, reposition.
Rob Beck: These savings will support our ongoing investments in technology and advanced data and analytics, which are already bearing fruit. For example, we developed a new front-end branch origination platform that will improve team member effectiveness, enhance the customer experience, and ultimately benefit our operating efficiency. The new system facilitates a smoother, quicker, and more accurate origination process. We began piloting the system earlier this year, have deployed the system within one of our larger states, and we will be rolling it out throughout our network over the next 18 months. We've also developed a new customer lifetime value analytic framework for direct mail marketing that consists of dozens of machine learning models that allow us to better optimize offer and selection criteria. We began using the new model in the second quarter and will fully deploy it in the third quarter.
These savings will support our ongoing investments in technology and Advanced Data and analytics which are already bearing fruit.
For example, we developed a new front-end Branch origination platform that will improve team member Effectiveness. Enhance the customer experience and ultimately benefit our operating efficiency.
The new system, facilitates a smoother quicker and more accurate origination process.
We began piling the system earlier this year have deployed the system within 1 of our larger States and we will be rolling it out throughout our network over the next 18 months.
We've also developed a new customer lifetime value, analytic framework for Direct Mail marketing, that consists of dozens of machine learning models. That allow us to better optimize offer and selection criteria.
Rob Beck: We expect to see significant benefits as it scales in use. Similarly, we'll be rolling out our new machine learning branch underwriting model starting in the third quarter, and we'll deploy it across our network as we implement our new front-end origination tool. These new models will allow us to improve volume while holding credit risk constant, improve credit risk while holding volume constant, or some combination of the two. Ultimately, the models will improve our mail selection, enhance our ability to monitor results, and enable us to optimize profitability. We expect that our team's efforts to grow our portfolio, increase our operational efficiency, and improve our credit performance will drive increases in net income and shareholder value. For 2025, we're forecasting full-year net income of 42 to 45 million.
We began using the new model in the second quarter and will fully deploy it in the third quarter.
We expect to see significant benefits as it scales in use. Similarly, we'll be rolling out our new machine learning branch underwriting model, starting in the third quarter, and we'll deploy it across our network as we implement our new front-end origination tool.
These new models will allow us to improve volume while holding credit risk constant, or improve credit risk while holding volume constant, or some combination of the two.
Ultimately, the models will improve our male selection and enhance our ability to monitor results and enable us to optimize profitability.
We expect that our team's efforts to grow our portfolio, increase our operational efficiency, and improve our credit performance will drive increases in net income and shareholder value.
Rob Beck: Given the strong portfolio growth we experienced in the second quarter, there may be an opportunity for faster growth in the second half of the year. Where we land within the forecasted 2025 net income range will be driven by our portfolio growth, which directly impacts our provisioning for credit losses and bottom-line results. Ultimately, our portfolio growth rate in the second half will depend on the health of our customers, informed by our credit metrics and macroeconomic conditions. I'll now turn the call over to Harp, who will provide more detail on our results.
For 2025, we're forecasting fully your net income of $42 million to $45 million.
2025, net income range will be driven by our portfolio growth, which directly impacts our provisioning for credit losses and bottom line results.
Ultimately, our portfolio growth rate in the second half will depend on the health of our customers, informed by our credit metrics and macroeconomic conditions.
Garrett Edson: Thank you, Rob, and hello, everyone. I'll now take you through our second quarter results in more detail and provide you with an outlook for the second half of the year. On page four of the supplemental presentation, we provide our second quarter financial highlights. Our net income of 10.1 million and diluted EPS of $1.03 were supported by a solid portfolio and revenue growth, a healthy credit profile, expense discipline, and a strong balance sheet. For the third quarter, we're projecting net income of roughly $14.5 million. Turning to pages five and six, we had record total originations of 510 million in the second quarter, up 20% year over year. Loan volume was driven by strong performance from our digital channel, auto-secured product, and the 17 de novo branches we've opened over the past 12 months, the latter of which generated 24% of our year-over-year growth.
I'll now turn the call over to Heart who will provide more detail on our results?
Thank you Rob and hello everyone. I'll now take you through our second quarter results in more detail and provide you with an outlook for the second half of the year.
On page 4 of the supplemental presentation. We provide our second quarter financial highlights. Our net income of 10.1 million and diluted EPS of a dollar. 3 cents were supported by a solid portfolio and revenue growth. A healthy credit profile, expense discipline, and a strong balance sheet for the third quarter. We're projecting, net income of roughly, 14.5 million.
Garrett Edson: Our total portfolio reached record levels at the end of the second quarter and is expected to cross $2 billion in the third quarter, while our ending net receivables per branch reached $5.6 million on average. We continue to believe that key economic markers, including wage growth, the 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 adaptable. These conditions have allowed us to grow our portfolio while maintaining a tight credit box. Looking ahead to the third quarter, we anticipate that our ending net receivables will increase roughly $55 million to $60 million sequentially and that our average net receivables will be up roughly $75 million sequentially. Turning to page seven, total revenue grew to a record $157 million in the second quarter, up 10% year over year.
Turning the pages 5 and 6, we had record total originations of 510 million in the second quarter up. 20% year-over-year, loan volume was driven by strong performance from our digital channel, Auto secured product and the 17 denial the latter of which generated 24% of our year-over-year growth. Our total portfolio, reached record levels at the end of the second quarter and is expected to cross 2 billion in the third quarter. While our ending net receivables per Branch reached 5.6 million on average.
We continue to believe that key economic markers, including wage growth, the 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 adaptable.
These conditions have allowed us to grow our portfolio while maintaining a tight credit box. Looking ahead to the third quarter, we anticipate that our ending net receivables will increase roughly $55 million to $60 million sequentially and that our average net receivables will be up roughly $75 million sequentially.
Garrett Edson: Our total revenue yield and interest and fee yield each moved up 50 basis points sequentially to 32.9% and 29.4%, consistent with seasonal patterns. Total revenue yield improved 20 basis points year over year from the improved credit performance and ancillary product revenue. In the third quarter, we expect total revenue yield of 32.8%, a 10 basis point sequential decrease due to portfolio mix, and for the fourth quarter, we anticipate a further decline in revenue yield due to seasonality. Moving to page eight, our portfolio continues to perform well. Our 30-plus-day delinquency rate as a quarter end was 6.6%, 50 basis points better sequentially, and a 30 basis point improvement year over year.
Turning to page 7, total revenue grew to a record $157 million in the second quarter, up 10% year-over-year. Our total revenue yield and interest in fee yield each moved about 50 basis points sequentially to 32.9% and 29.4%.
Consistent with seasonal patterns.
