Q2 2026 Regional Management Corp Earnings Call
Speaker #1: Greetings. Welcome to the Regional Management Q2, 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker #1: If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Garrett Edson from Investor Relations.
Speaker #1: Thank you. You may begin.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: Part of our discussion today may include forward-looking statements, which are based on management's current expectations, estimates, and projections about the company's future financial performance and business prospects.
Speaker #2: 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.
Speaker #2: 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 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 #2: Also, our discussion today may include references to certain non-GAAP measures. Reconciliation of these measures to the most comparable GAAP measures can be found within our earnings announcement or earnings presentation, and posted on our website at regionalmanagement.com.
Speaker #2: I would now like to introduce Lockbeer Lamba, President and CEO of Regional Management Corp.
Speaker #3: Thanks, Garrett, and good afternoon, everyone. Joining me on the call today is Harpreet Rana, our Chief Financial and Administrative Officer. I'll begin with a summary of our Q2 results, and an update on our strategic priorities.
Speaker #3: And then Harpreet will walk through the financial details. In the Q2, our franchise continued to perform well. We generated strong revenue, grew our higher-quality auto-secure portfolio, improved our operating efficiency, and continued to return capital to shareholders.
Speaker #3: For the quarter, we generated net income of $8.2 million or $85 cents of diluted earnings per share. On a year-to-date basis, net income and diluted EPS are up 14% and 17%, respectively.
Speaker #3: Compared to the first half of last year, we delivered total revenue in Q2 of $168 million, up 7% year over year, driven by continued portfolio growth.
Speaker #3: We also maintained strong operating leverage improving our operating expense ratio by 80 basis points year over year to 12.4%. While continuing to invest in the business.
Speaker #3: As we continue to grow our auto-secure product portfolio, which increased 32% year over year, it now represents 15% of our total portfolio and carries a 30-plus day delinquency rate of just 2%.
Speaker #3: At the same time, we operated in a more competitive environment for customer acquisition. And we made deliberate decisions to tighten underwriting in certain higher-risk segments that did not meet our risk-adjusted return hurdles.
Speaker #3: Portfolio growth came in below our outlook for the quarter, and our net credit loss rate was modestly above our forecast, driven in part by the lighter portfolio growth.
Speaker #3: As I'll describe, we are acting decisively. To improve both our growth trajectory and credit performance. In particular, we've identified and selectively tightened credit in certain geographic and channel-specific segments and we've significantly strengthened our fraud detection and prevention capabilities.
Speaker #3: Principally in our direct mail and digital affiliate channels. The early results from these enhanced controls are very promising, and we expect them to support improving credit performance.
Speaker #3: Consistent with what we discussed on prior calls, we remain committed to our long-term goal of a net credit loss rate below 10%. We are cautiously optimistic about the health of the consumer we continue to monitor the potential impact of higher inflation including continued elevated gas prices and we remain disciplined and conservative in our underwriting as we navigate the current macro environment.
Speaker #3: We are also making meaningful progress across our strategic priorities as we invest to compete and win. First and foremost, we continue to expand our bank partnership program with Column.
Speaker #3: This program is an important enabler of our long-term strategy, providing greater product and operational uniformity across states, faster entry into new markets, expanded relationships with our customers, a wider addressable market, and attractive unit economics as this program scales.
Speaker #3: We've accelerated implementation of the program ahead of our internal plan. We've now fully implemented the program for branch originations in Texas, our largest market.
Speaker #3: And we expect to expand to additional states beginning later this year. We are encouraged by the early results, including origination trends, yield impact, and credit performance.
Speaker #3: Originations exceed 65 million dollars under the program since its launch on a run rate basis originations under the program now represent roughly 28% of total originations.
Speaker #3: And we expect that ratio to increase materially as we transition additional products in states to the program later this year and next year. We are projecting that pre-tax margin will improve by at least 200 basis points under the program compared to like-for-like loans originated in our state-licensed operations.
Speaker #3: This lift in margin reflects an improvement in total revenue yield driven by marketing and servicing fees that are paid to us by the bank and higher interest and fee income earned on originated loans.
Speaker #3: Offset in part by program costs paid to the bank and a decline in insurance revenue from the elimination of personal property and non-file insurance.
Speaker #3: Early credit performance is also promising. As of the end of the Q2, the one-plus day delinquency rate on the portfolio of bank partnership loans that we originated in March and April was 160 basis points better than the comparable portfolio of state-licensed loans originated in Texas over the same time period.
