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Text: These statements are not guarantees of future performance, and therefore, you should not place undue reliance upon them.
Also, our discussion today may include references to certain non-GAAP measures.
I'm joined today by Harp Rana, our chief financial officer.
Our business continued to fire on all cylinders in the second quarter.
We posted an impressive $20.2 million of net income or $1.87 of diluted EPS, with strong returns of 7.1% ROA and 28.7% ROE.
We experienced a return to double-digit year-over-year growth in our ending net receivables and quarterly revenue, which were up 15.7% and 10.9%, respectively.
Record high sequential portfolio growth of $78 million in the quarter drove our ending and average net receivables to all-time highs, which in turn generated record quarterly revenue.
We continue to capture market share as our growth once again outpaced the broader near-prime market.
At the same time, our quarter end 30-plus day delinquency rate fell to a historical low of 3.6%, and our net credit loss rate during the quarter dropped to 7.4%, a 320 basis-point improvement from the prior-year period.
These results validate the efficacy of our long-term strategy and the strength of our team's execution.
Our recent strategic investments in growth, including digital initiatives, geographic expansion, and product and channel development continue to bear considerable fruit.
Our core portfolio grew $80 million or 7% sequentially in the second quarter, with more than half of the growth occurring in June.
We originated a record $373 million of loans, of which $87 million was derived from our new growth initiatives.
The second-quarter volume was more than double last year's pandemic impacted quarter and up 7%, compared to the second quarter of 2019.
We continued to roll out our improved digital prequalification experience last quarter, and it's already driving increased digital booking rates.
We had record digitally sourced originations of $35 million in the second quarter, more than double first quarter levels and up dramatically from last year.
New digital volumes represented 28.5% of our total new borrower volume.
The average FICO on our digital volumes originated last quarter with 613, with 65% originated as large loans.
We will complete the deployment of the new prequalification experience to all of our states this quarter, and we will continue to integrate the new functionality with our existing and new digital affiliates and lead generators in the months ahead.
In addition, we have begun testing our new guaranteed loan offer product, which is an alternative to our convenience check loan product and offers online fulfillment with ACH funding into a customer's bank account.
Later this year, we will begin testing our end-to-end digital origination product for new and existing customers, and we remain on pace to roll out an improved online customer portal and a mobile app in the early part of 2022.
Our new larger auto secured loan product has also begun to gain traction as we've now rolled out the product to all of our states as of yesterday.
In addition, in late July, we expanded our retail point-of-sale lending relationship with a large Ashley Homestore franchisee.
With this expansion, we are tripling the number of locations we serve for this franchisee to 73 stores across five states, allowing us to better fulfill their need for near-prime and sub-prime installment financing options, all while fully underwriting borrowers via automation and maintaining industry-best service levels.
We believe there is a substantial opportunity and a renewed focus on our retail loan product, including cross-sell opportunities to our other loan products.
Beyond our digital product and channel investments, we continue to make important strides in expanding and optimizing our geographic footprint.
During the quarter, we entered Illinois and in just three months, our first branch has surpassed $1.5 million in receivables, which is impressive when you consider that our historical average time to reach $1.5 million in receivables in a new branch is 22 months.
The next two branches exceeded $500,000 in receivables after an average of only four and a half weeks.
These results demonstrate the tremendous opportunities that await us as we rapidly expand to new states and grab market share.
As a reminder, we plan to open roughly 20 new branches in 2021 across our network.
We also expect to enter one to two additional states by the end of the year and an additional four to six new states in 2022.
With the best first half in our company's history behind us, we entered the third quarter with considerable momentum.
We began the second half with nearly $1.2 billion of net finance receivables.
Loan demand has remained strong throughout July, even as child tax credit payments began to hit bank accounts.
We expect that demand for our loan products will increase in the coming months as the economy continues to recover, driving strong portfolio and top-line growth for the balance of the year and in 2022.
We are well-positioned to continue to gain market share as our strategic investments yield strong returns.