Total revenue yield improved 20 basis points year-over-year from the improved credit performance and ancillary product Revenue in the third quarter. We expect total revenue, yield of 32.8% a 10 basis. Point sequential decrease due to portfolio mix and for the fourth quarter, we anticipate a further decline in Revenue yield due to seasonality
Garrett Edson: Our net credit losses in the second quarter were better than our forecast, and our net credit loss rate of 11.9% improved 50 basis points sequentially and 80 basis points year over year due to credit tightening and effective portfolio management. Our second quarter net credit losses included 2.1 million or 40 basis point impact from prior year hurricane activity. In the third quarter, we expect our delinquency rate to rise gradually, consistent with seasonal patterns. We anticipate that our net credit losses will be approximately $51 million in the third quarter, or a net credit loss rate of approximately 10.3%, a 30 basis point improvement from the third quarter of last year.
Moving to page 8 or portfolio continues to perform well, our 30 plus day delinquency rate as a quarter end with 6.6%, 50 basis points, better sequentially and a 30 basis, point Improvement year-over-year. Our net credit losses, in the second quarter were better than our forecasts and our net credit loss rate of 11.9% improved 50 basis, points sequentially and 80 basis points year-over-year due to credit tightening and effective portfolio management.
Garrett Edson: The expected sequential improvement in our net credit losses in the third quarter is consistent with seasonal patterns, and the expected year-over-year improvement in our net credit loss rate in the third quarter is reflective of the overall improved credit quality and performance of our portfolio. For the fourth quarter, we expect a sequential seasonal increase in our NCL rate. Turning to page nine, we increased our allowance for credit losses in the quarter by 3.7 million to support portfolio growth. Consistent with our outlook, our allowance for credit losses rate declined to 10.3% due to the release of the remaining hurricane reserve against the associated net credit losses in the second quarter. Looking to the third quarter, subject to economic conditions and portfolio performance, we expect our reserve rate to remain steady at 10.3% at the end of the quarter.
Our second quarter, net credit losses included, 2.1 million or 40 basis points. Impact from prior year, hurricane activity. In the third quarter, we expect our delinquency rate to rise gradually consistent with seasonal patterns. We anticipate that our net credit losses will be approximately 51 million in the third quarter or a net credit loss rate of approximately 10.3%, a 30 basis point improvement from the third quarter of last year. The expected sequential improvement in our net credit losses. In the third quarter is consistent with seasonal patterns and the expected year-over-year improvement in our net. Credit loss rate in the third quarter is reflective of the overall improved credit quality and performance of our portfolio. For the fourth quarter. We expect a sequential seasonal increase in our NCL rate.
Turning to page 9, we increased our allowance for credit losses in the quarter by 3.7 million to support portfolio growth. Consistent with our Outlook, our allowance, for credit losses rate declined to 10.3% due to the release of the remaining hurricane Reserve against the associated net credit losses. In the second quarter. Looking to the third quarter subject to economic conditions and portfolio performance. We expect our Reserve rate to remain steady at 10.3%. At the end of the quarter.
Garrett Edson: Flipping to page 10, we continue to closely manage our spending while still investing in our growth capabilities and strategic initiatives. Our annualized operating expense ratio was 13.2% in the second quarter, an all-time best and an improvement of 60 basis points from the prior year period. In the second quarter, our revenue growth outpaced our G&A expense growth by more than five times. In the third quarter, we expect G&A expenses to be roughly $65 million to $66 million. Turning to pages 11 and 12, our interest expenses for the second quarter were 20.4 million or 4.2% of average net receivables on an annualized basis, better than our outlook on lower average debt and lower fees. Our cost of funds increased year over year as lower fixed-rate debt had matured, and we funded our growth with higher fixed and variable-rate debt.
Looking to page 10, we continue to closely manage your spending while still investing in our growth capabilities and strategic initiatives. Our annualized operating expense ratio was 13.2% in the second quarter, an all-time best, representing an improvement of 60 basis points from the prior year period.
65 million to 66 million.
Garrett Edson: Even with the increased cost of funds, we're pleased with the way we've managed our interest expense over the past few years. As of the end of the second quarter, 84% of our debt was fixed rate with a weighted average coupon of 4.5%. In the third quarter, we expect interest expense to be approximately $22 million or 4.4% of average net receivables, and for the fourth quarter, we expect the cost of funds rate to increase further to 4.5%. Moving forward, we'll 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. Aside from investing in our growth and strategic initiatives, we continue to allocate excess capital to our dividends and 30 million share repurchase programs. Our board of directors declared a dividend of $0.30 per common share for the third quarter.
Turning the pages 11 and 12 are interest expenses for the second quarter with 20.4 million or 4.2% of average net receivables on an annualized basis, better than our outlook on Lower average, debt, and lower fees, our cost of funds increased year-over-year is lower. Fixed rate, debt has matured and we funded our growth with higher fixed and variable rate debt.
Even with the increased cost of funds for pleased, with the way we've managed or interest expense over the past few years.
As of the end of the second quarter, 84% of our debt, was fixed rate with a weighted average, coupon of 4.5% in the third quarter, we expect interest expense to be approximately 22 million or 4.4% of average net receivables. And for the fourth quarter, we expect the cost of funds rate to increase further to 4.5% moving forward. We'll 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.
Garrett Edson: Pursuant to our buyback program, we repurchased approximately 165,000 shares of our common stock in the second quarter at a weighted average price of $30.36 per share. Finally, I'll note that we provide a summary of our third quarter 2025 guidance on page 14 of our earnings supplement. That concludes my remark. I'll now turn the call back over to Rob.
Aside from investing in our growth and strategic initiatives, we continue to allocate excess capital to our dividend and $30 million share repurchase programs. Our board of directors declared a dividend of $0.30 per common share for the third quarter.
Pursuant to our buyback program, we repurchased approximately 165,000 shares of our common stock in the second quarter at a weighted average price of $30.36 per share.
Rob Beck: Thanks, Harp. Before we wrap up, I want to take a moment to thank the entire regional team for their dedication and outstanding execution during the second quarter. Your hard work continues to drive our success and positions us for long-term growth. We're extremely proud of our results this quarter: record revenue, strong net income, responsible portfolio growth, disciplined expense management, and improved credit performance. These achievements reflect the strength of our strategy, the quality of our execution, and the resilience of our business model. Looking ahead, we remain focused on accelerating growth, investing in strategic initiatives like branch expansion, advanced analytics and technology enhancements, and further strengthening our credit performance. These actions will enable us to deliver sustainable, profitable growth and long-term value for our shareholders. Thank you again for your continued support and confidence in regional management.
Finally, I'll note that we provide a summary of our third quarter 2025 guidance on page, 14 of our earning supplements that concludes my remarks. I'll now turn the call back over to Rob.
Thanks harp. Before we wrap up, I want to take a moment to thank the entire Regional team for their dedication and outstanding execution. During the second quarter, your hard work continues to drive our success and positions us for long term growth.
We're extremely proud of our results this quarter: record revenue, strong net income, a responsible portfolio, growth discipline, expense management, and improved credit performance. These achievements reflect the strategy, the quality of our execution, and the resilience of our business model.
Looking ahead, we remain focused on accelerating growth, investing in strategic initiatives, like, Branch expansion, Advanced analytics, and Technology enhancements and further strengthening our credit performance.
