RM - NYSE

Greetings and welcome to the Regional Management Fourth Quarter 2024 Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Garrett Edson with ICR. Please go ahead, Garrett.

Thank you and good afternoon. By now everyone should have access to our earnings announcement and supplemental presentation which were released prior to this call and may be found on our website at regionalmanagement.com. Before we begin our formal remarks, I will direct you to page two of our supplemental presentation which contains important disclosures concerning forward-looking statements and the use of non-GAAP financial measures. Part of our discussion today may include forward-looking statements which are based on management's 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. These statements are not guarantees of future performance and therefore you should not place undue reliance upon them. We refer all of you to our press release, presentation, and recent filings with the SEC for a more detailed discussion of our forward-looking statements and the risks and uncertainties that could impact our future operating results and financial condition. Also, our discussion today may include references to certain non-GAAP measures. Reconciliation of these measures to the most comparable GAAP measures can be found within our earnings announcement or earnings presentation and posted on our website at regionalmanagement.com. I would now like to introduce Rob Beck, President and CEO of Regional Management Corp.

Thanks, Garrett, and welcome to our fourth quarter 2024 earnings call. I'm joined today by Harp Rana, our Chief Financial and Administrative Officer. On this call, we'll cover our fourth quarter financial and operating results, provide an update on our portfolio credit performance and growth, and share our expectations for 2025. We're very pleased with how our team and company performed in the fourth quarter. We generated strong bottom-line results of $9.9 million of net income and $0.98 of diluted earnings per share. These results were better than our guidance and a sharp improvement from the prior year period net loss of $7.6 million. As a reminder, in the fourth quarter of 2023, we incurred restructuring expenses and closed a special delinquent loan sale that had the effect of pulling forward net credit losses and revenue reversals from the first quarter of 2024 to the fourth quarter of 2023. We didn't experience similar events in the fourth quarter of 2024, so there will be noise in some of our year-over-year comparisons, which we'll highlight for you. Loan demand remained strong in the fourth quarter. We began to ramp up our portfolio growth and increased our investment spend in the quarter, including by opening four new branches. We'll also open another eight new branches in the first quarter to drive future growth. We grew our portfolio by $73 million sequentially in the fourth quarter to nearly $1.9 billion, an all-time high for our company. The portfolio generated record quarterly revenue of $155 million, up 9.3% from the fourth quarter of 2023, or 7.8% when adjusted for the impact of the prior year's loan sale. Our fourth quarter total revenue yield was 33.4%, up 110 basis points from the prior year period, or 80 basis points after adjusting for the 2023 loan sale. Our total revenue yield in the fourth quarter was the highest it's been in two years. As we've discussed in prior quarters, we've improved our yield from increased pricing, a mixed shift to higher margin loans, and improving credit performance. At the same time, we held G&A expenses in check as we grow while continuing to invest in our strategic initiatives, and we're leveraging our improved scale to increase our returns. Our fourth quarter G&A expenses were roughly flat to the fourth quarter of 2023, and our operating expense ratio was 14%, an 80-basis points improvement from the prior year period, or 30 basis points better when adjusting for the fourth quarter 2023 restructuring. We also continue to carefully manage our portfolio credit quality and performance in the fourth quarter. Credit performance continues to improve thanks to tighter underwriting in our front book, which represented 89% of our portfolio at year end. The loans in our front book are performing in line with our expectations and are delivering at lower loss levels than our stressed back book vintages. We ended the fourth quarter with a 30-plus-day delinquency rate of 7.7%, up 80 basis points from the end of 2023, but 10 basis points better year-over-year when adjusting for the fourth quarter 2023 loan sale. Our fourth quarter net credit loss rate was 10.8%, which was 430 basis points better than our prior year period, or 110 basis points better after adjusting for the prior year's loan sale. Our growth in our higher margin portfolio increased both our delinquency and net credit loss rates by 20 basis points in the fourth quarter. Also, as a reminder, our slower pace of portfolio growth in 2024 negatively impacted our delinquency rate and NCL rate as the denominator of both ratios has grown more slowly than in prior years. On a growth-adjusted basis, we are very pleased with the improvement in our delinquency and NCL rates. By managing credit tightly and growing our high-quality auto-secured books, we experienced better credit performance despite having leaned into growth in our higher margin, greater than 36% APR loan portfolio, which grew from 16% of our portfolio to 19% of our portfolio year over year. As we've discussed in the past, our net credit loss rates peaked in 2023, and we've experienced gradual improvement since then. We expect continued improvement in portfolio quality and credit loss performance in 2025, assuming inflation continues to moderate and economic conditions remain stable, including low unemployment and continued real wage growth. The fourth quarter capped a strong 2024 in which we improved our results from the prior year on nearly all lines. We grew our loan portfolio by $120 million in 2024, and that in turn drove our revenue higher. Our 2024 revenue was up 7% compared to 2023, and our total revenue yields improved by 70 basis points year-over-year from increased pricing, portfolio mix-shift, and improved credit performance. Our net credit loss rate improved by 120 basis points in 2024, and our operating expense ratio improved by 40 basis points