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Harpreet Rana

Thank you, Rob and hello, everyone. I'll now take you through our first quarter results in more detail and provide you with an outlook for the second quarter of 2025. On page 4 of the supplemental presentation, we provide our first quarter financial highlights. As Rob noted, we posted net income of $7 million and diluted earnings per share of $0.70, directly in line with our guidance but lower than the first quarter of 2024 due to the benefit in the prior year period of the fourth quarter 2023 special loan sale. Our results continue to be supported by our solid portfolio and revenue growth, healthy credit profile, expense discipline, and a strong balance sheet.
Turning to page 5. We only modestly liquidated our portfolio in the quarter, despite the first quarter typically being the seasonally softest quarter for originations. This is thanks to our efforts to grow in newly opened branches and lean back into growth across our network, with new originations continuing to focus on our higher margin and auto secured segments. From a risk standpoint, we continue to originate roughly 60% of our loans to applicants in our [top two risk ranks].
Total originations reached record levels for the first quarter and were up 20% year-over-year, with branch direct mail and digital originations up 17%, 18%, and 46% respectively from the prior year period. As we mentioned last quarter, barring any meaningful macroeconomic headwinds, we expect our pace of growth to increase for the rest of the year due to our confidence in our credit performance and our ability to generate growth in new markets without opening up the credit box.
Page 6 displays our portfolio growth and product mix through the first quarter. We closed the quarter with net finance receivables of $1.9 billion, up $146 million year over year. Our auto secured portfolio at the end of the quarter represents 12% of our total portfolio, up from 9% at the end of the first quarter of 2024. Our small loan portfolio increased to 11% year over year, and at the end of the quarter, approximately 18% of our portfolio carried an APR greater than 36%, up from 16% a year ago.
As Rob has consistently noted, we like the results we're seeing from our barbell strategy of growth in our high quality, auto secured portfolio and higher margin, small loan portfolio. While the growth in our higher margin small loan book has an impact on our total portfolio credit performance, the impact is mitigated by the growth in our auto-secured book, which remains the best performing segment in our portfolio.
At the end of the quarter, auto secured had a 30 plus day delinquency rate of 1.7% and the lowest credit losses of all of our products. Though our higher margin portfolio is down sequentially due to pay downs from the strong tax season, we'll continue to pursue our barbell strategy in a measured way moving forward.
Looking ahead to the second quarter, we anticipate our ending net receivables to be up roughly $55 million to $60 million sequentially compared to a $29 million sequential increase in the second quarter of 2024 due to normal seasonal growth across our network following tax season and from growth in our newly opened branches. We expect our average net receivables to be up roughly $15 million sequentially as our second quarter growth is seasonally weighted towards the back half of the quarter.
As the year progresses, we will take further advantage of seasonally higher consumer demand to drive quality portfolio growth. However, we'll remain selective in approving borrowers while continuing to monitor the economy, and as always, we'll focus on originating loans that maximize our margins and bottom line results.
Turning page 7. Total revenue grew to $153 million in the first quarter, up 6% from the prior year period, or 7.4% when adjusted for loan sale revenue benefits in the first quarter of last year. Our total revenue yield and interest and fee yield were 32.4% and 28.9% respectively, each up slightly from the prior year period after adjusting for loan sale benefits from the prior year period.
Total revenue yield was down 100 basis points sequentially due to seasonally higher revenue reversals from net credit losses, lower revenue acceleration from seasonally lower refinancing activities. And the 20 basis point benefit in the prior quarter from the release of personal property insurance reserves related to hurricane activity. In the second quarter, we expect total revenue yield to rise by roughly 20 basis points sequentially consistent with seasonal patterns.
Moving to page 8, our portfolio continues to perform well. Our 30 plus day delinquency rate to the quarter end with 7.1%. 60 basis points better sequentially and flat year over year, despite an estimated 10 basis point negative impact from growth in our higher margin portfolio and another 10 basis point negative impact related to 2024 hurricane activity.
Our net credit losses of $58.4 million were better than our outlook by $1.6 million. When excluding the loan sale benefit of 270 basis points in the prior year period, our annualized net credit loss rate of 12.4% in the first quarter of this year was 90 basis points better year over year, despite a 30 basis point negative impact from our higher margin portfolio. As we've discussed in the past, the higher yields on this portfolio more than make up for the credit drag, resulting in overall improved margins.
In the second quarter, we expect our delinquency rate to gradually improve due in part to the seasonal benefit of payments generated by tax refunds in April. We anticipate that our net credit losses will be approximately $57 million in the second quarter or a net credit loss rate of approximately 12%.