During this time of robust growth in our business, we remain focused on protecting our balance sheet and maintaining the credit quality of our loan portfolio.
In July, we further strengthened our liquidity position by closing on another securitization transaction.
This latest ABS deal is our first with a five-year term and has a weighted average coupon of 2.3%.
As of the end of July, we had over $813 million of unused capacity and available liquidity of over $229 million.
Of our $887 million in outstanding debt at the end of July, $759 million carries a fixed interest rate with a weighted average coupons ranging from 2.1% to 3.2%.
We also maintained $350 million of interest rate caps with strike rates of 25 to 50 basis points, covering $127 million in variable rate debt.
In sum, we're well-positioned to fund our future growth, and we're well protected should interest rates rise.
We also continue to maintain a superior credit profile, though we had expected a modest uptick in second-quarter delinquencies, we ended the quarter with another historically low 30-plus day delinquency rate.
This, in turn, contributed to a further improvement in our net credit loss rate and enabled us to reduce our allowance for credit losses by $200,000 in the quarter despite record portfolio growth.
As a result, our allowance for credit losses reserve rate at the end of the quarter was 11.8%, down from 12.6% last quarter.
Our $139 million allowance for credit losses as of June 30 continues to compare quite favorably to our 30-plus day contractual delinquency of $43 million and includes an $18 million reserve for additional credit losses associated with COVID-19.
As of June 30, approximately 80% of our total portfolio had been originated since April 2020, the vast majority of which was subject to enhanced credit standards that we deployed following the onset of the pandemic.
Looking ahead, credit performance should remain strong throughout 2021 and into 2022.
In light of our current historically low delinquencies, we now expect our full-year 2021 NCL rate to be roughly 7%.
We anticipate that our delinquency rate will gradually normalize over the next 12 months and that our NCL rate in 2022 will be between 8% and 8.5%, absent any significant changes to the macroeconomic environment.
As we progress throughout the year, we expect that our allowance for credit losses will increase as the portfolio continues to grow, though we anticipate that the reserve rate will normalize to pre-pandemic levels of around 10.8% by the end of the year.
In light of the unique circumstances presented by the pandemic and credit loss provisioning under the new CECL accounting standard, we have elected for this year only to provide a full-year 2021 net income outlook.
Having earned $46 million in the first half of the year, we expect to generate full-year 2021 net income of between 75 and $80 million, assuming no material change to current economic conditions.
This outlook reflects an expectation that we will build our allowance for credit losses in the second half of the year due to robust receivable growth, even as our reserve rate normalizes to pre-pandemic levels of roughly 10.8%.
We also expect to increase our SG&A expenses in the second half as we continue to invest in our growth initiatives, including increased marketing expenses as we continue to expand our digital lending.
Based on our confidence in the earnings power and value of our business, our board has approved a $20 million increase in the amount authorized under our current stock repurchase program from $30 million to $50 million.
As we move forward, we remain firmly on the strategic course we've charted.
We'll continue to invest in our omnichannel growth initiatives, digital innovation, geographic expansion, and new products and channels.
We will continue to grow our portfolio and market share by providing a best-in-class experience to our customers and will maintain a sharp focus on credit quality and a healthy balance sheet, which will allow us to fund our growth and return excess capital to our shareholders.
We remain fully committed to our customers and our path forward.
And we continue to be in a prime position to create sustainable long-term value for our shareholders.
I couldn't be prouder of the team and the results they've produced.
Let me take you through our second-quarter results in more detail.
We generated net income of $20.2 million and diluted earnings per share of $1.87 resulting from our growth initiatives, stable operating expenses, lower funding costs, and strong credit.
To highlight the underlying momentum of our business, consider that last quarter, we generated $25.5 million in net income, inclusive of a $10.4 million decrease in our allowance for credit losses.
This quarter, we generated $20.2 million of net income, inclusive of only a $200,000 decrease in our allowance.