year-over-year. Importantly, our net income more than doubled from 2023, and our return on assets improved to 2.3% in 2024 from just under 1% in 2023. While economic conditions prevented our bottom-line results and returns from fully normalizing in 2024, we're pleased with how we navigated the inflationary environment over the past couple years. We're also encouraged by the signs of strength that we're observing in the subprime consumer and the economy, and that strength is reflected in our improving credit performance. Over the long-term, we expect that our returns will continue to normalize with the benefits of a stable macroeconomic environment, further scale through disciplined portfolio growth, a well-balanced product mix, and prudent expense management. During our past couple of earnings calls, I spoke with you about our portfolio mix, our higher margin loan business, our auto secured book, and how we think about constructing our portfolio as we grow. This quarter, as we enter a period with a more constructive economic environment and an expectation of stronger portfolio growth, I want to spend a few minutes discussing the impact of growth on our bottom line and how we think strategically about the balance between portfolio growth and net income in the short and long-term. Portfolio growth, of course, impacts all lines of our income statement. It's the fuel that generates our revenue growth. It increases our provision for loan losses and net credit losses, no matter the quality of new loans added. It requires us to increase our G&A investment, and it creates the denominator effect on both our operating expense ratio and net credit loss rate. It drives up our interest expense, including our average interest rate, as we use more costly funding to grow the portfolio. Some of these growth impacts are beneficial to our income statement and performance metrics, while others are detrimental, and the severity of the impact varies across lines and time periods. As we develop our short and long-term plans, we balance these dynamics to optimize short and long-term returns to our investors. Looking back to the five years prior to 2020, we grew our portfolio at an average of more than 15% per year and over 19% in 2019 prior to the pandemic. After holding our portfolio flat in 2020 due to COVID, we grew our portfolio at an average of roughly 22% per year in 2021 and 2022, while at the same time benefiting from a highly constructive credit environment supported by government stimulus. However, over the past two years, we substantially slowed our portfolio growth to 4% in 2023 and 7% in 2024 due to inflationary economic conditions and the corresponding impacts on credit performance. Now, for the first time since we adopted the CECL Reserve Model in 2020, we've entered a year where we expect to accelerate our growth in a more normalized credit environment. As you know, under the CECL Model, we're required to reserve for expected lifetime losses at the origination of each loan, while the revenue benefits are recognized over the life of the loan. For example, in the fourth quarter, we grew our portfolio by $73 million sequentially, requiring a $7.7 million provision for credit losses, and it created an after-tax drag of $6 million on our fourth quarter net income. Our return to faster growth in 2025 will likewise create an immediate drag on 2025 net income due to the associated expenses of provisioning for lifetime credit losses at origination, but it will create benefits over the long-term as loan growth drives increased revenue and bottom-line returns. As we determine our growth rate, we not only consider the health of the consumer, the strength of the economy, and the credit performance of our portfolio. We also balance our need to continue to deliver short-term results for our investors, while also generating the portfolio growth that will fuel our success and normalization returns over the long-term. The faster we grow in 2025, the more provision we must incur, and the larger the drag on our 2025 net income, but that portfolio growth will be beneficial to the bottom-line and our returns in 2026 and beyond. As a result of these dynamics, we internally measure success by our growth in both net income and in pre-provisioned net income, which we define as net income excluding the tax affected impact of the provision for credit losses, but including the impact of recognized net credit losses. Assuming no change in our expectations for the economy, we're committed both to a minimum of 10% portfolio growth and a meaningful improvement to our net income results in 2025. We're increasing our pace of growth due to our confidence in our credit performance, improving consumer health, and strengthening macroeconomic conditions, including lower inflation, real wage growth, low unemployment, and a large number of open jobs, particularly for our customer set. While we feel we're capable of growing our bottom line by 30% or more in 2025, we believe that doing so would require slower portfolio growth that doesn't appropriately balance near-term results with our long-term aspirations. While we've clearly established our internal targets for 2025 portfolio growth and net income based on our short and long-term strategic priorities, where we ultimately land on portfolio growth and net income in 2025 will depend on our continued assessment of the health of the customer, the economy, and credit performance over short and long terms. For now, beyond our expectation of minimum portfolio growth at 10% in 2025, we won't be sharing full year 2025 guidance, but we wanted to provide you with this overview of how we think strategically about growth and how we will manage the business this year and beyond. As always, I'd like to thank the retail team for its hard work and dedication. The team skillfully managed through a difficult economic environment in 2023 and 2024, providing valuable financial products and service to our customers while anticipating, preparing for, and reacting to conditions that have been particularly challenging for our consumer base. The team's talent, commitment, and superior execution have positioned us well to return to faster growth in 2025, something we're very much looking forward to. I'll now turn the call over to Harp, who will provide more detail on our fourth quarter results and guidance for the first quarter.