These actions will enable us to deliver sustainable profitable growth and long-term value for our shareholders.
Rob Beck: We're excited about the opportunities ahead and look forward to updating you on our progress in the quarters to come. I'll now open up the call for questions. Operator, could you please open the line?
Thank you again for your continued support and confidence in Regional management. We're excited about the opportunities ahead and look forward to updating you on our progress, in the quarters to come. I'll Now, open up the call for questions. Operator, could you please open the line?
Garrett Edson: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of David Schroff from Citizens Capital Market. Please go ahead.
Thank you.
Ladies and gentlemen, we will now begin the 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,
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Ladies and gentlemen, we will wait for a moment while we pull for questions.
The first question comes from the line of David Schaaf from Citizens Capital Market. Please go ahead.
David Scharf: Great. Good afternoon, and thanks for taking my questions. Terrific results. And you know I'm wondering, Rob, you've discussed an awful lot of different initiatives, whether it's geographic expansion, some of the store-based origination, marketing channel, technology developments. You know as we look beyond just kind of the near-term 90, 180-day guidance, is there kind of a ranking of where you see the most opportunity you can provide us, whether it's geographic, channel-related, or product-related, or should we just think of this as you know always fine-tuning among all the different aspects of growth?
Great, uh, good afternoon, and thanks for taking my questions. Um, terrific results. And, you know, I'm wondering, Rob, you've discussed an awful lot of different initiatives, whether it's geographic expansion. Um,
some of the, uh,
Uh, store-based origination uh marketing channels. Um, technology developments, you know, as we look Beyond just kind of the near-term 90 180 day, you know, guidance is is there.
Kind of a ranking of of where you see the most opportunity. You, you can provide us, whether whether it's Geographic Channel related, um, or, or product related, or, or should we just think of this as, you know?
Always fine-tuning among among.
All the different aspects of growth.
Rob Beck: So great, Dan. Great question. Thanks for joining. So you're sorry I would answer that question. I'll give you the context of what I think we accomplished this for in doing so. First and foremost, what I would say is you know we have a lot of levers for growth, which is you know reflecting you know all the investments we've made in the various initiatives over the last several years, including what you know has been a pretty challenging time here in the high-inflation period. And so it puts us in a in a unique position where we can pull those levers based on you know what we see in the health of the customer and you know the the macro conditions or the macro environment.
Rob Beck: So you know the the drivers of the growth for us have been a combination of you know state expansion and even the new branches, many of which are in those new states. Our auto-secured lending, which we've been leading into. Digital underwriting, as you can see, was was very strong this quarter. And also the advanced analytics that we've invested in, which you know helps us to really fine-tune our underwriting you know and marketing strategies to deliver you know increased growth if we choose to or to you know use use those models to to moderate losses so we we can optimize using those advanced analytics depending on the market conditions.
Rob Beck: So you know what I would say to you is, and this isn't mutually exclusive, but if you look at the $187 million of growth we had in our year-on-year, you know our lower-risk large loans grew 147 million, which was like 79% of the growth. And that was you know almost quadruple the increase in the small loans. The auto-secured loans increased by 66 million. And obviously, that's a subset of the large loans, but that was 35% of our growth. And it's now 13% of our portfolio. And as I said, you know delinquency rates, 30-day delinquency rates is 1.9%. So you know effective low-risk business. The 17 new branches that we opened since September contributed 45 million of growth, which is about 25% of the overall growth.
Position where we can pull those levers? Uh, based on, you know what we see in the health of the customer and you know, the the macro conditions or the macro environment. So, you know, the the drivers of the growth uh for us has been a combination of, you know, State expansion and and the new branches many of which are in the blue States, you know, our Auto secured lending which we've been meeting continued um digital uh underwriting which you can see was was very strong was broader and and also the advanced analytics that we've invested in which um, you know, helps us to really fine-tune our underwriting. Um, you know, and and marketing strategies to deliver, you know, increased growth. If you choose to, or to, you know, use use those models to to moderate losses. So we we can optimize using those Advanced analytics depending on the market conditions. So, you know, 1 I would say to you is if this isn't usually exclusive, but if you look at the 1879,
Million dollars of growth. We added in our year and year, you know, our lower risks large well large loans grew 147 million which was a 79% of the growth um and that was you know mostly by ruple the increase in our small ones.
Rob Beck: And then if you just look at these states, you know that was 97 million growth or roughly 52% of the growth. And most of that growth was you know at rates below 36%. So you know the takeaway is you know we are achieving this growth without losing our credit standards. Okay. In fact, even our high-margin business, greater than 36%, only increased margin from 17% of the portfolio to 18% of the portfolio. So as we look ahead, we're in a great position to be able to have all these levers to pull. And of course, you know with our advanced analytical tools, we can pull those levers to lean into growth where we think we're going to optimize returns depending on what the market environment's like. And so you know I think it's a great place to be.
The um, the office here, loans increased by 66 million and honestly that's a subset of large loans, but that was 35% more important. Um, and it's now 13% of our portfolio. And as I said, you know, the only fits you age 30 day can open 28 is 1.9%. So, um, you know, attractive, you know, well, risk isn't, uh, the 17-day branches that we opened since September, um, contributed 45 million to growth, um, which is about 25% of the overall growth. And then, if you just looked at these states, you know, that was 97 million growth or roughly 52% of the growth, and most of the growth was, you know, at rates below 36% so you know, the takeaway is, you know, we are achieving this growth without losing our credit experience, okay? Uh in fact even our high margin business, um, bringing 36% only increase marginally from the 17th of the portfolio in the 18%.
Of the portfolio. So as as we look ahead, we we're not a great position to be able to have all these levers to pull. And of course, you know, with our Advanced Analytical tools, we can pull those levers to lean into growth where we think we're going to optimize returns, depending on what the market and markets, like,
Rob Beck: And in terms of where we expect to go for the rest of the year, you know look, it really depends on you know what we see as the health of the customer, which at this point, you know we're seeing credit performance, which is you know spot on with what we expected from the very beginning of the year. And so we have an opportunity to grow faster, I think, if we choose to in the second half of the year. But we're going to let the credit performance and any macro developments kind of guide where we end the growth for the full year.
And so, you know, I think it's, uh, it's a great place to be and in, in terms of where we expect to go from the rest of the year. Um, you know, look it it really depends on, you know what, we see, as the health of the customer, which at this point. Um you know, we're seeing credit performance, which is, you know spot-on with what we expected from the very beginning of the year. And so we have an opportunity um to grow faster. I think um if if we choose to in the second half of the year but we're going to let the the credit performance. Uh and any macro um developments kind of guide where we where we end the, you know, where we end the growth in the full year.
David Scharf: Got it. No, that's helpful. I mean, it's certainly a lot of different levers at play. Maybe just one follow-up on your comments on credit. You know it looks like pretty much every lender that's reported in our coverage, regional, no exception, seemed to have probably exited the first quarter maybe in an over-reserved position, which was entirely understandable in the wake of the kind of April 2nd announcements. Given all of the constructive commentary you provided about the stability of your borrower base, you know is the allowance, is the kind of flat allowance rate or reserve rate guidance you're providing, should that be taken as an indication that that's probably a normalized level, or are there certain other things you're on the lookout for that could potentially lead that reserve rate below 10%?