Speaker #3: We will continue to scale the partnership methodically as we refine the strategy. We expect nearly all states in our network to be operating under the bank partnership model by the end of 2027.
Speaker #3: We believe this will be transformative to the operations and returns of our business and a key enabler for net income growth in 2027 and beyond.
Speaker #3: Second and building directly on that foundation in early July, we launched an end-to-end digital lending origination capability. This is a distinct step beyond our historical digitally source model in which we generate leads that are underwritten and closed in our branches.
Speaker #3: With this new capability, customers can complete the entire process online from application through funding in minutes. This technology positions us to compete more effectively with fintechs and leans further into our omnichannel operating model.
Speaker #3: To be clear, our branch network remains at the core of our operations and our relationships with customers. And the digital channel complements it. Given the importance of credit performance in this channel, we're building it on strong fraud authentication and machine learning-based underwriting and we will be deliberate and methodical in scaling it.
Speaker #3: We are expanding only as we confirm that it clears our risk-adjusted return hurdles. Third, we are accelerating the rollout of our new branch loan origination platform.
Speaker #3: And alongside it, we're introducing an enhanced, machine learning-based origination credit model. This is a continuation of the technology and analytics investments we discussed previously, and moving them forward more quickly strengthens both our operating efficiency and credit decisioning.
Speaker #3: Fourth, we've made significant progress in enabling artificial intelligence across our operations, including in collections and customer service, which we expect to enhance both the customer experience and our operational effectiveness and efficiency.
Speaker #3: Finally, we continue to invest in growth. We are diversifying origination channels and our marketing capabilities to strengthen customer acquisition, and we are expanding into attractive new markets.
Speaker #3: In Q2, we entered the state of Florida—our 20th state—which represents a meaningful long-term growth opportunity. Turning to our outlook, we are revising our full-year guidance.
Speaker #3: We now expect full year diluted earnings per share growth of 10% to 13% and portfolio growth of 5% to 7%. Harp will provide additional detail on the quarterly cadence, but we continue to expect sequentially stronger quarterly earnings in the third and fourth quarters.
Speaker #3: This reset on near-term guidance reflects a deliberate choice. We'd rather build from an even stronger foundation and grow profitably than pursue growth that doesn't earn an appropriate return.
Speaker #3: The actions we are taking across credit, technology, distribution, and our bank partnership while putting modest pressure on second-half results position us to re-accelerate profitable growth, improve our returns as we exit 2026, and deliver very strong results in 2027 and beyond for our shareholders.
Speaker #3: I am confident we are building from a position of strength and making the right decisions for the long-term health of the business. With that, I will turn the call over to Harp.
Speaker #1: Thank you, Lockburn. Good afternoon, everyone. I'll now take you through our Q2 results in more detail. On page four, we present our Q2 financial highlights.
Speaker #1: Net income was $8.2 million and diluted earnings per share were $0.85. Our results reflect continued year-over-year portfolio and revenue growth and strong operating leverage, offset by a higher provision for credit losses tied to portfolio growth and a net credit loss rate that was modestly above our forecast.
Speaker #1: Year-to-date through June, net income was up $2.4 million, or 14%, compared to the prior year period, and return on equity was up 80 basis points year-over-year.
Speaker #1: As Lockburn discussed, we've updated our full year outlook, and I'll cover the details when we get to page 14. Moving to pages five and six, total originations were $504 million, down 1.3% year-over-year.
Speaker #1: Large loan originations grew more than 10% while small loan volumes declined as we tightened underwriting and higher-risk business and navigated a more competitive environment for new customer acquisitions.
Speaker #1: Ending net finance for receivables were 2.1 billion, up 9.6% year-over-year driven by our large loan and auto-secured products and by the branches we've opened over the past year.
Speaker #1: Net finance receivables per branch increased to approximately 6 million, up 8% year-over-year. On a sequential basis, receivables grew 44 million as we returned to growth following the normal Q1 tax season liquidation, while remaining deliberate in our originations given the competitive backdrop and elevated gas prices.
Speaker #1: Looking ahead, we expect Q3 portfolio growth to be stronger than Q2, in line with seasonally higher demand in the second half of the year.
Speaker #1: On page seven, total revenue for Q2 was $168 million, an increase of 6.7% year-over-year, driven by higher average net finance receivables. Our total revenue yield was 31.8%, down 110 basis points year-over-year, primarily reflecting the continued mix shift towards larger, lower-yielding loans.