Thank you, Rob, and hello, everyone. I'll now take you through our fourth quarter results in more detail and provide you with an outlook for the first quarter of 2025. On page 5 of the supplemental presentation, we provide our fourth quarter financial highlights. As Rob noted, we posted net income of $9.9 million and diluted earnings per share of $0.98, once again exceeding our expectations and our fourth quarter 2023 results. These results were supported by our solid portfolio and revenue growth, healthy credit profile, expense discipline, and a strong balance sheet. Turning to Page 6, we continue to grow our portfolio during the quarter, with origination focused on our higher margin 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 and were up 17% year-over-year. Branch, digital, and direct mail originations were up 15%, 35%, and 15% respectively from the prior year period. As we move through 2025, we'll be accelerating our pace of growth due to our confidence in our credit performance, improving consumer health, and a stronger macro environment. Page 7 displays our portfolio growth and product mix through the fourth quarter. We closed the quarter with record net finance receivables of $1.9 billion, up $73 million sequentially. Our auto secured portfolio grew 34% in 2024 and now represents 10.9% of our total portfolio, up from 8.7% at the end of 2023. Our small loan portfolio increased 12% year-over-year, and at the end of the quarter, approximately 19% of our portfolio carried an APR greater than 36%, up from 16% a year ago, reflecting a 26% balance increase in 2024. As Rob has consistently noted, we've purposefully leaned into growth of higher margin small loans in recent quarters, and we expect to continue growing our small loan book in a measured way in future quarters. This portfolio drives higher revenue yields, which offset moderately higher funding costs, and the returns exceed our hurdles despite higher expected net credit losses on the segment. As previously indicated, we continue to mitigate the impact of this segment on our overall credit performance by growing our auto-secured book, which remains the best performing segment in our portfolio. At the end of the year, the auto-secured portfolio had a 30-plus-day delinquency rate at 2.6% and the lowest credit losses of all of our products. Looking ahead to the first quarter, while we expect to originate higher loan volumes than in the prior year, the first quarter is always our softest originations quarter because of the seasonal impact of tax refunds. We anticipate our ending net receivables to be roughly flat to down $5 million sequentially in the first quarter, compared to a $27 million sequential runoff in the first quarter of 2024, with the exact level of ending receivables dependent on the strength of the 2025 tax season. This is an improvement from our normal first quarter liquidation levels, thanks to growth in newly opened branches and our efforts to lean back into growth across our network. We expect our average net receivables to be up roughly $35 million sequentially. In the balance of the year, we will take further advantage of high levels of consumer demand to drive quality portfolio growth, particularly in our auto- secured and higher margin portfolios, a continuation of our barbell strategy. 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 to payday, total revenues grew to a record $155 million in the fourth quarter, up 9% from the prior year period. Our total revenue yield and interest and fee yield were 33.4% and 29.8% respectively, up 110 basis points and 100 basis points year-over-year respectively. The increase in yields is due to a mix of pricing changes, growth in our higher margin small loan business, improved credit performance, the impact of the special loan sale in the prior year period, and the release of credit insurance reserves in the fourth quarter. In the first quarter, we expect total revenue yield to decline by roughly 90 basis points sequentially, consistent with seasonal patterns. Moving to Page 9, our portfolio continues to perform well. Our 30-plus-day delinquency rate as of quarter end was 7.7%, up 80 basis points year-over-year, but 10 basis points better than the prior year period when adjusting for the special loan sale in the fourth quarter of 2023. Our net credit losses of 50.2 million were better than our outlook, and our annualized net credit loss rate of 10.8%, with 430 basis points better than