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spk02: Ladies and gentlemen, greetings and welcome to the Regional Management Second Quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garrett Edson, ICR. Please go ahead.
spk06: 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 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. 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 finalist with the SEC for more detailed discussion and the risks and uncertainties that could impact our future operating results and financial condition. Also, our discussion today may include references to certain non-GAAP measures. Reconciliation of these measures to the most comfortable 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 Corp.
spk04: Thanks, Garrett, and welcome to our second quarter 2024 earnings call. I'm joined today by Harprada, our Chief Financial Officer. On this call, we'll cover our second quarter financial and operating results and share our expectations for the balance of the year. We're very pleased with our quarterly and -to-date results. We delivered $8.4 million of net income in the second quarter for 86 cents of diluted EPS. We grew our portfolio by $29 million sequentially to $1.8 billion in the quarter, up 5 percent from the prior Our total revenue yield increased 80 basis points year over year from a combination of increased pricing, growth of our higher margin small loan portfolio, and improved credit performance. Our larger portfolio and stronger revenue yield combined to drive total revenue to $143 million in the second quarter, up 7 percent from last year. At the same time, we've maintained a tight grip on G&A expense while still investing in our growth and strategic initiatives. Our second quarter year over year revenue growth outpaced our G&A expense growth by 2.9x. Together, these strong line item outcomes drove net income up 40 percent compared to the second quarter of last year. Along with our strong first half results, we continue to carefully manage our portfolio's credit quality and performance. Recent economic data has been somewhat mixed, as inflation appears to be cooling while the labor market is softening somewhat. We're optimistic about the benefits that lower inflation levels will bring to our customers and our credit performance, and we believe that the labor market softening will disproportionately impact higher income workers, as job openings appear to remain plentiful for our customers. However, we plan to maintain our conservative underwriting posture and growth trajectory while awaiting additional positive economic data. We expect ending net receivables to grow by roughly 6 percent in full year 2024, with average net receivables up 4 to 4.5 percent, as our growth will be weighted to the second half of the year. I want to take a minute to discuss how we strategically think about product mix and the data stream implications of a shift in product mix to yield, net credit losses, and other key performance indicators. We have two primary products, small and large installment loans. We believe that our dual offering of small and large loans, including loans with APRs over 36 percent, provides us with a competitive advantage, as most of our competitors operate in either the small loan space or the large loan space, but not both. As a result, we're uniquely positioned to offer credit access to a wider set of customers and to adjust our loan offerings to our customers as their needs evolve and credit profiles improve. We have deep experience lending to small loan customers who typically have weaker than their large loan counterparts. Our small loan APRs average 45.2 percent, and because of the smaller loan size and higher yields, we're able to offer smaller loans to customers who wouldn't otherwise have access to credit. We're comfortable lending to this credit profile because, while the credit risk may be greater, with the increased credit risk comes increased yields and margins. Highly qualified consumers are currently driving strong demand in this segment as fewer consumers are qualifying for sub-36 percent APR loans due to credit tightening within the industry. Continuing to provide access to credit is also essential for our small loan customers. Many of them improve their credit profiles by establishing a responsible payment history with us and, ultimately, qualifying to graduate to our large loan product at a lower APR. For example, last year we refinanced nearly 24,000 of our small loans into large loans, representing 134 million in finance receivables, resulting in a decrease in their average APR from 42 percent to 30 percent. This strategy has resulted in high customer satisfaction and retention as well as improved credit performance over time. As a state licensed lender, there is a natural limit to how large our small loan portfolio may grow, as not every state permits lending at rates above 36 percent. As we expanded geographically in recent years, we've entered many states where interest rate limitations make large loan lending more