Got it. No, no, that's helpful. I mean it's it's certainly a lot of a lot of different levers at play. Maybe just 1 1 follows and and credit. Uh, you know, it it it looks like pretty much every lender that's reported in in our coverage. Uh, Regional no exception seem to have probably exited the first quarter, maybe in an over reserved position, which which was entirely understandable, uh, in in the wake of the kind of April 2nd.
Announcements. Um given all of the constructive commentary. Uh you you provided about um the stability of of your borrower base.
um,
You know, the is the allowance is, is the kind of flat allowance rate or Reserve rate guidance. You're providing
Should that be taken as an indication? That that's probably a normalized level or are there certain other things you are on the lookout for?
Potentially lead that Reserve rate below 10%.
Harpreet Rana: So David, Harp, I'll answer that. So when we look at our stable allowance rate, as you know, it's based upon our portfolio mix and our growth. And we look at product, high growth, new billings, and state debt. So we look at credit and billing trends in terms of what we see internally. And then we overlay macro on top of that. So if you saw this quarter in terms of the 10.3% and how that came down from last quarter, we had signaled that we would be releasing even the remaining bursee of the GDF. So that's part of that 10.5 to the 10.3. The macro improved, and that's another reason why you're seeing it come down from 10.5 to 10.3. So we've got the improvement of macro currently in the numbers that are calculated in the allowance for the quarter.
Harpreet Rana: Now, as you know, every quarter, we'll take a look at revised macros. And if there is an opportunity for the reserve to come down lower based upon macros, but also out of own trends and our product mix, you know we take a look at that every quarter. But right now, in terms of, and you're probably looking at our guidance, it's comfortable in terms of where we're guiding to in the quarter at 10.3%.
We can signal that. Um we would be releasing um you know, the remaining hurricane is is between the distance. So that's part of that 10.5 to the 10.3 the macro improved and that's another reason why you're seeing it come down from 10.5% 10.3. So so we've got the Improvement of macros currently in the numbers that are calculated in the 11th through the quarter. Now if you know every quarter we'll take a look at, you know, revised macros, and if there is an opportunity for the reserve to come down lower based on that first, but also, our only friends and our products. Next, you know, we take a look at that every quarter, but right now, in terms of and your probability of seeing, um, at at our goals, um, you know, it's comfortable in terms of where we're guiding to in third quarter, that the 10.3%
David Scharf: Understood. Great. Thank you very much.
Rob Beck: Yeah, I'd also add a little bit here just on the health of the customer is as we're seeing it. You know I would say the customers are generally doing pretty well as they're making smart choices. You know our customers tend to be doing a pretty good job of, you know, finding ways to mitigate, you know, stressful times. Unemployment, as everyone knows as well, it was nice to see the economy grow last quarter. And we're still seeing real wage growth in our customer segment. And there's still seven and a half million, you know, open jobs out there, and many of those roles fit our, you know, customer profile. You know, I do think immigration may further boost, I think immigration restrictions will further boost wage growth and job prospects for our clients.
Understood. Yeah, great. Thank you very much. Yeah. And then I'm just going to have a little bit here, um, just on the health of the customer and as as we're saying it. Um, you know, I would say that customers are generally doing pretty well, um, as our baking smart choices. Um, you know, our customers tend to do a pretty good job of um, you know, Finding ways to mitigate, you know, stressful times.
Rob Beck: And then if we look at the OBB, or OBB bill, however you want to say it, you know, look, I think it's likely positive for our customers based on everything we've seen. A little early to tell, but we generally view that as positive. And you know, look, the uncertainty right now remains tariffs. I think there's a little bit more certainty than there was. And inflation is still a little elevated, but I think the view from, you know, most market funders that it's, you know, any tariffs will be more of a one-time shot to inflation rather than one that's going to perpetrate, you know, increased inflation continuously. So, you know, that's not to say that we're not watching, you know, the performance of our customers and having the ability to to tighten credit where we want.
Unemployment status is, everyone knows as low. Um, it was nice to see the economy grow last quarter. Uh, and we're still seeing real wage growth, um, in our customer segments, um, and there's still 7 and a half million, you know, open jobs out there and and many of those roles that are, you know, customer profile. You know, I do think immigration May further boost, um, the immigration restrictions will further boost wage growth and and job prospects for our clients. And then if we look at the, oh, Triple B, or double b Bill, however, you want to say it. Um, you know, look, I think it's likely positive for our customers based on everything. Um, we've seen a little while ago, but but we generally do that as as positive and you know what the uncertainty right now in these tariffs? Um, I think there's a little bit more certainty than there was um and inflation is still a little elevated but they think the view from, you know, most marketed upon the incidents you know, of any
Rob Beck: In fact, as I think I've said numerous times, we're always, you know, turning the dial tighter here to, to address where we might see stresses. But at this point in time, I think the consumer is holding up pretty nicely.
Tariffs will be more of a 1-time shot to inflation rather than 1 of its own. You know, perpet you know increased inflation continuously so you know that's not to say that we're watching um you know the performance of our customers and have the ability to to tighten credit where we want to. The fact is, I think I've said numerous times we we're all these, you know, turning the dials tighter here to um to address where we might see stresses. But but at the
At this point, contacting the uh, the consumers holding out pretty nicely.
David Scharf: Understood. Thank you.
Understood, thank you.
Garrett Edson: Thank you. The next question comes from the line of Alexander Villalobos from Jefferies. Please go ahead.
Thank you.
The next question comes from the line of Alexander. Vilobos from Jeffrey's please go ahead.
Vincent Caintic: Hey, guys. This is Alex here instead of John Heckt. Wanted to ask you a little bit about how we should think about yields going forward. You know, potentially, you know, there might be a rate cut later this year, but definitely a year from now, we should be expecting lower rates. So just kind of, you know, what is the playbook with yields? Should we expect to kind of maintain higher pricing as interest expense goes down? Just kind of how we should think about that. Thank you.
Harpreet Rana: So Alex, this is Harp. When you say yields, are you referencing money? Interest income?
Hey guys, this is, uh, Alex here. Um, instead of John, heck, um, wanted to, um, ask you a little bit about how we should think about yields, um, going forward. You know, potentially, um, there might be a rate cut later this year, but definitely a year from now, we should be expecting, um, lower rates. So just kind of, you know, what is the playbook with yields? Um, should we expect to kind of maintain higher pricing, um, as interest expense goes down? Um, just kind of, how should we think about that? Thank you.
So Alice this part when you say yields, are you referencing 1?
Vincent Caintic: Yield. Interest income. Yield. Yep.
Yields.