last year, in large part due to the loan sale in the fourth quarter of 2023. Adjusting for the loan sale, our net credit loss rate was 110 basis points better year-over-year, as the credit performance of our portfolio has improved materially. We also estimate that the growth in our portfolio of loans having greater than 36% APRs negatively impacted both our delinquency rate and our net credit loss rate by 20 basis points year-over-year. However, the higher yields on this portfolio more than make up for the credit drag, resulting in overall improved margins. Page 10 provides additional information on the performance of our front book and back book portfolios. The front book ended the quarter at 89% of our total book, compared to 86% at the end of the third quarter. The front book carries a 7.2% delinquency rate, compared to 11.9% on the back book. The back book accounted for 14% of our 30-plus-day delinquency and contributed 40 basis points for a total portfolio delinquency rate, despite representing only 9% of the portfolio at quarter end. The back book contributed 60 basis points for a total portfolio net credit loss rate, and our front book and back book reserve rates are 10.2% and 14.1%, respectively. We continue to be pleased with the way that our front book is performing. Compared to the back book, the front book continues to season at a lower level of loss, despite the growth in our higher-rate small loan business, which will benefit our 2025 results. Overall, we continue to see the benefits of our prudent underwriting in our credit metrics. In the first quarter, we expect our delinquency rate to improve due to the seasonal benefit of payments generated by tax refunds. Depending upon the strength of the tax season, we anticipate that our net credit losses will be approximately $60 million in the first quarter, or a net credit loss rate of approximately 12.7%. As a reminder, our net credit loss rate in the first quarter of 2024 included 270 basis points of benefit from the fourth quarter 2023 loan sale, but we will not experience a similar benefit in the first quarter of this year. Adjusted for the loan sale benefit in the first quarter of 2024, we expect that our net credit loss rate in the first quarter of this year will be 60 basis points better year-over-year. Turning to Page 11, our fourth quarter allowance for credit losses reserve rate decreased slightly to 10.5%. Our strong receivables growth required us to increase our reserves by $7.4 million in the quarter, as we reserved for our lifetime losses upon origination. As of quarter-end, allowance was $199.5 million and assumed a 2025 year-end unemployment rate of 5.1%. Within the quarter end allowance, we maintained a reserve of $1.8 million for 10 basis points for losses associated with Hurricane Helene that should roll through in the second quarter of 2025. Looking to the first quarter, subject to economic conditions and portfolio performance, we expect our loan loss reserve rate to remain flat at 10.5% at the end of the quarter. Flipping to Page 12, we continue to closely manage our spending while still investing in our growth capabilities and strategic initiatives. Our G&A expenses of $64.6 million in the fourth quarter were down modestly year-over-year and were better than our outlook due in part to continued aggressive management of our personnel expense. Our annualized operating expense ratio was 14% in the fourth quarter, 80 basis points better than the prior year period, or 30 basis points better when adjusting for the fourth quarter 2023 restructuring. On a normalized basis, revenue growth outpaced G&A expense growth by 5.8x. In the first quarter, we expect G&A expenses to increase to roughly $65 million to $65.5 million. The increase in G&A expense is attributable to further investments in growth and our strategic initiatives, including the opening of an additional eight branches in the first quarter and increased expenses from servicing a larger number of accounts. We also continue to invest in technology and data initiatives to benefit future performance. Moving forward, we'll continue to meticulously manage expenses while also investing in our core business in ways that will improve our operating efficiency over time and ensure our long-term success and profitability. Turning to Pages 13 and 14, our interest expense for the fourth 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 rates. In November, we closed a $250 million asset-backed