attractive than small loan lending. In addition, as higher inflation caused economic conditions to become more challenged beginning in late 2021 and credit performance began to deteriorate, we constrained lending to small loan consumers whose credit performance tends to be more volatile than large loan consumers. We also introduced a new auto-secured product as a subset of a broader large loan product. The auto-secured product is reserved for our highest quality consumers, requires auto-collateral, and is the lowest price of our products, allowing us to extend our customers' lifecycle. As a result of these dynamics, our large loan portfolio grew more rapidly than our portfolio of small loans with APRs greater than 36 percent. Despite the growth in our large loans, our small loan portfolio plays a very important role in our business and financial results. It's one of our introductory products for new customers, creating a feeder business for our large loan portfolio. In addition, despite the small loan portfolio's greater credit risk and higher servicing cost, it carries very strong yields and margins, benefiting our bottom line returns and cash flows. Our product offering of small and large loans, including segments of greater than 36 percent APR loans and auto-secured loans, provides us with multiple levers we can pull to maximize growth and returns. Which lever we pull depends on many factors, including the economic environment, competitive dynamics, relative funding and collection costs, our observations of consumer health, state regulatory nuances, and our expectations for how these factors may involve in the future and impact credit performance, yields, and bottom line returns. Ultimately, we seek to grow our products and build our portfolio in a way that will generate strong margins that meet our return hurdles while also appropriately balancing credit risk outcomes and meeting the needs of our customers. More recently, in light of moderating inflation and our expectations of an improving economic environment, we've increased the growth of our high margin small loan portfolio. As a result, more of our portfolio growth this year has come from this product than we anticipated at the outset of the year. We grew the small loan portfolio by 61 million, or 14 percent year over year, representing more than 70 percent of our portfolio growth over the last year. Our portfolio loans with greater than 36 percent APR grew from 14 percent to 17 percent of the total portfolio over that same time period. As large loan competitors have tightened their credit box, we're seeing strong demand in our small loan product from highly qualified applicants who have experienced a resulting drop in access to credit. These are consumers that were able to onboard into our small loan product and ultimately retain with a lower rate large loan as economic conditions improve and as these customers demonstrate consistent payment performance. We now have multiple quarters of data on our more recent high margin small loan expansion, and we feel comfortable continuing to thoughtfully and moderately grow this business given the strong margins and the opportunity to graduate these customers over time to larger lower rate loans. The buffer of the risk associated with the growth in our high margin small loan portfolio, we also continue to deploy a barbell strategy of originating larger amounts of high quality auto secured loans. The auto secured portfolio has increased to 180 million, representing 10.1 percent of the portfolio as of June 30th, up from 7.6 percent at the end of the second quarter of last year. This portfolio is performing very well with 30 plus day delinquency of 2.4 percent at the end of the quarter, and has the lowest credit losses of all our products. Our auto secured loans generate healthy margins and will continue to be a focal point of our growth. As Harp and I will discuss in greater detail, the adjustment to our product mix have implications for our various key performance indicators. A shift in emphasis and product mix to our small loan product, particularly our subset of loans carrying greater than 36 percent APRs, has benefited our portfolio interest in fee yield. In the second quarter of 2024, our average APR at origination for our total portfolio was 36.4 percent, up from 35.4 percent in the prior year period. Along with the improved credit performance, the increased APR has helped to drive our interest in fee yield up 110 basis points in the second quarter compared to the prior year period. Conversely, as expected, the shift to small loans negatively impacts overall portfolio credit performance, requires slightly higher GNA expense to support the greater collection intensity of the portfolio, and marginally increases overall funding costs. On a net basis, however, the benefits to yield exceeds the drag on credit performance, GNA expense, and funding costs, creating a net benefit to margin at our bottom line. Turning to credit performance, as of June 30th, our 30 plus day delinquency rate remains stable