Second quarter net credit losses will include $1.6 million of losses associated with the 2024 hurricane event, impacting our net credit loss rate by 40 basis points in the quarter. We're fully reserved for these hurricane losses as of the end of the first quarter. Excluding the hurricane impact, we expect our second quarter net credit loss rate to be 80 basis points better sequentially and 110 basis points better than the second quarter of last year.
Turning to page 9. Our first quarter allowance for credit loss reserve rate remained steady at 10.5%. We decreased our reserve slightly in the quarter to $199.1 million, primarily due to our small portfolio liquidation. We're comfortable with our reserve levels despite the recent economic uncertainty. We've consistently reflected a higher stress downside scenario in our model, and the weighted average unemployment rate embedded in our model for the end of 2025 is 5.2%.
Looking to the second quarter, subject to economic conditions and portfolio performance, we expect our reserve rate to decline to 10.3% at the end of the quarter due to the release of the remaining special hurricane reserves against the associated net credit losses.
Flipping to page 10, we continue to closely manage our spending while investing in our growth capabilities and strategic initiatives. Our G&A expenses of $66 million in the first quarter were $5.6 million higher than the prior year period. The increase was primarily driven by $1.7 million of incentive expenses shifting from the second quarter to the first quarter and by investment and growth, which included $1.9 million of expenses associated with 17 new branches opened within the past year and roughly $600,000 of incremental marketing expenses in legacy markets.
First quarter G&A expense was higher than our guidance due to the incentive expense timing. Our annualized operating expense ratio was 14% in the first quarter, 30 basis points higher than the prior year period, but 10 basis points better year over year after adjusting for the incentive expense timing, despite our new branch openings and increased marketing spent. The 17 new branches had $3.6 million of revenue in the quarter against $1.9 million of G&A expense, further demonstrating the power of our branch-based model.
In the second quarter, we expect G&A expenses to be roughly $65.5 million. We continue to invest in growth in our strategic initiatives, and we're experiencing increased expenses from servicing a larger number of accounts. Moving forward, we'll continue to carefully manage expenses while also investing in our core business in ways that improve our operating efficiency over time and ensure our long-term success and profitability.
Turning to the pages 11 and 12. our interest expense for the first quarter was $19.8 million or 4.2% of average net receivables on an annualized basis, better than our outlook on lower average debt and lower fees. At the end of the quarter, we closed a $265 million asset-backed securitization transaction at a weighted average coupon of 5.3%, comparable to our prior ABS deal and a 90 basis poin improvement from our second quarter 2024 deal. This transaction once again demonstrates the strength of our ABS platform.
As of March 31, 90% of our debt was fixed rate with a weighted average coupon of 4.4% and a weighted average revolving duration of 1.4 years. In the second quarter, we expect interest expense to be approximately $21 million or 4.4% of average net receivables. As a reminder, as our lower fixed rate funding matures and we continue to grow using variable rate [debt], our interest expense will increase as a percentage of average net receivable.
In addition, our balance sheet remains strong, and we continue to maintain ample liquidity to fund our growth. We had $641 million of total unused capacity and $129 million of available liquidity as of quarter end. We also had nearly $200 million of lifetime loan loss reserves, as well as $358 million of stockholders' equity, or approximately $35.48 in book value per share. We will continue to maintain a strong balance sheet with ample liquidity and borrowing capacity, diversified in staggered funding sources, and a sensible interest rate management strategy.
On the income tax line, we incurred an effective tax rate of 23.5% in the first quarter, and for the second quarter of 2025, we expect an effective tax rate of approximately 24.5% prior to discrete items. On the bottom line, we expect that our second quarter net income will be roughly $7 million to $7.3 million reflecting the impact of our increased portfolio growth on the provision for credit loss line.
As we discussed on our last earnings call, subject to the economic backdrop, we expect to meaningfully increase net income in 2025, with the timing of 2025 net income being back and weighted as we benefit in the second half of the year on the revenue line from a larger portfolio size and on the credit and revenue line from seasonally lower net credit losses.
Aside from investing in our growth and strategic initiatives, we continue to allocate excess capital to our dividends and $30 million share repurchase programs. Our Board of Directors declared a dividend of $0.30 per common share for the second quarter. The dividend will be paid on June 11, 2025 to shareholders of record as of the close of business on May 21, 2025.
Pursuant to our buyback program, we repurchased approximately 187,000 shares of our common stock in the first quarter at a weighted average price of $34.56 per share. Finally, I'll note that we provide a summary of our second quarter 2025 guidance on page 14 of our earnings supplement.
That concludes my remarks. I'll now turn the call back over to Rob.