securitization transaction at a weighted average coupon of 5.34%, an 85-basis point improvement over our prior ABS deal. The Class A notes of the securitization received a top rating of AAA from Standard & Poor's and Morningstar DBRS, and we experienced significant demand across all classes of notes, including from new investors, again demonstrating the strength of our ABS platform. As of December 31st, 79% of our debt is fixed rate with a weighted average coupon of 4.1%, and a weighted average revolving duration of 1.3 years. In the first quarter, we expect interest expense to be approximately $20 million to $20.5 million, or 4.2% to 4.3% of our average net receivables. 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 receivables. In addition, our balance sheet remains strong, and we continue to maintain ample liquidity to fund our growth. We have nearly $200 million of lifetime loan loss reserves, as well as $357 million of stockholders' equity, or approximately $35.67 in book value per share. We will continue to maintain a strong balance sheet with ample liquidity and borrowing capacity, diversified and staggered funding sources, and a sensible interest rate management strategy. In terms of income taxes, we incurred an effective tax rate of 22.3% in the fourth quarter, and for the first quarter of 2025, we expect an effective tax rate of roughly 24.5% prior to discrete items. On the bottom-line, we expect that our first quarter net income will be roughly $7 million. As a reminder, last year's first quarter net income benefited by $2.6 million from the fourth quarter 2023 special loan sale, or $3.4 million on a pre-tax basis. Of the $3.4 million pre-tax benefit, $1.5 million was attributable to lower credit costs, and $1.9 million was attributable to higher revenue from lower revenue reversal. As we've discussed, we won't experience a similar benefit in the first quarter of this year because we didn't close a similar special loan sale in the fourth quarter of 2024. In addition, this year's first quarter net income will reflect our efforts to lean back into growth. Consistent with the first quarter guidance that I provided earlier, we expect first quarter 2025 revenue to be up year-over-year on higher average net receivables, despite the loan sale benefit in the prior year period. While our credit performance has improved and our adjusted net credit loss rate will be better year-over-year, our net credit losses will be up from the prior year because of the prior year loan sale benefit. Our investment in growth will also increase our provisioning expense in the first quarter of this year, as we expect to largely maintain our portfolio size in the quarter, rather than benefit from a reserve relief from a large liquidation of our portfolio, like we had in the first quarter of last year. We'll also incur incrementally higher G&A expenses to support a larger portfolio and our newly added branches, and interest expense will be higher due to our larger portfolio size and the increase in prevailing interest rates. As Rob noted, we aren't yet providing full year net income guidance, but we're committed to increasing our net income meaningfully in 2025. I will, however, provide a reminder that consistent with typical seasonal patterns, we expect that our net income will be lower in the first half of the year than the second half of the year, as we begin to provision for loan growth and due to seasonally higher net credit losses, particularly as our remaining back portfolio rolls to loss. Net income will then increase materially in the second half of the year as we benefit on the revenue line from a larger portfolio size and on the credit and revenue lines from seasonally lower net credit losses. Aside from investing in our growth and strategic initiative, we continue to allocate excess capital to our dividend and 30 million share repurchase programs. Our Board of Directors declared a dividend of $0.30 per common share for the first quarter. The dividend will be paid on March 13, 2025 to shareholders of record as of the close of business on February 20, 2025. Pursuant to our buyback program, we repurchased a little over 100,000 shares of our common stock in the fourth quarter at a weighted average price of $33.83 per share. Finally, I'll note that we provide a summary of our first quarter 2025 guidance on Page 15 of our earnings supplement. That concludes my remarks, and I'll now turn the call back over to Rob.