at 6.9 percent, 20 basis points better sequentially and flat to the prior year period. Our net credit loss rates improved 40 basis points from the prior year, as the front book continues to perform in line with our expectations and makes up a larger portion of our total portfolio. We estimate that the additional growth in our small loan product broke roughly 10 basis points of incremental delinquency rate and 20 basis points of incremental NCL rate in the second quarter, but as discussed, it's a very good trade when compared to the higher yield the portfolio generates. As we said previously, our NCL rate will continue to fall in the second half of the year as we maintain tighter credit underwriting on new originations and our back book declines to 8 to 10 percent of the portfolio by year end. The slope of improvement will, however, be impacted somewhat by the continued growth in our high margin small loan business, as well as the macroeconomic environment. Our view remains that the aggregate and lingering effects of persistently high inflation since 2020 continue to strain our customer base, as the cost of meeting everyday necessities such as food, energy, and rent remains elevated. Economic conditions, particularly inflation, while improving, have not improved at the pace we or most economists had predicted at the start of the year. Our portfolio roll rates are likewise improving, though they remain elevated due to the slower pace of economic improvement. In light of the lingering effects of inflation, elevated roll rates, and the growth in our higher margin small loan portfolio, we're increasing our full year NCL rate guidance to 11.1 to 11.2 percent. We estimate that roughly 10 basis points of this incremental NCL rate is due to economic conditions, and another 10 basis points is due to the denominator effect of slower growth in our average net receivables, which itself is a consequence of macro conditions. The increase in NCL rate guidance for 2024, we're also increasing our total revenue yield guidance to 32.8 to 32.9, up 60 to 70 basis points year over year to reflect the shift in portfolio mix to higher rate small loan business, offset in part by revenue reversals from higher net credit losses due to the higher revenue yield. Our portfolio roll rates are also increasing on the full portfolio. Despite the continued impacts of inflation on credit performance, we've exceeded our net income and EPS expectations in the first and second quarters. We've done so by adjusting our strategies and pulling on various levers to improve revenue yields and lower expenses, driving strong bottom line results in the face of an economic environment that, while improving, continues to challenge our customers and slow the rate of credit normalization. A particular note is our tight expense management in the first half of the year. These efforts have freed up resources to ramp up second half investment to open 10 new branches, which will drive incremental volume in 2025. We'll also increase our investment in technology and data analytics to drive further productivity in the future. Despite the increase in investment spent in the second half of the year to position us for strong growth in 2025, we're lowering our full year GNA expense guidance by roughly 7 million to 250 million. We'll continue to carefully manage our GNA expense in the future while still investing in our company's future success. We're also introducing net income guidance of 41 to 44 million for full year 2024. As we've discussed in the past over the long term, with the benefits of a stable macroeconomic environment, further scale through portfolio growth, and a well balanced product mix, we're targeting a return on assets of 4% and a return on equity of 20%. While it will take time to reach these targets, we believe these returns are achievable if we are disciplined in our growth, prudently manage our expense base, maintain a strong funding profile and balance sheet, and continue our focus on executing on our core business. As we look ahead through the rest of the year and into 2025, we expect to make progress on this journey back to normalized returns, assuming a steady economic outlook driven by continued revenue yield expansion, incrementally better credit performance, and a continued focus on generating operating leverage from portfolio growth and efficiencies, even in the face of continued headwinds from inflation and higher interest rates. As always, I'd like to thank the regional team for their hard work, dedication, and superior customer service. The team has skillfully managed through a difficult economic environment over the past couple of years, providing valuable financial products and services to our customers while anticipating, preparing for, and reacting to conditions that have been particularly challenging for our consumer base. I continue to be impressed by the team's talent and commitment. I'll now turn the call over to Harp, who will provide more detail on our quarter results and additional line item guidance for 2024.