Speaker #1: Total revenue yield was up 30 basis points sequentially, consistent with seasonality and the impact of our bank partnership, offset in part by lower insurance revenue yield.
Speaker #1: As we move into the Q3, we expect total revenue yield to be higher on a sequential basis due to seasonal trends and the benefits of our bank partnership.
Speaker #1: Turning to page eight, our 30-plus day delinquency rate was 7%, a 20 basis point improvement sequentially and a 40 basis point increase year-over-year. Our net credit loss rate was 12.2%, up 30 basis points year-over-year and modestly above our forecast, after adjusting for approximately 20 basis points of impact from slower portfolio growth, our net credit loss rate was in line with our expectations.
Speaker #1: Looking ahead to the Q3, we expect delinquencies to rise on a seasonal basis while net credit losses improve. We continue to monitor macroeconomic conditions closely including the impact of inflation and elevated gas prices on our customers.
Speaker #1: On page nine, we increased our allowance for credit losses by 4.5 million, during the Q2 to support portfolio growth. Our allowance rate was 10.4%, steady sequentially and up 10 basis points from the prior year period, reflecting updates from macroeconomic assumptions.
Speaker #1: Subject to economic and credit conditions, we expect our allowance rate to hold roughly flat on a sequential basis in the Q3. Flipping to page 10, our annualized operating expense ratio was 12.4% and improvement of 80 basis points year-over-year even as we continue to invest in technology, digital capabilities, and growth.
Speaker #1: Total general and administrative expenses increased 2.5 million year-over-year and the modest sequential uptick in our annualized operating expense ratio from 12.2% in the Q1 was consistent with our expectations.
Speaker #1: For Q3, we expect our operating expense ratio to increase sequentially. Under our state-licensed operations, we're able to defer certain labor and digital marketing expenses, which are recognized over the life of the state-licensed loans that we originate.
Speaker #1: For loans originated under the bank partnership model, we'll instead recognize those labor and digital marketing expenses immediately at origination. While this change in accounting treatment will accelerate the timing of G&A expense recognition, the revenue benefits of the bank partnership program will far outweigh the impact on our operating expenses.
Speaker #1: Turning to pages 11 and 12, interest expense was 23 million in the Q2, or 4.4% of average net finance receivables on an annualized basis with basis points year-over-year.
Speaker #1: We continue to maintain a strong balance sheet with 442 million of unused capacity available liquidity of 128 million diversified and staggered funding sources and a fixed rate debt representing 80% of total debt at a weighted average coupon of 4.8%.
Speaker #1: We expect our funding costs to tick up to 4.5% in the Q3 due to the maturation of lower-cost fixed-rate funding. On page 13, we continue to generate capital and deploy it in a disciplined manner.
Speaker #1: During the Q2, we repurchased approximately 136,000 shares of our common stock at a weighted average price of $36.68 per share. And our board declared a $0.30 per share dividend for the Q3.
Speaker #1: On a year-to-date basis, we've generated approximately 27 million of capital and returned approximately $18 million to shareholders through dividends and share repurchases. Finally, on page 14, let me provide you some additional detail on how we expect the balance of the year to progress.
Speaker #1: As Lockbeer described, we now expect full-year diluted earnings per share growth in the range of 10 to 13% and portfolio growth in the range of 5 to 7%.
Speaker #1: For net income, we anticipate full-year growth of 6% to 9%. Within that outlook, we expect net income in the third and fourth quarters to be meaningfully higher than in Q2, and for Q4 net income to be sequentially higher than Q3 net income.
Speaker #1: The primary driver is the expected growth in receivables as we exit the Q2, which will support higher revenues across the back half of the year.
Speaker #1: Provision for credit losses will increase as we reserve for that growth at levels comparable to the Q2, allowing revenue growth to translate into stronger earnings.
Speaker #1: From a credit standpoint, we expect net credit losses to improve in the third and fourth quarters and we expect the benefits of our strategic initiatives, including our bank partnership, to build as we move through the second half.
Speaker #1: That concludes my remarks. I'll now turn the call back over to Lockbeer.
Speaker #2: you, Harp. Before we open the call for questions, I want to leave you with a few thoughts. The Q2 did not meet our growth expectations.