Thanks, Harp. Once again, I'd like to thank the Regional team for its excellent work in 2024. We're proud of how we performed and of the results we delivered for our shareholders. In the fourth quarter, we generated strong portfolio and revenue growth, continued to improve our yields, operating efficiency, and portfolio credit performance, and posted solid bottom line results. The quarter capped an impressive year in 2024, where we materially improved our operating and financial metrics on nearly all lines. Looking ahead to 2025, we're excited that our portfolio credit quality and strengthening macroeconomic conditions are conducive to a return towards more normalized growth. We'll pursue a minimum of 10% portfolio growth in 2025 while continuing to invest in our strategic initiatives. These efforts will enable us to improve our net income and returns in the near and long-term. Thank you again for your time and interest. I'll now open up the call for questions. Operator, could you please open the line?

Certainly. We'll now be conducting a question-and-answer session. [Operator Instructions]. Our first question is coming from John Hecht from Jefferies. Your line is now live.

Your product mix between the large and smaller installment loans has been pretty consistent for a while. As we go into 2025, is there anything we should think about in terms of mix-shift in products, including the auto-secured product?

Hey, John. Thanks for the question. We're going to continue to lean into the auto-secured business. Our barbell strategy is working very well. That growth in the auto-secured business is balancing out the growth in the higher rate small loan business, which, as you know, is kind of the fuel for our business to graduate those customers into large loans. So our strategy going into 2025 is going to be consistent with what we did in 2024.

Okay. And then, I know the front book is getting better relative to the back book, but maybe any, I guess, details you can share with us on maybe the '24 vintage versus the '23 vintage? Is there any early looks to the relative performance of that?

Yes. I mean, I would tell you that, you know, the newer originations that we're putting on are performing, right in line with our expectations, which is good. And I think you can kind of see that, again, on the front book-back book split that we provide in the supplement. I mean, the delinquencies on the front book, and again, delinquencies are still seizing on the front book at 7.2%, and on the back book it's 11.9%. And even the reserve levels is indicative, we're at 10.2% on the front book and 14.1% on the back book. And, of course, we reserve for lifetime losses, so that's kind of indicative of how the portfolio is performing. So, yes, we're happy about the progress and tightening of the book and how that's flowing through the numbers. I mean, naturally, when we move up into the higher rate business, that is putting additional pressure, on the small loans, delinquencies, and losses, but we're getting paid for it because of the higher yield.

Okay. And then any comments on, how interest rate -- if we get one versus more than one rate cut this year, what that would -- how that might impact you guys on a marginal perspective?

So, we've obviously calculated that, John. It's not something that we're going to disclose, but we've looked at 25 basis points, plus or minus, on both our variable and our fixed rate debt if we were to enter the market for new fixed rate debt in 2025, which we plan on doing.

Thank you. [Operator Instructions]. Our next question is coming from David Scharf from Citizens JMP. Your line is now live.

Hey, Rob, wondering if you could just get a little clarification on or really specifics on what indicators you're seeing out there that, give you conviction about consumer health improving. And I primarily ask because we've had a number of lenders in the last week or so, still express some caution and I think in the words of one of them, a big competitor of yours, they said, we're not necessarily seeing an improving consumer. We just have better consumers on our books after two years of credit tightening. And I think they were very clear to draw a distinction between those two. But you seem to be expressing a fair amount of confidence that it's more than just your credit tightening that, credit quality on the ground is improving. Are there any green flags you can highlight for us, like what specifically you're seeing in the consumer? Is it either savings rates, payment rates, anything to help us out?

So, David, great question. I think it's both, right? And it's a little hard to determine, how much of one versus the other is coming through your portfolio. But certainly tightening means that we put better credit on. And so that's consistent with whatever the other competitor said. I think when we look out going forward and we kind of look at, kind of the progression of what's happened this year, I mean, if you look at unemployment still low, you look at real wage growth, I think the open jobs have come down a little bit to the $6 million or $7 million range. But again, for our customer set, it's over indexed that way. I've heard a thesis out there and look, I'm not going to put a lot of weight on this one. But, if immigration is slowed and there's less workers coming in for lower paying jobs, that's going to put more pressure on upward on wages for our customer set. So I think that there's a lot of things in the backdrop. We're being balanced in our growth, with a 10% growth, I think, given the environment and the macro environment is pretty good. But of course, we're very mindful of other things that could happen, whether impacts of tariffs and other things. And we have the ability to adjust very quickly if we see anything kind of start to cause pressure on our portfolio. So by and large, I think that the customer is healing. They certainly haven't completely gotten through the hangover effects of the high inflationary period. And there's still pockets of inflation. As you know, inflation is not back down to the 2%. So we're watching it all. But I think from where we're at, we're feeling good about putting on a minimum of 10% in our growth. But we have the ability to grow much faster. But I think we temper that with all the things I just said.