spk07: Thank you, Rob, and hello, everyone. I'll now take you through our second quarter results in more detail and provide you with an updated outlook for third quarter and full year 2024. On page four of the supplemental presentation, we provide our second quarter financial highlights. As Rob noted, we posted strong net income of 8.4 million and diluted earnings per share of 86 cents, up 37% from the second quarter of last year. We generated these results through another quarter of solid revenue growth and expense discipline. We also continue to maintain a strong balance sheet, as well as a healthy credit profile and robust loan loss reserves. Turning to page five, we observed a high level of loan demand in the quarter, though we maintained our cautious approach to underwriting with an emphasis on higher margin segments. Total originations increased 7% year over year, contributing to a 7% increase in customer accounts. Originations in all marketing channels were up, with digital, direct mail, and branch originations increasing by 17, 7, and 5% respectively. At this time, we remain comfortable prioritizing credit quality and margin over more aggressive loan growth. As a result, we expect to remain highly selective in making loans within our tight credit box, at least in the near term. Page six displays our portfolio growth and product mix through the second quarter. We closed the quarter with Net Finance receivables of 1.8 billion, up 29 million from the prior quarter end as originations picked up towards the end of the quarter as expected. As of the end of the second quarter, our large loan bill comprised 71% of our total portfolio, and 83% of our portfolio carried an APR at or below 36%, down from 86% a year ago. As Rob discussed, we purposely leaned into growth of higher margin small loans in recent quarters, and we expect to continue growing our small loan book in a measured way in future quarters. This portfolio drives higher revenue yields, which offsets moderately higher funding costs and exceed our return hurdles, despite higher expected net credit costs on these particular segments. Looking ahead, we now enter a seasonally strong quarter for originations. By having expanded to eight new states and having increased our addressable market by more than 80% since 2020, we have ample opportunity to take advantage of high levels of consumer demand to drive quality portfolio growth, while remaining selective in approving borrowers under our more conservative underwriting criteria. We expect our ending net receivables to increase by approximately 48 million sequentially as of September 30th, driving average net receivables for the third quarter up by roughly 43 million. As always, we'll continue to monitor the economy and focus on originating loans that maximize our margins and bottom line results. Depending upon market conditions, we can quickly tighten our underwriting or lean back into growth, either of which would impact receivables growth in the quarter. Turning to page seven, total revenue grew to 143 million in the second quarter, up 7% from the prior year period. Our total revenue yield and interest in fee yield were .7% and .3% respectively. Sequentially, total revenue yield was down 10 basis points, better than our initial expectations. Year over year, our total revenue yield was up 80 basis points due to pricing increases, growth in our higher margin small loan portfolio, and improved credit performance. In the third quarter, we expect a roughly 40 basis point sequential increase in total revenue yield. Moving to page eight, our delinquency and net credit losses were roughly in line with our expectations, though as Rob discussed, our credit performance was naturally impacted by the growth in our higher rate portfolio. Our 30 plus day delinquency rate as a quarter end was 6.9%, a 20 basis point improvement sequentially and comparable with where it stood at the end of the second quarter of 2023, despite the growth in our higher margin small loan portfolio. Our net credit losses to 55.5 million were roughly in line with our outlook and our annualized net credit loss rate of .7% was 40 basis points better than last year. We expect that our NCL rate will decline throughout the balance of the year as we move into the fourth quarter. We have some information on the performance of our front book and back book portfolio. The front book ended the quarter at 83% of our total book compared to 78% at the end of the first quarter. The front book carries a .4% delinquency rate compared to .8% on the back book. The back book accounted for 20% of our 30 plus day delinquency despite representing only 14% of the portfolio at quarter end. Our front book and back book reserve rates are 10% and .7% respectively. We continue to be pleased with the way that our front book is performing. Compared to the back book, the front book continues to season at a lower level of loss despite the growth in our higher rate small loan business, which should benefit our 2025 results. Overall, we're seeing the benefit of our prudent underwriting in our credit metrics. In the third quarter, we expect our delinquency rate to rise slightly in line with seasonal patterns. In addition, we anticipate that our net credit losses will be approximately 47.5 million in the third quarter, down from 55.5 million in the second quarter as the back book continues to diminish. Turning to page 10, our second quarter allowance for credit losses reserve rate declined by 20 basis points to 10.5%, consistent with our prior