The business produced strong returns, with 7.1% ROA and 28.7% ROE this quarter and 8.2% ROA and 32.7% ROE through midyear.
While our returns were aided by a benign credit environment, our ability to drive revenue to our bottom line and generate strong returns continues to pick up spin.
As illustrated on Page 4, branch originations were well above the prior year, due in part to the pandemic as we ended the second quarter, originating $263 million of loans in our branches.
Meanwhile, we more than tripled direct mail and digital originations year over year to $110 million.
Our total originations were a record $373 million, more than doubling the prior-year period and 7% higher than the second quarter of 2019.
Notably, our new growth initiatives drove $87 million of second quarter originations.
Page 5 displays our portfolio growth and mix trends through June 30.
We closed the quarter with net finance receivables of $1.2 billion, up $78 million from the prior quarter and $161 million from the prior-year period as we continue to successfully execute on our new growth initiatives and marketing efforts.
Our core loan portfolio grew $80 million or 7% from the prior quarter and $172 million or 17% from the prior year as we continue to expand our market share.
Large loans grew 10% versus the first quarter of 2021, while small loans increased 3% quarter over quarter.
For the third quarter, we expect demand to remain solid with some potential headwinds from the child tax credit payment.
Overall, we expect to see healthy quarter-over-quarter growth in our finance receivables portfolio in the third quarter.
On Page 6, we show digital resourced originations, which were 28.5% of our new for all volume in second quarter, another high watermark for us, and a further testament to our ability to meet the needs of our customers and serve them through our omnichannel strategy.
During the second quarter, large loans were 65% of our digitally sourced originations.
Turning to Page 7.
Total revenue grew 11% to $99.7 million.
Interest and fee yield increased 110 basis points year over year, primarily due to improved credit performance across the portfolio as a result of government stimulus, tightened underwriting during the pandemic, and our overall mix shift toward higher credit quality customers, resulting in fewer loans and non-accrual status and fewer interest accrual reversals.
Sequentially, interest and fee yield and total revenue yield increased 50 and 70 basis points, respectively, due to credit performance and seasonality.
As of June 30, 67% of our portfolio were large loans and 82% of our portfolio had an APR at or below 36%.
In the third quarter, we expect total revenue yield to be approximately 60 basis points lower than the second quarter, and our interest in fee yield to be approximately 30 basis points lower due to our continued mix shift toward larger loans.
Moving to Page 8.
Our net credit loss rate was 7.4% for the quarter, a 320 basis-point improvement year over year, while delinquencies remained at historically low levels.
Net credit losses were also down 30 basis points from the first quarter due to the impact of government stimulus, improving economic conditions, and our lower delinquency levels.
We expect that our full-year net credit loss rate will be approximately 7%.
Flipping to Page 9.
Our 30-plus day delinquency level as of June 30 was 3.6%, 120 basis-point improvement from the prior year, and notably, 70 basis points lower than March 31.
Moving forward, we expect 30-plus day delinquencies to rise gradually off of the June loan toward more normalized levels over the next 12 months.
Turning to Page 10.
We ended the first quarter with an allowance for credit losses of $139.6 million or 12.6% of net finance receivables.
During the second quarter of 2021, the allowance decreased by $200,000 to 11.8% of net-net receivables.
This decrease included a base reserve build of $6.1 million to support our strong portfolio growth and a COVID-19 reserve release of $6.3 million due to improving economic conditions.
As a reminder, as our portfolio grows, we will continue to build additional reserves to support this new growth.
With the improving economy, we've reduced the severity and the duration of our macro assumptions, including an assumption that the unemployment rate will be under 8% at the end of 2021.
We will continue to review these assumptions every quarter to reflect changing macro conditions as the economy continues to revamp.
Our $139.4 million allowance for credit losses as of June 30 continues to compare very favorably to our 30-plus day contractual delinquency of $42.8 million.
We are confident that we remain appropriately reserved.
Flipping to Page 11.