Got it. Got it. Now, it all sounds very constructive. And maybe follow up on the competitive front. We've obviously seen a lot more private credit funds invest in the personal loan space in the last sort of 18 months. I'm curious, in your small loan category, that higher yielding paper, are you seeing any additional sources of funding come into that kind of asset class? Or is that a more benign area to be competing in right now?

Well, it's hard for us to, I mean, on the funding side, what funding is coming in to support competitors. But when we look at what's happening competitively in that space, I mean a lot of the folks in the installment loan space cap themselves at 36%. Obviously, there's players that are triple digits. But in the space that we play out, which is, I would call it marginally above the 36% rate, which we believe is appropriate for our customers to give them access to credit and help them improve their credit profile and graduate them to a lower rate loan. I don't, we're not really seeing any change in the competitive dynamics there in terms of pressure. I think we could grow that space as fast as we wanted to. But we're being smart about it.

Got it. Got it. And maybe just one last one, sort of following up on that thought, that this is not meant to be a loaded question, but you did a good job of highlighting the tradeoff between growing faster and some of the accounting realities around CECL provisioning. But if you kind of set aside the accounting, what are some of the -- ignoring the accounting and volatility, what are some of the factors that sort of drive your decision about maybe not striking while the iron is hot as much as you could? I'm trying to get a sense.

I get it. I mean, look, obviously there is the optics of the timing from an accounting standpoint, which I'm not convinced the market has ever really looked through and expanded, the PEs and the installment loan space for the CECL effect. I think it's -- you're naturally a higher risk business in subprime or near subprime, but you're reserving everything day one. And I don't think PE expansion has gone along with the accounting chain. But putting that aside, I mean, look, it's always a question of having capital to grow, which we do. And Harp's talked about the ample room on the balance sheet to grow the business. So we're not constrained there, which is good. And then it's really about, execution in terms of how much investment dollars we put to work relative to the timing of the return back on those investment dollars. And I think we do a good job of balancing that out. But we also know that we can flex up when we feel the time is right to flex up. I mean, I'll give you a perfect example. In the fourth quarter, we flexed up and added more branches, put that in, additional branches into the first quarter. And those branches on average, in a couple of years are going to be worth -- have $7 million in balances. So, we're just being smart about how we invest and make sure we get the returns in a timely way for those investments. And I think it bodes well for the future.

Thank you. Next question today is coming from John Rowan from Janney. Your line is now live.

Just to be clear, you are guiding for net income to be above $41 million that you reported in 2024. Is that correct?

We've only guided to first quarter income, John, and we've given a specific number on that this quarter, which we've not done previously. The only thing I can say right now is that we are committed that net income, if all of the factors that are currently at play currently work out the way that we think they are, that we would be higher in net income meaningfully, as we said in the prepared remarks.

Yes. I mean, I think we said, John, look, we could grow the net income up to [30%] [ph], but we're being mindful of the growth effect on that as well. And so that's why we kind of laid it out the way we did.

I thought you said that we were going to grow net income in 2025. I didn't hear that correctly.

Yes.

No, we did. We said we would --.

We would grow. But we also said that, this business could grow as much as 30%, but we pointed out the growth effect from CECL on that, so.

No, no, I get it. You had $41 million of net income in 2024, and if you're growing, that means you would have to be somewhere north of that for 2025.

Correct.

That is correct.

That's what I wanted to clarify. Okay. And then, as far as G&A expenses, I mean, is $65 million, give or take a little bit, is that kind of the right run rate to use going forward?

Yes. $65 million to $65.5 million is the guidance that we just gave.

For first quarter.

For first quarter, correct.

Okay. And then, is there any -- one of your peers guided to kind of just a natural drift down in the cost of funds, even if rates stay the same as, some of the prior, fixed cost stuff rolls off? Is that, is there any type of benefit that you guys have from a funding profile, just static, if forget the differences in funding one product versus the other, just static if rates stay the same?