outlook, the improved credit quality of our portfolio, and expectations for improving future macroeconomic conditions. As of quarter end, the allowance was 185 million and assumed a 2024 year end unemployment rate of 4.8%. Looking ahead, as a reminder, higher second half receivables growth will require higher provisioning for loan losses. While loan loss provisioning for growth is a near term drag on earnings, it will lead to stronger performance in 2025. We expect our loan loss reserve rate to remain flat at .5% or improve slightly to .4% at the end of the third quarter, subject to economic conditions and portfolio performance. In addition, we're narrowing our year end 2024 loan loss reserve rate guidance to .2% to 10.3%, reflecting the lingering effects of inflation, increased in our higher margin small loan business, and impacts of Hurricane Barrow, which impacted our Texas business, particularly in the Houston area. Flipping to page 11, we continue to closely manage our spending while still investing in our growth capabilities and strategic initiatives. Our GNA expenses at 60.1 million in the second quarter were better than our outlook due in part to aggressive management of our personnel expense. Our annualized operating expense ratio was .8% in the second quarter. 20 basis points higher than the prior year period due to an insurance settlement received in the second quarter of last year. Meanwhile, our revenue growth outpaced our expense growth by nearly three times. In the third quarter, we expect GNA expenses to be roughly 64.5 million. The sequential increase in GNA expense is attributable to our investments and growth and strategic initiatives, as well as the timing of expenses associated with our incentive plan, which are weighted towards the second half of the year due to seasonality and timing of equity grants. Our growth investments include opening 10 new branches this year to drive portfolio expansion in our newer states where there is a large untapped market opportunity and expenses to drive new loan originations and service a higher number of accounts. We also continue to invest in technology and data initiatives to benefit future performance. Moving forward, we'll continue to meticulously manage expenses while also investing in our core business in a way that improves our operating efficiency over time and ensures our long term success and profitability. Turning to pages 12 and 13, our interest expense for the second quarter was 17.9 million, or 4% of average net receivables on an annualized basis, better than our outlook on lower average debt and lower rates. We've experienced stable interest expenses, a percentage of average net receivables of 4% for the past four quarters, thanks to fixed rate debt issued through our asset back securitization program. In the second quarter, we re-entered the ABS market, completing a $187 million transaction with a three-year revolving period at a weighted average coupon of 6.2%. Our Class A notes received a top rating of AAA from S&P and DVRF, and we had strong investor interest in the deal. Given our significant liquidity and borrowing capacity, we had the flexibility to go to the market when conditions were most advantageous for us. We were very pleased with the results of this latest ABS transaction. As of June 30th, 88% of our debt is fixed rate with a weighted average coupon of .2% and a weighted average revolving duration of 1.2 years. In the third quarter, we expect interest expense to be approximately $19.8 million, or .4% of average net receivables. For the full year, we're lowering our cost of funds rate guidance to approximately 4.3%. As our fixed rate funding matures and we continue to grow using variable rate debt, our interest expense will increase as a percentage of average net receivables. In addition, our balance sheet remains strong, and we continue to maintain ample liquidity to fund our growth. We have $185 million of lifetime loan loss reserves, as well as $345 million of stockholders' equity for nearly $34 in book value per share. As of the end of the second quarter, we had $564 million of unused capacity on our credit facilities and $149 million of available liquidity, consisting of unrestricted cash on hand and immediate availability to draw down on our revolving credit facilities. Our debt has staggered revolving duration, stretching up to 2027, and since 2020, we've maintained a quarter end unused borrowing capacity of between roughly $400 and $700 million, demonstrating our ability to protect ourselves against short-term disruptions in the credit market. We will continue to maintain a strong balance sheet with ample liquidity and borrowing capacity, diversified and staggered funding sources, and a sensible interest rate management strategy. We incurred an effective tax rate of $24.7 in the second quarter, consistent with our expectations. For the third quarter, we expect an effective tax rate of approximately .5% prior to discrete items. We're maintaining our full year effective tax rate guidance of 24 to 25%. We also continue to return capital to our shareholders. Our Board of Directors declared a dividend of $0.30 per common share for the third quarter. The dividend will be paid on September 12, 2024 to shareholders of record as the close of business on August 21, 2024. Finally, I'll note that we provide a summary of our third quarter 2024 guidance and our updated full year 2024 guidance on page 14 of our earnings supplement. That concludes my remark. I'll now turn the call back over to Rob.
