Regional Management Q2 2025 Earnings Report

Regional Management EPS Results

• Actual EPS: $1.03
• Consensus EPS: $0.72
• Beat/Miss: Beat by +$0.31
• One Year Ago EPS: N/A

Regional Management Revenue Results

• Actual Revenue: $157.44 million
• Expected Revenue: $155.22 million
• Beat/Miss: Beat by +$2.23 million
• YoY Revenue Growth: N/A

Regional Management Announcement Details

• Quarter: Q2 2025
• Date: 7/30/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, July 30, 2025
• Conference Call Time: 5:00PM ET

Regional Management (NYSE:RM), a diversified consumer finance company, provides various installment loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other lenders in the United States. It offers small and large installment loans; and retail loans to finance the purchase of furniture, appliances, and other retail products. The company also provides insurance products, including credit life, credit accident and health, credit property, vehicle single interest, and credit involuntary unemployment insurance; collateral protection insurance; and property insurance, as well as reinsurance products. In addition, its loans are sourced through branches, centrally-managed direct mail campaigns, and digital partners, as well as its consumer website. The company was incorporated in 1987 and is headquartered in Greer, South Carolina.

Regional Management Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong Q2 results: Net income of $10.1M and EPS of $1.03 represent a 20% YoY increase, beating guidance by $3M.
• Positive Sentiment: Record originations of $510M drove net receivables up 10.5% YoY, while 30-day delinquency improved to 6.6% and net credit loss rate held at 11.9%.
• Positive Sentiment: Operating expense ratio hit an all-time low 13.2%, with disciplined cost management, branch consolidations, and corporate restructuring generating further savings.
• Positive Sentiment: Opened two branches in Q2 and 17 since last September, with 5–10 more planned, while growing auto-secured loans 37% and high-APR loans 16% as part of a barbell strategy.
• Neutral Sentiment: Guidance for Q3 net income of ~$14.5M and FY25 net income of $42–45M reflects confidence in growth levers tied to consumer health and macroeconomic conditions.

Presentation

[Operator]

Ladies and gentlemen, greetings, and welcome to the Regional Management Second Quarter twenty twenty five 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. 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, Managing Director at ICR]

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, 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, Managing Director at ICR]

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, 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 Corp.

[Robert Beck, President, CEO & Director at Regional Management]

Thanks, Garrett, and welcome to our second quarter twenty twenty five earnings call. I'm joined today by Harp 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 2025. We delivered very strong financial and operating results in the second quarter. We generated net income of $10,100,000 and diluted earnings per share of $1.3 an improvement of 20% year over year.

[Robert Beck, President, CEO & Director at Regional Management]

Our results across all line items met or beat our guidance, including net income that was $3,000,000 or 42% better than the midpoint of our guidance. Our quarterly revenue reached a record level of 157,000,000. Total originations were also at a record high, and our annualized operating expense ratio was an 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 segment remain healthy.

[Robert Beck, President, CEO & Director at Regional Management]

This has allowed us to responsibly grow our portfolio while also improving our credit performance. We grew our net receivables by $70,000,000 sequentially in the second quarter on $510,000,000 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 thirty 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.

[Robert Beck, President, CEO & Director at Regional Management]

The MCL rate improved 50 basis points sequentially and was 80 basis points better than the prior year period. 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 discipline.

[Robert Beck, President, CEO & Director at Regional Management]

In the second quarter, we had capital generation of $16,900,000 bringing total capital generation year to date to $26,800,000 Through the second quarter of this year, we returned an aggregate of $17,600,000 in capital to shareholders via stock repurchases of $11,600,000 and dividends of 6,100,000.0 Our book value per share reached $36.43 at quarter end. In sum, we're very pleased with our second quarter results. 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 twenty twenty two, 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.

[Robert Beck, President, CEO & Director at Regional Management]

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 five to 10 branches over the next six 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 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.

[Robert Beck, President, CEO & Director at Regional Management]

Our auto secured loan portfolio grew by $66,000,000 or 37% year over year from 10% to 13% of the total portfolio and carries a thirty day delinquency rate of 1.9%. Meanwhile, our portfolio of loans with APRs above 36% grew by $50,000,000 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. 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.