So, I think what we have to think about for us is our securitizations that we have put on in the past that would be maturing, and those would reset, John, at a higher rate than what we put them on. If you look at our cost of funds, we've done a really good job of keeping them around 4% for several quarters. We are now doing new securitizations, and we had a really good print on our last securitization, but as old securitizations that are around 3% mature, you will be putting them on at a higher rate. However, the other thing to remember is, variable rates should come down depending upon how many rate cuts you believe are going to happen in 2025. So, you will see our fixed, our securitizations at the fixed rates resetting at higher rates than what they've been at historically, but you should see variable rate debt come down if the interest rate curves, reflect any cuts.

Yes. And John, the other thing I'd say is, we've done such a good job of holding our cost of funds and locking in funding early that we never went up like some competitors. And so the coming down is not in our book because we're fixed at a low rate. So, there'll be a natural creep up in cost of funds, of course, mitigated depending on what the Fed does over the course of the year.

Thank you. Next question is coming from Vincent Caintic from BTIG. Your line is now live.

Going back to credit, so, I mean, you sound more positive about the new originations that you're getting in all the different categories of your originations. I'm just wondering if you could talk about sort of the credit reserve rate that you're expecting on these new originations, and I'm guessing you should be expecting both credit improvement as well as maybe the credit reserves coming down over the course of 2025. So, just wanted to get your views on that.

Yes. What I would tell you is, I mean, we guided in the first quarter, I think, to stay flat to the fourth quarter. What I would tell you is this. This first quarter is the most impactful quarter for the industry because of tax season. And, I think that that plus, obviously, just getting another quarter's worth of understanding what's happening from a macro standpoint as well as what's happening from a policy standpoint in D.C. I think will help us give you kind of better guidance on that. Now, I think if you look at the reserve levels that we have on the front book at 10-2, you kind of see, and that's a lifetime, reserve, you can kind of see that's kind of where you start evolving to once the back book comes off. So, that's kind of what I would say to you.

Okay. Great. Thank you. And then, I guess, relatedly, so you provided the commentary that the first half, or I should say the second half net income is higher than the first half net income, part of the seasonality. I guess, should we be thinking that the growth rate on your originations, you would hit the, I guess, the expected level of growth rate, so that's where we're seeing that level of, I guess, net income starting to come in where the reserves aren't overpowering it yet at that point?

Well, I guess where I would put it is, so the first quarter, we got into some runoff in the portfolio, which is a lot less runoff in prior years. And part of that is because of the new branches we built and building up the portfolio. And so, I think you got a few things, going through the dynamics of the profitability. One is, just the portfolio growth that -- or the lower runoff that we have in the first quarter, but then when you, on top of that, the rest of the growth will be in the last three quarters of the year. But, if you look from a credit standpoint, as the back, as the seasonal increase in the first quarter for NCLs moves back down post-tax season, and you see back book continue to run off, you're going to see the benefit on the bottom line in the second half of the year from the portfolio, as well as the better credit performance.

Okay, perfect. That makes sense. And the last one for me, since you mentioned a couple of times about the impact of the tax refunds in the first quarter, if we could get what your views are for this year, if there's anything unusual or anything incremental from that. Thank you.

Really too early to tell. I would say we're only just starting to hear on some of our calls about tax refunds. So, we're a few weeks away from starting to get any kind of indication on that. So stay tuned on that.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Yes. Thank you, operator, and thanks, everyone, for joining. I think the takeaway here is from my perspective, our perspective, fourth quarter results is very much indicative of where we are as a business going in 2025. We had solid bottom line growth in 2024. We increased our book value by 8% to $35.70, paid out $1.20 dividend per share, announced the $30 million buyback, and purchased about $3.5 million of that in the fourth quarter. We had record E&R and revenues. As I said, we expect a minimum 10% E&R growth this coming year. And, of course, we talked about the growth effect of CECL. Our credit front book is performing as expected. Our barbell strategy is working well because we balance out the low-risk auto-secured with the higher-rate small loan business to drive returns. Continued expense discipline while investing in growth. And, look, being down, we're down in expenses versus prior year. And even without the restructuring, we held expenses pretty modest growth year-on-year. And then, of course, strong balance sheet management. And as Harp said, cost of funds have been hovering around 4% for a lot of quarters. It's actually down 10 basis points versus third quarter and only up 20 basis points versus last year. So all those drivers are putting us in a great position. And we're well placed, I think, to continue our momentum into 2025. So thanks again for joining and have a good evening.