Robert Beck

Thanks, Harp. As always, I'd like to recognize the Regional team for their excellent work and dedication in serving our customers and generating capital for our shareholders. We're off to a strong start in 2025, having posted solid bottom line results in the first quarter while also holding the line on portfolio liquidation.
Looking ahead, we're excited to enter a period of seasonally higher loan demand and more normalized portfolio growth, but we will, of course, carefully monitor economic conditions and adjust our strategies where appropriate. As always, we'll manage the business prudently and in a way that appropriately balances portfolio growth and credit risk, as well as short and long term capital generation and returns for our shareholders.
Thank you again for your time and interest. I'll now open up the call for questions. Operator, could you please open the line?

Question and Answer Session

Operator

(Operator Instructions)
Kyle Joseph, Stephens Inc.

Kyle Joseph

Hey, good afternoon guys. Thanks for taking my questions. Just want to get a sense for kind of the longer term outlook on NIM. Appreciate the guide you gave for the second quarter, but talk about some of the kind of puts and takes to both the cost of funds and the [yield size] for us if you don't mind.

Harpreet Rana

So on the cost of funds, it's Harp. So on the cost of funds, we've said that as our fixed rate funding, which is currently at 90% at the end of the quarter, but as our fixed rate funding from prior years matures, that you will see cost of funds go up. Our pricing in terms of where we are, you'll see seasonal fluctuations of that, but we did make some pricing changes and you're seeing that most of those are fully in the portfolio.
What I would take into account though is, we talked a lot about our higher margin, higher rate business. So I would take that into account and then you have to balance that with our barbell strategy where we do auto secured loans which have lower yields, but of course have lower net credit losses as well.

Robert Beck

Yeah, and Kyle, I'll just add as you think through the rest of the year beyond the second quarter, very much, where yields go will depend on any adjustments we want to make to the underwriting side, depending on how macro conditions unfold. So, a little hard to predict, at this point in time where you may tighten or not. So I think that's kind of the best direction we can give you at this point.

Kyle Joseph

Got it and that's a good segue to my next question. I mean just asking. I mean you guys obviously have a broad-based portfolio to see if you -- any signs of consumer behavior changes really since the end of end of February or mid-late February, whether it's on the demand side, and or on the payment credit side, recognizing there's a lot of moving parts in the first quarter as well with tax refunds and everything and so it might be hard to to parcel out.

Robert Beck

Yeah, it really is hard, but I will tell you that, our front book and credit results are tracking, as expected. All the months on book's performing well, also seeing our roll rates performing as expected. I think the tax season was relatively strong, and we saw higher payment rates, particularly on the paydown of the higher rate small loans which is pretty typical.
We're watching the consumer closely. We're looking at all economic metrics we look at, and obviously the best indication is how our consumers are performing on us. We are -- we take as a positive that there's still, 7.5 million open jobs, and that's going to be disproportional to the lower income cohorts. There's still real wage growth for our customers. I think the inflation picture is, where there's uncertainty, and, I think part of that depends on where things land on tariffs in the next couple of months.
Clearly our customers are -- they're not as impacted by discretionary spend. So having, oil prices down is good. I think we'll have to see where, food prices go and the like. But on balance, the customers are -- seem to be holding up well and as I said, the prepared remarks, I mean, if we do enter a downturn, And I'm not saying this is -- because you don't know what the severity of that downturn could be, but having tightened our credit box for over two years, is certainly different than entering a typical cycle where you're tightening in reaction to macro events. So that should lessen the severity of what may or may not happen.
So we're just watching everything closely and, what we can pivot quickly, and tighten the risk. So, we're prepared to do so if needed.