G&A expenses for the second quarter of 2021 were $46.4 million, up $4.9 million or 11.7% from the prior-year period, driven in part by normalized marketing from pandemic impacted second quarter 2020 levels, as well as increased investment in our new growth initiatives and omnichannel strategy.
On a sequential basis, our G&A expense rose $0.5 million, driven by our marketing activities.
Overall, we expect G&A expenses for the third quarter to be approximately $52 million as we continue to invest in our digital capabilities, our geographic expansion into new states, and new products and channels to drive additional sustainable growth and improved operating leverage over the longer term.
Turning to Page 12.
Interest expense was $7.8 million in the second quarter of 2021 and 2.8% of our average net finance receivables.
This was a 60 basis-point improvement year over year and $1.3 million lower than in the prior-year period.
The improved cost of funds was driven by the lower interest rate environment and improved funding costs from our recent securitization transaction.
We currently have $450 million of interest rate caps to protect us against rising rates on our variable price debt, which as of the end of the second quarter totaled $293.8 million.
We have purchased a total of $350 million of interest rate caps over the past year at a one-month LIBOR strike price range of 25 to 50 basis points, including a $50 million interest rate cap in the second quarter at a strike price of 25 basis points.
In the last six months, these caps have appreciated in value by $775,000.
As rates fluctuate, the value of these interest rate caps will be mark-to-market value accordingly.
Looking ahead, we expect interest rate expense in the third quarter to be approximately $10 million.
Page 13 is a reminder of our strong funding profile.
Our second quarter funded debt-to-equity ratio remained at a conservative 3.1-1.
We continue to maintain a very strong balance sheet with low leverage and $139 million in loan loss reserves.
As of June 30, we had $647 million of unused capacity on our credit facilities and $202 million of available liquidity, consisting of unrestricted cash and immediate availability to draw down our credit facilities.
As a reminder, during the quarter, we enhanced our warehouse facility capacity to $300 million, closing on three new warehouse facilities with our current lenders, Wells Fargo and Credit Suisse, and adding JP Morgan to our roster of lenders.
In July, we also closed our six securitization, our first five-year transaction of approximately $200 million at a weighted average coupon of 2.30%.
The new securitization will be used to further reduce our cost of capital and fund our growing business.
Our effective tax rate during the second quarter was 19%, compared to 36% in the prior-year period, better-than-expected from tax benefits on share-based compensation.
For the second half of 2021, we expect an effective tax rate of approximately 25%.
The company's board of directors has declared a dividend of $0.25 per common share for the third quarter of 2021.
The dividend will be paid on September 15, 2021, to shareholders of record as of the close of business on August 25, 2021.
In addition, during the second quarter, we repurchased 344,429 shares of our common stock at a weighted average price of $46.45 per share under our $30 million stock repurchase program announced in May 2021.
We also repurchased an additional 68,437 shares at a weighted average price of $50.49 per share in July, bringing total repurchases under the program to 412,866 shares at a weighted average price of $47.12 per share through July.
As Rob mentioned earlier, we are pleased to announce that our board has approved a $20 million increase in the amount authorized under our current buyback program from $30 million to $50 million.
We continue to be extremely pleased with our outstanding performance, our robust balance sheet, and our prospects for growth.
In summary, we are performing extremely well thus far in 2021.
Our omnichannel operating model, new growth initiatives, and superior credit profile led to another excellent quarter and a record-breaking first six months of the year, and we don't plan to let up.
We will continue to execute on our key strategic initiatives, positioning us to sustainably grow our business for years to come.
We have many exciting things on the horizon for Regional as we remain well-positioned to expand our market share and create additional value for our shareholders.
Operator, could you please open the line?

user
compname reports q2 earnings per share $1.87.
q2 earnings per share $1.87.
q2 revenue $99.7 million versus refinitiv ibes estimate of $95.3 million.
for full year 2021, company expects net income to be between $75 million and $80 million.

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