Speaker #2: And we've adjusted our full-year outlook accordingly. We're choosing to prioritize a stronger operating foundation one that we believe will support more sustainable growth, stronger returns, and greater value creation for shareholders.
Speaker #2: At the same time, we are moving with purpose and agility on the initiatives that will drive our next phase of growth. Advancing our bank partnership, leaning into our omnichannel operating model, accelerating our investments, and technology and analytics, deploying AI across our operations, and expanding into attractive new markets.
Speaker #2: I am confident that the discipline decisions we are making today will position us to increase returns in this business and re-accelerate profitable growth with tangible progress on both fronts becoming increasingly evident over the next 12 months.
Speaker #2: Later this year, we plan to share a longer-term framework that will outline how our bank partnership will be transformative to the returns of our business and will begin to show up in our 2027 results in a material way.
Speaker #2: I want to thank our team across the company for their continued dedication to our clients and their hard work this quarter. We are building from a strong foundation and I'm confident in our strategy our people and our ability to create long-term value for our shareholders.
Speaker #2: With that, operator, please open the line for questions.
Speaker #1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad.
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Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions.
Speaker #1: Our first question is from Vincent Cantick with BTIG. Please proceed with your question.
Speaker #3: Hey, good afternoon. Thanks for taking my questions. First question, and you tell us a lot about the loan growth trends and what kind of drove the miss for the Q2 and kind of the lower guide for the rest of the year.
Speaker #3: But I was wondering if you could maybe separate out some of the different drivers or factors that have been causing this. So, you did talk about that—so if you could maybe separate out how much of this was macro-driven, consumer-driven, and are you still seeing those kinds of trends in July, or have they maybe eased on that?
Speaker #3: How much of it was competitive pressures and what are you seeing there and has that maybe eased or alternatively accelerated? And then I don't think that Column Bank would yet have any impact, but you have several initiatives and so I'm wondering how maybe some of the initiatives maybe causes could cause some hiccups in the near term or as things kind of ramp up and getting systems in place and so forth.
Speaker #3: So, maybe if you could separate all of those and talk about also kind of where it stands today at the end of July. Thank you.
Speaker #4: Hi Vincent. Good afternoon. It's Lockbeer. I'll take it. I think the factors I think one I mentioned our response rates in our direct mail campaigns we do were lower than expectations, creating an impact straight to origination.
Speaker #4: Numbers comes to competitive pressures. If you just look at industry data, the share of originations that are driven by fintechs has been going up in the personal lending business.
Speaker #4: And so we believe some of that is creating the pressure in our business. There is a segment of consumer that wants to originate the asset digitally end to end and not come to the branch.
Speaker #4: And so, we are tracking the response rates—that's number one. Number two, as I mentioned in the last quarter, I've been studying various segments of the business by geography, by channel, and by product.
Speaker #4: By risk segment, we're really looking through year over year and over time where the margins have been compressing, where the returns are not meeting our expectations. And if you look at the appendix, there's a page on the earnings presentation—digital affiliate channel—the business we originate through digital affiliates, the growth rate has slowed down there.
Speaker #4: Partly it's driven by some of the segments we looked at and we wanted to make sure the returns were there. In parallel, as I mentioned, enhanced fraud controls we've implemented pretty strong sort of prevention and detection capabilities in the last four months.
Speaker #4: And so we wanted to make sure we're getting the returns before we unwind some of those tightening actions back up. So that's number two.
Speaker #4: It's driving the portfolio growth reduction. I think the third thing you mentioned the initiatives we are doing or Column, they are not really creating the hiccups.
Speaker #4: There's obviously when you're launching a new loan origination system and/or a bank partnership in the branches, there's some change management we have to go through.
Speaker #4: But that's not really to our knowledge creating the hiccups, if you will. I would say in some way it's really two things. One is the deliberate actions we took to make sure we were making money in each of the cells.
Speaker #4: As we grow them, and then, two were the response rates in our direct mail campaigns. Come July, or—maybe I'll answer that question.
Speaker #5: Yeah. So in terms of July Vincent, we're tracking to the guidance that we have given for both third and fourth quarter. You mentioned in terms of, right, we've lowered our guidance on E&R growth.
Speaker #5: And that is very much as a result of the competitive pressures that we are seeing in new borrower acquisition. However, I want to frame all of this for you in terms of many of the strategic initiatives that Lockbeer spoke about.