[Robert Beck, President, CEO & Director at Regional Management]

In connection with those efforts, we expect to consolidate eight to 10 branches this year into nearby branches. The G and 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 and A expense savings from the action will more than offset the charge within the quarter. Moving forward, we expect annualized G and A expense savings of roughly 2,300,000 from this reposition.

[Robert Beck, President, CEO & Director at Regional Management]

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 eighteen 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.

[Robert Beck, President, CEO & Director at Regional Management]

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, 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.

[Robert Beck, President, CEO & Director at Regional Management]

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 $42,000,000 to $45,000,000 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 Hart, who will provide more detail on our results.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

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 $10,100,000 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 $14,500,000 Turning to pages five and six, we had record total originations of $510,000,000 in the second quarter, up 20% year over year.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

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 twelve months, 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 $2,000,000,000 in the third quarter, while our ending net receivables per branch reached $5,600,000 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 $55,000,000 to $60,000,000 sequentially and that our average net receivables will be up roughly $75,000,000 sequentially.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

Turning to page seven, total revenue grew to a record $157,000,000 in the second quarter, up 10% year over year. Our total revenue yield and interest and fee yield each moved up 50 basis points sequentially to 32.929.4%, 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.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

Moving to page eight, our portfolio continues to perform well. Our thirty plus day delinquency rate as of quarter end was 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 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 include a $2,100,000 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.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

We anticipate that our net credit losses will be approximately $51,000,000 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 nine, we increased our allowance for credit losses in the quarter by $3,700,000 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.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

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. 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 and A expense growth by more than five times. In the third quarter, we expect G and A expenses to be roughly $65,000,000 to $66,000,000 Turning to pages eleven and twelve, our interest expenses for the second quarter was $20,400,000 or 4.2% of average net receivables on an annualized basis, better than our outlook on lower average debt and lower fees.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

Our cost of funds increased year over year as 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, 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 $22,000,000 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%.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

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 dividend and 30,000,000 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. Finally, I'll note that we provide a summary of our third quarter twenty twenty five guidance on page 14 of our earnings supplement.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

That concludes my remarks. I'll now turn the call back over to Rob.

[Robert Beck, President, CEO & Director at Regional Management]

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.

[Robert Beck, President, CEO & Director at Regional Management]

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. We're excited about the opportunities ahead and look forward to updating you on our progress in the quarters to come.

[Robert Beck, President, CEO & Director at Regional Management]

I'll now open up the call for questions. Operator, could you please open the line?

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Session. The first question comes from the line of David Schroff from Citizens Capital Market. Please go ahead.

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

Great. Good afternoon, and and thanks for taking my questions. Terrific results. And, you know, I'm Rob, you you 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 ninety, one hundred and eighty 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?

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

Or should we just think of this as always fine tuning among all the different aspects of growth?

[Robert Beck, President, CEO & Director at Regional Management]

So great, Dave. Great question. For joining. So here's how I would answer that question. And I'll give you the context of what I think we accomplished this quarter in doing so.

[Robert Beck, President, CEO & Director at Regional Management]

First and foremost, what I would say is we have a lot of levers for growth, which is reflecting all the investments we've made in the various initiatives over the last several years, including what has been a pretty challenging time here in the high inflation period. And so it puts us in a unique position where we can pull those levers based on what we see in the health of the customer and the macro conditions or the macro environment. So the drivers of the growth for us have been a combination of state expansion and then the new branches, many of which are in those states. Our auto secured lending, which we've been leading into, digital underwriting, which you can see was very strong this quarter, and also the advanced analytics that we've invested in, which helps us to really fine tune our underwriting and marketing strategies to deliver increased growth if we choose to, or to use those models to moderate losses. So we can optimize using those advanced analytics depending on the market conditions.

[Robert Beck, President, CEO & Director at Regional Management]

So what I would say to you is and this isn't mutually exclusive, but if you look at the $187,000,000 of growth we had in ENR year on year, our lower risk large loans grew $147,000,000 which was 79% of the growth. And that was almost quadruple the increase in our small The auto secured loans increased by $66,000,000 Now obviously we got to a subset of large loans, but that was 35%, our quarterly. And it's now 13% of our portfolio. And as I said, thirty day delinquency rates is 1.9%. So attractive, low risk business.