spk04: Thanks, Art. We had a very successful first half of 2024, posting strong top and bottom line results. We remain well positioned to operate effectively through the current economic cycle. As we expect credit losses to improve in the second half of the year, we're excited to begin increasing our investment in our strategic initiatives and portfolio growth, including through the opening of new branch locations and continued expansion of our high margin and auto-secure loan portfolios. We look forward to continuing to deliver strong returns to our shareholders while also investing in the business in a way that will enable us to achieve additional sustainable growth, improve credit performance, and greater productivity and operating efficiency over the long term. Thank you again for your time and interest. I'll now open up the call for questions. Operator, could you please open the line?
spk02: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 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 would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handsets before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of Sanjay Sakurani with KBW. Please go ahead.
spk03: Hi, this is actually Stephen Kwok, filling in for Sanjay. Thanks for taking my questions. I guess the first question I have is just if you could drill down on the health of the consumer. I'm curious to see what you're seeing around how the consumers are doing at this point.
spk04: Thanks. Sure, Stephen. Thanks for joining. So, as we said, the labor market is softening a bit. You saw a little tick up in unemployment. The way we look at it, there's still over 8 million open jobs weighted towards lower income roles. There was some recent research I saw from Vanguard where the hiring rate for jobs for wages less than 55,000 is about three times that of jobs that are greater than 55,000 in terms of salary. And so we're optimistic that if the economy does soften, that at least for our customer set, the impact will be pretty muted. The other thing is, particularly the last two months, we've seen a nice jump in real wage growth for our customer segment. I think they are now positive relative to where inflation has been over the last two years. And so that's a real positive trend and it means the customer is healing. But the pace of normalization credit for our customers is also impacted by the fact that on average probably this customer set probably has 5% -single-digit increase in debt over where they were pre-this cycle. So it's going to take a little bit of time for the customers to burn through that and get stable again. But things are moving in the right direction and we feel pretty good about how the second year will shape up as we lean into some more growth.
spk03: Got it. And just as a follow-up, if we think about if the environment would change either for the better or for the worse, what levers are at your disposal to be able to adapt to that type of environment?
spk04: Thanks. Yeah, look, great question. Look, the higher rate business is exactly an opportunity that we're looking at because those consumers, as I said, have ample job opportunities. There's plenty of margin built into the risk-based pricing for those customers. And as you know, we build in stress assumptions in our underwriting. So that's attractive. The auto-secured business on the other side of the spectrum, which is kind of the balancing act for the overall portfolio, demand remains good there. It's growing as an increasing part of our portfolio. The delinquencies are 2.5%. And so we have opportunity to continue to lean into that space. And look, when the economy softens, if it does soften, obviously the demand for credit goes up. As long as we're smart about pricing relative to risk, I think we're going to be in real good shape. And frankly, we've learned a lot through the testing of the small loan portfolio regrowth that we put on in the last six to nine months. And that's going to all be helpful in terms of which levers we pull going forward. And of course, we always manage our expense tightly and cost of funds and balance sheets. So look, we've got a lot of levers to pull. And we're optimistic about the future of the business.
spk03: Thanks for taking my question. No, thanks.
spk02: Thank you. Ladies and Chairman, if you wish to ask a question, please press star and one. Our next question comes from the line of Vincent Kane Tick with BTIG. Please go ahead.