Kyle Joseph

Got it. I appreciate the call. Thanks for taking my questions.

Operator

(Operator Instructions)
David Scharf, Citizens Capital.

David Scharf

Hi, good afternoon. Thanks for taking my questions, Rob and Harp. Hey, I had a couple of specific, things I wanted to ask about, but before that, just a very, very general question, and if it's a -- it could be just a yes or no response. But setting aside the policy trade uncertainty that's ensued over the last month, if we just sort of put that to the sidelines for now, Rob, is there anything new on this call versus three months ago that you're aiming to communicate to investors, or is it pretty much all the same kind of fundamentals and drivers and cadences that you provided on your year end call?

Robert Beck

Well, I think there's three things, and you're going to take away my closing comments by this, David. So thank you. May -- keep me from having to do those. But, I think first and foremost, credit came in better than our guidance by $1.6 million in the quarter. And, as you heard me just say, we're seeing consistent improvement in loss performance across all our months on books and our roll rates. So, that's encouraging. And as we look ahead to the second quarter, sequentially, we're looking to be down to 80 basis points on the NCL rate. Now that's, excluding 40 basis points from the impact of Hurricane Helene, which as Harp said, was fully reserved.
So I think, on the credit front, to this point in time, we're seeing things continue to improve. I think the second thing that I would highlight is, we opened up 15 branches since September. Now, that's the largest block of branches we've opened in the last two years when -- because of the high inflation in period warranted us, kind of pausing any meaningful branch expansion. And these branches are performing, ahead of our expectations, with a tighter risk box than the rest of the network. And we're seeing positive pre-provision, net income at month three.
So, look, we're going to continue to evaluate the performance of these branches in the second quarter. We don't have any branches, assumed in the 10% ENR growth that we have given as a minimum for a full year. And we'll gauge the performance of these branches for another quarter. We'll look at what's happening on the macro front in the tariff side, and then evaluate, our future growth plans. But, just, getting back into growing these branches, is really showing the power there.
And then lastly, we put in a new slide on the business' ability to, generate capital. It's a proven model, and, if you look back to the beginning of 2020, I think we generated $339 million of capital for shareholders. We've returned a substantial amount to shareholders. And if you look at the average capital generation over the average shareholder equity over that period of time, it's at 21%.
So, I think that we are positioned well regardless of what happens going forward, and we have all the opportunities to grow and achieve greater bottom line results in the coming quarters and years, notwithstanding anything from a macro standpoint that might cause us to alter that strategy to some degree.

David Scharf

Great. I appreciate all the, all that color and you actually foreshadowed. Kind of one of my specific questions just wanted to get clarification on the capital generation, kind of calculation that you provided on on slide 13. And in particular, as I read it looks like the capital [gen] in the first quarter was $9.9 million. And if I annualize that, it's notably below kind of pretty much all the prior years except one. Is there something seasonally about Q1 that depresses capital generation usually or was it just more investment in branches if you can just provide a little color around that figure.

Harpreet Rana

Yeah, so it was actually. It's Harp. It was actually a number of things. So our net income is lowest in first quarter. And as we've said in the prepared remarks, right, we expect that to increase as the year goes on as you have lower NCLs and you have higher revenue from the loans that will generate throughout the year. So it's a component of that. You will see that the allowance is currently at a 10.5% reserve rate. The allowance will increase as we put on more balances, but I guided to in the second quarter the reserves will go to 10.3% after the release of the hurricane reserves.

David Scharf

Got it. Helpful. And then, and maybe last question. Regarding just sort of the credit box in the ultimately what things might look like, when there's deemed to be less uncertainty.
And a prior earnings call competitor, I'll just say it one main, you know they sort of defined credit tightening as applying an additional 30% kind of stress on their loan for each of the loans they've underwritten over the last three years. Meaning they, I guess just in order to approve a loan it it had to meet their return requirements with an additional 30% of stress on top of that. And I'm wondering if you're able to help kind of provide some context for us. And similar to that, just what tightening means, over these last couple of years?