Speaker #5: So in terms of digital end-to-end origination, so we are seeing competitive pressure from the fintech, but we are positioning ourselves to be able to compete in that channel.
Speaker #5: Now, in that channel, right, you do tend to have some bad actors, and the fraud tools and the fraud controls that Lockbeer talked about, that we implemented, will not only help us in that channel but also in our mail channel and in our branch origination channel.
Speaker #5: So we're actually quite pleased with the early results that we see there. Now, the good news on that is once you're able to eliminate the bad actors, what you're able to now do is take a look at your policy and you're able to open that up for customers who actually want to be paying customers and take loans.
Speaker #5: So we're actually very, very excited about both the digital end-to-end originations and the fraud tools that will permit us to actually compete with the fintechs, and so that may take us just a little bit of time in order to get all of that right.
Speaker #5: So as a result of that, we've lowered our guidance for the year, but we're working on all of these strategic initiatives and we do believe that they will help us compete and our acquisitions will get back to sort of where we had guided to at the beginning of the year.
Speaker #3: Okay. Great. That's helpful. Thank you. And then kind of following up on all of these initiatives, like Column and some of the other things in terms of generating origination volume, I guess how much of that is contributing to third quarter and fourth quarter E&R guide versus how much more is really coming in 2027 and beyond?
Speaker #3: I'm assuming it takes some time, but I'm just curious how much lift you're getting so far for the rest of the year. Thank you.
Speaker #5: Yeah. So if you look at page 14 of the supplement, the earnings driver slide that we provide for quarterly earnings, we do have strategic initiatives.
Speaker #5: So all of our initiatives are embedded in that line. That list is expected to be, so it's included in our guidance, Vincent, that it's $2.5 million—that those initiatives are contributing to the overall guidance of 6% to 9% year-over-year net income growth that we gave.
Speaker #5: And the 5% to 7% E&R growth, and then the 10% to 13% EPS growth, so it's embedded in those numbers. And then we expect that to be about $5 million in the fourth quarter of '26.
Speaker #5: So, in the growth guidance that we gave you of $60 million per quarter, it is already embedded in that number.
Speaker #3: Okay. Good. And it seems like.
Speaker #5: If you think about 2027 and beyond, Vincent, Lockbeer mentioned in his prepared remarks that we actually were able to accelerate the bank partnership program and branch originations in Texas.
Speaker #5: We're probably going to do one or two more states before the end of the year, and we do expect to fully confer all of our states and branches through 2027.
Speaker #5: So you will see a meaningful lift from that. Right now, we estimate that lift. Between bank partnership and under the state license, we're estimating that lift to be about 200 basis points in pre-tax margin just from the difference on the same loan.
Speaker #5: So, for on like-to-like loans, we're expecting a lift of 200 basis points on the unit economics of each loan.
Speaker #3: Okay. Great. That's super helpful. Thank you.
Speaker #1: Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the queue.
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Speaker #1: Our next question is from Zach Oster. With Citizen Capital Markets, please proceed with your question.
Speaker #6: Hi. Good afternoon. Thanks for taking our questions. I wanted to dig in a little bit more in the macro side of stuff and see if the change in the competitive dynamics were really kind of the driver of a tightening in the different segments that were mentioned or if that was more of just kind of macro trends or if there's any kind of weakness going on for customer health or if it's really just, again, from that competitive side.
Speaker #6: It stands a little bit in contrast to kind of a more benign competitive environment that other lenders have been speaking about this earning season.
Speaker #6: So I wanted to see if we can get a little bit more color in that. Thank you.
Speaker #7: Okay. Good afternoon. It comes to the segments we tightened I won't sort of correlate that to pure kind of macro-driven. I think the competitive environment simply is personal loan originations in the US are growing a big part of them.
Speaker #7: The share of fintechs is growing within that. When you look at sort of various geographic segments, we are playing in or risk segments and I looked at the margins and losses over time.
Speaker #7: In certain cells, when we looked at first payment defaults, etc., our hypothesis was that there is, I would say, some synthetic fraud or first-party abuse or credit builder trade lines, etc., embedded in those segments.
Speaker #7: And hence, our focus right away on enhancing a fraud prevention detection controls, which we did. And so that's all at this point, almost implemented.
Speaker #7: And so I would say less macro-driven the in terms of selections and the impact on the consumer of gas prices and inflation, we did look at bands of customers by debt-to-income ratio or they call it free income, how much free cash flow the consumers have.