spk05: Good afternoon. Thanks for taking my questions. I have two questions. I'll just ask both of them now. So first question, actually both questions on the guidance. The first question. So you discussed about your 2024 outlook and that there's the credit losses guidance has increased and you detailed why and that was very helpful. Notice though that the full year outlook credit reserves stayed the same. It was still within the old band of the part. And I think it was a point one to 10.3. Now it's 10.2 to 10.3%. And I was just wondering what that higher losses if you could maybe talk about how you're thinking about credit research, especially since it's relatively unchanged. So that's that's question one. And then question two was impressive to see that the guidance for GNA expense is lower than the last 24 outlook, especially because you're talking about higher receivables gross. So you took your guidance up there and then you're talking about having several new stores. So that does speak to maybe a lot of good productivity there. And I was wondering if you talk about that in more detail, how you're able to have both guidance upside for your revenues, revenue components, as well as having a better efficiency on expenses. Thank you. So,
spk07: hi, Vincent. Thank you for that question. So I'll start on the on the reserve. So previously we had guided to 10.1 to 10.3 and we've narrowed that. So we're actually now guiding to 10.2 to 10.3. So a little bit higher than than where we were on the low end of the range. So we brought that low end of the range up. But we feel confident in terms of the 10.2 and the 10.3 that, of course, will be very much dependent upon macro variables. It will also be dependent upon how quickly our back book runs off. So right now, our back book is expected to be 8 to 10% of the portfolio at year end. So those two items could impact where we end for reserves. But right now, 10.2 to 10.3 is our estimate based upon what we're seeing in terms of the small loans. So those are included in that 10.2 to 10.3. But as Rob mentioned in his prepared remarks, we're also seeing higher revenue yield on those. So we've taken up our guidance on revenue yields, which were 40 to 50 previously. But we've now taken them up to 60 to 70. So you're seeing 20 basis points of upside on the revenue yield that goes along with those small loans that have had us tighten where we are on the reserve.
spk04: Yeah. And let me add on to that. You know, it wasn't specifically a question before I get to the efficiency one is, you know, the small loan portfolio has grown $61 million, as we said. You know, year on year. You know, the balancing of that is the growth in the auto secured business that grew by $52 million over that same period of time. But what's really important about this business is, and you'll see this in the release, is the interest in fields on small loans is up 280 basis points versus prior year. If you look at the small loan delinquencies, it's down 10% versus prior year. And that's inclusive of about 30 basis points of impact from the higher rate business. So there's a lot of leverage we're getting on that small loan portfolio. And that's why, you know, we are, you know, modestly leaning back into that business. It's always been a core part of, you know, operations. It's just the time is now to and it's attractive to put on some more of that business and balance it out with the auto secured. Now pivoting to the GNA expense, you know, look, we manage the business tightly. It's important that as we get bigger, we don't grow our head office cost at, you know, the same rate. I mean, that's what scale delivers for you. So we manage our expenses tightly. We are getting efficiency benefits both from the things we've done on a technology standpoint, you know, our ability to, you know, source customers digitally. The higher rate business is pretty efficient from a marketing standpoint from higher, higher response rates. And so it's really across the board, you know, the benefits of just managing the business well operating it tightly. And, you know, being very smart about where you deploy that next dollar expense to make sure you get the maximum amount of revenue in return.
spk05: Okay, great. That's very helpful in both answers. Thank you. Appreciate it.
spk02: Thank you. Our next question comes from the line of Alexander Villa Lobos with Jeffries. Please go ahead.
spk01: Congrats on the results. I know. Thank you for taking my question. Did want to just revisit a little bit originations and long growth. So just just kind of confirming that, you know, we should see kind of more of a originations push in the fourth quarter in order to get to that. The guide that you guys gave for the A&R growth and then as well for revenue, just, you know, usually we kind of feel a little bit of of an increase in the fourth quarter. So just kind of confirming as well. We kind of see that like natural fourth quarter bump versus the third quarter. Thank you.
spk07: So I'm going to talk to your first question around the originations. So we've given our A&R guidance for the year of 6%. So when you take a look at where we guided to for A&R for third quarter, we'd be at 48. So from that, you can basically figure out that fourth quarter is going to be a little bit higher than third quarter guidance. In terms of originations. So Alex, you could probably use that for your model. And I'm sorry, could you repeat the second part of your question again?