[Robert Beck, President, CEO & Director at Regional Management]

The 17 new branches that we opened since September contributed $45,000,000 of growth, which is about 25% of the overall growth. And then if you just look at new states, that was $97,000,000 growth or roughly 52% of the growth. And most of that growth was at rates below 36%. So the takeaway is we are achieving this growth without losing our credit standards. Fact, even on a high margin business, greater than 36% only increased marginally from 17% of the portfolio to 18% of the portfolio.

[Robert Beck, President, CEO & Director at Regional Management]

So as we look ahead, we're in a great position to be able to have all these levers to pull. And of course, 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 is like. And I think it's a great place to be. And in terms of where we expect to go for the rest of the year, look, it really depends on what we see as the health of the customer, which at this point we're seeing credit performance, which is 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.

[Robert Beck, President, CEO & Director at Regional Management]

But we're gonna let the credit performance and any macro developments kind of guide where the we growth in the full year.

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

Got it. No, that's helpful. I mean, it's certainly lot of different levers at play. Maybe just one follow-up on your comments on credit. It looks like pretty much every lender that's reported in our coverage, regional, no exception, seem to have probably exited the first quarter maybe in an over reserve position, which was entirely understandable in the wake of the kind of April 2 announcements.

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

Given all of the constructive commentary you provided about the stability of your borrower base, 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%?

[Kyle Joseph, Managing Director at Stephens Inc]

David, it's

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

Mark. I'll answer that. We look at our CECL allowance rate. As you know, it's based upon our portfolio mix and our growth. And we look at product, FICO, and delinquency.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

So we look at credit and delinquency trends in terms of what we see internally. And then we overlay macro on top of that. So what 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 the remaining birth meters which we did. 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.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

So we've got the improvement of macro currently in the numbers that are calculated in the allowance for the quarter. Now as you know every quarter we'll take a look at revised macros, and if there is an opportunity for the reserves to come down lower based upon macro but also our own trends and our product mix. We take a look at that every quarter. But right now in terms of and you're probably looking at our guidance, comfortable in terms of where we're guiding to in third quarter, that 10.3%.

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

Understood. Great. Thank you very much.

[Robert Beck, President, CEO & Director at Regional Management]

Yeah. And I was gonna add a little bit here just on the health of the customer as as we're seeing it. You know, would say the customers are generally doing pretty well, and they're making smart traces. You know, our customers tend to do a pretty good job of, finding ways to mitigate stressful times. Unemployment, as everyone knows, well.

[Robert Beck, President, CEO & Director at Regional Management]

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 7,500,000 open jobs out there. And many of those roles fit our customer profile. I do think immigration may further boost the immigration restrictions will further boost wage growth and job prospects for our clients.

[Robert Beck, President, CEO & Director at Regional Management]

And then if we look at the O BBB OBB bill, however you want to say 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 what, 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.

[Robert Beck, President, CEO & Director at Regional Management]

But they think the view from most market incumbents is any tariffs will be more of a one time shot to inflation rather than one that's a perfect increased inflation continuously. So that's not to say that we're watching the performance of our customers and have the ability to tighten credit where we want. In fact, as I think I've said numerous times, we're always turning the dials tighter here to address where we might see stress. But at this point in time, I think the consumer is holding out pretty nicely.

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

Understood. Thank you.

[Operator]

Thank you. The next question comes from the line of Alexander Villalobos from Jefferies. Please go ahead.

[Alexander Villalobos-Morsink, Senior Associate Equity Research at Jefferies]

Hey, guys. This is Alex here instead of John Hecht. 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?

[Alexander Villalobos-Morsink, Senior Associate Equity Research at Jefferies]

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.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

Alex, it's Mark. When you say yield, are you referencing funds? Interest income?

[Alexander Villalobos-Morsink, Senior Associate Equity Research at Jefferies]

Yields. Income. Yep.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

So revenue yield. In terms of revenue yield, Alex. So I think we've guided in terms of 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.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

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. So we'll continue to monitor that, and if there's opportunities to look at pricing, we will definitely do that.

[Alexander Villalobos-Morsink, Senior Associate Equity Research at Jefferies]

Perfect. And then on the interest expense side, in, you know, 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?