Harpreet Rana: So revenue yield. Okay. So in terms of... So revenue yield, Alex. So I think we've guided in terms of, you know, where revenue yields will be in the third quarter. In terms of how we price, we price in terms of competition. So you'll always price in terms of the right product or at the right price for the right customer. So that's how we price. And we'll take a look at how our competitive pricing is to make sure that we don't have adverse selections. So we'll continue to monitor that. And then if there's an opportunity to, you know, look at pricing, we will definitely do that.
Interesting. Um, yield. Yep.
So so Revenue emails, okay? So, so in, in terms of for
September you, you know Alan so. So I think the guided in terms of you know, where Revenue yield will be in third quarter um in terms of how we price we we price in terms of competition. So you'll always write in terms of right the right products for at the right price.
For the right customer. So that's how we price, and we'll take a look at how our competitive pricing is to make sure that we don't have adverse selection. Um, so we'll continue to monitor that, and if there are opportunities to, you know, look at pricing, we will definitely do that.
Vincent Caintic: Perfect. And then on the interest expense side, in the future, is there any, you know, ability to kind of switch to like a better cost of funds, source of funds, versus mezzanine debt?
Harpreet Rana: So Alex, what we do is, you know, we manage profit funds, you know, quite effectively. If you look at what we've done over the last several quarters, we've basically maintained the profit funds within the 4 to 4.3% range. So we've done a very good job through the cycle of managing cost of funds. And part of that is because of, you know, how much of our book is debt. 84% of our book is debt. And so when you're modeling or looking at cost of funds in the future, even though interest rates may come down through Fed cuts, what we have to remember is that we have securitizations that have been put on the books at very, very low rates. Those will come due, and they will reset at market rates.
Harpreet Rana: So you will see our cost of funds go up, you know, especially in, you know, we've guided higher cost of funds in the third quarter. We've guided even higher cost of funds at 4.5 in the fourth quarter. So that's sort of the baseline as you look to model into next year. And then when you look at next year, you should really look at the securitizations that we have coming due. And what the weighted average cost of those securitizations are. And then if you were to just look at the last securitization that we booked, that would give you a pretty good indication of how cost of funds is going to change and increase this next year.
So Alex, what we do is is, you know, we, we, we managed process funds. Um, you know, quite effectively. If you look at what we've done over the last several quarters, um, you can see that we basically maintained cost of funds within, you know, before to 4.3% range. Um, so we've done a very good job through the cycle managing cost of funds. Um, now part of that is because of, you know, how much of our book is its fixed 8 or 10 of our book extensions. And so when you're modeling, we're looking at cost of funds in the future even though interest rates may come down through fed Cuts, what we have to remember is that we have securitization that we put on the books. That very, very low rating. Those will come due, and they will reset at market rate. So you will see our cost of funds go up. Um, you know, especially in, um, you know, we we've got is a higher funding third quarter.
Um we've decided is not even higher cost of funds at 4.5 um in fourth quarter so that serves the Baseline as you look to model into next year. And then when you look at next year, you should really look at the securitization that we have coming to. And and what the weighted average cost is secure and citizens are. And then if you were to just look at the last securitization that we booked, that would give you a pretty good inspiration of how possible is going to change and increase in the next year.
Vincent Caintic: Perfect. Yeah, that was my question going forward. Awesome. Thank you so much, and congrats on the good results.
Harpreet Rana: Great. Thanks, Alex.
Perfect. Yeah, that was my question. Going forward, awesome. Thank you so much, and congrats on the good results.
Great. Thank you.
Garrett Edson: Thank you. The next question comes from the line of Kyle Joseph from Stephens Inc. Please go ahead.
Thank you.
The next question comes from the line of Kyle Joseph from Stevens Inc. Please go ahead.
Kyle Joseph: Hey, good afternoon. Let me echo congratulations on a strong quarter. I just want to talk about the originations mix in the quarter. It looks like small, you know, decelerated a little bit, large accelerated. Just wondering, you know, is that a function of demand, a function of competition, or is it really just, you know, one quarter is not enough to really call it a trend?
Hey, uh, good afternoon. Let me, uh, Echo. Congratulations on a strong quarter. Um, I just want to talk about the, uh, originations mix, um, in in the quarter, it looks like small, you know, decelerated a little bit, large accelerated just wondering, you know, is that a function of, uh, demand a function of competition or is it really just, you know, 1 quarter is not enough to really call it a trend?
Rob Beck: Yeah, I'll take that, Harp. You can jump in. I, you know, as I said, our large loans, you know, grew nicely year on year. I think a big part of that is driven by the increase in our auto-secured business. I think in, you know, our digital originations, you know, bigger concentration in the larger loans, better quality. I mean, that's done with invention. I think even in the new states that we enter, you know, particularly where we're renewing small loans in the larger loans, that's a generalized theme that we're growing our larger loan book faster than our small loan book.
Rob Beck: And, you know, I'll say this, and look, I'm not going to give you a definitive view of, you know, where, you know, the greater than 36% business will be over time, but I do think it's going to define as a percentage of the portfolio because of the levers I just mentioned. You know, the growth in these states, the digital larger loans, the auto-secured, all of which, you know, helps improve the quality of our portfolio. And, you know, I think they're all originated in attractive returns.
Okay. And I, you know, that, as I said, our large volumes, you know, grew uh, nicely uh, year on year. I think a big part of that is is driven by um the increase in our secure business. Uh, I think in, you know, our digital originations um, you know, bigger concentration is a large as well. It's a better quality and that's done with invention. Um, I think even in the new states and the manager. Um, you know particularly well we're renewing small moments his larger ones that's that's a generalized uh theme that we're we're growing our larger loan book faster than our smaller book and and you know I'll say
This, and I'm not going to give you a definitive view of, you know, where the greater than 36% business will be over time, but I do think it's going to decline as a percentage of the portfolio. Um, because of the, uh, the levers, I guess, mentioned, you know, the growth in these states, the digital larger loans, the auto secured, all of which...
You know, helps um improve the quality of our portfolio, and you know I think are all originated in attractive returns.
Harpreet Rana: I'll take it out. And then I don't think there's anything else I'd like.
Okay, do you have anything? No, I think I think.
Kyle Joseph: Yeah, that's helpful. And, Jen, just one follow-up on on OpEx. Appreciate the the guidance for 3Q, but as we think about that going forward, it sounds like there's some some puts and takes in terms of branch consolidation versus new builds and then some, you know, restructuring you did at the corporate level. But, you know, how you're thinking about whether it's, you know, marketing on its own or expense and, you know, how that compares to kind of your expectations for loan growth overall.
Rob Beck: Yeah, I mean, if we lean into faster growth in the second half of the year, you know, we have guided to a minimum E&R of 10%. Now, the second quarter we grew about 10.5%, which was about $15 million higher than our guidance on E&R. And so pretty healthy beat on growth in the second quarter. So as we look at the second half of the year, there is an opportunity potentially to grow faster. Again, we'll have to see what the macro conditions, you know, hold and support. But, you know, at the end of the day, you know, there could be opportunity or there could be additional expenditure to go along with that. And actually, you want to take advantage of that.