Robert Beck

Yeah, so we do the same thing in our underwriting where we put a stress factor to make sure that we're delivering attractive bottom line returns. And so we apply a similar -- not the similar number of stress, I'm not going to disclose that because we very much change the stress factor depending on the part of our portfolio. Auto secured business might have a different stress factor than a small loan business, small loan businessless than 36%, or a small loan business that has greater than 36% APR, and vis a vis a large loan customer. There's also different risk ranks.
So trying to apply one number across the portfolio is just not how we look at things. We manage business at a very detailed level, individual risk ranks, cohorts, by state, by product type, by distribution channel, whether it's a live check or digital or a branch renewal. So, applying one number across the portfolio is just not appropriate. We apply stress factors depending on the underlying risk of the portfolio.

David Scharf

Got it. Great, thanks very much.

Robert Beck

Excellent thank you.

Operator

John Rowan, Janney.

John Rowan

Good afternoon. So I'm going to apologize if you covered this already. I did miss the prepared comments of the call, but so I caught the guidance for 2025 is unchanged for meaningful EPS or net income growth. It was one of those, correct?

Robert Beck

Yeah, that's what we said.

John Rowan

Okay, and also the greater than 10% portfolio growth, correct?

Robert Beck

Yeah, we set a minimum of 10%. We reaffirmed that.

John Rowan

I'm just kind of I'm having a hard time getting to meaningful EPS or net income growth. I mean, first half of the year, and I guess maybe just guide me on to what the right number is to use for Q1 '24, whether or not it was -- whether or not you're using a number that's impacted from the from the loan sales, but EPS just is down 41% year on year.
Going into the back half of the year, you're going to have a lot of loan growth to meet that 10% number because you're kind of a decent bit below that through the first, frankly the first half of the year given the Q2 guide. There's a lot of drag from provisioning tied to growth, so I guess maybe help me triangulate how you get to that meaningful EPS growth and given the results that are contemplated in two guide along with 1Q results and whether or not there's reserve releases or something that softens the impact from the provision tied to growth in the back half of the year

Harpreet Rana

We talked a little bit about, where our allowance for credit losses would be in the second quarter. John, I'm not going to give you where it's going to be at the end of the year, but we're at 10.5% in first quarter of '25, and that's going to 10.3%. In the second quarter as we release losses associated with hurricanes, so that's where that's going to go in the second quarter.
We guided to net income of somewhere between $7 million to $7.3 million for the second quarter. ENR growth is $55 million to $60 million. Revenue yields will increase. The other thing to keep in mind is that your balances grow through the last three quarters of the year, right. You'll get revenue off of that, of course. Your yield is increasing 20 basis points, quarter over quarter next quarter.
And then the other thing is your. NCLs actually will come down. So we've guided to $57 million or 12% in the second quarter, but we know that NCLs will come down in the latter part of the year. And so those are sort of the dynamics of how we get an increase in net income in the second half of the year.

Robert Beck

Yeah, and the delta for the first quarter of last year was entirely due to the loan sale and the prior year period impacted by, I guess, the fourth quarter loan sale in the quarter before that.

John Rowan

I get it, but obviously there's still a decline year over year in the second quarter given the guidance. I guess maybe just to be clear, I just want to make sure so you're got into growth over $41 million of net income reported in 2024 and you're not making an adjustment to the first quarter number for the loan sale, correct?

Harpreet Rana

So the first quarter number, when you look at that year over year, the reason why it is lower in 1Q '25 versus 1Q '24 is basically because of the acceleration of the NCLs from first quarter of '24 into '23. So that is the difference primarily that is driving the year over year variance when you compare '25 to '24.
When you look out at the guidance for 2025 versus =- for second quarter of 2025 versus second quarter of 2025, that is a function of the reserves. So it's really a function of where the year over year impact of the reserves from second quarter of '24 versus second quarter of '25.

Robert Beck

Yeah, and John, we're not -- our base is $41 million. That's what we're guiding off of.