Speaker #7: And customers who have low free income or free cash flow, we do see some on the edges impact of elevated gas prices. It's kind of natural but that's not the biggest issue we see in terms of where we tightened, if you will.
Speaker #7: But we are monitoring that, as I said, cautiously, now that gas prices are back up to some elevated $85 or what have you level, in terms of crude oil prices.
Speaker #3: Got it. That's helpful.
Speaker #7: Yeah.
Speaker #3: Sorry. Go ahead.
Speaker #7: No, no. I just kind of hope that answers the question. Yeah.
Speaker #3: Yeah. No, that was very helpful color. Yeah. Just wanted to also kind of follow up on that and see if there's more color specifically on each segment in terms of small loans or large loans.
Speaker #3: It looks like the small loan growth came in kind of below expectations, and large loans were more in line. So, is that kind of a read-through to competitive trends at different APRs?
Speaker #5: So Zach, how I would think about that is, large loan did grow for us year over year. That's driven by auto procure, which has been doing fairly well for us.
Speaker #5: How I would think about what's happening on small loans is really new borrower acquisition, right? So, when you have competition in new borrower acquisition, and particularly in our new borrower acquisition channels, that tends to impact small loans more.
Speaker #5: So that's really what you're seeing there is just the impact on small loans of that environment. Now, a couple of things that I will add is there is volume to be done should you want to do volume.
Speaker #5: We want to do responsible volume. And so we've been very disciplined about making sure that the loans that we're putting on the book continue to meet our return hurdle.
Speaker #5: So that's how I would think about that. It does not mean that we will not do small loans. We will do small loans in particularly when we get some of these initiatives that we talked about fully off the ground.
Speaker #5: So, we will continue to do small loans. It's just that that's where we're seeing new borrower acquisition competition.
Speaker #3: Got it. Understood. Thank you.
Speaker #1: Our next question is from Alexander Villalobos with Jefferies. Please proceed with your question.
Speaker #8: Thanks for taking my question. Here instead of John Heck, but on the funding side, you mentioned that the cost of funding was ticking up just a slight bit.
Speaker #8: Up to 4.5%. But just a little bit curious if you could give us just a quick overview of kind of where the current debt stack is right now and if there's any opportunities in the future to maybe lower the cost of funds or if there's any efficiencies with the Column Bank that you guys could use.
Speaker #8: But yeah, just a little bit on the debt side and the funding side. Thank you.
Speaker #5: Yeah, so hi, Alex Tart. As you know, we have a diversified set of lenders, and we've done a fairly reasonable job of keeping our cost of debt and our cost of funds low through the cycle.
Speaker #5: We are a programmatic issuer of securitizations. So, one of the things that you are seeing is debt that we put on in 2021 that is going to roll off.
Speaker #5: And as that rolls off, we will replace those securitization at current rates. And so that's really what you see in terms of the tick up on the cost of funds.
Speaker #5: It's really that it was coming off of a low, and now that we're replacing some of that debt at market rates, it will tick up until it cycles through.
Speaker #5: In terms of how we think about funding, I mean, we have enough liquidity for what we want to do today. We have unused capacity for things that we would want to do today.
Speaker #5: We've got a solid set of lenders, but that said, we're always looking to diversify and ensure that we have enough runway to grow all of the things that we've just spoken about.
Speaker #5: So that's how we think about that, Alex.
Speaker #8: Cool. Awesome. Thank you.
Speaker #1: Thank you. Our next question is from Bill Desilem with Titan Capital Management. Please proceed with your question.
Speaker #3: Thank you. I'd like to pursue the column relationship and I guess I'm going to expose my ignorance here, but you'd mentioned that the early results look promising.
Speaker #3: Would you dive into that a bit further? And then how do you view this as transformational and ultimately changing the trajectory of the growth of the business as you referenced in the release?
Speaker #3: And maybe finally, you'd referenced that delinquencies will be lower when you're originating under the column relationship. And I guess in my mind, I would think that you would be using the same lending criteria.
Speaker #3: So why would that why would that delinquency rate end up being lower? So apologies for throwing you with the multi-part question, but I can repeat anything you need me to.
Speaker #5: Hey, Bill. It's Harp. I'll start on the early results. So the early results are just in terms of the income that we're seeing. So our early results are, hey, it's working the way that we want it to.