spk01: Yeah, no, just just from like a yield perspective. Yeah, basically just confirming it's, you know, the fourth quarter is just going to have to be stronger. But yeah, all the all those numbers, you can kind of back into as well. And and then maybe if there's anything you guys can kind of like point to maybe towards like 2025, just, you know, if expecting just from like, at least A&R growth kind of like similar to prior years, obviously inclusive of rate cuts and everything okay on the macro side.
spk04: Yeah, so look, obviously, we're we're not in a position to give any guidance for 2025. What I'll tell you this is, you know, we do have a range on the net income guidance for full year this year. That is largely due to the fact that there naturally is some ability to ramp up growth growth or pull it back. And, you know, that impacts the Cecil reserves at the end of the year. And so I think as we go through the next couple months here and we see how inflation performs, we see what the Fed does, there's a lot of factors. You know, we have the ability to lean into more growth or maybe we taper it back. But, you know, at this point in time, you know, we feel pretty good about the 6% A&R growth. But there's always some movement around that depending on whether you seek, you know, opportunity to grab more volume. And, you know, we, we generally do a pretty good job at the end of the year thinking about the impact of 2025 and, you know, what binds we can put on to help 2025. And, you know, in that regard, that's why we're opening up, you know, 10 new branches. Now, they won't be open until the fourth quarter of the year, fourth quarter of this year, the very end of the year. But, you know, in the in the new states that we'll be putting those branches in, when I say the new states, it's kind of the age, age states we put on in the last couple of years. You know, the 30 branches we have in those states have averaged about six and a half million receivables. Now that's after, you know, two years of maturity. But, you know, we're going to put on 10 new branches this year. And I think we feel that, you know, if things are improved from a macro standpoint and credit is where we think it should be, then there's opportunities to start expanding more aggressively, you know, as we go forward into 2025 in terms of new stores.
spk01: Perfect. Thank you and congrats on the results.
spk07: Great. Thanks, Alex. Thanks, Alex.
spk02: Thank you. Ladies and gentlemen, as there are no further questions, I now hand the conference over to Rob Beck, President and CEO for his closing comments.
spk04: Great. Thank you, operator. And thanks, everyone, for joining today. Look, if, you know, we're very happy with our second quarter results, you know, net income up 40% over last year and our year today progress is, you know, is also very satisfying, you know, with net income up 61% over the similar period last year. You know, as we said, we're well positioned for growth, you know, as the front book continues to perform as expected and credit is expected to continue to improve in the second half. We are going to increase our investment as we talked about, you know, the 10 new branches and, you know, probably just to add to that comment is, you know, we're going to go after the addressable market in those new states. And if you recall, you know, it was about an 80% expansion in our addressable market. And, you know, we're feeling increasingly comfortable opening up more branches and really leaning into that expanded market and grabbing more shares. So we're excited about that in the future. And as I said, we've got a competitive advantage right now with our high rate small business where we can utilize risk based pricing to meet the increasing needs of customers who are losing access to credit or experiencing reduced access to credit. While at the same time balancing that out with the opportunity in our auto secured business. So we really are happy about both of those levers and the small loan business, of course, is an attractive feeder for our large core loan business as customers, you know, pay on us and perform. And as we said, we see, you know, faster receivable growth in the second half and the degree to which, you know, we grow will depend on the economic environment, particularly where inflation goes and how customer credit profiles normalize. But overall, we feel pretty good about where we are in the business. We've got lots of levers to pull and, you know, we're in a good position being able to really manage the entire life cycle of the customer from greater than 36% business to get them into a core loan to get them into auto secured business, auto secured loan later in the life cycle. So we feel we're very well positioned. So thanks again and have a good evening.
spk02: Thank you. The conference of regional management has now concluded. Thank you for your participation. You may now disconnect your lines.
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