John Rowan

Okay, that's why, that's what I need --

Robert Beck

Now let's -- I mean, we all know that there's, macro uncertainty out there, but that's what we're guiding off of.

John Rowan

Okay. All right, thank you.

Robert Beck

Appreciate it, John.

Operator

Alexander Villalobos, Jeffries.

Alexander Villalobos

Hey guys, thank you for taking my question. A lot of the questions, that I had have been answered but did have, if it's any possibility of giving a little bit more guidance on the expense side. i know you guys grew expenses in '24 about 2%. Should we be thinking about around that number or something maybe a little bit higher?
And my second question is maybe a little bit more detail on the consumer. Obviously the consumer is still spending but if there's anything kind of in your data that can tell you how much of it is pulled forward or just the consumer actually within their regular cadence? Thank you.

Harpreet Rana

So I'll take the question on the expenses first. So we're not giving full year guidance on the expenses. I did give second quarter guidance in terms of that being around $65.5 million. You will see expenses increase as our loans increase and the variable expenses associated with that increase as well, but as always, we're quite prudent around our expense control, and we'll continue to do that. And help me with the second part of your question.

Alexander Villalobos

Yeah, no, just in general like from the other companies from everything from the credit card companies to some of the other lenders, there's the question of the consumer spending how much of it could be just pull forward based on the tariffs or if it's just the consumer truly just within their regular cadence? Thank you.

Robert Beck

Yeah, I don't -- we're not seeing, in the first quarter, and of course there's tax season there, we're not seeing any kind of increased demand that we would look to say. It's accelerated spending for our customer base, that's not something that our customers tend to have the excess, look, excess spending power to do, unlike maybe a prime-based customer. So, I think their behaviors are holding pretty steady. They're meeting their obligations, and that's reflected in our credit. So, that would be my reaction on that.
And the other thing I experience is I'll tell you this, that look, like we do every year, we assess how we're going along in the year and then we have the ability to pivot and put on more, investment and growth for the following year. For example, we added these, 15 branches in the very end of last year going into the first quarter.
And so, we're always looking for opportunities, to invest more, to take advantage of good, proper growth. And those 15 branches that we opened, actually, I go back to the 17 branches we opened since the beginning of the year, I think we [just] in the first quarter, $3.6 million if I got it right Harp, of revenue on about $1.6 million of expenses, so.

Harpreet Rana

$3.6 million and $1.9 million.

Robert Beck

I'm sorry, $3.6 million and $1.9 million. So you know we're getting a good return on those new branches and so we always reserve the opportunity to lean into growth as we see opportunities, and we'll communicate that accordingly. I think at this point in time, given, kind of just where things may settle out in the coming months on the tariff side, I think we're just -- we're going to evaluate, where things, unfold.
But we're keeping a very tight, lid on expenses that aren't associated with growing the business, be that variable cost in support of the portfolio growth or additional marketing or, additional branches. In fact, of the $5.6 million growth in expenses in the first quarter, I mean, we had a timing issue on incentives for $1.7 million, but the bulk of the rest was the increase from new branches and additional marketing and legacy markets.
So we're not spending additional money in areas other than in pursuit of improved growth and bottom line returns.

Alexander Villalobos

Awesome. Thank you for the color.

Robert Beck

Okay.

Operator

Thank you. We have reached the end of the question and answer session. I'd like to turn the floor back to Robert Beck for closing remarks.

Robert Beck

Thank you, operator. And thanks everyone for joining. As I said in response to David's question, look, we're happy with the credit performance. I'm not going to go through and reiterate, what I said. It's been great to open up, a cohort of branches and see the performance and rebuild that muscle memory. It's being done at a tighter wrist box. And so even if we tighten the credit box, we have opportunity to continue to grow. So that's exciting for the business.
And, look, we continue to manage, our balance sheet well, our cost of funds well, we're generating capital. And, I think like everybody, we're just watching things unfold on the tariff side and other implications, and we can quickly pivot. And titan if that's what we need to do. So, appreciate everybody joining this evening and if you got any other follow-up questions, obviously, we're always available. Thank you.

Operator

Thank you, and this concludes today's conference, and you may disconned your lines to at this time. Thank you for your participation.