Speaker #5: We're recognizing that income on the other income line, and we pay a platform fee for it. Then, when you compare that to how we would have done this under state-licensed loans, it has a lift.
Speaker #5: And that's the lift that I referenced earlier, in terms of— we're estimating that lift on life-to-life loans to be about 200 basis points over time.
Speaker #5: And so what we're seeing is tracking to that in terms of the early results. So that's what I would say in terms of the early results.
Speaker #5: On the delinquency rate, right now we're seeing a benefit on the delinquency rate, but we're still originating those loans under our current credit. So it's going to be like for life, really, right?
Speaker #5: But we're monitoring it just to make sure that it would continue to be like for like. So we are seeing a little bit of a benefit on the delinquency rate from what we're generating, but again, we would expect those to be like for like under the bank partnership or under the state loans.
Speaker #5: And in terms of the things that Column could unlock for us, I'll turn that over to Lafier, and he'll talk a little bit.
Speaker #4: Thanks, Harp. Yeah, Bill, as Harp said, I think one is we increase revenue opportunity on existing products and clients. So there are, in markets, specific segments of customers where we don't take the risk because we can't price for that risk.
Speaker #4: And so this partnership allows us to price for the risk, and we are able to charge be it origination fees or what have you, depending on the state itself.
Speaker #4: And so that creates a lift in the business. Number two, it helps us increase speed to market. So historically, we basically said, hey, we'll build branches and enter states.
Speaker #4: As we build a digital end-to-end capability with the right credit within the right credit box, we could use a uniform product set using the column charter and enter the markets faster.
Speaker #4: And then, third, I would say, is the column tech stack, and the partnership enables us to get into a broader product ecosystem over time.
Speaker #4: Again, that's not today or this year, but we can work on launching an expansive product set that we couldn't do today ourselves. The question on delinquencies, what I will mention is we are wanting to make sure that as we enter in blank partnership in various markets, that we don't see a credit performance that is worse than how we do it under state license model.
Speaker #4: And so the early read, we're just tracking and making sure it's not impacted negatively. And so to your point, the credit policy that we are using is sort of what we do day-to-day in the business.
Speaker #4: And so delinquency shouldn't be impacted, but we're confirming it. And the other thing we are confirming is, as we mentioned, we're eliminating over time as we launch bank partnership in various markets, the personal property insurance.
Speaker #4: And so we want to make sure that as we are making those changes on the top line, that on the credit line, there aren't any changes.
Speaker #4: So that's why we say it's an early.
Speaker #3: That's very helpful. And then one additional follow-up. So, if you are able to charge higher rates to higher-risk customers that you otherwise would not be lending to, is the implication then that this will accelerate your small loan originations?
Speaker #3: And theoretically, it should increase your feeder pipeline for the large loans as those new borrowers that you would not otherwise be lending to, some of those will demonstrate their creditworthiness?
Speaker #4: You have it exactly right, Bill. That's exactly the goal. As you mentioned, our current feeder to new client acquisition is through our small checks and/or leads coming through digital affiliates that are digitally sourced.
Speaker #4: In some of those cells, to your point, the loss rates are high and we can't price for them. And so with bank partnership, we can price in certain those cells.
Speaker #4: We can get those clients as new customers of Regional, and over time, we can renew them into larger loans. That's exactly one of our opportunities as we go forward.
Speaker #3: Great. Thank you both.
Speaker #5: Thanks, Bill.
Speaker #1: Thank you. This now concludes our question and answer session. I would like to turn the floor back over to Lafier for closing comments.
Speaker #4: Thank you so much. Yeah, I think in closing, I just want to say four things. One, we are choosing to prioritize a stronger operating foundation.
Speaker #4: As I mentioned, when I joined the company, we want to get returns up in the portfolio. It's our number one focus. We want to make sure our risk foundation continues to be really strong.
Speaker #4: Number two, we are moving with purpose and speed and making sure we execute. Have a strong consistent execution culture. And that's, as you've heard, a number of initiatives especially bank partnerships that we are pushing on.
Speaker #4: Number three, bank partnership. As I mentioned, just to your question, we believe it is going to be transformational and accretive to the company as we go forward, and it will help us grow the firm and add significantly.
Speaker #4: And then lastly, I just want to thank our team. We are, as we execute a number of initiatives, the team is working hard and will be working hard and dedicated to our clients and helping us grow this company responsibly.
Speaker #4: So, thank you. With that, I'll turn it back to you, Harp.