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

So Alex, what we do is we manage positive funds quite effectively. If you look at what we've done over the last several quarters, you can see that we basically cost of funds within a four to 4.3% range. So we've done a very good job through the cycle managing cost of funds. And part of that is because of how much of our book is fixed, 84% of our book is fixed. 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 securitizations that we have put on the books at very, very low rates.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

Those will come due, and they will be set at market rates. So you will see our cost of funds go up, especially in we've guided higher cost of funds in third quarter. We've guided even higher cost of funds at 4.5 in 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, should really look at the securitizations that we have come into, and what the weighted average cost of those securitizations are.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

And then 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 into next year.

[Alexander Villalobos-Morsink, Senior Associate Equity Research at Jefferies]

Perfect, yeah, that was my question going forward. Awesome. Thank you so much and congrats on the good results.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

Great. Thank

[Operator]

you. The next question comes from the line of Kyle Joseph from Stephens Inc. Please go ahead.

[Kyle Joseph, Managing Director at Stephens Inc]

Hey, good afternoon. Let me echo congratulations on a strong quarter. Just want to talk about the originations mix. In the quarter, it looks like small decelerated a little bit, large accelerated. Just wondering, is that a function of demand, a function of competition?

[Kyle Joseph, Managing Director at Stephens Inc]

Or is it really just one quarter is not enough to really call it a trend?

[Robert Beck, President, CEO & Director at Regional Management]

Yeah, I'll take that. And Harp, you can jump in. As I said, our large loans grew nicely year on year. I think a big part of that is driven by the increase in our unsecured business. I think in our digital originations, bigger concentration in the larger loans, better quality, and that's done with invention.

[Robert Beck, President, CEO & Director at Regional Management]

I think even in the new states that we enter, we're renewing small loans into larger loans. That's a generalized theme that we're growing our larger loan book faster than our small loan book. And I'll say this, look, I'm not going to give you a definitive view of 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 because of the levers I just mentioned. The growth in these states, the digital larger loans, the auto secured, all of which helps improve the quality of our portfolio.

[Robert Beck, President, CEO & Director at Regional Management]

And I think are all originated at attractive returns. Punk, did you add anything?

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

No, I think you left that, Mark.

[Kyle Joseph, Managing Director at Stephens Inc]

Yeah, that's helpful. And Jen, just one follow-up on OpEx. Appreciate the guidance for 3Q, but as we think about that going forward, sounds like there's some puts and takes in terms of branch consolidation versus new builds and then some restructuring you did at the corporate level. But how you're thinking about whether it's marketing on its own or expense and how that compares to kind of your expectations for loan growth overall.

[Robert Beck, President, CEO & Director at Regional Management]

Yeah, I mean, if we lean into faster growth in the second half of the year, have gotten to a minimum EMR growth of 10%. Now the second quarter, we grew about 10.5%, which was about $15,000,000 higher than our guidance on ENR. And so pretty healthy beat on growth in the second quarter. So as we look at the second half of the year, there is opportunity potentially to grow faster. Again, we'll have to see what the macro conditions hold and support.

[Robert Beck, President, CEO & Director at Regional Management]

But at the end of the day, there could be opportunity and there could be additional expenditure to go along with that. They actually want to take advantage of that. But look, I think everybody knows, higher growth does impact short term net income due to CECL, as you take the life time losses upfront. And so that's part of the reason, or is the reason for the range of the full year. But faster growth is just going to propel higher earnings for this year.

[Robert Beck, President, CEO & Director at Regional Management]

And so I think that we're sitting in a good position where we see the opportunity to grow and potentially take advantage of it if market conditions warrant.

[Kyle Joseph, Managing Director at Stephens Inc]

Got it. That's it for me. Thanks very much for taking my questions.

[Robert Beck, President, CEO & Director at Regional Management]

No, that's great. Appreciate it.

[Operator]

Thank you. The next question comes from the line of Vincent Caintic from BTIG. Please go ahead.

[Vincent Caintic, MD & Finance Analyst at BTIG]

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 how much conservatism is baked into it. And when I look at your good second quarter results versus your guidance, you handily beat it.