Yeah, that's helpful. And Jen. Uh just 1 follow-up uh on on Opex. Appreciate the the guidance for 3Q but as we think about that going forward sounds like there's some some puts and takes in terms of uh Branch consolidation versus um New builds and then some you know restructuring you did at the corporate level but you know how you're thinking about whether it's you know, marketing on its own or or expense. And you know how that compares to kind of your expectations for um for the loan growth overall.
We lean into faster growth in the second half of the year. And you know we have going to be in Market over the 10%. Now the second quarter we grew at about 10 and a half percent which um, was about 15 million dollars higher than our guidance on DNR. Um, and so pretty,
Pretty healthy be on growth in the second quarter. So as we look at the second half of the year, um, there is an opportunity, uh, potentially to grow faster. Again, we'll have to see what the, um, the macro conditions, um, you know, hold and support. But you know, at the end of the day, you know, there could be opportunity and there could be additional expenditure.
Rob Beck: But, you know, look, as I think everybody knows, you know, higher growth, you know, does impact short-term net income due to seesaw as you take the lifetime losses up front. And so that's part of the reason, or is the reason for the range over the full year. But faster growth is just going to propel higher earnings for the next year. And so, you know, I think that, you know, we're sitting in a good position where we see the opportunity to grow and and and potentially take advantage of it if market conditions warrant it.
Actually want to take advantage of that. But, you know, look, it's I think everybody knows, um, you know, higher growth, you know, does impact short-term, net income, due to sea salt if you take the lifetime, uh, losses up front. Um, and so that's part of the reason or is the reason for for the range on the the full year. But faster, growth is just going to propel higher energy in this year.
And so, you know, I think that um, you know we're we're sitting in a good position where we see the opportunity to grow and and and and potentially take advantage of it if if market conditions, um, warning.
Kyle Joseph: Got it. That's it for me. Thanks very much for taking my questions.
Rob Beck: No, that's great. Appreciate it.
Got it. That's it for me. Thanks very much for taking my questions.
No, I'm sorry. Appreciate it.
Garrett Edson: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and one. The next question comes from the line of Vincent Kantek from BTIG. Please go ahead.
Thank you.
Ladies and gentlemen, if you wish to ask a question, please press star and 1.
The next question comes from the line of Vincent Kentech from BTIG. Please go ahead.
Vincent Caintic: Hey, good afternoon. Thanks for taking my question. I did want to follow up on the guidance. So I wanted to ask about your philosophy around guidance and, you know, how much conservatism is baked into it. And when I look at your good second quarter results versus your guidance, you handily beat it. You know, loan growth was, what, 22% higher than guidance. Revenue yield was 30%, 30 basis points higher than your guidance. And the expenses were lower. So your net income was 40% above your own second quarter guidance. So I wanted to ask, you know, first, maybe what changed in your performance versus what you were expecting when you gave the guidance?
Hey, good afternoon. Thanks for taking my question. Um, I did want to follow up on the guidance. So I wanted to ask about your philosophy around guidance and, you know, how much conservatism is baked into it? And when I look at your good second quarter results versus your guidance, you handled, you know, beat it. Um, you know, loan growth was what, 22% higher than guidance. Revenue yield was 30 basis points higher than your guidance, and the expenses were lower. So your net income was 40% above your own second quarter guidance.
Vincent Caintic: And then when I look at the third quarter, you know, third quarter guidance calls for lower loan growth than what we saw in the second quarter and the revenue yield declining quarter to quarter. So I just wanted to ask how much conservatism is baked into all of that. Thank you.
um so I wanted to ask, you know, first maybe what changed in your performance versus um what, what you were expecting when you gave the guidance
Rob Beck: Now, Vincent, that's a good question. I would tell you that when we were giving guidance for the second quarter, we were coming off the first quarter where, you know, buying growth wasn't where we, you know, had hoped it would be. And that was partly because of a strong tax season and some weather. And of course, the biggest backdrop was just all the uncertainty about, you know, tariffs and the potential for a hard landing. So, you know, I think as we started to see, you know, things evolve a little bit and some of the demand, you know, be there and for the segments where we did a good return, we were able to lean into the growth faster, and that's what we should do.
And then when I look at the third quarter, you know, third quarter guidance calls for lower loan growth than what we saw in the second quarter, and the revenue yield declining quarter over quarter. So I just wanted to ask how much conservatism is baked into all of that. Thank you.
No, this is you know good, good question. I I would tell you that what we were giving guidance.
Per second quarter, we were coming off the first quarter where, um, buying and growth wasn't where we, you know, had hoped it would be. That was part because...
I was strong tax season and some weather. Um, and of course, the biggest backdrop was just all the uncertainty about, you know, terrorists, uh, and the potential for a hard Landing. So, you know, I think as we started to see, um, you know, things evolved a little bit.
Rob Beck: But as I noted in the document, we also, obviously, having in mind towards the future, if things were going to slow down, we took actions on expenses, and we, you know, ran the place to be as efficient as possible. We took some restructuring actions. And some of these things, you know, you just can't give guidance on because, you know, we'll work in the numbers and the results each and every month of the quarter. So as we look ahead in terms of conservatism or not, I don't think there's 100% clarity on where our tariffs are going to go. And so part of the reason why we're giving a range on full year net income is it's very much dependent on how much growth we choose to do.
Uh, in some customer demand, Yale be there. And for the segments where we get a good return, um, we were able to lean into the growth faster, and that's what we should do.
um, but as I noted in in the document, we also obviously having a mind towards the future if those were
Going to slow down. Um, we took actions on expenses and we, you know, ran the place to be as efficient as possible. We took some restructuring measures.
And some of these things, you know, you just can't get guidance on because, you know, we're working, we're working the, um, the numbers and and the results, each and every um, month of the quarter. So as as we look ahead,
In terms of conservatives, we're not. I don't think there's a 100% clarity on where tariffs are going to go.
and so part of the reason why we're giving a range on full year,
Yeah, income is very much dependent on how much growth we, um, we choose to do.
David Scharf: Okay. That's very helpful on how you're thinking about guidance. I really appreciate that. Separate question. I noticed in one of the slides, and this is a very helpful detail on all of the slides, but one of the slides is that you were talking about your store growth. The receivables per store is actually higher for the one to three-year-old stores than for stores older than three years. And I thought that was interesting. I was wondering if maybe you can describe like what's driving that and if there's any learnings. This is on slide, I think, six of the presentation deck. I just thought that was very fascinating that there's so much growth there. So I'm wondering about the opportunities for the rest of the stores. Thank you.
Okay. That's that's very helpful. And on your, um, how you're thinking about that? So I really appreciate that. Um,
Separate question. I I noticed uh, in 1 of the slides. So a very helpful detail on all of the slides. So 1 of the slides is that you were talking about your, uh, your store growth.
Um, the receivables per store is actually higher for the 1 to 3 year old Source than for stores older than 3 years.