[Vincent Caintic, MD & Finance Analyst at BTIG]

Loan growth was, what, 22% higher than guidance. Revenue yield was 30 basis points higher than your guidance. Expenses were lower, so your net income was 40% above your own second quarter guidance. So I wanted to ask, first, maybe what changed in your performance versus what you were expecting when you gave the guidance? And then when I look at the third quarter, third quarter guidance calls for lower loan growth than what we saw in the second quarter and the revenue yield declining quarter over quarter.

[Vincent Caintic, MD & Finance Analyst at BTIG]

So I just wanted to ask how much conservatism is baked into all of that. Thank you.

[Robert Beck, President, CEO & Director at Regional Management]

Vincent, that's good question. I would tell you that when we were giving guidance for second quarter we were coming off the first quarter where know volume growth wasn't where we had hoped it would be and that's partly because of a strong tax season and some weather. And of course the biggest backdrop was just all the uncertainty about tariffs and the potential for a hard landing. So I think as we started to see things evolve a little bit and saw customer demand be there for the segments where we get a good return, We were able to lean into the growth faster and that's what we should do. But as I noted in the document, we also obviously having a mind towards the future and things were going to slow down, we took actions on expenses and we ran the place to be as efficient as possible.

[Robert Beck, President, CEO & Director at Regional Management]

We took some restructuring actions and some of these things you just can't give guidance on because we're working 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 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.

[Vincent Caintic, MD & Finance Analyst at BTIG]

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 some very helpful detail on all of the slides. One of the slides is that you were talking about your store growth.

[Vincent Caintic, MD & Finance Analyst at BTIG]

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.

[Vincent Caintic, MD & Finance Analyst at BTIG]

So I'm wondering about the opportunities for the rest of the stores. Thank you.

[Robert Beck, President, CEO & Director at Regional Management]

Yeah, again great question. The driver of that is most of those stores are in the newer states, which have less range density. And we're seeing bigger stores on average than what we have in our legacy states.

[Vincent Caintic, MD & Finance Analyst at BTIG]

Okay, that's helpful. That's all I had. Thank you. Great, appreciate it.

[Operator]

Thank you. The next question comes from the line of John Rowan from Janney Montgomery Scott. Please go ahead.

[John Rowan, Director - Specialty Finance at Janney Montgomery Scott]

Hi, good afternoon. Just a quick question. So the you said that there was a restructuring charge in the third quarter, correct? Because you did come in below your G and A guide for the quarter, but whatever the restructuring expense was recognized in the second quarter, correct?

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

Yeah. So there was a restructuring charge in the second quarter, but you will have savings through I'm sorry, in third quarter. You will have, so the restructuring charges will be recognized in third quarter and you'll have savings in the second half of the year.

[Robert Beck, President, CEO & Director at Regional Management]

Yeah, and it's neutral if not positive in the third quarter.

[John Rowan, Director - Specialty Finance at Janney Montgomery Scott]

Okay.

[John Rowan, Director - Specialty Finance at Janney Montgomery Scott]

And just maybe one simple question. So if I look at guidance and you look at the net income guide and maybe you go toward the let's just say you're at the middle of net income guide for the year, that would indicate a slightly down net income third to fourth quarter. It's been a while since we've had clean back half of the year, given all the loan sales you've had in prior years. And obviously, things change as kind of lean into small loan growth. Is that kind of the typical seasonality that we should expect going forward?

[Robert Beck, President, CEO & Director at Regional Management]

Well, I think your question is, do we normally grow faster in the second half of the year? 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.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

The amount that we have to take for the incremental growth.

[John Rowan, Director - Specialty Finance at Janney Montgomery Scott]

Okay. All right. Thank you.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

Great. Thanks, John.

[Operator]

Thank you. The next question comes from the line of Bill Desilem from Tieton Capital Management. Please go ahead.

[Bill Dezellem, Founder, President & Chief Investment Officer at Tieton Capital Management]

Thank you. A 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?

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

So in terms of the digital originations, I think we just had through our affiliates, we had some good loans made through the affiliates. Our branches became more productive in terms of booking those leads, And we were also able to book larger loans through these affiliates, and that's really what you see show up on the business page.

[Bill Dezellem, Founder, President & Chief Investment Officer at Tieton Capital Management]

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?

[Robert Beck, President, CEO & Director at Regional Management]

Yeah, look, the digital partners have been driving really nice growth. We obviously review those partners and credit performance regularly. And so there will always be some modulation in terms of the level of digital originations relative to other opportunities because at the end of the day as you know we are trying to maximize the bottom line returns. So there may be the quarters where we might slow the digital a little bit and grow in other parts of the portfolio faster. Again, we're always looking at where, as I said, Excels is the right thing to do on a risk return basis.

[Bill Dezellem, Founder, President & Chief Investment Officer at Tieton Capital Management]

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?

[Robert Beck, President, CEO & Director at Regional Management]

Well, look, the investment dollars are always a little bit episodic. We have invested a fairly significant amount of money in our technology platform and our advanced analytics, adding additional branches. And so one of the things that could change that dynamic is if we open up a significant number of branches. Now we're guiding to five 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.

[Robert Beck, President, CEO & Director at Regional Management]

And we had record originations, dollars $510,000,000, which was almost 20% this year. That drove the record ENR in the quarter, which was up $70,000,000 or 10.5%, which drove record revenue of $157,000,000 up 10%. And so that top line growth is critical to create scale in this business. And so over time, 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 1C, I mean that is dramatically improving the decisioning time for each and every loan for customer origination.

[Robert Beck, President, CEO & Director at Regional Management]

And that's going to lead to productivity improvements where for the same level of expense we hopefully can generate more volume or more time on collections. And where that's going to play out over the next eighteen 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.

[Bill Dezellem, Founder, President & Chief Investment Officer at Tieton Capital Management]

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 9,800,000.0 shares, dollars 1.45 to 1.5 of earnings, which is meaningfully above what you just reported. So what's the or the primary swing factors that are leading to that meaningful uptick in earnings in Q3 versus Q2?

[Robert Beck, President, CEO & Director at Regional Management]

Well I'll take a crack at it and Harp's going to correct me if I'm wrong, but it's the top line growth from the higher volumes in the second quarter and volumes in the third quarter. It's continued expense discipline and we're expecting further improvements on NCLs and the funds I think are pretty much in the same ballpark, maybe a slight tick up. And that's driving strong bottom line growth. Look, where the volume ends up similar to the full year, we'll see. But like I said, we have lots of leverage for growth.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

Yeah, he got that right. All of those things. A and R is growing, so that is going to help. NPLs usually come down in third quarter, and we've got his 51, so based off of where we are now, you can see that that's contributing. Interest expense is going take up just very, very slightly, but relatively flat compared to other things.

[Harp Rana, EVP, Chief Financial & Administrative Officer at Regional Management]

But those are all things that are going to drop at 14.5 that we got in the team.

[Bill Dezellem, Founder, President & Chief Investment Officer at Tieton Capital Management]

Great. Well, congratulations again on a solid quarter and having things develop as you had forecasted or guided last quarter. Well done.

[Robert Beck, President, CEO & Director at Regional Management]

Thanks, John.

[Operator]

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.

[Robert Beck, President, CEO & Director at Regional Management]

Well, thanks again everyone for joining today. Look, as we said, we're extremely pleased with our quarterly results, which really were strong across all our key metrics. It's clear to me that the capabilities that we developed over the recent years positions us that they can deliver strong growth and long term shareholder value. Look, as I said, I'll reiterate our investments over the recent years in states and branches, our own secured business, our digital capabilities, and our advanced credit models and analytics really support our growth while also keeping credit risk in check. In the 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.

[Robert Beck, President, CEO & Director at Regional Management]

So again, thanks everybody for joining this evening and enjoy the rest of your summer.

[Operator]

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.

Participants

Executives

• Robert Beck, President, CEO & Director
• Harp Rana, EVP, Chief Financial & Administrative Officer

Analysts

• Garrett Edson, Managing Director at ICR
• David Scharf, Analyst at Citizens Capital Markets and Advisory
• Kyle Joseph, Managing Director at Stephens Inc
• Alexander Villalobos-Morsink, Senior Associate Equity Research at Jefferies
• Vincent Caintic, MD & Finance Analyst at BTIG
• John Rowan, Director - Specialty Finance at Janney Montgomery Scott
• Bill Dezellem, Founder, President & Chief Investment Officer at Tieton Capital Management