And I thought that was interesting. I was wondering if, um,
Maybe you can describe, like what's, uh...
Rob Beck: Yeah. Again, great question. The driver of that is most of those stores are in the newer states, which have less branch density. And so, you know, we're seeing bigger stores on average than what we'd have in our lacy states.
What's driving that? And if there are any learnings, this is on slide 6 of the presentation deck. I just thought that was very fascinating that there's so much growth there, so I'm wondering about the opportunities for the rest of the stores. Thank you.
Yeah. Um,
Again, great question. I believe the driver of that is most of those sources.
Are there newer strategies that have left less impact, for instance, on me? And so,
You know, we're seeing bigger stores on average than what we'd have in our ladies' and states.
David Scharf: Okay. That's helpful. That's all I had. Thank you.
Rob Beck: No, great. Appreciate it.
Okay, that's that's helpful. Um that's all I had. Thank you.
That's great. Appreciate it.
Garrett Edson: Thank you. The next question comes from the line of John Rovin from Jennie Montgomery Scott. Please go ahead.
Thank you.
David Scharf: All right. Good afternoon. Just a quick question. So you said that there was a restructuring charge in the third quarter, correct? Because you did come in below your G&A guide for the quarter, but that whatever the restructuring expense was was recognized in the second quarter, correct?
The next question comes from the line of John Rovan from Jaime Montgomery. Scott, please go ahead.
Just a quick question. So the, um,
Harpreet Rana: Yeah. So there was a restructuring charge in the second quarter, but you will have savings through, I'm sorry, in the third quarter. And but you will have so the restructuring charge will be recognized in the third quarter. You'll have savings in the second half of the year.
You said that there was a restructuring charge in the third quarter. Correct, because you did come in below your GNA guide for the quarter. But that whatever they were structuring your expense was recognized in the second quarter. Correct?
yeah, so there was a restructuring charging second quarter, but you will have savings through
Rob Beck: Yeah. And it's neutral, if not positive, in the third quarter on restructuring.
I'm sorry, third quarter, um, and but you will have. So there was certain prices will be recognized in third quarter. You got Savings in the second half of the year. Yeah. And it's um,
David Scharf: Okay. And just maybe one simple question. So if I look at guidance and you look at the net income guide and you maybe you go toward the, let's just for argument's sake, say you're at the middle of net income guide for the year, that would kind of indicate a slightly down net income third to fourth quarter. It's been a while since we've had kind of clean back half of the year given all the loan sales you've had in prior years. Is that, and obviously, things change as you kind of lean into small loan growth. Is that kind of the typical seasonality that we should expect going forward?
It's it's neutral. It's not positive in the third quarter.
I look at guidance, and you look at the net income guide, and maybe you go toward the, that's just for argument's sake, say you're at the middle of the net income guide for the year. Um, that would kind of indicate a slightly down net income from the third to the fourth quarter. It's been a while since we've had kind of a clean back half of the year, given all the loan sales you've had in prior years. Is that, and obviously things change, as you kind of lean into small loan growth, is that kind of the typical seasonality that we should expect going forward?
Rob Beck: Well, I think your question is, do we normally grow faster in the second half of the year? And I think, in general, that's true. And I think that the lever here is just simply how fast we want to grow in order to, depending on the environment, and then to benefit next year.
Quite, but I think your question is: do we normally grow faster in the second half of the year? And if so, well, that's true.
And I think that the, uh, the library here is just simply how fast we went around in order to, um, depending on the environment. And then to benefit next year.
David Scharf: Okay. All right.
Harpreet Rana: And really, if you have to, the net income will obviously break the allowance that we have to take for the incremental growth.
David Scharf: Okay. All right. Thank you.
Okay. All right. Because the netting, some obviously the amount that we have to take for the um incremental growth
Okay, all right. Thank you.
Rob Beck: Great. Thank you, John.
Great. Thank you.
Garrett Edson: Thank you. The next question comes from the line of Bill Desilim from Titan Capital Management. Please go ahead.
Thank you.
Bill Dezellem: Thank you. Fantastic quarter. A couple of questions here to start with. The digital originations stepped up meaningfully from the prior quarters. Would you please discuss the dynamics behind that, please?
The next question comes from the line of build desm from Titan Capital Management. Please go ahead.
Uh thank you, fantastic quarter. Uh a couple of questions here uh to start with the digital origination uh stepped up meaningfully uh from the prior quarters. Would you please discuss the Dynamics behind that please?
Harpreet Rana: So in terms of the digital originations, I think we just had, so our affiliates, they had some good loans and they booked through the affiliates. Our branches became more productive in terms of booking those leaves. And we were also able to book larger loans through the affiliates, and that's really what you see show up on the business page of them.
so, in terms of the digital representation,
I think we just, um, had. Um, so our affiliates, we had some, um, good loans. We spoke through the, um, affiliates. Our branches became more productive in terms of booking those leads. And we were also able to book um larger loans through these affiliates. And that's really what you need to show up on the business page building.
Bill Dezellem: And as a result of what you just said, that sounds like that is a repeatable and sustainable going forward as opposed to a one-off phenomenon?
Rob Beck: Yeah. You know, look, the digital partners have been driving, you know, really nice growth. We obviously review those partners and the credit performance, you know, regularly. And so, you know, there will always be some modulation in terms of, you know, the level of digital originations relative to other opportunities because, you know, at the end of the day, as you know, we are trying to maximize the bottom line returns. So there may be quarters where we might, you know, slow the digital a little bit and, you know, grow other parts of the portfolio faster. You know, again, you know, we're always looking at what our, you know, advanced and good sales is the right thing to do for on a risk return basis.
And as a result of of what you just said, that sounds like, that is a a repeatable and sustainable going forward as opposed to a 1-off phenomenon.
yeah, I you know, look the um, the digital Partners have been um,
Have been driving, you know, really nice growth. We um, we obviously review those partners and the growth performance, you know, regularly
And so, you know, their the walls will be some modulation in terms of, you know, the level of digital originations, um, relative to other opportunities. Because, you know, at the end of the day as you,
Know. Um, we are trying to maximize the bottom line of returns. So there may be the quarters, where we might, you know, slow the digital a little bit and, you know, grow and other parts of the portfolio faster. Um, you know, again, you know, we're all just looking at what our, you know, Advanced and Rich sells
is the right thing to do for um on a risk return basis.
Bill Dezellem: Great. Thank you. And then, as you pointed out, your revenues grew five times faster than expenses. Is that somewhat normal now going forward for a few quarters, or was there something special that came together to make that happen this quarter?
Great. Thank you. And then uh, as you pointed out your revenues grew 5 times faster than expenses it is, is that somewhat normal? Now, uh, going forward for, uh, for a few quarters or was there something special, uh, that, uh, came together to make that happen? Uh, this quarter.
Rob Beck: Well, you know, look, the investment dollars are always a little bit episodic. You know, we have invested a fairly significant amount of money in our technology platform and our advanced analytics, you know, adding additional branches. And so, you know, one of the things that could change that dynamic is if we, you know, open up a significant number of branches. Now, we're guiding to 5 to 10 more branches in the next six months, kind of what we did in the second half of last year going into the first quarter. But what I would say is it's all about growth. And, you know, we had record originations, 510 million, which was up almost 20% this year. That drove the record E&R in the quarter, which was up 70 million, or 10.5%, which drove, you know, record revenue of, you know, 157 million up 10%.
Well, you know, look, the um, investment dollars are always a little bit. Uh, episodic. Um, you know, we have invested
A fairly significant amount of money in our technology platform and our advanced analytics. Yeah.
Adding additional branches. And so you know, one of the things that could, um, change that dynamic is if we, you know, open up, um, a significant number of branches. Now we're guiding to 5 to 10 more branches in the next 6 months, kind of like what we did in the second half of last year.
Which is about 70 million.
Rob Beck: And so that top line growth is, you know, it's critical to create a scale in this business. And so over time, you know, and we've done this now consistently for five years, we're looking to continue to drive down that operating expense ratio. Now, I will add to that, and we don't have a way to quantify this, but the new front-end platform that we're rolling out in our branches, and we have that now in one state, I mean, that is dramatically improving the decisioning time for each and every loan for, you know, customer origination. And, you know, that's going to lead to productivity improvements where, you know, for the same level of expense, we hopefully can generate more volume or more time on collections.
Or 10 and a half percent, which drove, you know, record Revenue, um, you know, higher 57 million out 10%. And so that, um, Topline growth
Is, you know, is is critical to creating scale of this business.
And so, over time, you know, and we've done this now consistently for 5 years, we’re looking to continue to drive down that upbring and expense ratio. Now, I will add to that.
And we don't, um, have a way to quantify this.
But the, um, the new front-end platform that we're rolling out in our branches, we have that now in one state.
I mean, that is dramatically improving the decision in time, uh, for each and every loan, um, before, you know, customer origination, and you know, that's going to lead to productivity improvements. Um, where, you know, for the same level of expense.
Rob Beck: And so, you know, where that's going to play out over the next 18 months as we roll out across the network, we'll start to see. But we're very much investing not only for top line growth, but we're investing to be a more efficient organization.
We hope we can, uh, generate more volume or more time on Collections. And so, you know where that's going to, uh, play out of the next 18 months as we roll out across the network, we'll, we'll start to see, but we're bearing much investing, um, not only for Topline growth, but we're investing to be a more efficient organization.
Bill Dezellem: Excellent. And then one additional question that emanates from me not having enough time to do my homework here. But your guidance for the third quarter equates to, assuming 9.8 million shares, $1.45 to $1.50 of earnings, which is meaningfully above what you just reported. So that what's the the or the primary swing factors that are leading to that meaningful uptick in earnings in Q3 versus Q2?
Rob Beck: Well, I'll take your credit guidance, Harp's guidance, correct me if I'm wrong, but it's the top line growth from the higher volumes for the second quarter and volumes in the third quarter. It's continued expense discipline, and we're expecting further improvements on ACLs and the funds I think are, you know, pretty much in the same ballpark, maybe a slight tick up. And so, you know, that's driving, you know, strong bottom line growth. And, you know, look, I mean, where the volume ends up in the full year, we'll see. But like I said, we have lots of levers for growth.
Uh, excellent. And then 1 additional question. Uh, that emanates from me, not having enough time to, uh, to do my, uh, uh, homework here. But your guidance for the third quarter equates to assuming 9.8 million shares, a145 to 150 of of earnings which is meaningfully above. Uh, what what you just reported so that what's the the or the primary swing factors, uh, that um, that are leading to to that meaningful uptick in earnings in Q3 versus Q4 Q2.
Well, I'll take a crack at Hartson. Correct me if I'm wrong, but it's the top line growth from the higher volumes to the second quarter.
And volumes in the third quarter. Um it's continued to make sense discipline and we're expecting uh further improvements on on acl's and uh cost of funds. I think are, you know pretty much staying the same same ballpark maybe a slight tick up.
Harpreet Rana: Yeah, he got that right. So all of those things. Yeah, the E&R is growing, so that is going to help. NCLs usually, you know, come down in the third quarter, and we've got it 51. So based off of where we are in the technology to see the best. And you're getting interest expense is going to take us just very, very slightly, but you know, relatively flat compared to others. But those are all the things that are going to drive the guidance.
And so, um, you know, that's driving, you know, strong bottom line growth. And, um, you know, look where the volume ends up. So we're fully a year, we'll see. But, um, like I said, we have lots of levels of super.
14.
Bill Dezellem: Great. Well, congratulations again on a solid quarter and having things develop as you had forecasted or guided last quarter. Well done.
Rob Beck: Thanks, John.
Great. Well, congratulations again on on a solid quarter and and having things develop, as you had, as you had forecasted or guided last quarter well done.
Thanks John.
Garrett Edson: Thank you. Ladies and gentlemen, as there are no further questions, I would now hand the conference over to Rob Beck for his closing comments.
Thank you.
Ladies and gentlemen, as there are no further questions, I would now have the conference over to Rob back for his closing comments.
Rob Beck: Well, thanks again, everyone, for joining today. You know, look, as we said, we're, I'd say, extremely pleased with the quarterly results, which really were strong across all our key metrics. You know, it's clear to me that the capabilities that we developed over the recent years, you know, positions us to continue to deliver strong growth and long-term shareholder value. You know, look, as I said, and I'll reiterate it, our investments in the recent years in states and branches, our auto-secured business, our digital capabilities, and our advanced credit models and analytics, you know, really support our growth while also keeping credit risk in check. You know, look, second half, we'll see how the customer health is doing, if it stays the way it is, and we'll inform our growth in the second half of the year by our credit metrics and macroeconomic conditions.
Well, thanks again, everyone, for joining today. You know, as we said, we're...
Let's say extremely pleased with our quarterly results, um, which really were um, strong and close to all our team metrics. Um, you know,
It's clear to me uh that the case of all these that we developed over the recent years, you know, positions us to continue to deliver, you know, strong growth and uh long-term shareholder value.
Uh, you know, look, the, as I said, I'll reiterate it or Investments. You know, the recent years and which states and branches, our our security business, our digital capabilities, um, and, and our Advanced, uh, credit models and analytics. You know, really support our growth while also keeping credit risk in check
Rob Beck: So again, thanks, everybody, for joining this evening and enjoy the rest of your summer.
Uh, you know, what's not going to happen. We'll see how, um, how the customer health, uh, is doing. Uh, if it stays the way it is, it will inform, um, our growth, uh, in the second half of the year by, you know, our credit metrics and macroeconomic conditions. So, um, again, thanks everybody for joining, uh, this evening and enjoy the rest of your summer.
Garrett Edson: Thank you. Ladies and gentlemen, the conference of regional management has now concluded. Thank you for your participation, and you may now disconnect your lines.
Thank you.
Thank you for your participation and you may now disconnect your lines.